In response to an FT article by Martin Wolf on 13th October 2015, entitled 'Solid growth is harder than blowing bubbles'
"In its latest World Economic Outlook, the International Monetary Fund strikes not so much a gloomy note as a cautious one"
That's because the IMF could not find their own noses in a fog, let alone see further than the end of their arms. They will continue their well rehearsed tradition of lowering their 'forecasts' until the bar is almost on the floor, and then watch whilst the debt laden economy they've encouraged, crawls underneath it. The function of the IMF's forecasting is to prevent the Fed's mediocre predictive powers from standing out too much.
"It has lost its last significant credit-fuelled engine of demand. The result is almost certain to be a further boost to the global “savings glut” or, as Lawrence Summers calls it, “secular stagnation” — the tendency for demand to be weak relative to potential supply."
It seems every time I read the phrase 'savings glut', it is always accompanied by a note to explain that Professor Summers calls it 'secular stagnation'. Call them George and Mildred if you like, but they are both superficial explanations, as in - not fundamental or causal. There is no 'savings glut', there's a 'credit glut'. The difference is the difference between a surplus that has been created through productivity, and currency units conjured up by the Ponzi schemers in the central banks, egged on by academic 'experts' - the gurus who fill the WSJ, the NYT, and the FT with this tooth fairy economics. The causality described is back to front:
"In the period up to 2007, needed global demand was generated in large part by expansions in credit and housebuilding, particularly in the US and Spain. This engine ran out of fuel in the western crises of 2007-09 and eurozone ones of 2010-2013. This created our world of zero short-term nominal interest rates and zero long-term real ones"
There's a clue in the first sentence - "global demand was generated in large part by expansions in credit". Our current world of ZIRP is not just the effect of the economy running out of steam - it's the cause of it.
It's the 'medicine' that is making the 'patient' sick. The economy is not struggling because it needs more 'stimulus', the patient is sick because it has been supplied with ever increasing doses of drugs to deal with a drug problem. Unfortunately, the patient is being administered to by a bunch of quack doctors serving up what is effectively poison to the bloodstream of the global economy, having gotten the poor chap hooked in the first place. Why persist with this quackery when the patient needs to come off the drugs and indeed tried to go 'cold turkey' 8 years ago? Well, for one thing, that would not be very healthy for their overblown egos - can you imagine Dr Bernanke or Professor Summers or Madame Lagarde ever saying 'I got it wrong'. Hell will freeze before any member of the monetary politburo admit they've got it wrong.
We will not grow our way out of this. We are heading for a deflationary collapse, caused by credit expansion. The only alternative is massive centrally planned inflation, or a new Bretton Woods. The latter won't happen until it is forced on cowardly politicians and hubristic central planners. They will wait until the economy is on its knees.
In the meantime, the central planners will do what they have been doing since the market first tried to clear the massive debt burden in the nineties, when Mr Greenspan first inaugurated his 'put'. They will up the doseage and make it worse. Labels will be changed and new acronyms will be found to make it look new. It won’t be new, it’ll be more of the same – it’ll be something like this:
The Ten Commandments - A Fed Chairman’s Programme for Saving the World
1. Create a bubble with low interest rates and easy money
2. Refute the suggestion that the bubble exists. Use phrases like "on one hand X…but on the other hand Y...but on balance Z". N.B. It doesn’t matter what X and Y are, just make sure Z sounds reassuring
3. Watch the bubble burst
4. Deny accountability and announce that no-one could have seen it coming. If a 'real journalist' mentions the name of someone who did see it coming, claim that everything is clearer with hindsight and say you’ve got time for one more question; call on Jon Hilsenrath from WSJ or Steve Liesman from CNBC - they'll throw you a 'soft ball' that isn’t a real question
5. Ban the aforementioned 'real journalist' from future press conferences - this step is crucial - forward guidance requires ‘accurate reporting'
6. Blather on constantly about ‘aggregate demand’ and remind everyone that you are 100% confident that the world will be saved because destiny, and Milton Friedman's take on the great depression, has prepared you for the task
7. Print lots of new paper liabilities with which to purchase old paper liabilities. Keep Wall Street in the loop at all times - Front running is a must if the banks are to be kept on board
8. Slowly reduce the money printing, reminding everyone that you are ‘data dependent’, which means that you will back-pedal immediately if the stock market goes down or if Goldman get upset. N.B. there is an endless supply of data points to blame the back-pedalling on - pick the one that sounds the least spurious at that point in time
9. Keep talking about raising interest rates, but on no account do so. The bubble will burst of it’s own accord, at which point you can select the most recent piece of bad news to blame it on
10. Rinse and repeat steps 4 to 10. Don’t worry about 'burn out’ during the repeat cycle, you can 'duck out' just before announcing number 8
Sorry, I almost forgot: Number 11 - write a book - ‘The Courage to Print' has a snappy sound to it.