Abenomics on McDonalds: Higher Prices, Lower Sales

According to the proponents of Abenomics, inflationism will bring about corporate profitability that would lead to economic boom.

In real life, inflationism has brought upon the opposite.

I pointed out earlier that in response to BoJ’s doubling of monetary base, McDonald’s Japan in April has increased prices of their products by as much as 25% for some items.

As expected, the result has been slumping sales.

From the Bloomberg:

Same-store sales at McDonald’s locations in Japan dropped 3.7 percent in April, the 13th straight monthly decline. Comparable, or same-store, sales are an indicator of a company’s growth because they include only older restaurants.

Basic economics: higher prices, lower demand.

Ironically booming global stock markets has also failed to generate strong growth in sales for McDonald’s outside the US.

From the same Bloomberg article:

McDonald’s Corp. (MCD), the world’s biggest restaurant chain, said sales at stores open at least 13 months fell 0.6 percent last month as growth slowed in its Asia-Pacific region.

Analysts estimated a 0.5 percent drop, the average of 11 estimates from Consensus Metrix. Sales at stores in the company’s Asia-Pacific, Middle East and Africa unit fell 2.9 percent, the Oak Brook, Illinois-based company said today in a statement. Analysts projected a 1.4 percent decline.

On the other hand, McDonald’s sales in the US marginally increased as sales in Europe plunged.

However, McDonald’s stock (MCD) continues to power higher. So we have a parallel universe between global stock markets and real commercial activities around the world.

Note that the stagnant McDonald’s global sales comes amidst record low interest rates for the world.

Ironically, India’s franchise holder of McDonalds has also declared coming price increases.

From Reuters (hat tip Zero Hedge)

An Indian franchise operator of McDonalds Corp (MCD.N) may increase prices for the second time this year, responding to rising inflation which, along with an economic slowdown, it expects to temper demand growth for at least the next 7 months.

The company, Hardcastle Restaurants, said on Tuesday it could raise prices by 5-6 percent. That follows a 5 percent hike after the government increased the service tax rate in February.

"There is pressure and it's a tough environment, no doubt. But inflation is at 8-10 percent so we have to hike our prices," said Amit Jatia, vice-chairman of Hardcastle Restaurants, which owns the McDonalds franchise for west and south India.

He said, however, that the company had no intention for now to raise prices.

Consumer spending in India has taken a hit in the past three quarters as rising food prices, meager salary increases and the slowest Indian economic growth in a decade hurt buying appetites for clothes, cars and eating out.

Inflationistas can't seem to grasp of the casual relationship between business commercial and entrepreneurial activities with changes in money supply.

 

They don’t see that price instability will not only crimp on the demand side but also reduce the incentives for the supply side to expand. This would account for as the economic calculation problem.

If inflationism is the elixir, then Venezuela and Argentina would now account for the most prosperous economies.

Cato’s Steve Hanke points out that black market rate of the Argentinian Peso now “sits 47.3% below the official exchange rate” which he adds represents “an implied annual inflation rate of 98.3%.” 

Wow Hyperinflation in motion.

The Argentinian Merval index is now seen picking up steam on the intensifying hyperinflation. Soaring stock markets based on hyperinflation could mean a purchasing power of only 3 eggs ala Zimbabwe in 2008.

What are the lessons to be learned from inflationist politics? The advocacy of the religion of inflationism signifies as deflation of intelligence and an inflation of the belief in fantasies and lies.

Quote of the Day: Negative Real Rates: The Biggest Legal Robbery ever in Human History

The real interest rate is probably minus 2% in the world today. It should be in line with the per capita income growth rate or 1%. The difference is 3%.

This environment redistributes wealth from savers to debtors on a scale of over $2 trillion per annum or $55 billion per day. This must be the biggest legal robbery ever in human history. But it is always coded in arcane academic lingos spoken by respected central bankers with impeccable CVs. All that is just packaging; it is robbery nevertheless.

This is from former Morgan Stanley economic analyst Andy Xie at the Marketwatch arguing that gold remains the ultimate hedge against the inflation thievery.

Mr. Xie’s fascinating article comes with his take that the sharp decline of gold prices will be temporary and gold will “rise to new heights soon”. This is because the masses will gravitate to gold because it is “the best weapon for the little guy to fight central banks that help a few to rob many.” 

Yes, the transfer of reserves from Wall Street to the physical real gold market will be the main driver of this, overtime. The physical gold market will also expose all the manipulative schemes by the Wall Street-government cabal.

He also says that people shouldn’t be deceived by the objection that “gold doesn’t bear interest”, because “paintings or antiques don’t bear interest either”. Mr. Xie concludes, “When money supply is rising, anything scarce tends to rise in value. Gold is the best scarce commodity in the world.”

Gold, indeed is the best weapon against the government rapacity.

Record Low Global Monetary Policy Rates and the Parallel Universe

Central Banks are in a record spree of slashing interest rates.

Notes the Central Bank News:

Global interest rates fell further last month as eight central banks eased their policy stance - most notably the Bank of Japan with its “new phase of monetary easing” - pushing the average global monetary policy rate down to 5.70 percent at the end of April from 5.79 percent at the end of March and 6.2 percent at the end of 2012.

Central banks cut their key rates by a total of 774 basis points in April, the highest monthly amount this year, boosting this year's total rate cuts to 1876 basis points.

Central bankers continue to believe that zero bound rates will spur the economy.

But there has been little evidence on these.

Danske Bank believes that it will work, even if Euro and China’s economic growth rate have been on a decline since 2010 while the US economy zigzagged.

Despite their bullishness, the OECD’s leading economic indicator (LEI) also reveals of stagnation.

Meanwhile, the Zero hedge points to a Goldman Sachs outlook which sees a downside risk from the LEI.

In short, most of the bullishness has been wishful thinking. 

The reality is that zero bound rates have produced nothing but marginal growth, if not stagnation, and a rapidly expanding debt.

Yet global central banks continue to force the issue. They don’t seem to realize that there is such a thing called diminishing returns.

Next, macro policies don’t address the real micro socio-economic problems: specifically policy obstacles on capital accumulation via voluntary trade and production. 

On the contrary, zero bound rates which spawns price instability distorts economic calculation. Such policies instead promotes rampant speculation rather than productive activities.

So you have rising stock markets globally as shown by the MSWorld or the MSCI World (ex USA) Index, the emerging markets via the MSEMF or the MSCI Emerging Markets Free Index (EOD) and in Asia through the AAXJ or the iShares MSCI All Country Asia ex Japan Index Fund, even as global growth have been marginal or in stagnation. 

Why invest when there has been big uncertainties on the direction of policies and prices? Why invest when all these raises the cost of doing business and increases the hurdle rate for the survival of businesses? 

And why not trade financial markets instead when there has been implied or direct guarantees on them?

The parallel universe or financial market-real economy disconnect only means more capital are being misallocated on short term yield chasing debt expanding activities. Such parallel universe are manifestation of bubble cycles. This also means deepening of systemic fragility.

Yet political authorities continue to ante up on policies that don't work.

 

The thrust to abolish interest rate represents a fallacious doctrine embraced by policymakers who believe in the inflation elixir which have been based on "something for nothing concept" or the sham miracles of interventionism. All these will have bad consequences. 

As the great Ludwig von Mises warned:

In the eyes of cranks and demagogues, interest is a product of the sinister machinations of rugged exploiters. The age-old disapprobation of interest has been fully revived by modern interventionism. It clings to the dogma that it is one of the foremost duties of good government to lower the rate of interest as far as possible or to abolish it altogether. All present-day governments are fanatically committed to an easy money policy.

The Atlantic on Philippine Economic Boom: Looks Great on Paper

I spoke about unevenness of the Philippine boom last weekend

“Protectionist reflexes on sensitive sectors” represents as the “concentrated” segments of the economy that are controlled by the unholy alliance of political elites and their cronies. They are the key beneficiaries of today’s central bank asset market friendly policies. Many of them are into the yield chasing bubbles in the real economy. And so the unevenness of the much touted economic boom.

On the same issue, I also wrote about the discrepancy of today’s supposed economic boom in the lens of jobs or employment

Nonetheless what arouses my curiosity is that the much ballyhooed economic boom tagged as the “Rising Star of Asia” seems to have been “concentrated” on few sectors of the economy. And this is most likely the reason behind the supposed “boom” in joblessness, as pointed out by the survey.

Even the government’s statistics has not shown any material improvement in joblessness, despite Phisix at 7,200, the Peso at 40s or 6.6% GDP growth in 2012.

Today on the Bloomberg

Jeany Rose Callora left her home on the Philippine island of Negros last year to work at a soft- drinks factory in Manila, hoping to earn money for college. When her contract ended six months later, she said she couldn’t get another job in Southeast Asia’s fastest growing economy.

“I’ll do anything: saleslady, factory worker, waitress,” the 20-year-old high-school graduate said as she waited 11 hours for an interview in an employment agency in Manila, surrounded by dozens of other applicants.

Callora is one of 2.89 million unemployed Filipinos, swelling a jobless rate that climbed to 7.1 percent in January from 6.8 percent the previous month. About 660,000 positions have been lost since October 2011, even as the economy expanded 6.6 percent last year.

The nation is struggling to reconcile a lack of jobs for people like Callora, who have little training, with a shortage of skilled workers in industries such as information technology and shipbuilding. While the economy is being boosted by call centers and remittances from workers who moved abroad, the country’s poverty level hasn’t decreased since 2006.

Now the Atlantic on the Philippine paper tiger boom.

But that economic growth only looks great on paper. The slums of Manila and Cebu are as bleak as they always were, and on the ground, average Filipinos aren't feeling so optimistic. The economic boom appears to have only benefited a tiny minority of elite families; meanwhile, a huge segment of citizens remain vulnerable to poverty, malnutrition, and other grim development indicators that belie the country's apparent growth. Despite the stated goal of President Aquino's Philippine Development Plan to oversee a period of "inclusive growth," income inequality in the Philippines continues to stand out.

In 2012, Forbes Asia announced that the collective wealth of the 40 richest Filipino families grew $13 billion during the 2010-2011 year, to $47.4 billion--an increase of 37.9 percent. Filipino economist Cielito Habito calculated that the increased wealth of those families was equivalent in value to a staggering 76.5 percent of the country's overall increase in GDP at the time. This income disparity was far and away the highest in Asia: Habito found that the income of Thailand's 40 richest families increased by only 25 percent of the national income growth during that period, while that ratio was even lower in Malaysia and Japan, at 3.7 percent and 2.8 percent, respectively. (And although critics have pointed out that the remarkable wealth increase of the Philippines' so-called ".01 percent" is partially due to the performance of the Filipino stock market, the growth of the Philippine Composite Index during that period would not account for such a dramatic disparity from neighboring countries.) Even relative to its regional neighbors, the Philippines' income inequality and unbalanced concentrations of wealth are extreme.

This is obvious. We have an asset boom fueled by central bank policies. 

The major beneficiaries have been the politically connected elites whom has mainly benefited from government bubble policies, particularly from zero bound rates and the SDA.

As pointed out by Matthews Asia about 83% of the total market cap of publicly listed economies in the Philippines are held by a few families.

The Philippine stock market remains “concentrated”, which to paraphrase the Atlantic: The stock market boom has brought about an “increased wealth of those families was equivalent in value to a staggering 76.5 percent of the country's overall increase in GDP at the time”.

Given low penetration level of domestic stock market participants (1% or less) the boom has had residual effects on the economy. Retail participants are the poor folks lured by the easy money policies, who will bear the brunt of the losses, since many of these elites will eventually be rescued.

The other beneficiaries are foreign speculators who are also on a yield chasing mode due to their own easy money policies practiced by their respective central banks.

The failure of the Philippine Stock Exchange [PSE: PSE] to diffuse stock market ownership has also been one of the factors. For instance the refusal to hook up with the ASEAN trading link essentially means preserving the status quo of the high concentration of stock market ownership.

Equally asset boom means a boom in real estate. So rising asset markets also adds to the ballooning policy induced wealth inequality.  

Philippine Housing Prices has been in a bull market (tradingeconomics.com).

But one cannot look at housing alone as the Philippines has bubbles in shopping malls, vertical commercial or office and the casino.

And this is why today’s BSP’s engineered boom essentially means a redistribution program in favor of the elites and the banking system at the expense of the purchasing power of the members of society or the general economy. 

Political promises to deliver jobs will fail for the simple reason called interventionism and corporate protectionism or crony capitalism.

Today’s easy policies can be analogized as taking from the poor and giving to the rich. This is what media hails as the good governance economic model.

Look at the income statement by Philippine banking system as provided by the BSP.

The distribution of bank earnings from interest and non-interest as of December 2012 is 60-40. If you look at the non-interest portion of banking system’s income, they are mostly into fees and commissions, Gains/(Losses) on Financial Assets and Liabilities Held for Trading, Gains/(Losses) from Sale/Redemption/Derecognition of Non-Trading Financial Assets and Liabilities and Foreign Exchange Profit/(Loss)

In short, the non-interest income segment of the Philippine banking system largely relies on the continuation of an asset boom.  

The balance sheet of the Philippine banking system as provided by the BSP also demonstrates of the same story.

Aside from cash and loans portfolios, the banking system principal assets consist of Financial Assets, excluding Equity Investment in Subsidiaries/Associates/ Joint Ventures, net of amortization, Financial Assets, net of Allowance for Credit Losses and Equity Investment in Subsidiaries/Associates /Joint Ventures.

Again income and assets of the Philippine banking system principally depends on BSP’s easy money or bubble policies. This also shows how the banking system, or might I say a banking cartel, has been a politically preferred agency by the BSP.

People hardly realize that a bubble bust would effectively shrink both interest and non-interest earnings of the banking system that risks transforming a slowdown or a recession into a banking crisis.

So, the so-called “strength” or “boom” by the Philippine banking system and the economy are no more than a hype or a spin behind the scenes from the manipulations mostly through monetary policies. 

Again this wonderful reminder from the great Ludwig von Mises:

All governments, however, are firmly resolved not to relinquish inflation and credit expansion. They have all sold their souls to the devil of easy money. It is a great comfort to every administra­tion to be able to make its citizens happy by spending. For public opinion will then attribute the resulting boom to its current rulers. The inevitable slump will occur later and burden their successors. It is the typical policy of après nous le déluge. Lord Keynes, the champion of this policy, says: "In the long run we are all dead." But unfortunately nearly all of us outlive the short run. We are destined to spend decades paying for the easy money orgy of a few years.

The days of the easy money orgy are numbered.

Richard Ebeling: How Karl Marx Brought Ruin to the World

Splendid article from Austrian economist and Northwood University professor Dr. Richard M. Ebeling on the horrific consequences from the bad ideas of Karl Max. (hat tip EPJ)

Karl Marx was born on May 5, 1818 in the German Rhineland town of Trier, and died on March 14, 1883 in London.It is worth recalling, also, that there was a time when Marx was an anti-communist.

It is said that by its fruit you will know the tree. The last one hundred years is a clear testament to the consequences of Marx’s influence on modern history.

Accepting the “classical” labor theory of value, he concluded the workers were “exploited” by the “capitalists.” Marx claimed that “profit” was a portion of the workers’ output extracted by the property owners as the “price” the workers had to pay to have access to the privately owned physical means of production, without which they could not produce and survive.

The Austrian economist, Eugen von Boehm-Bawerk, in Capital and Interest (1884) and Karl Marx and the Close of His System (1896), demonstrated that Marx had confused “”profit” with “interest.” In a competitive market, profit is a temporary discrepancy between selling price and costs-prices, eventually competed away by businesses bidding up wages for workers (and other resource prices) to work for them, and those same businesses then competing for consumers to buy their output by offering their wares at better selling prices than their rivals.

What Marx had failed to fully understand was that production takes time, and that if workers would not or could not wait until the product was finished and sold to consumers to receive their wages, then someone had to “advance” those wages to them over the production period.

That, Boehm-Bawerk showed, is what the employers did, so that what workers received while working was the discounted value of their marginal product. The “gain” received by employers over their costs of production, even in long-run equilibrium, was the implicit interest for having ‘waited” for the product to be finished and sold, when they might have done other things with the “savings” they had advanced to those workers during the period of production.

If it is recognized that “time” has value, and, therefore, an intertemporal price, the notion that workers were or could be “exploited” in open, competitive markets for resources and finished goods was fundamentally wrong.

On this foundation of sand, Marx constructed his theory of the “injustice” of capitalism that has, in various forms, continued to plague the ideas and policies of countries around the world.

In the 20th century, it inspired the communist revolutions that led to the deaths of tens of millions of innocent men, women, and children. For those not aware of the magnitude of this human catastrophe, I recommend, The Black Book of Communism (1997), written by former French socialists and “fellow-travelers, that tells the horrific tale of “socialism-in-practice,” wherever those guided by Marx’s ideas came to power.

Or Paul Hollander’s edited volume, From the Gulag to the Killing Fields (2007), that brings together excerpts from the personal accounts of those who lived through the “building” of the brave new worker’s paradise, with all their tragic details about the fate of those considered “enemies of the people,” or merely expendable cogs in the wheel of socialist central planning.

Pls read the rest here

Here are the ten planks of the communist manifesto (Wikipedia.org)

About four them are prominent features in today’s supposed market economies; particularly progressive taxation, central banking, centralization of communications and transport (this is more indirect for more open economies and direct for authoritarian states) and public school.

One would wonder how the mainstream supposedly loathes communism as to embrace some of its principles, and how communist principles have been adorned as “capitalism”.

George Orwell in 1984 would call such opaqueness and blatant contradiction as Blackwhite newspeak: (bold original)

...this word has two mutually contradictory meanings. Applied to an opponent, it means the habit of impudently claiming that black is white, in contradiction of the plain facts. Applied to a Party member, it means a loyal willingness to say that black is white when Party discipline demands this. But it means also the ability to believe that black is white, and more, to know that black is white, and to forget that one has ever believed the contrary. This demands a continuous alteration of the past, made possible by the system of thought which really embraces all the rest, and which is known in Newspeak as doublethink.

Gold Suppression Scheme: China’s Record Gold Purchases Came PRIOR to the Selloffs

One can smell wretched signs of manipulations from the actions in the physical real gold markets. 

From Bloomberg: (bold mine)

Gold imports by China from Hong Kong more than doubled to an all-time high in March as buyers in the biggest consumer after India boosted purchases, underscoring increased bullion demand in the world’s second-largest economy.

Mainland buyers purchased 223,519 kilograms (223.52 metric tons), including scrap, compared with 97,106 kilograms in February, according to data from the Hong Kong government yesterday. Net imports by the mainland, after deducting flows from China into Hong Kong, were 130,038 kilograms compared with 60,947 kilograms a month earlier, according to Bloomberg calculations.

The shipments preceded gold’s plunge into a bear market last month, with prices tumbling 14 percent in the two days through April 15 in the worst drop in three decades. The slump led to a surge in demand for jewelry, coins and bars from India and the U.S to China. Separate data yesterday showed China’s gold consumption rose 26 percent in the first quarter as prices fell.

More:

The purchases in March were more than three times higher than the 62,913 kilograms in the same month last year, according to the data from Hong Kong’s Census and Statistics Department. Mainland China doesn’t publish such data.

Exports of gold to Hong Kong from China were 93,481 kilograms in March, according to a separate Statistics Department statement, up from 36,159 kilograms in February, and compared with 32,484 kilograms in March 2012.

Volumes for the spot contract on the Shanghai exchange, China’s biggest cash bullion market, topped 323 tons between April 16 and May 3, according to data compiled by Bloomberg. Volumes reached a record 43,272 kilograms on April 22…

So again this report confirms that mainland Chinese buying of more than 10% of annual gold mining output over 2 weeks.

Even More

Retail gold sales tripled across China on April 15-16 after the rout, according to the China Gold Association. Zhang Bingnan, deputy head of the association, said on May 2 that there’s a shortage of gold jewelry inventory in the country after consumers bought up supplies and the industry is increasing raw-material purchases to ramp up production.

China’s gold consumption jumped 26 percent to 320.54 tons in the first three months from a year earlier, the association said yesterday. Consumption totaled 776.1 tons in 2012, down from 779.8 tons the previous year, according to the producer- funded World Gold Council. China and India account for more than half of global demand.

So if gold purchases from mainland Chinese were at a record pace even prior to flash crash, where they along with India constitute "more than half of the global demand", then why the crash at all? Because JP Morgan acted so.

Whatever the intent from Wall Street’s move, “shortage”, “more than doubled”, “three times”,  and “topped” certainly lead to the opposite outcome ("lead to a surge in demand") than what they expected. Instead of a panic out of gold, real physical markets panicked into gold. Talk about blowback.

Since gold cannot be printed, I’d like to see Wall Street empty their inventories or reserves, even if this means interim price pressures.

This should flush out whatever schemes being applied to gold and put into light actions as expressed by prices from the real gold markets, overtime.

Meanwhile mainstream media is having a buoyant moment in assailing gold bulls. They highlight on John Paulson’s hedge fund whose gold fund lost 27% last month. And gave weight to the dissing of gold from Warren Buffett, the supreme Obama crony. 

They peddle the idea that unsound money is sustainable. History tells us otherwise. And look at the bubbles going around the world.

Cyprus Model of Deposit Haircuts Spread to Brazil

Bank depositors beware. 

Deposit haircuts or “bail-ins” are becoming a global standard. Recently political authorities of New Zealand, Canada and European countries as Spain, Italy and others have announced their openness to embrace the Cyprus bail-in model of confiscating bank deposits when a crisis emerges.

Now this seems to have spread to Brazil. 

Brazil's authorities has essentially acknowledged of the existence and of the risks of bubbles.

From Reuters:

The Brazilian government, concerned about systemic risk in the rapid growth of banking assets, will propose legislation to make shareholders, bondholders and depositors pay for rescuing troubled banks and shield taxpayers from the cost of bailouts.

Central Bank President Alexandre Tombini told a banking seminar on Monday that the legislation aims to mitigate "moral hazard" by forcing banks to assume full responsibility for their losses in what is known as a "bail-in." It was applied in Cyprus to stop a run on the banks and Canada is also considering rules to deal with potential bank failures.

In the case of Brazil, the proposed bill underscores mounting unease among regulators with the rapid pace of growth of banking assets in Latin America's largest economy in recent years. Some banks might be "too big too fail" in Brazil, and the need to discourage irresponsible behavior could be higher now than before as state-run lenders expand their balance sheets three times the pace of their private-sector peers.

First, governments inflate bubbles via a cauldron of policies, such as zero bound rates, QEs,  subsidized loans to privileged sectors, tax credits on debts, and etc.. Yet all these incentivize or promote “irresponsible behavior” or yield chasing through credit expansion.

Then, they use such bubbles to justify the confiscation of depositors, bondholders and shareholders assets as punishment in order to rescue banksters.

Politicians use the smoke and mirrors rhetoric of supposedly preventing taxpayer exposure as camouflage for such actions.

 

A Tagalog idiom for this is “Na-prito sa sariling mantika” or translated in English “fried in one’s own fats”. 

Depositors are now being framed up as fall guys for government predation. 

Yet as bubble busting episodes transitions into a domino effect worldwide, more nations will likely resort to “bail-ins” or deposit haircuts. 

Alternatively, this will also induce a growing distrust on the banking system which should add on more uncertainties and volatility into the marketplace.

Which of East Asia-ASEAN corridor will be next?

 

Nonetheless, desperate governments are increasingly applying desperate measures.

The Myth of the Surveillance Cameras

Mainstream media continues to inculcate upon the public of the supposed public safety expediencies from surveillance cameras.

Steve Chapman at the Reason.org puts into perspective its efficacies.

One cherry picking of instances doesn’t imply effectiveness

There is no doubt that the cameras were a big help this time. But that doesn't mean they are generally a good idea -- much less a crucial tool in fighting terrorism and crime.

Surveillance cameras were originally touted as a strong deterrent, scaring away bad guys fearful of being caught on tape. But these devices have a disappointing record in action. In some places, they noticeably reduce crime. In others, they have the same effect as a potted plant.

In the Boston bombings, the cameras utterly failed in their preventive function. Not only did the bombings occur; they occurred in perhaps the most heavily photographed spot in America that day. Besides the permanent video cameras in operation, hundreds of spectators with cellphones were eagerly capturing the scene.

I’d say that mainstream media has been engaged in deceitful framing or applying selective influence or manipulation of the public through survivorship bias or through selective reporting. In other words, the positive effects from the use of surveillance cameras are being broadcasted, but its negative effects have not been shown. 

The implied goal seems designed to reduce people’s resistance from being monitored.

Security expert Bruce Schneier also shares this view stating that “Pervasive security cameras don't substantially reduce crime”

Next, since cameras are economic goods, they are subject to diminishing returns.

Again Mr. Chapman

Putting video gear in areas that are obvious potential terrorist targets is one thing. Putting them on every corner of an entire city is another. Some places are enviably safe without surveillance, which means any cameras installed there should be color-coordinated, since they will be primarily decorative.

They will fall victim to the law of diminishing returns. If you put out a couple of mousetraps, you may catch some mice. If you put out dozens, you may not catch many more. The second 10,000 cameras won't add nearly as much crime-fighting value as the first 10,000 -- or possibly even the first 1,000.

Of course, once aware, fugitives are likely to move activities away from where these cameras are located, or that they may use various forms of concealment. 

In short, surveillance cameras works from an element of surprise. Take the surprise away, the camera losses its effectiveness. Again human action.

The next is opportunity costs or tradeoff from use of scarce resources.

One drawback is that taxpayers are not composed of cash. Buying a camera costs money; so does maintaining it and monitoring the images it generates. A dollar spent on surveillance video is a dollar that can't be spent on foot patrols, police training, DNA tests or streetlights.

Then there is the issue of the invasion of privacy.

Another is that cameras contribute greatly to the steady erosion of personal privacy. Americans are generally oblivious to this phenomenon because they are oblivious to the multitude of unblinking eyes watching them in the course of a day. If each of us had a little alarm that went off every time we came into camera range, we might be less agreeable to the monitoring.

This is not really just an American thing, but also applies elsewhere as it does the Philippines.

 

Finally promoting surveillance cameras as furtive ploys to establish the Orwellian “big brother’ state that destroys civil liberties.

Cameras may also soften us up for even deeper intrusions. If video feeds are so great, why not add audio? If you can stand being watched whenever you leave home, surely you won't mind if every word is heard as well. And how about a tiny drone hovering over your front door, round the clock -- for the rest of your life?

Enthusiasts for electronic surveillance may say: If you have nothing to hide, you have nothing to fear. But there's a reason people don't live in glass houses.

There is really nothing wrong with the private sector’s use of surveillance cameras, what is wrong is having to politicize them and use these as tools to advance despotism in the name of public safety.

Markets in Everything: Solar Impulse, the Fuel Less Plane

Speaking of the gush of technological advancements from the deepening of the information age, here is another: the advent of fuel less solar driven airplane: the Solar Impulse

Here is an excerpt from Wall Street Journal (hat tip EPJ)

FOR BERTRAND PICCARD, the idea to build a solar-powered plane capable of circumnavigating the globe was hatched while running on empty. In March 1999, Piccard was on the final leg of an around-the-world journey by hot air balloon—the first-ever nonstop flight of its kind—when his Breitling Orbiter 3 swept low over the Egyptian desert and skidded to a halt on the corrugated plains. As Piccard stepped out onto the hot sand, he checked the fuel tanks mounted on his gondola and got a shock that became a defining moment. "We had left Switzerland with four tons of propane," he remembers. "We only had 40 kilos left! We almost didn't make it. I promised myself that next time I would fly around the world without using any fuel at all."

The 55-year-old Piccard, a trained psychiatrist with a confident, intense manner to match, is adept at making sure there is always a "next time"—no surprise, since he's descended from explorer royalty. His grandfather, Auguste, broke high altitude records in the '30s by designing a balloon with a pressurized cockpit, and later became the inspiration for Professor Calculus in the Tintin comics. In 1960, Piccard's father, Jacques, descended seven miles beneath the Pacific Ocean in another pressurized module to set a deep-dive record that has been matched only twice.

In 2003, Piccard approached European companies to sponsor what has become a $148 million project and began assembling a team of 80 engineers and technicians plucked largely from Swiss universities. After seven years of tinkering, they arrived at a machine with a deceptively simple design: Solar Impulse—with its sleek, clean lines, white-gloss finish and rakishly angled 208-foot wings (bent to increase the plane's stability)—resembles what you might get had Steve Jobs reimagined a child's balsa-wood glider in giant form.

Read more here

The wonders of human ingenuity.

The World’s First Fully 3D Printed Gun: The Liberator

The advent of 3D printing technology are one of the many major manifestations of the deepening information age or the digital economy.

Meet the world’s first entirely 3D Printed Gun: the Liberator

Writes Andy Greenberg at the Forbes

Eight months ago, Cody Wilson set out to create the world’s first entirely 3D-printable handgun.

Now he has.

Early next week, Wilson, a 25-year-old University of Texas law student and founder of the non-profit group Defense Distributed, plans to release the 3D-printable CAD files for a gun he calls “the Liberator,” pictured in its initial form above. He’s agreed to let me document the process of the gun’s creation, so long as I don’t publish details of its mechanics or its testing until it’s been proven to work reliably and the file has been uploaded to Defense Distributed’s online collection of printable gun blueprints at Defcad.org.

Update: Here’s my full account of Defense Distributed’s first test-firings of the Liberator, including firing it by hand.

All sixteen pieces of the Liberator prototype were printed in ABS plastic with a Dimension SST printer from 3D printing company Stratasys, with the exception of a single nail that’s used as a firing pin. The gun is designed to fire standard handgun rounds, using interchangeable barrels for different calibers of ammunition.

Technically, Defense Distributed’s gun has one other non-printed component: the group added a six ounce chunk of steel into the body to make it detectable by metal detectors in order to comply with the Undetectable Firearms Act. In March, the group also obtained a federal firearms license, making it a legal gun manufacturer.

The 3D printing technology continues to evolve. From simple tools, 3D printers have now covered complex products such as guns, guitars or even cars. 3D will increasingly make many tools “homemade”. Even healthcare trends will be influenced by 3D, I pointed to jawbone replacement and lately 3D technology has enabled printed lab grown human livers. 

The widening diffusion of 3D printers will reconfigure today’s economic system.

Notice that the current trend of technological innovation leads to decentralization, or bottom-up or niche markets. Such trend basically represents a diametrical opposite of the industrial age platform based on centralization, or top down or mass markets. Yet policymakers have been forcing upon the public, centralized policies that contradicts the direction of markets. So naturally, the struggle for domination will mean social frictions from these antipodal forces.

Take 3D printed guns; 3D will enable the public to autonomously design and manufacture their own guns even at home. So many if not all of the gun control regulations may be rendered “obsolete” by sheer technicalities. This comes even as the media passionately debates on them. 

With the proliferation of 3D printed guns, the next step governments will likely take is to regulate 3D. Such applies also to various vested interest groups, particularly manufacturing and other sectors that will be threatened by the 3D technology.

But since 3D printing or additive manufacturing, as the Wikipedia.org explains represents “a process of making a three-dimensional solid object of virtually any shape from a digital model” implementing social controls on a non-specific module would make such controls ambiguous and or ineffective. So technology will run rings around old industrial era statutes.

In short, the trend of technology advancements and politics have been in a collision course. There will be a winner and a loser.

War on Bitcoin as US Government Tightens Grip

INCREASINGLY desperate governments around the world will resort to various ways and means of preventing people from safeguarding their savings from legal depredation. Thus, the attacks on gold or even cash transactions or hoarding.

Bitcoins are now seen as a threat by the US government and will be subject to "regulations".

Notes the Zero Hedge (bold original)

Just six weeks after the US Treasury decided enough-was-enough with this upstart non-fiat, non-controlled-by-TPTB currency (and applied money-laundering reglations), US financial regulators are now looking for supervisory control over Bitcoin. As The FT reports, CFTC's Bart Chilton notes "it's not monopoly money - real people have real risk in these instruments," and  that regulating the controversial cyber-currency "is sure something [CFTC] needs to explore." Chilton's remit to regulate this "shadow currency" is predicated on it becoming a basis for derivative contracts as opposed to purely transactional (akin to the monitoring of physical oil transactions that can influence crude futures.) Since the Treasury's March decision, at least three North American companies have had their accounts seized by the banks but while this attempt to control the virtual currency follows the ECB's 'ponzi attack' last year, the 'regulators' may note that, "even if US regulations make it hard for Bitcoin businesses to operate in the US, that doesn’t mean it will make it difficult for people to use Bitcoin as a currency in the US. Bitcoin is a world currency."

The war over bitcoins showcases the volatile transition from the industrial age to the information age or the Third Wave.  

It is interesting to see how governments will try to close the gap between the digital marketplace, where the latter would be constantly innovating ahead, while the former will also be constantly in a chase over "controlling" innovations.

 

So far bitcoin has been in consolidation after the recent crash, which has coincided with gold-commodities

Chart of the Day: Diverging Real Gold from Paper gold

From Zero Hedge

I pointed out of the distinction between paper gold and real gold here.

And I also noted that strong global physical demand amidst the Wall Street instigated selloff means a massive transfer of gold reserves to the physical “real” markets.

Since the bear raid or in over 2 weeks, mainland Chinese alone reportedly bought 300 tons of gold or about  a little more than 10% of annual mine production.

And I also pointed out that such transfer means that Wall Street-Central banks may have lesser leeway to continue with their stealth suppression attempt.

The above chart shows that GLD’s inventories have steeply fallen and continues to fall and has been diverging from what seems as recovering gold prices.

Has this been an anomaly or a partial validation of my prognosis?

We will see soon.

Reflexivity Theory and Lending Standards

Reflexivity theory, as discussed last night, is a two-way feedback loop mechanism between expectations (shaped by prices) and outcomes (determined by actions). Why is this important? Because it shows how psychology operates under a bubble.

Professor Arnold Kling at his blog describes the relationship of price expectations and lending standards that abetted the US housing bubble which morphed into crisis in 2007-2008: 

...the expectations of rising home prices helped fuel the decline in lending standards, because you cannot be punished for making a bad loan in a rising market. And the deterioration in lending standards helped fuel rising home prices, because it broadened the market to buy homes. Hence the bubble.

Ron Paul: Federal Reserve Blows More Bubbles

From the great Ron Paul at the Free Foundation.org 

Last week at its regular policy-setting meeting, the Federal Reserve announced it would double down on the policies that have failed to produce anything but a stagnant economy. It was a disappointing, but not surprising, move.

The Fed affirmed that it is prepared to increase its monthly purchases of Treasuries and mortgage-backed securities if things don’t start looking up. But actually the Fed has already been buying more than the announced $85 billion per month. Between February and March, the Fed’s securities holdings increased $95 billion. From March to April, they increased $100 billion. In all, the Fed has pumped more than a half trillion dollars into the economy since announcing its latest round of “quantitative easing” (QE3) in September 2012.

Although many were up in arms when the Fed said it would buy $600 billion in government debt outright for the previous round, QE2, all seems quiet about the magnitude of QE3 because it doesn’t come with huge up-front total price tag. But by year’s end the Fed’s balance sheet could hit $4 trillion.

With no recovery in sight, where’s all this money going? It is creating bubbles. Bubbles in the housing sector, the stock market, and government debt. The national debt is fast approaching $17 trillion, with the Fed monetizing most of the newly issued debt. The stock market has been hitting record highs for the past two months as investors seek to capitalize on the Fed’s easy money. After all, as long as the Fed keeps the spigot open, nominal profits are there for the taking. But this is a house of cards. Eventually, just like in 2008-2009, the market will discipline the bad actions of the Fed and seek to find the real normal.

In the meantime, real families are suffering. While Wall Street and the government take advantage of access to the Fed’s new “free” money, the Fed claims there is no inflation. But who hasn’t paid higher prices at the grocery store, the gas pump, for tuition, for insurance? It’s bad enough that household incomes have stagnated, but real purchasing power has declined so much that one in seven Americans, 47.3 million people, are on food stamps. Five million are collecting unemployment insurance with 21.5 million afflicted by unemployment according to the government’s own figures. That’s 13.9 percent -- close to double the 7.5 percent unemployment number reported last week.

We are certainly not in a recovery. We don’t see the long unemployment and soup kitchen lines like in the Great Depression, but that’s just because the lines are electronic now.

It is not surprising the Fed has decided to hand the American people more of the same failed policies. But it is disappointing. We know what the real solution is: allow the marketplace to work. Allow entrepreneurs the chance to create instead of stifling innovation with arbitrary regulations. Allow interest rates to rise to equal the risks in the economy. Allow bad debts to be liquidated so we can build on a firm foundation. Stop printing money to benefit the government and big banks. Restore sound money to the economy and the American people. Sound money is the bedrock for prosperity and the best check on big government and crony capitalism.

There is no such thing as an “exit”. The US political economy is hooked on the inflation drug.

Worst, Fed policies are not only harming Americans but everyone else in this world, as bubbles have become a global phenomenon.

Yet the Fed and central banks will keep blowing bubbles until the markets pricks them or until there will be a run on paper money.