Tag Archives: capital consumption

We have been writing on the flaws in GDP: that it is no measure of the economy, because it looks only at cash and not the balance sheet, and that there are positive feedback loops. “OK, Mr. Smarty Pants,” you’re thinking (yes, we know you’re thinking this), “if GDP is not a good measure of the economy, then what is?!” The National Balance Sheet In the first part of this series, we introduce some concepts from...

Let’s start with Frederic Bastiat’s 170-year old parable of the broken window. A shopkeeper has a broken window. The shopkeeper is, of course, upset at the loss of six francs (0.06oz gold, or about $75). Bastiat discusses a then-popular facile argument: the glass guy is making money (to which all we can say is, “plus ça change, plus c’est la même chose”). Bastiat says it is true, and this is the seen. The glazier does...

This week, the Supply and Demand Report featured a graph of debt vs profitability in the Russell 2000. Here’s the graph again: This graph shows a theme that we, and practically no one else(!) have been discussing for years. It is the diminishing marginal utility of debt. In this case, more and more debt is required to add what looks like less and less profit (we don’t have the raw data, only the graphic). We do not view...

We have written numerous articles about capital consumption. Our monetary system has a falling interest rate, which causes both capital churn and conversion of one party’s wealth into another’s income. It also has too-low interest, which encourages borrowing to consume (which, as everyone knows, adds to Gross Domestic Product—GDP). What Is Capital At the same time, of course entrepreneurs are creating new capital. Keith...

On January 6, we wrote the Surest Way to Overthrow Capitalism. We said: “In a future article, we will expand on why these two statements are true principles: (1) there is no way a central planner could set the right rate, even if he knew and (2) only a free market can know the right rate.” Today’s article is part I that promised article. Let’s consider how to know the right rate, first. It should not be controversial to...

Newly elected Representative Alexandria Ocasio-Cortez recently said that Modern Monetary Theory (MMT) absolutely needed to be “a larger part of our conversation.” Her comment shines a spotlight on MMT. So what is it? According to Wikipedia, it is: “a macroeconomic theory that describes the currency as a public monopoly and unemployment as the evidence that a currency monopolist is restricting the supply of the financial...

The Baby Boom generation may be the first generation to leave less to their children than they inherited. Or to leave nothing at all. We hear lots—often from Baby Boomers—about the propensities of their children’s generation. The millennials don’t have good jobs, don’t save, don’t buy houses in the same proportions as their parents, etc. We have no doubt that attitudes have changed. That the millennials’ financial...

Last week, we shined a spotlight on a crack in the monetary system that few people outside of Switzerland (and not many inside either) were aware of. There is permanent gold backwardation measured in Swiss francs. Everyone knows that the Swiss franc has a negative interest rate, but so far as we know, Keith is the only one who predicted this would lead to its collapse (and he was quite early, having written that in...

Last week, we talked about the capital consumed by Netflix—$8 billion to produce 700 shows. They’re spending more than two thirds of their gross revenue generating content. And this content has so little value, that a quarter of their audience would stop watching if Netflix adds ads (sorry, we couldn’t resist a little fun with the English language). So it is with wry amusement that, this week, Keith heard an ad for an...

For about ten bucks a month, Netflix will give you all the movies you can watch, plus tons of TV show series and other programs, such as one-off science documentaries. They don’t offer all movies, merely more than you can watch. Oh, and there are no commercials. They don’t just give you old BBC reruns, which you know they can get for a pittance. Netflix is spending money (well Federal Reserve Notes) producing its own...