Under the influence of the neo-Keynesian interventionists and the professors at the Fed, the public has been brainwashed into believing that governments can revive economic growth. However, as Hayek notes, “the more the state ‘plans’ the more difficult planning becomes for the individual." As the Rahn Curve states, the larger the government becomes beyond a certain point (about 20% of GDP) the slower economic growth will be. Always remember, Faber warns, echoing Barry Goldwater, “The government that is big enough to give you all you want is big enough to take it all away."
The only thing that can be said about Janet Yellen’s simple-minded paint-by-the-numbers performance yesterday is that the Keynesian apotheosis is complete. American capitalism and all political life, too, is now ruled by a 12-member monetary politburo, which is essentially accountable to no one except its own misbegotten doctrine that prosperity flows from the end of a printing press.
Underappreciated risks to electronic bitcoin and all forms of investments and savings today, including gold, that are held electronically come in the form of modern warfare - involving as it does cyberwarfare and electromagnetic warfare. No electricity and no computer or internet access and you cannot access your savings, investments and money ...
Some people are either born or nurtured into a time warp and never seem to escape. That’s Janet Yellen’s apparent problem with the “bathtub economics” of the 1960s neo-Keynesians. As has now been apparent for decades, the Great Inflation of the 1970s was a live fire drill that proved Keynesian activism doesn’t work. That particular historic trauma showed that “full employment” and “potential GDP” were imaginary figments from scribblers in Ivy League economics departments—not something that is targetable by the fiscal and monetary authorities or even measureable in a free market economy. Even more crucially, the double digit inflation, faltering growth and repetitive boom and bust macro-cycles of the 1970s and early 1980s proved in spades that interventionist manipulations designed to achieve so-called “full-employment” actually did the opposite—that is, they only amplified economic instability and underperformance as the decade wore on.
A ‘Perfect Storm’ of demography and debt will economically and financially doom almost every country on earth. It will be TEOTWAWKI – ‘The End Of The World As We Know It’. No, it’s not the end of life or even the end of civilization. However, when it’s all over, nothing will ever be the same and that includes the disappearance of much of the middle class. The good news - The storm won’t last forever. The bad news is there will be much more pain before it ends unless you make an effort to understand what’s happening and why.
Keep interest rates at zero, whilst printing trillions of dollars, pounds and yen out of thin air, and you can make investors do some pretty extraordinary things. "Central bankers control the price of money and therefore indirectly influence every market in the world. Given this immense power, the ideal central banker would be humble, cautious and deferential to market signals. Instead, modern central bankers are both bold and arrogant in their efforts to bend markets to their will. Top-down central planning, dictating resource allocation and industrial output based on supposedly superior knowledge of needs and wants, is an impulse that has infected political players throughout history." The result was always a conspicuous and dismal failure. Today’s central planners, especially the Federal Reserve, will encounter the same failure in time. The open issues are, when and at what cost to society?
"It is clear to us that speculative and Ponzi finance dominate China’s economy at this stage. The question is when and how the system’s current instability resolves itself. The Minsky Moment refers to the moment at which a credit boom driven by speculative and Ponzi borrowers begins to unwind. It is the point at which Ponzi and speculative borrowers are no longer able to roll over their debts or borrow additional capital to make interest payments.... We believe that China finds itself today at exactly this juncture."
The 17th of February, 2014, marked the annual observation of George Washington's birthday and the 5th anniversary of the American Recovery and Reinvestment Act. At a cost of $19.90 for each dollar of economic growth, almost $8 million for each job created and a loss of nearly $600,000 of fixed investment, it is hard to suggest that the government interventions have been successful. The WSJ sums it up succinctly, "The failure of the stimulus was a failure of the neo-Keynesian belief that economies can be jolted into action by a wave of government spending... The way to jolt an economy to life and to sustain long-term growth is to create more incentives for people to work, save and invest." Of course, 5 years on, the Keynesian argument remains "fool proof." The only reason that the economy is not growing faster is because the government is not doing enough. However, if the economy slips back into a recession, it will simply be because the government did not do enough. You simply can't argue against logic like that.
We at the Fed are the platonic guardians of the global financial system. And our logic is undeniable….
Just as in the 1930s the Fed fueled deflation by not making credit available, today the opposite seems to be the case – low rates are fueling deflation and preventing markets from clearing.
We have seen a confluence of events that suggests we may be reaching the terminal point of the financial markets merry-go-round – that point just before the ride stops suddenly and unexpectedly and the passengers are thrown from their seats. Having waited with increasing concern to see what might transpire from the gridlocked US political system, the market was rewarded with a few more months’ grace before the next agonising debate about raising the US debt ceiling. There was widespread relief, if not outright jubilation. Stock markets rose, in some cases to all-time highs. But let there be no misunderstanding on this point: the US administration is hopelessly bankrupt. (As are those of the UK, most of western Europe, and Japan.) The market preferred to sit tight on the ride, for the time being.
Are we all wealthier because the Dow is at ~ 15,000? Should Katee Sackhoff be the next Fed Chairman?
"There is nothing safe anymore, because the money-printing distorts all asset prices," is the uncomfortable response Marc Faber gives to Thai TV during this interview when asked for investment ideas. Faber explains how we got here "massive money-printing and ZIRP creates a huge pool of liquidity that does not flow evenly," as it washes from Nasdaq stocks to real estate to emerging markets and so on. Each time, "the bubble inflates and then is deflated as the capital (liquidity) floods out." The Fed, based on the doubling of interest rates since they began QE3 "has lost control of the bond market," Faber warns; adding that while he expects some "cosmetic tapering," the Fed members and other neo-Keynesian clowns will react to a "weakening US and global economy," and we will be a $150 billion QE by the end of next year, as the world is held hostage to US monetary policy.
Back in 2002 Warren Buffet famously proclaimed that derivatives were ‘financial weapons of mass destruction’ (FWMDs). Time has proven this view to be correct. As The Amphora Report's John Butler notes, it is difficult to imagine that the US housing and general global credit bubble of 2004-07 could have formed without the widespread use of collateralized debt obligations (CDOs) and various other products of early 21st century financial engineering. But to paraphrase those who oppose gun control, "FWMDs don’t cause crises, people do." But then who, exactly, does? And why? And can so-called 'liquidity regulation' prevent the next crisis? To answer these questions, John takes a closer look at proposed liquidity regulation as a response to the growing use of 'collateral transformation' (a topic often discussed here): the latest, greatest FWMD in the arsenal.
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.