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.
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.
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.
When Arthur Levitt's SEC adopted Rule 2a-7 in 1998, it handed the TBTF banks and GSEs a mortgage monopoly on a silver platter.
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.
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.
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.
Given this lack of warning, depositors need to plan in advance for the day when ATMs do not work and they cannot access cash in their bank accounts. Customers could only withdraw a maximum of €300 per day from branches and ATMs, and could only carry a maximum of €3,000 while travelling out of the country
Given this lack of warning, depositors need to plan in advance for the day when ATMs do not work and they cannot access cash in their bank accounts. Customers could only withdraw a maximum of €300 per day from branches and ATMs, and could only carry a maximum of €3,000 while travelling out of the country.
There has been quite a bit of discussion lately over the rapid reduction in the government's budget deficit as it relates to economic growth going forward. There are 3 issues that will likely impede further progress on the deficit reduction in the months ahead; 1) lower rates of tax revenue, 2) weaker economic growth and 3) greater levels of spending. The good news for stock market bulls is that deepening budget deficits increase the amount of bonds that the Treasury will need to issue to cover the shortfall in spending. This will give the Federal Reserve more room to continue their current monetary interventions which have inflated asset prices sharply over the last year. Creating financial instability to gain economic stability has been an elusive dream of the Federal Reserve since the turn of the century; yet someday it is hoped that they may just be able to "catch their own tail."
My personal guess is that the U.S. market, especially the non-blue chips, will work its way higher, perhaps by 20% to 30% in the next year or, more likely, two years, with the rest of the world including emerging market equities covering even more ground in at least a partial catch-up. And then we will have the third in the series of serious market busts since 1999 and presumably Greenspan, Bernanke, Yellen, et al. will rest happy, for surely they must expect something like this outcome given their experience. And we the people, of course, will get what we deserve. We acclaimed the original perpetrator of this ill-fated plan – Greenspan – to be the great Maestro, in a general orgy of boot licking. His faithful acolyte, Bernanke, was reappointed by a democratic president and generally lauded for doing (I admit) a perfectly serviceable job of rallying the troops in a crash that absolutely would not have occurred without the dangerous experiments in deregulation and no regulation (of the subprime instruments, for example) of his and his predecessor’s policy. At this rate, one day we will praise Yellen (or a similar successor) for helping out adequately in the wreckage of the next utterly unnecessary financial and asset class failure. In the meantime investors should be aware that the U.S. market is already badly overpriced. This market is already no exception, but speculation can hurt prudence much more and probably will. Ah, that’s life. And with a Fed like ours it’s probably what we deserve.
Ignoring the facts won't help us address the insolvency of pay-as-you-go social programs.
"The recent trading environment has felt something like walking into a place and having a sense that something is wrong and dangerous but not knowing exactly what will happen or when. “QE Infinity” has so distorted the prices of stocks and bonds that nobody can possibly determine what the investing landscape would look like, or what the condition of the economy and financial system would be, in the absence of Fed bond-buying."
-Paul Singer, Elliott Management
US Fed's exit plan poses a critical dilemma and underscores important contradictions. The calendar says Europe should be talking about exits too--as aid packages for Spanish banks, and Ireland and Portugal are to wind down in the coming year--yet more rather than less assistance may be neeed.