Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Stock Market Correction Review - 26th Jan 20
The Wuhan Wipeout – Could It Happen? - 26th Jan 20
JOHNSON & JOHNSON (JNJ) Big Pharama AI Mega-trend Investing 2020 - 25th Jan 20
Experts See Opportunity in Ratios of Gold to Silver and Platinum - 25th Jan 20
Gold/Silver Ratio, SPX, Yield Curve and a Story to Tell - 25th Jan 20
Germany Starts War on Gold  - 25th Jan 20
Gold Mining Stocks Valuations - 25th Jan 20
Three Upside and One Downside Risk for Gold - 25th Jan 20
A Lesson About Gold – How Bullish Can It Be? - 24th Jan 20
Stock Market January 2018 Repeats in 2020 – Yikes! - 24th Jan 20
Gold Report from the Two Besieged Cities - 24th Jan 20
Stock Market Elliott Waves Trend Forecast 2020 - Video - 24th Jan 20
AMD Multi-cores vs INTEL Turbo Cores - Best Gaming CPUs 2020 - 3900x, 3950x, 9900K, or 9900KS - 24th Jan 20
Choosing the Best Garage Floor Containment Mats - 23rd Jan 20
Understanding the Benefits of Cannabis Tea - 23rd Jan 20
The Next Catalyst for Gold - 23rd Jan 20
5 Cyber-security considerations for 2020 - 23rd Jan 20
Car insurance: what the latest modifications could mean for your premiums - 23rd Jan 20
Junior Gold Mining Stocks Setting Up For Another Rally - 22nd Jan 20
Debt the Only 'Bubble' That Counts, Buy Gold and Silver! - 22nd Jan 20
AMAZON (AMZN) - Primary AI Tech Stock Investing 2020 and Beyond - Video - 21st Jan 20
What Do Fresh U.S. Economic Reports Imply for Gold? - 21st Jan 20
Corporate Earnings Setup Rally To Stock Market Peak - 21st Jan 20
Gold Price Trend Forecast 2020 - Part1 - 21st Jan 20
How to Write a Good Finance College Essay  - 21st Jan 20
Risks to Global Economy is Balanced: Stock Market upside limited short term - 20th Jan 20
How Digital Technology is Changing the Sports Betting Industry - 20th Jan 20
Is CEOs Reputation Management Essential? All You Must Know - 20th Jan 20
APPLE (AAPL) AI Tech Stocks Investing 2020 - 20th Jan 20
FOMO or FOPA or Au? - 20th Jan 20
Stock Market SP500 Kitchin Cycle Review - 20th Jan 20
Why Intel i7-4790k Devils Canyon CPU is STILL GOOD in 2020! - 20th Jan 20
Stock Market Final Thrust Review - 19th Jan 20
Gold Trade Usage & Price Effect - 19th Jan 20
Stock Market Trend Forecast 2020 - Trend Analysis - Video - 19th Jan 20
Stock Trade-of-the-Week: Dorchester Minerals (DMLP) - 19th Jan 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Keynes' Legacy is 24% Unemployment Rate

Economics / Unemployment May 07, 2012 - 12:24 PM GMT

By: Ned_W_Schmidt

Economics

Best Financial Markets Analysis ArticleIn "'Lost generation' to suffer years of unemployment", Financial Times, 3 May, the legacy of Keynes was summed up by comments on Spanish youth,

"More than half of those under 25 are without work and face a bleak future. . ."


Some may never have a future after the Keynesian led collapse of their economy. Per that article Spanish unemployment is 24.1%. Greece is much better, only 21.7%. After decades of Keynesian debt financed consumption the verdict is in on Keynesianism. It is a complete and total failure!

Not only does it fail to produce prosperity, but ultimately produces massive unemployment. But yet, this addictive and destruction ideology is still advocated as the solution to the economic malaise of Western nations. Already some in Europe are advocating a "return to growth" policy. Austerity, the only way to deal with too much debt, is rejected by the leading thinkers, using that term quite loosely, of the mainstream economic community. Their advice is simple. If hitting one's self in the head with a hammer gives one a headache, use a bigger hammer.

If their policy prescriptions are right, why is the number of unemployed in the U.S. at a record number? If Keynesian was valid, with a cumulative deficit of almost $16 trillion the U.S. should be at full employment, with not a house in foreclosure. With a deficit over the past year of $1.285 trillion the U.S. should be a land of "milk and honey."

Federal Reserve Bank Credit

The solution is really quite simple. Remove from all policy making, both fiscal and monetary, all academically inbred Keynesian economists. In football a coach with a strategy that loses games gets fired. In economics, those with strategies that fail get a Nobel prize. One need only consider the damage done by more than two decades of policy ineptness at the U.S. Federal Reserve to realize that the U.S. does need change, in the form of a complete purge of academic Keynesians.

Above chart plots Federal Reserve Bank Credit in blue, using the left axis. That measure is essentially the size of the assets of the U.S. Federal Reserve. Readily evident in that chart is the massive liquidity injection of 2011. That initiative was intended to help the U.S. economy expand. As we now know, it was another Keynesian failure. It failed because of the massive structural damage done to the U.S. economy by previous policies. That is the same reason it did not lead to significantly higher inflation.

More important though is the red line which uses the right axis. That plot is of the year-to-year percent change of the size of the Federal Reserve's balance sheet. It indicates the impact on the dollar-based economy of Federal Reserve actions. It points to the future for the U.S. economy.

Schmidt Median US Dollar Index

Another implication of that line is that quantity of dollars is expanding at a slower rate. At the same time Europe is in a massive recession that may not bottom until the middle of 2013. A short-term consequence of all that is that the dollar is the more desirable currency. Yes, longer term the dollar's fundamentals are miserable, but in the short-term they are better than others. That will be especially true with the damage to the EU likely to be done by a socialist government in France.

In the short-term, dollar appreciation is negative for Gold, and Silver. Additionally, the ramifications of Dodd-Frank in the U.S. will be increasingly felt as many of the restrictions on bank trading related activities takes place by the end of July and Basel III is to be implemented by year end. The Summer doldrums could be quite unpleasant in the Gold market.

2013 offers far better prospects for Gold. In January the massive Obama Tax Increase occurs. The Bush tax cuts and the totally irresponsible reduction in Social Security taxes both expire. The combination of that massive tax increase along with the mandated reductions in the growth of U.S. government spending will send the U.S. economy collapsing into Obama Recession II. At that time the risk of Keynesian "solutions" being implemented will be extremely high. Thus far the Obama Regime has been very good for Gold. If returned to power in 2013, a 48% probability, the second term should also be very good to Gold.

Finally, note that the a ramification of a socialist government in France and a possible continuation of the Obama Regime is that the value of the Chinese Renminbi is enhanced. Longer term, the Renminbi should perform better than both the Euro and the dollar. Investors should be establishing positions in the Renminbi to complement their Gold holdings.

By Ned W Schmidt CFA, CEBS

Copyright © 2011 Ned W. Schmidt - All Rights Reserved

GOLD THOUGHTS come from Ned W. Schmidt,CFA,CEBS, publisher of The Value View Gold Report , monthly, and Trading Thoughts , weekly. To receive copies of recent reports, go to www.valueviewgoldreport.com

Ned W Schmidt Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

B.
15 May 12, 12:21
What is Keynesianism and does it encompass debt-financed tax cuts?

I keep hearing the term thrown around - msybe it's time to be a little more specific. What was it that Keynes faced in the 1930's, what caused it and what did he propose? How do things compare presently and in what debt is in what sectors (i.e. central and local governments, non-fin corps, fin.corps, households and the "foreign" sector)? I'm sure you know the answers since you write with such conviction.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules