OUZILLY, France – Imagine the poor economist without a sense of humor. How he must suffer! This week was to be dominated by central banks. Two big ones – the Bank of Japan (BoJ) and the Fed – were to make important policy announcements.
The BoJ’s chief lunatic Haruhiko Kuroda with one of his famous diagrams. How can this not work? It looks so neat!
Photo credit: Yuya Shino / Reuters
OUZILLY, France – “In the short run,” says billionaire investor Warren Buffett, “the stock market is a voting machine. In the long run, it’s a weighing machine.” Put another way, in the short run, the stock market responds to myths and fads. In the long run, these give way to facts.
The Wilshire Total Market Index (red line) vs. GDP (black line), indexed (1990 = 100). Maybe the stock market is actually mainly a gauge of monetary inflation. As an aside: Warren Buffett’s company Berkshire Hathaway reportedly holds more than $72 billion in cash at the moment. Apparently Buffett expects the market to soon make another transitions from the voting to the weighing phase – click to enlarge.
NORMANDY, FRANCE – We continue our work with the bomb squad. Myth disposal is dangerous work: People love their myths more than they love life itself. They may kill for money. But they die for their religions, their governments, their clans… and their ideas.
Famous French hippie and author Voltaire. He wears the same sardonic grin in every painting, whether he’s depicted at a young or an old age, doesn’t matter. His real name was François-Marie Arouet; he adopted the pen name Voltaire (one of 178 different ones he used) after spending 11 months incarcerated in a windowless cell in the Bastille, following the publication of a satirical verse in which he insinuated that the French regent practiced incest with his own daughter. Said regent was the infamous Duc d’Orleans, who shortly thereafter conspired with John Law to utterly ruin the country’s currency and economy in an early central banking experiment. Voltaire’s decision to insult him in advance reveals his excellent foresight and character judgment. The aristocracy was never sure whether it should fear Voltaire for his anti-authoritarian streak, or love him for his wit.
Elizabeth received a strange letter from her congressman. “We have to be on guard against our enemies… and not be afraid to name them.” A brave, forthright stand? But wait, he didn’t name the enemies.
As we have pointed out before, there is currently a paucity of useful enemies, so perhaps it’s not too big a surprise the congressman didn’t think of actually naming any. Here are some of the people currently high up on the list: Kim Jong-Un, Vladimir Putin and the Ayatollah Khamenei (with his teleprompter).
In honest capitalism, you do what you can to get other people to voluntarily give you money. This usually involves providing goods or services they think are worth the price. You may get a little wild and crazy from time to time, but you are always called to order by your customers.
In the market economy, consumers reign supreme. There is no such thing as a “lost” vote in the marketplace; every penny spent affects production. Mises noted: “Consumers ultimately determine not only the prices of consumers’ goods, but no less the prices of all factors of production. They determine the income of every member of the market economy. The consumers, not the entrepreneurs, ultimately pay the wages earned by every worker, the glamorous movie star as well as the charwoman. With every penny spent, consumers determine the direction of all production processes and the minutest details of the organization of all business activities.”
Weird and Unnatural
NORMANDY, France – First, a quick look at the markets. The Dow bounced on Monday, recovering 239 points of the nearly 400 it lost on Friday. Why the comeback?
FOMC member Lael Brainard: her comments on Monday were touted as the “reason” for the stock market recovering half of Friday’s losses. We suspect the real reason is the triple witching on Friday…
Photo via twitter.com
Money sometimes goes “full politics”. Take poor Kenneth Rogoff at Harvard. He wants a dollar with a voter registration card, a U.S. flag on its windshield, and a handgun in its belt – the kind of money that supports the Establishment and votes for Hillary.
Etatiste tool Kenneth Rogoff, whose authoritarian jeremiads against cash currency we have first discussed and criticized in 2014 in “Meet Kenneth Rogoff, Unreconstructed Statist”. As Hans-Hermann Hoppe once noted: “[I]ntellectuals are now typically public employees, even if they work for nominally private institutions or foundations. Almost completely protected from the vagaries of consumer demand (“tenured”), their number has dramatically increased and their compensation is on average far above their genuine market value. At the same time the quality of their intellectual output has constantly fallen. What you will discover is mostly irrelevance and incomprehensibility. Worse, insofar as today’s intellectual output is at all relevant and comprehensible, it is viciously statist.”
Photo credit: Andrew Harrer / Bloomberg
OUZILLY, France – We’re going back to basics here at the Diary. We’re getting everyone on the same page… learning together… connecting the dots… trying to figure out what is going on.
The new three dollar bill issued by the Apprehensive States of America.
A Small and Lonely Group
PARIS – It’s back to Europe. Back to school. Back to work. Let’s begin by bringing new readers into the discussion… and by reminding old readers (and ourselves) where we stand.
US economic growth: average annual GDP growth over time spans ranging from 120 to 10 years (left hand side) and the 20 year moving average of annual GDP growth since 1967. Note that the bump in the 70 year average is actually distorted by the output growth boost recorded during WW2 (the charts were made in 2009) – which is actually a prime example of how useless GDP can be as a measure of prosperity. Nevertheless, it is serviceable for the illustration of long term economic growth trends. Exponential credit expansion since the adoption of the pure fiat money system, the associated relentless growth of the welfare/warfare state and persistent declines in average economic growth rates have been going hand in hand, which is no coincidence – click to enlarge.
An Abrupt Drop
Let’s turn back to our regular beat: the U.S. economy and its capital markets. We’ve been warning that the Fed would never make any substantial increase to interest rates. Not willingly, at least.
Groping in the dark, Yellen-style
Who Knows What Trump Might Do to the Fed?
At the end of last week, the men and women who decide the world’s monetary policy and supervise its banking system gathered at Jackson Hole, Wyoming. And there, the financial press sat on the edge of their chairs to hear what Fed chair Janet Louise Yellen would say. She hadn’t spoken publicly in the last two months.
Unidentifiable avis on the way to Jackson Hole
Cartoon by Bob Rich
Low Rates Forever
Nothing much is happening in the money world. The press reports that traders are hanging loose, wondering what dumb thing the Fed will do next. Rumor has it that it may decide to raise rates in September, or maybe November… or maybe not at all.
So far, the Fed has hiked the FF rate just once, by 25 basis points. That hardly matters though, since the Fed maintains its balance sheet at the bloated level reached after three QE operations. Banks are holding large excess reserves as a result, and the federal funds market is therefore a mere shadow of its former self. The FF rate has no practical significance anymore – the effect of rate hikes is mainly psychological, due to the feedback loop between credit markets and the Fed’s policy stance. It cannot influence the activities of banks that no longer need to borrow reserves in order to expand credit. In short, although Fed policy is relatively “tight” compared to that of other major central banks at the moment, it remains extremely loose considered on its own – click to enlarge.
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