Meltdown

MIAMI – On Thursday, the Dow rose 79 points – or about 0.5%. Nothing proved one way or the other. We told you about our visit with President Reagan’s former budget advisor and Wall Street veteran David Stockman.

 

Must-should-ought-large1Ought!

 

Unlike almost every other analyst or investor we know, David has been a true insider. He has seen how the system really works from within. He played critical roles at critical moments – in Washington and on Wall Street.

 

1-SPXS&P 500 Index: David Stockman’s positions are benefiting at the moment

 

So he understands, maybe better than anyone, how the game is played… and how the deck is stacked to favor the insiders, the elite, the cronies, and the Deep State.

David was cheerful when we met him on Wednesday. He makes “bubble finance” trades – shorting stocks that are overpriced, overhyped, and overdue a slide. Lately, he’s been making good money. And he’s looking forward to better times.

The cronies have gone about as far as they can, he said. He expects the markets to melt down and the credit bubble to burst – soon – marking the end of the Bubble Epoch. We’re not so sure…

The Deep State depends on bubble finance. It won’t give it up without a terrific fight. If the Bubble Epoch goes, it will be over the Deep State’s dead body. Which is the way we’d like it. But it won’t be smooth, easy, or fast.

Negative rates? A ban on cash? Helicopter money? Direct intervention in the markets? Depression? Hyperinflation? Dow 36,000? We’ll probably see it all before this is over.

And now… a Friday classic from the archives…

 

They Oughtta Know

[Ed note: Originally published January 9, 2003]

Today, we take another look at “ought” – and hope to discover more of life’s secrets. If “Ought” were a person, it would not be a bartender or a good-hearted whore. Ought is not the kind of word you would want to hang out with on a Saturday night… or relax with at home – for it would always be reminding you to take out the trash or fix the garage door.

If it were a Latin noun, Ought would be feminine, but more like a wife than a mistress. For Ought is judgmental… a nag, a scold. Even the sound of it is sharp. It comes up from the throat like a dagger and heads for soft tissue, remembering the location of weak spots and raw nerves for many years.

“Yes, I ought to have begun saving money for our retirement a long time ago,” you tell her.

“You’re right… I ought to have finished college. And I ought to have stopped after the third shot of Jack Daniels.”

Ought is neither a good-time companion nor a boon buddy, but more like the I-told-you-so who hands you aspirin on Sunday morning… tells you what a fool you were… and warns you what will happen if you keep it up.

“You get what you deserve,” she reminds you.

 

A Dullard, a Wimp, and a Wuss

A man who lets himself be bossed around by Ought is no man at all. He is a dullard, a wimp, and a wuss – a logical, rational, reasonable lump. Thankfully, most men, most of the time, will not readily submit. Instead, they do not what they ought to do, but what they want to do.

Stirred up by mob sentiments or private desires, they make fools of themselves regularly. Besides, they can’t help themselves. Of course, Ms. Ought is right: They get what they deserve. But sometimes it is worth it.

Modern economists no longer believe in Ought. They don’t appreciate her moral tone, and they don’t like it when she wags her finger at them. To them, the economy is a giant machine with no soul, no heart… no right and no wrong. It is just a matter of mastering the knobs and levers.

 

20130921_BRD001Since early in the 20th century economists have dreamed of “improving” the economy by means of central planning – since they of course “know better” than the market!

Cartoon by Claudio Munoz

 

The nature of the economists’ trade has changed completely in the last 200 years. Had he handed out business cards, Adam Smith’s would have borne the professional inscription: “Moral Philosopher,” not “Economist.”

Smith saw God’s “invisible hand” in the workings of the marketplace. Trying to understand how it worked, he looked for Oughts everywhere. Everywhere and always, people get what they deserve, Smith might have said. And if not… they ought to!

Today, the “Ought To” school of economics has few students and fewer teachers. Only here at the Diary is the flame still alive, flickering. Most economists consider it only one step removed from sorcery.

“Call it the overinvestment theory of recessions of ‘liquidationism,’ or just call it the ‘hangover theory,’” Paul Krugman began his critique of the Ought To school.

“It is the idea that slumps are the price we pay for booms, that the suffering the economy experiences during a recession is a necessary punishment for the excesses of the previous expansion…”

 

Perversely Seductive

“The hangover theory is perversely seductive – not because it offers an easy way out but because it doesn’t,” he continued in his December 1998 attack.

“It turns the wiggles on our charts into a morality play, a tale of hubris and downfall. Powerful as these seductions may be, they must be resisted, for the hangover theory is disastrously wrongheaded…” he concluded. In Krugman’s mechanistic world, there is no room for Ought.

 

krugnuts-apocolypseIt is hard to believe that Mr. Krugman actually won a Nobel Prize in Economics. The above cartoon alludes to the fact that after the WTC attack, he seriously argued in his NYT column that the devastation had a “good side” as it would produce “economic stimulus”. Calling such a view economic ignorance runs the risk of insulting the term “ignorance”.

 

If the monetary grease monkeys of the Great Depression of the 1930s or of Japan in the 1990s failed to get their machines working properly, it was not because there are any invisible hands at work or any nagging moral principles to be reckoned with… but because they failed to turn the right screws!

It is completely incomprehensible to him that there may be no screws left to turn… or that the mechanics might inevitably turn the wrong screws as they play out their roles in the morality spectacle. Krugman is hardly alone.

 

krugpot-1Dilbert’s boss gets lectured by the master

Cartoon by Scott Adams

 

As the 20th century developed, mass democracy and mass markets gradually took the Ought out of both politics and markets. By the end of the century, investors no longer cared what interest rates ought to be… and voters no longer felt that the U.S. budget ought to be balanced. Whatever problems emerged, the feds would fix them!

In the 19th century, a man would go bust, and his friends and relatives would look upon it as a personal, moral failing. They would presume that he did something he oughtn’t have.

He gambled. He drank. He spent. He must have done something. But as economies collectivized, the risk of failure was removed from the individual and spread among the group.

If a man went broke in the 1930s, it wasn’t his fault; he could blame the Crash and Depression…

… if people were poor, it wasn’t their fault; it was society’s fault, for it had failed to provide jobs…

… if investors lost money, that, too, was no longer their fault, but the fault of the Fed… or the government…

… and if consumers spent too much money, whose fault was it?

The Fed had set rates too low… or something.

 

State Arithmetic

In every case, the masses recognized no personal failing. Instead, the failure was collective or technical… The mechanics had failed to turn the right screws. In politics, the masses recognized no higher authority than the will of the sacred majority. No matter what lame or abominable thing they decided to do, without an “ought,” how could it be wrong?

Likewise, economists won a Nobel Prize for pointing out that markets always know best. The Efficient Market Hypothesis demonstrated that the judgment of millions of investors and spenders is hard to improve upon. The method of modern economics shifted from exploring what a man ought to do… to statistical analysis.

“There is more than a germ of truth in the suggestion that, in a society where statisticians thrive, liberty and individuality are likely to be emasculated,” wrote M.J. Moroney in his Facts From Figures book.

“Historically,” Moroney explained, “statistics is no more than ‘State Arithmetic,’ a system by which differences between individuals are eliminated by the taking of an average.

“It has been used – indeed, still is used – to enable rulers to know just how far they may safely go in picking the pockets of their subjects.”

 

MoroneyM.J. Moroney’s “Facts from Figures” – as you can see from the book’s price, this was first published several credit bubbles ago. Moroney fully understood why the State is so eager to collect statistics on everything – they provide it with the “justification” to meddle in our lives.

 

Economists attached sensors to various parts of the great machine as if they were running diagnostics on an auto engine. Inflation, unemployment, GDP – depending upon the information they receive, they twist up interest rates… or open up the throttle to let in more new money. But had not the efficient market already set rates exactly where they needed to be?

As far as we know, no theory was ever offered to explain the contradiction. Markets are believed to be perfect. Yet, PhD economists believe they can override them and make them more perfect. They must believe they are smarter than all the millions of savers, lenders, and borrowers put together.

They oughtta know better.

 

Chart by: StockCharts

 

Chart and image captions by PT

 

The above article originally appeared at the Diary of a Rogue Economist, written for Bonner & Partners. Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.

 

 
 

Emigrate While You Can... Learn More

 
 

 
 

Dear Readers!

It is that time of the year again – our semi-annual funding drive begins today. Give us a little hand in offsetting the costs of running this blog, as advertising revenue alone is insufficient. You can help us reach our modest funding goal by donating either via paypal or bitcoin. Those of you who have made a ton of money based on some of the things we have said in these pages (we actually made a few good calls lately!), please feel free to up your donations accordingly (we are sorry if you have followed one of our bad calls. This is of course your own fault). Other than that, we can only repeat that donations to this site are apt to secure many benefits. These range from sound sleep, to children including you in their songs, to the potential of obtaining privileges in the afterlife (the latter cannot be guaranteed, but it seems highly likely). As always, we are greatly honored by your readership and hope that our special mixture of entertainment and education is adding a little value to your life!

   

Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

   
 

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • factoryA Striking Chart
      The Economy and the Stock Market As long time readers know, we are always paying close attention to the manufacturing sector, which is far more important to the US economy than is generally believed. In terms of gross output it is the largest sector of the economy, and it should of course be obvious that saving, investment and production are the only ways to create wealth.   What's left of the Brooklyn Domino Sugar Refinery. Photo credit: Paul Raphaelson   Contrary...
  • trump-putin-1024Trump and Putin Narrowly Escape Assassination Attempt
      The Gloves are Coming Off First a little bit of recent history. Readers are probably aware that some questions about the occasionally malfunctioning Deep State android... no, wait, we'll start again. Questions have recently been raised about the health of presidential candidate Hillary Clinton by various “alt-right” tinfoil hat-wearing conspiracy theorists, such as this one.   The monsters are normally hiding under Hillary's bed, but lately they have come out into the open...
  • swing-voterWhy the Fed Destroyed the Market Economy
      What Have You Done for Me Lately? Swing voters are a fickle bunch.  One election they vote Democrat.  The next they vote Republican. For they have no particular ideology or political philosophy to base their judgment upon.   The primacy of the wallet.   They don’t give a rip about questions of small government or big government.  Nor do they have any druthers about the welfare or warfare state. In effect, they really don’t care.  What’s important to the...
  • trump-mapDonald’s Electoral Struggle
      Wicked and Terrible After touting her pro-labor union record, the Wicked Witch of Chappaqua rhetorically asked, “why am I not 50 points ahead?”  Her chief rival bluntly responded: “because you’re terrible.”*  No truer words have been uttered by any of the candidates about one of their opponents since the start of this extraordinary presidential campaign!   Electoral map (note that the coloration may no longer be applicable...)   That Hillary Clinton is...
  • wallet-367975_960_720Janet Yellen’s Shame
      Playing Politics 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...
  • warren-buffett-gold-coinGet Ready for a New Crisis – in Corporate Debt
      Imposter Dollar 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.   We made a breakthrough when we identified the source of so many of today’s bizarre and grotesque trends. It’s the money – the new post-1971 dollar. This new dollar is green. You...
  • 4-ip-and-non-def-capital-goods-ordersThe Economy, the Stock Market and the Fed
      John Hussman on Recent Developments We always look forward to John Hussman's weekly missive on the markets. Some people say that he is a “permabear”, but we don't think that is a fair characterization. He is rightly wary of the stock market's historically extremely high valuation and the loose monetary policy driving the surge in asset prices.   The S&P 500 Index and the NYSE advance-decline line. Most market internals weakened steadily until early February 2016, but...
  • silkroadHanjin Marooning in San Pedro Bay
      Global Trade Reversal Expansions and contractions in global trade have played out over long secular trends for thousands of years.  The Silk Road, for example, was established by the Han Dynasty of China in 130 BC, and allowed for continuous trade between East and West for nearly 1,600 years.  In addition to economic trade, the Silk Road was also a conduit for culture and knowledge among its network of civilizations.   A map of the main ancient Silk Road - click to...
  • voltaireGreat Causes, a Sea of Debt and the 2017 Recession
      Great Cause 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...
  • wilsonand-morganThe Donald Versus Killary: War or Peace?
      War: A Warning from the Past Although history does not exactly repeat itself, it does provide parallels and sometimes quite ominous ones.  Such is the case with the current U.S. Presidential election and the one which occurred one hundred years earlier.   The Donald probably has the better slogan...   The dominating question which hung over the 1916 campaign was whether the country would remain neutral in regard to the horrific slaughter which was taking place on the...
  • hittite-leftoversA Rift in the Space-Time Continuum
      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   The financial press has a ready answer: “Stocks gain...
  • ukraine-mapCrimea: Digging For The Truth
      Renewed Escalation This summer witnessed a renewed escalation between Russia and Ukraine after Russian President Vladimir Putin accused Ukraine of sending saboteurs to attack Russian troops, targeting “critical infrastructure”. Kiev denied the allegations and claimed Russia’s “fantasy” was nothing but a false pretense to launch a “new invasion”.   August 10: Russian president Putin announces that there was an altercation involving a group of Ukrainian saboteurs at...

Austrian Theory and Investment

Support Acting Man

Own physical gold and silver outside a bank

Archive

j9TJzzN

350x200

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com