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Saturday, August 21, 2010

Keynes the Killer, Bond Bubbles, and Old Russia

 Items of Interest:

Michael Pento / Real Clear Markets:
Dr. Keynes Killed the Patient -- Right now, economic quackery - in the form of Keynesianism - has overtaken Washington.

American consumers are trying their best to deleverage. In terms of the story, the patient is actually trying to lose weight. But the government is blocking deleveraging and trying to boost consumption. They are forcing food down the patient's throat. According to the Flow of Funds Report, households reduced debt at a 2.4% annualized rate ($330 billion) during Q1 of 2010. Meanwhile, the federal government was piling on debt at an 18.5% annual rate ($1.44 trillion). Since every dollar of government debt is a promise to tax the private sector in the future with interest, this public spending spree effectively negated the Herculean efforts of the private sector to return to a sustainable path.

That's where the arrogance of Washington is really apparent. Scores of millions of American consumers have made the decision that reducing their debt burden is in their best interests right now. But a few hundred individuals in government believe they know better than the collective wisdom of the entire free market. By leveraging up the public sector, they have used their power to confiscate our savings. In short, they are forbidding us from following the common sense path to fiscal health...

Rather than allowing the American people to get back on our feet, Washington is stuffing us with even more debt. It's almost as if the feds are daring our foreign creditors to pull the plug. As a consequence, I predict that just as Dr. Keynes killed his patient, Keynesian economics will kill our economy.

----
At the beginning of the Clinton administration in the early 1990s, adviser James Carville was stunned at the power the bond market had over the government. If he came back, Carville said: I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody. - WSJ

Bond Bubble

So are bonds the toxin that Dr. Keynes is injecting into the body of the American economy to kill it? Someone please tell me: Is there, or is there not a "Bond Bubble"?

Paul Krugman
Appeasing the Bond Gods -- The Freakish Cult of the Austerity Apostles ... the austerians: the bond vigilantes may be invisible, but they must be feared all the same...

So how do austerians deal with the reality of interest rates that are plunging, not soaring? The latest fashion is to declare that there’s a bubble in the bond market: investors aren’t really concerned about economic weakness; they’re just getting carried away. It’s hard to convey the sheer audacity of this argument: first we were told that we must ignore economic fundamentals and instead obey the dictates of financial markets; now we’re being told to ignore what those markets are actually saying because they’re confused.

You see, then, why I find myself thinking in terms of strange and savage cults, demanding human sacrifices to appease unseen forces.

And, yes, we are talking about sacrifices. Anyone who doubts the suffering caused by slashing spending in a weak economy should look at the catastrophic effects of austerity programs in Greece and Ireland...

related:

Still confused?
----
Apparent synthetic wealth has artificially and temporarily been created through the production of paper. Whether Federal Reserve IOU notes (the dollar) or guaranteed certificates of confiscation (treasury notes & bonds), it needs to never be forgotten that these are paper. It is not wealth. It is someone else’s obligation to deliver that wealth to the holder of the paper based on what that paper is felt to be worth when the obligation is required to be surrendered. It must never be forgotten that fiat paper is only a counter party obligation to deliver. Will they? Unfortunately, since fiat paper is no longer a store of value, it is recklessly being created to solve political problems. What you will inevitably receive will be only be a fraction of the value of what you originally surrendered. -- Gordon Long, Tipping Points
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Forget your present worries. Let's go to a land far away and long ago.

Boston.com:
Russia in color, a century ago -- With images from southern and central Russia in the news lately due to extensive wildfires, I thought it would be interesting to look back in time with this extraordinary collection of color photographs taken between 1909 and 1912. In those years, photographer Sergei Mikhailovich Prokudin-Gorskii (1863-1944) undertook a photographic survey of the Russian Empire with the support of Tsar Nicholas II. He used a specialized camera to capture three black and white images in fairly quick succession, using red, green and blue filters, allowing them to later be recombined and projected with filtered lanterns to show near true color images. The high quality of the images, combined with the bright colors, make it difficult for viewers to believe that they are looking 100 years back in time - when these photographs were taken, neither the Russian Revolution nor World War I had yet begun...

title=
A group of Jewish children with a teacher in Samarkand, (in modern Uzbekistan), ca. 1910.

View of the Nikolaevskii Cathedral from southwest in Mozhaisk, Russia in 1911

Calculated Risk

MishTalk - Mike Shedlock

Paul Krugman - NY Times

The Big Picture - Barry Ritholtz

naked capitalism - Yves Smith

Pragmatic Capitalism

Washington's Blog

Safe Haven

Paper Economy

The Daily Reckoning - Australia