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The Cleveland Fed’s Loretta Mester is a clueless apparatchik and Fed lifer, who joined the system in 1985 fresh out of Barnard and Princeton and has imbibed in its Keynesian groupthink and institutional arrogance ever since. So it’s not surprising that she was out flogging—-albeit downunder in Australia—- the next step in the Fed’s rolling coup d’ etat.

We’re always assessing tools that we could use,” Mester told the ABC’s AM program. “In the US we’ve done quantitative easing and I think that’s proven to be useful.

“So it’s my view that [helicopter money] would be sort of the next step if we ever found ourselves in a situation where we wanted to be more accommodative.

This is beyond the pale because “helicopter money” isn’t some kind of new wrinkle in monetary policy, at all. It’s an old as the hills rationalization for monetization of the public debt—–that is, purchase of government bonds with central bank credit conjured from thin air.

It’s the ultimate in “something for nothing” economics. That’s because most assuredly those government bonds originally funded the purchase of real labor hours, contract services or dams and aircraft carriers.

As a technical matter, helicopter money is exactly the same thing as QE. Nor does the journalistic confusion that it involves “direct” central bank funding of public debt make a wit of difference.

Suppose Washington issues treasury bonds to the 23 primary dealers on Wall Street in the regular manner. Further, assume that some or all of these dealers stick the bonds in inventory for 3 days, 3 months or even 3 years, and then sell them back to the Fed under QE (and most likely at a higher price).

So what!

…click on the above link to read the rest of the article…

Here We Go Again——August 2007 Redux

July 5, 2016

Here We Go Again——August 2007 Redux

Nearly everywhere on the planet the giant financial bubbles created by the central banks during the last two decades are fracturing. The latest examples are the crashing bank stocks in Italy and elsewhere in Europe and the sudden trading suspensions by three UK commercial property funds.

If this is beginning to sound like August 2007 that’s because it is. And the denials from the casino operators are coming in just as thick and fast.

Back then, the perma-bulls were out in full force peddling what can be called the “one-off” bromide. That is, evidence of a brewing storm was spun as just a few isolated mistakes that had no bearing on the broad market trends because the “goldilocks” economy was purportedly rock solid.

Thus, the unexpected collapse of Countrywide Financial was blamed on the empire building excesses of the Orange Man (Angelo Mozillo) and the collapse of the Bear Stearns mortgage funds was purportedly owing to a lapse in supervision.

So it boiled down to an injunction of “nothing to see here”. Just move along and keep buying.

In fact, after reaching a peak of 1550 on July 18, 2007, the S&P 500 stumbled by about 9% during the August crisis, but the dip-buyers kept coming back in force on the one-off assurances of the sell-side “experts”. By October 9 the index was back up to the pre-crisis peak at 1565 and then drifted lower in sideways fashion until September 2008.

The bromides were false, of course. Upon the Lehman event the fractures exploded, and the hammer dropped on the stock market in violent fashion.

During the next 160 days, the S&P 500 plunged by a further 50%. Altogether, more than $10 trillion of market cap was ionized.

…click on the above link to read the rest of the article…

Bravo Brexit!

June 26, 2016

Bravo Brexit!

At long last the tyranny of the global financial elite has been slammed good and hard. You can count on them to attempt another central bank based shock and awe campaign to halt and reverse the current sell-off, but it won’t be credible, sustainable or maybe even possible.

The central bankers and their compatriots at the EU, IMF, White House/Treasury, OECD, G-7 and the rest of the Bubble Finance apparatus have well and truly over-played their hand. They have created a tissue of financial lies; an affront to the very laws of markets, sound money and capitalist prosperity.

After all, what predicate of sober economics could possibly justify $10 trillion of sovereign debt trading at negative yields?

Or a stock market trading at 24X reported earnings in the face of a faltering global economy and a tepid domestic US business cycle expansion which at 84 months is already long in the tooth and showing signs of recession everywhere?

And that’s to say nothing of the endless ranks of insanely over-valued “story” stocks like Valeant was and the megalomaniacal visions of Elon Musk still are.

So there will be payback, clawback and traumatic deflation of the bubbles. Plenty of it, as far as the eye can see.

On the immediate matter of Brexit, the British people have rejected the arrogant rule of the EU superstate and the tyranny of its unelected courts, commissions and bureaucratic overlords.

As Donald Trump was quick to point out, they have taken back their country. He urges that Americans do the same, and he might just persuade them.

But whether Trumpism captures the White House or not, it is virtually certain that Brexit is a contagious political disease. In response to today’s history-shaking event, determined campaigns for Frexit, Spexit, NExit, Grexit, Italxit, Hungexit and more centrifugal political emissions will next follow.

…click on the above link to read the rest of the article…

In Praise Of Ignorant Politicians…..Unschooled In Beltway Delusions

June 21, 2016

In Praise Of Ignorant Politicians…..Unschooled In Beltway Delusions

The Imperial City deserves to be sacked by insurgent politicians of the very ignorant kind. That is, outsiders unschooled in its specious groupthink and destructive delusions of grandeur.

That’s why Donald Trump’s challenge to the beltway’s permanent bipartisan ruling class is so welcome. He is largely ignorant of the neocon and war hawk catechisms and sophistries propounded by joints like the Council on Foreign Relations.

But owing to his overweening self-confidence, he doesn’t hesitate to lob foreign policy audibles, as it were, from the Presidential campaign’s line of scrimmage.

It is these unpredictable outbursts of truth and common sense, not his bombast, bad manners and bigotry, that has the Acela Corridor in high dudgeon. The Donald’s establishment bettors are deathly afraid that he might confirm to the unwashed electorate of Flyover America what it already suspects.

Namely, that Washington’s hyper-interventionism and ungodly expensive imperial footprint all around the globe has nothing at all to do with their security and safety, even as it saddles them with massive public debts and the threat of jihadist blowback to the homeland.

For Trump’s part, the fact is that most of his wild pitches——the Mexican Wall, the Muslim ban, waterboarding—-are basically excesses of campaign rhetoric that would likely get fashioned into something far more palatable if he were ever in a position to govern. By contrast, the fundamental consensus of our bipartisan rulers is a mortal threat to peace, prosperity and democratic rule.

Worse still, the beltway consensus is so entombed in groupthink that the machinery grinds forward from one folly to the next with hardly a peep of dissent. Nothing could better illustrate that deleterious dynamic, in fact, than the NATO warships currently trolling around the Black Sea.

…click on the above link to read the rest of the article…

A Palace For Fannie (Mae)—–Why The Imperial City Must Be Sacked

June 18, 2016

A Palace For Fannie (Mae)—–Why The Imperial City Must Be Sacked

To hear the establishment media tell it, you would think that Attila the Hun was fixing to sack the Imperial City. Would that Donald Trump were that bold or dangerous.

Then again, he is a showman of no mean talents. So if there is a maquette of Fannie Mae’s planned new $770 million headquarters somewhere around Washington DC, he could start the sacking right there. Hopefully, he would not hesitate to shatter it with a fusillade of tweets—-or even take a jackhammer to it while wearing a Trump hard hat.

Fannie Mae is surely a monument to crony capitalist corruption, and living proof that massive state intervention in credit markets is a recipe for disaster. But rather than shut it down after it helped bring the nation’s financial system to the edge of ruin, the beltway pols have come up with an altogether different idea.

To wit, they plan to move Fannie from her already luxurious NW Washington headquarters to this hideous new glass palace to be built in the heart of Washington DC. Could there be a bigger insult to the 15 million families who lost their homes to foreclosure owing to the crash of the giant housing bubble that Fannie Mae and the crony capitalist crooks who ran it helped perpetuate?

And that’s to say nothing of the $180 billion of taxpayer money that was pumped into Fannie Mae and the other GSE’s after the house of cards came tumbling down in August 2008. In fact, while the politicians on Capitol Hill have dawdled for eight years without any statutory changes or mandates for even minor reforms, Fannie Mae’s management and its phalanx of K-Street lobbies showed exactly who rules in the Imperial City.

…click on the above link to read the rest of the article…

Grinding In Harms’ Way——The Fed’s Sick Wall Street Puppies Will Self-Destruct

June 7, 2016

Grinding In Harms’ Way——The Fed’s Sick Wall Street Puppies Will Self-Destruct

Whatever is going on in the daily stock market, you can’t call it “price discovery” or even remotely rational.

In fact, it amounts to grinding in harms’ way, and measures the degree to which the Fed and other central banks have turned the Wall Street casino into a giant litter of sick puppies who are bent on rolling the dice until they self-destruct.

Even MarketWatch has noted that the S&P 500 has climbed above 2100 on more than 30 occasions during the last 18 months, but has retreated each and every time.

So buying the dips in that context is based on eyes wide shut speculation; it essentially implies there is no material downside, and that one of these days the market will bust loose from its 2130 top of May 2015 and soar to spectacular new highs.

Obama’s Latest Whopper—-Let’s Raise Social Security Benefits!

June 4, 2016

Obama’s Latest Whopper—-Let’s Raise Social Security Benefits!

The U.S. has approximately $80 trillion of unfunded liabilities for social security, medicare and other entitlements sitting atop a work force that is rapidly aging and an economy that is lapsing into stasis. Yet in the midst of a campaign diatribe about Donald Trump’s alleged lack of preparation for the highest office in the land, the current White House occupant proved that in nearly eight years he has learned exactly nothing about the nation’s abysmal fiscal plight.

“And not only do we need to strengthen its long-term health, it’s time we finally made Social Security more generous and increased its benefits so that today’s retirees and future generations get the dignified retirement that they’ve earned,” Obama said in an economic call to arms in Elkhart, Indiana.

Don’t bother to say he must be kidding. After all, our President also claims the disaster known as Obamacare is a roaring success; and that he has created 14 million jobs—-when, in fact, there are fewer full-time, full-pay “breadwinner jobs” in America today than when Bill Clinton scuttled out of the White House 16 years ago.

Still, your don’t have to be even a know nothing about baby-boom demographics to recognize that the words “increase” and “social security benefits” will never again inhabit the same universe. To wit, there are about 50 million persons 65 or over at present, but this number will rise to 80 million by around 2040 and nearly 100 million a decade or two thereafter.

Moreover, as we keeping insisting, there is nothing in the OASDI trust funds except intergovernmental accounting confetti. Every dime that was ever collected from the social insurance taxes, which bring in more than $1 trillion per year in revenue, has already been spent on education grants, Federal salaries, aircraft carriers, cotton subsidies, windmill farms and thousands of other Washington boondoggles.

…click on the above link to read the rest of the article…

Red Ponzi Update——-Gambling Like Never Before

May 19, 2016

Red Ponzi Update——-Gambling Like Never Before

In the heyday of its incredible credit and construction boom, China was building two world-scale utility plants each week and opening up a new airport every day. Economic fiction writers like Goldman’s Jim O’Neill, chief propagator of the BRICs myth, declared the Red Ponzi to be the very second coming of capitalism.

Now, by contrast, a Chinese billionaire goes missing practically every day, as a recent Washington Post article explained:

That’s what happened last year when China’s richest man — at least on paper — lost half of his wealth in less than half an hour. It turned out that his company Hanergy may well just be Enron with Chinese characteristics: Its stock could only go up as long as it was borrowing money, and it could only borrow money as long as its stock was going up. Those kind of things work until they don’t.

The gentleman in question, Li Hejun, has had quite the financial spill. Exactly 400 days ago in April 2015, according to Forbes, he was worth $32.7 billion. Then on May 20 last year, when the stock of Hanergy Thin Film Power (HTF), in which he had a 81% stake, plunged by 47%, $14 billion of that disappeared in minutes. And since then, all the rest of it has vaporized, as well.

Our purpose here is not to jitterbug on the corpse of another riches-to-rags story from the Red Ponzi. The fact is, Li Hejun and his Hanergy capers is China writ large.

The latter is a incendiary cauldron of financial madness that is destined to have a spectacular demise. And it will take the global economy and the gambling dens of Wall Street, London, Tokyo and the rest down with it.

china

…click on the above link to read the rest of the article…

No More Twofers——Why The Vaunted “Clinton Prosperity” Of The 1990s Is A Risible Myth

May 18, 2016

No More Twofers——Why The Vaunted “Clinton Prosperity” Of The 1990s Is A Risible Myth

That Hillary Clinton has—–unaccountably——stood by her man for 40 years is her particular foible. But now she wants 320 million Americans to stand by him, too, by electing her President so she can make Bill the nation’s economic czar:

During a speech in Kentucky Sunday she referred to “my husband, who I will put in charge of revitalizing the economy ’cause he knows what he’s doing.”

Actually, he doesn’t.

Herein follows a two-part essay on why Bill and Hillary Clinton had precious little to do with the vaunted prosperity of the 1990s, and why another twofer would be exceedingly bad for the nation.

In truth, it was the doing of Alan Greenspan, and not in a good way.

In fact, the roaring tech era prosperity was but an old fashioned crack-up boom. That is, a simulacrum of prosperity that was an artifact of monetary inflation and financial speculation. It was not merely unsustainable; it was guaranteed to boomerang against the future, and it has in spades.

In fact, the Greenspan Boom was the very fount of the financial toxins which have plagued this century. To wit, the housing and credit implosions after 2007, the stock market meltdown and the collapse of the Wall Street gambling houses in 2008-2009, the disabled, stall-speed main street economy since the crisis, the unspeakable windfalls to the 1% enabled by NIRP and QE and the desperation in the flyover zone of America that begat Donald Trump—-all had their roots in the 1990s monetary perfidies of Easy Al.

None of the Cool-Aid drinking “economists” of Wall Street or Washington are capable of exposing the Clinton Prosperity myth, even if they were politically inclined. That’s because they are linear-thinking paint-by-the-numbers practitioners of one or another form of the Keynesian gospel.

…click on the above link to read the rest of the article…

More Frogs Boiling—–Why Trillion Dollar Deficits Are Coming Back Soon

May 14, 2016

More Frogs Boiling—–Why Trillion Dollar Deficits Are Coming Back Soon

Yesterday I noted that the frogs of Wall Street linger in the boiling pot because they are under the delusion that stocks are cheap based on the sell-side hockey sticks that always show $135 per share of S&P earnings and a 15X multiple in the next year ahead. Besides that, should anything go awry with the economy, Washington purportedly stands ready to bail-out the stock market with a new round of fiscal stimulus after the election.

The latter delusion brings to mind what might be called the “CBO hockey stick”, which is a fiscal fantasy so unhinged from reality as to make the Wall Street stock analysts look like models of sobriety by comparison. To wit, CBO’s latest 10-year budget projection assumes that the US economy will hit full employment next year, and remain there with nary a bump or recession in sight through September 2026, at least.

Well, now. Don’t bother to say Rosy Scenario move over because the arithmetic of CBO’s fantasy speaks for itself. That is, it is advising Washington to relax——we are heading for 207 straight months without a recession. And not in the next world, but this.

Since that’s roughly double the longest expansion on record its worthwhile to recall what’s changed since that one-of-a-kind expansion started in March 1991. For starters, the China export tsunami had not even commenced. Nor had the US economy been hollowed out by the massive off-shoring of breadwinner jobs that has resulted from the Fed’s bubble finance policies of the last two decades.

Thus, what had been nearly 25 million goods-producing jobs at the start of the 119 month-long 1990s expansion has been reduced to only 19.5 million today.

…click on the above link to read the rest of the article…

The Central Bank War On Savers—–The Big Lie Beneath

May 5, 2016

The Central Bank War On Savers—–The Big Lie Beneath

The central bank war on savers is rooted in a monumental case of the Big Lie. Here is what a retired worker who managed to save $5,000 per year over a 40 year’s lifetime of toil and sweat in a steel factory now earns in daily interest on a bank CD. To wit, a single cup of cappuccino.

Yet the central bankers claim they have absolutely nothing to do with this flaming economic injustice.

That’s right. A return that amounts to one Starbucks’ cappuccino per day on a $200,000 nest egg is purportedly not the result of massive central bank intrusion in financial markets and pegging interest rates at the zero bound; it’s owing to a global “savings glut” and low economic growth.

Thus, Mario Draghi insisted recently that ultra loose monetary policy and NIRP are,

……… “not the problem, but a symptom of an underlying problem” caused by a “global excess of savings” and a lack of appetite for investment……This excess — dubbed as the “global savings glut” by Ben Bernanke, former US Federal Reserve chairman — lay behind a historical decline in interest rates in recent decades, the ECB president said.

Nor did Draghi even bother to blame it soley on the allegedly savings-obsessed Chinese girls working for 12 hours per day in the Foxcon factories assembling iPhones. Said Europe’s mad money printer:

The single currency area was “also a protagonist…….”

Actually, that’s a bald faced lie. The household savings rate in the eurozone has been declining ever since the inception of the single currency. And that long-term erosion has not slowed one wit since Draghi issued his “whatever it takes” ukase in August 2012.

…click on the above link to read the rest of the article…

What Comes Next——Krugman’s Fiscal Equivalent Of War

May 2, 2016

What Comes Next——Krugman’s Fiscal Equivalent Of War

Somebody must have reinstated Paul Krugman’s passport. He was recently back in Japan to meet with the world’s leading economy-wrecking triumvirate —-Prime Minister Abe, BOJ Governor Kuroda and Finance Minister Taro Aso—–to dispense some desperately needed advice.

Japan is on the verge of a second recession during Abe’s tenure despite his plunge into full frontal Keynesian stimulus. But since March 2013 when Kuroda cranked up the BOJ’s printing press to white heat, two main things have happened. The BOJ’s already bloated balance sheet has exploded by 2X and the flat-lining Japanese economy has continued undulating to nowhere.

Japan Central Bank Balance Sheet

Japan GDP Constant Prices

Professor Krugman was naturally at the ready with a solution. He recommended his hosts take a lesson from the America’s World War II playbook and declare “the fiscal equivalent of war”.

Well, the US actually didn’t borrow its way out of the Great Depression; it saved its way out. As I documented in The Great Deformation, total public and private debt at the end of 1938 amounted to 210% of GDP, but by the end of 1945 it had dropped to 190% of GDP.

That’s right. The hoary Keynesian mantra about the fiscal stick save of WWII is a complete myth.

What happened is that the US economy was entirely regimented for war mobilization.There were few consumer goods on the shelves and business had no need to borrow for working capital or equipment because financing was supplied by Uncle Sam. So private sector savings soared to nearly 20% of GDP and combined household and business debt dropped from 150% of GDP on the eve of war to 60% by the end.

…click on the above link to read the rest of the article…

Why Mario’s Got A Bee In His Bonnet

April 21, 2016

Why Mario’s Got A Bee In His Bonnet

Mario had a bee in his bonnet this morning. Apparently, the chorus of German voices pointing to the obvious—- that his policies are killing savers, insurance companies, pension funds and banks—-got his dander up:

“We have a mandate to preserve price stability for the whole of the euro zone, not only for Germany,” he said. “We obey the law, not the politicians, because we are independent.”

There you have in brief the whole rationalization for the monetary madness that Draghi and his kindred central bankers have unleashed on the world. They claim that their rubbery statutory mandates to pursue the equivalent of economic apple pie, such as ‘price stability’, leads in a straight, unbreakable line of logic and monetary science to the lunacy of negative 0.4% money market rates and $90 billion per month of bond-buying.

No it doesn’t. There is no scientific linkage whatsoever—–just an ideological leap based on a Keynesian demand model that conveniently delegates all power to the central bankers’ soviets.

Just as in the case of the Humphrey-Hawkins Act in the US, the ECB’s enabling statute does not define price stability in quantitative terms—-nor does it specify the inflation index to be used or the duration to be measured. Even when the ECB’s Governing Council attempted to formulate a quantitative definition of ‘price stability’, it only got slightly more specific in defining it as something between zero and 2% over the course of a year.

“Price stability is defined as a year-on-year increase in the Harmonised Index of Consumer Prices (HICP) for the euro area of below 2%.”

By its own definition, therefore, the eurozone does not have a “deflation” problem or even a “lowflation” threat. For the last 16 years, the core HICP has averaged 1.5%, and during the last year when allegedly the deflationary sky was falling, the core consumer inflation index has risen by 1.0%.

…click on the above link to read the rest of the article…

A Wall Street Witches Brew——Hockey Sticks And Financial Engineering Games

April 19, 2016

A Wall Street Witches Brew——Hockey Sticks And Financial Engineering Games

In a nearby post Jeff Snider makes a clean kill of the sell side hockey stick. Just 22 months ago (June 2014), Wall Street projected GAAP earnings of $144.60 per share for the S&P 500 in 2015.

Needless to say, that was off by a country mile. In fact, it was too high by 67%, but the instructive tale lies in the process of getting there.

Since 2013 actual results and 10K filings were long done by June 2014, you have to say that the street was virtually wallowing in hopium. To wit, the above 2015 estimates embodied a two-year gain of 45% from the actual figure of $100.20 per share for 2013.

And so it went. By March 2015 the consensus estimate had been lowered sharply to $111.34 per share because the fond hopes of the prior June had not quite worked out. In fact, GAAP results for 2014 had come in at only $102.31 per share, meaning a tiny gain of just 2.1% for the year and an impossible hole to fill with respect to the two-year gain of 45%.

Worse still, this December 2014 LTM reported figure was not just way short of the mark; it actually represented a reversal of direction. The post-crisis earnings recovery had already peaked at$106 per share in the September 2014 LTM period and was now down nearly 4%.

But no matter. The consensus estimate of $111.34 for 2015 made midway through the year represented a gain of nearly 9% over 2014. As per usual, of course, that was all back-loaded to the second half. The actual Q1 2015 GAAP profit of $25.81 was already in and represented a 6% decline from prior year.

But on Wall Street the hockey stick springs eternal. By the time of the September consensus estimate, first half earnings were already down by 17%. But the consensus assumed a stick save in the final quarter. Earnings per share were now projected.at $95.06 per share, representing a full year drop of just 7%.

…click on the above link to read the rest of the article…

The Keynesian House Of Denial

April 18, 2016

The Keynesian House Of Denial

We use the term “Keynesian” loosely to stand for economic interventionists of all schools. The followers of JM Keynes and Milton Friedman alike fit that category. So do some of the more rabid supply siders who claim the power to stimulate ultra-high economic growth with the tools of tax policy alone.

The common denominator is economic statism. That is, the assumption that the state, including its central banking branch, is indispensable to economic progress and prosperity.

As the various denominations of the Keynesian economic church have it, capitalism is always veering toward the ditch of under-performance and recession when left to its own devices and natural tendencies; and, if neglected by the wise policy-makers of the central state too long, it lapses toward outright depression and collapse.

Our purpose here is not to correct the particular philosophical and analytic errors associated with each of these Keynesian or statist variants. On any given day we make it pretty clear the central banking based mutation of modern Keynesianism is predicated on two cardinal errors. Namely, the myth of demand deficiency and the false presumption that central bank pegging of interest rates, yield curves and other financial prices will enhance macro-economic performance while not harming the efficiency, stability and efficacy of money and capital markets.

That’s completely wrong. The very worst thing the state can do is meddle with and falsify financial market prices. Sooner or later cheap debt, repressed volatility, stock market “puts” and artificially inflated asset prices drain the genius of markets out of capitalism. What remains in the financial system is raw speculation for the purpose of rent gathering and leverage for the purpose of supercharged gambling.

On the other hand, what gets lost is true capital formation, honest price discovery and allocative efficiency. These are the building blocks of true macroeconomic expansion and rising wealth.

…click on the above link to read the rest of the article…

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