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."
Last week saw a full court press in defense of the current money printing exercise. As we have frequently pointed out, modern-day economic policy is evidently in the hands of utter quacks. It matters little to them that their prescriptions have failed time and again for hundreds of years – they do the same thing over and over again, as though they were escapees from an insane asylum.
David Stockman’s New York Times Op-Ed has ruffled a lot of feathers. Paul Krugman dislikes it, saying Stockman sounds like a cranky old man, and criticising Stockman for throwing out a load of meaningless numbers that sound kind of scary, but are less scary in context. What Krugman overlooks is Stockman’s excellent criticism of crony capitalism, financialisation, systemic rot and Wall Street corruption of Washington, something Stockman has seen from the inside as part of the Reagan administration. There are plenty of other writers who have pointed to this problem of propping up casino finance, including myself. But very few of them are doing so on the pages of the New York Times. In the long run, I think it will become patently clear that throwing liquidity at the financial system won’t solve anything other than immediate liquidity concerns. The rot was too deep. The financial sector needed real reform in 2008. It still needs it today.
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.
Elon Musk - "megalomanical promoter". Ben Bernake - "befuddled academic". Janet Yellen - "career policy apparatchik". Paul Krugman - "fibber". Fred Mishkin - "preposterous".
The Japanese yen is the strongest of the majors today, where the focus remains on Europe and the re-opening of Cypriot banks. Capital controls are in place. Sure its a contradiction, but may not prove to be fatal, despite the EMU eulogies.
To anyone paying attention, reality is now painfully obvious. These bankrupt, insolvent governments have just about run out of fingers to plug the dikes. And history shows that, once this happens, governments fall back on a very limited playbook...
Nobelist Paul Krugman has a propensity to spin and conceal. This allows for deception – the type of thing that hoodwinks some readers of his New York Times column. While deception doesn’t qualify as lying, it also fails to qualify as truth-telling. Prof. Krugman’s New York Times column, “Hot Money Blues” (25 March 2013) is a case in point. Prof. Krugman sprinkles holy water on the capital controls that will be imposed in Cyprus. He further praises to the sky the post-1980 capital controls that were introduced in a number of other countries.
This is what the world's "smartest" economist is calling for.
Rather than sitting nervously and passively and awaiting the coming financial dislocations and expropriations, investors and savers need to be prepared for the uncertain financial scenarios that seem increasingly likely.
Hoping for the best, but preparing for less benign scenarios remains prudent.
They didn't see it coming last time either. Back in 2007, President Bush, Federal Reserve Chairman Ben Bernanke and just about every prominent voice in the financial world were all predicting that we would experience tremendous economic prosperity well into the future. In fact, as late as January 2008 Bernanke boldly declared that "the Federal Reserve is not currently forecasting a recession." At the time, only the "doom and gloomers" were warning that everything was about to fall apart. And of course we all know what happened. But just a few short years later, history seems to be repeating itself. All of our "leaders" swear that everything is going to be okay. You can believe them if you want, but denial is not just a river in Egypt, and another crash is inevitably coming.
Two of the key characteristics of an empire in terminal decline are complacency and intellectual sclerosis, what we have termed a failure of imagination. (The others are military over-reach, chronic deficits, a parasitic Elite that is immune to what's left of the rule of law, weak leadership, mass dependence on the Central State and excessive consumption.) It is important to discuss alternatives before the Status Quo devolves and collapses, so we have an intellectual framework to guide healthier, more sustainable alternatives once the current system implodes.
Yo Liz: Subsidies for the zombie banks total more than $3 annually for every dollar in income reported by the industry...
“‘Devaluing a currency,’ one senior Federal Reserve official once told me, ‘is like peeing in bed. It feels good at first, but pretty soon it becomes a real mess.’”
—Francesco Guerrera, The Wall Street Journal, 4 Feb 2013.
The beast is howling - and Krugman thinks it's his cat purring.