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Guest Post: Shhhh… It’s Even Worse Than The Great Depression
Submitted by Mark McHugh from Across the Street
Shhhh…It’s Even Worse Than The Great Depression
According to Wikipedia, Narcissistic personality disorder (NPD) affects one percent of the population and has little to do with looking at yourself in the mirror. It has a lot to do with unrealistic fantasies of success, power and intelligence. Some NPD sufferers become cult leaders or mass murderers, the rest become economists and policy-makers. Despite having a highly elevated sense of self-worth, narcissists have fragile self-esteem and handle criticism unpredictably, so let’s keep this to ourselves….
Velocity of money is the frequency with which a unit of money is spent on new goods and services. It is a far better indicator of economic activity than GDP, consumer prices, the stock market, or sales of men’s underwear (which Greenspan was fond of ogling). In a healthy economy, the same dollar is collected as payment and subsequently spent many times over. In a depression, the velocity of money goes catatonic. Velocity of money is calculated by simply dividing GDP by a given money supply. This VoM chart using monetary base should end any discussion of what ”this” is and whether or not anybody should be using the word “recovery” with a straight face:
In just four short years, our “enlightened” policy-makers have slowed money velocity to depths never seen in the Great Depression. Hard to believe, but the guy who made a career out of Monday-morning quarterbacking the Great Depression has already proven himself a bigger idiot than all of his predecessors (and in less than half the time!!). During the Great Depression, monetary base was expanded in response to slowing economic activity, in other words it was reactive (here’s a graph) . They waited until the forest was ablaze before breaking out the hoses, and for that they’ve been rightly criticized. Our “proactive” Fed elected to hose down a forest that wasn’t actually on fire, with gasoline, and the results speak for themselves. With the IMF recently lowering its 2012 US GDP growth forecast to 2%, while the monetary base is expanding at about a 5% clip, know that velocity of money is grinding lower every time you breathe.
The Fed’s refusal to recognize the importance of velocity of money quickly goes from idiotic to insidious. Here’s a question: If I give you 50¢ and as a result of that transaction, you owe me $1.00, what interest rate have I charged you? Obviously, I’ve charged you 100% interest and I don’t give a rat’s ass about you or your kids. I’m pure evil and you’re pure stupid. But believe it or not, this kind of master-slave arrangement isn’t enough to satisfy a true narcissist. The narcissist needs to be exalted for his actions, no matter how unjust.
He likes to be thought of as “accommodative.”
In 2011, every dollar of GDP growth created $2.08 in debt. In real life, that’s 108% interest plus the nominal rate, and our twisted leaders want you say, “Thank you sir, may I have another!”
2011 wasn’t an anomaly either; it’s the new normal. Since the Bush deficit increases (to call a spade a spade) went into effect, the rise in debt has exceeded the rise in GDP 6 of the last 10 years (the four years of positive GDP-minus-Debt can be directly attributed to the housing bubble). That never happened in the U.S. during Great Depression/WWII era. One place where it did happen was in the Weimar Republic (which shortly thereafter became known as Nazi Germany) . No one’s ever done a better job of explaining how quickly things unraveled there than Art Cashin (this is an absolute MUST read):
In 1920, a loaf of bread soared to $1.20, and then in 1921 it hit $1.35. By the middle of 1922 it was $3.50. At the start of 1923 it rocketed to $700 a loaf. Five months later a loaf went for $1200. By September it was $2 million. A month later it was $670 million (wide spread rioting broke out). The next month it hit $3 billion. By mid month it was $100 billion. Then it all collapsed.
….In 1913, the total currency of Germany was a grand total of 6 billion marks. In November of 1923 that loaf of bread we just talked about cost 428 billion marks.
So I’ve got a whole bag of “Fuck You!” for anyone who still thinks nothing could be worse than another Great Depression. The path we’re on ends with mountains of corpses when the great experiment fails.
America’s most prestigious education institutions have become grooming salons for malignant narcissists. Men and women high on their own self-important sense of entitlement, but short on any sense of honor or duty (like passing a budget or arresting someone who stole a billion dollars) and devoid of any real insight or achievement. So far it’s working out quite nicely for them:
Fun fact: Washington DC now boasts, by far, the highest and fastest growing income per capita in America.
No matter what color Kool-aid you prefer, a Harvard Law School graduate who wipes his ass with the constitution will occupy the White House until 2016. Any flavor difference you think you detect is artificial. Neither party has any intention of balancing the budget or stopping the generational rape of America. They exist only to give you the illusion of choice.
There’s another reason nobody wants you thinking about velocity of money and triple-digit principle-based interest rates. When you get comfortable with the idea that the same dollar gets spent over and over in the economy, you’ll begin to reconcile that notion with the fact that total government spending (Federal, State and Local) accounted for over 40% of GDP in 2011. Then it becomes clear that you are already living in on of those countries where the government controls everything (call it whatever -ism you want). Next thing you know, you’ll start connecting the dots between the nation’s skyrocketing public debt and the private fortunes amassed by a select few, and no one who’s in on the fix wants that.
Better than one in seven Americans are now on food stamps thanks to Washington’s disastrous policies, but narcissists refuse to recognize the consequences of their own actions. That’s how they sleep at night. They see themselves as saviours, feeding the inferior huddled masses too stupid to fend for themselves, so of course they deserve more money. The only thing they learn from shitty results is that they need more power, more control and more money.
The so-called “fiscal cliff” represents nothing more than a return to policies proven far less dysfunctional than the current ones, but Washington doesn’t see it that way. Instead they want you to beg them to save you from this horrific monster and adore them when they double down on policies that serve to increase your dependency on them.
By any and all reasonable measures, it’s worse than the Great Depression, and still deteriorating. Just remember that truth is the narcissist natural enemy before you speak.
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I AM THE GREAT AND MIGHTY BERNANKE.
NOW SUCK MY BALLS!
Get it over with and do the Weimar Republic/Zimbabwe thing. Benny Bernanke can help the treasury in giving everyone $100000 checks. Bernanke and the Fed want to save everyone, instead of having bad businesses fail. We will all soon be millionaires by default.
millionaires perhaps...but then what could it buy? Would you sell an orange for 1mil if you could? Or would you wait for a billion?
Head & Shoulder. Where is the printing press, BitcHeZ?
Very Bullish, if I may say so myself.
Not Yet.
- Ned
Imagine them 46 million on food stamps waiting on actual bread lines all accross America..
All of the O'z can't, but they foment this. Nor can anyone else. You say "waiting?" Au contraire, for any number of reasons.
Golden Horde, baby.
- Ned
Welcome to the post-growth world. At least given the current limits of technology. Now where the fuck are those fusion reactors I ordered?
Oh, were that the case.
The limits we fear now are not "the current limits of technology."
We are in the death grip of a massive consumptive contraction that always awaited our arrival at the end of the age of oil.
If money velocity ever picks up the inflation is going to be horrendous. It's already getting bad with no money moving.
Real wages have stagnated for 30 years. Everyone is a part-timer or headed that way. Nothing for workers is going to change. Ever.
Therefore, the inflation when it ever picks up will be absolutely lethal.
--when it ever picks up---
Been to a grocery store lately? Right now it's 1922 -- loaf of bread about 5 bucks
I own a dog--he's a Weimaraner. I bought him because his fur is short, he drinks beer, and he reminds me often how stupid a fiat currency system is. Anyway, if anyone on ZH has not spent the time to watch Benny B's four part lecture at George Washington U., please take the time. You'll see that he is more than just a Keynesian DOGma preacher--he really believes this shit!
http://www.federalreserve.gov/newsevents/lectures/about.htm
Great field bird dog...loves to gallop. Lost my old Weimy after last season and she hunted til the end. I had to supervise her beer drinking too....small world, they might be related !
What this chart shows is how broke the banking system is because any rational/real banker with a clean balance sheet would use all fractional leverage availiable to make out loans to the real economy (asset backed, convertible bonds etc)
This cannot end well. It could be made slightly less awful, but it's still going to be awful - Teh Bernank confidently telling Congress that the Fed knows how to unwind the balance sheet once inflation starts is pure fantasy.
He is pretending that a blindfolded man wearing boxing gloves can perform micro-surgery. In theory, it could be done; in practice it's an impossibility.
Owning a small farm is probably the best policy, and the price of farmland in my part of the world is rising (unlike any other real estate segment).
It's not meant to end well...
At some point one must consider that this is the objective rather than just a series of bad choices.
Do you really think we can implement the socialist/marxist changes that are sought if the US economy was running as many of realize it could be? Have you ever heard of a successful, prosperous economy having a revolution to implement a central, controlled economy?
Of course not.
In Obama's early days, he is said to have said that the revolution must come from within. He is within. We are past the point of no return.
That kinda' depends upon your definition of a "happy ending."
Some old lags (or shoulda'-be-old lags) were perfectly willing to foment violent revolution back when. There is extant tape re: sacrificing ~1/8 of the US population who were unreconstructable.
- Ned
{I'm being kind in saying "sacrifice."}
Having spoken to a large number of the current crop of "Social Democrats", also know as Marxists, I can say that a large number of them are still convinced that a Violent Revolt is the only solution to obtain their "Goal's". They honestly believe that their Violent Revolt will lead to peaceful co-existence under a Social Democracy.
I think they used to be referred to as Useful Idiot's, but now they refer to themselves as willing sacrifices for their dream. I can't understand how dreaming of servitude and violence is supposed to bring about Peace. All I see coming from that is another war. These same people also think that they will win with shear numbers alone, and that the thousands of trained people that will stand against them will not have a chance.
Well, I guess you can't teach people to be rational if you fill their head's with statist bullshit from the age of 5. I'd prefer to not have to resort to violence, and would never wish that upon anyone. I've seen war first hand, and I don't think these kids have any clue what they are really supporting.
If each new dollar of growth resulted in $2.08 of new debt, then why don't they try wiping out the close to 30 trillion of debt accumulated as assets by a tiny minority in off shore havens which are accountable to no one ?
Does anyone doubt the growth to real GDP when the killer interest component is eliminated?
"...GDP growth forecast to 2%, while the monetary base is expanding at about a 5% clip, know that velocity of money is grinding lower every time you breathe."
chuckle (gasp!)
"The path we’re on ends with mountains of corpses when the great experiment fails."
Yes, Bernank and Krugman amongst them ...i'll send flowers, if Interflora will still take Benny Bucks!
'I will cut this deficit I inherited in half by the end of my first term'
What HASN'T Obama lied about?
True
he even lied he'd quit smoking.. journos invited on his jumbo-jet during his election campaign complained of "strange smells" aboard... covering the smoke with deoderant spray in the aircrafts air-con Barry?
that nicorette is more addicting than the smokes....so he must be doing the switcheroo when Moochele's not around. dude has chewed up some really fit cheek muscles.
Narcissistic personality disorder is one way of putting it.
Manic depression is another:
http://chartistfriendfrompittsburgh.blogspot.com/2012/08/the-manic-depre...
This is comparing apples to oranges.
It's disingenuous to compare this time period to the great depression. The entire monetary system is fundamentally different, not only on a domestic level, but on a global one as well.
If you look at the VoM chart you posted, the VoM increased from roughly 1945 to 1980 (quite linearly) even in the face of recessions. You could conclude that VoM is inflationary yet the VoM has been dropping while oil, corn, soybeans, gold, silver, and equities have been rising. Have we forgotten the MOB scenes around Christmas time? Yea the ones where people were being killed getting trampled on to buy shit.
So If VoM is thee premier indicator of economic health why did it increase during US recessions?
I agree that there is a regime change in the data from the 20's and 30's and contemporary times, but I don't think that explains the drop--VoM increased in prior recessions because it was supposed to. Prior recessions relied on the more traditional Keynesian monetary measures and fiscal stimulus--consumer and corporate leverage became cheaper and fiscal stimulus increased money flows--remember the stimulus checks. The last recession saw a blow-up of the fed balance sheet, and a decrease in interest rates, but with a simultaneous, massive tightening in debt underwriting standards. Only those individuals and institutions with the strongest balance sheets get the leverage--unless the central bank presiding over the currency in question decides otherwise (think Greece or Portugal).
Regarding the rise in commodity prices; repeatedly, real assets have always been a hedge against against fiat money inflation. Right now, the all-important marginal US consumer has not had access to huge increase in the monetary base. The inflation is being seen where the money is allowed to flow, that is the multinational corporations that are able to leverage their balance sheet to enhance their balance sheets--e.g. AAPL has basically no debt right now--if their sales growth dried up tomorrow, they could increase their EPS and ROE for a long time just by changing their capital structure. so, inflation is very real and present where the money flows, which right now is basically stock prices and commodity prices.
To your first paragraph:
Are you telling me that people who can barely pass a GED can't get student loans? Are you telling me that a jobless person can't walk into a GM dealership and get approved on the spot for a car loan? Are you telling me a person with no assets and no job can't get approved for a credit card at any bank? Are you telling there aren't people who haven't made a mortgage payment in 3 years still living in their homes? How do you think that shit is possible?
To your second paragraph:
I don't know if you've looked at worldwide population growth. With modern medicine people are living longer (consuming more) and war is a social faux pas. If you have 2 people fighting over an apple tree vs. 100 people fighting over the same tree of course the value of the commodity is going to go up. It's not like the weather is going to be forgiving.
And your answer to my question: "VoM increased in prior recessions because it was supposed to"
Except you are not commenting on what is commonly seen. Commodity prices are rising due to Inflation not demand. There are roughly the same number of people chasing Silver that there was 10 years ago, the difference is that there are more dollars chasing that same amount of Silver.
Another instance is that worldwide demand for oil has been dropping for the past three years, but the cost of it has done nothing but increased due to the increase in dollars going after the same amount of oil. If I can charge you $100 a barrel and you are willing to pay it, I will charge you $100. Even if I have more than enough oil to sell it to you for $45 a barrel and still make profit. That is what Inflation means.
Where has the demand for oil decreased?
Monetary system structure has only a marginal impact when said structure is a Monopoly.
Having a Mob trample a store just shows that people have lost civility, not that they have excess liquidity to be purchasing new good's. Most new purchases during that season are done on credit.
VoM is primarily a measure of banking currency, not the general public. It's weighted against the general public by the VoM as a percentage of GDP.
It only gets BITTER from here...
i find him very very far from an idiot. Hes getting away with the perfect crime. Pretty slick in my world.
don't worry, Basel III will save us
thought Basel I and Basel II should have sorted that!
Is this like Stress Test I and Stress Test II will sort everything out, then followed by a €2 Trillion bailout of all the 'passed healthy' banks?
McHugh does not understand the chart of money velocity, he is not alone. What the chart of money velocity really shows is falling incomes relative to rising Money Supply.
Yikes
Sort of like the matrix isn't it? Too many humans for the architect to manage so the great reset must occur. War, mass riots, some combo....but a reduction of the number of humans is the plan. Collapse is just the kick off.
in the great depression from what i understand at least you had deflationary pressure in which goods were paid for with less. Here you have the opposite. A depression with soaring prices like crude.
Correct, just like Weimar. Except this time, it's the fucking entire western world. Hedge accordingly.
Yes, but in the depression I could not from the comfort of my own home buy ETFs or futures in oil and food. Outside of the drought, the commodity space is being speculated on against the actual reality of the demand. This is part of the problem with printing bling. If he prints then he skyrockets oil and food against a declining demand. If you had to actually store this stuff, most commodity prices would be 3 or 4% lower at a minimum. One of the problems that Bernake has is that speculators are frontrunning policy.
Lower prices were always the silver lining to a depression/recession - an efficient form of reconciling price with value and real price discovery. What central banks are conducting is the most destructive anti-growth policy measure imaginable. Both prices and capital permanently distorted and dislocated from real demand. Its the crime of the century and what makes it palatable so that pricks like Corzine see no jail time, is that it forces complicit participation from everybody - "oh look I got shit on me too!". The problem - and I mean no disrespect - is that people are ignorant first, have become greedy second, have lost all sense of accountability third, and fuck everybody else fourth. What else can explain the two ass clowns America has served up for November? So, central banks get away with it because they can and they will. The only way this shit storm is avoided IMO is by somebody (central bank somewheres) recognizes and calls the insanity out by developing a last minute sense of social and economic responsibility. But, I reckon hell freezes over first. RP 2012!
Awesome post.
In 200 years from now.....people will laugh at how stupid the people were around this time.....how could they let that happen.....how could they believe in paper backed by nothing.....and they will marvel at the few people who bought pm's in advance of the coming chaos.....look at what one ounce of silver bought you.....thats what they will say.
200 years from now they wont be talking, but grunting and working on how to make fire
200 years? Try quicker than that. Like, try boy howdy quick.
The just-in-time-delivered, card-swiped, foodstamp-reliant, debt-driven, war-freak-led, resource-depleted, dead-soil-fed, electronic-money-moved system could crash PERMANENTLY in the snap of a finger. When the lighters run out of fluid so will humanities use of fire. On the way down we'll skip the Bronze Age. You'll see.
Every era is the "most advanced" and "greatest" era for the fucktards living in it.
They navel-gaze at how wonderful civilization is, and 100 years down the road, their descendents wonder how fucking stupid their ancestors really were. This'll go on until we either wipe ourselves out, or the planet ends us, for us.
Daddy Bernanke is arrogant SOB. He has taught the world that printing government currency is THE solution to ALL problems. I called him at the office after I cut my finger. He told me he would print some money and all would be well. But, but, but Daddy Bernenke the finger is still bleeding. Do you think I should wrap a band-aid around the wound. Daddy Bernanke's voice lowered with some anger....Boy, I told you I would print some money and all will be well. You should trust me after everything I have done for you. Now, tell your mom to cook some Ben Franklin's tonight!
Per my work, velocity has likely bottomed
http://www.nowandfutures.com/images/velocity_preferred.png
Also, my M3 reconstruction (built and released publicly months before shadowstats) appears to have reversed trend
http://www.nowandfutures.com/images/m3b.png
I loved this part:
No matter what color Kool-aid you prefer, a Harvard Law School graduate who wipes his ass with the constitution will occupy the White House until 2016. Any flavor difference you think you detect is artificial. Neither party has any intention of balancing the budget or stopping the generational rape of America. They exist only to give you the illusion of choice.
Is there anybody listening? http://www.youtube.com/watch?v=ElY30rzEeig
Agreed, that was my favorite section as well. "Empire" is another excellent choice for these times.
http://www.youtube.com/watch?v=G691NJnWL3Q
So what might be the lubrication for the frozen money supply.
o ZIRP: Done that, not working
o Ease credit standards: Done that, not working.
o >125% LTV loans (HARP): Done that, not working.
How about ease tax burdons for corps and indv, and remove the regulations and uncertainty of very near term tax hikes.
And leave the economy alone, leave us alone.
what might be the lubrication for the frozen money supply?
Maybe you missed this.
http://www.zerohedge.com/news/guest-post-shhhh%E2%80%A6-it%E2%80%99s-eve...
We are all going to die.
Horribly.
Except of course the idiots who caused it.
However.
They will all eventually go mad and resort to cannibalising each other in desperation when the deep underground aircon fails.
http://www.youtube.com/watch?v=tC9dwYYJshM
douchebaggery and assbangerry and peaceprizerry the new world order love it or leave it!
http://www.youtube.com/watch?v=IUk8bJJg8Kg&feature=related
fucking communism won.
...got to be one of the best posts of 2012. LMAO. Love the first paragraph. ''Shhhh'', McHugh, I'm loving yuh. Lol.
...and now a singing Swan Song, inspired by Uncle Ben, not just human DNA spliced FDA approved rice in a field in Kansas Toto. http://www.youtube.com/watch?v=v-e1feSOuP8
P.S. It feels like Friday funnies every day now. Does this mean we have lost our crazy and gone real world sane? Lol, how can we know unless we tell somebody else? This is so confusing... lol.
Bernanke an idiot? I doubt it. More likely he knows exactly what is going on. It's just that he doesn't want to do the unpopular thing, rather he chooses the easy road. Unfortunately for the economy that is the road to destruction. He must understand that, so he is certainly evil.
1980's oliver stone movies appear to be a mild version of the cold hard truth.
Unfucking believable how fucked up this bullshit is!
Yes, but the "velocity" is approaching light speed in the HFT economy on Wall Street!
these charts dont matter, stocks are up! its all fixed bros!
Whoa! Talking about Narcissistic personality disorder (NPD), and no mention of the Narcissist-In-Chief (NIC) Obama? Did I miss it somehow?
To sum up.. XX century , Holocaust , Communism - Hitler & Stalin. XXI century, Financial Genocide - Greenspan and Ben Shalom Bernanke.
but guess what!!
What the fed does NOT measure is the underground economy where people are churning cash, undetected, constantly. So, of course velocity hits the toilet when myself, along with every English as a Second Language citizen in the US does their business in cash only. Personally, I intentionally do business only with vendors that will do cash transactions where I know giving them $1,000 will never show up on a W2. That's my form of fighting back against the machine and it's one of the most effective methods of fighting that we have. What's even better, is that what I'M doing...isn't illegal.......YET
I agree. M2 Money Velocity has collapsed, employment to population is stalled and wage/salaries/GDP has crashed.
http://confoundedinterest.wordpress.com/2012/08/20/the-feds-slippery-ascent-of-the-fiscal-cliff-high-non-employment-to-population-ratio-low-money-velocity-declining-wages-to-gdp/
But cash payments going out to people who arent working has never been greater. That has to count for something, right?
We're out of the shaded area, so everything must be ok.
I was watching a special on the rise of Himmler last night. The parallels with Obama are disturbing. The creation of the SS and how it went from 6000 members to 260k. A few commentors spoke about people who believed Himmler was actually controlling Nazi Germany and that Hitler was forced to obey Himmler out of fear.
Himmler was said to be a great speaker able to convince many to follow him , soft spoken in person, incredibly intelligent, and a great family man. Obama's spitting image.
I wonder how much ammo Himmler stockpiled in his secret facilities. Maybe enough to shoot every German 8 times?
When you look at what brought about the fall of the Weimar Republic and the rise of the Nazis, it is scary to note that our current situation almost exactly parallels that rise.
Is Obama and his closest advisors close to commiting the atrocities of Himmler and Hitler. With the shredding of the constitution, the DHS camps, the private president's army, the millions of blind followers, and the arrests of early dissedents without charge, I would have to say yes.
Put some round glasses and a mustache on Obama with a SS blackskull cap and he's the spitting image of Himmler.
...add the mutual admiration of organic farming...
Hitler references are tiresome.
Until they are replaced by 'insert sinister American tyrant's name' references
Only because there are so many current analogues.
Obama is not soft spoken. He is thin-skinned with an explosive temper.
He is not highly intelligent. He cannot even speak or communicate linear thought without a teleprompter. He definitely cannot form any policy ideas without Valerie Jarrett in his ear. He is indecisive and a dullard.
Obama is not a family man. More time spent on the golf course or basketball court. The only family time you see are the photo ops, always eating ice cream, hot dogs and ribs. Also, being a member of two men's bath houses in Chicago does not portend a great family man. He and his sausage armed "wife" were on the verge of divorce prior to the 2008 election. I would like to see a DNA test on the youngest daughter. Doesn't look anything like daddy.
I doubt that he was ever given the tools to be a family man.
http://www.obamasrealfather.com/
There are only two groups of people who believe "57 states" Obama is intelligent. The MSM and the fools that belive them.
You mean Richard Craniums (DickHeads) like:
Debbie, Does the DNC, Wasserman Schultz?
It's gonna get really interesting to see what happens when velocity pops back up (massive inflation that will obliterate any "recovery")
I say,
Mosey on over to finviz.com. Take a look at the Top Insider Trading box. What do you think that guy knows that you and I don't?
Are you talking about the guy that sold 32,000,000 shares of Goldman Sachs stock at $34.50 per share? Looks like he just took over $1 Billion off the table. Probably is in his bunker in the Cayman Islands by now.
The PTB desperatly need another bubble that the sheeple can beleive in.
Unfortunatly the whole save the earth by trading carbon derivatives thing just fell flat.
As Soros said, gold could be the ultimate bubble, but that is THE one thing the PTB do not want.
ULTIMATE: last; furthest or farthest; ending a process or series: the ultimate point in a journey
Interesting times indeed....
We do not need a bubble. We have conjured up a real war, any day now.
How meaningful is this measure of monetary velocity? If Ben Bernanke decides to double the money supply by printing $2 trillion and lending it to Citibank at 0.00001% interest, and Citibank neither spends this money nor lends it out, "monetary velocity" drops by half. Yet nothing has changed except a few numbers in a computer.
Except these numbers are never revoked and the influence from the numbers in Citi's account allow to commit massive crimes. That's pretty serious.
Fucking psychopaths.
As many times as I've taken it in the orafices, trying to decide if I'm a hooker or a slut. Must be slut, cuz I never got paid.
BOHICA*
*Bend Over! Here it comes again!
Just 'cause I had to look it up the other day ...
Why is this chart so hard for people to understand? It clearly shows that an expanding money supply no longer increases GDP (as if it ever really did). It clearly shows we past the point of diminishing returns in 19-fuckin-80 AND went off a cliff after 2008. I suspect a gut check would confirm this to be true for many of you. What has changed since 2008 to turn this around? Absolutely fucking nothing. Look out below. Here we come. I think Shalom's con game of the stock market is starting to fool some of you.
Been reading up on Weimar Germany and some of the similarities to today would make you shit your pants. They had Krugman/Rosengren types all shouting that everything would be fine if they could just print enough money. They would write in the papers about how it would be the end of the world if there wasn't more money printing. They had 18% unemployment, they had desperate politicians trying to pass taxes on lunch/dinner parties and even proposed a glutton tax to prevent people from eating too much ( soda tax, anyone?). The Fed keeps changing the inflation bogey (from CPI to core CPI to PCE for now and tweaking the components) all in an effort to convince people that their standard of living isn't falling. Clearly we're not Weimar at present, but stuff surely isn't getting cheaper, and we would be Weimar if Krugman/Rosengren had their way.
As then, you have people counseling against the madness of money printing, like Paul Volcker, Ron Paul, David Stockman and even Warren Buffett. They are written off as crazy and ignored.
Sadly, out of all of it, Hitler rose to power by scapegoating the Jews and others who became wealthy because they had owned businesses or figured out that money was becoming worthless with all the printing and owned assets of any kind from stocks to land to cows. Not calling him Hitler, but Obama's populist rhetoric against "the rich" sounds incredibly similar.
Reading this stuff reminds me of reading Ben Graham during the late 1990s stock bubble when all of a sudden it hits you and you say, "Shit, we've been here before and this doesn't end well."
But I thought BO was doing the Jews' bidding.
???
Primary wave 3 down has started. The question is when will primary wave 3 down kick into high gear?
http://bullandbearmash.com/chart/standard-poors-500-weekly-august-03-2012/
I certainly hate to give any appearance of defending the fed at all on this site, but doesn't this article conflate the fed's creation of money with the politicians' borrowing and spending of it?
It would seem the fed can un-create money just as quickly and just as electronically as they can create it -- out of thin air -- if inflation becomes undesirably high (if it's not already too high), but once the politicians have borrowed and spent the money is, “Gone, gone, gone! Lucky Ned and his cohort, gone! Your $50, gone! Gone, the whiskey seized in evidence! The trail is cold, if ever there was one!” (And, only the bill is left to pay.) --[“True Grit”, 2010]
I think folks may be missing the point here. One would assume that if Bernake printed money that this money would then be used in the economy thus creating a multiplier effect and thus creating inflation. But, if he is simply retiring debt to keep banks liquid then what you have is an expansion of the money supply without the multiplier impact which this post shows. The inflation is real but it is only real in the idea that speculators who can buy commodities without storing them push up prices without a multipier to back it up. Respectfully, the point is that I don't think people fully understand what is going on here. Bernake is much smarter than folks give him credit for. He studied the Depression. His idea is to keep the banks liquid with the hope that demand returns. He can't create demand itself except through the hopium that things did not crash. This post rather than disputing his work actually confirms it. I appreciate the ZH euphoria over the predicament that we are in but ZH is the best when it analyzes these items and not emotionally responds to some Hitler reference. These guys are trying to keep us out of a Depression. At this point, they have been able to fake it. This site is a testament to the struggle between the reality of the job they face and the reality of that job. Long live Zerohedge.
I agree, DeFeralCat, it is like the fed is pushing on a string. The financial and economic headwinds created by the politicians are apparently so large as to be not even stimulated by the lowest interest rates ever and the most available money ever . . . maybe? 'Not sure of the exact numbers, but isn't this correct?
I expect that the "multiplier" is less than one for the "spending" but maybe irrelevant for the fed money creation. They can just create and then un-create more or less, as necessary. But, at some point, there is no way they can actually stimulate the economy -- but just prevent it from becoming truly deflationary (which is highly undesirable no matter what). Once people start stuffing their money in their mattresses, since everything else loses them money -- and which they have obviously started doing, at least to some degree -- the positive feedback mechanism of this reality seems to be pretty irreversible, historically, short of going to war with just about the whole world and actually wining.
Let's hope that's not necessary again.
Please make that, "winning."
I think what we are a witness to is that we are rapidly approaching the end game. The QEs kept us out of Depression but had very little impact other than what will be a short-term rise in some commodity prices. I think very few people believe that any sort of QE3 will have a long-term impact. This is the same thing that has happened in China. We have a global decline going on that easing simply cannot solve. The demand has to come from somewhere that does not yet exist. This site will serve as a record of this unraveling for researchers for many years to come. The irony is that I think there is a solution. If the Republicans and Democrats would actually recognize that all of their accumulated weath is in trouble then maybe a coorinated solution would provide enough hopium to get us through. However, this looks far more like the first Depression than the Wiemar Germany. The Republicans are playing defense on the economy. It will take a collapse to get people to work together. It is at that point that all bets are off.
But, will the people (and more importantly the voters) actually, "work together," when they seem to so fundamentally disagree on the reality of the causes of the challenges?
I hope so, but I fear that (as much as I see the Republicans' proposed solutions as being insufficient) the Democrats are actually advocating more of the cause of the problems instead of moving in the correct direction too slowly. What ever happended to JFK and Clinton-style policies like cutting tax rates for everyone and reforming welfare?
The Dem's voters (even though I am a life-long-registered Democrat, who has most often voted for almost only others in recent elections) seem completely ignorant of the history of economics -- if not willing to vote for their greater hand-outs even if the economic pie for most everyone actually shrinks substantially.
Did de Tocqueville actually say, “The American Republic will endure until the day Congress discovers that it can bribe the public with the public's money,” hundreds of years ago?
I will vote for moving in the wrong direction more slowly over moving in the wrong direction entirely.
Damn, I hope I am totally wrong about this, on so many levels!
Unfortunately, I have a good enough track record trading the economy -- even so far -- that I am at least somewhat, if not completely, hesitant to abandon my theses.
I know what I learned. I learned that while Buffet is chumming up to Obama's asshole, Charlie Monger is chumming up to Boehner and the Republicans.
Seen with my own eyes. Very, very interesting.
It's often interesting to consider other people's opinions. I often think that I can learn very little -- if anything -- from those I already strongly agree with.
What did Socrates say, thousands of years ago, "The wise person know that one does not know," or something like that, as I recall.
sorry, "knows"
IMHO this goes wayyy beyond Dems/GOP; conserv/lib. I doubt that paradigm will hold.
Are you talking to yourself?
The problem is governments at all levels are picking winners and losers. Have you tried to get a loan lately. I tried to help my daughter and guess what no dice. Trust me, there are no loans being made. Call a bank you have money in, and tell them you want to borrow as much money as you have on deposit. You still will not get the loan. They just will not return the call. Ooops!
I agree, GoingLoonie,
Make the government to powerful and large (as a part of the economy) and it corrupts everything, as far as I can tell. I would be unbelievably pleased just to see all of the spending of the governments of the US only growing at 1 to 2 percent per year (to let the economy grown into them). Good luck finding a politician who will support that "lack of power," for themselves.
I have been offered multiple very-low-rate loans in recent months (without me even asking for one). But, of course I don't need one, so that is why, I suspect. Thus, no stimulus of demand.
I generally always hate the gov picking winners and losers. That should usually always be up to the markets, I think.
I got a home loan a month ago from my "local credit union" for a crumbling old 1957 rambler. I also just got a letter in the mail saying that someone by the name of "Fannie Mae" now owns the loan.
Hmmmm........
Amen,
Shut down or completely privatize Fannie and Freddie as soon as practicable, I say.
How can they not have been an absolutely huge part of the the cause of the Great Recession?
sorry, one "the"
And get this: I asked the loan guy at the "local credit union" point blank if the loan would ever be sold. His answer? "No."
Imagine that.
I should throw in there, however, I usually vastly favor the credit union people over the alternatives. They seem to be vastly more local and representative, of my needs, in my admitedly limited experience.
Well, that's exactly why I went with the credit union. However, the CU now has the cash value of my loan and YOU hold the note.
Damn, what's left to do?
I hope you are paying us all enough interest to beat the costs -- probably impossible for Fannie and Freddie, right . . .
My close relative owns a large (and somewhat slightly, but still legal and not too large, only somewhat controlling) stake in a bank, and he suggests that all the small banks like his are being slowly, if not more quickly, regulated into being less able to compete with the mega-banks. I sure hope that is only propaganda, but what can I tell.
I respectfully disagree DeFeralCat. You write that His idea is to keep the banks liquid with the hope that demand returns. He can't create demand itself except through the hopium that things did not crash. This post rather than disputing his work actually confirms it. Keeping banks liquid through ZIRP, bond purchases, whatever, is not the cure, it is the symptom. Demand is a function of price, and so long as Bernanke price fixes rates below market, he effectively puts a floor on price as investors chase assets and other things (commodities) for a store of value- not necessarily price inflation, but, a price inflated above what the market would, in the absence of price fixing rates, be prepared to pay......for anything - cap. ex., expansion, etc. The hope, is that shit returns to the norm. But, thats an impossible expectation without a movement in price. Debt and incomes have a stranglehold on households, and even on corporate balance sheets - all a result of easy money, price fixing of rates, and of course, higher prices - not hyper inflation - just higher prices. Prices have to fall to bring back demand, all else equal. Bernanke may have studies the great depression, but, he's got both the recipe and the cure for growth dead wrong.
This is a interesting post, Pareto,
Does easy money create the situation where deflation seem likely, or does it merely address the situation where that is already happening, due to the effects of the politicians' actions?
What the heck do I know, but it would seem the situation is how it is now -- (no demand) and pushing on the string of monetary stimulus -- and didn't make the problem nor fix it. The fed would seem only capable of addressing deflation with their easing, even though they must be completely unwilling to admit to any deflation as that might become the self-realizing kiss-of-death.
I would suggest that it is due to the reality that the US is now substantially less competitive with its world-wide competitors than it used to be due to the recently-increased very real costs of having an employee in the US -- due to the very real costs of compliance with regulation, taxation, litigation; compared to the complementary costs of other countries with whom we are obviously competing -- and which obviously have the same kinds of cost to some degree or another.
I hope I am wrong.
Call me crazy, but that is my Suspicion.
Like I said, demand is a function of price. ZIRP at al programs of FED and government policy design elevated prices. It discouraged savings as investors sought better stores of value > inflation. And I think you are right in that all of that contributed to increased regulation, taxation, etc., which priced American production out of the market place. But, this is ancillary to the initial problem that won't normalize until the FED (all central banks), let prices FALL. Demand will not "return" to normal so long as price is held artifically higher by zero interest rates. Everybody is convinced that "deflation" is the prince of darkness, when in fact it will be deflation that saves us from permanent insanity. Yeah for sure there will be pain, loss of jobs and so on. but, nothing compared to what will inevitably occur from a crisis of confidence arising from people being unable to afford $5 gas, or whatever, forever. Falling prices creates opportunties. It makes capital affordable to invest (lend), because lower prices brings back demand, or (v). And there is a real rate of interest that is something greater than fuck all, creating the incentive to save, which is where long term sustainable investment comes from. Bernanke, is trying do the impossible with monetary policy....buy a free lunch for the economy. But, it will never work. Eventually somebody has to pay. Unproductive jobs - gone. Inflated wages - gone. Zero interest rates - gone. Living beyond one's means - gone. Superfluous consumption - gone. Sounds bad, but, it is actually the best thing that can happen. It will be quick and efficient. And it will reposition the country stronger and more competitive. It is impossible for there to be any calculation of value when the FED has destroyed the only mechanism by which value can be compared...price.
I actually don't disagree with most of what you have stated so I actually think we agree more than disagree. If Bernake's actions are fixing prices then those prices are higher and not lower than they should be. He is trying to push inflation forward so as not to have to fight deflation. I don't believe current demand equals the current price so I think he has succeeded in doing this. Yes, prices have to fall back to meet demand sort of proving the point that they are too high now. This is true in housing, commodities and most asset classes. The point about Bernake being wrong is debatable. We don't know what he truly sees and has access to monitor. My guess is that he sees what we all see which is things are pretty bad. He is having the government assume the bad assets of the banks and replacing it with devalued but at the end of the day, real money. He is not truly creating inflation as proven by the money multiplier charts on other posts. He knows this. The inflation is from speculation and front running his policy which he unfortunately cannot control. His actual big problem is he is not getting any congressional help. If the two parties would have simply embraced Simpson-Bowles it may have bought us enough time to try and compromise to create demand. But I am as pessimistic as anyone on this site. The end game is coming and it will be ugly.
I think I agree, DeFeralCat,
Although I will be the first to admit that I do not know.
I appear to sometimes be one of those "speculators." I hope that's OK.
(Although, admittedly, I am a really, really, small speculator compared to the size of the markets!)
(I also buy gold sometimes when it seem reasonable, right! Screw easy money!)
I often suspect all this economics stuff is ultimately somewhat if not completely based in psychology and not anything more demonstrable, so as a student of physics, it's only vaguely more understandable that quantum physics, if at all, right?!!
As the probable greatest teacher of quantum physics of all time, Richard Feynman, once said, "If you think you understand quantum mechanics, then you don't understand quantum mechanics!"
That seems about right, to me.
What do I know.
I am only the student.
Please make that, "more understandable than quantum physics, if at all" . . .
I love this site but I think there is one point that is debatable. I think everyone assumes that Bernake's actions equal inflation. If any post in the last year has been more relevant than many then tonight's post about the lack of a multiplier should open some eyebrows. If it is true that the multiplier effect has fallen off the table then it should be clear that Bernake's actions are not responsible for any inflationary impact. I have actually thought this for a long while without much proof. It seems what they are doing is absorbing all these bad loans from the banks on the Fed account. They are replacing with it with A) real B) Fiat C) non-existent money. The banks then are not lending this out. Thus, there is no multiplier. The implications for this site are the euphoria surrounding gold and silver. I am a fan of both but I don't think from what I see that there should be a euphoria around it from the current data. A bet on these at this point is not a reflection on past or current actions but on future actions. Personally, I don't see it. People discount these people and Bernake in particular as stupid and incompetent. They are not stupid. They are trying to manage the single, most significant economic event of our lifetime. They have a ton more insight than we do. I am still amazed that they have pulled it off this far.
Feral,
Your analysis is spot on. Since Zerohedge tends to write from a somewhat Austrian viewpoint, I'd argue they are generally applying the Austrian definition of inflation. An expansion of the money supply is inflationary. The multiplier could kick in now, a year from now, or 5 years from now; the results will be highly inflationary and will bode well for gold and silver. The multiplier effect can't really be predicted, but it is a 100% certainty that expanding the money supply will eventually lead to more and more dollar devaluation. Hence, why the Austrians define inflation as an expansion of the overall money supply.
But he is keeping the least deserving, most parasitic institutions alive. They should have been buried in 2008 and let the regional banks who actually loan money to the real economy take over. Yeah, different from Hitler, but the result will be the same.
How the Fed Took Money Out of Monetary Policy
How Disinflation Could Happenit is so depressing, I am hedging my bets that a lot of people off themselves before the hollow points are needed
Those good people who survive this will need to band together to survive. I think you're right though, we're going to lose both the weak-minded and the weak-bodied.
I wish you luck Miss Anthrope. Don't despare, many of us feel as you and our time at bat is coming.
Great article. Well written.
My worry is that they have increased the self sustainability of China and other nations and decreased the US to such an extent that when the collapse hits the US will rapidly sink into chaos as supply chains break and will then be attacked by the BRICs.
Good luck you treasonous fucks in DC.
Hear hear!... and to all you fear-bot keyboard jockeys out there... you don't really believe patriots, active-duty military, gun owners, veterans, federal marshalls, and other oath takers are going to just sit on their hand forever, do you? This article is even more fuel for the imminent mass arrests... http://tinyurl.com/cd5cyjo/
"... you don't really believe...are going to just sit on their hand forever, do you? ..."
Of couse they will! Patriots are not the flag wavers who turn out at political ralies and cheer on their favorite players. They are part of the problem. They are the brainwashed who think that the system is great and if only they can get their person in power, it will all be made well again.
Active duty military are mostly grunts that are there because they like pushing people around and killing. It is a voluntary (kill for cash & bennies) army now. Paid assasins. They will be on the streets of America in tanks and battle gear and ready to rumble. By then, you will be branded and controled everywhere you go by the wonderful world of computors and micro cameras everywhere. You will not be able to move without someone knowing. "1984" did not begin to describe the coming America.
You are just another myopic fear-bot who never spent a day in uniform. To suggest that most active-duty military, cops, etc are blindly pro-government just displays your ignorance.
They're narcissists and they're all hetero loco.
http://heteroloco.wordpress.com
You had me at the first paragraph. Good article.
We need some fundamental changes which do not include any of the people presently running things.
Unfortunately, it'll take something massive and totally unforeseen to make this happen.
But I have a feeling it's on the way.
Welcome to the economic recovery party, bitchez!
Too bad the theme of the party is bunga-bunga
IMHO
We are not going to have a hyper-inflation.....
why would they let someone pay off their house with 3 hours of ditch digging at 100k an hour.
Gold has always been a good investment and will continue to be,
100 years ago ..one could buy a good bull for an ounce of gold ...still can today
Farmer Jerry
hyperinflation means prices go up not that wages need to follow.
If wages don't inflate then you cannot see hyperinflation. All you'll get is an immediate currency collapse without "Step 3: Hyperinflation."
untrue. Wages go stagnant, prices go up and currency collapse happens after the hyperinflation. Without the hyperinflation you don't get the collapse. No matter how powerful the thermobarric explosion the wave-front doesn't hit until after the explosion's been detonated.
The money supply needed to induce the crisis & hyper-inflation already exists. It is not in the form of wages because wages are for slave-folk who don't know better or who can't escape their pen. Abnormally high yielding assets/claims/deals combined with decent-yielding real production assets (farms, factories, mines) are not wages, they produce the real influence leverage for the rich both as insurance & slave-controller tokens.
I agree because I think the argument is elegant in its simplicity. Hyperinflation hurts debt owners and let's the proles off the hook, therefore we will not see hyperinflation. Although, a counter argument I haven't resolved is that perhaps the wheels really are coming off and our owners are losing their grip.
Regardless whether it's deflation or hyperinflation coming, physical assets are the only assets. All my opinion of course.
And who, again, is the largest debtor in the USA (or the world)?
The US federal government, of course.
However, I do partly agree with you --- I tend to believe that we will NOT see hyperinflation of the Weimar or Zimbabwe kind. What I believe we WILL see, though, is significant dollar devaluation, with the US dollar of 2020 (assuming it still exists then) being worth anywhere from 5% to not more than 20% of what it is worth today.
It makes sense, since Fed create lots of money in these years. Those money pile up in banking system, and no one barrow them. That is why money velocity is slow down.
The government's policies are a reaction to fallout from only a fraction of over a quadrillion dollars in unregulated derivatives.