Great Depression

There’s good propaganda and bad propaganda. Bad propaganda is generally crude, amateurish Judy Miller “mobile weapons lab-type” nonsense that figures that people are so stupid they’ll believe anything that appears in “the paper of record.” Good propaganda, on the other hand, uses factual, sometimes documented material in a coordinated campaign with the other major media to cobble-together a narrative that is credible, but false. The so called Fed’s transcripts, which were released last week, fall into the latter category... But while the conversations between the members are accurately recorded, they don’t tell the gist of the story or provide the context that’s needed to grasp the bigger picture. Instead, they’re used to portray the members of the Fed as affable, well-meaning bunglers who did the best they could in ‘very trying circumstances’. While this is effective propaganda, it’s basically a lie, mainly because it diverts attention from the Fed’s role in crashing the financial system, preventing the remedies that were needed from being implemented (nationalizing the giant Wall Street banks), and coercing Congress into approving gigantic, economy-killing bailouts which shifted trillions of dollars to insolvent financial institutions that should have been euthanized.  What I’m saying is that the Fed’s transcripts are, perhaps, the greatest propaganda coup of our time.

It would indeed be supremely ironic if the "strong" foreign law bond indenture would be tested, and breached, not by Greek bonds, as so many expected in late 2011 and early 2012, but by one of the last contries in Europe which is still AAA-rated. We would find it less ironic if the next leg of the global financial crisis was once again unleashed by an Austrian bank: after all history does rhyme...

Debt is the great palliative that has enabled the US and other major economies to escape reality, at least for a time. Ayn Rand described such behavior:

You can avoid reality, but you cannot avoid the consequences of avoiding reality.

It is possible to steal from tomorrow to improve today but only at the cost of having less of a future. That is what both nations and citizens have been doing. The ability to continue doing so has about run its course.

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.  

Apparently all it takes to kick the world out of a secular recession and back into growth mode, is for several dozen finance ministers and central bankers to sit down and sign on the dotted line, agreeing it has to be done. That is the take home message from the just concluded latest G-20 meeting in Syndey, where said leaders agreed that it is time to finally grow the world economy by 2% over the next 5 years. "We are putting a number to it for the first time -- putting a real number to what we are trying to achieve," Hockey told a news conference. "We want to add over $2 trillion more in economic activity and tens of millions of new jobs." There is only one problem: the G-20 has absolutely no idea how to actually achieve its goal of boosting global output by more than the world's eighth largest economy Russia produces in a year. Nor does it have any measures to prod and punish any laggards from this most grand of central planning schemes.

The world may have been crashing and burning, and as Bernanke admitted in March 2008, "At some point, of course, either things will stabilize or there will be some kind of massive governmental intervention, but I just don’t have much confidence about the timing of that" (guess which one it was), but at least the Fed ended the catastrophic 2008 yeat on a high note. The chart below shows the number of the time the FOMC committee had an moment of levity as captured by [Laughter] in the FOMC transcripts. Perhaps not surprisingly, the December 2008 meeting, when the market was in free fall, saw the biggest number of laugh lines in the entire year.

The die has been cast, and it appears that the world is finally on the path to the great "carry-trade unwind" endgame. If so, this is what it will look like...

As we initially exposed over five years ago, with luminary frat brothers and sister such as Jimmy Cayne, Richard Fuld, Stan O'Neil, Martin Gruss, Michael Bloomberg, Jon Corzine, Mary Shapiro, Alan Schwartz, Larry Fink, Larry Fink, Wilbur Ross, James McDonald, this "secret" organization puts the Masons, Bilderbergs, Skull and Bones, Templars, Fight Club and all other secret societies to shame. Now, as New York Magazine infiltrates the inner workings of the "Kappa Beta Phi" society, Liberty Blitzkrieg's Mike Krieger notes the following will confirm what everyone already thought - that a great many of these oligarch financiers are complete and total sociopaths and a menace to society. 

Now that Ben Bernanke has handed over the keys of the Federal Reserve, there are all sorts of theoretical arguments, pro and con, concerning his bold quantitative easing (QE) programs, in which the Fed massively expanded its balance sheet. Many critics have worried that this will disrupt the proper functioning of credit markets, and threatens to severely debase the US dollar. The defenders of Bernanke have argued that he spared the US (and indeed the world) from a second Great Depression. One of the odd (more farcical) points that people raise in Bernanke’s defense is the case of Japan...  We do have historical examples of central banks ruining their economies/currencies through massive expansions of their balance sheets (Weimar Germany, Zimbabwe, etc.). To our knowledge, this has never actually worked anywhere in history...

Did you know that the U.S. state that produces the most vegetables is going through the worst drought it has ever experienced and that the size of the total U.S. cattle herd is now the smallest that it has been since 1951?  Just the other day, a CBS News article boldly declared that "food prices soar as incomes stand still", but the truth is that this is only just the beginning.  If the drought that has been devastating farmers and ranchers out west continues, we are going to see prices for meat, fruits and vegetables soar into the stratosphere.  Already, the federal government has declared portions of 11 states to be "disaster areas", and California farmers are going to leave half a million acres sitting idle this year because of the extremely dry conditions. 

Sadly, experts are telling us that things are probably going to get worse before they get better (if they ever do). 

In short: young firms. As the following chart summarizing OECD data for the developed world, all the net job creation in the 21st century has come from firms that are 5 years old or less, having even created jobs during the peak years of the post-Lehman depression. And where do jobs go to die? Simple - old corporations, as firms older than 6 years having been net eliminators of jobs since the year 2001!

On Tuesday, new Federal Reserve Chairman Janet Yellen went before Congress and confidently declared that "the economic recovery gained greater traction in the second half of last year" and that "substantial progress has been made in restoring the economy to health".  This resulted in glowing headlines throughout the mainstream media such as this one from USA Today: "Yellen: Economy is improving at moderate pace".  Sadly, tens of millions of Americans are going to believe what the mainstream media is telling them.  But it isn't the truth.  As you will see below, there are all sorts of signs that the economy is taking a turn for the worse.

We have become a delusional state dependent upon fallacies to convince ourselves our foolhardy beliefs, ludicrous economic policies, corrupt captured political system, and preposterously fraudulent financial system are actually based on sound logic and reason. The fallacy being flogged by government drones and the legacy media about companies not hiring new employees because it has been cold and snowy during the winter is beyond absurd. The other fallacy being pontificated by retail executives in denial, cheerleaders on CNBC and the rest of the propaganda press is weather is to blame for terrible retail sales over the last quarter. Revealing the truth about pitiful employment growth and dreadful retail sales would destroy the fallacy of economic recovery stimulated by the monetary policies of the Federal Reserve and fiscal policies of the Federal government. We have a country built on a Himalayan mountain of fallacies.

Is History Repeating … Or Throwing a Head-Fake?

Earlier today, the non-profit organization Better Markets did what so many others have only dreamed of doing - they sued JPMorgan. We wish them the best of luck, as in a "crony jsutice" system as corrupt as this one - perhaps best described, paradoxically enough by the fictional movie The International - where the same DOJ previously implicitly admitted it will not prosecute "systemically important" firms like JPM to the full extent of the law and instead merely lob one after another wrist slap at them to placate the peasantry, any hope for obtaining true justice is impossible.