By Monty Pelerin, on February 24th, 2010
In Jimmy Carter’s reign, the Wall Street Journal editorialized about “Ratcheting to Ruin.” The title derived from the fact that each cycle high in unemployment was higher than previous ones, and each cycle high in inflation was also. “Stagflation” was coined to describe what up until then was believed to be impossible in the Keynesian world. This period ushered in a new era in both politics and economics. Carter was replaced by Reagan, and Keynes was replaced by Friedman.
Thirty years later Keynes is back in vogue, Obama has ascended to the White House and times are again reminiscent of the Carter era. The economy is awful. Fear and dissatisfaction prevail. Politicians are held in contempt. There is one major difference – Carter did not face an “ides of March” event.
In Shakespeare’s Julius Caesar, a soothsayer warned Caesar to “beware the Ides of March.” The prescient warning did not help Caesar. As Obama approaches his March moment, no warning can change his fate.
Ben Bernanke promised to end Quantitative Easing (the printing of money to stimulate the economy and fund the deficits) by the end of March. Some believe his commitment was a “campaign promise” to ensure his Senate reconfirmation. Others believe it was a real commitment, necessary to maintain a stable dollar. Shortly, the world will find out.
Mr. Bernanke, quite unintentionally and through no fault of his own, will be Obama’s Brutus, regardless of his decision. To understand why, some numbers are necessary. Government needs funding this
Continue reading Obama’s “Ides-of-March” Moment is Near
By Monty Pelerin, on February 20th, 2010 Great hoopla over the Federal Reserve’s surprise decision to raise the discount rate 0.25 % fills the media and the markets. Pundits discuss earnestly the spice has been added to the tea leaves. Barry Ritholtz lists three possible motivations behind the Fed’s move:
Response to political pressures;
Proof the Economy is improving;
Inevitable ending of extraordinary accommodation.
The relevance of number 1 can be discounted rather quickly. Where could the “political pressure” come from? Other than lip service around election time, Congress never demands fiscal or monetary responsibility. It could refer to “hawks” on the Fed board, but they would not overrule Bernanke on anything substantive, which this move wasn’t. Thus points 2 and 3 appear to be possible motivations.
The rate move was miniscule. Its size precluded it from having any meaningful economic effect. Thus, it must be interpreted as a “signal.” But was it a signal meant to deceive? That is, was the move a “feint?”
The Fed traditionally sends a signal in advance of taking more serious economic measures. The rationale for a warning is to prepare markets for what is coming. It is believed that markets then adapt somewhat in advance of the future, stronger actions. This move was not a signal. As stated by John Williams of Shadowstats.com:
… the Fed has virtually no room to tighten credit in a system where the real (inflation-adjusted) broad money supply is in severe annual contraction, and where general bank lending into the flow of commerce is not adequate to maintain
Continue reading The Fed Feints
By Monty Pelerin, on February 19th, 2010 Bill Bonner is one of the more incisive and entertaining writers. His post below ostensibly deals with Greece but has warnings that should be heeded for the rest of the Western world.
The Daily Reckoning Presents
Government Sachs
Bill Bonner
Paris, France – It’s Goldman this. And Goldman that. And Goldman rhymes with greed. But it’s “Thank you, Mr. Blankfein,” when it’s money that you need.
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Image via CrunchBase
Last week, Greek Finance Minister George Papaconstantinou slipped. He said not what he should have said, nor what he wanted to say. Unwittingly, he said something that was true: his country’s budget was “out of control.” He begged for more time to straighten it out. “We’re trying to change the course of the Titanic,” he said. The EU ministers gave him a month.
Mr. Papaconstantinou was speaking of Greece. But he described much of Europe, Britain, Japan and the US. And, in his fortunate metaphor, he prophesied. The big ships can’t be turned around. They’re going to sink.
Greece has been taking on water for many years. But this was the first time a finance minister of any country signaled to lenders that they should head for the lifeboats. Then, looking around, the press noticed that one of the lifeboats had already been launched. In it were no crying widows and no shivering orphans. Just one very satisfied Lloyd Blankfein, chief executive of Goldman Sachs. He had sold the Greeks their debt, said the papers; now he has sold
Continue reading Government Sachs
By Monty Pelerin, on February 18th, 2010
By Monty Pelerin, on February 16th, 2010
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Just another Roubini warning. And just more disbelief (or cheerleading a recovery) by CNBC. It is embarrassing listening to CNBC trying to get Roubini to adhere to their opimistic line.
Roubini is a Keynesian economist who “got things right.” He is flamboyant and self-promoting. While I am not one of his big fans, his past observations have turned out to be mostly correct. I also find little in this interview to disagree with.
Interestingly, he used none of his Keynesian theory or tools to forecast outcomes and earn his reputation. His approach, rather than being tied to Keynesianism, is more eclectic, a form of entrepreneurial forecasting. His focus on debt and trade imbalances and government deficits has served him well. Keynes might not approve, but I do.
Whether his amazing prognosticating run can be encapsulated under any theoretical umbrella is doubtful. Whether it can be continued, may even be more doubtful. Regardless, he has been the one with the hot hand, so far.
Roubini: The Recovery as a House of Cards
This video really highlights how far out of consensus I must be.
It’s been a while since we posted any Nouriel Roubini content here and, as I sat listening to the video below, all I could think was, “that makes sense,” “I’m with you on that point” and “bingo!” Then I hear the clucking from the CNBC hosts – guest or otherwise – about how these theories simply cannot be true. Theories that
Continue reading Roubini as Not Keynes
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Friedrich von Hayek
Friedrich von Hayek founded the Mont Pelerin Society.
“Monty Pelerin” is a pseudonym chosen by this blogger to convey general agreement with the philosophy, goals and spirit of the Mont Pelerin Society. No other connection exists between the blogger and the Society.
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