The Damage Has Been Done

The popular notion that the economy’s doing just fine is losing acceptance with each passing week.  Politicians, central bankers, brokers, and even the nightly news broadcasters can no longer pretend everything’s going according to script.  All at once, no one can remember their lines.

Surely even the most sarcastic playwright couldn’t have plotted the broad approval of Donald Trump and Bernie Sanders as presidential candidates.  But here we are, in the midst of the primaries, and ‘Feel the Bern’ bumper stickers blight the landscape like roadside graffiti art.

 

feel the bernThis poster is a small reminder that if Sanders should be elected, some in society are bound to “feel the Bern” in slightly more unpleasant ways than others.

 

The professional economists said 3 percent GDP growth, 2 percent inflation, and 5 percent unemployment would usher in a new era of economic enlightenment.  Who knows where these criteria came from?  What is known is that the knob twisters can’t seem to dial it in per their specifications.

Nonetheless, the larger populace has come to the realization that the supposed bliss this would bring is not what has been advertised.  At the same time, they are beginning to question if the lunkheads in charge really know what it is they are doing.  Even the most casual observer now understands that attempting to will economic paradise into existence by fine tuning interest rates makes about as much sense as smashing ones skull to cure a headache.

All in all, the damage has been done.  Decades of activist monetary policy have disfigured the economic landscape beyond recognition.  The sideways chicken bone stuck in most people’s craw is the basic fact that the rewards of productive labor have been diminished to mere subsistence levels while intrinsically valueless endeavors, like packaging and selling off debt securities, are compensated with outsized payouts.

 

1-debt and GDPDecades of massive debt accumulation….and very little to show for it – click to enlarge.

 

Fabricated Credit Prices

Jim Rogers recently said it best in an interview with CNNMoney:

 

“We’re all going to pay a horrible price for the incompetence of these central bankers.  We got a bunch of academics and bureaucrats who don’t have a clue what they’re doing.”

“The mistake they’re making is, they’ve got to let the markets sort themselves out.  It’s been over seven years since we’ve had a decent correction in the American stock market.  That’s not normal.

“Markets are supposed to correct.  We’re supposed to have economic slowdowns.  That’s the way the world has always worked.  But these guys think they’re smarter than the market.  They’re not.”

 

Jim-Rogers-e1410795935770Famous investor Jim Rogers – contrary to central bankers, he is taking risks with his own money. And he happens to have their number.

Photo via scmp.com

 

Certainly, attempting to levitate a permanently high stock price plateau with perpetual issuances of cheaper and cheaper credit is not without consequences.  Fabricated credit prices send off false signals to businesses and investors.  Before you know it, they are borrowing and lending gobs of money to frack wells that only pencil out at oil prices above $70 per barrel.

In other words, central bankers and policy makers end up making a great big mess of things.  Yet, somehow, they fail to comprehend the disorder they engender.  For every mess they create, they come up with a solution that’s even more absurd than their last solution.  At present, policy makers are taking us to an even darker place.

 

Welcome to the New Dark Ages

In fact, the new solution that’s gaining currency with central bankers across the planet is negative interest rate policy (NIRP).  Rather than letting the markets correct, and the economy re-baseline, central bankers want to tinker with credit in ways that are downright malicious.  What’s more, they say they are doing it to help you.

Perhaps Rogers was too kind when he said academics and bureaucrats are incompetent and without a clue.  More precisely, they are mad lunatics.  For they have graphs, aggregate demand curves, and dot plot charts that they’re following with zealous adherence.

 

2-DoomLoopThe “NIRP doom loop” according to the WSJ – click to enlarge.

 

They’re so wedded to their highfalutin nonsense they can’t seem to logically question it.  Instead they dig in, hunker down, and accelerate the economy towards the final crack up.

For example, just this week Larry Summers endorsed the case his Harvard cohort Peter Sands made for banning the $100 bill.  If you recall, Summers is the guy who came up a day late and a dollar short in his bid against Janet Yellen to Chair the Fed.  Consequently, he fervently primes his place to succeed Yellen by advocating for absolute interventionism.

In his article It’s time to kill the $100 bill, Summers declares that “a moratorium on printing new high denomination notes would make the world a better place.” What to make of it?

When direct dollar to gold face value convertibility was canceled during the Great Depression, the working man lost the fundamental ability to combat bank mischief.  Prior to this breach of contract, if banks got too ambitious with their money games, customers could withdraw their savings and convert them to gold.

This simple process of keeping the banks in check was eradicated in the United States in 1933 when the federal government halted convertibility of notes to gold and nationalized the private gold stock.

Like the 1930s, the central bankers of the world have gotten themselves into yet another extreme pickle.  They must push interest rates on reserve accounts to negative to keep the credit bubble inflated.  This has already happened in Japan, the Eurozone, and Sweden, Switzerland, and Denmark.  This could soon also be coming to the United States.  Ultimately, commercial bank depositors will have to foot the bill.

 

larry-1Just as the mafia hires goons to deliver messages to its protection racket “customers”, the modern regulatory State hires intellectuals to soften up the serfs before it restricts their liberty further. Summers is the quintessential representative of this class of intellectuals: a mixture between a hired goon and what Lenin would have called a “useful idiot”, as Summers of course imagines himself as one of the “planners” who will be giving orders or at the very least serve as a trusted advisor to the rulers in his centrally planned Utopia.

Image credit: Christopher Weyant

 

Negative interest rates, in essence, act as a fee on deposits.  Of course, to combat this fee, depositors could withdraw their funds, convert them to cash, and bury them in a coffee can.  Obviously, the paper notes wouldn’t be as good as gold convertibility was in the old days, but this would still circumvent the negative interest rate tax on deposits.

Naturally, the rulers are now pushing to take this basic right away.  For it is precisely this sort of ‘subversive’ behavior Summers and his oppressive class are after with their war on cash.

When it comes down to it, NIRP and a cashless world would not be a better place at all.  Barring what Summers says, they are nothing short of direct property confiscation and have no place in a free and just society.  Alas, like the termination of direct gold convertibility, this is but one more sign our freedoms are fading to black.

Welcome to the new dark ages.

 

2000AD020

In Grant Morrison’s graphic novel “Zenith”, the world one day wakes up to a black sun rising – plunged into darkness forever. What caused it? In the story, the people responsible were all self-anointed professional world improvers – they had a “plan to make the world a better place”.

Image credit: IPC Media

 

Charts by: St. Louis Federal Reserve Research, WSJ

 

Chart and image captions by PT

 

M N. Gordon is the editor and publisher of the Economic Prism.

 

 
 

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