Of Monetary Cranks, Bureaucratic Meddlers, And The Reinhart-Rogoff Faux Pas

Tyler Durden's picture

Authored by Sean Corrigan of Diapason Commodities Management,

In what has been a banner weak for the many serial inflationists and fans of Big Government out there, equity markets have largely reversed the declines of the previous period on the hope for – what else? – yet more pump priming.


On the fiscal front, much heart has been taken at EU Commission President Barroso’s assertion that the time has come to move beyond an exclusive reliance on ‘austerity’ and to begin to focus on encouraging growth.


Needless to say [Barroso's actual words, were] far less radical than anything whipped up by the journalists – the crux being that it was mainly matter of paying lip service to the ongoing need to trim debts and deficits, while calling for a range of largely unspecified microeconomic reforms and, as such, representing more of an exercise in expectations management than the signal of a clear break with the line being toed across the Rhine.

In the circumstances, however, the wilful desire to over interpret (if not actively misinterpret) the message was far too powerful to resist, especially in the wake of the academic catfight going on over the state of Reinhart and Rogoff’s Excel skills.

For those who have real lives to lead, the briefest of synopses of this spat will suffice and, indeed, it is only introduced here to illustrate the heedless Flucht nach Vorne mentality of the Krugmanites, ever eager as they are to peddle the line that the only reason stimulus has ‘failed’ is because there has been nowhere near enough of it, that the violation of both the principles of accounting and the tenets of good housekeeping on the part of the Provider State has somehow been too timid.

Loosely, R&R wrote a paper which suggested that high government debt is detrimental to growth but managed to overweight one particular input from little old New Zealand at the dawn of their sample. A caricature of the paper’s results had meanwhile been employed to argue that growth would evaporate the minute a 90% debt/GDP ratio was reached, but not an iota before. Since this, naturally, was being put about with as much conviction as would be accorded a cross between Holy Writ and Newton’s Third Law of Motion, the Left instantly seized upon the revelation of R&R’s faux pas to claim that the collapse of this particular straw man somehow ‘proved’ that all attempts at public economy were therefore misplaced and that Leviathan should return with renewed vigour to the fulfilment of its sacred duty to collectivise as much of the market as possible.

What larks, Pip, are to be had when positivists and macromancers fall out over their flawed pursuit of what Mises called ‘scientism’ – viz., the pretence affected by most of the mainstream that economics can be made into a simulacrum of physics or fluid mechanics!

But other than this war of the scholastics, the whole debt issue surely misses the crucial point that debt only swells in a polity where not only is government over large to begin with, but where it is serially profligate – i.e,. where the political class persists in spending more than it dares ask its electors to contribute to their whims.

Given that this diverts resources away from hard budget, dispersed knowledge, voluntarily contracted endeavours (hence ones which must, over time, at the very least pay their way) and into the crony-ridden, cost-plus, soft budget quagmire of top?down, fatal conceit compulsion – every one of its endless stream of programmes a would?be Great Leap Forward – can it really be a matter of dispute that existence of a high debt level should be taken as convincing evidence of a country where the petty tyrants in office and the host of public drones whom they employ have enjoyed far too much sway for far too long and so have clogged up the machinery of wealth creation with a plethora of regulations, a nest of subsidies, a tangle of vested interests, and a legacy of malinvested capital every bit poisonous as that left behind by a private sector credit bubble (itself a plague which can only be transmitted by means of a pervasive state interference in the free market)?

As Thomas Gordon wrote long ago in Discourse X of his 1753 publication, “The Works of Tacitus with Political Discourses”:?

“Wars beget great Armies; Armies beget great Taxes; heavy Taxes waste and impoverish the Country “

Just substitute ‘Welfare’ for ‘Wars’ and the argument remains in full 260 years later And, since you ask, evidence of real ‘austerity’ remains elusive (as we noted yesterday). Government revenues, it is true, fell – for obvious reasons - in Greece, Spain, Portugal, and Ireland in the five years after 2007, but they are still up an average of 7.2% across the Eurozone as a whole. Expenditures, meanwhile, have continued to expand, rising an average of 15%. Only Ireland has here managed to record a decrease and that of a paltry 1%. Debt has, needless to say, climbed ever upward to reach a Eurozone-wide level of 118% of nongovernment GDP (we prefer to measure the obligation shouldered by the Ants alone, not by them and the Grasshoppers who prey upon them). Debt/pGDP itself has climbed by an astonishing median 30% in that same quinquennium.

Now it may well be that the rise in debt during this sorry period is a consequence, rather than a cause, of the growth slowdown, but the reason for the crisis which entrained this nonetheless lies in too great an accumulation of debt during the boom years. That much of the offending mountain of unpayable claims was initially a private sector folly is hardly to the point: what we have always maintained is that the blank refusal to renegotiate or liquidate that debt at the earliest possible stage, instead of engaging upon an obstinate course of macroeconomic Micawberism, is why the crisis has generated a grinding depression which shows few signs of being alleviated almost five dreary years after the event.

If nothing else, today’s debt stands as a testimony to economic incomprehension and political stupidity on a tremendous scale. But then again, since we are supposed to be drawing all of our lessons from what the Americans did in the 1930s, it is no surprise that we, too, have managed to perpetuate our misery, as did the monetary cranks and bureaucratic meddlers of FDR’s crackpot Brain Trust, way back then.

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francis_sawyer's picture

Rat Farts! [foto caption contest entry]

Ignatius's picture

I don't think I'm speaking just for myself, but for all of us, in thanking you for getting this important sentiment on the record -- first -- this fine Sunday morning.

GetZeeGold's picture



Isn't this usually when the lightning starts crashing down?

francis_sawyer's picture



It looked to me like he was pissed... He could have broken the course record [theoretically], save for that missed 4 footer...

In any case ~ I'd keep playing, I don't think the heavy stuff's coming down for awhile...

Eireann go Brach's picture

Obama Diaries. Let me take my airforce one for a Spin down to Floirda to play golf with Tiger, then stop in Miami to shoot hoops with LeBron, then pick up Flav Flav and Jay Z on the way back, so they rap for me while I eat caviar and grits on the way home! It's good being king!

Michele what time is that goon De Niro coming for dinner?


Your pathetic leader


Arrowflinger's picture

Even LeBron has no answer for Obama's spin move.

TuesdayBen's picture

Another well-deserved elbow to the face would get er done...

TeamDepends's picture

You forgot the rendezvous with Reggie "The Body" Love.

Aeternus's picture

" But other than this war of the scholastics, the whole debt issue surely misses the crucial point that debt only swells in a polity where not only is government over large to begin with, but where it is serially profligate – i.e,. where the political class persists in spending more than it dares ask its electors to contribute to their whims. "




They can no longer ask them to contribute any more at this point though without bringing the whole fucking circus to a complete stop!



williambanzai7's picture

"The pretence affected by most of the mainstream that economics can be made into a simulacrum of physics or fluid mechanics!"

The laws of Krugman Titanics...

Arrowflinger's picture

Such pretense is easily dismissed by remembering that "economics" is centered on "CON."

Deo vindice's picture

"In what has been a banner weak.."

It has been a weak week, hasn't it?

FranSix's picture

The irony is that most of the money is going into short positions, and then being hastily covered.  I wonder sometimes if you can make money this way, as you can make money out of precious metals markets.

rlouis's picture

This is just fleecing shorts who have not yet drunk the koolaide.  Though I kinda think shorting will work one of these days. 

FranSix's picture

'No down-tick' abolishment was meant to be a disaster.

rehypothecator's picture

"Priming the pump" once meant putting a few pints or gallons of water into the inlet tube of a water pump, to get the pump started, at which point it could then pump hundreds or thousands or tens of thousands of gallons subsequently.   If it took hundreds of gallons of priming, to pump one hundred gallons of water, you'd start to suspect something was wrong.  If it took thousands of gallons of priming to pump a hundred gallons of extra water, you'd be sure.  Putting in 85 billion dollars a month, on top of all the other stimuli, at some point, is no longer "priming the pump." At some point, the economy is the stimulus. Already, the stock market is the stimulus.  

Weisshaupt's picture

 "the economy is the stimulus." - Well thats Neo-Keynesianism in a nutshell isn't it.  If you "sequester" and cut  Govt growth from 8% to 6 % - the entire economy will sieze up and stop! And further, that is the goal. They want everyone to be dependant upon thier largess to survive. Beggars are sooo much easier to please.

I am Jobe's picture

Spreadsheets Bitchess. Yeah use those pivot table and baffle then with bullshit , it is the way of Ivy Leagers.

Skin666's picture

The lunatics took over the asulym a long time ago...

Judge Crater's picture

As usual, Tacitus is correct.  The United States has been on a permanent war footing from the start of the Cold War on.  The most recent wars, in Iraq and Afghanistan, have had a terrible human cost and have cost over 3 trillion dollars so far.  Hundreds of billions of this war spending wound up in the pockets of insiders in the government, U.S. Senators, friends of the politicians and the like.  8 and 9 figure welfare to the already rich and connected insiders.  Everyone else is not forgotten, they get a chance to pay off part of the enlarged national debt through their taxes.

steve from virginia's picture




Corrigan thanks us for being grateful he is smarter than everyone else, we now know he's found Tacitus quotes with Google:


"For those who have real lives to lead, the briefest of synopses of this spat will suffice and, indeed, it is only introduced here to illustrate the heedless Flucht nach Vorne mentality of the Krugmanites, ever eager as they are to peddle the line that the only reason stimulus has ‘failed’ is because there has been nowhere near enough of it, that the violation of both the principles of accounting and the tenets of good housekeeping on the part of the Provider State has somehow been too timid."


How masturbatory! WTF is a heedless flucht nach vorne mentality have to do with Krugman ... or Reinhart? Perhaps one or both were Panzer leaders during Operation Pingvinerne Angriber on the Southeastern Front in 1944. For those of us who have real lives to lead, this nonsense gets in the way of analyzing the NFL Draft.


"Loosely, Rogoff &Reinhart wrote a paper which suggested that high government debt is detrimental to growth but managed to overweight one particular input from little old New Zealand at the dawn of their sample."


That's all the synopsis you get, folks! The rest is pure drivel, straight from the Cato Institute or perhaps the United States Chamber of Commerce. Sadly for C-man not one bit of his excess wordiness concerns energy: truck-driver Corrigan maneuvers his hat-filler up to his anal orifice and backs 'er right in!


Leaving out the energy bits torpedoes every argument by C-man. Money can not be substituted for petroleum or water, coal or other necessities: because we are broke, we will soon be unable to afford gasoline. Right now our problems are the result of gasoline that is simply a bit pricey. 


Corrigan does not seem to grasp that a private sector surplus has to come from somewhere. In the closed world of Planet Earth, the surplus must be stolen from captive peoples as with the Ancient Romans or it must be obtained by way of mercantile trade or from a extrem groß public sector deficit.


Hopefully, Mr Corrigan will put his fortune where his pie hole is and then all of us can see what happens to it when he gets his way. Like a train running over a penny on a railroad track ... flattened.


I'm laughing already ... fucking jackass.



disabledvet's picture

Excellent word smithing...it moved me. Of course Keynes would be laughing his ass off at the Debt Regime that is the only thing created over the past 5 years. I will grant no one can even imagine being that far left these days...but that Aresenal of Democracy sure put the idea to rest that Americans were incapable of engaging in any productive pursuit. Now tell me the part in the fable where all the money turns into jobs and growth and shit...I love that part...

smartstrike's picture

Another hedge pigman spewing drivel to fool the masses...brought to you by ZH. Thank you ZH.  Reading ZH is like reading BLS Labor statistics--it's mostly fabricated BS.

Zer0head's picture

Bloomberg's Trish CNBS Reagan interviews Bloomberg's David (Obama's Brain) Plouffe on Jeff  Immelts pulling financining from anything to do with selling firearms to the public


The normally hard hitting pull no punches Trish (gag) for some reason did not bring up  GE's involvment in Drone Wars and their weapons systems division




Hohum's picture

Neither Keynesian nor Austrian nor any other branch of the dismal science has any clue how to increase GDP without increasing debt faster, using more energy, or both.  So this debate is just nonsense.

Dewey Cheatum Howe's picture

You got any better ideas we are all ears. I have my own ideas but they require a bottom up approach instead of a top down but that requires starting from the people up. Think of it plankton in the sea and the over sized predator blocking the sun while eating up everything in the food chain below it problem. It is just a system mapping all the same rules apply at the end of the day.

Skin666's picture

I couldn't give a fuck about GDP. It is a bullshit statistic.

The mainstream economists believe that the second half of the 19th Century was in perpetual depression, thus economic turmoil.

This is co-incidentally, called by historians, the Gilded Age. How could the Gilded Age be called so, if it was in depression?

Because if the market produces goods and services at a faster than the supply of money (gold and silver), the economy goes into "Depression", or monetary deflation.

Thus, an increase of 4% in the goods and services in a market, and only a 2% increase in the money supply, that would be a deflation rate of 2% per year. 20% over 10 years etc.

My purchasing power over 10 years would be 20% higher, but GDP would also be 20% lower. 

All this dreaded deflation means, is that the money you have in your pocket increases in purchasing power. This is also seen as the price of products coming down, instead of constantly going up as has happened over the 20th Century.

I would rather that my money bought more stuff, and that GDP decreased, rather than inflation and increased GDP.


Fuck GDP


ebworthen's picture

The main problem with our society is that it is over intellectualized.

Never ending intellectual debates and talk rather than ACTIONS based on COMMON SENSE.

We are addicted to habitual inaction through sophistic ping-pong thinking that goes no where or blind-folded artillery practice aimed at the town square.

Send $3 million to each household?

Let the corrupt banks, insurers, and corporations fail?

Arrest the malfeasant crooks, restore Glass-Steagall and the rule of law?


Provide a good product or service and let the good itself and word-of-mouth sell it? 

Oh no! 

Advertise it AD-NAUSEUM whether it is a piece of shit or a complete lie - ADVERTISE until the public's eyes and ears BLEED with your slogan and jingle.

"insurance is mandatory, that's why we're going to spend your premiums ADVERTISING".  Crazy!

"We're going to charge you a monthly fee to keep your money in our banks, and then spend your money to ADVERTISE how great we are!"

"You can only get this drug with a prescription from your doctor, but we are going to ADVERTIZE (propagandize) it until you are all banging on your doctors door demanding it whether you need it or not - and we'll pass the cost on to you!"


steve from virginia's picture




"Imagine if instead of bailouts we would have had the FED send $3 million to each household ..."


Sheila Bair suggested $10 mil.


Q: What sort of collateral can you or anyone else post? Banks can offer as collateral the loans made to the households that got the households into trouble. Central banks cannot make unsecured loans.


... it's not fair is it?

ebworthen's picture

Would have been much less crazy to send $10 Million to every household versus to the banks and in buying the securitied deriviative bullshit that caused the problem in the first place.

Like I said, we have completely lost our fucking minds.

W T F II's picture

You Sir, are a very dangerous man...better watch yo ASS talkin' all that sense...!!

MikeMcGspot's picture

Speak for yourself. I might be crazy but i am for sure  not a "We".

I have no objection to being labled, stamped, classified, just don't bring me into the conversation of your taxonomy, I really don't care.

The reason you cant sell it to me, is that I wont buy it.

We have to be careful about how we throw around the word we.

Or not.

Nuff said, this We has to sleep so as to keep the machine alive tomorrow.

All the best!

Debugas's picture

one should ask those politicians how would they stimulate an economy where everything is produced by robots owned by one super-rich individual and the rest of the population having no money to buy anything from him

polo007's picture

According to Bank of America Merrill Lynch:


Macro viewpoint

Easy in, easy out

- Review: The choppy slowdown continued into April, with better jobless claims but weak regional manufacturing surveys.

- Preview: The April employment report will be a good test of whether the March weakness was a fluke or a sign of sustained weakness. We look for a sub-consensus 125,000 increase.

- Hot topic: With persistently sub-2% inflation, the case for continued QE is building. When the Fed does finally head for the exit, the key question for investors is the same as it has been in the past: if inflation is low, it will be a soft landing; if inflation is high, buckle your seatbelts.

monad's picture

Governments are formed to protect people from real enemies, to their advantage. When successful, after the enemies are defeated government starts looking for new enemies to justify its existence. When it starts creating them it becomes the enemy of what it was formed to protect. This is encouraged by opportunists and vengeful defeated enemies. Your exposure to loss is proportional to how much you depend on the government.

MikeMcGspot's picture

Are you an opportunist? Why or Why not?

polo007's picture

According to Morgan Stanley:


Why Did the Fed Choose a 6.5% Threshold?

We found intriguing the suggestion by Chairman Bernanke that the Fed could – should the current thresholds not be sufficient – “lower even further” the threshold for the unemployment rate. The Chairman alluded to this ability after making reference to the Fed’s success at managing the market’s interest rate expectations. He suggested that the current threshold at 6.5% remained sufficient to “approximate what’s called the Optimal Control path of interest rates, that it seems to give a path of unemployment and inflation that’s about as good as we can get with the monetary policy tools that we have.”

How can we show that the 6.5% threshold was sufficient in December? Exhibit 1 shows the Optimal Control path for the funds rate that minimizes the deviations of inflation from 2% and the deviations of the unemployment rate from 6% – last updated in November 2002. The exhibit also shows the unemployment rate progression under that path. An important assumption in the Optimal Control analysis is that the public fully anticipates that the FOMC will follow this optimal plan. For the path of rates to be effective, the market must believe the Fed will follow the plan. The more transparent the Fed is regarding its intentions, the more likely it becomes that the Optimal Control path for the funds rate will achieve its goals.

Understanding why the Fed set the initial unemployment threshold at 6.5% will help you understand why they may change it in the future. Exhibit 1 shows that the unemployment rate will cross 6.5% around November 2015 given the Optimal Control path of rates. Under the framework, the first 25bp rate hike will occur in September 2016, or nine to ten months after the unemployment rate reaches 6.5%.

If the Fed had chosen 7.0% instead of 6.5% for the threshold, the unemployment rate would cross in March 2015. With a 7.0% threshold, the Fed would have a difficult time explaining why the Optimal Control liftoff was projected to take so long (almost 1 ½ years) after having seen substantial improvement in the labor market (assuming that reaching the threshold proxies for “substantial” improvement). In addition, the market may not have believed that either (1) a 7.0% unemployment rate would constitute “substantial improvement”, or (2) the Fed would be able to keep rates on hold for that long after the unemployment rate reached 7.0%.

If the Fed had chosen 6.0% – a more understandable threshold, given the SEP’s longer run central tendency range for the unemployment rate between 5.2~6.0% – the unemployment rate would reach the threshold in September 2016. In this case, with the Optimal Control funds rate projected to lift off in the same month, the market may have interpreted the “threshold” as a “trigger”. Given the Optimal Control analysis – which Chairman Bernanke and Vice Chair Yellen seem to favor – we can see why they chose 6.5% for the threshold in December 2012: they had to make sure the “buffer” between crossing the unemployment threshold and the start of rate hikes was neither too long, nor too short.

W T F II's picture

Answer: Because the Fed's statisticians checked with Wal-Mart and Mickey Ds and that's the # they conjured..!!

rosiescenario's picture

A major portion of our problem today has a familiar ring to it: "Taxation without representation".....as we all well know, D.C. is managed by special interest groups and our elected officiials report to them or they do not get re-relected. Our foreign policy doesnot benefit the average taxpaying citizen. Our banking regulations obviously do not. Ditto the USDA, FDA, BATF, FTC, etc.


So we are all back to where things began a few centuries ago. We have a ruling elete detached from the pople paying for them.

malek's picture

+1  heedless Flucht nach Vorne mentality of the Krugmanites


The Dancer's picture

And the triangle is now complete!

q99x2's picture

Lock their asses up for treason and be done with it. They know what they are doing.

Fix It Again Timmy's picture

America will be stuck up to it's neck in a tar pit and ripe for plucking until the people regard taxes as theft rather than a duty;  this is one case in which the 99% need to emulate the 1% who detest taxes and have the means to avoid them.  Also, for Christsake, stop acting like seals when TPTB throw soldiers in front of you at some large event - they are costing you nearly a trillion dollars a year and for what you might ask?  Thank them only when they truely defend our country like the Russian soldiers did in WWII!

SKY85hawk's picture

Everyone from age 54 up should be putting money in a Roth IRA.  It's the only source of tax free income that I know of. 

Yes there is the use of TRUSTs, but I'm not sure most of you are ready for that discussion.

I've been transferring 20,000 a year from various 401-k and sponsored saving plans, all tax free because of our deductible limits.

At least you'll have tax-free income to live on that does not generate a 1099.

The issues on how to generate income in the ROTH acct are no different than the preceeding accounts.  You can stay with the same custodian!

i'VE BEEN WITH SCHWAB.COM FOR 30 YEARS.  Btw, FORBES mag told me about this transfer idea, IT WORKS! and IT'S LEGAL!



Watch out, some paranoid genius will predict that O'Booboo will take that away soon!  If CONgress actually goes down that path we are all totally F'd. 

I prefer Churchill's quote "Americans always do what is right, After they've tried everything else."