Pay No Attention To The Bernank Pulling Levers


The story simply isn’t there.  It’s the collapse in international trade, which has been quietly picking up steam for months.  Witness this:

8/7/2012 6:23 AM ET  (RTTNews) – Taiwan’s merchandise exports decreased for the fifth successive month in July as the global economic slowdown and debt worries in Europe continued to weigh on demand.

Total exports plunged 11.6 percent year-on-year to USD 24.85 billion, notably worse than the 3.2 percent decrease seen in June, data released by the Ministry of Finance showed Tuesday. The latest decline far exceeded the 7.4 percent fall economists had forecast.

That’s utterly terrible.  And much worse, the trend is clearly from the upper left to the lower right, and while there was a nice bounce in January and February, that optimism has now proved to be short-lived.

How much attention has this gotten in the US media?  Nearly none.  Yet it’s very important and ties in with the common Chinese man and woman having had enough of the pollution and abuse foisted on them by multinational and export-driven corporations.

Reality is that the European mess is not settled, there is no clear path forward as none of the governments involved have come to grips with the exponential expansion of debt and social spending, and neither has the United States.  Essentially all of the western world has continued to believe it can finance expansion of these programs on a forward basis, irrespective of the fact that the wall was hit in 2007.

There’s a particular sort of insanity appears to have infested the “collective hive-mind” of central bankers and politicians; it goes something like this:

“Central banks have to make sure our debt can be financed at below-market rates and this will spur economic activity.”

That’s a nice dream.  Unfortunately it has little or no relationship to reality, because the remainder of the question is this: Ok, so let’s assume Bernanke, the ECB or whoever do that.  For how long do you expect that to continue, and incidentally, please square that opinion with the mathematical facts ofcompound growth — which is what you’re calling for.

When you put forward that second part of the question you’re waved off as some sort of lunatic.

But you can’t change the reality of arithmetic.  You can try to evade it for a period of time, and for a while you might even succeed.  Ultimately, however, you must fail, because we live on a rock of finite size and mass.  Worse, despite all of the “stimulus” and “extraordinary actions” absolutely no material movement off the floor in the labor participation rate or economic activity have taken place.

What this means is that, effectively, we are a credit junkie surviving on speedballs from central banks.  But each additional injection of monetary policy game-playing does more structural damage to the economy by distorting government and private-sector activity.

This morning Eric Rosengren, FRB Boston, came out with something even more-outrageous.  He is calling for “QE at $X or X% of the Fed balance sheetuntil a given set of economic metrics are met.

This is utter lunacy; there is no evidence that QE2 did anything materially beneficial at all!  What happens when the so-called “policy” doesn’t lead to improvement in the economy, but instead destroys consumer purchasing power and thus depresses the economy?

That’s what the evidence shows, incidentally, with regard to both QE2 and “Operation Twist.”

Rosengren, in short, needs an appointment with a rubber room — but this sort of call should tell you exactly how desperate policymakers really are.  The premise that attempting to force asset prices (e.g. housing) higher is beneficial to the economy is idiotic — since when do you want prices to be higher if you wish to expand ownership of a given good?

Insanity: Doing the same thing over and over while expecting a different result.

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