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On The Failure Of Inflation Targeting, The Hubris Of Central Planning, The "Lost Pilot" Effect, And Economist Idiocy

Tyler Durden's picture





 

As an ever greater portion of the world succumbs to authoritarian control (whether it is of military disposition, or as we first showed, a small room of economists defining the monetary fate of the future as central banks now hold nearly a third of world GDP within their balance sheets) we can't help but be amazed as the population simply sits idly by on the sidelines as the modern financial system repeats every single mistake of the past century, only this time with stakes so high not even Mars could bail out the world. Unfortunately, with the world having operated under patently false economic models spread by hacks whose only credibility is being endorsed by the same system that created these models over the past century, the only temporary solution to all financial problem is to "try harder." Sadly, the final outcome is well known - a global systematic reset, in which the foundation of all modern democracies - the myth of the welfare state (which at last check, was about $200 trillion underfunded on an NPV basis globally and is thus the most insolvent of all going concern entities in existence) is vaporized (there's that word again) leading to global conflict, misery and war. Sadly that is the price we will end up paying for over a century of flawed economic models, of "borrowing from the future", of ever more encroaching central planning, and of an economic paradigm so flawed that as Bill Buckler puts it, "Keynes’ response to those who questioned the “longer-term” consequences of his advocacy of credit-creation as a basis for money was - “In the long run, we are all dead”. It is difficult to overemphasise the venal arrogance of this remark or the destructiveness of its legacy." Alas, the last thing the central planning "fools" (more on that shortly) will admit is their erroneous hubris, which in the years to come will claims millions of lives. In the meantime, we can merely comfort ourselves with ever more insightful analyses into the heart of the broken system under which we all labor, such as this one by SocGen's Dylan Grice, whose latest letter on Popular Delusions is a call for "honest fools" - "Frequently, when we make mistakes we try to correct them not by changing the flawed thinking which led to the mistake in the first place, but by reapplying the same flawed thinking with even more determination. Behavioural psychologists call it the “lost pilot” effect, after the lost pilot who tried to reassure his passenger: “I have no idea where we’re going, but we’re making good time!” Policy makers on both sides of the Atlantic are treating today’s malaise with the same flaky thinking which created it in the first place. How can that work?" Simple answer: it can't.

Grice explains why "Trying harder" is the only recourse of a status quo gripped in a confirmation bias so tense that even merely glancing outside the window at the Marriner Eccles building could be sufficient grounds for the whole house of cards to come tumbling down:

[This week I want to think about] the incorrect application of faulty models. In essence, that's all those studies on confirmation bias are really about. Subjects applied a faulty model - a mental algorithm saying "accept only supporting evidence" - which resulted in a biased assessment of the evidence. "Trying harder" didn't work because the problem was the faulty model, not the lack of effort, and applying that faulty model with more determination just caused an even bigger error. Psychologists have a name for this. They call it the "lost pilot effect" after the lost pilot trying to reassure his passengers by saying "I have no idea where we're going, but we're making good time!"

 

Flawed thinking got us into this mess. But rather than change that flawed thinking, our policy makers are applying it with even more rigour: we have more debt for insolvent borrowers, more financial engineering, more complicated banking regulations, more blaming speculators for everything, more monetary experimentation by central banks. Our policy makers have absolutely no idea what they're doing, but they're giving it a go!

"Lost pilot effect" exhibit A - Inflation Targeting, which failed miserably in the past, and will fail miserably again.

The latest from the Fed provides a wonderful example. Undeterred by the latest calamitous failure of CPI targeting regimes (a brief history of which will be presented below), it has announced an explicit 2% inflation target. But why? Would an explicit target have made any difference to the last crisis? Will it prevent the next one? And where did this 2% come from? We don't know. But we suspect that past uninformed capital market tinkering has failed to control the uncontrollable, and we're pretty sure these ones will too.

 

In fact, if such tinkering has in the past been the primary causes of crises, then why won't this latest attempt - the 2% inflation target - be the cause of the next one? There are certainly precedents. Targeting stable "prices" isn't a new idea. The first experiment was actually conducted in the US in the 1920s, apparently successfully. Indeed, so stable were consumer prices that the authorities assumed there was no inflationary threat. And, this brilliant new idea, that stable consumer prices were both a necessary and sufficient condition for economic stability, proved so appealing that the NY Fed adopted it as a policy objective. On January 11th 1925, then-governor Benjamin Strong wrote to a friend:

 

That it was my belief, and I thought it was shared by all others in the Federal Reserve System, that our whole policy in the future, as in the past, would be directed towards the stability of prices so far as it was possible for us to influence prices.”

 

During the 1927 Stabilization hearings before the Committee on Banking and Currency on a Bill to amend the Federal Reserve Act to provide for the "stabilization of the price level for commodities in general", the governor was asked if the Fed could stabilize prices more than it had done in the past. Strong replied “I personally think that the administration of the Federal Reserve System since the reaction of 1921 has been just as nearly directed as reasonable human wisdom could direct it toward that very object.”

 

Like a driver focused on the speedometer rather than the speed, oblivious to the risk that the speedometer might be faulty, they kept their foot on the gas until they crashed. So focused were they on the stability of the CPI (first chart below), and so convinced that it was the be all and end all of inflation, they missed what was going on in the credit markets (second chart below).

Oddly enough, nobody discussed "inflation targeting" as one of the potential causes leading to the Great Depression. Why? Simple. Because it would confirm that the status quo's very basic definition of inflation is fatally wrong; it also means that the entire premise of "economy" is a joke as it is impossible to rely on any of the most "sacred" indicators in existence, and all the so-called economists are literally pilots, flying blind. Grice on just this possibility:

We know that episode didn't end too well. Yet to this day, on the long list of explanations for what put the "Great" into the 1930s Great Depression, the prior credit bubble which was allowed to develop - and was possibly even caused by the monetary authorities'  undue attention to an arbitrary variable (consumer prices) - and the false sense of security the stability of that variable created, is barely a footnote. Amid the mountains of literature on the "lessons from the 1930s" there doesn't seem to be much on the danger posed to an economy of allowing a committee of economists to tamper with the natural functioning of the market for capital by letting them decide what interest rates should be.

Why would there be? It would be a confirmation by the same status quo it is based on a completely flawed premise. Yet the blind reliance on CPI did not prevent the Japanese bubble of the late '80s, when the Nikkey quadrupled in 5 years, yet Y/Y CPI was under 3% the entire time. Same thing with the Nasdaq bubble:

We've experienced the same thing with the tech bubble of the late 90s and the real estate bubble we're still recovering from (see charts below). On each occasion, the monetary authorities were blinded to the runaway inflation in the markets for equities (first chart below) and real estate (second chart below) by stable CPI inflation.

Inflation targeting, it seems, has a history of fostering asset bubbles because the notion that a stable CPI equates to a robust economy contains numerous false premises.

And here we reach the two main errata in all of modern economics.

The first is that inflation is measurable. Einstein once had the words “not everything which can be measured counts, and not everything which counts can be measured” on the desk in his office at Princeton. And although the world might be simpler if it wasn't so, I believe "inflation" happens to be one of the things which counts but can't be measured. The fact is that once money is created you don't know where it ends up. Maybe it will end up in the consumer goods market, maybe it won't. Or maybe it will be multiplied via the financial system into new credit which will inflate asset prices instead. Even then, we don't know which assets.

 

But suppose we did know where money would end up, how would you weight the assets together into one index? Should stock prices be included in the CPI? If so, what should the weight be? And if you're going to add stocks, why not add corporate bonds too? And what should their weight be? And if you're going to add bonds, why not add house prices, etc., etc.? Isn't it obvious that the rich concept of - inflation - is unobservable? So who said that proxying it with a narrow sub-category - consumer prices - was a good idea?

Why Ben Bernanke of course, that's who.

The second is the premise that consumer prices themselves should be as 'stable' as possible. But is that correct? Isn't the natural tendency of our species to do more with less, to lower the cost of a given good or service, to "increase productivity"? In other words, isn't "deflation" a part of the human condition? Jeff Bezos, the CEO of Amazon famously said there were two types of company in the world, those that work to charge more and those that like to charge less. His company, he said, would belong to the second group.

 

Shouldn't someone warn him of the folly of pursuing deflation? Of the untold havoc he's set to unleash by trying to undercut Apples iPad? And how about those guys at Walmart? Surely they deserve a stern ticking off oblivious, it seems, to the downright irresponsibility of their "Everyday Low Prices" strategy? Maybe all the clever economists and Ivy League Nobel Prize winners should make going to Arkansas to explain to the Waltons that they're playing with fire a matter of urgency?

Some more on the self-deception of hubris:

Or maybe the clever economists aren't so clever. Maybe they have it all wrong. Maybe deflation is most painful when there is an excess of debt, and so maybe they shouldn't be encouraging excessive debt accumulation in the first place, by distorting the interest rate market in the pursuit of aims whose consequences they don't fully understand?

 

This brings us to a third false premise, that there is some "optimal" rate of consumer price inflation. Judging by the targets of most central banks which have them, that rate is around 2%. But why is it 2%? Why not 3%, or 4%, or 6.78384%? What's so magical about 2%? Where did that number come from?

Grice on exposing faux experts (virtually all of them) using the methodology of one Richard Feynman:

One of my favourite people of the 20th century is Richard Feynman, the Nobel Prize winning physicist who, among other things, pioneered the study of quantum electrodynamics. In a fantastic documentary about him for BBC's Horizon show called "The Pleasure of Finding Things Out" he said something I found moving and profound. He was talking about the "experts" he saw on TV and how although he didn't have any expertise in the area they claimed to have expertise in, he felt quite sure that they didn't know what they were talking about. He said this:

 

"There are myths and pseudo-science all over the place. I might be quite wrong, maybe they do know all this ... but I don't think I'm wrong, you see I have the advantage of having found out how difficult it is to really know something. How careful you have to be about checking the experiments, how easy it is to make mistakes and fool yourself. I know what it means to know something. And therefore, I see how they get their information and I can't believe that they know it. They haven't done the work necessary, they haven't done the checks necessary, they haven't taken the care necessary. I have a great suspicion that they don't know and that they're intimidating people."

 

So if I apply Feynman's test and ask myself how hard most economists worked for their knowledge, I can't help thinking they haven't worked hard for it at all. I don't think they've worked hard to know what inflation is, or whether it can or should be targeted. I think they've just assumed it, and anyone can do that. As Feynman warned, they've fallen into the trap of fooling themselves. They've assumed that inflation can be proxied by the CPI because it's easier to do that, they've assumed that 2% is somehow the right rate for it, and they've assumed they're capable of setting interest rates at the 'appropriate' level.

And the biggest blasphemy of all: everything economists have been taught, and have taught, was wrong from the very beginning.

But what if those assumptions are wrong? What if, for example, the 'natural' rate of consumer price inflation was 0% and so by trying to keep it at the unnaturally high rate of 2% they've had to artificially goose up the rest of the economy by setting interest rates at an inappropriately low level? And what if, like force-feeding steroids to a horse because you assume it should be running faster, in doing so you kill it, distorting the credit system so grotesquely as to crash the rest of the economy?

 

They've assumed that wouldn't be a problem, and they assumed that if there was one they'd be able to fix it (Ben Bernanke supposedly promised Milton Friedman that there would never be another great depression because the "lessons" had been learned from the 1930s). But, assuming you know how the animal behaves isn't the correct way to go about attaining knowledge about how the animal actually behaves. So they don't attain knowledge about how the animal behaves. So the animal keeps mauling them.

 

But they keep doing it. Now a 2% CPI inflation target is going to make all the difference. And I find it a very strange thing. I just don't understand why they're so sure they know all this stuff despite all the evidence to the contrary. I feel like McCarthy in One Flew Over the Cuckoo’s Nest: “That’s right Mr. Martini, there is an Easter Bunny.”

Finally, we get to the bottom line: economists, and all those others who are "in charge" really are just a bunch of idiots, or, as Grice puts it far more politely, fools.

Mr. Feynman said something else which I like. He said:

 

“Ordinary fools are all right; you can talk to them, and try to help them out. But pompous fools - guys who are fools and are covering it all over and impressing people as to how wonderful they are with all this hocus pocus – that I cannot stand! An ordinary fool isn't a faker; an honest fool is all right. But a dishonest fool is terrible!”

 

I think he's right. Dishonest fools are terrible. It's a shame they're in charge.

Yet we keep on giving them Ivy League tenure, and voting them into power...

It's is probably a bigger shame that the general public continues to refuse to call them out for their endless barrage of lies. Because the time has come to unmask the emperor as not only being naked, but being full of, well, shit.

 


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Sun, 02/05/2012 - 15:56 | Link to Comment Hulk
Hulk's picture

Kadir beneath Mo Moteh.Shaka, when the walls fell.Temba, his arms wide.Mirab, his sails unfurled.Sokath - his eyes uncovered. Kailash, when it rises.The river Temarc - in winter.Rai and Jiri at Lungha. Kiazi's children - their faces wet. Zinda - his face black, his eyes red. Chenza at court - the court of silence.Uzani - his army with fist open. His army with fist closed. 

Sun, 02/05/2012 - 15:30 | Link to Comment Yellowhoard
Yellowhoard's picture

Blaming Keynes is easy when blaming Kennedy and johnson would be more appropriate - they did not tax enough !

Johnson definitely deserves blame with expansion of the Vietnam War and the Great Society. However, Kennedy lowered taxes and revenues jumped dramatically as sheltered money reappeared in US investment.

It's not fair to blame Kennedy for Vietnam, he allowed a relatively small number of US military and CIA personelle to keep South Vietnam out of the reach of the totalitarians.

Johnson used the war as a crude, bloody, money pump for the military industrial complex and ran the war in a way to maximize profits and not neccesarily win the war. We bombed the shit out of meaningless targets when Hanoi was practically untouched.

Had Kennedy lived, I believe that we would have had a booming economy and would have never wasted trillions on crumbling housing high rises and body bags.

Sun, 02/05/2012 - 23:24 | Link to Comment Rincewind
Rincewind's picture

So I guess that is why he got killed...

Mon, 02/06/2012 - 00:36 | Link to Comment Boxed Merlot
Boxed Merlot's picture

So I guess that is why he got killed...

 

I've always wondered if 1964 would have seen a flood of "United States" notes replacing frns instead of the sandwich coinage brought about by Johnson's servitude to the Jeckyl Islanders.  I've considered JFK's death the sacrifice needed at the conclusion of the 50 year jubilee of their agreement and ushered in this past 50 years of debt servitude. 

Who's next?

 

End the Fed.

Sun, 02/05/2012 - 17:42 | Link to Comment trav7777
trav7777's picture

Flint and Detroit??  Why not Pittsburgh?

You idiots are clearly confused as to what will happen in a "collapse."  It will depend upon who lives there.

Sun, 02/05/2012 - 13:00 | Link to Comment Sandmann
Sandmann's picture

although he'd be the first to admit that arithmetic & utilizing methods to quantify 'things' were not his strong points

 

Keynes won a scholarship to Eton, where he displayed talent in a wide range of subjects, particularly mathematics,

Keynes did well at Eton winning the Senior Mathematics Prize in 1899, and again in 1900. But it was not only in mathematics that he did well; for example in 1901 he was first in mathematics, first in history, and first in the English essay. In 1902 he won a scholarship to King's College, Cambridge, in mathematics and classics

he was placed twelfth Wrangler in the Mathematical Tripos of 1905, that is twelfth in the ranked list of those receiving a First Class degree. In May 1904 he received a first class B.A. in mathematics at Cambridge

In The Economic Consequences of the Peace 1919 Keynes wrote: -

I cannot leave this subject as though its just treatment wholly depended either on our own pledges or on economic facts. The policy of reducing Germany to servitude for a generation, of degrading the lives of millions of human beings, and of depriving a whole nation of happiness should be abhorrent and detestable,--abhorrent and detestable, even if it were possible, even if it enriched ourselves, even if it did not sow the decay of the whole civilised life of Europe.

If we aim deliberately at the impoverishment of Central Europe, vengeance, I dare predict, will not limp. Nothing can then delay for very long that final war between the forces of Reaction and the despairing convulsions of Revolution, before which the horrors of the late German war will fade into nothing.


Sun, 02/05/2012 - 13:21 | Link to Comment TruthInSunshine
TruthInSunshine's picture

I shouldn't have stated that arithmetic was a weakness of Keynes (that's a seriously bad error on my part) . I should have stated that Keynes himself acknowledged that much of his work in the form of economic modeling was less mathematically based or dependant than it could have been (some could argue he implied that it should have been), and biased towards social factors he viewed as desirable (I will find the cite and link to his statements on this issue; and yes, I am aware that many of his models were indeed reliant heavily on mathematics, such as the consumption function).

Sun, 02/05/2012 - 13:22 | Link to Comment Sandmann
Sandmann's picture

and a lot of that work was undertaken by Ramsey and Kahn rather than Keynes

Sun, 02/05/2012 - 17:33 | Link to Comment Kayman
Kayman's picture

Indeed. Keynes made his wealth from his understanding of numbers. 

And "The economic consequences of the peace" was the intellectual counterpoint to the stupid Treaty of Versailles.

 

Sun, 02/05/2012 - 13:20 | Link to Comment Sandmann
Sandmann's picture

I often wonder if he knew that his General Theory was nothing more than "permission" for governments/central bankers to print money

He knew that he had to pay Macmillan Punlishers 3d subsidy per copy to keep the price at 5 Shillings. He wanted it to be a widely read book and accessible to effect policy change, but it did not. Instead the legacy of the 1920s continues to leave whole areas of Scotland and Northern England economically desolate and the London area over-heating because of excessive reliance on FIRE Sector. The debunking of Keynes by Margaret Thatcher led to the wholesale destruction of the manufacturing base because FIRE was the future of the economy =-- "Knowledge-based" and "light". So the Germans were mocked for not embracing Market Forces and writing off their manufacturing as Britain did and focusing on Deregulating Banks by allowing Commercial Banks to merge with Merchant Banks and absorb Jobbers and Brokers in 1986.

That's why Keynes was irrelevant - he did not know that you can get rich by trading bonds and issuing CDS from AIG in London. He was so old fashioned he thought factories and shipyards making physical products was the economy whereas the Smart Boys with Modigliani-Miller and EMT and CAPM know that it is computer-generated trading that makes countries prosperous and Magic Money is the key to everlasting riches.

 

Sun, 02/05/2012 - 15:43 | Link to Comment GeneMarchbanks
GeneMarchbanks's picture

'He was so old fashioned he thought factories and shipyards making physical products was the economy whereas the Smart Boys with Modigliani-Miller and EMT and CAPM know that it is computer-generated trading that makes countries prosperous and Magic Money is the key to everlasting riches.'

Not old fashioned but a man of his time, as you see now that his theory is outdated. Only partially though because the FIRE sector is a paper shuffling scheme leading nowhere meanwhile your food-supply ends up in the hands of other nations. Typical late stage empire type hubris and decadent megalomania.

Sun, 02/05/2012 - 17:39 | Link to Comment Kayman
Kayman's picture

 he did not know that you can get rich by trading bonds

Odd, that you would state that.  Keynes was a wealthy man due to his bond trading.

And nowhere did Keynes suggest manufacturing was subordinant to banking; quite the opposite.

Sun, 02/05/2012 - 13:56 | Link to Comment Kayman
Kayman's picture

Perversely, Keynes "saved" the bankers from themselves; at least temporarily.

To the extent that the something-for-nothing parasites can finance today's consumption with tomorrows promises, the game will continue.

And on a side note, at least Einstein acknowledged his borrowing from James Clerk Maxwell.

Sun, 02/05/2012 - 19:08 | Link to Comment delacroix
delacroix's picture

wasn't keynes a metrosexual?

Sun, 02/05/2012 - 22:52 | Link to Comment Cathartes Aura
Cathartes Aura's picture

perhaps a dandy, the term of the times. . .

Sun, 02/05/2012 - 12:17 | Link to Comment kaiserhoff
kaiserhoff's picture

Excellent.  Bernanke will go down in history as one of the greatest fools, and one of the most arrogant.

Where is the plausible end game, or better said, a way out from his "policies"?

When a few more people start asking these questions, the jig is up.

Sun, 02/05/2012 - 14:04 | Link to Comment RichardP
RichardP's picture

Bernanke will go down in history as one of the greatest fools ...

So you have perfect knowledge of how things would have turned out if Bernanke hadn't acted as he did??  Humble men use absolutes sparingly.  They are concious of the fact that they don't know more than they know, and are careful to not speak in absolutes when discussing what they don't know.

Education is the process of going from cock-sure ignorance to thoughtful uncertainty.  (I forget the author's name)

You can know that Bernanke is a fool only if you have absolute proof that a different approach would have had better outcomes for the entire world than Bernanke's approach has had.  There is no way anyone can know that.

This comment is an exercise in logic.  It is not a defense of Bernanke.

Sun, 02/05/2012 - 14:56 | Link to Comment kaiserhoff
kaiserhoff's picture

I have infinitely more confidence in free markets than in Soviet Central Planning.

I really don't like predictions, but it's not difficult to see that we are in the early stages of a world wide financial train wreck.

Bernanke is a tyrant, an apparachnik, and a world class looter.  Do I need to re-run history to know that Bernie Madoff is a crook?

By the way, nice job of ignoring the main point.  Ben has painted himself into a corner.  There is no way out of his errors.  I think he knows that.  He has that constipated, liver failure look, of a bug in search of a windscreen.

May all of our tyrant class get their just rewards.

Sun, 02/05/2012 - 16:59 | Link to Comment RichardP
RichardP's picture

You cannot ever know what Paulson and Bernanke saved the world from.  I imagine only a few folks know what could have happened, but didn't.  I can accept that Ben has painted himself into a corner.  What I won't accept, without proof that no one can give, is that this corner is worse than what might have happened had he not painted himself there.

There has been plenty of admission by the principals over the past many months that those who were pushing on levers didn't know what they were doing, since they were in uncharted waters.  But events demanded attention and they were paying attention as best they knew how.  You could do no better.

Again, an exercise in logic, not a defense of the players.

Sun, 02/05/2012 - 17:47 | Link to Comment Kayman
Kayman's picture

You cannot ever know what Paulson and Bernanke saved the world from. 

They saved themselves by robbing the voiceless middle class.  They created liquidity for their ilk by fear-mongering.

Logic begins with premise and your premise is wrong. 

Sun, 02/05/2012 - 18:15 | Link to Comment lotsoffun
lotsoffun's picture

i've heard this over and over from my banking pals.  the bottom line is, they could have printed and given it to people.  they give it to 47 MILLION AMERICANS daily for food stamps.  you think the 100's of trillions of cds is going to make it better.  the bottom line is - they had better start reigining in their banker pals.  which isn't going to happen.  in the end  - i do think there will be some marie antoinentte moments. 

 

 

Sun, 02/05/2012 - 18:11 | Link to Comment lotsoffun
lotsoffun's picture

what is the last thing that goes through a bus mind went it hits a windshied?  'asshole'.

see - bennie b.  he knows whats coming and he's still faithful to his servants.  anyone heard much from timmie g. or corzine lately?

 

 

Sun, 02/05/2012 - 18:25 | Link to Comment lotsoffun
lotsoffun's picture

people forget that madoff was head off the nasdaq for many years, which should have been a responible position and in the end he knew what a sht he was and laughed at every body for letting him get away with it for so long.  is bennie different?  or timmie?  or big bad bama?

 

Sun, 02/05/2012 - 12:23 | Link to Comment dcb
dcb's picture

you really, really need a link to his article.

Sun, 02/05/2012 - 13:00 | Link to Comment dcb
dcb's picture

The main objection I have to the article is that it makes the assumption that the mistakes aare being made with the "best intentions". I reached the conclusions of the author years ago, but my assumption now is that they know the models are crap, and they keep it up for their own self interest. these aqre not benign people but in fact almst pure evil

 

the interesting aspect was that I was having a discussion of just this topic the past two days with a woman getting her Phd on this exact topic but in a broader sense. I said the topci was too broad, but could be narrowed down to just the financil sector of the 20th century till now.

I will post what her dissertation is about:

"My thesis is basically that what we take for granted, the ways we live and organize society -- our current ideology -- for the benefit of the few and the exploitation of the many, was carefully crafted and organized and made possible by technology, in a nutshell ... and the Romantic poets were on to it and thus more relevant today than we realize. They are often cast aside as confessional and lyrical poets, but they were actually quite radical and political. "

Sun, 02/05/2012 - 12:31 | Link to Comment dwdollar
dwdollar's picture

Did Keynes have any children?

Sun, 02/05/2012 - 13:59 | Link to Comment Kayman
Kayman's picture

 He practised birth control.

Sun, 02/05/2012 - 14:08 | Link to Comment WmMcK
WmMcK's picture

No, but F. Hayek did.

Sun, 02/05/2012 - 12:31 | Link to Comment HD
HD's picture

Whichever Tyler wrote this article - forgive the vulgarity, but you fucking outdid yourself.

Clear, concise, well researched and insightful. The quality on ZH is always great - but I really enjoyed this one...

 

Sun, 02/05/2012 - 12:33 | Link to Comment ExploitTheMarket
ExploitTheMarket's picture

""Unfortunately, Keynes Died And Left Us With His Long Run..."

~ Murray N. Rothbard

Sun, 02/05/2012 - 12:40 | Link to Comment tony bonn
tony bonn's picture

and why are we going to try harder? because america worships academia and power....america cannot think or analyze problems because they are soluble with a pill donchya know....

Sun, 02/05/2012 - 12:53 | Link to Comment michaelsmith_9
michaelsmith_9's picture

No matter what economist are predicting, usually their forecasts are late to the market price action that has already occured.  It is far better to trade price action rather than trading what you think should happen.  Our traders are far more profitable as a result of this mentality.  Many time we have to put aside our fundamental biases along with what we are reading in the headlines.  Also forex is tremendously important to follow while trading practically any other market.  The AUDUSD was important for us to identify that the S&P500 was going to push higher through the 1300-1320 resistance zone.  We made a key Elliott wave forecast on the AUDUSD that allowed us to position ourselves long to catch the entire move higer for the S&P500 from about the 1270 level, and also we have been long he AUDUSD since 1.04350, which is a big move.  Forex is a very efficient way to trade and we provide Elliott wave analysis daily for our Premium members.  Try our free 14-Day Premium Membership Trial of Forex Elliott wave analysis and other core markets. More info here: http://bit.ly/AwPPH1 or www.marketoverflow.com 

Sun, 02/05/2012 - 13:11 | Link to Comment HD
HD's picture

Sell your crap elsewhere. You want to find mindless people willing to give you money to learn how to lose even more money in the market - head on over to the Yahoo message boards.

Sun, 02/05/2012 - 13:00 | Link to Comment Hedgetard55
Hedgetard55's picture

Easy money caused the problem, easier money will solve it. If you can't wrap your mind around that truth, you are no Ben Bernanke.

Sun, 02/05/2012 - 13:09 | Link to Comment AnAnonymous
AnAnonymous's picture

Dramatis personae:
US citizen 1, US citizen 2.

US citizen 1:

-we need to go deeper in debt...

US citizen 2:

-you cant go out of debt using debt!

End of act.

Sun, 02/05/2012 - 14:21 | Link to Comment RichardP
RichardP's picture

-you cant go out of debt using debt!

That line is a fallacy. The original financial model when intermediaries first appeared between savers and borrowers (a long time ago) was that the excess generated by savers could be used by others to finance business activity.  That financial model has worked for centuries, for the most part.  Some borrowers went bust, but most didn't.  (Micro-loans in Africa are a modern example.)

When you have nothing, it is difficult to go into business.  Being able to borrow has always made it easier.  You may own the labor (yourself) to start a busines, but you often don't own the means of production (machines).  No one can do business without the means of production.  Borrowing made it possible to acquire the means of production so one could turn their own labor to profit.

Debt finances business.  Business generates profits.  Profits pay off debt.  Managed properly, business allows all debt to be paid off over time.  Without debt, could never have gone into business.

Debt is not the problem.  The problem springs from how you employ debt.

Sun, 02/05/2012 - 14:47 | Link to Comment G. Marx
G. Marx's picture

And how much of that past debt was backed with tangible collateral? The model is false because without such collateral the debt becomes risk, the debt model relies on greater and greater debt for economic growth and at some point there's little to no true collateral to back debt, so the model is then forced into using exotic derivative positions to leverage the underlying collateral (which can very well become overpriced as excess debt money chases the underlying asset class, creating a positive feedback loop [another form of delusional behavior]). We have seen, since 2008, that the debt model is not robust enough. As the old example given in the past, to show the flaw if the debt model, goes...

One can live for quite a bit of time on a credit card with a billion dollar line of credit. But at some point, when the debt owed exceeds income and assets, the credit card lifestyle breaks down. Even if that ceiling isn't hit by the time your a senior citizen, it still does not validate the model just because you lived well for most of your life.

I suggest you read Joseph Tainter's seminal work: "The Collapse of Complex Societies" to better understand the historical consequences of your precious debt paradigm. The cycle has been repeated for millenniums, only an arrogant fool would ignore it.

Sun, 02/05/2012 - 14:52 | Link to Comment G. Marx
G. Marx's picture

Oh, and by the way. The puriest example of the debt model in operation is soveriegn debt. Debt unbacked my collateral. Check with Martin Armstrong's research (or Reinhart & Rogoff) to find out how often soveriegn debt is NOT defaulted upon by the state.

Sun, 02/05/2012 - 17:20 | Link to Comment RichardP
RichardP's picture

I stand by my conclusion:

Debt is not the problem.  The problem springs from how you employ debt.

I don't disagree with what you have said.  You have just presented examples of debt used incorrectly.  The original finance (starting centuries ago) was employed only to grease the skids of [local] business activity (read a good book on the history of money/finance).  If we were to get back to that original application of finance, the world financial markets would have considerably less work to do and the financial dangers of today would not exist.  If the numbers are correct, it seems that the world of derivative et. al. finance is much larger than the world of goods, services, and sales finance.  Major example of debt used incorrectly.  Used to finance financial pixie dust rather than finance the creation and sales of products that people use in their daily living.

Sun, 02/05/2012 - 17:26 | Link to Comment AnAnonymous
AnAnonymous's picture

The line is uttered by a US citizen.

This is the little drama US citizens play when they speak of debt.

Sun, 02/05/2012 - 18:30 | Link to Comment akak
akak's picture

The troll is self-identified as a Chinese citizen.

These constant lies of yours are just another demonstration of the evil and self-destructive nature of Chinese citizenism.

When Chinese citizenism is outlawed, only outlaw Chinese citizens will still shit on the side of the road.

Sun, 02/05/2012 - 17:59 | Link to Comment Kayman
Kayman's picture

That line is a fallacy.

And your story is a half-truth.  "Savers" were the producers of society that created surpluses.  Banks, in their role as intermediaries, loaned those surpluses to borrowers.  Hopefully, the borrowers would create enough surpluses of their own to repay the debt with interest.

In the world today, of Central Banking, currency is conjured up out of thin air on the premise that the future will have surpluses to repay these new debts.  While this idea can work wonders in the short run, with an economy that needs a little kick start, our current conundrum rests with the absense of producers creating surpluses.

The conjured up debts are unrepayable. Debt is the problem. 

Sun, 02/05/2012 - 19:14 | Link to Comment HD
HD's picture

Agreed. I've always thought the problem with drowning people is that they didn't have enough water.

Sun, 02/05/2012 - 13:18 | Link to Comment Zero Govt
Zero Govt's picture

"On The Failure Of Inflation Targeting, The Hubris Of Central Planning, The "Lost Pilot" Effect, And Economist Idiocy"

And that 'modest' list is merely the tip of the iceberg for the exhaustive list of economic disasters that awaits a society led/bled by the monopolies of Govt, central banking and inevitable zombie banks

Everything Govt Touches Turns to Crap

 

Sun, 02/05/2012 - 13:10 | Link to Comment the grateful un...
the grateful unemployed's picture

every moment the child is born that person needs a trusseau (money). that person will make and spend a lot of money, and the monetary authorities need to add that money to avoid deflation, (too little money chasing too many goods?) now for the connundrum of Ben Bernanke, who would mitigate the problem by distributing money equitably to the users, which makes sense. Too bad he forget that when he constructed his interest rate policies, which give money to banks, who in turn fail to lend to the people.

here's the real shock. we print money for every person in the world, but that money isn't getting to the poor nearly fast enough, and not at all sometimes. (hence economic stagnation, and recession) the interesting part about the 1% 99% in America is, that the 99% in America is the 1% to the rest of the world.

and when the poor Chinese say, Occupy Main Street USA, and they will because they have more to say about their government than we imagine. the Chinese understand mass political movements, its second nature to them. and Americans are learning, that the American politburo serves at our pleasure. Note: In China interest rates lag inflation, which is US monetary policy at present and for a long while to come. anyone desiring to get into the PREDICTION biz, should take a clue, always predict something that is already happening, and will continue to happen, and you will be ahead of your field.

Sun, 02/05/2012 - 13:40 | Link to Comment AnAnonymous
AnAnonymous's picture

the interesting part about the 1% 99% in America is, that the 99% in America is the 1% to the rest of the world.
/////////////////////////////////////////////

Lamenting US citizens of A are afraid of slipping on the other side.

Hence their conspirational tendency "the elite is kicking me out of US of A paradize"

Sun, 02/05/2012 - 19:12 | Link to Comment akak
akak's picture

Confucius say: "Angel dust not a wise addition to chop suey."

Sun, 02/05/2012 - 14:06 | Link to Comment Kayman
Kayman's picture

All that "printed" money is sitting in "excess reserves" at the Fed.  It was printed solely to shore up the crap on the TBTF balance sheets.  If the excess reserves got into the economy then hyperinflation would ensue, which the Bernanke could stop in 15 minutes.

Ben's liquidity was used to pay out bonuses to the Parasites, and banking solvency is but an illusion.

Sun, 02/05/2012 - 13:12 | Link to Comment Bluntly Put
Bluntly Put's picture

I'm not sure, but I think that the 2% inflation rate was intended to mirror the historical, annual production/mining of gold. As gold was the original standard unit of account in calculating any bill of credit before fiat currency usurped gold's role, assuming it was constant (necessary in the formulas to calculate future value) was a good assumption although gold increased at slightly around 2% a year.

The single, strongest element of the dollar (so far) has not been on our nation's productivity or our government's taxing ability but on the ability of the dollar to replace gold's function as the standard unit of account. But, as all exponential functions eventually blow out from the "usefulness" portion of the curve, we are finding the toxic waste of the dollar (our debt) to be blowing out exponentially.

Sun, 02/05/2012 - 14:11 | Link to Comment Kayman
Kayman's picture

2% is a diversion. They could just as easily use the natural logarithm; at least it sounds a tad bit scientific.

Sun, 02/05/2012 - 13:14 | Link to Comment spentCartridge
Sun, 02/05/2012 - 13:27 | Link to Comment ifishivote
ifishivote's picture

Tyler.. you guys made the Washington Times.

 

 

http://www.washingtontimes.com/news/2012/feb/3/obamas-bogus-jobs-data/

Sun, 02/05/2012 - 13:27 | Link to Comment Catullus
Catullus's picture

On 1920s inflation targeting... I suppose.  I'd more call it return to historical exchange rate with the British Pound, but I suppose that's inflation targeting as well.

Honest fools is the best way to describe the economics profession right now.  Even people who have economics degrees in the business environment and start with the "do you have any data to support that" when it comes to business case development.  The concept of entrepreneurial risk and uncertainty is never covered in economics.  It really does blur the lines between investing and gambling. 

The study of math is partially to blame for this as well.  When you have a gaggle of sophist economists running around using probability and statistics to apply to models of risk and uncertainty, the math department is to blame.  There seems to be no interdisciplinary critique taking place.

Sun, 02/05/2012 - 13:56 | Link to Comment Monedas
Monedas's picture

Watching the demise of the Fiati (like the Literati and the Paparazzi!) is like reading a phone book......I already know Zee ending !  Monedas  2012   Fatwa Funnies 

Sun, 02/05/2012 - 14:02 | Link to Comment Monedas
Monedas's picture

For $25 million dollars every North Korean could have a Snickers !  Let´s party with some of this Fiat before they take the punch bowl away !  Monedas  2012  North Korean Octoroon Club (If you have 1 great grandparent who is Negro....YOU are an Octoroon !)

Sun, 02/05/2012 - 15:18 | Link to Comment WmMcK
WmMcK's picture

We could be here a while -- better have another Snickers.  I have 7 PC's and an Apple, does that make me a Mac-a-roon?

Sun, 02/05/2012 - 13:45 | Link to Comment eddiebe
eddiebe's picture

The people in charge are fools, but not for the reasons commonly believed. They are very crafty and their main tools like Obama, Bernanke and other 'leaders 'around the world are skilled at implementing their mandate. The foolishness comes in the form of those pulling the strings destroying our habitat in their blind pursuit of wealth and power.

Unless this basic premise is not understood, lengthly dissertations are of little value.

Sun, 02/05/2012 - 14:14 | Link to Comment PORTA PORTA
PORTA PORTA's picture
10 Prediction for 2012 from BlackRock's Bob Doll

Bob Doll, chief investment officer at the world's biggest money manager-- BlackRock ($3.6 trillion in assets), who has produced an annual prediction for over a decade, just published his 10 predictions for 2012:

  1. The European debt crisis begins to ease, even as Europe experiences a recession. 
  2. The US economy continues to muddle through yet again.  
  3. Despite slowing growth, China and India contribute more than half of the world’s economic growth. 
  4. US earnings grow modestly, but fail to exceed estimates for the first time since the Great Recession.  
  5. Treasury rates rise and quality spreads fall.  
  6. US equities experience a double-digit percentage return as multiples rise modestly for the first time since the Great Recession. 
  7. US stocks outperform non-US stocks for the third year in a row. 
  8. Dividends and buybacks hit a record high. 
  9. Healthcare and energy outperform utilities and financials. 
  10. Republicans capture the Senate, retain the House and defeat President Obama.

Doll sees a 2012 recession in Europe, but China, India and the United States are three bright spots accounting for two-thirds of global GDP growth.  The United States faces headwinds, but a recession is not expected with GDP growth of between 2% and 2.5% and QE3 is unlikely.  The big risk remains that of a financial breakdown in Europe.

Regarding specific market and investing strategy, Doll noted In a separate Nov. 2011 CNBC interview (clip below):

  • Adding stocks on weakness into the lower part of 1100-1250 range
  • Continue to favor the U.S.  
  • Sector focus: Healthcare and Technology

Doll typically is biased towards the bullish side, but like many other fund managers and analysts, he is very bearish on Europe for 2012.  Doll's prediction of a third straight double-digit gain of U.S. stocks in 2011 fell short (by a lot); but on the other hand, BlackRock is a $3.6-trillion 'market force' worthy of at least some attention from investors.

 

pp

Sun, 02/05/2012 - 14:22 | Link to Comment Kayman
Kayman's picture

BlackRock is a $3.6-trillion 'market force'

Economies of Scale always run into Diminishing Returns. It's hard for BlackRock to outperform the economy.

Sun, 02/05/2012 - 18:04 | Link to Comment lotsoffun
lotsoffun's picture

bobby doll?

 

Sun, 02/05/2012 - 14:28 | Link to Comment G. Marx
G. Marx's picture

Tyler, hope you were pointing upwards as you rounded the bases. This is a 'grand salami' of an article.

Sun, 02/05/2012 - 14:29 | Link to Comment Bansters-in-my-...
Bansters-in-my- feces's picture

Inflation targeting is the same as premeditated theft.

Sun, 02/05/2012 - 14:32 | Link to Comment yukon5
yukon5's picture

Earthmonkey on very bad trip, probably fatal for many.

"There is no means of avoiding the final collapse
of a boom brought about by credit expansion. The
alternative is only whether the crisis should
come sooner as a result of a voluntary
abandonment of further credit expansion or later
as a final and total catastrophe of the currency
system involved." --Ludwig von Mises, Human Action
(pg 572)

Sun, 02/05/2012 - 14:33 | Link to Comment Fix It Again Timmy
Fix It Again Timmy's picture

Any semblance of a fair and decent society lies on a foundation of law that reflects the concept of liberty.  Today, the law means nothing and is easily side-stepped and ignored.  What incentive does the oligarchy have other than the incentive to feather their nest?  I mean, if they have a bad week, it's off to the Hamptons for a spell.  The only freedom that seems to be left in Amerika, is the freedom of the oligarchy to do what they please!

Sun, 02/05/2012 - 15:08 | Link to Comment Libertarian777
Libertarian777's picture

pretty good article, its actually exactly the discussion of Austrian vs Keynesian economics at its core.

Keynesians try to apply 'scientific' methods to economics, using exactly that which has been proven to not work. It was thought around the time of Newton that if you knew every position and velocity of every subatomic particle in the world, with infinite accuracy, you could predict the future.

Quantum physics disproved that, through the uncertainty principle.

Keynesians still believe that a central committee/bank of men, can gather sufficient information about the state of the economy and its peoples, process and correctly interpret this information and make the 'correct' decision through a SINGLE variable (interest rates), applied to ALL people. It's a common mistake of statistics. Just because AVERAGE life expectancy is 85, it doesn't mean that on average YOU will live to 85. So just because on average health care expenses are x% it doesn't mean people in Iowa and people in NYC require the same type of health coverage / insurance or care.

Austrians believe people are individuals, that there is no 'market' (as an entity). There are only millions of individuals making choices, these choices show up through a pricing mechanism (collectively these choices are what Austrians call the 'market'). Individually there are behavioural traits, non-rational actors, rational actors etc. It all doesn't matter, since overall (left unfettered) the pricing mechanism will bear these choices out.

The biggest problem with Keynsian economics, aside from the central planning aspect, is the fact that it distorts the very information market participants require to make informed decisions. The fact that the government tells GM to build 50,000 volts, sends the wrong message to the suppliers of the batteries and hybrid system underlying the volt. Instead of GM determining actual demand for the volt,finding out why demand is low and indicating to its suppliers / engineers that the battery is wrong / the hybrid system is inefficient or whatever else, only then will the suppliers and engineers take strides to improve the system.

Under the current system this never happens, and GM will continue to build volts until we have a million of them in car lots, with no-one buying them even with government subsidies.

Sun, 02/05/2012 - 15:48 | Link to Comment Sandmann
Sandmann's picture

Yes, GM has been a real indicator of success......they FINANCE cars because they cannot build cars that sell. How many car firms has the Us Government had to rescue ? Chrysler, GM ? How many are there.........3 ?

What is the difference between GM and British Leyland ?

Sun, 02/05/2012 - 16:20 | Link to Comment GeneMarchbanks
GeneMarchbanks's picture

Correct. GM financial is the most 'profitable' part of the ongoing financialisation of auto companies. VW does something similar as well, but their cars are (somewhat) viable and wanted. First make cars then finance not the other way around like GM.

Sun, 02/05/2012 - 16:29 | Link to Comment GeneMarchbanks
GeneMarchbanks's picture

'It was thought around the time of Newton that if you knew every position and velocity of every subatomic particle in the world, with infinite accuracy, you could predict the future.

Quantum physics disproved that, through the uncertainty principle.'

Newtonian mechanics brought the world to a unified form. Quantum mechanics did no such thing as disprove classical mechanics which are themselves an interpretation of physical forms and not absolute. Another example of mistakenly confusing the economic realm with the physical world. Where in the fiat money system do you locate 'money'?

Sun, 02/05/2012 - 17:31 | Link to Comment AnAnonymous
AnAnonymous's picture

It was thought around the time of Newton that if you knew every position and velocity of every subatomic particle in the world, with infinite accuracy, you could predict the future.

Quantum physics disproved that, through the uncertainty principle.

///////////////////////////////////

What hogwash. Marvellous.

Subatomic particles Newton's time?

Infinite accuracy?

Libertarian style.

Sun, 02/05/2012 - 18:34 | Link to Comment akak
akak's picture

Bite the wax tadpole of Chinese citizenism!

Sun, 02/05/2012 - 18:50 | Link to Comment Libertarian777
Libertarian777's picture

i was taking a bit of liberty on shortening timelines.

I'm talking more in general of Newtonian physics. Sure in Newton's time the atom was the smallest considered particle. Subsequently we found there were more, but until quantum physics came around scientists still believed if you knew the path and velocity of every particle you could predict their interactions and the ultimate outcome.

Sure, infinite accuracy is not possible, which is exactly part of the ASSUMPTION that scientists had, that IF YOU COULD measure every particle accurately, then you could predict its future path. Again quantum mechanics have shown even if you knew the position of a particle with extreme accuracy, you could not also know its velocity with any accuracy at the same time. The 'infinite' part comes in because deviations from accuracy in measurement would have been what could have caused particles not behaving as expected along their future path.

Currently in physics this is part of argument against the 'simulation' universe, where if the universe was indeed a simulation, you'd need infinite precision, since even small deviations / roundings compound over large time scales / interactions (sort of like chaos theory).

So sure, hogwash in the subatomic particles in Newton's time and infinite accuracy not being achievable... the rest of my comments still stand.

 

Calling names with no backing your argument...AnAnonymous style.

Sun, 02/05/2012 - 19:05 | Link to Comment akak
akak's picture

.

Calling names with no backing your argument...AnAnonymous style.

Such is the eternal nature of genocidal, polluting, running dog imperialist Chinese citizenism, and the blobbing up that invariably follows in its wake.

Sun, 02/05/2012 - 15:08 | Link to Comment Ostapuk Ivano
Ostapuk Ivano's picture

Great article. No difference between these clowns and alchemists. Maybe I should get out of finance all together?

Sun, 02/05/2012 - 15:51 | Link to Comment falak pema
falak pema's picture

only if you don't mix with silicone tits. Otherwise, first see a shrink, then have a drink, then pop the weasel and say goodbye to all that. 

Sun, 02/05/2012 - 15:16 | Link to Comment slewie the pi-rat
slewie the pi-rat's picture

and, as mrBbuckler well knows, especially if he is a zeroHead, those keynesian metaphysics are somewhat of a 2-edger at times, too!

grice gets off on feynman?  these guys are why i have no hair!

PDF] 

McKay Correspondence between Physical World and Mental World www.tony5m17h.net/SiragMcKayE8ID.pdf You +1'd this publicly. Undo File Format: PDF/Adobe Acrobat - Quick View
Saul-Paul Sirag, in an Appendix to Jeffrey Mishlove's book “Roots of. Consciousness” ... For each finite subgroup of SU2, we get an affine Dynkin diagram ... 3 ...... Worlds and the non-loop terms of the Feynman Sum-Over-Histories Path ...

mislove & slewie were going to different schools together more or less in the SFBay area when he first introduced me to feynman's thought thru his first edition of "Roots"

in the second edition of what is certainly one of the world's greatest coffee table books, jeffreyM introduces saul-paulSirag's ultimate multi-dimesional "do the math" mindfuk~~~in an appendix, no less(!)
Sun, 02/05/2012 - 16:21 | Link to Comment WmMcK
WmMcK's picture

Lie algebra.  I get lost even before dimension #10.

Sun, 02/05/2012 - 16:43 | Link to Comment ebworthen
ebworthen's picture

 

 

Ahoy slewie!

"13 is the only number between 5 and 89 that is both Prime and Fibonacci...it is interesting that 13 (through its Fibonacci aspect) is related to the Golden Ratio (similar to 2, 3, 5 and icosahedral structure)."

(Source: page 42 of SiragMcKayE8ID.pdf you linked to)

So why is 13 cosidered by some unlucky?

Perhaps it is the point where the physical and mental world meet, the middle joining point of the infinity loop; or in a religious vein the point where God and the Devil are one-and-the-same before separating to maintain the duality of existence and the push/pull between:  the mental and the physical, the spiritual and the tangible, theory and reality, or in relation to Keynesian economics - debt and consequences.

?

Sun, 02/05/2012 - 18:09 | Link to Comment Kayman
Kayman's picture

13, a baker's dozen... I'll take the lucky bun anytime...

Sun, 02/05/2012 - 21:58 | Link to Comment slewie the pi-rat
slewie the pi-rat's picture

you made it to page 42?(!!)

any hair left?

maybe you'll make it back by tomorrow, eb!

Sun, 02/05/2012 - 15:28 | Link to Comment non_anon
non_anon's picture

the mistake is from generation to generation, we allow the criminal elite to continue taking from us

Sun, 02/05/2012 - 15:32 | Link to Comment resurger
resurger's picture

Phat +5

 

Sun, 02/05/2012 - 15:38 | Link to Comment Tom of the Missouri
Tom of the Missouri's picture

 Quote from Lord Keynes: “In the long run, we are all dead”.

Tyler Durden response:  "It is difficult to overemphasise the venal arrogance of this remark or the destructiveness of its legacy."

 

Zero Hedge Byline:  "On a long enougth timeline the survival rate for Everyone drops to zero".

 

Tyler Durden response:  awaiting response.


Sun, 02/05/2012 - 17:01 | Link to Comment Tyler Durden
Tyler Durden's picture

The response is that unlike Keynes, whose entire lifetime was spent vesting a broken system he helped create, we believe, as our profile says, that a return to a truly free market is only possible when the current broken status quo farce is finally reset. In other words, we at least try to not be hypocritical.

Sun, 02/05/2012 - 17:34 | Link to Comment AnAnonymous
AnAnonymous's picture

return to a truly free market is only possible when the current broken status quo farce is finally reset. In other words, we at least try to not be hypocritical.

/////////////////////////////////////////////////////

Really? I wonder how US citizens can escape their nature which includes duplicity.

So a return to truly true real free market implies that those truly really true free market existed before, so when did they exist? Bracket period.

Hey, US citizens are duplicitous as duplicity can be.

Sun, 02/05/2012 - 18:20 | Link to Comment hungrydweller
hungrydweller's picture

It is not US citizenry nature to be sheeple.  They have only been trained to be this way.  Training can be retrained.

Sun, 02/05/2012 - 18:58 | Link to Comment ebworthen
ebworthen's picture

tut-tut

In a true free market the Bankers would have not been bailed out and would have lost their shorts.

The Keynesian central banking reflation of false value (equities) using debt to solve a debt crisis is anathema to free market forces and the invisible hand of individual actors backed by the rule of law (or at the least the rule of the street).

In the current instantiation of central planning cupidity, the gorilla's hand is all too visible.

Combined with sanctioned theft and the complicitious crony concupiscence of our politicians it is a wonder the lot hasn't been hanged.

There are certainly duplicitous actors in the U.S., but generalizations about the entire citizenry are not only fallacious but belie the action of many U.S. citizens here on Zero Hedge, other venues, and in the Gold and Silver markets (and guns and ammo).

Duplicity and treachery are best addressed when the mob is assembled and the King's soldiers are vastly outnumbered, not before. 

Spread leaflets of truth versus casting aspersions so we can redress our grievances united.

Sun, 02/05/2012 - 19:28 | Link to Comment Schmuck Raker
Schmuck Raker's picture

Sounds like somebody needs a hug.

Sun, 02/05/2012 - 19:31 | Link to Comment akak
akak's picture

That, or a bullet to the head.

Just like the Tiananmen freedom fighters received from the crypto-fascist Chinese state for all their efforts, or as millions of other dissenters to crypto-fascist Chinese Communist Party rule have received as well.

Sun, 02/05/2012 - 18:16 | Link to Comment Kayman
Kayman's picture

Jeez, TD, cut the old, bisexual Lord a little slack.  He saved American "Capitalism" from itself. He did the job he was paid to do.  And he did not advocate deficit spending ad infinitum.

He did not support borrowing away the grandkids' future, anymore than Jesus asked his followers to kill in his name.

 

Sun, 02/05/2012 - 19:20 | Link to Comment TruthInSunshine
TruthInSunshine's picture

Moderation is typically a good thing.

While I definitely lean towards the Austrian School of Economic Theory, I recognize (as Milton Friedman and even Hayek did) that there is a risk of market failure in key areas that can present a legitimate, unjust and imminent threat to human health, property rights, safety and security, and some form of interventionism is required to mitigate against this risk and/or the damages that result when it occurs.

The classic example of market failure is an externality where a factory moves into an existing area and proceeds to pollute the groundwater and air of adjacent private properties with toxic waste, as a byproduct of its manufacturing processes.

The problem society desiring a reasonably free and fair market economic structure should ordinarily be faced with, and that which we would be lucky to be able to have the luxury of debating today, is deciding where this balance should be between having just enough government to reasonably mitigate against the risk of such market failure without going so far as to unecessarily crimp private sector efficiency (i.e. at some point, additional layers of governmental agencies, employees and regulations do not further mitigate against market failures, or if they do, the cost of doing so is too great given the only marginally higher level of prevention and harm in terms of both frequency of market failure and resulting damages that it represents a net loss to society).

But we're so far beyond the point of deciding upon where this balance should be today, because of Deep Capture of our alleged elected representatives by special interest groups, which has led to our new era of Crony Capitalism & Kleptocracy, whereby the Military-Industrial-Financial/Banking complex (that has not arisen or been sustained by free market forces, but by the teet of governmental corruption) is literally snuffing out anything remotely resembling free market economic activity and free markets altogether.

Think about the discount rate, quantitative easing & ZIRP -great examples of how far we've fallen today in the United States whereby we literally have interest rates in every asset class (e.g. corporate bonds, foreign sovereign bonds, mortgage notes, certificates of deposit, bank saving deposit accounts, money markets, etc. etc.) either controlled directly by or influenced significantly by The Federal Reserve, and in no way, shape or form,  by free market forces.

All yield bearing intruments and assets take at least partial cue from US Treasury yields, as these are their main competition for buyers (on a risk adjusted scale).

The Federal Reserve has purchased, as a literal buyer of last resort (given the pricing of issued treasuries), an unprecedented amount of USTs, forcing the yields artificially lower and lower, therefore allowing competing yield bearing instruments to be priced at levels far different than where they would be without such Federal Reserve interventionism. Is this massive interventionism damaging the organic economy?

ZIRP, again as in the case of treasury bond purchased by the Fed, via FOMC rates has artifically suppressed the yields on everything from corporate bonds to foreign sovereign bonds to mortgage rates on home loans to bank deposits in such an incredibly grotesque manner that it has produced massive (and unpredictable, another element that free markets detest - unpredictability/lack of clarity) malinvestment, disinvestment, asset bubbles, misalignment of capital to the production of goods/sevices, a severe mismatch between where a free market would place the price elasticity demand (pricing in massive number of commodities and asset classes is absolutely warped irrationally), and supply/demand curve, etc. etc.

The Federal Reserve has literally broken markets, fostered even Deeper Capture of our alleged elected representatives by special interest groups, and has strengthened the Crony Capitalistic & Kleptocratic class.

Neither Hayek nor Keynes would view our current situation with anything other than great discomfort, and maybe even rage.

Sun, 02/05/2012 - 15:40 | Link to Comment sasebo
sasebo's picture

It would help if they took some time to read Jesu's Huerta de Soto. It's all caused by fractional reserve banking. Without fractional reserve banking they couldn't do any of their stupid bullshit.

 

Sun, 02/05/2012 - 16:28 | Link to Comment riphowardkatz
riphowardkatz's picture

Right there was never tirany before fractional reserve banking. Sorry you get an F for today. Fractional reserve is the means to this societies philospohical ends (altruism) As long as altruism guides peoples actions we will have systems that condone theft. As long as theft is condoned thieves will be in control.

Mon, 02/06/2012 - 00:24 | Link to Comment TruthInSunshine
TruthInSunshine's picture

riphowrd, I do not follow the logic of what you wrote.

You wrote "[f]ractional reserve is the means this societies [sic] philosophical ends (altruism) As long as altruism guides peoples actions we have systems that condone theft."

 

You're stating that fractional reserve banking practices (aka Modern Money Mechanics) = the pursuit of altruism?

You're further stating that altruism guiding peoples' actions encourages/condones theft?

 

WTFBBQ?

Mon, 02/06/2012 - 00:54 | Link to Comment riphowardkatz
riphowardkatz's picture

Altruism is a philosophy that condones sacrifice of the individual for the benefit of society or others or the "greater good" . This is the philosophy of this  society (vast majority of the world people)

As long as we have a majority of people believe that people should sacrifice for the "greater good" we will have systems that take wealth from individuals and redistribute wealth for the "greater good" 

Fractional reserve banking is a manifestation of this philosophy. It is an effect not a cause. It is the means to the ends of redisitrbuting wealth.

It would take too long to explain here instead I would refer you to Alan Greenspan who does a much better job explaining then I can...

http://www.lewrockwell.com/north/north204.html 

http://www.cobdencentre.org/2010/12/alan-greenspan-gold-and-economic-freedom/  

Sun, 02/05/2012 - 15:41 | Link to Comment Wakanda
Wakanda's picture

On a long enough timeline, the "rules" of physics change and timelines become a quaint way to experience All That Is.

In the meantime, take PM delivery and don't let your dongle dangle - FiSHeS!

Sun, 02/05/2012 - 15:42 | Link to Comment ekm
ekm's picture

The problem with the position of Federal Reserve Chairman is that whoever takes that position becomes Dishonest Fool. Once you're out, people seem to come back to reality, like Greenspan. I think that job position is cursed.

Sun, 02/05/2012 - 15:45 | Link to Comment Sandmann
Sandmann's picture

people seem to come back to reality, like Greenspan

 

Greenspan was and is senile.

Sun, 02/05/2012 - 16:25 | Link to Comment riphowardkatz
riphowardkatz's picture

Greenspan is and was a genius.

I would bet dollars to donuts well over half the reading this site agree with some form of wealth redistribution. As long as you support wealth redistribution people much smarter than you will gladly redistribute your  wealth to themselves.Start calling stealing, stealing regardless of  the ends and hold those who steal accountable and all this mess goes away. We will be ushered into an era of untold wealth. 

This will mean some people will gain power(Rockefeller) but it will not be at anyones expense unlike the system we have today, which involves the inept stealing from the productive. To the to contrary when productive men are allowed to gain their ultimate power everyone benefits. For proof look at the price of oil from 1860 to 1910.

Now watch the down arrows accumulate as the "redistributors" display their true colors.

Sun, 02/05/2012 - 16:33 | Link to Comment sasebo
sasebo's picture

The best distributor (& creator) of wealth is a truly free market.

Sun, 02/05/2012 - 17:02 | Link to Comment Wakanda
Wakanda's picture

Only fools "know" why they are junked.

Free and open markets FiSHeS.

Price discovery is self discovery - and nothing is more valuable than knowledge of self.

Sun, 02/05/2012 - 17:55 | Link to Comment lotsoffun
lotsoffun's picture

agreed.  greenspan made lots of his wall street pals very rich and bernake is making sure that they can hold on to as much of that as possible.  they all knew exactly what they were doing.  wealth transfer ad it won't stop until there isn't a penny left.  and at that point there will be riots but, it will be years from now when people really understand there is nothing left and they will be given nothing.  at that point, the rich hope to be all living in davos.

 

 

Sun, 02/05/2012 - 18:20 | Link to Comment Kayman
Kayman's picture

I don't think genius and lap-dog are synonymous.

Sun, 02/05/2012 - 15:55 | Link to Comment ebworthen
ebworthen's picture

Fantastic.

Economists like Krugman still believe their own lies.

Bernanke's quavering voice belies some inner knowledge.

The engineers and builders of the Titanic were confident it would never sink; not knowing that many of the rivets holding the ship's panels and compartments together were of lower quality and riddled with slag - making them brittle - more-so in the frigid water.

Ideas and theories must survive the crucible of reality.

Sun, 02/05/2012 - 15:56 | Link to Comment michaelsmith_9
michaelsmith_9's picture
Interesting thoughts for the week - SPX, EURUSD, DX, EURGBP, CL, and AUDUSD. http://bit.ly/AmfMFB
Sun, 02/05/2012 - 16:00 | Link to Comment onebir
onebir's picture

There is some research on the optimal rate of inflation, eg:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=706964

(But this doesn't negate the point that focussing on the CPI as a measure of inflation is pretty arbitrary...)

Sun, 02/05/2012 - 18:54 | Link to Comment Libertarian777
Libertarian777's picture

interesting... i'll be honest i didn't read it, but the abstract is exactly along the lines of my thoughts.

In general, with technological improvements, prices should constantly be falling. This, is actually a saver's dream. Imagine saving $1 today, with 0% interest, but in 30 years time it can buy you $2 worth of stuff in today's terms. Any saver would be sure to put their capital at risk only after considering the risk/reward ratio. With credit expansion under the Fed, risk went out the window and everyone could buy a stock (1999) or a house (2005/6).

While I support a gold standard, and it does have 5,000 years of history, it is important to note that if we perfected technology and could extract gold from seawater, then gold as money would also be pretty useless (we would still see positive inflation under that scenario).

Consequently we need to legalise competing currencies.

Sun, 02/05/2012 - 16:17 | Link to Comment cranky-old-geezer
cranky-old-geezer's picture

 

 

we can't help but be amazed as the population simply sits idly by on the sidelines as the modern financial system repeats every single mistake of the past century,

I don't know why people keep viewing these things as mistakes made by dumbasses.

Not one single mistake has been made at the macro level.  All these things PLANNED to go the way they are.  Everything from the housing bubble to the '08 collapse to the present day sovereign debt crisis is PLANNED.

The only mistake is thinking these things are mistakes, screwups, lack of foresight, etc.

Banks have 1/3 of world GDP on their balance sheets?

It just means 1/3 of world GDP has been stolen from people under the guise of financing sovereign debt.  1/3 of world GDP has been stolen from people and given to irresponsible overspending governments ...and banks.

That's the plan.  Loot people into poverty under the guise of keeping money flowing to these irresponsible overspending governments and banks.

It's the best possible cover story.  "We must keep the government going.  We must keep banks going." 

Sun, 02/05/2012 - 16:27 | Link to Comment resurger
resurger's picture

+1

P.S Can you please change your thong! Pink is not my favourite, i like it Black!

Thnx

 

Sun, 02/05/2012 - 18:18 | Link to Comment hungrydweller
hungrydweller's picture

I like it black too.

Sun, 02/05/2012 - 18:12 | Link to Comment Implicit simplicit
Implicit simplicit's picture

I know what your saying, and I don't doubt the corrupt nature of those in charge, but frankly I don't think they're smart enough to plan everything out.

 It is just a confidence game for them. They need to lie to the public to create confidence to keep the ponzi going as long as possible.

Sun, 02/05/2012 - 17:31 | Link to Comment ricocyb13
ricocyb13's picture

Jim Rogers latest comments on RT

http://www.youtube.com/watch?v=VjrhD2RNYBc

 

Sun, 02/05/2012 - 18:16 | Link to Comment hungrydweller
hungrydweller's picture

In the long run, we are all dead”. It is difficult to overemphasise the venal arrogance of this remark or the destructiveness of its legacy."

Sounds vaguely like the ZeroHedge Motto.  I love ZH but if we are going to denigrate this particular quote, we should check the composition of our own windows.

Sun, 02/05/2012 - 18:24 | Link to Comment tradewithdave
tradewithdave's picture

Exactly!

 

tradewithdave.com

Sun, 02/05/2012 - 23:35 | Link to Comment riphowardkatz
riphowardkatz's picture

You guys are really morons and I try to avoid ad hominens so I will explain why. 

Tylers moto can be applied to him and him only. He is not forcing or trying to force you to do anything. Keynes believed governments should do the forcing to inflict his mailgnant thoughts on other people. There is a big difference.

I wish a big comet/airplane/bomb comes down and blows both of your houses and you up. 

Sun, 02/05/2012 - 23:57 | Link to Comment Boxed Merlot
Boxed Merlot's picture

Tylers moto can be applied to him and him only. He is not forcing or trying to force you to do anything...

 

Exactly.

Sun, 02/05/2012 - 18:17 | Link to Comment hungrydweller
hungrydweller's picture

dupe

Sun, 02/05/2012 - 18:41 | Link to Comment falak pema
falak pema's picture

And if 2012 were the year of the great political swing from West to East?

From Atlantis to Pacificus. The end of the 500 year cycle beginning with Cristopher Columbus in 1492. 

The Nexus now somewhere East of Eden, old Mesopotamia, it attracts movement like an ignited powder thread leaving its deadly trail from Athens to Central Asia. 

We seem to be moving there as the maelstorm gathers in old Europe, relegated to status of an ageing continent, without resources or young active population. And...now cribbled by run away debt and its painful servitude of lost decades.

So goes new Rome and its Empire on verge of crumbling, as the cement of middle America, bastion of continental construct, now shows all the appearing signs, cratering lines, beneath the papered facade of fiat empire. Like an iconic woman, Hollywoodian diva,  who loses her juvenile charms, as first blush of her pristine sixty year hegemony, as matinee idol, as box office block buster, now fades on Sunset Boulevard. 

A year when the tipping points of past momentum attain temporary hiatus before possible critical rupture; decisive turning point now breached leading on to the thundering waterfalls of a raging fiat river of runaway inflation from which there is no return; except in broken raft of mangled civilization.

Sun, 02/05/2012 - 18:46 | Link to Comment flyme
flyme's picture

There's the toolbox. Extinguish. Steralize. Vaporize. Materialize. Use it at your own risk. Speculate. Seconds to the point of impact is all it takes. Bright shiny lights override the down and out shockwave rides.

Sun, 02/05/2012 - 18:46 | Link to Comment earleflorida
earleflorida's picture

compounded interest = long term negative returns = inflated deflation

Ps. Glass Steagall was a start to finish?

Ps2.  Currency [fiat] backed by gold standard was an automatic inflation/deflation barometer benchmark

Ps3. KISS is so yesterday it hurts

thanks tyler

Sun, 02/05/2012 - 18:53 | Link to Comment saiybat
saiybat's picture

Just to let everyone know unfamiliar with the Austrian school or economics in general the Mises Institute is selling Man, Economy, and State by Murray Rothbard and also Human Action by Ludwig von Mises. Man, Economy, and State will teach you economics from the ground up but it's a lot of reading 1500 pages. Human Action is more difficult to understand for someone that's unfamiliar with economics.

http://mises.org/store/Man-Economy-and-State-with-Power-and-Market-The-S...
$25 is a good deal for it and it's hardcover. They're probably selling it at a loss.

http://mises.org/store/Human-Action-The-Scholars-Edition-P119.aspx
A good deal too $20

Sun, 02/05/2012 - 18:59 | Link to Comment Dermasolarapate...
Dermasolarapaterraphatrima's picture

Frank Shostak, an adjunct scholar at the Mises Institute, sums the GDP fraud up nicely:

“The GDP framework gives the impression that it is not the activities of individuals that produce goods and services, but something else outside these activities called the ‘economy.’ However, at no stage does the so-called ‘economy’ have a life of its own independent of individuals. The so-called economy is a metaphor — it doesn’t exist.”

The Daily Reckoning web site.

Sun, 02/05/2012 - 19:26 | Link to Comment falak pema
falak pema's picture

So, what he says is the metaphor's rule of thumb correlation with increase in unemployment, aka Okun's law, whereby 1% increase in Layoffs = 2% loss of GDP is metaphorically stated, as there can't be a real correlation with a metaphor, a non existant animal! Am I reading him right?

I'm lost in these mixed metaphors! I thought Economics was reality badly formulated in mathematical theory, but not like Astrology, non reality with an exact mathematically predictive faculty in the hands of the illuminati making it true science.

Where are we? in unreal real or real unreal?

http://www.investopedia.com/terms/o/okunslaw.asp#axzz1lYKqM9ca

Sun, 02/05/2012 - 23:28 | Link to Comment riphowardkatz
riphowardkatz's picture

We are in the real real. Are you asking rhetorically? GDP is as much a farce as CPI for similar reasons as Grice states. Look at the components of GDP private consumption + gross investment + government spending + (exports ? imports)

So if government spending doubles GDP goes up by the percent government spending represents in the rest of the equation. Who cares? It is not representation of wealth. In fact it can be the opposite as government is historically a destroyer of wealth (Wars, Bridges to no where,Fat wealthfare recipients, Bank bailouts)

Sun, 02/05/2012 - 19:13 | Link to Comment Yen Cross
Yen Cross's picture

 That was a great editorial Tyler! (+1) This is for all the Greeks out there. A little boost before the TROIKA deadline!

Sun, 02/05/2012 - 19:31 | Link to Comment illyia
illyia's picture

Thanks, TD. Very nice to read.

i.

Sun, 02/05/2012 - 20:26 | Link to Comment mariner22
mariner22's picture

GM (and GMAC) takes tens of billions of dollars in US government money to stay alive and now they are making commercials slamming Ford products. 

The endgame will not be pleasant.

Sun, 02/05/2012 - 21:05 | Link to Comment The Deleuzian
The Deleuzian's picture

Tyler +100

Everybody who muscled through the hard sciences knows how questionable an economist's tool box is...

The topic of physics and economics has come up frequently in articles and comments alike lately...

The savage had his medicine man and we have our economists

 

 

Sun, 02/05/2012 - 22:08 | Link to Comment antaresteleko
antaresteleko's picture

You got it ;-)

The truth is that the laws of thermodynamics tell us that this ponzi economy will end badly due to energy exhaustion or planet overheating. Indeed, it will end badly much, much before those law's limits are reached.

And maybe, sooner than we realize...

Sun, 02/05/2012 - 22:18 | Link to Comment ekm
ekm's picture

If Dylan Grice reads and studies Feynman, Dylan Grice is clear piece of briliancy.

Sun, 02/05/2012 - 22:19 | Link to Comment ekm
ekm's picture

Thx Tylers for informing us of this one. Briliant.

Mon, 02/06/2012 - 01:55 | Link to Comment malek
malek's picture

Perfect description of the current situation.

In the long run, we are all dead

I never understood why noone then responded with something like "Oh, and what about the generations following us?"

Mon, 02/06/2012 - 12:41 | Link to Comment brent1023
brent1023's picture

Interesting but so many false analogies.

The FED has had two mandates - CPI targeting and employment.

In many countries, but not the US, even having one of these mandates is enough. Canada targets a CPI range alone. Canada has not had US style bubble.

What is to be avoided is a large bubble. A bubble that endangers the economy. The US economy continues to produce bubbles that endanger not just the US economy. They endanger the world economy.

The dot com bubble was obvious. It was big. It was clearly on the scale of the entire economy. The US reaction was to encourage it. We are still working through the repercussions of that bubble.

The housing bubble was obvious. It was big. It was clearly on the scale of the entire economy. The US reaction was to encourage it. We will be working through the repercussions of that bubble for a generation.

All people in positions of power or giving advice to people in positions of power who claimed that neither of these bubbles could have been foreseen, let alone seen, is incompetent and should never again hold a position of any authority.

Economic management should encourage growth while preventing bubbles.

Neither the CPI or employment is an adequate proxy for bubble prevention in the US even if they work elsewhere.

By saying it is going to use the CPI as the single measure of bubbleness the Fed is assuring us that it is busy creating, or at least passively watching the creation of, the next bubble.

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