Free Money

Now corporations are begging: we need more inflation!

After digesting the opinions of the shills, shysters and scam artists, I am ready to predict that I have no clue what will happen during 2013. The fog of uncertainty is engulfing the nation, making consumers hesitant to spend and businesses reluctant to hire or invest. Virtually all of the mainstream media, Wall Street banks and paid shill economists are in agreement that 2013 will see improvement in employment, housing, retail spending and, of course the only thing that matters to the ruling class, the stock market. Even among the alternative media, there seems to be a consensus that we will continue to muddle through and the day of reckoning is still a few years off. Those who are predicting improvements are either ignorant of history or are being paid to predict improvement, despite the overwhelming evidence of a worsening economic climate. The mainstream media pundits, fulfilling their assigned task of purveying feel good propaganda, use the 10% stock market gain in 2012 as proof of economic recovery. The facts prove otherwise... Every day more people are realizing the con-job being perpetuated by the owners of this country. Will the tipping point be reached in 2013? I don’t know. But the era of decisiveness and confrontation has arrived. The existing social order will be swept away. Are you prepared?

Keynesian policy requires an expansionist Central State and Bank bent on imposing central planning on every level of the economy. Keynesians are natural partners with the neofeudal financial Aristocracy which benefits so enormously from Keynesian print-borrow-blow policies. The standard Keynesian cargo-cult analysis of our economic woes: 1. The problem is a lack of aggregate demand, i.e. people buying stuff and services; 2. As a result, the economy is running below capacity, i.e. economic output is below potential; 3. The solution is fiscal and monetary stimulus, i.e. the Central State borrowing and spending trillions on politically directed programs and the Federal Reserve printing and injecting trillions of "free money" dollars into the financial sector to boost borrowing and lending. The cargo-cult program has failed for a number of fundamental reasons. Let's illuminate these reasons with a few thought experiments.

The December CPI is out, and according to the BLS, or more specifically, it's X-12 Arima reality processors, there was no inflation in the past month, with headline CPI printing at 0.0%, as expected, and up from a 0.3% deflation in November. Excluding food and gas, CPI rose 0.1%, less than the expected 0.2%. Compared to a year ago, inflation was a tame 1.7%, the BLS would like you to believe, and 1.9% ex food and energy. Luckily these numbers exclude such soaring in price items as education, and it certainly excludes a proxy for reserve inflation such as the stock market, which while certainly not a part of staple purchased goods, shows just where the free Fed money is going. As such, the S&P is as good a proxy of real, free money generated "inflation", as anything else. Naturally, once the stock market bubble pops, things will change, but for now why buy food when one can buy FUD and pray there is a greater fool to sell it to in a day or to. The biggest reported change in inflation Y/Y is in the price of medical care services which increased 3.7% compared to December 2011, and Utility gas service, which in turn declined by -2.9% from a year earlier. Finally, for those confused why producers see the need to dilute coffee and bear, and add just a little more than the RDS of horse meat to burgers, the reason is that food at home prices increased by 1.3% in 2012, while dining out has gotten a whopping 1.8% more expensive. That's right: the price of the food you eat at home has increased by 1.3% in the past year - so says the BLS which apparently like the Fed, only eats hedonically adjusted iPads.

PIMCO founder and co chief investment officer Bill Gross gives no credence to the trillion dollar platinum coin scheme. "We feel that such an action would not only jeopardise the U.S. Fed and Treasury standing with Congress but with creditor nations internationally - particularly the Russians and Chinese." It appears to be a bit of a stunt by and may be a convenient distraction away from the substantive issue of how the U.S. manages to address its massive budget deficits, national debt and unfunded liabilities of between $50 trillion and $100 trillion. It may also be designed to create the false impression that there are easy solutions to the intractable US debt crisis - thereby lulling investors and savers into a false sense of security ... again. Gross said that subject to the debt ceiling, the Fed is buying everything that Treasury can issue. He warns that we have this "conglomeration of monetary and fiscal policy" as not just the US is doing this but Japan and the Eurozone is doing this also. Gross has recently criticised the Fed's 'government financing scheme.'  He has in recent months been warning of the medium term risk of inflation due to money creation and recently warned of 'inflationary dragons.'

In part one of this two part series – Hey You – we examined how an invisible government of wealthy, power hungry men have utilized the propaganda techniques of Edward Bernays and lured the American people into a narcissistic, techno-gadget, debt based servitude. Over the last one hundred years they have created a totalitarian state built upon egotism, material goods, and fulfilling our desires through Wall Street peddled debt and mass consumerism. It has been an incredibly effective form of control that has convinced the masses to love their servitude. The lyrics to Pink Floyd's 'Mother' had both a literal and figurative meaning for Roger Waters. Having seen his Wall Tour performance this past summer at Citizens Bank Park with a diverse crowd of 40,000, ranging in age from senior citizens to teenagers, it seems this song has gained new meaning. He sang a duet with himself from 1980 projected on the Wall and when he sang the lyric, “Mother, should I trust the government?” the entire stadium responded in unison – NO!!! This revealed a truth that is not permitted to be discussed by the corporate mainstream media acting as a mouthpiece for the ruling class. A growing legion of citizens in this country does not trust the government. This is very perceptive on their part.

The fundamental Keynesian project is that the Central State and Central Bank should manage market forces whenever the market turns down. In other words, the market only "works" when everything is expanding: credit, profits, GDP and employment. Once any of those turn down, the State and Central Bank "should" intervene to force the market back into "growth."  The sharper the downturn, the greater the State/Central Bank intervention. This accounts for the martial analogies of State/CB responses: "bazookas," "nuclear option," etc., as the market is overwhelmed with ever greater fiscal/monetary firepower. After basically voiding the market's ability to price risk and assets, the Keynesians believe the market will naturally resume pricing risk and assets at "acceptable to Central Planning" levels once fiscal and monetary stimulus is dialed back. Keynesian policy is to punish capital accumulation and reward leveraged debt expansion. Rather than enforce the market's discipline and transparent pricing of risk, debt and assets, Keynesians have explicitly set out to re-inflate destructive, massively unproductive credit bubbles. The entire Keynesian Project, however, has numerous blindspots.

All the extraordinary measures deployed since 2008 to jumpstart the U.S. economy are one-offs: either they cannot be repeated or they have lost their effectiveness. As a result, we now have an extraordinarily fragile one-off economy that is dependent on "emergency" measures that cannot be withdrawn even as their utility in the real economy dwindles by the day. These two dynamics--declining effectiveness and unrepeatability--have created a uniquely fragile economy. Once you become dependent on extraordinary fiscal and monetary stimulus, withdrawing the stimulus will trigger a recessionary cascade. But continuing the stimulus cannot duplicate its initial effectiveness, as malinvestment and unintended consequences degrade the initial boost.

Those curious why Goldman Sachs felt compelled to undertake a quiet an unexpected by most (if not us) peaceful coup of the Bank of England, it is because the oldest central bank still has among its ranks people such as Andy Haldane, who in a world populated by deranged textbook economists who don't understand that it is the central bank policies' fault the world will be forever mired in substandard growth and soaring unemployment, is a lone voice of reason (recall BOE's Andy Haldane Channels Zero Hedge, Reveals The Liquidity Mirage And The Collateral Crunch). And since the BOE has no choice but to join all its peers in a global race to the bottom (largely futile in a world in which currencies exist in a closed loop, and in which if everyone devalues, nobody devalues as even Bill Gross figured out yesterday), it is prudent to listen to Haldane's warnings while he is still in the employ of Her Majesty the Queen. Such as his latest one, in which he says that the scale of the loss of income and output as a result of the crisis started by the banks was as damaging as a "world war."

There is only one problem with the home builders - expectations are way too high. The builders are not only priced for perfection (as we noted here) by the market, the builders themselves have business strategies that are modeled for perfection. We believe the bar is set at an unattainable level. In summary, the building model is flawed. Here is why.

Generally bullish, sitting back and enjoying the show while it lasts.

As we hear more and more pundits talk about the soaring consumer confidence, the "recovery", and how the fundamentals are improving, keep in mind that retail investors are still not in equities

[And now it’s time for Mr. Obama to start paying for all those votes by reaching deep into our pockets. If you intend to avoid paying your “fair share,” however, please take note: There will be  few places to hide. For a gimlet-eyed view of what may lie in store for taxpayers and citizens of all political persuasions during the next four years, ponder the guest commentary below, from Wayne Siggard, a regular in the Rick’s Picks forum. RA]

After 40 years of boozing on easy money and feasting on fantastical asset price inflations, the global monetary system is approaching catharsis, its arteries clogged and instant cardiac arrest a persistent threat. ‘Muddling through’ is the name of the game today but in the end authorities will have two choices: stop printing money and allow the market to cleanse the system of its dislocations. This would involve defaults (including those of sovereigns) and some pretty nasty asset price corrections. Or, keep printing money and risk complete currency collapse. We think they should go for option one but we fear they will go for option two. In this environment, how can people protect themselves and their property? Our three favourite assets are, in no particular order, gold, gold and gold. After that, there may be silver. We are, in our assessment, in the endgame of this, mankind’s latest and so far most ambitious, experiment with unconstrained fiat money. The present crisis is a paper money crisis. Whenever paper money dies, eternal money – gold and silver – stage a comeback. Remember, paper money is always a political tool, gold is market money and apolitical.

Just in case someone thought Greece would voluntarily vote to cut out the funding - any funding - of free money from the ECB, via ELA or otherwise, regardless if only 10% of said money actually makes it into Greek society, we have some bad news: the Greek parliament once again voted to impose austerity upon itself. This includes numerous Yay votes by deputes who had said previously they would vote against the measure.

• SAMARAS HAS VOTES FOR GREEK AUSTERITY BILL
• FINAL VOTE: 153 FOR, 128 AGAINST, 18 ABSTAIN
• PASOK EXPEL 6 MEMBERS; ND EXPELS 1 MEMBER FOR VOTING AGAINST PARTY LINE

And yes, this time will certainly be different unlike all those other times. Or maybe not. In the meantime, the rioting, and daily strikes by everyone, most certainly the tax collectors, will continue indefinitely, until even more spending has to be cut to match the decline in revenues, and so on, until finally the singularity of no more revenues and no more spending is hit.