This page has been archived and commenting is disabled.

"Blood In The Casino Like Never Before" - Riding ZIRP Into Monetary Central Planning's Dead End

Tyler Durden's picture




 

Submitted by David Stockman via Contra Corner blog,

What the Fed really decided Thursday was to ride the zero-bound right smack into the next recession. When that calamity happens not too many months from now, the 28-year experiment in monetary central planning inaugurated by a desperate Alan Greenspan after Black Monday in October 1987 will come to an abrupt and merciful halt.

Why? Because Keynesian money printing is in a doom loop. The Fed’s ZIRP policies guarantee another financial crash, which will trigger still another outbreak of panic in the C-suites of corporate America and a consequent liquidation of excess inventories and labor on main street. That’s the new channel of monetary policy transmission, and it eventually leads to recession.

This upcoming recession, in turn, will prove beyond a shadow of doubt that in today’s financialized global economy you can’t manage the GDP of a single country as if it were isolated in an economic bathtub surrounded by high walls; nor can you attain domestic macro-targets for employment and inflation through the blunderbuss instruments of pegged money market rates and wealth effects levitation of the stock market.

Instead, the Fed’s falsification of financial asset prices simply subsidizes gambling in secondary markets; enables daisy chains of collateral to be endlessly hypothecated and re-hypothecated; causes vast misallocations and malinvestments of corporate resources, especially stock buybacks and other financial engineering; and sends money managers scrambling for yield without regard to risk, such as in junk bonds and EM debt.

What it doesn’t do is get households all jiggy, causing them to boost their leverage and spend up a storm. That’s because they reached “peak debt” at the time of the financial crisis, and have been struggling to reduce debt ever since. In the most recent quarter, in fact, household debt posted at $13.6 trillion or 3% lower than in early 2008.

Stated differently, the household credit channel of monetary policy transmission was a one-time Keynesian parlor trick that is now over and done. All of the Fed’s vast emissions of central bank credit have pooled up in the canyons of Wall Street, and have not triggered a borrow and spend binge on main street.

Yellen’s post-meeting statement more or less conceded the point that the US economic bathtub is vulnerable to ill winds from abroad and that six years of “extraordinary” money printing and ZIRP have not succeeded in filling it to the brim. After reviewing a domestic economy that is purportedly in the pink of health (“Since the Committee met in July, the pace of job gains has been solid, the unemployment rate has declined, and overall labor market conditions have continued to improve.”), she was quick to introduce the skunk in the woodpile: 

The recovery from the Great Recession has advanced sufficiently far, and domestic spending appears sufficiently robust, that an argument can be made for a rise in interest rates at this time. We discussed this possibility at our meeting. However, in light of the heightened uncertainties abroad and a slightly softer expected path for inflation, the Committee judged it appropriate to wait for more evidence, including some further improvement in the labor market, to bolster its confidence that inflation will rise to 2 percent in the medium term.

That’s right. They are waiting for moar inflation in the face of a gale force deflation blowing in from China and its food chain of EM materials and components suppliers. Yet as we pointed out in conjunction with the tiny 0.2% year over year change in the August CPI, waiting for the overall index to hit 2.0% is a fool’s mission because the latter is currently a meaningless average of hot and cold.

But now you have a clean bifurcation in the price indices that proves the utter pointlessness of so-called inflation targeting. One the one hand, virtually everything which is directly priced and traded on world markets is carrying a negative sign on a year-over-year basis.

 

That includes gasoline, which is down 23.3% since last August; fuel oil, which is lower by 34.6%; and gas and electric utilities, which are down by 11.5% and 0.5%, respectively.

 

Likewise, all other commodities are lower by 0.5%, while goods prices were materially lower than a year ago nearly without exception. For example, women’s apparel prices were down by 2.1%, window and floor coverings by 4.9%, appliances by 3.5%, household equipment and furnishings by 3.1%, furniture and bedding by 0.9% and tools and supplies by 0.3%

 

At the same time, the balance of the BLS table tells the Fed’s covey of inflation doves to shut-up and sit down. By any practical reckoning, upwards of two-thirds of living costs for average households are accounted for by shelter, transportation, medical care, education, entertainment and the like. Yet the year-over-year price change for the first three of these items was 3.1%, 2.1% and 2.2% respectively, while the cost of going to restaurants was up 2.7% and education costs (not shown) were up by 3.5%.

 

Nor are these one-year gains for the principal domestic services categories some kind of recent aberration that will lapse back into sub-2% inflation land if the Fed does not keep interest rates pinned to the zero bound. In fact, the 2.6% gain since last August for all services less energy services, as shown above, is spot on a trend that has been extant for the entirety of this century to date.

 

...it does not take a PhD in economics to figure out that the resulting “average” rate of price change for the BLS’ dubious market basket of consumer items is purely a statistical accident, and absolutely outside of the Fed’s ability to shape.

I was obviously wrong about the Fed’s capacity to see the obvious. The posse of PhDs domiciled in the Eccles Building opted to keep shoveling free money into the Wall Street casino when not only is the above data self-evident, but it is exactly this bifurcation of the index components, not the weakness of the US economy, that has been holding down the overall consumer price index for the last three years.

Indeed, ever since the China/EM commodity boom peaked in mid-2012 and the central bank driven global credit boom began to decelerate, the world price of commodities and manufactured goods has been falling. Needless to say, that trend thoroughly and effortlessly penetrated the imaginary wall of the US economic bathtub with which the FOMC is so wrong-headedly preoccupied.

Since then, CPI energy prices have fallen at a 5.2% annual rate and durable goods at a 1.2% CAGR, while domestic services less energy services have risen at a 2.5% annual rate. When you net all the puts and takes you get an overall CPI change of 1.1% annually for the past 36 months.

Bifurcated CPI Indices

 

Are these paint-by-the-numbers Keynesian fools incapable of even elementary pattern recognition? Worse still, why are they confident that the tide of global deflation has run its course, and that it will soon fade after three years of the above?

Inflation has continued to run below our 2 percent objective, partly reflecting declines in energy and import prices. My colleagues and I continue to expect that the effects of these factors on inflation will be transitory. However, the recent additional decline in oil prices and the further appreciation of the dollar mean that it will take a bit more time for these effects to fully dissipate……As these temporary effects fade….we expect inflation to move gradually back toward our 2 percent objective.

That is not only a faith-based statement of monetary policy; it’s totally implausible as an empirical matter. It took nearly two decades for the global credit inflation to each its apogee in 2012-2014. Now the payback phase of this unprecedented crack-up boom will take years to unfold.

This means that when the FOMC surveys the “incoming data” in October and December and for months thereafter, it will see rising evidence of domestic weakness, domestic consumer inflation printing at a bifurcated sub-2% level and the Fed’s favorite new indicator, the Goldman Sachs financial conditions index (GSFCI), pointing to ever “tighter” financial conditions.

Indeed, as the stock average continue to roll-over while the dollar gains and credit spreads blow-out, you can count on a repeat of Yellen’s thinly disguised reference to the spurious statistical contraption that B-Dud invented while serving as Goldman’s chief economist:

Developments since our July meeting, including the drop in equity prices, the further appreciation of the dollar, and a widening in risk spreads, have tightened overall financial conditions to some extent. These developments may restrain U.S. economic activity somewhat and are likely to put further downward pressure on inflation in the near term.

Needless to say, Vice-Chairman Bill Dudley’s preposterous argument that the Fed does not need to stench the flow of free money to the Wall Street casino because the market has “self-tightened” may well convince a majority of the FOMC to keep deferring the date of “lift-off”. But it will no longer cause the robo-traders to buy-the-dips.

What happened after the Thursday decision announcement is that the in-grained six-year algorithms failed. In response to Fed meeting statements in the future, therefore, the bots will be increasingly programmed to sell the resulting FOMC confusion and incoherence, not buy the dips.

So there will also be blood in the casino like never before. Once the Fed is exposed as flat-out paralyzed, rent with public disagreements and out of dry powder, the gamblers and 1 percenters will not only desperately dump their “risk assets” in the mother of all meltdowns; they will also come to detest and loath the FOMC—-thereby setting the stage for show trials on Capitol Hill where the Keynesian posse responsible for fueling Wall Street’s stupendous gambling spree will hopefully feel the wrath of the nation’s awakened sleepwalkers and their currently clueless representatives.

Indeed, if you don’t think the financial markets are headed for a big spot of trouble, please click-on to Janet Yellen’s press conference. Yes, it’s painful to listen to and even worse to watch, but the exercise will make one thing abundantly clear. Namely, that the most powerful economic agent in the world is naïve, superficial, paint-by-the-numbers Keynesian bathtub plumber who has no clue about the incendiary forces that the Fed and other central banks have unleashed in the global financial system.

Among the most insidious of these is that the corporate C-suite has been morphed into a stock trading room. The mountains of cheap corporate debt that have been sold to yield hungry asset managers has enabled companies to literally rig their own stock prices higher and higher via $2.5 trillion of buybacks since March 2009. At the same time, the Fed’s wealth effects policy and free money to the carry trades has fulsomely rewarded buy the dips robo-machines and hedge fund gamblers, thereby insuring that the cash register keeps ringing on executive stock options.

Accordingly, corporate management of labor and inventory is now tethered to the stock averages, and that has especially perverse effects as the Fed’s financial bubble cycle ages. To wit, the C-suite becomes inordinately bullish and complacent as the stock averages move ever higher and executives’ net worth soars.

But when the financial bubble eventually bursts owing to unexpected “black swans” or the fact that the last sucker in the casino has hit the bid, the C-suite is caught short and lapses into panicked cost cutting and retrenchment. The evidence from the Great Recession cycle could not be more dispositive.

As shown in the chart below, the official dating for the recession incepted in December 2007, but total business inventories (manufacturing, wholesale and retail) kept building through a peak in August 2008, when they reached $1.54 trillion. Then came the stock market carnage of September through March, which elicited a violent liquidation of inventories.

 

In fact, during the next 13 months inventory investment plunged by $230 billion or nearly 15%, causing a cascading curtailment of current orders and production throughout the US supply chain. Only after the stock market put in a convincing bottom in March-August 2009 did the liquidation come to a halt, and the process of reinvestment begin.

Stated differently, the Obama $800 billion fiscal stimulus had virtually nothing to do with the turnaround depicted in the chart because only small amounts of its had actually hit the spending stream by August 2009.

Likewise, the violent shedding of labor occurred after the stock market collapse, not when the recession commenced. Specifically, during the eight months between December 2007 and August 2008, the rate of job loss was about 150,000 per month. Then during the next eight months it accelerated to 675,000 per month.

 

Similar to the case of inventories, however, the convincing rebound of the stock market after April 2009 brought the jobs contraction to an abrupt end. While the total non-farm payroll count did not hit bottom for another 10 months, the rate of job loss shrunk to less than 200,000 per month.

Needless to say, the C-suite channel of monetary policy transmission has not attained even the slight notice of the monetary politburo. Indeed, these retro-Keynesians are so manically focussed on the “labor market” that they can see almost nothing else.

But what they ought to be noticing is that US business sales have already rolled over, and the inventory to sales ratio is rising rapidly, just as it did in 2008 before the Lehman collapse.

In short, the US economy does not resemble in the slightest the labor market focussed picture painted by Yellen on Thursday. It is at a point of extreme vulnerability late in the business cycle in the context of a 20-year global credit boom that is now dramatically reversing.

Except this time when the stock market bubble collapses, there will be no ZIRP and QE to ride to the rescue and rekindle bullish greed in the C-suites. Instead, this time there will be a real, prolonged recession as the excesses and deformations from two decades of the Keynesian con game conducted from the Eccles Building are wrung out of the financial markets.

At the end of the day, cowardice and intellectual incoherence do not will out. By opting for the 81st month of ZIRP, the foolish usurpers of free market capitalism and its vital processes of price discovery who currently rein from the Eccles Building have lashed themselves to a doom loop.

It will eventually mean the end of monetary central planning, but not until tens of millions of innocent main street savers, workers and entrepreneurs have been unfairly and unnecessarily battered by its demise. Yellen and Co should be so lucky as to only face torches and pitch forks.

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Sat, 09/19/2015 - 11:52 | 6569079 kaiserhoff
kaiserhoff's picture

The recession never ended for the real economy.

It's the parasites and the tyrant classes who are doing well.

I like Stockman, but he should get that right.  Government is evil.

Sat, 09/19/2015 - 11:56 | 6569086 TBT or not TBT
TBT or not TBT's picture

On the bright side,  maybe PMs and common cartridges will get cheaper for a little while.   As Mish says, deflation first.   

Sat, 09/19/2015 - 12:16 | 6569122 Pool Shark
Pool Shark's picture

 

 

Deflation First,... and Only.

Interest rates will not rise, because they cannot rise.

We are ALL Japan now.

Want to see where interest rates are headed?

http://slant.investorplace.com/files/2014/02/Interest_Rate_Japan_Historical.png

See that tiny bump in rates from '07 - '08?

That's Yellen making a token raise next year, and then taking it back when the depression hits.

 

Japan has been playing this game for 25 years; and losing. Even Krugman now admits it.

The US will play the same game; and also lose.

NIRP, here we come...

Sat, 09/19/2015 - 12:38 | 6569196 MalteseFalcon
MalteseFalcon's picture

"Except this time when the stock market bubble collapses, there will be no ZIRP and QE to ride to the rescue and rekindle bullish greed in the C-suites."

One other decidedly non-minor point.  China went on a massive post-2008 spending spree and powered the entire world's economy.  That's also done and over. 

India's turn? 

LOL! STFU!

Sat, 09/19/2015 - 12:56 | 6569243 Boris Alatovkrap
Boris Alatovkrap's picture

Economist can find talking all day about monetary policy but is amount to nothing. Even fundamental such as is labor rate participation is not of meaningful without two topic which is never address in FOMC or other meeting chamber of Oligarchy Class... Rule of Law and Productivity. That is all of is economy, folks... are we make more for less over time (Increase of Productivity)? and are we produce free of bondage of anarchy or tyranny (Rule of Law)? Yes, then is let market do is job, No, then get big governmental apparatus out of way.

Nothing else is matter.

... But what is Boris know?!

Sat, 09/19/2015 - 14:23 | 6569436 Stainless Steel Rat
Stainless Steel Rat's picture

In Capitalist America, rates raze you!

Sun, 09/20/2015 - 03:18 | 6570834 ConfederateH
ConfederateH's picture

Rule of Law is okay if you personally know and respect the people who write and enforce them.  Otherwise law eventually becomes what it is today, extreme rules harshly and corruptly enforced in order to prevent real people from "offending" queers, bitches and jews.

Sat, 09/19/2015 - 15:01 | 6569496 SofaPapa
SofaPapa's picture

We cannot be Japan.

Japan could be Japan because the reserve currency maintained the markets while Japan did its thing.  There is nothing to balance out a similar US deflation.

I don't know what's coming, but this game won't last for 25 more years.

Sat, 09/19/2015 - 15:21 | 6569570 booboo
booboo's picture

To plagarize a dead man
Krugman "uses statistics like a drunk uses a street light, for support and not for illumination"

Sat, 09/19/2015 - 12:56 | 6569246 ZH Snob
ZH Snob's picture

domestic deflation or international?  as Stockman points out, it is short-sighted to try to characterize it as a single economy that is either inflated or deflated.  understanding the BIFURCATION is key.  and in my opinion it all goes back to king dollar.  its overvalue is killing emerging markets and internationally traded goods, thus deflation.  while at home the same dollar is making food, health care, tuition, etc more expensive, thus inflation.

Sat, 09/19/2015 - 13:54 | 6569377 Consuelo
Consuelo's picture

 

 

'King dollar' exists at the pleasure of

a): Conformity (read: Military Force)  

b): Convenience (read: They way things have always been done)

c): Complacency (read: Too complicated, too expensive, too 'dangerous' to change...)  

d): Confidence. (read: self-evident...)

 

 

 

Sat, 09/19/2015 - 15:32 | 6569575 daveO
daveO's picture

Lower prices until they disappear. Think Gum Dept. stores in the state-controlled USSR. Things were cheap and the shelves were empty. The parasites literally suck all of the productivity gains (aka deflation) from the economy, leaving the average person with a bag full of diddly squat. In the USSR, it was store price controls to enrich or, at least, protect party members. Here, it's monetary price controls to enrich New York City and protect, grow DC. 

Sat, 09/19/2015 - 11:59 | 6569094 KnuckleDragger-X
KnuckleDragger-X's picture

Not recession, depression because there IS a difference.....

Sat, 09/19/2015 - 12:13 | 6569123 cosmyccowboy
cosmyccowboy's picture

Correct, the recession never ended, we are now entering the greater depression!

Sat, 09/19/2015 - 12:57 | 6569251 Boris Alatovkrap
Boris Alatovkrap's picture

When you are deep in excrement and just dig, you are just deeper in excrement.

Sat, 09/19/2015 - 12:22 | 6569143 falak pema
falak pema's picture

lets abolish government of the people (whats left of it) and replace it by a Kaiser. Wilhem III ?

Sat, 09/19/2015 - 12:45 | 6569217 MalteseFalcon
MalteseFalcon's picture

We can change our national anthem to the anthem from the German Empire period  It's a catchy tune otherwise known as 'My Country 'tis of Thee'. 

Sat, 09/19/2015 - 12:55 | 6569223 kaiserhoff
kaiserhoff's picture

The modern one is better,

Beethoven's Ninth, more commonly known as "Ode to Joy."

https://www.youtube.com/watch?v=4DgzRrgmnpY

 

Sat, 09/19/2015 - 12:59 | 6569256 Boris Alatovkrap
Boris Alatovkrap's picture

But what of feeling of national racial superiority inspire by Wagner!?

Sat, 09/19/2015 - 13:10 | 6569282 kaiserhoff
kaiserhoff's picture

Gut, dass ist es nicht?

Sat, 09/19/2015 - 14:02 | 6569392 MalteseFalcon
MalteseFalcon's picture

Soviet, er, Russian anthem is very up lifting.

Sat, 09/19/2015 - 15:17 | 6569551 Boris Alatovkrap
Boris Alatovkrap's picture

When Boris is hear Soviet national anthem is choke up and tear is formation in eyes... as remember many million starvation victim in Boris home republic after Stalin is inflict purge.

Sat, 09/19/2015 - 14:20 | 6569424 DutchR
Sat, 09/19/2015 - 13:01 | 6569264 MalteseFalcon
MalteseFalcon's picture

I thought the modern one was "Deutschlandlied", aka the Austro-Hungarian empire's anthem.

Sat, 09/19/2015 - 13:42 | 6569339 Fish Gone Bad
Fish Gone Bad's picture

Best listened to while watching A Clockwork Orange.

Sat, 09/19/2015 - 14:21 | 6569426 DutchR
DutchR's picture

Fucked up by a drug of choice..

Sat, 09/19/2015 - 12:24 | 6569152 junction
junction's picture

Alright, now that we know we have a problem, what is the solution?

Sat, 09/19/2015 - 13:05 | 6569272 bbq on whitehou...
bbq on whitehouse lawn's picture

Remove all laws, codes, fees, taxes and government agencys created after 1910. You could choose a more recent date with lesser economic benifits. Moats and walls were built to protect rents not people. This is the result.

Sat, 09/19/2015 - 14:06 | 6569397 zhandax
zhandax's picture

You are on the right track, but I would back that up to around 1850 just to avoid the federalist stench from a decade later.

Sun, 09/20/2015 - 08:23 | 6571015 maxamus
maxamus's picture

But you have an iPhone today.  All good.

Sat, 09/19/2015 - 11:53 | 6569081 JustObserving
JustObserving's picture

Yellen and Co should be so lucky as to only face torches and pitch forks.

Hope Bernanke and Greenspan get their just deserts too.  And billionaires Dimon and Blankfein get the justice that is due them.

Sat, 09/19/2015 - 12:08 | 6569088 LawsofPhysics
LawsofPhysics's picture

many have been keeping an accurate list of precisely who has been profitting on the backs of the working man and woman. 

 

Such a "let the majority eat cake" monetary experiment has been tried before.  The outcome will be no different this time around.

tick tock motherfuckers.

Sat, 09/19/2015 - 12:32 | 6569173 Winston Churchill
Winston Churchill's picture

Long basket weavers.

Sat, 09/19/2015 - 12:50 | 6569232 MalteseFalcon
MalteseFalcon's picture

I expect many very elderly American political and financial celebrities will suddenly disappear from the 'stage' early during the post crash era.  Natural causes i.e. their supply of smoothies made of teenager blood and baby parts will be cut off.

Sat, 09/19/2015 - 15:43 | 6569639 daveO
daveO's picture

No worries. They'll just hop in their jet and head down to South America. That's the way the other members did it in 1945.

Sat, 09/19/2015 - 17:47 | 6569914 OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

Little factoids about the guillotine: previously people were executed either by torture or much worse means, the invention of the guillotine was hailed as a very "humane" advancement, science marches on. The blade weighed 88 pounds. There was a debate whether the head still had feelings after the event so several customers were asked to try and blink or smile or talk or something from the basket. Several were said to have moved their lips and made comments of various kinds, the famous chemist Lavoisier blinked furiously (or rather his head did).

At the peak they could serve 2 customers per minute, and an actual river of blood ran a half mile from the site into the river Seine.

Sat, 09/19/2015 - 14:15 | 6569420 hangemhigh77
hangemhigh77's picture

I can't wait to see all their heads on sticks in Times Square.

Sat, 09/19/2015 - 15:26 | 6569585 undertow1141
undertow1141's picture

Hell with Times Square, on the fence posts surrounding the Capitol Building. As a reminder to the new govt.

Sat, 09/19/2015 - 14:12 | 6569414 hangemhigh77
hangemhigh77's picture

All of them swinging from the end of a rope in $10,000 suits. Fuck 'em

Sat, 09/19/2015 - 12:27 | 6569091 KnuckleDragger-X
KnuckleDragger-X's picture

Things are about to get worse. The FED can't do anything but throw money at the problem. However they know that by now even the sheep know that QE didn't work, so they'll call it something else and it'll be bigger than all the QE's combined. Hyperinflation will just be a small part of the ultimate outcome. Time to batten down the hatches because this storm will be epic.....

Sat, 09/19/2015 - 11:58 | 6569092 atthelake
atthelake's picture

This culture seems to be great at beating up women but not so great at going after successful men. Yellen may get a pitchfork to the gut but nothing will happen to the men.

Sat, 09/19/2015 - 12:09 | 6569114 Richardk888
Richardk888's picture

Huh? Doing some daytime drinking are we?

Sat, 09/19/2015 - 12:48 | 6569226 Uncertain T
Uncertain T's picture

Gertiing the jump on noon

Sat, 09/19/2015 - 13:58 | 6569384 Consuelo
Consuelo's picture

Bad divorce, eh...?

Sat, 09/19/2015 - 14:01 | 6569390 Enceladus
Enceladus's picture

Is your tampon in sideways?

Sat, 09/19/2015 - 12:01 | 6569098 q99x2
q99x2's picture

Because Keynesian money printing is in a doom loop

I contend that it was a military operation by the banks to take over the US Government and their military through financial operations. It was successful.


Sat, 09/19/2015 - 12:10 | 6569115 Wilcox1
Wilcox1's picture

The look on her face gave me a very uneasy feeling like maybe she was seeing torches and pitchforks. Making it doubly bad is that she looks just like my sweet grandmother. As violent as it is going to be, there is no way to get around that there is a cost to being a leader of men. 

Sat, 09/19/2015 - 12:29 | 6569161 cosmyccowboy
cosmyccowboy's picture

Sweet grandmother??? I saw evil incarnate and a bobble head daughter of Lucifer himself!!! 

Sat, 09/19/2015 - 13:41 | 6569337 spanish inquisition
spanish inquisition's picture

Makes me think star wars was a psyop to make us like her like yoda. My whole world is upside down.

Sat, 09/19/2015 - 12:26 | 6569116 cosmyccowboy
cosmyccowboy's picture

David you said you were wrong about the Fed's ability to see the obvious. That's incorrect, what you are wrong about is thinking the economic collapse is because of blindness or stupidity! This is all by design, on orders from on high!!!

The green Nazi must destroy the huge american middle class, it is they who have consumed the worlds resources and supposedly harmed the rest of the world!

Sat, 09/19/2015 - 12:18 | 6569127 falak pema
falak pema's picture

Friedmanite money printing; Greenspan was a true Friedmanite from Chicago school. Friedman was the father of monetarism that went viral when he orchestrated the '71 BW revoke for boss Nixon.

Why impale Keynes on that lie?

Stockman's aversion for the FDR New Deal age has projected his language to extend and pretend that 71 was Keynes's legacy.

Sat, 09/19/2015 - 12:24 | 6569150 PoasterToaster
PoasterToaster's picture

Where's Friedman's national stipend?  Without that it's not really his full suggestion.  Lots of things are missing in the elitist system that would label this a Friedman plan.

Keynes talked about using government debt financing to eliminate depressions.  This is the mechanism of injecting the printed money.  But who gets every last penny?  That's right, the US oligarchs.

This is about establishing an aristocracy in the US, and destroying upward social mobility.  They want to create a vast uncrossable monetary chasm between their class and the rest of us.  That's why they are systematically assaulting the middle class and attacking the idea of university attendance as a means of attaining a good life.

We aren't supposed to have good lives anymore.  We are supposed to get used to the "new normal",  poverty and slavery.

Sat, 09/19/2015 - 13:16 | 6569168 falak pema
falak pema's picture

Friedman started the ball rolling from Nixon to Reagan and supply side rip-off; he created the financial tools, but the post Reagan age hubris in NWO oligarchy outsourcing and big stick plays of "towering colossus" have now broken all the restraints of prudent capitalism.

Yes, its now an aristocratically controlled Empire.

Optimates vs Populares in Rome; it spawned Caesar!

For those who doubt the influence of Friedman on US economic policy especially from 1980 onwards, read this extract on him  from Wikipedia :

His ideas concerning monetary policy, taxation, privatization and deregulation influenced government policies, especially during the 1980s. His monetary theory influenced the Federal Reserve's response to the global financial crisis of 2007–08. Edward Nelson, the assistant director of the board of governors of the Federal Reserve System, argues, "in important respects, the overall monetary and financial policy response to the crisis can be viewed as Friedman’s monetary economics in practice." [13]

 

Sat, 09/19/2015 - 14:56 | 6569505 Not My Real Name
Not My Real Name's picture

Either you intentionally ignored guys like Wilson, who enabled the Fed, FDR with his socialist New Deal policies, and LBJ and his Guns & Butter Great Society BS that led to Nixon closing the gold window, or you need to bone up on history. 

I suspect it is the former.

Sat, 09/19/2015 - 15:15 | 6569541 falak pema
falak pema's picture

I suspect that you need to "balls up" on history too.

What Wilson did was "errors  of omission" when he gullibly allowed the Oligarchs to create the PRIVATE FED, unlike all other capitalist nations...

What the Oligarchs did; scions of Capitalism : JP Morgan, Mellon, Rothschilds, Ford, Rockafella and Warburg... was to IMPOSE monetary hegemony based on the City's acumen on the new frontier of capitalism, as Europe Morphed into dystopia. WS became uber alles in the interim.

So the "socialist statists" at worse were manipulated by the Capitalists of USA. Then all hell broke loose in 1929, all concocted by Harding, Coolidge and Hoover in name of "free markets" and the shit hit the fans; entrepreneurial capitalism died and retrenched to dire "may the devil take the hindmost"... which OBLIGED the State to invent; clumsily; under New Deal and against the interests of the recalcitrant capitalist Oligarchy ---who fought it tooth and nail-- the NEw DEAL.

The people ate the grapes of wrath until the war brought back growth to USA under the aegis of FDR and the great generation.

Don't shit in the gold fish bowl of that age; it was the greatest times of USA : from 1945 to 1963; before Friedmanism and greed of Oligarchy killed the "mockingbird" in Dallas.

And the US morphed into Empire!

Sun, 10/04/2015 - 13:42 | 6628536 Not My Real Name
Not My Real Name's picture

So the "socialist statists" at worse were manipulated by the Capitalists of USA.

LOL! Okay ... that's yet another statist apology.

Coolidge ran budget surpluses all four years, and Hoover refused to buy in to the Keynesian model. The trouble is, FDR extended the period of hell with his New Deal policies, comrade. 1945 - 1963 were so good because the US was the only viable economy out there after WWII decimated the other countires ability to export.

Our real salad days were in the decades leading up to 1913. 

Sat, 09/19/2015 - 14:21 | 6569429 Kassandra
Kassandra's picture

I was going to post something about the "good old days", when things were better, but I honestly can't remember when that might have been. Not in my lifetime.

Sat, 09/19/2015 - 18:08 | 6569966 Raging Debate
Raging Debate's picture

Poaster - Hard to not take it personally when one is the target of tax policy. Realize in such cycles all get taxed by inflation, the rich and poor escape direct taxation. The rich because they bribe the government and can afford secondary legal protections and the poor because they have nothing to give but a vote. But even that subsidy goes away for the vote

Basic cycle: Capitalism, Fascism, Communism. Central Banking knows this too and profits at every stage until the host nation drys up and blows away. Nothing new under the sun except the labels and names. Defend yourself against robbery and look after one another. Oh yeah hedge against the inevitable war and then go to the bar, buy some people pitchers of beer and have fun. 

Sat, 09/19/2015 - 17:11 | 6569815 GRDguy
GRDguy's picture

It'd be interesting to know who financed Friedman. Then you'd know who has power.

Sat, 09/19/2015 - 17:20 | 6569841 daveO
Sat, 09/19/2015 - 12:16 | 6569129 Danno Anderson
Danno Anderson's picture

Since Stockman went broke managing a hedge fund he should know all about financial failure.  

From wikipedia:

On the strength of his investment record at Blackstone, Stockman and his partners raised $1.3 billion of equity from institutional and other investors. With Stockman's guidance, Heartland used a contrarian investment strategy, buying controlling interests in companies operating in sectors of the U.S. economy that were attracting the least amount of new equity: auto parts and textiles. With the help of about $9 billion in Wall Street debt financing, Heartland completed more than 20 transactions in less than 2 years to create four portfolio companies: Springs IndustriesMetaldyne, Collins & Aikman, and TriMas. Several major investments performed very poorly, however. Collins & Aikman filed for bankruptcy during 2005 and when Heartland sold Metaldyne to Asahi Tec Corp. during 2006, Heartland lost most of the $340 million of equity it had invested in the business.[17]

Collins & Aikman Corp.[edit]

During August 2003, Stockman became CEO of Collins & Aikman Corporation, a Detroit-based manufacturer of automotive interior components. He was ousted from that job days before Collins & Aikman filed for bankruptcy under Chapter 11 on May 17, 2005.

 

Sat, 09/19/2015 - 12:16 | 6569130 overmedicatedun...
overmedicatedundersexed's picture

suddenly the Fed wakes up one morning and says: the fed is useless to move an economy and disbands itself.

or more likely us military lands on the feds doorstep as well as the supreme court and they say to the troops ; "look it was not me it was him, I was just following orders yes i am a victim."

Sat, 09/19/2015 - 17:13 | 6569821 GRDguy
GRDguy's picture

More likely, after destroying what's left of America, they wake up and say "Mission Accomplished!"

Sat, 09/19/2015 - 12:18 | 6569135 i_call_you_my_base
i_call_you_my_base's picture

The fed is not stupid. They are just crazy. They will go negative rates, buying ETFs, corporate bonds, etc. People who think the fed doesn't have options lack imagination.

Sat, 09/19/2015 - 12:31 | 6569159 Soul Glow
Soul Glow's picture

You are thinking inside the box; you are thinking - since the Fed prints money, then they can print themselves infinite money and buy assets, to be the buyer of last resort.

Yet what you are failing to consider is the diminishing returns of the doller.  WIth each dollar printed the supply of dollars is increased.  This increase of supply automatically decreases it's value.

The only hope for the Fed, who is not only the supplier of said dollars but the issuer of the Unied States of America's currency, is that people want to hold and store dollars.  The minute they are used/sold then the price *P decreases.  

Quantity Theory of Money

https://en.wikipedia.org/wiki/Quantity_theory_of_money

Sat, 09/19/2015 - 12:51 | 6569231 i_call_you_my_base
i_call_you_my_base's picture

I'm not arguing that it can go on forever, I'm just saying that they have more shit to throw at the wall from here. Arguing that they are "trapped" isn't exactly correct, imo.

Sat, 09/19/2015 - 13:18 | 6569298 Soul Glow
Soul Glow's picture

Pray tell how much moar shit do they have to throw at the financial system?  Are they throwing said shit like monkeys?  Are the bankers and economists just a bunch of shit throwing monkeys?

I say yes they are fucking monkeys throwing shit and it can end at any time.

At any time.

Sat, 09/19/2015 - 17:31 | 6569870 daveO
daveO's picture

They can counterfeit, at least, until the dollar drops below 50% of trade. If China hadn't started collapsing last month, they would've raised rates. Now, they can just watch the scared money rush to safe haven America. If that tide turns, they raise rates.

https://en.wikipedia.org/wiki/International_use_of_the_U.S._dollar

Sat, 09/19/2015 - 15:40 | 6569630 Midnight Rider
Midnight Rider's picture

Doesn't matter. Nothing they do will stop the deflationary financial disaster that's been building behind the dam. They won't have time to try and implement anything anyway once the implosion begins.

Sat, 09/19/2015 - 12:24 | 6569153 Soul Glow
Soul Glow's picture

I can't wait for banks to be NIRPL'd.

:)

Sat, 09/19/2015 - 12:29 | 6569160 Kickaha
Kickaha's picture

Stockman writes well, and seems to have the right idea about the impotence of the Fed and the damage it has done, but he needs to use something other than the manipulated gov statistics to make his point, because those statistics have been massaged to make the economy look way better than it really is, and his presentation looses credibility when he starts talking about the "coming recession".  It's here already.  His web site has him living in Greenwich, CT, amidst the gaggle of hedge fund managers in what is perhaps the wealthiest community in America.  I doubt he ever sees the carcasses littering the fly-over states so as to be able to fully understand, with his own eyes, the carnage in a hollowed out America, the nothingness behind the East Coast financial Potemkin facade.

Sat, 09/19/2015 - 12:36 | 6569182 Able Ape
Able Ape's picture

Looks like REALITY is squatting over Janet's Ouija board and is taking humongous shits all over it... What's a girl to do?...

Sat, 09/19/2015 - 12:36 | 6569184 Rehab Willie
Rehab Willie's picture

Time for Calamity Janet to earn her name

Sat, 09/19/2015 - 12:40 | 6569199 corporatewhore
corporatewhore's picture

I really enjoy all these suburbanites who  look at the lower gas price without realizing the implications. 

Sat, 09/19/2015 - 12:40 | 6569202 Barnaby
Barnaby's picture

All I can say is people might actually benefit from stuffing their mattresses instead of buying new ones...

Sat, 09/19/2015 - 16:08 | 6569692 MrSteve
MrSteve's picture

I wondered why all these matress stores were opening up: Sleepy's,  ThermoRest, Back to Bed, etc, etc. Though you have to recall the last time banks went under there was no FDIC and there was silver and gold dollars. I think putting away some Neosporin, iodine, Cipro®, sulfa drugs, surgical tools, needles and dental tools, medical books, lots of tooth brushes & paste and alcohol is a very sound thing to do. Fish hooks and line may be as good as silver in a real emergency. Heirloom corn and bean seeds might be magical ingredients under your matress too.

Sat, 09/19/2015 - 12:41 | 6569205 rejected
rejected's picture

Stockman pretty well covers it. Thank God for people like Stockman, PCR and sites like ZH.

nuff said!

Sat, 09/19/2015 - 12:48 | 6569218 swmnguy
swmnguy's picture

Ever since Stockman first appeared on the scen, as Reagan's true-believer budget director, there's always been something a bit "off" about him.  I couldn't tell if he was an incredibly devious cynic or just a really naive true-believer, almost to the point of being a bit autistic.  I now think it's the latter.

Stockman believes in an imaginary system that has never existed, and he thinks everyone else believes in it too.  So when the Fed and the rest of the Establishment aren't taking steps to bring about this imaginary situation, Stockman thinks there's something wrong with them.

No.  The Fed is doing what it was set up to do by the people and groups that own it.  The Fed is enabling the looting of the US, now global, economy.  It provides a mechanism to divert the public and privately held wealth of the nation through the banking interests that created, own, and operate the Fed.  The cultural mythology about how our finance system works has always been false, and the proof of the falsehood has never really been hidden.  Yet try explaining to someone how no money exists before debt is created, in our system.  Or how there has to be inflation or debt at interest cannot be repaid and eventually there will be no credit.  I don't advocate for this system and its flaws are so obvious that explaining them makes one feel kind of stupid.  But that's the system in operation today and David Stockman, of all people, should know it.

What's so hard to see about this?  Is it the issue where people who grew up and were educated within a system can't perceive anything outside that system, and can't perceive of the system itself?  It would be really too bad for Stockman if that were the case.  That would suggest that he is quite unintelligent, as self-awareness is one of the first indicators of intelligence, and realizing where one stands in regard to one's society and social structure is key to self-awareness.

Sat, 09/19/2015 - 13:12 | 6569286 bbq on whitehou...
bbq on whitehouse lawn's picture

Men were beasts who dared to dream: of governing themselves.

Sat, 09/19/2015 - 15:42 | 6569635 Wahooo
Wahooo's picture

You nailed it. Stockman is part of the oligarchy.

Sat, 09/19/2015 - 18:16 | 6569992 Raging Debate
Raging Debate's picture

Wahoo - Nah Stockan finally realize one cannot serve two mastes of slavery and freedom simultaneously. Cut some slack about people waking up. All our shit stinks an ld so VERY few true saints. I am not.one of them but I try now which I realize is best I can do. 

Sat, 09/19/2015 - 15:56 | 6569663 falak pema
falak pema's picture

bravo, the pseudo libertarian was an ex-neo con.

A lot of the libertarians are neo-liberals who got their balls squashed in the wind down of capitalism fed on steroids during the 2001-2008 period.

Bitter lemons.

Sat, 09/19/2015 - 17:39 | 6569888 daveO
daveO's picture

10 to 4 for the up votes at 17:38. 'They' are watching on weekends, too!

Sat, 09/19/2015 - 20:56 | 6570275 Wilcox1
Wilcox1's picture

Hmm, I'd have to say that if Stockman is a stacker it would suggest the opposite of unintelligence given the reality we are working with.

Sat, 09/19/2015 - 12:50 | 6569233 the grateful un...
the grateful unemployed's picture

that kid who bought 50B in Treasurys in the secondary market through Belgium is probably counting his chips. the secondary could get pretty frothy, if China wants to dump a couple trillion they might think twice but the value of these bonds when NIRP is in place should send the bond vigilantes into their caves. interesting times

Sat, 09/19/2015 - 12:51 | 6569235 eddiebe
eddiebe's picture

Fed money printing is only a 'doom loop' for those of us out of the loop. For the boyz in the club it is an incredible ride of whatever they want and more. When fiat finally dies they will be sitting pretty owning everything with the most of us either begging for some crumbs or already eradicated by the hired thugs.

Sat, 09/19/2015 - 13:34 | 6569307 joego1
joego1's picture

I can imagine Old Yellen riddin old sway backed Zirp down the monetary cayon to hell singing hi ho hi ho to Keynesland we go...

Sat, 09/19/2015 - 13:28 | 6569310 Not if_ But When
Not if_ But When's picture

It's funny the way Obama's $800 billion stimulus worked out as described by Stockman (in addition to it being so very little compared to the overall scheme of FED machinations).

I strongly believe that one of the two basic methods of economic policy has been entirely corrupted and put out of play.  Due to legislative gridlock, there is essentially no FISCAL POLICY being enacted, only MONETARY POLICY through the FED.  This had existed anyway, but the Citizens United decision greatly exacerbated it.  IMO the big money donors who control legislators do not necessarily care whether they are Dem or Repub.  Rather, they want to ensure a distribution of seats to result in dysfunction.  Or, they can fiddle with their bought lawmakers to block legislation - the Planned Parenthood issue impact on the budget being the latest perfect example.  They plant their servants all around to make any effective FISCAL POLICY an impossibility.  Congress will be fortunate to pass a budget anywhere near timely, much less pass any other measures directed at the economy.  And in order for any bills to pass they will have so many attachments that it becomes a clusterf*ck.  These parties control Congress like a puppet master.

So they have their #1 agent, the FED, controlling everything.  You cannot have a purely central bank controlled economy  unless you have co-opted these two branches of gov't - the Legislative branch and the Judicial branch.  The Citizens United decision is symbolic of the takeover of the Judicial branch.  Everyone knows Congress is bought and paid for.  The executive branch really can't do much of anything regarding domestic policy.

So the takeover of Central Planning (the FED) is complete.  And there are so many Americans who don't understand the reasons for income inequality and their lowly & diminishing status compared to the .01-1%...............

Sat, 09/19/2015 - 14:50 | 6569476 Element
Element's picture

He's basically saying the recession into crack-up boom phase will be about at its worst around US election day.

Should at least be a little bit more interesting.

China and Europe will be going legs up at about the same time, if not sooner.

 

edit: oh yeah, great article Mr Stockman.

Sat, 09/19/2015 - 15:05 | 6569529 q99x2
q99x2's picture

The FED will move to -100% interest soon. Put your money in a bank ... AND ITS GONE!

Sat, 09/19/2015 - 17:45 | 6569905 daveO
daveO's picture

So, you read a similar article to this one, too?

http://www.foxnews.com/politics/2015/09/15/price-tag-bernie-sanderss-pro...

Good news comrades! The state controlled media told me, just this morning, that comrade Bernie is now ahead of Hildabeast by 20 in the latest poll.

Forward!

Sat, 09/19/2015 - 17:46 | 6569911 polo007
polo007's picture

According to Bank of America Merrill Lynch:

https://app.box.com/s/2x1jqc1901tv8v00mbqnqjfbu8rrqzzp

The HY Note

Global growth concerns spread from us to Fed

A slow moving train wreck

Today’s Fed decision was the second worst outcome for risk markets, in our view. We have written on numerous occasions that if the Fed didn’t hike rates today initially markets would rally modestly before selling off. The realization that global growth concerns are not only real, but very dangerous right now should cause a risk off environment. And with no room to cut rates, we question the Fed’s ability to manage any further slowdown through what would have to be QE4. However, we can’t see how additional quantitative easing will help, as the goals of QE have already played out: the banking system has recovered, rates are low, investors have driven debt issuance and asset prices to uncomfortable levels, and the housing market has recovered enough to not be a concern.

Furthermore, lower rates don’t help high yield at this point. Whether the 10y is at 2.20% or 2.0%, does the asset class really look all that more compelling? Not in the slightest. In fact, outside of hiking while sounding very hawkish, not hiking and sounding very dovish while expressing concern about the global economy may be the worst thing that could have happened today.

We have been saying for months that the global economy is weak and the Fed’s dovish disposition today only bolsters our view. Europe is about to enter QE2 as inflation and growth remains poor. Japan and Brazil were just downgraded. Commodities remain   under pressure and we think, at some point, the narrative could turn from a supply driven story to a demand driven one. Domestically it becomes harder to argue that a strong dollar and the lack of inflation can be viewed as transitory and this headwind is continuing to hurt high yield corporates. Manufacturing is uneven, consumer spending hasn’t improved in a year, and 2014 real median income was down 6.5% versus 8 years ago (and down 7.2% from the 1999 level). Although auto sales remain strong, we would expect as much given low gas prices, an aging fleet and the fact that auto loans are one of the few places in the economy where it’s easy to obtain credit.

Additionally, high yield corporate earnings remain incredibly weak, with yoy earnings growth negative for the first time since the recession (even ex: commodities EBITDA growth is only slightly positive). Leverage is at all-time highs (again, even ex- commodities) and the High Yield index is more globally exposed than it has ever been (35% of the market generates 45% of its revenue from outside of the United States, and that doesn’t include Energy, which is globally exposed despite not realizing significant direct sales abroad).

Not only are earnings weak, but there has been next to no capex investment, debt issuance has been massive, and buybacks and dividends have driven equity valuations as CEOs and CFOs, afraid to invest in organic growth, have chosen to buy growth instead. And as a result, recovery rates are 10-15ppt below historical norms and defaults and downgrades are creeping into the market. Although we understand many will say its just commodities, is it really? What started as coal weakness 18 months ago became coal and energy weakness. But it wasn’t really just the commodity sectors, as retail was also already weak. Now it’s the commodity sectors, retail and wireline (but definitely not all of telecom). The situation almost seems unbelieveable, as everything that seems to go wrong is explained as being isolated (AMD, well, of course semiconductors are in a secular decline) and treated as a surprise (Sprint).

In our view, the makings are there for a risk off environment for some time to come. For non-commodity spreads to be 400bp tighter than in 2011 makes little sense to us. Replace Greece for a much bigger problem: China. Replace Washington dysfunction and debt downgrade with uncertainty about monetary policy and EM weakness (though we may see Washington dysfunction very soon between this fall’s budget talks and the presidential race looming). Replace US QE with European QE. Additionally, replace   strong earnings growth and margin expansion in 2011 with no earnings growth, a stronger dollar, and higher leverage today. Replace decent liquidity back then with poor liquidity now. And replace the fears of a double dip recession with the potential for fears of a global recession. Though this last point has yet to play out, we think it’s only a matter of time before investors begin to feel as bearish as we do.

The Fed had an opportunity today to hike rates and begin to build a cushion should the global slowdown be so severe it can’t be ignored. Instead, they chose to wait. In our view, this has left them in a predicament as now the rumbles of never being able to increase rates will become even more exaggerated, and when they ultimately do, we think it will be more painful than if they had gone today. We expect as a consequence for there to be more market volatility, more uncertainty around the Fed’s motives and belief in the economy, and therefore more downside risk. Most importantly, however, the acknowledgment of weakness only bolsters our view that we are in the midst of the beginning of the end of this credit cycle, and we warn investors to tread carefully not try to be a hero into year end.

Now is the time that investors need to be managing risk rather than looking for alpha. 1 or 2 names will destroy the performance for what has otherwise been a good set of holdings. Remember what many have forgotten over the last 7 years, credit returns are skewed to the downside. The best case scenario is to earn coupon and the ultimate payment of principle. The worst case scenario is 40, 50, 60 or more points of loss.

We’re in the midst of watching a slow-moving train wreck, and in our view the Fed confirmed as much today.

Do NOT follow this link or you will be banned from the site!