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Krugman's War Cry Won't Avert Depression
Mr. Krugman believes that we can grow our way out of this recession like we have in the past few. Unfortunately, we are dealing with a completely different animal. In every past recession the government under the guidance of Keynesians, decided to put off deleveraging in return for artificial growth. Well, that tab has come due. Since these economists keep trying to spend like its WWIII, we are moving inexorably closer to causing Great Depression II. If policymakers and economists fail to understand that the progenitor of a depression is debt, they will also be unable to provide a solution.
Gold is the True Reserve Currency
The reliance upon the U.S. dollar as the worlds reserve currency and safe haven asset has created a perverse, but deeply entrenched, mindset among global investors. In fact, many believe the major financial players have no alternatives to owning U.S. debt and dollars. They argue that the market for U.S. dollars and Treasuries is the only financial pool large enough to handle the massive liquidity that sloshes around the globe on a daily basis. This idea makes a mass exodus from U.S. debt holdings seem impossible.
Debt Ceiling Myths
With the Tea Party gaining traction in Congress, and causing nightmares for incumbents, Republicans have little incentive to raise the debt ceiling (although they raised it 7 times under George W. Bush). Democrats arent going to reduce entitlements without raising taxes on the rich and Republicans arent going to raise taxes when the unemployment rate is 9.2%. Theres your stalemate and anyone expecting a significant deal to cut more than $4 trillion in spending by the August 2nd deadline will be severely disappointed.
The Psychology of Bond Investors
We argue that as the United States takes on ever more debt and prints greater quantities of dollars, that buyers of our debt will demand higher rates of interest to compensate for greater risk. In fact, our philosophy leads us to believe that rates would currently be spiking as Washington debates whether to raise the debt ceiling yet again or default on existing debt. Instead, rates are hitting close to multi-year lows. As a result, our critics have found a seemingly valid issue. However, we believe that there are strong market reasons that are holding rates low.
The End of Retirement
Americans are broke, the real estate market is still in secular decline, stock prices are in a decade?s long morass, real incomes are falling, public pension plans are insolvent and our entitlement programs are structurally unsound. If the pillars that seniors have relied on in the past fail to miraculously regenerate (and there is certainly no reason to believe they will), all that most retirees will have will be freshly printed greenbacks that come from a never ending policy of federal deficits and an obliging Federal Reserve.
Stimulus Wears Off
The artificial U.S. recovery is already starting to falter as disappointing data continues to confirm the sad truth. Recent numbers on GDP, durable goods, housing, regional manufacturing, initial unemployment claims and leading economic indicators all indicate a sharp slowdown in GDP growth. Just today the ADP Employment report showed that the private sector added a paltry 38,000 jobs in May, down from 177,000 jobs in April, weakest number since September 2010. These signs of continuing malaise comes at a time when the government is contemplating ways to dramatically cut spending.
Training Wheels Off, Crash Helmets On
Based on many pronouncements by economic policy makers, among others, it appears that the quantitative easing juggernaut that has steamed the high seas of macroeconomics for the last three years is finally pulling into port?supposedly for the last time. According to the dominant narrative, QEI and QEII helped stabilize the economy during the Great Recession and now the Federal Reserve is ready to take the training wheels off. If so, the economy may need a helmet because there is virtually no chance that it can avoid major contractions without central banking support.
Inflation Destroys Real Wages
In the same vein as medieval physicians believed bloodletting would cure illness, modern snake-oil economists still perilously cling to their claim that rising wages and salaries are the cause of inflation. With my recent debates with these mainstream economists, I?ve heard the following: ?without rising wages, where does the money come from to push prices higher?? I was tempted to respond, ?where do the employers get the money to pay those higher wages?? But economists tend to get a little nasty when you make them feel stupid.
Core Incompetency
For years the Federal Reserve has told us that in order to detect inflation in the economy it is important to separate ?signal from noise? by focusing on ?core? inflation statistics, which exclude changes in food and energy prices. Because food and energy figure so prominently into consumer spending, this maneuver is not without controversy. But the Fed counters the criticism by pointing to the apparent volatility of the broader ?headline? inflation figure, which includes food and energy. The Fed tells us that the danger lies in making a monetary policy mistake based on unreliable statistics.
The Inflation Knuckleball
For the past 40 years or so, every country on the planet has relied on fiat money. To a very large extent, this means that the national economies are far more exposed to the whims of their central bankers than they have been in the past. So, if central bankers go off their meds, the danger to the currency becomes profound. Unfortunately, at America's Federal Reserve, it seems the inmates are now running the asylum.
Interest Rates Are on the Launch Pad
A few months ago, the recovery cheerleaders reached a crescendo when expanding consumer credit stats and surging US trade deficits provided them with ?evidence? of an economic rebound. In declaring victory, they overlooked the very nucleus of this past crisis: namely, the enormous debt levels and bubbling inflation that created fragile asset bubbles. In reality, only a reduction in US debt levels or increase in the value of the dollar would have signaled a budding recovery; but, thanks to the Federal Reserve and Obama Administration, there is virtually no way those results will ever be seen.
Taps for the Dollar
It now appears that the United States has finally succeeded in its efforts to destroy confidence in the U.S. dollar. Given the currency's reserve status, its ubiquity in financial markets, and the economic power and political position of the United States, this was no easy task. However, to get the job done Washington chose the right man: Fed Chairman Ben Bernanke. Thanks to Bernanke's herculean efforts, investors across the globe have now been fully weaned from their infantile belief that the U.S. dollar will remain the ultimate safe haven currency.
Arab Autocracies and US Inflation
Civil revolt is currently spreading across the Arab world. What began in Tunisia has now metastasized into Bahrain, Egypt and Libya. Though two dictators have been ousted, the chances that these regimes will fundamentally transform from autocracy to a system of free markets and property rights are also up in the air. There are many unknowns, but what is known is that the turmoil has had an immediate and significant impact on the price of oil. It is also evident that global consumers continue to get pummeled by rising food and energy prices.
Geithner's Failed Makeover
To counter the increasing demands that government reduce its micromanagement of the economy, the Obama Administration offered a fig leaf in the form of a white paper entitled "Reforming America's Housing Finance Market." In addition to marking the official end of the Bush era "ownership society," where increasing the level of home ownership was a national priority, the document contains a recommended regulatory overhaul of the FHA as well as Fannie Mae and Freddie Mac, that intends to bring the share of government owned home loans from the current 95% to 40% over the next 5-7 years.
The Cause and Evidence of Inflation
The fate of the US dollar in the future may not be all that different from the fate of Enron shares in 2001. In the 1990s, Enron was one of the most respected corporations in America, and the share price soared. But once the accounting scandal broke, and Enron?s profits were proven to be illusory, the purchasing power of its shares plummeted. Eventually, the shares became worthless.
Inflation is Here to Stay
There is no escaping the conclusion that inflation will continue to surge. Inflation is, after all, the increase in money supply. And there appears to be no escaping the likelihood of massive floods of new money rolling off presses around the world, especially in Washington. But to a degree that is virtually ignored by many economists, a currency?s purchasing power is not only affected by money supply growth but also from the mere perception of it.
Bernanke?s Golden Dismount
Benjamin Bernanke has been a very, very good friend to gold investors. However, some of those who have benefited from his largesse now fear that the recent selloff in gold indicates an imminent end to Bernanke?s monetary high-wire act. Most assume that a cessation of the Fed?s stimulative efforts, if it were to occur, would spell the end of gold?s bull run. But a closer reading of Bernanke?s economic philosophy and the Fed?s own recent history, shows that once a central banker begins a strenuous routine, it is very hard, if not impossible, for them to dismount.
Pricey Eats
From all accounts it appears that the world is in the early stages of a major leg up in food prices. The major macroeconomic trend will likely drive economic policy and the investment outlook for years to come. Although mainstream pundits like to focus on cyclical drivers like the weather, the real force behind the move is secular. The U.S. is leading the world in a pandemic of monetary inflation that is helping to cause commodity prices, food in particular, to skyrocket across the globe.
Rising Rates Reveal Debt Reality
Right now, the US national debt is the biggest subprime ARM of all time. Much like homeowners who thought they could afford a mortgage that was 10 times their annual incomes, Messrs. Krugman and Wesbury are blinded by deceptively low current rates of interest. These ostriches won't poke their heads up to see the writing on the wall: low rates and quantitative easing cannot coexist for long. As rates continue to rise, the reality of US insolvency will be revealed.
Wall Street Gives Uncle Sam Too Much Credit
I think the rising cost of money will become the story of 2011. Its effect on consumers, the real estate market, and government borrowing costs will be profound. Apparently, most major brokerage firms have no fear of soaring interest rates causing our economy to implode. However, it's clear to me that the bond market has already started to crack due to inflation and massive oversupply from the Treasury. Prudent investors should think twice before overlooking what could be the initial holes in the biggest bubble in world history ? the full faith and credit of the United States.
Does the Fed Create Money?
Certain deflationists have recently gone on record saying that the increase in the Fed?s balance sheet is meaningless with regard to creating inflation because our central bank can?t print money, it can only create bank reserves. The problem with their view is that it both disregards the definition of money and ignores the process of creating bank reserves.
Gold's Allure Tied to Interest Rate
The continued bull market in the price of gold has been one of the staple discussions in the financial media for the better part of a decade. But, in that time, almost no consensus has emerged to explain the phenomenon. The truth is the main drivers for the price of gold are the level and direction of real interest rates and the intrinsic value of the dollar.
An Inflationary Death Spiral
I have no doubt that Bernanke will be remarkably successful in his stated goal of driving inflation higher. I simply disagree with his nonchalance about the long-term consequences. There is currently no easy exit strategy for the Fed. There is only the prospect of Americans suffering through either a deflationary depression or hyperinflation.
Five Bitter Pills or One Sweet but Deadly?
The current Chairman of the Federal Reserve believes that diluting the dollar is the cure for everything from a recession to male pattern baldness. And like other snake-oil salesmen before him, Mr. Bernanke is heavy on promises and light on results. Michael Pento presents five prescriptions that money printing can't fulfill.
Don't Fear the Euro
When the euro hit a low of $1.1917 against the US dollar on June 7th, 2010, the airwaves crackled with assertions that the European common currency, beset by Greek debt problems and intra-union discord, was destined to trade at parity with the greenback. They were wrong. Since then, the euro has risen over 17% against the dollar, hitting $1.3961 today. The current upswing, delivered courtesy of the Fed, has at least temporarily silenced the euro?s critics.
Gold Vs. U.S. Bonds - Which Do You Believe?
Any psychoanalyst looking at the behavior of investors today would see clear strains of schizophrenia in a comparison between the markets for gold and U.S. Treasury bonds. Low bond yields warn of deflation, while high gold prices and a declining dollar presage hyperinflation. Federal Reserve Chairman Ben Bernanke will not stop the presses until inflation has a firm and undeniable grip on the American economy. Since the chairman has shown no will to hit the brakes, you would have to be mad to ride the yield curve alongside him.
Why David Tepper Is Only Half Right
Once domestic bond investors regain consciousness -and they will most likely do so in concert with foreign holders of U.S. debt and currency - a debt and dollar crisis will emerge. Then the only buyer of U.S. Treasury debt will be the Federal Reserve. An economy can't persist for very long by buying its own debt with printed money. The result will be a crumbling currency and soaring interest rates, especially on the long end of the yield curve. When rates rise despite the Fed's efforts to keep them down, that's game over for the 'recovery.'
The 'Deleveraging' Deception
There is wide agreement among economists and the financial media that our lackluster economic performance stems from continued 'deleveraging' among consumers and businesses. U.S. debt as a percentage of GDP continues to climb, however, which should put to bed any talk of a deleveraging or deflating economy. Consumers are clearly only part of the equation ? and, for now, the smaller part. The U.S. government, in fighting the claimed deleveraging, is sending the total debt level into the stratosphere. As we watch it soar upward, the dollar steadily drifts downward.
Does the Fed Ultimately Control Interest Rates?
In forecasting the consequences of current economic policy, many pundits are downplaying the risks associated with the surging national debt and the rapid expansion of marketable Treasury securities. In the end, central banks can only temporarily distort the savings and demand equation. The more the Fed prints, the higher the eventual rate of inflation will be. If mainstream pundits truly believe the Fed can supplant the entire public and private market for debt indefinitely, then we won't want to be around when that fantasy inevitably becomes a nightmare.
Bernanke Out of Bullets, But Not Bombs
For good or ill (mostly ill), the Fed can never run out of ammunition. Their bullets cost nothing to produce. Unfortunately, unconventional monetary tools can cause far more damage to the economy than regular policy. We must understand that the Fed can shower liquidity directly on the consumer in any amount it wants. The political pressure to do so will only increase as unemployment rises and economic growth falters. Therefore, rather than fearing phantom deflation, investors should prepare their portfolios for the real upcoming battle with intractable inflation.
The Fed's Biggest Bubble
Even top-flight Wall Street analysts seem to believe that the Fed's doubling of the monetary base after the credit crunch has not had an inflationary impact on our economy. Their logic can be summed up like this: "The money the Fed created and dropped from helicopters has all been caught in the trees." In other words, the Fed is creating money, but it is just being held as excess reserves by the banking system instead of being loaned to the public.
Why Jobs Have Gone AWOL
There are three primary reasons why the U.S. is suffering from structurally high unemployment: a pervasively irresponsible monetary policy, the continued attenuation of our manufacturing base, and an overleveraged consumer who must now reconcile his balance sheet. In reality, the latter two conditions are a direct result of the first. They are the result of a government that seeks to micromanage the cost of money and the rate of economic growth.
32 results found.
