Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
GOLD HAS LOTS OF POTENTIAL DOWNSIDE - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Economist's Sell Signal

Stock-Markets / Inflation Nov 30, 2013 - 12:29 PM GMT

By: Fred_Sheehan

Stock-Markets

The disintegration of central banking shifted to overdrive in November. The Senate Banking Committee's listless accreditation of Janet Yellen as next Fed chairman was not a surprise, but it was notable that vigorous critics of Chairman Bernanke, such as Senator Bob Corker, dozed through the hearing. When the bubble of all bubbles bursts, and the Senate and Congressional oversight committees fulminate at central bankers, it will be those politicians who should sit in the dock. They could have acted. Instead, the Senate is whisking Bernanke-Squared to the throne, as quickly and quietly as possible.


Yellen is very much the academic economist: in complete control of what cannot be known (macroeconomic silliness), setting world policy on such, and with no knowledge of the specific. She explained before the Committee, that stock prices are O.K. ("I don't see at this point, in major sectors of asset prices, misalignments.") She is not concerned about "bubble-like conditions, since "price-to-equity ratios" are benign. As distant observers of the stock market know, it is the "price-to-earnings ratio" she was supposed to memorize before the hearing.

The (Always) Brilliant Larry Summers, another macroeconomist who has never had an original thought in his life, blurted before the IMF on November 8, 2013, that conventional macroeconomic thinking leaves us in a very serious problem. It is not startling; though it would have been surprising at some point in the past, for this master cylinder of central planning, after admitting his generation of economists has failed, to not then offer his apologies and announce his permanent departure to Tierra del Fuego.

Instead, Summers continued: "The underlying problem may be there forever," which, in the world of Summers, Bernanke, Yellen, means the period until they are run out of town and sentenced to a prison cell, with their mouths taped, while Alan Greenspan sits on the other side of the iron bars, lamenting the decline of economists' prescriptions since his departure.

Summers (before the IMF) offered advice that is now conventional among conventional macroeconomists. He advises the bureaucratic class to impose a negative 2% or 3% interest rate on the 99% of Americans competing in the Hunger Games.

It seems like yesterday when convention held that savers earned interest, and, no inflation (of prices) was the goal. This was the balance between savers being paid to lend their money, and borrowers paid interest to use the money. The rate paid was the meeting of minds among lenders and borrowers, a free forum of expression to which, someday, we shall return.

For now, American university professors control markets. The route to the apathetic acceptance of redistribution and confiscation from the public has been laid by a careful and gradual brain washing.

The Economist was neither careful nor gradual with a front-cover story in its November 9, 2013, issue: "The Perils of Falling Inflation." The lead story warns: "The biggest problem facing the rich world's central banks today is that inflation is too low." (This "rich world" foolishness will not be addressed here.)

It is too low, for reasons not stated in the Economist. Inflation is too low, remember, for the "rich world's central banks," (not for us), because a financial economy needs larger quantities of money, credit, and accounting tomfoolery to prevent its collapse. The rich world's economy not only needs more finance, it demands an expanding base of finance, growing at an exponential rate, to remain whole. In 2000 and 2007, it was merely a slowing in the growth rate of credit creation that was followed by the plunge.

The various gimmicks are long in the tooth, so: "We need lower credit standards, a weaker banking system, and credit needs to be extended to the bankrupt to prevent liquidation of the Bank of England."

The Economist did not say that, though the statement is part-and-parcel to perfidious Albion's calls for the British people to spend and borrow themselves into penury. In the past three months, Bank of England Governor Mark Carney announced banks could cut their cash reserves "to support economic growth;" banks could now submit "any identifiable collateral" and it would be welcomed at the Bank of England; and the economic "recovery" is, quoting Carney, "still reliant on rising home prices and consumer demand." The result: interest-only mortgages: "borrowers, expecting to make the majority of the return from rising property prices" (Andy Lees, The Macro Strategy Partnership News Daily, November 19, 2013) is all that's left between the former Bank of Canada governor and a one-way ticket back to Banff. This is a desperate strategy by Carney.

Back to what the Economist did say; it was a whopper: "central banks' inflation target [is] 2%" and this has been "the cornerstone of central banking for decades." This is an attempt to erase history. Obliterating the past has been essential to the rise of Bernanke and Yellen. Their "2% inflation target victory" was described in the following links, written at the beginning of 2012, at the time the Fed asserted this new cornerstone of central banking: (see "Presidential Rivals: Drop the.....this was on January 12, 2012", "A Quartet of Fed Chairmen.... This was on January 20, 2012" and "Transparency has Landed..." January 29, 2012").

A year earlier, in December 2010, the Federal Reserve was handcuffed, since "an inflation target" of anything other than zero percent was still an absurd notion, other than among professors who had gone in for central planning. Bill King, in the December 14, 2010, "King Report" compared the past two communiqués by the Fed after their November 3, 2010, and the December 13, 2010, FOMC meetings. The December 13, 2010, communiqué claimed "measures of underlying inflation have tended downwards." This assertion was (in Bill King's words) to "deflect political and public outrage at QE 2.0." King went on: "If the Fed had to acknowledge there is inflation, their world is destroyed. QE would have to be scuttled." (The Fed and Bernanke go on about inflation "expectations" and try to ignore inflation but they are still faced with a public of 300 million that cares what it is paying today.)

The consumer price index (CPI-U) rose 0.1% in November 2010; it had increased 1.1% over the past 12 months. The Fed nearly had to drop its money-printing, road-to-ruin because inflation was so high. "The cornerstone of central banking" was established over the next twelve months, culminating in the universally accepted practice of central banks' non-stop, money-printing and inflation of credit, stocks, corporate profits, buybacks, mergers, PIK bonds, rehypothecated collateral, and speculators' fortunes. Particularly piquant have been the booming auction-house, luxury-goods, and casino stocks.

The Economist's article was unbalanced, sloppy, and abandoned by the starting team: much like the world's markets. A suggestion for current asset allocation: where would you want your money today if you knew interest rates will rise by 4.0% tomorrow?

By Frederick Sheehan

See his blog at www.aucontrarian.com

Frederick Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession (McGraw-Hill, November 2009).

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Frederick Sheehan Archive

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


Post Comment

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