Titanic economics

Not much action on Friday. A remarkable tranquillity has settled over the markets, like the calm seas in the North Atlantic when the Titanic set sail.

“Not even God himself can sink this ship”, said its architect.

In the event, it was sunk by an iceberg. God claimed no credit nor took any blame.

We humans can never hope to know the truth. Even in science, we never know whether something is true or not. All we know is when something isn’t true. We test it. If it doesn’t work, we know the premise was false, untrue. We laugh at it. We mock it and ridicule it. We tell the sap who believes it: ‘good luck with that!’ We know it won’t work.

Even when something does work, we still don’t know that the premise behind it is actually true.

“Here, I’ll prove that I can control the dice”, says a lunatic.

“I’ll throw them four times, and each time I’ll get snake eyes.”

He rolls the dice. If he fails to get snake eyes each time, you know that the premise was false. But what if he succeeds? Is it true that he can control the dice? Or is he just lucky?

You don’t know.

We only mention this to warm you up to today’s message. We are not earnestly trying to pick apart and carefully analyse Fed policies. We’ll never know the truth of it. We are just cynically pointing a finger and laughing. We may not know truth, but we have a keen eye for claptrap. And in Fed policy, we see a lot of it.

We began this series by observing that economists are no better than fortune tellers and palm readers at foretelling the future. Apologies to the fortune tellers; for all we know, their forecasts occasionally pan out. Those of the economists, on the other hand, we know are nonsense.

Yet investors seem to be convinced that not even God himself could sink this market. They believe the Fed “won’t let it happen”.


Bill Bonner on markets, economics & the madness of crowds

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As we have shown, the Fed never knows what will happen and what won’t. So the odds of an intervention before something happens, specifically to prevent it, are remote. On the other hand, it appears that central bankers can raise asset prices – AKA stock market manipulation – if they put their backs into it. Give the economy enough easy credit, and stocks and real estate usually go up.

Central planning and activism can be effective, but only in very limited sense. The Pentagon has made a major mess of practically every war it has entered since WWII. Still, it can obliterate a city if it sets its mind to it. Likewise, the Fed has made a terrific mess out of the US economy, but it can still raise stock prices.

Most investors haven’t noticed the dangers facing them. Few economists want to think about it.

But the real problem is revealed in the income figures: average hourly wages have gone nowhere in 46 years. Piketty, Krugman, et al see it as a problem of “inequality”, as if the economy produced a lot of new wealth but it wasn’t distributed properly. Republicans reply that the alleged inequality is fake, and that if you add in health care and other benefits the average worker is much better off than he was before we landed on the moon.

Both are wrong. We don’t know what the full truth of it is, but we know a bum economy when we see one. And we know – both by observation and simple, logical canoodling – that central planning always produces a bum economy. We know of no counterexample. The more the government meddles in the economy, the worse the economy does.

The most central price in America – the cost of credit – is no longer discovered, as it would be in a free market. Instead, it is found right where the authorities put it. And for the past six years, they’ve hidden it in the basement.

This has helped reduce hourly wages to the lowest level since 1968. As for household income, it has erased all progress since 1987.

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