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Keynesian Shangri-La From Myth To Reality
In less than the time it takes for a chrysalis to release one of life’s remarkable transformations, many once called “capitalists” woke to find the world they once new changed into something only dreamed or told in folklore.
Where business models resembling unicorns abounded along with rainbows in their resembling equivalent of over-arching ETF’s. All available in a multitude of hues and proportions so plentiful: It was hard for one not to well up when contemplating. For in this new fairytale land there must certainly be a pot of gold at the end of every “rainbow.” However, one would be mistaken. For one must remember this is a “Keynesian Shangri-la” and gold here is useless. (insert choir music here)
Today, at the end of these self propagated rainbows lies a Central Bank ready and willing to print as much money as one needs to see those vivid colors so plainly; only the term Technicolor® seems appropriate as a descriptor. (no special glasses or headset required)
Although the above is a bit tongue in cheek what it isn’t sadly to say: is fiction.
We now have entered a time where what you once knew or thought about capitalism is out the window. At least when it comes to the global financial markets.
What was once the bastion of “free market capitalism” has now metamorphosed into what the devotee’s of Keynesian economics have been chomping at the bit to unleash and install. And that day is – now here.
The only bug in their soup they forgot to remember while they’ve been drooling in anticipation, waiting for its possible arrival is this: Be careful what you wish for. For you just might get it.
The Keynesian argument has been made for decades. I wonder if the man (John Maynard Keynes) would be impressed with just how much his ideology is so vehemently held in the halls of academia and political circles. Many religious devotees pale in comparison.
Once upon time people believed in free market capitalism. The relationship with the money supply. The economy, markets, interest rates and their effects on keeping governments spending in line. All that and more is now out the window along with the old draperies. No need for those silly viewpoints nor those curtains because there’s no longer a need or even the inclination as to try to hide.
You don’t need anymore proof to show this over enveloping viewpoint than the front-page story highlighting none other than Keynes himself with the headline on Bloomberg Businessweek™: Stimulate This!
But maybe it’s the subtitle that really gets to the heart of the matter: “John Maynard Keynes has the last laugh on what works for the global economy”
Oh that tagline just might be the very thing that produces more tears than laughter in the end. As I stated earlier “Be careful what you wish for. For you just might get it.”
A few years ago I made this point when trying to get others to understand just how far the interventionist monetary policies had permeated the capital markets. I remember people taking great issue with me as if I “was going too far.” It seems now in retrospect just maybe – I hadn’t gone far enough. Here’s a few quotes from that article: Welcome To Keynesian Shangri-La
“Valuations – schmaluations. Please spare me. It might make for good time fill in the financial media’s “power rotation” of talking heads however, to anyone with just a fair understanding of business. The economy can’t be spitting out numbers just over stall speed of a recession with all time highs in the stock markets as something that’s even close to resembling healthy.”
“To the Keynesian or the government has all the solutions devotee, everything looks just as it should. Turn on the television, radio, or pick up a paper and the headline reads, “Record High!”
So here we are just a few years later to find ourselves floating in a sea of printed or digitized dollars looking for a home. And that home is in an increasingly shoddily built, underpopulated, (as expressed via volume) maintenance plagued financial arena know as “The markets.”(remember how many times the markets broke this week alone?)
But it would seem we have traded one slumlord for another. Exit the Federal Reserve and please join me in a warm round of applause for the Bank of Japan. (insert hysterical cheering crowd of Keynesian economists and lackeys here)
What has now garnered the moniker of “Banzainomics” leaves no doubt that we have entered a time in financial history that belongs totally and squarely upon the shoulders of Keynes.
Problem is – where Atlas may shrug, there’s a real and true strength as to carry the weight. For Atlas it’s about risk reward. For this new Keynesian metaphor? When and if a shrug is needed; it won’t be out of risk reward.
It’ll be out of losing its grip and collapsing under the very weight they told – and sold – everyone on. The idea, that if they would only “give him the ball” tranquility and fear from “capitalistic dogma” along with its pervasive repercussions would finally be eradicated.
Well – Now he/they got it.
Problem is without a never-ending supply of steroids and other substances (in the form of monetary policies whether legal or not) the myth of strength will transform into the reality of weakness.
Then as he falls apart he may decide that rather than taking another injection he’ll just shrug the weight off and reach for the remote or XBOX™. For remember, in a Keynesian world: Hard work is for Atlas, not him/them. Besides, can’t one get that injection and still be on the couch? In a Keynes world. Why not?
So why does this matter to today’s entrepreneur or other business people. Easy…
So now you’ve created this great widget, company, what ever that you’ve grown through hard work and more where you believe it’s now time to access the capital markets.
There’s a problem now. Those markets aren’t for “capitalists” any longer. They’re for “Keynesians” and if you aren’t the right investment, or in the right ETF – you’re toast.
You might have a great company, but if a Central Bank deems there’s “No money” to be had this month, you’ve got crap.
The flip side is also the same. Say you’ve built a better mouse trap than your competitor? Sorry, they’re in the right ETF and you’re not? Sorry – No “soup” for you.
Oh that’s nonsense you say “you’re being over simplistic.” Fair enough, but there was also a time little more than 4 years ago where “monetizing the debt” was laughed at.
If you even made the claim you were shouted down as some “tin foil cap wearing, conspiracy theory, fear mongering, blabber mouth.” And now? Not only proven fact, but stated as an “effective policy tool” aka QE.
Which leads us all right back to today.
For decades Keynesians have deplored true “capitalism” as a form of cancer than must be eradicated, for it does nothing but bring on booms and busts leaving devastation in its tracks. Where the altruistic Keynesians profess if only they were under the world in place of Atlas; they would show one and all exactly what they are capable of doing. And today – here we are. It’s their world.
For over two hundred years the strength of Atlas (warts and all) has brought about the greatest economic super power in all forms of measurements from quality of life, to military strength to protect that life.
Yes there are booms, and yes there are busts. But they are necessary and needed just as the underbrush in a tranquil forest at times needs to burn off to make way for newer even better growth.
During these times it seems there is nothing but devastation and turmoil. So too does the inner workings in a capitalistic market place mirror this.
It’s in the folly of thinking it can be surgically dissected and removed from out of the cycle where the Keynesians get into real trouble. For the more they meddle, the worse the ramifications, like an over eager plastic surgeon stating “We can fix that last nip tuck – with another nip tuck.”
Then they’ll blame others in a fury of finger-pointing for why “their meddling” doesn’t or didn’t work. “You didn’t allow us too spend enough, or, at all.” However that is no longer the case.
Not only do they have the check book, but the credit cards, safe deposit keys, and even a few neighbors assets they’ve yet to realize are gone. It truly is “all in their hands.” (and pockets)
Not only do they have the above, they have the whole ball. (Yes, the globe – as in the global financial markets)
Here we are at never before seen in the history of mankind market highs. Not only is there so much money floating around, it’s been decided by another Central Bank to increase that level. For they have taken that immortal line given by President Kennedy “A rising tide lifts all boats” to an even near unimaginable level.
Forget boats for we are truly in the Keynsian Shangri-la of: Those that have – those that have not – and those that have yachts!
The inherent problem to the Keynesian model also lies within the very thing most coveted by the Keynes devotee: Who do you blame when it all falls apart? You can’t blame capitalism or Atlas. You’ve shrugged him off. It’s now all on your shoulders.
For well over two centuries the Atlas’ of the world proved more than willing, as well as capable, to bear the burden of holding up the economic world. As of today the marvel of Keynesian economics is now front and center with no question as to who is in control. Without a doubt: You’re in control.
Since 2008 those policies and practices have been implemented with near little opposition. And now with the other Central Banks ipso facto picking up the baton even before it hits the ground proves; we are now living in a “Keynesian Shangri-la.”
You’re now just 5 years into complete and total economic control via Keynesian policies, while simultaneously gaining even more followers and devotees. This truly is a historic time we are witnessing.
I leave you with this one thought for its something I penned a long time ago when all this meddling first began…
“Markets right themselves with pain… That’s Capitalism.
Back room manipulation to avoid pain only increases the severity of the pain to be felt down the road.”
You’re in control now and best of luck. The rest of us will go on about our lives in business dealing the best way we can as to navigate this new world you’ve created, but one small warning if I may.
Since you now have the weight of the financial world on your shoulders you’re not going to do the one thing you most want…
The ability to pat yourselves on the back.
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This is not the end. This is but the beginning of the end.
The financial class still sees great 'profit' potential in the wholesale destruction of the global economy, with everyone believing they will be able to get out intact and rich beyond imagination. Only when they see no hope with we progress to The End............eventually followed by the next cyclical Beginning.
They should change their name to Kingsians.
They should change their names to Klingonsians.
They should be hanged.
Actually, we should be talking about "Neo-Keynsians" because this is NOT Keynsian economics. Keynes recognised the business cycle and never suggested it should be banished, as it now is.
Keynes proposed that Governments should set aside resources during good times (aka surpluses), then spend during the down cycle to minimise the downside and so stabilise the cycle.
What, conveniently, got forgotten by the academic economists and, in particular, the politicians in Keynes theory was the "Surplus" part.
RIP J.M. Keynes
Do what you will and take the prices where you want... we'll just keep stacking and just keep waiting. You're all out of metal and the world knows it.
From their point of view they are not out of metal. It is just temporarily in your and my hands. They will relocate it to theirs when it is needed. They will create a panic, then claim national security imperatives and have our desperate neighbors help them out.
The amount held in private hands in the West isn't worth the effort.
They may very well try taking it from other sovereigns, though.
This Keynesian Shangri-La is backed by banks of high frequency trading computers and corrupt traders funded by fiat money conjured by the Fed and supported by a cheerleading press. This Shangri-La will collapse in time as does every evil and every corruption.
Lots of this is true. I know several retail and retirement investors who really do trade on an ongoing basis in these markets. They now freely admit that they like the fed, they want the juice to keep flowing to markets, they like the bubble in stocks. They openly play the Fed and try to front run the Fed. Of course these guys are front run every second of every day by the machine traders. Yet, as long as they get a piece of the manipulated market pie, they seem more than content! So it goes!
"...several retail and retirement investors who really do trade on an ongoing basis in these markets. They now freely admit that they like the fed, they want the juice to keep flowing to markets, they like the bubble in stocks. They openly play the Fed and try to front run the Fed."
Yep, that is the new 21st century version of "hard work" in America!
And, if you are a veteran, figuring out how to get paid three times by the government.
Or, hours of research to game your state and local welfare system.
Oh, and how about, hiring an attorney to get SS dI for life. That's hard work!
Or, suing your ex (that works) for more money, so you have more liesure time. That's hard work, and working smart!
And, farmers getting paid by the government NOT to plant their fields! Something tells me it's worth the government paperwork
I'm sure there's more. I am such a dunmbass for working...lol...ugh...
What do these guys say when you ask them what the logical outcome of this will be?
I can understand the greed part, but you'd think people would realize they NEED a functioning market to continue to exercise that greed.
These financial types USED to be conservative, responsible persons, it was an old joke that bankers were tight-fisted, drab and boring men. You'd be secure for life if you married one, but you wouldn't be living it up. It would be a penny-pinching life, and you'd have to justify every luxury. No furs, just a well-made but sensible cloth coat.
But then they made the classic error made by dealers in desireable things (like drugs and money..) They started 'tasting' the product themselves, discovered they LIKED it. Now your bankers are flashy, jet-setting and hob-nobbing with media stars. They seem to seek out the cameras, relish the attention. A banker from 100 years ago would have a coronary at the way they conduct themselves and handle money. But now these guys are hooked on their own product and in trouble because they've been shorting the customers AND their suppliers to support their growing habit and are about to be exposed.
The problem with this entire experiment is the brainwashed mindset of the economists in command, all of whom are cut from the exact same academic cloth, which is the most dangerous aspect of it all. There is NO diversity of opinion. Europe, Japan and the US are under the same spell.
As Japan has proven since 1990, the issues of too much debt, bad demographics, global labor wage pressures, cannot be solved with easy money and more debt. The amazing part is that with 25 years of failure in Japan, they continue to double down on the gambit with increasing frequency and in ever higher doses because the failure to them means, "We are right, we just haven't done enough yet". 25 years should be long enough to realize that the experiment has failed and something else must be tried, yet not only are they doubling down, but now the rest of the world is following in their failed footsteps.
It is worse than the lunacy that assumed that real estate prices, college tuitions and healthcare expenses can all increase in prices at rates several times faster than underlying wage growth forever into the future without a problem.
No one thinks. They just repeat what others say and what dead economists wrote in books long ago.
I think they know that they are in the end game. The first to devalue makes out the best.
I think you are right. Last week sealed the fact that Japan is definitely cooked and likely going down first, though the U.S. and Europe may decline as part of that implosion. Maybe they are hoping that some technological innovation comes along to bail them out and, if not, they at least went down doing something.
They have chosen not to let asset prices deflate while purposefully creating cost of living inflation, ensuring that the cost of living continues to rise faster than income and wages. For now, that means high and rising asset price coupled with a slow economy and growing wealth divide. Whether it ends in a deflationary collapse or an inflationary collapse I can't tell, but given their willingness to print, I'd say inflation is the likely ending. You have to default on the debt explicitly or via inflation. No other way out.
"Whether it ends in a deflationary collapse or an inflationary collapse I can't tell."
This should be a very interesting mid-term election cycle and I think could go a long way in answering your question. The citizens can only be told things are great for them, when they are not, for so long. I'm hardly holding my breath, but more fiscally conservative and sound money Congress could lead to a deflationary collapse. A good thing for the long term. And a second bail-out may not be in the cards. Time will tell.
No fiat currency has ever perished due to deflation...ever...hyperinflatio n is always the chosen ending.
there are two deadly sins at work here. on the one hand you have .gov with a purse without purse strings allowing 535 guys to spend your money with total abandon, just like a whore on rodeo drive. on the other hand you have a central bank with the latest in printing technology that represents the banks that make money when money is printed for free and sold for more.
this isn't keynes or friedman. this is simple human nature at work. given the opportunity man will shit where he sleeps.
These are smart people who ended up outsmarting themselves and now have a galactic-sized problem on their hands. So they fight for time and hope that natural expansion will cover their play.
In order to keep in the game, however, they have to keep running the same playbook that got them (and us) in this mess in the first place. If they stop, they are finished. If they keep it going, they still have a chance, however small. So they believe.
I wonder why few/none of the financial pundits think to remind people that Keynes said the additional debt must be paid back during the good times.
John Maynard Keynes, we should all remember, was a conservative man who understood and operated in the financial markets during awful economic times. His idea for using government spending to boost consumer demand in times of deflation was tempered by his fiscal conservatism. That is, he expected governments that ran deficits (or printed fiat money) in bad times to pay back the debt in good times. Unfortunately, American liberals never studied that section of the macroeconomics textbook. Neither have most Republicans, for that matter.
Source: http://www.breitbart.com/Big-Government/2014/01/25/Washington-Wall-Stree...
After 6 years of 'fighting deflation' we should ask "what is causing this deflation?"
Remember 1969 thru 1979?
It was a time of Stagflation.
The 'Bob Hope" generation entered their 'spend less-save more' life stage. OUR Parents!
It should be clear that the baby-boom is now in the same life-stage.
Not one Politician will admit they are helpless to restart Economic Growth!
They will wait this thing out, just like before.
We have only ourselves to blame for their irresponsible abuse of the Public Checkbook!.
True. They have given Keynes a bad name. He wanted to save during good and spend during bad, not print and spend ALL the time.
This is not Keynes. It is a ponzi scheme.
So true. The Free Stuff Army, with Krugman as its hero, has tapped into Keynes and twisted his ideas to keep the free stuff flowing. Keynes would be mortified at having his name attached to this farce.
It really is just an argument now about how much free stuff, and who gets it. Cargo Cult economics.
"Unfortunately, American liberals never studied that section of the macroeconomics textbook. Neither have most Republicans, for that matter."
They never studied it, or are being paid enough money to ignore it. Me think it is the latter.
"After 6 years of 'fighting deflation' we should ask "what is causing this deflation?""
Inflation.
For a balloon to deflate, it first has to be inflated.
The FED is fighting deflation with more of what causes deflation. Thus they are walking toward that which they are trying to run from. All cycles complete themselves. The FED cannot prevent the mathematics of a cycle.
On the contrary, and aside from the folly of believing that governments would repay in good times what they borrowed in bad ones:
"That Keynes was a Keynesian—of that much derided Keynesian system provided by Hicks, Hansen, Samuelson, and Modigliani—is the only explanation that makes any sense of Keynesian economics. Yet Keynes was much more than a Keynesian. Above all, he was an extraordinarily pernicious and malignant figure ... a charming but power-driven statist Machiavelli, who embodied some of the most malevolent trends and institutions of the twentieth century."
All of them collapsing in the twenty-first.
http://mises.org/etexts/keynestheman.pdf
Exactly. I get tired of this misinformed rant against Keynes, who was a brilliant economist. What we have in the US, the EU and Japan is monetarism ivented and implemented by the Chicago boys with Milton Friedman. Nothing to do with Keynes. It's Friedman's monetarism,- the belief that you can stimulate economies by controling the money supply,- that ruins the economies. What Friedman set in motion was financial deregulation and globalization, which has led to the financialization of economies, concentration of wealth, erosion of middle classes, social and economic polarization, bubbles everywhere and a continuation of imperialism by different means.
At the same time, one has to also understand the Austrian school, with Hayek as a main proponent. Often the gold pushing knobs like Schiff and other loony libertarians like to push the pseudoAustrlian ideas torn out of context and simplified (like all things Americans take from Europe). HEre is your perfect idealistic capitalist dream of 'free markets', 'invisible hands' that spur creativity, competition and bring true wealth to everybody, while in reality, of course, such a thing never existed, and if the govenrment taken away from the equasion as the ultimate power to redestribute the gains, the countries would slide quicly into corporate slavery, because nothing will restrain corporations and the banks from enslaving the workers. Think of the early years of industrial revolution in Europe, novels of Charles Dickens and Emile Zola- that's the world you'll get.
"...if the govenrment taken away from the equasion as the ultimate power to redestribute the gains, the countries would slide quicly into corporate slavery, because nothing will restrain corporations and the banks from enslaving the workers."
As the Mobambo Guru would say, "Hahahahahahahahahahahahahahahahahahahahahahaha!"
Or as I would say, you think even worse than you spell.
double post
victims own damn fault . they can't countenance the blood necessary to prevent from re-occuring.
According to Barron's Online:
http://online.barrons.com/articles/barrons-up-down-wall-street-tokyo-thr...
What markets didn’t know and didn’t expect was that Japanese officials would move so dramatically to try to spur that nation’s flagging recovery. Specifically, the BOJ upped its goal for the expansion of its monetary base, to 80 trillion yen ($720 billion) from ¥60 trillion to ¥70 trillion, a move the central bank’s governor, Haruhiko Kuroda, said is aimed at ending Japan’s “deflationary mind-set.” As a result of the plan to print more yen, the Japanese currency weakened to nearly 112 to the dollar from just under 108.
Meanwhile, Japan’s $1.1 trillion pension fund said it would shift its portfolio strongly toward equities—allocating 25% each to domestic and foreign stocks, up from 12% each—while trimming domestic bonds to 35% from 60%. In gambling terms, this is going all in on Abenomics, as the stimulus plan is called, after Shinzo Abe, Japan’s prime minister.
This is truly a dazzling example of 21st century government finance. The government runs a deficit covered by IOUs, or bond borrowings. The central bank buys those bonds to fund the budget shortfall and also purchases bonds sold by the pension plan, all with reserves it creates out of thin air. The pension fund uses the newly printed yen it receives from the BOJ for its bonds to buy claims against the future earnings of private industry—that is, common stocks.
Those are the financial impacts. In the real world, the effect is to make Japanese exports cheaper and to export deflation to Japan’s trade partners.
Farcical when the house of cards collapses all the known world catches a cold ... that is everything this time round.
With all this Keynsian stimulus those with no assets lost big style because they had NO ASSET CLASS to rise and compensate for the direct central bank manipulation of the economy to the tune of billions a month.
The resounding point and clearly demonstrated a Keynsian does not care if a poor person with no asset is devalued away.
is it me or the 8 billion usd worth of yen japan is printing every month---how will that support the stock market? since when is a portion of 8 billion dollars going to prop up the entire stock and high yield markets?
seems like too little too late no?
and for everyone thinking republicans winning on tuesday will help boost the stock market. no . republicans will escalate war in syria and ukraine . but despite the market bullish response to war mongering----the markets know that the republicans must OBSTRUCT the president in order to score points in 2016 and then get their guy into office against hillary. they are scared, and need to fuck over the economy to win. keeping the economy going strong favors hillarie's election.
fiscal policy will be dead in the water. ordinarily that's basically neutral for the markets, but the publicans want tot see the markets crash tempoarily now, so they can take the reigns in 2016 to reward their banksters rather than democrat banksters.
and no matter when the market crashes -----the biggest bankseters backing both parties will win no matter what. it seems only feasible that republicans taking the senate would be bullish for the markets if the biggest baddest banksters can force the grand ol party to keep juicing the markets for another year. eventually they have to sink the ship in order to win in 2016. that seems bearish. maybe not 2008 financial crisis bearish, but bearish enough to bring a post 2011 QE bear brake.
Many here at ZH understand the problems with gold derivatives (ie 'paper gold'). They know that there is far more paper traded than there is actual physical gold to fulfill those trades should buyers demand physical. They also understand that some entities, with an agenda to see the price of gold kept low, act in ways that accomplish that end, they sell large amounts with no ability to deliver...ever. They clearly see that the paper market must eventually fail. And it will.
The problem is that these same individuals see the paper market eventually failing in a huge rise in the price of gold as the demand for paper gold increases and short are forced to cover. They believe the same forces that are able to massively naked short the market will somehow be forced to make good on their contract and pay off the longs.
This is unlikely. What is far more likely to happen is that the shorts, with whatever backing they have (maybe a central bank?) will continue to sell(forcing prices even lower) until the market breaks and no more physical can be sourced. At this point, instead of a grand windfall for longs, we should expect the forces that enable this naked shorting, to further support the process by allowing cash settlement at low market prices. If you were TPTB and it was your money which would you prefer?...failed bullion banks or a few upset goldbugs?
As the price of gold continues to fall, this might just be 'the big one'. Gold prices may just fall to the level at which no sane holder of physical will part with another ounce and the olde force majeure is declared.
I am not clairvoyant. I don't know whether this is more of the same or the final run. I do know that those who hold gold would be wise to see that this outcome is possible and indeed the more likely finish to this long story. When gold is $300 per ounce and not a gram can be sourced...don't say you never thought is could happen.
Don't worry. Gold is still demanded by all major producers. If you have physical it will come out of this crazy period better than ever. Just don't get tied to a scenario and be blindsided by an unexpected turn.
Gold is down $8.50 in the usually quiet Sunday Asian markets.
If the economy was healthy and balanced we would not be experiencing slow growth while massive amounts of money are being printed and poured into the system. The crux of our problem remains in the fact that both people and governments have lived beyond their means by taking on debt they cannot repay. Over the last several decades we have created entitlement societies built on the back of the industrial revolution, technological advantages, capital accumulated from the colonial era, and the domination of global finances.
Promises were made on the assumption that the advantages we enjoyed would continue in both Europe and the US. Ever greater prosperity and entitlements were to be sustained through debt financed consumption growth. In that eerie fantasy world, debt fueled consumption was to be the catalyst to bring about evermore growth. Debt does matter and the following article delves deeper into why kicking the can down the road will ultimately fail.
http://brucewilds.blogspot.com/2014/08/modern-monetary-theory-is-wrong-debt.html