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The Destroyer Of Fake "Recoveries": Unintended Consequences
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
Destroy the market's ability to price assets, risk and credit, and you take away the essential information participants need to make rational, informed decisions.
A correspondent recently summarized why unintended consequences eventually destroy all politically expedient strategies that temporarily prop up a systemically unsustainable Status Quo:
"Unintended consequences almost always equal or exceed the benefits of whatever your temporary gains were in a complex system. We see this over and over again, in all sorts of different complex systems."
In other words, all the "kick the can down the road" strategies being deployed across the globe by central states and banks will inevitably backfire because central planning fixes always trigger systemic consequences that were unintended by the planners, who are fixated on minimizing the political pain of powerful constituencies, not understanding or repairing the real problems.
Example #1: The Federal Reserve "saves the Status Quo" by lowering interest rates to zero, eliminating mark-to-market valuations of collateral and opening the credit spigot to banks and financiers.
Intended consequences: A) transfer wealth from savers who once earned substantial interest on their savings to the banks, which can borrow money for near-zero and loan it out to businesses and consumers at fat spreads, reaping billions of dollars that once flowed to savers.
B) By making cash into trash (i.e. it earns no interest, effectively losing value in a 2% inflation environment), the Fed intended to push everyone with cash and/or credit to put their money in risk assets such as stocks and real estate.
Unintended consequences: A) Now that everyone has been pushed into stocks and real estate, valuations are once again at bubble heights--and bubbles always pop, destroying every participant who has been lulled into believing this bubble will never pop because "the Fed has my back."
B) By allowing mark-to-fantasy valuations of collateral, the Fed hasn't cleared the credit system of impaired debt: it has enabled an expansion of bad debt and eroded the fundamental credibility of the system.
C) By enabling the wealthiest slice of America to borrow essentially limitless sums for free, the Fed has fueled wealth disparity, as the super-wealthy can buy rentier assets for nearly free with Fed-created credit, outbidding everyone in the 99.5%.
D) In becoming the buyer of last resort for Treasury bonds and home mortgages, the Fed has destabilized the bond and mortgage markets and undermined the U.S. dollar. As a result, the Fed has to taper its buying lest it end up owning the entire short-term Treasury market.
E) By buying $2 trillion in mortgage-backed securities, the Fed (in conjunction with Fannie Mae, Freddy Mac and the Federal housing agencies such as FHA) has essentially socialized the mortgage market in the U.S.-- virtually all home mortgages are now backed or issued byh the government. less than 5% of all mortgages are privately issued and not guaranteed or owned by the government.
Destroy the market's ability to price assets, risk and credit, and you take away the essential information participants need to make rational, informed decisions. By crushing the market's ability to generate accurate pricing information to save the Status Quo from necessary repricing and reforms, the Fed and the Federal government have generated enormously destructive unintended consequences that will not respond to additional politically expedient fixes.
All the other central planning fixes around the world share the same fatal flaw.
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the solution is as obvious as it is simple:
require people to work without being paid
recovery ensues instantly
"Destroy the market's ability to price assets, risk and credit, and you take away the essential information participants need to make rational, informed decisions. By crushing the market's ability to generate accurate pricing information to save the Status Quo from necessary repricing and reforms, the Fed and the Federal government have generated enormously destructive unintended consequences that will not respond to additional politically expedient fixes"
I would argue that IT is NOT unintended. The world's oligarchs have been seekng a "solution" to the bourgousie class for hundreds of years. Worldwide feudalism is very good for the non-serfs.
doctor, take off you tin foil hat. It is simple as this, the oligarchs were going to protect their wealth and power at all costs. The Fed and gov't have been enablers of this at the expense of the unwashed masses.
Yup, looking more and more like a lot of us are not going to make it.
You agreed with him but claim he's wearing a tinfoil hat.
hellooooo
You mean like making the only method of storing their savings is in an account that has less purchasing power every month?
aka slavery
I think they call that "war".
The $15 minimum wage hike in Seattle's suburb is turning out to be a disaster.
http://www.unitedliberty.org/articles/17751-warning-to-seattle-seatac-bu...
http://kuow.org/post/minimum-wage-limbo-keeps-small-business-owners-night
Stupid decisions have consequences.
Not for the Left.
"Good intentions" count more than anything else.
Bad policy decisions always result in "uninteded consequences".
"They meant well!"
Well, the problem is obviously that they undertook this in a half-hearted way, they really need to commit. First, they need to make sure that EVERYONE does this, so people have no place to run (they should talk to the French about this, that's their main bitch about why their ideas don't work). Then, they need to start throwing people in jail when they try to raise prices (a quick trip to a couple of places in South America would help with ideas on how to do this). Finally, they need to label people terrorists for daring to speak out against it (a quick call the Homeland Security would give them all the pointers they need), and as always make sure the MSM is on board (get the IRS working on these fringe publications, that should take care of that).
In short, you can't fuck up just your little piece of the world, you gotta go big or stay home. Amateurs ...
You should be working as an advisor to the government, if you're not already doing that.
7 years from now, when this goes into full effect, $15 an hour will likley be the Federal minimum wage as well.
As it is now, anyone making less than $15 is likely being subsidized by the government through medicaid, tax credits, food stamps, etc. So basically the costs remain at $15 an hour for the worker while employers get by paying much less on the back of taxpayers. This certianly isn't right either.
I would be fine with doing away with and not raising the minimum wage if the businesses were held responsible for any welfare their employees recieved on top of their wages.
It is time for business to take responsibility for their employees instead of simply exploiting them for profit. If you can't make it in business without exploiting the workers then you shouldn't be in business. It really is that simple.
Let's get rid of welfare(vote buying, dependency and degeneracy promoting marxist policy number one) too. Solves your remaining concern.
Is working for exploitive business compulsory? People cant leave or build skills to escape poverty or is Uncle Sam suppose to take care of everyone's ills (pun intended)?
Somewhere a village has been deprived of its idiot.
You really have not one single solitary iota of an idea what you're talking about do you?
You call it exploitation.... seriously?
Have you ever ran a business you ignorant twat?
Look. Ill grant you that yes, many employees are left in a position where they must depend on the largesse of government to "make up the difference."
Please explain to me how this circumstance can be laid at the feet of the "evil business owners" and not squarely on the shoulders of a government that has not only shown itself to be functionally retarded, but outright homicidal, in its throttling of small business and business creation in America.
Fuck it, right? Let's all retire and let someone else pay for it.
Confetti for everyone !!
Infuriating.
It should be compulsary for everyone to run their own business for a minimum of 4 years, risking their own capital, before they are given the right to comment on social entitlements.
You work, you eat. You don't like your job, you go get a different one. You stop telling other people how to spend my money.
It really is that simple.
lol. The response of someone who didn't read the story. Of course, a nationalized min wage of $15 will fix nothing you mention. Only the min wage dolts getting off their asses and making more of themselves will fix their predicament (that's of their own making).
"It is time for business to take responsibility for their employees"
Oh, and this statement is just utterly idiotic.
Fuckin' Commie Piece of Shit
Government-which is mostly run by people elected by EMPLOYEES- has completely trashed capital in the USA the last 20years. After taxes, licensing, insuring and regulating-no reason remains to be in business. None. Whatsoever.
America presently lives off the credit previously extended when it was the most fertile place in the world to sow capital and do business.
Dobie, great links, thanks..
The theft must be maintained.
System needs more student debt slaves and 150% LTV housing.
This is a fiat, credit, stimulus and qe based economic system we live in so we cant price shit
Armored cars from Via Mat International were lined up at the NY FED this morning. Were they delivering tungsten into the vaults or there to make a pickup for China?
'In becoming the buyer of last resort for Treasury bonds and home mortgages....'
Don't forget 'stawk indexes' too!
And none of it is 'unintended' at all.....the ruling elite is and has been for years working to outright own everything.
Corporate growth comes from cutting expenses, ZIRP bond issuance and share buybacks.
It's the future folks. All the way down to zero, right Tyler?
I hear there are no such things as unintended consequences anymore.
Only -+ is on % of acceptable collateral damage since that directly impacts production/disposal.
Why assume consequences B through E were unintended?
I'm truly happy that Charles has put on a shirt...now, put down the ukulele.
Charles' problem is that he is unable to grasp the nature of EVIL.
If Charles believes that you can disincentivize a psychopath, I guess that his belief in unintended consequences is to be expected.
They re geniuses... just ask them.
They have degrees, write articles, and have no common sense.
The FED has quietly displaced the Free Market ... and its participants...hence the velocity
of money collapse.
I've been calling this a "synthetic" market for 3 years with clients. How does one assign risk/reward valuations when the metrics are bogus and manipulated?? The outcome is arbitrary, and unpredictable. Just what we have seen for 12-16 quarters. I love the "unexpectedly" crap that MSM always talks about when the regular reports come out. "Unexpectedly" just doesn't do this mess justice.
"Destroy the market's ability to price assets"
And someone will feel inclined to buy an NBA team for $2 billion.
Standard operating procedure will all government programs.
Focus only on the good side -
Look at how many seniors have been lifted out of poverty because of social security
ACA now gives people "free" check ups" -
That military base supports thousands of jobs
Food stamps feed 50 million people every day
The GM bail out saved thousands of jobs
The list goes on and on and on -
It is true that many government programs have some good parts - but you never hear much about the cost side of these programs.
Talking about the good side of government is like complimenting the person that is sodomizing you.
I agree with you in total -
But most things have two sides - I labeled them good and bad - just keeping it simple.
My point was the bad side is ignored - and if anyone bothered to look at both sides the bad would out weigh any good.
I am pretty sure some folks would support forced sodomy on bankers - they would think it is a good thing to have Jamie Dimon get it in the ass - they would think it was a good program - JD maybe not so much.
"I am pretty sure some folks would support forced sodomy on bankers "
*chuckle* market forces would make a bunch of bunghole punchers into bankers that would love that. 'Wooo weee, make me rich and poke my bung! win win.'
"People that are"
A gang-bang is a much more accurate.
Have you kicked a bankster in the balls today?
Yes there's too much "fake" out there and it's the crafty algorithmic software models that keep making the wealthy richer. It's been going on for years and getting down to really bad brass tactics now as there's less money for the algorithms to go after. That's why I started by series called "The Attack of the Killer Algorithms" 3 years ago. Actually whether they understood it or not, the Occupy Movement was an effort to bring this forward as they may not have understood what exactly was going on but they knew enough that something wasn't working. Here's a bunch of videos and one added credited to this site on the story of gold, as I just try to curate and put this all on one page so folks can learn up if they want. It's people smarter than me and I have learned from all of them.
http://www.ducknet.net/attack-of-the-killer-algorithms/
My latest battle is the loose cannon over at the Consumer Financial Protection Bureau, Richard Cordray who's building a Federal data base on all our US consumer credit data, so best hope here is that one or more of the 1% who will be in there too gets pissed off to stop it.
http://ducknetweb.blogspot.com/2014/05/richard-cordray-yet-one-more-algo...
This guy is duped and living off fake values for sure and is Algo Duped up to his neck, but I also said when he was appointed two years ago he lacked data mechanics logic and feared the Dupers would eat him up, and they did. The correlations between Cordray and Kathleen Sebelius are almost scary as 2 dupees seem to be thinking exactly the same and it's one more afflicted by the Sebelius Syndrome.
So let me get this straight, the uber rich, governments and companies borrow money at low interest rates while destroying the middle class.
The US government borrows money at zero percent while being $17 trillion in debt while your payday loans are at 400% APR. Imagine if the US had to borrow at the same rate as those payday loan guys.
http://paydayloansonlineresource.org/average-interest-rates-for-payday-l...
Yet, we cant untie this knot we got ourselves into because the whole financial system will collapse.
WTF!!!!!!
Unintended consequences?
You should consider what their long term goals are and you will realize that they are indeed, as intended.