The Product of NIRP: Exposing Psuedo-Science

It wasn’t the introduction of statistics that led to the dire state of ‘science’, rather it was the jettison of common sense in favor of, and the total deference to, statistics. This was not a single event or a clean break, of course, as it happened slowly over decades. But in the 21st century what is often talked about and written up as science is almost exclusively some form of statistical study.
The true measure of science is repeated observation leading to prediction that can be replicated by anyone anywhere. While a gold standard for scientific inquiry, it just doesn’t apply so readily in the softer sciences of the humanities. Quantum physics has made a significant contribution to our daily lives from nothing more than statistics, even over the objections of luminaries such as Einstein, because the math works; repeatedly. In economics, there is nothing but a sea of variables increasingly disconnected from the world common sense still inhabits.
The August 28, 2015, edition of Science magazine, Volume 349, Issue 6251, featured a study of studies in psychology. Selecting 100 published experiments from three ‘high-ranking’ psychology journals, authors sought to replicate the findings in each but ran into great difficulty in doing so. In fact, in only one-third to one-half of them could they obtain the same results at near the same levels of significance. In the abstract, they point to the increasing disconnect between ‘science’ and perceptions of science:

This post was published at David Stockmans Contra Corner by Jeffrey P. Snider ‘ August 25, 2016.

How The Money Printers Enable Big Government

Sound money advocates are often hit with the charge of being ‘doom and gloomers.’ Yes, we do warn that unsound monetary policies enable unsustainable fiscal commitments, which will lead eventually to a currency crisis.
Sound money advocates are also often portrayed as party-poopers. Yes, we do seek to take away the bottomless punch bowl of easy money and replace it with something more solid. However, we are not pessimists or killjoys by nature.
To the contrary, we are quite optimistic about the ability of genuinely free markets to generate ever greater levels of prosperity for ever greater numbers of people. To advocate hard money, as in a gold and/or silver standard, is simply to be a hard-nosed realist about the dangers of giving governments the power to issue unbacked fiat currencies.
The case for hard money is based on the proposition that real wealth is generated by productive activity in the real economy. When governments and central banks assume the power to set interest rates artificially low, to expand the supply of money and credit at will, and to bail out ‘too big to fail’ financial institutions, they are engaging in massive wealth transfers. They are stealing purchasing power away from productive workers in the real economy and transferring it to bankers and bureaucrats.
As the late economist and Nobel Laureate Friedrich A. Hayek noted, ‘With the exception only of the period of the gold standard, practically all governments of history have used their exclusive power to issue money to defraud and plunder the people.’

This post was published at David Stockmans Contra Corner on April 21, 2016.

Central Bank Money Printing – -The Rotten Philosophy Beneath

If advocates of freedom were to make up a list of New Year’s resolutions for 2016, one of the most important items should be ending government’s monopoly control over money. In a free society, people in the marketplace should decide what they wish to use as money, not the government.
For more than two hundred years, practically all of even the most free market advocates have assumed that money and banking were different from other types of goods and markets. From Adam Smith to Milton Friedman, the presumption has been that competitive markets and free consumer choice are far better than government control and planning – except in the realm of money and financial intermediation.
This belief has been taken to the extreme over the last one hundred years, during which governments have claimed virtually absolute and unlimited authority over national monetary systems through the institution of paper money.
At least before the First World War (1914-1918) the general consensus among economists, many political leaders, and the vast majority of the citizenry was that governments could not be completely trusted with management of the monetary system. Abuse of the monetary printing press would always be too tempting for demagogues, special interest groups, and shortsighted politicians looking for easy ways to fund their way to power, privilege, and political advantage.
The Gold Standard and the Monetary ‘Rules of the Game’
Thus, before 1914 the national currencies of practically all the major countries of what used to be called the ‘civilized world’ were anchored to market-based commodities, either gold or silver. This was meant to place money outside the immediate and arbitrary manipulation of governments. Any increase in gold or silver money required private individuals to find it profitable to prospect for it in various parts of the world; mine it out of the ground and transport it to where it might be refined into usable forms; and then mint part of any new supplies into coins and bullion, with the rest made into various commercial and industrial products demanded on the market.

This post was published at David Stockmans Contra Corner on January 4, 2016.

21 Years Of Easy Money – – Why Plausible Bubbles Abound

They finally did it – 25 bps, for the first rate increase since 2004. Surely it’s the most dovish Fed ‘tightening’ ever. Indeed, it was really no tightening at all. One has to go all the way back to 1994 for the last time the Federal Reserve commenced a true tightening cycle. That episode proved so destabilizing that the Federal Reserve assured the markets that they’d learned their lesson. And this (dovish and market-pandering) mindset was fundamental to the little baby step rate increases that ensured no tightening of financial conditions throughout the historic 2002-2007 mortgage finance Bubble inflation.
This week’s policy move will be debated for years to come. Lost in the debate is how the Fed (along with global central bankers) found itself stuck at zero for seven years (with a $4.5 TN balance sheet) and then saw it necessary to move to raise rates in the most gingerly, market-pleasing approach imaginable.
Traditionally, tightening cycles are necessary to counter mounting excess, including ill-advised lending, speculating and investing. Rate increases back in 1994 exposed what had been a dangerous expansion in speculative leveraging, derivatives and market-based Credit (at home and abroad). With the ‘bond’ market in disarray and Mexico at the precipice, the Greenspan Fed turned its attention to bolstering the markets and non-bank Credit more generally.
Market-based Credit is unstable. This remains the fundamental issue – the harsh reality – that no one dares confront. I would strongly argue that long-term stability in a Capitalistic system requires sound money and Credit (hopelessly archaic, I admit). Over the years, I’ve tried to differentiate traditional finance from unfettered ‘New Age’ finance. The former, bank lending-dominated Credit, was generally contained by various mechanisms (including the gold standard, effective currency regimes, bank capital and reserve requirements, etc.). This is in stark contrast to the current-day securities market-based global financial ‘system’ uniquely operating without restraints on either the quantity or quality of Credit created.
A few data points from the Federal Reserve’s ‘Z.1′ report illuminate why the Credit system had turned fragile back in 1994. After beginning the decade at $6.39 TN, Total Debt Securities (my compilation of Treasuries, Agency Securities, Corporate Bonds and Muni Debt) surged $2.94 TN, or 46%, in four years to end 1993 at $9.33 TN. For comparison, over this period bank (‘Private Depository Institutions’) Loans actually declined $169 billion (Total bank Assets rose $137bn to $4.9 TN). Importantly, Total Debt Securities as a percentage of GDP jumped from 113% to 135% in four years, while bank Loans to GDP declined from 57% to 44% (bank Assets 84% to 71%).

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

No Retail Slump – – – Just A ‘Warm’ October

Janet Yellen and orthodox economists claim that the economy can only be gaining, and that word is taken, on faith, as if some updated, modern gold standard for meaning. No matter the contrary in actual evidence and observation, the ‘word’ remains as if diktat were the only employ. It has produced some very strange dichotomies, particularly of late, where those within that economic cage are struggling mightily and obviously to find some kind of consistency with it all. It has led to an Orwellian deployment of qualifications and words quite contrary to their established meaning.
For one, apparently the American economy cannot withstand anything but the fattest, meatiest part of the Bell Curve for temperature. Anything outside of a narrow range in weather (which, if you are paying attention, is what weather actually is) and somehow economists and their media parrots become disenthralled and unhinged. We all know about the constant appeal, three winters in a row, of cold and snow and vortices of some blusterous nature, but now warm weather has been assigned the same depressive instincts. I wish I were making this up, for it does not suggest anything good about the economy nor the state of the commentary class that still clings to Yellen’s desperate narrative no matter how much and how deeply actual observation moves sharply against it all.
As expected, balmy October days failed to inspire people to shop for winter coats, but the retail sales results were even a little worse than forecast. The Thomson Reuters Same Store Sales Index actual result for October 2015 showed no change, missing its final estimate of a 0.3% gain. Excluding drug stores, the SSS Index registered a -0.2% comp for October, missing its 0.1% final estimate.
It’s important to note that these results are not final, as the Gap will report October SSS on Nov. 9. However, 75% of retailers missed estimates, hit by lower gasoline prices, the effect of a strong U. S. dollar and the warmer-than-usual weather. [emphasis added] A negative same store sales index register is recession, but Yellen has declared that all ‘transitory’ so the people at Reuters are left making a mockery of their own work. Worse, Thompson Reuters just over a week ago, in projecting the alarming re-appearance of negative retail figures in its own index, even stated that a negative was consistent with recession:

This post was published at David Stockmans Contra Corner by Jeffrey P. Snider ‘ November 11, 2015.

Dollar Dissonance And The Remonetization Of Gold

THE ECONOMIST RINGS OUT COGNITIVE DOLLAR DISSONANCE
Two years ago, prior to travelling to Sydney to present at the Annual Precious Metals Symposium, I prepared an article for the Gold Standard Institute Journal titled Cognitive Dollar Dissonance: Why a Global De-Leveraging Requires the De-Rating of the Dollar and the Remonetisation of Gold (see here). This article highlighted the growing inconsistency between those arguing on the one hand that the dollar’s role in international trade and finance was clearly diminishing; yet denying that it was in any danger of losing the near-exclusive monetary reserve status it has enjoyed since the 1940s.
This apparently contradictory yet mainstream thinking about the future of the international monetary system continues to the present day. Indeed, earlier this month the Economist magazine ran a special feature on fading US economic power replete with dollar dissonance.[1] The experts cited note the accelerating trend towards bilateral trade settlement, say between Russia and China, who plan to finance their multiple ‘Silk Road’ infrastructure projects using their own currencies and their own development bank (The Asian Infrastructure Investment Bank or AIIB: SeeThey also observe that Russia, China and the other BRICS are no longer accumulating dollar reserves (although curiously overlook that they continue to accumulate gold). They acknowledge that not only the BRICS but many other countries have repeatedly expressed their desire that the current set of global monetary arrangements should be restructured in some way, although they are not always clear as to their specific preferences.
Note the sharp contrast in these two paragraphs, both on the very same page of the Economist feature:
‘This special report will argue that the present trajectory is bound to cause a host of problems. The world’s monetary system will become more prone to crises, and America will not be able to isolate itself from their potential costs. Other countries, led by China, will create their own defences, balkanising the rules of technology, trade and finance. The challenge is to create an architecture that can cope with America’s status as a sticky superpower.’
And:

This post was published at David Stockmans Contra Corner on October 8, 2015.

‘Regretfully, We Are Bankrupt’: A Short History Of Greece, Italy And The 19th Century Latin Monetary Union

It is now largely overlooked, but the 19th century had its own precursor to EMU in the shape of the Latin Monetary Union, set up principally to try to solve the hoary problems of silver:gold bimetallism. But, if much of the Union’s history was dogged by the narrow technical issues of how, firstly, to structure its members’ own monetary system and, thereafter, to align it more closely with those of the non-members, there were other features, too, which are still very much germane today.
Unrealistic expectations, short-term politics, and – as ever – too much debt plagued both Greece and Italy in those days, too, with repercussions for the other LMU members as well as for their trading partners in the wider world.
[The following appears as Chapter II in my book ‘Santayana’s Curse’available on Kindle] Among the more germane of these is the extent to which the French government’s desire to broaden its diplomatic reach, to enhance its international prestige, and – let us be charitable – to facilitate the work of its wealth creators was stymied by the opposition of the Banque de Franceto any move to the unique gold standard which was adopted as a goal of the conferences, almost from the off, in recognition of the emergent consensus regarding the impossibility of maintaining a full bimetallic standard.

This post was published at David Stockmans Contra Corner on July 6, 2015.

Its 1929 In China – -Here’s The Chapter And Verse

I’ve mentioned the ChineseSTOCK MARKET mania here briefly in recent weeks. I’ve now compiled a fair amount of data along with some interesting anecdotes that show just how crazy it’s gotten so I thought I’d spend this week’s market comment laying it all out for you.
The first thing I like to focus on is valuations. If the dot-com bubble is the gold standard, then China is a bona fide financial bubble. According to Bloomberg:
Valuations in China are now higher than those in the U. S. at the height of the dot-com bubble just about any way you slice them. The average Chinese technology stock has a price-to-earnings ratio 41 percent above that of U. S. peers in 2000, while the median valuation is twice as expensive and the market capitalization-weighted average is 12 percent higher, according to data compiled by Bloomberg.
Another way to look at it is to compare current valuations around the world:

This post was published at David Stockmans Contra Corner by Jesse Felder ‘ June 27, 2015.

The Warren Buffett Economy – -Why Its Days Are Numbered (Part 2)

There is no reason whatsoever to believe that the financial carrying capacity of the US economy – -or any other DM economy – -has improved since the 1980s. In fact, it has gone the other direction in recent years due to aging demographics, declining competitiveness versus the surging EM economies, dwindling rates of productivity growth and a dramatic increase in the leverage ratio against both public and private incomes.
All of these adverse macro-trends mean that the US economy’s ability to generate growth, incomes and profits has been significantly lessened. Accordingly, since its ability to service debt and equity capital at an honest market rate of return has diminished, the logical expectation would be that the finance ratio to national income would fall.
In fact, once Greenspan took the helm and his apparently atavistic embrace of gold standard money melted-down under the Wall Street furies of October 1987, the finance ratio erupted. As shown below, it has never looked back and at 5.5X national income has reached a point that would have been unimaginable on the morning of Black Monday.
Stated differently, under a regime of honest money and market determined financial prices, the combined value of corporate equities and credit market debt would not have mushroomed by 8X – – from $11 trillion to $93 trillion – – during the past 27 years. For crying out loud, the nominal GDP grew by only 3.5X during the identical span. In effect, the US economy has been capitalized at higher and higher rates for no ascertainable reason of fundamental economics.

This post was published at David Stockmans Contra Corner on June 10, 2015.

Smoothing The Business Cycle – – The Core Myth Of Monetary Central Planning

Mainstream economists tell us that the Federal Reserve protects us from economic waves, indeed from the business cycle itself. In their view, people naturally tend to go overboard and cause wild swings in both directions. Thus, we need an economic central planner to alternatively stimulate us and then take away the punch bowl.
Newspapers report on the adoption of the Federal Reserve Act. It was erroneously held that it was going to be ‘a constructive Act to aid business’. Ominously, even more such acts were promised.
Prior to the global financial crisis of 2008, a popular term described the supposed benefits created by the Fed. The Great Moderation referred to the reduced volatility of the business cycle. For example, I have written before about economist Marvin Goodfriend, who asserted that the Fed does better than the gold standard.
An Orwellian Mandate for the Provision of Miracles
This belief is inherent in the Fed’s very mandate from Congress. The Fed states its three statutory objectives as, ‘maximum employment, stable prices, and moderate long-term interest rates.’ These terms are Orwellian.
Maximum employment means five percent of able-bodied adults can’t find work. Stable prices are actually rising relentlessly, at two percent per year. The meaning of moderate long-term interest rates must be changing, because rates have been falling for a third of a century.

This post was published at David Stockmans Contra Corner by Keith Weiner ‘ June 10, 2015.

The Warren Buffet Economy – -Why Its Days Are Numbered (Part 2)

There is no reason whatsoever to believe that the financial carrying capacity of the US economy – -or any other DM economy – -has improved since the 1980s. In fact, it has gone the other direction in recent years due to aging demographics, declining competitiveness versus the surging EM economies, dwindling rates of productivity growth and a dramatic increase in the leverage ratio against both public and private incomes.
All of these adverse macro-trends mean that the US economy’s ability to generate growth, incomes and profits has been significantly lessened. Accordingly, since its ability to service debt and equity capital at an honest market rate of return has diminished, the logical expectation would be that the finance ratio to national income would fall.
In fact, once Greenspan took the helm and his apparently atavistic embrace of gold standard money melted-down under the Wall Street furies of October 1987, the finance ratio erupted. As shown below, it has never looked back and at 5.5X national income has reached a point that would have been unimaginable on the morning of Black Monday.
Stated differently, under a regime of honest money and market determined financial prices, the combined value of corporate equities and credit market debt would not have mushroomed by 8X – – from $11 trillion to $93 trillion – – during the past 27 years. For crying out loud, the nominal GDP grew by only 3.5X during the identical span. In effect, the US economy has been capitalized at higher and higher rates for no ascertainable reason of fundamental economics.

This post was published at David Stockmans Contra Corner by David Stockman ‘ June 9, 2015.