WELCOME TO THE USA

(Watch a speech below on “How Capitalism Died” by my esteemed colleague Richard Duncan)

CAPITALISM REQUIRES A PRODUCING (WORKING PRODUCTIVELY) POPULATION

LFPR stands for the ‘Labor Force Participation Rate’.

Here is how the labor force participation rate is calculated:

LFPR = Labor Force (Employed plus Unemployed) divided by Civilian Non-Institutionalized Population.

• Population (P): 260.92
• Not in Labor Force: 100.70
• Labor Force (LF): 160.21
• Employed: 150.23

A collapsing LFPR (those that produce) in concert with exploding financial asset values not derived from productivity improvement, but rather through credit (debt) and financial leverage (risk) is neither sustainable nor reflective of real economic growth.

LIVING ON THE EDGE (aka LEVERAGE)

What keeps this illusion going is the rate of credit (debt) growth. What underpins this growth has increasingly become the level and growth rate of financial leverage. This in turn reflects the exploding degree of risk being built into an ever increasingly more fragile economic system.

THE RATE OF GROWTH IN INVESTOR MARGIN

Market ‘Bubbles’ and collapsing financial markets are regularly preceded by marked increases in the rate of growth of investor leverage. As the charts above show we are at historic levels. This is matched with historic lows in loose financial conditions (right).

THE GAME: GETTING OUT FIRST

Markets premised on a “greater fool” investment theory (which we are experiencing) are also predicated on the belief that investors feel they will be able get out first. This is why, when someone finally yells “fire” to the public you discover markets go down so fast that you have difficulty getting out at the price you believe you could. Liquidity becomes non-existent and infamously disappears like a thief in the night.

In out new world pf Passive Investing and ETF’s we can expect this untested modern financial plumbing to be proven to be severely problematic when the next bubble ‘pops’.

CONCLUSIONS

The current financial conditions can not nor will be sustained indefinitely. It doesn’t mean the world is coming to an end but rather serious adjustments and re-balancing must take place over the next 10 years because Capitalism is no longer functioning adequately!

HOW CAPITALISM DIED

Capitalism did not die overnight.  It took two World Wars and then some to kill it.  But it’s dead now.  If you still believe that our economy is driven by laissez-faire “market forces”, then you have no chance of understanding what is going on around you or of determining what is likely to happen next.

A speech by my colleague Richard Duncan explains how the economy and the financial markets work today by describing how we got here. It describes the events and pressures that brought Capitalism to an end and that gave rise to its replacement, Creditism.

Once it is understood how Creditism works, the world begins to make sense again.  The massive government budget deficits, money creation by central banks on a multi-trillion-dollar scale, the absence of high rates of inflation and the forces that drive the financial markets are then all easily understood.  

Duncan’s speech took place at an event hosted by Port Phillip Publishing in Melbourne in 2014.  It is by no means out of date.  In fact, the passage of time actually adds to its value in that the economic developments during the years that have followed have largely validated the expectations expressed then concerning the future.  

Creditism requires Credit Growth to survive.  The years since 2014 have demonstrated the lengths to which governments and central banks will go to ensure that it does.

After watching this speech, if you have not yet subscribed to Macro Watch, I hope you will.  Macro Watch will show you how the economy and the financial markets really work in the 21^st Century. Use the code “Flows” for a special Gordon T Long 55% discount