Black-market Rate For Venezuelan Bolivar Collapses Beyond 8,700 Per Dollar For 1st Time

How bad are things in Venezuela under President Nicolas Maduro for the once prosperous South American nation? Well, the Caracas Stock Exchange is showing explosive growth in terms of price.

However, staggering inflation rates for the black market currerncy makes the Caracas Stock Market (valued at $2.57 trillion) only worth $3 billion based on the black-market rate.

The meltdown in Venezuela’s currency is deepening as a crippling dollar shortage and a threat of oil sanctions take their toll on the economy. The black-market rate for the bolivar traded weaker than 8,700 per dollar for the first time, according to dolartoday.com on Friday, compared with the official rate of around 10 and a more widely used alternative rate of 2,757. That’s creating an illusion for foreigners observing the country’s stock market, which appears to be valued at $2.57 trillion — bigger than Germany’s, France’s, India’s or Canada’s — but is worth only $3 billion based on the black-market rate.

And things are only going downhill for the once prosperous country, particularly with crude oil prices hovering around $43.48.

Here is President Nicolas Madura showing his people the true value of Venezuela after several years of his leadership.

M2 Money Growth Declines To 20 Month Low (What Happens To Wage Growth?)

Real median household income, one measure of American household prosperity, peaked in 1999, fell slightly in 2000, then declined in the early 2000s only to hit decade-peak in 2007. RMINC continued to fall again until 2012 when it finally started to rise.

What is notable is that the rise in real median household income in the 1990s corresponded with a rapid rise in the M2 money supply.from 1995 to 1999. That represented a 33% in M2 money supply.

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The rapid increase in M2 Money Supply also corresponds to the high in M2 Money Velocity in 1997, as if Fed Chair Alan Greenspan expended all the M2 fuel in one massive attempt to stimulate the economy.  M2 velocity (GDP/Money Supply) has been falling ever since. Along with real median household income. EXCEPT FOR 2013 AND AFTER WHEN REAL MEDIAN HOUSEHOLD INCOME ROSE EVEN AS M2 MONEY VELOCITY WAS SINKING LIKE A ROCK.

One possible explanation lies with the redesign of the income question in 2013 and onwards.

Starting in 2013 with a partial phase-in, which was fully implemented in 2014, Census changed the questions and the methods in calculating household income.

For example, Census, starting in 2014, began to “collect the value of assets that generate income if the respondent is unsure of the income generated.”

Also, the government started to use “income ranges” as a follow-up for “don’t know” or “refused” answers on income-amount questions.

So, that is a partial explanation for the anomoly of rising real median household income with crashing M2 Money Velocity. THEY CHANGED THE HOUSEHOLD INCOME DEFINTION.

M2 Money growth has fallen to a 20 month low  while an alternative measure of money supply, the Austrian money supply, just fell to a 105 month low. 

The “Austrian” measure of the money supply differs from M2 in that it includes treasury deposits at the Fed (and excludes short time deposits, traveler’s checks, and retail money funds).

Well, M2 Money supply increases hasn’t done much for Average Hourly Earnings of Production and Nonsupervisory Employees, particularly since 2008.

Whether we are using the decline in M2 growth or Austrian money growth, neither one have benefitted the majority of Americans.

The Hangover: US Economy Still Suffers From The Housing Bubble Burst And Bad DC Policies

Bloomberg View has an interesting editorial entitled, “Yes, Financial Crises Do Bring Hangovers.”

In an essay making the rounds this week, four prominent academic economists and former government officials argue that something needs to be done to accelerate the pace of what they call “the weakest economic expansion since World War II.” Their recipe for speeding things up is lower taxes and less entitlement spending, and I’m not going to get into whether that’s really such a good idea, in part because I imagine lots of other people will take up that argument and in part because I just don’t know the answer.

But I was struck by the second paragraph of the piece, written by John F. Cogan, Glenn Hubbard, John B. Taylor and Kevin Warsh, 1 which goes like this:

We do not share the view that the recent period of weak economic growth was simply an inevitable result of the financial crisis. Economic recoveries tend to be stronger after deep recessions, and any residual headwinds from the crisis should have long been remedied had progrowth policies been adopted. Historically, some post-crisis periods are marked by lower economic growth, but we believe that the poor conduct of economic policy bears much of that burden.

It turns out both sides are correct. The housing bubble and subsequent financial crisis contributed to a weak recovery. And then economic policies following the housing bubble collapse focued on financial regulation and a terrible healthcare bill (aka, Obamacare) rather than creating economic growth.

The root cause of the financial crisis was the massive (and unsustainable) expansion of credit, particularly for real estate loans.  Thanks in part to 1) regulations such as Dodd-Frank and the creation of the Consumer Financial Protection Bureau and 2) a hangover from too much credit, real estate lending growth continues to be lower than any other recovery since World War II.

Commercial and industrial lending YoY is approaching recession levels.

And M2 Money Velolcity (GDP/Money Stock) continues to decline to the lowest level in modern times reflecting the stagnant GDP growth coupled with massive expansion of money stock.

Two examples of “The Hangover” are the 1) historically low levels of new homes sold and 2) the worst wage recovery since 1965.

Add into that the repression of bank deposit rates courtesy of Greenspan, Bernanke and Yelle, and we have a dismal recovery.

And lest we forget, the GINI index of income inequality increases after every recession, regardless of President and Congressional majorities.

Yes, the poor recovery of the US economy is a product of 1) hangover from the housing bubble and financial crisis, and 2) poor economic policies eminating from Washington DC.

US Treasury 10Y-2Y Slope Declines as Gold Rises

After a yield curve rally in late June that sent the 10Y-2Y slope almost to 100, it has started declining once again and is down to 91.425. But notice that gold rose today and continues to be generally inverse to the Treasury curve slope.

Inflation continues to be under The Fed’s 2% target and has averaged a meager 1.1% under Yellen’s management.

Here is Fed Chair Janet Yellen looking for 2% inflation and not finding it.

Alarm! Sales At Full-service Restaurants Have Been Declining YoY Since 2014.

Retail sales at full-service restaurants have been generally declining YoY since the end of 2014.

Let’s hope that declining sales at full service restaurants isn’t a warning siren for an impending recession.

Chicago Illinois River North downtown Centro Ristorante restaurant is now closed.

Alarm!

 

Debt Star! Trump May Need Obama’s Secret Debt Plan, Worrying Markets

So, President Obama had a secret plan to default on the US public debt all along. And President Trump may have to use it.

(Bloomberg) Deep within the Treasury Department sits a once-secret plan written by the Obama administration that could lead to the first-ever default on U.S. debt. Bond traders are worried that Donald Trump’s Treasury secretary may have to use it.

The U.S. government will reach its statutory limit on borrowing some time in October, the Congressional Budget Office estimates. The Trump administration has asked Congress to raise the ceiling before then, but it is running into the same complications the Obama White House encountered: lawmakers, mostly Republicans, who want to use the debt limit as leverage for controversial policy changes.

Treasury Secretary Steven Mnuchin has said there are “plans and backup plans” to keep the government solvent through September. Bond traders suspect he is referring to preparations made in 2011 in case the Obama administration had to prioritize payments on government securities over other obligations. The Treasury chief got fresh hope that Congress may raise the debt limit before leaving for its August recess after Senate Majority Leader Mitch McConnell delayed the break by two weeks.

Yes, Congress and the US Treasury has a debt problem. Explosive debt, thanks to chronic spending by Congress, will really be facing a problem if Treasury rates rise.

Healthcare spending (such as Medicare) is growing exponentially.

Leading to a CBO forecast of over $30 trillion in the near future.

And then we have the massive underfunding of government pension plans which will require bailouts by taxpayers. Look at Illinois, for example at 40% funded.

The good news is that markets aren’t pricing in excessive debt … yet.

With Senators like Maria Cantwell running things in Congress, how bad can it be?