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.

Obama’s Fed Board Appointee Was Previously Busted, And Quit, For “Impropriety”

Yesterday, to much fanfare, the White House blasted that it was Obama’s desire to appoint Allan R. Landon, a Hawaiian community banker, to serve on the Board of Governors of the Federal Reserve System. To wit: “President Obama said, ‘Allan Landon has the proven experience, judgment and deep knowledge of the financial system to serve at the Federal Reserve during this important time for our economy. He brings decades of leadership and expertise from various roles, particularly as a community banker. I’m confident that he will serve our country well.’
Apparently what he also brings as Bloomberg’s (formerly of Dow Jones) Dawn Kopecki reminds us, is the usual near-criminal cronyism and corruption that we have all grown to love and expect from every single Fed governor in recent history.
Recall from May 2005, courtesy of the WSJ:
The Seattle Federal Home Loan Bank removed two bank executives from its board and is requiring their lending institutions to repurchase about $73 million in FHLB stock that was improperly sold late last year, just before the dividend was cut and future redemptions were restricted. The Seattle FHLB, one of 12 regional cooperatives owned by commercial banks, thrifts and credit unions, announced in December that it was cutting its dividend and would restrict future redemptions by its member banks as part of a remedial plan with its regulator, the Federal Housing Finance Board, to shore up its internal controls and profitability. Prior to the announcement, three institutions with executives on Seattle’s board redeemed large quantities of stock in the co-op.

This post was published at Zero Hedge on 01/07/2015.

David Stockman: The BRIC Miracle Is A Fable Made By Central Banks And Told By Goldman

There was never a miracle of capitalism that ignited the previously emerging BRIC nations -just a giant global credit bubble that is now rapidly deflating, according to David Stockman, former White House budget chief under President Regan.
He believes the Wall Street manipulators who got rich on the scam involving Brazil, Russia, India and China will soon have their comeuppance.
‘The BRIC countries were actually economic cripples riven with socialist and statist policy afflictions that had the good fortune to hitch a ride on the central bank-fueled credit binge of the last two decades,’ Stockman writes on his Contra Corner blog.
In Stockman’s view, the whole BRIC saga amounts to ‘pettifoggery’ by the likes of Goldman Sachs and its ilk, which he said have been operating a ‘devil’s workshop’ for the Federal Reserve and other central banks.
‘After all, in the age of central bank-driven bubble finance the purpose of Wall Street and its equivalents elsewhere is to scalp profits from the expanding bubble, not to discover honest securities prices, allocate capital or transform real economic savings into productive long-term investments.’
Stockman suggests there is little chance the federal government will balance the nation’s budget, that the Fed’s zero interest rate policy that has wrecked consumer savings will be altered, that real Wall Street reform a la ‘super Glass-Steagall’ will be enacted or that too-big-to-fail banks will be broken up. In his view, such steps would harm the false ‘economy’ he believes has been concocted in Washington, D. C. and on Wall Street.

This post was published at David Stockmans Contra Corner on January 5, 2015.

$6 Trillion Of EM Dollar Bonds Pummeled By Rising $, Falling Commodities

The soaring U. S. dollar is squeezing companies in emerging markets from Brazil to Thailand that now face higher costs on roughly $1 trillion in bonds sold to investors before the greenback’s surge. For 2014, the dollar is on track to gain more than 7% compared with a group of emerging-market currencies tracked by the Federal Reserve Bank of St. Louis As the rise ripples through economies around the world, it is causing particular pain at firms in emerging markets that issued bonds in dollars instead of local currency.
The dollar’s rise means it costs more to make regular bond payments and pay off outstanding bonds as they mature. That is starting to hurt earnings at many companies, will likely force some to dip into emergency reserves and could trigger defaults on some corporate bonds, analysts warn.
To some economists, the mounting pressure evokes memories of currency crises in Asia and Latin America during the 1980s and 1990s, when the strong U. S. dollar helped trigger slides in economic growth and prices for real estate, commodities and other assets.
‘The investor community is becoming very much one-way or crowded toward retrenching to the U. S.,’ says Nikolaos Panigirtzoglou, global markets strategist at J. P. Morgan Chase & Co.
Many of the same countries are vulnerable again now, but few analysts and investors foresee a full-blown crisis.
More than two-thirds of the outstanding corporate bonds in emerging markets are considered high-quality by major rating firms, meaning they carry a low default risk.
Meanwhile, some companies have been trying to shield themselves from possible harm by issuing at least some bonds in their home country’s currency. ‘I don’t think it’s a systemic issue,’ says Samy Muaddi, a portfolio manager at mutual-fund giant T. Rowe Price Group Inc.

This post was published at David Stockmans Contra Corner on January 5, 2015.

David Stockman: Energy Crunch Will Morph Into a Replay of the Housing Crash

The spiraling energy meltdown is the new housing crash, according to David Stockman, White House budget chief in the Reagan White House. Just as the 2007-09 housing plunge did not put a dime into consumers’ pockets – even though average home prices tanked by about 30 percent, from $230,000 to $165,000 – the energy crunch likewise is not going to add to consumer wallets, Stockman asserts. At the peak of the mortgage boom, he notes, the U. S. savings rate had actually vanished, falling to about 2.5 percent of personal income from pre-Greenspan rates of 10 percent to 12.5 percent.
‘Stated differently, the mortgage credit boom exploded uncontrollably in the run-up to the financial crisis because free-market pricing of debt and savings had been totally distorted and falsified by the monetary central planners at the Fed,’ Stockman writes on his Contra Corner blog.
‘Drastic mispricing of savings and mortgage debt in this instance touched off a cascade of distortions in spending and investment that did immense harm to the main street economy because they induced unsustainable economic bubbles to accompany the financial ones.’
Now Stockman predicts it will be deja vu all over again for Federal Reserve Chair Janet Yellen and her minions at the Fed.
‘Substitute the term ‘E&P [exploration and production] expense’ in the shale patch for ‘housing’ investment and employment in the sand states, and you have tomorrow’s graphs – that is, the plunging chart points which are latent even now in the crude oil price bust.

This post was published at David Stockmans Contra Corner on December 18, 2014.

Dream On Herr Hatzius: You Dwell In A Giant Collapsing Bubble

How ever-loving stupid do they think we really are?
Goldman’s plenipotentiary at the New York Fed, William Dudley or B-Dud, has been running around pointedly emitting a new word signal called ‘patient’ rather than ‘considerable time’ to describe the Fed’s interest raising plan. Then right on cue, his alter ego back at Goldman central, Herr Hatzius, yesterday dug out and circulated to the clientele an identical 10-year ago audible from when the Fed last changed its password in 2004:
In the 2003-2004 playbook, ‘considerable period’ gave way to ‘patient’ as a signal that the hikes were drawing closer, and it is interesting that the words ‘patient’ or ‘patience’ have shown up quite frequently in recent Fed speeches.
Finally, like clockwork at 6:30 PM last night, the Fed’s official out-sourced spokesman, Jon Hilsenramp, delivered the definitive message to the casino players through Rupert Murdoch’s drop box.
Federal Reserve officials are seriously considering an important shift in tone at their policy meeting next week: dropping an assurance that short-term interest rates will stay near zero for a ‘considerable time’…….
Mr.. Dudley – a part of Ms. Yellen’s inner circle of advisers – has suggested recently that the Fed could replace the assurance of low rates for a considerable time by stating more vaguely that it expects to be patient before moving……. The Fed took this approach the last time it was trying to engineer a liftoff from low rates, in 2004….(when it)dropped an assurance rates would stay low for a ‘considerable period’ and said it would be patient before raising rates.

This post was published at David Stockmans Contra Corner on December 9, 2014.

David Stockman: Yellen’s ‘Bathtub Economics’ Is Producing a Cold Bath for the US

Federal Reserve Chair Janet Yellen and her cronies are resorting to parlor tricks to prop up the U. S. economy, but the curtain will fall soon enough on their harmful efforts, according to David Stockman, White House budget chief during the Reagan administration.
One problem is that household debt is still off the charts even while Yellen et al are practicing ‘bathtub economics’ in the face of a glaring gap between income and jobs on the one hand, and aggregate demand for goods and services on the other, Stockman maintains.
‘This purported ‘output gap’ is conveniently self-serving. It has been interpreted to mean that the Fed has a plenary mission to fill up the nation’s economic bathtub by generating sufficient incremental aggregate demand to offset the shortfall.’
Writing on his Contra Corner blog, Stockman said Washington has empowered the Fed ‘to manipulate, massage, twist, bend and pump any financial variable that in its wisdom is deemed to influence the transmission of its monetary policy (i.e., ‘aggregate demand’ stimulus) into the real economy.’
However, the problem is that what drives the real main street economy, in his view, is nothing more than total spending by households and businesses. And spending can only be accomplished with income or debt.

This post was published at David Stockmans Contra Corner on December 5, 2014.

The Birth of a Monster

The Federal Reserve’s doors have been open for ‘business’ for one hundred years. In explaining the creation of this money-making machine (pun intended – the Fed remits nearly $100 bn. in profits each year to Congress) most people fall into one of two camps.
Those inclined to view the Fed as a helpful institution, fostering financial stability in a world of error-prone capitalists, explain the creation of the Fed as a natural and healthy outgrowth of the troubled National Banking System. How helpful the Fed has been is questionable at best, and in a recent book edited by Joe Salerno and me – The Fed at One Hundred – various contributors outline many (though by no means all) of the Fed’s shortcomings over the past century.
Others, mostly those with a skeptical view of the Fed, treat its creation as an exercise in secretive government meddling (as in G. Edward Griffin’s The Creature from Jekyll Island) or crony capitalism run amok (as in Murray Rothbard’s The Case Against the Fed).
In my own chapter in The Fed at One Hundred I find sympathies with both groups (you can download the chapter pdf here). The actual creation of the Fed is a tragically beautiful case study in closed-door Congressional deals and big banking’s ultimate victory over the American public. Neither of these facts emerged from nowhere, however. The fateful events that transpired in 1910 on Jekyll Island were the evolutionary outcome of over fifty years of government meddling in money. As such, the Fed is a natural (though terribly unfortunate) outgrowth of an ever more flawed and repressive monetary system.

This post was published at Ludwig von Mises Institute on DECEMBER 1, 2014.

U.S. Senate Tries Public Shaming of New York Fed President Dudley

Last Friday, the Senate Subcommittee on Financial Institutions and Consumer Protection, chaired by Sherrod Brown, effectively put William Dudley, President of the Federal Reserve Bank of New York, in stocks in the village square and engaged in a rather brilliant style of public shaming. With each well-formed question posed by the panel, Dudley’s jaded leadership of a hubristic regulator came into ever sharper focus.
There were a number of elephants in the room during the lengthy session that were only briefly touched upon but deserve greater scrutiny by the press. First, Congress knew that the New York Fed was a failed, crony regulator during the lead up to the financial collapse in 2008, but it granted it an even greater supervisory role under the Dodd-Frank financial reform legislation in 2010. This Congress has also failed to engage in public shaming of President Obama for brazenly ignoring the Dodd-Frank’s statutory mandate that calls for him to appoint, subject to Senate confirmation, a Vice Chairman for Supervision at the Federal Reserve Board of Governors, who could have shaped and monitored a more credible policing role for the New York Fed.
Section 1108 of Dodd-Frank requires: ‘The Vice Chairman for Supervision shall develop policy recommendations for the Board regarding supervision and regulation of depository institution holding companies and other financial firms supervised by the Board, and shall oversee the supervision and regulation of such firms.’ President Obama was required to nominate this individual once the Dodd-Frank Wall Street Reform and Consumer Protection Act became effective; that was July 21, 2010 – more than four years ago. The President has simply ignored this provision of the law – no doubt to the extreme satisfaction of Wall Street.
The final elephant is that as a result of giving a failed regulator enhanced power and failing to appoint a person to a leadership role in supervision, the U. S. Senate has effectively become Wall Street’s cop on the beat, doing the job the New York Fed’s cronyism prevents it from doing.
The last point was buttressed by the fact that simultaneous with this hearing, Senator Carl Levin’s Permanent Subcommittee on Investigations was holding its second day of hearings on how Wall Street, under the nose of the New York Fed, has massively and secretly gobbled up a huge swath of the nation’s physical commodities, like oil and aluminum, creating cost spikes for the consumer and industrial users while also placing huge trading bets on commodity prices.

This post was published at Wall Street On Parade By Pam Martens and Russ Marte.

How We’ve Devolved into the Current System of Crony Capitalism

In this interview with Bill Moyers, David Stockman, who first coined the term Crony Capitalism, explains what’s happened in the political-economic realm since his post as Budget Director under Reagan. The evidence that we’ve embarked on a “new system” has become more obvious with time. Beginning with the $20 billion bailout of the Mexican peso in 1994, progressing with the bailout of Long Term Capital Management in 1998 and the recent bailout in 2008 with the $700 billion Wall Street package, Stockman explains that the benefactors are not limited to those being bailed out. The investors who financed those failures are the ones who’ve really benefited.  These are the so-called cronies, who have ties to those in high positions, capable of bending laws to ensure the majority of profits go to themselves, while losses are always taken by the tax payers.