The Inevitable 'Taper' And Avoiding 'The Giddiness Of Weimar'

With all eyes fixed on GDP and unemployment data this week (and all their revised and propagandized unreality) for more hints at if (not when) the Fed will Taper; the dismal reality that few seem willing to admit is that it is when (not if) and that the announcement of a "Taper" has nothing to do with the economy. There are three key factors driving this decision: Bernanke's bubble-blowing and bond-market-breaking legacy, the political 'clean slate' his successor needs, and, most importantly, the fear that QE will be discovered for what it is - monetization. As BoJ's Kuroda admitted last night "if QE is seen as financing debt, this could lead to rise in yields." With deficits falling, the Fed's real actions will be exposed (unless QE is tapered) and as Kyle Bass has explained before, it was out of the hands of the BOJ (or The Fed) and entirely up to market psychology.

How Deep Is The Real Economic Problem In China?

This morning’s news that the China leadership has launched a “mini-stimulus” package might confirm what we’ve long feared – China’s economic situation is more perilous than we thought. It looks like a comparatively modest supply-side package of tax cuts, export boosts and railway stimulus, designed to “arouse the energy of the market” according the State Council. But it could be the first of many new programs according to analysts. The state is clearly concerned. That it has been forced to act should be a wake up and smell the coffee moment for markets – the implications of China slowdown could be this year’s game changer in markets.

A Different View Of The Iceland "Recovery"

Without doubt, Iceland was the canary in the coalmine for the sovereign debt crisis that is unfolding across the world right now. Today, Iceland is held up as the model of recovery. 'Famous' economists like Paul Krugman praise the government for rapidly rebuilding the economy without having to resort to austerity. This morning’s headline from The Telegraph newspaper sums it up: “Iceland has taken its medicine and is off the critical list”. It turns out, most of these claims are dead wrong. Despite being so widely reported by the mainstream financial media, Iceland is not a story of model economic recovery. It’s a story of how to fool people. And for now, it’s working.

A Modest Proposal

Decades ago, John Maynard Keynes famously wrote in his book The General Theory: "If the Treasury were to fill old bottles with bank-notes, bury them at suitable depths in disused coal-mines. . . and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again. . . there need be no more unemployment." To Keynes, all that mattered was that people were employed doing something, anything. The quality of employment didn’t matter. Clearly this line of reasoning worked out well for the Soviets. So considering that the ‘quality’ of jobs doesn’t matter in this Keynesian worldview, though, we’ve come up with a simple idea.


Eugen Bohm-Bawerk's picture

Why has there been no recovery? Why has the “stimuli” failed so miserably? Why won`t trillions of currency units move the economy into escape velocity? Well, if you have spent the last thirty years consuming your hard earned capital and depleted the pool of real savings there is only one thing to do! Produce more than you consume and save the difference!

smartknowledgeu's picture

Whether or not you believe PMs will serve as the ultimate store of wealth as the global fiat monetary system collapses should have absolutely no bearing on making the intelligent decision to remove your financial assets from under the domain and inevitable confiscation of global bankers and their State-run tyrannies.  Independence Day is a fine day to start the process of taking back our freedoms from the tyrants that rule over us.

Confession Time: Money Printing Enthusiasts Should Admit The Obvious

Imagine a football coach who hasn’t caught onto the game’s complexities and continues to run the same play - call it a fullback dive - over and over. When we read calls for more monetary stimulus, we feel as though we're listening to that coach’s brethren in the economist community. These economists argue that the Fed should simply ramp the money supply higher and higher for as long as some economic statistic - GDP is a popular one - remains below a targeted outcome. Dive, dive, dive, punt and repeat. There’s an important difference between football and economics, though. One-dimensional approaches are quickly exposed in football, whereas economies don’t yield clear and timely verdicts on whether policies are effective. There are far too many moving parts to prove cause and effect in a way that everyone can understand and agree. Therefore, bad economic policies persist for a long time before they’re finally found out, and this may be the best way to describe the last 100 years or so of America’s economic history.

Guest Post: Paul Krugman The Marxist

Someone once wrote that criticizing economist and New York Times columnist Paul Krugman and his "vulgar Keynesianism" is the internet’s favorite pastime. All along, the Princeton prof has stayed true to the cause of aggressive government action to forestall the downtrodden economy. Large fiscal expenditures, aggressive monetary stimulus, increased legal privileges for organized labor, and boosting the degree of state pillaging – Krugman is the caricature of a tyrannical apologizer who will defend the cause of rampant statism at any cost. But now, it appears Krugman has gone overboard with his progressive moaning. Instead of getting bogged down in the economic imbecility that frequents Krugman’s twice-weekly diatribes; there is a fallacy more fundamental in this latest theorizing. What Krugman is embracing in his latest attack on historical cases has much more to do with the man’s epistemological bent and approach toward economics.

The BIS Chart That Abe And Kuroda Would Rather You Didn't See

Earlier we noted the rather peculiarly truthful (lack of optimistically-biased bullshit) annual report from the BIS as reading ZeroHedge-sermon-like. There is a smorgasbord of data, charts, and quotes strewn throughout the 204-page melodrama but one caught our eye. Reflecting on the fact that governments in several major economies currently benefit from historically low funding costs, and yet at the same time, rising debt levels have increased their exposure to higher interest rates, the BIS projects the dismal reality that any rise in interest rates without an equal increase in the output growth rate will further undermine fiscal sustainability. Although predicting when and how a correction in long-term rates will unfold is difficult, it is possible to examine the potential impact on the sustainability of public finances and how any normalization of rates (or Abe's success in creating 2% 'inflation' in Japan) leads the nation's debt-to-GDP ratio to explode to a surely-Krugman-mind-blowing 600% debt-to-GDP.

Every Asset That Depends On Cheap, Abundant Credit (Housing, Bonds, Stocks) Is Doomed

Four words: financialization, debtocracy, diminishing returns. The entire global economy, developed and developing nations alike, is now dependent on cheap, abundant credit for everything: for "growth," for asset inflation, and ultimately for central state deficit spending, which props up all the cartels, rentier arrangements, fiefdoms and armies of toadies, lackeys, apparatchiks and embezzlers that suck off the Status Quo. The wheels fall off the entire financialized debtocracy wagon once yields rise.There's nothing mysterious about this.

Guest Post: Artificial Abundance, Moral Hazard And The Fed's Doomsday Machine

The Fed has created a Doomsday Machine. The Fed has nurtured moral hazard in every sector of the economy by unleashing an abundance of cheap credit and low interest mortgages; the implicit promise of "you can't lose because we have your back" has been extended from stocks to bonds (i.e. the explicit promise the Fed will keep rates near-zero forever) and real estate. An abundance based on the central bank spewing trillions of dollars of cheap credit and free money (quantitative easing) is artificial, and it has generated systemic moral hazard. This is a Doomsday Machine because the Fed cannot possibly backstop tens of trillions of dollars of bad bets on stocks, bonds and real estate. Its power is as illusory as the abundance it conjured. This loss of faith in key institutions cannot be fixed with more cheap credit or subsidized mortgages; delegitimization triggers a fatal decoherence in the entire Status Quo.