Solutions Abound–on the Local Level

Rather than bemoan the inevitable failure of centralized “fixes,” let’s turn our attention and efforts to the real solutions: decentralized, networked, localized.
Those looking for centralized solutions to healthcare, jobs and other “macro-problems” will suffer inevitable disappointment. The era in which further centralization provided the “solution” has passed: additional centralization (Medicare for All, No Child Left Behind, federal job training, Universal Basic Income, central banking “free money for financiers”, etc.) have all entered Diminishing Returns. The systemic costs of centralization–corruption, cronyism, soaring prices, declining quality, over-reach, insider rackets, regulatory capture by corporations and oligarchs– are soaring as the benefits of centralization plummet. ObamaCare was the penultimate flowering of centralization: every self-serving healthcare cartel and racket had a say in the centralized sausage-making, and the results were entirely predictable: highly profitable to the healthcare cartels and rackets, and soaring costs that rendered the program unaffordable.

This post was published at Charles Hugh Smith on SUNDAY, MARCH 12, 2017.

We Can Only Afford One, So Choose Wisely: Social Security/Medicare, Cartel Cronyism or Inflation (a.k.a. Central Banking)

Here’s the problem with central banks seeking higher inflation: costs go up but wages don’t.
It’s easy to quantify the annual cost of Social Security/Medicare, and not so easy to calculate the cost of Cartel Cronyism and Central Bank-created inflation. Cartel cronyism is a hidden tax on the entire economy, as is Central Bank-created inflation.
That makes it easy for the financial-political Oligarchy to continue their skimming operations, because nobody says Cartel Cronyism cost us $1 trillion last year, and central bank skimming (inflation) cost us another $1 trillion. The stark reality is there are limits on what we as a nation can afford in the long term. Borrowing trillions of dollars annually at low rates of interest creates a magical-thinking illusion that we can just tack on another $10 trillion, or what the hay, make it $100 trillion, and get away with it, because we’ve gotten away with it so far.
This leaves us an equally stark choice: we can only afford one of these three crushing costs:
1. Limited Social Security/Medicare (no nation can afford unlimited anything, including healthcare)

This post was published at Charles Hugh Smith on THURSDAY, JANUARY 05, 2017.

Week in Review: October 29, 2016

Obamacare premiums are exploding, just as mises.org has long predicted. Another disastrous example of politicians discarding basic common sense in passing through legislation to address a problem they themselves have created. Unfortunately there is little hope of politicians learning from their mistakes, as they continue to push through bill, after bill, after bill that expands their influence at the expense of the market and human freedom. No wonder public faith in elections is collapsing as the reach of the state grows larger. Hopefully this growing distrust can spur a libertarian populist awakening, leading to the spread of the ideas that make civilization prosperous.
The Mises Institute will further discuss the collapsing public trust in politics next weekend during our Dallas-Ft. Worth, Mises Circle. You can join Jeff Deist, Lew Rockwell, Robert Murphy and our other great speakers in person, or follow the event live at Mises.org/live.
On Mises Weekends, Jeff is joined by Nomi Prins, a prolific writer and speaker on the subjects of central banking, financial markets, and Wall Street cronyism. She is a former managing director at Goldman Sachs and Bear Stearns, but left investment banking to speak out against what she perceives as global financial malfeasance by commercial, investment, and central banks. Nomi is a dedicated progressive who supported Bernie Sanders, but she’s also a harsh critic of the Fed and sympathetic to Austrian depictions of malinvestment and artificially-created bubbles.

This post was published at Ludwig von Mises Institute on October 29, 2016.

What Will Result From Sideways?

The economy of 2015 started out ‘unexpectedly’ weak before succumbing to ‘global turmoil.’ It was the events of last summer that began to sow serious doubts about not just the economic narrative seeking to dismiss weakness (‘transitory’) but rather central banking and QE itself. The repeat in January/February further eroded mainstream credibility, particularly since only a few weeks before the Federal Reserve in particular pronounced full health. It was an embarrassing but poignant ‘dollar’ rebuke.
In the middle of 2015 just prior to the outbreak of the ‘dollar’ ‘run’, it was perhaps somewhat understandable for the layperson or the general public to wonder what was going on. Any disruption in terms of the domestic economy did seem as Janet Yellen was claiming. For all the grief even by late July last year, everything seemed to be limited to overseas events; a fact which economists and policymakers played up whenever they could. They should have known better.
I wrote at the end of last July that what was going on overseas was yet another warning even though it may not have seemed like it had anything to do with the United States:
Sticking with purely financial expression of the eurodollar standard it is easy at times to forget such monetary influence has very real consequences. That is true in the US in particular, as even though the recovery is both deficient and waning it isn’t the disaster it is in other, connected places. It was, after all, the rise of the eurodollar standard as a wholesale system starting in the middle 1990′s that more tightly stitched the global economy, an open system architecture that eludes, still, the grasp of monetary policymakers. As such, they have a great tendency to miss and misapprehend what is really happening and because of that they will simply make it all worse without much hope for an upside.

This post was published at David Stockmans Contra Corner on September 20, 2016.

It Won’t Be Long Now – -The End Game Of Central Banking Is Nigh

My new book will be published next Tuesday. Preorders for the e-Book version will be available in this space beginning later this week.
As I previously indicated, the book is an exploration of how 30 years of Bubble Finance policies at the Fed, feckless interventions abroad and mushrooming Big government and debt at home have brought America to its current ruinous condition.
In this context, it delves into the good and bad of the Trump campaign and platform, while, to use a spoiler alert, praising it with faint damn!
As Contra Corner readers recognize the only consistent way forward for America at this late stage of the game is a return to free markets, fiscal rectitude, sound money, constitutional liberty, non-intervention abroad, minimalist government at home and decentralized political rule.
Unfortunately, that is not about to happen any time soon – – even if by some miracle Donald Trump is elected President.

This post was published at David Stockmans Contra Corner on September 6, 2016.

Dear Millennials: If You Want to Escape Minimum Wage Debt-Serfdom…

Those without value-creating human/social capital will be mired in a low/minimum wage environment that will make it difficult to escape debt-serfdom. Let’s start with the sobering reality that the Millennial generation faces economic challenges that are unique to this era: sky-high student loan debt, soaring costs for basics such as rent and healthcare, a stagnant neofeudal crony-cartel economy and an intellectually bankrupt status quo in thrall to failed ideologies: Keynesian Cargo Cult central banking, outdated models of capital and labor and an unthinking worship of debt-funded centralization as the “solution” to all social and economic ills. The potential solutions are also unique to this era. Never before has humankind had such a wealth of revolutionary decentralizing technologies: nearly friction-free peer-to-peer networks and commerce, decentralized cryptocurrencies and the expansion of what my friend G. F. B. describes as neo-tribalism: opt-in communities that are not bound to geography or central-state imposed identities. Many smart, well-informed people see massive government stimulus using borrowed money as the “solution” to Millennial impoverishment and under-employment–in other words, more debt-funded centralization. The idea here is that such debt-funded stimulus will employ millions of Millennials to rebuild America’s crumbling infrastructure.

This post was published at Charles Hugh Smith on TUESDAY, AUGUST 30, 2016.

The Apotheosis Of Bubble Finance – – Folly Of The FANGs, Part 1

………. The inexorable effect of contemporary central banking is serial financial booms and busts. With that comes increasing levels of systemic financial instability and a growing dissipation of real economic resources in misallocations and malinvestment.
At length, the world becomes poorer.
Why? Because gains in real output and wealth depend upon efficient pricing of capital and savings, but the modus operandi of today’s central banking is to deliberately distort and relentlessly falsify financial prices.
As we have seen, the essence of ZIRP and NIRP is to drive interest rates below their natural market clearing levels so as to induce more borrowing and spending by business and consumers.
It’s also the inherent result of massive QE bond-buying where central banks finance their purchases with credits conjured from thin air. Consequently, the central banks’ Big Fat Thumb on the bond market’s supply/demand scale results in far higher bond prices (and lower yields) than real savers would accept in an honest free market.

This post was published at David Stockmans Contra Corner on August 29, 2016.

Real Bills And The True Evil Of Keynesian Central Banking – – Monetization Of The Public Debt

…… So in 2008, the money markets would have cleared, and any temporary expansion of the Fed’s balance sheet would have immediately shrunk once the crisis was over, and the discount loans were repaid.
And, yes, at 10%, 15% or even 25% and a penalty spread to boot, they would have been paid off real fast.
That’s what a real lender of last resort would look like. Janet Yellen’s crony capitalist flop house is its very opposite.
By the same token, a real central bank of the pre-Keynesian era would not now own $4.5 trillion of government debt and guaranteed paper. In fact, it would own none at all because monetization of the public debt was never the purpose of central banking.
The purpose was to liquefy business loan books and the traded markets in real bills, which were essentially receivable-type claims on finished goods in the channels of distribution. Unlike government debt, the latter represented production already done and banking collateral that could be collected within a relatively short period of 30 to 90 days.

This post was published at David Stockmans Contra Corner on August 10, 2016.

Coming Soon: Trumped! (Part 6. Government Entitlements – – The Sixth Biggest Economy On Earth

Government Entitlements – Sixth Biggest Economy On Earth
…….. Because the main street economy is failing, the nation’s entitlement rolls have exploded. About 110 million citizens now receive some form of means tested benefits. When social security is included, more than 160 million citizens get checks from Washington.
The total cost is now $3 trillion per year and rising rapidly. America’s entitlements sector, in fact, is the sixth biggest economy in the world.
***
Yet in a society that is rapidly aging to the tune of 10,000 baby boom retirees per day, this 50% dependency ratio is not even remotely sustainable. As we show in a later chapter, social security itself will be bankrupt within 10 years.
Still, there is another even more important aspect of the mainstream narrative’s absolute radio silence about the monumental entitlements problem. Like in the case of the nation’s 30-year LBO, the transfer payments crisis is obfuscated by the economic blind spots of our Keynesian central banking regime.
Greenspan, Bernanke, Yellen and their posse of paint-by-the-numbers economic plumbers have deified the great aggregates of consumer, business and government spending as the motor force of economic life. As more fully deconstructed below, however, this boils down to a primitive notion of bathtub economics.

This post was published at David Stockmans Contra Corner on July 28, 2016.

Crisis Is Us – – -The Inexorable Result Of Modern Central Banking

The inexorable effect of contemporary central banking is serial financial booms and busts. With that comes increasing levels of systemic financial instability and a growing dissipation of real economic resources in misallocations and malinvestment. At length, the world becomes poorer.
Why? Because gains in real output and wealth depend upon efficient pricing of capital and savings, but the modus operandi of today’s central banking is to deliberately distort and relentlessly falsify financial prices.
After all, the essence of ZIRP and NIRP is to drive interest rates below their natural market clearing levels so as to induce more borrowing and spending by business and consumers.
It’s also the inherent result of massive QE bond-buying where central banks finance their purchases with credits conjured from thin air. The central banks’ big fat thumb on the bond market’s supply/demand scale results in far lower yields than real savers would accept in an honest free market.
The same is true of the hoary doctrine of ‘wealth effects’ stimulus. After being initiated by Alan Greenspan 15 years ago, it has been embraced ever more eagerly by his successors at the Fed and elsewhere ever since.
Here, the monetary transmission channel is through the top 1% that own 40% of the financial assets and the top 10% that own upwards of 85%. To wit, stock prices are intentionally driven to artificially high levels by means of ‘financial easing’. The latter is a euphemism for cheap or even free finance for carry trade gamblers and subsidized hedging insurance for fast money speculators.

This post was published at David Stockmans Contra Corner by David Stockman ‘ July 7, 2016.

Welcome To Hell – – Central Banking At Work In Brazil and Beyond

Whether or not the Olympics in Brazil go off without any serious difficulties is actually an open question. There have been some athletes refusing to attend due to concerns over the Zika virus, while police and firefightersgreeted travelers flying into the country through Rio’s airport with a sign that said ‘Welcome to Hell.’ There are rumors reported in the Portuguese news that the public health system is close to collapse, with no money to pay doctors and nurses as well as police and firefighters. With the eyes of the world nearly upon it, the nation of Brazil seems ready to show off instead what happens in an acute ‘dollar’ shortage.
The devastation in the Brazilian economy is really unlike anything seen in its modern history, and Brazil is unfortunately no stranger to grand economic and financial difficulties. That tortured past had at one time not so long ago seemed an ancient memory, trouble for only historians. As recently as early 2012, Brazil appeared to be mending after its brush with the Great Recession. The mid-2000′s had built up what appeared to be the foundation for at last lasting prosperity no matter what the rest of the world was doing.
Yet, in 2016 we find instead some of the most extreme cases of malaise and contraction. This is no recession, as what is taking place would be categorized if it were a financial price or indication as a total unwinding. It really does seem as if all of the wealth created by Brazil’s 21st century expansion is coming apart and just vanishing into the political chaos of an unsettled social state.

This post was published at David Stockmans Contra Corner by Jeffrey P. Snider ‘ July 6, 2016.

The Curse Of ‘Wealth Effects’ Central Banking

The robo-machines and perma-bulls are at it again, delivering another volumeless dead-cat bounce in a market that has churned sideways for 600 days now.
That’s right. The S&P 500 first crossed the 2060 threshold around mid-November of 2014, and has made upwards of 40 attempts to rally since then – -all of which have failed to be sustained.
Nevertheless, there is a reason for the churn and there is a culprit behind the abortive rallies.
As to the former, it’s all about the cycle peak. The profits cycle peaked six quarters ago when S&P 500 reported earnings came in at $106 per share for the LTM period ended in September 2014. For the LTM ending in March 2016, by contrast, reported earnings were $87 per share.

This post was published at David Stockmans Contra Corner by David Stockman ‘ June 29, 2016.

Who Needs The Fed – – – The Case Against Central Banking, Monetarism And Other Errors

From The Federalist
For the first time in decades, the Federal Reserve has been playing a non-negligible role in the presidential race. Candidates in both parties took turns criticizing the Fed for either not doing enough to fix the economy, or for going far past its scope and putting the economy at risk.
But moving beyond political stump speeches – and, for that matter, conventional thinking among economists – the question should still be asked: Does the Federal Reserve even matter? Here author John Tamny explains the thinking behind the title of his provocative new book, ‘Who Needs the Fed?’ (Encounter Books, May 24).
Jared Meyer: I want to start with your conclusion. You write, ‘End the Fed? With great haste,’ (emphasis in original), but then you go on to explain why ending the Fed will not ‘get us out of the woods.’ Why did you build up Ron Paul’s ‘End the Fed’ supporters, only to tear down their hopes that the Fed is the source of all our economic ills?
John Tamny: I had to build up Ron Paul’s supporters only to douse their hopes a bit simply because I think all the focus on the Fed misses much greater governmental threats to growth.
About the Fed, end it with great haste simply because it serves no useful purpose on its best day. Think about it. It was formed over 100 years ago as a ‘lender of last resort’ for solvent banks, but the act of solvent banks approaching the Fed for loans is unheard of. It is because banks with good balance sheets don’t need the Fed. Only the insolvent approach the Fed for funds, and those institutions should be allowed to go under so that they can be acquired by better owners.

This post was published at David Stockmans Contra Corner on May 27, 2016.

Losing Ground In Flyover America, Part 2

There has never been a more destructive central banking policy than the Fed’s current maniacal quest to stimulate more inflation and more debt. That’s what is killing real wages and economic vitality in flyover America – -even as it showers prodigious windfalls of unearned wealth on Wall Street and the bicoastal elites who draft on the nation’s vastly inflated finances.
In fact, the combination of pumping-up inflation toward 2% and hammering-down interest rates to the so-called zero bound is economically lethal. The former destroys the purchasing power of main street wages while the latter strip mines capital from business and channels it into Wall Street financial engineering and the inflation of stock prices.
In the case of the 2% inflation target, even if it was good for the general economy, which it most assuredly is not, it’s a horrible curse on flyover America. That’s because its nominal pay levels are set on the margin by labor costs in the export factories of China and the EM and the service sector outsourcing shops in India and its imitators.
Accordingly, wage earners actually need zero or even negative CPI’s to maximize the value of pay envelopes constrained by global competition. Indeed, in a world where the global labor market is deflating wage levels, the last thing main street needs is a central bank fanatically seeking to pump up the cost of living.
So why do the geniuses domiciled in the Eccles Building not see something that obvious?
The short answer is they are trapped in a 50-year old intellectual time warp that presumes that the US economy is more or less a closed system. Call it the Keynesian bathtub theory of macroeconomics and you have succinctly described the primitive architecture of the thing.

This post was published at David Stockmans Contra Corner by David Stockman – May 26, 2016.

The Cult Of Central Banking Is Dead In The Water

The Fed has been sitting on the funds rate like some monetary mother hen since December 2008. Once it punts again at the June meeting owing to Brexit worries it will have effectively pegged money market rates at the zero bound for 90 straight months.
There has never been a time in financial history when anything close to this happened, including the 1930s. Nor was interest-free money for eight years running ever even imagined in the entire history of monetary thought.
So where’s the fire? What monumental emergency justifies this resort to radical monetary intrusion and repression?
Alas, there is none. And that’s as in nichts, nada, nope, nothing!
There is a structural growth problem, of course. But it has absolutely nothing to do with monetary policy; and it can’t be fixed with cheap money and more debt, anyway.
By contrast, there is no inflation deficiency – – even by the Fed’s preferred measure. Indeed, the very idea of a central bank pumping furiously to generate more inflation comes straight from the archives of crank economics.
The following two graphs dramatize the cargo cult essence of today’s Keynesian central banking regime. Since the year 2000 when monetary repression began in earnest, the balance sheet of the Fed has risen by 800%, while the amount of labor hours used in the US economy has increased by2%.

This post was published at David Stockmans Contra Corner by David Stockman ‘ April 30, 2016.

The Whole World Witnessed Socialism’s Death … Central Banking Is Next

The fall of the Soviet Union was a learning experience for the entire world. Despite all the fear-mongering propaganda (especially from American pundits at the time) the great bastion of socialism was nothing but a castle built on quicksand.
The Soviet Union was not a powerhouse, but a parasite that completely sucked the life out of its host. Despite all the foreign aid (again, especially from the U. S.) the socialist boogeyman would collapse without the shedding of a single drop of blood.
No shots had to be fired. No militias. No need for a Paul Revere. Truth merely burst through the human desire to deny it, and was (as always) unstoppable.
There were truth-tellers in America well before the collapse. Predictably, they were shunned like lepers for proving that socialism was a basket-case and completely unworkable.
Heroic figures like Ludwig von Mises and Murray Rothbard put the logic into black and white for everyone to read. Without private property, market prices, and profits & loses there is no way for a socialist state (i.e. a single-property owner) to know how scarce resources should be allocated. Socialist planners were perpetually in the dark, with no clue as to what they were doing.
Mises and Rothbard, much like prominent libertarian figures of the modern day, were cast aside for telling the truth. There was just too much money and power at stake during the Cold War to ponder reality. Fear of the Soviets was milked to the last possible second.

This post was published at GoldSeek on 20 April 2016.

The Keynesian House Of Denial

We use the term ‘Keynesian’ loosely to stand for economic interventionists of all schools. The followers of JM Keynes and Milton Friedman alike fit that category. So do some of the more rabid supply siders who claim the power to stimulate ultra-high economic growth with the tools of tax policy alone.
The common denominator is economic statism. That is, the assumption that the state, including its central banking branch, is indispensable to economic progress and prosperity.
As the various denominations of the Keynesian economic church have it, capitalism is always veering toward the ditch of under-performance and recession when left to its own devices and natural tendencies; and, if neglected by the wise policy-makers of the central state too long, it lapses toward outright depression and collapse.
Our purpose here is not to correct the particular philosophical and analytic errors associated with each of these Keynesian or statist variants. On any given day we make it pretty clear the central banking based mutation of modern Keynesian is predicated on two cardinal errors. Namely, the myth of demand deficiency and the false presumption that central bank pegging of interest rates, yield curves and other financial prices will enhance macro-economic performance while not harming the efficiency, stability and efficacy of money and capital markets.

This post was published at David Stockmans Contra Corner by David Stockman ‘ April 16, 2016.

NIRP – No Need to Go There

A new acronym has entered the lexicon of central banking in recent months – NIRP, which stands for negative interest rate policy. If ZIRP, zero interest rate policy, won’t stimulate faster growth in nominal spending and faster growth in the prices of goods and services, then perhaps central bank-engineered negative short-term interest rates will do the trick. In June 2014, the European Central Bank (ECB) introduced NIRP and the central banks of Switzerland, Denmark, Sweden, and Japan have recently done so as well. For the most part, NIRP involves a central bank paying a negative rate of interest on a portion of reserves or deposits held by private depository institutions (mainly commercial banks) by the central banks. One purpose of NIRP is to encourage banks to make more loans by penalizing them with a negative nominal return on ‘excess’ reserves held by the central bank. Another purpose of NIRP is to achieve a lower structure of real (inflation-expectations adjusted) interest rates. After all, if the yields on short-maturity interest rates are at zero and investors expect deflation, then the real yields on these securities would be positive. (The real yield is the nominal yield minus inflation expectations. If the nominal yield is zero and inflation expectations are negative, i.e., deflation is expected, and then zero minus a negative number result in a positive number.) If nominal aggregate demand is growing at a sub-optimal rate, then a lower structure of real interest rates would likely cause the quantity of bank credit required to increase, which if the credit were granted would, in turn, cause growth in aggregate demand to increase. NIRP is a remedy for insufficient demand for bank credit.
Read Will the US Go Negative in 2017?
But if growth in nominal aggregate demand is sub-optimal because of an insufficient supply of bank credit, then NIRP will not be effective in remedying the situation. If banks do not have the capital to support their acquisition of more loans and securities with credit and interest rate risk, then charging these banks a ‘storage fee’ for reserves held at the central bank will not induce them to create more credit. It will do the opposite. The extra expense charged banks by the central bank for reserves storage will reduce bank profits, inhibiting growth in the bank capital necessary to allow banks to increase their acquisitions of loans and securities.

This post was published at FinancialSense on 03/08/2016.

Financial Time Bombs Hiding In Plain Sight

The bear will soon be arriving in earnest, marauding through the canyons of Wall Street red in tooth and claw. Our monetary central planners, of course, will once again – for the third time this century – – be utterly shocked and unprepared. That’s because they have spent the better part of two decades deforming, distorting, denuding and destroying what were once serviceably free financial markets, but are clueless as to the financial time bombs this inexorably fosters.
The sum and substance of Keynesian central banking is the falsification of financial prices. In essence, this means pegging interest rates below market clearing levels on the theory that more borrowing and spending will thereby ensue.
To this traditional credit channel of monetary policy transmission has been added in recent years the notion of an FX channel, which works through currency depreciation and export stimulus; and the wealth effects channel, which seeks to levitate the paper wealth of the top 15% of households so that they will feel emboldened to spend more at luxury retail emporiums, BMW showrooms and upscale vacation spots.
Needless to say, currency trashing might work for a tiny export economy like New Zealand. But on a global scale among the big global economies, its just a recipe for a race to the bottom. Ultimately it leads to nothing more than the inflation of imported commodities and the reallocation of income and wealth from domestic industries and households to exporters and their shareholders. Japan proves that in spades.
With respect to the false FX channel, even Black Rock’s chief big thinker, Peter Fisher, hit the nail on the head last week on Bloomberg:

This post was published at David Stockmans Contra Corner by David Stockman ‘ February 22, 2016.

Silver Linings: Keynesian Central Banking Is Heading For A Massive Repudiation

For several years now the small coterie of Keynesian academics and apparatchiks who have seized nearly absolute financial power through the Fed’s printing presses have justified the lunacy of unending ZIRP and massive QE on the grounds that there is too little inflation. The bureaucrats at the IMF even invented a lame-brained catch-phrase, calling the purported scourge of money which retains most of its value ‘lowflation’.
This whole consumer inflation targeting gambit, of course, is an inherently preposterous notion because there is not a scrap of evidence that 2% consumer inflation is better for rising living standards and societal wealth gains than is 0.2%. And there is much history and economic logic that points in exactly the opposite direction.
Between 1870 and 1913 in the United States, for example, real national income grew at 3.5% per year – – the highest gain for any 43 year period in history. Yet the average inflation rate during that long period of capitalist prosperity was less than 0.0%. That was real ‘lowflation’, and it was a blessing for the average worker, not a scourge.

This post was published at David Stockmans Contra Corner by David Stockman ‘ February 20, 2016.