“A Confluence of Irony and Outrage”
by David Stockman
“Bad dreamer, what’s your name?
Looks like we’re riding on the same train
Looks as though there’ll be more pain
There’s gonna be a showdown.”
“I don’t know if it’s possible to express what I feel when I think about the fact that one of the great errors of modern governance happened on my former boss’s watch. There’s certainly no shortage of irony that the non-Keynesian Democrat Paul Volcker was sent packing by Ronald Reagan in 1987. The Gipper was the last chief executive who actually believed in sound money.
And, then, to add insult to injury, the president handed the immense latent powers of the Federal Reserve to the lapsed goldbug Alan Greenspan. The Maestro soon learned to enjoy power more than he loved right. And he spent 19 years making the Keynesian predicate the modus operandi of modern central banking.
These last three decades prove two important things about Keynesian-style monetary central planning. It can massively inflate financial asset prices on Wall Street. But it cannot remotely accomplish its stated mission of lifting up the Main Street economy. And that’s when we turn from irony to outrage, with the slim comfort that a comeuppance is coming, and soon…
“Zero interest rate policy,” or “ZIRP,” and “quantitative easing,” or “QE,” are the ultimate expression – so far – of Keynesian-style monetary central planning. (I say “so far” because the San Francisco Fed is already setting the table for “NIRP”… yeah, “negative interest rate policy.”)
But that combination of extraordinary policies produced the weakest recovery from a recession in history. It generated a mere 5% total increase in industrial output over the course of more than 12 years. And, more importantly, each passing day, week, and month bring fresh reminders that “inflation targeting” and “full employment” are utterly impossible to achieve in an economy tethered to intricate and powerful global trade, production, and financial flows.
Some of Bubblevision’s cognoscenti understand that the producer price index for final demand is as good a leading indicator of consumer-level inflation as there is; it carries the upstream price impulses that eventually show up at checkout time.
The year-over-year number for June 2019 came in at 1.63%. That compared to 3.4% in June 2018. It was 1.8% in June 2017, 0.0% in June 2016, negative 0.5% in June 2015, 1.7% in June 2014, 1.6% in June 2013, 1.3% in June 2012, and 4.4% in June 2011.
All that detail? Well, those wild variations reflect the fact that consumer price indices are driven by exceedingly volatile and cyclical upstream factors. And these factors are way beyond the Fed’s capacity to influence. Moreover, why should it try to influence them?
Upstream prices grew by an annual average of 1.73% from 2011 through 2019. The idea that a 27 basis-point miss from the Fed’s utterly arbitrary target of 2.00% has any bearing on the punk growth rate of the mainstream economy that was otherwise recorded is self-serving nonsense.
As for the “full employment” target, 3.7% on the headline U-3 rate doesn’t measure anything but Bureau of Labor Statistics noise. And it’s rebuked by the 170 billion adult labor hours per year currently unemployed in the monetized economy. That’s to say nothing of the vast leakage traceable to a binge of debt-funded domestic spending that ended up being supplied by China and its imitators and supply chains.
That leakage of Fed-fostered artificial demand into the global economy is why Donald J. Trump is today the President of the United States. Now, that’s irony, given the Tweeter-in-Chief is now on the warpath against the very same monetary central planners who enabled his political ascent…
Of course, it’s looking more and more like the crash’ll come too soon to save him from electoral extinction in 2020. What we know about the Donald is that he’ll take everything he can down with him. So, he’ll make indelibly clear to the American public that Jerome Powell and the Federal Reserve are the cause of the/our/his unfolding calamity… And he’ll be correct. On that score, the Great Disruptor’s work here will be done.”
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