Bleeding the Patient to Health

There’s something alluring about cure-alls and quick fixes. Who doesn’t want a magic panacea to make every illness or discomfort disappear? Such a yearning once compelled the best and the brightest minds to believe the impossible for over two thousand years.

 

Instantaneous relief! No matter what your affliction is, snake oil cures them all. [PT]

 

For example, from antiquity until the late-19th century, bloodletting was used to treat nearly every disease. Reputable medical references recommended bloodletting as a cure for acne, asthma, cancer, epilepsy, gout, indigestion, insanity, leprosy, pneumonia, scurvy, tuberculosis, and everything in between. Bloodletting was even used to treat hemorrhaging.

The practice was simple enough. A surgeon, often a barber, would open a vein and drain blood from the patient. Somehow, this was supposed to cure them of disease.

The fundamental idea was that a sick person could be bled to health. Induced fainting, via bloodletting, was even considered beneficial. However, the results were often fatal.

On December 13, 1799, George Washington returned from a cold-winters horseback ride across his estate with a raspy throat. So, he requested bloodletting to make his sore throat better. Over a ten-hour period, roughly 126 ounces of blood was drained from his system.

The next day Washington’s treatment culminated in perfect success. Because of the bloodletting, Washington never suffered from a sore throat again. He had received a permanent cure. Namely, he croaked.

Wouldn’t a tablespoon or two of honey and lemon have been a better solution to the sore throat problem? Sure, it would have been less effective. But it would have been a great deal less terminal as well.

 

George Washington: so-so land speculator, successful revolutionary & general, founding father, first president of the US, and reportedly no friend of foreign entanglements. Here seen in those all too brief final hours, enjoying a sore throat for the very last time, orbited by family and assorted quacks. We don’t know who’s who in this picture, but this is obviously a room brimming over with decidedly fatal good intentions. There is a picture of Lincoln’s deathbed (which shows his prostrate body crammed into a tiny room with his wife and 15 politicians and generals, who are trying their best to look solemn and grimly resolved to carry on) that gives off similarly morbid vibes. There is a major difference though: almost no-one is contemplating Lincoln with the thoughtful, calculating looks Washington is at the receiving end of here. Lincoln was probably judged a hopeless case and had been crossed off everybody’s Rolodex already (a hole in the head is rarely conducive to one’s continued life and career). By contrast, Washington still offered the quacks a chance to speed up the healing process by devising ingenious ways of killing him. Admittedly, the cure really is hard to beat in terms of its permanence. It is an apodictic certainty that Washington never complained about a sore throat again. [PT]

 

Curing a Debt Problem with Credit

Certainly, repeated observation of the practice must have shown bloodletting’s cure-all powers to be a dubious proposition at best. You’d think that after several thousand years of failure the practice would have been tabled. But it wasn’t.

In fact, by the 17th century, many doctors knew bloodletting was more harmful than beneficial. But the practice persisted for another 200 years. How come?

From what we gather, doctors didn’t want to acknowledge their limitations. Although they had garnered an astute understanding of how the human anatomy functioned, they had yet to discover cures for practically all diseases. Thus, the common belief was that it was better to give a bloodletting treatment than no treatment at all.

These days, many diseases are still without cures. But progress has been made. Doctors and surgeons no longer imagine bloodletting to be the ultimate cure-all. Only a true medical quack would carry out such a barbarous treatment.

Unfortunately, the same cannot be said for present day monetary policy. We live under a system of outright quackery. What else, but a quack monetary system, would prescribe ever increasing expansions of credit as a cure-all for a debt problem?

 

This chart depicts causes and effects of the snake-oil cure applied by our vaunted central planners. It shows federal debt, corporate debt, the broad true money supply, and lastly, economic output as measured by GDP – all indexed to 100 in 1986, the year bubble blower extraordinaire, Alan Greenspan, took the helm at the Fed. However, we want to direct your attention to the cesura of 2008, when Greenspan’s successor, Ben Bernanke was tasked with bailing out yet another imploding bubble of the fiat money era. According to “experts” of his ilk, these things kin of “just happen”. The boom-bust cycle is seen as akin to a natural catastrophe, like an earthquake or an asteroid strike. No-one is ever responsible for it, least of all the people who directly and indirectly manipulate all the figures charted above, and certainly no-one ever “sees it coming”. The latter assertion involves a rather glaring omission – it requires one to ignore the hundreds, or more likely even thousands, of people who did and do see it coming. Why are they so studiously ignored? The problem is probably that the people with the slightly better functioning crystal balls often have a tendency to assign blame correctly. You see, it is not an earthquake after all, and it certainly isn’t a “market failure”, or a “lack of regulations” that is behind the increasingly dangerous succession of ever larger credit expansions and crashes. Stop and think about this chart for a moment. At the time when the Greenspan/Bernanke housing bubble co-production (implemented in line with the unsolicited advice dispensed by another bunch of “experts”*) blew up in everyone’s face, was there anyone who didn’t understand that a giant debt problem had been discovered? There is of course more to it than that; business cycle theory is a tad more intricate. But credit expansion is at its heart, and there always comes a moment in time when understanding that part of it requires nothing but a smattering of common sense. And now ponder the response of the central planners to the debt crisis. What on earth made them think that expanding money and credit at accelerated rates was the “solution” to a giant debt problem? Common sense is evidently in very short supply at the Eccles building – contrary to money from thin air, which they can never run out of. [PT] – click to enlarge.

 

Nonetheless, perpetual increases of credit underpin today’s wild and zany debt based fiat money system. This, no doubt, is akin to attempting to bleed a patient to health. It also guarantees a slow and painful death.

 

Fed Quack Treatments are Causing the Stagnation

On Tuesday, Fed Chair Janet Yellen, a quack, reeled back her78-month plan for the national monetary policy of the United States. If you recall, this was the grand plan she rolled out last week. Apparently, she’s already having some reservations.

At the National Association for Business Economics in Cleveland, Yellen said:

 

My colleagues and I may have misjudged the strength of the labor market, the degree to which longer-run inflation expectations are consistent with our inflation objective, or even the fundamental forces driving inflation.

Although we judge that inflation will most likely stabilize around 2 percent over the next few years, the odds that it could turn out to be noticeably different are considerable.

In my view, it strengthens the case for a gradual pace of adjustments. Moving too quickly risks over-adjusting policy to head off projected developments that may not come to pass.”

 

To be fair, Yellen was speaking about the pace at which the Fed will raise the federal funds rate. Though this is different than her plan to unwinding the Fed’s balance sheet, we suspect that, in time, this same rationale will be used to justify further Fed asset purchases.

The point is, the Fed only knows only one cure-all treatment for the economy’s stagnation. Always wrong, but never in doubt. Credit expansion is the Fed’s perennial solution.

 

This seems a very good opportunity to quote Ludwig von Mises, who pointed out: “However conditions may be, it is certain that no manipulations of the banks can provide the economic system with capital goods. What is needed for a sound expansion of production is additional capital goods, not money or fiduciary media. The boom is built on the sands of banknotes and deposits. It must collapse.” [PT]

 

Alas, like bloodletting barbers of the 19th century, it’s a quack treatment that has buried the economy under irreconcilable levels of debt. Yet the quacks who deliver it are oblivious to the fact that their treatment is not a cure for the economy’s stagnation, but rather the cause. Perhaps in two thousand years from now they’ll come to grips with this.

 

Chart by: St. Louis Fed

 

Chart and image captions by PT

 

Footnote:

 

* The “money quote” Paul Krugman will never be able to live down follows below; not for a lack of trying, mind – once he expended an entire NYT column in a vain attempt to deny that his words actually meant what they obviously mean:

To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.”

 

MN Gordon is President and Founder of Direct Expressions LLC, an independent publishing company. He is the Editorial Director and Publisher of the Economic Prism – an E-Newsletter that tries to bring clarity to the muddy waters of economic policy and discusses interesting investment opportunities.

 

 

 

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: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA

   
 

15 Responses to “Fed Quack Treatments are Causing the Stagnation”

  • Hans:

    For those whom have “some” interest in this debate.

    https://mises.org/library/money-supply-metrics-austrian-take

    There are some major difference between “legal tender” (over 18)
    and measurement of an index. (TMS)

  • The “de facto” argument is intellectually lazy.

    }”At any rate, those electronic credits can always be converted to “legal tender,” should demand for it rise.”{

    It is the false assumption that bank debt administered as lines of credit can be “converted” to legal tender that drives their debt based system. And “converted” is a misconception of the process, you would be “withdrawing” your money property from the bank, which the bank is legally required render to you upon your demand.

    }”Whatever are you going to do when they manage to ban cash?”{

    They really can’t ban cash as it forms the basis of their entire debt/credit system. What they can do is make extremely hard to get and unpopular to use.

    Your money is your private property and the right to private property is the foundational principle of liberty, without it, you have nothing.

    • RedQueenRace:

      “The “de facto” argument is intellectually lazy.”

      No it isn’t. It’s reality whether you like it or not.

      Go ahead and argue how many angels can dance on the head of a pin. But you’ll do that by yourself.

      • “No it isn’t.”

        OK, thank you for sharing your feelings on the subject.

      • Hans:

        You seem rather familiar to me, RedQueen. Have you been or are
        you now a member of the Peak Oil Club? Did you ever say or suggest
        that Bakken oil production would collapse? Did you not argue that
        they had unsustainable production cost, massive depletion and an
        unproductive EURs?

        The fact remains that unlike the majority of Americans, Mr Gordon, is indeed
        cognizant of the massive fed failure and the impending debt disaster.

        It is not only America’s central bank but the vast majority of central banks, which
        have accepted this fraudulent strategy and dogma, that the minds of men should
        determine market rates, in lieu of market forces. (Baccalaureate syndrome)

        And since both GNP and productivity (past two decades) have rapidly and steadfastly
        declined, the need to maintain even a modicum of growth requires the last backstop –
        debt. Heaps of debt, whether it is corporate, personal or that of governmental units,
        funded via “cheap” and subsidized money by the fraudulent fed.

        It is not only the FRB but their long, lasting and contriving friends, the Socsheviks (Red Horde).

        The great American economic machine is systematically being destroyed – by none
        other than the DC sewer.

        Time is fleeting, as the first economic crisis is only one decade away. And as God is
        my witness, many others will sure to follow. Yes, Mr Gordon, the bloodletting continues
        to this day.

  • The U.S.’s ‘True Money Supply’ currently stands at $1.53-Trillion U.S. legal tender in circulation around the globe, with about $280-Billion of that in circulation within the U.S., with about $72-Billion of that held in bank vaults.

    Your version of “TMS”, being the product of Fed fostered quackery, is primarily comprised of bank debt, not money, which marks you as little more than a propagandist for the Fed and part of the problem.

    http://carl-random-thoughts.blogspot.com/

    .

    • TheLege:

      Ignorance is bliss ..

      .. which is why the more ignorant we remain of your blog, the more blissful it will be.

    • RedQueenRace:

      If it is accepted and acts as money, it’s money. De facto trumps de jure.

      At any rate, those electronic credits can always be converted to “legal tender,” should demand for it rise.

      Arguing that something is not money because it does not meet a legal definition is pointless under the system as it actually works. Sure, it is a fact but it is a useless one.

      Whatever are you going to do when they manage to ban cash?

    • Hans:

      Oh, please, Dibley the author’s piece was about malfense of
      the FRB and not a thesis of TMS.

      Are you on the same page as the rest of us or are you promoting
      your theoretical, monetary website?

      • And I’m pointing the author’s complicity in the Fed’s malfeasance.

        I don’t have a “theoretical, monetary website”, you must be thinking of mises.org.

        • Hans:

          “And I’m pointing the author’s complicity in the Fed’s malfeasance.” Dwain, Mr Gordon
          is about as anti-Federal Reserve as one can get.

          Where is the author’s “complicity” with the FRB? I would like an explaination
          if you could provide one.

          “which marks you as little more than a propagandist for the Fed and part of the problem.”

          I strongly suspect you read few if any of Mr Gordon’s articles or else you
          would not have made such a laughable statement.

          BTW, are you still posting on Goldismoney2.com?

          • If Mr Gordon were truly anti-Fed then why does he continuously conflate the legal tender with the Fed and bank’s debt-based credit, which is in lock-step with the Fed’s false narrative? I think Mr. Gordon is more inti-legal tender than he is anti-Fed, and that’s why he doesn’t bother learning the difference between the legal tender and the debt based credit generated by the Fed and the banks, which, in my opinion, makes him complicit. He has his narrative, and he is sticking to it in spite of all the evidence available that proves him wrong.

            And I rarely go GIM2 anymore, it’s like visiting an old folk’s home, depressing….

  • Bam_Man:

    I believe Greenspan became Fed Chairman in 1987, not 1986.

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • Stock Market Manias of the Past vs the Echo Bubble
      The Big Picture The diverging performance of major US stock market indexes which has been in place since the late January peak in DJIA and SPX has become even more extreme in recent months. In terms of duration and extent it is one of the most pronounced such divergences in history. It also happens to be accompanied by weakening market internals, some of the most extreme sentiment and positioning readings ever seen and an ever more hostile monetary backdrop.   Who's who in the zoo in...
  • How the Global Trade Contraction Begins
    Historical Evidence The world grows increasingly at odds with itself, with each passing day.  Divided special elections.  Speech censorship by Silicon Valley social media companies.  Increased shrieking from Anderson Cooper.  You name it, a great pileup is upon us.   It was probably Putin's fault (just a wild guess) [PT]   From our perch overlooking San Pedro Bay, the main port of entry for Chinese made goods into the USA, facets of the mounting economic catastrophe come...
  • TARGET-2 Revisited
      Capital Flight vs. The Effect of QE Mish recently discussed the ever increasing imbalances of the euro zone's TARGET-2 payment system again in response to a few articles which played down  their significance. He followed this up with a nice plug for us by posting a comment we made on the subject. Here is a chart of the most recent data on TARGET-2 available from the ECB; we included the four largest balances, namely those of  Germany, Italy, Spain and the ECB itself.   The...
  • Gold Sector – An Obscure Indicator Provides a Signal
    The Goldminbi In recent weeks gold apparently decided it would be a good time to masquerade as an emerging market currency and it started mirroring the Chinese yuan of all things. Since the latter is non-convertible this almost feels like an insult of sorts. As an aside to this, bitcoin seems to be frantically searching for a new position somewhere between the South African rand the Turkish lira. The bears are busy dancing on their graves.   Generally speaking bears have little to...
  • When the Freaks Run Wild
      Conditioned to Absurdity The unpleasant sight of a physical absurdity is both grotesque and interesting.  Only the most disciplined individual can resist an extra peek at a three-legged hunch back with face tattoos.  The disfigurement has the odd effect of turning the stomach and twisting the mind in unison.   Francesco Lentini, the three-legged man. Born in Sicily in 1881 with “three legs, four feet, sixteen toes and two pair of functioning genitals” he made a career of...
  • What Have You Done For Me Lately? Precious Metals Supply and Demand
      Aragorn's Law or the Mysterious Absence of the Mad Rush Last week the price of gold dropped $8, and that of silver 4 cents.  There is an interesting feature of our very marvel of a modern monetary system. We have written about this before. It sets up a conflict, between the perverse incentive it administers, and the desire to protect yourself in the long term.   Answer: usually when it is too late... [PT]   Consider gold. Many people know they should own it. They...
  • An Inquiry into Austrian Investing: Profits, Protection and Pitfalls
    Incrementum Advisory Board Discussion Q3 2018 with Special Guest Kevin Duffy “From a marketing perspective it pays to be overconfident, especially in the short term. The higher your conviction the easier it will be to market your investment ideas. I think the Austrian School is at a disadvantage here because it’s more difficult to be confident about your qualitative predictions and even in terms of investment advice it is particularly difficult to be confident in these times because we...
  • Climbing the Milligram Ladder - Precious Metals Supply and Demand
    FRN Muscle Flexing Shh, don’t tell the dollar-paradigm folks that the dollar went up 0.2mg gold this week. Or if that hasn’t blown your mind, the dollar went up 0.01 grams of silver. It’s less uncomfortable to say that gold went down $10, and silver fell $0.08. It doesn’t force anyone to confront their deeply-held beliefs about money. But it does have its own Medieval retrograde motion to explain.   Even the freaking leprechaun is now offering government scrip...  this really...
  • Introducing the Seasonax Web App
      Closing the Affordability Gap Up until recently, the Seasonax app was only available to users of Bloomberg or Reuters terminals, putting it out of reach of most non-institutional investors. This has now changed. A  HYPERLINK "https://app.seasonax.com/"web-based version has become available which anyone can use, and it comes at a much lower price point as well. When visiting the site where the app is hosted, this is the welcome screen:   Featured patterns at the Seasonax web app...
  • Wall Street - Island of the Blessed
    Which Disturbance in the Farce can be Profitably Ignored Today? There has been some talk about submerging market turmoil recently and the term "contagion” has seen an unexpected revival in popularity – on Friday that is, which is an eternity ago. As we have pointed out previously, the action is no longer in line with the “synchronized global expansion” narrative, which means with respect to Wall Street that it is best ignored.   Misbehaving EM currencies – the Turkish lira...
  • Fundamental Price of Gold Decouples Slightly - Precious Metals Supply and Demand
    The Fundamental Price has Deteriorated, but... Let us look at the only true picture of supply and demand in the gold and silver markets, i.e., the basis. After peaking at the end of April, our model of the fundamental price of gold came down to the level it reached last November. $1,300. Which is below the level it inhabited since Q2 2017. We will look at an updated picture of the supply and demand picture. But first, here is the chart of the prices of gold and silver.   Gold and...
  • The Fake Promise of Adult Day Care
      Cold Dark Clouds The sun always shines brightest in the northern hemisphere during summer’s dog days.  Here in America, from sea to shining sea, the nation burns hot.  But, all the while, cold dark clouds have descended over the land of the free.   In case you ever wondered - yes, they really did say it... [PT]   For example, Senator Mark Warner – an absolute goober – is currently running interference for the Democrats on a proposal to silence political...

Support Acting Man

Item Guides

j9TJzzN

The Review Insider

Dog Blow

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]

 

Mish Talk

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com