Paul Singer Slams The Fake World: "Fake Growth, Fake Money, Fake Jobs, Fake Stability, Fake Inflation Numbers"

Tyler Durden's picture

Excerpted from Elliott Management's Paul Singer letter to investors,


Nobody knows when reality will overtake the rhetoric, lies, phony statistics, wishful thinking, fake prices and tiresome poseurs pretending to be world leaders. The situation is universal, a consequence of incompetent leaders and careless (or ignorant) citizenry. Global problems are continuing to mount, along with the risk that the consequences of years of bad policies and inept leadership compound (as sometimes happens) in a short window of time. Let us start by unpacking some current examples of fakery, and then try to explore the consequences.

Monetary policy.

Either out of ideology or incompetence, all major developed governments have given up (did they ever really try?) attempting to use solid, fundamental policies to create sustainable, strong growth in output, incomes, innovation, entrepreneurship and good jobs. The policies that are needed (in the areas of tax, regulatory, labor, education and training, energy, rule of law, and trade) are not unknown, nor are they too complicated for even the most simple-minded politician to understand. But in most developed countries, there is and has been complete policy paralysis on the growth-generation side, as elected officials have delegated the entirety of the task to central bankers.

For their part, the central bankers are proud and delighted to be providing the primary support for the global economy. Their training for this role took place in the decades before the 2008 financial crisis, when central bankers (led by “The Maestro,” Alan Greenspan) “deftly” headed off crisis after crisis. These policy responses “worked,” we were told, and they promised a new era of fine-tuning, moderation in markets and complete control of the economy by central bankers. The words in quotes are meant to be ironic, of course, because in fact, the Federal Reserve Board’s moves disguised hidden – but serious and real – future costs, which came due in 2008. The ensuing crisis introduced the term “moral hazard” (not meant to be ironic) into the mainstream, meaning that risks were taken by financial institutions and others seeking private reward, while the costs of the risks were borne primarily by the taxpayers. Central bank manipulation of prices and risk taking has become the norm over the last six years, because it is so hard for investors to see the downside. QE and ZIRP have been “free,” as far as most people are concerned, in terms of stability, asset price and economic growth, and economic recovery. “Free” in this context means devoid of future countervailing negative consequences. Unfortunately, this particular magic bullet is illusory – the negative consequences are in the early stages of revealing themselves.

Among the worst consequences of the delegation of responsibility from political leaders to central bankers has been the increasing arrogance of the latter group and their inability to understand the rapidly evolving nature of the world’s major financial institutions. Prior to the crisis, central bankers were unable to understand the risks that were building up in the global financial system and the economy. They did not see the 2008 collapse coming, nor did they perceive how fragile the system had become, or that the major financial institutions had become the largest and most leveraged hedge funds on earth.

This lapse was a catastrophic error, not just of execution but also of theory and structure. During the 2008 crisis, the central bankers (rightly) applied standard (more or less) responses to financial collapse (flooding the system with liquidity and reducing interest rates), which of course truncated the crisis and stabilized the system. But their inability to understand the financial system, or to take responsibility for their massive failures in causing/allowing the crisis to occur, has resulted in a seriously deficient economic recovery phase. Central bankers do not understand that it was their tinkering, manipulation, bailouts and false confidence that encouraged and enabled the insanity that led to the fragility and collapse. Partially as a result of that misunderstanding, the developed world has doubled down on the same policies, feeding the central bankers’ supreme self-confidence. Political leaders have been content to stand aside and watch the central bankers do their seemingly magical and magnificent work.

The believers in the wisdom of this central-banker-centric economic world have been crowing and gloating that those (like us) who have raised concerns about the risks posed by the post-crisis, monetary-dominated policy mix (inflation, distortions, growing inequality, lower growth) are just “wrong” and should apologize for a “massive error.” This, shall we say, “Krugmanization” of a substantial portion of the economics profession and punditocracy is in its triumphalist phase, and whether its smug non-stop “victory lap” ultimately represents an embarrassing high-water mark is for subsequent events to reveal.

However, let us look at the policies that have been implemented post-crisis (in the absence of the kind of solid pro-growth policies that we and others have been advocating) and compare them to the policies that were in place during the run-up to the 2008 crisis.

Pre-crisis, the Fed funds rate was 1% for 2-1/2 years. There was no asset buying by the central bank (QE), but the persistently low Fed funds rate fueled bubbles in leverage, real estate and structured products. The balance sheets and derivatives books of financial institutions went from crazy to colossally insane.


Following the crisis, the Fed funds rate has been effectively zero for six years, and QE has put several trillion dollars of government and mortgage debt on the books of the world’s major central banks. Indeed, a substantial portion of government spending in the past six years has been “financed” by QE. If the gibberish that passes for explanations of why this is not just money printing makes sense to you, then please give us a call so we can be educated. The explanation makes no sense to us.

ZIRP has allowed insolvent corporations to issue debt at almost no premium to government bond rates. Companies that should be shuttered or taken over and chopped up are instead able to pursue projects that should never have seen the light of day, and to create fake demand that essentially borrows growth (and jobs) from the future.

A good deal of the economic and jobs growth post-crisis is false growth, with little chance of being sustainable and self-reinforcing. It is based on fake money conjured by the Fed to buy assets at fake prices. What happens when interest rates are normalized and QE stops (and reverses) globally is a question that nobody wants to contemplate. The financial system is fragile, still ultra-leveraged and reliant upon a continuation of superlow interest rates. Thus, the appearance of stability and low volatility is also illusory.

Government economic data.

Some of the most important government data is unreliable, starting with inflation. Reported real GDP growth has been in the 2% annualized range for the last few years. The 4% annualized real growth rate reported for the second quarter of 2014 only reversed the terrible first quarter numbers, so year-over-year growth was still only in the 2% range for the twelve months ended June 30, 2014. Only if third and fourth quarter real GDP growth reaches 3% or higher, and only if that rate persists next year, will it be fair to say that the U.S. economy has finally recovered from the crisis (six tough years later).

But regardless of the purported results for the rest of 2014 and into 2015, all of the reported growth numbers are too high, because the official inflation number is too low. Over a long period of time, these figures have become politicized, always in the direction of under-reporting inflation. Constant repetition has resulted in most policymakers and economists now just accepting the adjustments and tricks that have become part of the reporting culture. From the notion that there is “core” and “non-core” inflation; to ignoring house prices and using “rental equivalence”; to “hedonic adjustments” according to which, if your computer is “better” than last year’s, then you should subtract an amount from the actual price every year to reflect that improvement, even though it is subjective and not really quantifiable; to a handful of other nonsensical adjustments, inflation is understated. Inflation is also distorted by the increasing gap between the spending basket of the well-off and that of the middle class (check out London, Manhattan, Aspen and East Hampton real estate prices, as well as high-end art prices, to see what the leading edge of hyperinflation could look like).

Said differently, inflation is the degradation of the value of money. Money has no meaning beyond the value of the real things for which it can be exchanged. The inventions and tools of modern finance have made things look really complicated, but stripping inflation to its essence is critical to understanding what is real and what is false. The inflation that has infected asset prices is not to be ignored just because the middleclass spending bucket is not rising in price at the same rates as high-end real estate, stocks, bonds, art and other things that benefit from QE and ZIRP. Money is losing value in those areas. This is inflation, plain and simple. If and when the situation gets to be Argentina-like, with generalized increases across the entire spending spectrum, it will be clear to everyone. In the meantime, sadly, policymakers do not recognize the reality of the peculiar and sectoral inflation, in some cases massive and growing, that has been caused by money printing and bad policy.

Even apart from rising prices in high-end goods, all of this suggests that CPI inflation is being understated by some unknowable amount, which we estimate is between 1/2% and 1% per year. This is a big difference in a 2% or 2-1/2% per year reported real GDP growth environment. Middle class citizens who are paying more at the supermarket and for college tuition and for many other goods and services feel that inflation is higher than reported, but they lack access to reliable data. The well-off think that it is their exquisite good choices that enable them to sell their overpriced $10 million co-op apartment and buy a $20 million overpriced Hamptons beach home. Neither group is coming to grips with the insidious and tricky nature of modern inflation, and the government just uses its tone of complete confidence to ignore what citizens see with their own eyes.

Unemployment figures are also a source of faulty or misleading data. The headline currently reported unemployment rate of 5.9% is deeply misleading. A 35-year low in the workforce participation rate, a policy-driven transition from full-time to part-time jobs, and the transition from high-paying jobs to relatively low-paying service jobs, all combine to make the headline rate a poor measure of employment health. Support for our statement is provided by the data on real wages, which have been stagnant during the entire post-crisis period. These figures for trends in real wages avoid the distortions we have described above, and are consonant with the polling numbers which show that Americans believe their country is on the wrong track and that the future prospects for themselves and their children are poor.


The 16th Geneva Report on the World Economy (published in September of this year by the Centre for Economic Policy Research) says that the total burden of global non-financial debt, private and public, has risen from 60% of national income in 2001 to almost 200% after the crisis in 2009 and to 215% in 2013. Contrary to widely held beliefs, the world’s leading governments and financial institutions have not yet begun to de-lever, and the global debt-to-GDP ratio is still growing to record highs, even before taking into account entitlement programs.

*  *  *

Nobody can predict how long governments can get away with fake growth, fake money, fake financial stability, fake jobs, fake inflation numbers and fake income growth. Our feeling is that confidence, especially when it is unjustified, is quite a thin veneer. When confidence is lost, that loss can be severe, sudden and simultaneous across a number of markets and sectors.

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All I have is this Rock Candy, but it ain't for eatin', it's for lookin' through.

SmittyinLA's picture

Fake is what comes to my mind when I think, of the GOP's choice for CA governor REPUBLICAN NOMINEE Neel Kashkari, he's actually posing as a "poor mexican working folk" looking for work to garner the "Latino" vote.

The guy is a sub-prime banker-looter, his parents Commies, he's about as republican as Jumpin Jim jeffords, he supports criminal invasion with socialist healthcare benefits as well as public indemnification of private banker fraud.

BTW why didn't the fake Republican TARP CZAR get called in the AIG TARP trial? 



jameswvu99's picture

This letter by Singer, just about sums everything up. 

Not If, but when is the million dollar question.

Probability of the QE bubble popping in:


Imminnent to 1 year, I would say 25%

1 year to 3 years, 25%

3 years to 5 years, 25%

Over 5 years, 24%

Never 1%

jomama's picture

Did you break out the dartboard for that prediction?

kchrisc's picture

For those still participating in the crimes against you, voting, remember, there are only two parties: The Con-Men and the Grifters.

An American, not US subject.


"Voting Macht Frei!"

rejected's picture

"They did not see the 2008 collapse coming, nor did they perceive how fragile the system had become, or that the major financial institutions had become the largest and most leveraged hedge funds on earth".

Really! You really believe that? Really!


That's as bad as believing 3 buildings implodeding into their own foot print due to impact and  burning kerosene and one of those buildings had neither... or the Pentagon mystery 757 crashed so hard all major parts just disintegrated. Both stories only for the dim witted and delusional among us and apparently they are the majority.

I refuse to believe any of this BS including the Central Bankster crooks being oblivious to the meltdown they caused. Where did the gold go stored in the WTC building?  Where did the evidence showing the Pentagon stole over 2 trillion dollars? Hell where did the Libyan gold go? Ukrainian gold? German gold? Swiss gold? Whoever's gold?

And these are the SOB's that are telling us the PM's are meaningless in our modern world while they manipulate the price to get it on the cheap, or can't see a crash they caused coming!

The title of this article is spot on. The problem is the author doesn't seem to agree on the one most important point. Wonder why?

Their freaking crooks for god's sake.


Panic Mode's picture

Herd mentality in central banks and that's the ultimate disaster.

nakedshorted's picture

All you can do is play the game and prepare.  All I need to know is that the 6 months of food supply in my basement is real and the AR-15 used to protect it makes noise.  Oh and fuck gold, junk silver bitchez! 

Creepy A. Cracker's picture

Fake Dear Leader president.


NFL: National Fake League 

Madcow's picture

Markets finally starting to wonder if an economy based entirely upon fraud and deceit is sustainable.  


Hacksaw's picture

Let me make sure I have this right. Paul Singer wants me to believe that all these things he listed are the cause of our problems?

Not one word about the bankers, Wall street pukes, or the financial services industry, those crooks that imploded our economy with their BS derivatives, home made bonds, and destroyed faith in our markets. The same ones that bribe government officials into letting them have their way with the public, destroying faith in government. These very same crooks that have bribed the justice department into looking the other way as they break every anti fraud and anti trust law on the books, in the process destroying the public's faith in our system of justice. These same crooks that OWN the Fed, destroying faith in our monetary system.

I guess Paul "I'm going to steal it all" Singer thinks I'm a moron and will believe this crock of crap that emits from his pie hole. He thinks I'll believe that the scape goats are the problem and the goat herders had nothing to do with it. Sorry Paul, I don't believe your shit, you are nothing more than a common thief, you and your thief buddies should all be in jail, and anyone who agrees with you is either a thief, a moron or both.

roadhazard's picture

So fuck it, it's 4:20 somewhere.


That's me in the back.

John Law Lives's picture

"When confidence is lost, that loss can be severe, sudden and simultaneous across a number of markets and sectors."

Said differently:

"I felt a great disturbance in the Force, as if millions of voices suddenly cried out in terror, and were suddenly silenced. I fear something terrible has happened." - Obi-Wan Kenobi


Bemused Observer's picture

All I know is that they can't do it forever. Even if they can keep it going a lot longer than anyone thinks, it WILL come to an end.
I've come to terms with the fact that these asswipes have wasted too many years of my life with their bullshit.I will never be able to make full use of my economy, not in my lifetime anyway. They've pretty much rendered it useless to me...can't save anything in their system, the currency is garbage, the markets are managed and manipulated, the data is crap. Anything you might have in the bank is subject to seizure, the laws and rules all apply to YOU, but never the banks.
It's a shame, really it is. It would have been nice to make my own little place in a functioning economy, too bad that ain't gonna happen...
So, I guess it has to be guns, gold and Sherwood Forest for me...fuck you, King John!

headhunt's picture

They can keep it going as long as the rest of the worlds economies are in the crapper also.

No one wants to flush the toilet no matter how bad it stinks. They all know it will be a cascade effect once the downward spiral starts.

goldenbuddha454's picture

All of it made up from the market to inflation to jobs numbers.  He's right.  Finally someone other than Santelli had the balls to say it!

Ariadne's picture

Don't worry. Any 6 of us can take 'em all with box cutters.

Now, who's got the box cutters?

cart00ner's picture

Pay it foward (with a rubber cheque) - Or as Grandad quoted me from his bible - "Do unto others before they do unto you!"

eucalyptus's picture

Current Asset Allocation:

Long gold

Long apple


iphones, bullion, the 30 year - that's what the economy has come down to.

AmarUtu's picture

Its true, all the faking is just letting China and Russia build unstoppable military power, just killing time for the inevitable. Kind of stupid but everything they do will turn against them from now on in..

As for prosperity, growth and job creation, well you cannot sell stuff to a society that can barely pay the bills, so they get them into debt, problem is once they lose their jobs that debt never gets paid back.

Its a vicious cycle of slavery expecting people to work and or train for their entire lives, what a fcked up reality.

Wait until they start to starve and lose access to clean drinkable water from corporate greed and climate change. World War III. This is what happens when you put corporate profits before human beings.

And thats not even considering the point of critical mass in terms of the environment.

I sure would hate to be a leader right now, they basically dooming the planet, its life forms and themselves for money, a bunch of stupid little numbers...


They say 2100 is critical mass, but around 2050 is when we all understand the planet is too volatile to support life on any organized and sustainable level.

illyia's picture

Did anyone mention fake food? Fake relationships?

I am sure someone mentioned fake boobs.

Fake hair?

bunnyswanson's picture

This is war.  A covert war.  Federal Reserve is the enemy; the strategy in place can be found in the protocols.

And when it finally ends, the people responsible for it will be shredded to pieces by a mob of angry people the size of New Jersey. 

theyjustcantstop's picture

i absolutley hate the word fake when discibing govt.s official releases.

i can remember in 2009 little timmy getting selected to head the treasury, he told america he was using a tax program to fill out his taxes, along with 20,000,000 other americans, and the program screwed up on his form, and not the other, 19,999,999.

if joe six-pack told this to the irs, they wouldn't call it fake, they use the word fraud, punishable by fines, and or imprisonment.

these govt. facists dummy down all fraud they promote, to enrich themselves with.

just like today, it was hard for me to get up and drive to the polls after reading all week of the flagrant voter fraud, ( which the liberal facist says don't exsist, but hundreds are convicted of it yearly, guess who gets convicted, 99.999% liberal facist politicians), then they can get it front of a camera smile, snicker, and laugh calling it a conservative conspriacy.

govt. has changed the words certian individuals, or groups can say punishable by fines, and or imprisment.

just as illegal aliens, went to undocumented workers to,______________________________, now their forgien visitors, soon tens of millions will be americans.

male white conservative americans= racist, sexist, homo-phobe, nativist, hillbillies.

sucessful black-americans= uncle toms.

white, black, hispanic, lgbt women= bare-foot, pregnant, a scourge of independent women.

the constitution= handbook.

words a very useful facist tool, accented by their media outlets.


malek's picture

+10 for “Krugmanization”

savedeposit's picture

The dome on de White House is also fake. Americans like fake


savedeposit's picture

The dome on de White House is also fake. Americans like fake


yukon5's picture

To attribute ability of any kind to manage anything but a circle jerk to pols is akin to looking for poetry in a cookbook. That'll just fuck up your soufflé.

And as for central banks and other apparachniks:  

"All managed markets—whether managed by government allocation as under Communism or by government sponsored central bank credit as in Capitalism—are doomed to failure." --Darryl Schoon

It's really quite simple.


khakuda's picture

How do we get his full letter?  This guy is brilliant and as eloquent as they come.  He states it best every time.