Global Equities Tumble Over Ukraine Fear

We were perhaps even more amused than our readers by our Friday headline “Stocks Close At New Record High On Russian Invasion, GDP Decline And Pending Home Sales Miss.” It appears that today the market forgot to take its lithium, and is finally focusing on the Ukraine part of the headline, at least until 3:30 pm again when everything should once again be back to market ramp normal. As expected, the PMI data from China and Europe in February, was promptly ignored and it was all about Ukraine again, where Russia sternly refuses to yield to Western demands, forcing the shocked market to retreat lower, and sending Russian stocks lower by over 11%. This is happening even as Ukraine is sending Russian gas to European consumers as normal, gas transport monopoly Ukrtransgas said on Monday. “Ukrtransgas is carrying out all its obligations, fulfilling all agreements with Gazprom. The transit (via Ukraine to Europe) totalled 200 million cubic meters as of March 1,” Ukrtransgas spokesman Maksim Belyavsky said. In other words, it can easily get worse should Russia indeed use its trump card.

Even though Bunds have failed to close the opening gap higher amid an escalation of concerns surrounding Ukraine, stocks in Europe managed to come off lows, supported by the latest PMI data and reports that gas flow from Ukraine is unaffected. Nevertheless, risk aversion remained the dominant theme and heading into the  North American open, stocks in Europe are seen lower across the board, with financials underperforming. At the same time, commodities and precious metals benefited the most from the flight to quality, with Brent surging over USD 2 overnight and wheat rising the most since September 2012. As a guide, more than half of Russia’s gas exports to the EU are shipped through Ukraine, which is also the third biggest corn shipper and the sixth-largest wheat exporter.

Apart from digesting EU-based PMI reports, market participants also absorbed a raft of UK data, which included Manufacturing PMI, Mortgage Approvals which came in at its highest since Nov’07 and money supply data, all of which failed to have a meaningful impact on GBP/USD. Looking elsewhere, despite the fact that safe-haven related flows weighed on USD/JPY overnight and in Europe this morning, EUR/CHF grinded higher and reversed over half of initial losses. Going forward, there is little in terms of tier-1 macroeconomic data releases, but Draghi is due to testify in Brussels at 1400GMT/0800CST.

Bulletin news summary from Bloomberg and RanSquawk

  • Risk averse sentiment dominated the price action throughout the session amid an escalation of concerns surrounding Ukraine, with fears over prolonged conflict also supporting Brent and soft-commodities in early trade.
  • Bunds gapped higher at the open, with stocks lower across the board and financials underperforming as credit spreads widened.
  • Eurozone PMI Manufacturing (Feb F) M/M 53.2 vs. Exp. 53.0 (Prev. 53.0) and Chinese HSBC Manufacturing PMI (Feb) M/M 48.5 vs. Exp. 48.5 (Prev. 49.5).
  • Treasuries gain, 10Y yield holding near early February lows as Ukraine says Putin’s military is strengthening its presence in Crimea, where ethnic Russians comprise a majority.
  • Russian soldiers attacked Ukrainian army units in the Black Sea district in the last 24 hours, while more armored personnel carriers and war ships have been sighted, the border guard service said today
  • Russia raised its main interest rate the most since 1998 to shore up the economy as the ruble tumbled and stocks sold off the most in five years
  • U.S. Secretary of State Kerry is traveling to Kiev after discussing sanctions against Russia while EU foreign ministers will hold an emergency meeting; Merkel and Obama agreed in phone call yesterday that political solution is only way on Crimea
  • If Obama’s handling of the crisis reinforces doubts about his toughness in addressing foreign challenges, as some critics assert, it could affect a more diverse range of issues: Israeli-Palestinian peace talks, North Korea’s nuclear weapons
  • China’s Communist Party leadership faces a dilemma over where to set a growth goal for 2014 as President Xi Jinping wrestles with sustaining expansion while limiting debt risks, environmental damage and social unrest
  • North Korea fired two short-range ballistic missiles after it launched four into the sea off its eastern coast last week, escalating tensions as the U.S. and South Korea entered the second week of joint military drills
  • Euro-region economic reports in the past month turned out reassuring enough to convince most economists that Mario Draghi doesn’t need to cut interest rates this week
  • Sovereign yields fall, with exception of Greece and Portugal. EU peripheral spreads tighten as bund yields fall. Global equity markets, U.S. stock-index futures decline. WTI crude and gold higher; copper declines

US Event Calendar

  • 8:30am: Personal Income, Jan., est. 0.2% (prior 0.0%); Personal Spending, Jan., est. 0.1% (prior 0.4%); PCE Deflator m/m, Jan., est. 0.1% (prior 0.2%)
  • 8:58am: Markit U.S. PMI Final, Feb., est. 56.5
  • 10:00am: ISM Manufacturing, Feb., est. 52 (prior 51.3)
  • ISM Prices Paid, Feb., est. 57.3 (prior 60.5)
  • 10:00am: Construction Spending m/m, Jan., est. -0.3% (prior 0.1%)
  • Domestic Vehicle Sales, Feb., est. 11.9m (prior 11.94m)
  • Total Vehicle Sales, Feb., est. 15.4m (prior 15.16m) Central Banks
  • 10:30pm: Reserve Bank of Australia seen holding cash rate target at 2.5%
  • 10:30am: BoE’s Carney speaks on panel in Frankfurt Supply
  • 11:00am: Fed to purchase $2.25b-$2.75b in 2021-2024 sector

Asian Headlines

JGBs rallied and JPY swap curve bull-flattened amid broad based risk averse tone which also saw the Nikkei 225 index settle lower over 1% amid geopolitical tensions in Ukraine. At the same time, after coming under focus last week, USD/CNY traded steady overnight after much of the carry trade premium was eroded by the PBOC engineered squeeze.

Chinese Manufacturing PMI (Feb) M/M 50.2 vs. Exp. 50.1 (Prev. 50.5)
Chinese Non-Manufacturing PMI (Feb) M/M 55.0 (Prev. 53.4)
Chinese HSBC Manufacturing PMI (Feb) M/M 48.5 vs. Exp. 48.5 (Prev. 49.5)

EU & UK Headlines

Eurozone PMI Manufacturing (Feb F) M/M 53.2 vs. Exp. 53.0 (Prev. 53.0)
– German PMI Manufacturing (Feb F) M/M 54.8 vs. Exp. 54.7 (Prev. 54.7)
– French PMI Manufacturing (Feb F) M/M 49.7 vs. Exp. 48.5 (Prev. 48.5)
– Spanish PMI Manufacturing (Feb) M/M 52.5 (Prev. 50.6), highest since April 2010
– Italian Manufacturing PMI (Feb) M/M 52.3 Vs. Exp. 52.8 (Prev. 53.1)

UK PMI Manufacturing (Feb) M/M 56.9 vs. Exp. 56.5 (Prev. 56.7, Rev. to 56.6)
UK Mortgage Approvals (Jan) M/M 76.9K vs. Exp. 74.5K (Prev. 71.6K, Rev. to 72.8K) – Highest since November 2007

Bunds gapped higher at the open but failed to top the high from last week seen at 145.33, which when broken will open up the door to the continuation of highs from last May at 145.80. To the downside, supports levels are seen at 144.19 which is the 61.8% Fibonacci from 25th of Feb.

Moody’s changed outlook on Germany’s Aaa rating to stable from negative, citing diminished risks for Germany in supporting other Eurozone countries. Moody’s said Germany has made progression in fiscal consolidation and the country’s balance sheet faces diminishing risks from banking system. (DJN) Moody’s also changed the outlook on Austria’s Aaa rating to stable from negative, and changed the outlook on Luxembourg’s Aaa rating to stable from negative.

US Headlines

President Obama will release his fiscal 2015 budget on Tuesday, a month late and after an especially muted rollout. The document is widely viewed as “dead on arrival” in the Capitol because appropriators already have their discretionary top-line number for the year starting Oct. 1, and because the midterm election means there is little appetite for changes to entitlements and taxes. (TheHill.com)

Equities

Stocks in Europe traded lower since the get-go, with Asian equity indices are nursing losses overnight as market participants continued to fret over the unstable situation in Ukraine. Financials underperformed on the sector break-down, while the more defensive sectors benefited from the flight to quality.

FX

GBP failed to benefit from the release of better than expected Hometrack, Manufacturing PMI and Mortgage Approvals data, with GBP/USD and EUR/USD seen little changed, thats in spite of the fact that JPY continued to benefit from safe-haven related flow.

The Russian central bank raised the key rate to 7% from 5.5% effective immediately, adding that the decision to raise rates due to rising inflationary risks and risks to financial stability. (BBG) This meeting was not scheduled until March 14th, as the central bank are forced to intervene in a volatile market after the RUB was heavily sold following military intervention in Ukraine.

Commodities

Citigroup have raised its 2014 gold forecast to USD 1,305 per oz, from USD 1,255. Analysts also raised its 2014 copper forecast to USD 6,975 per tonne, from USD 6,650 and cut its 2014 iron ore forecast to USD 113 per tonne, from USD 120. (BBG)

Barclays has raised its 2014 crude oil price forecast, on expected higher demand and investor interest levels, coupled with low inventory figures and high geopolitical risks, raising its average WTI price forecast for 2014 to USD 99 bbl, up from USD 97 bbl. (RTRS)

Analysts at SocGen expect crude prices to fall on maintenance and ending winter demand, whilst seeing more downside to WTI crude over North Sea Brent and they expect managed money length on WTI crude to reverse. (BBG)

Ukraine is transiting Russian gas to Europe as normal, according to gas transport monopoly Ukrtransgas. (RTRS)

North Korea have fired two short-range missiles into the sea. (Yonhap) This follows similar missile tests held last week on the Korean peninsula.


    



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Steve Chapman on the Public Pension Crisis

Burning dollarIn state after state, elected officials have
promised public employees retirement packages without securing the
revenue needed to keep the promises. In Illinois, the state pegged
its contributions below where they should have been for a long
time. On top of that, lawmakers couldn’t resist the temptation to
borrow from the fund and skip contributions whenever it was
convenient. Stanford University economist Joshua Rauh says that not
only have the states not made progress on the issue overall, they
have actually expanded the gaping canyon they dug. So when it comes
to public pensions, writes Steve Chapman, elected officials have
arrived at a formula that suits them well: Never do today what you
can do tomorrow. And don’t do it then, either.

View this article.

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Studying Gold and Silver’s Past Gives Us a Glimpse of Where We’re Heading in the Future

The banking-government industrial complex has been pulling the wool over investors’ eyes for years when it comes to getting the masses to keep their savings tied up in ever rapidly devaluing fiat currencies instead of intelligently converting them into the only real money out there – physical gold and physical silver – that has no counterparty risk. Just note the massive 50% collapse of the Argentine peso in less than 5 years, the 40% collapse of the Venezuelan bolivar in one year, and the Ukranian hryvania’s collapse of more than 50% against gold just this year, and the fact that Ukranian banks are now limiting withdrawals to about $100 a day now.

 

Hard as it is to believe, and by now most people have forgotten this fact, but back in 2006, the bankers tried their hardest to sell the world on the notion that the gold bull was dead when gold had climbed to just $620 an ounce. Bankers attempted to misinform people by releasing a flood of anti-gold articles and banker predictions that gold had peaked and that it was going to crash to $250 to $300 an ounce later that year.

In reply to this banker disinformation campaign in 2006, I released a number of emphatic opinions that all the anti-gold propaganda was just that – propaganda – and I even called out the head commodity analysts at some global banks as I waged war against their disinformation campaigns. I believe we can learn a lot about the future of gold and silver today by taking a step back in time to re-visit the bankers’ propaganda campaigns in 2006.

 

On 3 September, 2006, I released the article: “Gold’s Glitter is Genuine”.

 

Here is a short excerpt from that article:

“In the past month, I’ve seen stories on MSNBC’s website about the demise of gold. I’ve read stories in major media about the demise of emerging markets. And this was literally just weeks after the major media was touting gold as the asset to buy and saying that if you weren’t in emerging markets you were missing out on great opportunity. Every day, the major media has bandwagon syndrome. Just look at some of the major financial websites online. Their headlines literally change in the course of a single hour, especially during the volatile global markets in mid-2006. I’ve seen headlines change from “Bulls lead recovery in stock markets” to “Bulls lose stomach, bears turn market sentiment downward” in literally an hour. No wonder the average investor is confused. Gold has bumped up to $620 an ounce since we invested at $570 an ounce, so are we patting ourselves on the back? Hardly. I know that gold is likely to see a steep correction before it goes higher, so if it pulls back all the way to $570 an ounce again, will we panic? No, because we’ve done our homework and understand exactly what drives the price of gold and why even short term, steep corrections won’t change our opinion of it.”

 

Just two weeks later, when the predictions I made in my September 3rd article came true and the global banks stepped up their anti-gold, anti-silver propaganda campaign, I released an article titled, “Has the Commodities Bubble Burst? No, No, No!” 

 

Below, is a short excerpt from that article:

Everywhere in the media, you have pundits saying that the commodities Bull Run is over – including even chief global economists of major investment firms like Steven Roach of Morgan Stanley. They’re all wrong. This is a case of everyone panicking from sharp corrections that no doubt have caused millions of people world wide some mental anguish and hand wringing. But not me. I’ve dug deep enough down into the rabbit hole to know that gold will rise much much higher in the future. In fact if you go back and read my earlier blogs and [free newsletters] you’ll see that when gold was at over $625 an ounce I said that gold was heading lower than $600 to test its June lows of $570 and possibly head lower. And I still think that we haven’t seen the end of the correction in gold. Yes, oil has slipped to below $60 a barrel but again, this doesn’t mean that oil is done either.”

 

The above 2006 article was very similar to the response I published on my blog at the end of last year in 2013 titled All the Big Banks are Saying Gold Will Crash in 2014 But That’s Now What Will Happen, which I published before gold and silver assets truly started to rise significantly higher again.

 

On 16 September, 2006 gold pulled back below $590, then pulled back slightly below $570 in early October 2006 just as I had predicted, then bottomed and rocketed to $800 over the next year.

In 2010, I wrote about the increasingly diminishing returns of an institutional business education due to the massive propaganda that bankers spread in this system that is virtually useless in the real world.

 

In May of that year, I scripted, Delaying a College Education in this Environment is the Right Choice”.

 

In that article, I offered the following:

“Since college students are already likely to end up living back at home with their parents after they graduate as the job horizon will appear no better in four years than it is today (unless you believe the drivel of government officials and economists), why not spend that time immersed in self-education of how the financial and monetary systems really work? In the process, students will save their parents tens of thousands, or even hundreds of thousands of dollars, in tuition and save themselves the fate of being a sheep led to the slaughter by banking shills like Joseph Stiglitz, Paul Krugman and Jeffrey Sachs. Furthermore, students will be much better prepared to face the ongoing global economic crisis from not only a financial perspective but also from an educational perspective.”

 

I followed that opinion up with my article in October, 2010, “The Astounding Failure of the US Education System.”

 

I was ridiculed in 2006 for stating that gold would continue to rise much higher in price from $570 an ounce, even though it had already more than doubled in price in five years from $250 an ounce. Likewise, when I wrote these articles that stated that a college business education was a poor use of savings when job markets would be worse in 2014 than they were in 2010, I was ridiculed by all the financial “experts” that stated the banker-government industrial complex meme of recovering economies in 2010 and who stated that global economies would be flourishing in a few years. Well, here we are, four years later and according to the latest figures by the US Bureau of Labor Statistics, there are twice as many college graduates in minimum-wage jobs in the US as compared to just five years ago. Furthermore, more than half of all 18-24 year olds in the United States are now living at home with their parents due to the inability to secure a high enough paying job that allows them to move out of their parent’s home.

 

“Studying Gold and Silver’s Past Gives Us a Glimpse of Where We’re Heading in the Future”

 

 

So the next time gold and silver take a dip in price in the markets and bankers react by telling you to sell gold and silver, or a politician goes on TV to announce to you the strength of the “recovering economy”, trust your history first over the mass media.

 

 

About the Author: JS Kim is the Managing Director of SmartKnowledgeU, an independent consulting & research firm that focuses on the best ways to buy gold and silver in preserving wealth.


    



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Horrific Knife Attack In China Leaves 33 Dead (130 Injured)

Submitted by James Pach via The Diplomat,

In one of the deadliest acts of terror in China in recent memory, a group of ten knife-wielding assailants attacked passersby at the Kunming Railway Station in the southwest of the country on Saturday night, killing at least 29 and wounding another 130. Police also shot and killed four of the attackers and captured one more. The other five are on the run, according to reports. State broadcaster CCTV said two of the attackers were women, one of whom was killed by police and the other captured.

Local Kunming government officials say that evidence at the scene point to separatists from China’s restive Xinjiang region, in what is being called “an organized, premeditated violent terrorist attack.” China’s state media outlet Xinhua quotes domestic senior Chinese security official Meng Jianzhu as vowing to “severely punish” the attackers “according to law.” Those comments were later echoed by President Xi Jinping, who also heads China’s security commission. The Global Times reports that Xi has asked “law enforcement to crack down on violent terrorist activities in all forms.” It also notes that UN Secretary-General Ban Ki-moon expressed his hope that “those responsible will be brought to justice.”

The attack follows an incident in Tiananmen Square last October, in which a man drove an SUV carrying his wife and mother into a crowd and set it on fire. That attack killed five people and injured 40, and profoundly shocked the nation. Beijing said that the attack was the work of the East Turkestan Islamic Movement (ETIM). Speaking with The Diplomat last year, Uyghur American Association president Alim Seytoff rebuffed that claim, questioning whether the ETIM even existed. Uyghur rights groups in general have denied claims that Uyghur separatists are behind the recent violence.

Saturday’s attack comes ahead of the annual meeting of China’s parliament on Wednesday, a time when security is usually tightened. Chinese officials have had trouble containing violence in Xinjiang, where local Uyghurs chafe against the growing Han Chinese presence, religious repression and heavy-handed security. Until recently, however, incidents were largely confined to within Xinjiang itself. If the Kunming attack is linked to Xinjiang, it could represent an escalation in Beijing’s troubles with the region, with the violence now spreading to other parts of China. Kunming is in Yunnan province, which has not previously been associated with terror incidents.

Victims of the Kunming attack say the attackers, dressed in black, burst into the railway station and began slashing at people randomly. Photos show the blood-stained floor of the station strewn with luggage, and medical personnel treating the wounded. Some eyewitnesses said that the assailants were carrying multiple blades, while others reported the attackers stabbing their victims multiple times.

The regional government in Xinjiang announced last month that it would be doubling the police’s counterterrorism budget for 2014.


    



via Zero Hedge http://ift.tt/1hzuGkH Tyler Durden

Memo to Obama: This Was Their Red Line!

Submitted by David Stockman, via his new blog Contra Corner

Memo to Obama: This Was Their Red Line!

Ethnolingusitic_map_of_ukraine[1]In 1783 the Crimea was annexed by Catherine the Great, thereby satisfying the longstanding quest of the Russian Czars for a warm-water port. In fact, over the ages Sevastopol emerged as a great naval base at the strategic tip of the Crimean peninsula, where it became home to the mighty Black Sea Fleet of the Czars and then the commissars.

For the next 171 years Crimea was an integral part of Russia—a span that exceeds the 166 years that have elapsed since California was annexed by a similar thrust of “Manifest Destiny” on this continent, thereby providing, incidentally, the United States Navy with its own warm-water port in San Diego. While no foreign forces subsequently invaded the California coasts, it was most definitely not Ukrainian and Polish riffles, artillery and blood which famously annihilated The Charge Of The Light Brigade at the Crimean city of Balaclava in 1854; they were Russians defending the homeland.

And the portrait of the Russian ”hero” hanging in Putin’s office is that of Czar Nicholas I—whose brutal 30-year reign brought the Russian Empire to its historical zenith, and who was revered in Russian hagiography as the defender of Crimea, even as he lost the 1850s war to the Ottomans and Europeans. Besides that, there is no evidence that Putin does historical apologies, anyway.

In fact, its their Red Line. When the enfeebled Franklin Roosevelt made port in the Crimean city of Yalta in February 1945 he did know he was in Soviet Russia. Maneuvering to cement his control of the Kremlin in the intrigue-ridden struggle for succession after Stalin’s death a few years later, Nikita Khrushchev allegedly spent 15 minutes reviewing his “gift” of Crimea to his subalterns in Kiev in honor of the decision by their ancestors 300 years earlier to accept the inevitable and become a vassal of Russia.

Self-evidently, during the long decades of the Cold War, the West did nothing to liberate the “captive nation” of the Ukraine—with or without the Crimean appendage bestowed upon it in 1954. Nor did it draw any red lines in the mid-1990?s when a financially desperate Ukraine rented back Sevastopol and the strategic redoubts of the Crimea to an equally pauperized Russia.

In short, in the era before we got our Pacific port in 1848 and in the 166-year interval since then, the security and safety of the American people have depended not one wit on the status of the Russian-speaking Crimea. Should the local population now choose fealty to the Grand Thief in Moscow over the ruffians and rabble who have seized Kiev, what’s to matter!  Worse still, how long can America survive the screeching sanctimony and mindless meddling of Susan Rice and Samantha Power? Mr. President, send them back to geography class; don’t draw any new Red Lines. This one has been morphing for centuries among the quarreling tribes, peoples, potentates, Patriarchs and pretenders of a small region that is none of our damn business.


    



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The Phone Call

The phone-calls are flying. On the heels of yesterday’s Obama-Putin “discussion”, today has seen Merkel drop him a line (with the resultant claim that Putin has accepted a “fact-finding mission” despite all evidence to the contrary); and then Merkel, Obama, and Cameron got on a party-line to discuss “sanctions”. In the face of this seriousness, we suspect, however, any of the calls to Putin all had a similar dialogue…

 

h/t @SooperMexican and @LibertyBlitz

 

Lots of “Calls” in the last 24 hours…

  • *OBAMA CALLING MERKEL AND CAMERON TODAY ON UKRAINE: OFFICIALS
  • *MERKEL CALLED ON PUTIN TO RESPECT UKRAINE TERRITORIAL INTEGRITY
  • *NATO CALLS ON RUSSIA TO DE-ESCALATE TENSIONS, RASMUSSEN SAYS
  • *ITALY CALLS ON KIEV TO MAKE EVERY EFFORT FOR PEACE, STABILITY
  • *ITALY CALLS ON RUSSIA TO AVOID AGGRAVATING UKRAINE SITUATION
  • *AKHMETOV CALLS FOR UKRAINE TERRITORIAL INTEGRITY TO BE ENSURED
  • *UKRAINE’S PM CALLS FOR PEACEFUL RESOLUTION TO CRISIS
  • *UKRAINE’S PM CALLS ON PUTIN TO REFRAIN FROM STARTING WAR
  • *OBAMA CALLS HEADS OF FRANCE, CANADA, TO DISCUSS UKRAINE CRISIS
  • *OBAMA CALLS ON RUSSIA TO DE-ESCALATE TENSIONS IN UKRAINE
  • *UN SECRETARY GENERAL CALLS FOR IMMEDIATE UKRAINE CALM: NESIRKY
  • *U.K.’S HAGUE CALLS FOR `DE-ESCALATION OF TENSIONS’ IN UKRAINE
  • *TYMOSHENKO CALLS FOR ACCORD WITH EU TO BE SIGNED IN DAYS
  • *KLITSCHKO CALLS FOR GENERAL MOBILIZATION IN UKRAINE
  • *RUSSIA LAWMAKERS CALL ON PUTIN TO DEFEND CRIMEA POPULATION: RIA
  • *CRIMEA’S PRIME MINISTER CALLS ON PUTIN TO ASSIST: INTERFAX
  • *U.S. CALLS ON RUSSIA TO PULL BACK MILITARY FORCE IN REGION
  • *MERKEL CALLS FOR RESTRAINT OVER CRIMEA
  • *CAMERON CALLS PUTIN TO DISCUSS SITUATION IN UKRAINE

 

President Barack Obama discussed the Ukraine crisis with German Chancellor Angela Merkel in a phone call on Sunday and underscored:

“(The primary point) in all of his calls has been to underscore the complete illegitimacy of Russia’s intervention” in the Crimea region of Ukraine, the official told reporters in a conference call.

The official, who spoke on condition of anonymity, said Obama planned shortly to make the same point in conversations with the British prime minister and the Polish president.


    



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Guest Post: Why Keynesian Political Economy Is Theft

Via Monty Pelerin's World blog,

The plague of our time is Keynesian economics. It has destroyed the economics profession and enabled the political class to obtain powers never intended.

Keynesian economics provided the intellectual cover for the criminal class we politely call “government” to plunder its citizenry. In the beginning, clear-thinking, independent economists (not dependent on government largess) expressed objections to this “new economics.” There was little new in Keynes’ work and many errors that had been debunked decades before Keynes was even born. Bastiat’s parable of the “broken window” in 1850 is probably the best-known refutation, although similar arguments preceded Bastiat by a century or more.

In the 1930s leaders were desperate and willing to try anything. Keynes General Theory was published in 1936, during the middle of the greatest depression the world had ever experienced. Politicians, more so than economists, welcomed his ideas as a new approach.

The Austrian economists  represented by Mises and Hayek saw the fallacies in this new approach immediately. Some of the Chicago School (Knight, Simons, Viner) did also. Ludwig von Mises, never one to mince words, described Keynesian economics in the following manner:

What he really did was to write an apology for the prevailing policies of governments.

Mises likely was one of the few who saw the full ramifications of what Keynesian economics would provide for government. Most early criticisms were in terms of the economic unsoundness of the theory.

To contrast the blatant differences between proper economics and Keynesian prescriptions, the following two prescriptions were offered early in this century:

austriankeynesian

It was proper that one of these men should have won the Nobel Prize in economics. It just happened to be the wrong one.

buchananeconomy-1986-1

James Buchanan, Nobel Laureate

In 1977 James M. Buchanan and Richard E. Wagner wrote “Democracy In Deficit — The Political Legacy of Lord Keynes” (available online). It was the first comprehensive attempt to apply public-choice theory to macroeconomic theory and policy. According to Robert D. Tollison:

The central purpose of the book was to examine the simple precepts of Keynesian economics through the lens of public-choice theory. The basic discovery was that Keynesian economics had a bias toward deficits in terms of political self-interest.

From Buchanan and Wagner came this judgment regarding Keynesian economics:

The message of Keynesianism might be summarized as: What is folly in the conduct of a private family may be prudence in the conduct of the affairs of a great nation. (p. 3)

This fundamental confusion was responsible for the political acceptance of Keynesian economics. Politicians saw the potential for themselves in this new doctrine which advocated central control of the economy and fiscal irresponsibility as a necessary and patriotic thing. Giving them this gift was like providing matches and gasoline to an arsonist. (“I don’t want to spend money, but I have to otherwise the economy will tank.”)

Once government took control of the economy, they needed economists to provide the analysis and justifications for their new policies. Many in the economics profession were procured in similar fashion used with prostitutes. Money and power were heady incentives for a profession that had rightly been consigned to a section in their own ivory tower.

Justifying what government wanted to do and was doing was the only requisite. But, in order to qualify, it became necessary to convert to Keynesianism. Other branches of economics condemned government policies, at least on economic grounds.

Economists more than most understand incentives. When the payoffs increase, some men in any profession find it easy to modify ethics and integrity.

Buchanan and Wagner knew the damage that Keynesian economics had already inflicted and knew its potential was much greater. Thirty-seven years ago they commented: 

What happened? Why does Camelot lay in ruin? Viet Nam and Watergate cannot explain everything forever. Intellectual error of monumental proportion has been made, and not exclusively by the ordinary politicians. Error also lies squarely with the economists. (p. 4)

They answered their own question:

The academic scribbler of the past who must bear substantial responsibility is Lord Keynes himself, whose ideas were uncritically accepted by American establishment economists. The mounting historical evidence of the effects of these ideas cannot continue to be ignored. Keynesian economics has turned the politicians loose, it has destroyed the effective constraint on politicians’ ordinary appetites. Armed with the Keynesian message, politicians can spend and spend without the apparent necessity to tax. “Democracy in deficit” is descriptive, both of our economic plight and of the subject matter for this book. (p.4)

Now, thirty-five plus years later, one may judge the merit in this book. Prescience, while not limited to them alone, was amazing.

One must also marvel at the continuation and acceleration of the ruinous policies. Whether Buchanan and Wagner imagined things could go on for so long and to such an extent is not known. However, to appreciate these changes, this graph from Zerohedge shows the effects of Keynesianism and what it has done to governments around the world:

keynesian legacy

The deterioration in fiscal discipline was astounding and in line what they predicted.

As this false economic theology known as Keynesianism runs its course, the following conclusions are probable:

  • Regardless of whether this generation escapes or not, we have impoverished our children and grandchildren.
  • Politicians now control most of the economy, including what passes for acceptable economics.
  • No honest economist can work for government; nor would one want to.
  • The tipping point for reversing this condition has long past.
  • Politicians have no incentive to stop the process underway.
  • Markets (and perhaps societies and governments) will eventually collapse, ending this terrible period of economic madness.

When this flawed paradigm is finally exhausted, the world may enter a better place in terms of economics and limited government. Without this shift, poverty and misery will grow along with wars used as political diversions.

One can only hope that the world avoids an Economic Dark Age when the collapse occurs.


    



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Chinese Manufacturing PMI Slumps To 8-Month Low, Services PMI To 3-Month High; Goldman Admits Growth Decelerating

Chinese manufacturing PMI fell to an 8-month low holding barely above the crucial 50 level yesterday forcing Goldman to admit that "this signals further deceleration" in Chinese growth. All sub-indices showed signs of cyclical slowdown from January to February with perhaps the two most-critical ones – production and new orders – showing considerably larger falls than the headline index itself as we await this evening's HSBC print to confirm an average 'contraction'. China's Services PMI just printed at 55, up from 53.4, to a 3-month high led by a surge in the "expectations" sub-index.

China Services PMI rose to 3-month highs… as new orders rose but the "expectations" sub-index jumped the most as hope trumps any current weakness as input prices slumped to 10 month lows.

 

China Manufacturing PMI fell to 8-month lows

Ahead of this evening's HSBC-version (which printed 48.3 Flash) of Manufacturing data, Goldman's summary is oddly (honest) pessimistic on China's Manufacturing industry…

The latest PMI data is another piece of evidence of slowing activity growth since 4Q 2013. Data at the start of the year tends to be noisy in general, and unlike some other indicators taking the average of January and February PMI readings doesn't necessarily override the Chinese New Year distortions (this is because survey results can be affected by the timing of the survey which covers only a short period over several days within the month). However, the consistency of the signal is such that there is little doubt that growth has been weak and probably becoming weaker since the end of the year. We see risks to our 7.7% GDP forecast for 1Q tilted more towards the downside.

 

We believe the combination of a tight monetary policy stance, heightened anti-corruption and anti-pollution campaign, inventory destocking and slower than expected external demand contributed to the slowdown. While over the longer term measures such as anti-corruption measures can improve the efficiency of the economy, they can often put significant downward pressures on demand growth in the short term.

Of course, there's always hope when things get ugly…

The top leadership has shown clear willingness to maintain broad growth stability in the latest politburo meeting, though at the moment there is no information on detailed policy measures.

In other words, bad news is great news (or keep BTFATHing in US stocks because the PBOC will rescue any and all growth slowdowns) – or will they…

Bank of America has some more confidence that it will all be ok in the end…

We suggest investors not read too much into the PMI "slowdown" in February. Instead, markets should focus on yoy activity data for the combined January and February period to be released in the next two weeks. It's our high conviction call that the official PMI will rebound back to around 50.5 in March.

So blame seasonality (that happens every year!?) and a belief that a central planner who has abrogated currency weakness (to tame carry trader exploitation) and liquidty squeezes (to tame risk appetite in high-yield shadow bank vehicles) will 'stimulate' once again (and pump up the real estate bubble once again) to meet the "hope" that is priced into markets.


    



via Zero Hedge http://ift.tt/1dRvWuS Tyler Durden