Well, apropos of almost everything you might think of, everybody doesn’t know….not yet anyway….even if it is painfully obvious. The boat don’t float.
Still, I’d like to take a quick moment to make a brief comment or two in advance of the Fed’s press conference today. Naturally, the world awaits “on pins and needles”, and not just because this is their first such conference in only 97 years (the time does fly does it not?). Not having been born yet (nor my parents for that matter), I can’t actually remember what they spoke about in the last one.
Presumably, there is widespread expectation that Mr. Bernanke will announce the ending of “Quantitative Easing” (i.e. money printing). My take: If that is, indeed, the announcement, it will be an outright lie. Why? Well, it’s not because they’ve given us a 97-year, proven track record of open and transparent dealings with the public.
Actually, my expectations are founded on something quite a bit more basic; so basic that “even a caveman” could understand it. This is really simple math:
- Our expected “nominal” GDP growth of 2% or 3% includes the expected deficit spending of roughly 11% of GDP.
- A goodly share of this debt has been, over the last year, purchased by the Federal Reserve with newly “minted” dollars. It could be more, but, then, how would we know? Simply put, this is monetization of the debt.
- Even under the best case (i.e. “most generous”) definition, deficit spending is nothing more than the borrowed future productive (and savings) capacity of the nation.
- When this debt is simply paid with “fresh dollars” (“monetized”), however, it is something far, far, worse…it is nothing more than a “cover-up” of the shrinking “real economy”. A newly printed dollar has no value, after all, unless the economy has actually grown enough to back it up.
- So, nominal growth of 3% minus 11% of such phony spending = -8% real “growth”. That’s what’s really going on when the only way to repay the rapidly accruing debt is to print money.
Not to put too fine a point on it, the UK’s recent (over the past two quarters) “flattening” of GDP growth expectations are clearly the net effect of austerity measures instituted there this last year. This, by the way, is a rather clear demonstration of the leftist-spendthrifts typically fearful charge that austerity will, in effect, sink the boat.
Not that it matters, really. The boat is already sunk. When your so-called “growth” is utterly dependent on the printing of (worthless) fiat money, you are already done. It’s just that simple. What is left is merely the “discovery” of just how sunk the boat is….is it “on the beach” or “at the bottom of the ocean”. Only time will tell.
“Everybody Knows This Is Nowhere”I think I’d like to go back home And take it easy There’s a woman that I’d like to get to know Living there Everybody seems to wonder What it’s like down here I gotta get away from this day-to-day running around, Everybody knows this is nowhere. Everybody, everybody knows Everybody knows. Every time I think about back home It’s cool and breezy I wish that I could be there right now Just passing time. Everybody seems to wonder What it’s like down here I gotta get away from this day-to-day running around, Everybody knows this is nowhere. Everybody, everybody knows Everybody knows.