There’s an old quote along the lines of if you’re going to lie, make it a big one, repeat it like crazy, and eventually, people will regard it as truth. Truth is awfully cheap these days. For as buffaloed as most people are with the state of economic affairs not only in the United States, but also in the rest of the world, you’d think they still believed the Earth was flat.
The biggest problem with a lie is that is needs a champion. Or lots of them. The more the better. When we deal with economic lies, we’ve already laid out directly from the mouth of the IMF that one of the roles of policymakers is to manage the expectations of the public. Put in plain English, that means policymakers are to say and do anything to gain the confidence of the public. That is precisely what we’ve witnessed over these past several decades. What we have now is a rabid and virulent form of neo-Keynesianism that takes Keynes’ garbage economics (which he clearly stated was a short-term ‘fix’) and put it into perpetuity.
Along the way, this kind of stunt is going to need a lot of help. Enter the economic Stink-Tanks. They call themselves thinkers, but there is very little of that going on for the most part. However, there is an awful lot of stinky fabrication, junk science, garbage economics, and other hogwash that emanates from them, all under the banner of educated brilliance. Economics is clearly not the only field where this sort of thing goes on, but we’re going to limit the discussion to that. You the reader can then apply it elsewhere.
This week two pieces of such propaganda came across my desk. One is a quarterly publication from the not-so-USFed, which, among other things, is a form of stink-tank, and the other from the American Institute of Economic Research (AIER). Both had some real gems in them. And for all you ‘flat-Earth’ folks who still believe the fairy tale that the ‘fed’ is part of the government, I’ve scanned the intro page. Note that James Bullard is titled ‘President and CEO of the St. Louis Fed’. The United States has one president and no CEOs. Private corporations, however, all have presidents and CEOs. Each ‘fed’ regional bank (there are 12) has a president and CEO. Still think the Earth is flat? That is another thing about big lies. Sometimes the liars don’t even try to hide them. The lie is perpetuated in plain sight by ignorance and laziness. But I digress.
“The Regional Economist” – January 2014
We’ll focus on the president’s message. By the way, you can receive a copy of this publication free of charge (you pay for it through inflation) directly from the not-so-USFed by clicking here. I encourage people to receive these publications and to read them. If you’re going to engage in a meaningful pursuit of the truth, then it is a good idea to know what the other side is up to.
Mr. Bullard’s remarks pertain to the summer of 2008 and the lead-up to the blowout fracture of the financial markets that ensued that fall and to the overarching macroeconomic factors that were in place prior to the market collapse.
“While many think that the financial crisis began in 2008, in fact conventional dating puts the beginning of the financial crisis in August 2007. Therefore, the crisis had been continuing for more than a year by the time of Lehman-AIG, and the Fed had been responding to the situation. In particular, the Federal Open Market Committee (FOMC) had lowered short the federal funds rate target sequentially between September 2007 and March 2008 – from 5.25 percent to 2.25 percent.”
Let’s note first that, despite the unconstitutional nature of a private bank having control of the nation’s money (Article I, Section VIII of the US Constitution), the fed’s only two mandates are maximum employment and price stability. Bullard goes on to state that “we now know the recession started in 2007 and ended in July 2009”. This implies that they didn’t know when they started playing with rates. Why then were they jamming the fed funds rate downward if they didn’t know we were in a recession? I’ll leave you, the reader, to draw your own conclusions, but my opinion is that they knew full well that things were really starting to tank. And if we left that recession in 2009, why are savers still being punished by near-zero rates almost five years later?
I’ll also note for you that despite the massive intervention, the crash still happened and a trainload of money changed hands. Most will scream incompetence, but I don’t buy it. These are not stupid people. Nearly all of these markets are a zero-sum game. Someone wins big, someone loses big. We know who lost in 2008 and we know who was handed additional trillions in pledges, bailouts, and junk asset purchases.
To give credit where credit is due, he points out that one of the results of the sloppy monetary policy was a bubble in commodities. That’s a ‘bad’ bubble. If they blow one up in housing prices, that’s a ‘good’ bubble. If they run the equity markets to Mars and beyond, that’s a ‘good’ bubble. In those cases, people think they’re getting rich and clowns can write and sell books on how to retire early by merely doing cash out refinances until you die. However, commodity price increases eventually work their way into consumer prices and you have a hard time convincing even the flat Earth crowd that the economy is just brilliantly performing when their cost of living is going up by double digits. Above anything else, note that here is a bald-faced admission that accommodative monetary policy blows up bubbles. Yet we hear mental midget economic ‘experts’ (reporters basically) in the financial press assert that such is not the case. Again, the truth is hidden in plain sight.
Speaking of double-digit cost of living increases. Just imagine what is going to happen to prices and unemployment when the minimum wage is jacked up north of $10/hour as the Congress is being urged to do. We can take a long walk down that rabbit trail another time, but price controls always create inefficiencies and what we economists call ‘welfare losses’. Again, you need to ask yourself if the folks calling the shots are just that dim that they can’t grasp what a third grader can understand or if there are other motives. Incidentally, the manipulation of interest rates in the manner described above is another form of a price control. It creates inefficiency and welfare loss. Beyond incentivizing risk-taking and financial irresponsibility, these moves have disincentivized responsible fiscal behavior and forced savers to expose themselves to unnecessary risk in the murky water of the equity markets in search of returns to combat cost of living increases that, according to the fed and government, don’t exist.
Another characteristic of big lies is that they often have their own definitions. For example, a recession in commonly accepted definitions of economic thinking (or lack thereof) is two consecutive quarters of negative GDP growth. We’ve been around the mulberry bush so many times we’ve worn a path on this whole issue of the fraudulent nature of how our GDP is calculated globally. The really sad thing is that it is nearly impossible to get enough accurate data to actually construct an actual GDP. The input data is garbage; therefore the output will be of the same nature.
AIER – “Global Expectations Rising”
There’s that ‘E’ word again – expectations. I will admit to not following the work of the AIER. This material was sent to me by a totally frustrated and confused subscriber to their products. This latest issue, written by one of their senior research fellows, contains more ‘flat Earth’ neo-Keynesian tripe. In fact, it really isn’t research per se, but is more of a restatement of the IMF’s party line, which is that growth is exploding, there is no price inflation, the Eurozone debt crisis is long over, the moon is made of cheese, and that there are little green men running around on Mars.
The AIER, like most other stink-tanks, has its own ‘proprietary’ measurements for gauging this and that. Of course since they’re proprietary, you can’t look at the methodology or anything else, which makes those measurements about as useful as a wetsuit in the Sahara desert.
The format of the publication is even Orwellian as the tripe is mentioned twice – once in text and once in highlights. A few examples:
“The January update shows that IMF economists expect global growth to accelerate in 2014, led by advanced economies.”
“The US is the world’s third-largest exporter behind China and the European Union.”
“Since 1985, nominal dollar exports have grown more than 630 percent.”
Just a couple of observations: First the restatement of the IMF’s forecast, which isn’t research, but rather a piggybacking endorsement of the establishment’s party line. It’s not independent. Second, since when do we compare nations with trading blocs with regards to global trade? Finally, the 630% nominal growth in exports comes down to around a 6.75%/annum increase over the 28-year period. Remember, they’re talking nominal, which means not adjusted for inflation. You adjust that 630% by even a modest 5% inflation rate, which has been easily observed over that time, and export growth is absolutely pathetic to near nonexistent. But the 630% sounds awfully nice, doesn’t it?
Despite the small dissertation of trade, there is not even a single mention of the gross imbalance that persists to this day. It is one of those annoying little trends that are thrown out when the stink-tanks get busy. Take a look at the last 5 years of trade deficits:
The fact that this imbalance represents a massive drag on the USEconomy isn’t even mentioned. Only the positives are highlighted. The flat Earth crowd will look at the above chart and point to the improving trend. Much of that comes from the fact that import growth is slowing, which is good. Among the reasons why, however, are a stagnant and weak domestic economy. Again, this is a good news bad news reality. Of course the negative side of it receives no mention from the economic stink-tanks because then they’d have to explain away why we’re not consuming as much Chinese garbage. They can’t blame it on oil, because oil prices have remained stubbornly high. They can’t attribute it to falling import prices because they’ve been mostly flat, according to the government, which is another can of worms.
There is one thing that will end the trade deficit quickly and that is when we see a predominance of international trade being conducted outside the paradigm of the petrodollar. Then America will be able to import only as much as it exports unless it possesses the gold or is willing to part with even more national assets to do additional external purchases. The best guess at this point is that many of our prized assets, such as our national parks, will be ceded to the Chinese to partially cover our existing debt albatross. Some go as far as to assert that has already happened.
The real kicker, and then I’ll stop torturing you for the week, is the various indices of economic indicators. Again, there is no methodology given. Predictably, every indicator is on green, full speed ahead. I guess that’s why people are leaving the workforce in droves, record numbers of Americans are on food stamps and disability, and why consumer credit continues to explode upward. AIER’s coincident and lagging indicators are all positive and have been so for around 2 years now, yet during that same time, all the drags I mentioned above have continued to become more pronounced. Of the leading indicators in the AIER report, 9 were ‘judged to have a positive trend in January’. Five of them were at cycle highs, including M1 money supply (Keynesian bias), index of common stock prices, yield curve index, average workweek in manufacturing, and new orders for consumer goods. For those keeping score, the AIER’s various ‘indexes’ are about as skewed as the Conference Board’s.
The stock index indicator is a laugher unless they don’t count the current month, which would have been January. And even if it doesn’t, it is still a laugher because it is pretty obvious that QE has blown up a nasty bubble, as Mr. Bullard so overtly stated is possible in the previous section of this essay. As to the manufacturing workweek situation, the jobs will be coming back to America. In my opinion, we’re going to be doing exactly what the Chinese have been doing for almost two decades now. Yes, the jobs will be back, but they won’t be the jobs you thought they’d be. They’ll be subsistence level at best, and we’ll be making trinkets for the new wealth centers of the world. That is already the trend. Just go and look at the great job creation we’ve seen during this robust recovery (sic). Most of them have been of the temporary and minimum wage variety. Again, if incomes were skyrocketing as the stink-tanks would have you believe, then why are people diving further and further into debt? That dog won’t hunt.
The AIER ‘analysis’ concludes with the stink-tank hedging its bets on everything from consumers to the stock market. I’ve always said the real answer comes after the word ‘but’ and that is exactly what is going on here. Europe, according the AIER, is under the threat of deflation. Since when is your money becoming worth more a threat? It isn’t. Deflation, rather, is a threat to the global monetary mischief known as fiat currency. Closer to the truth is the fact that inflation has ‘created’ most of the economic ‘growth’ over the past several decades. That’s the threat. It is to this crooked establishment, and nothing else. So to my good friend who sent me the AIER piece, rest assured, you’re not going crazy and you’re not delusional. The piece, while instructive, isn’t worth the paper it is printed on.
If you found this article informative, please consider listening to Andy’s podcast ‘Beat the Street’. It is free of charge and you can visit the show page, listen to shows, subscribe via RSS through Windows Media Player and iTunes, and sign up for the reminder service by clicking here. The podcast deals with similar topics and covers current economic and financial trends in great detail. The show also seeks to empower listeners to be their own advocates by providing information on various ways to navigate through a world that is fraught with risk and the unknown.
Andy Sutton is the Chief Market Strategist for Sutton & Associates, LLC – a Registered Investment Adviser in Pennsylvania. His focuses are econometric modeling and risk management. The firm specializes in wealth preservation and growth and recognizes the validity of non-paper assets in achieving a balanced approach. The firm is also currently working with a growing clientele towards avoiding the risks outlined above.