Tag: news

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

The only way to keep the status quo from imploding is to banish common-sense.

I was surprised to find that many people took my satire/parody last month seriously: Obama Administration Proposes 2,300-Page "New Constitution"(October 10, 2013). A number of people wrote me asking for the source of the story, and others chastized me for not labeling the essay "satire/parody," as so many others didn't seem to get the joke. (The permanent link was constitution-parody10-13.)

I thought the absurdity of hundreds of pages of the "New Constitution" being too secret for the public to read (i.e. redacted) would make the joke obvious, but I was wrong: apparently we are collectively ready to believe that an American administration would propose a law of the land that was too secret for the citizenry to read.

Even readers who suspected the post was satirical felt the need to confirm this was indeed the case. Other readers reported the essay had unleashed a torrent of vitriol on other sites' forums.

My first thought was that we may be losing our collective sense of humor. Readers of the zany satirical zine The Onion still appreciate that a good satire takes an element of truth and exaggerates it for humorous effect: for example, today's Onion headline Man Who Drinks 5 Diet Cokes Per Day Hoping Doctors Working On Cure For Whatever He’s Getting.

But as the gulf between the official state-cartel-Empire narrative ("everything is going great, but we will all die if Central Bankers don't run the world") and reality widens, people are losing their ability to separate satire from reality and truth from officially sanctioned fiction ("unemployment rate declines to 7%.")

The strains created by this cognitive dissonance (or perhaps more accurately, a double-bind that leads to alienation and a form of induced madness, as per psychiatrist R.D. Laing's extension of Gregory Bateson's concept) lead to short tempers, loss of perspective, emotional hair-trigger reactions and a host of other unhealthy responses.

The target of my mockery was not the Obama Administration per se but the nonsensical belief that a 1,300-page piece of legislation can possibly accomplish anything but strip us of the ability to actually solve critical problems.

Legislation running into the thousands of pages creates a complexity fortress that protects the state-cartel rentier arrangements that are stripmining our economy and society: sickcare, the financial sector, the defense industry, the national security state, Big Pharma, the educrat/Higher Education cartel, and so on.

The size and complexity of 1,000+ pages of legislation make it impossible for anyone but paid lobbyists and cartel shills to understand the bill's intricacies. The only institutions with the motivation and budget to pore over the thousands of pages are those who need to game the new laws to insure their fat skim of the national income continues to grow.

The citizenry are reduced to sheep led off for shearing–which is of course the whole idea behind 1,000+ page legislation. A 30-page bill might actually be read and understood as a rentier-skimming operation; so the "solution" for cartel-corporate lobbyists and the politico toadies, lackeys and apparatchiks is to embed this systemic predation into a 1,700-page bill that "we have to pass to find out what's in it."

(Nancy Pelosi, welcome to the Orwell Hall of Fame. You have raised the art to a new level.)

But on further reflection, I now think it's even worse than I first thought: we're losing our collective common-sense. Common-sense tells us 1,700-page bills cannot possibly do anything but serve those cartels and constituencies that the bill affects.

Common-sense tells us that a central state shrouded in secrets–not just secret agencies, but what amounts to secret laws and procedures–is incompatible with democracy and liberty.

Common-sense tells us that politicians and "leaders" who approve 1,700-page bills cannot possibly be anything but paid-for toadies, lackeys and apparatchiks.

Common-sense tells us that a stock market that rises over 10% in a few weeks is tracing a trajectory that history informs us is undeniably a bubble–yet our Central Bank (Federal Reserve) "leadership" insists history, fact and common-sense are all wrong: there is no bubble, in any asset class.

If the Fed started buying bat guano and the price subsequently shot up 1,000%, Janet Yellen would be obligated to insist that there was no bubble in the price of bat guano. Our political class of toadies, lackeys and apparatchiks would accept this assurance with a straight face out of fear that any emergence of common-sense might bring their entire edifice of propaganda, deceptions, cover-ups, official half-truths, juiced statistics and central bank manipulation crashing down around them.

The only way to keep the status quo from imploding is to banish common-sense.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/IiBu_4EsN6A/story01.htm Tyler Durden

“Historically, there is no reason to fear deflation,” Nobel Laureate Thomas Sargent explains to Germany’s Wiwo.de, “we all benefit from lower prices.” Crucially, he continues, “countries with declining prices, such as Greece, must improve the competitiveness they have lost in recent years,” requiring falling wages and rising productivity (and falling unit labor costs) which will lead to companies cutting prices, “this is not a dangerous deflation, but part of the necessary correction so that these countries are internationally competitive again.” That central banks pursue an inflation rate of around 2%, Sargent blasts, is because they consider it their job to “make bad debt good debt,” adding that inflation is “a major redistribution machine – reducing the real debt burden for the benefit of creditors and devaluing the assets of the creditors.” A return to a gold standard,he concludes, to prevent governments and central banks from limitless money-printing “would not be foolish.”

 

Thomas Sargent (via Wiwo.de) dares to go there (and is likely about to be stripped of his Nobel)…

“The countries with declining prices is troubled countries like Greece. They must make their price competitiveness, they have lost in recent years, again. This requires falling wages and rising productivity. As a result, unit labor costs go back, and the company may cut prices. This is not a dangerous deflation, but part of the necessary correction so that these countries are internationally competitive again, “Sargent said in an interview.

 

In addition, there are, according Sargent “historically no reason to fear deflation.”

 

On the contrary: “We all benefit when technological progress lowers the prices, such as computers,” said Sargent.

 

That central banks pursue an inflation rate of around two percent, according to Sargent is because they consider it their job to “make bad debt good debt”. Of an inflation governments benefited with high debt.

 

Sargent: “Inflation is a major redistribution machine, which reduces the real debt burden for the benefit of creditors and devalued the assets of the creditors.”
To prevent this, according to Sargent, the reintroduction of the gold standard would be possible, “I would not necessarily say that it would be the best solution, but it would not be foolish.”

 

Until the First World War, had the gold standard, to prevent that governments and their central banks print money limitless. During this time the prices would indeed have fluctuated, but had compensated over the years.

and specific to Europe, Thorstein Polleit adds (via Wiwo.de),

“The ECB will continue to push the rate toward zero percent and then buy government bonds,” Polleit said. Background of this development are falling consumer prices in the euro-crisis countries and the resulting fear of deflation.

 

At the same time Polleit warns against the consequences of the low interest rate policy. “You can defer the market-based adjustment of the credit boom of the past few years through lower interest rates and the printing of new money most, but not prevent,” said Polleit. In the medium term there is no way to lead a massive correction, coupled with cuts and debt deflation.

Polleit’s conclusion seems very apt givne the current melt-up:

“The longer you postpone this process, the more destructive is its effect.”

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/1Jgv4_M4iyg/story01.htm Tyler Durden

“Historically, there is no reason to fear deflation,” Nobel Laureate Thomas Sargent explains to Germany’s Wiwo.de, “we all benefit from lower prices.” Crucially, he continues, “countries with declining prices, such as Greece, must improve the competitiveness they have lost in recent years,” requiring falling wages and rising productivity (and falling unit labor costs) which will lead to companies cutting prices, “this is not a dangerous deflation, but part of the necessary correction so that these countries are internationally competitive again.” That central banks pursue an inflation rate of around 2%, Sargent blasts, is because they consider it their job to “make bad debt good debt,” adding that inflation is “a major redistribution machine – reducing the real debt burden for the benefit of creditors and devaluing the assets of the creditors.” A return to a gold standard,he concludes, to prevent governments and central banks from limitless money-printing “would not be foolish.”

 

Thomas Sargent (via Wiwo.de) dares to go there (and is likely about to be stripped of his Nobel)…

“The countries with declining prices is troubled countries like Greece. They must make their price competitiveness, they have lost in recent years, again. This requires falling wages and rising productivity. As a result, unit labor costs go back, and the company may cut prices. This is not a dangerous deflation, but part of the necessary correction so that these countries are internationally competitive again, “Sargent said in an interview.

 

In addition, there are, according Sargent “historically no reason to fear deflation.”

 

On the contrary: “We all benefit when technological progress lowers the prices, such as computers,” said Sargent.

 

That central banks pursue an inflation rate of around two percent, according to Sargent is because they consider it their job to “make bad debt good debt”. Of an inflation governments benefited with high debt.

 

Sargent: “Inflation is a major redistribution machine, which reduces the real debt burden for the benefit of creditors and devalued the assets of the creditors.”
To prevent this, according to Sargent, the reintroduction of the gold standard would be possible, “I would not necessarily say that it would be the best solution, but it would not be foolish.”

 

Until the First World War, had the gold standard, to prevent that governments and their central banks print money limitless. During this time the prices would indeed have fluctuated, but had compensated over the years.

and specific to Europe, Thorstein Polleit adds (via Wiwo.de),

“The ECB will continue to push the rate toward zero percent and then buy government bonds,” Polleit said. Background of this development are falling consumer prices in the euro-crisis countries and the resulting fear of deflation.

 

At the same time Polleit warns against the consequences of the low interest rate policy. “You can defer the market-based adjustment of the credit boom of the past few years through lower interest rates and the printing of new money most, but not prevent,” said Polleit. In the medium term there is no way to lead a massive correction, coupled with cuts and debt deflation.

Polleit’s conclusion seems very apt givne the current melt-up:

“The longer you postpone this process, the more destructive is its effect.”

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/1Jgv4_M4iyg/story01.htm Tyler Durden

Submitted by F.F. Wiley of Cyniconomics

Bad News For Keynesians: Data Shows The Austerians Are Right

Anders Aslund of the Peterson Institute recently made an interesting argument about Europe’s winners and losers. In a critique of Paul Krugman’s advice to Europe’s political leaders, he compares economic performance of the southern European laggards to the northern countries and, in particular, the Baltic states.

Aslund concludes that:

Today, the record is clear. The countries that have followed [Krugman’s] advice and increased their deficits (the South European crisis countries), have done far worse in terms of economic growth and employment than the North Europeans and particularly the Baltic countries that honored fiscal responsibility.

He also links fiscal adjustments to structural reforms:

Thanks to greater structural adjustment, the growth trajectory is likely to be higher in countries that quickly and enthusiastically embrace these reforms than elsewhere. Accordingly, the three Baltic countries that suffered the largest output falls at the outset of the crisis because of a severe liquidity freeze returned to growth within two years and have, over the same period, enjoyed the highest growth in the EU. By contrast, Greece, with its back-loaded fiscal adjustment, as recommended by Krugman, has suffered from six years of recession.

By comparing past reforms to recent growth, Aslund takes a sensible approach. But he focuses mostly on the tiny Baltics and secondly on continental Europe, which begs the question:  What about larger countries everywhere?

Let’s have a look.

We start with every country that has both a global GDP share of greater than 0.25% in 2007 (pre-global financial crisis) and sufficient data on fiscal balances and growth. This is 47 countries. We then divide the group into a European sub-group (23 countries) and a non-European sub-group (24 countries). For each sub-group, we compare real GDP growth for 2010 to 2012 (post-GFC) to the average structural budget balance for 2008 and 2009 (during the GFC).

Here are the results:

Not only is there a positive relationship between stronger public finances during the crisis and faster post-GFC growth, but the relationship holds both within and outside Europe. (For those who like statistics, the F-stat for the European regression is significant at 99.9%, while the other regression is significant at 90% but not 95%.)

Conclusions

We have two observations. First, the results may help explain why Keynesian pundits resort to nonsensical arguments. They often claim that poor performance in countries attempting to contain public debt proves austerity doesn’t work, which is like deciding your months in rehab stunk, and therefore, rehab is bad and heroin is good. A more honest approach is to compare fiscal actions in one time period with results in later periods, after the obvious short-term effects have played out (as in the charts). But if Keynesians did that, they would reveal that their own advice has failed.

Second, the effects discussed by Aslund don’t receive enough attention. As Tyler Cowen (who gets credit for the pointer) wrote, Aslund’s perspective “is underrepresented in the economics blogosphere.”

And that includes our wee blog.

Regular readers know that we’ve presented research on long-term fiscal policy effects. (For example, see our historical study of 63 high government debt episodes, or our Fonzie-Ponzi theory.) We’ve also argued that the short-term consequences of fiscal tightening, often said to support Keynesian policies as noted above, actually do just the opposite. (Consider that fiscal tightening is motivated by today’s massive debt burdens, and these happen to be explained best by Keynesianism – the deficit spending policies of the past that hooked economies on unsustainable finances in the first place.)

But until now, we haven’t offered research on intermediate-term effects – horizons of 2-5 years as in the charts above. And this evidence supports Aslund’s conclusions. Policymakers should heed his argument that “front-loaded fiscal adjustment quickly restores confidence, brings down interest rates, and leads to an early return to growth.”

(Click here for the country-by-country data that was used in the charts.)

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/KIqxw3mZwSE/story01.htm Tyler Durden