“Peace, Love, Dopes”
by David Stockman
“‘We’ll fight back, we’ll fight back, we’ll fight back,’ a man near Doctor Stockstill was chanting. Stockstill looked at him in astonishment, wondering who he would fight back against. Things were falling on them; did the man intend to fall back upward into the sky in some sort of revenge?”
– Philip K. Dick, “Dr. Bloodmoney” (1965)
“Nostalgia for the 1960s is thick these days. I think it appropriate, in this moment, to note one of the intensely private Neil Armstrong’s few public statements about his experience.
Indeed, the First Man on the Moon was “profoundly disappointed that the whole point of the Apollo 11 mission seems to have been lost, dissipated and buried in hucksterism and other attendant nonsense.”
Bob Dylan didn’t play Woodstock, which happened about three weeks after Apollo 11. It’s said it was down to a sick kid. Others have hypothesized that the poet laureate of the protest generation was irritated by the chaos visited upon his home, which was very near the festival site. His words, literally, still fill the air. And that’s good too. His immortal “Ballad of a Thin Man,” composed in 1965, happens to be one helluva paean to Jerome Powell. Substitute the Federal Reserve’s “dynamic stochastic general equilibrium model” for Bob’s “pencil” and you pretty much have Jay’s…
“You walk into the room with your pencil in your hand.
You see somebody naked and you say, “Who is that man?”
You try so hard but you don’t understand.
Just what you will say when you get home.
Because something is happening here
but you don’t know what it is,
Do you, Mr. Jones?”
Today, everyone and everything everywhere is buried in hucksterism and nonsense. That “something” of Bob’s crafting turned to our purpose is the descent of the global debt market into a negative-yield netherworld. Earlier this month, there was $13.4 trillion of sub-zero bonds outstanding. That’s 25% of all the investment-grade paper extant on Earth. Yields on benchmark 10-year bonds stood as follows:
• Switzerland (-0.69%):
• Germany (-0.41%);
• Denmark (-0.30%);
• France (-0.17%);
• Japan (-0.16%);
• Austria (-0.13%);
• Finland (-0.10%);
• Belgium (-0.02%);
• Sweden (-0.02%).
Back when Bob was going electric and Neil Armstrong was readying for his singular achievement, the inflation-free U.S. economy was growing at about 4% per year. There wasn’t a central banker in the world who would not have been horrified by that list. They knew that a system of sound money and honest capitalism would never generate negative nominal interest rates. That holds even in a deflationary environment.
Here’s why… When the laws of supply and demand operate, weak interest rates lead to lower private savings. That creates more demand for funds. This dynamic prevails until equilibrium is reestablished at a positive, market-clearing yield. Forget the exact tempo and the precise timing of these adjustments. Nobody but nobody pays governments or companies or billionaires for the privilege of lending them money and taking the risk of loss, however small it may be.
Here’s what it all means. Negative yields are a sign of profound monetary metastasis. And we’ve just received a nine-alarm warning-bell.Monetary central planners’ massive bond-buying campaigns have unleashed omnipotent speculative manias that have made financial asset prices nothing but momentum-riven noise.
Sven Henrich called it like it is: “These charlatans do not produce growth. They produce nothing, but force capital into risk asset classes. They are the bubble machine, desperate to keep the balancing act afloat.” They’re so mesmerized they can’t recognize that their handiwork is having virtually no positive long-term impact on the real economy. Yet Main Street will suffer, like it never has before, this monster on Wall Street.
The Fed’s virtual promise that it will begin a rate-cutting cycle next week means it’ll only get bigger. Maybe the major indexes will finally break out beyond “Peak Trump.” They call it “insurance,” because, allegedly, inflation’s been running too low and growth needs a jolt. And that’s bullshit.
Intermediate-term inflation is running no higher or lower than it has been for years. And there’s no reason whatsoever to believe that 25 basis points or even 50 basis points of lower money-market rates after 10 years at the zero bound will have any impact at all on consumer spending and/or business investment.
A rate-cutting cycle right now is of value right now to a limited but powerful constituency. It includes Bubblevision, Wall Street, and the Tweeter-in-Chief.”
Source:
http://coyoteprime-runningcauseicantfly.blogspot.com/2019/07/peace-love-dopes.html
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