The Onion Revealed As Mystery Source Of Larry Summers' And Paul Krugman's Economic Insight

Tyler Durden's picture

The following brief speech by Larry Summers given at the November 8 IMF Economic forum has been getting some attention in the blogosphere over the weekend.

The topic of Summers' speech is the age-old debate of how to overcome the zero lower bound in which the global economy has, reflexively, found itself in over the past five years (today more than ever, with $160 billion in monthly flow from the Fed and BOJ for now, and the ECB joining soon) which incidentally is the outcome of 100 years of monetary distortions resulting from central banking and which has led to a perverted state in which the global economy is unable to revert to its trendline absent the perpetual reflation of new, bigger and better asset bubbles. "Reflexively", because the "solution" to the problem merely makes it even worse, but we doubt even 5 more years of global QE will be enough for the world's tenured economists and Nobel prize winners to figure that out.

Summers' recommendation is simple: boost inflation (presumably through NGDP targeting, the same thing we said back in September would happen soon, which would unanchor 2% inflationary expectations as money literally dropped from the sky), and encourage a cashless society allowing the Fed to punish all deposit account holders through negative rates (or outright confiscation) forcing massive spending (see the Cyprus deposit confiscation and the subsequent London real-estate mega bubble as an example).

Of course, as any rational person understands very well, the above core problem will never be fixed unless the monetary excesses accumulated in the post Bretton-Woods era and mostly over the past three decades - beginning with Greenspan's Great Moderation and ending with Yellen's "I see dead bubbles" speech - are purged through liquidationist policies that allow the world's balance sheet to revert to viable model. Unfortunately, at this point it is far too late to do "the right thing", and the Fed is stuck with just one option: reflate or bust, because even the smallest risk price correction could spiral out of control and end the world's biggest experiment in central planning.

There is nothing magical about this, and anyone who has even the faintest inkling of how traditional restructurings and reorgs work will tell you as much.

Which means certainly not Nobel prize winner Paul Krugman. For this "doctor" of voodoonomics, Larry Summers' speech is profound and deep for the simple reason that Summers promotes the same policy that none other than Krugman proposed back in 2002, and whose implementation nearly resulted in the end of finance as we know it. Recall from a 2002 NYT editorial:

To fight this recession the Fed needs…soaring household spending to offset moribund business investment. Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.

Well, now Mr. Yellen needs to create the bubble of all bubbles to replace the housing (and credit) bubble which replaced the Nasdaq bubble and so on. And she is doing just that.

Which obviously is earning instapraise from Krugs:

We now know that the economic expansion of 2003-2007 was driven by a bubble. You can say the same about the latter part of the 90s expansion; and you can in fact say the same about the later years of the Reagan expansion, which was driven at that point by runaway thrift institutions and a large bubble in commercial real estate.... how can you reconcile repeated bubbles with an economy showing no sign of inflationary pressures? Summers’s answer is that we may be an economy that needs bubbles just to achieve something near full employment that in the absence of bubbles the economy has a negative natural rate of interest.

 

In other words, you can argue that our economy has been trying to get into the liquidity trap for a number of years, and that it only avoided the trap for a while thanks to successive bubbles.

 

And if that’s how you see things, when looking forward you have to regard the liquidity trap not as an exceptional state of affairs but as the new normal.

Bottom line: the US economy can't "grow" without bubbles, so we need a bubble.

In principle that's great. The only problem is that the bubble reflation and bursting process always and without fail is destructive to those people who live within their means, and rewards those who spend like drunken sailors, who engage in reckless economic behavior, who build up massive debt burdens which can never be repaid, who misallocate capital and resources, and who become too big to fail and are allowed to hold the entire global economy hostage. For a great example of all of the above, see 2008.

We can assure everyone that the next bubble bursting process will be orders of magnitude worse, as yet another bubble will have to be reflated just to compensate for the Nasdaq, housing, credit and whatever it is that the current bubble is called: the Bernanke/Yellen double down, all-in gamble.

Sadly, the downside is the loss of the reserve currency status of the dollar: something economists are completely unable to grasp, but which China, and its 100 tons of monthly gold imports understands very well.

 


 

However, none of the above is the actual topic of this post: we will leave it to others to debate the idiocy of summoning yet another bubble to fix the disastrous consequences brought upon by previous bubbles.

What we did want to highlight is that it now has become perfectly clear just what the source is of "profound" insight for such brilliant economists as Summers and Krugman. That source is... The Onion. In this case from July 18, 2008.

From Recession-Plagued Nation Demands New Bubble To Invest In

WASHINGTON—A panel of top business leaders testified before Congress about the worsening recession Monday, demanding the government provide Americans with a new irresponsible and largely illusory economic bubble in which to invest.

 

"What America needs right now is not more talk and long-term strategy, but a concrete way to create more imaginary wealth in the very immediate future," said Thomas Jenkins, CFO of the Boston-area Jenkins Financial Group, a bubble-based investment firm. "We are in a crisis, and that crisis demands an unviable short-term solution."

 

The current economic woes, brought on by the collapse of the so-called "housing bubble," are considered the worst to hit investors since the equally untenable dot-com bubble burst in 2001. According to investment experts, now that the option of making millions of dollars in a short time with imaginary profits from bad real-estate deals has disappeared, the need for another spontaneous make-believe source of wealth has never been more urgent.

 

"Perhaps the new bubble could have something to do with watching movies on cell phones," said investment banker Greg Carlisle of the New York firm Carlisle, Shaloe & Graves. "Or, say, medicine, or shipping. Or clouds. The manner of bubble isn't important—just as long as it creates a hugely overvalued market based on nothing more than whimsical fantasy and saddled with the potential for a long-term accrual of debts that will never be paid back, thereby unleashing a ripple effect that will take nearly a decade to correct."

 

"The U.S. economy cannot survive on sound investments alone," Carlisle added.

 

Congress is currently considering an emergency economic-stimulus measure, tentatively called the Bubble Act, which would order the Federal Reserve to† begin encouraging massive private investment in some fantastical financial scheme in order to get the nation's false economy back on track.

 

Current bubbles being considered include the handheld electronics bubble, the undersea-mining-rights bubble, and the decorative office-plant bubble. Additional options include speculative trading in fairy dust—which lobbyists point out has the advantage of being an entirely imaginary commodity to begin with—and a bubble based around a hypothetical, to-be-determined product called "widgets."

 

The most support thus far has gone toward the so-called paper bubble. In this appealing scenario, various privately issued pieces of paper, backed by government tax incentives but entirely worthless, would temporarily be given grossly inflated artificial values and sold to unsuspecting stockholders by greedy and unscrupulous entrepreneurs.

 

"Little pieces of paper are the next big thing," speculator Joanna Nadir, of Falls Church, VA said. "Just keep telling yourself that. If enough people can be talked into thinking it's legitimate, it will become temporarily true."

 

Demand for a new investment bubble began months ago, when the subprime mortgage bubble burst and left the business world without a suitable source of pretend income. But as more and more time has passed with no substitute bubble forthcoming, investors have begun to fear that the worst-case scenario—an outcome known among economists as "real-world repercussions"—may be inevitable.

 

"Every American family deserves a false sense of security," said Chris Reppto, a risk analyst for Citigroup in New York. "Once we have a bubble to provide a fragile foundation, we can begin building pyramid scheme on top of pyramid scheme, and before we know it, the financial situation will return to normal."

 

Despite the overwhelming support for a new bubble among investors, some in Washington are critical of the idea, calling continued reliance on bubble-based economics a mistake. Regardless of the outcome of this week's congressional hearings, however, one thing will remain certain: The calls for a new bubble are only going to get louder.

 

"America needs another bubble," said Chicago investor Bob Taiken. "At this point, bubbles are the only thing keeping us afloat."

* * *

What can we say in conclusion but... Krugmerica: where satire is now cutting edge economic thought.

h/t @reinman_mt

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JustObserving's picture

I vote for a gold and silver bubble.. We have tried all others - housing, stocks, bonds, medical care, pharmaceuticals, baltic dry index, tulips, beanie babies, drugs, e-commerce, social-media,  bitcoin, corruption etc.

DoChenRollingBearing's picture

Bitcoin Bubble too?  Beginning Bitcoin Bearing (No-)Brainz want to know!

knukles's picture

Jeez...
Am I glad I didn't read "Knukles" in there alongside Summers and Krugman. That'd be embarrassing.

PS... Paul, Larry, my dog's name is Bubbles

remain calm's picture

I am predicting the next bubble to pop will be the Viagra bubble. After everyone is thoroughly screwed there will be no one else to fuck. Next up the cigarrete bubble.

Scarlett's picture

there are books about the hot girls of weimar berlin and the documentary Sin Cities: Berlin, where flesh ran amok for a gold-backed banknote

SafelyGraze's picture

first, let's all agree to call it a martingale, not a bubble

second, everyone knows that it's ok to double down forever as long as you have an infinite bankroll

third, I have an infinite bankroll

hugs,
mister yellens 

uncle.bigs's picture

We already had a gold and silver bubble and they topped at $1,900 and $49 respectively.  Looks like somebody forgot to sell.  LOL

old naughty's picture

sh't, that's the past belief of the pharaohs (or was it the aliens), no?

so we are backwardation living now?

NOZZLE's picture

Blue Horseshoe likes abortion pill futures. 

merizobeach's picture

Are you for eighty-six-ing Larry?

Seeking Aphids's picture

Looks like somebody forgot that we changed centuries a while ago.............

SilverSavant's picture

Look for some big round numbers to tell you when the pm bubble has maxed out.   That would be 10,000 in gold and 1,000 in silver.   until then, keep carrying it around in small boats. 

saveandsound's picture

hmmm, to me $1,900 and $49 look more like a bump in the road.

However, since we don't know the future, what do we know? Yellen is going to print more money, at least that seems to be certain. When this train stops, PM probably get under the bus as well as all other assets. But when will that be and where are prices then? And who knows if "they" won't put the train under steam very quickly again.

bunzbunzbunz's picture

At what point in the bubble deflation do you stop buying into it/sell it? I know I'm not planning on buying gold or silver until gold is back to around inflation adjusted norms = currently $600-800 depending on your view of inflation.

I work for food; anything helps: 12Yk63ehLkvodMCS5J687w7EKUdQs1AjXM

saveandsound's picture

Interesting chart, but imho there is the longterm, logorathmic average missing.

MontgomeryScott's picture

YAY, 'Bubbles'!

"Behind his seemingly-perfect life of glamorous friends, gold-plated tyre swings, and personal chefs, there is a dark history of medical experiments, addiction and loss. But Bubbles has fought against his personal and professional problems and, with his help of man-pet Michael Jackson, he has grown to become bigger than King Kong—figuratively speaking."

Larry 'Bubbles' Summers, and Paul 'Bubbles' Krugman, notwithstanding, seem to fit the description well!

http://en.wikipedia.org/wiki/Bubbles_the_chimpanzee

hmmmstrange's picture

Gold and silver had their bubble from 2000 to 2011 and it didn't work out too great.

JamesBond's picture

gold and silver have been repeatedly smacked down via fed orders because they were threatening US fiat currency domination.  when the US dollar finally collapses, its PMs to the moon and back

 

 

jb

stacking12321's picture

looks like you don't understand what the word bubble means.

something is a bubble when it's extensively owned, traded, and sought-after, and acheived market saturation. like when the shoe shine boy at the train station is giving you stock tips.

in the us, what % of people own actual investment grade gold and silver? 5%?

Vendetta's picture

"in the us, what % of people own actual investment grade gold and silver? 5%"   more like < 1%

Burticus's picture

No, J.O., gold is reserved for the "ultimate bubble," as stated by George Soros.  As all of the other bubbles burst, particularly the currency bubble as the sheeple lose all faith in fiat paper/cybercurrencies, there will be a panic stampede into hard assets, especially hard money, gold & silver.

Make sure you are "all in" physical gold and/or silver before this happens.  When gold finally reaches its insane bubbly maximum, it will be time to convert it into ridiculously under valued assets, whatever they may be.

johnQpublic's picture

cant tell where onion ends and reality begins

F-Tipp's picture

They are years ahead of their time. I still don't believe they are a humor site.

WOAR's picture

Like the newspapers from Men in Black?

knukles's picture

Ah, yes...
The Nairobi Times

gdogus erectus's picture

That's right.  No better way to discredit the truth than to put it into The Inquirer mixed in with "Joan Collins Ate My Baby!" stories.

 

putaipan's picture

badly re-photoshopping the original authentic document works... ask dan rather. (never cared enough to decide if that was what they did tto the birth certificate)

TeamDepends's picture

"Joanna Nadir", "Chris Reppto".  Classic!

nmewn's picture

A platinum coin stamped One Trillion Dollars in every pot!!! 

aVileRat's picture

A long standing and running joke at the Dallas Fed and amongst energy industry specialists who had the 'privilege' to meet Larry is that Larry was an epic troll of Phoenix Wakeen or Colbert proportions. The theory goes that Larry, having realized his chances of becoming Secretary or Chairman were pooched after the Harvard Endowment fiasco (both Madoff & Subprime scandals) just decided to go full retard. If he could not become the man he wanted, at least his legacy would be as a national Lampoon going into the dollar crunch as a psduo-Bagheot.

 

Larry, if your paid 23 year old Harvard assistant still reads the comment section, keep reaching for that Shiny star you crazy miffed nutjob, you.

 

 

 

Robot Traders Mom's picture
"The Onion Revealed As Mystery Source Of Larry Summers' And Paul Krugman's Economic Insight"

 

-No, I won't make a joke about whether this is real or not...because I'm not sure. 

 

 

bankonzhongguo's picture

I thought I would be kidding, but it seems Weed (cannabis) is poised to be a great domestic bubble.

Came back from an actual bookstore, which had six different magazines dedicated to getting high.

The hilarious thing about these economists is that they expect consumers to spend all their money to support these bubbles, yet now it seems wages are deflating for some time both in terms of the promise of globalization and encouraged illegal immigration.

If the middle classes are on their way down and out, then it seems more than likely the hot money will go toward their continued and enhanced medication.

Have to turn them into zombies to avoid a bloody revolution.

Seems the democrats really failed to augment that reality and not support California's full de-criminalization. I guess the for-profit prison industry pays better than big tobacco.

Expect Obama/Holder to announce a federal pass on all things cannabis. 

Happy New Year full-baked Amerikans.

Long Magic Flight Launch Box.

 

uncle.bigs's picture

In Washington a small city government is applying to own a marijuana store.  Canabis stores will be opening all over the state in January.  LOL

 

http://www.oregonlive.com/pacific-northwest-news/index.ssf/2013/11/north...

Nobody For President's picture

Greenie for that - I actually lived in North Bonneville in 1946-47, right after WWII when my Dad went back to working in the woods after spending the war years in a shipyard in Portland. I was a wee little first grader to third grader at Skamainia and later Stevenson - N. Bonneville didn't have a school. Glad to see they are leading the way in legal pot, wish my parent were around to enjoy that news...

lizzy36's picture

Inflation is just "status quo" acceptable default.

Of course at first hurts the poorest, now after 25 years it is killing the middle class. 

What an exceptional society.

Uncle Remus's picture

That's lending entirely too much credibility to those two deviant butt-plugs.

jim249's picture

WASHINGTON—A panel of top business leaders testified before Congress about the worsening recession Monday, demanding the government provide Americans with a new irresponsible and largely illusory economic bubble in which to invest.

Bitcoin?????

The Reich's picture

It's no bubble if it's overtaken by an even bigger bubble!

 

/newspeak

booboo's picture

correct, an economy predicated on a continous bubbles, each one front run by the market makers until the last penny is squeezed out of the butt crack of some Kansas dirt farmers widow.  

rtalcott's picture

Jesus H 'effing Keerist...I could not get past 30 seconds...what bullshit...if you want to listen to an academic with something to say dial up Leonard Susskind on youtube..

https://en.wikipedia.org/wiki/Leonard_Susskind

NoDebt's picture

Until it stops working (for them) they will never stop.  All levers have been pushed into the "run until failure" position.

andyupnorth's picture

The only way to have inflation now is to drop money from helicopters to the masses. However, banksters would never do that... they're too used to giving only to themselves free money!

toe's picture

We need QT(quantitative tightening) It hasnt worked for 5 years because the wealth is so concretred, people have no money to spend, big companies and banks are hoarding all the cash. gdp been stagnant. give the money back to the people and they will spend it and the economy will grow. the rich are so fucking greedy that they are going to bring down the whole system. something not working, do the opposite. for 99% of the people there financial health is not measured by the sp500. people need jobs, higher pay, more hours, more jobs in america. these economist are living inside of history books. open your fucking eyes. your killing this nation. 

DavidC's picture

Why do I always feel, with Larry Summers, that the eyes are open but the brain's asleep?

DavidC

medium giraffe's picture

That's when it's at its most dangerous.  Its rudimentary higher functions are clearly working very hard on a plan. 

Do you know where your wallet is?