Amid what has become a nearly constant stream of alarming news from the Middle East and the escalation in the Ukraine conflict, the US Economic growth has quietly been amassing the fuel for what is shaping up to be an impressive period of extended growth.
Readers of The Mint are aware that we follow a baker’s dozen of key indicators, which are presented at the end of each edition, in order to gauge the actual state of the economy via money supply growth and some of the key inputs and outputs as to what expectations are as to the future state of the money supply. Setting aside the fact that what we use as money is not really money at all, but not so cleverly disguised debt, the state of the money supply gives us a sense as to what will happen in terms of employment and asset prices, the fodder which ultimately impacts GDP. Overall, our key indicators have been steadily signaling growth ever since 2009.
While the fuel has been amassing for approximately 5 years now, it is now poised to be coupled with the proverbial spark necessary to spur growth rates reminiscent of the late ’90s – 2007: Improving sentiment.
You won’t see improving sentiment on TV, hear it on the radio nor read about it in the news. You see, improving sentiment doesn’t draw people to read the news, doom and gloom does.
Improving sentiment can be seen in a very conspicuous place in American cities: Increased traffic, be it car, pedestrian, freight, or public transit. When people are out and about, they are generally doing something. The fact that more people are out tends to beget additional economic activity. It is largely a chicken and egg question but in the cities, when you see traffic increase, it is a good bet you are witnessing economic growth first hand.
Have you seen traffic on the rise where you are? In Portland, it has been staggering.
Confirmations that the US Economy is already going gangbusters and may be poised to go into hyper drive for at least the next 5 years are beginning to pop up in the mainstream media:
Deutsche Bank us expansion timeline
You might ask what will drive this expansion? While there is truly no catalyst or new age industrial revolution on the horizon, there is an avalanche, tsunami, (insert your favorite metaphor) of money itching to get out of government bonds and into something, anything that will paradoxically give it increased yields and security.
As in the past, this money will find its way into real estate, the much scourged asset class that is now surprisingly affordable on a relative basis. Once that happens, we know the script, and the expansion expected by the market in the first chart above seems probable, indeed, inevitable.
Here at The Mint, we have been beating the drum of recovery for some time now by virtue of following our “MINT Perceived Target Rate” which lags the more famous Federal Reserve Target rate by 39 months, the estimated amount of time it takes for Fed policy to hit main street. Through this lens, we see at least 39 months of accelerating growth in the future. Once sentiment kicks in, the game will really be on, and the time to position oneself is now.
Is it time to jump back into real estate? Back in early 2013, Nadeem Walayat, at the Market Oracle gave this prognosis for the US Housing Market, which today is holding true to form, as most of Mr. Walayat’s analysis does.
One would do well to mind his final word of caution, do not make the mistake of leveraging oneself too far. If you do, you must time the exit perfectly, and who needs that kind of pressure? The inflationary mega trend to which he refers and our Key Indicators confirm will be with us a very long time, which means real assets trump money in the back any day of the week. The key is to stay liquid.
In November of 1992 Pierre Culliford, a renowned author and illustrator published a graphic novel of tremendous gravity and startling economic insight. The novel would be his last, as on December 24, 1992, Culliford suffered a heart attack at his home in Brussels and passed away the same day.
Culliford is known by his nickname, Peyo, and he was the creator of the Schtroumpfs, who are better known by their English name, the Smurfs.
Peyo’s final novel, Finance Smurf, at long last has an English translation which became available on July 1, 2014.
Seen through the lens of post 2008 skepticism with regards to the financial system that continues to hold the world in shackles, the novel seems especially timely, and the marketing copy on the back cover, which reads:
“99% of the Smurfs have left the Smurfs Village! No one but the Finance Smurf wants to occupy the Smurfs Village!”
appears to be nothing more than an attempt to carry on the rallying cry of the Occupy Wall Street movement of 2011. However, as one opens the cover and peers into the world of Peyo’s Smurfs, it is clear that the author intended to call into question everything the reader thought they understood about money, and in large part, he succeeded.
“Wall-Street-1” by http://26.media.tumblr.com/tumblr_lsd8ucoCX91qbrgmdo1_500.jpg. Licensed under Fair use of copyrighted material in the context of Occupy Wall Street via Wikipedia – http://en.wikipedia.org/wiki/File:Wall-Street-1.jpg#mediaviewer/File:Wall-Street-1.jpg
While the Smurfs are, well, the Smurfs, and as such will invariably be forever adorable and highly entertaining in the eyes of most of humanity, here at The Mint we will look past the novel’s obvious merits of providing page after page of blue colored cuteness and highlight our observations of the merits of the economic arguments and questions that it raises as well as the metaphors employed via the roles played by long-standing characters in the following review. Enjoy!
Finance Smurf
The novel Finance Smurf is set in Smurfs Village. It begins with the incapacitation of Papa Smurf, the Smurf who keeps Smurf Village safe and orderly, who is laid up by a laboratory accident. In this sense, Papa Smurf may be seen as a metaphor for a benevolent dictator or embodiment of a divine being for the Smurfs. This is important, as it is the absence of the ongoing intervention of Papa Smurf in daily life that gives room for the mischief in the novel to occur (Smurf fans will quickly recognize this plot device employed by Peyo).
It then falls to Finance Smurf to seek an antidote, which takes him to the world of humans. It is there that he learns the concept of money and becomes fascinated by it. It is interesting that he does not appear to immediately recognize the creation of money as a means to enrich himself.
Indeed a hallmark of the Smurfs is the communist (or socialist) structure of their life in the Village. Here at The Mint, we do not find this odd, as we have explored in-depth here at The Mint the fact that socialism is the norm in self-supporting economic systems the size of Smurfs’ Village who have a Papa Smurf, so to speak, as a universally respected authority figure. What drives people to Capitalism is the need to tacitly make economic decisions in the absence of a universally respected authority figure, hence Peyo’s need to sideline Papa Smurf at the outset for the narrative to play out.
Finance Smurf returns to Smurfs’ Village with the antidote, as well as a burning desire to introduce money and the human system of trade to the Smurfs. First, he reasons that he needs gold coins with Papa Smurfs likeness on them to use as monetary units. He goes to Painter Smurf for the artistic rendering, Sculptor Smurf for the mold for the coins, Miner Smurf for the gold (Miner Smurf, ironically, has a pile of gold sitting there which he has no use for, as he is diligently extracting flint with his pick axe). Handy Smurf then melts the gold and makes the coins using the mold.
Here we interject another observation. The day-to-day activities of the Smurfs are dependent upon their profession (or lack thereof). In the absence of money the Smurfs simply do what they do. There are rarely specific value judgments made with regards to what the Smurfs do, though all of their actions appear to be motivated by the needs of their fellow Smurfs and throwing the occasional party. This system, while idyllic, assumes that everyone wants to maintain the status quo. The maintenance of the status quo is at once the pillar of strength and the Achilles heel of Socialism.
It is clear that for Painter Smurf, Sculptor Smurf, and Handy Smurf, the requests of Finance Smurf are outside of the status quo. However, being good Smurfs, they go along with it and hope for the best.
With the coins made, Finance Smurf calls a meeting of all Smurfs, introduces the concept of money, and hands out an equal share of the coins to each Smurf. The Smurfs initially do not know how to operate in the new system, so Finance Smurf helps them by doing some back of the napkin costing analysis of their activities. It is worth noting here that this activity is also the hallmark of Socialist systems, the central planning of prices.
As the Smurfs begin to trade, the predictable begins to happen. The productive elements of society, Farmer Smurf, Handy Smurf, Baker Smurf, and so on, soon have more coins than they know what to do with. They take them to Finance Smurf, who is now acting as the bank, to be invested. On the other side, artists such as Harmony Smurf and Poet Smurf find themselves short of money and then mortgage their houses to Finance Smurf. Lazy Smurf is hardest hit.
If it was not obvious to readers to this point, Finance Smurf begins to embody Central Banks and Wall Street. At one point, Baker Smurf calls out Finance Smurf for lending at 10% but only giving him a 6% return. In a nod to the foreclosure crisis, Finance Smurf becomes owner of all of the real estate in Smurfs’ Village. There is a reference to privatization of public works, as when the bridge goes out, the Smurfs look to Finance Smurf to pay for the replacement, which he does in exchange for the right to collect a toll. Even corruption is broached as there is some price-fixing for lumber on the bridge project orchestrated by Finance Smurf.
In short, Finance Smurf comes to embody everything that everybody hates about today’s financial system. The rest of the Smurfs, fed up with the swift disaster that the Money system introduced by Finance Smurf has brought upon them, leave to build another village. In this action, they take the only logical step in the face of monetary tyranny. It is a wonder that more of us do not venture out and do the same today.
In terms of economic lessons to be taken from Finance Smurfs, there is little more to be gleaned.
The remaining Social/Political lessons are taught via the intervention of Gargamel, the Smurfs’ arch nemesis. Gargamel counterfeits coins, echoing a form of economic sabotage employed by nations at war, and lures the Smurfs to them, relying on their newfound greed to be their downfall. Fortunately, Papa Smurf returns and wisely guides the Smurfs away from the trap.
In another odd twist, Papa Smurf, once he becomes aware of the new Money system that has been introduced during his time of incapacitation, does not act to stop it, instead, he bumbles along with it as many a powerful emeritus would do, until the Smurfs ultimately leave to build another village, safely away from the scourge of money.
Conclusions
As an adult reading Finance Smurf in the post 2008 socio-economic landscape, one gets an eerie sense that Peyo was on to something back in 1992, and cleverly communicated it to the world. While the ongoing economic analogies presented in the novel are quite clear, Peyo proves stunningly accurate in his depiction of Finance Smurf inventing money and introducing it to the populace, along with a monopoly on usury, for in this way Central Banks unwittingly enslave the world by promulgating the debt based money supply.
The Peyo’s final triumph is his clairvoyant depiction of the Smurfs’ unanimous decision to simply leave the village that was their happy home before it became the illegitimate property of Finance Smurf, and build another village just a stone’s throw away, yet with one marked difference; the absence of money and its creator.
True to form, the Smurfs reconcile with Finance Smurf who repents of his ways. For Smurfdom, and indeed our world, was never meant to live under the tyranny of perpetual debts. The Smurfs in Smurfs’ Village, who had a small-scale debt problem which quickly got out of hand, simply left and went elsewhere. Jewish law called for a Jubilee, recognizing both the necessity of money and finance for large-scale commerce and the necessity of liberation from the snares that they created amongst what would otherwise be a brotherhood of man. What, then, is the solution for an entire world living under the scourge of a 100-year-old debt based monetary system?
Following the Smurfs may not be a bad idea after all.
Once again the world is watching what is occurring in Iraq with shock, awe, and horror. As a public service, we have compiled the following links as a primer for those curious to know what is going on and why from those more knowledgeable than ourselves:
Yesterday, the US stock market finally experienced mild selloff. Finally, we say, because it had continued to rise even as the most recent series of crises in the Middle East flared up in conjunction with the downing of Malaysia Air flight 17 in the Ukraine conflict, which has become a flashpoint for deteriorating relations between Russia and the West.
Did investors just wake up to these crises and begin to fly to safety?
Don’t kid yourself, fellow taxpayer, the events above were actually bullish for the market. In the altered universe that the use of debt as money for the past 43 years has created, destruction and war = GDP growth + a population submitted by fear, afraid to ask for too much while others experience sacrifice.
When debt is money and destruction is growth, war is the ultimate boondoggle.
What truly has investors spooked at the moment, albeit mildly (despite what the headlines imply) is the continued march of evidence that the proletariat is now stepping up and demanding wage increases at an alarming rate.
Take the Employment Cost Indicator above and add it to the number of unemployed workers per job opening below and you come to one inescapable conclusion: The Wage price spiral is upon us.
The wage price spiral, that scourge of corporate profit margins which has been accelerating since March of this year (according to our unscientific calculations here at The Mint), has finally caught the attention of Investors, who in turn are selling on the off chance that the Federal Reserve will;
1) Take notice and,
2) Take action by increasing interest rates
To those who have been spooked by the selloff we offer a word of comfort: The likelihood that the Federal Reserve takes action to raise rates in a meaningful way is slim. Assuming they were to raise rates, any action at this point would take at least 39 months to matter, crucify fixed income in the short term, and trigger large scale bankruptcies the likes of which they have spent the past 5 years trying to mop up.
However, even if the Fed had the desire to raise rates they would be unable to do so. They have lost any meaningful control of the traditional rate mechanisms through an incomprehensible mix of monetary policy (think Quantitative Easing) and regulatory action (chiefly Dodd-Frank) some time ago. All they have left us rhetoric, which is increasingly falling on deaf ears.
Reality is far removed from Washington DC and Wall Street. There are very large piles of money that are on the fence between seeking safety and return, and that pile is growing faster by the minute. The bigger it grows, the greater the likelihood that it will be deployed at a lower risk adjusted return. The decrease in returns = increased wages to the proletariat as the pendulum swings the other way in world’s socialist monetary system.
The wage price spiral is here, and it is about to make a hot mess of markets everywhere. Ask for a substantial raise or find another job, especially if you are in an industry with ultra-tight demand for labor. You are likely to be pleasantly surprised.
As in the past, this money will find its way into real estate, the much scourged asset class that is now surprisingly affordable on a relative basis. Once that happens, we know the script, and the expansion expected by the market in the first chart above seems probable, indeed, inevitable.
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