The Keynesian Cult Has Failed: "Emergency" Stimulus Is Now Permanent

http://charleshughsmith.blogspot.com/2017/05/the-keynesian-cult-has-failed-emergency.html

This Will Trigger More Stimulus From The Fed And The Buy Point Of A Lifetime Before Gold Surges Above $10,000

http://kingworldnews.com/this-will-trigger-more-stimulus-from-the-fed-and-the-buy-point-of-a-lifetime-before-gold-surges-above-10000/

Austerity About-Face: German Government to Gamble on Stimulus

The last hawks have caved to the doves.  Inflation here we come.

http://www.spiegel.de/international/europe/german-government-to-test-stimulus-instead-of-austerity-a-901946.html

Norway Fund Flees Currencies Tainted by Stimulus Addiction

The Norwegian sovereign wealth fund sees what we see:  over-indebted developed countries will continue to debase their respective currencies as far as the eye can see in a currency war with no winners.

http://www.businessweek.com/news/2013-03-10/norway-oil-fund-flees-currencies-tainted-by-stimulus-addictions

Volcker: Fed Faces Tough Job of Removing the Punch Bowl

Former Fed Chairman Paul Volcker is speaking the truth on the difficulty of the Fed reining in stimulus.  It's the politically correct speak for "QE to infinity."  He's saying it--without saying it--because he can't say it.

http://www.moneynews.com/StreetTalk/Volcker-Fed-Punch-Bowl/2013/03/04/id/493013?s=al&promo_code=12A9D-1

Gold Seen Luring Wealthy as Central Bankers Expand Stimulus

http://www.bloomberg.com/news/2012-09-21/gold-seen-luring-wealthy-as-central-bankers-expand-stimulus-2-.html

Gold Wagers on Rally Jump to Five-Month High on Stimulus

http://www.bloomberg.com/news/2012-09-02/gold-wagers-jump-to-5-month-high-as-fed-spurs-rally-commodities.html

Fed Leaning Closer to New Stimulus if No Growth Is Seen

More "foreshadowing" from the Fed on QE3.

http://www.nytimes.com/2012/07/25/business/economy/fed-leaning-closer-to-new-stimulus.html?_r=1

Fed Will Likely Weigh Rosengren’s Call For Stimulus

I'll say it once again in case there is any misunderstanding.  Multiple rounds of quantitative easing (QE) are guaranteed, despite multiple rounds of previous declarations on economic "green shoots."  The cheerleaders on Wall Street and in Washington got it wrong--again.

As the global economies continue to tank, desperate central bankers will continue to gin up the printing press.  There is no other solution on this path to fiscal hell.

The sovereign economies are stricken with a metastasizing tumor called debt.  Yet, central bankers continue to provide drips of antibiotic monetary stimulus, trying to treat the low-grade fever symptoms, when the only cure is a gutting of the growing cancerous tumor.

Yes, debt defaults are drastic solutions, but they are also necessary to treat the malignancy.  Will it occur by design? No, there is no political will to cut off the government teat of social welfare transfer payments.  Will it occur out of necessity?  Yes, as surely as the Roman empire collapsed under its own weight of bankruptcy.

http://www.bloomberg.com/news/2012-06-01/fed-will-likely-weigh-rosengren-s-call-for-stimulus.html

BOJ Unexpectedly Adds Stimulus as It Sets 1% Target for Inflation: Economy

Japan QE's.

http://www.bloomberg.com/news/2012-02-14/bank-of-japan-unexpectedly-adds-to-monetary-easing-after-economy-contracts.html

Peter Schiff FULL Testimony Before Congress on Obama Jobs Bill 9/13/11

http://youtu.be/_BHLguFEN3M

Stimulus by Fed Is Disappointing, Economists Say

Here's the bottom line:  printing $3 trillion for quantitative easing and permanent open market operations (both policies create currency out of thin air) have produced about $400 billion in economic growth.  The law of diminishing returns is at work, and why economists coin the Fed is "pushing on a string."  Those massive mortgage-backed securities and US Treasury bond purchases by the Fed have offered very low returns, and some would argue negative returns, because many of those mortgage bonds are underwater.  In an exit strategy (tightening monetary policies), the Fed would have to sell those mortgage banks back--at much lower prices.

In other words, in the aftermath of the bank bailouts, the Fed essentially purchased these bonds at par value, when they were actually worth much less.  The balance sheet risk was merely transferred from commercial banks to the Fed.  Essentially, taxpayers own these worthless securities.

The question of whether the Fed will end QE 2.0 at the end of June is becoming much more cloudy.  Tighten too early, and the economy would tank due to rising interest rates.  Continue QE, and we could have runaway inflation, which would have a huge dampening effect on the economy.  The Fed has cornered itself.

The elephant in the room that nobody wants to acknowledge is the US is insolvent, as our debts are unsustainable.  And there is still way too much leverage in financial markets due to over-the-counter derivatives which are still unaccounted for.

Even the language of mainstream Keynesian economists is flawed.  What they refer to as "stimulus" is actually just issuance of more debt.  And massive debt levels are why we're in deep trouble economically in the first place. 

http://www.nytimes.com/2011/04/24/business/economy/24fed.html?_r=1&nl=todaysheadlines&emc=tha2

Bernanke May Sustain Stimulus to Avoid ‘Cold Turkey’ End to Aid

The $64 trillion question of whether to extend QE is starting to heat up--again. 

http://www.bloomberg.com/news/2011-04-19/bernanke-may-reinvest-maturing-debt-to-avoid-cold-turkey-end-to-stimulus.html

Lori Ann LaRocco must-hear interview

This is a must-hear interview from Lori Ann LaRocco, which is surprisingly but now predictably gloomy about our chances for an economic recovery. It is predictable because it's becoming quite obvious our government's stimulus programs are failing to create jobs and stimulate the economy, something us naysayers have been forecasting all along, at the risk of sounding dogmatic. With the benefit of hindsight, we were right.

But why is Ms. LaRocco's candor surprising? She happens to be CNBC's Senior Producer for Squawk Box, so one should expect her to be a cheerleader pandering to our government's propaganda on an economic recovery. Yet, she shares her honest, behind-the-scenes interactions with CEO's pessimistic about the path our country has taken. And in case readers may forget, CEO's of companies do make employment decisions.

http://kingworldnews.com/kingworldnews/Broadcast/Entries/2010/9/9_Lori_Ann_LaRocco_files/Lori%20Ann%20LaRocco%209%3A9%3A2010.mp3

The funeral of Keynesian theory

http://www.zerohedge.com/article/eric-sprott-we-are-now-paying-funeral-keynesian-theory

A two percent spending increase inevitably requires an increase in taxes. Due to the nature of interest costs, however, the government would have to raise taxes by MORE than two percent in order to pay back the initial borrowing. According to their data, this increase in taxes would generally lead to a seven percent drop in GDP. As they state in their study: "This shows that when government spending is financed contemporaneously that the contractionary effects of the tax increases outweigh the expansionary effects of the increased expenditure after a very short time."2 Stated simply, ‘borrowing to stimulate’ has never worked as planned because the cost of paying back the borrowed funds surpassed the immediate benefits of the stimulus.

In a follow-on study, Harald Uhlig estimated that an approximate $3.40 of output is lost for every dollar spent on stimulus.3 Another study on the same subject by C’ordoba and Kehoe (2009) went so far as to say that, "massive public interventions in the economy to maintain employment and investment during a financial crisis can, if they distort incentives enough, lead to a great depression."4

Deficit spending, which has generated smaller and smaller increases in GDP over time, is now generating a negative impact on GDP due to the costs of servicing the debt.

Since Keynesian economics is no longer relevant, some are now arguing that tax cuts will save the day. Two of the academic studies we reviewed suggest that tax relief is a much stronger stimulus to the economy than government spending, and under normal circumstances this is probably true. But we are not in a normal economic environment. Even if the tax cuts implemented by George Bush in 2006 are extended by the next Congress, the US will still face the ‘Keynesian Endpoint’. A Government Accountability Office (GAO) report published in January 2010 states the following: "In our Alternative simulation, which assumes expiring tax provisions are extended through 2020 and revenue is held constant at the 40-year historical average; roughly 93 cents of every dollar of federal revenue will be spent on the major entitlement programs and net interest costs by 2020."12 Extending tax cuts won’t solve anything.

Keynesian stimulus can’t be blamed for all our problems, but it would have been nice if our politicians hadn’t relied on it so blindly. Debt is debt is debt, after all. It doesn’t matter if it’s owed by governments or individuals. It weighs on the institutions that issue too much of it, and the ensuing consequences of paying off the interest costs severely hinders governments’ ability to function properly. It suffices to say that we need a new economic plan – a plan that doesn’t invite governments to print their way out of economic turmoil. Keynesian theory enjoyed a tremendous run, but is now for all intents and purposes dead… and now it’s time to pay for it. Literally.

Fooled by stimulus

This is another great commentary by Eric Sprott on the the failure of Keynesian economics and government stimulus programs.

http://www.sprott.com/Docs/MarketsataGlance/07_10%20Fooled%20by%20Stimulus.pdf

Morgan Stanley: inflation is biggest risk

http://www.moneynews.com/StreetTalk/Morgan-Stanley-Inflation-Risk--Double-Dip/2010/07/30/id/366105

Inflation is the biggest risk to emerging economies, but it helps reduce the debt burdens of developed countries, including the US.

My investment thesis is that US government monetary officials will declare war on deflation in an attempt to ward off another (deeper) recession and curb high unemployment. This will justify the Fed deploying another round of fiscal and monetary stimulus, Quantitative Easing 2.0. This will stoke inflation globally, even if it could appear dormant in the US for a while longer.

Bernanke speaks, markets fall, and then rebound

I'm starting to get these Ben Bernanke cycles. He was in total denial, cheerleading a decrepit economy leading up to the financial meltdown in 2008. Now that the economic cliff is transparent to all, Helicopter Ben is starting to sound like a sage soothsayer.

Bernanke is the fall guy these days--he has to be the sober, bearer of bad news, and the lightning rod of criticism since he's such a killjoy for stating the obvious (the economy sucks). But his function is useful for legislators to provide rationalization for more quantitative easing, or QE 2.0. "The economy sucks, so we need to print more money" is the ongoing dialogue. QE is fancy-speak for bailouts of more industries, and more people. It sounds humanitarian, but it also suppresses growth because it saddles our broke nation with even more debt. And debt will eventually choke this once-great nation of ours into default.

Wash, rinse, repeat. Every time he speaks or testifies before Congress, markets fall because things are so bad. But then markets rebound because "Hey, helicopter Ben is going to drop dollar bills out of the sky." Of course, this only works--until it doesn't work anymore. Financial stimulus is starting to have negative impact on GDP growth, because the cost outweighs the benefits due to our exorbitant debt levels (i.e. servicing the interest on the debt is getting increasingly costly, outweighing the temporary stimulative benefits of building bridges to nowhere).

So while I will enjoy the benefits to my portfolio of potential further QE, at some point, the market will realize enough is enough. When that time comes, no one wants to be naked when the tide rolls out.

Hyperinflation? Part 1

Watch the entire 9-minute video.

Sovereign debt and central banker self-delusions

http://www.zerohedge.com/article/just-how-ugly-sovereign-default-truth-how-self-delusions-prevent-recognition-reality

Behavioural psychology applies to central bankers, regulators and politicians as much as it does to investors. In promising to ‘fiscally retrench tomorrow’, finance ministers are exhibiting the behavioural phenomenon of overconfidence in their future self-control. The bitter fiscal medicine required to stabilise debt levels won’t become more palatable today relative to tomorrow until the bond market makes it so. It can only do this through higher yields. Thus, Ireland and perhaps now Greece lead the way. For the Japanese it’s too late.

As the housing bubble inflated, Bernanke in a quite staggering display of logical sloppiness, concluded that the risk of a housing collapse in the future was small because there had never been one in the past ? Weren't they then guilty of "framing" their analysis in a way guaranteed to preclude an uncomfortable conclusion? If you don't expect to see something, you're less likely to see it. Similarly cringe worthy logic was used when sub-prime rolled over, and Bernanke concluded that there was no risk of contagion to the rest of the economy because... er... there had been no contagion to the rest of the economy yet... wasn't this textbook "recency bias" whereby the importance of recent events is over-weighted?

It probably was, and it probably demonstrates that central bankers are as prone to be as systematically silly as the rest of us. Indeed, just last year a study by yet more of Bernanke's "best and brightest" concluded that “monetary policy was not a primary factor in the housing bubble”. I don?t want to pretend I?m any kind of behavioural expert, but isn't this the well documented "attribution bias" by which people attribute positive outcomes to themselves, but negative ones to others?

So here we are today, with regulators rounding on investment banks, hedge funds and tax havens, apparently in denial of the reality that the problem was not the regulations but the regulators. After all, heavily regulated institutions like Fannie Mae and Freddie Mac were at the epicentre of the crisis.

Oscar Wilde said he could resist anything but temptation. But doing something you know you shouldn't is easier if you can convince yourself that this will be the last time you indulge, that you won't do it again. So we convince ourselves that since we'll be strong in the future, we can still indulge today. Whether it?s smoking, eating too much or going to the pub instead of the gym, we delude ourselves into thinking that we will take the more difficult path next time.

Apparently heroin addicts can become so drug dependent their bodies cannot withstand the shock of withdrawal, and failure to continue taking the drug triggers multiple organ failures. I just wonder how apt that analogy is to our governments' debt dependency today. As long as governments think that taking these difficult decisions to end the addiction will be easier in the future than it is today, they will never take the decision "today." At the very least, there will have to be a sufficiently large bond market "event" to force the issue.

At some point, sovereign governments and central bankers will have to withdraw stimulus programs. Will they have the political will?