The True Believer

How is it that seemingly intelligent people, of apparent sound mind and rational thought, can stray so far off the beam?  How come there are certain professions that reward their practitioners for their failures? The central banking and monetary policy vocation rings the bell on both accounts.  Today we offer a brief case study in this regard.

 

Minneapolis Fed president Neel Kashkari attacking a block of wood with great zeal. [PT]

Photo credit: Linda Davidson / The Washington Post

 

Minneapolis Federal Reserve President Neel Kashkari is a man with strong convictions.  He is what the late Eric Hoffer would have classified as “the true believer.”  According to Hoffer:

 

“It is the true believer’s ability to ‘shut his eyes and stop his ears’ to facts that do not deserve to be either seen or heard which is the source of his unequaled fortitude and constancy.  He cannot be frightened by danger nor disheartened by obstacle nor baffled by contradictions because he denies their existence.”

 

For starters, Kashkari believes the Federal Reserve, an unelected board of bureaucrats, can crunch economic data into pie graphs and bar charts and draw conclusions as to what they should fix the price of credit at.  Moreover, he believes that by fixing credit at the “correct” price, the Fed can somehow “optimize” the economy.

This idea is patently false.  Remember, the economy is comprised of billions of people with ever changing interactions.  Activities and exchanges are always adapting.

What may be the correct price of credit at one time is precisely the wrong price of credit at another.  Only a free market for credit, where rates are agreed to by willing borrowers and lenders, and unobstructed by government decree, can self-correct in real time to properly meet changing supply and demand.

 

Well Considered Conclusions

But even if it were true that economic data could be used by the Fed to properly fix the price of credit, there is an even greater leap of faith that Kashkari takes with unequaled fortitude.  Specifically, Kashkari wholeheartedly accepts data contrived by federal bureaucrats as if it were the gospel truth.

 

“Inflation breakeven rates” are an attempt to measure the inflation expectations of market participants by comparing two sets of market-derived bond yields (see explanation in the annotation above). As you can see, the market tends to change its mind frequently, and occasionally to a very large extent. As we point out in the annotation, the idea that it is “bad” for the economy if the central bank fails to constantly debase the money it issues has no basis in fact. No other shibboleth held as sacrosanct by the central planners is as utterly bereft of theoretical and empirical evidence as this one. One could essentially call the Fed a faith-based printing company. [PT] – click to enlarge.

 

These fabricated abstractions are what Kashkari and his cohorts use as the basis for fixing the price of credit to their liking. No doubt, the methodology of using economic data to identify apparent aggregate demand insufficiencies and perceived supply gluts is flawed.

Unemployment.  Gross domestic product.  Price inflation.  These data points are all fabricated and fudged by people with their own biases and prejudices. For each headline number, there are a list of footnotes and qualifiers.  Hedonic price adjustments.  Price deflators.  Seasonal adjustments.  Discouraged worker disappearances.  These subjective adjustments greatly affect the results.  So, what good are they?

 

GDP and CPI, y/y change rates. Apart from the fact that the methodologies used to compile these data are questionable and not entirely free of political considerations, many of the things they purport to “measure” are actually not measurable; and to the extent that the data are measurable, they only have value to economic historians and to those who wish to meddle in the economy. Bureaucratic meddling in the economy is apodictically certain to worsen its performance, but it usually does create short term advantages for select interest groups. [PT] – click to enlarge.

 

On Monday, in an article titled, My Take on Inflation, Kashkari demonstrated his full faith and convictions in government data – and the Fed’s ability to use it to pilot the economy.  We won’t waste your time with his many rambling explanations.  But in the spirit of observing a lost man navigating through the wilderness using butterflies as reference markers, we offer Kashkari’s well considered conclusion:

 

“If I am correct that the Fed’s own actions are an important factor driving surprisingly low inflation and falling inflation expectations, the implication is that our policy should focus on supporting inflation to ensure that we are on track to return to our 2 percent target.  My preference would be not to raise rates again until we actually hit 2 percent core PCE inflation on a 12-month basis, unless we have seen a large drop in the headline unemployment rate signaling that we have used up remaining labor market slack, or a surprise increase in inflation expectations.”

 

Do you follow the logic?  If not, consider it confirmation that your brain hasn’t been turned to mush by what passes today as learned economic thought.

 

Federal Reserve President Kashkari’s Masterful Distractions

Indeed, these are the words of the true believer.  There is no consideration that the data might be garbage.  Kashkari likely never considered the possibility.  Instead, he goes about his dubious profession with the certainty of a carpenter hanging kitchen cabinets.  But unlike the carpenter, Kashkari doesn’t need to measure twice as to cut once.  He operates with unmatched precision.

Kashkari, without question, is a true believer in extreme economic intervention.  If you recall, as federal bailout chief, he functioned as the highly visible hand of the market.  In early 2009, he arrived at work each day with a smile and went about the business of rapidly dispersing Henry Paulson’s $700 billion of TARP funds to the government’s preferred corporations.  He did so under the pretense that he was destroying capitalism to save it.

Yet it is questionable work experience like this that allows a person to rise to the level of a Federal Reserve President.  Moreover, if Kashkari continues his zealous dedication to his craft, there is no reason he cannot ascend to Fed Chairman or Managing Director of the International Monetary Fund.  In fact, Jeffrey Gundlach believes Kashkari will be the next Chairman of the Federal Reserve.

The point is, Kashkari and his cohorts have aided and abetted the growth in public and private debt well beyond their serviceable limits.  They have debased the dollar to less than 5 percent of its former value and propagated bubbles and busts in real estate, stock markets, emerging markets, mining, oil and gas, and just about every other market there is.  At the same time, they’ve been remarkably successful at enriching private bankers.

 

They don’t dare call it a bubble… establishment rag “The Economist” notices that asset prices might be a tad elevated. Gee, we wonder how that happened! Could it be all that money printing? [PT]

 

Hence, the true believers that keep the charade going via pseudo academic distractions about inflation targets, headline unemployment, labor market slack, supply gluts and other aggregated nonsense, are promoted for running interference.  When it comes to being a tool for the big banks, Kashkari’s distractions are masterful.

 

Dulling the dollar – this Federal Reserve policy-induced vanishing act has gravely retarded economic growth and technological progress, enriched the already rich at the expense of the poor, and corroded the moral fabric of society. It is the reciprocal of the bubbles mentioned above. Call it a symptom of insidious plunder. We have no idea what’s supposed to be good about that. [PT] – click to enlarge.

 

Charts by: St. Louis Fed

 

Chart annotations and image captions by PT

 

Link to original: http://economicprism.com/federal-reserve-president-kashkaris-masterful-distractions/

 

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

   
 

One Response to “Federal Reserve President Kashkari’s Masterful Distractions”

  • Hans:

    Actually, I was there when dat photo was taken, doing yard work
    for the President.

    It can not be seem, however, he was smashing a set of china,
    with all the previous pictures of past fed chairman (woman).

    Between swings he could be heard muttering, “what about me”
    “it should have been me.”

    America’s slow rot started after the turn of the twentieth century
    and the ramifications of the 1913 Federal Reserve Act only help
    to facilitate it.

    Just as 7% of the populous identified chocolate milk coming from
    CHOCOLATE COWS, so to would only 7% of Americans be able to
    describe even a single function of the Reserve.

    Most Americans would define the money supply as their weekly
    payroll check. Why when asked, most worker bees could not even
    correctly answer their second or first highest cost of living !!

    The changes have been so pronounced in the past half a century, that
    us old timers never needed 8 years of Barrocko’s rope-per-doper.

    The FRB, in all of it’s magnificats stupidity, is playing no small role
    in the collapse and destruction of this Greatest of Great Nations.

    The Rome Empire waffies many times but always managed to
    stabilize itself; until one day, History decided it had one too many waffies.

    In the final analysis, there is a nexus between the Shriner’s Circus,
    All-Star Wrestling and the Federal Reserve. (aka Sachs Reserve)

    Unfortunately, this institution is emblematic of the litany of problems
    facing this sharply divided nation. Our enemies are saying, just
    leave them to their own devices and we will be welcomed with open
    arms.

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • The Gold Sector Remains at an Interesting Juncture
      Technical Divergence Successfully Maintained In an update on gold and gold stocks in mid June, we pointed out that a number of interesting divergences had emerged which traditionally represent a heads-up indicating a trend change is close (see: Divergences Emerge for the details). We did so after a big down day in the gold price, which actually helped set up the bullish divergence; this may have felt counter-intuitive, but these set-ups always do. Consider now the updated chart below...
  • Confronting the Dragon with Peter Navarro
      Of No Real Use A young man might go to business school believing he is obtaining some sort of academic training that will enable him to make a comfortable living.  His degree may gain him entry into a large corporation, where he can work his way up to a good income.  This may even put him on the fast track to what he envisions as success.   Don't knock it: Being useless can lead to unexpected career opportunities... [PT]   But his academic training likely won't...
  • Trouble in Paradise
      Impressive Zeal for Faded Ideals Uncompromising independence, rugged individualism, and limitless personal freedom were once essential to the American character.  According to popular American folklore, they still are.  We have some reservations.   Rugged individualists suffer mid-life identity crisis. [PT]   The principles that gave rise to the American character died long ago.  Freedom.  Liberty.  Independence.  Limited representative government. Sound...
  • Gold – Macroeconomic Fundamentals Improve
      A Beginning Shift in Gold Fundamentals A previously outright bearish fundamental backdrop for gold has recently become slightly more favorable. Ironically, the arrival of this somewhat more favorable situation was greeted by a pullback in physical demand and a decline in the gold price, after both had defied bearish fundamentals for many months by remaining stubbornly firm.   The eternal popularity contest...   The list of gold fundamentals that have improved is...
  • The United States of Terror
      Bombs Away! Two recent articles* have again demonstrated that the greatest “terrorist” entity on earth are not the bogymen – Russia, China, Iran, North Korea – so often portrayed by Western presstitutes and the American government, but the United States itself!   This is an old cartoon, but still a good one. It perfectly describes the trigger-happy Western political class and the depth of its “thinking”. By happenstance we recently reviewed the Libya intervention...
  • Capitulation and Currency Pain - Precious Metals Supply and Demand
      Waving the White Flag The price of gold rose two bucks last week, though the price of silver fell 10 cents. We have seen several analyses recently predicting big price drops, in one case by at least $500 in gold by the end of the year. Is this what capitulation looks like? It’s said they don’t ring a bell at the top, but they don’t ring a bell at the bottom either.   The give-up moment arrives... [PT]   We have also seen technical analysis arguing that...
  • Maurice Jackson Interviews Rick Rule – Investing in Natural Resources
      Contrarian Investment Opportunities in Natural Resources Maurice Jackson of Proven and Probable has recently interviewed Sprott U.S. Holdings CEO Rick Rule, a well known specialist and “old hand” in the natural resource space. This is quite a wide-ranging and interesting interview, so we decided to present it to our readers. Below you find a summary and our comments on the main topics discussed, a video/podcast of the interview,  as well as a download link to a PDF file of the...
  • The True Sport of MAGA
      Chest Bumps One of the more extraordinary things that investors have seen in living memory is unfolding at this precise moment. This goes for business leaders, money managers, veteran Wall Streeters, value investors, 401(k) holders, momentum traders, FX guys, gold bugs, technical gurus, chartists, pork belly speculators, quants, astrologists, Larry Summers, put option sellers, dweebs and geeks, millennial index fund enthusiasts, and everyone in between.   Pork belly speculators...
  • Black Holes for Capital - Precious Metals Supply and Demand
      Race to the Bottom Last week the price of gold fell $17, and that of silver $0.30. Why? We can tell you about the fundamentals. We can show charts of the basis. But we can’t get into the heads of the sellers.   Other people's fiat: in the global race to the bottom, it was recently the turn of emerging market currencies to tank. [PT]   We can say that in the mainstream view, the dollar is rising. The dollar, in their view, is not measured in gold but in rupees in...
  • US Money Supply and Fed Credit – the Liquidity Drain Becomes Serious
      US Money Supply Growth Stalls Our good friend Michael Pollaro, who keeps a close eye on global “Austrian” money supply measures and their components, has recently provided us with a very interesting update concerning two particular drivers of money supply growth. But first, here is a chart of our latest update of the y/y growth rate of the US broad true money supply aggregate TMS-2 until the end of June 2018 with a 12-month moving average.   US TMS-2: y/y growth rate with...

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