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Deep Thoughts From FX Concepts' John Taylor: "They Still Think The Government Will Save Them"

Tyler Durden's picture




 

They Still Think the Government Will Save Them

April 1, 2010

By John R. Taylor, Jr.

Chief Investment Officer

The feeling that the government will ride in on a white horse to rescue the world is widely held. The vast majority believe that the government can control the economy, and the reason that they are so vociferous – or should I say violent – is that they really believe that if their party or ‘concept’ were in total control then everything would be fixed up and we all would be paying our bills and living the good life. In the Eurozone, the battle to control the economic levers is primarily fought between countries and secondarily between political classes within the countries, but in the United States, it is a battle between political philosophies. The combatants think the prize – political power and the decisions it allows – is very valuable. The winners actually believe that control of the government will allow them to ‘arrange things’ in their perfected image. Not only do the voters and political activists think that the government has all the power, but those who are in control of the government believe they have this power too.

This conception of the world and how it works is just plain wrong or, maybe I should say, at least 80% wrong. Not only does the government not have the kind of control that the public perceives, but no one, not even among the most renowned professors or hedge fund managers, has the analytical powers or knowledge to accurately describe the future, much less how to alter the course of events in this way or that. History is littered with unintended consequences of actions that were meant to achieve some desired goal, but resulted in something entirely different – not necessarily worse, but different. Everyone with any skill in the money management or the economic forecasting arena is aware of how little he or she knows. The random nature of the variables is important, but the psychologically hardwired misconceptions that the behavioral economists have recently pinpointed make the problem much worse. None of the “blue ribbon” economists ever forecast a recession, but they do occur. More importantly we all see order when there is none and we all believe that we know more than we do. This applies to Geithner, Sarkozy, Merkel, Gordon Brown, and even Paul Volcker, as well as to you and me.

The Europeans and the Americans will eventually realize that their leaders, both in power and out of power, do not have the answers and will not be able to rescue them. The course is set by what has gone before. In fact, the major actors in the current drama will not be today’s policymakers but the unintended consequences of hundreds of previous policies and actions, among them: the structure of the Maastricht Treaty, Greenspan’s acting only after the bubbles had popped, the invasion of Iraq, paying off AIG’s debts at 100%, and the explosion of government debt in 2008 and 2009. Even if today’s policymakers had better foresight than any of their predecessors, they are bound so tightly by the previous structures, much like Gulliver in Lilliput, that they cannot move. Today’s stock market rallies, climbing house prices in Australia, Canada and the UK, plus the high levels of consumer spending – and low levels of saving – are all signs that we still believe that the government is going to protect us from any injury. History tells those who read it that this has never been the case before, and will not be the case this time. Although the twists and turns are unpredictable, today’s imbalances will be rectified somehow. When it finally dawns on us that the governments are not capable of protecting us, we will be very angry and propose many dramatic, often irrational and dramatically sub-optimal strategies, making the world far less safe and very unstable. The students of history and the cynics will
be the most successful at managing and surviving in the next decade or so, but only if they remain humble, aware that they really don’t know how it will come out either.

h/t Teddy KGB

 

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Thu, 04/01/2010 - 10:21 | 282943 Cognitive Dissonance
Cognitive Dissonance's picture

"The feeling that the government will ride in on a white horse to rescue the world is widely held. The vast majority believe that the government can control the economy......"

It's nearly impossible to convince a person that the government won't rescue them when they are paid to believe the government will rescue them.

Thu, 04/01/2010 - 10:46 | 283004 starfish
starfish's picture

There has been a battle going on between those who believe in a God who is in charge and those who deny said God and believe the State is in charge.  We saw this idealogical battle play out in the framing of the Constitution.  Do man's rights come from God, or the State? The white horse is a highly symbolic ancient pre-biblical and biblical reference. 

The rider of white horse is often associated with Plague, as the bow is the symbol of Apollo and Artemis, and in Greek stories, illness was thought to be caused by their arrows. [1][2] The German Stuttgarter Erklärungsbibel casts him as civil war and internal strife. One interpretation—which was held by evangelist Billy Graham—casts the rider of the white horse as the Antichrist, or a representation of false prophets, citing differences between the white horse in Revelation 6 and Jesus on the white Horse in Revelation 19.[3] In Revelation 19 Jesus has many crowns, but in Revelation 6 the rider has just one.[4]

Perhaps a new silver tounged God denying statist world leader will soon emerge and ride in on the proverbial 'white horse' to save the world.  Of course we know this will only lead to the further temporary enslavement and destruction of all things free.

 

Thu, 04/01/2010 - 10:54 | 283020 caconhma
caconhma's picture

starfish, very well said.

Thu, 04/01/2010 - 11:03 | 283034 Mad Max
Mad Max's picture

You have created a false dichotomy.

There are many of us who believe that neither the state nor "God" is in charge and all powerful.

Thu, 04/01/2010 - 11:08 | 283042 starfish
starfish's picture

right, i was going to mention you guys...apologize.  Yes, there is a 3rd class, those who don't know, don't care, or are unconvinced either way.  I didnt create the dichotomy, just referenced it as a significant idealogical front.

Thu, 04/01/2010 - 17:42 | 283584 wake the roach
wake the roach's picture

Amen mad max, haha ;-)

Thu, 04/01/2010 - 11:08 | 283039 Cognitive Dissonance
Cognitive Dissonance's picture

starfish,

In the interest of the ZH blog integrity, may I suggest that you link to the pertinent web site or book that you pull your information from, particularly if it is verbatim? It's only fair to credit wikipedia for your post above, even if it's an excerpt. I understand and recognize you left in the reference numbers and other internal links but you really should note that it's not your own words.

Thanks.

http://en.wikipedia.org/wiki/Four_Horsemen_of_the_Apocalypse#cite_note-GBeale-0

Thu, 04/01/2010 - 11:09 | 283044 starfish
starfish's picture

roger that.

Thu, 04/01/2010 - 11:23 | 283063 starfish
Thu, 04/01/2010 - 14:01 | 283258 Rusty_Shackleford
Rusty_Shackleford's picture

Yeah, but who did the person that posted it on Wikipedia copy and past it from?

Thu, 04/01/2010 - 14:08 | 283267 starfish
starfish's picture

See the references at the bottom of the wikipedia page.

Thu, 04/01/2010 - 16:52 | 283519 Ned Zeppelin
Ned Zeppelin's picture

me.

Thu, 04/01/2010 - 10:22 | 282951 Hondo
Hondo's picture

Creates ubiquity 

Thu, 04/01/2010 - 10:23 | 282952 Racer
Racer's picture

And the idiot Gordon Brown said before one of he biggest bust in history, claiming...

"an end to boom and bust"

 

Thu, 04/01/2010 - 10:47 | 283006 Cookie
Cookie's picture

+1

Thu, 04/01/2010 - 10:27 | 282964 sweet ebony diamond
sweet ebony diamond's picture

got that right.

trying to understand how any one of these "leaders" thinks is impossible.

Thu, 04/01/2010 - 10:33 | 282973 GoldSilverDoc
GoldSilverDoc's picture

Indeed, the conception of the world is wrong.  Unfortunately, Mr. Taylor is wrong as well.

The majority of his observations are correct, but the crucial one, that "Europeans and the Americans will eventually realize that their leaders, both in power and out of power, do not have the answers and will not be able to rescue them" is dead wrong.  The people who are going to realize this, have already done so.  The people who will never do so, will never do so.  They will, instead insist on a different "type" of government, which will make the same type of mistakes. 

It has always and ever been thus.

Thu, 04/01/2010 - 10:39 | 282985 mikla
mikla's picture

+1

Thu, 04/01/2010 - 11:19 | 283055 Double down
Double down's picture

Back to Plato's Republic.

SPARTA!!!

Thu, 04/01/2010 - 12:06 | 283108 Mad Max
Mad Max's picture

Nice anachronism.

Thu, 04/01/2010 - 10:40 | 282987 Rainman
Rainman's picture

Full faith and credit will be prominently engraved on the headstone of worldwide free market capitalism.

Thu, 04/01/2010 - 10:44 | 283000 JR
JR's picture

As Nathan Martin of Nathan’s Economic Edge postulates: Who has the money to make the rules?

Wall Street Cabal Seen Derailing Serious Swap Reform

(Reuters) March 30. 2010 – A major crisis is building in the derivatives market yet a cabal on Wall Street is blocking the formation of a clearning house that could stop the next  financial meltdown, a senior official with the Kauffman Foundation said on Tuesday.

The need for disclosure in the swap markets is enormous, yet the will to act is missing because of a small cadre of special interests, said Harold Bradley, who oversees almost $2 billion in assets as chief investment officer at Kauffman.

"There is no incentive from the moneyed interests in either Washington or New York to change it," Bradley told the Reuters Global Exchanges and Trading Summit in New York.

"I believe we are in a cabal. There are five or six players only who are engaged and dominant in this marketplace and apparently they own the regulatory apparatus," he said. "Everybody is afraid to regulate them."

U.S. and European officials are trying to craft new rules to regulate the $450 trillion private derivatives market in broad efforts to avoid another financial crisis.

Policy-makers generally agree that most standardized derivatives should be traded on exchanges or cleared through a clearinghouse, which would assume the risk of a default.

Bradley said those efforts fall short. There needs to be a national market system for fixed income and credit with displayed prices and the posting of open interest and market positions, he said.

Instead, he said regulators have found a boogeyman in high-frequency trading, which has taken the focus off the highly levered derivatives market. After falling in 2008, the nominal value of derivatives is now greater than ever at about $204.3 trillion, according to Ned Davis Research Inc…

http://www.reuters.com/article/idUSTRE62T5RD20100331

“Let’s face it,” says Martin, “any way you slice it, the joke’s on us.  Happy April Fool’s.”

 

Thu, 04/01/2010 - 10:50 | 283012 caconhma
caconhma's picture

The only people who always benefit from government rescues/bailouts are people who are "closed" to the government (the case and point, Goldman Sacks, Bank of America, Citi Group, etc.,). In other word, these are the people who own the government.

Socialism and big governments are parents of eventually runaway corruption and totalitarianism. As for "controlled" or centrally-planned economies, they have never functioned well. Someone might argue: just look at miracles of Stalinist Soviet Union Communist China. Well,

- Stalin's USSR stopped to exist immediately after the Stalin death. His successors tried and failed to find alternative "communism with a human face".

- As for Communist China, it is a very poor country and its miracle, to a large degree, was/is built on a "slave labor" with at extremely low pay. However, China has plenty of room to grow but, as with all its totalitarian predecessors, at certain point, their people will be looking for a change with less oppression. And then, things will start to fall apart when its government will not be able to control corruption any more. But again, this will not happen in the next 10-15 years.

Thu, 04/01/2010 - 10:52 | 283016 starfish
starfish's picture

mises.org todays essay is on the fallacies of central planning systems.

Thu, 04/01/2010 - 15:31 | 283416 ThreeTrees
ThreeTrees's picture

God/Allah/Gaia/Cthullhu bless that website.  An eddy of reason in a whirlpool if idiocy.

Thu, 04/01/2010 - 18:13 | 283019 wyosteven
wyosteven's picture

** Edited for Content **

Thu, 04/01/2010 - 11:05 | 283037 Mad Max
Mad Max's picture

But but but - this is all wrong!  State all powerful god!  Need more state!

What we really need is a 5-year plan, and harsh penalties for any comrade who does not give their all to achieving the 5-year plan.  Then in 5 years we can send them all to the gulag and begin our 5-year plan anew, with truly patriotic defenders of the Motherland.

(yeah, it would be funnier if it hadn't been tried so many times before)

Pretty good essay overall.  I'm not sure it presents much that is new to a typical ZH reader.

Thu, 04/01/2010 - 11:26 | 283067 Charley
Charley's picture

He should have added: "Or, they think they can save themselves..."

Thu, 04/01/2010 - 13:06 | 283181 Blindweb
Blindweb's picture

"'Muddy water, let stand, becomes clear.'"  Lao Tzu circa 500 BC 'founder' of Taoism

 

A problem of too much intervention and over managing  is not solved with more of the same.  I'm just waiting for them to 'solve' climate change and in the process end up destroying all life on the planet. 

 

 

Thu, 04/01/2010 - 14:00 | 283256 Rick64
Rick64's picture

 None of the “blue ribbon” economists ever forecast a recession, but they do occur.

 Not only do they not forecast them, but they go out of their way to say that everything is fine. We know they know the truth but the confidence game has to continue at all costs. When there is no confidence it will come crashing down.

Thu, 04/01/2010 - 15:04 | 283378 WaterWings
WaterWings's picture

+1

My thoughts exactly. Just a bunch of words filling the air.

Thu, 04/01/2010 - 14:19 | 283282 EManBevHills
EManBevHills's picture

John's points are well taken. Particularly the predictable, "unexpected consequences".

However, it's a confidence game. "Exploiticians" of the political variety know that The People want to believe...And governments, for the most part, have time on their side. Especially when they have been effective in delaying, obfuscating, and redacting critical information until it has been deemed "safe to be released".  But that very information will make for interesting reading by those who study how history has a habit of repeating itself.  

 

Fri, 04/02/2010 - 10:23 | 284220 trichotil
trichotil's picture

govt. will save themselves, you get a plastic coffin or a bunk in a gulag if you're deemed dumb enough to be reprogrammed.

http://www.doomdaily.com/2009/fema-camps-plastic-coffins-what-does-it-al...

Mon, 04/12/2010 - 04:39 | 296093 mark456
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