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

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

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

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

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

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

Mario Draghi: Charlatan Of The Apparatchiks

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

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

The Higher Education Bubble Is Suffused With Administrative Bloat

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

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

The ECB Has Done It – – Crushed The Entire Theory Of Monetarism In ‘Spectacular And Empirical Fashion’!

The European mess is coming more into view, and in almost every case that is a negative outcome. There really isn’t much going right in Europe right now, belying everything that was said, done or proclaimed only a year ago.
Italian unemployment unexpectedly rose to a record high that’s more than double the German rate, keeping alive concerns about the diverging growth outlook in the euro area.
The jobless rate increased to 13.4 percent from a revised 13.3 percent in October, while separate data showed the euro-region rate at 11.5 percent. The reports contrast with data from Germany showing unemployment there fell to the lowest in more than two decades last month.
I highly doubt that Italy’s retrenching was ‘unexpected’ as weakness has been obvious in the Eurozone for months now. If it wasn’t enough that credit markets are so completely distorted as to be unrecognizable to fundamental tenets of finance, then at least observing the desperation with which the ECB has operated since June would be a clue. And that raises a fundamental question about mainstream views on monetary economics, as expressed below by the New York Times in merely observing, detached, the final coming of ‘negative inflation.’
But the question raised by many economists is whether the European Central Bank has waited too long to act, and whether its arsenal is powerful enough to address the eurozone’s fundamental problem – a dearth of demand from businesses and consumers for goods and services.
Have not the economists noticed the constant attention on Mario Draghi this year? I find it hard to believe that everything the ECB has done to this point has slipped unnoticed even to the narrow gaze of ‘economists.’ Rather, they likely wish that nobody would notice how everything, which has been a constant and unnatural noise emanating from that balance sheet, has simply failed to this point.

This post was published at David Stockmans Contra Corner by Jeffrey P. Snider ‘ January 8, 2015.

The Deflation Calamity Howlers Are Dead Wrong – -In Europe And Everywhere Else

The calamity howlers of deflation are out in force this morning owing to an absolute economic non sequitur. Namely, that year-on-year consumer prices in the EU came in at negative 0.2% in December, implying that ECB printing presses need to go into immediate overdrive.
Well, of course the CPI has momentarily weakened. Crude oil has experienced a monumental plunge of more than 50% since mid-2014. That has temporarily dragged down the euro zone’s reported CPI and the math isn’t all that complex. During the last 12 months, euro zone energy prices have fallen by 6.3%, and everything else is still 0.6% higher than a year ago.
So what’s the emergency? This is the very same CPI blip that occurred when oil collapsed in the second half of 2008. As is evident below, that episode did not generate some cascading plunge into economic darkness. In fact, the Eurozone CPI was back running above 2.5% in no time.
The truth of the matter is that the EU-19 is in clover because it’s consumers get a big break; and, on the other side of the economic equation, it produces almost no oil. Europe’s production is mainly in the UK and Norway and they have their own currencies. Accordingly, the ECB should be putting its printing presses on an extended sabbatical and declaring victory in the achievement of its ‘price stability’ objective.
Indeed, the notion that the hairline puncture of the zero inflation line shown above is a precursor of a deflationary calamity amounts to economic voodoo. There has been no structural change whatsoever in the Eurozone economy since 2008 when the last oil-driven CPI drop occurred, and therefore no empirical basis for the notion that wages and prices are about to descend into an accelerating downward spiral. If anything Brussels’s dirigisme regime has made prices and wages even more ‘rigid’ and ‘sticky’ owing to it’s avalanche of new regulations, subsidies and other economic interventions.
The plain fact is that the euro zone like the rest of the DM has an inflationary bias that is embedded in six decades of history during which the euro and its predecessor currencies lost purchasing power month-in-and-month-out. So households are finally getting what will undoubtedly be a short respite from the inflation tax, but that is the extent of it. There is not one rational reason to believe that the relentless upward march of the price level shown below will not presently resume its well-worn path.

This post was published at David Stockmans Contra Corner on January 7, 2015.

Krugman’s Case For Even More Stimulus Is Even More Erroneous

As distasteful as it can be, there will be, I believe, a necessary condition whereby closer examination of Paul Krugman’s writings and rantings is fruitful. The rise of Keynesian doctrine, more specifically the re-rise, seems to be more and more prevalent especially as the global economy careens out and away from all the trillions in monetarisms that have been perpetrated these past seven years. Part of that is due to Krugman’s assertions, which have been very blunt and emphatic to his credit, that monetarism would not work. Thus what is more important are his prescriptions for what to do next, not as if they will be more effective but rather as instructive as to what further mistakes policymakers will render in the near future.
As this becomes true, his reasoning as to why he believed monetary unsuitability to be the case becomes paramount – namely that monetary ‘stimulus’ without fiscal ‘stimulus’ especially at the zero lower bound is useless. He is of the ‘liquidity trap’ generation, as he diagnoses the current condition as ‘pushing on a string.’
This was not, apparently, a long-held position for Dr. Krugman, but one in which he converted out of Japan’s ‘experiment’ in the late 1990′s.
To my own surprise, what the model actually said was that when you’re at the zero lower bound, the size of the current money supply does not matter at all. You might think that it’s a fundamental insight that doubling the money supply will eventually double the price level, but what the models actually say is that doubling the current money supply and all future money supplies will double prices. If the short-term interest rate is currently zero, changing the current money supply without changing future supplies – and hence raising expected inflation – matters not at all.
That is his explanation as to why even massive QE will not move to inflation at the zero lower bound. To his formulation there needs to be a credible assertion of continually applying the same pressure through QE. Financial agents are not to be fooled by that, as this is all rational expectations theory, because they know (which is debatable) there is a boundary by which a central bank will not pass. In other words, if central banks commit to doubling the money supply to gain inflation, financial agents already know that such a commitment is false and constrained by (what they hope) rational sense not to perpetuate into hyperinflation and collapse.

This post was published at David Stockmans Contra Corner on December 23, 2014.

The Keynesian PhD Brigade Strikes Again: Sweden’s Riksbank Joins The ZIRP Mania

Folks, it’s a tyranny of the PhDs. Recently, the central bank of Sweden was subject to a withering tirade by that oracle of Keynesian rubbish, professor Paul Krugman, who accused it of ‘sado-monetarism’ for leaving the Swedish economy exposed to the mythical economic disease of ‘deflation’.
So the Riksbank threw caution to the wind, and a few months ago joined the global central bank plunge into ZIRP and promised to ladle out free money until at least 2016. To leave no doubt, it is currently cranking up for direct lending, ‘asset purchases’, negative interest rates (N-ZIRP) and the rest of the recently invented central bankers voodoo kit. Anything to achieve its sacred 2% inflation target!
So still another central bank has been infected by the 2% inflation shibboleth – -a folly the greatest central banker of our era dispatched recently with a single sentence:
Mr. Volcker, who believes the Fed’s main goal is to defend the dollar’s stability, said he doesn’t even understand why the Fed adopted a 2% target for inflation. He asked, ‘Do we want prices to double every generation?’
Yes, today’s Keynesian central bankers don’t particularly care what happens in the next 30 years or even 30 months. It’s all about the noise-ridden ‘in-coming’ data and whether the gap between actual production and employment, one the one hand, and a theoretical figment called full employment or ‘potential’ GDP, on the other, has been closed.
It is downright amazing that the $75 trillion global economy is in thrall to the stupid math models of a couple of hundred PhDs. And these so-called DSGE models (dynamic stochastic general equilibrium) are, indeed, just plain stupid.

This post was published at David Stockmans Contra Corner on December 19, 2014.

Fairytales From The Eccles Building: 15 Reasons Fed Policies Belong in Fantasyland

Don’t ever think for a minute that the central bankers know what they’re doing. They don’t. And that’s my own view, but I’ve heard that recently from a couple central bankers. I recently had spent some time with one member of the FOMC, the Federal Open Market Committee, and another member of the Monetary Policy Committee of the Bank of England, which is the equivalent of their FOMC, both policymakers, both central bankers.
And they said the same thing, ‘We don’t know what we’re doing. This is a massive experiment. We’ve never done this before. We try something. If it works, maybe we do a little more; if it doesn’t work, we pull it away, and we’ll try something else.’ And the evidence of this – again, I’ve heard this firsthand, and it’s my view – but the evidence for this is that their have been 15 separate fed policies in the last 5 years.
If you think about it, they started with forward guidance, which was, ‘We will keep rates low for an extended period of time.’ And then they said, ‘Oh, extended means all the way to 2013.’ And then they said, ‘All the way to 2014.’ And they were kind of getting around to, ‘All the way to 2015,’ and they said, ‘Wait a second. The dates don’t work. Let’s use some numeric concepts.’
So, they started nominal GDP targeting where they said, ‘We have this threshold of 2.5 percent inflation, but not based on actual inflation, but based on projected inflation, as projected by the Fed, which means it could be whatever they want it, and then 6.5 percent unemployment, but when we got down to 6.5, they said, ‘Oh, just kidding. We’re not gonna apply that.’

This post was published at David Stockmans Contra Corner on December 14, 2014.

Cronyism and ensuring American taxpayers bailout the finance industry during the next crash: Nostradamus like spending bill will ensure big banks never fail with your money.

Do you smell what is in the air? Pine trees? No. Something with a more pungent smell. There is a wonderful whiff of cronyism floating around Washington D. C. In the latest government kabuki theater there was some interesting items being passed. There were major protections given to banks should trillions of dollars in derivatives blow up during the next market correction. While the public is enjoying a few dollars off in gasoline prices so they can spend more money they don’t have during this holiday season, the latest government/banking spending bill was passed by slim margins but puts the taxpayer on the hook for trillions of dollars of risky derivative bets. Great timing given the energy markets are imploding so we know some hedge funds are taking it in the shorts and will likely come to D. C. hat in hand to cash in on those generous campaign donations. Central banks have done very little to help US households because incomes simply are not keeping up in the face of inflation. The latest bill is something to behold.
Minority Report of finance bills
What is so blatant about the latest bill is that it practically says that next time banks implode via derivative bets that taxpayers will be on the hook. The last time we were told that too big to fail banks needed all the help in the world because they would take the economy down with it. Of course the public did not want this but the spin media made it seem like the public was on board. They never were. Yet this was done during the actual correction. This time, acting like Nostradamus the financial industry is basically writing in provisions to protect itself for future transgressions. Like writing a note to your spouse that you apologize for all future mistakes and this piece of paper absolves you from all acts.
This should be no surprise given that the FIRE industry is backing both Republicans and Democrats equally:

This post was published at MyBudget360 on Dec. 13, 2014.

Myths And Legends Die Hard – That’s Why The Casino Never Stops Expecting More Free Money

This week has already seen a ‘shocking’ move from the PBOC that essentially disqualified almost half of repo collateral from usable status. That amounts to a massive tightening in a manner that is wholly unfamiliar to economists that remain fixated on simple variables like interest rates. The response to the move, especially with further economic data from China, is as if it never happened.
‘It [inflation at a 5-year low] will likely convince policymakers to ease their policy stance further and we continue to expect a RRR [bank reserve requirement ratio] cut in the near term, most likely this month,’ he told Reuters.
Last month, the country’s central bank unexpectedly cut interest ratesfor the first time in more than two years to spur activity.
The first paragraph is this very denial; while the second misreads what happened totally. Again, the PBOC is engaged in a stepped process of removing full monentarism from its presence and thus its toolkit. But they cannot simply go from A to B; instead they are taking a measured approach to figure out stress points (as best as they may be able).
After the February/March yuan occurrence, they went back and began to fortify the ‘good’ parts of the financial system in anticipation of the next step in ‘reform.’ In that context, this assumed ‘rate cut for the first time in two years’ makes perfect sense in that it was preparing and targeting the ‘good’ parts of the system in anticipation of what was about to follow it (the ignored tightening). With the next step in the ‘reform’ process currently taking place, that means there will be no broad PBOC ‘stimulus’ because that is exactly the expectation and reality they are trying very hard to erase.

This post was published at David Stockmans Contra Corner on December 10, 2014.

THIS MUST-SEE DOCUMENTARY COULD CHANGE THE WHOLE WAY YOU SEE THE WORLD

The worldwide awakening is picking up steam and having an effect on major parts of our overall culture, including the dictionary. No longer is it a mystery to individuals how the world is run: government and business team up to plunder wealth (taxation) and pay off friends. This system is called crony capitalism, and it is now in the Oxford dictionary.
According to oxforddictionaries.com, ‘crony capitalism’ is defined as an economic system of close, mutually advantageous relationships between business leaders and government officials. Reflecting the influence of popular culture, Oxford dictionary has included abbreviations like ‘IDC’ (I don’t care) and others.
New entries, other than crony capitalism, include ‘algorithmic trading’ (automated stock exchange trades made by computers …in order to manipulate global markets) ‘challenger bank’ (a small retail bank competing with big lenders); ‘misery index’ (a measure of economy adding together inflation and unemployment…both of which are fabricated numbers).

This post was published at Dollar Vigilante on December 4th, 2014.

Inflation over 270 years: It is hard to feel the tornado of price erosion when you are standing in the eye of the financial storm.

People tend to be creatures of habits. It always intrigues me how most of the people I speak with seem to already assume that prices will always go up. It is the default life position. They know the sun will rise, grass will typically be green, and prices over time will go up. While some are based in natural law, inflation is and will always be a human made condition. So it is important to step back from the day to day operations that guide us and actually look at where prices stand today in relation to history. I think most in the US really don’t have the fear of say South America or Europe when it comes to inflation because they have never witnessed a full crisis driven by out of control money policies. Today, we are told that inflation is low yet when we actually step back, inflation is already eroding the purchasing power of the middle class dramatically. It is usually helpful to look at history as to learn from our past.
270 years of inflation
I think we can learn a lot from looking at data. While we can learn a lot from history, you will also realize that people are still governed by greed, cronyism, and poor judgment. After all, the Great Recession was the worst financial crisis in the US since the Great Depression. Did we not learn the lessons from the past? Life is a live action situation and inflation is one of those components.
I found this chart to be extremely illuminating:

This post was published at MyBudget360 on October 2, 2014.

Government Health Care Inc : The Chart Which Explains The Whole Medical Mess

Our crony-capitalist driven health care system is devouring the American economy, and the data which proves that baleful trend could not be more dispositive. In 1960, national health expenditures amounted to $150 per capita and hardly 5% of GDP. By the year 2000, these figures had grown to $5,000 per capita and 13.8% of GDP. Today health care devours nearly $9,000 per capita and more than 18% of GDP.
Needless to say, America did not turn into a giant sick bay during the last 55 years. Instead, the health care delivery system was virtually stripped of any semblance of market prices, consumer choice and economic discipline and efficiency. As a practical matter, out-of-pocket payments for health care – unlike almost all other consumption goods – -virtually disappeared from the system.
As a consequence, health care has been essentially transformed into a free good at the point of use. In turn, this has spawned massive over-utilization, gross inefficiency and economic rent extraction by the cartels which dominate the system – – hospital chains, insurance companies, HMOs, Big Pharma, medical equipment and prosthetic vendors, etc.
The chart below explains how this breakdown happened. In a word, the massive expansion of government financed health care after 1965 in the form of Medicaid, Medicare and related programs induced a huge expansion of price-insensitive demand that drove medical prices skyward. In response, both government recipients and employer plan beneficiaries demanded to be shielded from rampant medical cost inflation via more comprehensive coverages and a relentless reduction of out-of-pocket costs for deductibles and co-pays at the point of service.

This post was published at David Stockmans Contra Corner on September 10, 2014.