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Guest Post: It's Time To Give Up On Mainstream Economics

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Submitted by guest contributor Gregor Macdonald

It's Time To Give Up On Mainstream Economics

Few modern economists would, for example, monitor the behaviour of Procter and Gamble, assemble data on the market for steel, or observe the behaviour of traders.  The modern economist is the clinician with no patients, the engineer with no projects. ~ John Kay, from The Map is Not the Territory: An Essay on the State of Economics, October 2011

I’m not quite sure what a depression is. ~ Martin Feldstein, in an interview with Kelly Evans of the Wall Street Journal, October 2011

A Failure To See the Obvious 

Prior to 2008 it was generally understood that the profession hardly merited its claims of its own predictive utility. So the failure to assign enough risk to such a crisis as befell the developed world in 2008 was, frankly, no surprise. But in the aftermath of the crisis, economics, in its professional form, has revealed itself to be damagingly disconnected from observable reality.

A glaring example of this is how it cannot come to any agreement as to how the debt crisis occurred, and accordingly remains quite confused in its proffered solutions.

Mostly the profession remains curiously naive about the nature of debt, an understanding of which is more critical than ever as the developed world enters a 'slow' to 'no-growth' phase of its history. Indeed, many of the papers, interviews, and op-eds from central bankers and economists in the face of our present-day sovereign debt crisis are little more than an eerie restatement of the discussions which took place about private-sector debt from 2006-2008.

For a profession tasked with the analysis of dynamic systems, modern economics can be ploddingly linear. And for a profession supposedly guided by math, the descent into "sociology lite" is all too routine. One of the more consistent errors (or nervous tics, if you will) comes in the area of scale and proportion. A favorite and most astonishing example for me remains former Dallas Fed President Bob McTeer’s explanation of the cause of the 2008 crisis. Writing in his blog at the end of 2009, McTeer set out to defend the US Federal Reserve for its role in the catastrophe:

It is taken as given these days that the Fed created the housing bubble. If this is true, then it must follow that the Fed is responsible for the bursting housing bubble, the ensuing financial crisis and subsequent recession. But, as I recall, the Fed did not create the housing bubble. It was the collateralized subprime loans, not a reversal of home prices, that caused the problems. Maybe there were too many loans, but, if so many had not been bad loans, air could have come out of the bubble without devastation...Subprime loans triggered the crisis and recession. Other things like too much debt and leverage made the problem worse, but didn’t cause it.

Let’s stipulate that the issue of causality can almost always broaden out into legitimate disagreement. But Mr. McTeer’s claim here is so grossly disproportionate to the total size of the credit bubble, which was not limited to housing, that one is compelled to ask if Mr. McTeer actually understands the system over which the Federal Reserve presides. This blind spot towards debt growth, and in particular the rate of debt growth, counts as one of the more curious revelations to emerge from the crisis. Indeed, while the crisis finally produced a broader appreciation by the public of debt dynamics, it also produced a clearer portrait of the economic profession’s intractable position towards debt. In short, they “don’t see it.”

And, here’s what they don’t see. The following chart is composed of total debt growth in the US economy from 1929 and helpfully covers the period through 2008, compared as percentage of GDP. As you can see, the rate of debt growth starting after 1999 should have been on the radar of economists and central banks. Especially the Fed. The 1985-1998 period was relatively slow by comparison. But starting in 1999, total US Credit Market Debt to GDP exploded higher, from 250% to 350%.

Let’s rework the claim of McTeer, as follows: Subprime loans represented too small a portion of total credit to have either triggered or caused the crisis and recession. When growth slowed, the unsustainable amount of debt and leverage in the entire system was revealed, and thus made everything worse.

The cruel irony of McTeer’s faulty understanding is that the US economy would be powering out of recession right now, with typical 4-6% GDP growth, had the credit bubble been confined (contained!) to subprime. The relegation of the crisis’ beginnings or causes to subprime is now considered a kind of joke that flags a financially illiterate (or political) view. The US should have been so lucky as to have merely faced a subprime problem. Now there are 10.7 million US homes in negative equity. Twenty-five years of strong credit growth, a deflationary labor shock from the developing world, and a phase transition in energy prices set the stage, not for a post-war recession, but a depression. A meandering economic stagnation that can never produce a full recovery. 

Founded On a Fallacy 

Modern central banking came into existence, of course, during a secular growth phase in the developed world funded by cheap energy. Its task for most of the past 100 years has been to regulate growth -- not to manage decline. Much of the commentary you saw prior to 2008, such as Ben Bernanke’s sincere lack of concern about a US housing bubble (“I guess I don’t buy your premise. It’s a pretty unlikely possibility. We’ve never had a decline in house prices on a nationwide basis...”) is, of course, duplicated today as we confront a similar endgame in sovereign debt.

Economists in 2010, when the European crisis began, were sanguine. In the tête-à-tête between Hugh Hendry and Joseph Stiglitz last year, Stiglitz was adamant that debt service for Greece was no problem. More recently this summer, Jeffrey Sachs claimed at FT that there was a way out for Greece, by allowing the country to borrow at rates enjoyed by Germany. That may have seemed like the biggest catch to such a solution. I would submit, however, that the Sachs proposal contained a much larger uncertainty that is now the new blind spot common to the economics profession: the assumption of continued growth.

One of the more irritating personality traits of economics as a discipline is that it continually incorporates every trend into its growth model, and then identifies it as a good thing. The secular decline in US manufacturing jobs was deemed as such, as it “freed up” the populace to take service jobs. Interestingly, in our post-crisis economy, much of the selected regional strength in the US is now very much related to exports and a small resurgence in light manufacturing.

The Fed should have been paying closer attention to the multi-decade trend in US manufacturing employment. Instead, Alan Greenspan, a fan of Ayn Rand, believed the world operated in a magically offsetting series of harmonics, in which self-interest propagated though the financial system, producing a grand balance of risk. It is easy to understand how debt growth, cost inflation in health care and education, and the unsustainable bloat in the financial sector would flourish under such a paradigm. After all, “one person’s debt is just another person’s asset,” so what could possibly go wrong?

Worsening What They Don't Understand

When central bankers can’t initially understand why markets are rebelling against debt levels, they often turn to simplistic behavioral concepts. But a small dash of social psychology can be a dangerous thing when injected into monetary policy. Perhaps some moderate respect should be given now, many years after his tenure, to Alan Greenspan, who in testimony finally admitted that "the entire model he used to describe how the world worked, was wrong." In similar fashion, Ben Bernanke in his 2011 public testimony has admitted that the Fed “cannot print oil,” cannot solve problems without help from fiscal policy, and probably cannot force a faster economic recovery.

But one wonders how evolved the Fed chairman really is, given his public statements in 2009 that the financial crisis was merely in the fashion of a 19th-century panic. Instead of exponential growth in private credit, capricious monetary policy from the Fed itself, or the guns-and-butter fiscal policies of the government, Bernanke voiced publicly in his PBS TV performance and also at Jackson Hole that we had merely suffered a Bagehot-type panic. This may have been why he thought, as did many others, that a normal recovery would ensue.

Here is the key passage from the Jackson Hole conference on August 21, 2009, Reflections on a Year of Crisis (Interpreting the Crisis: Elements of a Classic Panic):

How should we interpret the extraordinary events of the past year, particularly the sharp intensification of the financial crisis in September and October? Certainly, fundamentals played a critical role in triggering those events. As I noted earlier, the economy was already in recession, and it had weakened further over the summer. The continuing dramatic decline in house prices and rising rates of foreclosure raised serious concerns about the values of mortgage-related assets, and thus about large potential losses at financial institutions. More broadly, investors remained distrustful of virtually all forms of private credit, especially structured credit products and other complex or opaque instruments.


At the same time, however, the events of September and October also exhibited some features of a classic panic, of the type described by Bagehot and many others. A panic is a generalized run by providers of short-term funding to a set of financial institutions, possibly resulting in the failure of one or more of those institutions. The historically most familiar type of panic, which involves runs on banks by retail depositors, has been made largely obsolete by deposit insurance or guarantees and the associated government supervision of banks. But a panic is possible in any situation in which longer-term, illiquid assets are financed by short-term, liquid liabilities, and in which suppliers of short-term funding either lose confidence in the borrower or become worried that other short-term lenders may lose confidence. Although, in a certain sense, a panic may be collectively irrational, it may be entirely rational at the individual level, as each market participant has a strong incentive to be among the first to the exit.

The Fed Chairman is using a technique here called hiding in plain sight, or perhaps secrecy by complexity. It is inarguable that a behavioral panic took place. But the aim was clear: to avoid the debt saturation in OECD/developed nations and the United States and the years of slow-to-no growth it was fated to impose. More broadly, the Fed had been “managing” the growth of debt in the US economy for over two decades. 2008 was the signal that the long, secular era of lowering interest rates to help the economy manage its debt levels had reached its endpoint.

One possible explanation for this blind-spot towards debt is that the economics profession is largely in service to the political class. Books, such as Reinhardt and Rogoff’s This Time is Different, which addresses the limits imposed by debt, are generally not in favor in the current era. Equally, the moral flavor to much of the right-leaning thinking on debt is also unsatisfying, as it also does not address debt-saturation so much as fiscal rectitude. What matters instead are the levels in both private-sector debt and public-sector debt that impose operational restraints. Total debt service as a proportion of income will always create a limit eventually among private sector borrowers. That is precisely what began to occur in the US and was the prima causa of the recession. However, the precise, problematic levels of debt for sovereign nations are trickier to identify.

The Tide Is Changing

Through a combination of confidence, debt service, actual economic flows, and the marketplace, however, 2012 is almost certainly the year that the present sovereign debt problems will be resolved, one way or another. Also, this week’s US dollar swap operation likely points towards one of the two macroeconomic endgame pathways that I outlined last month.

The current economics profession in general, and our central banking leadership in particular, sheds even more credibility as it careens on, blinded by its own light. The process by which economic activity and resources are coaxed into being by stimulative monetary policy has reached its terminus, and the public will finally understand this dynamic over the next year.

In Part II: How The European Endgame Will Be The Death Knell For Modern Economics, we predict the coming endgame to the European fiscal and monetary crises. Doing so is becoming increasingly easier as we better understand the mindset of today's economic leaders and the shrinking number of options they have to address the issues before them. In fact, we think the shroud of awe and mystery that our grand economists have wrapped themselves in is fast-dissipating, and that the systemic pain their failures will inflict in 2012 -- initially most visible in Europe -- will finally cause the populace to look to a new school of economic thinking.    

Click here to access Part II of this report (free executive summary, enrollment required for full access). 


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Mon, 12/05/2011 - 18:57 | 1948692 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Give up, bitchez!

Mon, 12/05/2011 - 19:13 | 1948752 kill switch
kill switch's picture

We are all cought up in the devils bargin     Nothing to loose or gain, million year old carbon.

Mon, 12/05/2011 - 19:18 | 1948768 New_Meat
New_Meat's picture

I'm glad u are cought.  Don't know what a devils thingie is. U carryin' the Football tonight? - Ned

Mon, 12/05/2011 - 19:30 | 1948800 kill switch
kill switch's picture

thingie????? born 1994?

Mon, 12/05/2011 - 22:12 | 1949333 Popo
Popo's picture


"Modern central banking came into existence, of course, during a secular growth phase in the developed world funded by cheap energy. Its task for most of the past 100 years has been to regulate growth -- not to manage decline. Much of the commentary you saw prior to 2008, such as Ben Bernanke’s sincere lack of concern about a US housing bubble (“I guess I don’t buy your premise. It’s a pretty unlikely possibility. We’ve never had a decline in house prices on a nationwide basis...”) is, of course, duplicated today as we confront a similar endgame in sovereign debt."

Mon, 12/05/2011 - 19:20 | 1948772 Coldfire
Coldfire's picture

+Joni Mitchell song.

Mon, 12/05/2011 - 19:28 | 1948794 kill switch
kill switch's picture

That is correct,,, Thanx my spelling = vodka

Mon, 12/05/2011 - 19:30 | 1948802 Triggernometry
Triggernometry's picture

So Keyne's wasn't the messiah??

Mon, 12/05/2011 - 19:33 | 1948806 JW n FL
JW n FL's picture



no the Jews were.

Mon, 12/05/2011 - 19:34 | 1948812 kill switch
kill switch's picture


Mon, 12/05/2011 - 21:01 | 1949072 i-dog
i-dog's picture

You've mellowed! Is it the vodka?

Mon, 12/05/2011 - 19:49 | 1948845 sosoome
sosoome's picture

Depends on the meaning of "we".

Mon, 12/05/2011 - 20:50 | 1949026 He_Who Carried ...
He_Who Carried The Sun's picture

Cute charts, really.

Mon, 12/05/2011 - 18:59 | 1948702 Racer
Racer's picture

Can't see the wood for the trees in other words

Mon, 12/05/2011 - 19:01 | 1948705 MassDecep
MassDecep's picture

Prepare for war, bitchez!

It's their solution.

Mon, 12/05/2011 - 19:01 | 1948711 Turd Ferguson
Turd Ferguson's picture

Here's your money shot:

"One possible explanation for this blind-spot towards debt is that the economics profession is largely in service to the political class."

I like Chris Martenson but, personally, I think he lost a lot of credibility once he started doing podcast interviews of anonymous, mystery dorks who run PM-based websites. 

Mon, 12/05/2011 - 19:07 | 1948735 Seize Mars
Seize Mars's picture

I like Chris Martenson but, personally, I think he lost a lot of credibility once he started doing podcast interviews of anonymous, mystery dorks who run PM-based websites. 


Good one. Keep up the good work, Turdski!

Mon, 12/05/2011 - 19:10 | 1948743 kito
kito's picture

the guy has to eat. as long as he is true to his word, and finds it necessary to open as many eyes as possible to the problem, why should it matter what audience he chooses? 

Mon, 12/05/2011 - 21:15 | 1949132 BigJim
BigJim's picture

nice eye for irony you got there

Mon, 12/05/2011 - 21:46 | 1949243 TheFourthStooge-ing
TheFourthStooge-ing's picture




Mon, 12/05/2011 - 21:49 | 1949254 I am a Man I am...
I am a Man I am Forty's picture

turd was interviewed by chris

Mon, 12/05/2011 - 19:17 | 1948764 slewie the pi-rat
slewie the pi-rat's picture

wiping up coffee, here...

earlier, i followed a GATA link to this (paste):  ["Raw Inflation via IMF"]

Economist and former banker Alasdair Macleod writes today that raw monetary inflation via the cashing of Special Drawing Rights from the International Monetary Fund likely will be the next step by central banks to save bankrupt nations, last week's currency swaps having been undertaken to rescue insolvent banks.

...which led to this macleod-ing:  Currency swaps – the beginning of a 'solution'?   which is a possible contextual framework for what the banksters did last week which people might want to consider...

Mon, 12/05/2011 - 20:06 | 1948887 mtomato2
mtomato2's picture

Coffee at 6:15 Eastern?  Better you should indulge in bananas and milk...

Mon, 12/05/2011 - 19:26 | 1948784 bugs_
bugs_'s picture

anonymous mystery dorks just are not tenure track keynesians?

Mon, 12/05/2011 - 20:04 | 1948880 Ignatius
Ignatius's picture

"One possible explanation for this blind-spot towards debt is that the economics profession is largely in service to the political class."

The money shot, indeed.  But not because listening to Chris M. makes my head implode.

Debt is the blindspot. 

What did Rothschild mean when he said "Let me issue a nations currency and I care not who makes its laws"?

The banks make an enormous rentier's income from issuing our debt based money and then sees to the development of an 'economics profession' filled with those who never address this profound fact. We are paying rent for the privilege of having these wankers issue our currency.

How much income?  Look at the bailouts.  Note the lack of prosecutions.  Note the police head-crackers all over the OWS movement.  Enough money to buy the whole damn system.


Mon, 12/05/2011 - 20:42 | 1949007 trav7777
trav7777's picture

how much income? accounting has been done.  So let's look the FUCKING PALACES the Rothschilds had.  Couple of them got a barony, IIRC.  Ain't seen no baron with digs as big as the King's.  Just google around at their palaces and landholdings and put yourself back when they were built and imagine that shit.

THAT is wealth, THAT is power.

Mon, 12/05/2011 - 23:14 | 1949553 Freebird
Freebird's picture

Behind every fortune, a crime

Mon, 12/05/2011 - 20:37 | 1948990 DavosSherman
DavosSherman's picture

I heart CM, I blogged the DG for him for about a year.  

Great guy.  


I have to give him credit---personally if someone is an effing psycopath I think they need to be called out, called an assclown, a moron.  But maybe CM doesn't want to not turn anyone off from visiting his site.  He is also quite a class act.

"One possible explanation for this blind-spot towards debt is that the economics profession is largely in service to the political class."

Personally, I think being politically correct is incorrect to our fellow human beings.  In the old days, assclowns who serviced the political class got the pointy end of a pitchfork or the hot end of a torch.  Bernanke and the Goldmanites would have lasted a week in the old days and our for-fathers wouldn't put up with this BS that we are stuck with today.

Just sayin...

Mon, 12/05/2011 - 19:06 | 1948733 Snakeeyes
Snakeeyes's picture

Krugman continues to crow that huge debt to GDP doesn't matter. Mostly because Krugman puts his Socialist/Progressive beliefts add of his economic thought process.

Look at this Real GDP in the EU was 0.2% last quarter. 86% Debt to GDP. How can this NOT end badly? Answer? IT WILL! They need HARRY POTTER!!!!!!

Mon, 12/05/2011 - 19:08 | 1948737 blu
blu's picture

Mainstream economics became disconnected from reality the moment it failed to recognize that industrial growth had nothing whatever to do with market forces or rational players, and everything to do with the stored bonanza that is OIL.

End of oil (or even a reduction in extraction) is the end of growth. Period. Economists will never admit this as doing so will make a laughing stock of 100 years of their windy pontifications concerning markets, and their Schools of Economics will empty like sieves once students realize that economics was just the voodoo soothsayer of the industrial age.

Mon, 12/05/2011 - 19:24 | 1948780 Caviar Emptor
Caviar Emptor's picture

their Schools of Economics will empty like sieves once students realize that economics was just the voodoo soothsayer of the industrial age.

Oh yeah? What about the rise of online gaming and dating? That's growth to the moon

Mon, 12/05/2011 - 19:31 | 1948799 blu
blu's picture

Someone might argue that the above account should include COAL and natgas as alternatives, so that the free-wheeling growth machine can roll on for another 1,000 years. I say that is incorrect. The industrial age was born from the womb of coal, but did not become a global phenomenon until uses were found for OIL, which is both easier to burn and transport, is the key enabler of dominate industries such as auto manufacturing and transportation, and distills into literally countless derivatives of nearly indescribable value.

No. It is CRUDE OIL or nothing, and any misstep in the extraction and distribution in crude oil will be the death knell for 100 years of break-neck growth, and the end of all the curious and distracting hand-waving that attempted to explain growth-derived-from-oil as instead a manifestation of some kind of inevitable human genius rather than as a one-time temporary gift from the Universe.

Mon, 12/05/2011 - 19:37 | 1948822 Caviar Emptor
Caviar Emptor's picture

US SUV sales are up again, after taking a breather in 09-10

Mon, 12/05/2011 - 19:43 | 1948835 kito
kito's picture

its mostly prepper sales this time..........

Mon, 12/05/2011 - 19:44 | 1948836 blu
blu's picture

... which is the only proof you need that the industrial propaganda machine is still hitting on all cylinders. These guys are Hell-bent on taking us all over the entropy cliff with them.

Mon, 12/05/2011 - 20:09 | 1948892 Caviar Emptor
Caviar Emptor's picture

Of course. Oil has dictated politics since the 1860s. 

Mon, 12/05/2011 - 20:10 | 1948893 Caviar Emptor
Caviar Emptor's picture


Mon, 12/05/2011 - 20:08 | 1948891 LooseLee
LooseLee's picture

Unfortunately, these same boobs will be offering them for sale at 50% retail in the next 3 years due to the cost of oil! And the moron dealers wlll be offering 50% of retail for the very same SUV! What a bunch of IDIIOT MORONS! Good luck to you!

Mon, 12/05/2011 - 20:46 | 1949014 trav7777
trav7777's picture


The oil age was it...look at the population graph, look how much things changed just in one lifetime.  You went from the age of horses and walking to machines that could go faster than seemed conceivable.  It became possible to travel across the entire continent in relatively short time.  Then the car, then the fly around the world.  I mean, think about that, something we take for granted, FLIGHT, was the dream of man for 10,000 years...since there were dreams.

And only in the past 110 years was it achieved...because of oil.  So many things has it enabled, truly the piss of the Gods.

Coal dug by hand has a higher EROI, but oil is about POWER.  Oil does more work at a faster rate...those who understand physics understand that power is what matters, not work.

We're gonna need a helluva lotta nuclear plants LOL

Mon, 12/05/2011 - 19:12 | 1948749 bob_dabolina
bob_dabolina's picture

The labor force participation rate for the manufacturing industry is as low as it was in 1940?

No bueno

Mon, 12/05/2011 - 19:17 | 1948751 knukles
knukles's picture

It's all because, regardless of the school of economics one's lens is comprised of, each simply distorting reality differently, fail to give full credence to the fact that this is a debt deleveraging, not a normal business cyclical downturn.
Further exacerbating this collective delusion is that the politicians regardless of national orientation or socio/political affiliation, simply cannot retreat from their normalized expansionary economic promises to everybody for everything whilst looting the nation's treasure practices.
Indeed, the funds available for bread, circuses and basic services have been in the aggregate, squandered.
There is no more money, they've already printed too much.


Mon, 12/05/2011 - 20:07 | 1948888 mtomato2
mtomato2's picture

"Debt deleveraging" FTW!!!

Will MSM ever pick that up?

Mon, 12/05/2011 - 19:15 | 1948757 Rainman
Rainman's picture

Most eCONomists today see whatever their paycheck tells them to see. Same goes for accountants, ratings agencies, etc.

Mon, 12/05/2011 - 19:16 | 1948759 tony bonn
tony bonn's picture

the purpose of main stream economics is not to understand economies but to rationalize governmental policies related mostly to totalitarian aggregations of power....

economics does not seek anything but to advance is hucksterism at best and a hand maiden of naziism at worst...


Mon, 12/05/2011 - 19:16 | 1948762 death_to_fed_tyranny
death_to_fed_tyranny's picture

The only economics I understand now is," HOW CAN I FUCK THE BANKS!"!



Mon, 12/05/2011 - 21:28 | 1949181 i-dog
i-dog's picture


Thank you for summarising American morality in so few words.

Mon, 12/05/2011 - 22:53 | 1949472 death_to_fed_tyranny
death_to_fed_tyranny's picture

"Thank you for summarising American morality in so few words."


FUCK YOU VERY MUCH! Morality is for the sheeple. So go talk to a priest. First get on your knees and open wide sheep!

Mon, 12/05/2011 - 22:06 | 1949318 IQ 101
IQ 101's picture

Buy superglue,tampons and toothpaste.

Mon, 12/05/2011 - 19:16 | 1948763 Caviar Emptor
Caviar Emptor's picture

Two simple home truths that the "science" of economics ignores: 

The world changes

Economics and politics are inextricably linked

Mon, 12/05/2011 - 21:01 | 1949071 AldousHuxley
AldousHuxley's picture

Economics = justification of power to those with money

Politics = justification of money to those in position of power


Economics brainwash you into believing that rich = earned by merit but in reality it is mostly luck (right place, right time, right people, right skills). Rich are status obsessed because they don't want anyone to find out the dirty secrets in how they acquired wealth.


Politics brainwash you into believing that people in power = earned by trust but in reality it is mostly lies (promise everything to everyone without accountability). Politicians are popularity obsessed because they dont' want anyone to find out their alterior motive (aka. major lobbysts)




Mon, 12/05/2011 - 23:04 | 1949219 i-dog
i-dog's picture

There are TWO sides to every political debate: Those who side with the oligarchs in the hope of becoming an oligarch; and, those who'd like to steal from the oligarchs so that they can become the oligarchs ... just like children playing "king of the hill".

It's all fun until someone loses an eye ... or head.


The economics of the planet is a zero sum game. For every society becoming richer through selling exports, there is another society becoming poorer through buying imports - whether of raw materials, manufactures or services.

The only way to maintain relative wealth is to remain a net exporter, at the expense of net importers ... or go to war to steal somebody else's wealth.

Tue, 12/06/2011 - 06:23 | 1950249 AldousHuxley
AldousHuxley's picture

in US, we have wars and still losing overall wealth. at the same time elites are getting wealthy....that's because 0.01% is taking a larger piece of the shrinking US wealth pie and a third of that pie is foreign made.

Mon, 12/05/2011 - 19:26 | 1948770 Atlantis Consigliore
Atlantis Consigliore's picture

tell it what it is:  "NAZINOMICS"  WEIMAR  era printing debase ment of 

fiat currency with a rogue Central FED Reserve Bank printing amok;  coupled with Cronycapitalism, propoganda porno media,

legal/judicial revolving door regulator govt systems; and a general public drugged, welfared, social securitied, medicared and aided,  foodstamped, drugged, and illegalled into a 50% mandate for spending counterfeit dollars, over the owners and producers and capitalists;

Regulated Czared, and Scared boards and mgt of corps fast asleep and there all watching dancing with the whores.......lawyers, judges, pols, and media thinking they have a say or theres a difference with the other side of the same coin,  let me hear you say it:

Crony capitalism with a smear of regulator on top. 




Mon, 12/05/2011 - 19:21 | 1948773 New_Meat
New_Meat's picture

Gee, with the evident failure of Keynes (in all of his derivatives), MPT, Fama, "Where are all of the Customers' ..."

Who knew?

Why does it take to the endo' 2011????

- Ned

Mon, 12/05/2011 - 19:28 | 1948778 i love cholas
i love cholas's picture

I never understood how people think you can quantify human behaviour. Economist are overrated assholes with beards

Mon, 12/05/2011 - 19:34 | 1948811 knukles
knukles's picture

Wait a minute.  I'm in part an economist, have a beard, and my wife keeps calling me asshole.  Thank God that leaves me unasociated with Krugman.  

Mon, 12/05/2011 - 20:00 | 1948868 Sabibaby
Sabibaby's picture

Studying Economics is like studying Astrology only at an ivy league price.

Tue, 12/06/2011 - 06:25 | 1950251 AldousHuxley
AldousHuxley's picture

China says why study economics when you have slaves?

Mon, 12/05/2011 - 19:34 | 1948813 Coldfire
Coldfire's picture

Keynesianism and its derivatives are premised on the idea that one can will reality into existence. American academia (thanks, Ivy's!) espoused this in their logical positivism, a kind of Hegelian roach motel for individual productivity and freedom. The something-for-nothing charlatans have been successful beyond expectation in destroying the viability of the economy, which now depends primarily on unilaterally willed expenditures of the central government, symbiotically facilitated by the counterfeiter-in-chief, the Fed. Of course the end game is intended to be chaos.

Mon, 12/05/2011 - 20:07 | 1948865 blu
blu's picture

Of course the end game is intended to be chaos.

You are giving them waaaay to much credit, if you think they foresee and intend chaos. They have no idea what is coming. No idea at all, their predictive powers are no better than a chimp's. And furthermore they need express no opinion concerning the future to retain their seats and salaries in academia. They are already enshrined as mystical genii having the ear of God. They won until the end of their age, no further argument is needed. Well the end of their age is mid way next year. Until then economists will reign over the destruction of the world like corpulent, bloated leeches and then wither and die with their host, whom they neither profited nor pillaged but merely bled a little.

Every age of mankind had parasites like these. We will lose this bunch to the unkind judgement of history, and the title "economist" will join "alchemist" and "witch doctor" in the dustbin of high-functional stupidity.

Mon, 12/05/2011 - 22:32 | 1949392 Milestones
Milestones's picture

You write well. I agree, entropy in all its glory is about to take the stage. We will be besieged from all directions but those that keep their solutions and tactics simple will come out in fair shape.        Milestones 

Tue, 12/06/2011 - 02:31 | 1949997 Totentänzerlied
Totentänzerlied's picture

Ayer's late comment on his once-beloved philosophy fits Keynesianism so very well:

"I suppose the most important [defect]...was that nearly all of it was false."

(For the sake of those who slept through the logical positivism section in Philosophy 101, this was to philosophy roughly what Milton Friedman renouncing capitalism would be to economics.)

However, I don't see how logical positivism could be construed as Hegelian except that both are to roughly the same (immense) degree utter nonsense even by the standards of their domain.

Mon, 12/05/2011 - 19:50 | 1948851 FranSix
FranSix's picture

The jawboning in the MSM about treasuries as having contagion while in the U.S. are the safest haven you can buy, is probably the story to look at this week.  S&P downgrades don't seem to have much credence in Europe, while in the U.S., they are trumpeted as the harbinger of doom.

Of course, there just so happens to be a U.S. treasury auction without any results posted.

Really who would buy at auction when they know the price will decline and the yields rise?  And that any long term bond bought today will be sold tomorrow, as its yield is much lower than anything bound to come out in the next auction?

Mon, 12/05/2011 - 19:57 | 1948862 tbone654
tbone654's picture

debt!  what debt!  see Kyle Bass...

Mon, 12/05/2011 - 20:04 | 1948882 GeneH3
GeneH3's picture

As demonstrated consistently since he joined the Nixon administration, Greenspan was neither a capitalist nor a fan of Ayn Rand. Rather than stating a fact, the author is playing the Ayn Rand card, as if it were an epithet, a crude attempt at guilt by association. (Unstated premise:) Ayn Rand is bad. Greenspan is an Ayn Rand fan. Therefore, Greenspan is bad. Such snide ad hominem arguments detract from the intellectual quality of this piece. See

Tue, 12/06/2011 - 06:29 | 1950254 AldousHuxley
AldousHuxley's picture

on his death, we shall dance, but this old fuck just won't die!

Tue, 12/06/2011 - 07:39 | 1950291 slowimplosion
slowimplosion's picture

You need to google his quotes about why he thought it was ok to POUR money into the economy in the early 2000, enabling this whole mess.  You aren't going to like it, it kind of renders your assertion FALSE.


It wasn't just "Keynes" that created this debacle pal.

Mon, 12/05/2011 - 20:11 | 1948897 alagon
alagon's picture

The financial elites of this country, notably the Morgan, Rockefeller, and Kuhn, Loeb interests, were responsible for putting through the Federal Reserve System as a governmentally created and sanctioned cartel device to enable the nation's banks to inflate the money supply in a coordinated fashion, without suffering quick retribution from depositors or noteholders demanding cash.

Recent researchers, however, have also highlighted the vital supporting role of the growing number of technocratic experts and academics, who were happy to lend the patina of their allegedly scientific expertise to the elite's drive for a central bank. To achieve a regime of big government and government control, power elites cannot achieve their goal of privilege through statism without the vital legitimizing support of the supposedly disinterested experts and the professoriate. To achieve the Leviathan State, interests seeking special privilege and intellectuals offering scholarship and ideology must work hand in hand.



Mon, 12/05/2011 - 20:12 | 1948902 URZIZMINE
URZIZMINE's picture

I don't give a crap.  I have had enough.  I want to sleep at night.  The shorting starts tomorrow?

Mon, 12/05/2011 - 20:46 | 1949012 SillySalesmanQu...
SillySalesmanQuestion's picture

Have'nt you heard....? NO SHORTING ALLOWED!!! The Fed and TBTF have decided that ALL shorts are to be wiped out and left for spite of what we and the markets's worse than a rigged 3 card monte game...

Mon, 12/05/2011 - 21:48 | 1949252 GeneH3
GeneH3's picture

Want to sleep at night? Cash out. Buy real assets: a retreat in the mountains. I hear it's a buyer's market. Become energy self- sufficient. Lay in some dried beans and grain. Dig a well. Buy some guns and learn to hunt for protein. Bury your gold. Get to know your children/grandchildren. Make them some walnut rocking horses. Live a life and forget this BS -- it will go on forever and crush you if you let it.

Mon, 12/05/2011 - 20:26 | 1948960 yogibear
yogibear's picture

The government and the fed didn't completely follow the Keynesian economic model. Greenspan and Bernanke just kept the stimulus pedal mashed to the floor all the time. We now have the result of decades of over-stimulus which created all sorts of excesses, We turned manufacturing into financialization.  Took leverage to the max.

Mon, 12/05/2011 - 20:52 | 1949030 blu
blu's picture

Of course that's it, the economic model had to be correct, but they didn't do it right.

It's like how the cancer patient would have been saved if only they had really believed in the miracle cure. They just didn't do it right.

This is what happens when you try to apply sound scientific principles to voodoo magic.

Mon, 12/05/2011 - 21:11 | 1949095 SwingForce
SwingForce's picture

As Nomi Prins points out in PILLAGE, subprime loans totalled only $1.4 Trillion in 2007, an amount which equates to 3% of all bailout money doled out. And NONE of it went to the mortgage borrowers. Rather than Martensen wrack his brains out trying to cure "faulty" economic models, he should just wake up to the fact that the bailout money has been poofed! Stolen, missing, incinerated, black-budgeted, it will NEVER show up in the economy. See Max Keiser and Katherine Austin Fitts on this topic:

MUST LISTEN TO Ann Barnhardt's reasons for closing of her commodity firm w/ Jim Puplava:   h/t MacroStory

Mon, 12/05/2011 - 21:14 | 1949128 Aquarius
Aquarius's picture

If one needs a singular (majority) cause for the global economic collapse, one need not look beyond the "Profession of Economics" and its members and organizations of the integrity of its affairs and following. The World is told that the socio-economic affairs are secularly entrenched and founded in the certainties of "Economic Theory", 'so worry not children, as we hold the helm firmly for your security and your well being is closest to our hearts and mind'.

Well, as it turns out, nothing could be further from the truth. "Economic Theory" even under superficial inspection is firstly plural in its aspect and even numbers as many as its Economists; amounting to no more than personal opinion. And nobody knows what "money" is withing this so-called Profession and as it turns out, nobody in the Profession seems to care. One wonders what the Profession of Engineers would build if they didn't undertand what steel or cement were?

That which looks after the affairs of those of the socio-economic masses is purely and soley "political expediency" which today is exposed as simply fraud, secrecy and looting. Of course, if one looks a little deeper, one clearly sees that it is the "Banking System" or credit distribution system and its returns and to what (?), that is the problem. Shockingly, this problem is etched in a history of some ~5,000 years, at a minimum. It is not hidden and never has been hidden from sight, simply ignored by the pious priests of Economics. The Profession of Economics is no more than the blind and obedient soldier priests for the system that mutter their dogma while swing brass pot of smoking incense; bureaucrats are the system enforcers, politicians the obedient creators of the Banker's Policies and the CEO's have become, not by accident, the mercenaries of money. It is now the race to the bottom of the pits of fire.

To move on and simply put, the past 5,000 years of economic, banking and bureaucratic system needs to put under the full scrutiny and analysis of the Maxims of the Sciences, but not by those economists of today that pretend that they hold some too valuable a theory to fail, but by an entirely new breed of persons who are willing to dedicate their lives to correcting the errors, assumptions and arrogances of today's "Profession of Economists". We need to start again where the good news is, we have a plethora of data to begin the task. This task can only achieved by the established scientific approach.

I do not believe that our global societies are going to resume their same socio-economic trending that has been established over these past ~5,000 years and if I am correct, then the "economists" and their Economic Theories of today will be relegated to historic academic research and archival record; and much of the academic nonsense relegated to the trash heaps and buried. Good riggance, I say.


Be sure, today's leadership are challenged, they erred in their arrogant grip on power.


Law trumped reason,

Power trumped Law,

Only ethics and science can trump Power.


And let the dead bury the dead.


Mon, 12/05/2011 - 21:14 | 1949130 michael_engineer
michael_engineer's picture

A reinforcing similar train of thought can be found at this website, and here are some excerpts :

Consider where we have been on the Hubbert Curve (see curve at for the last 50 years. During that period, there was growth in oil production and a reasonable expectation of continued stable growth for decades to come. 


Looking forward to the coming years, what are the reasonable expectations for housing and many other aspects of the world economy if oil production does at some point start to decrease as projected by the Hubbert Curve?


Money is essentially a derivative that has value only due to it's acceptance as collateral for future product or services. Under a scenario where there is decreasing energy production, the value of money can be expected to decrease as well, as there will be less products available.


The problem is that humans have tended to be very short sighted and self concerned, possibly in part due to most individuals being unaware of the predicament that we would eventually face collectively on the city, county, state, nation, and world levels. It is only relatively recently that a good understanding of how the economic system truly works has come to light and only a small percentage of the people understand this. 


Many economists seem to be differing on whether the economic system will head towards inflation or deflation. My insight reasons that both inflation and deflation will be occurring but they will happen in differing areas of the economy. Assets that require longer term loans to purchase where there is a forward looking expectation that the debts incurred in today's transactions will be able to be repaid in future years will suffer deflation and falling prices and asset valuations.


As a race, we unknowingly got to this point because growth is the nature of all living things.  It is natural for all living things to exploit their resources, and to go forth and multiply and have some fun. 


 The people currently sitting at the top are mostly not to blame for this predicament, as it was going to happen anyway.  However, this does not excuse abuse of one's position for anybody that has done that.  Fairness is expected by everybody.  In support of this point of view, I would like to quote the wisdom of Steve Jobs who recently told the powers that be: 


"The axis today is not liberal and conservative, the axis is constructive-destructive"  -- Steve Jobs


Mon, 12/05/2011 - 21:29 | 1949188 Stuck on Zero
Stuck on Zero's picture

Mainstream economics is a smokescreen for organized theft by the banksters.  No more, no less.

Mon, 12/05/2011 - 21:56 | 1949287 bnbdnb
bnbdnb's picture

EUR go down. K, Thanks.

Mon, 12/05/2011 - 22:09 | 1949329 SwingForce
SwingForce's picture

MUST LISTEN TO Ann Barnhardt's reasons for closing of her commodity firm w/ Jim Puplava: 

Tue, 12/06/2011 - 05:21 | 1950205 steelrules
steelrules's picture

She's pissed off and with good reason. Get out of paper now.

Mon, 12/05/2011 - 22:13 | 1949337 Tom Green Swedish
Tom Green Swedish's picture

THe problem with economics is nobody seems to agree on much of anything. Its alot like politics.

Tue, 12/06/2011 - 02:38 | 1950013 Mr. Magniloquent
Mr. Magniloquent's picture

The Moon waxes Austrian tonight! Join me in a merry jig on the grave of John Keynes, will you?

Tue, 12/06/2011 - 02:47 | 1950024 Peter K
Peter K's picture

Here's my two cents, for what it's worth - in copper content:)

Need to distinguish between the positive and normative economists.

As far as the positive catagory, I think they have receded into the background. Got blamed for the financial mess post Lehman by the crazytown normative crowd and their surrogates in the legacy media. Good example of this is an interview Gary Becker did circa 2008. His position was that since the positivists got blamed, they would recede into the background and see how the normativists performed.

Three years into the Obamadisaster, it's plain to see the normative crowd for the whackjobs that they are. The pinnacle of the crazytown crowd was Krugman's Martian invation planning scenario. Turns out that these folks are intellectually mediocre at best and insane at worst - clinically insane that is. They are peddlers of a pseudo religios dogma disguised as economics which has little in common with present serious economic thought let alone the present. Listening to these clowns, I sometimes get the impressin that the're still living in some Eastern European slum circa 1865, and their primary mission in life is defined as trying to find a way to make socialism work. Reminds me of the quote attributed to Einstein about insanity i.e. performing the same task yet expecting a different result each time.    


Tue, 12/06/2011 - 03:01 | 1950052 dugorama
dugorama's picture

Oh please.  Everyone who reads this site is an economist of some stripe.  Maybe you think the tax cut trickle down dogma is dead or maybe you think we really gave true Keynsianism a try and it failed, but you're still tracking the markets and the economy and you still do quant analysis and therefore, YOU ARE STILL AN ECONOMIST.  everyone one of you.  So, quitcherbitchin'

line up, sign up, re-enlist.  Let's figure this out

Tue, 12/06/2011 - 03:07 | 1950063 jonjon831983
jonjon831983's picture

Ok, whoa.  Didn't hear the final part of the stiglitz v hendry pt 2 interview before....

If greece defaults the non-EMU parts of the EU may be liable?  Including UK?


Them's fightin words.  Greece defaults bam, here's a part of the bill.  Another country defaults. BAM another bill.  IF as Hendry suggests in the final few seconds of the video the non-EMU's will need to pony up some cash... what if they say no freaking way.

Tue, 12/06/2011 - 03:46 | 1950109 Grand Supercycle
Grand Supercycle's picture

SP500 monthly chart remains bearish and USDX weekly remains bullish, so it’s only a matter of time until the market makes its move.

Tue, 12/06/2011 - 03:54 | 1950127 Dr. Acula
Dr. Acula's picture

Austrian Thymologists who Predicted the Housing Bubble

Anderson, 2001, 2003, 2007; Beale, various dates; Blumen, 2002, 2005; Corrigan, tba; Crovelli, 2006; DeCoster, 2003; DiLorenzo, 1999; Duffy, 2005A, 2005B, 2005C, 2005D, 2006, 2007A, 2007B, 2007C, 2007D; Economics of contempt, 2008; Englund, 2004, 2005A, 2005B, 2005C, 2005D, 2006, 2007, 2008; French, 2005; Grant, 2001; Karlsson, 2004; Mayer, 2003; Murphy, 2007, 2008; North, 2002, 2005; Paul, various dates, 2000, 2002; Polleit, 2006; Ptak, 2003; Rockwell, 2008, 462; Rogers, 2005; Rothbard, tba; Schiff, Undated A, Undated B, Undated C, Undated D, 2003A, 2003B, 2003C, 2004A, 2004B, 2005A, 2005B, 2005C, 2005D, 2006A, 2006B, 2006C, 2006D, 2007A, 2007B; Sennholz, 2002; Shostak, 2003, 2005; Thornton, 2004, 2009, Undated; Trask, 2003; Wenzel, 2004; See also Woods (2009, p. 188 for further bibliography).

Anderson, William L. 2001. "The Party is Over," February 20

Anderson, William L. 2003. "Recovery or Boomlet?" July 07

Anderson, William L. 2007. "The Party is Over – Again," August 30

Armentano, Dominick. 2004. "Memo to Federal Reserve: Increase Interest Rates Now!"



Tue, 12/06/2011 - 04:19 | 1950156 Dr. Acula
Dr. Acula's picture

See also

The Unofficial List of Pundits/Experts Who Were Wrong on the Housing Bubble


Tue, 12/06/2011 - 07:44 | 1950292 subello
subello's picture

When the premise for an argument is false the argument is not sound and usually illogical. How do we make money? With money. How can economy based on such a notion be sustainable? The idea in and of itself is rubbish. Modern economics is theoretical abstraction at best. We postulate blanket statements/assertions that when tested never really work but we use the cop-out argument that "it takes time". It's a flawed system but no one wants to let it go because we all suffer from the "it's how our ancestors did it" syndrome. These would be experts are frauds. They are no more capable then the common man. If the system is built on an illogical false premise I'm confident in believing the entire system is flawed. We need to change the curculium in this country so we stop churning out people stuck in abstraction land. This is not the place for experimentation, this is real life, but the individuals who control monetary and fiscal policy don't seem to realize that.

Tue, 12/06/2011 - 09:18 | 1950445 proLiberty
proLiberty's picture

Keynes was attempting to facilitate the coming of a secular Utopia.  His main contention was that government had the moral authority to manipulate the quantity and time value of money in order to drive interest rates low enough that there would never be a "shortage" of it and therefore plenty to borrow.  The common man could then have all he wanted and thus would be prosperous.  Keynes' theory gave an academic justification to what politicians wanted to do naturally, which was to spend far more than government took in.   Keynes' theory was morally bankrupt because it destroyed property rights and like socialism, was based on coveting the wealth of others.

I have found Austrian economics to be far more satisfactory for a variety of reasons.


Ralph Raico is professor of history emeritus at Buffalo State College.  In his 2008 article, Was Keynes a Liberal?, he wrote:

Throughout Keynes’s career, however, clear indications appear of his longing for
a much more radical social order—in his words, a “New Jerusalem” (O’Donnell
1989, 294, 378 n. 27). He confessed that he had played in his mind “with the
possibilities of greater social changes than come within the present philosophies” even
of thinkers such as Sidney Webb. “The republic of my imagination lies on the extreme
left of celestial space,” he mused (1972, 309). Numerous statements strewn over
decades shed light on this somewhat obscure avowal. Taken together, they confirm
Joseph Salerno’s (1992) [1] argument that Keynes was a millennialist—a thinker who
viewed social evolution as pursuing a preordained course to what he conceived to be
a happy ending: a utopia (O’Donnell 1989, 288–94).[2]

[1] Joseph Salerno, 1992. The Development of Keynes’s Economics: From Marshall to Millennialism.
Review of Austrian Economics 6, no. 1: 3–64, link to PDF:

[2] Ralph Raico, Was Keynes a Liberal? The Independent Review, v. 13, n. 2, Fall 2008, ISSN 1086–1653, Copyright © 2008, pp. 165–188.  link to PDF:

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