Federal Deficit

The Great War’s Aftermath: Keynesianism, Monetary Central Planning & The Permanent Warfare State

The Great Depression did not represent the failure of capitalism or some inherent suicidal tendency of the free market to plunge into cyclical depression - absent the constant ministrations of the state through monetary, fiscal, tax and regulatory interventions.  Instead, the Great Depression was a unique historical occurrence - the delayed consequence of the monumental folly of the Great War, abetted by the financial deformations spawned by modern central banking. But ironically, the “failure of capitalism” explanation of the Great Depression is exactly what enabled the Warfare State to thrive and dominate the rest of the 20th century because it gave birth to what have become its twin handmaidens - Keynesian economics and monetary central planning. Together, these two doctrines eroded and eventually destroyed the great policy barrier - that is, the old-time religion of balanced budgets - that had kept America a relatively peaceful Republic until 1914. The good Ben (Franklin that is) said,” Sir you have a Republic if you can keep it”. We apparently haven’t.

The Keynesian Apotheosis Is Here; But Blame The Final Destruction Of Sound Money On The Bushes

The only thing that can be said about Janet Yellen’s simple-minded paint-by-the-numbers performance yesterday is that the Keynesian apotheosis is complete. American capitalism and all political life, too, is now ruled by a 12-member monetary politburo, which is essentially accountable to no one except its own misbegotten doctrine that prosperity flows from the end of a printing press.

Frontrunning: June 16

  • Iraq Army Tries to Roll Back Sunni Militants’ Advance (BBG)
  • Starbucks to Subsidize Workers' Online Degrees (WSJ)
  • ‘Bitcoin Jesus’ Calls Rich to Tax-Free Tropical Paradise (BBG)
  • Medtronic Is Biggest Firm Yet to Renounce U.S. Tax Status (BBG), Medtronic to buy Covidien for $42.9 billion, rebase in Ireland (Reuters)
  • Oil Topping $116 Seen Possible as Iraq Conflict Widens (BBG)
  • Putin Seeks Paris Landmark as Hollande’s Russia Ties Defy Obama (BBG)
  • GM Says It Has a Shield From Some Liability (WSJ)
  • BOJ’s Bond Paralysis Seen Spreading Across Markets (BBG)

"Mansion Tax" Coming To New York, Compliments Of Mayor de Blasio

Since the entire developed world is insolvent (don't believe us, believe Paul Singer), it was only a matter of time before this percolating English idea moved across the big pond: this we warned about also when we said that "if anyone is still confused, the IMF-proposed "mansion tax" is most certainly coming to the US, and every other insolvent "developed world" nation, next." Today we learn that we were right about this too. The Post reports that "After his failed attempt to hike income taxes on the wealthy, Mayor de Blasio is eyeing another way to squeeze money from millionaires to fund another top priority: affordable housing. Multiple sources tell The Post that the mayor is talking to people about how to increase the so-called “mansion tax” on homes selling for $1 million or more to help offset the cost of adding 200,000 affordable-housing units."

Ron Paul Warns The Nevada Standoff Is A Symptom of Increasing Authoritarianism

A government that continually violates our rights of property and contract can fairly be descried as authoritarian. Of course, the politicians and bureaucrats take offense at this term, but how else do you describe a government that forbids Americans from grazing cattle on land they have used for over a century, from buying health insurance that does not met Obamacare’s standards, from trading with Cuba, or even from drinking raw milk! That so many in DC support the NSA spying and the TSA assaults on our privacy shows the low regard that too many in government have for our rights. History shows us that authoritarian systems, whether fascist, communist, or Keynesian, will inevitably fail.

Paul "Contrafactual" Krugman: The Laureate Of Keynesian Babble

If you are not Professor Paul Krugman you probably agree that Washington has left no stone unturned on the Keynesian stimulus front since the crisis of September 2008. By the time the “taper” is over later this year (?) the Fed’s balance sheet will exceed $4.7 trillion - $4 trillion in new central bank liabilities in six years. All conjured out of thin air.  Professor Krugman proposing to “do something”... In short, Krugman wants to double-down on the lunacy we have already accomplished. Unfortunately, we are presently nigh onto “peak debt”; there is no “escape velocity” because the Fed’s credit channel is broken and done. Going forward, the American people will once again be required to live within their means, spending no more than they produce. By contrast, Professor Krugman’s destructive recipes are entirely the product of a countrafactual economic universe that does not actually exist. He wants us to borrow and print even more because our macro-economic bathtub is not yet full. And that part is true. It doesn’t even exist.

 

The Five-Year Fantasy Is Ending

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.

Fed's Lacker Slams Permabulls, Pours Cold Water On The US "Growth Story"

Unlike the other Fed presidents who are all too happy to lie in order to instill some confidence not realizing that by doing so they hurt their own credibility, non-voting member Jeffrey Lacker and president of the Richmond Fed has a different approach - telling the truth. Which is why we read his just released speech this morning with interest since once again, it contains far more truth and honesty than anything else the FOMC releases. Sure enough, it has enough fire and brimstone to put even fringe bloggers to shame.

The MyRA Propaganda Begins: "A Start To A Secure Retirement" Promises Treasury Secretary

You didn't think the US could at first slowly, and then all of a sudden, expropriate retirement accounts and invest them in the "no risk, guaranteed return" MyRA Ponzi scheme introduced by Obama during the State of the Union address without lots of behavior-modifying indoctrination in the "friendly press" first now did you? Sure enough, here is the first major propaganda salvo, coming from none other than the US Treasury Secretary, Jack Lew, which will be published tomorrow across the McClatchy media empire.

Is Inflation Understated?

It’s ironic that in a day and age where Keynesian economics is the “accepted view” we still don’t pay enough attention to what Keynes said about inflation: "By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some..." The problem today is that some people believe inflation is lower than it actually is. The Consumer Price Index CPI is used to measure the cost of maintaining a certain standard of living. Now it measures the cost of maintaining a certain level of satisfaction. You can argue the magnitude of the inflation understatement but you can’t argue that the official numbers are accurate. Under reporting inflation has led to many predictable outcomes.