“… those who are waiting for the Fed cavalry to ride over the hill and rescue the economy are doomed to disappointment….The banks are awash in loanable funds, businesses are cash-rich and opportunity-poor, and interest rates are already so low that lower still will not attract borrowing….More liquidity is unlikely to impart more impetus to the sluggish economy…. Congress and the President should not count on the Fed to bail them out of their mistakes…. Central banks are unable to help in the face of persistently flawed economic policies.” Source: Irwin M. Stelzer (Weekly Standard)
So quotes Monty Pelerin (www.economicnoise.com) in edited excerpts from his original article*.
Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!) and www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) has edited the article below for length and clarity – see Editor’s Note at the bottom of the page. This paragraph must be included in any article re-posting to avoid copyright infringement.
Pelerin goes on to say, in part:
The fact that central banks are “unable to help in the face of persistently flawed economic policies” does not mean they won’t try. They are unlikely to stand aside and watch economies crumble but their involvement will not solve anything, but will make matters worse.
Zerohedge has captured the alternatives: “… unless we see/hear believe that the Fed will embark on perpetual and exponentially growing QE since its impact is lesser and lesser, then its game over for the equity market – and if they ‘hint’ at open-ended easing than Gold goes sky-bound…”
This point is reflected in the following chart which shows financial market responses to earlier quantitative easing efforts:
Temporary financial market responses occurred to such efforts, but no effects were achieved in the real economy. The U.S. economy is spent, exhausted and crippled, at least with respect to what government can do.
Monetary stimulus is akin to a defibrillator. It temporarily shocks financial markets back to life, although does not address the underlying disease. The real economy — jobs and business investment — are unresponsive. Ultimately, financial markets will become immune to such shocks as well.
The game of extend and pretend has about played itself out. “Smoke and mirrors” was never an economic strategy. Now it has almost exhausted whatever political value it once had.
The underlying horror of our economic situation is not the unresponsiveness of the economy. An argument can be made that stimulus has never worked, even when it appeared to. The true horror is the size of government and what this size means to the economy. Mr Stelzer recognized this concern, saying:
…consider the set of data compiled by Nicholas Eberstadt, political economist and demographer at the American Enterprise Institute, and published under the title, “A Nation of Takers.”
- Government transfers resulting from some 50 benefit programs – money taken from some taxpayers and redistributed to others – continue to grow at an exponential rate, and twice as fast as per capita income.
- Between 1969 and 2009 these transfer payments have risen from 7.8 percent of personal income to 17.6 percent…
- Almost half of all Americans live in households receiving some government benefits. It is not unrealistic to expect this fact to affect votes in November, and to create an atmosphere favorable to President Obama’s goal of making our country more like European social democracies, should he be given the opportunity.
The above paragraph is the key to understanding the true economic problem. The makers (the productive sector) are shrinking while the takers (the entitlement class) are expanding. Fewer people are being asked to support more free-riders. No economy can continue to grow when this ratio goes beyond some extreme. Performance for the last five years suggests we are near that point.
The entitlement problem is not solvable within the political environment because voters are too conditioned to their “freebies.” Both political parties consider this bribery for votes as an important strategy in getting elected/re-elected. No politician has the courage to commit political suicide by trying to end this burgeoning scam.
The problem has reached a critical stage. Even at current levels it is beyond the sustainable level. The economy is unable to grow fast enough to satisfy existing promises and debt obligations. Those living at the expense of others will likely continue to grow. This doesn’t alter the destination of an economic collapse, but it speeds up the arrival.
No economy can support large numbers of unproductive. At some point those producing are unable to support both themselves and the free-riders. This prospect is the universal flaw in all socialistic schemes.
Socialism continues until the “free-riders” destroy the producers, which reveals the bankruptcy of the ideology and bankrupts the entire economic system.
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Editor’s Note: The above posts may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.
Governments everywhere are becoming more distressed and desperate as economic realities dominate the political doublespeak. The world is at a dangerous point. Much of what we thought we knew and assumed regarding governmental behavior and economics is beginning to be reassessed. Governments of the world are out of money and out of ideas. The ponzi scam that has been perpetrated for over fifty years is collapsing under its own weight. There are not enough suckers and capital left to sustain the fraud. [Let me explain further.] Words: 999
By threatening to drop money out of helicopters to fight deflation – to leave a paperweight on the “print” button if you will – Bernanke convinced the market and all of Wall Street that the Fed would always be there to step in and save the day. [In fact, however,] the whole thing was a bluff meant to prop up the markets – the famed Bernanke Put – and it was a lie. The markets will be realizing this in the coming months, if not sooner, and when they do, we’ll see the REAL Collapse: the one to which 2008 was just a warm-up. [Let me explain.] Words: 444
We are in the latter stages of the debt death spiral where debt and interest payments can only be made by adding more debt. This process has a sure ending. Like the flush of a toilet, the spiral goes faster and faster until it finally ends. [Let me put forth just how serious the problem is.] Words: 431
At the risk of looking/sounding like some crazed religious fanatic usually seen carrying a sign or proclaiming: “Repent, the end is near,” I shall avoid the word “repent”. To me, the rest of that proclamation appears accurate and reasonable, at least with regard to our economic condition. [Let me explain:] Words: 1896
This short video – on the unsustainability of government spending – should be watched by everyone, including those not yet old enough to vote. It should be shown in every high school and college classroom. Anyone that cannot understand this presentation should not be allowed out without a guardian.
Our civilization would not be able to handle such a transition from an expansionary credit based economy where goods and services were readily available into a paradigm of credit contraction, supply shortages and destitution and this is what is coming. There is no way to prevent it – only to defer it until a later date – and that day will soon be upon us. Words: 590
The outcome of the election of 2012 will [only] determine the rate of speed at which we approach the [financial] cliff [because] neither political alternative is willing to change course, to steer away from the cliff. The cliff is so high that whether we go over it at 200 mph (Obama) or whether we merely slip over the edge (Romney), the end result is the same — fatal for the economy and perhaps our entire political system. It is the fall that will kill us. [This article explains why that is going to be the case.] Words: 1135
The deficits aren’t going to stop anytime soon. The debt mountain will keep growing…Obviously, the debt can’t keep growing faster than the economy forever, but the people in charge do seem determined to find out just how far they can push things….The only way for the politicians to buy time will be through price inflation, to reduce the real burden of the debt, and whether they admit it or not, inflation is what they will be praying for….[and] the Federal Reserve will hear their prayer. When will the economy reach the wall toward which it is headed? Not soon, I believe, but in the meantime there will be plenty of excitement. [Let me explain what I expect to unfold.] Words: 1833
…The US Government and its catastrophic fiscal morass are now viewed by the world as a ‘safe haven’. This would easily qualify for a comedy shtick if it weren’t so serious….[but] the establishment is thrilled with these developments because it helps maintain the status quo of the dollar standard era. However, there are some serious ramifications that few are paying attention to and are getting almost zero coverage from traditional media. [Let me explain what they are.] Words: 1150
With the U.S. election just months off, political pressures will mount to favor fiscal stimulus measures instead of restraint. Such action can only accelerate higher domestic inflation and intensified dollar debasement culminating in a Great Collapse – a hyperinflationary great depression – by 2014. [Let me explain why that is the inevitable outcome.] Words: 2766
Whether our current economic crisis will end with massive inflation or in a deflationary spiral (ultimately, either one results in a Depression) is more than an academic one. It is the single most important variable for near and intermediate term investing success. It is also important in regard to taking actions which can prepare and protect you and your family. [Here is my assessment of what the future outcome will likely be and why.] Words: 1441
Daniel Thornton, an economist at the Federal Reserve Bank of St. Louis, argues that the Fed’s policy of providing liquidity has “enormous potential to increase the money supply,” resulting in what The Wall Street Journal’s Real Time Economics blog calls “an inflation inferno.” [Personally,] I think it’s too soon to make significant changes to a portfolio based on inflation fears. Here’s why. Words: 550
The developed economies of the world have opened the money spigots…[and this] massive money and credit creation is sitting in the banking system like dry tinder just waiting for a spark to set it ablaze. How quickly it happens is anyone’s guess, but once it does we are likely to be enveloped in a worldwide inflation unlike anything before ever witnessed. [Let me explain further.] Words: 625
Evidence shows that the U.S. money supply trend is in the early stages of hyperbolic growth coupled with a similar move in the price of gold. All sign point to a further escalation of money-printing in 2012…followed by unexpected and accelerating price inflation, followed by a rise in nominal interest rates that will bring a sovereign debt crisis for the U. S. dollar with it as the cost of borrowing for the government escalates…[Let me show you the evidence.] Words: 660
Interest rates have been manipulated to keep them extremely low in an attempt to stimulate the economy but…unless deficits are dramatically reduced…. interest rates will eventually rise and government interest expense will double or triple from the amounts being paid today. That potentially triggers a debt death spiral, where government has to borrow more than otherwise expected. It also raises the credit risk and could ratchet interest rates up again. It has happened to Greece, Portugal, Spain and other European countries already this year and could well happen in the U.S. too. Words: 595
Everyone who purchases a Treasury bond is purchasing a depreciating asset. Moreover, the capital risk of investing in Treasuries is very high. The low interest rate means that the price paid for the bond is very high. A rise in interest rates, which must come sooner or later, will collapse the price of the bonds and inflict capital losses on bond holders, both domestic and foreign. The question is: when is sooner or later? The purpose of this article is to examine that question. Words: 2600