Monthly Archives: January 2019

Zero Rate Central Bank Programs Weaken The Economy

The asymmetry of zero rate programs: when rates are cut that hurts retirees who get most of their income from bond yields. It also destroys the consumer confidence of retirees. When people close to retirement age feel they can’t earn enough yield to afford to retire then they will refuse to retire, thus hoarding jobs needed by young people, which increases the supply of labor, thus suppressing wage growth. This is deflationary. When rates are cut the nature of amortized debt means that the payment doesn’t decline as much as one would think because as rates decline the amortization of principal increases, so the total payment doesn’t go down as much as if it were an interest-only loan. Also, lower

2019-01-31T14:33:58-08:00January 31st, 2019|mayflowercapital blog|Comments Off on Zero Rate Central Bank Programs Weaken The Economy

Will The Dollar Become A Worthless Currency?

      People worry the rising deficit will make the dollar drop in value. The annual federal deficit is 5% of GDP, about $1Trillion a year. The long run average federal tax revenue is 18% of GDP. Assuming a 2% CPI adjustment is applied to the deficit then the deficit is growing by 3% of GDP a year in real terms. For example, a debt of $21Trillion if it increases by 2% a year when inflation is also 2% is basically not an increase in real terms. Eliminating the Federal Budget Deficit Could Help Raising taxes by 3% from 18% of GDP to 21% would be enough to fix the problem. A compromise is to raise taxes by 1.5% of GDP

2019-01-11T17:33:10-08:00January 11th, 2019|mayflowercapital blog|Comments Off on Will The Dollar Become A Worthless Currency?

Debt Hysteria Confuses Investors

      The US dollar is best, cleanest dirty shirt in the world’s dirty clothes hamper. Our capitalism makes the tax base stronger than that of other countries and this taxable income can be used to service government debt. If domestic debt increases too much, possibly the outcome of excessive debt will be a situation where the government gets all of its needs met first, crowding out most of the private sector, so excess debt might not be a problem for government which pays interest-only. The risk is that private sector would undergo a wave of bankruptcies that would clear out debt and ironically induce more desire to own safe government debt, resulting in a further increase in spread between government

2019-01-10T12:45:13-08:00January 10th, 2019|mayflowercapital blog|Comments Off on Debt Hysteria Confuses Investors

Jobs Increase Not Inflationary

   Today the monthly Employment Situation report was released by the BLS showing a huge 312,000 increase in jobs in the payroll survey. The unemployment rate increased from 3.7% to 3.9% as more people decided to join the work force and seek employment. Fundamentally, because the unemployment rate increased, that is the bottom line: new entrants to the labor force acted to dampen inflation by increasing the supply of workers. The household survey said 419,000 jobs were added with 90% of the total job increase from unincorporated self-employed. That type of “employment” can be a zero income gig experiment rather than a traditional real job. Prime age employment shrank by 11,000, with a 48,000 decline the month before. 146,000 of

2019-01-04T13:20:48-08:00January 4th, 2019|mayflowercapital blog|Comments Off on Jobs Increase Not Inflationary

Dollar Flash Crash: What Next?

The dollar crashed last night against the Yen in a Flash Crash, dropping 3% (a very significant figure), before settling in to a 1% decline to 107.5 Yen to a dollar. This demonstrates a potential risk that the Yen could appreciate roughly 10% or even 20% to reach fair value. Its price is held down by Japan so that they can encourage exports through devaluation. If global investors get burned by a US stock crash they may decide to withdraw funds from the US, thus making the dollar go down and the Yen to go up. This would force Japan to have even deeper negative interest rates, thus pulling down global interest rates.    If Japan devalues that can cause

2019-01-03T13:54:46-08:00January 3rd, 2019|mayflowercapital blog|Comments Off on Dollar Flash Crash: What Next?