article: "Ass-Backward Economics, part #1" by JW
gold-eagle.com
opening paragraph:
Never in my entire life have I seen so much misguided folly so widely embraced as competent, expert, and grounded in historical precedent. The political body has had 30 to 40 years of deep influence on the social science economics field, left vulnerable to the expedient conformity to the growing wave sweeping our nation since the VietNam era to install a socialist system in every way shape and form, except in name. In an earlier article (see [1]) indicting economists, I stated my position in a mere 20 pages of the progressive decay of the economist trade. Simply put, it has been turned on its head, where up is down, debts are assets, paper is gold, IOU coupons and token slugs are money, credit is purchasing power, and a printing press is a source of wealth production. History is revised to suit political demands, while few call patently false revisions into question. Careful analysis of policy is sorely lacking. Challenge of important Federal Reserve policy is almost nonexistent. The public, the Congress, business leaders, and banking leaders are working with no proven economic compass whatsoever. Little wonder that the world economy might be on the precipice of a recession, requiring a lifeline of Federal Reserve credit and low rates to keep from stalling. The US Economy has become a bloated pig, burdened by debt, heavily dependent upon a constant large supply of credit. A barbeque awaits.
the introduction extends Gresham's Law in two directions:
Gresham's Law: "bad money displaces good money"
Gresham's Sector Corollary: "industry sectors nourished by bad money
Gresham's Debt Corollary: "assets closely associated with heavily indebted businesses are vulnerable to liquidation or impairment in value"
THE MAIN ECONOMIC FALLACIES:
a) The US Economy is in danger of falling into deflation, so the Fed must accelerate the monetary pumping operations. Wrong diagnosis, wrong cure, feeble attempt to cover its tracks.
b) Lower interest rates are stimulating the economy and will eventually kickstart growth. Nonsense, the exact opposite is true in an environment burdened by overcapacity, although completely unnoticed.
c) Real Estate is in the midst of a great bull market, has held up economic growth, and is providing valuable equity for continued household consumption. Bull cookies, a new bigger bubble will cause bigger future problems when it runs its course.
d) The USDollar’s recent decline in value has adequately addressed the imbalances in world trade, affording our corporations the opportunity to compete on a more level field. No way, not even close, the USDollar correction has not yet begun.
e) We must encourage continued consumer spending, by whatever means, in order to keep the economy running at a healthy growth level. Sure, if toxic debt and lethal trade hemorrhages are worth continuing.
e) Fed monetization produces new USTBond security assets to strengthen banks
f) During the monetization process, Federal Reserve open market operations result in the creation of new assets in the form of US Treasury Bonds, Notes, and Bills, thus strengthening the foundation of the banking system. Wave the wand, debt becomes an asset during the grand counterfeit process, and nobody is the wiser.
g) Rising prices for commodities and imported products serve as evidence that the Fed has succeeded in its mission to reflate the economy, and is “on the job.” Wrong, all inflation is not created equal, we are seeing the horrible side of price inflation’s homecoming on the cost side of production and household expenses.
One might be led to believe that an amendment to the Constitution was recently passed by Congress, declaring that all inflation is created equal, with equal protection under the law for due process to liquefy.
h) The US Economy will break free of any Zero Bound trap, as broad demand grows, interest rates rise, and critical sectors weather the return to more “normal” interest rates. Man oh man, how little is understood about the powerful Liquidity Trap signaled by zeros.
i) The US Economy is growing again, with profits returning, led by strong productivity and improved balance sheets. What a fantasy sold by Wall Street, and sold well.
part #2 articles covers fallacies d) thru i)
/ jim |
