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After 6 Years Of Unprecedented Central Planning, The Economy Is More Fragile Than Ever

Tyler Durden's picture




 

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

We will all discover that the economy is much more fragile than advertised by the Central Planners and their media toadies.

This week I have made the case that the past 13.5 years have been the most destructive to the core values of the nation in U.S. history. The same holds true for the economy, which has been critically weakened by 6 years of unprecedented Central Planning.

What do I mean by Central Planning? Here are the key characteristics of Central Planning:

1. The central bank/state intervene in the economy in a dominant fashion, controlling functions such as interest rates by order of central authorities that were once set by decentralized, self-organizing markets.

2. The central bank/state pick winners and losers: for example, the Too Big To Fail Banks (TBTF) were selected to win, as the central bank/state bailed out their private losseswith public-taxpayer money. In effect, the central state/bank enrich cronies at the expense of everyone else.

3. The central bank/state manipulate the nominally "free" market to boost asset valuations as a way of enriching cronies who own most of the financial assets and as a public-relations charade to mask the failure of their picking winners and losers.

In other words, in centrally planned economies, markets are not allowed to discover price--they exist only to reflect positively on Central Planners.

4. The central bank/state use the power of the printing press to create as much money as they need to reward cronies and cram their decisions down the throat of the economy.

5. The central bank/state use the power of their public policy announcements to manipulate behavior and the financial markets while keeping programs that might attract scrutiny secret.

Central planning fails for intrinsic reasons unrelated to the specific policies. The decentralized, self-organizing market is like the immune system for the economy; it keeps the system healthy by burning off the deadwood of failed bets and failed investments and distributing credit and risk on performance rather than cronyism.

By eliminating the economy's immune system, Central Planning dramatically increases vulnerability and guarantees systemic crises down the road. Another way of understanding the destruction wrought by Central Planning is to see the Central Planners as heroin pushers who addict the economy to zero-interest credit and a constant flow of "free money" to the winners selected by the central bank/state.

The Yellowstone Analogy and The Crisis of Neoliberal Capitalism (May 18, 2009)

The economy becomes dependent on the The central bank/state intervention and loses the ability to function in the real world. When the real world finally intrudes, the weakened, strung-out addict, no longer capable of responding to reality in a positive fashion, expires.

A handful of charts illustrates the scope of the Central Planning and the fragility this Central Planning has generated. (Charts are courtesy of Market Daily Briefing. All comments on the charts are mine.)

The Federal Reserve balance sheet: hey, what's $4.3 trillion between pals? Where did all this newly created money go? To inflate asset bubbles that enrich the few at the expense of the many.

That little spot of bother in 2008 that caused credit to contract a bit nearly collapsed the entire U.S. economy. Has expanding credit to subprime banks and borrowers fixed anything, or simply extended the system's already-sky-high fragility?

And what has all this unprecedented Central Planning done for the GDP? Growth as measured by GDP (a largely bogus metric, as many have pointed out) has been declining since the Central Planners picked their cronies as winners.

How about real median income? Central Planning has greatly boosted the wealth and income of the financier winners picked by the Planners, but sadly this does not include wage earners, who have seen their inflation-adjusted earnings plummet.

Aren't you delighted that Central Planning works so great?

One predictable result of Central Planning is more asset bubbles--or in the case of housing, an echo bubble of the housing bubble created by Central Planners in the early 2000s. Alas, an echo bubble is still a bubble, and so it will pop just like every other financial bubble throughout history.

Just as a refresher on the staggering enormity of Federal Reserve intervention / manipulation in the housing / mortgage market: if the Fed buying $2 trillion of home mortgages (more than 20% of the entire market) isn't Central Planning, then what is it?

The damage done by Central Planning has yet to come home to roost. Six years into the Grand Experiment--that Central Planners can pick winners who just happen to be their cronies--the chickens of consequence are still making their way home.

And when they finally come home to roost, we will all discover that the economy is much more fragile than advertised by the Central Planners and their media toadies.

 

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Thu, 06/19/2014 - 12:16 | 4874008 kchrisc
kchrisc's picture

Skyscraper of cards.

 

"Please no breathing near the exhibit."

Thu, 06/19/2014 - 12:19 | 4874032 Haus-Targaryen
Haus-Targaryen's picture

Drudge said it best -- 

Have an exit plan.  

When SHTF and this does eventually explode, everyone needs to have a way to get out and to safer pastures.  

We all know that the economy is going to implode, sooner rather than later.  I assume most of you value your own life and that of your family's moreso than "USA USA USA" 

Thu, 06/19/2014 - 12:21 | 4874043 Skateboarder
Skateboarder's picture

In 2020, CHS will repost another iteration of this article, titled "After 12 Years Of Unprecedented Central Planning, The Economy Is More Fragile Than Ever."

Thu, 06/19/2014 - 12:36 | 4874095 centerline
centerline's picture

lol.  He takes alot of heat.  Especially around here from time to time.

Got to hand it to him though.  He is cranking out alot of stuff.  Much of which is good information.  CHS is definately on the .GOV "naughty" list of people who are too truthy.

Thu, 06/19/2014 - 13:02 | 4874249 SheepDog-One
SheepDog-One's picture

Or, by fall everyone is staring at DOW at around 3,000 and wondering why their pensions and home value is at zero...no one has any idea when they topple the Jenga tower again.

Thu, 06/19/2014 - 15:18 | 4874883 JR
JR's picture

Perhaps your speed reading has not served you well, Skateboarder, for it is not Charles Hugh-Smith who says central planning has made the economy more fragile. It is the charts; it is the facts; the trends, the storm…not the approaching storm but the current hurricane hitting and buffeting the economy, created by the banking cartel.

The American economy and with it the America culture are dissolving.

When a brick wall fronts a speeding automobile one does not continue the approach indefinitely and the wall does not move. And when one sees the man with red flares signaling the danger ahead,  Charles Hugh-Smith, then fragile economy is a term that no longer applies.

Just for a refresher course, flip back through those charts that Charles Hugh-Smith has put on and, if you can, tell me where Charles went wrong.

Thu, 06/19/2014 - 15:22 | 4874899 kchrisc
kchrisc's picture

12 years?!

Might as well be a thousand years, as the DC US' years are numbered, and 12 is way optimistic.

Thu, 06/19/2014 - 12:23 | 4874053 LawsofPhysics
LawsofPhysics's picture

"safer pastures"  LMFAO, yeah, now that the entire planet is a ponzi, good luck with that.

Glad I went long black markets and a dependable tribe with military experience.  Look at India and Afghanistan and their tribal society, that's the furture of earth.

Thu, 06/19/2014 - 13:23 | 4874365 Anusocracy
Anusocracy's picture

Perhaps like the phyles in Neal Stephenson's novel The Diamond Age.

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

Society in The Diamond Age is dominated by a number of phyles, also sometimes called tribes. Phyles are groups of people often distinguished by shared values, similar ethnic heritage, a common religion, or other cultural similarities. In the extremely globalized future depicted in the novel, these cultural divisions have largely supplanted the system of nation-states that divides the world today. Cities in The Diamond Age appear divided into sovereign enclaves affiliated or belonging to different phyles within a single metropolis. Most phyles depicted in the novel have a global scope of sovereignty, and maintain segregated enclaves in or near many cities throughout the world.

Thu, 06/19/2014 - 15:36 | 4874950 LawsofPhysics
LawsofPhysics's picture

Blah, blah, blah...

The which cannot be sustained, won't be, regardless of of what any species "thinks" or "believes"...

hedge accordingly.

Thu, 06/19/2014 - 13:35 | 4874431 kchrisc
kchrisc's picture

God*, gold, guns, grub and guillotine on safer ground.

 

*Not an endorsement or inducement.

Thu, 06/19/2014 - 13:17 | 4874334 tncaver
tncaver's picture

Yes we are headed for an economic collapse, but in the words of Sargent Hulka, " lighten up Francis "

Thu, 06/19/2014 - 12:16 | 4874021 ejmoosa
ejmoosa's picture

Please stay in your seats and leave your assets in their accounts until the economy has ground to a complete halt.

 

Thank you for your cooperation.

Thu, 06/19/2014 - 13:05 | 4874273 SheepDog-One
SheepDog-One's picture

They must ensure all 401k's, pensions, and any other form of wealth are firmly in their control before they can pull the rug out again.

Thu, 06/19/2014 - 12:17 | 4874030 max2205
max2205's picture

Echo......

Thu, 06/19/2014 - 12:19 | 4874038 Da Yooper
Da Yooper's picture

It's the little people's problem

dont bitch about living in a democracy cause the chickens be coming home to roost

In a republic bankers & politicans  would be in jail & we would have sound money but not in a democracy

 


Thu, 06/19/2014 - 12:21 | 4874044 LawsofPhysics
LawsofPhysics's picture

^^^this.  "voting" hasn't mattered for quite some time.

Thu, 06/19/2014 - 12:26 | 4874062 NOTaREALmerican
NOTaREALmerican's picture

Speaking of favorite quotes:   Mark Twain — 'If voting made any difference they wouldn't let us do it.'

Thu, 06/19/2014 - 12:20 | 4874041 LawsofPhysics
LawsofPhysics's picture

To quote my favorite comedy troupe; "printing money out of thin air and handing it to your cronies is not a sound foundation for a monetary system"

 

Hedge accordingly.

Thu, 06/19/2014 - 12:23 | 4874050 NOTaREALmerican
NOTaREALmerican's picture

The central planning works great for the Elysium Class.  That's why we've got central planning.    The Elysium Support Class is doing pretty good too.    The Trash Class?   They've got all the bling, (near) food, and sports they desire.      A true utopia. 

Thu, 06/19/2014 - 12:25 | 4874065 pods
pods's picture

What is even worse is that today people have been conditioned to WANT for the government or FED to do something when things go bad.
The FED could conjure up 75 trillion after the next bubble pops and people would cheer.

People don't get it simply because they don't want to get it.

Unplug the machine, this system is brain dead.

pods 

Thu, 06/19/2014 - 12:29 | 4874079 Grande Tetons
Grande Tetons's picture

I think most people would want to get it....however....I think most people lack the comprehension part of the getting.  Not an accident. 

Thu, 06/19/2014 - 15:53 | 4875030 Zadig
Zadig's picture

Definitely not an accident.  The schools ensure that as few people as possible develop critical thinking or retain any interest in learning about simple things like geography, history, or economics.

Thu, 06/19/2014 - 16:35 | 4875184 JR
JR's picture

You can’t have capitalism when the tyrants own the media. Because the media is responsible for the misdirection and the apathy of the people, and with that misdirection and the apathy that the media creates, it floods and submerges true revelations – and things that are true get buried.

Under America’s 20th century natural-born propagandists, George Creel and his protege Edward Bernays, the definition of propaganda in America became just that: lie.

And important to that lie is a mass media controlled by the State, purchased with money flowing out of the banking cartel – the Fed – via ownership by its operatives, including Google.

Fed international bankers use the same technique as did their operative, Vladimir Lenin, in the 1917 Russian Re-Revolution: “The press should not be only a collective propagandist and a collective agitator, but also a collective organizer of the masses.”

For instance, a vast majority of Americans favored a position of neutrality to war on August 4, 1914. But in just over 18 months after President Woodrow Wilson established the Committee on Public Information (CPI) through Executive Order on April 13, 1917, George Creel’s CPI, using newsprint, posters, radio, telegraph, cable and movies to broadcast its message, i.e., propaganda, was able to “create enthusiasm for the war effort and enlist public support... It primarily used propaganda techniques to accomplish these goals.”

Chairman Creel also used a volunteer army of lay propagandists to make 4-minute speeches all around the country --

about 75,000 "Four Minute Men," volunteers to involve American in WWI.

Using the CPI to "preach a gospel of hate," Creel said of himself: "An open mind is not part of my inheritance. I took in prejudices with mother's milk and was weaned on partisanship.”

Wikipedia reports that Creel urged Wilson to create the government agency to coordinate ‘not propaganda as the Germans defined it, but propaganda in the true sense of the word, meaning the 'propagation of faith.’

Add blackout and cover-up and that about describes how the mass media continues today using its high-tech propaganda techniques to hide through lies and confusion and abstractions the Fed's rape of the American and European economies:

“The CPI's activities were so thorough that historians later stated, using the example of a typical Midwestern American farm family, that… 

“Every item of war news they saw—in the country weekly, in magazines, or in the city daily picked up occasionally in the general store—was not merely officially approved information but precisely the same kind that millions of their fellow citizens were getting at the same moment. Every war story had been censored somewhere along the line— at the source, in transit, or in the newspaper offices in accordance with ‘voluntary’ rules established by the CPI.

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

And that is why it is important to keep the Internet free of government control, especially through its operative, Google.

Thu, 06/19/2014 - 12:31 | 4874080 NOTaREALmerican
NOTaREALmerican's picture

The art of any scam is ensuring the cause-n-effect feedback is longer than the attention span of the marks.  The "miracle" of compound interest is exactly that.  

Thu, 06/19/2014 - 12:45 | 4874151 Grande Tetons
Grande Tetons's picture

The art of any scam is ensuring the cause-n-effect feedback is longer than the attention span of the marks.

Attention home schooling parents. Have Jr. write this on a piece of paper everyday for at least one year. 

Thu, 06/19/2014 - 15:10 | 4874848 Postal
Postal's picture

It's not that they don't want to get it (I used to be as you described), they simply do not know any better--and, unfortunately, don't realize there is a need to learn.

Thu, 06/19/2014 - 12:28 | 4874066 ArmyofOne
ArmyofOne's picture

How that biblical quote go..."I am the right hand of vengeance...

 

Thu, 06/19/2014 - 13:08 | 4874294 madcows
madcows's picture

Well, Dimon is doing God's work... sooo... clearly he is the hand of vengeance.  Wreaking a path of destruction.  Apparently I got the wrong understanding of God.  this is like pre-christ killing fields crap.

Thu, 06/19/2014 - 13:09 | 4874298 SheepDog-One
SheepDog-One's picture

The bible was for control of the sheeple flock and to give them something to hope for, 'yea I got this magical invisible friend who will make everything right for me', yea sure.

Thu, 06/19/2014 - 12:29 | 4874076 disabledvet
disabledvet's picture

Actually I think Detroit would beg to differ.
The President had no sooner give his post re-elect "take it to the Man speach" (and that's putting it mildly actually) than that City went kaplooey.

So this has hardly been "cost free." What has been avoided to date is some type of "credit run"...not for lacking in an asset inflation however. The 2005 price shock in gasoline and disel remains dispositive. Prices tripled in a day. http://www.cfr.org/world/katrina-oil-prices/p8834

natural gas prices peaked out at 15 bucks!

Thu, 06/19/2014 - 12:30 | 4874078 madbraz
madbraz's picture

today, for example, the NY FED lends $13 billion in treasuries to big banks - which they use as collateral to leveraged bets and to short treasuries.  

 

securities lending is defined by the NY FED as "temporary" loans.  does anyone ask then why is it that these loans average $10 billion every day since 2007?  will someone ever ask Bill Dudley why are they rolling over this daily loan to the tune of $10 billion, like today?  how does this benefit the american people?  can't banks buy this collateral in the open market and not pretend that they own collateral they really don't?  why does the NY FED encourage rehypothecation and posting collateral that is not owned?  could it be that it has to do with a scheme to manipulate long term bond interest rates to the level that are optimal for the banks interest rate derivative bets?

 

there were $13 billion in securities lending today, and $10 billion outstanding from yesterday that was rolled over.  so in essence $23 billion in lending of treasury bonds to banks, in addition to an additional $4 billion (probably much more) per bank via reverse repos.

 

 

Thu, 06/19/2014 - 12:33 | 4874085 LawsofPhysics
LawsofPhysics's picture

It is a fiat world that has long forgotten the true meaning of things like collateral or solvency...

All that matters is the "full faith and credit"


tick tock motherfuckers...

Thu, 06/19/2014 - 12:31 | 4874081 centerline
centerline's picture

There is no recovery from this.  Why?  The system we were largely born into is simply a ponzi scheme.  This time fueled by "magic" (oil... cheap energy, and technology), allowing us to grow this ponzi to EPIC proportions.

We are in the middle of a free-for-all.  A global version of the looting of Rome per se.

Thu, 06/19/2014 - 12:35 | 4874092 NOTaREALmerican
NOTaREALmerican's picture

Survival-of-the-fittest is a bitch when it turns out you're the food.    Much of the doomer bitching is the realization that survival-of-the-fittest didn't quite turn out as we thought it would.

Thu, 06/19/2014 - 13:00 | 4874247 centerline
centerline's picture

Yeah.  The more this unfold the more nervous I get.  Not for myself, but for my kids.  At our current trajectory, the whole system is going to turn on itself.  Including police, schools, you name it.

Thu, 06/19/2014 - 13:14 | 4874318 SheepDog-One
SheepDog-One's picture

At this point I say fuck Homo sapiens...probably just a weird mutation anyway.

Thu, 06/19/2014 - 12:38 | 4874108 buzzsaw99
buzzsaw99's picture

fragile? i think not. since we now know which firms are tbtf investing is simply risk free. ;/

Thu, 06/19/2014 - 12:42 | 4874129 ejmoosa
ejmoosa's picture

What better way is there for a government to address the economic inequalities of yesteryear than by destroying the valeu of your wealth accuumulated in the past and in your posession today?

 

Aren't there lots of game theories that show if one player is broke and the other wealthy, that the broke player has no problem bankrupting the wealthy player, even at a cost to himself?

Thu, 06/19/2014 - 12:44 | 4874141 NOZZLE
NOZZLE's picture

Can someone explain how CAT can suffer a 30% drop in sales overseas and still have a share price g8ven that media tosdies claim that 70% of revenue comes from outside US?

Thu, 06/19/2014 - 12:51 | 4874180 ejmoosa
ejmoosa's picture

Sure.  

 

Did you see the story at Zerohedge about central banks buying equities?  They certainly cannot allow any market weakness.  For that will be removing the only leg left on this pogo stick of an economy.

Thu, 06/19/2014 - 12:51 | 4874188 NOTaREALmerican
NOTaREALmerican's picture

Did you factor in the 1st Law of bullshit?

Anything + bullshit = money to power of bullshit (A + BS = $ ^ BS). 

Solving for CAT stock:   Stock + (insert bullshit optimism about the future here) ->  lots more value. 

Life is pretty easy to understand when you solve for Bullshit. 

Thu, 06/19/2014 - 13:02 | 4874250 Cthonic
Cthonic's picture

Perhaps firm issues debt, uses proceeds to buy back shares?

“The strength of our balance sheet and record 2013 operating cash flow enable us to announce the completion of our current $7.5 billion stock repurchase authorization,” said Caterpillar Chairman and CEO Doug Oberhelman. “This repurchase, combined with the new $10 billion stock repurchase program announced on January 27, affirms our commitment to deliver superior returns to stockholders through the cycles.”

Thu, 06/19/2014 - 13:15 | 4874327 SheepDog-One
SheepDog-One's picture

Yep, gotta stuff it all into pension funds so that the populace can be 100% owned by the elite scum.

Thu, 06/19/2014 - 15:51 | 4875012 Oppressed In Ca...
Oppressed In California's picture

The market looks forward and had already incorporated the bad news.

Thu, 06/19/2014 - 13:02 | 4874255 zaphod42
zaphod42's picture

6 YEARS?  WHO SAID THAT?  Make that 101 years!!

Craig

Thu, 06/19/2014 - 14:17 | 4874591 starman
starman's picture

You can not prosper from debt! You have to work save and invest!

Unfortunately this generation is raised to beleive other wise. 

Buy a car on  84month buy a house on 5 year adjustable get a 24.5% "america is great visa! Good luck boys and girls.

Thu, 06/19/2014 - 14:54 | 4874779 Bunga Bunga
Bunga Bunga's picture

Calm down, that's a completely normal and intended symptom of central planning.

Thu, 06/19/2014 - 22:02 | 4876443 Magooo
Magooo's picture

This is all you need to know --- and this is why Central Banks are doing what they are doing:

 

HIGH PRICED OIL DESTROYS GROWTH

According to the OECD Economics Department and the International Monetary Fund Research Department, a sustained $10 per barrel increase in oil prices from $25 to $35 would result in the OECD as a whole losing 0.4% of GDP in the first and second years of higher prices.  http://www.iea.org/textbase/npsum/high_oil04sum.pdf

Thu, 06/19/2014 - 22:03 | 4876452 Magooo
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