Macro Analytics - 09-29-12 FEDERAL RESERVE: Moral Hazard, UC & Dysfunctional Markets - John Rubino

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The Federal Reserve and its Monetary Malpractice is at the core of the American Dream becoming a myth for the vast majority of Americans. Jobs, disposable income and financial security are all under pressure, as the Federal Reserve continues its historic monetary gamble on unproven policies of Quantitative Easing and ZIRP. The Federal Reserve is clearly failing to achieve its dual mandate, as these same policies likewise failed Japan.

John Rubino and Gordon T Long discuss how these policies have led to Moral Hazard, which has lead to Unintended Consequences and in turn to Dysfunctional Markets. A broad range of examples for each is laid out for the listener to see how they are intertwined and how they all stem from Monetary Malpractice.

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  • COLLEGE COSTS - Hitting Upper Middle Class - 08-11-12College Debt Hits Well-Off - Upper-Middle-Income Households See Biggest Jumps in Student Loan Burden 08-09-12 WSJAccording to a Wall Street Journal analysis of recently released Federal Reserve data, households with annual incomes of $94,535 to $205,335 saw the biggest jump in the percentage with student-loan debt from 2007 to 2010That group also saw a sharp climb in the amount of debt owed on average. The Journal's analysis defined upper-middle-income households as those with annual incomes between the 80th and 95th percentiles of all households nationwide. Among this group, 25.6% had student-loan debt in 2010, up from 19.5% in 2007. For all households, the portion with student loan debt rose to 19.1% in 2010 from 15.2% in 2007. The amount borrowed by upper-middle-income families, meanwhile, has soared. They owed an average of $32,869 in college loans in 2010, up from $26,639 in 2007, after adjusting for inflationThe typical low-income family receives grants and scholarships totaling 36% of the cost, while for higher-income families such packages total 21%. More than three million households now owe at least $50,000 in student loans, up from about 794,000 in 2001 and fewer than 300,000 in 1989, after adjusting for inflation. The upper-middle-income households now repaying student loans spend 3.2% of their monthly incomes on debt paymentsEven after adjusting for inflation, the average sticker price of four-year colleges has more than doubled since 1985A July 26 report from Moody's Investors Service noted that reductions in net worth, lackluster job growth and stagnant incomes have "created the stiffest tuition price resistance that colleges have faced in decades." More than one-third of parents with incomes of $95,000 to $125,000 with a child who entered college in 2011 didn't save or invest for that child's educationOn average, upper-middle-income households' median net worth fell 19%, to $369,320, in 2010 from three years earlierAmong families earning $100,000 or more, students paid 23% of their college costs in 2012 through loans, income and savings, according to Sallie Mae, up from 14% in 2009; the share covered by parents fell to 52% from 61%.
  • Macro Analytics - 09-29-12 FEDERAL RESERVE: Moral Hazard, UC & Dysfunctional Markets - John Rubino

    1. 1. Macro Analytics September 29th, 2012 MORAL HAZARD & UNINTENDED CONSEQUENCES Listen to the original podcast for this slide at www.GordonTLong.com/Macro_AnalyticsThe content of this slide should not be considered investment advice of any sort, nor should it be used to make investment decisions. Use of thisslide is considered to be your explicit acceptance of the Disclosure Statement and the Terms of Use found on the last page of this document.
    2. 2. Macro Analytics September 29th, 2012 MORAL HAZARD & UNINTENDED CONSEQUENCES Listen to the original podcast for this slide at www.GordonTLong.com/Macro_AnalyticsThe content of this slide should not be considered investment advice of any sort, nor should it be used to make investment decisions. Use of thisslide is considered to be your explicit acceptance of the Disclosure Statement and the Terms of Use found on the last page of this document.
    3. 3. Macro Analytics September 29th, 2012 MORAL HAZARD & UNINTENDED CONSEQUENCES Listen to the original podcast for this slide at www.GordonTLong.com/Macro_AnalyticsThe content of this slide should not be considered investment advice of any sort, nor should it be used to make investment decisions. Use of thisslide is considered to be your explicit acceptance of the Disclosure Statement and the Terms of Use found on the last page of this document.
    4. 4. Macro Analytics August 25th, 2012 SILENT DEPRESSION Listen to the original podcast for this slide at www.GordonTLong.com/Macro_AnalyticsThe content of this slide should not be considered investment advice of any sort, nor should it be used to make investment decisions. Use of thisslide is considered to be your explicit acceptance of the Disclosure Statement and the Terms of Use found on the last page of this document.
    5. 5. Macro Analytics September 29th, 2012 MORAL HAZARD & UNINTENDED CONSEQUENCES Listen to the original podcast for this slide at www.GordonTLong.com/Macro_AnalyticsThe content of this slide should not be considered investment advice of any sort, nor should it be used to make investment decisions. Use of thisslide is considered to be your explicit acceptance of the Disclosure Statement and the Terms of Use found on the last page of this document.
    6. 6. Macro Analytics September 29th, 2012 MORAL HAZARD & UNINTENDED CONSEQUENCES Listen to the original podcast for this slide at www.GordonTLong.com/Macro_AnalyticsThe content of this slide should not be considered investment advice of any sort, nor should it be used to make investment decisions. Use of thisslide is considered to be your explicit acceptance of the Disclosure Statement and the Terms of Use found on the last page of this document.
    7. 7. Macro Analytics September 29th, 2012 MORAL HAZARD & UNINTENDED CONSEQUENCES Listen to the original podcast for this slide at www.GordonTLong.com/Macro_AnalyticsThe content of this slide should not be considered investment advice of any sort, nor should it be used to make investment decisions. Use of thisslide is considered to be your explicit acceptance of the Disclosure Statement and the Terms of Use found on the last page of this document.
    8. 8. Macro Analytics September 29th, 2012 DEFINITIONS MORAL HAZARD In economic theory, a moral hazard is a situation where a party will have a tendency to take risks because the costs that could incur will not be felt by the party taking the risk.  A moral hazard may occur where the actions of one party may change to the detriment of another after a transaction has taken place. Example: persons with insurance against automobile theft may be less cautious about locking their car, because the negative consequences of vehicle theft are now (partially) the responsibility of the insurance company.  A party makes a decision about how much risk to take, while another party bears the costs if things go badly, and the party isolated from risk behaves differently from how it would if it were fully exposed to the risk. Example: the Euro debt crisis, in which the troika of relief funds (aka the ECB, the IMF, and the EC) for heavily indebted nations like Greece are waiting as long as possible to act. The risks of a money run, and the consequential market crash in Europe is by far not as detrimental to these institutions as to the indebted nations themselves.  An individual or institution does not take the full consequences and responsibilities of its actions, and therefore has a tendency to act less carefully than it otherwise would, leaving another party to hold some responsibility for the consequences of those actions.  One party in a transaction has more information than another. In particular, moral hazard may occur if a party that is insulated from risk has more information about its actions and intentions than the party paying for the negative consequences of the risk. More broadly, moral hazard occurs when the party with more information about its actions or intentions has a tendency or incentive to behave inappropriately from the perspective of the party with less information.  One party, called an agent, acts on behalf of another party, called the principal. The agent usually has more information about his or her actions or intentions than the principal does, because the principal usually cannot completely monitor the agent. The agent may have an incentive to act inappropriately (from the viewpoint of the principal) if the interests of the agent and the principal are not aligned. Listen to the original podcast for this slide at www.GordonTLong.com/Macro_AnalyticsThe content of this slide should not be considered investment advice of any sort, nor should it be used to make investment decisions. Use of thisslide is considered to be your explicit acceptance of the Disclosure Statement and the Terms of Use found on the last page of this document.
    9. 9. Macro Analytics September 29th, 2012 MORAL HAZARD & UNINTENDED CONSEQUENCES “a party will have a tendency to take risks because the costs that could incur will not be felt by the party taking the risk” Listen to the original podcast for this slide at www.GordonTLong.com/Macro_AnalyticsThe content of this slide should not be considered investment advice of any sort, nor should it be used to make investment decisions. Use of thisslide is considered to be your explicit acceptance of the Disclosure Statement and the Terms of Use found on the last page of this document.
    10. 10. Macro Analytics September 29th, 2012 MORAL HAZARD & UNINTENDED CONSEQUENCES Listen to the original podcast for this slide at www.GordonTLong.com/Macro_AnalyticsThe content of this slide should not be considered investment advice of any sort, nor should it be used to make investment decisions. Use of thisslide is considered to be your explicit acceptance of the Disclosure Statement and the Terms of Use found on the last page of this document.
    11. 11. Macro Analytics September 29th, 2012 DEFINITIONS UNINTENDED CONSEQUENCES Unintended consequences (sometimes unanticipated consequences or unforeseen consequences) are outcomes that are not the ones intended by a purposeful action. Unintended consequences can be roughly grouped into three types: 1. A positive, unexpected benefit (usually referred to as luck, serendipity or a windfall). 2. A negative, unexpected detriment occurring in addition to the desired effect of the policy (e.g., while irrigation schemes provide people with water for agriculture, they can increase waterborne diseases that have devastating health effects). 3. A perverse effect contrary to what was originally intended (when an intended solution makes a problem worse), such as when a policy has a perverse incentive that causes actions opposite to what was intended. Listen to the original podcast for this slide at www.GordonTLong.com/Macro_AnalyticsThe content of this slide should not be considered investment advice of any sort, nor should it be used to make investment decisions. Use of thisslide is considered to be your explicit acceptance of the Disclosure Statement and the Terms of Use found on the last page of this document.
    12. 12. Macro Analytics September 29th, 2012 MORAL HAZARD & UNINTENDED CONSEQUENCES “Unintended consequences are outcomes that are not the ones intended by a purposeful action” Listen to the original podcast for this slide at www.GordonTLong.com/Macro_AnalyticsThe content of this slide should not be considered investment advice of any sort, nor should it be used to make investment decisions. Use of thisslide is considered to be your explicit acceptance of the Disclosure Statement and the Terms of Use found on the last page of this document.
    13. 13. Macro Analytics September 29th, 2012 MORAL HAZARD & UNINTENDED CONSEQUENCES Listen to the original podcast for this slide at www.GordonTLong.com/Macro_AnalyticsThe content of this slide should not be considered investment advice of any sort, nor should it be used to make investment decisions. Use of thisslide is considered to be your explicit acceptance of the Disclosure Statement and the Terms of Use found on the last page of this document.
    14. 14. Macro Analytics September 29th, 2012 DEFINITIONS DYSFUNCTIONAL CAPITAL MARKETS Exhibit Characteristics such as: 1. Malpractice 2. Malfeasance 3. Mispricing 4. Malinvestment MISPRICING => MALINVESTMENT => DYSFUNCTIONAL CAPITAL MARKETS Listen to the original podcast for this slide at www.GordonTLong.com/Macro_AnalyticsThe content of this slide should not be considered investment advice of any sort, nor should it be used to make investment decisions. Use of thisslide is considered to be your explicit acceptance of the Disclosure Statement and the Terms of Use found on the last page of this document.
    15. 15. Macro Analytics September 29th, 2012 MORAL HAZARD & UNINTENDED CONSEQUENCESDysfunctional Markets exhibit characteristics such as Malpractice, Malfeasance, Mispricing & Malinvestment Listen to the original podcast for this slide at www.GordonTLong.com/Macro_AnalyticsThe content of this slide should not be considered investment advice of any sort, nor should it be used to make investment decisions. Use of thisslide is considered to be your explicit acceptance of the Disclosure Statement and the Terms of Use found on the last page of this document.
    16. 16. The content of this slide should not be considered investment advice of any sort, nor should it be used to make investment decisions. Use of thisslide is considered to be your explicit acceptance of the Disclosure Statement and the Terms of Use found on the last page of this document.
    17. 17. Macro Analytics September 29th, 2012 MORAL HAZARD & UNINTENDED CONSEQUENCES Listen to the original podcast for this slide at www.GordonTLong.com/Macro_AnalyticsThe content of this slide should not be considered investment advice of any sort, nor should it be used to make investment decisions. Use of thisslide is considered to be your explicit acceptance of the Disclosure Statement and the Terms of Use found on the last page of this document.
    18. 18. Macro Analytics September 29th, 2012 MORAL HAZARD & UNINTENDED CONSEQUENCES Listen to the original podcast for this slide at www.GordonTLong.com/Macro_AnalyticsThe content of this slide should not be considered investment advice of any sort, nor should it be used to make investment decisions. Use of thisslide is considered to be your explicit acceptance of the Disclosure Statement and the Terms of Use found on the last page of this document.
    19. 19. Macro Analytics September 29th, 2012 MORAL HAZARD & UNINTENDED CONSEQUENCES Listen to the original podcast for this slide at www.GordonTLong.com/Macro_AnalyticsThe content of this slide should not be considered investment advice of any sort, nor should it be used to make investment decisions. Use of thisslide is considered to be your explicit acceptance of the Disclosure Statement and the Terms of Use found on the last page of this document.
    20. 20. DISCLOSURE STATEMENT AND TERMS OF USETHE CONTENT OF THIS SLIDE PRESENTATION AND ITS ACCOMPANYING RECORDED AUDIO DISCUSSION AREINTENDED FOR EDUCATIONAL PURPOSES ONLY.This slide presentation and its accompanying recorded audio discussion are not a solicitation to trade or invest, andany analysis is the opinion of the author and is not to be used or relied upon as investment advice. Trading andinvesting can involve substantial risk of loss. Past performance is no guarantee of future returns/results. Commentaryis only the opinions of the authors and should not to be used for investment decisions. You must carefully examinethe risks associated with investing of any sort and whether investment programs are suitable for you. You shouldnever invest or consider investments without a complete set of disclosure documents, and should consider the risksprior to investing. This slide presentation and its accompanying recorded audio discussion are not in any way asubstitution for disclosure. Suitability of investing decisions rests solely with the investor. Your acknowledgement ofthis Disclosure and Term of Use Statement is a condition of access to it. Furthermore, any investments you may makeare your sole responsibility.THERE IS RISK OF LOSS IN TRADING AND INVESTING OF ANY KIND. PAST PERFORMANCE IS NOT INDICATIVE OFFUTURE RESULTS. Listen to the original podcast for this slide at www.GordonTLong.com/Macro_Analytics

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