In an excellent treatise on sovereign subtleties, Morgan Stanley's Arnaud Mares (the same analyst who nailed the Greek situation long before most others) once again lays out the increasingly bifurcated path that a broken European 'union' may and must take. Most interesting, and highly prescient in our view, is his consideration that the 'private sector involvement' in the restructuring of Greek debt was not only a major policy error but opens the door for the peasantry to finally comprehend that when sovereign debt is not 'risk-free' then fiscal (and monetary) policy can become pro-cyclical. With the entire Keynesian dogma resting on this very tenet, we think it well worth a read and as he writes: "Pandora’s Box has been opened. Only fiscal integration accompanied by centralized financing of governments can bring about full stabilization of the market in Europe, in our view. The alternative could eventually be a resumption of the run on governments and a wave of public and private defaults." Bottom line, in attempting to do things half-assed, Europe may have just destroyed the entire credibility of the one primary economic theory driving global "growth" (or stated better, borrowing from the future) since the beginning of the 20th century.
No, Mr. Krugman ... war is NOT good for the economy!
Watch the teleprompter advise the president on the correct choice of words at his address to workers at a Fiat, pardon Chrysler Group, Toledo supplier park, during which he will have to explain why both fiscal and monetary policy (read Keynesianism) is now a confirmed failure. But far from Austrian economics finally get the respect it so much deserves, this will merely retrench the current idiotic policies - just read any column by Krugman demand doubling down on stimulus post haste: that's what happens with junkies - it never ends, and in fact the "last" does must always be more and more and more...
Keynesianism Kapitulates To Kondoms? Bill Gross Suggests The Demographic Growth Crunch Will Put Keynesian Policies To RestSubmitted by Tyler Durden on 07/28/2010 09:48 -0500
After entertaining some potty humor for a page or two in his latest brief, Bill Gross conducts an interesting thought experiment in which he presents an anti-Malthusian economic hypothesis, which states that predicated by declining global population growth, the global economy will be unable to grow into its full potential, regardless of size (or usage) of any new trillions of stimulus. "This is not the Malthusian thesis, which maintained that at some point the world would run out of food to satisfy a growing population; it is an assertion that capitalism depends upon final demand and that if there ever comes a time when population growth slows, then the world’s most efficient economic system will be tested. If anything, my thesis is anti-Malthusian in its assertion that there will always be enough production to satisfy a growing population, but perhaps not enough new people to sustain growing production." Looks like all the Ph.D.'s from reputable universities just got a new challenge: look for many papers in peer reviewed publications (and we were wondering for a second why Gross used so much toilet humor initially) trying to refute this major kink supporting the new normal, and refuting a "special case" of Keynesianism, which of course was not relevant when the economist was alive, but is becoming the reality all too quickly. Could something as simple as a condom be the cog in the wheel that dethrones the religion of John Maynard Keynes?
With the topic of Keynesian stimulus now so prevalent, that for some reason everyone, even economic Ph.D.'s feel entitled to chime in with their useless opinions on whether or not it is appropriate for your overleveraged economy, we would like to present this very educational anecdote about the Obamanomic version of Keynesianism as it pertains to jobs, explained by Daniel Mitchell of the Cato Institute. The kicker - Victoria's Secret models. If after this one still doesn't understand the wonderbra approach to pushing up our economy, one is hopeless.
"Inflation Seen As Nation's Salvation" Redux; How Keynes Grew To Hate 'Keynesianism' And Love The Monetary BombSubmitted by Tyler Durden on 07/04/2010 12:56 -0500
There are few things as entertaining as watching US propaganda movies from the 1930s. Case in point, this documentary from the depths of the great recession (1933), when America was struggling with a deflationary wave nearly as bad as the one today, and when the only salvation was the spinning of Keynesian politics to the point where even Keynes himself had to send a letter to FDR to warn him that how the US was was interpreting his fledgling economic religion (it hadn't quite made cult status yet), was wrong. Of course, nobody cared then, and nobody will care now: after all there are cans to be kicked, mid-term elections to prepare for, and votes to be bought with ridiculous unemployment benefit extensions upon extensions. And while even back then Keynes disagreed with FDR's wholesale economic approach which compounded failure upon failure, only to be saved by the "fluke" that was WWII, one wonders just how quickly he is spinning in his grave today, when, as Rick Santelli pointed out, we no longer have deflation, but deleveraging to the tunes of tens of trillions of dollars, and no longer a cyclical recession, but a structural shift in the way credit is apportioned, and disappearing, in the economy. We expect to soon see a comparable shift in the Fed's and the ECB's subliminal cartoon messages, which just like the recent 180 from Barton Biggs, will soon begin highlighting all those "previously undiscovered silver linings" in the great satan of inflation.
FT Reveals Orszag Resigns Over Inability To Persuade Summers And Obama Keynesianism Leads To SufferingSubmitted by Tyler Durden on 06/25/2010 14:08 -0500
As we speculated previously, the sudden and unprecedented departure of Peter Orszag, the day prior to the US Budget's formalization (which incidentally never happened as now the US will likely not have a 2010 budget at all, for fear of disclosing to most Americans just how broke the country is ahead of mid-terms) was due to Orszag's disagreement with the administration's, and particularly Larry Summer's, inability to fathom that reckless spending is a recipe for bankruptcy. As the FT reports: "Peter Orszag, Barack Obama’s budget director, resigned this week partly in frustration over his lack of success in persuading the Obama administration to tackle the fiscal deficit more aggressively, according to sources inside and outside the White House." And so, as any remaining voices of reason realize they are dealing with a group of deranged Keynesians, soon there will be nobody left in the administration who dares to oppose the destructive course upon which this country has so resolutely embarked, which ends in one of two ways: debt repudiation, or war. And with the only remaining economic "advisers" being the trio of Summers, Romer and Geithner, you know America will somehow hit both of these mutually exclusive targets.
The Central bankers of the world continue to demonstrate just how they perceive the general population: as bunch of retarded morons, easily distracted, and fascinated by pictures, colors and gimmicks (almost makes us wonder why Amazon didn't go to the Fed to subsidize the losses it is incurring on the Kindle, instead of cutting its price by 30% to $189 - surely the Fed wants the entire middle class to wallow in its debt slavery, and spend every waking hour blissfully reading Whispernet downloaded soft-porn, instead of ruminating on the collapse of the American civilization). Whereas a month ago, the ECB issued a cartoon on price stability, as we disclosed in Keynes For Kindergarteners, today our own New York Fed confirms yet again that in the contest of stooping the lowest, it has no equal. The FRBNY has published a comic book, full of the misadventures of the infamous Darth Inflation. With such zingers as "By discouraging saving, inflation can harm the US economy. That's because the economy needs a supply of savings to provide the funds for people and business to borrow so that they can invest in the things that help the US economy grow" it is now clear that the entire FRBNY Board is comprised of lunatics, as apparently these people have not heard of ZIRP, QE, 0% interest on money markets and savings accounts, and must have Apple gizmos. Also, as Jon Hilsenrath will hopefully inform his audience with an at least 24 hour advance notice, the Fed is likely currently contemplating using its legislative branch (i.e., Congress) to pass laws allowing negative interest rates, and making hoarding of money and gold a felony.
If you are like us, you just can't get enough of Bob. The only economist from RBS whose opinions are worth reading, who will never make any financial pundit lists (especially not ones that have Jim Cramer on them), due to his unpleasant habit of being too "truthy", shares 17 minutes of his latest perspectives in this CNBC Europe interview. Not surprisingly, Bob blasts the lunatic response of resolving debt problems with more debt. This time he also shares some additional political perspectives: “Having elected people who said everything would be all right, ultimately the US and UK had to elect Reagan and Thatcher to get us back on track” and eventually angry voters in the developed world will shift to the far right. Some more US-centric perspectives: “The US mid-terms will be crucial. We will see a shift to the right as the Tea Party movement demands change. "There are 220 million people in middle America who are angry and believe stimulus spending has been wasted on vested interest and the banks that they believe got us into this mess. For all the talk of positive growth in America, those outside of LA and New York are hurting and want cuts in government spending, not more borrowing and spending.”
The ECB Blasts Governmental Fear-Based Racketeering, Questions Keynesianism, Believes The Fed's Powers Are OverestimatedSubmitted by Tyler Durden on 05/29/2010 15:58 -0500
In what could one day be seen by historians as a seminal speech presented before the Paul Volcker-chaired Group of Thirty's 63rd Plenary Session in Rabat, the ECB's Lorenzo Bini Smaghi had two messages: a prosaic, and very much expected one: of unity and cohesion, if at least in perception if not in deed, as well as an extremely unexpected one, in which the first notable discords at the very peak of the power echelons, are finally starting to leak into the public domain. It is in the latter part that Bini Smaghi takes on a very aggressive stance against not only the so-called "inflation tax", or the purported ability of central bankers to inflate their way out of any problem, but also slams the recently prevalent phenomenon of fear-mongering by the banking and political elite, which has become the goto strategy over the past two years whenever the banking class has needed to pass a policy over popular discontent. The ECB member takes a direct stab at the Fed's perceived monetary policy laxity and US fiscal imprudence, and implicitly observes that while the market is focusing on Europe due to its monetary policy inflexibility, it should be far more obsessed with the US. Bini Smaghi also fires a warning shot that ongoing divergence between the ECB and Germany will not be tolerated. Most notably, a member of a central bank makes it very clear that he is no longer a devout believer in that fundamental, and false, central banking religion - Keynesianism.
Following Up On The Japan Disaster Scenario; Or Can Still We Learn From The Failure Of Keynesianism?Submitted by Tyler Durden on 03/09/2010 10:31 -0500
"A few months ago I wrote about an impending government funding crisis in Japan. The pushback was so interesting I thought it worth writing up. None of you really disputed the long-term problems facing Japan but, for various reasons – which I’ll look at below – very few of you thought it was worth worrying about just now. Meanwhile, the biggest JGB holder on the planet – the Government Pension Investment Fund (GPIF) – which has already admitted it’s no longer able to roll maturing bonds, has announced that it will open credit lines so it doesn’t have to sell them to fund its obligations. With ¥213 trillion of JGBs to roll this year, or around 45% of GDP (see chart below), maybe I’m not the only one scared stiff after all!" Dylan Grice, SocGen
Bloomberg has released another terrific interactive presentation on the ongoing duel between Keynesian economics and record debt levels (both in the US and in most developed countries). While certainly nothing new to regulars, it does provide a glimpse into the final chapters of the debate between record deficit-fans and what is be ultimate natural trade off - upcoming sovereign defaults on a global scale.