John Maynard Keynes
Bearish for years, huh, Dennis? Really?
“When the facts change, I change; What then do you do, Sir?” The facts are changing in the world of crude oil; demand is still rather strong and supplies seem to be rising but only modestly. Further, the term structures are shifting. We had been, on balance and really quite openly, bearish of crude for the past several years, erring always to sell crude’s rallies rather than to buy crude’s weakness. That has been wrong for the past two months and it is time to acknowledge that “wrongness.” If the facts are indeed changing… and certainly they seem to be… then we too must change.
There must be some dark corner of Hell warming up for modern, mainstream economists. They helped bring on the worst bubble ever... with their theories of efficient markets and modern portfolio management. They failed to see it for what it was. Then, when trouble came, they made it worse. But instead of atoning in a dank cell, these same economists strut onto the stage to congratulate themselves.
The “bullish case” is currently built primarily on “hope.” Hope the economy will improve in the second half of the year; Hope that earnings will improve in the second half of the year; Hope that oil prices will trade higher even as supply remains elevated; Hope the Fed will not raise interest rates this year; Hope that global Central Banks will “keep on keepin’ on.” Hope that the US Dollar doesn’t rise; Hope that interest rates remain low; Hope that high-yield credit markets remain stable.
Pestilence. War. Famine. Death. One could give these Four Horsemen any cute nicknames that they desire. But what the four Fed-heads all have in common is that they are destroyers. Just like all of the West’s other central bankers.
$13,903,107,629,266. Can the nation afford this much debt? This much we have learned about debt after 40 years of writing and study: It is better not to incur it. Once it is incurred, it is better to pay it off. America, we have a problem.
How do the ultra-wealthy become ultra-wealthy? They do it the old-fashioned way.
With volume declining on the rally as short-covering fades, the thrust of Central Bank actions now behind us, the focus will once again turn to the economic and fundamental data. From that standpoint, the “bears” remain firm in the commitments. With profit margins and earnings on the decline, economic data weak and interest rates hovering near lows, there is little support for an ongoing bull rally.
Some reversals of financial trends prove so momentous they define the generation in which they occur. The stock market crash in 1929 kicked off the Great Depression, which ushered in the welfare and then the warfare state and redefined the relationship between government and citizens. Bonds and stocks began their bull market runs in the early 1980s. Now, those markets are fonts of optimism increasingly unhinged from reality. The US has come full circle. The New Deal and World War II marked a massive shift of resources and power to the federal government. Conversely, financial reversal will fuel a virulent backlash against the government and its central bank.
In the same way that FDR had an existential political interest in generating inflation and preventing volatility in the US labor market, so does the US Executive branch today (regardless of what party holds the office) have an existential political interest in generating inflation and preventing volatility in the US capital markets. Transforming Wall Street into a political utility was an afterthought for FDR; today the relative importance of the labor markets and capital markets have completely switched positions. Today, the quote would be "markets are too important to be left to investors."
“I thought the Depression was going to go on forever. For six or seven years, it didn’t look as though things were getting better. The people in Washington DC said they were, but ask the man on the road? He was hungry and his clothes were ragged and he didn’t have a job. He didn’t think things were picking up.”
"The loss of traditional human connections, the dehumanization of man in mass society, and the corruption of the political and economic marketplaces, Röpke argued, had created the sociological and psychological conditions for the emergence of and receptivity to the collectivist idea and its promise of a new community of a better society designed according to a central plan." In the dark days immediately following the rise to power of Adolf Hitler and his Nazi movement in Germany in January 1933, Willhelm Röpke refused to remain silent. He proceeded to deliver a public address in which warned his audience that Germany was in the grip of a "revolt against reason, freedom and humanity."
Authored by Prof. Steve H. Hanke of The Johns Hopkins University. Follow him on Twitter @Steve_Hanke.
Ever since General Sisi ousted the Muslim Brotherhood, the Egyptian economy has remained in shambles. Businessmen are fed up. They are ignoring government gag orders, and are making their voices heard. And why not? They are losing sales, missing deadlines, and scrapping expansion plans because of limited access to U.S. dollars.
Eighty years go, on February 4, 1936, one of the most influential books of the last one hundred years was published, British economist, John Maynard Keynes’s The General Theory of Employment, Interest and Money. With it was born what has become known as Keynesian Economics. In the process Keynes helped undermine what had been three of the essential institutional ingredients of a free-market economy: the gold standard, balanced government budgets, and open competitive markets. In their place Keynes’s legacy has given us paper-money inflation, government deficit spending, and more political intervention throughout the market.
The imbalances that low rates and elasticity produce may “return us to the modern-day equivalent of the divisive competitive devaluations of the interwar years; and, ultimately, [trigger] an epoch-defining seismic rupture in policy regimes, back to an era of trade and financial protectionism and, possibly, stagnation combined with inflation.”