Our Daily Bread

There can be little doubt is that Adam Smith’s chief concern was not so much with what man might occasionally achieve when he was at his best but that he should have as little opportunity as possible to do harm when he was at his worst. It would scarcely be too much to claim that the main merit of the individualism which he and his contemporaries advocated is that it is a system under which bad men can do the least harm.

- Frederich Hayek, “Individualism and the Economic Order”, 1948 University of Chicago Press, pg 11.

 

As readers of this blog know, one of my strongest objections to Keynesian economics is that it facilitates, and indeed almost compels, massive malinvestment over time.  Austrian economists usually explain the concept of malinvestment by noting that during times of monetary and credit expansion, the “easy money” available as part of a central bank-fueled spending binge encourages firms to make unwise investments, reduces the discipline with which they might normally allocate funds to various projects, and essentially takes a scarce resource (capital) and facilitates poor spending decisions by making it appear to be less scarce than it actually is. 

As Ludwig von Mises wrote:

The popularity of inflation and credit expansion, the ultimate source of the repeated attempts to render people prosperous by credit expansion, and thus the cause of the cyclical fluctuations of business, manifests itself clearly in the customary terminology. The boom is called good business, prosperity, and upswing. Its unavoidable aftermath, the readjustment of conditions to the real data of the market, is called crisis, slump, bad business, depression. People rebel against the insight that the disturbing element is to be seen in the malinvestment and the overconsumption of the boom period and that such an artificially induced boom is doomed. (Ludwig von Mises, Human Action: A Treatise on Economics, 1966)

In short, I tend to think of malinvestment as spending capital unwisely on the (false) assumption that capital is plentiful and easily obtained, when in reality that capital represents a finite amount of stored value that is (contrary to the market signals given by easy money) hard-earned and not easily replaced. In the private sector, we might point as an example to the imprudent buyout of a competitor at higher prices than can reasonably be recouped from the acquisition over the long term.  In the public sector, virtually any government boondoggle would suffice as an example, from “community development” projects to taxpayer-funded bailouts which always seem to go over budget and yet manage to underperform prior claims of economic benefit.   

OK, all of this is a bit dry and esoteric, but it is necessary background for the two points I want to make in this essay.  The first point is that I don’t think people truly understand the scope of the problem that modern central banks and politicians have created for us. We are now in a cycle of malinvestment that has lasted literally for generations, and hence has created worldwide malinvestment on a scale never before seen in human history.  The second point is that the depth of this malinvestment goes well beyond government spending and the odd “bridge to nowhere” or the thinly-stretched balance sheets of multinational corporations.  The scope of malinvestment has profoundly shaped generations of people – human capital being the most precious capital of all – and has left enormous swaths of society ill-equipped and ill-trained to actually produce anything of value, once the easy money spigot is turned off. 

 

The scope of malinvestment

The examples I am going to use are tailored to US readers, but I suspect that anyone living in an “advanced” western country will recognize exactly what I am talking about here.  Look around at the state of the economy in your city, county, or neighborhood.  Chances are that you see “For Rent” signs on many empty buildings that used to house businesses. You see EBT cards being swiped at the grocery counter, and a general economic lethargy that is impossible to deny despite the incessant attempts to convince you otherwise on the evening news.  Chances are you know somebody who has lost their job, and they will be very quick to tell you that those jobs are NOT being replaced.  Many of the people you meet on a daily basis are quietly working two jobs at low wages and still are barely managing to survive. In short, nobody in their right mind would confuse our current situation with healthy economic prosperity.

Now think about this:  the situation you see around you is what 17 trillion in debt, borrowed from the future to “stimulate” the economy of the present, has managed to buy. Six trillion of that debt has been run-up in just the last five years.  We have borrowed from futurity such an enormous amount that it will not, in all likelihood, ever be paid back.  And this is what we have bought-  this grueling existence with 45 million on food stamps, jobs disappearing or being replaced with temporary or part-time menial labor, this walking dead economy.  These are the GOOD times, purchased by borrowing from future prosperity.  Think about that long and hard, and if you ever truly wrap your mind around this it will keep you up at night. 

I have never read a reasonable estimate for the scale of malinvestment we currently have, perhaps because the scope of the problem makes it all but impossible to quantify. Or perhaps it is simply that the implications of such a study would be nearly too frightening to contemplate. What I do know is that it represents an enormous opportunity cost that will not be easily recouped, and that the transition to efficient capital/resource allocation suggests a substantially lower standard of living for a very long time.

 

Give us this day our daily bread

One aspect of this malinvestment that often gets overlooked is the human component.  As mentioned earlier, the most precious capital any society has is its human capital - the aggregate of all the education, capabilities, skills, and ability to produce- contained within the population.  Just like financial capital, human capital can be misallocated as well, and I would propose that we have seen a massive malinvestment in human capital thanks to 70 years of Keynesian policies.  This goes far beyond simply “We have too many people doing X job and not enough doing Y”. To a degree perhaps never before seen, tens of millions of people over multiple generations have been trained and educated to perform jobs that literally would not exist sans easy money. Many others have been insulated from the immediate repercussions of their behaviors or choices to the degree that they now possess such paltry skillsets as to be virtually unemployable.  To put it bluntly, we probably have a larger proportion of our population that is unable to produce anything of value than any civilization in history. This malinvestment in the citizenry (and resultant lack of productive or profitable skills) extends from the college educated Wymyns Studies major to the high-school dropout dependent on welfare benefits whose skills may not even merit minimum wage employment .  At the same time, large swaths of hard-working, well educated people may have spent their entire lives training for professions that literally would not exist outside the rarified milieu of an easy money economy.

This is not just a temporary case of “monetary solutions failing to solve structural problems” as many Austrian economists would assert.  Such a formulation downplays the true generational nature of the structural problems- decades of malinvestment  has left us with a large numbers of people either unable or untrained to produce much of anything of genuine value.  Not to put too fine a point on it, but what exactly are these folks going to do to earn their daily bread? To say that we may have a difficult transition to a different monetary regime if/when the current Keynsian debt-based system runs its course, is in my opinion a gross understatement.  Such a financial transition may well suggest a lost generation, or even generations, in terms of human capital. It may suggest social or political implications that are rather bracing to contemplate.

.    .    .

The phrase “The End Of The Great Keynesian Experiment” implies a great deal more than just a financial reset.  Bad decisions have consequences, and 70 years of bad decisions have compounded into a rather monstrous situation.  How this situation will ultimately be resolved is anyone’s guess, but I suspect that the actual costs – including the human costs - of Keynesian economics will be something that we will be paying for, for a very long time.  Prepare accordingly.

140 Comments

proton777's picture

QE can't end.

QE can't end.

QE can't end.

Keep repeating that.

ivars's picture

Quote:QE can't end.QE can't

Quote:
QE can't end.

QE can't end.

Keep repeating that.

Well it will this month. Is that all we have got?

ag1969's picture

Karl is fired up

An X-ray shouldn't cost more than $50.

But it's $500, and even if you actually have the insurance under Brosurance, otherwise known as "Obaminationcare", you are going to get the entire $500 bill anyway.

Why?

Because you have a $5,500 deductible, and until you pay that $5,500 out of your pocket you get nothing from the so-called "insurance" except the monthly bill that automatically comes out of your checking account.

And if you don't have that $5,500 unless you're literally dying right here, right now the doctor or hospital will not see you -- until you prove you can pay him first.

If you thought this wasn't what you were going to get you're not very bright.

In fact, you're a damned sheep, as you've been warned -- repeatedly -- that this was exactly what you were going to get by myself and others since 2009, and further, you were also given a political path forward to stop this crap and tear down the monopoly pricing schemes and scams that led to this situation over the last 30 years, all of which came about due to the very use of government force you endorsed to ram this crap up all of our butts.

http://market-ticker.org/akcs-www?post=227272

murphy's picture

@ag

I needed an MRI on my neck. I have been/currently self insured for years (self-employed). Since I have a $5000 deductible I didn't want to have one done knowing it was going to cost me out of the pocket.

I found a place locally and asked how much? They said $1300 with insurance. I asked what if I paid you directly?

Answer: $350. Better yet, I was able to use my self funded HSA to pay for it.

Now for the important part . Do you have any remedy for slightly herniated discs?

why do I even bother's picture

Status Quotians

Get down, deeper and down

Down down, deeper and down Down down, deeper and down Get down, deeper and down

I want all the world to see To see you're laughing And you're laughing at me I can take it all from you Again, again, again, again, again, again, again

Deeper and down Down down, deeper and down Down down, deeper and down Down down, deeper and down Get down, deeper and down

I have all the ways you see To keep you guessing Stop your messing with me You'll be back to find your way Again, again, again, again, again, again, again

Deeper and down Down down, deeper and down Down down, deeper and down Down down, deeper and down Get Down!

ag1969's picture

Murph

I would try increasing to 36 holes/day.  That should help!

achmachat's picture

ag1969

...that is absolutely messed up!

this basically means that you don't have insurance anymore on top of being forced to pay a hefty monthly "tax".

you know how it is over here? I have to pay around 150USD per month. With that amount my entire household is insured, no matter how many kids I have. And we don't have anything like a deductible! I take my kids to the emergency service of the hospital (weekends or at night) or to the pediatrician when they're sick, pay the bill (usually around 45USD), later send that bill to the insurance "central" and a week later or so, almost the complete amount is back on my bank account. Same thing with prescription drugs, except that the part I have to pay is automatically calculated at the pharmacy, usually nothing to a few Euros.

edit: sorry... I just can't get this out of my head. What kind of nightmare is it when you have to think twice before getting medical help for your sick kids!? I grew up with the image of the USA being the pinnacle of western civilization. What happened!? 

¤'s picture

murph

Glad to hear you caught a break on the mri.

Mildly herniated discs (from an event) take several years to stabilize and heal up somewhat.

Disc degeneration is something different because it's ongoing. Trying to gradually and gently strengthen those surrounding muscles is helpful...just don't overdue it.

Easier said then done. Good luck!

PS...when in doubt...and pain...tequila never hurts cool

So It Goes's picture

Extended benefits

Somehow I got on Barbara Boxer's friend list - she wrote me an email with a link to her speech in Congress about extending unemployment benefits:

Dear Friend:

Today, I spoke on the Senate floor about the need to extend emergency federal jobless benefits, which expired December 28. There are people out there that are at their wits' end – holding their lives together, not knowing if they can pay the rent, not knowing if they can go to the grocery store, not knowing if they will be homeless, and not knowing what the future holds. The least we can do in this chamber is stand up and fight for them.

More than 1.3 million jobless Americans – including 222,000 Californians – are counting on Congress to do the right thing and continue this critical assistance to help struggling families get back on their feet. To watch my speech, please click here.

Sincerely,


Barbara Boxer
United States Senator
 
 
 
My reply follows:
 
1.  Why don't you try to balance the budget first?  Where is the money to come from to pay for the extended benefits?
2.  Why don't you bring up the subject of population control?  It was in the public discourse in the 1970s.
3.  What happened to your plans on starting another war in Syria?  You told me you were going to watch the situation carefully because they were murdering children with chemicals.
4.  Why don't you enforce the law for the too big to fail banks?  They just get fined again and again without admitting to guilt and no one goes to jail.  
5.  The band-aid you are suggesting with extended benefits will not stop the hemorrhage.  Maybe you will be out of office by then so that when the whole corrupted structure collapses you can claim innocence.
 

The masses are getting restless sad

So it goes.

tyberious's picture

Sage advice

“Don’t wait to buy gold and silver. Buy gold and silver and wait.”

https://www.goldcore.com/Global_Currency_Reset_Amero_The_Gold_Silver_Ratio_and_150_Silver

lobal Currency Reset, Amero, The Gold Silver Ratio and $150 Silver

Published in Market Update  Precious Metals  on 8 January 2014

By Mark O’Byrne

 

3

Today’s AM fix was USD 1,226.50, EUR 902.50 and GBP 747.37 per ounce.
Yesterday’s AM fix was USD 1,237.50, EUR 907.92 and GBP 754.44 per ounce.

Gold fell $6.50 or 0.52% Yesterday, closing at $1,232.30/oz. Silver slipped $0.30 or 1.49% closing at $19.87/oz. Platinum dropped $3.01, or 0.2%, to $1,409.74/oz and palladium rose $3 or 0.4%, to $738.25/oz.


Gold Silver Ratio - 1960-Today

Gold edged down in London for the second day ahead of the release of the U.S. Federal Open Market Committee minutes. Strong support is at $1,180/oz which could turn into a double bottom and resistance is at $1,250/oz and $1,270/oz.

FXStreet.com's Dale Pinkert interviewed Research Director, Mark O'Byrne on Monday about the current state of the gold and silver markets, the history of paper currencies, a global currency reset, the amero currency, the gold silver ratio and silver rising to $150/oz in the coming years.

Another topic looked at was bail-ins by banks of individual creditors becoming one of the most under appreciated risks of our time and noting Poland's recent government confiscation of pensions.


Silver in U.S. Dollars, 5 Year- (Bloomberg)

They discuss how the gold silver ratio throughout history has been 15:1. Today it is at over 60:1 (see chart) and GoldCore believe it will revert to the mean.

There are a number of reasons that silver should revert to the long term historical mean but the two primary ones are the fact that geologically in the earth’s crust  there are fifteen parts of silver to every one part of gold.

The other reason is that silver is used in many industrial, technological, medical applications today and since the Industrial Revolution a huge amount of silver has been used up.


Silver in U.S. Dollars, from 1970 - (Bloomberg)

It is for this reason that we are more bullish on silver than on gold in terms of price. We continue to believe that silver will surpass its inflation adjusted high of $150/oz in the coming years.

It was noted how  international storage of coins and bars is becoming a popular diversification for U.S. citizens in Zurich, Singapore and Hong Kong.

Dale asked some good questions and had a great expression that we had not heard before “Don’t wait to buy gold and silver. Buy gold and silver and wait.”

realitybiter's picture

miners = question for Turd

continue to be resilient. SSRI, AG nearly unchanged. Surprisingly strong compared to the metal.

TURD: I listened to Dr Dave's interview with you, the medical doctor, and Jim Garrow. It was a great interview session on all counts. If Jim Garrow is for real we have much bigger fish to fry than JP Morgan and the occasional price manipulation. Breitbart, Clancy, and Hasting's murdered by the Prez? A nuclear emp - directed by the Prez, narrowly avoided last Oct (maybe THAT is why Ocare sucks so much - he never thought we would still be here!)
If Garrow is only a quarter right, we are at an insane amount of risk. My question to you - I love Dave Janda. He seems like the real deal. Do you think that Janda believes Garrow? Do you believe Garrow?
My BS meter says, "naw......" but I have a hard time believing that Janda would interview a total crackpot. If he is right than O and his puppet master Jarret makes Hitler look like Mother Theresa.

Thoughts? If I get an answer I subscribe.....

TreeTop Dweller's picture

Slightly Herniated Today

Murphy

Try the Egoscue Method, you might find one of his books at the library or checkout Amazon:

The Egoscue Method of Health Through Motion: Revolutionary Program That Lets You Rediscover the Body's Power to Rejuvenate It Paperback

http://www.egoscue.com/

Always open to new ideas to rejuvenate your problems by the power of your own body...

TtD

Pining 4 the Fjords's picture

Murph

Very sorry to hear that, my friend.  Fortunately, I suspect you have some nice stores of booze that could come in handy in this situation.  Also, don't overlook 1. finding someone with a bumper sticker that pisses you off, then 2. getting in front of them and hitting the brakes, then 3. you grab the neck, howl, and 4. hire the meanest bulldog lawyer you can find.  Then 5. visit the coin shop.

Maximillion's picture

UK economy improving LOL

Excellent post, and here's an apt example of 'Give us our daily bread', from the UK, which goes only to prove that Detroit's not the only city in trouble!

http://www.expressandstar.com/news/2014/01/08/spending-is-stopped-at-troubled-wolverhampton-city-council/

Cash-strapped Wolverhampton City Council will be down to its last £620,000 in a year without deep cuts - and may not even be able to empty the bins.

The most blatantly obvious shortcoming, as to how Keynesians can spend, which has no doubt led to their financial predicament, particularly as I can remember how vibrant the city was only 30years ago, is the part 'to just £620,000, the equivalent of taking 15 children into care...'

So the cost of taking one child into care, according to the leader of the Labour run Council quoted, is £41333 each, yet sheeple joe public parents manage to keep each of their children on only £3200 per year in child benefit. That's one helluva extra cost which the Council pays out, and no doubt feels represents value for money.

ancientmoney's picture

@realitybiter re: Garrow stuff . . .

I am interested in hearing Turd's reaction to him as well.  Here is a link to another writer (Garrison) who wonders if Garrow is loony--or correct.

It's crazy, if you think about it, to have to even wonder if a standing U.S. prez would actually nuke/EMP his own people.  But with this one, it would not surprise me. 

It seems clear that three nukes went missing, and I haven't heard that any were found yet.

And, it is true that three very high ranking military officers directing the nuclear weapons program were canned right afterward, supposedly for being drunken gamblers.

http://freedomoutpost.com/2013/11/obama-plan-nuke-america-fall-jim-garrow-completely-nuts/

realitybiter's picture

Murph - disc

34 years ago I rupture my disc between L4 and 5 (generally the highest stressed disc). Total rupture. half remained in the vertebrae, half went into the spinal column. The material that left the vertebrae pressed against my nerves so badly that I lost all feeling in my right leg below the knee. Total paralysis. I had an MRI and it was as obvious as a sunrise what happened. They said I needed surgery to remove the material and clean up the remaining disc, maybe consider a fusion (this was 1989). I chose to do nothing. I was running when I could back then. So that of course, stopped. The feeling in my leg came back at about 95% fairly soon - 6 hours...today my big toe is still numb. I simply worked my way back. I never visited another doctor for this....I started riding bikes. I stretched - particularly the hamstring. I even started running again a few years later - completing endurance runs (Grand Canyon, Yosemite, Death Valley 30 milers). I rode competitively for years. Today I still play my once a week old man basketball game....

The body can heal itself....but you have to let it. It is very important to move. Walk. PT works. Stretch often...the hamstring is a powerful muscle and needs to be reeled in...

I have a good friend who is an ortho and he told me that he chose hips, not backs because back surgery is a waste of time nearly 90% of the time. At best, it gets people back to where they would have gone with nothing and at worse it creates a TON of scar tissue - with unpredictable outcome - and decreases mobility...

and NEVER ever do heavy lifting that a young buck can do instead....
just 2c from someone who has been there.

murphy's picture

Thanks all

I think I've got the remedy

1) play 36 holes

2) on the 37th hole drink a bunch of tequila

3) get in my car go to the library and check out The Egoscue Method

4) while driving home slam on my breaks and let the guy behind rear end me

5) call my brother in law the PI lawyer and schedule an appointment with one of his "doctors"

I like how this is looking

Oh,

6) go to coin store on way home from doctors appointment.

ancientmoney's picture

@Turd . . . not sure what to make of this article on . . .

silver.

http://www.kitco.com/ind/Weiner/2014-01-08-A-Curious-Development-in-Silver.html

I wonder if this widening might be due to JPM finally covering some of their silver shorts?

onealpha's picture

Garrow sounds like TV Series "Jericho"

I have just been rewatching the tv series "Jericho" on netflix.  I havent heard about this guy Garrow before, but it sounds a lot like the plot from Jericho.  It was good to watch it again.  I am seeing it from a much different perspective now. 

abguy4's picture

@ Murph Re: #4

Make sure the dude or dudette behind you, is in a Mercedes

NOT in an old  KIA

realitybiter's picture

SSRI now positive

just sayin....looks to me like the EE has suppressed the metals in anticipation of metals positive FOMC BS.

As Mr T said, "prediction? I predict pain!"

wtfdik. These dutch boys only have so many digits to plug all the holes they have created....if only i had a blowtorch on the otherside.....wiresnips would be good too..

Galearis's picture

@tyberious

That was a collective "you", of course.

I've been a professional naturalist (geo-botany) for much of my life and as such look for patterns.

Most gold bugs and money people are indifferent to the life of the planet.

Perhaps another reason I am out of step with so many when in discussion. The alienation of people with the real world is the root of the problem; the lack of interest in understanding ecology is what cements the reality and continues the damage. There is little motivation without understanding. And, of course,  there cannot be any political will without a people even seeing the damage that surrounds them.  I think you do agree with this view.

But I do disagree with you on one point. Of course this is a gold bug site! Unless, of course, it is a paper gold site (grin).

Best regards,

G.

ag1969's picture

Achmachat

I hear ya.  My buddy sells health insurance.  He was working with a family of four before Obamacare.  They paid for their own insurance which was $4000/yr and they had a $5000 deductible.  The closest thing under the new Zerocare is $12000/yr with a $5500 deductible.  Now, the government turns around and gives them a $4000 subsidy, reducing the cost to 8000/yr for the family.  So the family now pays double, has a higher deductible, and the taxpayer kicks in what was their cost before this nightmare.  It is so screwed up, I can't believe there has not been a revolt yet.

I am fortunate, I have Anthem Health Insurance through my wife's employer.  It has not been cancelled, changed, etc.  I have not had to experience this bullshit first hand, but a lot have.  As I posted yesterday, there are now officially less Americans with health insurance than before zerocare was passed, and the ones that do have it are paying a lot more.

It is amazing to me that anyone voted for that asshole once, nevermind twice!  Is there anyone here that still believes in Democrats and republicans?  Anyone?

Edit:  I would like to add that although I have good insurance, I almost never go to the doctor because my family eats real food.  The best way to avoid Zerocare is to not require it by sucking down the corporate poison day after day.

Mr Fix is right, the only explanation for such a travesty is that they are trying to kill us, nothing else makes any sense.

ancientmoney's picture

Ron Rosen is a grizzled old market veteran . . .

It will be interesting to see if he is right about his most recent predictions:

"As I have previously mentioned to you, the S&P will lose a stunning 2/3 of its value.  On the flip side, gold has bottomed and it will take off to the upside in a huge explosion.  Everything I’ve learned over 60 years of following the markets tells me this is exactly where we are.

So the peak is in or will be in within a matter of days or weeks for the Dow, and the corrective bottom for gold has been completed.  Gold will not break the recent lows because nobody can turn back the tide, not even the Federal Reserve. "

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2014/1/7_Here_Is_The_Most_Frightening_Prediction_For_2014.html

He seems pretty sure of himself:

“So if Western governments decide to intervene and smash the price of gold they will be defeated?”

Rosen:  “There is no doubt whatsoever they will be defeated.  They will be slaughtered.  Not only that, the markets will have to undo the manipulation they implanted which will make the whole matter much worse than if they just stayed the hell out of it.  If they try and play with the markets they will get their heads handed to them, which means the people who live under that government are going to be slaughtered along with them.”

ivars's picture

The 200 year overlay I used

The 200 year overlay of silver content in denarius over gold content in USD I used to identify the years in the 800 year long Roman Empire/Western empire overlay. I liked the analogy between French revolution and Nero which it revealed, and the following years of Vespasian ( Napoleon by analogy). 5NKRQ3C.png

http://en.wikipedia.org/wiki/Vespasian

dgstage's picture

Good Interview

Dr. Paul Craig Roberts-U.S. Markets Rigged by its Own Authorities–It Blows the Mind

http://usawatchdog.com/dr-paul-craig-roberts-u-s-markets-rigged-by-its-own-authorities-it-blows-the-mind/

JY896's picture

@murphy

Sorry to hear of your disc problem, same here about a month ago. I made the mistake of going to the MRI without your prudent due diligence and am now paying dearly for that particular lesson.

My experience: a good chiropractor can do more for you in a few visits than any amount of pain medication or anything any doctor has told me thus far. A BAD/poorly trained/careless chiropractor can make it impossible to move, and is certainly much worse than resting. CHOOSE WISELY. A supplement called InflamaZyme from Biogenesis seems to have helped greatly in reducing the inflammation/swelling of the disc. Stretching upper thigh/buttocks (in general muscles around pelvis) helps tremendously. Lying flat on my back, pulling knees to chest periodically was the only way to get through many days. Walking helped me, just don't overdo it.

Symptom relief was possible within a few weeks. Chiro said healing process can take 6-12 months, depending on severity. The trick is to try to address cause -- is this years/decades of sedentary work, or a one-time overstress of the joint/disc? Core/lower abdominal strength can help.

And getting in front of that BMW definitely WILL make you feel better if your brother-in-law is half as good as he boasts he is.. :-) assuming you have a vehicle that can take the impact reasonably well.

WineGuy's picture

From Santa's Website ...

Exclusive: JPMorgan metal futures unit included in commodities sale – sources

How convenient for JPM 

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