Tag Archives: profits

Why are we militarizing American society?

Summary:  Previous posts in this series showed how America has militarized. Today we ask “why”? The answer is superficially obvious, but the deeper reasons are mysterious. This is the conclusion to a series about the militarization of America.    {2nd of 2 posts today.}

Purgamenta hujus mundi sunt tria: pcatis, bellum, et frateria.”
-— This world is purified in three ways: by plague, by war, by monastic seclusion (proverb).

The new Statue of Liberty

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Contents

  1. Why are we militarizing?
  2. Cui Bono?
  3. Is America militarizing?
  4. Other posts in this series.
  5. For More Information.

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(1) Why are we militarizing American society?

“War is one of the great agencies by which human progress is effected.”

— Opening of “The Benefits of War” by Stephen Luce (Rear Admiral, US Navy), North American Review, 1 December 1891. He founded the Naval War College and was its first president.

The previous posts in this series described some aspects of the militarization of American society, from our geopolitics to our entertainment. Now for the big question: why? Few people agree with Admiral Luce’s enthusiasm for war, mostly burned out of western culture by the horrors of WWI and WWII.

We know why people of the Military Industrial Complex support the militarization of society; as Ike warned us in 1961. But why have we responded so enthusiastically to this militarization? Previous generations of Americans mocked militarized states like Prussia, all those marching soldiers in their fancy uniforms while instead we built a great nation.

So I asked one of the brightest people I know, Steve Randy Waldman (he writes at Interfluidity). He replied that for 120 years foreign wars have been good for America (as a whole, with the sacrifice of only a small fraction of our people). From 1846 – 1966 — from war against Mexico to the turning point in Vietnam — wars destroyed our rivals and stimulated our economy (e.g., the stimulus of debt-fueled WWII spending decisively ended the Great Depression), often bringing us new territory.

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About the disturbing disconnect between markets and the real economy

Summary:  Today we have a guest post about the often discussed but still mysterious disconnect between the US risk markets and the US economy — between Wall Street and Main Street. Since the crash, economists and investment strategists have confidently predicted it will close soon, certainly when the economy accelerated back to near normal speed. So far neither has happened. Today’s guest post by Lance Roberts examines this important phenomenon.

Disconnect!

Markets Vs Economy – The Great Disconnect

From StreetTalk By Lance Roberts
23 February 2015
Posted with his generous permission.

Since Jan 1st of 2009, through the end of 2014, the stock market has risen by an astounding 148.8% (based on Fed Reserve quarterly data). With such a large gain in the financial markets we should see a commensurate indication of economic growth.

The reality is that after three massive Q.E. programs, a maturity extension program, bailouts of TARP, TGLP, TGLF, etc., HAMP, HARP, direct bailouts of Bear Stearns, AIG, GM, bank supports, etc., all of which total to more than $33 Trillion and counting, the economy has grown by a whopping $1.9 trillion since the beginning of 2009. This equates to just 13.5% growth in real GDP during the same period that the market surged by more than 100%.

What do stock prices tell us today?

Click to enlarge.

However, as shown in the chart above, the Fed’s monetary programs have inflated the reserve balances of member banks by roughly 403% during the same period. The increases in reserve balances, which the banks can borrow for effectively zero, have been funneled directly into risky assets in order to create returns. This is why there is such a high correlation, roughly 85%, between the increase in the Fed’s balance sheet and the return of the stock market over that period.

Unfortunately, while Wall Street benefits greatly from repeated Federal Reserve interventions – Main Street has not. Over the past few years, while asset prices surged higher, personal consumption expenditures have remained mired at levels typically associated with very weak economic expansions. This is reflective of continued weak income growth which has been a function of a large amount of slack in the labor force.

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Watch corporations strip-mine their future (and ours)

Summary: Al Qaeda (Bin Laden’s organization, if it still exists in meaningful form) is a threat to America. A greater threat are our CEO’s, some of whom who have discovered discovered a formula to vast personal wealth: leverage the company up (borrow), use those funds to buy back stock (boosting earnings per share), cut capital expenditures (capex) to boost short-term profits, pay most of the profits in dividends — all of which disguises massive payouts to senior managers (via salary, benefits, pensions, golden parachutes, grants of stock and stock options, etc). They’re strip-mining away America’s future. Slowly people begin to fit these pieces together. Today we help you to do so.

Executive Pay

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Contents

  1. An example of how it’s done
  2. Cutting capex: short-selling the future
  3. For More Information

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(1)  An example of how it’s done

List most stories about corporate finance, it’s complex. These articles clearly explain the game using IBM as an example (just one of many), but have to be read. The excepts are just teasers.

(a) Stockholders Got Plundered In IBM’s Hocus-Pocus Machine“, Wolf Richter, Testosterone Pit, 17 October 2013 — Opening:

I’m not picking on IBM. I’m almost sure they have some decent products. So they had a crummy quarter – the sixth quarter in a row of sales declines. And their hardware sales in China have collapsed since Snowden’s revelations about the NSA and its collaboration with American tech companies. But in one area, IBM excels: its hocus-pocus machine.

IBM isn’t alone in its excellence and isn’t even at the top of the heap in that respect. There are many corporations like IBM, mastodons that successfully pull a bag over investors’ heads, aided and abetted by Wall Street with its “analysts,” and by the Fed, to hide the stockholder plunder taking place behind a billowing smokescreen of verbiage.

(b) Big Blue: Stock Buyback Machine On Steroids“, David Stockman, at his website Contra Corner, 17 April 2014 — Opening:

The Fed’s financial repression policies destroy price discovery and honest capital markets. In the process these deformations turn financial markets into casinos and corporate executives into prevaricating gamblers. To be specific, most CEOs of the Fortune 500 are no longer running commercial businesses; they are in the stock-rigging game, harvesting a mother lode of stock option winnings as the go along.

Those munificently rising stock prices and options cash-outs owe much to the Fed’s campaign to suppress interest rates and fuel stock market based ”wealth effects”, but the CEOs are doing their part, too. They have become full-time financial engineers who use the Fed’s flood of liquidity, cheap debt and soaring stock prices to perform a giant strip-mining operation on their own companies. That is, through endless stock buybacks and M&A maneuvers they create the appearance of “growth” while actually liquidating the balance sheet equity and future asset base on which legitimate earnings growth depends.

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Krugman discovers the Robot Revolution!

Summary:  One of the great challenges of the 21st century will be managing the next wave of automation. This rise in productivity can make us richer, create feudal-like inequality, or spark massive social conflict. The result depends on our decisions. The first step, as always is problem recognition. Today we took another small step forward.

20121208-microsoft

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An increase in the productivity of labour means nothing more than that the same capital creates the same value with less labour, or that less labour creates the same product with more capital.
— Karl Marx, Notebook IV of A Contribution to the Critique of Political Economy (1857/58)

Slowly more people become aware of the coming Robot Revolution, the next wave of automation. Now it’s Paul Krugman’s turn: “Rise of the Robots“, New York Times, 8 December 2012:

On the other hand, it’s not good news for workers! This is an old concern in economics; it’s “capital-biased technological change”, which tends to shift the distribution of income away from workers to the owners of capital.

Twenty years ago, when I was writing about globalization and inequality, capital bias didn’t look like a big issue; the major changes in income distribution had been among workers (when you include hedge fund managers and CEOs among the workers), rather than between labor and capital. So the academic literature focused almost exclusively on “skill bias”, supposedly explaining the rising college premium.

But the college premium hasn’t risen for a while. What has happened, on the other hand, is a notable shift in income away from labor:

Krugman, NYT, 8 Dec 2012

Krugman, NYT, 8 Dec 2012

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