Mish's Global Economic Trend Analysis

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• Merle Hazard on the European Sovereign Debt Crisis, Lyrics on Spain
• Ten New York City Hospitals May Close Over Governor Cuomo's Proposed Medicaid Cuts; Need for a New Approach
• World Economic Forum Endorses Fraud; Steve Keen Mocks the WEF Report, So Do I; The Purported "Need to Double Credit in 10 Years"

Merle Hazard on the European Sovereign Debt Crisis, Lyrics on Spain Posted: 24 Jan 2011 04:48 PM PST I just received an email from songwriter "Merle Hazard" on the European Sovereign Debt Crisis. Merle writes ... Hi Mish My alter-ego, Merle Hazard, is doing a song series this week on the Euro zone crisis. This is for Paul Solman's Making Sen$e page at the PBS NewsHour web site. The first song, on Spain, is out today. It's the shortest, by a wide margin, in this week's series. It's really just an appetizer to get people started. More songs to follow daily, four new ones in all. Note that we're having a contest for viewer lyrics, which he talks about. We're very interested in seeing what the blogosphere can send back to us. Maybe you'd like to write a lyric yourself? Anyway, Merle will record the winning entry. All best, Merle Click on the above link to submit lyrics. Here is a YouTube version of the same Spanish Song, as an alternate way to play it in case the PBS site is too slow. YouTube URL: http://www.youtube.com/watch?v=XoQKDgyAbtk This is a very short song. I expect the rest to be longer and better. I submitted lyrics from my post "Imagine There's No T-Bonds - It's Easy If You Try" Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Ten New York City Hospitals May Close Over Governor Cuomo's Proposed Medicaid Cuts; Need for a New Approach Posted: 24 Jan 2011 12:06 PM PST New York Governor Andrew Cuomo has a $10 billion budget gap to fill. Unlike Illinois Governor Pat Quinn, Cuomo does not seek tax hikes. Instead he want to cut graft and untenable spending, especially state agencies and Medicaid spending. Please consider a few snips from Cuomo's State of the State Address. My friends I believe this state is at a crossroads and I believe there are two very different paths this state may down. Certain factors are pushing us down one path - the national economic pressure; the costs of state government that we're currently expending; the dysfunction that the state government has been manifesting and the fact that the people have lost trust in our government. What is the state of the state? This is a time of crisis for our state, a time when we must transform our government to once again become the progressive capital of our nation, and to seize the moment of opportunity that is before us. The State of the State begins with an honest analysis of the crisis that we face. In government, as in life, you can never solve a problem if you refuse to acknowledge it. The economic recession has taken an especially hard hit on the State of New York. In 2009, we had a twenty-six year high in unemployment, roughly 800,000 New Yorkers are now unemployed, hundreds of thousands more are under-employed. We have the worst business tax climate in the nation, period. Our taxes are 66% higher than the national average. Upstate is truly an economic crisis. The State of New York spends too much money, it is that blunt and it is that simple. Our spending has far exceeded the rate of inflation. From 1994-2009, inflation was about 2.7% per year; medicaid when up over 5% per year and education went up over 6% per year. We just can't afford those rates of increase. State spending actually outpaced income growth. State spending increased just under 6%, personal income growth was only 3.8%. And most damaging, our expenses in this state far exceed revenue. We've been focusing on this year and the deficit this year, which is a very large deficit about $10 billion, and that is a problem and it is a major problem; what's worse, is it's not just about this year. Next year, the problem goes to $14 billion. The year after, the deficit goes to $17 billion. This is not a one year problem my friends. This is a fundamental economic realignment for the State of New York. You look at the chart, you look at the arrows and this is an unsustainable rate of growth and it has been for a long time. Not only to we spend too much, but we get too little in return. We spend more money on education than any state in the nation and we are number 34 in terms of results. We spend more money on Medicaid than any other state in the nation and we are number 21 in results. We spend about $1.6 billion per year in economic development and we are number 50 in terms of results. We are spending more, and government is growing more. We now have more than 600 Executive branch agencies. We are going to have to confront the tax situation in our State. The property taxes in New York are killing New Yorkers. Thirteen of the sixteen highest tax counties are in New York when asset by home value. In absolute dollars, Westchester County the highest property taxes in the United States of America. Nassau County the second highest property taxes in the United State of America. It has to end, it has to end this year. We have to hold the line on taxes for now and reduce taxes in the future. New York has no future as the tax capital of the nation. Our young people will not stay. Our business will not come. This has to change. We must transform our state government. The last time the state government was reorganized was 1927 under Gov. Al Smith. 1938 a reform was passed, a constitutional amendment, that said there could be only 20 executive departments – 20 - so what has happened since then. Well we couldn't create any more departments but the law didn't say anything about creating councils, advisory panels, working groups, facilities, offices, task forces, institutes, boards and committees. So what do we now have? The Department of Health, only one department in compliance with the law, however there are 87 other organizations that have been added to the Department of Health, 46 councils, 6 committees, 17 boards, 6 institutes, 2 task forces, 5 facilities. We need to try a different approach. And think of it this way, there are basically three flashpoints when it comes to the budget: it's the education funding, medicaid and state and local mandates. We want to try a new approach. The State of Wisconsin actually used an interesting model. The governor had announced across the board cuts on the medicaid program, the industry said they couldn't live with the cuts, and what Wisconsin actually did was basically brought everyone in. It was a hybrid alternative dispute resolution meets binding arbitration process and it actually worked fairly well in Wisconsin. The industry came in, they worked with the government, they accepted the budget target and then redesigned the program to meet those targets. Remember, this is not going to be a budget cutting or trimming exercise. We need to redesign the medicaid program. I can also tell you this. As the Attorney General, I audited the medicaid program for four years, even without this budget problem, the medicaid program needs a desperate overhaul. It is dysfunctional on many levels, so this process has to be done anyway. Our suggestion is to take a crisis management approach and put together a Medicaid Redesign team. Let this legislature be the legislature that stands up and says yes we're democrats but we're New Yorkers first, yes we're republicans but we're New Yorkers first, yes we're from downstate but we're New Yorkers first, yes we're from upstate but we're New Yorkers first, and that matters most. And we're here as New Yorkers not as democrats not as republicans not as independents we're here as New Yorkers to serve the people of the state of New York and help this state through this crisis. Let this 234th legislature stand up and write a new page in the history book of New York State government. Let this 234th legislature solve these problems at a time of crisis and bring this state to a place that it's never been. We're not just going to build back we're going to build back bigger stronger than ever before. That's what we're going to do together. Thank you and God bless you. Need for a New Approach That is a welcome speech, especially from a Democrat who won the endorsement of unions. I certainly applaud the Cuomo's reference to 600 state agencies, most of which I am sure are totally useless, if not counterproductive. I also applaud reference to education funding, medicaid and state and local mandates. "We want to try a new approach" said Cuomo. What he should have said is "We need to try a new approach, and we will." Of course the unions did not like the his speech one bit. Public unions always want to raise taxes. It is their number two mission, just after expanding membership. The one thing Cuomo did not address at all regards the need to cutoff defined benefit plans for new public union workers immediately. Sounding Mightily Republican The Suffolk Times said Governor sounded mighty Republican in 'State of the State Address' Local GOP legislators sounded pretty giddy following Wednesday's first "State of the State" address from Democrat Andrew Cuomo. That's due to the newly sworn in governor's liberal use of one word conservatives love to hear: cap. "Listening to the governor today, I could have sworn he was a Republican," said Senator Ken Lavalle (R-Port Jefferson), who began serving his 18th term in office this week, during a telephone interview Wednesday. "Property tax and spending caps, smaller government and less regulation, these are the things everyone wants," Mr. LaValle said. "The people have spoken loud and clear and the governor knows this." Senator LaValle was not the only local legislator who walked away from the speech happy with what he heard. "I look forward to working with Governor Cuomo to enact a property tax cap and state spending cap in the months ahead," said newly elected Assemblyman Dan Losquadro (R-Shoreham) in a statement. "By capping property taxes and state spending, lawmakers will be providing Long Island homeowners with real relief from skyrocketing property taxes while putting into place a budgetary safeguard to end the tax and spend mentality that has brought state government to the financial brink." Cuomo Targeting Medicaid Spending The Wall Street Journal reports Cuomo Targeting Medicaid Spending Gov. Andrew Cuomo is aiming to reduce the state's Medicaid spending by billions of dollars, exceeding the size of cuts to the program proposed in past years, according to individuals with knowledge of his budget. The Cuomo administration is considering a cut of about $2.1 billion out of the state's projected spending on Medicaid in the upcoming fiscal year. With federal matching funds, the cut comes to more than $4 billion. That's close to twice the reduction in spending proposed by Gov. Eliot Spitzer in 2007. Such a cut would effectively freeze Medicaid spending at the current year's level. But because the state is set to receive far less in federal funds, as the stimulus expires, its share of Medicaid costs would still grow by more than $3 billion, a 30% increase. In recent years, the state's major health-care union and hospital groups have spent millions of dollars on lobbying and advertising campaigns opposing cuts, encouraging lawmakers to restore funding. The state over the last five years has sought to ramp up fraud and waste recoveries, but the dollars recouped—about $500 million a year split with the federal government—have been overwhelmed by rising costs, fueled by higher enrollment. A state official familiar with the draft proposals said the Cuomo administration, among other things, wants to revamp coverage of one of the highest-cost categories of Medicaid patients—beneficiaries suffering from severe mental illnesses such as schizophrenia and bi-polar disorders, chronic drug problems or both. The state has struggled to coordinate the care of these types of patients, many of whom often cycle in and out of emergency rooms and clinics and run up annual costs of more than $100,000. Ten NYC Hospitals May Close Over Medicaid Cuts The New York Post reports Gov's Medicaid cuts may kill 10 city hospitals One-third of New York City's private hospitals could lose their life support and shut down if Gov. Cuomo goes through with his vow to cut between $2 billion and $3 billion from the state's massive Medicaid program, The Post has learned. "There are 10 to 12 hospitals that are teetering on the edge [statewide]," said Stephen Berger, a member of Cuomo's Medicaid redesign team, who previously headed a state hospital restructuring panel. "How many of them are really necessary? How many can be saved? How many can be merged? That's what we have to ask," added Berger. "Given the amount of money we are spending, we ought to be putting together a much more efficient health-care system with better patient care." "It's no secret that a lot of hospitals in the New York City area are struggling financially, and the worst budget outcome for them would be straight reimbursement cuts, which has happened nine times since 2007 and contributed to several closures," said Brian Conway, spokesman for the Greater New York Hospital Association. The closure last year of the storied St. Vincent's Medical Center in Greenwich Village as well as North General Hospital in Harlem put everyone on notice that Albany -- facing a $10 billion budget shortfall -- is unlikely to save chronically ill institutions. "Although eight hospitals have closed since 2007, nearly one-third of the surviving voluntary nonprofits, most of them 'safety net hospitals,' are in jeopardy," the United Hospital Fund says in its semi-annual "Hospital Watch" report. Economic Impact Cuomo's approach is the correct one, regardless of how many complaints there are. If states do not have the money, and taxpayers do not have the money (and neither does), then something has to give. With that in mind, ponder the number of jobs that will be lost if ten hospitals in New York City close. Factor in numerous other cities that will also be affected. Next think of 600 state agencies and how many of those should be eliminated. However, regardless of short-term impacts, the long-term benefits of such actions will be hugely positive. Eliminating waste will put more money in the hands of taxpayers instead of the hands of bureaucrats who will squander it and public unions who certainly do not deserve it. Unfortunately, public unions and advocates for useless pet projects will not give up their turf easily. Addendum: My friend "TW" responded with some interesting observations. Cuomo failed to point out out that "Obamacare" dumped more Medicaid costs on the states. Thus the true cost of healthcare went up, even if the federal share went down (something that is alleged but certainly not proven). Rising Medicaid cost is the biggest reason for various state lawsuits against the smoke and mirror promises of "Obamacare". States used to have facilities that housed mental patients in dorms. Some had farms and other activities that would allow patients to spend a productive day raising their own food, or participating in activities to make clothes. In the 60's, liberalism took over and productive people were put in facilities where there was nothing to do all day but watch TV and brood. Yet expenses skyrocketed as union activity increased. The bottom line is less care for more money with public unions feeding off forever rising taxes. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

World Economic Forum Endorses Fraud; Steve Keen Mocks the WEF Report, So Do I; The Purported "Need to Double Credit in 10 Years" Posted: 24 Jan 2011 02:24 AM PST A few days ago I received an email from the World Economic Forum regarding a need to double credit over the next 10 years. Here is that email. New York, USA, 18 January 2011 – Credit levels will need to double over the next 10 years, growing by US$ 103 trillion, to support consensus-projected economic growth. This doubling of credit could be achieved without increasing the risk of major crisis, finds More Credit with Fewer Crises: Responsibly Meeting the World's Growing Demand for Credit, a report released by the World Economic Forum in collaboration with McKinsey & Company. The study develops a detailed global credit model using historical credit volumes and forecasting potential credit demand to 2020 across 79 countries, representing 99% of world credit volume. The study applies a sustainability methodology to the projected credit demand, using newly developed metrics to answer the following two questions: Will credit growth be sufficient to meet demand? Is there a risk of future credit crises and, if so, where? The accompanying PDF entitled More Credit with Fewer Crises is 84 pages of economic claptrap. The main mission of the World Economic Forum appears to cram more credit down the throats of a world so stuffed with credit it cannot possibly be paid back. Australian economist Steve Keen found three major flaws in the report. There are many others. Inquiring minds will certainly want to read Keen's WEF-mocking analysis entitled How I learnt to stop worrying and love The Bank. The three flaws Keen spotted are: Poor starting year for the report Report ignores financial sector debt Report ignores Ponzi schemes There are numerous other flaws that I will touch on below. A Not-So Robust Study The WEF brags "To create a robust fact base for the study, a detailed global credit model was constructed to map credit volumes between 2000 and 2009, and to project potential credit demand to 2020. The model spans 79 countries representing 99% of world credit volume." I would specifically like to point out the absurdity of calling a study "robust" that only encompasses only the last 10 years, ignoring the great depression, WWI, WWII, the Great Society, the rise and fall of unions, the effects of baby boomers moving through the economy, and the move from one to two wage earners in a family. Debt Slaves and the Expansion of Credit I also point out the study does not mention Bretton-Woods, Nixon closing the gold window, or how wealth has become increasingly concentrated in the hands of fewer and fewer people, while those in debt have become debt slaves for life. It's important to understand that rampant credit expansion is in and of itself inflation. My precise definition is "Inflation is a net expansion of money and credit, with credit marked-to-market. The primary beneficiaries of "inflation" are those with first access to credit: banks, government, and the wealthy. By the time credit filters down to those lowest on the totem pole, those who take credit are screwed. The housing bubble is proof enough. Credit bubbles pop, they always do. Thus, the idea that the WEF can put in place procedures to identify bubbles while openly promoting the doubling of credit is simply preposterous. First let's discuss the proper starting point for analysis. Fractional Reserve Lending Is Fraud Here are two easy to read, free online books that make the case. What Has Government Done to Our Money? The Case Against the Fed Here are hardcopy versions you can order. The Case Against The Fed by Murray Rothbard What Has Government Done To Our Money by Murray Rothbard End The Fed by Ron Paul If you haven't read them, read them. If you have read them, read them again. Then meet with your legislative representatives and get them to read the books. Better yet, buy them a hardcopy so you can be sure of it. Fraud aside, let's move on to a discussion of blatant errors in the report. Sustainable Credit Growth The WEF says "Between 2000 and 2009, the world economy was growing at a healthy rate – at 5.3% annually in nominal terms, or 2.2% in real terms. The rate of GDP growth between 2000 and 2008 was 6.2% nominal and 2.8% real. This means that the world's stock of credit outpaced GDP growth by less than 2 percentage points a year – not a wide margin. In theory, there is nothing unsustainable about this picture: as long as credit grows broadly in line with economic growth, the credit is put to good use and borrowers can meet interest obligations and repay principal." Have you ever seen a chart of what 2% compounded looks like? Here is a chart of Bernanke's 2% inflation targeting. Note that 2% can represent 2% excess credit growth or anything else. Inflation Targeting at 2% a Year click on chart for sharper image. Many bad things can happen with Bernanke's 2% inflation target. Wages do not keep up. Asset bubbles build Rising asset prices make it appear debt is sustainable Wage growth is disproportionate to debt Wealth concentration By the time bubbles are spotted it is already too late Recessions happen By the way, note the WEF thinks 2% credit expansion in excess of GDP is acceptable. Let's assume 4% annualized GDP growth and plot 6% annualized credit expansion. Credit Expansion at 6% Per Year Wages vs. Credit Expansion At 6% per year credit expansion, credit is up 50% in 8 years, 100% in 13 years, and 200% in 20 years. Did after-tax wages go up by 50% in the last 8 years? Did after-tax wages go up 100% in the last 13 years? We all know the answer to those questions. We also know that although incomes did not increase that fast, property taxes are most assuredly up 100% in the last 13 years (except in capped states) and real wages are negative. Real wages are hugely negative for the bottom 80% of the population. Yet the WEF thinks that credit expansion of 6% is sustainable and it does not fully understand what even happened. WEF Ignores the Wealth Effect and the Price of Credit It's pretty easy to explain what happened: People "felt" wealthy by rising asset prices (homes and the stock market). Credit was granted on the basis of rising asset prices and an asinine belief that home prices will rise forever into the future. Credit expanded but wages did not. Property bubbles resulted from credit priced too cheaply. Failure to discuss the price of credit is of course yet another flaw in the report. Equity and Commodity Prices Already Back in Bubble Territory Amazingly the WEF cannot figure out what happened or that asset prices with the exception of the US housing market are already back in bubble territory. Bear in mind we still have not gotten to Steve Keen's objections to the report. Here we go. Poor Starting Year for the Report Steve Keen mocks the starting year of the report with a nice series of graphs. Keen quips: How could I ever have thought that the growth of credit could have caused the Great Recession, when in fact the growth rate of debt has been negative? I am also chastened to realise that credit is only used for good purposes. As the report notes: In the long run, the scale and distribution of credit is only economically sustainable if it also meets society's broader social objectives. Muhammad Yunus, founder of Grameen Bank, goes so far as to say that credit is a human right, and adds: "If we are looking for one single action which will enable the poor to overcome their poverty, I would focus on credit." Foolish me: here was I, thinking that credit might also be used to fund Ponzi Schemes. Credit a "Human Right"?! Yunas seriously has holes in his head. Credit is not a right. The global housing bubbles are proof enough of what happens when credit is extended to those who are not credit-worthy. Certainly there are countries where there is little or no credit. It might behoove Yunas to figure out why. It's easy to figure out if you think in reverse. What do countries have in common where credit is generally available? Here's your answer. property rights rule of law civil rights Fix problems in those areas and credit will likely be available. This next section is in regards to financial sector debt, the second fundamental flaw Keen spots in the report. Why omit financial sector debt? The report omits borrowing by within the financial sector from its record of total debt, when this has been a major component of the growth of debt (certainly in the USA) in the last 60 years. I include financial sector debt in my analysis for two reasons: The initial borrowing by the shadow banking sector from the banks creates both money and debt; The money lent by the shadow banking sector to other sectors of the economy creates debt to the shadow banking sector, but not money I frequently get the argument that debt within the financial sector can be netted out to zero, but I think this ignores those two factors above: the creation of additional debt-backed money by the initial loan, and the creation of further debt to the financial sector—most of which has been used to fund asset bubbles rather than productive investment. A focus on total private sector debt during and after the Great Depression also conveys a somewhat different perspective. Did you catch that subtle reference to fractional reserve lending? "I frequently get the argument that debt within the financial sector can be netted out to zero, but I think this ignores those two factors above: the creation of additional debt-backed money by the initial loan, and the creation of further debt to the financial sector—most of which has been used to fund asset bubbles rather than productive investment. " I am waiting for Keen to come flat out and explicitly state that Fractional Reserve Lending is fraudulent. He sure hints at it, without saying the words. Indeed, it is fractional reserve lending that is the root of most of the huge credit Ponzi schemes. Speaking of Ponzi schemes, Keen discusses his third objection to the report. Why ignore Ponzi Schemes—and Minsky? The report's listing of the uses to which credit is put is so innocent as to make me wonder whether one of the author's primary school children wrote the relevant paragraph: "In early stages of development, credit is used to support family-owned businesses; next, it supports small and large corporations; and finally it is used to smooth consumption." But maybe I'm being harsh: it could, after all, have been written by a neoclassical economist. Please, let's get real: yes credit can do all of those things, but it can also fund asset bubbles and Ponzi Schemes, and that has been by far the dominant aspect of credit growth since the report's base year of 2000, and arguably since the 1987 Stock Market Crash. To ignore this aspect of credit after the biggest financial crisis since the Great Depression is simply puerile. Prior to 2008, such ignorance was excusable simply because it was so widespread, as the dominant neoclassical school simply ignored dissidents like Minksy. After the crisis, he is receiving long overdue respect for focusing on the importance of credit in a capitalist economy while neoclassical economists effectively ignored it. Sustainable Credit: A Challenge of Definition (from the report) This study recognized it would be no easy task to come up with a definition of sustainable credit that was both specific enough to be meaningful and broadly accepted by public and private decision-makers. Before attempting a definition, therefore, the study canvassed the question – "What is a sustainable level of credit?" – in interviews with more than 50 industry CEOs, rating agency executives, central bankers, regulators and academics. Although there was a breadth of perspectives among these experts, there was also significant convergence. In particular, while a minority of interviewees believed current absolute levels of borrowing were unsustainable and would require substantial deleveraging, the general view was that the current global credit stock is at sustainable levels but should be rebalanced towards economically beneficial uses. In this view, the recent financial crisis was driven by ineffective monitoring and managing of information asymmetries, which drove misallocation of credit and excess contagion risk. Interview Bias Note that McKinsey interviewed all the people who benefited from the bubble. CEOs, rating agency executives, central bankers, and regulators all were beneficiaries of the credit expansion. Of course they are going to agree on the need for more of it even if they cannot come up with a precise definition. Report Bias Report bias is even more basic than interview bias. The study's mission seems to be to determine how much credit is needed to achieve desired GDP growth. What if the desired GDP growth is flawed? No Challenge At All I can easily define "sustainable credit" conditions. All it takes is a 100% gold-back dollar and no fractional reserve lending. Heck, abolishing fractional reserve lending alone would do it. Will Credit Growth Meet Demand? I have to laugh at the ridiculous question the report asks: Will Credit Growth Be Sufficient to Meet Demand? In short, there will be significant challenges in channelling credit to where it is needed. In a fractional reserve lending system with credit priced too cheaply and central bankers willing to act as lenders of last resort, the last worry anyone should have is whether credit growth will be sufficient to meet demand. By the way, did you catch the flaw in the question itself? There is unlimited demand for credit if credit is cheap enough. As I pointed out before, the article forgot to address "the price of credit" and that silly question highlights the flaw. Bear in mind that in a deflationary environment the price of credit might have to drop to zero, perhaps even negative, before any credit worthy borrowers want it, but priced right, there will unlimited demand for credit. Report's Absurd Conclusion The financial crisis not only shook the foundations of the world economy, it also suggested to many observers that overall credit levels were unsustainably high and would need to be scaled back. The analysis in this report provides a different perspective: credit demand will grow strongly in the decade ahead, and meeting this demand is not only sustainable in principle, but also essential if the world is to meet its economic development goals. Report Confuses Inflation and Government Spending with Growth Flaws after flaws after flaws mount up. The paragraph above shows the authors do not know the difference between real growth (production and output), vs. "economic development goals" as measured by arbitrary measures of GDP and government spending. Government spending, no matter how ridiculous, adds to GDP by definition. Note that it has taken fed balance sheet expansion by $2 trillion and deficit spending of $1.5 trillion just to get a GDP rising at a 3% clip. Also note that taxpayers bailed out the banks but still hold the debt. That situation holds true in the US, Ireland, and Spain (places where the housing bubble popped). The housing bubble is bursting in Australia right now and will burst in Canada, the UK, and China at some point. Every one of those bubbles was caused by credit expansion yet the report's conclusion is we need more credit. The report's major worry is credit expansion will be insufficient. Summary of Flaws Failure to understand the role of Fractional Reserve Lending Failure to consider the price of credit Failure to discuss the beneficiaries of inflation and credit expansion Interview bias Report bias Failure to encompass sufficient economic history No consideration of credit expansion as a cause of the Great Depression No discussion of the role of Bretton Woods or central bankers on credit bubbles Participants do not understand inflation Report did not properly factor in wage growth or taxes Report did not consider global wage arbitrage as a limiting factor in Western economies Report did not consider income inequality Report does not understand the infeasibility of perpetual compounding at 6% annualized Report has no concept of valid human rights Report fails to consider wealth effect Poor starting year for the report Report ignores financial sector debt Report ignores Ponzi schemes I have never seen such a collectively pathetic group effort of 50 people since I started this blog six years ago. It appears to have been written in Bizarro-World or some alternate universe where economic laws and common sense run in reverse. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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