Memo To Yellen: What ‘Escape Velocity’ – -The Q4 GDP Report Was Not ‘Solid’

Janet Yellen and her band of money printers think they are driving the GDP forward toward the nirvana of full employment and the achievement of every last dime of ‘potential GDP’. What they are actually doing, instead, is inflating the Wall Street bubble to ever more dangerous heights because their monetary injections never make it to the real main street economy; they just whirl around in the canyons of Wall Street where they enable speculators to wildly inflate the price of risk assets.
Now comes another GDP report card, this one ‘disappointing’. Not only does it refute the claim of the Wall Street Keynesian chorus that the U. S. economy hit ‘escape velocity’ last spring and summer, but it is also chock-a-block full of evidence that the Fed’s machinations have nothing to do with the performance of the real economy.
As usual, the seasonally adjusted numbers on a annualized basis are full of noise – -the most significant being inventory fluctuations. The latter flattered the 5% number that so excited the headline writers last quarter, but had the opposite impact this time. The actually gain in real financial sales, therefore, was only 1.8% – -even more tepid than the headline.
But the annualized quarterly figures just don’t cut it, in any event. National defense spending in Q4 declined at a whopping 13.2% annualized rate, but unfortunately, it did not reflect the actual hard-chop to the Pentagon’s budget that is long over-due. It was just the payback for the anomalous annualized growth of 15% in Q3. The latter period tracks the fiscal year-end in September, and therefore the big figure which ballooned Q3 GDP did not reflect economic growth at all – – just the usual scramble of bureaucrats to waste money at year end before appropriations lapse.

This post was published at David Stockmans Contra Corner by David Stockman ‘ January 30, 2015.

Fed Statement: Not Dovish, Not Hawkish – -Just Gibberish

Call it 529 words of gibberish and be done!
All of the FOMC’s platitudes about the economy ‘expanding at a solid pace’, labor market conditions which have ‘improved further’, household spending which is ‘rising moderately’ and business fixed investment which is ‘expanding’ are not simply untruthful nonsense; they are a smokescreen for the Fed’s actual intention. Namely, to keep the Wall Street gamblers in free money in the delusional hope that ever rising stock prices will generate a trickle down of ‘wealth effects’ in the main street economy.
But in equivocating still another time about when they intend to get the Fed’s big fat ZIRP thumb off the money market, the denizens of the Eccles Building have shown their true colors. The FOMC is not really comprised of economists or central bankers. It is simply a groupthink posse of spineless cowards who are petrified of a Wall Street hissy fit – – and are therefore willing to dispense whatever spurious word clouds they judge may be necessary to keep the gamblers hitting the ‘bid’ until the next meeting.
After all, how can it possibly be true that notwithstanding all the ‘solid’ economic advances it crowed about in the opening paragraph, the Fed still intends to maintain zero interest rates through mid-year – or for what will be an out-of-this-world 80 months running? As recently as 10 years ago that incredulous juxtaposition – -a solid economy coupled with desperate policy measures – -would have been laughed out of court by even the Fed’s own economists.
In fact, we don’t have a solid economy at all, and the halting advances of recent years have absolutely nothing to do with Fed policy. Instead, the utterly trite macroeconomic commentary contained in its meeting statements is a form of Keynesian ritual incantation based on a delusional conceit. Namely, that left to its own devices the US economy would chronically sink into a recessionary stupor, and that it is only the deft interventions of the central bank which nudge the $18 trillion US economy back onto the path toward full employment and the realization of ‘potential GDP’.

This post was published at David Stockmans Contra Corner by David Stockman ‘ January 29, 2015.

Alexis Tsipras’ Open Letter Nails The Stupendous Folly Of Brussels’ ‘Extend And Pretend’

Alexis Tsipras’ ‘open letter’ to German citizens published on Jan.13 in Handelsblatt, a leading German language business newspaper
Most of you, dear Handesblatt readers, will have formed a preconception of what this article is about before you actually read it. I am imploring you not to succumb to such preconceptions. Prejudice was never a good guide, especially during periods when an economic crisis reinforces stereotypes and breeds biggotry, nationalism, even violence.
In 2010, the Greek state ceased to be able to service its debt. Unfortunately, European officials decided to pretend that this problem could be overcome by means of the largest loan in history on condition of fiscal austerity that would, with mathematical precision, shrink the national income from which both new and old loans must be paid. An insolvency problem was thus dealt with as if it were a case of illiquidity.
In other words, Europe adopted the tactics of the least reputable bankers who refuse to acknowledge bad loans, preferring to grant new ones to the insolvent entity so as to pretend that the original loan is performing while extending the bankruptcy into the future. Nothing more than common sense was required to see that the application of the ‘extend and pretend’ tactic would lead my country to a tragic state. That instead of Greece’s stabilization, Europe was creating the circumstances for a self-reinforcing crisis that undermines the foundations of Europe itself.
My party, and I personally, disagreed fiercely with the May 2010 loan agreement not because you, the citizens of Germany, did not give us enough money but because you gave us much, much more than you should have and our government accepted far, far more than it had a right to. Money that would, in any case, neither help the people of Greece (as it was being thrown into the black hole of an unsustainable debt) nor prevent the ballooning of Greek government debt, at great expense to the Greek and German taxpayer.

This post was published at David Stockmans Contra Corner on January 29, 2015.

How ‘Mr. Dig Dig’ Buried Wuhan In Debt: Local Government Financing Vehicles Are At The Heart Of China’s Ponzi

WUHAN, China – A little over a year ago, a Chinese credit agency downgraded a government-owned financing company in this dusty industrial city. Default – nearly unheard-of in China on government bonds – was a possibility, it said.
But during discussions with lenders, city officials made sure Wuhan Urban Construction Investment & Development Corp. could keep borrowing, officials with knowledge of the matter say. The city during those discussions said it backed the finance firm, essentially guaranteeing the debt, and helped the company restructure its assets to entice investors to lend more.
Borrowing by firms like Wuhan Urban is a big reason China’s debt load is expanding. The International Monetary Fund says China’s debt is growing more rapidly than debt in Japan, South Korea and the U. S. did before they tumbled into deep recessions. Local-government borrowing is responsible for one-fourth of the buildup in China’s overall domestic debt since 2008.
Beijing in early December took a step to rein in rampant borrowing by local-government firms. China’s clearing agency for bonds surprised the market on Dec. 8 with new rules to prohibit investors from using low-grade debt to borrow cash. The order contributed to a selloff in mainland-Chinese securities ranging from government bonds to stocks, as investors sold liquid assets – including bonds from local-government financing companies – to raise cash. China’s markets have since rebounded but remained volatile.

This post was published at David Stockmans Contra Corner on January 28, 2015.

The Wreck Of The Monetary Hesperus

For 73 months running the Fed has lashed the money markets to the gross financial anomaly of ZIRP. Never before in the history of the world has any central bank or other monetary authority decreed that overnight money shall be indefinitely free to gamblers or that liquid savers should have their hard earned wealth chronically confiscated by negative returns after inflation and taxes. And, needless to say, never have savers and borrowers in a free market struck a bargain night after night after night at 0% for six years running, either.
Yet now comes another Fed meeting and announcement that our monetary overlords will be ‘patient’ with zero cost money for several more meetings. Indeed, there are even hints that the era of ZIRP could extend beyond mid-summer – that is, for more than 80 months.
So an urgent question screams out. Don’t these obstinate zealots realize that zero cost overnight money has only one use, and that is to fund the carry trades of Wall Street gamblers?
Accordingly, are they not even more culpable than Longfellow’s skipper, who perished along with the fair daughter he lashed to his ship’s mast because he insouciantly belittled a ferocious storm made by nature? By contrast, these benighted folks at the Fed are actually fueling their own hellish financial storm, thereby leaving in mortal danger the main street economy which they, too, have foolishly nailed to the mast of ZIRP.
The reason that ZIRP is of exclusive benefit to financial gamblers is straight forward. No businessman in his right mind would fund equipment, inventories or even receivables with borrowings under a one-day or even one-week tenor. The risk of fatal business disruption resulting from the need to precipitously liquidate working assets if funding can not be rolled-over at or near the existing interest rates is self-evident.
Likewise, no sane householder would buy a home, automobile or even toaster on overnight borrowings, either. And, yes, financial institutions experiencing the daily ebb and flow of cash excesses and deficiencies do use the money market. But managing fluctuating cash balances does not require ZIRP – -especially when most banks alternate between being suppliers and users of funds on practically an odd/even day basis. Cash balances in the financial system can be cleared at 0.2%, 2% or 5% with equal aplomb.

This post was published at David Stockmans Contra Corner by David Stockman ‘ January 28, 2015.

It’s A 3-Peat: Escape Velocity Went Missing In December, Again

There may be something to December after all. It was credit markets that shifted downward (bearish yield curves and credit spreads) dramatically around the end of November and the first few days of December. Given the persistence of large players moving credit and funding markets, this may not be all that hard to fathom with the close proximity of credit desks next to, say, lending desks or high yield trading. If high yield issuance is any good proxy about marginal conditions, the erosion there is as much about an economic trend as it is some semblance of restoration of fundamental sanity.
It is too early to define the shape of the economy right at this moment, though needless to say that there is far more uncertainty than there was even a few months ago – just before the Christmas letdown.
The Dow Jones Industrial Average plunged more than 350 points on Tuesday after weaker-than-expected data on durable-goods orders and disappointing earnings reports from bellwethers, such as Microsoft Corp. and Caterpillar Inc. sparked fears that economic growth is slowing.
Durable-goods orders fell 3.4% in December, raising questions about whether businesses are really ready to ramp up investment in 2015.
This will all be very ‘unexpected’ to economists who have spent the better part of 2014 vehemently assured about that growth trend. In the case of durable goods, there was certainly a pickup in mid-year, but any extrapolation from that was always misplaced since it was the same mini-cycle that plagued 2013. What looked like growth to those who pay no attention to context was instead artificial, and thus unsustainable, in every way.

This post was published at David Stockmans Contra Corner by Jeffrey P. Snider ‘ January 27, 2015.

The Central Banks’ Cheap Money Deflation Cycle: Iron Ore Supply Soaring, China Demand Faltering, Prices &Profits Collapsing

Economists may teach that low prices and declining demand encourage producers to decrease supply, but the iron ore industry appears to have skipped class that day.
‘The combination of a further increase in global iron ore supply this year and only subdued demand growth suggests iron ore prices will continue to drift lower,’ said Caroline Bain, an analyst at Capital Economics, in a note Monday. She forecasts iron ore prices at $60 a tonne by year-end, with risks to the downside. Iron ore touched a more than five-year low Monday of around $63.30 a tonne, although some forward contracts are already pricing it under $60.
Output has picked up over the past few years, encouraged by expectations China demand would continue to post strong growth and by low production costs in Australia and Brazil, she said. She noted Rio Tinto and BHP Billitonput their average production cost in Pilbara, where most of Australia’s iron-ore production is located, at around $25 a tonne, compared with 2010-13 average market prices at $145 a tonne. Even at current prices, these producers are still profitable, Bain noted. Australia is the world’s second-largest iron-ore producer after China.
Despite 2014′s around 50 percent decline in iron ore prices, the big four producers – Vale, Rio Tinto, BHP Billiton and Fortescue – continue to expand production and other companies are also bringing projects on line this year, she said, forecasting Australian production will rise 6 percent this year, although that’s down from 2014′s 20 percent rise.

This post was published at David Stockmans Contra Corner on January 27, 2015.

After The ‘Syriza Shock’: Now Comes The Hard Choice Of Escape Or Merely Re-setting The Terms of Greece’s EU Servitude

We can heartily praise Alexis Tsirpras for calling bull on the destructive puzzle palace economics thrust on his country by the hypocrites and liars who rule from Brussels. And his finance minister designate, economist Yanis Varoufakis, is surely on the right track when he targets the rent-seeking bankers, big businesses and media operators who have plundered the Greek state for decades.
Indeed, his pledge that ‘we are going to destroy the Greek oligarchy system’ should resonate throughout the length and breadth of Europe. After all, what has smothered growth, enterprise and hope in the EU is exactly the kind of crony capitalist corruption of economic life and exploitation of the state that had already wrecked the Greek economy – -even before the Trioka administered the coup de’ grace.
So the Syriza Shock is an inflection point. It represents the beginning of the end of unimpeded rule by the elitist apparatchiks who dominate the central banks and the economic policy machinery of Brussels, Washington and London. Overwhelmingly, their half-baked Keynesian and statist solutions have propped up the giant banks, fueled stupendous inflation of financial assets and enabled an era of obscene gambling windfalls to the very rich which is unprecedented in modern history.
But what centrally administered financialization has not done is relieve the middle and working classes from a relentless assault on their living standards or a growing recognition that their voices have been totally muted in the halls of government. So it was only a matter of time before a revolt of the ‘demos’ would materialize; and, needless to say, what could be more supremely fitting than that the insurrection has started in the very land where the demos first found its voice?

This post was published at David Stockmans Contra Corner by David Stockman ‘ January 26, 2015.

Fear And Dread Of Deflation – -The Keynesian Big Lie At Work

The fear of deflation has become the cornerstone of Keynesian economic thought. A lack of inflation has been used to explain periods of economic weakness from the Great Depression of the 1930′s, to the Great Recession 2008-2009. And now, that philosophy has been adopted as gospel by those that control the Federal Reserve and virtually every central bank on the planet. In reality deflation is cathartic, and a necessary condition to heal the economy. If deflation were allowed to naturally run its course, as it did in the brief Depression of 1920-21, depressions would be sharp but fairly short in duration. And the economy would find itself on firm footing fairly quickly. However, Keynesians view deflation as the source of a destructive cycle in which; asset prices plunge, companies cut jobs, spending plummets, and a permanent recession sets in. Therefore, the prevailing current view maintains that deflation is something that needs immediate intervention of massive monetary stimulus – you can say they have become deflation phobic. This is why I find it fascinating that Keynesians, who proliferate in central banks and in the financial media, are relentlessly cheerleading the recent spate of deflationary data. And, just to be clear, deflation has not been limited to the New England Patriots’ footballs – it is everywhere you look.
However, it is the height of hypocrisy that Keynesians use the specter of deflation to frighten us into believing we need to endlessly dilute the value of our currencies and take the rate on our savings to zero percent. But then, at the same time, take every data point that points to falling prices as another reason to be bullish on markets and the economy. Their mantras are: Lower commodity prices – a boost to the consumer, plunging interest rates – an increase in mortgage refinancing, I actually heard a commentator suggest crumbling copper prices were a boon to minting pennies – he obviously didn’t realize pennies have been minted mostly with zinc since 1983.
How can Keynesians celebrate deflation, while at the same time use it to scare us into accepting ZIRP forever? The easy answer would be, they are cheerleaders for the stock market…and I believe they are.

This post was published at David Stockmans Contra Corner on January 26, 2015.

Radical Leftists Win Election In Greece – Future Of Eurozone In Serious Jeopardy

Radical leftists have been catapulted to power in Greece, and that means that the European financial crisis has just entered a dangerous new phase. Syriza, which is actually an acronym for ‘Coalition of the Radical Left’ in Greek, has 36 percent of the total vote with approximately 80 percent of the polling stations reporting. The current governing party, New Democracy, only has 28 percent of the vote. Syriza leader Alexis Tsipras is promising to roll back a whole host of austerity measures that were imposed on Greece by the EU, and his primary campaign slogan was ‘hope is on the way’. Hmmm – that sounds a bit familiar. Clearly, the Greek population is fed up with the EU after years of austerity and depression-like conditions. At this point, the unemployment rate in Greece is sitting at25.8 percent, and the Greek economy is approximately 25 percent smaller than it was just six years ago. The people of Greece are desperate for things to get better, and so they have turned to the radical leftists. Unfortunately, things may be about to get a whole lot worse.
Once they formally have control of the government, Syriza plans to call for a European debt conference during which they plan to demand that the repayment terms of their debts be renegotiated. But the rest of Europe appears to be highly resistant to any renegotiation – especially Germany.
Syriza says that it does not plan to unilaterally pull Greece out of the eurozone, and that it also intends for Greece to continue to use the euro.
But what happens if Germany will not budge?
Syriza’s entire campaign was based on promises to end austerity. If international creditors refuse to negotiate and continue to insist that Greece abide by the austerity measures that were previously put in place, what will Syriza do?

This post was published at The Economic Collapse Blog on January 25th, 2015.

European ‘QE’ In a Nutshell – Propagating the Western Trickle Down Policy Errors

This is about it in a nutshell. ‘Stimulus’ American style comes to Europe.
Printing money and giving it to your cronies inflates asset prices, lines the pockets of the well-heeled heels, but does little for the real economy.
But it doesn’t produce broad inflation (or aggregate demand) so we can do it many times! Success!
“At last the euro’s lords and masters have accepted that something must be done about their zone’s lamentable growth. They will unleash a massive bond-buying programme totalling a reported 1tn. The former BBC economic pundit Stephanie Flanders told the world it was ‘Santa Claus time’; the European Central Bank (ECB) has ridden to the rescue.

This post was published at Jesses Crossroads Cafe on 24 January 2015.

The Private Equity Boom, Easy Money, and Crony Capitalism

Amongst the big winners from the Obama Fed’s Great Monetary Experiment has been the private equity industry. Indeed this went through a near-death experience in the Great Panic (2008) before its savior – Fed quantitative easing – propelled it forward into new riches. There is no surprise therefore that its barons who join the political stage (think of the last Republican presidential candidate) have no interest in monetary reform. And the same attitude is common amongst leading politicians who hope private equity will provide them high-paid jobs when they quit Washington.
The ex-politicians are expected by their new bosses to join the intense lobbying effort aimed at preserving the industry’s unique tax advantages (especially with respect to deductibility of interest and carry income) whilst establishing the links with regulators and governments (state and federal) that help generate business opportunity for the varied enterprises within the given private equity group. The special ability of these to take advantage of the monetarily induced frenzy in high-yield debt markets and secure spectacularly cheap funds means they become leading agents of malinvestment in various key sectors of the economy.
What’s Makes Private Equity Run?
Spokespersons for the industry claim that the private equity business is all about spotting opportunities to take over already established businesses, and then using home-grown talent (within the private equity management team) to transform their organization so as to create value for shareholders. And this can all be accomplished, they say, without the burden of frequent reporting requirements as in public equity.
That is all very laudable, but why all the leverage, why all the political connections, and why all the tax advantages? And even before getting to these questions, why should we praise the secrecy? After all, public equity markets are meant to do a good job of incentivizing and disciplining management, especially in this age of shareholder activism, so why is private equity superior?

This post was published at Ludwig von Mises Institute on JANUARY 24, 2015.

Meet Bloomberg’s Latest Idiot: Shobhana Chandra On Why Falling Prices Cause Hungry People To Starve

Did the Onion hack Bloomberg’s website? Or perhaps it was Charlie Hebdo and The Strawman Collective. Surely only a prankster could write the following with a straight face:
On the surface, everything getting cheaper sounds like a dream come true. It’s not. The prospect is so terrifying that it’s prompted central bankers around the industrialized world to pour trillions of dollars into their economies to prevent a sustained drop in prices.
That’s right, one Shobhana Chandra – – apparently an unpaid Bloomberg intern who snuck one by the night editor – finds honest money to be ‘terrifying’. But thank heavens for simpletons with a keyboard. In this case, Chandra has distilled the money printers’ ‘deflation’ bogeyman to its utterly ludicrous essence – – and has wrapped it neatly into six propositions which most definitely do not pass the giggle test.
The essence of these gems is the old saw that consumers don’t spend money when they see falling prices. Chandra has obviously never gone to Wal-Mart, Best Buy or an Apple Store.
When shoppers see persistent price declines, they hold out on buying things. They ask, will I get a better deal next week, next month, next year? As a result, consumer spending flails.
To be sure, the monetary apparatchiks and their Wall Street bullhorns are not quite this primitive, and tend to gum about ‘inflation expectations’ and other econ-psycho-babble. Thus, Benoit Coeur, a member of the ECB’s executive board, made these profound observations in behalf of the ECB’s new money printing binge:

This post was published at David Stockmans Contra Corner by David Stockman ‘ January 23, 2015.

Oil Dinosaurs Face Extinction: State Oil Companies and the Meteor-Strike of Low Oil Prices

State-owned oil companies that don’t slash expenses to align with revenues and boost critical investment in the infrastructure needed to maintain production will suffer financial extinction.
Domestic and international energy companies are responding to the 50% decline in the price of oil by doing what’s necessary to remain in business: they’re slashing payroll, postponing capital investments, delaying new projects and soliciting price cuts from suppliers and subcontractors. This is the discipline of profit-driven capitalism: if expenses exceed revenues, profits vanish, losses pile up, capital contracts and eventually the company runs out of cash (and access to credit) and closes down. Unfortunately for state-owned oil companies, the feedback of expenses, losses and access to credit are superceded by the need to feed hordes of parasites: the state-owned company exists not to generate profits but to fund large payrolls and support state officials and cronies. Stripped of the discipline of markets and profits, state-oil companies exist to serve the interests of the state’s Elites and their cronies and favored constituents. As a result, critical infrastructure has fallen into obsolescence, capital investments have been hollowed out and the expertise needed to maintain production has eroded. The state-owned oil companies are like dinosaurs: the extinction meteor of low oil prices has smashed their ecosystem, and all they can do is watch the sky darken as revenues crater and expenses and debt remain at unsustainably high levels.

This post was published at Charles Hugh Smith on THURSDAY, JANUARY 22, 2015.

Global Cooling Beginning To Hit In High Places – – That Is, The Luxury Condo Market

Manhattan real estate agent Lisa Gustin listed a four-bedroom Tribeca loft for $7.45 million in October, expecting a quick sale. Instead, she cut the price this month by $550,000.
‘I thought for sure a foreign buyer would come in,’ said Gustin, a broker at Brown Harris Stevens who is still marketing the 3,800-square-foot (353-square-meter) apartment at 195 Hudson St. ‘So many new condos are coming up right now. They’ve been building them for the past few years and now they’re really hurting the resales.’
A flood of new high-priced condominiums and mansions are coming to market in New York, Miami and Los Angeles just as international buyers, who helped fuel demand in the three cities, are seeing their purchasing power wane with the strengthening dollar. Signs of a pullback may already be showing in Manhattan, where luxury-home sales have slowed amid a surge in construction of towers aimed at U. S. millionaires and foreign investors.
This year, 2,386 newly built Manhattan luxury condos will be listed for sale, the most on record, data compiled by Corcoran Sunshine Marketing Group show. The brokerage defines luxury as units priced at more than $2,300 a square foot.
‘We’re building a very narrowly defined super-luxury product with a fairly deep pool of buyers, but the challenge is going to be the mere fact that it’s all coming at the same time,’ said Jonathan Miller, president of New York-based appraiser Miller Samuel Inc. and a Bloomberg View contributor.

This post was published at David Stockmans Contra Corner on January 22, 2015.

Mario Draghi: Charlatan Of The Apparatchiks

Well, he finally launched ‘whatever it takes’ and that marks an inflection point. Mario Draghi has just proved that the servile apparatchiks who run the world’s major central banks will stop at nothing to appease the truculent gamblers they have unleashed in the casino. And that means there will eventually be a monumental crash landing because the bubble beneficiaries are now commanding the bubble makers.
There is not one rational reason why the ECB should be purchasing $1.24 trillion of existing sovereign bonds and other debt securities during the next 18 months. Forget all the ritual incantation emanating from the central bankers about fighting deflation and stimulating growth. The ECB has launched into a massive bond buying campaign for the sole purpose of redeeming Mario Draghi’s utterly foolish promise to make speculators stupendously rich by the simple act of buying now (and on huge repo leverage, too) what he guaranteed the ECB would be buying latter.
So today’s program amounts to a giant bailout in the form of a big fat central bank ‘bid’ designed to prop up prices in the immense parking lot of French, Italian, Spanish, Portuguese etc. debt that has been accumulated by hedge funds, prop traders and other rank speculators since mid-2012. Never before have so few – -perhaps several thousand banks and funds – -been pleasured with so many hundreds of billions of ill-gotten gain. Robin Hood is spinning madly in his grave.
The claim that euro zone economies are sputtering owing to ‘low-flation’ is just plain ridiculous. For the first time in decades, consumers have been blessed with approximate price stability on a year/year basis, and this fortunate outbreak of honest money is mainly due to the global collapse of oil prices – not some insidious domestic disease called ‘deflation’. Besides, there is not an iota of proof that real production and wealth increases faster at a 2% CPI inflation rate compared to 1% or 0%.

This post was published at David Stockmans Contra Corner by David Stockman ‘ January 22, 2015.

Daniel Hannan Exposes Davos’ Narcissistic Corporatist Racketeering

Excerpted from Capx’s Daniel Hannan’s Davos Is A Corporatist Racket,
Davos Man… derives most of his income, directly or indirectly, from state patronage. If he is in the private sector – and he is more likely to be a lobbyist, politician or bureaucrat than a businessman – he’ll be an instinctive monopolist, keen to persuade ministers and officials to raise barriers against his potential rivals.

This post was published at Zero Hedge on 01/22/2015.

The Epochal Consequences Of Woodrow Wilson’s War

Remarks by David Stockman To the
Committee for the Republic, Washington DC
January 21, 2015
My humble thesis tonight is that the entire 20th Century was a giant mistake.
And that you can put the blame for this monumental error squarely on Thomas Woodrow Wilson – – -a megalomaniacal madman who was the very worst President in American history……..well, except for the last two.
His unforgiveable error was to put the United States into the Great War for utterly no good reason of national interest. The European war posed not an iota of threat to the safety and security of the citizens of Lincoln NE, or Worcester MA or Sacramento CA. In that respect, Wilson’s putative defense of ‘freedom of the seas’ and the rights of neutrals was an empty shibboleth; his call to make the world safe for democracy, a preposterous pipe dream.
Actually, his thinly veiled reason for plunging the US into the cauldron of the Great War was to obtain a seat at the peace conference table – – so that he could remake the world in response to god’s calling.
But this was a world about which he was blatantly ignorant; a task for which he was temperamentally unsuited; and an utter chimera based on 14 points that were so abstractly devoid of substance as to constitute mental play dough.
Or, as his alter-ego and sycophant, Colonel House, put it: Intervention positioned Wilson to play ‘The noblest part that has ever come to the son of man’. America thus plunged into Europe’s carnage, and forevermore shed its century-long Republican tradition of anti-militarism and non-intervention in the quarrels of the Old World.

This post was published at David Stockmans Contra Corner on January 21, 2015.

Low Government Bond Yields Are Made By Central Banks, Not Free Markets

On January 7th CNBC’s Rick Santelli and Steve Leisman engaged in a heated debate that posed an interesting question; is the free market at work keeping interest rates low, or is it the central banks’ put? This made me consider the real question to ask which is: Where would rates be if central banks didn’t exist?
What would happen if the Fed liquidated its balance sheet and sold its $4.5 trillion worth of Mortgage Backed Securities and Treasuries and closed up shop? Some claim, after an initial spike from all that selling, rates would subsequently tumble due to a deflationary cycle that would result from the end of central bank money printing. These people also maintain that rates are currently historically low because of the overwhelming deflationary forces that exist in the economy. Yes, we now see deflation pervading across the globe and that does tend to push down borrowing costs, but I am not convinced rates would remain this low for very long and here’s why.
The level of sovereign bond yields is both a function of real interest rates AND sovereign credit risk. While there is now a deflationary environment causing yields to fall to record lows, the market is still aware if push came to shove central banks would step in and create a perpetual bid for government debt. However, without a central bank in place, global GDP (which has been fueled by asset bubbles) would quickly get eviscerated.
Therefore, faltering GDP in the U. S. would cause bond holders to panic over the Treasury’s ability to pay back the over $18 trillion in debt that it owes – which is now already over 5.5 times the annual revenue collected. To put things in perspective, 5.5 times annual revenue would be similar to a family who brings in just $50,000 a year, and holds a $275,000 mortgage. But as bad as that condition is it would get even worse because faltering GDP – resulting from rapidly rising debt service payments – would send the current half trillion dollar annual deficits soaring back above one trillion dollars in short order.

This post was published at David Stockmans Contra Corner by Michael Pento ‘ January 19, 2015.

The Higher Education Bubble Is Suffused With Administrative Bloat

The result of infusing colleges with billions of dollars in additional funds will be to raise the cost of a college education even higher – just as student loans and federal grants have encouraged wasteful spending by colleges and universities across the country. The open spigot of federal money continues to flow, mostly in the form of guaranteed student loans. These institutions are charging higher tuition rates because they can rely on receiving guaranteed money from the government. Because of these practices, student debt has reached $1 trillion, surpassing credit cards and car loans as the largest source of debt in the country, and there is growing evidence this is creating a ‘student loan bubble.’
The government’s intervention in the health care sector should have warned us of the cost-increasing effects that result from government involvement. Just as health care costs spiraled out of control after the government began Medicaid and Medicare, so too are education costs rising much faster than other consumer prices. In fact, according to College Board, tuition and fees jumped 27 percent between the 2008-2009 and 2013-2014 school years.1They have increased nearly 160 percent since 1990 (after adjusting for inflation).2
One would expect that with more public funding, schools wouldn’t have to increase their tuition rates. At the very least, the higher cost should mean the education received is better. However, a look at where the money goes raises some concern about how institutions of higher education are using their funds.

This post was published at David Stockmans Contra Corner on January 19, 2015.