Posted on 11/07/2009 10:48:21 AM PST by blam
The Path To Runaway U.S. Inflation
Economics / Inflation
Nov 06, 2009 - 10:35 AM
By: Ganesh_Rathnam
"I see green shoots," said Fed Chairman Ben Bernanke on 60 Minutes back in March, doing his best rendition of Haley Joel Osment from the movie The Sixth Sense. Since then, every poor economic headline in the lapdog media has been preceded with the word "unexpected," as if the clueless chairman's pronouncements were suddenly the Gospel, and the economy had indeed recovered.
Phantom US Economic Recovery
Common sense tells us that if phenomenon A causes problem B, then B cannot be rectified unless A is first removed. As an adherent of the Austrian School of economics, I can confidently tell you that a sustainable US recovery is not at hand. An upward blip in the GDP reading (itself a flawed measure of material well-being) must not be mistaken for a sustainable recovery, especially when government borrowing is unprecedentedly high and a lot of the input parameters, not the least of which is the GDP deflator, can be fudged.
I'll borrow an analogy from Peter Schiff. Imagine if you will a victim at the unfortunate end of a Brock Lesnar knuckle sandwich. The blow has knocked him out cold and the medics try to revive him. The best suggestion they can come up with is to have Lesnar pound the man's head even harder with his fists. When the man has seizures from the repeated pounding, a medic (coincidently named Bernanke) screams gleefully "Hurray, he's moving."
Sadly, such is the response to our present crisis by the policy makers in Washington, DC. To solve a problem caused by malinvestments resulting from easy credit at 1 percent interest rates, the Fed is supplying even more easy money at 0.25 percent. None of the malinvestments have been allowed to be liquidated.
Housing prices have been propped up, banks and auto companies have been bailed out, regulations have been increased, debt covenants have been violated, unemployment insurance has been extended. In addition, there's the cap-and-trade bill, the healthcare bill, and a "czar" around every corner.
[snip]
Economics / Recession 2008 - 2010
Nov 06, 2009 - 05:02 AM
By: Jim_Willie_CB
With the steady stream of claims toward an economic recovery, one must do a reality check from time to time. The Gross Domestic Product for 3Q2009 reflected a solid temporary push from the absurdly inefficient and costly Clunker Car Program, and an inventory drawdown that finally arrived.
Both factors contributed to a lift in GDP that in no way testify to a recovery. The Productivity at 9.5% for Q3 is the latest story of a supposed recovery. Well, if the truth be told, the combination of business liquidation and significant worker cuts adds to output with the advantage of the negative incremental workers.
So if extremely large swaths of the USEconomy were to be liquidated in an organized fashion, and businesses pared down staff just to management and perhaps some temporary workers, the moronic economists that pollute the financial helm would rejoice for the burst to GDP with amplified Productivity.
What a clown show! Then came the promising rise in the ISM manufacturing index. However, almost every single of the 15 regional manufacturing indexes turned lower.
Hmm! Seems like a fraudulent national statistic was released. Is any USGovt economic statistic valid anymore? Nope!
NON-EXISTENT EXIT STRATEGY
This week some reality sprinkled Wall Street like so much holy water, as the US Federal Reserve conducted its perfunctory meeting.
They shocked nobody when they announced a repeated statement of near 0% official interest rate again for an extended period. Regard their admission as a powerful contradiction of anything remotely resembling an economic recovery.
Yesterday the Euro Central Bank confirmed its own ultra-low 1.0% rate as ongoing and even justified. The same day the Bank of England confirmed its own ultra-low 0.5% rate, and even announced an extra 20 billion pound sterling for more monetized bank relief.
Did they not announce just two weeks ago the exact opposite, an end to bank rescues and a flood to monetized aid? These are hardly stories steeped in recovery. More like stories replete with desperation, brokenness, insolvency, and failure.
We are witnessing a global failure of the entire central bank franchise model system, and breakdown in the currency system itself.
Last August, a Hat Trick Letter special report was penned, with title “Non-Existent Exit Strategy” to describe the conditions that hamstring the USFed.
Their inability is coming to full light.
They cannot stop the 0% easy money policy any more than a deathly sick child can be sent to work in the field after bedridden for weeks of urgent care.
In the special report, the desperation is depicted.
Firehose holder USFed Chairman Bernanke regularly congratulates himself despite blindness to see any problems in advance.
So how could he foresee any recovery, if he failed to see a single change of course since his inauguration? His failures read like a Greek Tragedy.
Diverse USTreasury monetization follows colossal bond fraud by US banks. Would an exit strategy involve little or no monetization of USTBond auctions? Curtailed credit or a USDollar devaluation or both soon come.
Foreigners are in the process of isolating the United States, with US residents the last to know. Meanwhile, US bank leaders are cocky in their heavy reliance upon the Printing Pre$$, as monetized debt is the intravenous line as wide as a river. These remain anything but normal times. The 0% official rate remains the badge of dishonor.
[snip]
Who is Brock Lesnar?
"Foreigners are in the process of isolating the United States, with US residents the last to know."
It's hard to take seriously anyone that makes such ideologically charged statements. The author appears not not notice that his conclusions don't follow from his arguments. The arguments are there, therefore, merely to help swallow his ideology.
True. Instead of letting the failure happen the Fed is papering it over and the politicians are spending money we don't have for pork projects that will are not sustainable. The result is we will spend the next 20 years denying what Willie is saying, and be far worse off by then. It is like what Japan did since 1989, but we have no savings, no industry, and no sense of sacrifice that kept Japan alive.
"Foreigners are in the process of isolating the United States, with US residents the last to know."
Capital is leaving the US. The Fed and the big U.S. banks (using cheap short term money from the Fed) are increasing purchases of treasuries. Americans are totally clueless about this.
Freepers know...
“I see green shoots,”
I see ghosts.
Thanks.
"We are witnessing a global failure of the entire central bank franchise model system,"
Seeking Alpha has many such posts by people that are great mechanics of data but appear to have little training and knowledge of methodology. They are not short of sensationalism, however.
Central banks didn't contribute in any way to the invention of the transistor or minicomputer, but they did help create a huge bubble as a result. The PC came along with large and lasting productivity improvements and central banks were there to create bubbles, first by the 80's in Japan and here by the 90's. These bubbles were all created in the name of good policy which was in fact bad policy: lowering rates to boost the market which turned into plunge protection (not allowing proper corrections).
The internet bubble is essentially a result of the Greenspan Put created with the Asian crisis, the Russian crisis and the LTCM collapse. The slight amount of tightening in 1999 was offset with the Y2K liquidity and the bubble popped from its shear weight. There was no "good" tight money policy in 2000 to offset the prior bad loose money policy, it was all bad, merely switching from very loose to pretty loose. Also the PPT worked throughout to interrupt normal market corrections which exacerbated the correction last year and the inevitable collapse.
The only good policy would be one where there is no CB involvement in the economy. In our case rates would rise significantly to attract long term capital. Then the big banks would fail costing the taxpayers trillions. To avoid that immediate payment, we will instead spend those same trillions and more over the next 20 years on stimuli and CB easing. Then we will finally collapse and end our CB experiment, or collapse and end it sooner, or hyperinflate first, then collapse. Take your pick, but our enlightened CB will choose not to choose and we will follow Japan (except much worse since we have no savings and a huge trade deficit).
The bottom line is the CB model always ends with financial system collapse or hyperinflation, then collapse. There is no middle because interest rate interference does not sustain economic growth, only bubble growth. The booms and busts grow until the final boom and bust.
“Common sense tells us”
Problem with this is that “Common” sense, is no longer “Common”.
"`Investing'" in the traditional sense is nonsense at this point. Everybody is speculating (perhaps pretending not to while their fund manager does it for them)"
It depends on your use of the terms. If understood in the traditional sense, investing continues to be what it always was. The holding time of an asset may have shortened, but investing is still investing.
"or sucking from the government teat like Buffet." I dislike Buffet's lack of intellectual honesty and patriotism, but what you said is patently false: his investments did not involve the government in any way.
"Central banks didn't contribute in any way to the invention of the transistor or minicomputer."
If you don't see the ties between the railway cars, you may similarly conclude that the last car of the train moved by itself.
The institutional structure of the economy affects the climate for invention. Our culture, legal and financial institutions is what makes us more productive and inventive than anybody else on the planet. Although false, your perception is quite typical, however: most people nowadays, even conservatives, no longer know how capitalism and other institutions work.
"The PC came along with large and lasting productivity improvements and central banks were there to create bubbles,"
Firstly, you compare apples to oranges. Unlike most other things, knowledge is non-perishable. You can compare it this way with anything else that undergoes change.
Secondly, your attribution of bubbles to CBs is clearly false: there were no CBs during the tulip mania, were they?
The anti-Fed crowds continue to say these silly things without regard that we had booms and busts ever 10 years or so all through 1900s --- long before the Fed was created.
It's like saying that you slept last night 'cause you ate dinner before that. It helps to notice that you slept during all previous nights regardless of whether you did or did not have dinner. Just silly.
"The internet bubble is essentially a result of the Greenspan Put created with the Asian crisis, the Russian crisis and the LTCM collapse."
More of the same.
You continue to build theories out of thin air:
"The only good policy would be one where there is no CB involvement in the economy."
What is the criterion for "good?" How come there existed booms and busts for as long as mankind was involved in productive activity?
"In our case rates would rise significantly to attract long term capital."
Why? And would would the financial system look like, before we can even come to predictions.
"The bottom line is the CB model always ends with financial system collapse or hyperinflation, then collapse."
It's not a bottom line of anything: you have not even attempted to prove your points. The statement itself is also ill formed: one could question whether the CB model is the best PREVENTION of "collapse," but "collapse" is not caused by CBs; it's been with us since time immemorial.
Someone here pointed out that the government is going to raise taxes on deisel and put long haul trucking out of business. Also railroads are politically blessed transportation with many subsidies siphoned from the same deisel taxes that should be paying for roads.
"Our culture, legal and financial institutions is what makes us more productive and inventive than anybody else on the planet."
You should mention government-funded basic research since that is relevant, but otherwise the central bank has nothing to do with it. What the CB does is make it difficult for venture capitalists to commit money over the long term.
"there were no CBs during the tulip mania, were they?"
Not true, bank credit was critical and the Dutch had a CB with poor policy to enable that credit. There are no tulips being bought and sold at ridiculous prices today are there? Manias can exist without CB's and vice versa. But the CB is one of the main methods for overriding market sense in money lending. The other is manias. I can stupidly borrow money at 10 or 15% to buy rare tulips or the Fed can stupidly loan money at zero percent to create a housing bubble in Hong Kong (just one current example).
"The anti-Fed crowds continue to say these silly things without regard that we had booms and busts ever 10 years or so all through 1900s[you meant 1800's] --- long before the Fed was created."
That's nice but I never said any such thing, nor will many CB critics. However they and I will point out that the length of depressions is very short after manias without bank credit behind them since there is no credit contraction ripple effect.
"but "collapse" is not caused by CBs; it's been with us since time immemorial."
Collapse of the economic system is caused by the flaws in the CB system. Some flaws in our CB system are political influence to lower rates, large bank influence on Fed policy, Fed policy to manipulate long term rates and other policy to enable spendthrift politicians in general.
There is nothing worth salvaging from a politically-contrived and politically-controlled central bank system. The central bank penalizes savings and long term investment and enables deficit spending and rewards short term speculation. By enabling the misuse of resources, it prevents a sustainable economy from being built around those resources. For example lots of unsustainable businesses were created from the housing bubble, and many sustainable ones were prevented from starting by high real estate prices. You can call that a "theory out of thin air", but the economic damage from post 87 Fed policy should be obvious to everyone by now.
Government funded basic research has been rather recent in our nation's history. Would you agree that until the later half of the 20th century, except for the military, little basic research was government funded.
Our nation would be far better off, in my opinion, if all basic government research ceased except for that with military importance. Private companies, and private philanthropy, would allocate resources with far more efficiency, effectiveness, and less waste than government directed research.
But...Just it is now almost impossible for the average citizen to imagine our nation without government K-12 education, it now impossible for most citizens to believe that basic research would be possible without government sponsorship.
This is the case for nearly all socialist endeavors, once they are introduced. A compliant, entrenched, and dependent private-governemnt establishment grows up around the socialist institution.
Your more general point is valid and probably would have a greater diversifying effect on our technology and economy. We probably would not have had so many eggs in the single dot-com basket for example.
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