Great Depression

"The political left is happy to see people cross borders but would gladly restrict the flow of capital and goods. The political right is happy to see capital and goods cross borders but would gladly build a fence to restrict the flow of people. I’m afraid that the compromise might be to restrict people, capital and goods."

Sometimes you just have to stand in awe at the level of corruption and incompetence in government.

Greenspan’s phony disinflation success led to the Fed’s embrace of fully mobilized and massively intrusive monetary policy in the guise of the Great Moderation and the wealth effects theory of financial asset levitation. In due course, Greenspan’s self-aggrandizing but purely experimental forays of massive central bank intrusion in the financial markets were supplanted by the hard-core Keynesian model of Bernanke and Yellen. Alas, they operated under the grand illusion that a domestic wage and price spiral would tell them when the domestic GDP bathtub was filled to the full employment brim, and therefore when to lift their foot from the monetary accelerator. It never happened, and they never did. The era of Lite Touch monetary policy was by now ancient history.

The world of Bubble Finance economies created by the Fed and other central banks is fundamentally different than that prevailing under the “Lite Touch” monetary policies which preceded the Greenspan era. The problem today is that the PhDs running the Fed have an economic model which is a relic of the Lite Touch era. It is not only utterly irrelevant in today’s casino driven system, but is actually tantamount to a blindfold. It causes them to look at a dashboard full of lagging indicators like jobs and GDP components, while ignoring the explosive leading indicators starring them in the face on CNBC. The clueless inhabitants of the Eccles Building do not recognize that they have created a world in which Wall Street supersedes main street.

Good Thing Debt Doesn't Matter! </sarc>

This may sound like one of those generation gap stories, where older folks complain about the “kids” doing their own thing and the kids not trusting “anyone over 30.” It’s not. From sea to shining sea, distrust and anger ripples across America. Older age groups like to criticize millennials: they’re spoiled, have a sense of entitlement. Actually, they should look in the mirror, as they’re leaving those who will follow one hell of a mess.

While some have called The Trans-Pacific Partnership, "the most brazen corporate power grab in American history," President Obama tells Americans - in an Op-Ed released today - that "it’s the right thing to do for our economy, for working Americans and for our middle class" Despite indepedent analysis that appears to confirm  the creeping corporate coup d’état along with the final evisceration of national sovereignty, President Obama explains - in simple words - ObamaTrade is "a trade deal that helps working families get ahead," due, inhis opinion,  to the "toughest global labor laws" which will allow American workers to compete on a so-called "level playing field."

The funds have flowed in a torrent into stocks, bonds, and real estate, just as 1940's NY Fed President Allan Sproul predicted. That flood of easy-money created the delta of plenty in which we live today. Unfortunately, it’s not likely to continue, because funny things happen when you do funny things to money.

“Consider for example a tax cut for households and businesses that is explicitly coupled with incremental Bank of Japan purchases of government debt – so that the tax cut is in effect financed by money creation”

- Ben Bernanke, Some Thoughts on Monetary Policy in Japan, 2003

The lasting legacy of the First World War has been the rationales and implementations of paternalist Big Government in the Western world, with its diminished recognition and respect for individual liberty, free association, freedom of competitive trade and exchange, reduced civil liberties and weakened impartial rule of law. From this has followed the regulating and redistributing State, which includes political control and manipulation of the monetary and banking systems to serve those in governmental power and others who feed at the trough of governmental largess. It is a legacy that will likely take another century to completely overcome and reverse, if we are able to devise a strategy for restoring the idea and ideal of a society of liberty.

Why is the price of oil so low now? In fact, why are all commodity prices so low? We see the problem as being an affordability issue that has been hidden by a growing debt bubble. As this debt bubble has expanded, it has kept the sales prices of commodities up with the cost of extraction (Figure 1), even though wages have not been rising as fast as commodity prices since about the year 2000. That period is ending as the productivity of additional debt is falling.

"It is ironic that we are perhaps best known for advising “that you panic”. However, if you are anxious at the wrong time it can prove very painful. Today, we would advise that you don’t panic!
... by withdrawing the “Greenspan put” and using their asset purchase schemes to eviscerate any notion of value, the authorities have paradoxically created a safer yet more paranoid market."

- Hugh Hendry

Our ancestors were wiser and far more educated than modern Americans about the dangers posed by a centralized, monopolistic system charged with the creation and distribution of money, and our society and economy have paid a very heavy price for its ignorance. Indeed, some of today’s Fed critics aren’t even aware that the U.S. Central Bank originally had far less power than it does today. As concerned as they were, its early critics could never have imagined how perverted its mandate would become in the subsequent 100 years. A mandate that has now made it the single most powerful and destructive force on planet earth.

It was 77 years ago this week that Orson Welles struck terror into the hearts of Americans with his live radio broadcast of the HG Wells classic War of the Worlds. What struck me while watching the PBS retrospective were the similarities between then and now. The gullibility of the masses, the power of fear, the overreaction by the media, busy bodies calling for the government to do something, and the effectiveness of propaganda are all commonalities between that Fourth Turning and today’s Fourth Turning.

We will be the first to admit that yield curve inversion is not the only factor causing recessions, but through the credit channel it can be an important contributor. Depending on the importance of the credit channel, the Federal Reserve, by pegging the short term rate at zero, have essentially removed one recessionary market mechanism that used to efficiently clear excesses within the financial system. While stability obsessed Keynesians on a quest to the permanent boom regard this as a positive development, the rest of us obviously understand that false stability breeds instability.