This page has been archived and commenting is disabled.

Macro Polo

Tyler Durden's picture





 

From Qbamco's Paul Brodsky:

Macro Polo

The absence of meaningful negative market responses to debt ceiling dramas, Japanese inflation targeting, trillion dollar coins, and other odd and dubious politically-oriented market meddling seems to be sending reflexive signals back to capitals: all clear, continue self-destructing.

The markets seem not to care, knowing that central banks have their back. Money creation can suspend nominal economic contraction and ensure rising financial markets until something, (anything!), might stir the public’s imagination again and animal spirits. But while money can suspend animation, it is not and cannot replace real economic functioning. In fact, ongoing money creation is locking-in negative real economic growth and real returns in most financial assets. We think the best strategy for discretionary investors is to stay focused on the growing monetary mountain across the valley, and to not look down.

This piece seeks to place the current investment environment in economic, political and social perspective. The second Chukker may break new ground for many.

* * *

A European friend recently suggested to us that madness has taken over American politics. True that. But it seems more likely that American politics is merely reflecting far greater and deeper social introspection. Americans seem to be in the process of sorting themselves into groups with shared social values. Why might this be? Perhaps it is because our money no longer allows us to measure our personal industry? What is my personal economic value to society when a Nobel Laureate thinks the effect of proclaiming a trillion dollar coin would be “benign”?

On the surface, Left and Right fringes have always seemed bipolar opposites in terms of their social sensibilities and views on the optimal role of government. However, it is obvious that in the current environment the fringes are infiltrating established parties with which each has historically been associated and, it seems, finding a hollow core – the parties are long of self-serving ambition and tactical expertise and short of worthwhile principles. In this, the Left and Right fringes have a lot in common. They share deep disappointment in the efficacy of government and they are increasingly agitated by their representation in it.

The response of centrist elected leaders has been to revert to what they know: to secure funding from special interests with deep pockets in return for implicit favors, and then to use the funds to create a fictional narrative to appeal to the masses. As time goes on the masses are learning their representatives are providing only basal representation; enough only to keep them on the team for the next election cycle. The sad reality is that this is actually working for elected officials and their backers, but at a cost of increasing popular self-worth and identity.

Governments in representative democracies are not providing representation and their policies resemble nothing close to economic problem solving. Rather, they seem to be the result of consultants’ cost/benefit analyses of political capital expended vs. …what, self-serving ambition? It may be working now but the political establishment should be very worried.

The rest of us, regardless of our past politics, should be very excited. Like an old married couple that can no longer talk past each other once the money runs out, competing political parties are discovering they cannot escape each other as their societies’ real wealth is diminishing. It seems they are almost to the point where they might have to begin to give a shine about the people they ostensibly serve. (Look for the reincarnation of Andrew Jackson in 2016 or 2020?)

* * *

Discussions of fiscal cliffs and sovereign bailouts are political constructs that we think have less to do with secular macroeconomics than most observers believe. At the risk of seeming overly glib, such events have been inevitable flashpoints that had to emerge. They represent the decision surrounding debt default: should it be explicit (natural credit deterioration that demands sudden widespread austerity), or implicit (policy-administered inflation that demands the loss of perceived wealth)?

The former would demand politicians and policy makers step away and let organic market forces prevail. Debt would quickly be right-sized through massive defaults, nominal output levels would drop precipitously and there would be great social expense in the near term. The latter would maintain irreconcilable debt-to-real output levels at not-so-obvious near-term social expense in perpetuity until societies implode, their economic production uncompensated in real terms.

The political decision has been made several times over: do the latter, take a pass and let central banks de-lever private banks, transferring wealth to them from the public directly via transfer payments and indirectly, via inflation.

* * *

To G7 leadership: it is time to shift the terms of the Monetary Empire before it destroys our cultures, both externally and from within.

There are no good data points in the modern era where all global economic participants simultaneously lost faith in a completely unreserved global monetary regime. It would not be in your best interests to test these logical limits and then have to start the system from scratch. But the economic sky does not have to fall and property does not have to be transferred if (when) the current monetary system converts to a more sustainable one. We would all wake up the next morning in our beds and go to work. All that would change is the numbers we place on our commerce and property would be far larger, and the amount we owe far smaller in comparison.

We urge readers, policy makers, political donors and, most importantly, global investors able to influence all of the above through capital allocation, to force central banks to devalue our currencies and peg them to sovereign gold, before it is too late. The money spent to date has yet to be created. Close the gap and let us all get back to work.

 

Full letter (pdf link)

 


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Sun, 01/13/2013 - 13:09 | Link to Comment francis_sawyer
francis_sawyer's picture

 "In fact, ongoing money creation is locking-in negative real economic growth and real returns in most financial assets"

~~~

It's also starving, killing, & forcing oppression & suffering upon millions of people [for the benefit of only a small handful who already have many more thousands times what a simple human could ever require]... But that's too unpleasant to acknowledge...

Sun, 01/13/2013 - 13:13 | Link to Comment SafelyGraze
SafelyGraze's picture

18-26 demographic: debt from college loans

26-35 demographic: debt from underwater mortgage

35-55 demographic: debt from layoff

55+ demographic: zero income from investments

the 0-18 demographics is looking pretty lucrative right now

Sun, 01/13/2013 - 13:17 | Link to Comment CrockettAlmanac.com
CrockettAlmanac.com's picture

 

 

Money creation can suspend nominal economic contraction and ensure rising financial markets until something, (anything!), might stir the public’s imagination again and animal spirits.

 

As shells rain down on the 4077th:

 

Frank: Somebody do something! Anything!

Hawkeye: Right, Frank. Let's do anything.

Sun, 01/13/2013 - 13:30 | Link to Comment francis_sawyer
francis_sawyer's picture

People are busy doing 'ANYTHING' as we speak... It's the one thing they're good at [oh well ~ that, & taking time out evey once in awhile to ridicule & marginalize the people who actually are trying to do 'SOMETHING']... 

Sun, 01/13/2013 - 13:35 | Link to Comment Almost Solvent
Almost Solvent's picture

Maybe but did you see that krazy double overtime NFL game in Denver? Fuck if the world ain't perfect! 

Sun, 01/13/2013 - 13:43 | Link to Comment francis_sawyer
francis_sawyer's picture

I made several comments in a thread last week making the case for how the Ravens were going to win...

~~~

I mostly got laughed at by the 'experts' that thought the Ravens had no chance...

Sun, 01/13/2013 - 13:49 | Link to Comment CrockettAlmanac.com
CrockettAlmanac.com's picture

Quoth the francis, "Nevermore."

Sun, 01/13/2013 - 14:05 | Link to Comment francis_sawyer
francis_sawyer's picture

That works for me... If anybody wants to go back & read that thread, I mostly attributed 'voodoo' to my pick [but went into detail & gave reasons why]... Then ~ Las Vegas Dave had to chime in & wreck the whole focus...

Sun, 01/13/2013 - 15:43 | Link to Comment TheSilverJournal
TheSilverJournal's picture

This was a centrally planned article on bad economic news to use as an excuse for more QE that came out today. Watch the  MSM thoughtlessly parrot this propaganda. Let the front running begin!

Americans Feel Austerity's Bite as Payroll Taxes Rise

  Text Size    

    Published: Sunday, 13 Jan 2013 | 10:53 AM ET

Americans Feel Austerity's Bite as Payroll Taxes Rise
Sun, 01/13/2013 - 21:36 | Link to Comment FrankDrakman
FrankDrakman's picture

The officiating was a disgrace. The pass interference call on Baltimore's first drive was on a ball that couldn't be caught, and the TD pass was offensive interference - you could see him push Bailey away, creating 2 ft of separation just before the ball arrived. It seemed to me throughout the game that the officials wanted the Ravens to stay close - you know, as if Vegas money wanted them to cover.

Still doesn't excuse that last minute TD by Baltimore though - what the hell were the Broncos' DB's doing?!

Sun, 01/13/2013 - 13:52 | Link to Comment Stackers
Stackers's picture

God help us if we get another Andrew Jackson in 2016 or 2020.

Sun, 01/13/2013 - 13:55 | Link to Comment Snakeeyes
Snakeeyes's picture

VIX is nuts. But look at mortgage spreads from the government. They went UP and stayed there are the Feds took over the mortgage securitization industry.

http://confoundedinterest.wordpress.com/2013/01/13/mortgage-spreads-rema...

Sun, 01/13/2013 - 14:19 | Link to Comment Never One Roach
Never One Roach's picture

Heck with you guys! I'm going out looking at zero-down houses today. They are buildng them by the thousands....still.

Unless you opt for some of those upgrades, they will package the house for you with their "Lender" with zero down....Nada...Zilch. Still going on....no end in sight to the distortions & malinvestments.

Sun, 01/13/2013 - 17:12 | Link to Comment Tinky
Tinky's picture

Ah, "Hot Lips" Houlihan... 

from an era when the word "voluptuous" was true to its original definition, and not a euphamism for 100lbs overweight.

Sun, 01/13/2013 - 13:21 | Link to Comment AssFire
AssFire's picture

The Travels of Marco Polo first described paper money to Europeans;

the Jews then took it to a whole new level...

Through this new fractional banking system the Christians lost control after their glory years: the Dark Ages.

(I am an equal opportunity offender)

 

Sun, 01/13/2013 - 13:26 | Link to Comment williambanzai7
williambanzai7's picture

"With these pieces of paper, made as I have described, he [Khubilai Khan] causes all payments on his own account to be made; and he makes them to pass current universally over all his kingdoms and provinces and territories, and whithersoever his power and sovereignty extends. And nobody, however important he may think himself, dares to refuse them on pain of death. And indeed everybody takes them readily, for wheresoever a person may go throughout the Great Kaan’s dominions he shall find these pieces of paper current, and shall be able to transact all sales and purchases of goods by means of them just as well as if they were coins of pure gold. And all the while they are so light that ten bezants’ worth does not weigh one golden bezant. "

The point of distinction of course is the Khan was a man of his word and woe onto he who questioned it...

Somewhere along the line the idea of being "good for it" got tossed.

Sun, 01/13/2013 - 13:26 | Link to Comment Sambo
Sambo's picture

Trader: "Can you pls continue to go in for 3m Libor at 5.365 or lower, we are all very long cash here in ny."

Libor rate submitter: "How long?"

Trader: "Until the effective date goes over year end (i.e. turn drops out) if possible."

Submitter: "Will do my best sir."

(source: Reuters)
A sizable chunk of the world’s adjustable-rate investment vehicles are pegged to Libor, and here we have evidence that banks were tweaking the rate downward to massage their own derivatives positions. The consequences for this boggle the mind. For instance, almost every city and town in America has investment holdings tied to Libor. If banks were artificially lowering the rates to beef up their trading profiles, that means communities all over the world were cheated out of ungodly amounts of money.

Sun, 01/13/2013 - 13:39 | Link to Comment Stuck on Zero
Stuck on Zero's picture

The Author writes:

"Americans seem to be in the process of sorting themselves into groups with shared social values. Why might this be?"

I know why.  The US now only recognizes group rights.  The country no longer recognizes individual rights. The rights carefully delineated in the Constitution.





Sun, 01/13/2013 - 13:43 | Link to Comment CrockettAlmanac.com
CrockettAlmanac.com's picture

Bingo. The only special interest group I want to belong to is the one that says every individual has the exclusive right to his own person and property.

Sun, 01/13/2013 - 13:53 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

Word.

Sun, 01/13/2013 - 14:14 | Link to Comment qqqqtrader
qqqqtrader's picture

OT:

I found another use for WD-40 this morning... it kills wasps!

I tell ya, this shit fixes everything! (even arthritic joint pain in your hands from typing too much!)

Sun, 01/13/2013 - 13:40 | Link to Comment From Germany Wi...
From Germany With Love's picture

Krugman:
'The thing is, the coin option sounds silly, but it clearly obeys the letter of the law. As far as I can tell, none of the other options — other than outright surrender — has the same virtue.'

But does he understand what he's saying here? What is the point of a constitution if only the letter of the law is being followed? It seems to me as if Paul Krugman does not truly understand the implications of this. It is escalating polarization further to the point of eventual open hostility breaking out. This is very dangerous territory.

 

Sun, 01/13/2013 - 14:15 | Link to Comment FL_Conservative
FL_Conservative's picture

Krugman understands NOTHING.  He wanders through life consumed by his own "intellectual superiority".

Sun, 01/13/2013 - 15:57 | Link to Comment socalbeach
socalbeach's picture

I could go for a variation of the trillion dollar platinum coin idea.  Instead of the Treasury handing over platinum coin(s) to the Fed, and the Fed then crediting the Treasury with a trillion dollars, have the Treasury hand over a box of horse manure instead.  It would strip away any pretense of what is really going on, which could lead to more understanding of the monetary system by the public.

Sun, 01/13/2013 - 13:56 | Link to Comment bondman1
bondman1's picture

Actively managed equity funds posted their largest inflows in over a decade in early Jan. Hedge funds at historically high levels of stock, S&P at 5 year high. Short interest -5% last week, VXX at 52 week low. Global stocks up 5% this month.......it's so close I can practically taste it!

Sun, 01/13/2013 - 14:24 | Link to Comment retiringteach
retiringteach's picture

tast what? the beginning? public has been selling for years, s&p unch for more than a decade-get ready for the flood and djia 20,000+++

Sun, 01/13/2013 - 14:13 | Link to Comment Room 101
Room 101's picture

In other words....

Gold and silver, bitchez.

Sun, 01/13/2013 - 15:02 | Link to Comment blindman
blindman's picture

"...
The political dimension, including Keynesian economic advisers across the political spectrum,continues to perpetuate an intellectual feedback loop keeping banking systems central to theireconomies. (Is it any wonder that it is generally perceived across economies that money, per se,is wealth – rather than as merely an indeterminate claim on resources and purchasing power?)Financial de-levering of vastly over-levered advanced economies can occur in only two ways: letsystemic debt deteriorate naturally as it is starved of base money with which to service andrepay it (austerity), or cover the vast base money short. Both are in force presently andgenerating clear winners (banks) and losers (the public and their governments). It would seem99.9% of societies would surely find this state of affairs disagreeable were they aware.The presumption that banking systems have to be the mechanism through which economiesmust be funded, with credit being “created” rather than being intermediated, has been almostabsolute, nary a peep among policy makers, academics, politicians and, well, Wall Street.And today when it comes to fiscal cliffs, debt ceilings, sovereign debt covenants and trade wars,there really is no political Right or Left and there are no conservative or liberal economists.There is only widespread gross negligence by those that presumably should know better.

If politicians and political economists want to argue about burden sharing, the proper economicmetric should be creditor vs. debtor, not rich vs. poor . " .. p.b.

Tue, 01/15/2013 - 19:33 | Link to Comment blindman
blindman's picture

there is a slight of hand in this argumentation.
the authors may wish to explore it, then again,
probably not. there is little no advantage in it
for them i suspect. i'm just suspicious now.....
there is a ton of stuff that may never be explored
here, too bad, an inspired moment of writing, imo.

Sun, 01/13/2013 - 15:47 | Link to Comment q99x2
q99x2's picture

I rescind my right to believe the G7 is in charge of anything.

Sun, 01/13/2013 - 18:33 | Link to Comment ebworthen
ebworthen's picture

Privatized gains/socialized losses is the root problem.

When governments and central banks support a corrupt banking system they endorse indentured servitude of their citizenry.

The FED is waging war on the citizens of the U.S. to benefit their banking masters.

Mental potatoes like Paul Krugman use obtuse theories and perpetual "what if's" to avoid having to reflect upon the base immorality and destructiveness of central planning and control.

Bailing out banks, insurers, and corporations while propping their levered derivatives and the equity casino - while simultaneously ignoring the rule of law and punishing the responsible with ZIRP, NIRP, and stagflation - is no different than rounding people up, putting them in ankle chains, and carting them off to plantations.

Do NOT follow this link or you will be banned from the site!