Government Treating Cancer With Aspirin

Monty Pelerin / EconomicNoise.com

There are times someone makes a point or points you have tried to make for years and you are captured with their succinctness. It is what you have been trying to communicate but seems to be done so easily and skillfully.

For years I (and others) have argued that what the Federal Reserve was doing was merely cosmetic. It was papering over problems in an attempt to provide cover for politicians. I think that my message got through to some readers if only because of endless repetition. Some probably accepted it in the same fashion that POWs who are tortured eventually give in and say whatever their captors want them to.

As someone who has tried to communicate this message so often, I was struck by the simplicity and clarity with which John Rubino, using Doug Noland’s words, communicated this same message:

Noland’s take on these numbers:

“A few years back I opined that it would take roughly $2 TN of annual system Credit growth to more fully reflate the deeply maladjusted economy. After four years of outrageous fiscal and monetary stimulus, our Credit system is poised to possibly reach this milestone in 2013. The good news is that jobs are growing at a decent clip. The bad news is that this reflation has required a doubling of federal debt coupled with incredible Bubble-inducing monetary measures. The government finance Bubble has significantly inflated household incomes and corporate earnings, a Bubble dynamic that has worked to incite speculation and inflation throughout equities and corporate debt markets. The reflation in securities and, increasingly, real estate markets has again inflated Household Net Worth. Perceived gains in wealth and ongoing (government policy-induced) income growth have spurred boom-time spending levels, in the process sustaining the consumption and services-based U.S. economy. Ignore the underlying Credit dynamics and things almost look OK.”

But of course you can’t ignore “underlying Credit dynamics.” If you have to borrow excessively to buy something, then the purchase is a bad deal that hurts you eventually. This pretty much sums up the US economy of the past few decades, where each increment in new “growth” has required ever-higher borrowing and each jump in debt increases systemic fragility and the odds of catastrophic failure. Noland’s conclusion:

“I don’t know if this historic Bubble will burst this year. But I am convinced the longer the current backdrop continues the greater the eventual economic and financial turmoil. The Q4 2012 “flow of funds” provides added confirmation that policymakers have painted themselves into a corner. It’s hard to believe the Fed will stick with $85bn monthly QE in the face of mounting Credit and market excess. On the other hand, the liquidity backdrop has created such unsettled global markets that central bankers will look for any excuse to avoid watering down the punch.”

continue article here:

http://www.economicnoise.com/2013/03/12/government-treating-cancer-with-aspirin/