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PIMCO On Central Planning And "Financial Repression" By Central Banks To Keep Rates Low

Tyler Durden's picture




 

PIMCO Scott Mather has released a fascinating Q&A in which the key topic of discussion is the artificial push to keep rates low in developed economies, also known as central bank hubris to maintain the "great moderation" in which he clearly explains i) what this means for global fund flow dynamics (using developed country reserves and purchasing EM bonds) and ii) for the future of a system held together with glue and crutches. To wit: "Financial repression is any public policy
that is designed to influence the market price of financing government
debts, either through government bonds or the nation’s currency. Direct
methods of repression include things like setting target interest rates,
monetizing government debt or implementing interest rate caps. Indirect
methods include polices designed to change the amount of debt or
currency at a given price. Examples include requirements to hold minimum
amounts of government debt on bank balance sheets or establishing
minimum requirements for government bonds in pension funds." Just in case anyone is confused why central planning is a bad idea: "Governments may take these steps to improve their ability to
finance public debt and forestall more painful adjustment processes,
though there can be other motives, and because these methods are less
transparent, and thus less controversial, than direct tax hikes or
spending cuts. Investors should be wary of financial repression because
it is primarily a tool to redistribute wealth from creditors (citizens)
to debtors (governments) to the detriment of creditors, fixed income
investors and savers
." Needless to say, central planning always fails: "It is important to realize these methods as practiced are only
partially effective and cannot go on forever, as advanced economies
continue to add significantly to their public debts despite low
financing costs
. Some intensification of financial repression, fiscal
austerity, or stronger growth must occur to lower the likelihood of a
future debt crisis." Bottom line: "kicking the can" can only go on for so long before EMs (read why below) provide a natural counterbalance to an artificial market created by developed world central banks. PIMCO's advice: get out of balance sheet risky DM bonds ahead of central planning failure, and buy up every EM bond possible, or bypass paper and just buy EM currencies as "EM policymakers who have resisted appreciation will
eventually allow more appreciation over the next three to five years as
they nurture domestic consumption and their economies become less
dependent on export demand." We expect to see much more on this topic as the MSM realizes the implications of this new risk regime change.

Full note from Scott Mather:

Game Change for Bond Investors?

  • Over
    the next three to five years, we argue that market behavior may be
    vastly different than what typical cyclical models would predict.
  • Sovereign debt, which is at the core of our global financial system, is undergoing a seismic shift.
  • Governments
    practicing financial repression may be transferring wealth from
    creditors (citizens) to debtors (governments) to the detriment of
    creditors, fixed income investors and savers
Bond investors may be anxiously watching reports on inflation or
economic growth, trying to decide if they are making the right
allocations amid confusing signals.
In the second of a series of Q&A articles accompanying the
recent release of PIMCO's Secular Outlook, portfolio manager Scott
Mather discusses how macro factors may affect bond markets over the next
few years.

Q. There seems to be a great deal of uncertainty about the outlook for bonds. What would you suggest investors consider first?

Mather: To start with, I suggest putting aside any
typical cyclical model that may have been useful in the past. Over the
secular horizon, say the next three to five years, we argue that market
behavior may be vastly different than what models would predict. One
reason: sovereign debt, which is at the core of our global financial
system, is undergoing a seismic shift. We expect that over the next
several years, one way or another, this core will degrade in
creditworthiness. So investors have to wonder, what does it mean when
the core weakens?
Investors may find it more difficult than they expect to avoid
sovereign debt risk. Media reports seem to suggest the sovereign debt
problem is concentrated in peripheral Europe and if that can be
addressed then the problem is solved. In reality, peripheral Europe is
distracting people from problems in the much larger developed world.
And, I argue, one cannot escape sovereign debt issues simply by moving
into other asset classes, because equities, real estate and all other
investments will be affected if sovereign debt of a nation deteriorates.
Thus, policy decisions over public deficits could be paramount to
investors, as well as central bank moves to buy or sell government debt
or direct interest rates.
Q. Is inflation risk also a critical concern for investors?
Mather: We appear to be on the tail end of a
period in which higher energy prices push up headline. It is possible we
will see further volatility in energy prices leading to more such
periods. However, our outlook is for gradually rising inflation over a
secular horizon, with inflation in emerging markets (EM) a few
percentage points higher than in the developed world.  But we have to
recognize that inflationary accidents are a rising risk, especially in
EM, and also over the longer term in developed markets depending on the
policy mix chosen.
The key is what happens to inflationary expectations. With four
decades of experience, we have observed that bond markets do not move on
higher headline inflation unless investors believe the higher inflation
will be sustained. And that is why we look at core, which excludes
volatile food and energy prices. Core reflects everything else going on
in the economy, and core generally budges only amid a wage spiral, which
would generally occur if people anticipate higher inflation and demand
higher wages to offset it. We find that scenario unlikely to unfold in
the developed world over the next several years given the substantial
economic slack and unemployment.  
There are risks to our view, of course. For example, if the output
gap narrows and we see broad money and credit growth. But so far we have
not seen any credit growth whatsoever. Base money growth is sitting in
excess reserves held by central banks all over the developed world.  It
is sitting in the Federal Reserve, the European Central Bank, the Bank
of England and the Bank of Japan.  The banking system could, if it was
actually lending, turn that into broad money growth. 
One more thing: Central banks have built up their credibility, and
that adds to difficulty in shaking inflation expectations in the
developed world. This is unlikely to change in the near term, in our
view, but over a longer horizon it certainly could if deficits persist.
Q. Could you discuss the concept of financial repression and why investors should be concerned? Is it working?
Mather: Financial repression is any public policy
that is designed to influence the market price of financing government
debts, either through government bonds or the nation’s currency. Direct
methods of repression include things like setting target interest rates,
monetizing government debt or implementing interest rate caps. Indirect
methods include polices designed to change the amount of debt or
currency at a given price. Examples include requirements to hold minimum
amounts of government debt on bank balance sheets or establishing
minimum requirements for government bonds in pension funds.
Governments may take these steps to improve their ability to
finance public debt and forestall more painful adjustment processes,
though there can be other motives, and because these methods are less
transparent, and thus less controversial, than direct tax hikes or
spending cuts. Investors should be wary of financial repression because
it is primarily a tool to redistribute wealth from creditors (citizens)
to debtors (governments) to the detriment of creditors, fixed income
investors and savers.
We are seeing a circular dynamic with developed and emerging
economies both expanding use of financial repression. With an eye to
boosting economic growth while keeping debt funding costs low, developed
country central banks are keeping interest rates low and have done more
extreme measures, including direct purchases of government debt. These
activities, when coupled with developed world trade deficits, have
contributed to pressure on EM currencies to appreciate.
EM countries then resist this appreciation by directly intervening
in currency markets and accumulating advanced economy currency reserves,
namely the U.S. dollar, which are then reinvested in mostly developed
world government bonds, helping to push down developed nation interest
rates further!  This is a global circle of financial repression in which
policymakers are influencing prices of bonds and currencies as well as
interest rate levels. 
It is important to realize these methods as practiced are only
partially effective and cannot go on forever, as advanced economies
continue to add significantly to their public debts despite low
financing costs. Some intensification of financial repression, fiscal
austerity, or stronger growth must occur to lower the likelihood of a
future debt crisis.
Q. We began by discussing how fixed income markets may be
changing. What are the opportunities for investors amid such change as
well as the risks?
Mather: Certainly we feel there is going to be
much less policy coordination and much less real economy correlation in
years ahead. Much of the past several decades can be characterized by
growing sameness; convergence themes worked well as countries adopted
similar polices and economies became more correlated. In contrast, we
think the next several years will be better characterized by the
differences that will emerge from vastly different initial conditions
and varying policy responses. To the extent the differences among global
markets will become more pronounced this begets opportunities for
investors. 
We have been encouraging investors to seek out safer balance
sheets. With respect to sovereign investing, emerging markets stand out
with respect to more developed sovereigns in that they have improving
credit profiles. We have been encouraging investors to focus on “safe
spread,” with an emphasis on improving balance sheets within the
corporate universe as well.  Businesses have taken advantage of lower
rates to lower their financing costs, while the economic recovery has
boosted their sales.
Finally, in terms of financial repression, as developed nations
suppress short-term interest rates, we generally see a steepening of the
yield curve and that can create opportunities in carry and roll down to
add to bond returns.
We also see opportunity in emerging market currencies, which we
expect will appreciate vs. currencies of developed nations. EM
policymakers who have resisted appreciation, we suspect, will eventually
allow more appreciation over the next three to five years as they
nurture domestic consumption and their economies become less dependent
on export demand. In contrast, developed country currencies are likely
to depreciate from the confluence of declining credit profiles,
financially repressive policies and relatively poor growth.
 

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Mon, 06/20/2011 - 12:42 | 1385128 Ahmeexnal
Ahmeexnal's picture

We also see opportunity in emerging market currencies, which we expect will appreciate vs. currencies of developed nations.

 

Sure enough, when India rolls out silver currency, you can say goodbye to "developed nations" crap currencies.

Mon, 06/20/2011 - 13:20 | 1385230 Steroid
Steroid's picture

India has government, too. And She also has a central bank.

This system continues till it doesn't, then every country is out for itself. That will be the time when PM beats cutting zeros on the competing confettis. Before that, with a transition, you will only loose your PM reserves.

India, China, Malaysia or Mexico? It will not come from their central banks but from grassroot. In this sense, the US will be the last (unless the FED is abolished). Even Europeans still remember their currency collapses. For the rest of the world it is an every day event. The US did not have it since the civil war. They will happily kick the can and enjoy it tremendously. They will even rename the dollar to goldar just to suck out all the life of whoever volunteers to use it as a reserve currency. And after the last one fallen, it is payback time!

Mon, 06/20/2011 - 16:10 | 1386151 TruthInSunshine
TruthInSunshine's picture

Barely OT (maybe not OT at all):

The one minute video proving Bernanke's legally perjured himself:


  Bernanke Impeachment
Mon, 06/20/2011 - 14:21 | 1385555 trav7777
trav7777's picture

translation:

"ME NOT GETTING FAT COUPON....ME THROW TANTRUM"

Mon, 06/20/2011 - 12:45 | 1385136 RobotTrader
RobotTrader's picture

Wow, biggest money printing racket ever, sub 3% on the 10-yr., short term rates near zero, and they cannot even get inflation going with the CRB waffling around near the lows today, GDX/GLD ratio near world record lows.

Simply amazing stuff, seems like we should be having 9% inflation and gold going through the roof and bond vigilantes screaming but instead we get record low interest rates.

Mon, 06/20/2011 - 12:54 | 1385147 Boston
Boston's picture

GDX/GLD near record lows?

 

Looks like it's heading straight back DOWN to the true recent lows....back in late 2008.

 

Uh, oh.

Mon, 06/20/2011 - 12:59 | 1385169 Corn1945
Corn1945's picture

Do you...uh...actually buy gas or food? I am guessing the answer is "no" based on your "no inflation" nonsense.

Mon, 06/20/2011 - 13:04 | 1385173 Atomizer
Atomizer's picture

Just over at the Daily Bail.

@davids11131113 It is , it's robotrader at a early? age.

dispersingweight 1 week ago

 

http://www.youtube.com/watch?feature=player_embedded&v=W4hfdaC7eL4

 

Mon, 06/20/2011 - 13:02 | 1385179 lieutenantjohnchard
lieutenantjohnchard's picture

robottrader: the ultimate dumb money indicator.

Mon, 06/20/2011 - 13:03 | 1385184 kito
kito's picture

robottrader--dont forget that the dow is back up screaming past 12,000. still waiting for that crash that was supposed to begin last month. where is that qe3???  our gloom and doom friends are going to be waiting quite some time.........

Mon, 06/20/2011 - 13:12 | 1385213 lieutenantjohnchard
lieutenantjohnchard's picture

you must have missed robottrader's memo. he said he shorted the market with both fists once 1300 s&p broke down. he's supposedly all short. no later than last night he said the bears were gonna rumble. hopefully you don't take the fraud poster known as robottrader seriously.

Mon, 06/20/2011 - 15:07 | 1385795 css1971
css1971's picture

Dow down ~7%, FTSE similar.

I'm certainly not willing to step back in at this point. You go right ahead.

Mon, 06/20/2011 - 13:21 | 1385238 Harlequin001
Harlequin001's picture

Yes , 'Simply amazing stuff, seems like we should be having 9% inflation and gold going through the roof and bond vigilantes screaming but instead we get record low interest rates.' and it only took nearly 3 trillion to do it. Amazing don't you think...

Mon, 06/20/2011 - 13:07 | 1385139 baby_BLYTHE
baby_BLYTHE's picture

.

 

Mon, 06/20/2011 - 12:47 | 1385142 Don Quixotic
Don Quixotic's picture

Can we consider the recent Dodd-Frank PM rules to be yet another subtle method for financial manipulation or is it too early to tell either the intent or actual consequences of the new rules?

Mon, 06/20/2011 - 12:58 | 1385158 Ahmeexnal
Ahmeexnal's picture

One of the reasons is they need to steer money into the stock markets when QE2 stops.

So they come up with a boogey man to try and scare PM traders.  Like PM traders -who know the stock markets are a fraud- would jump from the pan into the fire. I'm telling you, these Wall Street hoodlums think they are trading like its 1999. They have no connection with reality and think everyone else has multimillion bonuses like them.  The money will not go into the stock markets. It will go into PHYSICAL.

Mon, 06/20/2011 - 12:55 | 1385148 vegas
vegas's picture

I wouldn't buy US treasury paper if you gave me the money. US is bankrupt. Open an account somewhere in Yuan, or maybe SKD. 5 years from now you will look like a genius.

Mon, 06/20/2011 - 13:03 | 1385183 Ahmeexnal
Ahmeexnal's picture

Zimbabwe.

Mon, 06/20/2011 - 13:07 | 1385195 baby_BLYTHE
Mon, 06/20/2011 - 15:11 | 1385808 Cleanclog
Cleanclog's picture

Debt Saturation   http://bit.ly/kqFBzR

Mon, 06/20/2011 - 13:11 | 1385196 Long-John-Silver
Long-John-Silver's picture

I am a genius. I purchased Gold @ $700 and Silver @ $12. My family was not so sure of my genius status at the time having liquidated my G-Fund account and incurring large tax penalties at the time. Today the Treasury is raiding the G-Fund and will drain it completely by 2 AUG this year, Gold is $1540, and Silver is $35.87.

Mon, 06/20/2011 - 14:09 | 1385508 kito
kito's picture

youre a genius if and when the bond vigilantes turn on the united states, causing an economic collapse, in turn causing a gold standard to be reinstated. until then, youre making money on an investment.

 

Mon, 06/20/2011 - 14:28 | 1385592 firefighter302
firefighter302's picture

"I am a genius".  Long-John-Sliver

 

 

 

Mon, 06/20/2011 - 13:12 | 1385200 PlausibleDenial
PlausibleDenial's picture

SKD or SGD?

Mon, 06/20/2011 - 12:59 | 1385168 JimBobOMG
JimBobOMG's picture

What is EM?

Mon, 06/20/2011 - 13:25 | 1385257 GeneMarchbanks
GeneMarchbanks's picture

I believe EM= emerging markets. You're a sweet boy you should visit here more often.

Mon, 06/20/2011 - 13:26 | 1385260 Ahmeexnal
Ahmeexnal's picture

emerging markets (BRIC)

Mon, 06/20/2011 - 13:06 | 1385180 ShankyS
ShankyS's picture

Examples include requirements to hold minimum
amounts of government debt on bank balance sheets or establishing
minimum requirements for government bonds in pension funds.

I'm assuming these "safe" levels will be moving soon enough like the "safe" radiation scales around the globe.

 

Mon, 06/20/2011 - 15:06 | 1385788 Shell Game
Shell Game's picture

Debt ceilings, Fuku safe levels, minimum requirements... The pen is indeed mighter than the sword.

 

Mon, 06/20/2011 - 13:11 | 1385209 BayAreaAlan
BayAreaAlan's picture

Why am I afraid when someone mainstream starts saying the system is broken.

Mon, 06/20/2011 - 14:55 | 1385741 topcallingtroll
topcallingtroll's picture

Bill Gross is not mainstream.

He is an iconoclast, an opportunist, a liar, ugly as sin, a good writer, but he is definitely not mainstream.

I have no doubt he owns gold but cannot broadcast the fact or it might hurt business.

Mon, 06/20/2011 - 13:14 | 1385216 buzzsaw99
buzzsaw99's picture

I didn't hear them bitching while the fed was buying all their agency bonds at top dollar.

Mon, 06/20/2011 - 13:18 | 1385223 Catullus
Catullus's picture

Let it be known. If you loan money to people whose only source of income is robbing others or counterfeiting, don't surprised when those same people stiff you in some way. If the entire financial system is marketing their risk-adjusted curves to the likelihood of thugs repaying their debt, then to hell with this system. Mark your curves to something less risky and move on. It's not the end of the world. It's not the apocalypse. It's just changing how you perceive risk and returns.

Mon, 06/20/2011 - 13:21 | 1385251 Downtoolong
Downtoolong's picture

Investors should be wary of financial repression because it is primarily a tool to redistribute wealth from creditors (citizens) to debtors (governments) to the detriment of creditors, fixed income investors and savers."

Exactly what I said in three posts last week, though I would include all debtors in the latter group, not just governments. I realize this is nothing new or special; everyone else knows it too.

I also said I hate it when I end up agreeing with Bill Gross and his bunch. Shit, next thing you know I'll be moving back to California.

Mon, 06/20/2011 - 13:38 | 1385317 stiler
stiler's picture

It's not the end of the world. It's not the apocalypse. 

I agree, but it might be more than dollars & cents.

Mon, 06/20/2011 - 13:49 | 1385389 kevinearick
kevinearick's picture

Time, Currency, & the Rush Hour Perspective

The Problem:     It’s about the process of designing the process, which results in exponential derivative outcomes. Only reptiles attempt to catch the curve by addressing the aggregate symptoms of individual outcomes by blaming the individual. The NPV window / value / wealth / currency (voltage) depends entirely upon trust for timing, and reptiles breed competition, eliminating trust. Welcome to the Boeing catch-22, Microsoft.

In order to prime the pump, a cohort of kids must be brought up through the new process to prove it works, so others will follow, which will take 30 years, assuming the process is ready, but, in a little over a month, the reptiles are going to “see” that the best the dollar can do is gain traction on other currencies imploding into the black hole of bankruptcy.

Methodology:   The universe is a black hole of black holes, with a composite neutral line serving as a relatively instantaneous communication bus. From the long-term perspective, it’s a pendulum; from the short-term perspective, it’s a bridge.

The old radio knob was continuous; the old tv knob was discreet. A dc signal can by piggy-backed on an ac signal, with the remainder going to the quantum neutral of neutrals. The education system trains in dc; you are born, you grow old, and you die, but you can just as easily see it from the reverse perspective. We call those ascribing to the latter kids with old souls and old people young at heart. When these types bond, it begins the priming process. They are always on the event horizon and they can affect time rather than simply having it affect them.

The kid is building the foundation with the old person in mind, and the old person is trimming out with the kid in mind, which induces the semi-neutral middle class. Parallel circuits are an illusion created by time. The more things change, the more they stay the same is another way of saying that physics is physics.

Analogy / Angle of Perspective:       The reptiles herd their prey into the hour to create a bottleneck, “rewarding” the competitors on the front end of the ponzi, capturing the rest, and catching the front end on the next iteration. To solve loss of circulation, you want people to slow down to 40 mph, to temporarily cooperate, and maximize throughput until capacity is increased QUANTUMLY.

If you have a fast timed camera / meter, you will capture the pendulum swing. If you have a slow “income meter,” which averages, smoothes, and extrapolates, you will capture a dc average. From one perspective, you have many channels. From another, you have one channel and each class viewer has a filter to view the desired sub-channel. The universe is a tuner of tuners, which creates time in the process of installing filters, or creates filters in the process of establishing time.

On the first pass across the organization’s floor, an architect has 95% of the channels tuned and the bottleneck identified. All that is left is to design the irrational energy to be imparted upon the existing irrational energy, like multiplying a negative by a negative, only dimensions. The architect broadcasts on the required channels to ensure placement at the bottleneck (feedback loop of feedback loops). Due to the ego of egos, the architect’s participation will soon be discounted upon departure, like an old memory.

 The automated line has to be aligned along the new direction for the to-be. In the as-is, the demand for variability naturally increases, but the line is general use, so the “errors” increase, resulting in processor timing errors. Humans are specifically designed to transform error demand into supply, by practicing errors, but the endgame of currency exchange forgives the dc machine while blaming the ac human, in a temporarily symbiotic relationship between agency and senior labor, with a ponzi TBTF entitlement system and a revolving door for junior labor, until the irresolvable crash, when the new facility is brought online and the process is re-initiated. Under equilibrium condition, however, a dc solution is not possible. The Mayans could evade the Internet.

The architect repeats an individual error within firm tolerance until backlash builds to the required threshold, “tuning in” all the systematic errors up the chain of command, while making prototypical corrections to the process, which will only clear the bottleneck on the last insertion (compilation of the wave). The filters will automatically tune in the individual error until design change is complete. An architect builds a prototype of prototypes, keeping the pieces in a mental closet.

The Turner Diaries Media Manipulation Model:                 Class identification, goals, funding, recruiting, media, proto-action, action/word positive feedback cycle. Just add channels and you have reptile herding of the sheeple. A dinosaur cannot change its spots in real time.

The reptilian mind cannot solve a problem it doesn’t recognize, so it becomes a hammer looking for a nail. Fiat money may only control the make-work economy, by measuring quantity. Only you can judge quality, which is the difference between a thinking human and a replicating reptile. From time to time, an architect appears to be any number of critters.

… another white elephant bytes the dust, because a quantum solution is required.

Architects have an acute sense of leverage. The art is in taking all the resulting energy and producing any productive outcome to balance the neutral line. The fusion/fission reactor is there; what others do with it is up to them, but they should not attempt to isolate the architects with Family Law. Only their virtual image resides within the box.

Thu, 06/23/2011 - 08:15 | 1394145 tip e. canoe
tip e. canoe's picture

"Fiat money may only control the make-work economy, by measuring quantity. Only you can judge quality, which is the difference between a thinking human and a replicating reptile."

this is a very important point.   quantity vs. quality is the essence of the rift that is tearing open like a canyon.   as always, water is the key element here. 

Mon, 06/20/2011 - 14:17 | 1385539 LawsofPhysics
LawsofPhysics's picture

"The key is what happens to inflationary expectations. With four decades of experience, we have observed that bond markets do not move on higher headline inflation unless investors believe the higher inflation will be sustained. And that is why we look at core, which excludes volatile food and energy prices. Core reflects everything else going on in the economy,..."

 

This is why modern economics fails, exclusion of food and energy costs.  Hey idiots, nothing else happens in the economy without energy.  Even robots won't work on your assembly line without power.  Unfortunately, this is one lesson I know first hand.

Mon, 06/20/2011 - 14:50 | 1385704 topcallingtroll
topcallingtroll's picture

True, but if energy is only ten percent your cost of production and labor is 50 and capital costs are 40 percent you can find ways to halve your labor costs, or halve your capital costs and even if energy doubles you can have higher profits for the same final retail price of your widget, or you can lower your widget price.

Productivity and decreased margins are what saves us from energy cost.increases directly contributing to service and manufacturing cost increases.

Energy is very volatile. Did 140 dollar oil predict future inflation? What was the price three months later? Six months later?

Core inflation is a better measure of inflation transmission.

Mon, 06/20/2011 - 15:21 | 1385886 LawsofPhysics
LawsofPhysics's picture

Again, you are taking a very traditional view.  Energy costs are hidden everywhere.  Not just in the power bill from the power company.  My employees also have an energy bill.  There is hidden energy costs in the food that they eat.  While energy may be volatile it is also unforgiving and has a multiplier effect.  You say I can find ways to cut a number of costs.  I say bullshit.  Spoken like someone who has never run their own business.  You have to keep good people, and good people will not stick around if their salaries are not buying what they used to, period.  Moreover, I am sure most small businesses wish that their energy costs were only 10% of their costs.  That might be the case for the conglomerates where you have horribly inefficient (and in many cases subsidized) operations, but I challenge you to talk to anybody with 50 employees or less.

While core inflation may be a better measure of inflation transmission, then you are admitting that this is not a "forward looking" tool.  In other words it is useless.  I still stand  by my original opinion that discounting food and energy when crafting an economic or monetary policy is a recipe for disaster.

Mon, 06/20/2011 - 15:05 | 1385798 Comrade de Chaos
Comrade de Chaos's picture

Unfortunately just keeping the interest rates low is only one part of the Financial Repression. The other part includes under - reporting inflation. And the concluding act involves 'encouraging' (forcing) the population, or banking system or both to hold government bonds. As the result when those three parts are combined, a government is able to get away with & roll over  high levels of debt through an invisible tax on average citizens by 'taxing' (destroying) the purchasing power of their savings .

Mon, 06/20/2011 - 15:56 | 1386094 ATM
ATM's picture

Most people have no savings. I would argue that what they are really doing is stealing the value of peoples work and that is the definition of slavery.

Tue, 06/21/2011 - 07:48 | 1388352 Bicycle Repairman
Bicycle Repairman's picture

+!!

Mon, 06/20/2011 - 15:54 | 1386069 Stuck on Zero
Stuck on Zero's picture

You iterate over and over that central planning is a failure without an explanation.  Aren't all corporations centrally planned?  Would we have reached the moon without central planning?  Central planning is not inherently bad.  Bad central planning is inherently unsuccessful.  Don't confuse central planning with corruption and micromanagement.

Mon, 06/20/2011 - 17:54 | 1386568 gwar5
gwar5's picture

I don't know who you're addressing. But I'm here so,.....  Mustn't confuse central planning with coordinated activity.

Yes, Central Planning is inherently bad. The chances they would get each decision right are nil and the ability to quickly reverse course and reallocate resources is prevented. The only reason for CP seems to be to rig the system for the CPs (it is). Moreover, everytime they get it wrong, the misallocations and unintended consequences accumulate in the economy.

Corporations -- are not central planners. Corporations are really servants to the market, trying to decipher and provide what the market tells them it wants, when it wants it, and at what price, or go out of business. The market is always the master, it is the collective diaspora of demands, and is a fickle and fleeting mistress.

Central Planners are the ones, on the other hand, who try to replace the market, by telling the market what it is going to get, when it will get it, and at what price and terms it will get it.

 

Now.... think of citizens as consumers of government services.... does the government really give the people what they want? Or, do they just tell them what they are going to get, when they're going to get it, and on what terms? 

Some examples of a recent CP items: school lunches, CFLs, energy, electric cars, sub-prime mortgage rates, food (via food stamps & subsidies), sugar products, salt, war in Libya, Obamacare, what medium of exchange you must use (USD), moratorium on oil drilling, encouraging illegal immigration, etc.

 

Central Planners impose what they want on the economy.  But the economic system is a hugely interconnected complex system and the Central Planners can no more plan and operate an economy than they can a tropical rainforest.

Yes, the Moon project was centrally planned  --- but the Apollo missions were mainly a proxy to put a smiley face on our development of multi-stage rocket ICBMs.  Welcome to central planning.

You're might be in need of some Milton Freidman. Google/youtube "Milton Friedman freemarket pencil video" and look at the short video, go from there.

 

Tue, 06/21/2011 - 07:54 | 1388360 Bicycle Repairman
Bicycle Repairman's picture

"Corporations -- are not central planners."

Suppose corporations request central planning and help shape the plans?

Nah..........

Mon, 06/20/2011 - 16:10 | 1386149 gwar5
gwar5's picture

..

Mon, 06/20/2011 - 16:13 | 1386175 gwar5
gwar5's picture

Ah yes, financial repression.

I first heard this term last month via Rickards who explained it was how the Fed would steer private investments from people like investors and savers into treasuries to help the Fed do God's work.  

Mon, 06/20/2011 - 22:20 | 1387499 PeterSchump
PeterSchump's picture

I envision a fleet of airliners heading towards PIMCO HQ....

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