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.

 

 

 

Emigrate While You Can... Learn More

 


 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add 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:

  • How to Survive the Winter
      A Flawless Flock of Scoundrels One of the fringe benefits of living in a country that’s in dire need of a political, financial, and cultural reset, is the twisted amusement that comes with bearing witness to its unraveling.  Day by day we’re greeted with escalating madness.  Indeed, the great fiasco must be taken lightly, so as not to be demoralized by its enormity.   Symphony grotesque in Washington [PT]   Of particular note is the present cast of characters. ...
  • Credit Spreads: The Coming Resurrection of Polly
      Suspicion isn't Merely Asleep – It is in a Coma (or Dead) There is an old Monty Python skit about a parrot whose lack of movement and refusal to respond to prodding leads to an intense debate over what state it is in. Is it just sleeping, as the proprietor of the shop that sold it insists? A very tired parrot taking a really deep rest? Or is it actually dead, as the customer who bought it asserts, offering the fact that it was nailed to its perch as prima facie evidence that what...
  • The Strange Behavior of Gold Investors from Monday to Thursday
      Known and Unknown Anomalies Readers are undoubtedly aware of one or another stock market anomaly, such as e.g. the frequently observed weakness in stock markets in the summer months, which the well-known saying “sell in May and go away” refers to. Apart from such widely known anomalies, there are many others though, which most investors have never heard of. These anomalies can be particularly interesting and profitable for investors – and there are several in the precious metals...
  • A Falling Rate of Discount and the Consumption of Capital
      Net Present Value Warren Buffet famously proposed the analogy of a machine that produces one dollar per year in perpetuity. He asks how much would you pay for this machine? Clearly it is worth something more than $1.00. And it’s equally clear that it’s not worth $1,000. The value is somewhere in between. But where?   We are not sure why Warren Buffett invoked a money printing machine of all things – another interesting way of looking at the concept is by e.g....
  • Business Cycles and Inflation – Part I
      Incrementum Advisory Board Meeting Q4 2017 -  Special Guest Ben Hunt, Author and Editor of Epsilon Theory The quarterly meeting of the Incrementum Fund's Advisory Board took place on October 10 and we had the great pleasure to be joined by special guest Ben Hunt this time, who is probably known to many of our readers as the main author and editor of Epsilon Theory. He is also chief risk officer at investment management firm Salient Partners. As always, a transcript of the discussion is...
  • What President Trump and the West Can Learn from China
      Expensive Politics Instead of a demonstration of its overwhelming military might intended to intimidate tiny North Korea and pressure China to lean on its defiant communist neighbor, President Trump and the West should try to learn a few things from China.   President Trump meets President Xi. The POTUS reportedly had a very good time in China. [PT] Photo credit: AP   The President’s trip to the Far East came on the heels of the completion of China’s...
  • Is Fed Chair Nominee Jay Powell, Count Dracula?
      A Date with Dracula The gray hue of dawn quickly slipped to a bright clear sky as we set out last Saturday morning.  The season’s autumn tinge abounded around us as the distant mountain peaks, and their mighty rifts, grew closer.  The nighttime chill stubbornly lingered in the crisp air.   “Who lives in yonder castle?” Harker asked. “Pardon, Sire?” Up front in the driver's seat it was evidently hard to understand what was said over the racket made by the team of...
  • A Different Powelling - Precious Metals Supply and Demand Report
      New Chief Monetary Bureaucrat Goes from Good to Bad for Silver The prices of the metals ended all but unchanged last week, though they hit spike highs on Thursday. Particularly silver his $17.24 before falling back 43 cents, to close at $16.82.   Never drop silver carelessly, since it might land on your toes. If you are at loggerheads with gravity for some reason, only try to handle smaller-sized bars than the ones depicted above. The snapshot to the right shows the governor...
  • Business Cycles and Inflation, Part II
      Early Warning Signals in a Fragile System [ed note: here is Part 1; if you have missed it, best go there and start reading from the beginning] We recently received the following charts via email with a query whether they should worry stock market investors. They show two short term interest rates, namely the 2-year t-note yield and 3 month t-bill discount rate. Evidently the moves in short term rates over the past ~18 - 24 months were quite large, even if their absolute levels remain...
  • Heat Death of the Economic Universe
      Big Crunch or Big Chill Physicists say that the universe is expanding. However, they hotly debate (OK, pun intended as a foreshadowing device) if the rate of expansion is sufficient to overcome gravity—called escape velocity. It may seem like an arcane topic, but the consequences are dire either way.   OT – a little cosmology excursion from your editor: Observations so far suggest that the expansion of the universe is indeed accelerating – the “big crunch”, in...
  • Claudio Grass Interviews Mark Thornton
      Introduction Mark Thornton of the Mises Institute and our good friend Claudio Grass recently discussed a number of key issues, sharing their perspectives on important economic and geopolitical developments that are currently on the minds of many US and European citizens. A video of the interview can be found at the end of this post. Claudio provided us with a written summary of the interview which we present below – we have added a few remarks in brackets (we strongly recommend...
  • Precious Metals Supply and Demand
      A Different Vantage Point The prices of the metals were up slightly this week. But in between, there was some exciting price action. Monday morning (as reckoned in Arizona), the prices of the metals spiked up, taking silver from under $16.90 to over $17.25. Then, in a series of waves, the price came back down to within pennies of last Friday’s close. The biggest occurred on Friday.   Silver ended slightly up on the week after a somewhat bigger rally was rudely interrupted...

Support Acting Man

Top10BestPro
j9TJzzN

Austrian Theory and Investment

Archive

350x200

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

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]

 

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com