A Roundup of Opinions
Now is the time to think about how you would live your life if your real value was appreciated and fairly compensated.
There is "not a chance," that the Fed will be able to unwind its balance sheet in an orderly manner, "because everybody is front-running [them]," as the Fed is creating "serial bubbles," that are increasingly hard to manage since "we're getting in deeper and deeper every time." David Stockman has been vociferously honest in the last few days and his Bloomberg Radio interview with Tom Keene was extremely so. While Keene tries his best to remain upbeat and his permabullish self, Stockman just keeps coming with body blow after body blow to the thesis that this 'recovery' is sustainable. "They are using a rosy scenario forecast for the next ten years that would make the rosy scenario of the 1981 Reagan administration look like an ugly duckling," he exclaims, adding that the Keynesian Krugmanites' confidence is "disingenuous" - "the elephant in the room - the Fed," that are for now enabling rates to stay where they are. The full transcript below provides much food for thought but he warns, if the Fed ever pulled back, even modestly, "there would be a tremendous panic sell off in the bond market because it is entirely propped up... It's to late to go cold turkey."
Our April Fool's wish: someone in the inner circle of power would finally tell the truth. In an unprecedented abandonment of his carefully scripted responses to Congressional questions, Federal Reserve Chairman Ben Bernanke unleashed what appeared to be a heart-felt and spontaneous disavowal of the financial and political systems of the United States.
The below article, recreated in its grotesque entirety, is a real, serious Op-Ed written by a supposedly real, non page-view trolling, Nobel-prize winning economist, in a serious paper, the New York Times. It can be classified with one word: jaw-dropping:"We’re not going to resolve our long-run fiscal issues any time soon, which is O.K. — not ideal, but nothing terrible will happen if we don’t fix everything this year. Meanwhile, we face the imminent threat of severe economic damage from short-term spending cuts. So we should avoid that damage by kicking the can down the road. It’s the responsible thing to do."
Unfortunately, the spectacular rise of Wall Street’s securitization machine will likely forever frustrate attempts to ascertain the extent to which the Fed is responsible for what happened to the U.S. housing market and financial system in 2008. After all, it wouldn’t be fair to short sell (no pun intended) all the Special Purpose Vehicle sponsors, CDO asset managers, investors, and ratings agencies who, for at least five years, worked so hard to collapse the system.
The economy cannot recover without a complete cleansing of the excesses that have built up over the last half century plus. It is not a unique idea. It is a foundational belief of Austrian economics and an integral part of Austrian Business Cycle theory. Ludwig von Mises provided this fundamental observation: "Credit expansion can bring about a temporary boom. But such a fictitious prosperity must end in a general depression of trade, a slump." There has likely never been a boom so great (and so fictitious) as the one that this country experienced for the last several decades. Its origins began with the hubris of government economists in the decade of the 1960s who believed that the economy could be managed like a piece of machinery. This incorrect belief is still fundamental to Keynesian economists, despite the impressive string of failures it has produced. Markets are now trying to right these wrongs. Government is desperately trying to prevent the curative process.
It will not come as a surprise to anyone who has spent more than a few cursory minutes reading ZeroHedge over the past few years (initially here, and most recently here, and here) but the rolling 'beggar thy neighbor' currency strategies of world central banks are gathering pace. To wit, Bloomberg reports that energy-bound Russia's central bank chief appears to have broken ranks warning that "the world is on the brink of a fresh 'currency war'." With Japan openly (and actively) verbally intervening to depress the JPY and now Juncker's "dangerously high" comments on the EUR yesterday, it appears 2013 will be the year when the G-20 finance ministers (who agreed to 'refrain from competitive devaluation of currencies' in 2009) tear up their promises and get active. Rhetoric is on the rise with the Bank of Korea threatening "an active response", Russia now suggesting reciprocal devaluations will occur (and hurt the global economy) as RBA Governor noted that there is "a degree of disquiet in the global policy-making community." Critically BoE Governor Mervyn King has suggested what only conspiracists have offered before: "we'll see the growth of actively managed exchange rates," and sure enough where FX rates go so stocks will nominally follow (see JPY vs TOPIX and CHF vs SMI recently).
Almost a year ago, in February 2012, Zero Hedge decided to "think outside the box" and take Keynesianism and post-Chartalism (or whatever three letter acronym it is better known as these days) to their absurd, thought-experimental limits with "A Modest Proposal To Boost US GDP By $852 Quadrillion: Build The Imperial Death Star" - a suggestion that instead of growing US debt in dribs and drabs (because as any Ivy league tenured econ Ph.D will tell you, "debt is wealth"), that the US should go the whole hog and just splurge some $852 quadrillion in new debt (don't worry, MMT says that's just a token, no pun intended, amount) to build an Imperial Death Star, a project that would immediately hike US GDP by a factor of 56,000 and create several trillion new jobs, ensuring economic utopia in perpetuity, not to mention galactic dominance. We were mostly joking. We also assume that the creator of a White House petition launched in November to "Secure resources and funding, and begin construction of a Death Star by 2016" was also mostly joking. However, as that petition promptly accumulated well over 34,000 signatures, the White House had no choice but to respond. Here are the White House's thoughts on becoming the next iteration of the Galactic Empire (and, by implication, Barack Obama becoming Emperor Palpatine reincarnated).
Rather than attempt to predict the unpredictable – that is, specific events and price levels – let’s look instead for key dynamics that will play out over the next two to three years. Though the specific timelines of crises are inherently unpredictable, it is still useful to understand the eventual consequences of influential trends. In other words: policies that appear to have been successful for the past four years may continue to appear successful for a year or two longer. But that very success comes at a steep, and as yet unpaid, price in suppressed systemic risk, cost, and consequence.
Despite the fact that myself and everyone else acting like they know what lays ahead are proven wrong time and time again, we continue to make predictions about the future. It makes us feel like we have some control, when we don’t. The world is too complex, too big, too corrupt, too lost in theories and delusions, and too dependent upon too many leaders with too few brains to be able to predict what will happen next. This is the time of year when all the “experts” will be making their 2013 predictions - but few will address where they were wrong in previous predictions. I’m more interested in why I was wrong. It seems I always underestimate the ability of sociopathic central bankers and their willingness to destroy the lives of hundreds of millions to benefit their oligarch masters. I always underestimate the rampant corruption that permeates Washington DC and the executive suites in mega-corporations across the land. And I always overestimate the intelligence, civic mindedness, and ability to understand math of the ignorant masses that pass for citizens in this country. It seems that issuing trillions of new debt to pay off trillions of bad debt, government sanctioned accounting fraud, mainstream media propaganda, government data manipulation and a populace blinded by mass delusion can stave off the inevitable consequences of an unsustainable economic system. Will 2013 be the year it all collapses in a flaming heap of rubble? I don’t know. Maybe you should ask an “expert”.
We are now approaching the fourth Christmas of the great debate between the benign supporters of Santa Keynes and the walnut-hearted acolytes of the Hayekian Grinch. Or at least that’s how Keynesians seem to see it. Far from being a success, Keynesian policies have retarded recovery and extended the downturn, just as they did in the 1930s and the 1970s. They’re the “moral” policy present that keeps on taking, supported by those who claim that their opponents have hearts “two sizes too small.”
In the fall of 1996, John Cassidy arranged to interview Paul Samuelson in his office at M.I.T. for an article he was writing on the state of economics. He began by asking Samuelson whether he was still a Keynesian: "I call myself a post-Keynesian," Samuelson replied. "The 1936 Model A Keynesianism is passé..." He recalled attending an event that was held in Cambridge, England, in 1986 to mark the one-hundred-and-fiftieth anniversary of Keynes's birth. "Everybody was there. And they all stood up and said, 'I am still a faithful Keynesian. I am still a true believer.' I was a bit rude. I said, 'You remind me of a bunch of Nazis saying, I’m still a good Nazi.' It’s not a theology: it’s a mode of analysis. I think I am a different Keynesian than I was ten years ago."
Forget the perfectly anticipated Greek (selective) default. This is the real deal. The FT just released a blockbuster that Europe's most important and significant bank, Deutsche Bank, hid $12 billion in losses during the financial crisis, helping the bank avoid a government bail-out, according to three former bank employees who filed complaints to US regulators. US regulators, whose chief of enforcement currently was none other than the General Counsel of Deutsche Bank at the time!
Sixteen years ago today, Alan Greenspan spoke the now infamous words "irrational exuberance" during an annual dinner speech at The American Enterprise Institute for Public Policy Research. Much has changed in the ensuing years (and oddly, his speech is worth a read as he draws attention time and again to the tension between the central bank and the government). Most critically, Greenspan was not wrong, just early. And the result of the market's delay in appreciating his warning has resulted in an epic shift away from those same asset classes that were most groomed and loved by Greenspan - Stocks, to those most hated and shunned by the Fed - Precious Metals. While those two words were his most famous, perhaps the following sentences are most prescient: "A democratic society requires a stable and effectively functioning economy. I trust that we and our successors at the Federal Reserve will be important contributors to that end."