This week was interesting to say the least and it is ending with a bang. We are covering a number of brief subjects this week. I hope you enjoy them.
The jobs report has little value if we don't peer beneath the glossy veneer.
"The system we have now is one in which the Fed decides, through a Politburo of planners sitting in Washington, how much liquidity is necessary, what the interest rate should be, what the unemployment rate should be, and what economic growth should be. There is no honest pricing left at all anywhere in the world because central banks everywhere manipulate and rig the price of all financial assets. We can’t even analyze the economy in the traditional sense anymore because so much of it depends not on market forces, but on the whims of people at the Fed."
In Reality, War Will Bring An End to the Petrodollar, and Impose Hardship on the Average American ...
One hundred years ago today the world was shook loose of its moorings. Every school boy knows that the assassination of the archduke of Austria at Sarajevo was the trigger that incited the bloody, destructive conflagration of the world’s nations known as the Great War. But this senseless eruption of unprecedented industrial state violence did not end with the armistice four years later. In fact, 1914 is the fulcrum of modern history. It is the year the Fed opened-up for business just as the carnage in northern France closed-down the prior magnificent half-century era of liberal internationalism and honest gold-backed money. So it was the Great War’s terrible aftermath - a century of drift toward statism, militarism and fiat money - that was actually triggered by the events at Sarajevo.
The conventional view of the Baby Boomers' retirement is a happy story: since we're living longer and remaining productive longer, Boomers will not be as much of a burden on Gen-X and Gen-Y as doom-and-gloomers assume. Not only are Boomers staying productive longer, they will draw upon their vast generational wealth as they age, limiting the financial burden on younger generations. This happy story is wrong on multiple counts.
Ghandi was once asked, "What do you think about Western Civilization?" to which he famously replied "I think it's a good idea." He may as well have been talking about free market capitalism. Capital in the 21st Century has hit the world like a new teen idol sensation. Everybody is drinking the Kool-Aid and it's being held up as the most important book ever written on the subject of how runaway capitalism leads to wealth inequality. Paul Krugman of course, loves it. As does every head of state and political hack in the (formerly) free world. So let's do something different here and accept a core premise of Capital, and say that wealth inequality is increasing, and that it's a bad thing. Where the point is completely missed is in what causes it (ostensibly "free market capitalism") and what to do about it (increase government control, induce more inflation and raise taxes). The point of this essay is to assert that it is not unchecked capital or runaway free markets that cause increasing wealth inequality, but rather that the underlying monetary system itself is hard-coded by an inner temple of ruling elites in a way which creates that inequality.
One major factor to the slow growth/low inflation in the U.S. is the Wall Street Yield Trade. By incentivizing unproductive use of capital, low interest rate via monetary policy is actually deflationary.
Recently, Republican leaders in Congress unveiled a "tax reform" plan that they claimed would provide the American people with a simpler, fairer, and more efficient tax system. While this plan does lower some tax rates and contains some other changes that may make next April a little less painful for Americans, there is little in it to excite supporters of liberty. Sadly, politicians in Washington refuse to consider any tax plan that would decrease government revenue. This is because the prevalent attitude in DC favors protecting the welfare-warfare state over protecting our liberties. As the obsession with the Laffer curve shows, even many alleged supporters of the free market only pretend to support liberty as a means to enhance the well-being of the welfare-warfare state.
Bernanke's legacy: a deceptive case for a failed policy.
Sophistry: the use of fallacious arguments, especially with the intention of deceiving. The Federal Reserve's core policy of quantitative easing (QE) is based on a deceptive but appealing argument voiced by former Fed Chair Ben Bernanke.
The still-dominant consensus view that America’s economy is poised to single-handedly yank the world out of its lethargy is likely to be disappointed once again with the odds high that our economy will remain burdened by growth-inhibiting monetary policies. In addition, it will continue to be negatively impacted by various other impediments, including a populace that is increasingly under-employed, an unwieldy and inscrutable tax code, a Rube Goldberg-like healthcare system, an increasingly ossified infrastructure, and a regulatory apparatus that congests the lungs of our economy, small businesses... weaning the stock market off of casino capitalism promises to be anything but pain-free. But did any responsible adult really believe there would be no pay-back for all these years of the Fed’s force-fed gains? If you do, you probably also believe foie gras grows on trees.
This doesn't happen very often. Marketwatch reports that Jim Bianco points out in a recent market comment that the 67 economists taking part in a regular Bloomberg survey have a unanimous forecast regarding treasury bond yields: they will be higher 6 months from now... and a separate poll of economists recently showed that exactly zero expect the economy to contract. This is an astonishing degree of consensus thinking, but it perfectly mirrors the complacency we see in stock market sentiment and positioning data. The probability that such a unanimous view will turn out to be correct is traditionally extremely low. The economy is likely resting on a much weaker foundation than is generally believed. This is not least the result of massive monetary pumping and deficit spending, both of which tend to severely weaken the economy on a structural level, even though they can create a temporary illusion of 'growth'.
Military Keynesians Are Full of Sh ... (Cough) ... Shallow Myths
The reasons to hold gold (and silver), and we mean physical bullion, are pretty straightforward. So let’s begin with the primary ones:
- To protect against monetary recklessness
- As insulation against fiscal foolishness
- As insurance against the possibility of a major calamity in the banking/financial system
- For the embedded 'option value' that will pay out handsomely if gold is re-monetized
The punch line is this: Gold (and silver) is not in bubble territory, and its largest gains remain yet to be realized; especially if current monetary, fiscal, and fundamental supply-and-demand trends remain in play.
For five long years, we have pursued the fantasy that we could return to "growth" without having to fix or change anything. The core policy of the fantasy is the consensus of "serious economists," i.e. those accepted into the priesthood of PhD economists protected by academic tenure or state positions: what we suffered in 2009 was not the collapse of leveraged crony-state financialization but a temporary decline of "aggregate demand" and productive capacity. The five-year fantasy that free money would fix all the distortions and systemic problems is drawing to a close. Why can't the fantasy run forever? The two-word answer: diminishing returns. Handing out subprime auto loans works at first because it pulls demand forward: anyone who wants or needs a new car buys one now, rather than put the purchase off a year or two. Eventually the marginal buyers default and demand falls off, and the distortions cause an even greater collapse in demand and auto loan quality.