Sean Corrigan On The Central Bankers' "Mine's-Bigger-Than-Yours Contest" And Other Musings

Tyler Durden's picture

From Sean Corrigan of Diapason Securities

Money, Macro and Markets

For several long months now, the market has been treated to an unadulterated diet of such gross monetary irresponsibility, both concrete and conceptual, from what seems like the four corners of the globe and it has reacted accordingly by putting Other People's Money where the relevant central banker's mouth is. Sadly, it seems we are not only past the point where what was formerly viewed as a slightly risqué "unorthodoxy" has become almost trite in its application, but that like the nerdy kid who happens to have done something cool for once in his life, your average central banker has begun to revel in what he supposes to be his new-found daring – a behaviour in whose prosecution he is largely free from any vestige outside control or accountability.

Indeed, this attitude has become so widespread that he and his speck-eyed peers now appear to be engaged in some kind of juvenile, mine's -bigger-than-yours contest to push the boundaries of what both historical record and theoretical understanding tell us to be advisable. After all, it was sixty years ago now that Mises was telling people, in an article decrying the malign influence of Keynes, that:

“The economists did not contest the fact that a credit expansion in its initial stage makes business boom. But they pointed out how such a contrived boom must inevitably collapse after a while and produce a general depression. This demonstration could appeal to statesmen intent on promoting the enduring well-being of their nation. It could not influence demagogues who care for nothing but success in the impending election campaign and are not in the least troubled about what will happen the day after tomorrow. But it is precisely such people who have become supreme in the political life of this age of wars and revolutions. In defiance of all the teachings of the economists, inflation and credit expansion have been elevated to the dignity of the first principle of economic policy. Nearly all governments are now committed to reckless spending, and finance their deficits by issuing additional quantities of unredeemable paper money and by boundless credit expansion.”

In this vein and though we should by now have become numbed to displays of such insistent folly, we cannot but find it a touch ludicrous that the Fed’s Jeremy Stein could give a speech warning about the utterly undeniable dangers of ‘overheating in credit markets’ – presumably with a straight face – only to be pooh-poohed a week or so later by his boss when similar concerns were raised at that latter's regular meeting with the pampered, corporate welfare insiders at the Treasury Advisor Borrowing Committee.

The wise will take cold comfort from this, being all too cognisant of the fact that our esteemed Fed Chairman – much like his once-revered predecessor in office – has clearly demonstrated, both in the record of his public pronouncements and the belatedly-published transcripts of what he said in camera as the late crisis unfolded, that he is dispositionally unable to recognise the signs of a bubble in a beer glass, much less in a bond price or a balance sheet, since such a phenomenon plays no role in either his dogmatic and mechanistic model of the real world while the possibility that he may be personally in error finds no place in his monumental intellectual conceit.

Adding to the sense that nothing will dissuade these quacks from bleeding and cupping their poor patient until he expires under their assault, in a speech (delivered before a union audience, no less!) that Madame Defarge of the rentier class, Janet Yellen, also vouchsafed the hint that the Fed’s newly-adopted ‘Evans Rule’ – of continued, massive intervention until such time as unemployment subsides below 6 1/2%, assuming that CPI ‘projections’ (Oh, I d-o-o-o love a hard, independently-verifiable, objective target) likewise remain below 2 ½% - was not to be seen so much a ‘threshold’ for restriction as a gentle reminder that a rethink might soon be in order.

Not that the Fed Vice Chair was alone in her infamy. The week’s earlier publication of the Bank of England minutes revealed that there are other central bankers itching to help Wall St. and the City make their bogey for the year. Indeed, it seems that the outgoing Governor had wanted to pre-empt his hubristic successor-elect by easing now and not waiting for said Canadian newcomer to make good his less than modestly declared mission to ‘refound’ the three hundred year-old institution over which he will be suzerain, as part of his personal goal to show the whole of Europe how to ‘get those economies going and fix those financial systems’.

Not content with this, up stepped Kings’ fellow dove, David Miles, to set out a ‘model’ (roll of the eye-balls) which, by dint of equating the propensity to ‘inflation’ (i.e., to ongoing price rises) not to the supply of money in the system (thereby denying three centuries of theorising) nor with any  consideration for the demand for said money (so ignoring the whole 140-odd year history of subjective marginal economics), but solely to the  estimated degree of physical and human ‘slack’ in the economy, gave us a QED in favour of more QE.

Having set up the metrics of his toy universe, Mr. Miles told us proudly that he then gave it over to the silicon gods to perform 20,000 iterations with it and arrived – Hey Presto! – at the precise conclusion that the Bank needed to be 16% (sic) more accommodative, in other words, to buy another £60 billion gilts, even though, as our Great Engineer himself admitted:

“The model does not say that asset purchases are the only way this should be achieved. If there are monetary policy tools that are more reliably effective in boosting demand, they should be used. But it is not clear what these are, which is why I have calibrated the model to reflect my own assessment of the evidence of the impact of asset purchases”!

As every right thinking person should know (and hence climateers excepted), the principle problem of mathematical computation is encapsulated in the phrase GIGO – Garbage in, Garbage Out. One of the parameters Miles adopts in his latter-day difference engine is that UK GDP ‘should’ run at a  steady 3% rate of increase. Since this was roughly the experience of the laughingly-dubbed ‘Great Moderation’ which stretched from the economic travails of the early 90s to the eve of the Crash, this superficially seems to be a reasonable assumption.

What he has overlooked, however, is that while real GDP currently lies some 20% below where an extrapolation of that trend would otherwise  suggest, the reckoning of total hours worked in the economy has fully recouped its intervening losses, while, for the past five years of slump and sub-par growth, the RPIX measure of price changes has risen by an average 3.9% p.a. which is the worst performance in 17 years (a ‘remit’-busting failure of policy which, if the yields on gilts maturing in 2055 are any guide, is expected to persist for the entirety of the next four decades!)

Putting these gross aggregates charily together, we can see that, whereas GDP per hour worked rose, with only minor variations, at a trend of 2.5% per annum for the first 37-years of the floating rate era, in the succeeding five years of the crisis, it has declined by 0.8% a year – a fall of a duration and severity unprecedented in the modern record despite the Bank’s fivefold, £325 billion intervention (equivalent to 25% of average GDP over the period and to more than half the state’s cumulative deficit).

So, here’s a question: is it just possible that the long misrule of NeuenArbeiterPartei under the leadership of RobespiBlaire and Culpability Brown (as we always used to refer to them) led to a progressive stultification of the system to the point that the country effectively now lies broken? Sapping entrepreneurial endeavour, burdening the economy with costs and with a mare’s nest of legal and regulatory hindrances, swelling the tax-sucking ranks of patronage amid both the Apparat and the welfare proletariat, this was reign during which people desperately tried to maintain the illusion of a progressive rise in living standards by incurring crushing levels of debt and relying for nourishment on the bitter fruits of property speculation.

Couple this with the uncomprehending inability of the successor ConDem(n)s to tackle the problems they inherited – as well as with the political elite’s right-on, Davos-man fetish for needlessly driving up energy prices in the service of that jealous pagan deity, Mother Gaia – and you have a nation about whose prospects it is all too easy to despair.

Never mind though, Mr Miles: just run the printing presses a little more – nay! 16% more - prolifically and we have no doubt that all will soon be well again!

How far we are from the pellucid wisdom of Ludwig von Mises can be gathered from what he told a lay audience, just as the groundwork was being laid for the Great Inflation which would ravage the 1970s and early 80s, viz.:

“The nineteenth century the slogan of those excellent British economists who were titans at criticizing socialistic enthusiasts was: ‘There is but one method of relieving the conditions of the future generations of the masses, and that is to accelerate the formation of capital as against the increase of population.’ Since then, there has taken place a tremendous increase in population, for which the silly term ‘population explosion’ was invented. However, we are not having a ‘capital explosion’, only an ‘explosion’ of wishes and an ‘explosion’ of futile attempts to substitute something else—fiat money or credit money—for money.”

Meanwhile, Perfidious Albion is left with the sorry combination of activist central bankers, weak growth, a soaring visible trade gap, a record current account deficit, and a scramble to exit positions from those who had previously seen the country as something of a safe haven. With technical   indicators already flashing red (if also a touch oversold, at present), is there any floor beneath a currency which its own supposed guardians would dearly love to depreciate further?

Such problems are not confined to the oceanic side of the Channel, of course, as has been highlighted in the deliciously barbed correspondence between the CEO of US tyre company Titan, Morry Taylor, and French industry minister Arnaud Montebourg over that country’s industrial outlook and business climate.

Without getting too deeply into the spat, it should be noted that Eurostat data suggest that the French government typically spends (not including
"investment") two-thirds more on its almost 63 million citoyens than does the Italian on its 61 million, yet it is the latter who bear the brunt of the criticism.

(In the interests of fair disclosure, the same source shows that we virtuous 62 million Brits enjoy the dubious benefits of 45% more state largesse than do our Italian cousins, if 15% less than our French neighbours and even the ostensibly hard-core Dutch splurge as much on their 17 million as do the afflicted Spanish on their 47 million).

In Spain itself, we have had another failed property lender and the rather cheerless message from embattled Premier Rajoy that ‘there are no greenshoots, there is no spring’. On the Western littoral of the peninsula, Portugal has also had to downgrade its forecasts to encompass a deeper shrinkage than was first pencilled in - as a result, by some unforeseeable mischance, of the deeper than anticipated slump which has ravaged the rest of the continent, to which it dispatches 70% of its exports and from which it receives the bulk of its tourists.

In Italy, the chorus of disquiet at the prospect that Il Cavaliere might just attract more votes than anyone else in the weekend elections is swelling to a Verdi-like crescendo (remember that democratic choice is all well and good as long as you vote for the candidate preferred by the global hegemons). More broadly, the signs are not good here either. Retail sales last year were at their lowest level in a decade, while industrial orders fell to their fewest (and at their fastest pace) since the slump, taking them down almost a quarter from their 2007 peak and landing them back where they stood at the  very launch of the single currency. Hardly a ringing endorsement of the project!

Thankfully, Germany is potentially providing an offset. We use the qualifier because even if the IfO survey is beginning to show its typical lagged  response to a surge in local liquidity, this has yet to translate into business revenues and hence, one has to fear, into earnings. Nonetheless, let’s take cheer where we can: Eurozone biflation is bringing a much-needed cheer to the bosses of the Mittelstand.

Abroad in Asia more attention is suddenly being paid to the fact that Shinzo Abe – after being mugged in the corridors of the recent G20 summit (and possibly warned there that he might need to cultivate some wider good will if he wishes to enlist third-party support in his ongoing dispute with China) - is having to back-pedal a touch in Japan as rumours circulate that he might not even get to appoint the most unredeemed, the wildest-eyed inflationist to the top spot at the BoJ next month.

J is for Japan, but J is also for J-curve – that unfortunate constellation whereby the effects of a lowered currency exert more of an upward influence on the import bill than on contemporaneous export revenues. Hence why the country suffered a record trade deficit last month. The fact that LNG prices in the Pacific basin surged to more than $19/mmbtu this month, even as the yen was shedding 10% of its value vis-à-vis the dollar is but one adverse side-effect of Abe’s quackery.

In the near-term, it may be that the accounts of a number of Japanese corporates are unduly flattered by the translation effect, but we doubt they themselves will be fooled by such transitory gains into a radical alteration of their business plans. What should be made clear here is that in volume terms Japanese exports are 10% lower than they were at the post-Fukushima rebound, one sixth lower than the last, pre-Crash spike, and no greater than they were in early 2006 (on a priceadjusted basis, the trajectory of imports is not wholly dissimilar).

Nor has the return from the Lunar New Year break seen China add any further fuel to the flames, either. To the contrary, yet another ‘decisive’ edict has been issued in the (so far vain) attempt to crack down on the nation’s re-inflating property bubble. Adding to a growing presentiment that the central bank may act to head off what looks like an outpouring of new credit from the banks these past 8 weeks, it has this week withdrawn a record CNY910 billion from the market. The smart money now has it that current PBOC chief Zhou Xiaochuan will be promoted to a level of party seniority sufficient to obviate the need to retire now that he has celebrated his sixty-fifth birthday, implying that there will be no radical loosening of policy on that account, either.

He might need to act soon: the new vogue measure of ‘total social financing’ recorded a 160% yoy jump in January while the pace of boring old bank lending so far this year has been similarly robust and could come in as much as 40%-50% above the combined Jan-Feb total for 2011. At this rate, there will be no notable diminution to the already incredible CNY110 trillion in reported urban fixed-asset investment undertaken these past four years - an amount equal to 145% of the US private economy and a number which has risen more than tenfold in a decade and which accounts for three-fifths of ‘national-scale’ industrial profits.

Whether this will be complicated by the problematical local government debt pile remains to be seen, but one sign that this is becoming a hot button  issue is that the China Banking Regulatory Commission has just issued a directive insisting that any new loans extended to LGFVs must be covered by existing cash flows and that the projects for which the funds are intended must generate returns, while what it termed "irregular" lending to these vehicles was henceforth prohibited. That will be fun, given that the recently published provincial budget outlooks suggests the fact that more than
half of their loans are due to mature this year.

In response to worries that the regime might act to rein in such developments, the Shanghai Comp underwent its biggest single-day plunge in 15 months, steel futures slipped to complete a 6% drop on the week, copper gapped lower to its weakest close of 2013, and rubber suffered further,making a 10% peak-trough decline from its pe-holiday highs. The FTSE A600 Bank index has, meanwhile, dropped 14%. With Komatsu telling us sales of diggers halved in the last ninemonths of 2012 and rivals Caterpillar reporting its worst 3-month regional sales performance (-12% YOY) outside of either the GFC or the Asian Contagion of 1997-8, and with Foxconn announcing a hiring freeze, what little anecdotal evidence we can muster in this period of news blackout is not overwhelmingly positive.

On a broader front, ahead of the all-important National People’s Congress next month, the local press is positively buzzing with assorted calls for ongoing reform – even to the point of positing the formation of a new super-bureaucracy to supersede the NDRC in this task. President Xi and his allies have presumably had something to do with this campaign and the man himself has naturally been very active in trying to secure his power base in the run up to his full inauguration, but much will remain up in the air until the proceedings have been completed and we get a first look at his first full exercise of power.

Never mind, ever alert to the people’s needs, the planners have just announced that they are taking forceful steps to counter the awful quality of the air in China’s choking megalopolises – they have issued a fatwah banning urban barbeques!

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PUD's picture

When every toll brothers house is filled from cellar to attic with stuff, when every credit card is maxed out, when every student has borrowed all he can, when every living human has tapped out their last line of keep "con"sumption alive.....what then?

What a totally completely absolutely insane model built upon exponential credit, exponential consumption, exponential ravaging of the earths resources.

The perpetual mindless pulling forward of demand. The rabid psychosis of planned and perceived obsolescence. The wanton disregard for the future and consequence...all to preserve capitalism in all its glorious predatory ways.

MF doom. Can't come soon enough for my liking.

DoChenRollingBearing's picture

I think it is clear enough that there will be no easy way for almost all countries.  The governments and the central banks are, at best inept, or at worst grossly evil in extracting whatever of our wealth they can get their grubby mitts on.

It is clear that each of us have to think for ourselves, and to take the measures necessary to save our own families the best we can.  Many of you have seen my thoughts before, so I will not detail them further here.  Let me just cut to the FIRST and BIGGEST step we should all do:

Buy Physical Gold ASAP.  Be your own central bank.  As FOFOA would say: "Think like a giant."  FOFOA writes a nice piece on this notion at his current blog piece:

In a few words, he says that the "Giants", really BIG buyers, will not see the huge move upward to the same degree and benefits that we smaller "shrimps" may, because their buying in quantity would move the price of gold up a LOT just by their own actions.  

Must reading.

PUD's picture

Bad advice...One sweep of a pen and gold is outlawed. One bill passed and you owe %50 tax on any sale of it. If you think some yellow metal is going to insure your well being when the shit really hits the fan, you're far more trusting than I'll ever be.

Theta_Burn's picture

Black market, and barter will determine our fates

fonzannoon's picture

exactly. Black markets will pop up. Same as always.

DoChenRollingBearing's picture

It is thought that during the Great Depression that FDR only got 10% or so of the gold when he called it in.  Only ONE person, AFAIK, was ever prosecuted for disobeying, and that was because he spoke up loudly.

I'll keep my gold, thank you.  And my guns.  

In the words of ZH's francis_sawyer:


Big Slick's picture

@ DoChen: I didn't find FOFOA useful.  Kind of scattered.  Much of the context is lost ... like it was written by someone on the edge of insanity.  There may be useful info there but it couldn't hold my attention long enough to find it.  

McMolotov's picture

But This Time It's Different.™

All Risk No Reward's picture

Is Sean a dope that couldn't see trillions in looting if I told him or is he a Vichy false narrative builder?

Sean, this isn't some juvenlie game by adolescents.  Oh, they may push that narrative, but do you believe everything you are told like the Vichy French believed the Nazis?

If you are a chump, educate yourself and fix the problem.  If you are Vichy, man, your "content of character" is pure filth and stench.

The Fed isn't trying to "save the economy" because a 5th grader knows it can't be "saved."

You can't save a credit bubble when your money is debt and society is freakin' debt saturated.

That first chart exposes the Fed as a criminal cartel - period.  Have you ever read Section 2A of the Federal Reserve Act, do you believe whatever the corrupt establishment tells you or are you a vicious operative playing controlled opposition?


More debt for society, more cash for Fed controller corporate fronts.

Small business is being annihilated.

I have news for you, Sean, the "Affordabaale Health Care Act" wasn't to reduce healthcare costs.  It was written by Big Finance Capital to increase societal expenses and to offload the cost of health care from the corporations to the people at large - and government is supposed to be the scapegoat, not the people who wrote the bill (and control government, too - they finance campaigns and use their media to promote their operatives into government positions).

The whole debt money system is a 5th grade fraud engineered to bankrupt society.  Fractional Reserve Lending is jst a "turbo charge" to the fraud.

Debt Money Tyranny

The Fed isn't buying treasuries to "save America" when America is a debt saturated cesspool.

You can wrap your mind oaround that, right?


People are wisiing up, albeit slowly.  You do a disservice playing the role of Stalin's "useful idiot" and if you are a traitor...  you can always have a change of heart and get on the right side of the issues.  Your establishment money will dry up, though. 

That's their control mechanism.

Doña K's picture

Just wait and see the backlash when the actual pricing of insurance hits the people on the forehead. There will be massive opting out and within a few months the towel will be thrown into the boxing ring. 

I believe that even the bottom 47% will opt out. They have no insurance now and they are covered, so why buy then?

All Risk No Reward's picture

Reverse engineering BanksterCare (It ain't RomneyCare or ObamaCare, people - use the correct term and tell the Vichy MSM to kiss off with their psy-op to focus on the minion trash instead of the overlord trash), it's objectives appear to be:

1. Use government as a scapegoat.

2. Transfer medical costs from corporations to the individual.

3. Dramatically increase premiums for the insurance companies.

4. Create a new 28 hour work week because they know the economy will not support the bubble that is currently collapsing. 

5. 28 + 28 = 56 hours = 7 days of work at 8 hours a day - if you want to hang onto your debt goodies and you are a hard worker, get ready to work 7 days a week, 8 hours a day to earn less purchasing power than you have now.

6. Bankrupt more citizens.

7. Force foreclosures.

8. Drive small business out of business.

9. Drive unemployment to new highs.

10. Eliminate Big Fia=nance Capital competition by driving them out of business.

This is a wicked Debt Money Tyrant tactic in their effort to complete their strategy to fully flush even the illusion of the Republic that was burned to the ground 100 years ago.

Debt Money Tyranny

Art of War

Propaganda - Edward Bernays

Phillip Dru administrator: A Story of Tomorrow

PUD's picture

doesn't mean gold will have any value...a can of spam will for sure

Doña K's picture

I have lots of spam. I will only sell it for gold silver or something

scatterbrains's picture

We have the NRA National Rifle Association  for our guns where's the NGA National Gold Association for our money ? We're going to have to apply political pressure down at the local level to win the right to save and spend in gold/silver.

Theta_Burn's picture

Excellent post.

Except the capitalism part, which in their world should be called crapitalism. If the manipulation, corruption, and ineptitude were punished instead of rewarded, to let the inefficient fail instead of being repeatedly bailed out, that form of capitalism works exactly as it should.

Friends of Angilo cronyism isn't true capitalism

PUD's picture

capital "ism" has to go the way of all 'isms" ... to the dust bin of history. We need a "human' 'istic' system that does not pit one entity against another. A planet that lives by winners and losers will always ultimately lose. Capital 'ism" is not co-operative it is confrontational and there is no place for conflict in this century with any hope of survival.

fonzannoon's picture

Whatever. Like ZH says "on a long enough timeline..." We are all toast in the end. Some will stick around a little longer than others.

DoChenRollingBearing's picture

Nicely put, fonzanoon, yes, dust-to-dust.  However, it is my intention to ensure to the best of my ability that our kid (and any she may have) will have as much as possible to eke out a living if things go south and get really bad.

GOLD has proven its worth in saving wealth for over 5000 years.  That is why I own it, and will keep buying more, even if "poco a poco", like I have for over 30 years.


PUD's picture

Nothing to say it doesn't go back to $35 an oz is there?

fonzannoon's picture

Not at all, I am quite convinced silver will be back at $35 an oz pretty soon. It's a nice round number, why not?

McMolotov's picture

That's a lovely thought (no sarcasm implied), but I'm convinced that Star Trek — and Krugman! — are correct on one thing: We'll never unite to any great extent as a species until there's an outside threat or some monumental event which affects all of us.

Until that time, if it ever arrives, we'll continue to brawl amongst ourselves because there's nothing "out there" to make humanity feel small in the grand scheme of things.

PUD's picture

Wallow in self defeatism if you like, I choose not to accept that. Science and Cosmology, reason and intellect are making huge strides now...look at the atheist rational movement gaining traction displacing superstition and pseudo science on broad fronts. We have unifying technology now that can spread truth like never before...I'm not going to concede defeat like most of you 

McMolotov's picture

Call it self-defeatism if you like; I call it reality. Ever been to Walmart? It's extremely hard to believe this will be "the century the Earth comes together" when walking among the herd.

I stand by what I said above. The Star Trek future will only evolve as the result of something BIG happening. The longer the BIG thing takes to occur, the more likely our future will resemble 1984 or Idiocracy.

Pure Evil's picture

Walking among the herd!


I would have thought more along the lines of:

"Wallowing in the cesspool."

Just Ice's picture

hoofing with the heifers

tsx500's picture

Denial ain't just a river in Egypt my friend

css1971's picture

Funny I could swear that's exactly what you said you'd do in the last article.

akak's picture


Now THAT'S what you call being hoist by your own retard!

CH1's picture

We'll never unite to any great extent as a species...


Cooperation is cool, unity is slavery.

CH1's picture

Except the capitalism part, which in their world should be called crapitalism.

You are looking for an argument over semantics.

You know that almost every poster here differentiates between fascist capitalism and free market capitalism. Why do you have a burning need to attack a word?

joego1's picture

For most of my career I designed microchips and was heavily involved in simulating how the chips would work. Needless to say this was difficult and regardless of the mountains of effort that many engineers would put into the simulations there would still be failures of all sorts (mainly from human error). Having done this on something like silicon that is well defined in it's physical properties its really hard to understand how economists can have much faith at all in computer simulations based what is essentially human behavior. We can barely predict the outcome of 10 million transistors let alone 10 million people with any certainty. We can apply math to the physical universe but human behavior defies the same treatment.

DoChenRollingBearing's picture

+++++  Great comment

You might enjoy a new book I started yesterday: 

Silver, Nate

The Signal and the Noise

Penguin Press, 2012

PUD's picture

Spot on. This is why any and all prognostications and predictions are essentially useless. Randomness is a human convention. Predicting the movement of schools of fish or flocks of birds or mobs of unemployed are futile. You might correctly guess that they are moving north, or south but the zigs and zags are impossible....lots of flocks fly into buildings too.

fonzannoon's picture

But we can't prognosticate about the almighty dollar right? All these expressions only apply to PM's....

ebworthen's picture

Central bankers are merely the dupes of the bankers.

Central bankers facilitate leverage for the bank and bonuses for the bankers.

Central banks have achieved nothing beyond privatizing gains and socializing losses; which is why they were founded.

Pseudo Anonym's picture

good one

Janet Yellen, .... (Oh, I d-o-o-o love a hard, independently-verifiable, objective target)

JR's picture

“In defiance of all the teachings of the economists, inflation and credit expansion have been elevated to the dignity of the first principle of economic policy.” -- Mises

As long as it’s not hyperinflation, controlled inflation is not harmful. It’s even good for you. So goes the Keynesian mantra.

Not so, says Detley Schlicter, detailing how serious monetary expansion has caused the current accumulations of imbalances that grow as barricades to growth of the economy.

There should be no comfort in current inflation statistics, says Schlicter in his article entitled “’But there is no inflation!’ –Misconceptions about the debasement of money”

First of all, Schlicter says that there is inflation “and quite a bit of it.” And he expects much higher inflation as the debasement of paper money continues and as the inherent unsustainability in the system plays out ultimately into chaos.

“A monetary system like ours, which is a system of entirely elastic, unconstrained fiat money under central bank control, designed to constantly expand the supply of fiat money so that its purchasing power keeps diminishing (controlled inflation)…is fundamentally incompatible with functioning capitalism and a danger to economic stability and prosperity. If taken to its logical conclusion – which is what central banks seem determined to do at present – such a system must end in chaos.

“Ongoing monetary expansion must cause the economy to accumulate imbalances over time and these imbalances will be an ever more powerful hindrance to proper growth.”

Continues Schlichter, “Money injections ALWAYS create dislocations, misallocations of capital that will have to be liquidated in the future. Such imbalances are now abundant and certainly include excessive levels of debt, overstretched banks and inflated asset prices, i.e. distorted relative prices.

“As long…as central banks continue to fight the present crisis with low interest rates and ongoing monetary expansion, these imbalances – that are the root cause of the current malaise and that logically have their origin in previous interludes of ‘necessary monetary stimulus’ – will not be allowed to dissolve or get liquidated but will instead be maintained, and new imbalances will get added to the old ones. The economic system moves further and further away from balance. The crisis is not ended but sustained.”

By using intervention to prevent the liquidation of these imbalances, policy makers “have taken us further away from a proper solution of the crisis and have given us a fleeting but false impression of stability, for which we pay with yet more imbalances.”

Thus, the “moderate” inflation in spite of massive QE.

“At this point, one of the reasons for the still ‘moderate’ headline inflation today in spite of the massive monetary stimulus from central banks already becomes apparent: As the imbalances – such as excessive levels of debt, overstretched banks and inflated asset prices – get bigger, the (market) forces that work towards their liquidation become stronger. These forces are deflationary in nature. Sustaining the imbalances – in order to keep the illusion of stability alive – requires ever more aggressive money printing on the part of the central banks, which is what we are seeing around the world today.

New ‘base money’ – the type of money that central banks issue and that functions as the monetary system’s raw material – does at the moment not lead to higher headline inflation as quickly as it did in the past. Balance sheets are stretched, overall debt levels are high, and asset markets are distorted – all of this a result of previous monetary expansion. Consequently, banks are reluctant to lend, and the private sector is reluctant to borrow. Ongoing monetary accommodation is blunting its own effectiveness…

“[I]n fact ever more money will have to be injected ever faster for the central banks to keep achieving their near-term policy goals, which are to obstruct any liquidation of capital misallocations and excess debt, and to keep debasing money’s purchasing power. The tipping point – and the trigger for much higher inflation – will be reached when the public loses confidence in this charade.”

As for “that dreadful deflation”:

“We are constantly told that, although incomes hardly rise and many people have to spend some of their savings to make ends meet, we should still be thanking the central bankers for making sure that our money’s purchasing power keeps dwindling.

“It used to be the case that the inflationary boom was followed by the deflationary bust. The tendency for prices to fall in a recession was an important factor in stabilizing things again and doing so quite naturally. Lower prices supported those on lower income, and at some stage lower prices lured those with money on the sidelines back into the economy and back to spending and investing it.”

Today’s policy makers ignore“that what is required to keep lowering money’s purchasing power, namely super-low interest rates and injections of new money, simultaneously props up asset prices artificially and obstructs the deleveraging of the economy. This is a persistent disincentive to invest. Those who have money to spend are reluctant to do as long as asset prices are inflated through easy money and cheap credit. They know, of course, that these are not true market prices. Nobody wants to invest in a manipulated market.

Schlichter, author of Paper Money Collapse, concludes in this explanatory article, “This will end badly.”

earleflorida's picture


How you managed to navigate through and around the 'Rubicon', and not be strung-up by a financial Gordian-knot-- must bring chills to a Houdini water-boarding surfer... triangulating the whole, of a submerged global economy,... deserves nothing less than a [*****] rating!

Bravo Sean :-))

Stuck on Zero's picture

Mortimer: "I'll bet you a dollar that U.S. citizens are bigger chumps than European citizens."

Randolph: "I'll take your bet."


Radical Marijuana's picture

I agreed with most of the comment made by All Risk and No Reward!

"You can't save a credit bubble when your money is debt and society is freakin' debt saturated."

I also agree with this comment posted by JR:

"A monetary system ... which is a system of entirely elastic, unconstrained fiat money under central bank control ... If taken to its logical conclusion – which is what central banks seem determined to do at present ... must end in chaos."

My views are similar, except WAY WORSE!

The established systems will continue to operate as long as they can, within their money-as-debt system, which requires always more debt! As long as that system can continue, then we will still be able to use fiat money within that system ... When it finally breaks down, that collapse must go off the scale of anything that happened in previous human history. Personally, I hope that is postponed as long as possible, but the fundamental structure of that system makes long term stability IMPOSSIBLE, and the longer the collapse could be postponed, the more potential energy is accumulating in the overall system, to become kinetic when it finally does collapse under its own weight.

There is a basic law of physics, referred to as "L, L squared, and L cubed," which points out that one can not scale a structure up and up, because as the length doubles, the cross section quadruples, while the volume increases eight fold. But nevertheless, that is what is happening to the social pyramid system of Neolithic civilization being amplified to astronomical sizes. When we reach the point where its compression crushes itself, the collapse will be even more spectacular and devastating, the bigger that social pyramid system was able to be built, before it collapsed into chaos ...

The global social pyramid system that EXISTS NOW is electronic fiat money-as-debt FRAUDS, backed by the FORCES of weapons of mass destruction.

When that system of astronomical amplified FRAUDS finally can not grow, then the collapse into chaos will likely result in murdering billions of people!

As this article above quoted Misses stating:

"... demagogues who care for nothing but success in the impending election campaign ... it is precisely such people who have become supreme in the political life of this age of wars and revolutions."

The real endings of previous economic depressions, and currency wars, etc., WERE "wars and revolutions."

Of course, that is not a black vs. white situation, and appreciating the technicolour possibilities of the ways that different death controls could emerge is actually the sine qua non with respect to any different monetary system, operating different debt controls.

There are NO "reforms" that are possible within the established systems. As well, there is nothing whatsoever that has the slightest shred of sanity with respect to ideas that we could somehow go backwards to any old-fashioned ideologies regarding some commodity based money, and/or with barter trading, (in semi dark markets, while there was overall martial law.) Those are all wildly optimistic notions!

The original Austrian school I found slightly more interesting, but the Mises versions I find to be just more old-fashioned goofball stuff.  I find nothing in Mises which addresses the deeper realities of the actual murder systems, other than ridiculously unrealistic ideals that those should not exist. As a champion of the Libertarian, or an idealized free market views, those schools of thought somehow manage to deliberately ignore that what actually exists is a free market in murder, dominated by those who were the best at deceits and destruction. Those are the real factors that made the warfare the father of the current systems that we operate inside. That is the actual foundation of the monetary system that we have now, and no pie in the sky nonviolence ideal works to actually offer any coherent alternative real systems. Mises is a classic reactionaries, providing excellent analysis of the problems, followed by bullshit solutions based on impossible ideals.

The only possible ways forwards are "monetary revolutions," which now appear only possible after we go through the current systems becoming even more utterly mad, and even more self-destructive!

Those "monetary revolutions" MUST be based on the fundamental fact that money is backed by murder. That is the central truth which is most buried and denied by the history that evolved War Kings, which were taken over by Fraud Kings.

We are looking at combined money/murder systems, which have been amplified many, many orders of magnitude by advancing science and technologies. Anybody who thinks we can continue within the established systems, or can retreat and regroup by going backwards to any previous systems, is DELUSIONAL!

There is NO other choice but to go forwards towards developing murder systems that are consistent with weapons of mass destruction, as the back up for the money systems which are similarly amplified by being able to use trillions of times more information.

The central issue is that the combined death/debt controls ARE orders of magnitude bigger, and that amplification process continues, and will probably continue in the foreseeable future, as long as civilization can still survive enough to allow that to happen!

We are faced with FACTS that the death controls can be done with powers that are trillions of times greater, while the debt controls can use trillions of times more information than ever before in known human history.

Everything we are doing now is based on the vast majority of people deliberately ignoring that, while parroting their own favourite ways of going backwards, to old-fashioned religions and ideologies, as somehow the solutions to this problem of science and technology making human beings able to use billions, then trillions, and on to quadrillions of times more power and information!

That capability is being channelled through the established money/murder systems, which were based on being successful through maintaining the maximum possible deceits about themselves.


How can the world operate its actual death controls, where those are used to prop up a debt control system based on money-as-debt, which has already pushed the overall debt slavery into the zones of debt insanity? Obviously, there are no easy answers!  Indeed, after one more fully understand these problems, they are WAY WORSE!


That is the real problem behind the runaway debt insanity situation, because we have developed a fundamentally fraudulent financial accounting system, based on forcing everyone to accept privatized fiat money, made out of nothing, AS DEBTS, which must grow exponentially, or otherwise collapse into chaos.

Without any answer to how to operate new systems of death control, then there are no answers to the questions of how to operate new systems of debt control.

The USA's, and global systems, are overall the runaway triumphs of force backed frauds, which have been amplified to astronomical sizes.  In that context, we have the stupid little monkeys playing their same old games inside their "Mine's-Bigger-Than-Yours Contest."

As the article above implies, in the same ways as the War Kings contested with each other to become better at violence, the Fraud Kings are competing with each other to become more fraudulent, by creating even more "money" out of nothing!

Human beings have lost control of the processes that they have started. The plutocrats no longer control the plutocracy which they originally made and maintained.

Since the currently popular (both mainstream, as well as alternative) debates about the economy take place inside of a taken-for-granted human ecology where the vast majority of people are political idiots, brain dead zombie sheeple, controlled by relatively small minorities of vicious wolf people, who herd them, with dishonesty backed by violence, THAT established system is what has been pumped up trillions of times by advancing science and technologies.

Every article that I have ever read operates within being able to take-for-granted that the readers will be continuing to presume that the established social pyramid system of Neolithic civilization could be amplified trillions of times, and still not destroy itself, or that the solutions to that increasing capacity to use trillions of times more power and information could be somehow found by going backwards to some previous systems, based on old-fashioned religions and ideologies.

Anyway, I agreed with All Risk and No Reward's agreed views about how serious our situation is, due to the runaway triumphs of the Fraud Kings destroying the USA. And, I agreed with JR's view that doing that must finally result in collapse into chaos. However, what I emphasize is that the real problem we face is the need for a new murder system, doing death controls, AFTER we have weapons of mass destruction, which are what actually backs up the current global, privatized, fiat, money-as-debt system, which the USA was the world's leader in developing, and forcing the rest of the world to accept, and live within. The PROBLEM with doing that is that those who actually did that in the past did so by being the best at lying about what they were doing, and the whole society is based on adapting to accept and believe in those biggest bullies' bullshit social stories.

EVERY article about political economy that I have ever read seems to me to still be within that, to the extent that, FIRST, the mainstream morons continue to believe in the biggest bullies' bullshit, or SECOND, the reactionary revolutionaries offer solutions based on going backwards to old-fashioned ideas that continue operating within the same paradigms as the biggest bullies' bullshit still does too.

The PROBLEM is that there are real limits, and therefore, there must be some death control systems ... BUT, the previously established money/murder systems are based on runaway triumphant frauds, backed by force, regarding everything that they were doing. Our entire civilization is almost totally controlled by the best professional liars and immaculate hypocrites, and that includes practically all of the opposition as well!

The ONLY genuine solutions must adapt to real limits, by operating real death controls, AFTER there are weapons of mass destruction, and all the rest of the sciences and technologies which make it possible to use trillions of times more information than ever before in history.

However, those kinds of solutions are practically non-starters, since there is practically zero audience for those, even on Zero Hedge.

We are watching the Fraud Kings, the central banksters, as the supreme organized crime gang, that have covertly taken control of governments, direct the lives of the masses of Zombie Sheeple, to stampede them off of a cliff. My points are that those kinds of death controls are NOT the ones that we should have, BUT, we still must have some kind of death control system!

The USA is being destroyed by the runaway triumph of the Fraud Kings' money-as-debt system, and there are NO solutions to that problem within their established systems! However, those Fraud Kings are ABLE to operate because their systems were built on top of the previous systems that were made and maintained by the War Kings. That is, the total system is ACTUALLY combined money/murder systems, and there are no solutions but monetary revolutions, within military revolutions.

IN THEORY, it should be possible to have politics be applied human ecology, and to have the basic facts regarding human ecology be the basis of rational political debates. HOWEVER, actually, our whole social system is based on the biggest bullies' bullshit social stories, because those enabled the FRAUD KINGS, i.e., the central bankers, to prevail.

Our whole social system is based on legalized lies, backed by legalized violence, automatically growing bigger and bigger, towards astronomically amplified sizes ... Meanwhile, there continues to be no reasonable hope with regard to fixing any of that, since all the most "successful" people are those who were the best professional liars and hypocrites, i.e., the Fraud Kings, the central bankers!

Their "success" is actually off the scale INSANITY, since making "money" out of nothing violates the most basic laws of physics. But nevertheless, legal fictions are what totally dominate our civilizaiton, because those evolved from the War Kings to become the Fraud Kings.

Of course, I agreed with this article when it stated:

"... the principle problem of mathematical computation is encapsulated in the phrase GIGO – Garbage in, Garbage Out."

However, the magnitude of that GI/GO problem is being astronomically amplified, since we have a fundamentally fraudulent financial system, where the REALITY IS MONEY IS BACKED BY MURDER, BUT THAT IS THE LAST THING THAT ALMOST ANYBODY DOING THAT ADMITS, AS WELL AS ALMOST THE LAST THING THAT ANYBODY WHO IS SUPPOSED TO BE PROVIDING ALTERNATIVES ADMITS!

Our basic GI/GO is force backed fraud, as the foundation of Neolithic civilization, which has been astronomically amplified in size to become Legalized Lies, backed by Legalized Violence, inside of which system those who promote ever more fraud, the central bankers, are ABLE to do what this article points out, namely:

"... your average central banker has begun to revel in what he supposes to be his new-found daring – a behaviour in whose prosecution he is largely free from any vestige outside control or accountability."

The long history of War Kings morphing into Fraud Kings has enabled the central bankers to operate "largely free from any vestige outside control or accountability."

Their systems were always based on murder, and every decision they make has murderous consequences. However, they are able to do that in ways where those social facts are almost totally ignored by the mass media, and, as well, almost all of the "alternatives" which are proposed tend to also get away with deliberately ignoring the FACT that money is backed by murder, and must necessarily be so!

This continues to develop the profound contradictions that science and technology continues advancing everywhere except in human sciences, since warfare is the oldest and best developed social science, whose success was based on deceits. Therefore, economics, or the money system that was built on top of the military system that went before it, is all based on astonishing feats of deliberate ignorance, where blatant fraud, in the form of making "money" out of nothing, as debts, is the basis of the whole system, and yet, the outrageous absurdity of that situation has no effect, since lies, backed by violence, do not have to care about more radical truth, as long as those lies can continue being backed by that violence. Thus, we have built a global system of electronic fiat money frauds, backed by atomic bombs, and yet, the central bankers continue to be able to double down, again and again, on even more fraud, as the solution to the consequences of their previous frauds.

Through that system, everything that was worth robbing has already been robbed. There is no way now to go backwards to what "money" should have ideally been. It already became completely crazy and corrupted, and the entire civilization was already developed for many, many generations to become broadly based on those triumphant legalized lies.

Therefore, as far as I can tell, the only role that the basic laws of physics can play in the foreseeable future is to eventually cause that "civilization" to go through psychotic breakdowns. There does not appear to be the slightest reasonable chance that the current human ecology and political economy can remedy their own sicknesses!

In my opinion the whole system is run by BOTH the mainstream morons, sustaining the established ruling classes within their power, while only "resisted" by nothing significant other than reactionary revolutionaries, who are a controlled opposition, that are still operating within the same totally bullshit view of human society.

Therefore, we have runaway force backed frauds, operated by professional liars, who are able to get away with their immaculate hypocrisy, and mind boggling impossible ideals, since there is nothing significant outside of that to stop them.

The basic fact that money is backed by murder is what made the Fraud Kings, but almost all of those who propose solutions to the problems caused those Fraud Kings controlling the "economy" do so in ways which deliberately ignore or avoid that basic fact! We manage to operate inside of GI/GO political economies, which deliberately ignore or avoid their human ecology context.

Just like making "money" out of nothing is magical thinking, done by charlatans, tricking fools, (who have been forced to agree with that for many generations) the basic laws of nature, which impose real limits, and which therefore require some system of real death controls, manage to be not discussed or debated, outside of the context of the same old-fashioned bullshit ideas, based on false fundamental dichotomies, and related impossible ideals!

It continues to be an astounding question to wonder how much further this contradiction of pumping up Neolithic civilization with more science can continue, while the fundamental structure of Neolithic civilization itself is a social pyramid system based on ignorance and fear, which requires the vast majority of the population be maintained as Zombie Sheeple, while the Vicious Wolves that made that system continue to control things through the means of legalized lies, backed by legalized violence, constantly becoming MORE INSANE ...

The central bankers are the supreme stupid little monkeys, which, as this article implies, appear to now be in a pissing contest with each other, to see which ones can create the most "money" out of nothing!  Furthermore, as this article correctly observes, there is nothing within the established system which can stop them from continuing to do that, since they ARE "largely free from any vestige outside control or accountability."