The fix is still in!

The Dow jumped 292 points yesterday. Investors took to the Fed’s announcement like children to Santa Claus. They rubbed their eyes and saw a big present under the tree: No real tapering; no time soon.

Said Ben Bernanke, “Highly accommodative monetary policy remains appropriate”.

Ireland’s leading economist, our friend David McWilliams, has prepared a video explaining what a scam the Fed’s QE is.

Yes, it is like Obamacare and the War on Terror – designed to shift wealth from the hoi polloi in the public to the insiders favoured by the feds. And yesterday, the Fed announced that the scam would continue. It took the monthly QE infusion down from $85bn to $75bn, but also told us that the cash would keep flowing for even longer than expected.

As card-carrying, colour-wearing, asset-owning, secret handshake-giving members of the 1%, we’re delighted to know that the filthy lucre will continue coming our way. But as financial philosophers we find the whole show rather shabby and tawdry.

Not only does the programme shift income from the public to the insiders, it also masks the real problems in the economy and stifles real corrections.

Yesterday’s Wall Street Journal worried that low inflation will test the world’s central banks.

Most people like falling prices. They are happy to see that they can buy more of what they want for less of what they have. But central bankers and economists take them as a problem in need of a solution. Without rising prices, how will they keep the scam going?

Central banks rely on inflation to keep the economic pot boiling, and to roast the public. Higher prices lure consumers to spend, rather than save. And rising prices reduce the value of wages and earnings. Lower real labour costs coax businesses to hire more people, improving both employment and consumer spending.

Falling prices, on the other hand, are a menace. They raise real wages, and induce households to save rather than spend. That’s why the central banks are trying so hard to get inflation levels back up. Disinflation interferes with their ‘borrow, borrow, borrow; spend, spend, spend’ fantasy.

So far, they are failing.


Bill Bonner on markets, economics & the madness of crowds

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Inflation in America has been on a downward course for 33 years. And now, prices are going up at the slowest pace since 2008, which was the lowest level in more than half a century. In November, core consumer price increases came in at just 1.2%. In Europe, the figure is even lower – below 1%. And Japan has been struggling with deflation for years. The Japanese feds have pledged to get inflation up to 2%. So far, they are only “half way there”, says Haruhiko Kuroda who runs the Bank of Japan.

Why the low inflation? Nobody knows for sure. But it is probably a combination of things; ageing populations in the developed world and low-price output in China are frequently mentioned.

Less often mentioned is the interference of the policymakers themselves. As we noted yesterday, by scamming the public and moving more wealth to the rich, the feds take money out of the hands of thirsty drinkers and give it to the tee-totallers.

Rich people don’t spend more when they get their hands on more money. They already have the houses, TVs, and automobiles they want. Taking money from the lower 90% and giving it to the upper 10% actually reduces demand, thereby holding prices down.

Also left unmentioned is the effect of low interest rates on earnings. Savers – especially retirees – spend much of the interest they earn. Shaving interest rates leaves them with less money to spend.

And the punky, sluggish economy is also a product of the Fed’s refusal to allow a genuine correction. It leaves households with fewer good jobs and lower wages.

This is where the scam really hurts.

As we reported in these pages, look at ten American households at random. Nine of them have less money to spend today than they did ten years ago. And the typical man of working age has suffered even more. According to the Brookings Institution study – reported here a few days ago – his real wages are now below the 1964 levels. We may have misreported this news when we first delivered it. Here are the important figures: in 1974, the average man earned nearly $350 a week in constant 1982 dollars. Today, the figure is close to $290.

Ouch.

Want to know why prices are not rising? The answer is simple: most people don’t have any money to spend.

Who’s to blame? More than anyone, the feds themselves.

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5 Responses

  1. 19/12/2013, steveH wrote

    I’d be interested to hear your take on how the japanese people are being treated by their economy; has the last 20 years been hard going or ok?

  2. 19/12/2013, Alex wrote

    Thomas Jefferson was a very remarkable man who started learning very early in life and never stopped.

    At 5, began studying under his cousin’s tutor.

    At 9, studied Latin, Greek and French.

    At 14, studied classical literature and additional languages.

    At 16, entered the College of William and Mary. Also could write in Greek with one hand while writing the same in Latin with the other.

    At 19, studied Law for 5 years starting under George Wythe.

    At 23, started his own law practice.

    At 25, was elected to the Virginia House of Burgesses.

    At 31, wrote the widely circulated “Summary View of the Rights of British America? And retired from his law practice.

    At 32, was a Delegate to the Second Continental Congress.

    At 33, wrote the Declaration of Independence .

    At 33, took three years to revise Virginia’s legal code and wrote a Public Education bill and a statute for Religious Freedom.

    At 36, was elected the second Governor of Virginia succeeding Patrick Henry.

    At 40, served in Congress for two years.

    At 41, was the American minister to France and negotiated commercial treaties with European nations along with Ben Franklin and John Adams.

    At 46, served as the first Secretary of State under George Washington.

    At 53, served as Vice President and was elected president of the American Philosophical Society.

    At 55, drafted the Kentucky Resolutions and became the active head of Republican Party.

    At 57, was elected the third president of the United States .

    At 60, obtained the Louisiana Purchase doubling the nation’s size.

    At 61, was elected to a second term as President.

    At 65, retired to Monticello .

    At 80, helped President Monroe shape the Monroe Doctrine.

    At 81, almost single-handedly created the University of Virginia and served as its first president.

    At 83, died on the 50th anniversary of the Signing of the Declaration of Independence along with John Adams.

    Thomas Jefferson knew because he himself studied the previous failed attempts at government. He understood actual history, the nature of God, his laws and the nature of man. That happens to be way more than what most understand today. Jefferson really knew his stuff. A voice from the past to lead us in the future:

    John F. Kennedy held a dinner in the white House for a group of the brightest minds in the nation at that time.. He made this statement: “This is perhaps the assembly of the most intelligence ever to gather at one time in the White House with the exception of when Thomas Jefferson dined alone.”

    “When we get piled upon one another in large cities, as in Europe, we shall become as corrupt as Europe .”
    – Thomas Jefferson

    “The democracy will cease to exist when you take away from those who are willing to work and give to those who would not.”
    – Thomas Jefferson

    “It is incumbent on every generation to pay its own debts as it goes. A principle which if acted on would save one-half the wars of the world.”
    – Thomas Jefferson

    “I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.”
    – Thomas Jefferson

    “My reading of history convinces me that most bad government results from too much government.”
    – Thomas Jefferson

    “No free man shall ever be debarred the use of arms.”
    – Thomas Jefferson

    “The strongest reason for the people to retain the right to keep and bear arms is, as a last resort, to protect themselves against tyranny in government.”
    – Thomas Jefferson

    “The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants.”
    – Thomas Jefferson

    “To compel a man to subsidize with his taxes the propagation of ideas which he disbelieves and abhors is sinful and tyrannical.”
    – Thomas Jefferson

    Thomas Jefferson said in 1802:

    “I believe that banking institutions are more dangerous to our liberties than standing armies.

    If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property – until their children wake-up homeless on the continent their fathers conquered.”

  3. 19/12/2013, Wotan wrote

    When talking about low inflation Bill Bonner has overlooked one important aspect, which also continues to explain the “insufficient” spending by the masses. Although “official” inflation rates are in the 1 – 2% bracket this, obviously, is not true for all items that make up the index. Food prices in the UK, for example, have climbed by between 30% and more than 100% over the last 2-3 years. Consequently, average households have had to allocate more and more funds to buying food (and fuel, incidentally) – which is essential – which has left them with less money for other things. This is deliberately fudged in the index owing to the use of “weighting”. The weighting of food in relation to superfluous items, such as electronic gadgets, is very much in favour of the gadgets, i.e. gadgets, etc. are given more importance than food, which then produces an artificially low compound inflation rate that is actually deceptive and, therefore, quite meaningless, but serves the mendacious purposes of the government very well. Therefore, in spite of the “low” rate of inflation disposable household income continues to shrink with obvious economic consequences.

  4. 19/12/2013, Short John Silver wrote

    Since when did real inflation match the propaganda?

    Anyone who buys anything and has at least half a brain realized long ago that real inflation is way higher than the official figures.

  5. 19/12/2013, Short John Silver wrote

    Looks like I posted the same thought at the same time as Wotan.

    Great minds think alike.

    Our Governments are relying upon weak minds thinking alike.

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