Central Bankers, Politicians, & Why Frank Zappa Was Right

Tyler Durden's picture

Submitted by Paul Brodsky via Macro-Allocation.com,

Politics & Investing

Frank Zappa said politics is the entertainment branch of industry. We have noted that unprincipled centrists pose a threat to sustainability and have offended all by suggesting conservatives can be as economically impractical as progressives. That may not be how to win friends and influence people, but it does leave us free to objectively analyze political influences over economies and markets.

Central Banks

They say politics is about making choices, and so the debate about whether central banks are political is a non-starter. They are. Central banks ultimately exist to ensure the safety and soundness of banks by avoiding credit deflation. They are primarily charged with the task of maintaining economic liquidity, which all political parties endorse. The question of whether they have partisan leanings is less important.

Central bank policies are meant to steer broader populations towards popular perceptions they feel will sustain economies and asset prices – asset prices used to collateralize liabilities (i.e., bank assets). This modus operandi necessarily harms a portion of the population. For example, targeting inflation harms savers that do not want to risk their wealth in the markets and financial repression harms retirees living on fixed income. Crafting and executing monetary policy is a political act, choosing one constituency over another. Thus, central banks are political bodies and make choices that prioritize special interests over broad populations, in order of importance: 1) bank profits; 2) pleasing legislative authorities that maintain their charters; 3) abiding by economic mandates constructed to please the first and second priorities, and; 4) promoting the economic hopes, dreams and wherewithal of the broad population.

An apolitical central bank would not have economic policies or mandates, but rather would exclusively oversee bank soundness and safety. This would imply central banks would have to occasionally limit bank balance sheet expansion (facetiously, what used to be called “restricting credit”). As bank and non-bank balance sheets became chock full of debt, they discovered that falling asset prices contemporaneously threatens output growth, credit deflation and bank solvency.

The credit crisis forced central banks to execute the first two priorities to the limit by re-liquefying their banking systems and giving cover to politicians otherwise at risk of taking the blame for it. The third and fourth priorities could no longer be met by dropping interest rates further or by creating more base money, so they resorted to emphasizing “communications”. Countless econometric models published by behavioral political economists and central bankers are based on the idea that growth and inflation are mostly derived from the expectation of them. Accordingly, central banks sought to increase capital spending and consumption by targeting inflation, which in turn diminishes the propensity to save. This benefitted investors and widened wealth and income gaps. Again, choices. It all seems political to us.


The most visible form of politics that affects economies and markets comes directly from elected officials through promises of fiscal and regulatory initiatives and, occasionally, actual policy follow-through. Given the waning efficacy of the Fed’s economic influence, Donald Trump’s election could not have been better timed for equity investors. Confidence stemming from his ability to reduce regulations and taxes and enact fiscal growth initiatives produced a stock market rally. Let’s look at perception and reality.

One of Mr. Trump’s stated goals is to increase the US manufacturing base. Yesterday, he met with CEOs of manufacturing companies and asked for suggestions to increase revenues and US jobs. The result of his efforts may ultimately be legislation that reduces corporate taxes and increases import tariffs, which could improve manufacturing conditions in the US. But would his success be enough to move the needle?

The graph below shows the growth of real output in the manufacturing sector since 1987. It grew in the 1980s during the first leg of the great secular leveraging period and even accelerated in the 1990s when emerging economies like China and the former Soviet bloc began participating in global trade. Two major dynamics brought about this growth: 1) the leveraging of household balance sheets, which gave US consumers increasing disposable income, and; 2) the ability of US manufacturers to use their rising stock prices and strong dollar as currency to buy cheap plant, equipment and labor abroad.

It is interesting that since 1999, and especially since 2012, US manufacturing growth has struggled amid extraordinary globalization. We would argue this is because it is bumping up against the global cost structure of production, which includes lower cost economies with which the US cannot compete.

The graph below puts a finer point on this. It shows the trend of US manufacturing as a percentage of US GDP. Since 2005, the contribution of manufacturing to the US economy has dropped from 13.1% to 11.7%. It is unclear whether we should be more concerned with the declining trend of manufacturing or the absolute low contribution level of manufacturing within the US economy.

US real GDP is about $17 trillion of which manufacturing is about $2 trillion. Doubling the manufacturing base to $4 trillion would be great on its own, but there are other considerations. First, total US dollar denominated debt is upwards of $60 trillion. Annual interest on that debt is about $3 trillion. Are we to believe that increasing the manufacturing base through deficit-funded fiscal initiatives and restrictive trade policies would increase real output? The excitement from renewing a sentimental part of the American narrative is politically compelling, but growing US manufacturing revenue and jobs would, at best, be small potatoes as an economic driver.

President Trump’s initial emphasis on renewing the US manufacturing base is largely symbolic. Even if his administration were to successfully use tax incentives, protectionist measures and immigration policies to re-patriate factories and labor, and even if government were to spend big on fiscal stimulus, it still would not solve the structural leverage problem facing the US economy.

In fact, we think the process of bringing the US manufacturing base back through job-centric policies would actually reduce global trade and lower US GDP over time.

Zappa was right, but a fresh approach to confidence-based politics that does not address major structural issues does not provide the basis for investor optimism.

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mofreedom's picture

Don't eat the yellow snow, Barack.


Politicians = Hot Rats.

Military Industrial Complex = Weasels Ripped My Flesh.

IRS = Ram it, Ram it, Ram it up my Poop Chute. 

DownWithYogaPants's picture

This article reminds me of the attitude of a roomate I once had.  He was a virgin at 35 so I took him to the best massage parlor in Phoenix to the cutest best masseuse working there.  She could give a great massage AND a put a Homer Formby hand finish on you like no ones business.  Turns out he gets in there and they get to talking and botta boom it's his second cousin.  He always had a cloud over his head.  I never believed in "bad luck" till I met this person.  Well anyway he tried putting this electronic circuit together and it did not work the first time.  His response?  

"I don't have the tools. I don't have the know how.  Why even try?"

Yeah this author has the "Why even try" attitude.  As if doing nothing will work.  

So we have 

  1. Pepe: Trump as puppet
  2. Cuntslur: Trump as crazy
  3. Brandon?: Trump is the fall guy
  4. Brodsky: Trump as pantomime.

I'll add mine as a footnote:  Trump as inspiration and agent of change.  

TheReplacement's picture

No kidding.  2nd cousin... handy... nothing to worry about so go for it unless she was known to get prego from that kind of action.

Cardinal Fang's picture

At least there are still some Americans who wouldn't fuck their cousin.

DownWithYogaPants's picture

If this girl was your cousin you would fuck her. If not you are gay.  I've got very good taste in women.  This was not some averarge looking frump.  An 11 on a scale of 10.

Stuck on Zero's picture

Amen. Was there a point to this piece?

DownWithYogaPants's picture

"Trying only leads to heartache" would be my take on his point.

Joe Sichs Pach's picture

Indeed.  And "don't get no jizz upon that sofa"

Dave Whiteman's picture


amadeus39's picture

Only if is stategically directed.


Jim in MN's picture

And yet, broken hearts are for assholes........ergo?

DownWithYogaPants's picture

Stuck on Zero:  Was in Phx Az many years back.  It was called Kneaderbodies and it got a dime dropped on it because it had so many good looking young beauties working there.  Nobady would go anywhere else so the competition narked.  

Jim in MN's picture

I am a huge Zappa fan and literally just bought the man's fucking shoes from the online estate auction after Gail passed away.  Also my Mom went to high school with him.  My brother and I had about 40 Zappa albums before we were out of high school.

I agree that we have to seize this moment and get our best ideas and energy out.  That is why I have been working with another Deplorable who has extensive health care experience (with the Congressional Budget Office and as a senior executive with a major insurer) to craft a simple, kick-ass health care proposal for immediate use.  Please steal and pass it on.


HEALTH CARE IS 20% OF US GDP.   In combination with manufacturing, 'doing something' on health care would account for not $2 trillion, but $5.5+ trillion of the $17 trillion total. 

BandGap's picture

So you realize, of course, that Soetoro was the Illinois Enima Bandit, don't you?

I saw Zappa in Cleveland in 1985. What a show.

Mustafa Kemal's picture

"I am a huge Zappa fan "

In the 60s my brother and I could sing Zappa acapella. This was our favorite -our mother hated it:


Ronnie saves his numies on a window in his room (A marvel to be seen: dysentery green) While Kenny his buddies had a game out in the back: LET'S MAKE THE WATER TURN BLACK

We see them after school in a world of their own (To some it might seem creepy what they do...) The neighbors on the right sat watched them every night (I bet you'd do the same if they was you)

Whizzing pasting pooting through the day (Ronnie helping Kenny helping burn his poots away!) And all the while on a shelf in the shed: KENNY'S LITTLE CREATURES ON DISPLAY!

Ronnie's in the Army now Kenny's taking pills Oh! How they yearn to see a bomber burn! Color flashing, thunder crashing, dynamite machine! (Wait till the fire turns green... wait till the fire turns green) WAIT TILL THE FIRE TURNS GREEN

runnymede's picture

He is a force of nature. Win-lose-or-draw, there will be change. 

TheReplacement's picture

As long as we are talking about being real, how about ditching the bs about GDP, use GNP, and reinstitute real measurements  for things like debt and inflation?

Dear author of article, stfu.

Lordflin's picture

I have very much approved of most of Trump's actions so far, nor did I ever expect to agree with everyone. The old saying that if two people are in complete agreement one of them is not thinking.

I will be completely convinced when Trump orders an audit of the Fed with the intention of shutting the damn thing down. If he truly intends to slay the dragon put a blade through its heart. Then prepare for fireworks, although they are coming one way or the other. What happens when 1.5 quadrillion dollars worth of derivatives suddenly leaves the table... another darkage?  Beats the hell out of me, but it is going to get ugly.

ZeroSense's picture

ZeroHedge please be mindful of people jumping up and down shouting "Make America Great Again" ROFLMAO

Its hilarious watching these people (Please dont make it stop). I want to see look on their faces in the end (Priceless)

mofreedom's picture

Barack learned nothing from having woken up so many times in the gutter.

E.F. Mutton's picture

In a Petulant Frenzy, no less.

LostInTheFringe's picture

sorry. but most don't get the zappa lyric.

Kirk2NCC1701's picture

Tons of great lines from Bobby Brown and Jewish Princess come to mind.

Not to me to mention the Central Scrutinizer.

E.F. Mutton's picture

Lindsey Graham = Bobby Brown

Two Theives and a Liar's picture

Information is not Knowledge,

Knowledge is not Wisdom,

Wisdom is not Truth,

Truth is not Beauty,

Beauty is not Love,

Love is not Music....

Music is the BEST! 

FZ, "Packard Goose", Joes Garage - 1979

Greatest. Album. Ever.

Frankly I think the mention of the great FZ in this article is simply clickbait...weak article overall but any ZH mention of Zappa gets me a -clicking.

LostInTheFringe's picture

if you haven't seen Frank in front of the Senate, you should watch it on youtube.

Two Theives and a Liar's picture

most definitely...he immortalized it himself in the track Porn Wars on "Frank Zappa meets the Mothers of Prevention".  I loved when he told a hysterical censorship-advocate John Lofton to kiss his ass on CNN..today John Lofton would be played by Melissa Harris..lol! Amazing piece of video...the more things change:



groaner's picture
groaner (not verified) Jan 24, 2017 6:23 PM

Obama is the one who should have been impeached. 8 years of destroying the economy for the Globalists.

ZeroSense's picture

Its your own fault (the whole country) for being warmongers and supporters of war... Your country have killed millions of innocent women and children (aka the people you hate so much)

chunga's picture
Frank Zappa - I Am The Slime - 1973


I am gross and perverted
I'm obsessed 'n deranged
I have existed for years
But very little has changed
I am the tool of the Government
And industry too
For I am destined to rule
And regulate you

LostInTheFringe's picture

the industrial media complex?

south40_dreams's picture

Zappa was an alien from another universe who was called home

runnymede's picture

Prophets come in all shapes. All you need to do is have the ability to 'see things as they are' and speak truth.  Nature makes very few. 

Implied Violins's picture

FUCK these mothers of intervention. But not FZ.

ChargingHandle's picture

What will society look like when a robots, serve and bus your table at a pub, cleans your home, picks you up drunk at the bar, goes grocery shopping for you, then suddenly a robot is doing your job.....?

runnymede's picture

Technology has rendered most humans superfluous and therefore expendable. A dangerous situation for the under-connected. You're breathing the .1%'s air and using their resources. 

What society will look like, I don't know, but I suspect there will be a lot fewer members of it, and the ones that remain will be the docile enablers of the .1% 'whatever-it-takes' sociopaths and maybe a helicopter polisher or entertainer or two. That's the plan anyway.

DuneCreature's picture

We can always send our leadership back to a school for a better grounding in the basics.

>& ( From 'The Scary Fake News Department' That Is Possibly True ) &<
Eric Braverman Is Teaching 'Ethics In Government' At Yale University.

Yes, THAT Eric Braverman, from The Clinton Satan Foundation.


I wonder if Yale has a spirit cooking eating club?

You tell me, is the devil driving this bus or not? ... And why would we let that happen?

Live Hard, Stop This Bus At The Next Intersection And Let Me Off, Please, I'll Walk, Thank You, Die Free

~ DC v4,0

oddjob's picture

If I ever get banned I coming back as Studebacher Hoch.

spanish inquisition's picture

Pop quiz! What is the ugliest part of your body?

jimmytorpedo's picture

Dirtyest maybe, not ugly. The only thing I ever disagreeed with Frank about.

Oh ya, and hating Repulicans, but I certainly don't think he would be a Democrat these days, not with Hildebeast running around.

Two Theives and a Liar's picture

he was a self-admitted conservative ...a constitutionalist at that!

spanish inquisition's picture


What's the ugliest
Part of your body?
What's the ugliest
Part of your body?
Some say your nose
Some say your toes
(I think it's your mind)
But I think it's YOUR MIND
(Your mind)
I think it's your mind, woo woo

withglee's picture

Central banks ultimately exist to ensure the safety and soundness of banks by avoiding credit deflation.

They do it to enforce an otherwise unsustainable "improper Medium of Exchange (MOE) process."

With a "proper" MOE process: (1) Inflation is "guaranteed" to be perpetually zero ... everywhere; (2) Money is in perpetual free supply and thus never restrains trade; (3) Responsible traders enjoy zero INTEREST load on their trades spanning time and space; (4) Irresponsible traders are mitigated by INTEREST loads equal to their DEFAULT propensity; (5) Governments are 1/10th the size because they can't sustain themselves by counterfeiting (i.e. INFLATION); (6) Banks play no role at all rather than the "stand and deliver tribute collection and trade throttling" privilege they enjoy now.

What's not to like about a "proper" MOE process.

runnymede's picture

Structural moral hazard. Cannot be overcome except through collapse/creative destruction. 

The 2008 meltdown and the subsequent conscious choice by the Obama administration to not prosecute culpable parties removed any remaining question of banker accountability. It's literally institutionalized sanctioned crime and legal looting. And we are in the looting stage of the cycle.

Behold the accountability con-game. You're either above the line or not. And that line is whether you're a creditor or borrower.

 CB's own the world. The bankers own the CBs

Bankers are the devil's spawn.  Debt is their weapon. Monopoly on violence is their coercion tactic.

Fiat money is the greatest scam in history. 

Wake me up when president Trump takes on the Fed. Until then it's all spectacle.

August 15, 1971---- the day collapse was baked into the cake. This will not end well for debtors.

If you understand this, you are more aware than 99% of the world. 

No banker perp-walk, no peace. 

JailBanksters's picture

If all Governments around the World did the exact opposite of what "they" thought the best choice was, the world would be a much better and happier place.

steve2241's picture

"In fact, we think the process of bringing the US manufacturing base back through job-centric policies would actually reduce global trade and lower US GDP over time."  

The problem IS global trade! America First. "Globalism" Second.  It's not the other way around, as much as you'd like to believe it. Your indoctrination at the Harvard Business School was successful.

Dave Whiteman's picture

The problem is STATISM and MONOPOLIES, enforced by $$$government$$$.


Above all else, it is the $$$paper [fake] money hegemon$$$.