It has become clear now that the troubles in the oil patch and the junk bond market are beginning to spread beyond their source – just as we have always argued would eventually happen. Readers are probably aware that today was an abysmal day for “risk assets”. A variety of triggers can be discerned for this: the Chinese yuan fell to a new low for the move; the Fed’s planned rate hike is just days away; the selling in junk bonds has begun to become “disorderly”.
Recently we said that JNK looked like it may be close to a short term low (we essentially thought it might bounce for a few days or weeks before resuming its downtrend). We were obviously wrong. Instead it was close to what is beginning to look like some sort of mini crash wave:
What? No Austrian Prescription? Bloomberg Reporters Cannot Believe It
This is truly funny. Ahead of the FOMC decision, Ron Paul, who is well-known as an an implacable critic and enemy of the Fed and a fan of the Austrian School of Economics, was interviewed at Bloomberg as to “what the Fed should do”.
What makes it so funny is that the Bloomberg reporters seemingly cannot believe that Austrian economists simply have no “prescriptions” for the Fed. They keep pushing Ron Paul for giving them some advice. “But we do have a Fed…given that the institutional set-up is what it is and we cannot change it, what should they do? What’s the “Austrian” prescription?”
Dear Dr. Paul, please tell the Fed what to do! 🙂
Photo credit: Sean Gardner / Reuters
We happen to think Ron Paul could actually have handled the reply to this a bit better than he did. He could e.g. simply have told them that their question was akin to asking him “how many tractors should GOSPLAN produce this year?” It is simply an utterly nonsensical question. What inter alia makes Austrian economics unique is precisely that the theory leads to the inescapable conclusion that one cannot improve on the free market economy by means of statist intervention and central planning.
There Cannot Be a “Right” Fed Decision
Hence there cannot be any “advice” to a central bank, except the one Ron Paul actually gives: butt out and let the market decide. Of course this is tantamount to telling the Fed that it is surplus to requirements – which it indeed is. Ron Paul also mentions that the government should actually open money to competition – in other words, it should repeal legal tender laws and allow private money production to occur.
We were wondering a while if there was anything we could say about the highly entertaining real estate mogul who has successfully hijacked the Republican nomination process – apart from the fact that he is sporting a haircut that looks a bit like a helicopter landing pad, endowing him with instant recognizability:
Teflon-Donald Trump, the unlikely front-runner with the interesting haircut
Photo credit: Dominick Reuter / Reuters
Of course there is far more to the man and his unexpected impact. For one thing, he is what one would generally describe as a “populist” – i.e., he is prone to saying controversial things other politicians would rather not mention, at least not in as blunt a fashion, for reasons of political correctness. Evidently they resonate with many voters though (or at least a large part of the Republican base).
We certainly find his success interesting from a sociological perspective. Elliott Wave International analysts Steven Hochberg and Robert Kendall regard him as a typical bull market personality – this is to say, his popularity tends to rise and peak with bull markets, and decline during bear markets – along with his personal fortune. They conclude that he has become “Teflon Don” – the man who simply cannot be damaged by what are supposedly damaging assertions – because the market has been so strong in recent years.
Fourth Turnings are driven by changes in the social mood. The rise of Donald Trump is a reflection of a huge change in the social mood in the US. The widening gap between the .1% and the 99.9% around the world is resulting in further changes in the social mood. It’s impacting China, Europe and the U.S. As financial markets around the world begin to crash under the weight of the massive debts created by central bankers and politicians, the social mood will turn downright nasty. Civil strife, revolutions, and war are just over the horizon. Fourth Turnings always intensify. Always.
Luxury Goods and Status Symbols in Trouble in China
A friend recently mailed us an article from the Hong Kong Standard which describes how extremely high retail shop rents in Hong Kong can no longer be paid even by retailers of luxury brands.
Gucci store in Hong Kong, Central
Photo via flickr
Not only is this testament to the fact that Hong Kong’s real estate bubble has gotten out of hand quite a bit, but the waning demand for luxury goods is also highly interesting from a sociological and economic perspective. As the Standard reports:
Business is getting tougher for Hong Kong’s retailers with the value of total retail sales dipping 1.6 percent in the first half of 2015 from a year back, according to the Census and Statistics Department’s latest data.
Valuable gifts, including jewelry, watches and luxury goods, were hardest hit, with sales falling for 10 consecutive months. Sales value slumped 10.4 percent in June compared with a year earlier, despite efforts by several luxury brands – including Italian fashion house Prada – to boost sales by cutting prices. Squeezed by slimmer pickings in Hong Kong and the mainland market, top global luxury brands are looking to renegotiate store rents to cut costs.
The latest to plead for landlords’ mercy was French luxury goods conglomerate LVMH. Revenue from its signature brand Louis Vuitton slumped 10 percent year- on-year in Hong Kong, Macau and China for the first half while Europe and the United States saw stronger sales of fashion and leather goods. It is also planning to close a directly operated shop of its biggest watch brand, Tag Heuer, in Causeway Bay.
[…]
British high-end fashion house Burberry, which has 16 shops in the SAR, said it may trim its local store network and negotiate for lower rents after the Hong Kong market, which accounts for about one-tenth of the brand’s total sales, saw a double-digit percentage fall in sales over the period.
Meanwhile, Gucci owner Kering said it will consider closing its Hong Kong and Macau outlets if rents stay high.
[…]
Waning sales and whopping rents have sent Italian fashion label Baldinini packing. It shut its first and only flagship boutique in Hong Kong after just four months in operation, ending its three- year contract.
In June, visitor arrivals from the mainland were down 1.8 percent year- on-year. Adding to the woes of luxury goods vendors are the changing spending patterns of mainland visitors, who are now looking for more mid-priced products.
Alexis Tsipras has sent a letter to Jeroen Dijsselbloem of the euro-group (you can download the letter here, pdf), in which he requests a separate bailout from the ESM, essentially proposing that the ESM take over Greece’s liabilities for a period of two years. Unsaid, but implied, is that this would result in the referendum being recalled. More likely it is just a ploy to enhance Syriza’s chances of obtaining a “no” vote in the referendum.
Image via dreamstime.com
Rumor has it that this letter was sent in the wake of “infighting at Syriza” over whether or not to hold the referendum. Reportedly some in Syriza fear that there is a risk that the “yes” vote will prevail and force Tsipras to resign and call for new elections. Anyway, these are just rumors, if not entirely implausible ones. The letter Tsipras sent in any case didn’t change anything, because the stance of the euro-group is that nothing new will be decided until after the referendum.
What struck us as far more interesting however, is how far Angela Merkel was apparently prepared to go in order to accommodate Greek demands. She let this slip when briefing her government coalition partners in Germany, the Social Democratic Party (SPD). She didn’t appraise her colleagues in her own party of this, apparently fearing their wrath. As Der Spiegel reports in its German language edition:
Kids to Michelle Obama: Here’s Where you can Stick your School Lunch Rules
A close-up of one of the Nanny State’s new “healthy school lunches” – a.k.a. the flood level of Halo 3 – via Twitter
Politicians have always labored under the entirely mistaken impression that one can keep people from doing what they actually want to do, or that markets can be suppressed by outlawing them. The greatest monument to this folly is the utter failure known as the “war on drugs”. Even those who believe in the notion that the government should look after the “Volksgesundheit”, or, as is far more likely in the case of drug prohibition, should enforce Puritanical morals on people against their will (while ensuring the profitability of officially sanctioned drug pushers in the form of the pharmaceutical industry on the side), must admit by now that the effort has been a spectacular and costly fiasco.
After Germany’s reunification, old medical records and statistics were rediscovered in the former GDR, which allowed researchers to complete the historical record back to 1871, when Germany was first unified. Upon studying these statistics, they inter alia found out that use of the drugs considered most dangerous – assorted derivatives of opium – has been precisely as prevalent among the population after prohibition as it was before it. In other words, the health benefit of prohibition was precisely zero. So who is benefiting? Apart from the already mentioned pill-pushers, this cartoon seems to cover it:
We’ve been in recession since at least December. Retail sales, which account for 67% of GDP have sucked for the last four months. Obamacare spending is the only thing that kept the 4th quarter GDP from being negative. Factory orders have crashed and it is clear to anyone with a functioning brain (disqualifies politicians, CNBC bimbos and boobs, and Ivy League trained economists) we are in recession. We’ve crossed the Blutarsky line.
The Atlanta Fed has posted today that its GDP Now measure has reached exactly the same level as a certain Mr. John Blutarsky’s mid-term grade average. This is to say, it has declined to 0.0%.
GDP Now goes Blutarsky – via Atlanta FED
Watch the video below to see what such average grades can actually lead to.
Just Call it “Enhanced Interrogation” and it is OK
In recent days, unknown Senate staffers have attempted to edit the Wikipedia page on the CIA torture report at least two times, trying to edit out the term “torture” so as to replace it with the Orwellian euphemism du jour, “enhanced interrogation”. If a normal interrogation is good, an enhanced one must be even better, right?
The Pew Research Centre has recently lobbed the following questions at American tax cows with surprising results (at least, they were surprising to us):
If you call it an “interrogation method” instead of calling it what it actually is, this is the result you get.
Mish has some more details and color on this particular survey. Certainly the framing of the questions has a strong influence on the replies one gets in such surveys. This has prompted many to try to explain this poll result away, and to some extent their arguments have merit.
However, we actually don’t want to make excuses for the intellectual laziness and moral turpitude of those who are fine with torture. Anyone supporting torture is both woefully uninformed and needs to urgently re-examine his moral compass. It is quite stunning how many people of this sort are apparently running around. We recommend looking at the comment sections of articles on the torture report in a number of mainstream media in this context, which are often quite revealing.
One widely supported view is that since Islamist radicals are merciless and brutal, they don’t deserve any better (never mind that a number of perfectly innocent people were incarcerated without trial and tortured as well, with many of them “rendered” to lawless and tyrannical countries). However, two negatives only cancel each other out in mathematics. In the realm of ethics and morals, you either have ethical and moral principles, or not. It doesn’t matter what your perceived enemies are doing, or as is all too often the case, are allegedly doing.
Steve Bell on “rendering”
It is Not Only Wrong, it Doesn’t Even Work
One argument forwarded by supporters of torture is a utilitarian one. These people seem to believe that the world works precisely as depicted in the television series “24” (we believe there is a bit more to such TV series than entertainment; they are also a form of social conditioning). In reality, the “ticking time bomb” scenarios shown on TV simply don’t exist, and even if they did, torture would not help in thwarting them. Readers may want to review this lengthy article by Washington’s Blog, which thoroughly demolishes the idea that any useful information can be gleaned by means of torture. In fact, practically every expert in the field of interrogation confirms that torture is not only counterproductive in the fight against terrorism, but that the only thing one can obtain by torture are false confessions.
Naturally, this must have been well known to those ordering the policy. Hence, the only conclusion that makes any sense is that false confessions is precisely what they wanted to get – and did in fact get. Why did they want to get false confessions? Consider just a few examples listed by Washington’s Blog, which speak for themselves:
Finally, an NBC News report detailing that “much of the 9/11 Commission Report was based upon the testimony of people who were tortured” and that the members of the 9/11 Commission themselves doubted the accuracy of the torture confessions, and yet kept their doubts to themselves.
In short, they needed false confessions to a) sell the disastrous Iraq war to the public and b) to cover up their incompetence in the 9/11 attack (or whatever else needed covering up – we would go with incompetence as the most likely scenario).
In a nation of law, those who ordered torture and those who committed it would face prosecution (“we were just following orders” hasn’t been a valid defense since Nuremberg). Since the possibility of such prosecutions cannot be ruled out completely, the people involved – such as Dick Cheney – have gone on the offensive in the media, and were evidently able to rely on the generous support of same (America is so “awesome” according to this valley girl at Fox News, that a little bit of torture shouldn’t detract from all this awesomeness).
Dick Cheney defends his record …
Cartoon by Horsey
Prosecuting Whistleblowers, but not Murderers
However, one person – the only one – actually has been prosecuted in the torture scandal. This person is the whistle-blower who leaked the fact that the CIA was torturing people at its “black sites” to the public. Color us unsurprised by this. Here is an excerpt of a brief summary of the situation from anti-war.com:
The United States sanctioned acts of tortureby the Central Intelligence Agency and others. The acts took place in secret prisons (“black sites”) against persons detained indefinitely without trial. They were described in detail and explicitly authorized in a series of secret torture memos drafted by John Yoo, Jay Bybee, and Steven Bradbury, senior lawyers in the DOJ’s Office of Legal Counsel. (Office of Legal Counsel attorneys technically answer directly to the DOJ, which is supposed to be independent from the White House, but obviously was not in this case.) Not one of those men, or their Justice Department bosses, has been held accountablefor their actions.
Some tortured prisoners were killed by the CIA. Attorney General Eric Holder announced recentlythat no one would be held accountable for those murders either. “Based on the fully developed factual record concerning the two deaths,” he said, “the Department has declined prosecution because the admissible evidence would not be sufficient to obtain and sustain a conviction beyond a reasonable doubt.”
Jose Rodriguez, a senior CIA official, admitted destroying videotapes of potentially admissible evidence, showing the torture of captives by operatives of the U.S. government at a secret prison thought to be located at a Vietnam-War-era airbase in Thailand. He was not held accountablefor deep-sixing this evidence, nor for his role in the torture of human beings.
The one man in the whole archipelagoof America’s secret horrors who went to jail is former CIA officer John Kiriakou. Of the untold numbers of men and women involved in the whole nightmare show of those years, only one. And of course, he didn’t torture anyone.
The charges against Kiriakou alleged that in answering questions from reporters about suspicions that the CIA tortured detainees in its custody, he violated the Espionage Act , once an obscure World War I-era law that aimed at punishing Americans who gave aid to the enemy. It was passed in 1917 and has been the subject of much judicial and Congressional doubt ever since. Kiriakou is one of six government whistleblowers who have been chargedunder the Act by the Obama administration. From 1917 until Obama came into office, only three people had ever charged in this way.
(emphasis added)
This is an interesting way of apportioning blame and dispensing justice. Is it fair to call it the “American Way”? We’re just asking, mind. In our opinion the US, for all its faults, has always stood for liberty. Surely the ideals on which the US was founded haven’t completely disappeared just yet, but since the 9-11 attack these ideals have been increasingly undermined by the ruling class to be replaced by a false ideal of “security” (it is false, because security has also been undermined by the actions that have been taken).
Apart from the whistle-blower, there’s also a dog we might consider prosecuting
Cartoon by Steve Bell
Shattered Lives
Torture is wrong regardless of the guilt or innocence of those on the receiving end, but civilized people no doubt will be all the more appalled upon learning what has happened to some of the innocent people who have been kidnapped and rendered to CIA black sites. How the State has handled these “errors” is extremely revolting.
One glaring example is Khalid al Masri, a mechanic from Germany. By refusing to acknowledge that it had made an error and failing to publicly admit that al Masri was in fact innocent, the CIA (and the Senate) made the man’s life akin to hell on earth. He was not only needlessly tortured for weeks on end (the people who captured him already began to doubt that he had any connections to terrorism during the rendition flight), his entire life was effectively destroyed. We urge you to read the article on this case at McClatchyin toto. Here are is an excerpt:
Khalid al Masri is a broken man today. A decade after the CIA snatched him by mistake, flew him half way around the world in secret, and questioned him as part of its detention and interrogation program, he’s yet to recover.
He’s abandoned his home. He no longer is part of the lives of his wife or children. Friends can’t find him. His attorneys can’t find him. German foreign intelligence will say only that he’s “somewhere in a western-leaning Arab nation.”
When his Ulm attorney and confidant Manfred Gnjidic last saw him, he was broke, unkempt, paranoid and completely alone. He’d been arrested twice and sent once to a psychiatric ward, once to jail. He was in deep need of psychological counseling but with no hope of the extensive help he needed.
“Masri’s case is one of the 26 instances detailed in the Senate Intelligence Committee report where the CIA snared someone in its web of secret dungeons by mistake, realized its error after weeks or months of mistreatment and questioning, then let them go. But the report, made public Tuesday, does not recount what that mistake meant to al Masri’s life.
“I was stunned by the torture report,” Gnjidic said. “They had known and privately admitted for years that they had made a mistake regarding Khalid,” who is a German citizen.
And yet the CIA, which realized its error within weeks of al Masri’s January 2004 detention, remained silent, as did the Senate Intelligence Committee, which learned of the mistake in 2007.
“For a decade, a decade in which his life has been shattered, he’d asked for . . . an apology, an explanation, a chance to go ahead with his life,” Gnjidic said. “They knew this, they admitted this and they didn’t share this with him?
“How cowardly must they be, how weak must they be, to fear apologizing when they knew they were completely in the wrong.”
Masri’s CIA detention, which combined with Macedonian intelligence detention which Gnjidic believes was at the request of the CIA, totaled 35 days by CIA count, but closer to four months by Masri’s.
The Senate report does not discuss his treatment in detention. But al Masri has insisted over the years that he was tortured. He’s described being shackled to the ceiling while naked, unable to sit for days, existing on nothing, in the dark, a scenario that appears to be common in the torture report.A European court ruled in 2012 that he’d been sodomized and drugged.
The shadow cast by that detention saw him labeled by German media as an “Islamist extremist.”
Neighbors shunned him. Potential employers turned him away. In 2010, the German national newspaper Bild ran a story about him under a headline asking “Why do we allow ourselves to be terrorized by such a man?”
The article went on to state that “for months the Islamist who claims to be a victim of CIA torture has terrorized the federal government, parliament and the public.” His terrorism of the federal government apparently was in asking for redress and an explanation for what had happened to him.
As Gnjidic notes, and the Senate report makes clear, those answers were available to Masri years before he finally broke.
(emphasis added)
To this day, no-one has even apologized to Khalid al Masri. As the article concludes:
“Masri brought his case, he told his story, and they knew it was true,” Dakwar said. “Yet he never received redress. He never received an apology. He never even received acknowledgment. His case gives you an idea of the level of lawlessness, the magnitude of this atrocity. His life was devastated. And the United States didn’t care.”
Evidently, the decision not to acknowledge this mistake was mainly made based on “cover-your-behind” considerations. Had the government not been successful in hiding behind the cover of “national security”, which enabled it to avoid having to present evidence to the court in al-Masri’s case, quite a few rather embarrassing details would presumably have come to light. It was obviously much easier to simply destroy al-Masri’s life. The monstrous calculation being: no-one will care anyway. He’s a swarthy man with a Middle-Eastern sounding name, so who’s going to believe him? It obviously worked.
Convincing evidence
Cartoon by Steve Bell
Conclusion:
All those who have come out in support of torture must ask themselves this: are we, or are we not different from the medieval barbarians we purport to be fighting? Torture is incompatible with civilization and the rule of law – no matter what it is called.
Addendum: Raimondo on the Torture Report
Here are two additional reads we want to recommend. The first is Justin Raimondo’s initial column on the release of the report, which contains this highly pertinent observation:
“The worst of the worst were key to the torture program. Although much is being said about the “incompetence” of the CIA in assigning highly problematic personnel to their deepest darkest covert operation, this assumes it wasn’t intentional – an unwarranted assumption in my view. After all, who would be better qualified to implement Dick Cheney’s sadistic fantasies than “a number of personnel whose backgrounds include notable derogatory information calling into question their eligibility for employment, their access to classified information, and their participation in CIA interrogation activities”? In short, it was a free-for-all at Torture Headquarters, with “untrained CIA officers at the facility” going all Marquis de Sade with their “frequent, unauthorized, and unsupervised interrogations of detainees using harsh physical interrogation techniques that were not—and never became—part of the CIA’s formal ‘enhanced’ interrogation program.”
Here the lesson is basic libertarianism, 101: government attracts the worst of the worst. Yes, there were some at the CIA who disputed the legality and morality of what was being done, and the report makes this clear, but in any statist society these people in government are a distinct – and usually powerless – minority.
Isn’t it funny how the storyline from the US corporate MSM is how dire the financial situation is in Russia when their Debt to GDP ratio is 13% and the US ratio is 103%? You have to be a moron to believe the crap they shovel every day.
Possible Side-Effects of Plunging Commodity Prices – A Look at Russia
One of our readers wrote to us with a question on a topic that will surely be of interest to a wider audience. Here is what he asked:
“As FX reserves dwindle, surely there is some potential that Russia may be forced seller of Gold? I understand your views re gold market, but would be most interested to hear your thoughts on the possible impact? Are there other options? Talk of gold backed RUB, default on USD debts, etc.
It is clear that a number of major oil producers are in severe trouble. However, Russia’s central bank has actually increased its gold reserves in recent months. It is now the world’s 5th largest official holder of gold, after increasing its stock pile to 1,150 tons in September (the most recent data available).
To this it must be kept in mind that Russia itself is a major producer of gold, the third largest in the world in fact, mining about 250 tons per year. The central bank is involved in the marketing of this gold, acting as an intermediary for producers. Still, in spite of increasing its gold reserves quite a bit, they still only represent about 10% of Russia’s total reserves. Here is by the way a chart of gold in ruble terms:
In ruble terms, gold is at a new all time high – click to enlarge.
So why has Russia’s central bank actually accelerated its gold buying (i.e., has retained more of the gold it markets for local producers than normally) in the face of increasing pressure on its foreign exchange reserves? As one commentator remarked:
“From the perspective of a sovereign which is concerned about aspects of geopolitical risk, it makes sense that they would have a bias toward physical gold,” Brian Lucey, a finance professor at Trinity College Dublin and formerly an economist for the Central Bank of Ireland, said today by phone. With lower gold prices, Russia may have viewed it “as good a time as any to pick it up,” he said.
Russian officials think about this exactly as Alan Greenspan does. When Greenspan was once asked why the US treasury shouldn’t sell its remaining gold reserves, he pointed out that in extremis, such as in times of war, gold is absolutely certain to remain a viable means of payment that will be accepted by everybody. He cited the experience of Germany during WW2 to buttress this claim empirically.
We would also note that while Russian reserves have been under pressure due to capital flight and misguided attempts to defend the ruble’s exchange rate with forex market interventions, its current account has been consistently positive since the mid 1990s:
Russia’s current account remains in surplus – click to enlarge.
The current account surplus may come under pressure as well in light of plunging oil prices, but Russia has used the years of plenty to build up a “rainy day” fund amounting to about $470 billion in addition to its central bank reserves. The current situation is presumably precisely what Russia’s government had in mind when it did that.
Note as an aside that the Russian government is in a very strong fiscal position – the kind most developed nations can only dream of. This is now also bound to deteriorate somewhat (although not as much as one might expect, as the ruble price of oil has barely declined), but Russia certainly still has a lot of fiscal flexibility:
Russia’s public debt to GDP ratio. The government is nearly debt free. As an aside, there is a flat personal income tax rate of just 13% in Russia – click to enlarge.
WTIC crude oil, monthly – as can be seen, prices are now back to where they already were in 2005-2006, pressuring all major oil producers – click to enlarge.
Readers may also recall that Mr. Putin has recently been persuaded by the free-market oriented faction of prime minister Medvedev that he should finally do something about official corruption, as a means to counter the effects of economic sanctions (see: “Russia Moves Toward Increasing Economic Freedom” for details). Putin agreed, as he evidently understands that Russia’s economy needs every bit of help it can get. We recently had official confirmation of the new approach in Putin’s annual address to the Duma. Here are what we believe are the most important points:
“I propose a full amnesty for capital returning to Russia. I stress, full amnesty. Of course, it is essential to explain to the people who will make these decisions what full amnesty means. It means that if a person legalises his holdings and property in Russia, he will receive firm legal guarantees that he will not be summoned to various agencies, including law enforcement agencies, that they will not “put the squeeze” on him, that he will not be asked about the sources of his capital and methods of its acquisition, that he will not be prosecuted or face administrative liability, and that he will not be questioned by the tax service or law enforcement agencies.
[…]
It is essential to lift restrictions on business as much as possible, free it from intrusive supervision and control. I said intrusive supervision and control. I will consider this in more detail later. I propose the following measures in this regard.
Every inspection should become public. Next year, a special register will be launched, with information on what agency has initiated an inspection, for what purpose, and what results it has produced. This will make it possible to stop unwarranted and, worse still, ‘paid to order’ visits from oversight agencies. This problem is extremely relevant not only for business, but also for the public sector, municipal institutions and social NGOs.
Finally, it’s crucial to abandon the basic principle of total, endless control. The situation should be monitored where there are real risks or signs of transgression. You see, even when we have already done something with regard to restrictions, and these restrictions seem to be working well, there are so many inspection agencies that if every one of them comes at least once, then that’s it, the company would just fold. In 2015, the Government should make all the necessary decisions to switch to this system, a system of restrictions with regard to reviews and inspections.
Concerning small business, I propose establishing ‘holidays from inspections’. If a company has acquired a good reputation and if there have not been any serious charges against it for three years, then for the next three years it should be exempted from routine inspections by government or municipal supervisory agencies. Of course, this does not apply to emergencies, when there is a danger to people’s health and life.
Business people talk about the need for stable legislation and predictable rules, including taxes. I completely agree with this. I propose to freeze the existing tax parameters as they are for the next four years, not revisit the matter again, not change them.
Meanwhile, it is important to implement the decisions that have already been made to ease the tax burden. First of all, for those who are just setting up their operations. As we have agreed, two-year tax holidays will be provided to small businesses registering for the first time. Production facilities that are starting from scratch will be entitled to the same exemptions.
(emphasis added)
It should be obvious that if this program of liberalization is successfully implemented, it will do a lot to halt capital flight – more than the capital repatriation amnesty would do by itself. However, the two proposals go hand in hand: if owners of “flight capital” can be persuaded that official corruption is going to be successfully tackled and state interference with private enterprise will be significantly reduced, they have a big incentive to bring some of their funds back.
We would conclude from all this that the danger that Russia will become a forced seller of official gold reserves is fairly low for the time being.
Venezuela under Great Pressure
Socialist Venezuela is under far greater pressure to sell or swap some of its official gold holdings. We recently showed this chart of the black market Bolivar rate, which is a reflection of the dire straits the government finds itself in:
The bolivar has collapsed in the black market in Cucuta (a border town with a flourishing foreign exchange trade) – click to enlarge.
Under both Nicolas Maduro and his predecessor Huge Chavez, plenty of welfare spending and other government handouts have been funded with the country’s oil income. This policy was combined with massive inflation of the local currency, fixed exchange rates and price controls. As a result there are now shortages of goods as well as a growing shortage of foreign exchange reserves. The government is increasingly unable to pay for imports and foreign debt coming due concurrently. Its social spending has become unaffordable too. So there is a good chance that Venezuela will eventually be forced to sell some of its official gold holdings.
However, as we always point out, such news can at most have a short term psychological impact on the gold market. The gold market is so big that Venezuela’s potential sales won’t even be noticed.
Besides, it should be obvious by now that central bank gold buying in recent years has not helped the gold price one bit – QED.
Conclusion:
A few nations may indeed be forced to sell some of their official gold reserves as a result of plunging oil prices. It seems however not likely at this juncture that Russia will be one of them. Moreover, the impact on the gold market should be quite limited. We will discuss the other parts of the reader question above next week (i.e., the possibility of introducing a gold-backed ruble and the possibility of defaults on USD denominated debt).
We are updating our suite of sentiment data again, mainly because it is so fascinating that a historically rarely seen bullish consensus has emerged – after a rally that has taken the SPX up by slightly over 210% from its low. Admittedly, a slew of such records has occurred in the course of the past year or so, and so far has not managed to derail the market in the slightest– in fact, since 2012, only a single correction has occurred that even deserves the designation “correction” (as opposed to “barely noticeable dip”).
While a number of positioning and survey data show a bullish consensus that easily dwarfs anything that has been seen before, this consensus is not reflected in expressions of exuberance by the broader public. “Anecdotal” sentiment seems more cautious and skeptical than the quantitatively measurable kind. Most likely this is because the vast bulk of the middle class has been so thoroughly fleeced in the last two boom-bust sequences that it finds itself in dire straits in spite of the reemergence of major asset bubbles across a wide swathe of assets. This includes by the way an astonishing revival of the bubble in real estate prices – see e.g. this 330 square foot shack in San Francisco, which recently sold for $765,000:
Yes, that tiny dark-brown thingy situated on a steep road sold for $765,000. The real estate bubble is back.
(Photo credit: SFARMLS)
Moreover, with the broad US money supply (TMS-2) having nearly doubled since 2008 and other major central banks inflating their money supply as well at breakneck speed, there has been more than enough “tinder” provided the world over to drive asset prices higher. This by the way makes a complete mockery of the constant refrain of central bankers that we are allegedly threatened by “deflation”. The inflationary effects of their monetary pumping are simply showing up in asset prices rather than consumer goods prices – ceteris paribus, a rapid inflation of the money supply always leads to prices rising somewhere in the economy.
Bubble Trouble
There is of course a “danger” that this asset price bubble will burst rather spectacularly once monetary inflation slows down sufficiently (it will probably never be reversed again in our lifetime, but a slowdown is already underway). In light of the current rare extremes in positioning, sentiment and leverage, the eventual denouement of the current bubble should be a real doozy. Note that in every respect one can possibly think of – with the sole exception of household debt – systemic leverage is at new all time highs (not only in absolute terms, but relative to everything, including the size of the known universe), and is likewise positively dwarfing anything that has occurred before.
Specifically relevant for financial markets are record highs in margin debt, record highs in hedge fund leverage, as well as record issuance of junk debt in recent years, which in turn has given rise to systemic leverage once again vastly increasing in the credit markets on the part of investors as well. To the latter point, note that financial engineering that is specifically aimed at enabling the taking of extremely leveraged positions is back with a vengeance as well – however, at the same time, the markets for the underlying debt instruments have become quite illiquid due to new banking regulations that hinder proprietary trading activities by banks (for a more detailed discussion of these topics see “A Dangerous Boom in Unsound Corporate Debt” and “Comforting Myths About High Yield Debt”).
In light of all these considerations, it is truly remarkable how little concern there is. Even former skeptic Hugh Hendry is these days talking about the alleged “omnipotence of central banks” which money managers are forced to surrender to (this view strikes us actually as an example of the “potent directors fallacy” – see also this comment by EWI on the topic). While we certainly have some understanding for his perspective – after all, as a fund manager, he cannot afford to “miss” an asset boom, or he will soon be out of a job – we do think he may be underestimating the potential for a capsizing of the happy ship that could well happen in an unseemly hurry, for currently unanticipated reasons. With “reasons” we actually mean “triggers” – the reasons are already discernible and perfectly clear: we listed most of them above. All that is still needed is a trigger that alters the perceptions of a critical mass of observer-participants.
In short, bubbles don’t burst because of a “black swan”: rather the swan – often a combination of events that makes it impossible to identify a single trigger – is a diffuse trigger mechanism that sets into motion what is already preordained. It is the famous “one grain too many” that is put atop a giant sand pile – however, it is the sand pile that is the problem, not the one grain. This is also why precise timing of a bubble’s demise is so difficult – it is unknowable what exactly will actually lead to the change in perceptions that ultimately provokes the unwinding of the leverage that has been built up.
At some point down the road, a Zimbabwe or Venezuela type very rapid devaluation of money may emerge. In this case asset prices would become solely a function of monetary debasement. It is important though to keep in mind that things don’t just move from the present state to the Venezuela type state from one day to the next – not to mention that it may not happen at all, if central banks in developed nations alter their policies in time. Assuming for argument’s sake though that it does eventually happen, there will still be an interim phase during which monetary debasement will e.g. alter the perceptions of stock market investors regarding the multiples they should pay for corporate earnings. This is what happened e.g. in the 1970s: multiples contracted into single digit territory, because market participants decided that the future stream of earnings would be less valuable in real terms, and thus deserved a commensurate discount.
Sentiment Data
Let us move on now to our suite of data. We have on purpose decided to follow a number of data points that relatively few people usually look at, in the hope that they may therefore be slightly more meaningful. Below we show three different views of Rydex data. The first chart shows the Rydex ratio in the form (bear+money market fund assets)/bull assets, as well as the disaggregated bear, MM fund and bull assets. It is noteworthy that the ratio of bears plus fence sitters to bulls has now also declined to a new all time low (the chart is inverted).
The second chart shows a more detailed view of money market and bear assets, plus the “pure” bull/bear asset ratio. The latter has made a remarkable move in recent weeks – it has gone straight up without even the slightest correction, as assets deployed in bull funds have exploded higher. In terms of this data series it represents the most extreme expression of a bullish consensus ever.
Next comes the leveraged bull/bear fund ratio, which compares assets in Rydex funds that employ leverage. Almost needless to say, it is at an all time high as well, but what is most remarkable about it is that it has spent more than a year in “excessive optimism” territory. This by the way goes to show that these data are not very useful for timing purposes. What they are useful for is this: the more time they spend in extreme territory, the more profound the move in the opposite direction is likely to be once it gets going.
Similar considerations apply to the Investor’s Intelligence survey and the mutual fund cash-to-assets ratio which come next. We show a very long term chart of the latter – what is noteworthy is the big difference in fund manager positioning and sentiment during the period beginning in 2000 compared to the secular bear market that lasted from 1968 to 1982. The latter was characterized by extreme fear and caution, while the period since the 2000 tech mania peak shows a remarkable degree of complacency (again, we think this is quite meaningful for the long term outlook).
Lastly we also update the still growing divergences between junk debt ETFs and credit spreads versus the SPX.
Rydex: the (bear + MM funds)/bull funds asset ratio has now also hit a new all time low. This was mainly due to a huge surge in bull assets (which have increased roughly by one third in the 6 weeks since the October correction low) – click to enlarge.
A closer look at money market funds, bear assets and the “pure” bull/bear asset ratio. The latter has just made a truly stunning move. Nothing comparable has ever happened before – click to enlarge.
The leveraged Rydex bull/bear asset ratio – in “extreme optimism” territory for more than a year, and currently at a new all time high – click to enlarge.
The Investor’s Intelligence survey. The bull/bear ratio has failed to return to the 27 year high hit earlier this year twice in succession, but the bear percentage has fallen back to 14.9% – only slightly above the all time low of 13.3% recorded earlier this year – click to enlarge.
The mutual fund cash-to-assets ratio. Compare the secular bear market of 1968-1982 with the period since the year 2000 tech bubble peak. Fear and caution have been replaced by utter complacency. This is likely telling us something about what to expect in the long term – click to enlarge.
Junk debt (represented by the JNK ETF) compared to government debt and the SPX. Credit spreads are widening and the divergence with the stock market keeps growing – click to enlarge.
Conclusion – Real Wealth Undermined:
As noted in the title to this post, in some respects we’re in danger of running out of appropriate descriptive superlatives for the current bout of “irrational exuberance” (we’re open for suggestions). The current asset bubble is in many respects reminiscent of the late 1990s tech bubble, but it also differs from it in a number of ways. One of the major differences is that the exuberance recorded in the data is largely confined to professional investors, while the broader public is still licking its wounds from the demise of the previous two asset bubbles and remains largely disengaged (although this has actually changed a bit this year).
A few additional remarks regarding the alleged “omnipotence” of central banks: monetary pumping certainly has the power to distort prices across the economy, which includes inflating the prices of titles to capital. However, at some point there will be a stark choice – either the pumping is abandoned voluntarily, or one risks the destruction of the underlying currency system.
Moreover, there is another limiting factor in play, which doesn’t get as much attention as it probably deserves. Monetary pumping merely redistributes existing real wealth (no additional wealth can be created by money printing) and falsifies economic calculation. This in turn distorts the economy’s production structure and leads to capital consumption, thus the foundation of real wealth that allows the policy to seemingly “work” is consistently undermined. At some point, the economy’s pool of real funding will be in grave trouble (in fact, there are a number of signs that this is already the case). Widespread recognition of such a development can lead to the demise of an asset bubble as well.
We are all Idiots who Have to be Saved from Themselves
“Forced by the verdict of a German court, a long-established fishmonger in Hamburg had to attach a sign above his shop’s counter recently, which informs his customers that “fish may contain fish bones”. Packs of peanuts meanwhile contain, as requested by law, the hint that they “may contain traces of nuts”. For the same reason, irons nowadays often bear the request to please not iron things while one is wearing them. Who would have thought?”
The above is from a recent report in the Austrian press. German best-seller author and journalist at “Der Spiegel”, Alexander Neubacher notes in his new book “Total Beschränkt” (“totally restricted”) that this “over-protective policy” actually creates the very helplessness which it ascribes to citizens. He asserts: “Prohibitions are triumphing over reason – the more restrictions, the more morons” (in the German language, the sentence lends itself to word play: “je mehr Beschränkungen, desto mehr Beschränkte”).
He points out that “the State wants to wean us from thinking with ever more regulations, and makes us into idiot citizens who have to be saved from themselves”. The paternalistic infantilization of citizens by the Nanny State is nothing new, but it has become such a scourge in Europe that it has actually spawned an entire literary genre of complaints by now, one that is apparently selling extremely well.
Citizen, you clearly need help: the image Europe’s bureaucrats have of their fellow men
(Photo via taringa.net / Author unknown)
According to the article, Mr. Neubacher’s book should be regarded as the new “standard work” on the topic. The bureaucratic nannies in the EU have provided him with a formidable wealth of material.
Thus the reader learns e.g. that on German territory, bicyclists using an electric bicycle that “only supports pedaling” may have a blood alcohol level of up to 1.6 per mil without being in danger of losing their driver’s license, whereas drunkards using an electric bicycle that “also works while idling” may not exceed a 0.5 per mil threshold. In parts of Berlin, no second bathrooms, no open chimneys and no elevators may be added in apartment renovations; on drilling platforms and wind farms in the North Sea there not only have to be medical supplies and cookies in storage in case of emergencies, but also a “pack of cards”. Prohibitions, says Neubacher, are generally overrunning our daily lives like “knotweed on a cemetery wall”.
Beware the giant knotweed
(Photo via phyllophilus.blogspot.co.at)
Responsible Parties
Montesquieu, who died in 1755, formulated a general rule for a well-run state that has been long forgotten: “If it is not necessary to make a law, it is necessary not to make a law”.
Neubacher not only provides an extensive encyclopedia of the protective siege, he also names those responsible and their motives: politicians, he says, believe they need to be seen to “do something” – and it is easier to pass rules and regulations concerning completely unimportant details of life, than actually doing something substantive. So these regulations are in a way decoys, designed to distract from the politicians’ ineptitude.
Charles de Montesquieu: purveyor of good advice that has been ignored
With regard to this, we would however note that we are even more worried that they might actually do something “substantive”, so our concerns certainly differ from Mr. Neubacher’s in this particular respect.
Neubacher also points out that an entire industry has sprung up under the guise of supposed “consumer protection”, with numerous influential industry lobbies benefiting greatly from regulations and paternalism, which have created “profitable, crisis-resistant business segments, that make a lot of money on the back of Nanny State regulations”.
This is e.g. immediately obvious when considering the ban prohibiting the use of incandescent light bulbs in the EU: allegedly introduced to “save the planet”, the ban’s man aim has always been to “increase the profits of Osram”, which along with other lighting producers lobbied heavily for its introduction. Ever since, Europe’s citizens have been forced to sit in lighting reminiscent of a morgue. As Lord Christopher Monckton remarked to this, given that this morgue-like lighting is highly likely to discourage reading, the continued dumbing down of the population has probably been given a major shot in the arm by the light bulb ban.
Among the many examples for connoisseurs of the prohibitions and regulations created by the “preventative-bureaucratic complex” in Neubacher’s book, we also find the recent establishment of a cemetery for lesbian women in Berlin – where men, you guessed it, are prohibited from being buried. Thus the bureaucrats have ensured peace of mind for members of Berlin’s lesbian community even after they have shuffled off this mortal coil. One cannot even escape the nannies by dying anymore.
Inauguration ceremony of the new “lesbians only” cemetery in Berlin.
Ever since the ECB has introduced negative interest rates on its deposit facility, people have been waiting for commercial banks to react. After all, they are effectively losing money as a result of this bizarre directive, on excess reserves the accumulation of which they can do very little about.
However, there is an obvious flaw in taking such measures – at least is seems obvious to us. The Keynesian overlords at the central bank who came up with this idea have failed to consider a warning Ludwig von Mises once uttered about the attempt to abolish interest by decree.
Obviously, the natural interest rate can never become negative, as time preferences cannot possibly become negative: ceteris paribus, consumption in the present will always be preferred to consumption in the future. Mises notes that if the natural interest rate were to decline to zero, all consumption would stop – we would die of hunger while investing all of our resources in capital goods, i.e., while directing all of our efforts and funds toward production for future consumption. This is obviously a situation that would make no sense whatsoever – it is simply not possible for this to happen in the real world of human action.
Mises warns however that if interest payments are abolished by decree, or even a negative interest rate is imposed by decree, owners of capital will indeed begin to consume their capital – precisely because want satisfaction in the present will continue to be preferred to want satisfaction in the future regardless of the decree. This threatens to eventually impoverish society and reduce it to a state of penury:
If there were no originary interest, capital goods would not be devoted to immediate consumption and capital would not be consumed. On the contrary, under such an unthinkable and unimaginable state of affairs there would be no consumption at all, but only saving, accumulation of capital, and investment.
Not the impossible disappearance of originary interest, but the abolition of payment of interest to the owners of capital, would result in capital consumption.
The capitalists would consume their capital goods and their capital precisely because there is originary interest and present want-satisfaction is preferred to later satisfaction. Therefore there cannot be any question of abolishing interest by any institutions, laws, and devices of bank manipulation. He who wants to “abolish” interest will have to induce people to value an apple available in a hundred years no less than a present apple. What can be abolished by laws and decrees is merely the right of the capitalists to receive interest. But such laws would bring about capital consumption and would very soon throw mankind back into the original state of natural poverty.”
(emphasis added)
Ludwig von Mises: he warned that the abolition of interest payments would induce the owners of capital to consume rather than invest it. Society would soon be impoverished as a result.
(Photo via Wikimedia Commons)
Of course today’s central bankers to a man seem to believe that what makes the economy grow is “spending” and consumption. This is putting the cart before the horse. Since the accumulation of capital threatens to go into reverse due to their policies, there may well come a time period during which reports of aggregate economic statistics appear to indicate that “economic growth has returned”, while all they reflect in reality is the fact that scarce capital is in the process of being consumed. This process is also known colloquially as “eating one’s seed corn”.
How to Counter Deposit Flight: The Cash Ban Debate is Revived
In practical terms, the main reason why large depositors have only grumbled, but not (yet) fled the banks imposing penalty rates on them – in spite of the fact that fractionally reserved banks are not merely warehousing and guarding their funds, but using them for their own business operations – is that withdrawing money in the form of cash and storing is doesn’t come for free either.
Not only must one pay for storage, security and insurance in that event, but one is also cut off from the convenience of effecting payments with a mouse click. Moreover, possession of large amounts of cash, although officially not illegal, is dangerous because it is “suspicious” in the eyes of the State’s minions.
In the US, private persons who are found in possession of large amounts of cash must fully expect that it will be confiscated without trial or any evidence of a crime by means of the “civil forfeiture” procedure. As the Washington Post informs us, in spite of a recent storm of negative publicity regarding these government-directed shakedowns, “the racket is still humming”. Below is a video by comedian John Oliver discussing the topic that gives a good overview of the problem (Oliver may only be a comedian, but he is certainly an informative one tackling a great many interesting subjects).
John Oliver on the shakedown procedure known as “civil forfeiture”.
Nevertheless, large depositors could presumably take the necessary legal precautions (again at a cost) to ensure their cash does not become suspect. So there is certainly a possibility, especially if the penalties incurred for keeping large amounts of money on deposit should become even greater, that depositors may decide to remove their money from the banking system and keep it in the form of cash currency.
The probability of this happening has increased further due to the decision of European governments – which governments elsewhere are planning to emulate – to “bail in” bank creditors in the event of bank failures. In the modern fractionally reserved banking system, depositors are legally held to be creditors of the bank, even though this flatly contradicts the contractual promise that they will be able to withdraw their money on demand.
Absent this legal contradiction, fractional reserve banking would of course not be possible. By extending this privilege to banks, governments have greased the wheels of modern-day welfare/warfare statism, so depositors holding money in demand deposit accounts will continue to be regarded as “creditors of the bank”, regardless of the obvious absurdity of this legal doctrine. While we believe that it is proper and laudable to shield tax payers from having to bail out failing banks, the situation in which owners of demand deposits find themselves in is completely untenable.
However, depositors have now been put on notice: not only will they bear the full risk of losing the bulk of their funds when overextended banks are failing next time around, on top of this they will now also have to pay for the dubious “privilege” of bearing this risk. If banks were indeed merely warehousing the money in demand deposits at arm’s length, the payment of a fee for their warehousing services and any other services they may offer in connection with such deposits would be entirely proper and sensible. However, if depositors are forced to take the risk that their money could be lost as a result of the bank’s business activities (over which they have no control), they have very little reason to happily pay such a fee.
Interestingly, when the Austrian press recently reported on the decision by Commerzbank to impose a penalty interest rate on its large depositors, Kenneth Rogoff’s idea of simply banning cash currency was mentioned in the same breath. Apparently Mr. Rogoff is currently touring the world beating the drums for this dubious (to put it very mildly) plan. Here is a translation of the respective passage in the article:
“Harvard economist Kenneth Rogoff even argues in the daily paper FAZ that cash currency should be banned altogether.Central banks could impose negative interest rates more easily that way, he explained. Tax evaders and criminals would also find life more difficult. From this perspective, banknotes and coins appear superfluous, he said at a presentation at the IFO institute in Munich. Measures to spur the economy could be implemented more easily that way.”
(emphasis added)
Since we have discussed Rogoff’s plan in great detail before (see “Meet Kenneth Rogoff, Unreconstructed Statist”) there is no need to rehash all the arguments we made against it. We note though that Mr. Rogoff continues to craftily associate cash with “criminals”, while concurrently asserting that it is our duty to make central planning of the economy easier for the interventionists, in spite of its recurring failure.
In our opinion, a cash ban would constitute a criminal act. One of the reasons is precisely that people would no longer be able to remove their funds from fractionally reserved banks. They would be forced to bear the risks these banks are exposed to, whether they want to or not. Implementing a cash ban would not only amount to an abrogation of all financial privacy, it would clearly represent an abrogation of fundamental property rights as well.
It is noteworthy that Mr. Rogoff is a member of the “monetarist” Chicago school. As Hans-Hermann Hoppe has rightly pointed out, it demonstrates how utterly infested with statism modern society has become that the Chicago school is today held to be the most “conservative” and “free market oriented” school of thought that is still considered acceptable to the establishment.
No wonder – as Mr. Rogoff so clearly demonstrates, it is statist through and through. Ludwig von Mises reportedly once left a meeting at the Mount Pelerin Society in medias res, muttering something along the lines of “you are nothing but a bunch of socialists” after having listened to various representatives of the Chicago School drone on about which liberties the State should abridge next in its relentless pursuit of welfare statism. While it is apparently not certain that this incident really happened, Mises would have been quite correct with this assessment. As Mr. Hoppe notes:
“This seemingly unstoppable drift toward statism is illustrated by the fate of the so-called Chicago School: Milton Friedman, his predecessors, and his followers. In the 1930s and 1940s, the Chicago School was still considered left-fringe, and justly so, considering that Friedman, for instance, advocated a central bank and paper money instead of a gold standard. He wholeheartedly endorsed the principle of the welfare state with his proposal of a guaranteed minimum income (negative income tax) on which he could not set a limit. He advocated a progressive income tax to achieve his explicitly egalitarian goals (and he personally helped implement the withholding tax). Friedman endorsed the idea that the State could impose taxes to fund the production of all goods that had a positive neighborhood effect or which he thought would have such an effect. This implies, of course, that there is almost nothing that the state can not tax-fund!
In addition, Friedman and his followers were proponents of the shallowest of all shallow philosophies: ethical and epistemological relativism. There is no such thing as ultimate moral truths and all of our factual, empirical knowledge is at best only hypothetically true. Yet they never doubted that there must be a state, and that the state must be democratic.
Today, half a century later, the Chicago-Friedman school, without having essentially changed any of its positions, is regarded as right-wing and free-market. Indeed, the school defines the borderline of respectable opinion on the political Right, which only extremists cross. Such is the magnitude of the change in public opinion that public employees have brought about.”
(emphasis added)
Harvard economist Kenneth Rogoff wants cash to be banned to make the imposition of central bank intervention “easier”. Ironically this unreconstructed statist found himself hounded by the political left when a few errors were found in the data used in his book on government debt and growth (the book tried to prove with the help of statistics that too much government debt retards growth. The incident illustrated the danger of relying on statistics instead of sound economic theory to make one’s case).
(Photo via Imago)
Conclusion:
The “unintended consequences” of the negative interest rate policy will vastly outweigh the perceived advantages of any short term boost to economic activity they may provoke. Consumption is not what produces economic growth, and giving capital owners an incentive to consume rather than invest their capital will only hasten Europe’s economic decline.
Given that the failure of these interventions is already absolutely certain, we must be prepared for even more interventions to “fix” the failures produced by the previous ones. Mr. Rogoff’s plan would certainly enable more State control over the citizenry and the economy. Many modern-day intellectuals appear quite keen on abolishing the market economy and replacing it with some form of command economy (just as long as their personal plans are implemented of course). They should be careful what they wish for.
This is not going to be a complete update of gold sentiment data, we just want to look at recent press reports on gold and show how they correlate with trader positions and opinions.
Yesterday we happened to look at the market news headlines posted at the start page of Yahoo Financial. These were the top headlines:
“…in the absence of a full-scale geopolitical crisis, economic collapse, or other “black swan” event, there is no good reason to hold gold — at least here in the U.S.”
Of course, it is in the nature of “black swan” events that they are unforeseeable, or at least unforeseen by the majority. Their current “absence” is a meaningless datum with respect to the future.
“….even a cursory look at inflation indicators, be they the level of global interest rates, inflation expectations as measured by TIPS (Treasury Inflation Protected Securities) and the direction of inflation, itself, do not suggest that gold, in dollar terms, can, or will, go meaningfully higher in the days ahead.”
A “cursory look at inflation indicators” would not have revealed any major increase in inflation expectations in any of the 10 years during which gold rallied from $250 to $1,900 either. Obviously, there are other drivers that are just as, if not more important, for the gold price.
“….the longer-term view remains bleak.”
Only if one subscribes to the notion that six years (and ongoing) of unbridled central bank activism will have no negative consequences. Even though that flies in the face of sound economic theory and all experience, it is admittedly the consensus right now. When the peak of the last central bank-induced bubble came into view, consensus opinion was very similar. Even once the crisis arrived, gold bears were fond of saying: “If gold cannot rise now, it never will” (i.e., the “longer term view was bleak”).
Next comes the piece de resistance though:
“If you’re still looking for a safe-haven investment, a better option would be large-cap stocks with lots of cash and good management.”
We have heard a lot of things said about stocks in the course of the current bubble era, but this is the very first time we are coming across someone referring to them as a “safe haven”.
On Marketwatch we found this yesterday:
Oil, other commodities will be in the dumps for another decade (gold is one of those “other commodities” the article focuses on. The author informs us at the end of the report that he is throwing the towel and selling all his positions in these sectors. He incidentally also seems to think he knows more about the markets than Jim Rogers. Rogers is not always right about everything, but we have our doubts about that).
“Nothing is going gold’s way. Inflation remains tame, the dollar looks strong and Americans are increasingly confident. Even fears that the Federal Reserve would set off another financial crisis have faded as the central bank ends its effort to pump money into the economy. In short, all of the reasons for buying gold over recent years have disappeared, helping to drive prices for the metal to a four-year low.
[…]
Among investment strategists, there’s a growing belief that the worst for gold has yet to come. A surprise announcement by the Bank of Japan last Friday that it will expand its efforts to revive that country’s growth sent traders out of Japanese yen and into U.S. dollars. Gold plunged in response. In the U.S., the Fed’s next big step is an interest-rate increase, expected sometime next year. That should make savings accounts, money-market funds and other short-term investments more appealing. A higher benchmark rate would also sap inflation pressures and give the dollar another lift. Current trends, in other words, are all blowing against the yellow metal.
[…]
“Perhaps that’s the best thing you can say about gold,” says Edward Meir, a senior commodity consultant at INTL FCStone in New York. “Everybody is bearish on it. Honestly, though, I can’t see any bullish story at all.”
(emphasis added)
We distinctly remember that back in 2000, “everybody was bearish on it” too. And they sure couldn’t “see any bullish story at all” at the time, otherwise they would undoubtedly have told us about it. 🙂
A Few Data Points
It is interesting how the recent wave of bearish pronouncements in the press correlates with positioning and survey data. We want to pick out just two, which (similar to the AP article quoted above) were recently pointed out by Steve Hochberg of EWI.
Positioning of small speculators in gold futures: from an 11 year high in the net long position at gold’s secondary peak in 2012 to a 15 year record net short position today – click to enlarge.
Even more interesting is a data point we haven’t discussed in some time, namely the Daily Sentiment Index. The chart below depicts a 5-day average of this index (which is a survey of futures traders conducted by tradefutures.com). It has just reached a record low of only 5% bulls. This compares to a record high of 96% bulls at the 2011 peak.
A record low in the 5-day average of the daily sentiment index on gold – click to enlarge.
Interestingly, GOFO rates have recently dipped into negative territory several times as well. While this is not as significant as it would otherwise be while short term interest rates are pegged near zero by major central banks, it still signifies that there is growing tightness in the physical gold market.
Conclusion:
One must be careful with sentiment data during a clear trend, as they simply tend to follow prices to a large extent. They can serve as an additional input, but cannot really be used for precise timing. And yet, once people start saying that there simply isno reason at all to be bullish, and the bullish consensus according to positioning and sentiment data plumbs all time lows or multi-year lows, we have what is essentially a textbook contrarian situation on our hands.
This does not necessarily mean that there won’t be any further price declines (as noted previously, from a technical perspective further short term downside in gold can certainly not be ruled out), but it is undoubtedly a heads-up that the trend may be close to reversing. In this particular case one must also consider that central banks have blown yet another bubble of truly gargantuan proportions. As Mr. Singer of Elliott Management recently noted in his Q3 letter to investors:
“Nobody knows when reality will overtake the rhetoric, lies, phony statistics, wishful thinking, fake prices and tiresome poseurs pretending to be world leaders. The situation is universal, a consequence of terrible leaders and careless (or clueless) citizenry. Global problems are continuing to mount, along with the risk that the consequences of years of bad policies and inept leadership coalesce (as sometimes happens) in a short window of time.”
[…]
“Economics also provides its share of delusions, including the debt-fueled bubbles of both the 1920s stock market and the first dotcom boom. The real estate boom of the 2000s was another one, as excess demand was fueled by the combination of near-free money, the most marginal financial products ever invented, and the frenetic selling of houses to people who could not afford them and did not actually own them in any meaningful sense of the word.
“These examples are easy, because they were mass beliefs that were unreasonable in the extreme at the time they were held. Of course, at the time not everyone held the same deluded views, but the disbelievers were (and always are) discredited, demoralized and ignored while the delusions were alive. The problem is that while the delusions remain intact there is no proof available to convince the believers of their folly. Simply repeating that a mass belief is crazy does not make it so (nor convince anyone else that it is nuts). Furthermore, the amount of time necessary to reveal the truth is sometimes too long for nonbelievers to bear, so they just stop trying.
“There is a current set of delusions that is powerful and dangerous: that monetary debasement can be infinitely pursued without consequences; that the financial system is now solid and sound; that the low volatility and high prices of stocks, high-end real estate and bonds are real; that bonds are a safe haven; and that large financial institutions which get into trouble in the future can be unwound in a much safer way than they could be in 2008.
We have discussed each of these elements in the pages of this report and previous ones in an attempt to reveal the fallacy and unsustainability of such beliefs. But, as stated above, they will only enter the history books as mass delusions if they are unmasked in the future as unjustifiable and erroneous beliefs at the time they were held. We think that test will be met, perhaps soon.”
To the list of delusions Mr. Singer enumerates we can now add yet another one, provided by Ron Insana (nomen est omen?): “Big cap stocks are now considered a save haven too”.
It is of course very hard to stay the course when the markets do their best to convince everyone that things are perfectly fine and that, in the case of gold, no-one needs any insurance against the potential consequences of current policies anymore. As Mr. Singer points out: “While the delusions remain intact there is no proof available to convince the believers of their folly”.
However, one must not lose sight of the fact that they won’t stay intact. Once that juncture arrives, a few people will probably remember that they once read somewhere that the bullish consensus on gold had at one point declined to a mere 5%. 🙂
We have frequently noted in these pages that the environmental movement has a number of extremist elements that are anti-civilization in their outlook and have a very mean authoritarian streak. Among other things we have frequently cited the fact that many from the authoritarian Left have drifted into this (and other) movements after their sugar daddy in Moscow expired with the fall of the Soviet Union. However, this extremism is now increasingly going mainstream. After the earth’s climate has stopped warming for 18 years running (plus one month) in spite of atmospheric CO2 rising by one third over the same period, many apparently think the best course would be to shut up critics by force.
Let us first define the people who are on the receiving end of the derogatory “denier” term (it is derogatory because it reminds of the term “holocaust denier” and it is clear that this is the reason it was picked). None of them “deny” that the climate is changing. It would be a foolish thing to assert, given that the climate has always changed and always will. The scientists who try to debunk climate alarmism are simply not alarmist.
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The vast bulk of them concedes that human activity likely has some influence on the planet’s climate, but they believe that there is no certainty about the size of this influence, and whether CO2 (which the alarmists have declared to be the main “climate forcing” agent) really has all that much to do with it. The paleoclimate record clearly suggests that this is not the case, as CO2 increases in the atmosphere have always followed warming periods with a considerable lag and not led them in a single instance. Moreover, the historical climate record – almost regardless of how far back one looks – shows that the earth’s climate has frequently been far warmer than today, long before anyone thought of burning fossil fuels.
In short, the skeptical argument boils down to: we do not know enough to indict human activity. Much of what we observe could simply be natural variation. Therefore, we should think twice before we take actions that threaten to destroy economic growth and ultimately industrial civilization. By now a powerful record of evidence is backing the skeptics up. Alarmists have invented 52 different excuses over just the past half year or so as to why their “predictive computer models” have failed to predict the “pause” – or why, indeed, they have failed to predict anything at all (the latest, and probably funniest excuse yet, is that they “could have predicted it if they had a time machine and could go back into the past”).
Again, it is important to remember here: not a single alarmist prediction made since the late 1970s has come true – not one. However, alarmism sells: it sells newspapers, it is loved by the political class, as it justifies ever greater government interference in the economy, and it is therefore the source of a huge gravy train of scientific grants. Many scientists try to be as alarmist as possible for this very reason: it keeps the grant money flowing. When they think no-one’s looking, they admit to each other what a “travesty” it all is (their words, from the “Climategate” e-mails).
It’s official: no global warming in 18 years 1 month, according to satellite data.
Indeed, there is travesty galore. For instance, supposedly scientifically neutral government-owned agencies have repeatedly been caught falsifying past temperature records (here is a recent example, but there are many more as a quick Google search reveals) – and always with the same outcome: to make the most recent warming period look much worse than it really was.
Meet the soon-to-be-excised Holocene. Allegedly human-induced “catastrophic warming” is in the tiny green box to the right so as to help you spot it – click to enlarge.
It should be pointed out that not even the alarmists deny any of the data we mention above (otherwise there wouldn’t be a scramble to explain and if possible downplay the significance of the “pause”). We would also like to stress that just because someone is a member of what could be broadly termed the “alarmist camp”, it certainly doesn’t mean they are not doing serious scientific work. Skeptics spend a great deal of time studying everything that is published by the mainstream and there are many areas of agreement. The problem as we see it is only that the worst of the alarmists have developed a “gatekeeper” function at scientific journals, trying to suppress all research that contradicts their claims and that they enjoy a monopoly on the media echo chamber, which is incessantly used to propagate the most ludicrous claims. Even worse, the government-mandated switch to “green energy” already has serious negative economic ramifications in several European countries, most notably Germany (a “disaster”) and Great Britain (a “fiasco”).
However, in light of the fact that the “global warming” meme appears to be collapsing on the hard rocks of reality, authoritarians apparently feel the time to hold back is over and are frequently coming out of the closet of late.
Skeptics Must be Silenced by All Means – Killing Them is OK Too
We all know that skeptics have been smeared for many years as being in the employ of industrial polluters. This was always a lie, but it is clear that skeptics are largely excluded from government funding (i.e., they do not receive money that is forcibly extracted from tax payers), so much of the little funding they get presumably does come from the private sector – but the claim that they are funded by ‘polluters’ is a lie. What we didn’t know is that the smear campaign is a coordinated project that was started in 1991 by Al Gore’s senate office; a recent paper reviews the damning evidence.
Smears about funding are one thing though – demands to jail or kill skeptics are a significant step up in rhetoric. First we came across something that we thought reflects the authoritarian mindset of the Left quite nicely. Australia’s government bureaucracy in the capital territory (ACT) has just approved government funding for a theater project with the rather unsubtle title “Kill Climate Deniers”. Here is an excerpt from the list of successful Arts Fund applicants:
2015 ACT Arts Fund successful applicants – Project Funding
The Project Funding round is offered once a year and presents the ACT community with the opportunity to propose one-off arts activities.
Successful 2015 Project Funding applicants were announced in September 2014. Below is a list of successful applicants by name in alphabetical order.
A Chorus of Women: $24,990 to assist with costs of performances of a community oratorio ‘A Passion for Peace’.
Art Song Canberra Inc: $6,713 to assist with costs of presenting art song concerts, classes and events.
Art Space: $15,600 to assist with costs of a creative development project with artists living with disability.
Aspen Island Theatre Company: $18,793 to assist with costs of the creative development of a new theatre work, ‘Kill Climate Deniers’.
“The Left is the natural home of the modern totalitarian – and of all those who feel entitled by their superior morality to act as savages. How does the ACT Government justify spending taxpayers’ money on a theater work entitled ”Kill Climate Deniers”? What sane Government donates to a project urging others to kill fellow citizens, even as a “joke”? Are these people mad? The theater company says it’s not into actual killing, just “exploring” ways to get political change:
“We are not advocating the murder of carbon lobbyists!We are instead seeking to explore the question: What does it take to achieve political change in this society?” the company said.
You know, like killing. If I were thug enough to write a play with the title “Kill Climate Scientists” would I get a grant? Would the ABC rush to present my defense?”
However, the Left’s search for a “final solution” to the problem of skeptics is continuing. In March an article by Adam Weinstein was posted at “Gawker”, entitled “Arrest Climate Change Deniers”, in support of a previous jeremiad along similar lines by a professor of philosophy at the Rochester Institute of Technology, one Lawrence Toricello. So if you say that 18 years of zero warming and 36 years of failing predictions by alarmists should give us pause and represent a good reason to rethink the entire alarmist argument, you are “criminally negligent” and should be jailed for daring to air your dissent. Interestingly, already the first two sentences of the article are baseless assertions/lies:
“Man-made climate change happens . Man-made climate change kills a lot of people. It’s going to kill a lot more. We have laws on the books to punish anyone whose lies contribute to people’s deaths. It’s time to punish the climate-change liars.”
Even though, for rather obvious reasons, they don’t call it “global warming” anymore, that is what they mean by “man-made climate change”. The fact of the matter is however that regardless of what caused the most recent warming period, it has stopped. So it would be correct to write: “if there actually is man-made climate change, it isn’t happening anymore”.
The claim that it “kills a lot of people” is so ludicrous it seems hardly deserving of comment, but allow us just to point out here the obvious basic fact that something that is not happening cannot “kill” anyone. Even if the warming period had continued, this claim would be nonsense. It seems very difficult to assert that the Roman and medieval warm periods (both were much warmer than today) “killed a lot of people”, as they were actually periods when human civilization flourished nicely. By contrast, it is an apodictic certainty that the “little ice age” after the medieval warming period did kill a lot of people, as there were serious harvest failures all over the world.
Anyway, who cares about such pesky facts? We must arrest and jail the “deniers”! But you are graciously allowed to remain a “simple skeptic”. Adam Weinstein will presumably draw up a plan of how to distinguish between “simple skeptics” and “harmless men in the street” and those he thinks are “dangerous deniers” that need to be jailed. Note his condescension toward the common man who is evidently too stupid to understand the Weinstein-approved truth. Such condescension is a typical attribute of leftist authoritarians:
“Those denialists should face jail. They should face fines. They should face lawsuits from the classes of people whose lives and livelihoods are most threatened by denialist tactics.
Let’s make a clear distinction here: I’m not talking about the man on the street who thinks Rush Limbaugh is right, and climate change is a socialist United Nations conspiracy foisted by a Muslim U.S. president on an unwitting public to erode its civil liberties.
You all know that man. That man is an idiot. He is too stupid to do anything other than choke the earth’s atmosphere a little more with his Mr. Pibb burps and his F-150’s gassy exhaust. Few of us believers in climate change can do much more—or less—than he can.
Nor am I talking about simple skeptics, particularly the scientists who must constantly hypo-test our existing assumptions about the world in order to check their accuracy. That is part and parcel of the important public policy discussion about what we do next.
But there is scientific skepticism… and there is a malicious, profiteering quietist agenda posturing as skepticism. There is uncertainty about whether man-made climate change can be stopped or reversed… and there is the body of purulent pundits, paid sponsors, and corporate grifters who exploit the smallest uncertainty at the edges of a settled science.
I’m talking about Rush and his multi-million-dollar ilk in the disinformation business. I’m talking about Americans for Prosperity and the businesses and billionaires who back its obfuscatory propaganda. I’m talking about public persons and organizations and corporations for whom denying a fundamental scientific fact is profitable, who encourage the acceleration of an anti-environment course of unregulated consumption and production that, frankly, will screw my son and your children and whatever progeny they manage to have. Those malcontents must be punished and stopped.”
(emphasis added)
So is it OK if we call Adam Weinstein and his ilk Climate Nazis? We actually think it is. As an aside, Weinstein also dredges up the “97% consensus” claim, which has been debunked so completely one should really be embarrassed to even mention it. Needless to say, science has never advanced by “consensus” anyway. Nearly all scientific discoveries in the history of mankind that have revolutionized our understanding of the world have faced massive resistance from the establishment status quo (from Galileo to the discoverer of plate tectonics, Alfred Wegener, who was disbelieved and denounced by the scientific community for a full 50 years).
Mr. Weinstein is by far not the only authoritarian Leftist who wants to jail climate skeptics. We have previously reported on humanity-hating eco-fascists like Finnish radial “activist” Pennti Linkola or UK scientist James Lovelock. The former simply wants to depopulate the planet and put all his surviving enemies into concentration camps and “re-education” gulags, while the latter thinks it is “time to put democracy on hold”, so that governments can cram his vision of what should be done down our throats by force. It is actually proper to call the leftist radicals advocating such tactics “eco-fascists” as well, because that is precisely what they are. After all, the socialist and fascist ideologies are really only two sides of the same authoritarian coin.
In late September, prominent environmental attorney Robert Kennedy jr. (a member of the Kennedy clan that is one of the “political dynasties” in the Land of the Free) also let his mask slip. As Charles W. Cooke reports on this “aspiring tyrant”:
“Blissfully unaware of how hot the irony burned, Robert Kennedy Jr. yesterday took to a public protest to rail avidly in favor of censorship. The United States government, Kennedy lamented in an interview with Climate Depot, is not permitted by law to “punish” or to imprison those who disagree with him — and this, he proposed, is a problem of existential proportions. Were he to have his way, Kennedy admitted, he would cheer the prosecution of a host of “treasonous” figures — among them a number of unspecified “politicians”; those bêtes noires of the global Left, Kansas’s own Koch Brothers; “the oil industry and the Republican echo chamber”; and, for good measure, anybody else whose estimation of the threat posed by fossil fuels has provoked them into “selling out the public trust.” Those who contend that global warming “does not exist,” Kennedy claimed, are guilty of “a criminal offense — and they ought to be serving time for it.”
(emphasis added)
Cooke’s entire article is well worth reading. Here is one more excerpt in which he reminds Mr. Kennedy that once one decides to prohibit free speech in one area, there will soon no longer be any area that will be off-limits in justifying more such prohibitions.
“When Robert Kennedy contends that there ought to be “a law” with which the state “could punish” nonconformists, he is in effect inviting Washington, D.C., to establish itself as an oracle, to ensconce in aspic a set of approved facts, and to cast those who refuse to accede as heretics who must be hunted down and burned in the interest of the greater good.
As the blood-spattered history of the human race shows us in appalling and graphic detail, the wise response to the man who insists that the Holocaust did not happen, or that 2 + 2 = 5, or that the United States is geographically smaller than Sweden is to gently correct him — and, if one must, to mock or ignore or berate him, too. It is never — under any circumstances — to push him through the criminal-justice system. The cry “but this is different” remains in the case of climate change precisely what it has always been: the cry of the ambitious and the despotic. Once the principle of free speech is subordinated to expedience, circumstances can always be found to justify its suppression.”
(emphasis added)
We would note to this that not a single skeptic has as of yet called for the jailing or extermination of members of the Church of Global Warming – so even if we knew nothing about the underlying issues, we would find it easy to decide which group we’d rather support. Since we do know a little about the issues, it is an even easier decision.
Robert F. Kenndy jr.: wants to shut up “climate change deniers” by jailing them
(Photo by Dimitrios Kambouris / WireImage)
Mr. Cooke also notes in passing that academics tend to be curiously silent when authoritarians like Mr. Kennedy are letting their inner Stalin hang out for all to see. We would add to this that there is at least one academic who has a worse fate in mind for “global warming deniers” – like putting them to death:
“Richard Parncutt, Professor of Systematic Musicology, University of Graz, Austria, reckons people like Watts, Tallbloke, Singer, Michaels, Monckton, McIntyre and me (there are too many to list) should be executed. He’s gone full barking mad, and though he says these are his “personal opinions” they are listed on his university web site.
For all the bleating of those who say they’ve had real “death threats“, we get discussions about executing skeptics from Professors, wielding the tyrannical power of the state. Was he paid by the state to write these simplistic, immature, “solutions”? Do taxpayers fund his web expenses? (And what the heck is systematic musicology?)
Prof Richard Parncutt says:
“I have always been opposed to the death penalty in all cases…”
“Even mass murderers [like Breivik] should not be executed, in my opinion.”
“GW deniers fall into a completely different category from Behring Breivik. They are already causing the deaths of hundreds of millions of future people. We could be speaking of billions, but I am making a conservative estimate.”
“If a jury of suitably qualified scientists estimated that a given GW denier had already, with high probability (say 95%), caused the deaths of over one million future people, then s/he would be sentenced to death. The sentence would then be commuted to life imprisonment if the accused admitted their mistake, demonstrated genuine regret, AND participated significantly and positively over a long period in programs to reduce the effects of GW (from jail) – using much the same means that were previously used to spread the message of denial. At the end of that process, some GW deniers would never admit their mistake and as a result they would be executed. Perhaps that would be the only way to stop the rest of them. The death penalty would have been justified in terms of the enormous numbers of saved future lives.”
Recant you foolish deniers or we’ll kill you! Yeah. Welcome to modern scientific debate. Who should die? Anyone named on Desmog:
“Much more would have happened by now if not for the GW deniers. An amazing number of people still believe that GW is a story made up by scientists with ulterior motives. For a long list of climate change deniers and their stories see desmogblog.”
So the denier database becomes the “death list”. The list decided by PR experts on a funded smear site, who profit from marketing Green corporations. But it’s ok, he includes a caveat where he says he didn’t say what I quoted above, so he can later pretend he isn’t discussing real deaths of real people:
“Please note that I am not directly suggesting that the threat of execution be carried out. I am simply presenting a logical argument. I am neither a politician nor a lawyer. I am just thinking aloud about an important problem.”
And we all feel so much better don’t we? But seriously, Global warming deniers are the worst vermin on the face of the Earth, worse than holocaust deniers, tobacco deniers and worse than someone who bombs buildings and shoots children en masse:
“I don’t think that mass murderers of the usual kind, such Breivik, should face the death penalty. Nor do I think tobacco denialists are guilty enough to warrant the death penalty, in spite of the enormous number of deaths that resulted more or less directly from tobacco denialism. GW is different. With high probability it will cause hundreds of millions of deaths. For this reason I propose that the death penalty is appropriate for influential GW deniers.”
(emphasis added)
The only thing we would commend Dr. Parncutt for is that he calls it “global warming” instead of “climate change”. This term is on the verge of becoming politically incorrect these days, since we urgently need to leave the possibility open to blame human activity for any putative future cooling, as well as for catastrophically unchanging temperatures.
Professor Richard Parncutt – mass murderers like Andre Brejvik (who killed almost 80 defenseless students to “send a signal” about Norwegian policies he disagreed with) should not be subject to capital punishment, but an exception should be made for “global warming deniers” (the people who think that the barely visible blip of warming at the end of the Holocene poses no urgent problem). It is only “logical” that they need to be put to death.
“When apocalyptic cults turn murderous, they become a danger to the public. The warmist cult, frustrated by the failure of nature to back-up their prophecies of doom, apparently is turning to homicidal fantasies, and venting them in the pages of the New York Times. A truly shocking cartoon was published in the pages of that formerly august newspaper, brought to our attention by wattsupwiththat.com and climatedepot.com. In it, the frustrations of warmists over the unusually cold winter (which US Government climatologists completely failed to predict) are channeled into the suggestion that they use “the 2014 icicle surplus” as “Self destructing sabers for climate change change deniers”
(emphasis added)
Here is the cartoon in question:
Cartoon published in the NYT – if it gets so cold that there is a surplus of icicles, use them to kill global warming “deniers”.
Conclusion:
One probably shouldn’t be terribly surprised by this. After all, the alarmist cult is inherently statist – even its more harmless members all want the State to impose vast restrictions on economic freedom to deal with what increasingly looks like a complete non-problem.
The State, as Ludwig von Mises remind us, “…is the opposite of liberty. It is beating, imprisoning, hanging. Whatever a government does it is ultimately supported by the actions of armed constables.”
A few more quotes by Mises on the topic of government seem highly apposite in the above context:
“Government is a guarantor of liberty and is compatible with liberty only if its range is adequately restricted to the preservation of what is called economic freedom.
[…]
Once the principle is admitted that it is duty of government to protect the individual against his own foolishness, no serious objections can be advanced against further encroachments.
[…]
The essential feature of government is the enforcement of its decrees by beating, killing, and imprisoning. Those who are asking for more government interference are asking ultimately for more compulsion and less freedom.
[…]
The state is a human institution, not a superhuman being.He who says state means coercion and compulsion. He who says: There should be a law concerning this matter, means: The armed men of the government should force people to do what they do not want to do, or not to do what they like.He who says: This law should be better enforced, means: the police should force people to obey this law. He who says: The state is God, deifies arms and prisons.
[…]
We see that as soon as we surrender the principle that the state should not interfere in any questions touching of the individuals mode of life, we end by regulating and restricting the latter down to the smallest detail. The personal freedom of the individual is abrogated.He becomes a slave of the community bound to obey the dictates of the majority.
[…]
Most of the tyrants, despots, and dictators are sincerely convinced that their rule is beneficial for the people,that theirs is government for the people.
[…]
Nobody ever recommended a dictatorship aiming at ends other than those he himself approved. He who advocates dictatorship always advocates the unrestricted rule of his own will.”
The last quote is conveying an especially important truth: those who demand the government introduce dictatorial decrees to achieve by force whatever they believe needs to be achieved, always want to see their own plans put into practice. In their mind, people are simply not capable of knowing what is good for them, for lack of intelligence or some other inherent defect. They want to correct the perceived errors of others by force in the name of a “greater good” only they can properly discern.
Usually when revolutions bring such people to power, they quickly fall out among themselves, because they soon start fighting over whose plan should be supreme. Thus the French Revolution began to “devour its own children” and Stalin’s comrades from the time of the Bolshevik revolution soon found themselves at the wrong end of a purge.
The extremists in the global warming cult are no different. We are calling it a cult, because it has all the attributes of one, such as the almost religious faith of members in the righteousness of their stance even in the face of a growing mountain of countervailing evidence. By its very nature this cult is authoritarian – it cannot be otherwise, since its demands can only be fulfilled by force. This defining characteristic is recently becoming ever more obvious. Calls to silence critics by applying the force of government speak for themselves in this regard. This incidentally also reveals another “inconvenient truth”: if there are critics that need to be jailed or killed, it obviously means that the debate is not over.
Addendum:
Video of Robert Kennedy Calling for “Deniers” to be Jailed:
R. Kennedy: put climate skeptics in jail together with “all the other war criminals”.
Fed chair Janet Yellen studied under the Keynesian James Tobin, whose name is nowadays best known for being associated with a tax. It should therefore not come as a big surprise that she supports Keynesian dogma regarding government intervention in what is left of the market economy.
“U.S. Federal Reserve Chair Janet Yellen on Friday called on politicians across the globe to get their fiscal houses in order during good times to prop up economies during times of turmoil.
In remarks to a symposium in Paris, Yellen blamed part of the slow global economic recovery on weak government support.
She took aim at both U.S. political gridlock after the 2007-2009 financial crisis and the austere policies across Europe as the region struggles with persistently low inflation.
The crisis led major central banks to deploy unconventional tools to spur recovery. For its part, the Fed cut interest rates to zero and more than quadrupled its balance sheet to $4.4 trillion through three rounds of bond buying, eliciting howls of protest from some politicians who feared the monetary largesse would spark an unwanted inflation. It announced an end to its latest asset purchase program just last week.
While the unconventional tools helped support domestic recovery and global economic growth, more action from fiscal authorities would have strengthened the recovery, Yellen said.
“In the United States, fiscal policy has been much less supportive relative to previous recoveries,” she said during a panel discussion at the Bank of France. Yellen cited data that compared the large increase in U.S. government payrolls after the 2001 recession to the decline of 650,000 government jobs after 2008.
AS central banks seek to promote healthy economies, she said a sharpened focus on financial stability would play a key role. Yellen did not comment on U.S. monetary policy, specifically, but said central banks globally would need to normalize policy as economic activity and inflation return to normal. The timing and speed of policy normalization will vary across countries, Yellen added, and could lead to financial volatility.”
(emphasis added)
(Photo credit: Jim La Scalzo—EPA/Corbis)
So there was “not enough fiscal support” – i.e., deficit spending – in the US since 2008? In some parallel universe perhaps. The US federal government has amassed more debt in the past six years than in its entire history before 2008 (see chart further below).
To the extent that the US economy has recovered, it hasn’t done so because of Federal reserve pumping and deficit spending, but in spite of it. Ms. Yellen’s erroneous beliefs come from the fact that Keynesians are blinded by their models. These models are based on certain assumptions and will therefore always produce a predetermined result that allegedly “proves” these preconceived assumptions. They are a typical case of “garbage in, garbage out”.
It should be obvious that government spending has to be financed to 100% by the private sector. Hence, every cent the government spends is a cent the private sector cannot spend or invest. It matters little whether this is done by taxation or borrowing, the result will be the same. Only if one actually believes that government bureaucrats are better at allocating scarce resources than the free market can one possibly conclude that deficit spending by government is somehow beneficial. This is obviously an absurd contention.
As Ludwig von Mises pointed out:
“At the bottom of the interventionist argument there is always the idea that the government or the state is an entity outside and above the social process of production, that it owns something which is not derived from taxing its subjects, and that it can spend this mythical something for definite purposes. This is the Santa Claus fable raised by Lord Keynes to the dignity of an economic doctrine and enthusiastically endorsed by all those who expect personal advantage from government spending. As against these popular fallacies there is need to emphasize the truism that a government can spend or invest only what it takes away from its citizens and that its additional spending and investment curtails the citizens’ spending and investment to the full extent of its quantity.”
(emphasis added)
When the expropriation is effected by inflation – Ms. Yellen’s bailiwick – things are even worse, as then the economy is increasingly “supported” by unsustainable bubble activities based on distortions in relative prices and the falsified economic calculation they inevitably engender.
According to Ms. Yellen, this debt growth was “not enough” – click to enlarge.
Some time ago, Robert Murphy has discussed the above mentioned “garbage in, garbage out” phenomenon in the context of a model employed by Alan Blinder and Mark Zandi that supposedly “proved” that “stimulus spending creates jobs”. As Mr. Murphy summarizes:
“In the Blinder and Zandi study, the “fact” that real GDP responds positively to government spending is built right into the model. No matter what the data had been — no matter what raw “observations” Blinder and Zandi had plugged in — the model could not possibly have spit out the answer, “The Obama package destroyed 800,000 jobs.” The model assumed that stimulus policies help the economy, and after its whirring the model concluded that — stimulus policies help the economy.”
We highly recommend reading the entire article, which also quotes economist Arnold Kling, who used to work with such models himself (and has become deeply critical of this obvious nonsense).
Are Keynesian Prescriptions Merely Not Properly Implemented?
We often come across remarks that essentially amount to: “but Keynes wasn’t really a Keynesian”, or some variation thereof. These assertions are of the same caliber as the often heard argument that “if only the Soviets had implemented Marxism correctly, everything would have been fine”. See, socialism, really, really works! It is the best system there is, as long as it’s done correctly! The “correct” implementation is of course always that one that precisely follows the personal plan of the respective speaker.
The reality is quite different. Keynes was indeed a Keynesian (just as Marx was really a Marxist…), and his economic analyses and prescriptions have not been “erroneously distorted” by his followers. Rather, his followers were all too often confronted with the fact that his prescriptions simply do not work, and thereupon tried to rescue the whole sorry system by tweaking it.
However, we want to tackle a very specific point here, namely the remark Ms. Yellen reportedly made about “putting fiscal houses in order during good times”. An argument along these lines is quite often forwarded by defenders of Keynes when they are confronted with the fact that Keynesian deficit spending quite obviously fails whenever it is tried – while an ever greater mountain of public debt is most definitely amassed. Japan is a very pertinent example of the utter futility of Keynesian deficit spending (of course, Keynesian models will tell you Japan’s government just didn’t spend enough!).
People then usually proceed to proposing precisely what Ms. Yellen reportedly said by asserting “Keynes recommended running fiscal surpluses in the good times!” Accordingly, so it is held, there would be no perennial public debt growth, and deficit spending would only be deployed in order to “help” the economy when the market economy suffers one of its alleged “failures”.
It is of course never mentioned that the market economy is continually under assault from government intervention and that every boom and bust can ultimately be traced to such intervention. This is also true of the booms and busts that happen on account of private banks engaging in credit expansion from thin air: after all, fractional reserve banking is only possible due to a government privilege. In a free market society based on property rights, a warehouse that holds money the tantundem of which itr has promised to make available on demand, cannot lend this money out behind the backs of its owners without committing fraud.
Below Ludwig von Mises lays out why the counter-cyclical government policies recommended by Ms. Yellen and defenders of Keynesianism are actually quite misguided. This is a lengthy excerpt, but it is well worth assimilating the argument:
As [the interventionist experts] see it, the main thing is “to plan public capital expenditure well in advance and to accumulate a shelf of fully worked out capital projects which can be put into operation at short notice.” This, they say, “is the right policy and one which we recommend all countries should adopt.”
However, the problem is not to elaborate projects, but to provide the material means for their execution. The interventionists believe that this could be easily achieved by holding back government expenditure in the boom and increasing it when the depression comes. Now, restriction of government expenditure may certainly be a good thing. But it does not provide the funds a government needs for a later expansion of its expenditure. An individual may conduct his affairs in this way. He may accumulate savings when his income is high and spend them later when his income drops.
But it is different with a nation or all nations together. The treasury may hoard a considerable part of the lavish revenue from taxes which flows into the public exchequer as a result of the boom. As far and as long as it withholds these funds from circulation, its policy is really deflationary and contra-cyclical and may to this extent weaken the boom created by credit expansion. But when these funds are spent again, they alter the money relation and create a cash-induced tendency toward a drop in the monetary unit’s purchasing power. By no means can these funds provide the capital goods required for the execution of the shelved public works.
The fundamental error of the interventionists consists in the fact that they ignore the shortage of capital goods. In their eyes the depression is merely caused by a mysterious lack of the people’s propensity both to consume and to invest. While the only real problem is to produce more and to consume less in order to increase the stock of capital goods available, the interventionists want to increase both consumption and investment.
They want the government to embark upon projects which are unprofitable precisely because the factors of production needed for their execution must be withdrawn from other lines of employment in which they would fulfill wants the satisfaction of which the consumers consider more urgent. They do not realize that such public works must considerably intensify the real evil, the shortage of capital goods.
One could, of course, think of another node for the employment of the savings the government makes in the boom period. The treasury could invest its surplus in buying large stocks of all those materials which it will later, when the depression comes, need for the execution of the public works planned and of the consumers’ goods which those occupied in these public works will ask for. But if the authorities were to act in this way, they would considerably intensify the boom, accelerate the outbreak of the crisis, and make its consequences more serious.”
(emphasis added)
In short, these counter-cyclical policies make no sense whatsoever – things are not made better by producing a “surplus” during the boom that can then be spent during the bust. The fact that the stock of capital goods and other economic resources in the economy does not magically increase on anyone’s mere say-so is the limiting factor to all these plans.
Lastly, Mises concludes that all the talk about counter-cyclical government activities really has only one purpose, namely to pull the wool over our eyes:
All this talk about contra-cyclical government activities aims at one goal only, namely, to divert the public’s attention from cognizance of the real cause of the cyclical fluctuations of business. All governments are firmly committed to the policy of low interest rates, credit expansion, and inflation. When the unavoidable aftermath of these short-term policies appears, they know only of one remedy – to go on in inflationary ventures.
(emphasis added)
Ms. Yellen believes that the injection of approximately $4 trillion in additional money into the US economy by the Federal Reserve has “helped” the economy to return to growth. We say, all that has been achieved is that a distorted bubble economy has been put in place. Once the money supply expansion fall below the threshold required to support assorted bubble activities that have been set into motion, it will swiftly collapse again in another bust.
The ratio of capital vs. consumer goods production: an indicator of the economic distortions wrought by monetary pumping – click to enlarge.
A direct comparison between production of business equipment, consumer goods and non-durable consumer goods: at the moment the US production structure appears more heavily distorted than ever before – click to enlarge.
Conclusion:
As long as policymakers remain wedded to Keynesian nostrums, the era of ever greater booms and busts is set to continue. Hopefully there will still be a market economy left when we at last arrive at the end of the road.
Photo credit: ORF
Dear Dr. Paul, please tell the Fed what to do! 🙂
Gucci store in Hong Kong, Central
Image via dreamstime.com
GDP Now goes Blutarsky – via Atlanta FED
Convincing evidence
Yes, that tiny dark-brown thingy situated on a steep road sold for $765,000. The real estate bubble is back.
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It’s official: no global warming in 18 years 1 month, according to satellite data.
Robert F. Kenndy jr.: wants to shut up “climate change deniers” by jailing them
