White Anger: Fed Helped Elect Trump; Tale of Two Job Markets

Lakshman Achuthan and the ECRI posted some interesting charts about the uneven jobs recovery since 2007.

Minorities fared far better at job gains on a percentage basis than whites.

The ECRI’s charts provide yet another look at why Trump won the election.

Please consider A Tale of Two Job Markets.

Looking beneath the headlines, it is important to appreciate how unevenly distributed the job gains have been during the current business cycle. We pointed out nearly five years ago that, over the first two years of the jobs recovery, Whites accounted for less than 59% of the job gains, even though they made up over 81% of the labor force. Meanwhile, Blacks and Hispanics, who made up “about a quarter of the labor force, accounted for around five out of every eight jobs added” (USCO, February 2012).

Last month, we again emphasized the skewed nature of this jobs recovery, noting that, “for seven long years, the majority of less-educated non-Hispanic White adults has not been employed. No wonder there is such angst in the lead-up to this presidential election” (USCO Essentials, October 2016).


A striking picture of this lopsided reality is evident from the shares of the total job gains since the November 2007 pre-recession peak in employment. As the chart shows, of the five-million-plus net jobs added since that high-water mark nine years ago, some 56% went to Hispanics (rightmost green bar), about quadruple their 14% share of the labor force at the time (rightmost blue bar). Meanwhile, 29% of those job gains went to Asians, i.e., about six times their 5% share of the labor force (second set of bars from left). Moreover, 25% of those job gains went to Blacks, i.e., more than double their 11% share of the labor force (third set of bars from left).

In sharp contrast, Whites, who made up over 81% of the labor force in 2007 (leftmost blue bar) accounted for negative 9% of the net job gains (red bar). While the percentage shares for these four groups add up to more than 100% because White Hispanics are double-counted as both White and Hispanic, and Black Hispanics are double-counted as both Black and Hispanic, the reality is stark. Whites actually have fewer jobs than nine years ago, while Hispanics, Blacks and Asians together gained all of the net jobs added, and more.

Negative Real Interest Rates

The above charts echo what I said yesterday in a Decade of Negative Real Interest Rates: Who Benefited?.

Here are the key charts and commentary.

Decade of Negative Real Interest Rates


The above chart was created by taking the short-term treasury bill rate and subtracting the year-over-year rate of inflation as measured by the CPI.

A massive housing bubble formed in the first period real interest rates were negative. In the current prolonged period of negative rates, bubbles formed in the stock market and bond markets globally.

Median Household Income Growth


Doug Short notes: The reality illustrated here is that the real median household income series spent most of the first nine years of the 21st century struggling slightly below its purchasing power at the turn of the century. Real incomes (the blue line) hit an interim peak at a fractional 0.7% in early 2008, far below the nominal illusionary interim peak (as in money illusion) of 27.2% six months later and the latest at 42%, a record high. The real median household income is now at -0.6% from its turn-of-the-century level. In essence, the real recovery from the trough has been frustratingly slow.”

White Anger

The above charts explain “white anger” and why Trump won, precisely.

And despite the hoopla of Trump saving a thousand jobs here or there at Carrier and Ford, the loss of manufacturing jobs is structural.

Structural Issues

The decline in jobs is related to robots and rising productivity in general. It takes fewer and fewer people each year to build anything, anywhere.

Blaming NAFTA or China is a scapegoat. Productivity It isn’t going away. Rather, productivity is poised to accelerate.

Advances in autonomous vehicles ensures millions of long-haul truck driving jobs will vanish by the 2022-2024 timeframe. In addition, Uber has announced plans to make its cars driverless. When that happens, and it will millions more jobs will vanish.

For my latest self-driving roundup, please see “Otto” Self-Driving Truck Test on Ohio Roads this Week.

Extremely Deflationary Forces

Economists at the Fed, including Janet Yellen, keep worrying about the lack of productivity. Productivity will jump soon, and millions won’t like it when it happens.

Productivity is an inherently deflationary force: More goods and services are produced at lower and lower cost.

Productivity is a good thing. Prices should drop. The average Joe on the street welcomes lower prices. In fact, the average Joe on the street needs lower prices.

Fed Helped Elect Trump

In this light, the Fed’s fight against deflation is amazingly counterproductive. In fact, the Fed helped elect Trump.

In their attempts to fight routine consumer price deflation, central bankers create extremely destructive asset bubbles that eventually collapse, setting off what they should fear – asset bubble deflation.

The Bank of International Settlements (BIS), did a detailed study and agrees. For details, please see Historical Perspective on CPI Deflations: How Damaging are They?

As I pointed out yesterday, the final irony in this sad saga is Paul Krugman, Who Proposed Fight with Fake Outer Space Aliens to Stimulate the Economy, Now Worried About Quality of Trump’s Spending.

Mike “Mish” Shedlock

Pending Home Sales Index Dives to 0.1%: What’s Coming Up?

The reset of the year for housing looks suspect at best. The pending home sales index is a barely positive 0.1 percent.

Bloomberg Econoday sees things this way.


Pending sales of existing homes rose only 0.1 percent in October, pointing to flat results for the rest of the year in final sales. Pending sales in October were held down by weakness in the South that offset gains elsewhere. The resale market has been soft in contrast to new homes which are having a good year.

Recent History

Resales had been flat this year but rose sharply in September as indicated in advance by the pending home sales index which tracks contract signings. Forecasters see this index rising 0.8 percent in October.


The National Association of Realtors developed the pending home sales index as a leading indicator of housing activity. Specifically, it is a leading indicator of existing home sales, not new home sales. A pending sale is one in which a contract was signed, but not yet closed. It usually takes four to six weeks to close a contracted sale.

Pending Home Sales


Was the pending homes sales slowdown in 2013 related to the taper tantrum and rising interest rates?

If so, there’s a steep decline in store.

Mortgage Tantrum


Chart courtesy of Mortgage News Daily, anecdotes mine.

Despite treasury rates being substantially lower than the peak in 2013, mortgage rates are well into tantrum territory.

For more details of the Taper Tantrum, please see Bond Tantrum II: Mortgage Rates Up 80 Basis Points Since July.

Mike “Mish” Shedlock

Multiple Simultaneous Threats: Nexit Next?

Members of the court, you are passing judgment on the future of the Netherlands. And I tell you: if you convict me, you will convict half of the Netherlands. And many Dutch will lose their last bit of trust in the rule of law.

Of course, I should not have been subjected to this absurd trial. Because this is a political trial. It is a political trial because political issues have to be debated in Parliament and not here. It is a political trial because other politicians — from mostly government parties — who spoke about Moroccans have not been prosecuted. It is a political trial because the court is being abused to settle a political score with an opposition leader whom one cannot defeat in Parliament.

This trial here, Mr. President, it stinks. It would be appropriate in Turkey or Iran, where they also drag the opposition to court. It is a charade, an embarrassment for the Netherlands, a mockery of our rule of law.

And it is also an unfair trial because, earlier, one of you — Mrs. van Rens — commented negatively on the policy of my party and the successful challenge in the previous Wilders trial. Now, she is going to judge me.

What have I actually done to deserve this travesty? I have spoken about fewer Moroccans at a market, and I have asked questions of PVV members during a campaign event. And I did so, members of the court, because we have a huge problem with Moroccans in this country. And almost no-one dares to speak about it or take tough measures. My party alone has been speaking about this problem for years.

Just look at these past weeks: Moroccan fortune-seekers stealing and robbing in Groningen, abusing our asylum system, and Moroccan youths terrorizing entire neighborhoods in Maassluis, Ede and Almere. I can give tens of thousands of other examples — almost everyone in the Netherlands knows them or has personally experienced nuisance from criminal Moroccans. If you do not know them, you are living in an ivory tower.

I tell you: If we can no longer honestly address problems in the Netherlands, if we are no longer allowed to use the word “alien,” if we, Dutch, are suddenly racists because we want Black Pete to remain black, if we only go unpunished if we want more Moroccans or else are dragged before a criminal court, if we sell out our hard-won freedom of expression, if we use the courts to silence an opposition politician, who threatens to become Prime Minister, then this beautiful country will be doomed. That is unacceptable, because we are Dutch and this is our country.

And again, what on earth have I done wrong? How can the fact be justified that I have to stand here as a suspect, as if I robbed a bank or committed murder?

I only spoke about Moroccans at a market and asked a question at an election-night meeting. And anyone who has the slightest understanding of politics, knows that the election-night meetings of every party consist of political speeches full of slogans, one-liners and making maximum use of the rules of rhetoric. That is our job. That is the way it works in politics.

Election nights are election nights, with rhetoric and political speeches; not university lectures, in which every paragraph is scrutinized for 15 minutes from six points of view. It is simply crazy that the Public Prosecutor now uses this against me, as if one would blame a football player for scoring a hattrick.

Indeed, I said at the market, in the beautiful Hague district of Loosduinen: “if possible fewer Moroccans.” Mark that I did so a few minutes after a Moroccan lady came to me and told me she was going to vote PVV because she was sick and tired of the nuisance caused by Moroccan youths.

And on election night, I began by asking the PVV audience “Do you want more or less EU,” and I also did not explain in detail why the answer might be less. Namely, because we need to regain our sovereignty and reassert control over our own money, our own laws and our own borders. I did not do that.

Then, I asked the public “Do you want more or less Labour Party.” And, again, I did not explain in detail why the answer might be less. Namely, because they are the biggest cultural relativists, willfully blind and Islam-hugging cowards in Parliament. I did not say that.

And then I asked, “Do you want more or fewer Moroccans,” and again, I did not explain in detail why the answer might be fewer. Namely, because people with Moroccan nationality are overrepresented in the Netherlands in crime, benefit dependency and terror. And that we want to achieve this by expelling criminals with Moroccan nationality after denaturalizing them of their Dutch nationality, by a stricter immigration policy and an active voluntary repatriation policy. Proposals that we have made in our election manifesto from the day I founded the Party for Freedom.

I explained this in several interviews on national television, both between the statement at the market and election night, as well as on election night a few moments after I had asked the said questions. It is extremely malicious and false of the Public Prosecutor to want to disregard that context.

Disgusting — I have no other words for it — are the actions of other politicians, including the man who for a few months may still call himself Prime Minister. Their, and especially his, actions after the said election night constituted real persecution, a witch hunt. The government created an atmosphere in which it had to come to trial.

Prime Minister Rutte even told small children during the youth news that I wanted to expel them, and then reassured them that this would not happen. As if I had said anything of that kind. It is almost impossible to behave viler and falser.


Two representative polls, one commissioned by the PVV, the other commissioned by De Volkskrant, showed that, apart from the government and media elite, 43% of the Dutch people, around 7 million people, agree with me. Want fewer Moroccans. You will be very busy if the Public Prosecutor is going to prosecute all these 7 million people.

People will never understand that other politicians — especially from government parties — and civil servants who have spoken about Moroccans, Turks and even PVV members, are being left alone and not prosecuted by the Public Prosecutor.

Like Labour leader Samsom, who said that Moroccan youths have a monopoly on ethnic nuisance.

Or Labour chairman Spekman, who said Moroccans should be humiliated.

Or Labour alderman Oudkerk, who spoke about f*cking Moroccans.

Or Prime Minister Rutte, who said that Turks should get lost.

And what about police chief Joop van Riessen, who said about me on television — I quote literally: “Basically one would feel inclined to say: let’s kill him, just get rid of him now and he will never surface again”?

And in reference to PVV voters, van Riessen declared: “Those people must be deported, they no longer belong here.” End of quote. The police chief said that killing Wilders was a normal reaction. That is hatred, Mr. President, pure hatred — and not by us, but against us. And the Public Prosecutor did not prosecute Mr. Van Riessen.

But the Public Prosecutor does prosecute me. And demands a conviction based on nonsensical arguments about race and concepts that are not even in the law. It accuses and suspects me of insulting a group and inciting hatred and discrimination on grounds of race. How much crazier can it become? Race. What race?

I spoke and asked a question about Moroccans. Moroccans are not a race. Who makes this up? No-one at home understands that Moroccans have suddenly become a race. This is utter nonsense. Not a single nationality is a race. Belgians are no race, Americans are no race. Stop this nonsense, I say to the Public Prosecutor. I am not a racist and neither are my voters. How do you dare suggest that? Wrongly slandering millions of people as racists.

And now the Public Prosecutor also uses the vague concept of “intolerance.” Yet another stupidity. The subjective word intolerance, however, is not even mentioned in the law. And what for heaven’s sake is intolerance? Are you going to decide that, members of the court?

By asking for a conviction, the Public Prosecutor, as an accomplice of the established order, as a puppet of the government, asks to silence an opposition politician. And, hence, silence millions of Dutch. I tell you: The problems with Moroccans will not be solved this way, but will only increase.

For people will sooner be silent and say less because they are afraid of being called racist, because they are afraid of being sentenced. If I am convicted, then everyone who says anything about Moroccans will fear to be called a racist.

And I tell you, the battle of the elite against the people will be won by the people. Here, too, you will not be able to stop this, but rather accelerate it. We will win, the Dutch people will win, and it will be remembered well who was on the right side of history.

Common sense will prevail over politically correct arrogance. Because everywhere in the West, we are witnessing the same phenomenon.

The voice of freedom cannot be imprisoned; it rings like a bell. Everywhere, ever more people are saying what they think. They do not want to lose their land, they do not want to lose their freedom.

They demand politicians who take them seriously, who listen to them, who speak on their behalf. It is a genuine democratic revolt. The wind of change and renewal blows everywhere. Including here, in the Netherlands.

As I said:

I am standing here on behalf of millions of Dutch citizens.
I do not speak just on behalf of myself.
My voice is the voice of many.

And, so, I ask you, not only on behalf of myself, but in the name of all those Dutch citizens:

Acquit me! Acquit us!

Juncker Pleads with Hofer: “No Referendums” (Will of People Must be Suppressed)

European Commission President, Jean-Claude Juncker issued a warning to Austrian presidential candidate Norbert Hofer, regarding referendums.

Hofer, an anti-immigration, candidate is in a tight race for the election coming up on December 4.

If he wins, Hofer said he would hold in-out referendums if Brussels seeks to expand it power.

Please consider European president Jean-Claude Juncker pleads with EU leaders not to hold ‘in-out’ referendums – because voters will choose to Leave.

Jean-Claude Juncker has urged EU leaders not to hold referendums on their membership of the bloc because he fears their voters will also choose to leave. The European Commission president said giving people a vote would be ‘unwise’ as they could seek to replicate Brexit.

His remarks come as one of the contenders to become Austrian president has threatened to hold a referendum if the EU integrates further.

Norbert Hofer, who will become Europe’s first far-right head of state since the Second World War if elected on Sunday, has promised a ballot if the EU becomes more centralised following Brexit.

‘Regarding referenda on EU membership, I think it is not wise to organise this kind of debate, not only because I might be concerned about the final result but because this will pile more controversy onto the huge number already present at the heart of the EU.

‘Besides, I don’t think the next president of Austria, whoever it will be, will launch themselves into this kind of escapade.

‘I have learned to tell the difference, between campaign promises and concrete policies.

Mr Juncker, who has faced blame for the Brexit vote, insisted ‘the existence of the EU is not in doubt’.

He claimed the EU’s weakness was a ‘lack of love’ rather than because of the actions of Brussels.

Lie of the Day

Juncker is a babbling, hypocritical fool, who was also sure Brexit would never happen.

Asked about the Freedom Party candidate’s pledge, Mr Juncker told Euronews: ‘We can’t deny or take away the people of Europe’s right to express their views.’

Got that?

Who Will Win?


Austria Betting Odds – Paddy Power

According to PaddyPower, the betting odds are 3/10 for Hofer and 11/5 for Van der Vellen as of November 29.


If you bet $5 on Van der Bellen you collect a total of $16 ($11 + $5).
If you bet $10 on Hofer you collect a total of $13 ($10 + $3).

Austria Betting Odds – Bwin

The sports betting site Bwin sees it this way.


In this case a bet of $200 on Hofer will return a total of $300 and a bet of $100 on Van der Bellen would return a total of $250.

Like Trump, Austria’s Norbert Hofer Attracting Disillusioned Working Class Voters

Breitbart reports Like Trump, Austria’s Norbert Hofer Attracting Disillusioned Working Class Voters.

The victory of Donald Trump in the U.S. presidential election has political analysts predicting a boost for Hofer and other populists across Europe in what they call the “Trump-effect.”

Hofer has extended his lead in the polls by another percentage point from his opponent, former Green party leader Alexander Van der Bellen.

Critics of the populist politician worry that Hofer will dissolve the grand coalition government in Austria, which consists of the conservative Austrian People’s Party (ÖVP) and the Socialists, if he becomes president. Despite the FPÖ leading in the polls, Hofer has said he wouldn’t consider such a move until at least the summer of next year.

“I’m not going to dismiss the government at every opportunity,” he told Austrian broadcaster ORF. However, Mr. Hofer did make it clear that if the government didn’t continue on the path of border security and integration legislation he would very likely consider new elections.

Austrian Poll


The above from http://www.oe24.at/oesterreich/politik/Hofer-zieht-in-Umfrage-davon/258808210.

Following Text Translation From German …

FPÖ candidate Hofer has 52% of the votes (with a fluctuation margin of 4%), independent candidate Alexander Van der Bellen has 48%. Compared to the beginning of the month, Hofer has thus increased the lead from two to four percent.

The race is, of course, still open. Because of the wide fluctuation range, Hofer moves between 48% and 56%, Van der Bellen between 44% and 52%.

Norbert Hofer extended his narrow lead over Van der Bellen (800 interviewees from November 14-16).

Final Comments

Polls and betting odds have been notoriously wrong lately. First came Brexit, then Trump, then a surprise in the French primary when Francois Fillon knocked off Nicolas Sarkozy in the first round.

This is the first time this year that polls and betting odds have had the anti-establishment candidate in the lead. Maybe the string of failures stops here.

A vote for Hofer would not only be a vote for common sense, it would be a good outcome for the UK as well.

Mike “Mish” Shedlock

Decade of Negative Real Interest Rates: Who Benefited?

Rudy Havenstein Tweeted an interesting chart earlier today on real negative interest rates.

I recreated the chart below and also share a chart from Doug Short on real median incomes to help put this financial repression by the Fed in proper perspective.

Decade of Negative Real Interest Rates


The above chart was created by taking the short-term treasury bill rate and subtracting the year-over-year rate of inflation as measured by the CPI.

A massive housing bubble formed in the first period real interest rates were negative. In the current prolonged period of negative rates, bubbles formed in the stock market and bond markets globally.

Outside the US, nearly three quarters of the world’s bond traded at negative interest rates.

Doug Short at Advisor Perspectives updated his series of charts on Median Household Income earlier today.

Median Household Income, Nominal and Real


Median Household Income Growth


Doug Short notes: The reality illustrated here is that the real median household income series spent most of the first nine years of the 21st century struggling slightly below its purchasing power at the turn of the century. Real incomes (the blue line) hit an interim peak at a fractional 0.7% in early 2008, far below the nominal illusionary interim peak (as in money illusion) of 27.2% six months later and the latest at 42%, a record high. The real median household income is now at -0.6% from its turn-of-the-century level. In essence, the real recovery from the trough has been frustratingly slow.”

Who Benefited?

  • Bailed out banks
  • Government bodies via property tax hikes, income tax hikes, sales tax hikes and collection
  • Asset holders – The wealthy

The median guy lost. Those at the bottom end got clobbered much harder. Only the top 10% or so fared well.

The primary beneficiary of QE, negative real rates, and inflation was the top 1%.

The Election

Writers still struggle to explain the election of Trump. The above charts explain clearly.

The median guy on the street is fed up by financial repression. Thanks to mainstream media, the “deplorables” are upset at corporations, at globalization, and at the failure of government to hike minimum wages.

Placing Blame Where It Belongs

Thanks to mainsteam media, which parrots the idea that inflation is good, the “deplorables” fail to blame the institution most responsible: the Fed.

Globalization is a good thing. Falling prices are a good thing.

The average guy on the street understands the latter, but not the former. The average economist, brainwashed by years of Keynesian economic training fails to understand anything.

Academia and mainstream media parrot patently false theories on the benefits of inflation and tariffs. Instead of picketing the Fed, the “deplorables” voted for Trump.

Economist Paul Krugman need only look in a mirror to see one of the reasons the “deplorables” voted the way they day. Krugman still fails to understand what happened.

Shortly after the election, Krugman made a confession: Krugman Admits He Is Clueless. That Progress will be Short-Lived

Explaining Trump

Here is a the key chart from Explaining Social Anger, Brexit, Donald Trump in One Chart.

Shrinking Middle Class

Wealth Gap

The above chart from the Wall Street Journal article IMF’s Grim Long-Term U.S. Outlook in Six Charts.

Economic Challenge to Keynesians

Of all the widely believed but patently false economic beliefs is the absurd notion that falling consumer prices are bad for the economy and something must be done about them.

I have commented on this many times and have been vindicated not only by sound economic theory but also by actual historical examples.

For a synopsis, please see Deflation Bonanza! (And the Fool’s Mission to Stop It).

My Challenge to Keynesians “Prove Rising Prices Provide an Overall Economic Benefit” has gone unanswered.

There is no answer because history and logic both show that concerns over consumer price deflation are seriously misplaced.

The Fed’s fight against deflation is amazingly counterproductive and the above charts provide ample evidence.

Routine Deflation Harmless

Routine CPI deflation is harmless. The Bank of International Settlements (BIS), did a detailed study and agrees. For details, please see Historical Perspective on CPI Deflations: How Damaging are They?

In their attempts to fight routine consumer price deflation, central bankers create extremely destructive asset bubbles that eventually collapse, setting off what they should fear – asset bubble deflation.

The final irony in this sad saga is Paul Krugman, Who Proposed Fight with Fake Outer Space Aliens to Stimulate the Economy, Now Worried About Quality of Trump’s Spending.

Mike “Mish” Shedlock

Hype Over GDP Statistical Noise

The BEA’s second estimate of Third Quarter GDP came in at 3.2% up from 2.9% in the advance (first) estimate.

This had the pundits squawking, but let’s dive into the details to see if anything meaning happened.

Bloomberg Econoday provides a glowing report, as one might expect from any upgrade, no matter how slight.


The third quarter has gotten a meaningful upgrade. The second estimate is 3 tenths higher than the first, at a plus 3.2 percent annualized rate and which includes an upgrade for consumer spending and, in further good news, a downgrade in inventory growth. Personal consumption expenditures rose at a 2.8 percent pace in the quarter, up 7 tenths from the initial estimate and, outside the 4.3 percent surge in the second quarter, the best showing by the consumer since second quarter last year. Inventories added $7.6 billion in the quarter, down from an initial $12.6 billion in a revision that held down the quarter’s GDP but which will ease concerns of unwanted overhang that could slow fourth-quarter production.

Other details include less downward pull from residential investment, a component that had been strongly positive in prior quarters, and a downgrade for nonresidential investment which is now only marginally in the plus column. Net exports shaved $521.0 billion from the quarter’s total, little changed from the initial estimate, with government purchases a small positive. Price data were shaved lower with the GDP price index revised down 1 tenth to only 1.4 percent.

This report points to greater-than-expected consumer momentum going into the current quarter, helping to explain the big 0.8 percent surge in retail sales for October. The consumer has jobs and is the driving force of the economy.

Consumer Metrics Institute

Rick Davis at the Consumer Metrics Institute provides this GDP analysis.

In their second estimate of the US GDP for the third quarter of 2016, the Bureau of Economic Analysis (BEA) reported that the growth rate was +3.15%, up +0.24% from their previous estimate and up +1.73% from the prior quarter.

Most of the improvement in the headline number came from a +0.42% upward revision to consumer spending. Spending on consumer goods was revised upward by +0.26%, and spending on consumer services was reported to be +0.16% better than previously thought. However, both of these numbers remain below the growth levels recorded in the prior quarter (and were in aggregate -0.99% lower than 2Q-2016). The generally noisy inventory growth rate was revised downward by -0.12% to +0.49%. None of the revisions to the other line items in the report were material.

The BEA’s treatment of inventories can introduce noise and seriously distort the headline number over short terms — which the BEA admits by also publishing a secondary headline that excludes the impact of inventories. The BEA’s “bottom line” (their “Real Final Sales of Domestic Product”) was a +2.66% growth rate, up +0.36% from the previous estimate and now up +0.08% from 2Q-2016.

Real annualized household disposable income was reported to have grown by $176 quarter-to-quarter, to an annualized $39,234 (in 2009 dollars). Not all of that increase was spent; the household savings rate increased +0.2% to 5.9%.

For this revision the BEA assumed a slightly lower effective annualized deflator of 1.39%. During the same quarter (July 2016 through September 2016) the inflation recorded by the Bureau of Labor Statistics (BLS) in their CPI-U index was 1.84%. Under estimating inflation results in correspondingly optimistic growth rates, and if the BEA’s “nominal” data was deflated using CPI-U inflation information the headline growth number would have been lower, at a +2.74% annualized growth rate.

Among the notable items in the report :

— The headline contribution from consumer expenditures for goods increased to a +0.74% growth rate (although it is still down a material -0.77% from the prior quarter).

— The contribution to the headline from consumer spending on services improved to +1.15% (which also remains down -0.22% from the prior quarter). The combined consumer contribution to the headline number was +1.89%, down a significant -0.99% from 2Q-2016.

— The headline contribution from commercial private fixed investments remained negative at -0.15%. Although this is a slightly smaller contraction than during the previous quarter, it still represents the fourth consecutive quarter of contraction in commercial fixed investments.

— The contribution from inventories softened somewhat, adding +0.49% to the headline (while still up up a dramatic +1.65% from 2Q-2016 — after a string of five consecutive quarters of contraction). It is important to remember that the BEA’s inventory numbers are exceptionally noisy (and susceptible to significant distortions/anomalies caused by commodity price or currency swings) while ultimately representing a zero reverting (and long term essentially zero sum) series.

— The positive headline contribution from governmental spending was essentially halved; it was revised downward by -0.04% to +0.05%. This was still up an historically large +0.35% from the prior quarter. This momentary growth was almost certainly due to increased Federal fiscal year-end (“spend every last budgeted dime — even if we can’t possibly use whatever it is that we are buying”) spending — a recurring annual phenomenon that is accompanied by an offsetting fourth calendar quarter (first fiscal quarter) reversal of that growth.

— The contribution to the headline number from exports improved slightly to +1.18% (up +0.01% in this revision and +0.97% from the prior quarter).

— Imports subtracted -0.31% from the headline number, up +0.03% in this revision but down -0.28% from the prior quarter.

— The “real final sales of domestic product” was revised upward +0.36% to +2.66%, and it is up +0.08% from the prior quarter. This is the BEA’s “bottom line” measurement of the economy and it excludes the reported inventory growth.

— As mentioned above, real per-capita annual disposable income was reported to have grown $176 quarter-to-quarter in this report. At the same time the household savings rate was revised to 5.9%, the same level recorded in the second quarter of 2016. It is important to keep this line item in perspective: real per-capita annual disposable income is up only +6.97% in aggregate since the second quarter of 2008 — a meager annualized +0.82% growth rate over the past 33 quarters.

Crowing over Statistical Noise

Any crowing by Econoday, especially talk of a “meaningful upgrade” is beyond silly.

GDP reports are annualized which quadruples changes. Mentally take that 0.3 percentage point upgrade and divide it by four. Does it still look meaningful?

Also pay attention to Davis’ final comment “Real per-capita annual disposable income is up only +6.97% in aggregate since the second quarter of 2008 — a meager annualized +0.82% growth rate over the past 33 quarters.

Compare that statement to Exonoday’s “The consumer has jobs and is the driving force of the economy.”

I remind Econoday to think about the election of Trump and why people are angry before crowing such nonsense.

And the consumer is not the driver of the economy in the first place. Production, not consumption is what dictates growth.

Mike “Mish” Shedlock

Brexit Stacked Deck? Which Way? Don’t Negotiate, Just Leave!

Yesterday, ECB president Mario Draghi warned Brexit will be tougher for UK than for eurozone.

Also yesterday, Irish Prime Minister Enda Kenny warned Brexit ‘impossible’ within two years.

Both are quite wrong, and caught in obvious, self-serving bluffs.
There is nothing of substance in either claim.

Ireland does not support Brexit. In practice, Kenny hopes to drag out negotiations so long they don’t happen.

Everyone in the remain camp promotes their position with obvious bluffs.

Brexit Stacked Deck – Which Way

Brexit officials claim Cards Stacked in Our Favour.

EU officials claim they have the upper hand. But so does the EU. Let’s go over the claims and counterclaims.

UK Claims

  • Britain’s top negotiators are confident they have a strong hand to play. From London’s perspective, it is facing a 27-country bloc that remains economically fragile, worried about security, under populist assault and divided over the crisis of legitimacy facing its central EU institutions.
  • Britain’s exit blows a hole in the EU budget and will be costly for some members, stoking tensions between net contributors (such as Germany, France and the Netherlands) and recipients (many eastern member states).
  • The UK is the EU’s third biggest net budget contributor, paying £140bn since 1973. More importantly it is scheduled to pay another net £60bn in the EU’s agreed long term budget to 2020/21, including £26.4bn in the two years after 2019, its expected exit date.
  • If as part of a transition deal Britain agrees to continue payments to 2021, it would help the EU27 delay a divisive internal budget debate. But it would also mean Theresa May, UK prime minister, going into a 2020 election without any EU budget savings to show.
  • Gordon Bajnai, the former Hungarian prime minister, argues that a common EU foreign and security policy would be “very weak in the future if the UK is somehow not kept in the system”. “The UK could ask for much more in Brexit talks if it somehow remains part of security and defence structures,” he said.

EU Claims

  • Brussels sees Britain running headlong into a negotiating trap. It is smaller than the EU, has more to lose, and will be negotiating against a deadline controlled by the EU27. Crucially, it can largely only exercise leverage by hurting its economy or citizens. “The Brits have so cornered themselves that it is an unequal situation, whatever they do,” said one senior EU official involved in Brexit talks.
  • London’s leverage options cluster along four themes: common economic interests; Britain’s contribution in money and power; the threat of a hard Brexit; and tactical opportunities to divide the EU27.
  • Brussels is also aware it is in the UK’s interests to remain in some programmes, like research funding. “For every piece of influence it wants to retain in EU policymaking it will have to pay a price,” said Andrew Hood, a former UK government lawyer now at Dechert.

Trump Card

Boiled down to its purest terms, it would involve the UK effectively confronting the EU with a choice: continue a zero-tariff preferential trade arrangement, or accept World Trade Organisation terms. “The UK would recommend the former, but could live with the latter,” said a group of pro-Brexit former ministers, including Peter Lilley and John Redwood.

That’s a strong trump card, but the UK has another one that’s even stronger. First consider another obvious bluff.

Bluff from Schauble

Germany’s finance minister Wolfgang Schäuble boasts Britain can’t lower corporation tax because the UK still has EU commitments.

Obviously that claim that flies out the window the moment the UK says “goodbye”. It it to the EU’s advantage, not the UK’s for the UK to enter negotiations.

The EU will try to drag the negotiations on forever. Heck, they won’t even have to try. Permanent negotiation is a natural process getting 28 nations to agree to anything, and under silly EU rules all 28 nations have to agree.

Don’t Negotiate, Just Leave!


Mario Draghi and EU officials are very anxious for May to trigger Article 50.

Why bother?

There is no legal requirement to file anything. All the UK has to do is proclaim the treaty null and void. By doing so, all these accumulated fees the EU is threatening the UK with immediately go up in smoke. So do current UK contributions.

That is the ultimate trump card, and I mentioned that prospect on day one.

A few days ago a reader emailed me a link to a Moneyweek article Don’t trigger Article 50 – Just Leave.

Despite my best attempts, says professor of international law Ingrid Detter de Frankopan, everyone has been deaf to the painstakingly simple course for the United Kingdom to take: don’t trigger Article 50 at all.

Second rate lawyers are misleading everyone in the country by insisting that, in order to leave the European Union it is essential to “trigger” Article 50 in its entirety. This line has been swallowed whole by the government, the media and commentators. It is, however, absolute nonsense. Under international law and under Article 50 (1) itself, only notice to leave is necessary.

The horror that I feel about this misdirection is compounded by that the fact that if Article 50(2) is ‘triggered’ it implies that the UK government accepts that the EU will decide the conditions of UK’s withdrawal. This has serious consequences. An arbitrary two-year negotiation window; a supreme agency problem between negotiating parties (the European Commission and various powerful governments) and a ratification process that is far from certain. All the while we will be contributing approximately £40bn gross, or £20bn net, to the European project. We will be paying for them to negotiate – and once we get to the end of the timeline there will be no real incentive to reach prompt agreement, as well as no reason to be true to their negotiated position. In fact any excuse of an election, a financial crisis or a small war – could derail years and millions of man-hours of work.

Now turn this situation on its head. The United Kingdom withdraws from the European Union (as directed by the people of the country in the referendum of June 2016) in March 2017 with immediate effect. The European Union loses almost 14% of its revenues overnight. I suppose our mission / delegation will be received with a great deal more alacrity then they would otherwise. This would turn the screw on the Commission and force them to conclude negotiations rapidly. It would give them less of a chance to strike back, ask for an “exit” premium and force a rapid conclusion on all parties. While it is true that this could descend into a tariff war – it is likely that we would end up with this situation at the end of two years anyway. There is the Commission, 27 other governments with diverse objectives ranging from using Britain’s exit to foster greater unity or to underline the need for retaining sovereignty within the Union.

The reader commented “You said this long ago.”

Yes, I did. But it’s nice to see the legal case presented by Ingrid Detter de Frankopan, a professor of international law who holds three doctorates, one specifically on European law.

Case closed. Just leave.

After the UK leaves, perhaps the EU will take trade talks a bit more seriously.

Mike “Mish” Shedlock

Obama’s Legacy: Obamacare Failure, Drone Policy Failure, Guantanamo Failure, NSA Spying Failure

Gallup’s Daily Obama Approval Rating poll shows Americans view president Obama consistently higher now than at any time since 2009.

His popularity is more of a reflection on Obama being a likable person, than having likable policies. It’s also a reflection on the extreme unpopularity of both Hillary Clinton and Donald Trump.


Complete Failure

Likable or not, Obama’s legacy will be one of complete failure. Vox reports The whole Democratic Party is now a smoking pile of rubble.

Vox missed some things, lots of things actually, but the headline is accurate enough.

Everything Obama stood for is about to be undone, except perhaps his drone policy which was a miserable failure and should be undone.

  1. Obamacare Failure
  2. Drone Policy Failure
  3. Trade policy Failure
  4. Libya Failure
  5. NSA Spying Failure
  6. Guantanamo Failure
  7. Russia Failure

Affordable Care Act Failure

Obama’s Affordable Care Act was nearly a complete failure. Affordable it certainly wasn’t, except for those picked up by Medicaid and a small group of heavily subsidized others.

Drone Policy Failure

Thousands of innocent men, women, and children have been killed by drones. Obama justified targeted killings under the pretext of wars that were never declared.

Obama escalated the seriously misguided policies of the Bush administration. “Obama authorized the CIA and the U.S. Joint Special Operations Command (JSOC) to fire on targets based solely on their intelligence “signatures” — patterns of behavior that are detected through signals intercepts, human sources and aerial surveillance, and that indicate the presence of an important operative or a plot against U.S. interests. Under the previous rules the CIA and the US military were only allowed to use drone strikes against known terrorist leaders whose location could be confirmed and who appeared on secret CIA and JSOC target lists.”

US warmongers, and there backers became judge, jury, and executioner, of anyone having the required “signature”, even in countries deemed to be US allies.

According to the New York Times, President Obama has placed himself at the helm of a top secret process to designate terrorists for kill or capture, reserving the final say on approving lethal action, and signs off every strike in Yemen, Somalia and Pakistan.

The U.S. Army’s Law of Land Warfare (Field Manual 27-10) states: “It is especially forbidden * * * to kill or wound treacherously individuals belonging to the hostile nation or army. [Article 23(b) of the 1907 Hague Regulations]”

“Daniel Reisner, who headed the International Legal Division of the Israeli Military Advocate General’s Office from 1994 to 2005, has stated that although targeted killing is illegal under previous understanding of international law, “If you do something for long enough, the world will accept it. The whole of international law is now based on the notion that an act that is forbidden today becomes permissible if executed by enough countries.” Reisner continues, “International law progresses through violations. We invented the targeted assassination thesis and we had to push it.

Trade Policy Failure

Obama pushed hard for the Transpacific Trade Partnership (TPP) with Asia, and Transatlantic Trade and Investment Partnership (TTIP) with the EU.

Both are dead. Both deserved to fail actually because they were loaded with global warming silliness and provisions that allowed companies to sue governments.

I wrote about the collapse of TTIP on September 23 in US-EU Trade Talks “De Facto Dead”.

On November 16 I wrote Australia Snubs Obama, Dumps TPP, Opts for China-Sponsored Trade Deal: Mish Proposed Deal.

New TPP World

TPP discussions started in 2005. The US joined the agreement in 2008. Agreement was finally reached in 2015.

Obama wanted to exclude China from TPP. As with Obamacare, Obama succeeded, but the patient died.

Guantanamo Failure

In 2009, U.S. President Barack Obama gave orders for the detention camp to be closed by January 22, 2010.

As of 2015, the detention camp remains open due to a congressional refusal of funds for its closure.

Rather than, or in addition to ramming Obamacare trough a budget Reconciliation Act, Democrats could have had the decency to get funding for closing Guantanamo.

Instead …

Libya Failure

Hillary Clinton was Obama’s secretary of state. He is responsible for her failures and Libya was arguably the worst.  On July 27, 2016, Foreign Policy wrote
Hillary the Hawk: A History From Haiti to Syria, the Democratic candidate’s long record suggests she’s looking forward to being a war president on day one.

Her policies in Haiti, Iraq, Pakistan, Afghanistan, Libya, and Syria were all pro-war. It’s no wonder Wall Street and the banks loved her.

Of all her failures, for which Obama must take the blame, Libya stands out. She was a strong proponent of regime change in Libya. On the death of Libyan leader Muammar Qaddafi, Hillary bragged “We came, we saw, he died.”

Please watch that video. It’s very short, about 12 seconds.

In the wake of that assassination, Libya is now in Civil War. Parts of Libya are under control of terrorists including ISIS.

Foreign Policy states the “Libya regime change intervention was, unfortunately, one that the Obama administration chose to fully support, despite misleading the American people at the time that it was not the goal. Obama correctly labeled not planning for the postwar scenario his worst mistake and correctly described Libya a mess.”

NSA Spying Failure

Obama embraced and extended the blatantly illegal spy tactics of the Bush administration. We learned about those tactics thanks to global Edward Snowden.

Two days ago, I provided a wrap-up discussion and stated Pardon Snowden, Prosecute Clapper.

It seems unlikely. Obama is too big of a coward, and too much like Bush to pardon Snowden.

Russia Failure

Obama’s policy towards Russia has been a complete failure. Trump rates to be more pragmatic.

Did Obama Do Anything Right?

Inquiring minds may be wondering if Obama did anything right in eight years.

I can actually point to one thing: Talks with Iran were a success. Some will disagree.

Unfortunately, Trump may undo Obama’s success on this front,  but rates to be better in regards to Russia, and hopefully NATO.

Obama’s Legacy

Obama’s legacy is one of at least seven major failures. His one success, which some debate, may be undone.

Ultimately, that’s his scorecard, no matter what his popularity may be at the moment.

Mike “Mish” Shedlock

Bond Tantrum II: Mortgage Rates Up 80 Basis Points Since July

In the summer of 2013, in an incident widely referred to as incident as the “taper tantrum”, the bond market threw a hissy fit over a Fed announcement that the Fed would taper QE purchases.

In late 2013, the Fed gave the market what it wanted, and rates reversed.

Now, on news the Fed is finally serious about hiking rates, the bond market has thrown another tantrum, with mortgage rates as well.

Yield Curve 1998-Present


The current tantrum does not match the severity of 2013.

As of last Friday, the 30-year yield was 3.01% and the 10-year yield was 2.36%, both well under the 2013 highs.

Mortgage Tantrum


Chart courtesy of Mortgage News Daily, anecdotes mine.

Despite treasury rates being substantially lower than the peak in 2013, mortgage rates are well into tantrum territory.

Other than the taper tantrum, rates are higher than they have been since September of 2011.

This will likely kill the refi market. Higher interest rates will also impact home affordability numbers.

Mike “Mish” Shedlock

“Otto” Self-Driving Truck Test on Ohio Roads this Week

Self-driving truck maker Otto will conduct tests in Ohio this week, on Ohio route 33 and the Ohio turnpike.

Next year, the route 33 corridor is scheduled for fiber-optic cable network and sensor systems to aid antonymous driving.


Please consider Self-Driving Trucks Will Hit the Road in Ohio.

A self-driving truck will begin traveling on two Ohio roads next week after state officials announce details of new investments to support innovative transportation technology.

A vehicle from self-driving truck maker Otto will travel a 35-mile stretch of U.S. Route 33 on Monday in central Ohio between Dublin and East Liberty, home to the Transportation Research Center, an independent testing facility. It will travel in regular traffic, and a driver in the truck will be positioned to intervene should anything go awry, Department of Transportation spokesman Matt Bruning said Friday, adding that “safety is obviously No. 1.”

Officials say that section of Route 33 – a four-lane, divided road – is an important piece of autonomous vehicle research in the state and will become a corridor where new technologies can be safely tested in real-life traffic, aided by a fiber-optic cable network and sensor systems slated for installation next year. Gov. John Kasich is scheduled to discuss details of that investment and other efforts to support autonomous vehicle research on Monday before the truck hits the road.

“Certainly we think it’s going to be one of the foremost automotive research corridors in the world,” Bruning said.

The self-driving truck is also expected to travel next week on part of the Ohio Turnpike, though Bruning said he couldn’t yet detail when or where.

The turnpike’s executive director said in August that officials were moving toward allowing testing of self-driving vehicles on the 241-mile toll road, a heavily traveled connector between the East Coast and Chicago.

Kasich has pushed for Ohio to be a leader in the fast-advancing testing and research of autonomous vehicles. State officials say Ohio is well-positioned for such a role for many reasons, including a significant presence from the automotive industry in the state, partnerships with university researchers, and the seasonal weather changes that enable testing a variety of driving conditions in one place.


Once again competition is the driving force that will guarantee success no later than a 2022-2024 time frame. By the end of that period, if not much sooner, long-haul truck jobs will vanish.

States will want to catch up with Ohio. Fiber optic solutions used in Ohio are just one possibility for solving snow and ice problems.

Substrate plotting and analysis is another possibility. Possibly both will be used. Sensors will become smaller and much cheaper.

Perhaps drivers will be needed for final delivery in cities and remote locations, but the need for long-haul interstate and major state highway drivers will vanish.

How Many Jobs Lost?

My statement that “millions of long haul truck driving jobs will vanish in the 2022-2024 time frame” is likely way off on the low side if one counts Uber, taxi, and chauffeur driven vehicles.

Take a look at Uber’s goal once again: “replace Uber’s more than 1 million human drivers with robot drivers—as quickly as possible.”

That’s just Uber. And those jobs will vanish. All of them. What about Lyft? Taxis?

Related Articles

For further discussion, including a rebuttal to the often stated claim that driverless vehicles cannot work in snow, please see Uber Offers Driverless Rides This Month! What About Snow, Rain, Pigeons, 80-Year-Olds on Roller Skates?

My long-stated timeframe for millions of long-haul trucking jobs to vanish by the 2022-2024 is likely too distant.

The components are all in place. Regulation has five years to catch up, and it will. Competition ensures success and DOT is already on board.

Mike “Mish” Shedlock