FedUpUSA

Archive for the ‘monetary theory’ Category

Bernanke is out of tools that make any sense even to him.

Seriously, what can he do he has not already done? Given that $1.6 trillion in excess reserves did not do a damn thing to spur lending or job creation, what possible good can another $1 trillion do?

The answer is none.

Yet Monetarist fools want more QE. Monetarist fools are also hoping for “Operation Twist”, technically  not QE but an attempt to drive down long-term rates by buying the long end of the curve and selling the short end.

Yield Curve Table

Seriously, what possible good can come from say, driving down 10-year yields to say 1.75% or even 1.5% from here. Mortgage rates are at record low yields, yet new home sales are at the 1963 levels.

Clearly something other than the yield curve is holding down sales.

So what else can Bernanke do? Monetize more debt? How about …..

The Invisible Bazooka Ploy

Bloomberg reports Bernanke Says Fed Still Has Stimulus Tools, Doesn’t Signal He’ll Use Them

Federal Reserve Chairman Ben S. Bernanke said the central bank still has tools to stimulate the economy without providing details or signaling when or whether policy makers might deploy them.

“In addition to refining our forward guidance, the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus,” Bernanke said in a speech today to central bankers and economists gathered at an annual forum in Jackson Hole, Wyoming. He said a second day has been added to the next policy meeting in September to “allow a fuller discussion” of the economy and the Fed’s possible response.

Translation: “I’ve got an invisible bazooka in my pocket and I will use it when I have to.”

Bernanke is out of tools and he knows it. So does Kansas City Fed member Thomas Hoenig who says “Fed Can’t Do It All, No Reason for Operation Twist to Work”, Focus Should Shift to Fixing U.S. Fiscal Woes

Of course Bernanke cannot come out and say “I am out of tools”.

When it gets serious you have to lie. This is serious, and his statement is a lie.

What else can he do but bluff?

He sounds like a 6-year old bragging about the size of his dog that will protect him against all evils, when the kid does not have a dog at all.

That does not mean Bernankle will not try something. Rest assured he will. I am not sure what, but it will likely be given a creative name hoping to dazzle us with the same misguided Fed policies that got us into this mess in the first place.

Bluff Working?

As of 10:00 Central the market is modestly higher. The S&P is up .8% and the Nasdaq double that. Is the bluff working?

Not really. I do not know a single person who thought today would be anything other than a sell the news event. Perhaps there is a sigh of relief that Bernanke is not doing anything, perhaps too many were looking for “down” and were already positioned that way.

Regardless, down will resume, just give it time.

Mike  “Mish”  Shedlock

Global Economic Analysis

Once in a while you sit up when an investment advisor speaks and pay attention.  That’s because unlike the pablum served up by most, you actually read something that is both factual and makes sense.

Today’s lesson in this quaint little oddity is from John Hussman.

Without question, one of the notions buoying Wall Street optimism here is the hope that the Fed will pull another rabbit out of its hat by initiating QE3. That’s a nice sentiment, but it does overlook one minor detail. QE2 didn’t work.

That, of course, depends on who you are.  It certainly “worked” for market speculators.  It “worked” for certain people in the political class who were about to see their careers go down the toilet after advocating for saving financial institutions through the promulgation of fraud in 2008 and 2009.  And it “worked” for Obama, who crowed about how it was “time to buy stocks” in 2009 as well – as that fraud was being promulgated.

But that “working” was fleeting, as all the “gains” from said manipulation disappeared in less than two market weeks, leaving one to wonder: What the hell was that?

But this is not worthy of a Ticker – I’ve spilled so much digital ink on this that the only point to be made is that despite screaming of the media about “inappropriate comments” one Rick Perry actually put the correct sentiment on the table yesterday:

Speaking just now in Iowa, Perry said, “If this guy prints more money between now and the election, I dunno what y’all would do to him in Iowa but we would treat him pretty ugly down in Texas. Printing more money to play politics at this particular time in history is almost treasonous in my opinion.” Treason is a capital offense.

Please?

But then John comes up with this – the only correct use for credit in an economy – and defends it:

During the 1930′s, the Austrian economist Joseph Schumpeter captured the importance of productive investment nicely in his discussion of credit. The goal of lending activity is not the stimulation of demand per se, but rather the temporary relaxation of constraints in order to increase the stream of goods and services available to the economy:

“By credit, entrepreneurs are given access to the social stream of goods before they have acquired the normal claim to it. It temporarily substitutes, as it were, a fiction of this claim for the claim itself. Granting credit in this sense operates as an order on the economic system to accommodate itself to the purposes of the entrepreneur, as an order on the goods which he needs: it means entrusting him with productive forces. It is only thus that economic development could arise from mere circular flow in perfect equilibrium. And this function constitutes the keystone of the modern credit structure.

Exactly.

There are four uses of capital: Productive Investment, Speculative Investment, Consumption and Ponzi Investment.

Only one of them should ever be undertaken with debt – that is, leverage.  That’s the first on the list.

Why?

That’s simple, really: Only the first has a reasonably reliable set of odds in returning more economic output than both the principal and interest.

The latter two never can over the intermediate and longer term.  Consumption is nothing more than pulling forward tomorrow’s demand for goods and services into today through speculative means – the promise to produce tomorrow without proof that one can do so exactly as was lampooned by Wimpy in the Popeye cartoons while Ponzi Investment can only return a profit if one can find a bigger sucker upon which you can offload your purchase.

Note that trading – which I engage in – is the latter of these.  That is, my “investment” only has value to the extent that someone else will buy it from me (or sell it to me) at a price more favorable to my account than my original act.  On-market transactions are always of this character.  A speculative use of capital only occurs when one invests in an IPO (or secondary offering) in the capital markets (stock or bond) and the invested funds go directly to the person or firm being invested in – that is, you’re betting on their ability to productively use your capital (as opposed to using it yourself.)

Should credit ever be used for those last two purposes?  No.  But will it?  Yes, in any free society.  The problem is that the use of credit to consume or engage in Ponzi investments, in a free marketplace, is always expensive because it is inherently dangerous and everyone understands that there is a great risk that you will not pay and the lender will lose their money!

This is where the problem comes from with the so-called “backstops” and machinations of The Fed and other policymakers in preventing those losses from being realized.  Credit becomes inappropriately cheap and thus replaces production as a means of creating “advance” in output.

But that output advance is illusory.  It is in fact a public fraud, in that we “report” and then make economic decisions based on things that but for the backstop of speculators and consumers that would otherwise be forced to pay an extremely high price commensurate with their risk of failure would not happen.

Worse, these policies must eventually fail, because the ability to provide that backstop is not unlimited, and when, not if, that capacity is exhausted all of the combined and compounded damage that has been loaded into the economy as a consequence must come back off.

It is rare to see someone in the investing world speak to this truth.  Yet this is not, as some assert, about “economic theory” (e.g. Austrian, Monetarist, etc) – it is about cold, hard mathematical facts.

Indeed, it is exactly to those basic facts – so often overlooked and dismissed, and only rarely if ever mentioned by an investment house – that prompted me to write Leverage.

Investors would be wise to read Mr. Hussman’s missive, and contemplate both its message and implications.

Clearly, he “gets it.”

Caroline Baum has an excellent column on Bloomberg today regarding money multipliers and a Goldman Sachs projection of what Republican budget cuts may do to the economy.

There were so many things in her post I wanted to reference that I asked Caroline if I could use her entire post. She graciously replied “Let ‘er rip”.

Goldman’s Model Evokes Blood-Sucking Leeches: Caroline Baum

Macroeconomics really is stuck in the Dark Ages.

Take “fiscal stimulus,” for example, the idea that the government can step in to fill the void when the private sector isn’t spending and boost economic growth in the process.

Economists have been debating the pros and cons of fiscal stimulus since the 1930s, when John Maynard Keynes diagnosed the problem as one of inadequate private investment and prescribed public spending, financed by borrowing, as the cure.

The discussion hasn’t advanced very much in eight decades. Sure, economists have devised elegant mathematical models that purport to show that $1 of government purchases translates into — take your pick — no increase in gross domestic product (the multiplier is zero, according to Harvard’s Robert Barro) or $1.50 of GDP (a multiplier of 1.5, according to Berkeley’s Christina Romer, who was chairman of President Obama’s Council of Economic Advisers when the $814 billion stimulus was crafted in 2009). They haven’t really proven anything.

Keynesian economics went into hibernation in the latter part of the 20th century following an array of stimulus failures on the part of both Democratic and Republican administrations in the 1970s. The only thing the spending stimulated was stagflation.

In the 1980s, inflation came down, the Berlin Wall came down, economists thought the volatility of the business cycle had come down, and the notion of government as the solution went out of vogue.
Keynesians All

All it took was a good financial crisis for the Keynesians to come out of the woodwork.

The debate over fiscal stimulus went viral last week (at least in the geek world) with an economic forecast from Goldman Sachs Group Inc. (GS), a counter from Stanford University economist John Taylor (he of the Taylor rule), and an addenda from Goldman yesterday.

The Goldman gang projected an economic drag (that would be the opposite of stimulus) on GDP growth of 1.5 to 2 percentage points in the second and third quarters if House-passed budget cuts of $61 billion for the remainder of fiscal 2011 become the law of the land.

Asked about the Goldman forecast Tuesday following testimony to the Senate Banking Committee, Federal Reserve Chairman Ben Bernanke demurred.

“Our analysis doesn’t get a number quite like that,” he said. “Two percent is an enormous effect.”

He could have added: “especially when the rest of government is growing.”
Wrong on Everything

“Total government spending is up 6.7 percent in 2011 from 2010,” Taylor told me in a telephone interview.

Defense spending is rising, as are non-discretionary outlays for programs such as Medicare and Social Security that are on automatic pilot.

The proposed cuts would reduce non-defense non-security discretionary spending, a teensy share of the federal budget, back to 2008 levels.

In a Feb. 28 blog post, Taylor said Goldman’s analysis was “wrong.” He criticized it for failing to consider the beneficial effects that expectations of lower future deficits and smaller tax increases would have on the economy. He criticized the methodology for relying on the same “large multiplier theory” used to justify the 2009 stimulus. And he criticized the assumption that proposed spending equates with actual spending, which trickles out over time.

Aside from that, Mrs. Lincoln, the Goldman analysis was spot on.

‘Alchemists and Quacks’

This fundamental disagreement among professional economists about whether government spending helps or hurts represents the state of the art, or science, today. In what other science do practitioners design a treatment plan based on inconclusive proof that the medicine does any good?

There are no control studies in economics, no way to hold everything else constant to determine the impact of one variable, no way to falsify conclusions that models spit out. Financial Times columnist John Kay, writing yesterday about risk modelers, referred to them as “alchemists and quacks.”

A bit harsh, perhaps, but he’d probably hold macroeconomic models in the same high regard.

Whenever oil prices spike, modelers instantly project how much the increase will subtract from GDP growth. No mention of why prices are rising. Is it the result of a supply shock, which results in higher prices and reduced quantity demanded, or an outward shift in the demand curve, which equates with higher price and quantity demanded? There is a difference.

Known Knowns

In microeconomics, which is the study of how individuals and firms interact in specific markets, certain truths are self-evident. Which doesn’t mean economic planners can see them. Governments across Asia right now are using subsidies and price controls to ease the pain of higher oil and food prices even though their actions will exacerbate the crisis.

Goldman countered Taylor’s critique with a clarification. The projected 1.5 to 2 percentage point hit to GDP was to the quarterly annualized growth rate, not to the level. Thanks for that.

As I said before, we entered the 21st century with macroeconomics still looking for an Age of Enlightenment.

Five thousand years ago in ancient Egypt, medics used leeches to suck the blood of ill patients, believing the practice could cure everything from fevers to food poisoning.

Today’s physicians have largely forsaken bloodsuckers for modern medicine. It’s about time macroeconomics emerged from the Dark Ages as well.

Caroline Baum, author of “Just What I Said,” is a Bloomberg News columnist. The opinions expressed are her own.)

Dark Ages Indeed

I am wondering “How many times does an economic model have to be discredited before it is discarded?”

This idea that government spending can stimulate the economy is total nonsense. If it worked, we would see something more than 2.8% economic growth for a deficit of $1.4 trillion dollars.

The Fed purchasing Trillions of Fannie Mae and Freddie Mac bonds did nothing for housing, nor did several rounds of housing tax credits.

Government spending accounts for an ever-increasing share of GDP. Moreover, the only reason GDP is up at all is that by definition, government spending adds to GDP. The multiplier is actually negative. It takes an increasing amount of “stimulus” spending just to say in the same spot.

Taylor Model Nonsense

Taylor criticizes the Goldman multiplier model and rightfully so.

However, his own economic model is fatally flawed. He believes all the Fed needs to do is go on autopilot, hiking or lowering interest rates in accordance with the Taylor Rule.

In economics, a Taylor rule is a monetary-policy rule that stipulates how much the central bank would or should change the nominal interest rate in response to divergences of actual inflation rates from target inflation rates and of actual Gross Domestic Product (GDP) from potential GDP. It was first proposed by the U.S. economist John B. Taylor in 1993. The rule can be written as follows:

In this equation, is the target short-term nominal interest rate (e.g. the federal funds rate in the US), is the rate of inflation as measured by the GDP deflator, is the desired rate of inflation, is the assumed equilibrium real interest rate, is the logarithm of real GDP, and is the logarithm of potential output, as determined by a linear trend.

Unmeasurable Economic Gibberish

The idea that interest rates can be set by mathematical modeling when the variables themselves are subject to debate as to how to measure them is preposterous.

Take the CPI for example. I believe home prices should be in the CPI. They used to be.

Somewhere along the line some theorist decided “owners’ equivalent rent” (OER) was a more valid concept. What is OER? It is the amount one would pay himself if renting a house from himself. It is the single largest component of the CPI. The measure of inflation from 2002 to now would be wildly different if one used actual home prices instead of OER.

Which model is more accurate? Look at the Fed’s chasing-its-tail actions hiking in baby steps on the way up, then lowering interest rates to zero when the economy collapsed.

ECB President Jean-Claude Trichet, a Keynesian Clown Too

Just today, Jean-Claude Trichet is talking about hiking rates in Europe.

His concern is pass-through inflation as noted in the Bloomberg article Trichet Says ECB May Raise Rates, Show `Strong Vigilance’

“There is a strong need to avoid second-round effects,” Trichet said, calling for moderation from wage and price setters. The ECB is “prepared to act in a firm and timely manner.”

This whole idea of pass-through inflation and second-round effects is yet more Keynesian claptrap. If someone pays more for gasoline, they have less to spend on clothes. It is as simple as that, but not to those purposely hiding behind economic models and their multiplier effects.

Alchemists and Quacks Galore

Making decisions on flawed models is bad enough in closed economic society.

Errors in every model are exacerbated by the fact we have a global economy subject to economic pressures of all kinds from countless places.

Financial Times columnist John Kay, writing yesterday about risk modelers, referred to them as “alchemists and quacks.” There are no control studies in economics, no way to hold everything else constant to determine the impact of one variable, no way to falsify conclusions that models spit out.

On that basis, the analyst from Goldman Sachs, Taylor, Bernanke, Krugman, Greenspan (and countless others) are all quacks.

Why Model at All?

There are no control studies because it is impossible to do them.

The real world is constantly changing, while mathematical models, Goldman’s and Taylor’s alike sit there as unmeasurable economic gibberish, when every component is subject to measurement errors and debate about what needs to be measured in the first place.

End the Fed

The free market could not possibly have done a worse job in setting interest rates than the perpetual chasing-their-own-tail central bank tactics that continually create boom-bust bubbles of ever-increasing amplitude in both directions.

If central bankers knew where interest rates should be we would not be in this mess, or at least the mess would be smaller. For further discussion about what the Fed does and does not know, I strongly encourage you to read the Fed Uncertainty Principle.

Ironically, the one thing the Fed never mentions and the ECB seldom mentions is money supply.

Here’s the deal: Inflation is a direct result of the cheapening of money. Strike that, inflation IS the cheapening of money and central bank policy in conjunction with fractional reserve lending is the cause.

Central bankers do not talk about such things because they are at the root of the problem.

The solution of course is to not only get rid of the Taylor rule, but to get rid of the Fed, the ECB, and central bankers around the globe.

Mike “Mish” Shedlock
Global Economic Analysis

Unlike the Keynesian and Monetarist academic clowns that rule US academia German academics push for EU sovereign default plan

Almost 200 German economics professors have signed a declaration rejecting current proposals to resolve the eurozone debt crisis, instead calling for a way for distressed countries to declare bankruptcy.

More than 200 professors were invited to sign the document, and 189 did so, including prominent figures such as Manfred Neumann of the University of Bonn and Justus Haucap of the University of Duesseldorf, both in western Germany.

Instead of the collective support mechanism set up last year that could be made permanent in a modified form from 2013, the economists argued it would be better to let countries restructure their debts.

“Restructuring allows the countries concerned to reduce their debt and start over,” said the economists.

The solution being mulled at present and likely to be approved by European leaders next month would amount to “a permanent guarantee” of some countries’ debt, with “very serious consequences,” they added.

The signatories also doubted the effectiveness of measures to reinforce the competitiveness of weaker eurozone countries and control members’ public finances owing to the European Union’s “limited firepower.”

The document was published as lawmakers from Chancellor Angela Merkel’s ruling coalition sent her a clear message ahead of negotiations on a permanent EU rescue plan to take place in Brussels.

The German deputies said the future European Stability Mechanism should not be allowed to buy eurozone government debt, as the European Commission and European Central Bank would like.

Those 189 academics simply want the ECB to admit that the debt owed by Greece, Ireland, Spain, Portugal, cannot possibly be paid back. What cannot be paid back, won’t, and pretending that it will just makes problems worse. It is refreshing to see a large group of academics on the right side of an economic issue.

Axel Weber, once heir apparent to ECB presidency to replace Jean-Claude Trichet, resigned as president of the German central bank over the issue of the ECB buying sovereign debt. He did not want the ECB to buy debt, most of the rest of the ECB did.

Academics in Germany are disregarded even though they make economic sense. Keynesian and Monetarist academics in the US make no sense but are revered.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

The facsimile of U.S. “growth” now depends entirely on Central State manipulation and stimulus of risk trades and financial slight-of-hand.

The U.S. economy has become increasingly dependent on asset bubbles, financial legerdemain, credit expansion, Federal borrowing and the manipulation of risk trades to maintain the illusion of “growth.” Compared to an economy based on organic demand and productive growth, the current U.S. economy is a travesty of a mockery of a sham, and has been since 2001.

There are a number of factors at work, but let’s start with two: the ratchet effect, and the Keynesian Project.

In the ratchet effect, increases are easy and resistance-free: it’s incredibly easy to hire more employees in bureaucracies, for example. But once the ratchet has advanced, it is nearly impossible to return to the previous tooth in the gear.

So for a city government to expand payroll from 10,000 to 20,000 employees was effortless, to reduce a 20,000 person payroll back to 10,000 is exceedingly painful.

The ratchet effect is a key feature of addiction. When one beer no longer creates a “buzz,” then the consumer drinks two, and so on, until a six-pack is the new baseline. Below that level of consumption, the addict gets panicky, for the entire necessity of creating a buzz is at risk of catastrophic failure.

The U.S. economy is now addicted via the ratchet effect to unprecedented levels of Federal borrowing and Federal Reserve credit creation and manipulation. Let’s set aside the fact that America’s Central State has by some calculations guaranteed some $13 trillion in private financial assets via TARP, AIG’s backstop, the takeover of Fannie Mae and Freddie Mac, etc.–roughly the size of the entire GDP of the nation.

Let’s focus instead on the fact that the Federal government must borrow and spend 11% of GDP ($1.5+ trillion) every year, and the Fed must buy $1 trillion in impaired private assets or new Treasury debt annually (another 7% of GDP) just to create an illusory GDP growth of 2.5% a year. So we’re spending/injecting 18% of the GDP to conjure a “growth” of 2.5%.

That means we’re spending/injecting $7 to create $1 of “growth” in GDP. And thanks to the ratchet effect, there’s no going back now without systemic disruption. Does anyone seriously believe spending $7 to birth $1 of “growth” is sustainable? If so, then let’s eliminate that $1.5 trillion deficit spending and the Fed’s $1 trillion-a-year purchases of impaired debt and Treasury bonds, and see if GDP “grows” via organic demand and production.

Everybody knows what would happen: the wheels would fall off the illusory “recovery.” The “recovery” is precisely analogous to an alcoholic who claims to be sobering up but who is actually drinking seven beers a day to get a buzz when a few years ago he only quaffed two or three a day.

Here is the Keynesian Project in a nutshell. Unfettered Capitalism works in straightforward cycles: the organic business cycle of expansion, overcapacity and overleverege inevitably leads to a credit bust in which those whose borrowing exceeds their ability to service their debt go broke, and the dominoes of overcapacity and credit expansion topple as losses mount and consumption based on increasing debt falls.

Bad debt gets wiped out, along with “pyramid-scheme” type assets (mortgaged assets are leveraged to buy more mortgaged assets) and excess capacity. As production declines, workers are laid off and consumption declines, further pressuring impaired financial assets.

As Marx had foreseen, these cycles increase in depth and severity. Though Marx invoked dialectical theory and history rather than the ratchet effect, the basic idea is the same: Capitalism becomes increasingly dependent on financial capital, and the resultant crises eventually become severe enough to take down Capitalism as a sustainable productive system.

Keynes’ proposed to counter these worsening business cycle implosions with massive injections of Central State borrowing and spending. The atmosphere of fear as assets, credit and consumption all contracted would be replaced by a revival of “animal spirits” (the magical elixir of Capitalism), consumption would be stimulated by direct government spending on capital projects and welfare (fiscal stimulus), and banking credit would be restored via stimulative Central Bank credit expansion (monetary stimulus).

But Keynes failed to grasp what Marx had intuited: the ratchet effect. Once the Central State ramped up deficit spending and expansive credit, then the organic economy became dependent on that new level of Central State spending and credit expansion.

As I described in the Survival+ analysis, in effect the central State rescued Monopoly Capital by partnering with it. This results in a financial/State Plutocracy which “saves” the organic economy by taking control of its income streams, credit creation and financial assets.

That is the U.S. economy in a nutshell: a travesty of a mockery of a sham. The consumer became dependent on easy, cheap credit and home equity extraction to maintain his/her consumption. The student became dependent on easy, cheap credit to fund his/her increasingly costly college education. Monopoly capital became dependent on financial slight-of-hand, the debauchery of credit, fraudulent mispricing/masking of risk, stupendously leveraged bets on risk assets, etc. for its swollen profits. Politicans became dependent on unlimited borrowing and spending to keep the illusions of competence, sustainability and “growth” alive.

State and local governments became casinos, dependent on skimming the profits from asset bubbles and financial fraud. Where did New York City’s and New York State’s rising revenues come from? By playing dealer on Wall Street’s scam tables, skimming a steady share of the profits.

Where did California’s bloated state revenues come from? The skimming of capital gains from the Ponzi-scheme real estate bubble.

The stock market rally circa 2003-2008 was merely Travesty of a Mockery of a Sham Phase I. In those glory years of the Central State/Cartel-Capital manipulation, it only required $2 of stimulus and credit expansion to blow $1 in asset bubble “growth.”

But alas, the growth was bogus, illusory, a simulacrum of organic growth, a house of credit cards and fraud that toppled when one card’s overleveraged precariousness was inadvertently exposed.

Now we are in Travesty of a Mockery of a Sham Phase II. As Marx had foreseen, the crises are ratcheting up: now it’s taking $7 of State/Plutocracy intervention to conjure up a pathetic $1 in “growth.” Both are now totally dependent on the substitution of bubbles and fraud for real productive growth.

What Marx failed to foresee was the Central State’s rescue of Cartel-Capital via a partnership: the Central State is now as dependent on financial capital’s maximization of fraud and credit expansion as the Financial Plutocracy is dependent on the Central State to mask and enable its expansion of income and control.

The problem is, of course, that the system cannot support borrowing and spending $7 to create $1 of “growth” for long: eventually, as in all business cycles, the cost of borrowing will exceed the ability of the borrower to service that debt. That’s what Keynes failed to foresee: the way in which the partnership of Central State and Cartel-Capital requires ever greater credit and State debt expansion just to keep the system afloat, never mind growing.

If I loan you $1 trillion at zero interest, with no principal payments, then the cost of servicing that $1 trillion loan is zero. Pretty easy to service zero, isn’t it? That’s the core strategy of the Federal Reserve and the U.S. Treasury.

That’s been Japan’s “secret” for 20 years: as long as the lenders (the Japanese citizenry and life insurance companies, etc.) accepted near-zero interest, then the cost of borrowing additional trillions has been bearable.

But as soon as that $1 trillion requires a serious interest payment, then the ratchet-effect game ends. We are not there yet, but the endgame is no longer over the horizon.

What will TMS Phase III require? $10 in Central State stimulus for $1 in nominal GDP “growth”? Or will it be $20 for every $1 of bogus “growth”?

The stock market is a reflection of this ratcheting up of Central State/Monopoly Capital intervention and manipulation. The stock market took off in the mid-1990s in the “easy money” era, and that led to the Phase I bust of 2000-2001.

That required TMS Phase II, which led to the next asset bubble in 2007-08, and that orgy of fraud and credit/leverage expansion led to an even more severe Phase II bust 2008-09.

If the partnership attempts Travesty of a Mockery of a Sham Phase III, then the consequent bust should return the stock market to pre-Phase I levels: The Dow around 4,000 and the SPX around 400.

Neither the public nor the Standard-Issue Punditry (SIP) understand the addiction-like dynamics of the Central State/Cartel-Capital partnership’s increasingly ineffective interventions on behalf of a facsimile of normalcy and “growth.” Like the addicted junkie, the Central State/Cartel-Capital partnership is approaching the point where their “high” requires ever higher doses of smack.

Nobody knows when the higher doses finally become lethal, but we do know there is such a point.

Live debate on deflation/hyperinflation, February 10, 9 p.m. EST . Most of you are already familiar with bloggers Stoneleigh of The Automatic Earth and Gonzolo Lira. Both are well-informed, articulate and persuasive, so the exchange on a topic of importance to us all (deflation vs. hyperinflation) is sure to be compelling.

Of Two Minds