Economic Aspects of the Pension Problem – Part 1

As It Appears Sixty Years Later

Part One: Euthanasia of the Pension Funds

Antal E. Fekete

Sixty years ago. in 1950, Ludwig von Mises published an article with the above title. He pointed to inflation as the greatest threat to pension rights. Today an additional threat is looming large on the horizon: the threat of deflation, and a new examination of the pension problem is timely.

Courtesy of Antal E. Fekete @ ProfessorFekete.com:

Deliberate Dollar Debasement

In 1950 Mises looked at the pension problem from the point of view of the shrinking purchasing power of the dollar, a consequence of what he called the deliberate policy of currency debasement by the U.S. government. In 1950 a pension of $100 per month was a substantial allowance, he noted. Shelter could be rented for a month for less than $30 in most parts of the country. (In 2010, $100 hardly buys one night’s stay at a decent hotel.) In 1950 the Welfare Commissioner of the City of New York reported that 52 cents would buy all the food a person needed to meet his daily caloric and protein requirements. (In 2010, $100 barely buys a cup of coffee and a muffin for every day of the month.)

Of course, currency debasement does far more damage than simply eroding the purchasing power of pensions. As Mises observed, it also leads to the insufficiency of capital accumulation. Companies report phantom profits that mask losses, since depreciation quotas understate the wear and tear of productive equipment. Savings are hardly adequate to pay for capital maintenance, let alone new capital or technological improvements in production — the only source from which pensions to an increasing labor force can be paid. When young workers who now join the labor force are ready to retire, the necessary funds to pay their pensions will simply not be available.

Capital destruction due to declining interest rates

I have written extensively about the proposition, one that mainstream economists doggedly refuse to discuss, that a falling interest-rate structure has a deleterious effect on accumulated capital. Capital is destroyed across the board simultaneously and stealthily. By the time the damage is discovered, it is too late to do anything about it and firms go bankrupt in droves. The falling trend of interest rates is the unrecognized cause of the depression that is presently devastating the world economy — just as it also was 80 years ago. Nowhere is the erosion of capital caused by falling interest rates is more obvious than in the case of the capital of the pension funds. They must earn adequate return on their investments, but a falling rate of interest frustrates this effort. At the lower rate the original schedule of capital accumulation cannot be met.

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Debt, Propaganda And Now Deflation

Dorothea Lange Negro woman who has never been out of Mississippi July 1936

Courtesy of Raul Ilargi Meijer @ The Automatic Earth blog:

Looks I have to return to the deflation topic. I’m a bit hesitant about it, because the discussion always gets distorted by varying definitions and a whole bunch of semi-religious issues. The Automatic Earth has for many years said that an immense bout of deflation is inevitable because of global debt levels, and it’s all only gotten a lot worse since we first said that. Our governments and central banks have ‘fought’ deflation with more debt, and that was always the stupidest idea in human history. Or at least, most of us were stupid for believing it would work, or was even intended to.

Just so we don’t get into yet more confusion, i probably need to explain that the debt deflation we’re talking about here is not some subdivision like consumer inflation or price inflation or cookie inflation, those are just hollow and meaningless terms. Debt deflation is deflation caused by too much debt, and the deleveraging it must and will lead to. Deflation does not equal falling prices, those are merely an effect of it.

The reason this matters is that when you equate inflation and deflation with rising or falling prices, you’re not going to be able to know when you actually have deflation. Because prices can rise for all sorts of reasons. Inflation/deflation is the money/credit supply in an economy multiplied by the speed at which money is spent in that economy, the velocity of money.

It should be obvious that prices for some items can still rise, certainly initially, when deflation sets in. Producers that see less sales can try to raise prices for their remaining buyers. Basic necessities will always be needed. Governments can raise taxes. Rising/falling prices tell us only part of the story, and with a considerable time delay.

Ergo: rising/falling prices are a lagging factor, and if you look at them only, you will have missed the point where deflation has set in. What follows, obviously, is that you can’t measure deflation by looking at consumer prices (CPI) or production prices (PPI) numbers. You’d be way behind the curve. CPI and PPI tell you something, but they don’t tell what causes falling or rising prices. And that is a valuable thing to know.

Hemp Plant Found To “Eat” Radiation and Drive Away Toxicity – Hemp Fields Should Be Planted Around Fukushima

Courtesy of Hemp For Future:

Activists have been shouting they want an end to GMO foods for more than a decade now, and Cannabis Sattiva L. supporters have been at it for even longer, so why has the US government finally given farmers the right to legally grow industrial hemp, the non-hallucinatory, sister plant of medical marijuana?

It is safe to say that industrialized hemp should have been legalized years ago. With THC levels so low, you would have to smoke more of it than Snoop Dogg to get ‘high’ – and that’s a lot of Cannabis, it is ridiculous that it was classified as a drug at all. It has numerous uses and could replace many crops that require heavy irrigation and pesticides, like cotton, for example. Here’s the most interesting fact though – hemp plants ‘eat’ radiation.

When the Chernobyl Nuclear Plant Reactor 4 accident caused severe radioactive contamination in 1986, families within a 30-kilometer area of the site had to be evacuated. Radioactive contamination was later found at 100 kilometers from the accident site, and Fukushima radiation levels are still to be determined, with the Japanese government planning on dumping their overflowing radiated water tanks into the Pacific as we speak.

As with the Chernobyl incident, scientists are finding radioactive emissions and toxic metals–including iodine, cesium-137, strontium-90, and plutonium–concentrated in the soil, plants, and animals of Japan, but also now throughout the United States and all along the West Coast – from Canada to Mexico. Even the EPA has admitted that any living tissue can be affected by radiation exposure. High levels of thyroid disease and cancer have been reported in Japan, and our ocean is dying by the day. Scientists are also expecting that children born on the US West Coast will suffer a 28% higher incident of hyperthyroidism – a disease that accompanies radiation exposure. Even the livestock that grazed on irradiated grasses grown in contaminated soils developed meat with high concentrations of these unwanted toxins after Chernobyl, and Fukushima is exponentially worse.

“Cluster Of Central Banks” Have Secretly Invested $29 Trillion In The Market

Courtesy of The Hedge:

Another conspiracy “theory” becomes conspiracy “fact” as The FT reports “a cluster of central banking investors has become major players on world equity markets.” The report, to be published this week by the Official Monetary and Financial Institutions Forum (OMFIF), confirms $29.1tn in market investments, held by 400 public sector institutions in 162 countries, which “could potentially contribute to overheated asset prices.” China’s State Administration of Foreign Exchange has become “the world’s largest public sector holder of equities”, according to officials, and we suspect the Fed is close behind (courtesy of more levered positions at Citadel), as the world’s banks try to diversify themselves and “counters the monopoly power of the dollar.” Which leaves us wondering where are the central bank 13Fs?

While most have assumed that this is likely, the recent exuberance in stocks has largely been laid at the foot of another irrational un-economic actor – the corporate buyback machine. However, as The FT reports, what we have speculated as fact for many years now (given the death cross of irrationality, plunging volumes, lack of engagement, and of course dwindling credibility of central planners)… is now fact…

Central banks around the world, including China’s, have shifted decisively into investing in equities as low interest rates have hit their revenues, according to a global study of 400 public sector institutions.

“A cluster of central banking investors has become major players on world equity markets,” says a report to be published this week by the Official Monetary and Financial Institutions Forum (Omfif), a central bank research and advisory group. The trend “could potentially contribute to overheated asset prices”, it warns.

…

The report, seen by the Financial Times, identifies $29.1tn in market investments, including gold, held by 400 public sector institutions in 162 countries.

…

Little by Little We Went Insane

The definition of insanity is doing the same thing over and over and expecting a different result. More fiat debt anyone? Courtesy of Tim Price @ Sovereign Man:

“Are we finished ? The answer is no.”

– Mario Draghi, President of the European Central Bank, 5th June 2014, having just cut ECB deposit rates to minus 0.1 percent.

“The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.”

– Ernest Hemingway.

“The way to crush the bourgeoisie is to grind them between the millstones of taxation and inflation.”

– Vladimir Lenin.

If it looks like insanity, smells like insanity, tastes like insanity, feels like insanity and struts about barking, “This is insanity”, then perhaps it might just be insanity.

“We were in the jungle. We had too much money. We had too much equipment. And little by little, we went insane.”

Not the words of Mario Draghi – yet. They are the words of film director Francis Ford Coppola in relation to his magnum opus, ‘Apocalypse Now’, a film that so outrageously exploded beyond its budget and beyond any reasonable compass that during its making it started being referred to as ‘Apocalypse Later’.

Coppola’s unique vision came at a price. What was expected to be a 14-week shoot in the Philippines ended up taking more than a year. Coppola fired his leading man, Harvey Keitel, after just two weeks. His replacement, Martin Sheen, turned out to be fighting alcohol addiction and suffered a heart attack on set.

Numerous members of the crew went down with tropical diseases. At key points, helicopters hired for pivotal action sequences were suddenly redirected to quell a revolt in the southern Philippines. Then a typhoon hit, the set was destroyed and the production was shut down.

Throughout all of it, Coppola was dealing with increasingly worried money men back in Hollywood as the film’s budget ran dry. As the film’s scriptwriter, John Milius, pointed out: “Studio executives, you know, are not noted for their social courage”.

Fukushima Beta-Radiation Levels Soar To New Record In Aftermath Of Typhoon Wipha

As the true extent of the Fukushima meltdown, after 2&a half years of spewing radiation into the Pacific Ocean, is slowly being realised on the world stage, is enough being done? I very much doubt it as they have no idea where 3 of the cores are. This is a massive issue for the planet but why is so little being done? My opinion, if the Japanese were truthful their stock markets would crash, along with their economy. The motivation is ‘money’ and preserving the status quo, an idiotic and reckless policy that will result in millions of deaths but as long as the stock market is going, all is well. Courtesy of The Hedge:

It is only fitting that on the day the Stalingrad & Poorski 500 rises to a new record high, that that other centrally-planned catastrophe, the exploded Fukushima nuclear power plant, in the aftermath of Japan’s Radioactivetyphoonado reports a completely different record: namely the level of beta radiation levels at Fukushima. Bloomberg notes that the nationalized utility Tepco, which has taken denial to a different superstring dimension altogether, has detected beta radiation levels of 400,000 becquerels per liter in a water sample taken yesterday from a monitoring well near storage tank area H4 at Fukushima Dai-Ichi nuclear plant. This was the highest reading on record. This number compares to Beta radiation levels of 61 Bq/L in the sample taken Oct. 16 and 90 Bq/L in the Oct. 15 sample.

TEPCO Official Admits Fukushima “Out Of Control”

The question to ask, in regard to this disaster is, have they ever been in control. From substandard equipment to opaque reports on the state of the cores, which are unconfirmed because its too dangerous to approach…all is under control as the markets aren’t meant to crash, yet!

Courtesy of The Hedge:

A month ago, when we quoted an independent expert that “TEPCO has lost control of Fukushima” many took offense, despite all signs to the contrary. Perhaps the skeptics will reevaluate their position following today’s news reported by AFP, which cited Kazuhiko Yamashita, who holds the executive-level title of “fellow” at Tokyo Electric Power, who finally admitted what those not mired in prejudice about the state of nuclear energy refuse to accept, that the nuclear plant was “not under control.” This promptly led to the government, which last weekend learned it would host the 2020 Olympics and promised that Fukushima would not be a concern by then, to scramble and “reassure people on Friday that they have a lid on Fukushima.” Unfortunately, the lies, like the radiation in the plant, are now finally seeping through and more are becoming fully aware of just how serious the catastrophe truly is, and drove yet another steak through the heart of the official narrative by Prime Minister Abe as they “flatly contradict” his assurances.

AFP elaborates:

In a meeting with members of the opposition Democratic Party of Japan, Yamashita was asked whether he agreed that “the situation is under control” as Abe had declared at the International Olympic Committee meeting in Buenos Aires.

He responded by saying, “I think the current situation is that it is not under control,” according to major media, including national broadcaster NHK.

News of his comment prompted a rush by the government and TEPCO to elaborate on Yamashita’s remark, saying he was talking specifically about the plant’s waste water problem, and not the facility’s situation in general.

Chief Cabinet Secretary Yoshihide Suga, Abe’s right-hand man, separately said Yamashita was repeatedly pressed by DPJ lawmakers when he made the remark.
The punchline:

The view of TEPCO as a company does not contradict Abe’s statement, Suga added.
Actually no, it does. What is more humiliating is that the admission comes a day after an official PR campaign was launched to ease the world’s concerns that Japan really has no clue what it is doing.

Japan’s reputation as a ‘safe pair of hands’ gave it the edge to win the race to host the 2020 Tokyo Olympics and Paralympics. The decision immediately boosted investor confidence – despite the ongoing Fukushima nuclear crisis.

Japanese Prime Minister Shinzo Abe assured the International Olympic Committee that the Fukushima leak was not a threat to Tokyo and took personal responsibility for keeping it safe,’ writes leading economist Professor Dr Stefan Lippert in World Review.

Persistent concerns over the leak of radioactive water from the nuclear power plant had dogged Tokyo’s Olympic bid. The crippled nuclear plant is about 250 km (155 miles) north east of Tokyo and there are fears the amount of contaminated water is getting out of control.

But winning the bid gave shares in Japan ‘an instant lift with construction companies, real estate and tourism expecting to benefit from the economic impact of staging the games,’ says Professor Dr Lippert.

This is expected to create 150,000 jobs and have a US$30 billion economic impact for Japan while boosting the mood of investors and spurring Japan’s economic recovery after two decades of lacklustre growth and the March 2011 triple disaster of earthquake, tsunami and nuclear accident.

‘It will support the popular belief that that Japan’s turnaround has finally begun, and contribute to the upbeat feeling in Japan since the beginning of Abenomics,’ he adds.

Dr Lippert believes that the International Olympic Committee’s decision on September 7, 2013, emphasises that the international community sees Japan as a haven of stability and wealth in the region.

‘Internationally, the vote is as an expression of confidence in Japan and its revival,’ he says.

If that is indeed the case, than the “international” community should be embarrassed at being complicit with a lying government, which will do everything in its power to misrepresent reality, and boost a flailing economy courtesy of the funding surrounding the 2020 Olympics even as the human cost of such a plan is, effectively, unknown and potentially unprecedented.

Finally, for those curious about the real state of play, we repost the four summary charts showing what the current situation at Fuck-u truly is: