Total customer withdrawals:  365.321 oz

Today we had 0 adjustment:

And now your overnight trading in gold,MONDAY MORNING and also physical stories that may interest you:

The London property bubble shows renewed signs that it is beginning to burst. Property sellers in the UK have reduced their asking prices and London property prices have fallen by 7.8 per cent on average and as much as 30% in some areas according to City AM today.

City AM – Data via Zoopla

“People trying to sell their homes are increasingly having to mark down their original asking price – and the amount they are dropping it by is going up.

Last month we heard that sellers in some London boroughs were having to drop prices by as much as 29 per cent, but new research suggests the issue is even more wide-spread – and the amounts are getting bigger.

On average, sellers are now reducing their asking price by more than £25,000 – a jump of £4,000 of 17 per cent since the start of the year, according to Zoopla.

Almost a third (29 per cent) of properties currently listed for sale on the portal have had their price reduced at least once since originally being listed – an increase of 0.43 per cent since start of 2016.

London certainly has its fair share of price cut-backs – as with the previous study, Kensington & Chelsea came out top, but this time around there is an even higher proportion of homes being marked down (33.3 per cent compared with 29 per cent). Homes in this borough were reduced on average by £137,421.

London as a whole had an average reduction percentage of 7.8 per cent – above the overall national average of 6.86 per cent.”

The full article can be on City AM here.

Sharp falls in London and UK home prices will severely impact the heavily indebted and vulnerable UK economy.

Gold and Silver Prices and News
Gold slips as dollar holds firm after U.S. jobs data (Reuters)
Belarus Central bank deputy wants to build up gold and fx reserves (Reuters)
Japan Stocks Rise First Time in Seven Sessions After U.S. Jobs (Bloomberg)
Gold jumps after U.S. payrolls data misses forecasts (Reuters)
Gold Jumps as Jobs Deal ‘Devastating Blow’ to Fed Rates Outlook (Bloomberg)

Jim Grant Asks When World Will Realize “That Central Bankers Have Lost Their Marbles” (Zero Hedge)
Historic Dow Jones-Silver Ratio Points To $300 Silver (SRS Rocco Report)
Death of the Gold Market (Mylchreest via GATA)
Gold—and the COT Report: Words Fail Me (Goldseek)
Why Gold Is Hot Again (Bloomberg)
Read More Here

Gold Prices (LBMA)
09 May: USD 1,277.75, EUR 1,121.54 and GBP 884.68 per ounce
06 May: USD 1,280.25, EUR 1,121.06 and GBP 883.04 per ounce
05 May: USD 1,275.75, EUR 1,114.95 and GBP 879.23 per ounce
04 May: USD 1,280.30, EUR 1,114.18 and GBP 883.59 per ounce
03 May: USD 1,296.50, EUR 1,118.15 and GBP 881.32 per ounce

Silver Prices (LBMA)
09 May: USD 17.33, EUR 15.21 and GBP 11.99 per ounce
06 May: USD 17.31, EUR 15.15 and GBP 11.93 per ounce
05 May: USD 17.38, EUR 15.21 and GBP 12.01 per ounce
04 May: USD 17.18, EUR 14.96 and GBP 11.86 per ounce
03 May: USD 17.49, EUR 15.10 and GBP 11.92 per ounce

Read Our Most Popular Guides in Recent Months

end

The comatose economy inside Japan is a showcase for the economies of the world as Keynesian economics just do not work:

(courtesy zero hedge)

Japan’s “Coma Economy” Is A Preview For The World

The 1980s were the apex of Japanese culture and economic might. Back then, Japan’s economy was growing so fast, it was thought they would overtake the US. But that all came to a screeching halt. Truth is, Japan’s meteoric rise was fueled by an epic lending bubble. Similar to the Roaring 20s in America.

And when the bubble popped, the government launched massive and misguided measures that set Japan back decades. Their economy hasn’t expanded since. They are stuck in the 1980s. There’s been no growth for 30 years. And as Mike Maloney and Harry Dent explain, the United States could be going down the same path…

“For more than 20 years now, Japan has proved that Keynesian economics does not work… they’ve tried to print their way to prosperity… and failed…they didn’t let the reset happen…”

See more here…

b) CHINA ISSUES

Overnight China reported April exports and imports, both of which dropped after a strong pick up in March, and missed consensus expectations, confirming “weak demand at home and abroad and cooling hopes of a recovery in the world’s second-largest economy.”

Exports fell 1.8% from a year earlier, following a strong 11.5% rebound in March (mostly due to last year’s base effect), the General Administration of Customs said on Sunday, supporting the government’s concerns that the foreign trade environment will be challenging in 2016. April imports tumbled 10.9% from a year earlier after a 7.6% drop last month and falling for the 18th consecutive month, driven by weaker processing trade, confirmg domestic demand remains weak despite a pickup in infrastructure spending and record credit growth in the first quarter.

The net effect meant China posted a trade surplus of $45.56 billion in April, versus forecasts of $40 billion, although with much of that “trade” the result of another record month of capital flight via Hong Kong “import remits”, nobody really has any idea what China’s true trade number is. In fact, looking at the chart below, Nomura concludes that capital outflows may have accelerated in April despite the USD6.4BN increase in FX reserves (largely due to valuation effect). Import growth from Hong Kong continued to surge, to 203.5% y-o-y in April from 116.5% in March, versus a drop in import growth from other markets, to -11.9% from -8.2% (see chart below). This implies continued capital outflows disguised as imports.

Perhaps it’s time for the PBOC to swallow its pride and admit that without a Yuan devaluation, as much as it hates to admit Soros, Bass (and this website since last summer) et al are right, it simply can’t stimulate its export-driven economy.

“Both exports and imports came in weaker than expected, in line with the soft trade performance across Asia, pointing to another challenging year for emerging markets,” said Zhou Hao, senior emerging market economist at Commerzbank in Singapore. China’s exports to the United States, the country’s top export market, fell 9.3% in April from a year earlier, while shipments to the European Union, the second biggest market, rose 3.2 percent, customs data showed.

A full breakdown of the details from Nomura:

Exports growth returned to negative territory as favourable base effects fade

Export growth in USD terms declined to -1.8% y-o-y in April after surging to 11.5% in March, below the market consensus of a flat change. On the one hand, we should not over-interpret this decline since the rebound in March was mainly due to a low base last year. On the other hand, this figure does reflect that external demand remains weak. Moreover, the number may have been helped by continued weakness in USD in April – both EUR and JPY appreciated further against USD, which should have increased the USD value of export contracts denominated in those currencies.

Export growth to all major destinations fell in April; those to the US to -9.3% y-o-y from 9.0% in March, to the EU to 3.2% from 17.9%, and to Japan to -11.8% from 9.3%.

Import growth disappointed on weaker processing trade, while the improvement in domestic demand may be losing steam

Import growth in USD terms surprised on the downside in April, falling further to -10.9% y-o-y from -7.6% in March, against market consensus and our forecast of an improvement to -4%. As such, the trade surplus widened to USD45.6bn from USD29.9bn in March.

Imports component data suggest that the improvement in domestic demand is likely losing steam. Growth of ordinary imports, which cater to domestic demand, fell to -8.6% y-o-y in April from -7.1% in March. Excluding key commodities (i.e., crude oil, iron ore and copper), it fell to -4.4% from -2.3% (Figure 2). The growth of imports value of key commodities improved slightly to -21.7% y-o-y from -23.0%, but largely on the recovery of commodity prices, while in volume terms, import growth of iron ore, crude oil and copper all declined in April from March.

Weakening processing trade was also a big contributor to the decline in imports growth. Growth of imports for processing and assembly fell to -20.1% y-o-y in April from -15.3% in March. We notice a declining trend for the share of processing trade in total – down to near 30% recently from almost 50% in 2006 – and processing trade growth (Figure 3). This could be due to the weaker global economy as well as rising costs (e.g. labour) in China and, in turn, a lower competitiveness in producing /assembling goods in China, which does not bode well for future growth.

China’s economic growth slowed to 6.7% in the first quarter – the weakest since the global financial crisis, but activity picked up in March as policy steps to boost the economy, including six interest rate cuts since late 2014, seemed to be taking effect.

After China’s economy grew at just 6.7% in Q1, the Chinese government injected a record $1 trillion in total loans in the economy, halting the rapid economic slowdown from the end of 2015, and easing concerns of a hard-landing in China after the strong March data, but analysts have warned the rebound may be short-lived.

“The market has to prepare a little bit for the downside risk in other Chinese data and some sort of market correction might be inevitable,” Zhou said. The official factory survey and Caixin’s private-sector gauge for April painted a mixed picture of the health of the manufacturing sector. The official purchasing managers’ index (PMI) showed factory activity expanded for the second month in a row in April but only marginally, while Caixin’s manufacturing PMI pointed to 14 straight months of sector contraction.

China’s central bank said on Friday that it will fine tune policy in a pre-emptive and timely way, as the economy still faces downward pressure despite signs of steadying. Amid shrinking global demand, China still managed to grow its share of world exports to 13.8 percent last year from 12.3 percent in 2014, indicating the country’s export sector remains competitive despite higher costs.

The bottom line, as Nomura puts it, “overall, these trade data reinforce our view that the debt-fuelled improvement in domestic demand and growth may be short-lived. We maintain our view that investment.”

In other words, it cost China $1 trillion in three months in debt “stimulus” just to slow down what is once again a downward sloping growth trajectory. We wonder what Beijing will do for an encore?

end

We have highlighted this to you on several occasions in the past year. China has a huge debt problem.  Total loans in USA dollars equates to 31 trillion dollars and no doubt that about 20% is bad or non performing. Total Chinese GDP is around 10 trillion so a debt at 35 trillion shows that this economy is in serious trouble.

EUROPEAN AFFAIRS

Submitted by Mish Shedlock of MishTalk

Showdown! In Leaked Letter IMF Tells Germany “Debt Relief For Greece Or IMF Drops Out”

It’s showdown time.

The IMF has threatened it will pull out of the Greek bailout program unless Greece gets debt relief.

German Chancellor Angela Merkel, Austria, Finland, and the other Eurozone creditors will not like today’s development one bit.

Showdown!

Please consider IMF Tells Eurozone to Start Greek Debt Talks.

The International Monetary Fund has told eurozone finance ministers they must immediately begin negotiations to grant debt relief for Greece despite German opposition, upending carefully orchestrated negotiations ahead of an emergency meeting on Monday.

In a letter to all 19 ministers sent on Thursday night and obtained by the Financial Times, Christine Lagarde, the IMF chief, said stalemated talks with Athens to find €3bn in “contingency” budget cuts, which have gone on for a month, had become fruitless and that debt relief must be put on the table immediately, or risk losing IMF participation in the programme.

Athens is facing €3.5bn in debt payments in July that it needs bailout aid to pay, and EU officials have told Greek government officials they do not want messy negotiations to continue during the Brexit campaign — meaning if no agreement is reached this month, leaders will not begin discussions again until just weeks before a possible default.

Similar last-minute talks a year ago rattled the Greek economy and raised questions about whether Greece could be ejected from the eurozone.

Relations between the IMF and Athens, already strained after last year’s brinkmanship, have reached a new low in recent weeks following WikiLeaks’ publication of a transcript of a private teleconference between Mr Thomsen and other IMF officials — a transcript Greek officials claimed showed the IMF was negotiating in bad faith.

Ms Lagarde stuck by the IMF’s assessment that such reforms would only produce a primary surplus of 1.5 per cent in 2018 — not the 3.5 per cent the EU has mandated.

“We do not believe that it will be possible to reach a 3.5 per cent of GDP primary surplus by relying on hiking already high taxes levied on a narrow base, cutting excessively discretionary spending, and counting one-off measures as has been proposed in recent weeks.”

Leaked Letter

Dear minister:

Program discussions between Greece and the institutions have made progress in recent weeks, but significant gaps remain to be bridged before an agreement can be reached that would include the IMF under one of our program facilities. I think it is time for me to clarify our position, and to explain the reasons why we believe that specific measures, debt restructuring, and financing must now be discussed simultaneously.

In particular, a clarification is needed to clear unfounded allegations that the IMF is being inflexible, calling for unnecessary new fiscal measures and – as a result – causing a delay in the negotiations and the disbursement of urgently needed funds.

First, together with the other institutions we have negotiated in good faith with our Greek partners on a package of fiscal measures yielding 2.5 per cent of GDP – close to being agreed – that will in our view be sufficient to reach a primary surplus of 1.5 per cent of GDP by 2018. Our assessment is based on realistic assumptions informed by Greece’s track record, the international environment, and the latest data released by Eurostat.

Second, this target falls short of what Greece promised its European partners in July last year – namely that it would achieve a primary surplus of 3.5 per cent of GDP in 2018. If the Eurogroup decided to hold Greece to this target, we could support an additional effort to temporarily reach this level, although it is higher than what we consider economically and socially sustainable in the long-run (see below).

However, let there be no doubt that meeting this higher target would not only be very difficult to reach, but possibly counterproductive. Greece’s fiscal adjustment has in the past fallen short of what was needed because of the lack of structural reforms underlying the adjustment effort. We do not believe that it will be possible to reach a 3.5 per cent of GDP primary surplus by relying on hiking already high taxes levied on a narrow base, cutting excessively discretionary spending, and counting on one-off measures as has been proposed in recent weeks. The additional adjustment effort of 2 per cent of GDP would only be credible based on long overdue public sector reforms, notably of the pension and tax system.

Unfortunately, the contingency mechanism that Greece is proposing does not include such reforms. Instead, the authorities have offered to make short-term across-the-board cuts in discretionary spending – which has already been compressed to the point where the provision of public service is severely compromised – or transitory cuts in pension and wages not supported by fundamental parametric reforms. Based on past performance, such ad-hoc measures are not very credible, but they are also undesirable as they add to uncertainty and fail to resolve the underlying imbalances. I should also add that Greece has legislated a dozen contingency-type mechanisms in the past that have largely not worked.

Third, going forward, we do not expect Greece to be able to sustain a primary surplus of 3.5 per cent of GDP for decades to come. Only a few European countries have managed to do so, carried by a strong social consensus that is not in evidence in Athens. It would be unrealistic to expect future governments to resist pressure to relax fiscal policy over political cycles stretching far into the future. The recent experience – when first a center-right and then a center-left government quickly succumbed to easing pressures once a small primary surplus was achieved – should inform us against making such exceptional assumptions in the case of Greece. In our view, maintaining a primary surplus of 1.5 per cent of GDP over the foreseeable future may be achievable in the context of a successful program and strong European budget surveillance for many years to come thereafter.

…understand the urgency of the situation in the case of Greece and Europe as a whole, and our common objective is to quickly agree on a way forward. This requires compromises from all sides, and we have contributed our part by focusing conditionality on what we see as the absolute minimum, leaving important structural reforms to a later stage. However, for us to support Greece with a new IMF arrangement, it is essential that the financing and debt relief from Greece’s European partners are based on fiscal targets that are realistic because they are supported by credible measures to reach them. We insist on such assurances in all our programs, and we cannot deviate from this basic principle in the case of Greece. The IMF must apply the same standard to Greece as to other members of our institution.

Sincerely,

Christine Lagarde

Loaded Gun

I am uncertain if the emphasis in bold is by Lagarde or the Financial Times, but I suspect the latter.

This “purposely leaked” letter puts enormous pressure on German chancellor Angela Merkel who is already under severe strain due to her complete bungling of the refugee crisis.

Pick Your Poison

1. The German parliament only agreed to do this deal if the IMF was in it.
2. The Germany parliament only agreed to do this on the specific terms previously offered.

The terms included no more debt relief, Greece primary surplus (budget surplus not counting interest on debt) of 3% of GDP by 2018.

I said that would never happen and it won’t.

Lagarde’s letter stated “Third, going forward, we do not expect Greece to be able to sustain a primary surplus of 3.5 per cent of GDP for decades to come.”

By the way, Lagarde knew all along Greece could not meet a primary surplus of 3.5% of GDP for decades to come. So, why did it sign the deal in the first place?

Lagarde now proposes a primary surplus of 1.5%.

Well guess what? That is nearly as unlikely as a surplus of 3.5%.

And at a rate of 1.5%, it will take decades longer for Greece to pay back the hundreds of billions of euros it owes in these programs.

So… that means outright debt reductions.

Then much to the anger of protesters, the Greek Parliament passes further austerity hoping to unlock 4 billion euros of a bailout loan:

Greek Parliament Passes Further Austerity Measures To Unlock €4BN Bailout Loan

Update: Moments ago, in the latest European paradox, the two Greek political parties Syriza and Anel both of which were elected on an anti-austerity platform, voted through Greek parliament further austerity measures in the form of tax and pension reforms. The vote, which passed with 153 votes in support, is expected to unlock more international bailout money for the country, which has been unable to access a loan instalment of €5bn (£4bn).

Translation: after some pointless debate, Greece promised to do even more of what has not worked at all in the past 5 years just to access some more European “bailout” money, the bulk of which will promptly be used to repay (after some more posturing by the Eurogroup in the coming weeks) maturing debt, held by the ECB.

Before the vote, protesters in Athens threw petrol bombs at police, who responded with tear gas. On Monday, EU finance ministers will hold an extraordinary meeting aimed at averting a new crisis in the eurozone.

As BBC reported, the debate in Greece’s parliament lasted two days as MPs debated whether or not to install the unpopular pension and tax reforms. Thousands of people demonstrated, mostly peacefully, in Athens and in the country’s second-largest city, Thessaloniki. Labour unions called strikes in protest at the proposed measures, which include an overhaul of the pensions system and rises in social security contributions.
Prime Minister Alexis Tsipras of the leftist Syriza party secured enough votes to pass the measures.

The International Monetary Fund and other European partners are demanding that Greece implement further austerity measures to generate nearly €4bn in additional savings – contingency money in case Greece misses future budget targets. Meanwhile, the IMF has been vocal about demanding a Greek debt haircuts if it is to participate in the third Greek bailout, leaving few options before Angela Merkel.

After today’s vote, Eurogroup ministers will assess “a comprehensive package of policy reforms as well as the sustainability of Greece’s public debt” at their Monday meeting in Brussels, a statement says.

* * *

end

The EU want Erdogan to reform his “anti terrorist law”.  This law gives him the right to arrest journalists or whomever he wishes. Erdogan just stated he would not go along with the wishes of the EU.

END

WTI Crude Jumps At Open, Nears $46

Biotech-Buying Spree Helps Stocks Shrug Off China Crash, Commodity Collapse, & Credit Crunch

Donald Trump’s patented phrase “we aren’t winning anymore” lies beneath the tidal wave of anti-establishment sentiment propelling his campaign and, to some considerable degree, that of Bernie Sanders, too.

As we demonstrated in Part 1, what’s winning is Washington, Wall Street and the bicoastal elites. The latter prosper from finance, the LA and SF branches of entertainment ( movies/TV and social media, respectively) and the great rackets of the Imperial City—including the military/industrial/surveillance complex, the health and education cartels, the plaintiffs and patent bar, the tax loophole farmers and the endless lesser K-Street racketeers.

But most of America’s vast flyover zone has been left behind. Thus, the bottom 90% of families have no more real net worth today than they had 30 years ago and earn lower real household incomes and wages than they did 25 years ago.

Needless to say, the lack of good jobs lies at the bottom of the wealth and income drought on main street, and this week’s April jobs report provided still another reminder.

During the last three months goods-producing jobs have been shrinking again, even as the next recession knocks on the door. These manufacturing, construction and energy/mining jobs are the highest paying in the US economy and average about $56,000 per year in cash wages. Yet it appears that the 30 year pattern shown in the graph below——lower lows and lower highs with each business cycle—-is playing out once again.

So even as the broadest measure of the stock market—-the Wilshire 5000—–stands at 11X  its 1989 level, there are actually 22% fewer goods producing jobs in the US than there were way back then.

This begs the question, therefore, as to the rationale for the Jobs Deal we referenced in Part 1, and why Donald Trump should embrace a massive swap of the existing corporate and payroll taxes for new levies on consumption and imports.

The short answer is that Greenspan made a giant policy mistake 25 years ago that has left main street households buried in debt and stranded with a simultaneous plague of stagnant real incomes and uncompetitively high nominal wages. It happened because at the time that Mr. Deng launched China’s great mercantilist export machine during the early 1990s, Alan Greenspan was more interested in being the toast of Washington than he was in adhering to his lifelong convictions about the requisites of sound money.

Indeed, he apparently checked his gold standard monetary princples in the cloak room when he entered the Eccles Building in August 1987. Not only did he never reclaim the check, but, instead, embraced the self-serving institutional anti-deflationism of the central bank.

This drastic betrayal and error resulted in a lethal cocktail of free trade and what amounted to free money. It resulted in the hollowing out of the American economy because it prevented American capitalism from adjusting to the tsunami of cheap manufactures coming out of China and its east Asian supply chain.

So what would have happened in response to the so-called “china price” under a regime of sound money in the US?

The Fed’s Keynesian economists and their Wall Street megaphones would never breath a word of it, of course, because they have a vested interest in perpetuating inflation. It gives inflation targeting central bankers the pretext for massive intrusion in the financial markets and Wall Street speculators endless bubble finance windfalls.

But the truth is, sound money would have led to falling consumer prices, high interest rates and an upsurge of household savings in response to strong rewards for deferring current consumption. From that enhanced flow of honest domestic savings the supply side of the American economy could have been rebuilt with capital and technology designed to shrink costs and catalyze productivity.

But instead of consumer price deflation and a savings-based era of supply side reinvestment, the Greenspan Fed opted for a comprehensive Inflation Regime. That is, sustained inflation of consumer prices and nominal wages, massive inflation of household debt and stupendous inflation of financial assets.

To be sure, the double-talking Greenspan actually bragged about his prowess in generating something he called “disinflation”. But that’s a weasel word. What he meant, in fact, was that the purchasing power of increasingly uncompetitive nominal American wages was being reduced slightly less rapidly than it had been in the 1980s.

Still, the consumer price level has more than doubled since 1987, meaning that prices of goods and services have risen at 2.5% per year on average. Notwithstanding all the Fed’s palaver about “low-flation” and undershooting its phony 2% target, American workers have had to push their nominal wages higher and higher just to keep up with the cost of living.

But in a free trade economy the wage-price inflation treadmill of the Greenspan/Fed was catastrophic. It drove a wider and wider wedge between US wage rates and the marginal source of goods and services supply in the global economy.

That is, US production was originally off-shored owing to the China Price with respect to manufactured goods. But with the passage of time and spread of the central bank driven global credit boom, goods and services were off-shored to places all over the EM. The high nominal price of US labor enabled the India Price, for example, to capture massive amounts of call center activity, engineering and architectural support services, financial company back office activity and much more.

At the end of the day, it was the Greenspan Fed which hollowed out the American economy. Without the massive and continuous inflation it injected into the US economy, nominal wages would have been far lower, and on the margin far more competitive with the off-shore.

That’s because there is a significant cost per labor hour premium for off-shoring in terms of a 12,000 mile pipeline of transportation charges, logistics control and complexity, increased inventory carry in the supply chain, quality control and reputation protection expenses, average productivity per worker, product delivery and interruption risk and much more.

In a sound money economy of falling nominal wages and even more rapidly falling consumer prices, American workers would have had a fighting chance to remain competitive, given this significant off-shoring premium. But the demand-side Keynesians running policy at the Fed and US treasury didn’t even notice that their wage and price inflation policy functioned to override the off-shoring premium, and to thereby send American production and jobs fleeing abroad.

Indeed, they actually managed to twist this heavy outflow of goods and services production into what they claimed to be an economic welfare gain in the form of higher corporate profits and lower consumer costs.

Needless to say, the basic law of economics—-Say’s Law of Supply—-says societal welfare and wealth arise from production; spending and demand follow output and income.

By contrast, our Keynesian central bankers claim prosperity flows from spending, and they had a ready solution for the gap in spending that initially resulted when jobs and incomes were sent off-shore.

The de facto solution of the Greenspan Fed was to supplant the organic spending power of lost production and wages with a simulacrum of demand issuing from an immense and contiunuous run-up of household debt. Accordingly, what had been a steady 75-80% ratio of household debt to wage and salary income before 1980 erupted to 220% by the time of Peak Debt in 2007.

The nexus between household debt inflation and the explosion of Chinese imports is hard to miss. Today monthly Chinese imports are 75X larger than the were when Greenspan took office in August 1987.

At the same time, American households have buried themselves in debt, which has rising from $2.7 trillion or about 80% of wage and salary income to $14.2 trillion. Even after the financial crisis and supposed resulting deleveraging, the household leverage ratio is still in the nosebleed section of history at 180% of wage and salary earnings.

Stated differently, had the household leverage ratio not been levitated in the nearly parabolic fashion shown below, total household debt at the time of the financial crisis would have been $6 trillion, not $14 trillion. In effect, the inflationary policies of the Greenspan Fed and its successors created a giant hole in the supply side of the US economy, and then filled it with $8 trillionof incremental debt which remains an albatross on the main street economy to this day.

Then again, digging holes and refilling them is the essence of Keynesian economics.

At the end of the day, the only policy compatible with Greenspan’s inflationary monetary regime was reversion to completely managed trade and a shift to historically high tariffs on imported goods and services. That would have dramatically slowed the off-shoring of production, and actually also would have remained faithful to the Great Thinker’s economics. After all, in 1931 Keynes turned into a vociferous protectionist and even wrote an ode to the virtues of “homespun goods”.

Alas, inflation in one country behind protective trade barriers doesn’t work either, as was demonstrated during the inflationary spiral of the late 1960s and 1970s. That’s because easy money does lead to a spiral of rising domestic wages and prices owing to too much credit based spending; and this spiral eventually soars out of control in the absence of the discipline imposed by lower-priced foreign goods and services.

In perverse fashion, therefore, the Greenspan Fed operated a bread and circuses economy. Unlimited imports massively displaced domestic production and incomes—even as they imposed an upper boundary on the rate of CPI gains.

The China Price for goods and India Price for services, in effect, throttled domestic inflation and prevented a runaway inflationary spiral. In the face of ever increasing credit-funded US household demand, there was virtually unlimited labor and production supply available from the rice paddies and agricultural villages of the EM.

Free trade also permitted many companies to fatten their profits by arbitraging the wedge between Greenspan’s inflated wages in the US and the rice paddy wages of the EM. Indeed, the alliance of the Business Roundtable and the Keynesian Fed in behalf of free money and free trade is one of history’s most destructive arrangements of convenience.

In any event, the graph below nails the story. During the 29 years since Greenspan took office, the nominal wages of domestic production workers have soared, rising from $9.22 per hour in August 1987 to $21.26 per hour at present. It was this 2.3X leap in nominal wages, of course, that sent jobs packing for China, India and the EM.

At the same time, the inflation-adjusted wages of domestic workers who did retain there jobs went nowhere at all.

That’s right. There were tens of millions of jobs off-shored, but in constant dollars of purchasing power, the average production worker wage of$383 per week in mid-1987 has ended up at $380 per week 29 years later

During the span of that 29 year period the Fed’s balance sheet grew from$200 billion to $4.5 trillion. That’s a 23X gain during less than an average working lifetime. Greenspan claimed he was the nation’s savior for getting the CPI inflation rate down to around 2% during his tenure; and Bernanke and Yellen have postured as would be saviors owing to their strenuous money pumping efforts to keep it from failing the target from below.

But 2% inflation is a fundamental Keynesian fallacy, and the massive central bank balance sheet explosion which fueled it is the greatest monetary travesty in history. Dunderheads like Bernanke and Yellen say 2% inflation is just fine because under their benign monetary management everything comes out in the wash at the end——-wages, prices, rents, profits, living costs and indexed social benefits all march higher together with tolerable leads and lags.

No they don’t. Jobs in their millions march away to the off-shore world when nominal wages double and the purchasing power of the dollar is cut in half over 29 years.

These academic fools apparently believe they live in Keynes’ imaginary homespun economy of 1931!

The evident economic distress in the flyover zone of America and the Trump voters now arising from it in their tens of millions are telling establishment policy makers that they are full of it; that they have had enough of free trade and free money.

What can be done now?

The solution lies in the contra-factual to the Greenspan/Fed Inflation Regime. Under sound money, the balance sheet of the Fed would still be $200 billion, household debt would be a fraction of its current level, the CPI would have shrunk 1-2% per year rather than the opposite and nominal wages would have shrunk by slightly less.

For instance, if the CPI had shrunk by 1.5% annually since 1987 and nominal wages by 0.5%, the average nominal production wage today would be $8 per hour, meaning that American labor would be dramatically more competitive in the world economy versus the EM Price than it currently is at $22 per hour.

But real wages would be far higher at $500 per week compared to the actual of $380 per week shown above. At the same time, solid breadwinner jobs in both goods and services would be far more plentiful than reported last Friday by the BLS.

Needless to say, the clock cannot be turned back, and a resort to Keynes’ out-and-out protectionism in the context of an economy that suckles on nearly $3 trillion of annual goods and services imports is a non-starter. It would wreak havoc beyond imagination.

But it is not too late to attempt the second best in the face of the giant historical detour from sound money that has soured the practice of free trade. To wit, public policy can undo some of the damage by sharply lowering the nominal price of domestic wages and salaries in order to reduce the cost wedge versus the rest of the world.

It is currently estimated that during 2016 social insurance levies on employers and employees will add a staggering $1.8 trillion to the US wage bill. Most of that represents social security and medicare payroll taxes at the Federal level, along with state unemployment insurance taxes that are induced by Federal policy.

The single greatest things that could be done to shrink the Greenspan/Fed nominal wage wedge, therefore, is to rapidly phase out all payroll taxes, and thereby dramatically improve the terms of US labor trade with China and the rest of the EM world.  Given that the nation’s total wage bill (including benefit costs) is about $10 trillion, elimination of Federal payroll taxes would amount to a 11% cut in the cost of US labor.

On the one hand, such a bold move would also dramatically elevate actual main street take-home pay owing to the fact that half of the payroll tax levy is extracted from worker pay packets in advance.

Moreover, elimination of payroll taxes would be far more efficacious from a political point of view in Trump’s flyover zone constituencies. That’s because nearly 160 million Americans pay social insurance taxes compared to less than 50 million who actually pay any net Federal income taxes after deductions and credits.

At the same time, elimination of Federal payroll taxes would reduce the direct cost of labor to domestic business by upwards of $575 billion per year. And as we have proposed in the Jobs Deal, the simultaneous elimination of the corporate income tax would reduce the burden on business by another $350 billion annually.

Zeroing-out the corporate income tax happens to be completely appropriate and rational in today’s globalized economy in its own right. The corporate tax has always posed an insuperable challenge to match business income and expense during any arbitrary tax period, anyway. But in a globalized economy in which capital is infinitely mobile on paper as well as in fact, the attempt to collect corporate profits taxes in one country is pointless and impossible.

It simply gives rise to massive accounting and legal maneuvers such as the headline grapping tax inversions of recent years. Yet notwithstanding 75,000 pages of IRS code and multiples more of that in tax rulings and litigation, corporate tax departments will always remain one step ahead of the IRS. That is, the corporate tax generates immense deadweight economic costs and dislocation—including a huge boost to off-shoring of production to low tax havens——while generating a meager harvest of actual revenues.

Last year, for example, corporate tax collections amounted to just 1.8% of GDP compared to upwards of 9% during the heyday of the American industrial economy during the 1950s.

Needless to say, you don’t have to be a believer in supply side miracles to agree that a nearly $1 trillion tax cut on American business from the elimination of payroll and corporate income taxes would amount to the mother of all jobs stimulus programs! 

Self-evidently, the approximate $1.5 trillion revenue loss at the Federal level from eliminating these taxes would need to be replaced. We are not advocating any Laffer Curve miracles here——although over time the re-shoring of jobs that would result from this 11% labor tax cut  would surely generate a higher rate of growth than the anemic 1.3% annual GDP growth rate the nation has experienced since the turn of the century.

In the next section we will delve deeper into the tax swap proposed here. But suffice it to say that with $3 trillion of imported goods and services and $10 trillion of total household consumption, the thing to tax would be exactly what we have too much of and which is the invalid fruit of inflationary monetary policy in the first place.

To wit, foregone payroll and corporate tax revenue should be extracted from imports, consumption and foreign oil. An approximate 15% value added tax and a variable levy designed to peg landed crude prices at $75 per barrel would more than do the job. And revive the US shale patch, too.

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