Fearless Prediction - Update

Trump impeached within 6 months - certainly before the end of the Summer.  McCain will have his revenge.

Slavery to Keynes Blinding us to Hayek

Quick thought of the day...

The world is Keynesian now - even the "Republican" president of the USA is talking about spending $1 Trillion on infrastructure in order to "prime the pump". Classical economics is dead.

F. Hayek though that this pump priming always leads to bubbles,and that collapsing bubbles were more painful to go through than plowing through a recession,setting up real positive growth when you came out the other side.

The thought - we are now so deep into the mindset of a Keynesian bubble-fest that we do not even think about the alternative. Investors buy when news is bad hoping for more stimulus and intervention. Governments and central bankers spend most of their time inventing new tools to be used to stimulate growth (NB - expect the US Fed to be on to negative interest rates within a few years.) The world blithely stumbles along with mass indebtedness hoping and praying for more borrowing to cure what ails them.  

The alternative is balanced budgets and paying off debt while limiting regulations to mitigating the worst ills of capitalism, while also ensuring that competition is fair and letting interest rates find their own level as a reflection of the risk inherent in debt. No one is talking about this today. The last time we did this was after WW2 - when we saw the greatest economic expansion in human history.

What is the cost in terms of investments forgone and risks not taken from knowing that governments are wildly ignorant of the long term risks from excess debt, while also supporting crony capitalism and distorting markets for everything from milk, to gold, to cars, to stocks, to bonds?

The key psychological hallmark of the post-WW2 era was confidence, which is what follows taking on mass debt and winning.

The key psychological hallmark of today is the unspoken fear that comes with the realization of mass financial indebtedness and an utterly empty policy toolbox, coupled with an unconscious decision to just ignore it hoping all will miraculously work out well.  The "animal spirits" are not released by timidity and fear.

 

Recession Anyone?

Is the USA already in recession?

The US Treasury receipts dropped year over year to Jan 31, 2017.  Look below - every time receipts drop and go negative, a recession is sure to be close.

Central Bank Buying Spree!!

After keeping rates at historically low levels for almost a decade, and after buying bonds and mortgage-backed securities valued  in the trillions of dollars, central banks appear to have have arrived at their last policy option - buy stocks.

 

As early as five years ago, the suggestion that central banks were actively buying equities was considered ridiculous - part of a vast conspiracy theory.

 

See here....

 

http://www.zerohedge.com/news/2017-01-23/80-central-banks-plan-buy-more-stocks

 

The Japanese central bank is a top-ten investor in the majority of companies on the Nikkei, and it owns 2/3 of the ETFs on that exchange outright. The Swiss central bank and the Chinese central bank have also bought hundreds of billions of dollars worth of equities world-wide.

 

The rational for buying equities is varied. The Swiss are buying stocks to earn more than can be earned from buying in bonds. The Japanese are clearly buying in order to prop up their flagging stock market. The Chinese are probably buying for both reasons.

 

The mandate of a normal central bank - including those in Canada and the United States - is to keep inflation low and employment high. They are usually NOT there to make any type of a return on their investments.

 

Larry Summers, economic advisor to Barack Obama, and a former US Treasury Secretary, has explained why central banks may need to buy equities like this...

 

"It is something that economic logic suggests should be considered in other places where the zero lower bound is a potentially important monetary policy issue,” he said, referring to the perceived lower limit for benchmark rates set by central banks.

 

This is the Swiss argument - with rates so low, for central banks top make any money they need to buy equities. 

 

This ignores certain uncomfortable realities...

 

1. Central banks set the rates that the Swiss and Summers think are so low that they should buy equities in order to get a better return. If they have a problem with return, then just raise rates.

 

2. Central banks can print money. It is impossible to predict what a policy of central banks buying equities may lead when the purchaser has no limits in terms of its buying power. It should seem obvious that this will lead to a massive distortion in the price of equities. The "talking heads" claim that Bank of Japan purchases of equities have not distorted the Nikkei, ignoring the fact that it owns 2/3 of the ETFs that are listed there, and propping up the exchange is the whole point of the policy. This is normally called "lying".

 

3. This policy has nothing to do with the mandate of the central banks which is low inflation and high employment.

 

4. In the long run, this policy means that the public sector will own huge swaths of the private sector, effectively undermining our present understanding of capitalism and setting up a situation where the public sector directs major private sector activities, especially if the public sector managers start asking for seats on corporate boards.

 

This blog has warned of an overpriced stock market and looming recession over the past few months. If central banks world-wide start to buy equities, all bets are off....they have unlimited funds, and could drive markets to any level they want.

 

However, Japan is in a decades-long recession as it has never been able to deal with mass borrowing and assets bubbles that accumulated in that country in the late 1980's. If central banks start buying equities, we may see a situation similar to the one in Japan where we have a recession, but with rising stock prices with those prices pumped by fantasy money. If this were to happen, then as soon as the buying stops, one would expect the public markets to essentially collapse.

Trump's BS Ban

Trump has banned persons from ran, Iraq, Libya, Somalia, Sudan, Syria and Yemen, from entering the United States, citing security risks.  The ban is wrong, and likely illegal. The ban covers the vast majority of potential entrants into the USA - likely everyone - who are actually innocent of such slander, and it appears to be in serious trouble in the courts.

Trump does appear to truly believe that the ban is required to protect America. Taking him as having a bona fide belief in the need for a ban, there is a fairly obvious problem with his approach...

Why have citizens of Saudi Arabia, the United Arab Emirates, Egypt and Pakistan not been banned as well?

The terrorists who launched the present epoch in international relations on September 11, 2001, were from Saudi Arabia (15), the United Arab Emirates (2), Lebanon (1) and Egypt (1). 

Saudi Arabia is also the world's proponent of the Wahhabi stream of the Muslim faith, with is the theological inspiration for ISIS. 

Pakistan is the locus of well-known terrorist training facilities in the form of extremist mosques and even military training facilities - and the Pakistani secret service and military have been sponsoring the murder of Western soldiers by the Taliban in Afghanistan for years.

Is Egypt not on the list because it is now effectively an American protectorate, and putting them on the list would suggest that the protectorate - the purpose of which is suppressing the Muslim Brotherhood - isn't working?

Are Saudi Arabia and the United Arab Emirates not on the list because they are a source of significant foreign investment into the USA, and putting them on the list would be bad for business?

Is Pakistan not on the list for fear that its secret service and military will step up the murder of Westerners in Afghanistan through expanded support of the Taliban?

Trump's negligence regarding who is banned suggests that even from the perspective of the "anti-Establishment"/America First approach he pretends to espouse, he is an absolute charlatan. In the end, business trumps national security every time. What a disgrace.