The fundamental Keynesian project is that the Central State and Central Bank should manage market forces whenever the market turns down. In other words, the market only "works" when everything is expanding: credit, profits, GDP and employment. Once any of those turn down, the State and Central Bank "should" intervene to force the market back into "growth." The sharper the downturn, the greater the State/Central Bank intervention. This accounts for the martial analogies of State/CB responses: "bazookas," "nuclear option," etc., as the market is overwhelmed with ever greater fiscal/monetary firepower. After basically voiding the market's ability to price risk and assets, the Keynesians believe the market will naturally resume pricing risk and assets at "acceptable to Central Planning" levels once fiscal and monetary stimulus is dialed back. Keynesian policy is to punish capital accumulation and reward leveraged debt expansion. Rather than enforce the market's discipline and transparent pricing of risk, debt and assets, Keynesians have explicitly set out to re-inflate destructive, massively unproductive credit bubbles. The entire Keynesian Project, however, has numerous blindspots.
On May 10, 2000 a GATA delegation consisting of Reg Howe, Frank Veneroso, Chris Powell and Bill Murphy met with Denny Hastert, The Speaker of the House in the United States Congress; Spencer Bachus, the Chairman of the House Subcommittee on Domestic and International Monetary Policy; and Dr. John Silvia, the Chief Economist of the Senate Banking Committee. We presented each of them our 100 page "Gold Derivative Banking Crisis" document and personally delivered it to the staff of every House and Senate Banking Committee member.
Maybe I should get a Nobel, that, or maybe PK shouldn't have one…..
In the spirit of the holidays and hope for a more prosperous 2013, we thought readers might appreciate a little humor to partially offset the relentless 'cliff' doom and gloom. So please, don’t take this too seriously. But if you happen to stumble across a ‘paperbug’ or two over the holidays, perhaps you could share some of the points made here. Humor sometimes helps people realize just how hopelessly misguided they are... Quantitative easing changes nothing. Remember, the PhDs are in charge of our economies and they know exactly how much our money should be worth. Those of us concerned that our money might lose purchasing power are just being paranoid. Choice is dangerous. Think Adam and Eve and you’ll get my point. Those arguing in favour of monetary freedom, of choice in money, of repealing legal tender laws, they’re just like that nasty snake Lillith in the Garden of Eden, the source of all trouble I tell you. ‘Tis the season to borrow and spend folks, as indeed it has been since 1971.
Presenting Dave Collum's now ubiquitous and all-encompassing annual review of markets and much, much more. From Baptists, Bankers, and Bootleggers to Capitalism, Corporate Debt, Government Corruption, and the Constitution, Dave provides a one-stop-shop summary of everything relevant this year (and how it will affect next year and beyond).
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.”
While parts of the world experience economic hardship, a team of Portuguese, UK, Japanese, Italian and Dutch astronomers has found an even bigger slump happening on a cosmic scale. In the largest ever study of its kind, the international team of astronomers has established that the rate of formation of new stars in the Universe is now only 1/30th of its peak and that this decline is only set to continue. The team, led by David Sobral of the University of Leiden in the Netherlands, publish their results in the journal Monthly Notices of the Royal Astronomical Society… Dr Sobral comments: “You might say that the universe has been suffering from a long, serious “crisis”: cosmic GDP output is now only 3% of what it used to be at the peak in star production!”
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."
I attempt to craft something that has a chance of working.
If there is one thing better than Marc Faber providing a free, must-watch (and listen) 50 minute lecture on virtually everything that has transpired in the end days of modern capitalism, starting with who caused it, adjustable rate mortgages, leverage, why did the Fed let Lehman fail, why was AIG bailed out, quantitative easing, Operation Twist, where the interest on the debt is going, which bubbles he is most concerned about, a discussion of gold and silver, and culminating with his views on a world reserve currency, is him saying the following: "The views of the Keynesians like Mr. Krugman is that the fiscal deficits are far too small. One of the problems of the crisis is that it was caused by government intervention with fiscal and monetary measures. Now they tells us we didn't intervene enough. If they really believe that they should go and live in North Korea where you have a communist system. There the government intervenes into every aspect of the economy. And look at the economic performance of North Korea." Priceless.
The institutional crazies, village idiots and knee-jerk opportunists who bought shares yesterday following a Fed announcement of yet more monetization seem not to have been paying attention, at least initially, to the nasty sell-off in T-Bonds. Well before yesterday, any sentient being would have surmised that easing’s impact on the economy had reached the point of diminishing returns. With administered rates pegged at zero and mortgage loans near historical lows, how much more boost are we to expect from yet another gaseous effusion of bank-system credit?
Own Physical Gold Now - While You Still Can!
“Farther from care than danger…”
The title above is a quote from Sir Thomas More’s classic, Utopia, describing a people’s overconfidence in their capacity for navigation given the compass for the first time.
Regular readers are aware that one of our favorite data series when it comes to demonstrating the quality aspect of the American "recovery" (the quantity is sufficiently taken care of with part-time workers filling in positions without benefits and job security in the New Normal) is that showing the annual average hourly earnings growth in nominal terms, which in November posted the tiniest bounce from its all time low print of 1.2%, rising to 1.3%. The problem as noted above, is that this is nominal wage growth. It therefore excludes the impact of inflation which according to the CPI, rose by 2.2% in October, or, in other words, wage growth was negative in real terms. But it wasn't negative only in October and November. When one takes the Y/Y change in average hourly earnings and subtracts the Y/Y change in CPI one gets a very troubling picture: wages have risen below the rate of inflation for 22 consecutive months, with real wages printing their last positive number back in January 2011 and negative ever since!
Bloomberg's Joshua Zumbrun has released a much overdue, MSM apocryphal, somewhat realistic outlook on the endspiel of Bernanke's central planning: i.e., the unwind of the Fed's balance sheet that from just under $3 trillion will reach $5 trillion by the end of 2014. We say "somewhat" because the conclusion in the article is that there is some hope still for an orderly wind down of the Fed's assets without a complete market collapse. The reality is that there is no such hope.
Isaac Newton, the father of classical mechanics and progenitor of nearly every technology we use today, was easily one of the top 10 most influential minds in all of human history... Yet as accomplished as he was, Newton credited the brilliant scientists and philosophers who came before him, acknowledging that his insights would not have been remotely possible without the foundations laid by great thinkers– Archimedes, da Vinci, Descartes, etc. No doubt, all great ideas flourish by expanding upon the works of others. Unfortunately, so do terrible ones. And one of the worst ideas in history that continues to play out today is the grand experiment of fiat money. The idea is simple. Rather than allowing money to be scarce and have intrinsic value, our fiat system grants power to a tiny elite to conjure money out of thin air. Presumably, if the ones in control are smart, honest guys, then everything should be fine. Fiat was a total failure right from the beginning... and yet the economic engines deep below are steered by people who worship at the cult of bad ideas.