In response to an FT Big Read by Larry Summers on 7th October 2015, entitled 'Global economy: The case for expansion'
"History tells us that markets are inefficient and often wrong in their judgments about economic fundamentals"
It also tells us that they are particularly inefficient when they are juiced, rigged and bent out of all shape by central planners - who clearly don't have the foggiest idea about economic fundamentals. For if they did, for example, they would realise the absurdity of the notion that twelve academics can set the most important price in the world economy at zero for seven years without destroying the price discovery mechanism - without which capital is misallocated, 'zombies companies' are kept alive, and the steady accumulation of dead wood stifles new growth.
The devastation being caused by these price distortions is now just beginning to be felt in the oil patch, and will soon be felt by the impending insolvency of state and municipal pensions - Ohio looks like being the first.
"It (history) also teaches us that policymakers who ignore adverse market signals because they are inconsistent with their preconceptions risk serious error"
Yes indeed it does. Like the time market signals were ignored when Mr Rubin persuaded President Clinton to bail out his old firm Goldman Sachs during the Mexico crisis; like the times Mr Greenspan made his famous 'put' on every occasion the market gave the slightest adverse signal; like the time Dr Bernanke dismissed the idea of a nationwide housing crisis; and like the time Professor Summers ignored the warnings about the 'financialisation' of the economy and helped to put Glass Steagall into the dustbin of history. More recently, like the time that Wall Street put the taxpayer back on the hook for derivatives by inserting a clause into Dodd Frank just before Christmas. It seems that history's lesson on 'moral hazard' has been totally ignored. I haven't heard policy makers making any noise about that. Are they stupid, or complicit? It's one or the other.
The author now wants us to believe that we can rely on the assessment of one of these policymakers - himself. Personally I think that the biggest preconception made by policymakers is that they know what they are doing. A serious error would be to maintain faith in these policymakers, who over the past few weeks, and in various forums, have been 'softening' up the population for a whole new package of financial goodies, that include:
2. Abolition of cash to facilitate NIRP
4. Helicopter money
What does this amount to? The printing of trillions more in paper liabilities in order to purchase existing paper liabilities. You can dress it up to sound technical but that's what it is - debt that will never be honoured; 'money' that has never been within a country mile of real productivity; AKA counterfeit. In short, having started a fire, policymakers now want us to believe they know how to put it out...by adding more paraffin to the blaze.
The resolution to the financial crisis that started in 2007/08, which is still playing out now, will be either massive inflation, a deflationary collapse, the conscious restructuring of the global monetary system, or a combination of one or more of these. We will not grow our way out of this carrying the burdens accumulated by decades of Ponzi monetary policies from clueless academics, and tooth fairy fiscal policies from corrupt politicians.
'There is an old proverb: “You do not want to know the things you can get used to.”'
Very true. Like the same old 'solutions' from the same old people who got us to here in the first place.