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When False Premises Become Economic Policy
By Wolf Richter www.testosteronepit.com
"A shame that we can't see Japan because of the marine layer," I said, and we both laughed because it was so silly. We were looking west from the top of the cliffs across the Pacific, and what we saw was a gray layer of fog just above the waves some distance offshore. That day we were lucky; often, the marine layer invades the Bay Area's coastal strip, including much of San Francisco.
The premise that it would be possible to see Japan from the Pacific Coast if it weren't for the marine layer is just as false as the premise that a healthy economy can result from running up huge deficits and printing money to monetize them. Yet, that's the line propagated by the status-quo media and its economists. Sunday, the New York Times did it again.
"Evidence shows that quantitative easing boosts the economy, and there is no reason to believe that it feeds directly into inflation without supporting growth," it quoted Martin Weale. He sits on the Bank of England's Monetary Policy Committee, which voted on Thursday to restart the printing presses in a massive way.
The Fed has been following the same strategy, but its numbers are much bigger. It printed trillions of dollars and handed them over to its cronies. Monetization of debt and forcing interest rates to near zero has completely insulated the US Government from the budgetary discipline that credit markets can otherwise impose—and Congress went hog-wild, running up deficits that are near 10% of GDP. As a consequence, US gross national debt has shot up to 100% of GDP.
OK, the Fed and Congress bailed out Wall Street and enabled large corporations to borrow money essentially for free (among other benefits). But has that improved the real economy?
Unemployment is at catastrophic levels. U-6, the broadest measure of unemployment and underemployment has edged up to 16.5% (BLS report).
Inflation is heating up. CPI is up 3.8% from a year ago. While commodities have come down some, red-hot inflation from China has worked its way through the supply chains.
Real wages dropped 1.8% from a year ago, continuing a 12-year trend. From the wage peak in 1999, they have dropped 8-9%, depending on the formula (the Census Bureau reported a decline of 7.1% from 1999 to 2010, not counting the decline since). In other words, purchasing power has been sapped.
The Fed's stated policy of forcing yields across the yield curve below the rate of inflation constitutes financial repression of savers, fixed income investors, and pension funds. Cash flows dwindle into nothingness, and inflation eats up principal. Financial repression is destructive: it lowers the income and real wealth of conservative investors (retirees, for example) and demolishes their ability and willingness to spend.
The victims of unrestrained borrowing and printing are everywhere: The middle class taxpayer—and 46.2 million Americans live in poverty, more than ever according to the Census Bureau. But no economy can thrive when the middle class is in decline. So why exactly would more of the same policies suddenly improve the economy?
It's a false premise. Like blaming the marine layer for not being able to see Japan from the West Coast. And it's just as silly. Unfortunately, the status-quo media and its economists have been preaching it for so long and with such utter abandon that it has become a public truth. But unlike the first false premise, this one isn't a laughing matter.
Another twist—if confidence isn't based on facts and transparency, it's a con game. Geithner: The Truth Could Cause Significant Damage.
Wolf Richter www.testosteronepit.com
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yea look, the NEW YORK TIMES. is a bank axis publication. it is beyond the point at which it is worth your time reproaching the new york times. ignore it, focus on DOING things, not on rebuttals. you are like an insect drawn to a bright light, telling all the other insects that they are being tricked.
you are being tricked into 'telling' the other insects they are being tricked. there are better ways to spend your time in pursuit of your goals. please, for the sake of achieving these goals, start pursuing those paths and not this one.
...Unfortunately, the status-quo media and its economists have been preaching it for so long and with such utter abandon that it has become a public truth. But unlike the first false premise, this one isn't a laughing matter.
Another twist—if confidence isn't based on facts and transparency, it's a con game. Geithner: The Truth Could Cause Significant Damage.....
This article summarises the current ills of the financial ponzi. But it provides no road map or value-system statement to take "corrective action". We need a decision making heirarchy based action plan to resolve the current mess...Not just lamentations about what is now self evident even to the most unenlightened of the 'sheeple'. Lets move the debate further down the road please.
If you post here, provide solutions. Or try to by defining priorities.
Ezra Pound On Preventing Zionist Conquest From Within - Rense.com
what is worrying ios that the US citizens ahve said enoujght to QE and the politicians
In the UK theer has not been an ounce of demonstration against it
\the UKs citizens are for sure amongst the lamerst dumbest f*cks on the planet
Another popular false premise, originally propagated by Greenspan, is that rising house prices equal wealth creation. Amazing that despite bursting of RE bubble most people still believe in that.
...what a beautiful post and perfect title. This defines Zero Hedge among the greatest voices on Earth. This post is another example of the writing on the wall. Well stated Testosteronpit.
http://bible.cc/isaiah/45-1.htm
http://www.youtube.com/watch?v=XJtED5szxqs&feature=related
http://bible.cc/revelation/18-2.htm
http://www.youtube.com/watch?v=AV-HlBCmnDY
The OWS crowd will save us. /sarcasm
Thanks for the fresh air, good read
More chances to be saved by OWS than by senators and congressmen/women.../no sarcasm
This is the end, beautiful friend
This is the end, my only friend
The end of our elaborate plans
The end of everything that stands
The end
Jim Morrison
nicely put richter; what would you suggest as to getting us out of this mess?
i see either one of two possible outcomes: either we restructure all debts, or we have a one-time huge wealth tax on all americans to settle the debts.
Or we could continue to be a murderous totalitarian empire, led by blue and red puppets whose strings are made of hundred dollar bills. We can continue to start wars until something really bad happens and most of the people on the planet are killed. I think that's a more likely outcome than your scenarios, only because your scenarios involve our leaders saying they were wrong. I think our politicians would rather destroy the world than say they were wrong.
Or we could continue to be a murderous totalitarian empire,
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It is not a question. It is already answered.
Expansionists know only one cure for the ailments caused by their system: more expansion.
They dont know how to do otherwise.
They will stop when they are unable to continue.
...fear not, our leaders have destroyed the nations through debt already. That plan has been completed in principle and the final touches are now taking place. We will witness the new world order out of the chaos the corrupt evil bastards have established. Watch, after 2012 goes by, it will be clear enough. Rosemary's Baby will remain in office and before his term ends the world will see Israel reacting to moves against it that will bring the world to war like never before.
http://www.youtube.com/watch?v=c3jnFtSElH4&feature=player_embedded
you bore me with these leftist propaganda. nobody smart would want us to pull back now; it's a powder keg in middle east and africa. talk about a murderous totalitarian empire, look over to russia.
look over to russia.
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Or look over to Somalia pirats...
...your image is a threat, and it's not the same boring one? News flash, the bruise on your heel is from kicking your own ass, nobody smart would do that. Pull your head out of your ass.
...that's your military right, Little Miss Rambo.
we got the most powerful armies, military mights unmatched in the course of human history, thereby drawing unwanted attention and criticism. i don't suppose you can propose a viable policy that will move us forward? nwo is not an option it's not on the table we don't want it we don't need it
Good post. Thanks for sharing. I am going to enjoy reading your blog.