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The IMF is getting nervous, and it appears that the focus of its fears is on preserving the status quo.

Moments ago, in a speech in Washington, IMF head Christine Lagarde said that “The greatest challenge we face today is the risk of the world turning its back on global cooperation—the cooperation which has served us all well. We know that globalization – and increased integration – over the past generation has yielded many economic benefits for many people.”

The IMF is not alone: for years, consultancy giant McKinsey towed the party line as well saying in 2010 that “the core drivers of globalization are alive and well” and adding as recently as 2014 that “to be unconnected is to fall behind.“

That appears have changing, and cracks are starting to form behind the cohesive push for globalization, at least among those who benefit the most from globalization.

In a stunning study released today, one which effectively refutes all its prior conclusions on the matter, McKinsey slams the establishment’s status quo thinking and admits that the economic gains of changes in the global economy have not been widely shared lately, especially in the developed world. In the report titled “Poorer Than Their Parents? Flat or Falling Incomes in Advanced Economies” it finds that prospects for income growth have deteriorated significantly since the financial crisis, and that the benefits from globalization are now over:

This overwhelmingly positive income trend has ended. A new McKinsey Global Institute report, Poorer than their parents? Flat or falling incomes in advanced economies, finds that between 2005 and 2014, real incomes in those same advanced economies were flat or fell for 65 to 70 percent of households, or more than 540 million people (exhibit). And while government transfers and lower tax rates mitigated some of the impact, up to a quarter of all households still saw disposable income stall or fall in that decade.

As Bloomberg reports, Britain’s vote to exit the European Union exemplifies what happens when people feel like the system is letting them down, Richard Dobbs, the co-leader of the research, said in an interview Wednesday, ahead of the report’s release. He likened the buildup of resentment over globalization to a dangerous natural gas leak in a row of houses. 

“One of them will explode. I did not think that it would be the U.K. first,” said Dobbs, a senior partner of McKinsey and a member of the McKinsey Global Institute Council in London.

“When we launch a new policy, let’s think about the impact on those groups” who have been left behind, Dobbs said. Sometimes the goals of fairness and efficiency can conflict, he said. “Are we prepared to damage competitiveness a bit to reduce the risk of an explosion?”

To be sure, just like the IMF’s U-turn on austerity after the failure of the second Greek bailout, McKinsey was unwilling to admit it has flop-flopped on such a critical position. Instead, Dobbs described the institute’s stance on globalization as an “evolution,” not a reversal. “We’re not saying throw it all out. … It’s about a sophistication in our thinking,” he said. The McKinsey Global Institute still sees value in offshoring, immigration, trade, and so forth, Dobbs said: “Generally we’re pro those, but there’s a however, and we need to be more aware of the however.”

In a startling finding, the report said that 65 to 70% of households in 25 advanced economies were in income segments that had flat to falling incomes between 2005 and 2014, up from less than 2 percent between 1993 and 2005. More troubling is that for some of the biggest supposed winners from globalization such as the US, this number is as high as 81%, while in Italy it soars to just shy of 100%!

A silver lining emerges when one takes into account “socialy equalizing” considerations such as transfers and taxes into account, aka government welafre. In that case, only 20 to 25% of households were in income segments that had flat to falling incomes between 2005 and 2014, the study said.  Curiously, the biggest winners from this reindexation were such socialist nations as Sweden, France and… the United States, which when accounting for government generosity would report less than 2% of household segments with falling income (inexplicably, when applying government genersoity in Italy, the number of households who saw their income decline rose from 97% to 100%).

This is how McKinsey puts it:

Labor-market practices can make a difference, as can government taxes and transfers—although the latter may not be sustainable at a time when many governments have high debt levels. For example, in Sweden, where the government intervened to preserve jobs during the global downturn, market incomes fell or were flat for only 20 percent of households, while disposable income advanced for almost everyone. 

 

In the United States, lower tax rates and higher transfers turned a decline in market incomes for four-fifths of income segments into an increase in disposable income for nearly all households. Efforts such as these—along with additional measures such as encouraging business leaders to adopt long-term thinking—can make a real difference.

A less spun way of saying that is that the vast majority of social inequality in the US has been “smoothed over” courtesy of the government over the past decade, which of course, is another way of saying that the political class holds hundreds of millions  of Americans hostage: “if you want your welfare checks, EBTs, disability payments to continue, don’t you dare force a political change or else…“

One wonders just how sustainable this form of subsidized income truly is, especially if the mechanism that funds the US government apparatus, the dollar’s reserve status which allows the US to issue trillions in debt with impunity, is somehow impaired. Not only that but as McKinsey also admits, government transfers “may not be sustainable at a time when many governments have high debt levels.”

Why wasn’t it just McKinsey which one year ago “discovered” just how massive the global debt load had risen to in the years since the financial crisis.

Perhaps the report’s author could have synthesized McKinsey’s previous findings to comment on the viability of such an artificial approach to keeping people happy.

Still, that does not change McKinsey’s troubling conclusion that globalization is now hurting, not helping, the majority of people.

In fact, the summary adds, “If the low economic growth of the past decade continues, the proportion of households in income segments with flat or falling incomes could rise as high as 70 to 80 percent over the next decade. Even if economic growth accelerates, the issue will not go away: the proportion of households affected would decrease, to between about 10 and 20 percent—but that share could double if the growth is accompanied by a rapid uptake of workplace automation.”

The conclusion, silver lining notwithstanding, is a troubling one for the IMF and for all those who defend globalization at any cost:

These findings provide a new perspective on the growing debate in advanced economies about income inequality, which until now has largely focused on income and wealth gains going disproportionately to top earners. Our analysis details the sharp increase in the proportion of households in income groups that are simply not advancing—a phenomenon affecting people across the income distribution. And the hardest hit are young, less-educated workers, raising the spectre of a generation growing up poorer than their parents.

 

The economic and social impact is potentially corrosive. A survey we conducted as part of our research found that a significant number of those whose incomes have not been advancing are losing faith in aspects of the global economic system. Nearly one-third of those who are not advancing said they think their children will also advance more slowly in the future, and they expressed negative opinions about free trade and immigration.

They also tend to vote for things like Brexit and unsavory presidential candidates.

But our biggest concern is that just weeks after the BIS slammed central banks for merely boosting capital markets as a reaction to what is now clearly the failure of globalization to work ratably for all, and now McKinsey also splinter from the “all is well” camp, the response by policymakers has been one which not only does not address the underlying issue, but makes it even worse. Because if the world’s elites are still deluded into believing that propping the world’s stock markets to all time highs will somehow “trickle down” to the great unwashed masses, they will very soon get a very painful, and long overdue, reminder of just what happens in human history any time the vast majority is angry and feels betrayed by its “leaders.”

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Submitted by Mac Slavo via SHTFPlan.com,

Did Attorney General Loretta Lynch lie about or obfuscate her role in clearing Hillary in the investigations concerning the handling of classified emails on her private server?

Is there a quid pro quo among the two women, in which Lynch could have been promised a role in the next Clinton Administration in exchange for her help in calling off potential criminal charges that might derail Hillary’s campaign.

Lynch claims there is no such relationship. But she also refused to answer at least 74 of Congress’ questions about her private meeting with former President Bill Clinton and her relationship with the Clintons and/or their staff.

Recall, that the announcement that Hillary was off the hook, as it were, came immediately after the Attorney General and former president met.

As The Daily Caller reported at the time:

 

Department of Justice officials filed a motion in federal court late Wednesday seeking a 27-month delay in producing correspondence between former Secretary of State Hillary Clinton’s four top aides and officials with the Clinton Foundation and Teneo Holdings, a closely allied public relations firm that Bill Clinton helped launch.

The Republican-led Congress, which has of course been very aggressive in spotlighting Hillary Clinton’s misdeeds, attempted to clarify the involvement of Attorney General Lynch.

Rep. David Trott (R-MI) claims that he had his staff count the number of times that Attorney General Loretta Lynch either ducked questions or didn’t give an appropriate response during her testimony before Congress.

“I knew you weren’t going to answer our questions today, and I apologize for wasting so much time here, because it’s really not been very productive. And I asked my staff to count the number of times today you would say ‘I can’t answer that question’ or refuse to give an appropriate response. It’s happened 74 times so far.”

 

“Really, it’s either one of two things: Either you’re trying to avoid the appearance of impropriety, in which case you should have recused yourself, or you’re trying to protect Hillary Clinton”

As example to this, Loretta Lynch refused an entire line of questions from Rep. Jason Chaffetz about whether or not it was hypothetically legal or illegal to retain classified information.

Despite the straightforward nature of this questioning, Attorney General Lynch refused to even acknowledge whether or not it is illegal to lie under oath.

Wow. This is stonewalling of epic proportions.

Loretta Lynch Refuses to Say Whether It’s Illegal to Lie Under Oath

Of course, we know that no one in Washington would intentionally engage in corruption, and that relationships in government are nothing more than interactions between representatives of the people… yeah, right.

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It was a breath of fresh air when last Friday, in the aftermath of the spectacular June jobs report, a “bearish” David Rosenberg reemerged and, turning a critical eye to the BLS data, asked clients of Gluskin Sheff “what if I told you that employment actually declined 119,000 in June and has been faltering now for three months in a row?  Yes, that is indeed the case.” Judging by the market reaction, his analysis fell on deaf ears.

In any event, in a follow up analysis, this time looking at the disconnect between stocks and underlyhing fundamentals, David Rosenberg sat down with Chris Puplava of Financial Sense and said he is approaching the rally with a “high dose of skepticism” even while investors are hoping and praying for helicopter money to drop from the skies. The reason: the large disconnect between earnings and stocks at present which according to Rosenberg, “if you’re buying this market right now you ipso facto have a view that earnings are going to rebound 25% from here in the next year.” Since the former Merrill strategist ascribes only a 10% chance of that happening, he is pessimistic.

Here is an abbreviated version of what else Rosenberg told Puplava.

Financial Sense: What are your thoughts on the US stock market given that we’ve now broken out to new all-time record highs?

 

David Rosenberg: Well, this is the pain trade. What’s remarkable is that here we had the Brexit—this is really the first real big shock since we were worrying about Greece in the past couple of years—and the most you get out of it is a 5% correction over a 2-3 week timespan. When you think about it, the stock market is a bend-but-not-break animal and, yeah, the S&P has gone to a new high [but] I’m skeptical…

 

When I look at valuations and I see PE multiples north of 20…I’m not going to say that the markets are in bubble territory but it’s just a little too expensive for me right now. When you really back it out, if you’re buying this market at this point you ipso facto have a view that earnings are going to rebound 25% from here in the next year. Well, we’ve seen earnings go up 25% in a year one-tenth of the time historically so that to me is not really a fair bet so…I’m looking at this rally I would have to say with a high dose of skepticism.

Financial Sense: How much further do you think this economic expansion and current business cycle has to go?

 

David Rosenberg: I wouldn’t be surprised if this cycle actually ends up rivaling one of the longest ones we’ve had in the past several hundred years. This cycle hasn’t been renowned for its magnitudes but it’s certainly been renowned for its duration. This is a seven-year-old cycle but it’s the economic growth rates that have been so anemic and it’s like that globally, which is why you’re seeing these political strains emerge all over the place. A lot of this comes down to the fact, no matter where you look, even in China, which used to be the hotbed of growth for the previous fifteen years up until the past couple of years, the problem globally…is the fact that we are still burdened by a humongous level of debt at every level of society to the point where when you look globally at the total debt to GDP ratio at every level of society from corporates to households to governments, that ratio that got us into trouble in 2007 when it got to 220%, today that global debt to GDP ratio is 230%. So we’ve never resolved this debt albatross that remains really a tourniquet on global growth so this may continue to be because of all the policy stimulus and look now the hope is that Abe in Japan is going to be coming around with a huge round of fiscal stimulus after his electoral victory over the weekend but the reality is that what is constraining growth globally at every level of society and practically every country is that there’s still too much debt sloshing around the world. So maybe this expansion continues for the next several years but until the debt situation is resolved, expect more of the same which is really stuck in the mud rates of economic growth.

His full interview can be seen here.

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Submitted by Claire Bernish via TheAntiMedia.org,

A hotly-contested decision by law enforcement to use a drone robot to blow up a U.S. citizen, who allegedly carried out the murders of five police officers in Dallas, just got exponentially more controversial – because, according to Dallas Police Chief David Brown, the “whole idea was improvised in about 15 to 20 minutes.”

Already igniting fury around the country for neglecting any semblance of due process, the use of the “Remotec model F-5” to deliver a pound of C-4 explosive to decimate suspected shooter Micah Xavier Johnson as he targeted police in a sniper-style attack, has been revealed by the police chief as a hastily-plotted … whim.

Brown’s disturbing offhand comment came during a press conference in which the model of the “mechanical tactical drone”—clarified as the “Remotec Andros Mark V-A1″—was finally made public, in an apparent attempt to quell constitutional rights’ advocates ire over the unprecedented move by police.

While Johnson’s cold-blooded attack on random police officers in one of the most progressive and reform-minded forces in the country landed an official black mark in the annals of American history, the—as many advocates warn—egregious violation of his human and constitutional rights as the first U.S. citizen blown up in this manner earned police, themselves, a similarly notorious mark.

Obviously, the controversy doesn’t end with a model name—the drone isn’t the issue for most people outraged over its use; rather, the fact a citizen was bombed without so much as a nod of consideration for his human, civil, or constitutional rights that has people steamed.

As Daniel McAdams for the Ron Paul Institute keenly noted, following the now-apparent improvised and hasty decision by law enforcement to explode Johnson:

“The media and opinion leaders are presenting us with a false choice: if we question the use of drones to kill Americans—even if we suspect they have done very bad things—we somehow do not care about the lives of police officers. That is not the case. It is perfectly possible to not want police officers to be killed in the line of duty but to wholeheartedly reject the idea of authorities using drones to remotely kill Americans before they are found guilty.”

Noting police originally suspected a different person altogether of perpetrating the attacks, McAdams implored the country to consider the ramifications of setting such a precedent—and, considering the disclosure of the nearly impromptu decision to use this drone, that warning should be an imperative.

Perhaps we all need to familiarize ourselves with this drone’s mechanics now that this dystopic precedent has been set.

Manufactured by the military-industrial complex’s darling, Northrop Grumman, this tactical robot “is driven by a human via remote control, weighs 790 pounds and has a top speed of 3.5 mph,” as the Washington Post described. “It carries a camera with a 26x optical zoom and 12x digital zoom. When its arm is fully extended, it can lift a 60-pound weight. The ‘hand’ at the end of the arm can apply a grip of about 50 pounds of force.”

Interestingly enough, the $151,000 tactical robot provided a far more life-affirming service just one year ago.

According to Metro UK, the same model once assisted the California Highway Patrol when negotiations with a man threatening to kill himself by jumping from a San Jose overpass failed—by delivering a pizza.

Technological advancement, though overwhelmingly positive, is only as beneficent as those who put it to use—and how they choose to employ it.

In just one year, a pizza-delivering robot with the potential to save human life during bomb threats or similar situations became a casually-deployed, due process-stripping weapon of war against a U.S. citizen.

It would be prudent we take more than just a minute to critically consider that.

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In a somewhat shocking move, new UK PM Theresa May has appointed former London Mayor and always outspoken "Leave" campaign leader Boris Johnson as her Foreign Secretary. Given his history of foot-in-mouth disease, as Bloomberg reports, the chances of a diplomatic issue are high as from "sadistic nurse" Clinton to "dobby the house elf" Putin, we detail what Britain's latest foreign secretary thinks of his global peers…

On Vladimir Putin:

Johnson compared the Russian president to a character straight out of the Harry Potter books, in a 2015 column for The Telegraph newspaper about working with Russia to remove Syrian President Bashar al-Assad.

"Despite looking a bit like Dobby the House Elf, he is a ruthless and manipulative tyrant"

On Hillary Clinton:

Writing in the Daily Telegraph in 2007 Johnson questioned whether he could back her candidacy. Clinton, who today is the presumptive Democratic presidential nominee, was at the time seen as a favorite to win the 2008 U.S. presidential election.

"She’s got dyed blonde hair and pouty lips, and a steely blue stare, like a sadistic nurse in a mental hospital; and as I snap out of my trance I slap my forehead in astonishment. How can I possibly want Hillary? I mean, she represents, on the face of it, everything I came into politics to oppose: not just a general desire to raise taxes and nationalise things, but an all-round purse-lipped political correctness."

 

On Turkey’s Erdogan:

In May, Johnson won a 1000 pounds ($1,310) prize for writing a sexually explicit limerick about Recep Tayyip Erdogan. He wrote it after Erdogan tried to prosecute a German comedian for a skit about the Turkish premier. 

On Barack Obama:

At the height of his campaign to quit the European Union, Johnson penned an article for the Sun newspaper ahead of President Barack Obama’s visit to the U.K. He chose to take a swipe at the U.S. leader, who had urged British voters to vote to stay in the bloc.

In the course of the piece, Johnson asked why a bust of Winston Churchill had been moved from the Oval Office. He speculated that it might have had something to do with his roots: “Some said it was a snub to Britain. Some said it was a symbol of the part-Kenyan President’s ancestral dislike of the British empire – of which Churchill had been such a fervent defender.”

In response, Obama said that as the first African-American president he thought it appropriate to put a bust of Martin Luther King Jr. in the Oval Office and that Churchill, whom he loves, was moved into the Treaty Room, where he “sees it every day.”

On Terrorism:

Four days after a deadly 2005 suicide bombing at the HaSharon Mall in Netanya, Israel, Johnson shared his thoughts about the Koran and "the problem of Islamic terror" in a column for The Spectator magazine:

"To any non-Muslim reader of the Koran, Islamophobia — fear of Islam — seems a natural reaction, and, indeed, exactly what that text is intended to provoke. Judged purely on its scripture — to say nothing of what is preached in the mosques — it is the most viciously sectarian of all religions in its heartlessness towards unbelievers."

On the EU:

Johnson addressed the Centre for Policy Studies in London as part of its 2013 annual Margaret Thatcher Lecture. In a speech titled "What Would Maggie do Today?" Johnson explained economic inequality was useful because it encouraged people to work harder. In building his case, Johnson spoke candidly about his feelings on the EU

“First they make us pay in our taxes for Greek olive groves, many of which probably don’t exist. Then they say we can’t dip our bread in olive oil in restaurants. We didn’t join the Common Market – betraying the New Zealanders and their butter – in order to be told when, where and how we must eat the olive oil we have been forced to subsidize.”

On China:

As then-mayor of London, which went on to host the Olympics in 2012, Johnson had this to say about the hosts of the 2008 Olympics in Beijing:

“Virtually every single one of our international sports were invented or codified by the British. And I say this respectfully to our Chinese hosts, who have excelled so magnificently at Ping-pong. Ping-pong was invented on the dining tables of England in the 19th century and it was called Wiff-waff!”

On Africa:

In a 2002 column published in the Daily Telegraph, Johnson mocked Tony Blair’s globetrotting, ahead of the then-prime minister’s trip to the Congo.

"What a relief it must be for Blair to get out of England. It is said that the Queen has come to love the Commonwealth, partly because it supplies her with regular cheering crowds of flag-waving piccaninnies … They say he is shortly off to the Congo. No doubt the AK47s will fall silent, and the pangas will stop their hacking of human flesh, and the tribal warriors will all break out in watermelon smiles to see the big white chief touch down in his big white British taxpayer-funded bird."

So Sorry:

Johnson has shown contrition for some of his most outlandish comments. He’s apologized for his offensive remarks on Africans and there may be more mea culpas to come. On accepting the position of foreign secretary, he was asked whether he owed Obama an apology.

Riffing off Obama’s damning comment that the U.K.’s exit from the EU would place it at the back of the queue for trade deals, Johnson quipped that the “United States of America will be in the front of the queue” for apologies.

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Submitted by David Stockman via Contra Corner blog,

The Cleveland Fed’s Loretta Mester is a clueless apparatchik and Fed lifer, who joined the system in 1985 fresh out of Barnard and Princeton and has imbibed in its Keynesian groupthink and institutional arrogance ever since. So it’s not surprising that she was out flogging – albeit downunder in Australia – the next step in the Fed’s rolling coup d’ etat.

We’re always assessing tools that we could use,” Mester told the ABC’s AM program. “In the US we’ve done quantitative easing and I think that’s proven to be useful.

 

“So it’s my view that [helicopter money] would be sort of the next step if we ever found ourselves in a situation where we wanted to be more accommodative.

This is beyond the pale because “helicopter money” isn’t some kind of new wrinkle in monetary policy, at all. It’s an old as the hills rationalization for monetization of the public debt—–that is, purchase of government bonds with central bank credit conjured from thin air.

It’s the ultimate in “something for nothing” economics. That’s because most assuredly those government bonds originally funded the purchase of real labor hours, contract services or dams and aircraft carriers.

As a technical matter, helicopter money is exactly the same thing as QE. Nor does the journalistic confusion that it involves “direct” central bank funding of public debt make a wit of difference.

Suppose Washington issues treasury bonds to the 23 primary dealers on Wall Street in the regular manner. Further, assume that some or all of these dealers stick the bonds in inventory for 3 days, 3 months or even 3 years, and then sell them back to the Fed under QE (and most likely at a higher price).

So what!

The only thing different technically about “helicopter money” policy is the suggestion by Bernanke and others that the treasury bonds could be issued directly to the Fed. That would just circumvent the dwell time in dealer (or “investor”) inventories but result in exactly the same end state. In that event, of course, Wall Street wouldn’t get the skim.

But that’s not the real reason why helicopter money policy is so loathsome. The unstated essence of it is that our monetary politburo would overtly conspire and coordinate with the White House and Capitol Hill to bury future generations in crushing public debts.

They would do this by agreeing to generate incremental fiscal deficits—-as if Uncle Sam’s current $19 trillion isn’t enough debt—–which would be matched dollar for dollar by an increase in the Fed’s bond-buying or monetization rate. That amounts not only to teaching children how to play with matches; it’s tantamount to setting fiscal forest fires across the land.

There are a few additional meaningless bells and whistles to the theory, which we will dispatch in a moment, but the essential crime against democracy and economic rationality should be made very explicit. To wit, this is a central bank power grab like no other because it insinuates our unelected central bankers into the very heart of the fiscal process.

Needless to say, the framers delegated the powers of the purse—spending, taxing and borrowing—–to the elected branch of government, and not because they were wild-eyed idealists smitten by a naïve faith in the prudence of the demos.

To the contrary, they did so because the decision to spend, tax and borrow is the very essence of state power. There is no possibility of democracy—-for better or worse—-if these fundamental powers are removed from popular control.

Yet that’s exactly what helicopter money policy would do. Based on some Keynesian gobbledygook about the purported gap between full-employment  or “potential GDP” and actual output and employment, the Fed would essentially set the Federal deficit target.

In practice, it would also likely throw-in some gratuitous advice about its composition between tax cuts, infrastructure spending and social betterment. The recommended mix would arise from an economic whim, of course, as to whether the FOMC in its wisdom thought household consumption or fixed asset investment needed to be goosed more.

Alas, the peoples’ elected representatives would relish this “expert” cover for ever bigger deficits and the opportunity to wallow in the pork barrel allocation of the targeted tax cuts and spending increases. There is not a hard core New Dealer turning in his grave who could have imagined a better scheme for priming the pump.

And that’s not the half of it. Helicopter money turns the inherently dangerous idea of fiscal borrowing in a democracy into an outright monetary fraud.

Even “New Deal” FDR worried about the rising public debt and “Fair Deal” Harry Truman positively loathed it.

Likewise, the power-mad Lyndon Johnson essentially vacated the oval office when he finally agreed to a substantial tax hike in early 1968 order to stem the deficit hemorrhage from his guns and butter policies.

Even the greatest deficit spender of all time—–Ronald Reagan—-thought the resulting explosion of the public debt was half Jimmy Carter’s fault and half due to defense spending increases, which didn’t count in his unique way of reckoning the national debt.

So what makes helicopter money so positively insidious is that it relieves elected politicians entirely from their vestigial fears of the public debt and from accountability for the burdens it imposes on future generations. And that’s especially true owing to the Bernanke fillip.

Folks, the Bernank is no hero whatsoever—–notwithstanding his self-conferred glorification for the courage to print. He is a demented paint-by-the-numbers Keynesian who has a worse grasp on the real world than the typical astrologer.

Indeed, the crucial element in his helicopter money scheme, as explained in a recent Washington Post op ed, is an explicit and loud announcement by the Fed that the incremental debt will be permanent. It will never, ever be repaid——not even in today’s fictional by-and-by.

Providing a purportedly scientific monetary cover story so that elected politicians can issue non-repayable public debt is a truly reprehensible idea in its own right. But the reason for it is downright lunatic.

To wit, unless current taxpayers are assured that future taxes will not rise owing to Washington’s helicopter money handouts and tax breaks, says the Bernank,  they won’t spend the government gifts they find strewn along the path of flight!

That’s right. When a road building boom from helicopter money appropriations results in surging demand at the sand and gravel pits, the small-time businessman involved won’t buy any additional trucks or hire any additional drivers until Washington assures them that they won’t pay higher taxes 20 years hence!

Only in the Eccles Building puzzle palace does such drivel not elicit uncontainable guffaws. Only in Sweden do they give Nobel Prizes for the academic obscurantism called “rational expectations theory” that is the basis for Bernanke’s toxic assault on fiscal discipline and sound money.

At the end of the day, the operative words here are “groupthink” and “coup d’ etat”. These baleful conditions flow from the essential predicate of modern central banking.

We are referring here to the erroneous notion that economic wealth can be permanently elevated through more public and private borrowing and that central bank falsification of financial asset prices will facilitate the achievement of those ends.

In fact, as we have repeatedly demonstrated, the Fed’s purported macro-management of the economy and business cycle is simply a variation of the old Keynesian parlor trick that is over and done.

That is to say, so long as households and businesses have unused runway on their balance sheets, they can be induced to leverage-up with cheap money, and thereby be enabled to spend more for consumption goods and capital goods than could otherwise be financed out of current incomes and cash flows, respectively.

But we are now at Peak Debt. There is no balance sheet runway left.

Accordingly, the impact of the massive flow of new central bank credit and the Fed’s sustained falsification of financial asset prices after 2008 never left the canyons of Wall Street. It did not stimulate the main street economy one bit; it merely generated vast windfalls to the top 10% and 1% who own most of the financial assets, while fueling ever more unstable, extreme and dangerous financial bubbles.

In short, the real issue is that the Fed was foolishly given a so-called Humphrey-Hawkins mandate to deliver full-employment and stable inflation 40 years ago. But in today’s global economy and financialized world, the FOMC’s crude tools of interest rate pegging, bond-buying and wealth effects pumping are utterly unsuited for the task.

And well they should be. In the first place, no politburo of 12 people can define full-employment in a gig-based, labor-driven globalized economy. The Fed can do nothing about an auto job that migrates to Germany because American consumers like Mercedes cars better than Cadillacs.

Nor can it fully employ a worker who scams the social security disability system or a road warrior who prefers to work only six months per year and party the rest of the time. Likewise, fiddling with interest rates can’t help a McDonald’s fry cook who gets canned because the Seattle City Council foolishly raised the minimum wage to $15 per hour and invited robots to take over the job.

Pure and simply, there is no such measurable as “full employment”.  Nor is there a chance in the world that the Eccles Building can cause the true creators of jobs—-enterprise, capital and technology—-to make more of them by fueling every larger financial bubbles.

As for the inflation side of its dual mandate, there is not a word in the 1977 Act that says a 2% annual gain in consumer prices is what Congress had in mind—even in the midst of its confusion about what central banking can actually do.  I remember well voting against it at the time, and not hearing a single speech in behalf of the magic 2%.

That’s because the sacred 2% inflation target was only adopted by the Fed 34-years later in 2011 under Bernanke’s relentless prodding. In fact, the very idea of “inflation targeting” is a stupid academic hobby horse invented by Bernanke in the 1990s— long after the Act was passed——and which bears no empirical relationship to the rate of GDP growth, jobs or anything else.

But it is a thinly disguised excuse for a power grab. That is, the Fed has been massively intruding upon financial markets and distorting and deforming prices in the capital and money markets for nearly two decades now on the pretext that there is a “shortfall” in the inflation rate.

Well, there hasn’t been. Not even close.

Based on what we call the “flyover CPI”, which weights the four horseman of inflation—–energy, housing, medical and food—–at 64% or by what most of America spends its paycheck on, inflation has been 3% or better for nearly two decades.

So the single most important thing that could be done by Congress to get the American economy functioning again would be to repeal the Humphrey-Hawkins Act and thereby eliminate the Fed’s legal basis for its rolling coup d’état.

At the same time, it could launch a modern equivalent of the Pecora hearings of the 1930s. Only this time they would be focused on the Fed’s role in generating massive Wall Street bubbles and their subsequent devastating collapses—–including for what will soon be the third time this century.

Such a probe could readily bring to the surface what amounts to the raging elephant in the room of national economic policy. Namely, that the Fed’s massive intervention in the financial markets and its feckless pursuit of ZIRP and QE is a battering ram of dangerous and worsening financial instability.

But the Eccles Building and its 12 branch offices are so mummified in Keynesian groupthink that they cannot even see the obvious. Thus, in touting its next grab for helicopter money power, the aforementioned Cleveland Fed President let loose of the following whopper:

Maintaining stability in financial markets should not be an explicit goal for the Federal Reserve, which should use interest rates to head off a crisis only if more precise and better-suited tools fail, a top Fed official said on Tuesday…….Cleveland Fed President Loretta Mester said in remarks prepared for delivery in Sydney, adding that the Fed’s key price stability and maximum employment goals usually align with its desire for a stable financial sector.

Oh, c’mon. The purpose of the systematic financial repression by the Fed and the rest of the world’s central banks is to flush savers and investors out of the money market and out the risk curve.

That’s why there is $13 trillion of subzero sovereign debt and growing by the day. That’s why there is a mad scramble for yield; and that’s why the global financial system is riven with FEDs (financial explosive devices) waiting to be ignited.

Today, Fitch Ratings spotlighted one more example of the Fed’s destructive regime of Bubble Finance at work.

The trailing 12-month junk-bond default rate hit a 6-year high in June at 4.9%, says Fitch Ratings, highlighting the ongoing pain from the oil patch.

 

Energy companies defaulted on $28.8 billion of debt the first half of this year, Fitch calculates, putting the sector’s default rate at 15%. For exploration and production, the rate is 29%.

A 29% default rate in the E&P sector!

Does Ms. Mester really believe that in a honest free market several hundred billions of high yield debt could have been sold by the rank commodity speculators who ply the shale patch?

Not in a month of Sundays.

By contrast, modern central banking is a doomsday machine of financial booms and busts and ever intensifying financial instability. One of these days—-perhaps when the current mother of all bubbles implodes——even the somnambulant Congressional Republicans may figure out the real enemy of American prosperity and productive capitalism.

That is, a rogue central bank that has seized plenary financial power already, and that is so mummified in groupthink that it will stop at nothing in the expansion of its remit. Even to the extent of sending clueless career apparatchiks like Loretta Mester to the ends of the earth to flog the unspeakable folly of “helicopter money”.

via http://ift.tt/29GLjeI Tyler Durden