Robert Fitzwilson: “History says that once set in motion, fiat money schemes cannot be reversed. Tragedy and collapse are the terminal destinations.”
Today 40-year veteran, Robert Fitzwilson, wrote the following piece exclusively for King World News. Fitzwilson, who is founder of The Portola Group, stated, “History says that once set in motion, fiat money schemes cannot be reversed. Tragedy and collapse are the terminal destinations.”
Below is Fitzwilson’s exclusive piece for KWN:
“Andrew Dickson White was a professor of history in the second half of the 19th century. He also convinced Ezra Cornell to create the great university which bears his name. White became the first president of Cornell. The goal was to create “an asylum for science where truth shall be taught for truth’s sake”.
Economy Turns US, Japan Into Ugly Stepsisters
Japan is the canary in the US mine. The collapse of Japan’s super bubble in 1990 did to Japan what the collapse of the dot.com and real estate bubbles did to the US. Same story, same end
Name that country: surging debt, a rapidly falling currency, a sclerotic political system, and a central bank pulling out all the stops to revive a stagnant economy.
If you guessed either Japan or the United States, both would be the correct answer. This week, the similarities between two of the world’s economic heavyweights became more apparent, with both starting to resemble ugly twin sisters.
Japan reported a surprisingly deep 0.9 percent contraction in the third quarter, the first time in the year. Meanwhile, initial jobless claims in the U.S. surged to their highest in more than a year, and aclutch of companies announced mass layoffs – the latest sign of how slowly the economy is growing
With the world fixated on the euro zone’s debt troubles, Japan this week provided a stark reminder that it’s vast economy remains a basket case – which puts it in dubious company alongside Europe and the United States.
“It’s the U.S. to Europe that’s the best comparison, but in terms of levels of debt, comparing debt proximity to the ceiling, then it’s a U.S.-Japan race,” said Andrew Wilkinson, chief economic strategist at Miller Tabak.
“The Fed, Having Used Its Bazookas, Is Now Down To Firecrackers”
Below is David Rosenberg’s take on the current oversold market rip squeeze fest, and where we go from here:
Oversold equity markets are recovering to start off the week and defensive plays like core government bond markets are seeing some profit-taking in the process. US fiscal policymakers said all the right things at Friday’s 70 minute meeting and investors are taking solace from early prospects that we won’t fall off the cliff (President Obama said in an interview overnight in Bangkok that “I am confident we can get our fiscal situation dealt with”). Platitudes matter in a market seemingly on tenterhooks. Gifts matter too. The President gave John Boehner a bottle of Brunello di Montalcino as an early birthday present is a classic display of the horse trading that will take place to bring a short-term deal to fruition (see page 4 of today’s FT). Mr Boehner would be well advised to split the vino with his GOP backbenchers who don’t seem to share the President’s view that he has a strong mandate to pursue higher top marginal tax rates on income and capital. Either way, austerity is coming our way, it’s just a matter in what manner and by how much, and whether it becomes an orderly or disorderly process. The fiscal cliff is really a bit of a ruse in that respect, but the key here is that years of fiscal profligacy is coming to an end and the Fed at this point, having used its bazookas, is now down to firecrackers. The economic outlook as such is completely muddled and along with that the prospect for any turnaround in corporate earnings.
In the near-term, investors don’t seem to be in a mood to take any chances in terms of facing a higher tax bite on their winnings— see Investors Rush to Beat Threat of Higher Taxes: Weighing on Markets on the front page of today’s NYT (if left unchecked, the top rate on dividends will jump to 39.6% from 15% and capital gains go to 20% from 15%. And there is the additional 3.8% surcharge on most forms of investment income to help defray the costs of Obamacare). While we continue to favour income-equity, utilities are down 9.4% from the October highs and the telecom sector is down closer to 11%, so at the margin, there does seem to have been some effects from the expected tax shifts (ordinarily, these sectors would be outperforming based on the decline in bond yields over the past month, but this time around they have just performed in line with the market).
James Turk – This Is The Chart That Every Investor Needs To See
Today James Turk sent King World News exclusively a chart that every investor needs to see. It really is true that a picture is worth a thousand words. But first, here is what Turk had to say about the the markets and what is happening behind the scenes: “What a great way to start the week, Eric. Even the stock market is rising, possibly because it was due for a bounce after the pummeling it has taken lately. But it probably bounced because the Federal Reserve has started the printing presses now that the election is over.”
James Turk continues:
It is beginning to pump some money into the system. Last week it turned $42.5 billion of debt into dollar currency – what is called monetization. Only $2 billion was new cash currency, which are the dollar notes that we carry in our pocket. The rest was deposit currency, which are dollars that circulate within the banking system.
PAUL KRUGMAN: BRING BACK THE 91% TAX RATE
Needless to say, it wasn’t really innocent. But the ’50s — the Twinkie Era — do offer lessons that remain relevant in the 21st century. Above all, the success of the postwar American economy demonstrates that, contrary to today’s conservative orthodoxy, you can have prosperity without demeaning workers and coddling the rich.
Consider the question of tax rates on the wealthy. The modern American right, and much of the alleged center, is obsessed with the notion that low tax rates at the top are essential to growth. Remember that Erskine Bowles and Alan Simpson, charged with producing a plan to curb deficits, nonetheless somehow ended up listing “lower tax rates” as a “guiding principle.”
Yet in the 1950s incomes in the top bracket faced a marginal tax rate of 91, that’s right, 91 percent, while taxes on corporate profits were twice as large, relative to national income, as in recent years. The best estimates suggest that circa 1960 the top 0.01 percent of Americans paid an effective federal tax rate of more than 70 percent, twice what they pay today.
A ‘Taxing’ Challenge: Fiscal Cliff Negotiators Are Facing High Hurdles
It’s entirely possible that lawmakers and the White House will reach a deal that staves off an avalanche of tax increases and deep cuts in government programs before a Jan. 1 deadline. To do so, however, they’ll have to resolve deep political and fiscal disagreements that have stymied them time after time despite repeated promises to overcome them.
For many economists, corporate leaders and politicians, it’s unconscionable to let the government veer over the “fiscal cliff,” which could drain $500 billion from the still-struggling economy next year. But even President Barack Obama says it could happen.
“Obviously we can all imagine a scenario where we go off the fiscal cliff,” the president said last week. The likeliest cause, he suggested, would be “too much stubbornness in Congress,” especially on the issue of taxes.
Many Republicans in Congress counter that it’s Obama who is too unyielding.
Global Shadow Banking System Rises To $67 Trillion, Just Shy Of 100% Of Global GDP
The shadow banking industry has grown to about $67 trillion, $6 trillion bigger than previously thought, leading global regulators to seek more oversight of financial transactions that fall outside traditional oversight.
The size of the shadow banking system, which includes the activities of money market funds, monoline insurers and off- balance sheet investment vehicles, “can create systemic risks” and “amplify market reactions when market liquidity is scarce,” the Financial Stability Board said in a report, which utilized more data than last year’s probe into the sector.
“Appropriate monitoring and regulatory frameworks for the shadow banking system needs to be in place to mitigate the build-up of risks,” the FSB said in the report published on its website.