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The Final Act in a Terrible Play

The Final Act in a Terrible Play

If you don’t follow me on Twitter, you’ve been missing out on some good stuff. With the brith of our third child a couple of months ago, it’s been increasingly hard for me to find the time to sit down and write longer posts, so I’ve been putting more and more content on Twitter. Last Friday, Brent Johnson of Santiago Capital, asked me to provide additional thoughts on my recent turn to being far more bullish gold. Normally I would’ve written it in a piece, but being pressed for time I put together a Twitter thread


1/ Earlier, my friend @SantiagoAuFund asked me to expound on gold. I was a bit surprised by the interest the tweet generated, so I’ve decided to compose a thread on the topic and financial markets generally. There’s a lot coming, so apologies to those with no interest.


There are 32 posts in there and I suggest you read the whole thing. More important than the thread itself; however, was the unprecedented and totally surprising response I received. As I explain in the tweets, I intentionally avoided talking about markets for nearly half a decade for a variety of reasons, and so I was blindsided by the enthusiastic and exceptionally positive response. It led me to do quite a bit of soul-searching, and ultimately convinced me that the time is ripe for me to start commenting about financial markets again. Not only because I think we’re at or very close to a major inflection point, but because people want to hear it.

For the record, I didn’t think central planners would be able to put Humpty Dumpty back together again ten years ago for as long as they did.

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

Hitler’s Economics

Hitler’s Economics

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For today’s generation, Hitler is the most hated man in history, and his regime the archetype of political evil. This view does not extend to his economic policies, however. Far from it. They are embraced by governments all around the world. The Glenview State Bank of Chicago, for example, recently praised Hitler’s economics in its monthly newsletter. In doing so, the bank discovered the hazards of praising Keynesian policies in the wrong context.

The issue of the newsletter (July 2003) is not online, but the content can be discerned via the letter of protest from the Anti-Defamation League. “Regardless of the economic arguments” the letter said, “Hitler’s economic policies cannot be divorced from his great policies of virulent anti-Semitism, racism and genocide.… Analyzing his actions through any other lens severely misses the point.”

The same could be said about all forms of central planning. It is wrong to attempt to examine the economic policies of any leviathan state apart from the political violence that characterizes all central planning, whether in Germany, the Soviet Union, or the United States. The controversy highlights the ways in which the connection between violence and central planning is still not understood, not even by the ADL. The tendency of economists to admire Hitler’s economic program is a case in point.

In the 1930s, Hitler was widely viewed as just another protectionist central planner who recognized the supposed failure of the free market and the need for nationally guided economic development. Proto-Keynesian socialist economist Joan Robinson wrote that “Hitler found a cure against unemployment before Keynes was finished explaining it.”

What were those economic policies?

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

Central Planning Failed in the USSR, but Central Banks Have Revived It

Central Planning Failed in the USSR, but Central Banks Have Revived It

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The Federal Reserve’s changing of the guard — the end of Janet Yellen’s tenure and the beginning of the Jerome Powell era — has me remembering what it was like to grow up in the former Soviet Union.

Back then, our local grocery store had two types of sugar: The cheap one was priced at 96 kopecks (Russian cents) a kilo and the expensive one at 104 kopecks. I vividly remember these prices because they didn’t change for a decade. The prices were not set by sugar supply and demand but were determined by a well-meaning bureaucrat (who may even have been an economist) a thousand miles away.

If all Russian housewives (and house-husbands) had decided to go on an apple-pie diet and started baking pies for breakfast, lunch, and dinner, sugar demand would have increased but the prices still would have been 96 and 104 kopecks. As a result, we would have had a shortage of sugar — a common occurrence in the Soviet era.

In a capitalist economy, the invisible hand serves a very important but underappreciated role: It is a signaling mechanism that helps balance supply and demand. High demand leads to higher prices, telegraphing suppliers that they’ll make more money if they produce extra goods. Additional supply lowers prices, bringing them to a new equilibrium. This is how prices are set for millions of goods globally on a daily basis in free-market economies.

In the command-and-control economy of the Soviet Union, the prices of goods often had little to do with supply and demand but were instead typically used as a political tool. This in part is why the Soviet economy failed — to make good decisions you need good data, and if price carries no data, it is hard to make good business decisions.

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

 

Chasing the Wind

Chasing the Wind

Futility with Purpose

Plebeians generally ignore the tact of their economic central planners.  They care more that their meatloaf is hot and their suds are cold, than about any plans being hatched in the capital city.  Nonetheless, the central planners know an angry mob, with torches and pitchforks, are only a few empty bellies away.  Hence, they must always stay on point.

Watch for those pitchfork bearers – they can get real nasty and then heads often roll quite literally. [PT]

One of the central aims of central planners is to achieve effective public exhortation.  While they pursue futility, in practice.  They must do so with focus and purpose.

For example, economic reports with impressive tables and charts, including pie graphs, are important to maintaining the requisite public perception.  Central planners know that financial scientism must always be employed as early and often as possible.

Statistics, with per annum projections, particularly those that show increasing exports and decreasing imports, are critical to maintaining the proper narrative.  The USA’s embarrassing deficit in the balance of international payments will certainly diminish if it is sketched accordingly in an “official” report… right?

Yet the planners always disregard the simple observation that an economy is composed of countless, and variable, inputs.  How is a new discovery or technology, and its effect on investment and labor, to be anticipated and forecast?  How are the actions of 7 billion individuals to be modeled and displayed on a tidy diagram?

Good old Friedrich A. Hayek  – depicted above – once coined the term “scientism” to describe the futile attempts of assorted social engineers and their academic advisors to express human action in the form of barren mathematical equations and statistics. Lettuce look at something one of his followers, the late Professor Austin L. Hughes, wrote in an article published in the autumn 2012 issue of “The New Atlantis” journal: 

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

$21 Trillion And Rising: How Central Banks Are LBOing The World In One Stunning Chart

Back in late 2016, we showed the unprecedented domination of capital markets by central banks using a chart from Citi, which had put together a fascinating slideshow asking simply “Where is the utility in marginal QE” and specifically pointing out that the longer unconventional monetary policy such as QE continues, the bigger its marginal cost, until eventually QE becomes a detriment.

A broad criticism of monetary policy, the presentation carried an amusing footnote: “This presentation does not change any of Citi’s existing, published views on the actual future path of monetary policy. It is merely intended as a contribution to the ongoing debate about the efficacy of available policy tools” –  after all, the last thing the market wanted is the realization that even banks no longer have faith in the central planners.

Incidentally, Citi’s broad critique of global QE took place when central banks owned just over $18 trillion in assets.

Fast forward to today when in its latest update of central bank holdings, Citi shows that as of this moment not only has the total increased by another $3 trillion to a grand total of $21 trillion and rising, but that the big six central banks now own over 40% of global GDP, more than double the 17% they held before the financial crisis less than a decade ago.

Which is remarkable in a world where there is still some confusion about what is behind the “global coordinated recovery”, and where there are deluded people who claim that central banks are now out of the picture.

It is also remarkable because now that central banks are gradually phasing out QE, it is the central bankers themselves who are terrified of what happens when the market starts selling; terrified that they have lost control. Recall that following stunning admission from Citi’s Hans Lorenzen last November:

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

On the Road to Oblivion: “Quality, Thy Antonym is Equality!”

On the Road to Oblivion: “Quality, Thy Antonym is Equality!”

 “Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive. It would be better to live under robber barons than under omnipotent moral busybodies. The robber baron’s cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end for they do so with the approval of their own conscience.”

― C.S. Lewis

On Thanksgiving eve, I was notified of a circumstance which caused me to drive thirteen hours round trip the following weekend.  The event which precipitated my travels is now beside the point, but I will say, given prior commitments and work scheduling, I was compelled to go alone. I didn’t mind. So I booked my hotel located in a major American metropolis, and that Saturday, packed my bag, grabbed my toothbrush and car keys, and bid my bewitching bride fare-thee-well.

Rather than take my larger rig, I decided to drive something more compact for the city; and more fun.  Soon, I was rolling over roads that were seemingly slung before me like waving ribbons in a whimsical wind. Although my material journey had just begun, mentally, I was already traveling down familiar, distant thoroughfares at the speed of thought; what The Grateful Dead would call the “West L.A. Fadeaway”:  Little red light on the highway, big green light on the speedway, hey hey hey.

My coincidental cognitive cruise began with gratitude. If I were to align sonic bell curves to represent my personal automotive preferences, the car I was driving would percuss the pinnacle position of every measure. With just the right exterior dimensions, and the perfect amount of interior room, horsepower, safety, comfort, reliability, economy, and style, I am fortunate to own such a vehicle.

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

 

Is America a Police State?

Is America a Police State?

The current state of the United States’ criminal justice system, if it can even be called that anymore, is truly appalling.

Recently, in a small town in Pennsylvania, an insurance agent for Nationwide Insurance noticed a certain plant growing in a garden on the property he was inspecting. This insurance agent identified the plant as marijuana and notified the police about this nefarious behavior. An elderly couple lived at that property, and while the husband was out at the time, the wife was dragged from her home, in her underwear, while police proceeded to ransack the home for four hours. They found nothing illegal. And that marijuana plant that started this whole debacle? Actually a hibiscus. This is only one of countless examples of this exact sort of “raid first, ask questions later” mentality that police forces in this country have adopted. But it’s only natural that this sort of bad behavior has evolved because of the huge problem of overcriminalization. And when the difference between “criminal” and “lawbreaker” is more than just splitting semantic hairs, something needs to be done. Special guest Clark Neily of the Cato Institute joins James Harrigan and Antony Davies to talk about this and more on this week’s episode of Words and Numbers.

The public-choice dynamics behind overcriminalization

57-year-old grandfather from India partially paralyzed by a cop while visiting his son in Alabama — cop charged with assault but jury hung; charges dismissed

Philadelphia police captain slugs woman because he mistakenly believed she threw water on him. The officer was terminated by the police chief, but reinstated by an arbitrator with back pay.

Phila. cop who punched woman gets job back
6abc.com

NYPD officer nearly kills bicyclist by pushing him into a curb. The officer was convicted of lying about it in court but not punished.

Ex-Officer Guilty in Critical Mass Confrontation
www.nytimes.com

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

If Economists Are So Smart, Why Are They Always Wrong?

If Economists Are So Smart, Why Are They Always Wrong?

When I took Econ 101 and 102 as a young college student back in antediluvian times the textbook we were assigned was Paul Samuelson’s Economics: An Introductory Analysis. This book is the all-time best selling economics textbook and is still around today (19th ed.).

I had the 1961 edition. In it, Samuelson, a prominent Keynesian economist who won the Nobel prize in economics, predicted that the economy of the Soviet Union would overtake the U. S. economy in 23 years (by 1984). Even as late as the 11th edition (1980), Samuelson stood by his prediction.

As anybody who knows anything about the Soviet Union, their top-down centrally planned economy was a disaster that left its citizens in poverty. It was inefficient, wasteful, driven by coercion, politics, corruption, and cronyism. Consumer wishes were ignored. Goods were under-produced or overproduced. There were shortages of everything, except vodka and hydrogen bombs.

There was a joke floating around Moscow at the time about shortages: Yuri Gagarin’s daughter (he was the first man in space and hero of the Soviet Union) answers the phone: “No, mummy and daddy are out,” she says. “Daddy’s orbiting the earth, and he’ll be back tonight at 7 o’clock. But mummy’s gone shopping for groceries, so who knows when she’ll be home.”

They were far, far behind us.

So how is it possible that Samuelson and his fellow Keynesians could even consider that a planned economy could work better than a free economy? For 11 editions he persisted in believing that failed theory. And a generation of students left school with the idea that a centrally planned economy could work.

Mainstream economists today aren’t much better.

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

“Liberal Socialism” — Another False Utopia

“Liberal Socialism” — Another False Utopiache2.PNG

Very often bad and failed ideas do not die, they simply reappear during periods of supposed social and political crisis in slightly different intellectual garb, and offer “solutions” that would merely help to bring about some of the very types of crises for which they once again claim to have the answers. Socialism in its various “progressive” mutations represents one of the leading ones in our time.

The latest manifestation of this appeared on August 24, 2017 in the New Republic online in an article by John B. Judis on, “The Socialism America Needs Now.” He is heartened by the wide appeal, especially among younger voters, that Bernie Sanders received during the 2016 presidential contest. He thinks that this may herald a rebirth and a renewed possibility for a socialist alternative to the current American political and economic system.

Having traveled over the decades from the 1970s to the present from being a radical, revolutionary socialist to a more “moderate” one today, Mr. Judis admits that the Marxian-style socialism of the nineteenth and the first half of the twentieth centuries is now long passé. The embarrassing experience of “socialism-in-practice” in the form Lenin and Stalin created in the Soviet Union or by Chairman Mao in China will not fly anymore.

From Soviet Central Planning to “Liberal Socialism”

Central planning seemed not to work too well, and the “communist” variation on the socialist theme also had a tendency to be “authoritarian” with some drawbacks for human life and liberty. (He tactfully avoids mentioning that Marxist-inspired regimes in the twentieth century murdered well over a 100 million people — with some estimates suggesting the number might have been closer to 150 million or more in the name of building the “bright, beautiful socialist future.” See my article, “The Human Cost of Socialism in Power”.)

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

The Triumph of Hope over Experience

On Wednesday the socialist central planning agency that has bedeviled the market economy for more than a century held one of its regular meetings.  Thereafter it informed us about its reading of the bird entrails via statement (one could call this a verbose form of groping in the dark).

Modern economic forecasting rituals.

A number of people have wondered why the Fed seems so uncommonly eager all of a sudden to keep hiking rates in spite of economic data in Q1 indicating surprising weakness in   economic output (of course they once again didn’t hike rates, this time).

We have long suspected that the real reason for the urge to hike is to accumulate “ammunition” for the next downturn. After all, it really shouldn’t make much of a difference where the federal funds rate is; the federal funds market is basically dead anyway, and the Fed continues to refrain from shrinking its balance sheet (i.e., bank reserves will remain elevated, and the Fed won’t actively exert pressure on money supply growth).

Then again, the statement is actually in keeping with the orthodox (largely Keynesian) view of the economy and the central bank’s presumed tasks. There is actually no need to take it at anything but face value. The complete statement can be seen here, but we want to focus on one particular excerpt – which follows an enumeration of various data points in paragraph one:

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

The Fed Will Blink

Honest Profession

GUALFIN, ARGENTINA – The Dow rose 174 points on Thursday. And Treasury Secretary Steve Mnuchin said we’d have a new tax system by the end of the year.

Animal spirits were restless. But which animals? Dumb oxes? Or wily foxes? Probably both.

Since Thursday there have been two additional very spirited up days with large gaps – this is very rare in the DJIA, particularly from such a high level after a ~240% rally since the lows made 8 years ago… it continues to feel like a blow-off (and it happens against the backdrop of a sharp slowdown in money supply growth) – click to enlarge.

But what caught our attention were the central bankers strutting across the yard and crowing with such numbskull cackles that even barnyard animals would be embarrassed by them. There was a time when central banking was an honest profession.

Central bankers provided financing for the government. They backed the banking system, too, by holding savings as reserves, which they lent to solvent member banks in emergencies. They were tight-lipped, tight-laced, and tightwads. Their role was to say “no” more often than “yes.”

When the king wanted money to fight in a war… or build a bridge… the banker would give the terse reply: “Sire, we don’t have any.” Real money was backed by gold. And credit had to be backed by real money, which meant it had to be saved. Savings were limited, as was money.

Cackling central planners – this reminds us of the “FOMC meeting laughtrack” of 2003-2007 – the more Fed members laughed at their meetings, the closer the economy and financial system came to the near fatal implosion of 2007-2009. Do today’s monetary bureaucrats have more of a clue than their predecessors just before the GFC? The answer is an emphatic no – they have simply doubled down and blown an even bigger credit and asset bubble.

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

Carbon Taxes, Cow Farts, And Central Planning

Carbon Taxes, Cow Farts, And Central Planning

In a centrally planned economy decisions on what to produce, how to produce and for whom are taken primarily by the government.

The term is usually associated with communist economies. However, since US President Franklin D. Roosevelt implemented a robust range of government policies in the 1930s to counter the effects of the Great Depression, using principles that would be popularized by UK economist John Maynard Keynes, Western governments (along with their central bank consorts) have also taken on very interventionist roles in economic affairs.

But not even Stalin or Roosevelt could come up with a rather exotic tool that can take central planning to a whole new level: carbon taxes.

The reason why it is so powerful is that virtually all market activities produce some type of greenhouse gas, meaning carbon and other equivalents that contribute to warming our planet. Here’s the emissions breakdown by sector in the US according to the Environmental Protection Agency (as of 2014):

Virtually all economic activities (as well as most daily personal affairs in any modern society) produce some type of emissions. So by putting a cost on carbon any of them, from the most mundane to the most complex, would be impacted. Entire industries could be impaired with the stroke of a pen. Powerful stuff indeed.

Furthermore, the tax base could be greatly expanded as a result, at a time when governments are desperate for new sources of revenue.

Climate change skeptics, pointing to alleged gaps in the theory of manmade climate change (where carbon emissions resulting from human activity are primarily responsible for the rise in global temperatures since the 19th century) and the heavily politicized nature of the process have long argued that having such a powerful interventionist tool is really the ultimate goal of the politicians pushing for it.

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

Fragmentation and the De-Optimization of Centralization

Fragmentation and the De-Optimization of Centralization

Solutions abound, but they look forward, not backward.

Many observers decry the loss of national coherence and purpose, and the increasing fragmentation of the populace into “tribes” with their own loyalties, value systems and priorities.

These observers look back on the national unity of World War II as the ideal social standard: everyone pitching in, with shared purpose and sacrifice. (Never mind the war killed tens of millions of people, including over 400,000 Americans.)

But few (if any) of these nostalgic observers note that history has no rewind button or reverse gear. It is impossible to recreate the national unity of World War II, as modern war is either specialized or nuclear. Neither enable mass mobilization.

Few observers note that World War II set the template for the next 60 years:the solution is always to further centralize power, control and money to serve the goals set by centralized authority.

The wartime economies of every combatant were optimized not just for production of war goods but for centralized command and control of that production.

We are now so habituated to centralized decision-making, control and powerthat we don’t even question the notion that a wildly diverse nation of 320 million people can be well-served by a single healthcare system that requires thousands of pages of regulations to function in a centrally managed fashion.

It seems blindingly obvious to me that we need 10,000 different solutions to healthcare, not one insanely complex centralized system that is a global outlier in its cost and ineffectiveness (see chart below).

Those who are nostalgic for a centralized command and control economy and society are like those who decried the breakdown of “the one faith” Catholicism in the emergence of Protestant Christians.

The Protestant Reformation occurred because the centralized authority of Rome no longer worked for many of the faithful. The proliferation of Protestant churches was the solution.

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

Forecast 2017: The Wheels Finally Come Off

“There is no other endeavor in which men and women of enormous intellectual power have shown total disregard for higher-order reasoning than monetary policy.
                                                                                                      — David Collum

American Notes

Apart from all the ill-feeling about the election, one constant ‘out there’ since November 8 is the Ayn Randian rapture that infects the money scene. Wall Street and big business believe that the country has passed through a magic portal into a new age of heroic businessmen-warriors (Trump, Rex T, Mnuchin, Wilbur Ross, et. al.) who will go forth creating untold wealth from super-savvy deal-making that un-does all the self-defeating malarkey of the detested Deep State technocratic regulation regime of recent years. The main signs in the sky, they say, are the virile near-penetration of the Dow Jones 20,000-point maidenhead and the rocket ride of Ole King Dollar to supremacy of the global currency-space.

I hate to pound sleet on this manic parade, but, to put it gently, mob psychology is outrunning both experience and reality. Let’s offer a few hypotheses regarding this supposed coming Trumptopian nirvana.

The current narrative weaves an expectation that manufacturing industry will return to the USA complete with all the 1962-vintage societal benefits of great-paying blue collar jobs, plus an orgy of infrastructure-building. I think both ideas are flawed, even allowing for good intentions. For one thing, most of the factories are either standing in ruin or scraped off the landscape. So, it’s not like we’re going to reactivate some mothballed sleeping giant of productive capacity. New state-of-the-art factories would require an Everest of private capital investment that is simply impossible to manifest in a system that is already leveraged up to its eyeballs.

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

How Systems Break: First They Slow Down

How Systems Break: First They Slow Down

Alternatively, we can cling to a state of denial, and the dominant system will be replaced by arrangements that are not necessarily positive.

The reality that cannot be spoken is that all the financial systems we believe are permanent are actually on borrowed time. One way we can judge this decline of resilience is to look at how long it takes systems to recover when they are stressed, and to what degree they bounce back to previous levels.

Another is to look at the extremes the system reaches without returning to “normal”: for example, interest rates, which rather than normalizing after seven years of suppression are being pushed to negative rates by increasingly desperate central bankers.

The key insight here is that financial systems and indeed economies function as natural systems. Central planning/central banker manipulation appears to control the system, but this control masks the reality that the system is increasingly fragile and prone to collapse, not just from internal dynamics but as a direct result of central bank manipulation.

The warning signs of fraying resilience are all around us.

Nature’s Warning Signal: Complex systems like ecological food webs, the brain, and the climate all give off a characteristic signal when disaster is around the corner.

“The signal, a phenomenon called ‘critical slowing down,’ is a lengthening of the time that a system takes to recover from small disturbances, such as a disease that reduces the minnow population, in the vicinity of a critical transition. It occurs because a system’s internal stabilizing forces—whatever they might be—become weaker near the point at which they suddenly propel the system toward a different state.”

Recent email exchanges with correspondent Bart D. (Australia) clued me into the Darwinian structure of this critical slowing down and loss of snapback (what we might call a loss of reslience).

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

Olduvai IV: Courage
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Olduvai II: Exodus
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