'..When it comes to understanding the nature and destructive capacities of inflation, the “Austrians” put the “Keynesians” to shame.'

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<blockquote>'I imagine that Ben Bernanke, Mario Draghi and Haruhiko Kuroda all stay awake at night imagining ways to force negative rates on savers. But the larger question, beyond a sociopathic desire to control others in service of one’s own intellectual dogma, is why anyone would advocate such policies. I can’t emphasize strongly enough that there is no economic evidence that activist monetary intervention has materially improved economic performance in recent years; a fact that can be demonstrated using constrained and unconstrained vector autoregressions (which overcome the incorrect notion that “there is no counterfactual”). Specifically, the trajectory of the economy in recent years has followed a largely mean-reverting course that one could have anticipated simply on the basis of lagged economic data, and there is no economically meaningful difference in the projected trajectories of GDP, industrial production, and employment using purely non-monetary variables, compared with projections that include measures of recent extraordinary monetary policy.'

- John P. Hussman, Ph.D., The Decade of Zero and its Chaotic Unwinding, August 15, 2016</blockquote>

<blockquote>'(Email from reader T.B.) “These various stages of capitalism, or finance, are interesting and descriptive. But I think the progression is rather simply explained as an ongoing perversion of capitalism caused by inflation: credit expansion or any kind of money-supply inflation.

Have you seen Henry Hazlitt's colorful statement about the consequences of inflation? If not, just consider this: “It [Inflation] discourages all prudence and thrift. It encourages squandering, gambling, reckless waste of all kinds. It often makes it more profitable to speculate than to produce. It tears apart the whole fabric of stable economic relationships. Its inexcusable injustices drive men toward desperate remedies. It plants the seeds of fascism and communism. It leads men to demand totalitarian controls. It ends invariably in bitter disillusion and collapse.” Henry Hazlitt, Economics in One Lesson, page 176

Isn’t this a nearly perfect short description of what is happening to us?”

Yes, it is. Henry Hazlitt (1894-1993) was a brilliant thinker and prolific writer. He was a noted journalist throughout the “Roaring Twenties” and Great Depression periods. Hazlitt learned his economics from some of the masters. He was friends with Benjamin Anderson (“Chase Economic Bulletin” and “Economics and the Public Welfare”). From Wikipedia: “According to Hazlitt, the greatest influence on his writing in economics was the work of Ludwig von Mises, and he is credited with introducing the ideas of the Austrian School of economics to the English-speaking layman.”

As an admirer of Hyman Minsky, I view “Minskian” analysis as the authority on critical aspects of financial evolution and institutional and Capitalistic development. At the same time, when it comes to economic analysis more generally, I am an “Austrian” at heart. Minsky seemed to hesitate when it came to discussing the profound impact finance and financial evolution had on the underlying economic structure. From the standpoint of my analytical framework, this void is filled superbly by Austrian thinking. When it comes to understanding the nature and destructive capacities of inflation, the “Austrians” put the “Keynesians” to shame.


Dr. Richebacher argued that of all the various consequences of Credit inflation, the rise in consumer prices was one of the least pernicious. With sufficient determination, policymakers could (Chairman Volcker did) tighten financial conditions and break inflationary processes and psychology. Expect an attentive constituency when it comes to reining in destabilizing CPI.

But how about asset price inflation and Bubbles? Well, there is a powerful proclivity for letting asset prices run. An inflationary bias in asset markets certainly “makes it more profitable to speculate than to produce.” And the larger the speculative Bubble the more powerful the constituencies that arise to demand government involvement, intervention and manipulation to sustain Bubble Dynamics. Misguided policymakers will endorse destabilizing asset inflation as confirmation of sound policies (Greenspan, Bernanke, Draghi, Kuroda…). In one of financial history’s most misconceived policy blunders, central bankers specifically targeted asset inflation as the primary mechanism for system reflation.


August 12 – Financial times (Robin Wigglesworth and Eric Platt): “The value of negative-yielding bonds swelled to $13.4tn this week, as negative interest rates and central bank bond buying ripple through the debt market. The universe of sub-zero yielding debt — primarily government bonds in Europe and Japan but also a mounting number of highly-rated corporate bonds — has grown from $13.1tn last week… ‘It’s surreal,’ said Gregory Peters, senior investment officer at Prudential Fixed Income. ‘It’s clear that central banks are dominating markets. There’s a race to the bottom. Central banks are the main drivers of this, it’s not fundamental.’”

August 12 – Financial Times (Joe Rennison and Eric Platt): “Investors have poured more money into US fixed income exchange traded funds so far this year than for the whole of 2015, as the hunt for returns intensifies with nearly $13tn of global bond yields trades below zero. US fixed income ETFs have attracted more than $60bn of money this year — outstripping 2015, when the funds lured just under this year’s current total, according to… Deutsche Bank. International investors seeking fixed rates of return via bonds are targeting the higher yields on US government and corporate debt via fixed income ETFs, which track bonds and trade like a stock price on an exchange… Large bond ETFs like the iShares Core US aggregate bond fund, which gives exposure to US investment grade debt, have outstripped inflows to larger equity ETFs.”

It’s ironic. As market participants and global central bankers over recent decades fretted the prospect of deflation, global debt and asset markets experienced history’s greatest inflationary Bubble. It’s my view that global markets are these days dominated by a historic dislocation in debt trading. There are hundreds of Trillions of interest-rate derivatives outstanding. And global bond yields have done this year what no one thought possible. As was the case with previous derivative-related melt-ups (i.e. mortgages 1993, SE Asia 1996, Nasdaq 1999), these types of dislocations foment extraordinary underlying leverage (i.e. levered bond holdings as hedges against derivative exposures).


It is not hyperbole to posit that global securities markets are in the midst of a historic short squeeze and the greatest ever market dislocation. And it’s not unreasonable to suggest that this is a sadly fitting climax to the world’s most spectacular inflationary Bubble.

Yet through the façade of unprecedented perceived global wealth, one can begin to more clearly identify the the Scourge of Inflationism: “It tears apart the whole fabric of stable economic relationships. Its inexcusable injustices drive men toward desperate remedies. It plants the seeds of fascism and communism. It leads men to demand totalitarian controls.”

It’s been akin to a wreaking ball. We’ve seen the general population unknowingly surrender wealth to Inflationism. In the face of so-called disinflation, millions have suffered at the hand of inflating costs for housing, health care, tuition and insurance, to name a few. We’ve seen these serial booms and busts take a terrible toll on many workers, families and communities. We witnessed many lose much of their retirements – and faith in the markets - in two major stock market busts. Millions lost much of their life’s savings during the collapse of the mortgage finance Bubble. Millions of students have taken on tremendous loads of debt to finance higher education and vocational training. Millions have been lured by (years of) low monthly payments into purchasing homes, automobiles, vacation properties, recreation vehicles, etc. that they cannot afford.

Inflationism has seen real wages for much of the workforce stagnate or worse over the past decade. Inflationism and his accomplice malinvestment are the culprits behind pathetic productivity trends and declining living standards. Worse yet, Inflationism and his many cohorts are fomenting disturbing social, political and geopolitical turmoil. And reminiscent of the Weimar hyperinflation, central bankers somehow remain oblivious that their operations are of primary responsibility. If people don’t these days trust central bankers, politicians, Wall Street, and governments and institutions more generally, just wait until the Bubble bursts.'

- Doug Noland, Inflation, August 13, 2016</blockquote>


<blockquote>'..Like monetarists, Keynes held no capital theory .. the role time plays..' - Jesús Huerta de Soto

(Haptopraxeology) - '..We have lost three centuries as a result of ignoring our scholars!'

'..social, political and geopolitical risks associated with economic stagnation..'

'It remains my view that the global Bubble has burst..'

'Few understand the deflationary impacts of the entire gamut of trends that is playing out..' - Mike Shedlock

'..saving, wise investment and production are what creates wealth, not spending and consumption..'</blockquote>