"Every American family deserves a false sense of security," said Chris Reppto, a risk analyst for Citigroup in New York. "Once we have a bubble to provide a fragile foundation, we can begin building pyramid scheme on top of pyramid scheme, and before we know it, the financial situation will return to normal." Despite the overwhelming support for a new bubble among investors, some in Washington are critical of the idea, calling continued reliance on bubble-based economics a mistake. Regardless of the outcome of this week's congressional hearings, however, one thing will remain certain: The calls for a new bubble are only going to get louder. "America needs another bubble," said Chicago investor Bob Taiken. "At this point, bubbles are the only thing keeping us afloat."
I am a Central Banker
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.
The kabuki theater that passes for governance in Washington D.C. reveals the profound level of ignorance shrouding this Empire of Debt in its prolonged death throes. Ignorance of facts; ignorance of math; ignorance of history; ignorance of reality; and ignorance of how ignorant we’ve become as a nation, have set us up for an epic fall. It’s almost as if we relish wallowing in our ignorance like a fat lazy sow in a mud hole. The lords of the manor are able to retain their power, control and huge ill-gotten riches because the government educated serfs are too ignorant to recognize the self-evident contradictions in the propaganda they are inundated with by state controlled media on a daily basis.
We're not criticizing Krugman for the number of battles he gets himself into. If he argued his case truthfully and respectfully, there would be little reason for this post. But Krugman accumulates enemies by inventing his own facts, denying obvious mistakes, displaying über-arrogance and insulting those with opposing views. Fortunately, folks such as Ferguson occasionally bring these points to light.
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.
In light of this morning's Obama-Boehner volleys, we thought a reflection on the facts was useful. The Congressional Budget Office (CBO) released its 2013 Long-Term Budget Outlook yesterday morning, and its government debt projections are dismal... But the CBO’s featured chart only tells a small part of the story. The baseline scenario happens to be bogus. Even as it shows our addiction to debt worsening, it doesn’t do justice to the severity of that addiction. (You may want to show the chart to your children. After all, they’ll be the ones who’ll have to deal with the debt we’re piling on today.)
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.
Much to the amazement of doom-and-gloomers, everything's been fixed and as a result, everything's great. The list is impressive: China: fixed. Japan: fixed. Europe: fixed. U.S. healthcare: fixed. Africa: fixed. Mideast: well, not fixed, but no worse than a month ago, and that qualifies as fixed. Doom and gloomers have been wrong, just like Paul Krugman said. The solution to every problem is at hand: create more money and credit, in ever larger sums, until a tsunami of cash washes away all difficulties. Let's scroll through a brief summary of everything that's been fixed.
History is very clear: societies that organize themselves around a tiny elite who thinks they should control the entire system suffer a 100% failure rate, without exception. Today’s system shares similar fundamentals to nearly every other case of failed empire. And it’s foolish to think that this time will be any different.
[Summer|Winter]: watch out.
- OBAMA TO USE ADMINISTRATIVE AUTHORITY TO FIGHT CLIMATE CHANGE
- OBAMA TO INVEST IN TECHNOLOGY TO MAKE FOSSIL FUELS CLEANER
- OBAMA CLIMATE PLAN IS NOT A WAR ON COAL, MONIZ SAYS
We have no idea what any of that means or what administrative authority Obama has to unilaterally declare war on, well, climate. But if Obama is taking on the unprecedented Arctic heat cold and is about to usher in centrally-planned weather, we would be nervous if we were Syria. Very nervous.
One of the most published academics on gold in the world is Dr Brian Lucey of Trinity College Dublin (TCD) and he and another academic who has frequently covered the gold market, Dr Constantin Gurdgiev have just this week had an excellent research paper on gold published.
They have researched the gold market, along with Dr Cetin Ciner of the University of North Carolina and their paper, ‘Hedges and safe havens: An examination of stocks, bonds, gold, oil and exchange rates’ finds that gold is a hedge against US dollar and British pound risk due to “its monetary asset role.”
No one can predict accurately at what point slower growth will start producing political turmoil on a scale that’s unprecedented in the China that Deng made, what the magic number is, or even whether there’s an iron connection between economic and political crises. Yet the increase in capital flight from China and soaring applications for American and European residential visas by well-heeled Chinese suggest that the elite is hedging its bets. Some may be overstating things, but the rebalancing camp is too sanguine.This much is certain: China’s leaders are in uncharted waters, and because of the diminishing utility of the established formula for rapid growth their maps may be of questionable value.
Today’s bizarre confluence of negative real interest rates, money printing, eurozone sovereign default, aberrant asset prices, high unemployment, political polarization, growing distrust… none of it was supposed to happen. It is the unintended consequence of past crisis-fighting campaigns, like a troupe of comedy firemen leaving behind them a bigger fire than the one they came to extinguish. What will be the unintended consequences of today’s firefighting? We shudder to think.
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.