Maynard Keynes

The US Senate moves toward the confirmation of Janet Yellen, now posited for next January 6th, as chair of the Federal Reserve System. Let us in this moment of recess reflect on eerily similar observations by two of history’s most transformational figures:  John Maynard Keynes and Nicolas Copernicus. One of Keynes’s most often-cited observations, from his 1919 The Economic Consequences of the Peace, chapter VI, contains an indictment of policies very like those which the Federal Reserve System has been implementing for the past dozen, and more, years.  These policies in slow motion are at the root of  the very political, social, and cultural dysphoria — uneasiness or generalized dissatisfaction — predicted by Keynes.

The fraud that has been the US government and its effects on the Potemkin economy should be obvious by now. Yet our politicians continue to pretend the economy is growing and recovering. It is not. It is in a death spiral that their interventions caused and continue to feed. For years short-run corrections were avoided or mitigated by this falsifying of economic signals. The intent was to send false signals to economic actors, to encourage them to behave in ways that helped short-term results but were harmful long-term. The cost was to make the economy weaker and less efficient. The economy has been wasted. These short-term highs have place it in grave danger.

Saying we need continuous financial bubbles to keep full employment is such a flawed conception of economics, it belongs on an island of misfit philosophies. Krugman’s incessant promotion of statism is doing more harm to the economy than good. As an opinion-molder, he is perpetuating the economic malaise of the last few years. More bubbles won’t help the recovery, just harm it more. In the middle of a grease fire, Krugman calls for more pig fat. And the rest of us are the ones left burnt.

Last month, we offered a plain language translation of the Warsh op-ed, because we thought it was too carefully worded and left readers wondering what he really wanted to say. Translation wasn’t necessary for Fisher’s speech, which contained a clear no-confidence vote in the Fed’s QE program. Now William Poole is more or less saying that we have no idea what’s truly behind the Fed’s decisions. But he doesn’t stop there. He’s willing to make a prediction that you wouldn’t expect from an establishment economist... Poole’s refreshingly honest take on the Fed’s inner workings – from someone who truly knows what goes on behind the curtains – is more than welcome.

We warned here (and here most recently), the most insidious way in which the Fed's ZIRP policy is now bleeding not only the middle class dry, but is forcing companies to reallocate cash in ways that benefit corporate shareholders at the present, at the expense of investing prudently for growth 2 or 3 years down the road. It seems the message is being heard loud and very clear among 'some' of the FOMC members; most notably Richard Fisher:

"Without fiscal policy that incentivizes rather than discourages U.S. capex (capital expenditure), this accommodative monetary policy aimed at reducing unemployment (especially structural unemployment) or improving the quality of jobs is rendered flaccid and less than optimally effective... I would feel more comfortable were we to remove ourselves as soon as possible from interfering with the normal price-setting functioning of financial markets."

Perhaps Yellen (and others) will listen this time?

As H.L. Mencken opined, 'The most dangerous man to any government is the man who is able to think things out for himself, without regard to the prevailing superstitions and taboos. Almost inevitably he comes to the conclusion that the government he lives under is dishonest, insane, and intolerable.' It is no wonder that, according to a Gallup Poll conducted in early October, a record-low 14% of Americans thought that the country was headed in the right direction, down from 30% in September. That's the biggest single-month drop in the poll since the shutdown of 1990. Some 78% think the country is on the wrong track. Simply put, Faber explains, it is most unlikely that US economic growth will surprise on the upside in the next few years. It is more likely there will be negative surprises.

When the U.S. economy dipped into an inflationary recession in 1969, the Keynesian paradigm could not explain that phenomenon. Given the fact that both the George W. Bush and Barack Obama administrations (not to mention Congress) have followed the Keynesian playbook, the sorry results should be enough to discredit Keynesianism, this time for good. Either a theory explains and predicts phenomena or it does not, and it should be clear that Keynesian theory has failed, but, alas, it seems that the Keynesian paradigm is more influential than ever. Here is a paradigm that claims there cannot be an inflationary recession, yet all of the recessions that have wracked the U.S. economy in recent decades have been inflationary. Alas, the academic “market test” really does not embrace the actual success or failure of a theory.

Hi! I’m Amy Johnson-Martinez, the 14-year-old girl who’s saving the earth from environmental destruction. A lot of people don’t understand how the destruction of the earth is connected to our addiction to economic growth. Actually, a lot of people don’t even realize that we’re addicted! Personally speaking, I think it’s kind of weird that economists don’t tell us about this. So I guess it takes a 14-year-old girl to tell you about it! Economists always say, “The economy has to keep growing or else it will collapse.” But it can’t grow forever, because the earth is running out of resources. Actually, it’s already starting to happen. That’s a big reason why the economy is getting worse.

Why China DOESN'T WANT the Yuan to Become the Reserve Currency

March 18, 1996. It was the height of the dot-com boom years. And gracing the cover of Fortune magazine was a photo of a rather smug looking Alan Greenspan, then Chairman of the US Federal Reserve.  The headline across the top-- "It's HIS economy, stupid". The inside story was entitled "In Greenspan We Trust".  And the article went on to suggest that, no matter WHO won the presidential election that year between Bill Clinton and Bob Dole, Greenspan would still be running the economy. And handily.  This is a major testament to the state of our financial system. We award a tiny banking elite nearly totalitarian control over our money supply... and by extension, the economy.  We're just supposed to trust that they're good guys. Competent guys. That they know what they're doing.  Fast forward almost two decades. Long Term Capital Management. The NASDAQ bubble. The real estate bubble. The credit crunch. The mortgage crisis. The banking crisis. The sovereign debt crisis.

Our grandparents believed in the value of thrift, but many of their grandchildren don’t. That’s because cultural and economic values have changed dramatically over the last generations as political and media elites have convinced many Americans that saving is passé. So today, under the influence of Keynesian economists who champion government spending and high levels of consumption, thrift has been devalued (and is even punished).  It is the government’s role, Keynes’s followers believe, to keep the boom going through spending. So it is consumption, not supply, that makes a successful economy, they say. Mainstream media rehashes the message that the consumer, not the producer, is the biggest part of the economy. Politicians agree... But, despite the Keynesian sentiments of much of our political and media elites, we owe it to our grandparents to re-learn the lessons of thrift.

Only a few years back, the majority of people were saying that the dollar was as good as gold. Today, even those who insist that fiat currencies are not only safe, but the only means by which commerce can reasonably occur, are admitting that they are getting a bit nervous regarding the assurance that their own currency will not be either somehow confiscated or grossly devaluated. But there is a new currency arising - Bitcoin - and it promises, like banknotes before it, to solve all the problems of currencies. Just as paper gold is proving not to truly exist, except as a promise by financial institutions, and fiat currencies are also teetering on the edge, there is every reason to believe that the latest in “theoretical” currencies may disappear at some point in the future. However, as they have throughout millennia, precious metals will continue to shine in all corners of the globe.

Until six days before Lehman Brothers collapsed five years ago, the ratings agency Standard & Poor’s maintained the firm’s investment-grade rating of “A.” Moody’s waited even longer, downgrading Lehman one business day before it collapsed. How could reputable ratings agencies – and investment banks – misjudge things so badly? Regulators, bankers, and ratings agencies bear much of the blame for the crisis. But the near-meltdown was not so much a failure of capitalism as it was a failure of contemporary economic models’ understanding of the role and functioning of financial markets – and, more broadly, instability – in capitalist economies. Yet the mainstream of the economics profession insists that such mechanistic models retain validity.

Don’t get me wrong, I’m not talking about the guy that moans over his doughnuts and café latte every morning that he hates his job. He hates his boss and he hates the wife and the kids even more and that’s why he still comes into the office

In 1933, FDR confiscated the gold of Americans. This common telling portrays it as a simple case of robbery. It makes people wonder if 1933 is a precedent. I don’t think it is so simple.