Here Comes The Spin (Central Banks)


Things that make you spit your coffee in the morning….

Central banks are finding it’s easier to push up stock and home prices than it is to prevent inflation from falling short of their targets.

While declining costs for everything from gasoline to coffee can be good news for consumers, disinflation makes it harder for borrowers to pay off debts and businesses to boost profits. The greater danger comes when disinflation turns into deflation, which leads households to delay purchases in anticipation of even lower prices and companies to postpone investment and hiring as demand for their products dries up.

Notice the attempt to appeal to legitimacy by simply stating as “fact” that inflation is desirable — in any amount.

Notice further the claimed “bad” impact of its absence:

The greater danger comes when disinflation turns into deflation, which leads households to delay purchases in anticipation of even lower prices and companies to postpone investment and hiring as demand for their products dries up.

So it’s bad to not purchase “things” right now — even if you can’t afford them with your personal economic surplus in the present time?

And further, it’s bad if companies don’t invest and hire if they do not feel the pressure if increased demand for their products?


This is the “thumb on the scale” premise not only writ large but worse, positioned as safe and effective.

Kind of like transfats — you know, all that hydrogenated crap in your food?  Yeah, that’s “safe and effective” all right — it’s very effective at giving you a heart attack and it’s safe for the embalming industry!

I’m going to keep hammering on this until people wake up and start demanding it: The natural path for all economies is a mild deflation in the amount of productivity improvement, averaging 2-3% annually.  That deflation — that is, increased purchasing power for the people of a nation, is yours.  It belongs to you.  It comes into existence because you perform your job, whatever it may be, with more efficiency due to the improvements of technology over time.

You do more with less and since you are the one doing the “more” the fruits of that effort are your property, not someone else’s.

When someone steals from you what they are doing is wrong.  Legitimate societies recognize this wrong as acriminal offense and punish those who steal through fines and imprisonment.  Obfuscating theft so as to make it harder to identify as theft does not change the essence of the act and those who act in concert to obfuscate a theft are in fact co-conspirators and accessories before and after the fact to the theft itself, and under the law are subject to the same punishment as the principals.

When someone places their “thumb on the scale” as The Fed and Congress have done the “unintended consequence” is not an asset bubble.  That’s an intended consequence.  The problem is that it is virtually impossible for ordinary people to profit from it in point of fact because all such bubbles pop.  Only through the use of inside information, the trading upon of which is a serious criminal offense itself, can you consistently avoid being in the bubble when it explodes.

What’s worse is that because of the fact that you must pay taxes on the nominal, not monetary-base adjusted gains, you cannot win even if you guess right by being a bubble participant unless you use leverage in your actions.

That is, let’s say you “participate” in the expansion of the money (credit) supply from a base of 1,000 to 2,000 on a per-person adjusted basis.  That’s a double.  Your “profit” is 1,000 units in nominal terms but inreal terms it’s zero because the credit (money) supply doubled as well.  However, you must pay taxes in nominal terms on the gain and thus if you are exposed to a 30% “all-in” tax rate you have in fact lost 15% (1,000 – 30% = 700, so you have 1,700 units but parity is 2,000.)

The only way to avoid this is to use leverage sufficient to “gross up” the gains to pay the expected taxes on the nominal advance.  Doing so, however, means that if you guess wrong on when to exit the bubble you will either fail to achieve parity (if you’re early) or will be bankrupted with certainty (if you’re late.)

Therefore the only way to actually stay ahead is to cheat and use inside information, and to stay out of prison doing so you must have some means of doing that which is prohibited for everyone else without being prosecuted.

Thus, “too big to fail”, Congressional exemptions from insider trading and similar.

Until and unless you all understand this and demand a stop to the inflation in the first instance, so that instead of by cheating or blind luck you can in fact get ahead over your earning lifetime through your skill, perseverance and hard work we’ll never solve anything.

And since those who have exploited these facts for the last 30 years in particular are not about to give it up voluntarily, you have only three options available to you:

1. Assume the position and liberally apply your preferred personal lubricant.

2. Go on a personal strike to the extent possible in a peaceful and lawful attempt to force change.

3. Take actions that are neither peaceful or lawful in an attempt to force change.

The choice is yours but if you don’t choose one of the three then you will get the consequence of #1 but without the benefit of prior application of the personal lubricant of your choice.

Only a masochist takes either the default (“do nothing”) or the first enumerated option.

The Market Ticker

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