• Steve H. Hanke
    05/04/2016 - 08:00
    Authored by Steve H. Hanke of The Johns Hopkins University. Follow him on Twitter @Steve_Hanke. A few weeks ago, the Monetary Authority of Singapore (MAS) sprang a surprise. It announced that a...

What Do Janet Yellen, Uri Geller, And Jesus Have In Common?

Tyler Durden's picture




 

Submitted by Bill Bonner via Acting-Man blog,

Miracles

It looks as though the US stock market is in the process of topping out. But if you’d bet heavily on a bear market, each time you saw one coming, you’d be broke by now. We will wait to see what happens…

Meanwhile, we are still puzzling over the miracle produced by the Fed. Uri Geller could bend spoons. The Fed bends the entire economy. Hardly a single price is unaffected. Hardly a single business plan or investment strategy goes forward without an eye on the central bank.

Jesus turned water into wine and multiplied loaves and fishes. But the Fed make the Nazarene seem like a two-bit shell game hustler. The loaves and the fishes couldn’t have had a market value of more than a few thousand shekels!

Ex nihilo nihil fit

Compare that to the Fed. It helped usher in $33 trillion worth of goods and services – out of nothing. Yes, dear reader, that is the total amount of purchases made over the last 30 years… on excess credit.

We say “excess” because it is above and beyond the level of credit that had existed – relative to GDP – for many decades before. Roughly, from 1900 to 1970, the US had $1.50 for every dollar of output. Now, there is about $3.50 per dollar of GDP. The difference, over the last 30 years, is about $33 trillion.

Where did all that bounty come from? That is the question. Can something really come from nothing? Ex nihilo nihil fit (nothing comes from nothing). And yet $33 trillion worth of “stuff” seemed to have come from out of nowhere. It didn’t come from savings; the savings rate went down during this period. It didn’t come from earnings, either. Wages and earnings – in real terms – barely rose since the 1970s.

How about from an increase in productivity or output? Nope. As we have seen, compared to output, this “wealth” grew much faster. That leaves only one possible source…

 

Childishly Naïve

You may think banks lend out savings. Un un. In the modern fiat money-based economy, they create credit out of thin air. The money supply goes up when the banks see fit to make loans. And banks no longer set aside meaningful reserves against their loans. So, the limit to new credit is… well… limitless.

This entire system is created by and presided over by the Fed – a public cartel of private banks. And that’s a worry. Because, as we put it last week, the Fed’s theory – that it can build real wealth by increasing credit faster than GDP forever – is “childishly naïve.”

An old friend, Pierre Lemieux, wrote in with the following comment:

“The production of things is not done with money, but with real resources. If I see a car, I know it has been produced with steel, aluminum, plastic, labor, etc. That‘s the real side of the economy.

 

We get on the financial side when we ask how this production was financed, that is, how people were motivated to release control of real resources. In most cases, they are motivated in doing so by receiving in exchange claims to other resources or consumer goods. Finance is the domain of the exchange of claims to real resources.

 

The question, then, is in which circumstances does money (a very liquid claim on real resources) help production (by reducing transaction costs), hinder it or, as you point out, create gainers and losers?”

When Credit Turns Bad …

In a better world, credit depends on savings… which represent real resources. This restrains credit growth, because there are only so many real resources… and only so much savings representing them. But in the world created by the Fed, credit has no savings behind it. It is just notations in the banking system… with no effective limit on the quantity of credit available.

That is how $33 trillion came to exist. It pretended to be real savings… representing real resources… which were then put to work to make the autos and houses that people wanted, but couldn’t afford.

In other words, the system created new claims on resources… which drew resources into the real economy. Neither past earnings (savings), nor current earnings (output) supported this economic expansion. Instead, it was all a claim on future earnings.

This is all a way of saying the obvious: If future output cannot keep up with this $33 trillion of excess debt, this debt must go bad. That is, of course, the problem. The economy limps along… even with $1 trillion of extra QE money per year. It depends on more credit and more debt just to stay in the same place.

Every year, more resources must be drawn from the future and enjoyed in the present. Every year, the claims on future earnings increase… and every year the debt becomes even more unsupportable. Somehow. Someday. Those claims on the future will be marked down.

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Mon, 04/21/2014 - 09:01 | 4679099 dizzyfingers
dizzyfingers's picture

FED IS SUICIDING THE USA.

Mon, 04/21/2014 - 09:55 | 4679246 sfisher
sfisher's picture

Suicide is something that you do to yourself.  Murder is something that someone else does to you.  The Fed is privately owned and is killing the US.  At the end of the day, for creating money from nothing and taxing the people to "repay" interest and principal, when it all comes crumbling down, they will have claims on the real assets of this country.  Plan fully executed!

Mon, 04/21/2014 - 10:20 | 4679339 g'kar
g'kar's picture

Kind of like calling terrorist "homicide" bombings "suicide" bombings. The FED is "homicide" bombing Americans without "suicide" bombing itself and it's cronies.

Mon, 04/21/2014 - 12:02 | 4679674 SamAdams
SamAdams's picture

They are all fake jews (meaning race and myths).

Mon, 04/21/2014 - 15:54 | 4680554 it aint easy
it aint easy's picture

Only one of them commands divine powers of (money) creation.

Mon, 04/21/2014 - 09:06 | 4679111 Savvy
Savvy's picture

I was just reading 'study' says 47% of Americans do not consider their gov. to be a threat. I figure those are the 47% dependant on gov (welfare, EBT etc) and have no clue -or caring- that the gov is supporting them by picking the pockets of everyne's children and grandchildren.

Mon, 04/21/2014 - 09:21 | 4679143 Dr. Engali
Dr. Engali's picture

It seems Romney mentioned something about 47% and was crucified for it.

Mon, 04/21/2014 - 09:41 | 4679191 mayhem_korner
mayhem_korner's picture

 

 

And thanks to voter resurrection, those 47% accounted for 110% of the votes cast by registered voters.

Mon, 04/21/2014 - 09:43 | 4679201 F.A. Hayek
F.A. Hayek's picture

Don't forget the dead people and the 'undocumented visitors'.

Mon, 04/21/2014 - 09:10 | 4679115 AlchemyFinancial
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Fed is panicking because they know they casued a bubble which is why they are tapering as quickly as possible.  Except it won't work, the economy sucks and is not getting better.  Corporate profits are at all time highs, there is no where for the market left to go but lower, and when it does the fed will use the only tool they know and back peddle on their "Tapering" so fast it will make your headspin.  Mark my words, in 2 years or less the fed will be printing over 100 billion a month.  Markets look fragile especially the NASDAQ.  Here's my analysis, looks like they could have a serious problem if the rally falters this week.  http://alchemyfinancials.blogspot.com/2014/04/a-look-at-broader-equity-m...

Mon, 04/21/2014 - 09:56 | 4679255 Bastiat
Bastiat's picture

I'll believe the Fed tapered when someone shows where the "money" came from to fund the "Belgian" UST bond purchases.  And looking forward, of course they can't stop monetizing the debt.

Mon, 04/21/2014 - 14:46 | 4680331 hobopants
hobopants's picture

The Belgian people, duh! They sent the Fed a gift basket with chocolate, guns (from FN) and beer and got a thank you note from Yellen scrawled on the back of a few billion in I-O-U's. Case closed! 

Mon, 04/21/2014 - 12:09 | 4679683 caShOnlY
caShOnlY's picture

Fed is panicking

I don't believe for a moment the Fed is panicked.   The FED is a manipulator of wealth for the elite.   They have been expanding credit for 25 years to maintain and satisfy the elite's hunger for wealth.   Their policy of "scorched earth" in the US by shipping middle class jobs overseas should be a testament to their "coup" of the governement in the early 1980's.  Trickle down wasn't meant for middle class america; nor was Nafta, China, graham-leach-bliley.  The housing bubble simply reflated the 90's credit bubble and today the FED has no choice but to outright buy the market for their "friends" at tremendous cost to the other 95% of america. 

But the real cost will come when they blow the dollar.  Those that don't think it will happen don't see Warren Buffett taking railroads private, cash home purchases and other tangibles being purchased right and left.   The FED continues to have it's henchmen knock gold and silver down as it is clearly a canary in the coal mine for the dollar.  We are seeing the largest consumption of gold in our lifetime and gold is going down in price!!?? 

No the FED isn't panicking - the FED is planning then executing the plan, as it always has been.  As the game speeds up the FED loses the luxury of TIME and will begin to make hasty decisions.  The problem the FED has now is that the FED can no longer be as opaque as we see with Belgium's UST holdings.  I am convinced the more openly brazen fraudulent operations by the FED the closer to the end game we are. 

Mon, 04/21/2014 - 09:10 | 4679116 JustObserving
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If you lie a miracle into existence, was it a miracle?

 

Mon, 04/21/2014 - 09:14 | 4679122 New England Patriot
New England Patriot's picture

If you lie a miracle out of existence, does it cease to be a miracle?

Mon, 04/21/2014 - 09:20 | 4679139 F.A. Hayek
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Happy Patriot's day (not marathon Monday). Ironic that Boston is a militarized zone on such a sacred day.

Mon, 04/21/2014 - 09:22 | 4679145 New England Patriot
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It was once before, and some Massachusetts folk took care of that. 

Mon, 04/21/2014 - 09:33 | 4679178 F.A. Hayek
F.A. Hayek's picture

In the people's republic of Massachusetts, any signs of indepedence or self-reliance will be summarily attacked and decried. I'm pretty sure these days it is considered racist.

Mon, 04/21/2014 - 09:44 | 4679204 Almost Solvent
Almost Solvent's picture

I think in the modern US of A - the first shots, if there are any, against tyranny will be in Texas, Nevada or maybe South Carolina.

 

Certainly not MA, NY, NJ, VA, CA and the like

Mon, 04/21/2014 - 10:12 | 4679251 New England Patriot
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Liberty may flourish where it is pleased to do so. 

Mon, 04/21/2014 - 09:21 | 4679141 AlchemyFinancial
AlchemyFinancial's picture

If you lie, and a the illusion of a miracle comes into existance with nothing to back it up, is it really a miracle?  If it saves the world economy for a few more years than yes.

Mon, 04/21/2014 - 09:15 | 4679130 eddiebe
eddiebe's picture

So when do we hang yellen from a tree?

Mon, 04/21/2014 - 09:15 | 4679131 Ban KKiller
Ban KKiller's picture

Because we live in a fascist state where the FED owns congress and business is geared to benefit the few, we the people, are but chattel.

Politicians are stooges for the elitist class and mainstream media plays the jester. Can the masses be educated to the truth of our crisis? 

Death, by law, to the FED and their minions. Is Greenwich fireproof?

Mon, 04/21/2014 - 09:16 | 4679134 F.A. Hayek
F.A. Hayek's picture

Somebody go fix me a turkey pot pie.

Mon, 04/21/2014 - 09:31 | 4679171 Took Red Pill
Took Red Pill's picture

Today is Patriots day in Maine & Massachusetts. Let us take inspiration from those Patriots like Paul Revere and other members of the Sons of Liberty who participated in the Boston Tea Party to protest taxation and started the American Revolution.

Mon, 04/21/2014 - 09:35 | 4679183 Okienomics
Okienomics's picture

The article is long on conjecture and short on analysis. Concluding Someday...Somehow isn't much better than Hope and Forward. Financial Doom Porn.

Mon, 04/21/2014 - 09:36 | 4679187 intric8
intric8's picture

Jesus bent the laws of physics. Geller can bend a spoon. Yellen has the amazing ability to bend reason, given that everyones still sold on the fractional reserve con game they keep perpetuating

Mon, 04/21/2014 - 09:43 | 4679202 mayhem_korner
mayhem_korner's picture

Jesus bent the laws of physics.

 

He authored the laws of physics.

Mon, 04/21/2014 - 09:52 | 4679222 SheepDog-One
SheepDog-One's picture

Physics weren't handed down by a magical being on stone tablets, physics are OUR observations of the physical world.

Mon, 04/21/2014 - 09:55 | 4679247 mayhem_korner
mayhem_korner's picture

 

 

Then call it "our observation of the laws of physics", the seemingly most simple of which, gravity, still eludes the collective insight of the world's physicists.  Just an observation.

Mon, 04/21/2014 - 09:57 | 4679258 GeorgeHayduke
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Just because we don't understand it does not mean Jesus did it.

Mon, 04/21/2014 - 09:59 | 4679264 mayhem_korner
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That's what the Jewish leaders said about the empty tomb.

Mon, 04/21/2014 - 11:44 | 4679617 elwind45
elwind45's picture

Empty tome

Mon, 04/21/2014 - 10:09 | 4679311 Peter Pan
Peter Pan's picture

I think the author made an unfortunate choice to bring Christ into the mix.

Whatever point he was trying to make was lost in an unnecessary and pointless grouping.

Mon, 04/21/2014 - 10:23 | 4679362 SheepDog-One
SheepDog-One's picture

The author made a bad choice, he should have used Mithra instead of Jesus.....Mithra is more believable.

Mon, 04/21/2014 - 10:27 | 4679376 mayhem_korner
mayhem_korner's picture

 

 

Why are you afraid that Jesus might be real? 

Mon, 04/21/2014 - 10:47 | 4679425 SheepDog-One
SheepDog-One's picture

Wow you ran right to the 'U scared, bro?' tactic? Ok here's mine, why are you afraid that Zeus, Mithra, Odin and the Easter Bunny might be real? Come on man grow up!

Mon, 04/21/2014 - 11:15 | 4679526 New England Patriot
New England Patriot's picture

You didn't answer the question.

Mon, 04/21/2014 - 11:46 | 4679625 elwind45
elwind45's picture

Same ole same ole'

Mon, 04/21/2014 - 10:55 | 4679456 pherron2
pherron2's picture

.

Mon, 04/21/2014 - 10:52 | 4679458 pherron2
pherron2's picture

Author is probably just trying to provoke their ire, knowing the disdain for Jesus.

Mon, 04/21/2014 - 10:11 | 4679318 SheepDog-One
SheepDog-One's picture

No Mayhem_Korner you have it completely wrong, 'physics' aren't laws written down on stone tablets floating around the universe, they are HUMANS tested and confirmed observations of the world around us. You have it completely backwards.

Mon, 04/21/2014 - 10:21 | 4679351 mayhem_korner
mayhem_korner's picture

 

 

There are the laws of physics, and then the subset of those laws which humans have discovered.  You are playing in the smaller of those two spaces, sheep.

Mon, 04/21/2014 - 10:25 | 4679372 SheepDog-One
SheepDog-One's picture

Wow.....just, wow....

Mon, 04/21/2014 - 10:29 | 4679379 mayhem_korner
mayhem_korner's picture

 

 

Just because you hope certain things to be true does not make them so.  What is it about Jesus that you fear?  Truth?  Accountability?

Mon, 04/21/2014 - 09:38 | 4679189 SmilinJoeFizzion
SmilinJoeFizzion's picture

all piss standing up

Mon, 04/21/2014 - 09:42 | 4679197 gatorengineer
gatorengineer's picture

When you can cannonize a Pedophile enabler, anything is possible.....

Mon, 04/21/2014 - 09:49 | 4679215 SheepDog-One
SheepDog-One's picture

Uri Geller could not bend spoons and was proven to be a fraud.....'fraud' is what they all have in common.

Mon, 04/21/2014 - 10:02 | 4679271 mayhem_korner
mayhem_korner's picture

 

 

I look forward to your list of all the fraudulent acts Jesus committed.  Should be a good read.

Mon, 04/21/2014 - 10:17 | 4679329 SheepDog-One
SheepDog-One's picture

I didn't talk about fradulent acts, I said they're all frauds. 'Jesus', son of old testament god, never actually existed you do realize that right?

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