The Chinese Economy’s Fatal Flaws

Dr. Per Bylund’s recently published article poignantly states one of the core problems in the Chinese economy and its the state-manipulated Keynesian foundation. I do agree with his opinion. And if we dig deeper into the exact situation of Chinese economy, we will find that it’s a typical failing of the Keynesian, cronyist system.
By using the perspective of Austrian business cycle theory, lets take a look at China’s real estate industry, which is suffering more and more painfully from artificial credit issued by China’s central bank, the People’s Bank of China (PBC). During the 2008 global economic crisis, China’s central government issued the famous RMB 4 Trillion Stimulus Package Plan (equaling to $586 billion). Since 2009, the Chinese real estate economy has already suffered from three small economic cycles. As it is becoming more difficult for real estate companies to live on artificial prosperity, the duration of every business cycle has become shorter than the previous one. We also see more and more ghost cities because of the economic boom in every sub-economic cycle. There were at least 12 ghost cities founded in 2013, and the number of them jumped to at least 50 in 2017! Bankruptcy is happening more frequently among Chinese real estate enterprises. Since 2016, at least three real estate companies – with a combined debt of at least RMB 763 million – have gone bankrupt. The story of bankruptcy is continuing, with one of the biggest real-estate-driven enterprises, Wanda Group, facing financing problems. If Wanda no longer has access to cheap debt, it might not be able to refinance or roll over all its debt again. If Wanda has to face bankruptcy, it could possibly accelerate an end of the the current Chinese boom.
The data from the Chinese local governments is also not optimistic; their debt levels have reached almost RMB 25 trillion (US$ 4 trillion) at the end of 2014. In 2015, even the PBC admitted in one of its annual reports saying that China’s financial system is facing higher instability and uncertainty.

This post was published at Ludwig von Mises Institute on August 22, 2017.

Is Obama Juicing Government Spending To Get Hillary Elected?

During the last year of his reign of error, our beloved Nobel Peace Prize winner, Obama ran out of government accounting gimmicks to falsely proclaim Federal deficits have been falling. His legacy of debt accumulation will go down in history as the last dying gasps of a crumbling empire built upon Keynesian delusions, political corruption, and a Deep State establishment hellbent upon retaining power at the cost of global war and financial collapse.
The entirely fabricated government propaganda data point known as the Federal deficit skyrocketed by 34% in fiscal 2016 (Federal year is Oct. 1 to Sept. 30). The reported deficit in FY15 was a mere $438 billion. Obama and his brain dead minions had boasted about such a small deficit. The country has been in existence for 227 years and Obama had the balls to boast about ‘achieving’ the 8th highest deficit in our history. Just for some context, the savior also led the country to the 1st, 2nd, 3rd, 4th, 5th, and 6th highest deficits in the country’s history. Bumbling Bush achieved the 7th highest in the glorious year of 2008.
The $149 billion surge in the reported deficit to $587 billion is a national disgrace and happened during a year in which we supposedly aren’t waging any real wars. Even with artificially suppressed interest rates, interest on the national debt went up by $30 billion. The Obamacare abortion has caused healthcare spending to soar, blowing a hole in the Federal budget. Remember Obama bloviating about Obamacare not adding one dime to the national debt? He was right. It’s adding trillions of dimes to the national debt. But, at least every family in America has gotten that promised $2,500 savings in their annual premiums. Right?

This post was published at The Burning Platform on October 16, 2016.

Mass Money Debauchery

The present day offers the opportunity for many incredible experiences. Perhaps one of the most rewarding of all is bearing witness to the final days before the greatest economic crackup the world’s ever known. Not since Nero clipped coins in 64 A. D. and fiddled as Rome burned has there been such an intolerable collection of dingleberries in imperial office.
John Maynard Keynes, the godfather of modern day economic planning, in his 1919 work, The Economic Consequences of the Peace, wrote: ‘There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency.’
Incidentally, Keynes attributed this acute insight to another innovative central planner, one Vladimir Lenin. Regrettably, these two visionaries predicted today’s present state of affairs with remarkable foresight.
Here we are, nearly 100 years later, and the currency has been near fully debauched. What’s more, the basis of society has been completely overturned. Gawping at the Presidential debate earlier this week made this all too apparent.
Two hominids, panting at the watering hole, squawking and shrieking over who gets to divvy up and dole out the peanuts. One wants to transfer wealth from the rich via payments to the poor. The other wants to rebuild the nation’s crumbly airports and bridges using money from somewhere.

This post was published at David Stockmans Contra Corner on September 30, 2016.

The Fed’s Monetary Politburo Is Finally Catching Some Flack

Now that’s more like it. Echoing Donald Trump’s Monday night bull’s-eye regarding the Fed’s thoroughly political essence, Rep. Scott Garrett put more wood to Janet Yellen during yesterday’s hearing:
Rep. Scott Garrett, R-N. J., seized Trump’s mantle during Wednesday’s hearing, saying ‘the Fed has an unacceptable cozy relationship’ with the Obama administration and Democrats.
‘As the saying goes, perception is reality,’ Garrett told Yellen. ‘Whether you like it or not, the public increasingly believes that the Fed’s independence is nothing more than a myth.’
Of course it’s a myth, and a dangerous one at that. The truth is, Keynesian monetary central planning is inherently, massively and irremediably ‘political’.
That’s because it interjects the state deeply into the money and capital markets – -the very heart of capitalism – -and thereby in plenary fashion manipulates, rigs and falsifies the prices of all financial assets.
So doing, it supersedes governance by the many via continuous auction and free market processes of financial valuation and allocation with governance by the few, who rule arbitrarily and often secretly via ideological whims and shibboleths that they are pleased to call ‘policy’.
Worse still, the Eccles Building politicians who rule the financial markets directly – -and through them much of the balance of capitalism indirectly – – are unelected and are accountable to no democratic oversight and control whatsoever. They have essentially seized great power in the manner of a coup d’ etat, and have then added insult to injury by proclaiming the utterly spurious doctrine of Fed ‘independence’.

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

Guess The Last Country Which Still Has Positive Real Interest Rates – – Russia!

Russia’s central banker, Elvira Nabiullina, continues to be the most impressive central banker in the world. It appears she has completely rejected Keynesian money pumping orthodoxy and its strange new view that a little price inflation is good. She holds the heroic view that it is investment and increasing efficiencies that boost growth in an economy.
Reports Bloomberg: Nabiullina has a message for Russian businesses that may be finding it difficult to adapt to positive real interest rates: get used to it.

This post was published at David Stockmans Contra Corner on September 17, 2016.

Apple Tax Grab by EU Invades IRS Airspace

On August 30th, the European Union (EU) Commission ordered the Irish government to reclaim some $14.6 billion of so-called back taxes plus interest from Apple Inc. The order challenged sovereign tax authority within the EU and well-established international tax rules. The aggressive stance of the Commission set off a furor of high level political argument among taxing authorities and multinational companies accustomed to complex but legal international tax planning. Apple’s case was big enough to place it at center stage in a simmering problem for governments in striking a balance between attracting businesses, creating jobs, generating taxes and deciding precisely what type of earnings can be taxed.
In a testament to how strange the taxing regimes have become, the Irish government has protested loudly and is reluctant to take the nearly 15 billion the EU says it is entitled. When small countries turn down such sums, it should be clear that the stakes are much higher.
With uncontrolled socialism and Keynesian monetary policies killing economic growth around the world, governments have ever greater need to wring revenue from the relatively stagnant pool of corporations and wealthy individuals. While the crackdown on personal tax havens, in Switzerland and the Channel Islands for instance, has been largely successful, corporations have become extremely adept using legal loopholes and creative international accounting to move revenues from high tax jurisdictions to countries where rates are lower. As of October, Reuters reported that U. S. based companies have some $2.1 trillion parked abroad in order to avoid high domestic taxes. Apparently Apple, the world’s largest company by market capitalization, accounts for over $180 billion of this total.
The U. S. corporate tax rate of 35 percent is widely considered to be uncompetitive and even excessive when compared with Ireland’s 12.5 percent rate (and even the 20 percent in the UK). It is an old adage that capital flows to where it is treated best. Ireland rolled out the red carpet for Apple, a decision that greatly benefited both.
Apple established a company in County Cork, Ireland in October 1980, sometime before Apple blossomed financially. Since then, Apple has become one of the largest taxpayers in the world and, according to its CEO, Tim Cook, the largest taxpayer in Ireland where it employs almost 6,000 people, mostly in high paying jobs, adding great benefit to the Irish economy both directly and by encouraging copycat corporations. (A Message to the Apple Community in Europe, 8/30/16)

This post was published at Euro Pac on September 15, 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.

War On Cash: Discontinue Professor Rogoff’s Stupid Commentary, Not the $100 Bill

In a recent opinion piece for the Wall Street Journal, Harvard economist Kenneth Rogoff declared that there’s ‘little debate among law-enforcement agencies that paper currency, especially large notes such as the $100 bill, facilitates crime.’ Rogoff would like to discontinue the $100 in order to – try not to laugh – reduce crime.
Can the eminent economist really be so nave as to presume that the disappearance of a piece of paper would prove effective at making the U. S. (and the world) more honest and safe? Apparently he does, while lightly acknowledging what economists refer to as the ‘substitution effect.’ If $100 Federal Reserve notes prove scarce, then similar euro and Pound bills will do the job, as will 10,000 yen notes. If $100 bills simplify big criminal transactions, wouldn’t little gold coins simplify crime even more?
While Rogoff is fully focused on the problems presented by $100 bills for government, he ignores how problematic it is that our government is so large and intrusive as to want to take away something that we the people (law abiding and not) find convenient. Did it ever occur to Rogoff that maybe there are too many laws and too many crimes as opposed to too many $100 bills? To you the reader, if cocaine and heroin are legalized tomorrow, will you become users?
As opposed to wanting to abolish the $100 bill in order to increase our individual freedoms, Rogoff seeks an end to the $100 to increase the size and scope of government. A principle reason Rogoff is in favor of abolishing the C-note is because ‘Cash is also deeply implicated in tax evasion, which costs the federal government some $500 billion a year in revenue.’ Lower federal revenues are apparently bad in the eyes of Rogoff and his ilk, but they’re surely good for the rest of us. Ignored by Rogoff, or worse, understood by the Keynesian thinker, is that a dollar collected by the IRS is an extra dollar for Congress to spend.

This post was published at David Stockmans Contra Corner on August 30, 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.

The ‘Lesser Depression’ And Misplaced Confidence In Central Bankers

Some people have impeccable timing. Even if by accident, there are occasions when what they say or write comes out in almost perfect sequence. At the end of August 2014, UC Berkeley economist J. Bradford DeLong wrote an article for Project Syndicate that argued in favor of proper categorization. The lack of recovery was so drastic that the economist community and indeed the world at large needed to come to terms with what was actually taking place; and that was not anything like what was being described especially at that time.
To have such a Keynesian of prominence make such an indictment like that may seem somewhat surprising, as it has been they who have most objected to classifying this economy as anything but robust. Some of it is surely political, or at least loyalty to the good standing monetarist/Keynesians (neo-Keynesian, saltwater-ists, or whatever they call themselves these days) at the Federal Reserve, where no economist shall direct any disparaging comments toward the palace. But to DeLong, the issue had never been about recession at all:
Cumulative output losses relative to the 1995-2007 trends now stand at 78% of annual GDP for the US, and at 60% for the eurozone. That is an extraordinarily large amount of foregone prosperity – and a far worse outcome than was expected. In 2007, nobody foresaw the decline in growth rates and potential output that statistical and policymaking agencies are now baking into their estimates.
By 2011, it was clear – at least to me – that the Great Recession was no longer an accurate moniker. It was time to begin calling this episode ‘the Lesser Depression.’

This post was published at David Stockmans Contra Corner on July 22, 2016.

The Central Planning Virus Mutates

Chopper Pilot Descends on Nippon
Readers are probably aware of recent events in Japan, the global laboratory for interventionist experiments. The theories of assorted fiscal and monetary cranks have been implemented in spades for more than a quarter of a century in the country, to appropriately catastrophic effect. Amid stubbornly stagnating economic output, Japan has amassed a debt pile so vast since the bursting of its 1980s asset bubble, it beggars the imagination.
Here is a brief summary of what just happened: first, contrary to the global trend of incumbents falling from grace nearly everywhere, Shinzo Abe and the LDP achieved a resounding election victory. This victory inter alia allows Abe to proceed with his militaristic agenda unhindered and to keep promoting his economic program that is best described as a mad-cap flight forward.
Secondly, an estimated five seconds after the votes were counted, Abe announced that he would indeed continue to follow the Keynesian playbook by doing even more of what hasn’t worked in over 25 years. His government plans to launch a major new ‘stimulus’ program, rumored to cost 10 trillion yen (approx. $100 billion). Stimulus is the euphemism for shifting taxpayer funds to various favored political cronies. In the process taxpayers will be left with even more bridges to nowhere, so they will at least get a few new eyesores out of it.
Financial market participants immediately assumed that the central bank’s printing press would also be involved in this effort to create prosperity by bureaucratic fiat and consequently decided to lean on the yen (which was slightly overbought anyway). They also bought Japanese stocks, on the theory that they offer at least a small modicum of insurance against the monetary debauchery that is certain to be in train.

This post was published at Acting-Man on July 20, 2016.

Helicopter Money – – The Biggest Fed Power Grab Yet

The Cleveland Fed’s Loretta Mester is a clueless apparatchik and Fed lifer, who joined the system in 1985 fresh out of Barnard and Princeton and has imbibed in its Keynesian groupthink and institutional arrogance ever since. So it’s not surprising that she was out flogging – -albeit downunder in Australia – – the next step in the Fed’s rolling coup d etat.
We’re always assessing tools that we could use,’ Mester told the ABC’s AM program. ‘In the US we’ve done quantitative easing and I think that’s proven to be useful.
‘So it’s my view that [helicopter money] would be sort of the next step if we ever found ourselves in a situation where we wanted to be more accommodative.
This is beyond the pale because ‘helicopter money’ isn’t some kind of new wrinkle in monetary policy, at all. It’s an old as the hills rationalization for monetization of the public debt – – that is, purchase of government bonds with central bank credit conjured from thin air.
It’s the ultimate in ‘something for nothing’ economics. That’s because most assuredly those government bonds originally funded the purchase of real labor hours, contract services or dams and aircraft carriers.
As a technical matter helicopter money is exactly the same thing as QE. Nor does the journalistic confusion that it involves ‘direct’ central bank funding of public debt make a wit of difference.

This post was published at David Stockmans Contra Corner by David Stockman ‘ July 13, 2016.

Humpty-Dumpty – – Teetering On The Eccles Building Wall

The Eccles Building trotted out Vice-Chairman Stanley Fischer this morning. Apparently his task was to explain to any headline reading algos still tracking bubblevision that things are looking up for the US economy again and that Brexit won’t hurt much on the domestic front. As he told his fawning CNBC hostess:
‘First of all, the U. S. economy since the very bad data we got in May on employment has done pretty well. Most of the incoming data looked good,’ Fischer said. ‘Now, you can’t make a whole story out of a month and a half of data, but this is looking better than a tad before.’
You might expect something that risible from Janet Yellen – – she’s just plain lost in her 50-year old Keynesian time warp. But Stanley Fischer presumably knows better, and that’s the real reason to get out of the casino.
What is happening is that after dithering for 90 months on the zero bound the Fed has run out the clock. The current business cycle expansion – as tepid as is was – is now clearly rolling over. So the Fed has no option except to sit with its eyes wide shut while desperately trying to talk-up the stock market.

This post was published at David Stockmans Contra Corner by David Stockman ‘ July 2, 2016.

Secular Stagnation Is Eurodollar Stagnation

Last week, the St. Louis Fed published an article based on a speech that Dr. Larry Summers gave to the Homer Jones Memorial Lecture series back in April. The article included the full text of Summers’ speech and importantly the supporting material and evidence he used in his argument for ‘secular stagnation.’ Included is one chart that is among the most extraordinary and significant that I have seen in some time.
First, it is important to note that I agree with Dr. Summers about the idea of secular stagnation but for vastly different reasons. Thus, the term applies to the effect, not the cause. In his lecture, he points out that the first usage of the phrase was in the late 1930′s by economic Alvin Hansen. It was Hansen more than perhaps any other who was responsible for delivering Keynes to America during the Great Depression, working very closely with him throughout the ordeal. This is why, of course, Hansen has been lionized by the orthodox establishment.
By the latter 1930′s, however, Hansen became more cynical about all of it especially after the setbacks in 1937 and 1938. To his view, America had found itself with a structural problem far more intractable than might be cured by even pure Keynesianism. Prosperity and growth had come to the United States based on three factors in varying combinations throughout the 19th century: 1. territorial expansion; 2. population expansion; and, 3. technological innovation. The Great Depression, then, was the opening act of what would happen should all three run dry.
Obviously Hansen was wrong about the last two. Not only was there yet another revolution looming, the Baby Boomer generation lay just outside his self-limited gaze. The problem with all economists, especially Keynesians of the mathematical persuasion, it seems, is that they always seem to extrapolate in straight lines. History, however, is lumpy, messy, and most of all cyclical.

This post was published at David Stockmans Contra Corner on June 24, 2016.

The Long Road To Failure – – How Keynesians Conquered The Central Bank And Then Struck Out

It is human nature to extrapolate in straight lines, to take what is as what should forever be. In economic statistics, tail risks continue to live outside the tails because the math can never get past that limitation. No matter how sophisticated the ‘jump diffusion’ tendencies, no one can predict inflections. This is not to say there aren’t warnings, usually there are. But institutional inertia particularly with regard to apparent prosperity is a powerful force of destructive capacity.
In 1927, John Maynard Keynes confidently declared, ‘there will be no more crashes in our time’ such was his faith in centralized man. Despite the error revealed in disastrously in just three years’ time, in August 1971 President Richard Nixon famously appropriated Milton Friedman’s earlier declaration that ‘we are all Keynesians now.’ Friedman’s quote was, he later claimed, taken out of context by a December 1965 Time Magazine article with John Maynard Keynes’ face glaring on the cover. In 1968, Friedman said of his attributed affability towards the economist, ‘We all use the Keynesian language and apparatus; none of us any longer accepts the initial Keynesian conclusions.’
Nixon’s use of the quote was still far too similar even to where Freidman was protesting; interventionist policies would be the only way forward. Friedman agreed, only split into the monetary realm where so many others at that time were working it through fiscal policies.
Just nine years after Nixon declared everybody one, the Joint Economic Committee of the United States Congress confirmed nobody was left to be – on the fiscal side. The disaster of the Great Inflation was palpable enough that even partisanship was no longer an impediment to the necessary judgement. Published on February 28, 1980, the JEC report thundered in its introduction:

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

Janet Whiffs Again – – Take Cover Now!

If Donald Trump has even a partial clue about the nation’s monumental economic mess one of his first acts will be to demand Janet Yellen’s resignation. And for sheer incompetence among countless other failings.
She was out there again today talking in completely incoherent circles. On the one hand, Yellen robotically insisted that the U. S. economy is moving steadily toward the Keynesian nirvana of full employment.
At the same time, she struck a profile in cowardice that was downright pathetic. Yep, after 90 months of ZIRP the Fed has decided to wait for further confirmation from the ‘incoming data’ before concluding that another baby step toward interest rate normalization is warranted.
Needless to say, our paint-by-the numbers school marm has no clue that money market rates at 0.38 bps have nothing to do with the Fed’s so-called dual mandate. It’s sole impact has been to flood the canyons of Wall Street with zero cost carry trades and endless cheap debt for corporate financial engineering and other leveraged speculations.
By contrast, its massive spree of money pumping never got anywhere near to main street. It couldn’t deliver honest full employment through cheap money inducements to borrow and spend because households are still stranded at Peak Debt.
Based on the most recent flow-of-fund report for Q1, households now have record debt of $14.3 trillion. Anyone who can scratch an application signature has been given a student loan and all who can fog a rearview mirror have been loaned 120% of the cost of a new car. And, of course, the castles of main street families are still mortgaged to the hilt.

This post was published at David Stockmans Contra Corner on June 15, 2016.

The Keynesian Conceit: If It Works In Theory, It Must In Practice

Walter W. Heller was said to have been an ‘educator of Presidents.’ As an economist and Presidential advisor in the inner circles of DC, Heller worked with more candidates and officeholders than perhaps any other man. As he himself described, his influence went all the way back to Adlai Stevenson and kept on through Kennedy, Johnson, Carter, and Mondale. To his mind, he takes credit for turning Presidents into thorough Keynesians starting with JFK in January 1963 and the tax cut ‘stimulus’ that Heller claims was ‘born on my desk.’
As an economist and advisor, Heller seems to have spent a lot of time about the 1960′s and almost none describing the 1970′s. Perhaps his greatest contribution to that decade was a quote attributed to him describing economics. ‘An economist is a man who, when he finds something works in practice, wonders if it works in theory.’
Among the most pernicious of these theories to have been backward applied in exactly that manner is ‘rational’ expectations theory. This was developed in the 1980′s to try to explain the disaster of the 1970′s in terms that would save econometrics. Thus, it is applied in great detail and mathematics to ‘inflation’ and is often discussed only in that context. Among the most influential to have used rational expectations theory was John Taylor as the basis for the Taylor ‘rule.’
In a 2007 speech, then-Federal Reserve Chairman Ben Bernanke described the updated expectations framework as it at that time related to inflation and gradualism in monetary policy (into the onrushing storm).

This post was published at David Stockmans Contra Corner on June 15, 2016.

Tyranny Of The PhDs

Sad to say, you haven’t seen nothin’ yet. The world is drifting into financial entropy, and it is going to get steadily worse. That’s because the emerging stock market slump isn’t just another cyclical correction; it’s the opening phase of the end-game.
That is, the end game of the PhD Tyranny.
During the last two decades the major central banks of the world have been colonized lock, stock and barrel by Keynesian crackpots. These academic scribblers and power-hungry apparatchiks have now pushed interest rate repression, massive monetization (QE) and relentless rigging of the financial markets to the limits of sanity and beyond. Honest, market-driven price discovery is dead as a doornail.
No more proof is needed than the ‘matrix’ below. The very thing that history proves, above all else, is that governments can’t be trusted to honor their debts. In fact, modern welfare state democracies have a veritable fiscal death wish.
What else can you call Japan’s announcement to defer yet again an increase in the consumption tax? Its public debt is already at 240% of GDP, even as its tax-paying population is rapidly streaming toward it’s national old age home.
At a 135% debt-to-GDP ratio, Italy is not far behind. It’s economy is still smaller than it was in 2007, its banking system has more than $200 billion of bad debt, its public sector squanders more than 50% of GDP and its politically fractured and corruption-ridden government is paralyzed.

This post was published at David Stockmans Contra Corner by David Stockman – June 13, 2016.

Losing Ground In Flyover America – – Wanting For Work, Buried In Debt, Part 4

The flyover zones of America are wanting for work and buried in debt. That’s the legacy of three decades of Washington/Wall Street Bubble Finance. The latter has exported jobs, crushed the purchasing power of main street wages and showered the bicoastal elites with the windfalls of financialization.
The graph below depicts the main street side of this great societal swindle at work. There are currently 126 million prime working age persons in the US between 25 and 54 years of age. That’s up from 121 million at the beginning of 2000.
Yet even as this business cycle is rolling over, the 77.1 million employed full-time from that pool is still 1.2 million below its turn of the century level and accounts for only 61% of the population. On top of that, average real hourly wages have fallen by 7% (based on the Flyover CPI), as well.
It might be wondered, therefore, as to how real consumption expenditures rose by $3.1 trillion or 38% during the same 16-year period?
The short answer is transfer payments and debt, and those troublesome realities go right to the economic blind spots of our Keynesian monetary suzerains. These paint-by-the-numbers economic plumbers care only about the great aggregates of spending and whether or not the bathtub of so-called ‘full employment GDP’ is being filled to the brim.
As a consequence, the ideas of quality, sustainability, efficiency, discipline, prudence or, for that matter, even economic justice and equity, never enter the narrative. It matters not a wit whether the considerable expansion of PCE depicted above originated in disability checks, second mortgages, car loans at 120% loan-to-value – -or even if it was deposited by a passing comet.
What counts is the incremental gains in GDP compared to last quarter and proxies for demand such as job counts and housing starts versus prior month. And when the business cycle eventually ends, there is always a scape-goat to blame, such as an oil price shock or Wall Street meltdown.
By contrast, no Fed head ever asked whether real PCE growth of nearly two-fifths during a period when the number of prime-age full-time workers went down and real wage rates dropped was healthy or sustainable.

This post was published at David Stockmans Contra Corner on June 1, 2016.