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When Bakers Go Fishing

Government intervention into a nation’s economy is as foolish as attempting to control the sun’s rise and fall by law or force. But that doesn’t mean governments don’t meddle each and every day with the best – and worst – of intentions. The United States government is no exception.

From the “When the government helps the economy” collection: Breaking a few eggs while baking the bridge to nowhere omelet. [PT]

Over the years, layers and layers of interference by various federal, state, and local agencies have built up like grime on a kitchen window. The grease shines and smells of something fierce. The layers of government grime also drip and ooze into every crack and crevice of the economy.

These days, for example, it is impossible to carry out a simple private transaction with your barber or barista without some form of government interference. Has your barber obtained the required license and paid the obligatory fees to be able to legally taper your neck line? Has your barista’s espresso bean grinder passed city health inspection?

Is the hot Cup of Joe served in a paper cup of appropriate recycled material composition? Did the hot beverage exceed the legally accepted temperature standard? Did state and local governments receive their tax exaction upon payment?

The licensing racket – left panel: the basic definition of the racket; middle panel: how long it takes and what it costs to obtain licenses for assorted jobs in the US; right panel: the inexorable growth of rules and regulations. One shouldn’t be surprised that the pace of real economic growth has steadily declined since peaking in the late 19^th century (or if one wants to focus on the modern era, since it peaked not too long after WW2).

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

How Uncle Sam Inflates Away Your Life

November 17, 2017

How Uncle Sam Inflates Away Your Life

“Inflation is always and everywhere a monetary phenomenon,” once remarked economist and Nobel Prize recipient Milton Friedman. He likely meant that inflation is the more rapid increase in the supply of money relative to the output of goods and services which money is traded for.

As more and more money is issued relative to the output of goods and services in an economy, the money’s watered down and loses value. By this account, price inflation is not in itself rising prices. Rather, it’s the loss of purchasing power resulting from an inflating money supply.

Indeed, Friedman offered a shrewd insight. However, he also accompanied it with an opportunist mindset. Friedman saw promise in the phenomenon of monetary inflation. Moreover, he saw it as a means to improve human productivity and economic growth.

You see, a stable money supply was not good enough for Friedman. He advocated for moderate levels of monetary growth, and inflation, to perpetually stimulate the economy. By hardwiring consumers with the expectation of higher prices, policy makers could compel a relentless consumer demand.

This desire to harness and control the inflation phenomenon has infected practically every government economist’s brain since the early 1970s. Over the decades they’ve somehow come to a consensus that 2 percent price inflation is the idyllic rate for provoking economic nirvana. The Fed even tinkers with its federal funds rate for the purpose of targeting this magic 2 percent rate of price inflation.

Shadow Stats

On Wednesday the Bureau of Labor Statistics (BLS) published its October Consumer Price Index (CPI) report. According to the government number crunchers, consumer prices are increasing at an annual rate of 2 percent. Of course, anyone who lives and works in the real world knows prices are rising much faster.

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

The Downright Sinister Rearrangement of Riches

October 27, 2017

The Downright Sinister Rearrangement of Riches

Simple Classifications

Let’s begin with facts. Cold hard unadorned facts. Water boils at 212 degrees Fahrenheit at standard atmospheric pressure. Squaring the circle using a compass and straightedge is impossible. The sun is a star.

The sun is not just a star, it is a benevolent star. Look, it is smiling… sort of. [PT]

Facts, of course, must not be confused with opinions, which are based upon observations. Barack Obama throws like a girl. The Federal Register is for idiots. Two slices of chocolate cake are one too many. Are these opinions right or wrong?

The answer depends on who you ask. What’s certain about opinions, however, is that like bellybuttons, everybody has one. Moreover, unlike free drugs from the government, everyone is in fact entitled to their own opinion.

Moving on from facts and opinions, the next classification we encounter is the wholly asinine. This broadly contains the absurd and ridiculous. Take most university teachers, barring natural science professors, for instance. They’re wholly asinine. The wholly asinine also extends to editors at the New York Times, Washington Post, circus hunchbacks, and the like.

Lastly, we want to mention the downright sinister. This includes sociopaths like Hillary Rodham Clinton, John McCain, nearly all of Congress, the Federal Reserve, fractional reserve banking, Washington lobbyists, a good part of Wall Street, and much, much more. Clearly, such people and professions don’t represent honest work. Rather, they epitomize less than honest work that’s performed by less than honest people.
Sinister mafia boss from Arkansas, possibly checking classified material on private phone… [PT] Photo credit: AP

Nixon Casts the Die

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Federal Reserve President Kashkari’s Masterful Distractions

October 7, 2017

Federal Reserve President Kashkari’s Masterful Distractions

The True Believer

How is it that seemingly intelligent people, of apparent sound mind and rational thought, can stray so far off the beam? How come there are certain professions that reward their practitioners for their failures? The central banking and monetary policy vocation rings the bell on both accounts. Today we offer a brief case study in this regard

Minneapolis Fed president Neel Kashkari attacking a block of wood with great zeal. [PT] Photo credit: Linda Davidson / The Washington Post

Minneapolis Federal Reserve President Neel Kashkari is a man with strong convictions. He is what the late Eric Hoffer would have classified as “the true believer.” According to Hoffer:

“It is the true believer’s ability to ‘shut his eyes and stop his ears’ to facts that do not deserve to be either seen or heard which is the source of his unequaled fortitude and constancy. He cannot be frightened by danger nor disheartened by obstacle nor baffled by contradictions because he denies their existence.”

For starters, Kashkari believes the Federal Reserve, an unelected board of bureaucrats, can crunch economic data into pie graphs and bar charts and draw conclusions as to what they should fix the price of credit at. Moreover, he believes that by fixing credit at the “correct” price, the Fed can somehow “optimize” the economy.

This idea is patently false. Remember, the economy is comprised of billions of people with ever changing interactions. Activities and exchanges are always adapting.

What may be the correct price of credit at one time is precisely the wrong price of credit at another. Only a free market for credit, where rates are agreed to by willing borrowers and lenders, and unobstructed by government decree, can self-correct in real time to properly meet changing supply and demand.

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

Fed Quack Treatments are Causing the Stagnation

September 30, 2017

Fed Quack Treatments are Causing the Stagnation

Bleeding the Patient to Health

There’s something alluring about cure-alls and quick fixes. Who doesn’t want a magic panacea to make every illness or discomfort disappear? Such a yearning once compelled the best and the brightest minds to believe the impossible for over two thousand years.

Instantaneous relief! No matter what your affliction is, snake oil cures them all. [PT]

For example, from antiquity until the late-19th century, bloodletting was used to treat nearly every disease. Reputable medical references recommended bloodletting as a cure for acne, asthma, cancer, epilepsy, gout, indigestion, insanity, leprosy, pneumonia, scurvy, tuberculosis, and everything in between. Bloodletting was even used to treat hemorrhaging.

The practice was simple enough. A surgeon, often a barber, would open a vein and drain blood from the patient. Somehow, this was supposed to cure them of disease.

The fundamental idea was that a sick person could be bled to health. Induced fainting, via bloodletting, was even considered beneficial. However, the results were often fatal.

On December 13, 1799, George Washington returned from a cold-winters horseback ride across his estate with a raspy throat. So, he requested bloodletting to make his sore throat better. Over a ten-hour period, roughly 126 ounces of blood was drained from his system.

The next day Washington’s treatment culminated in perfect success. Because of the bloodletting, Washington never suffered from a sore throat again. He had received a permanent cure. Namely, he croaked.

Wouldn’t a tablespoon or two of honey and lemon have been a better solution to the sore throat problem? Sure, it would have been less effective. But it would have been a great deal less terminal as well.

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

Janet Yellen’s 78-Month Plan for the National Monetary Policy of the United States

September 23, 2017

Janet Yellen’s 78-Month Plan for the National Monetary Policy of the United States

Past the Point of No Return

Adventures in depravity are nearly always confronted with the unpleasant reality that stopping the degeneracy is much more difficult than starting it. This realization, and the unsettling feeling that comes with it, usually surfaces just after passing the point of no return. That’s when the cucumber has pickled over and the prospect of turning back is no longer an option.

Depravity and bedlam through the ages. The blue barge of perdition in the lower middle ferries the depraved and degenerate to their final destination, a small slice of which can be glimpsed above… [PT]

In late November 2008, Federal Reserve Chairman Ben Bernanke put in place a fait accompli. But he didn’t recognize it at the time. For he was blinded by his myopic prejudices.

Bernanke, a self-fancied Great Depression history buff with the highest academic credentials, gazed back 80 years, observed several credit market parallels, and then made a preconceived diagnosis. After that, he picked up his copy of A Monetary History of the United States by Milton Friedman and Anna Schwartz, turned to the chapter on the Great Depression, and got to work expanding the Fed’s balance sheet.

Now here is something all those “Great Depression experts” always neglect to mention: the Fed’s holdings of government securities expanded my more than 400% between late 1929 and early 1933. Friedman’s often repeated assertion that the Fed “didn’t pump enough” in the early 1930s – which is held up as the gospel truth by nearly everyone – is simply untrue. It is true that the money supply collapsed anyway – but not because the Fed didn’t try to pump it up.

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

To Hell In A Bucket

September 15, 2017

To Hell In A Bucket

“No one really cares about the U.S. federal debt,” remarked a colleague and Economic Prism reader earlier in the week. “You keep writing about it as if anyone gives a lick.”

We could tell he was just warming up. So, we settled back into our chair and made ourselves comfortable.

“The voters certainly don’t care about the federal debt,” he continued. “They keep electing the same spendthrifts to office.

“And the politicians know the voters don’t care. They also know that making more and more promises is the formula for getting reelected.

“Deep down, the aging masses know they need massive amounts of government debt to pay their social security, medicare, and disability checks. On top of that, many of the so-called gainfully employed are really on corporate welfare; they hang their hats on government contracts to fund their paychecks.

“You know as well I do how this crazy debt based fiat money system works. The debt must perpetually increase or the whole financial system breaks down. The best we can hope for is that the ongoing currency debasement merely leads to a subtle erosion of living standards. That’s the best-case scenario.

“But, again, no one except maybe a handful of your readers’ gives a rip about the federal debt. Plus, if you’re gonna keep writing about it you need to use better terminology.

“The federal debt has grown at such a rapid rate that standard dollar units no longer capture what’s going on. The debt numbers are so large it is difficult to distinguish between hundreds of billions and tens of trillions of dollars.

Going Broke at Mach 30

“For better perspective, you need to describe the debt growth in astronomical terms. You see, astronomers use light years to adjust for large distances. A light year, as its name suggests, is the distance light travels in one year.

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

The Government Debt Paradox: Pick Your Poison

September 9, 2017

The Government Debt Paradox: Pick Your Poison

Lasting Debt

“Rule one: Never allow a crisis to go to waste,” said President Obama’s Chief of Staff Rahm Emanuel in November of 2008. “They are opportunities to do big things.”

Rahm Emanuel looks happy. He should be – he is the mayor of Chicago, which is best described as crisis incarnate. Or maybe the proper term is perma-crisis? Anyway, it undoubtedly looks like a giant opportunity from his perspective, a gift that keeps on giving, so to speak. [PT] Photo credit: Ashlee Rezin / Sun-Times

At the time of his remark, Emanuel was eager to exploit the 2008 financial crisis to raid the public treasury. With the passage of the American Recovery and Reinvestment Act in February 2009, Emanuel’s wish was granted. The Obama administration had the opportunity to do big things.

Politically, the passage of the Recovery Act was a huge success. Washington was able to dole out funds to their preferred projects like never before. What could be better for a Congressman than to direct massive amounts of funds to infrastructure, healthcare, energy, security, law enforcement, and just about everything else?

Some Congressman even directed money to bridges and buildings that were then named after them. No doubt, this flattered their egos. But what it really did was memorialize their political swindle.

Economically, the Recovery Act was a great big dud. The money was frittered away without producing any lasting wealth. However, it did produce lasting debt. Since the Recovery Act’s passage, the U.S. national debt has nearly doubled from roughly $10.6 trillion to nearly $20 trillion.

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

How to Make the Financial System Radically Safer

September 3, 2017

How to Make the Financial System Radically Safer

Preventing the Last Crisis

Clear thinking and discerning rigor when it comes to the twisted state of present economic policy matters brings with it many physical ailments. A permanent state of disbelief, for instance, manifests in dry eyes and droopy shoulders. So, too, a curious skepticism produces etched forehead lines and nighttime bruxism.

The terrible scourge of bruxism and its potentially terrifying consequences. Curious skepticism can lead to the darnedest things, which is why Big Brother strongly recommends that citizens remain in a medication and cable TV-induced apathetic stupor. To make this happy outcome easier to achieve, stagnation in real wages was successfully introduced a number of moons ago; forced to work to exhaustion just to keep their heads above water, citizens tend to be more docile in their shrinking free time. [PT]

Nonetheless, these are small prices to pay for the simple delight that comes when a central planner opens their mouth and inserts their foot. Last Friday, for example, Fed Chair Janet Yellen gave a speech to her friends and cohorts at the annual central banker’s powwow in Jackson Hole, Wyoming. There she patted herself and the financial regulatory community on the back for what she believes has been a successful execution of financial regulations:

“The events of the [2008] crisis demanded action, needed reforms were implemented, and these reforms have made the system safer.”

How Yellen knows the reforms have made the system safer is unclear. Like France’s impenetrable Maginot Line, the regulations Yellen lauds are backward looking. They are suited to preventing the last crisis while ignoring new and greater threats amassing just beyond the horizon.

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

Why There Will Be No 11th Hour Debt Ceiling Deal

August 18, 2017

Why There Will Be No 11th Hour Debt Ceiling Deal

A new milestone on the American populaces’ collective pursuit of insolvency was reached this week. According to a reportpublished on Tuesday by the Federal Reserve Bank of New York, total U.S. household debt jumped to a new record high of $12.84 trillion during the second quarter. This included an increase of $552 billion from a year ago.

Moreover, this marked the second consecutive record high on a quarterly reported basis for U.S. household debt. Indeed, this is a momentous achievement. From our vantage point, it is significant for several reasons.

One, it shows U.S. household debt has returned to its upward trend which had previously gone uninterrupted from the close of World War II until the onset of the Financial Crisis in late 2008. Second, it demonstrates that, like the S&P 500, new all-time highs are being attained with the seeming precision of a quartz clock. Is this just a coincidence?

More than likely, it’s no coincidence at all. More than likely, the mass quantities of central bank liquidity that have been injected into the financial system over the last decade have provided the plentiful gushers of cheap credit that have pushed up both stock prices and household debt levels. But remember, the easy stock market gains can quickly recede while the increased debt must first drown the borrowers before it can be expunged.

To understand where the liquidity has come from, look no further than the total combined assets of the Federal Reserve, European Central Bank, and the Bank of Japan. They were around $4 trillion a decade ago. Today, they’re over $13.8 trillion. And if you include the People’s Bank of China’s assets, combined major central bank assets jump to nearly $19 trillion.

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

Monetary Madness and Rabbit Consumption

June 18, 2017

Monetary Madness and Rabbit Consumption

Down the Rabbit Hole

“The hurrier I go, the behinder I get,” is oft attributed to the White Rabbit from Lewis Carroll’s, Alice in Wonderland. Where this axiom appears within the text of the story is a mystery. But we suspect the White Rabbit must utter it about the time Alice follows him down the rabbit hole.

Pick a rabbit to follow…

No doubt, today’s wage earner knows what it means to work harder, faster, and better, while slip sliding behind. However, for many wage earners the reasons why may be somewhat mysterious. At first glance, they may look around and quickly scapegoat foreigners for their economic woes.

Yet like Wonderland, things are often not as they first appear. When it comes to today’s financial markets, there is hardly a connection to the real economy at all. Stock markets are just off record highs, yet 6 in 10 Americans don’t have $500 to cover an unexpected bill.

A curious fellow may look around and find more questions than answers. Where is the money coming from? Where is it going?

Before he knows it, he’s gone down the rabbit hole where he observes the darnedest things. He may even discover that the Federal Reserve, with its fiat money, has created and perpetuated insane and incomprehensible levels of debt. And that this, in turn, has blown the economy up into a massive financial bubble.

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

The Three Headed Debt Monster That’s Going to Ravage the Economy

June 10, 2017

The Three Headed Debt Monster That’s Going to Ravage the Economy

Mass Infusions of New Credit

“The bank is something more than men, I tell you. It’s the monster. Men made it, but they can’t control it.” – John Steinbeck, The Grapes of Wrath

Something strange and somewhat senseless happened this week. On Tuesday, the price of gold jumped over $13 per ounce. This, in itself, is nothing too remarkable. However, at precisely the same time gold was jumping, the yield on the 10-Year Treasury note was slip sliding down to 2.15 percent.

In short, investors were simultaneously anticipating inflation and deflation. Naturally, this is a gross oversimplification. But it does make the point that something peculiar is going on with these markets.

Clear thinking and simple logic won’t make heads or tails of things. For example, late Wednesday and then into Thursday the reverse happened. Gold gave back practically all $13 per ounce it had gained on Tuesday, while the yield on the 10-Year Treasury note climbed back up to 2.19 percent. What to make of it?

Gold and treasury yields have been inversely correlated for some time. This is probably due to inflation expectations driving expectations about interest rate policy – click to enlarge.

With a little imagination one can conceive of where the money’s coming from to buy Treasury bonds. More than likely, it has something to do with central bank intervention into credit markets. Though, the Federal Reserve is not the only culprit.

If you recall, the Federal Reserve’s quantitative easing program concluded in late 2014. The Fed even says it plans to start shrinking its balance sheet later this year. So if the Fed’s not the source of liquidity for Treasury purchases, who is?

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

Warnings from Mount Vesuvius

May 19, 2017

Warnings from Mount Vesuvius

“Injustice, swift, erect, and unconfin’d,
Sweeps the wide earth, and tramples o’er mankind” – Homer, The Iliad

When Mount Vesuvius Blew

Everything was just the way it was supposed to be in Pompeii on August 24, 79 A.D. The gods had bestowed wealth and abundance upon the inhabitants of this Roman trading town. Things were near perfect.

The lucky residents of Pompeii lived in large homes with elegant courtyard gardens and all the modern conveniences. Rooms were heated by hot air flowing through cavity walls and spaces under the floors. Running water was provided to the city from a great reservoir and conveyed through underground pipelines to houses and public buildings.

Fresh fish from the Bay of Naples were readily available in the Macellum (great food market) and countless cauponae (small restaurants). Entertainment was on hand at the large amphitheatre. Life was agreeable, affable, and idyllic for all – and it was only getting better. Everyone just knew it. They could feel it. They believed it.

By 79 A.D. Pompeii had experienced nearly uninterrupted advancement from its founding almost 700 years earlier. That this would ever change was unthinkable. On the morning of August 24th, who but a doomsayer would suggest there wouldn’t be another 700 years of progress?

Yet, just then, when things couldn’t have seemed more certain, Mount Vesuvius blew. Nineteen hours later, where there had been life and a thriving civilization, there was silence for the next 1,669 years.

Praying for Death

Viewing events through the lens of history and hindsight is unfair to its participants. Their missteps are too obvious, their vanities are too abundant, and their inferiorities too absurd. They appear to be mere imbeciles on parade.

Was George Armstrong Custer really just an arrogant Lieutenant Colonel who led his men to massacre at Little Bighorn? Maybe. Especially when Sitting Bull, Crazy Horse, and numbers over three times his cavalry appeared across the river.

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

How to Stick It to Your Banker, the Federal Reserve, and the Whole Doggone Fiat Money System

May 13, 2017

How to Stick It to Your Banker, the Federal Reserve, and the Whole Doggone Fiat Money System

Bernanke Redux

Somehow, former Federal Reserve Chairman Ben Bernanke found time from his busy hedge fund advisory duties last week to tell his ex-employer how to do its job. Namely, he recommended to his former cohorts at the Fed how much they should reduce the Fed’s balance sheet by. In other words, he told them how to go about cleaning up his mess.

Praise the Lord! The Hero is back to tell us what to do! Why, oh why have you ever left, oh greatest central planner of all time. We are not worthy.

We couldn’t recall the last time we’d seen or heard from Bernanke. But soon it all came back to us. There he was, in the flesh, babbling on Bloomberg and Squawk Box, pushing the new paperback version of his mis-titled memoir “The Courage to Act.” Incidentally, the last time we’d heard much out of the guy was when the hard copy was released in late 2015.

With respect to the Fed’s balance sheet, Bernanke remarked that the Fed should cut it from $4.5 trillion to “something in the vicinity of $2.3 to $2.8 trillion.” What exactly this would achieve Bernanke didn’t say. As far as we can tell, a balance sheet of $2.8 trillion would still be about 300 percent higher than it was prior to the 2008 financial crisis.

Bernanke, by all measures, is an absolute lunatic. He, more than anyone else, is responsible for the utter mess that radical monetary policies have made of the U.S. economy. He’s the one who dropped the federal funds rate to near zero and inflated the Federal Reserve’s balance sheet by over 450 percent.

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

The Coming Debt Reckoning

May 5, 2017

The Coming Debt Reckoning

American workers, as a whole, are facing a disagreeable disorder. Their debt burdens are increasing. Their incomes are stagnating.

There are many reasons why. In truth, it would take several large volumes to chronicle all of them. But when you get down to the ‘lick log’ of it all, the disorder stems from decades of technocratic intervention that have stripped away any semblance of a free functioning, self-correcting economy.

The financial system circa 2017, and the economy that supports it, has been stretched to the breaking point. Shortsighted fiscal and monetary policies have propagated it. The result is a failing financial order that has become near intolerable for all but the gravy supping political class and their cronies.

Take consumer spending. This is the primary driver of the U.S. economy. Yet it requires vast amounts of credit. In fact, American consumers presently hold $1 trillion in revolving credit. At the same time, they have nowhere near the income needed to finance these debts, let alone pay them off.

Remember, the flipside of credit is debt. Obviously, the divergence of increasing debt and stagnating incomes is a condition that cannot go on forever. But it can go on much longer than any sensible person would consider possible.

Debt Slaves

If you haven’t noticed, the financial services industry is extremely accomplished at compelling people to go whole hog into debt. Moreover, the entire fiat based financial system, which depends on ever increasing issuances of debt, hinges on it. Just a slight contraction of credit, like late 2008, and the whole debt repayment structure breaks down.

On an individual basis, there are only so many credit cards that can be maxed out before the shell game ends. Wolf Richter, of Wolf Street, recently clarified the relationship between the economy and deep consumer debt:

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

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