Nobody’s in Control!

[courtesy Google Images]

A Few Good MenYou want the truth?! . . . .  You can’t handle the truth!

Jessep’s line became an instant classic and, today we’re still wondering whether We the People can, or can’t, “handle the truth”.  Government thinks we can’t handle the truth and therefore lies to us.  But, does government really protect us by shielding us from the truth?  Or, does the government protect itself and condemn ordinary Americans by denying our access to the truth?

I’m inclined to believe that the American people can handle the truth.  I believe that, inevitably, people must handle the truth.  Still, I have to admit that I also have my doubts.  In any case, I believe that all lies are only temporary and sooner or later, people will be forced to “handle the truth” whether they like it or not.

For example, suppose we had an economy and political system where the stock, bond and commodities market prices were based on the truth of a “free” market rather than the lies that are influenced, manipulated, and even controlled by government’s central planners.  The free markets give us truth that’s often painful.  The central planners beguile us with “sweet, sweet lies” (like the inflation and unemployment rates) that are temporarily pleasant and reassuring.

How many Americans could “handle” the free-market truths about the Dow Jones index or the price of gold, if those truths produced a 4,000 Dow and $10,000 gold?  We’d be better off in the long run if we faced those truths, but in the short run, the immediate result of such truths could be financial and political chaos.

How many Americans would really want such truths?  How many could “handle” such truths?  How many would instead beg to maintain the lies (18,000  Dow; $1,200 gold) provided through the courtesy of our central planners?

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Broken Tools

Here’s some excerpts from a May 22nd article from NewsMax Finance entitled “The Fed Can’t Grow our Economy.”  According to that article,

“The Federal Reserve lacks the tools to sufficiently grow our economy.”

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I.e., The Federal Reserve lacks the tools to sufficiently control our economy.

“The minutes of the most recent Fed policy committee meeting at the end of April suggests the central bank is perplexed that worker employment and income are growing, yet inflation remains below the 2 percent target for nearly three years . . .  consumption and investment are stalling. . . .

“Unfortunately, much of the Fed’s optimism for the economy and labor market in the medium term was based on a robust rise in consumer spending, which has not materialized. . . .   the Fed is planning an untested  approach to raise interest rates: paying banks to limit lending.  That is, the Fed will provide a high rate of interest to the member bank reserves held at the central bank, so the banks need not lend it to business and consumers.”

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First, why is the Fed “planning an untested approach”?

A:  Because the conventional tools of classical economics no longer work.  After five years of continual and extreme “stimulus,” the economy is not growing.  The Fed can no longer control the economy by using classical economic tools (adjusting interest rates or the money supply).  Therefore, the Fed is trying to devise new, previously-unknown and therefore “untested” tools to regain control.

Implication:  at least for now, no one is in control of our economy.

Second, what sense does it make for the Fed to pay “banks to limit lending . . . . so the banks need not lend it to business and consumers”?

Isn’t it true that, for years, the Fed has hoped for a “robust rise on consumer spending” to stimulate the economy—but didn’t get it?

But now, if the Fed is planning to pay the banks not to lend to American “businesses and consumers,” won’t that necessarily reduce “consumer spending”?

Isn’t that an obvious contradiction?

Out of Control!
[courtesy Google Images]

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Should we believe the Fed’s words or actions?

Does the Fed still have any tools needed to exercise control?

Does the Fed even understand how to control the modern economy?

Is central control of the US economy no longer possible?

Bill Gross “Senses” but Doesn’t Know

Bill Gross is a multi-billionaire and Wall Street “insider” who co-founded PIMCO and ran its $270 billion Total Return Fund. Gross left Pimco to join Janus Capital Group last September.  In January, he claimed that he’d been fired.

Bill’s been around the block. He knows the markets, the bonds and Wall Street about as well as anyone.

Here are excerpts from a May 25^th article from NewsMax.com entitled “Bill Gross:  Stocks, Bond Bubbles to Pop as Bull Market Ends”:

“Star bond-fund manager Bill Gross . . .  warns that financial market bubbles are about to pop and that the bull market is nearing its end.

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OK, coming from Mr. Gross, that warning is kinda scary.  As a premier Wall Street “insider,” he oughta know.

But he goes on to say,

“I sort of have a sense of an ending. . . . It probably ends, like T. S. Eliot said, with a whimper and not a bang.”

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He “sort of” has a “sense of an ending”—and how that ending will “probably” play out?   How can it be that a multi-billionaire, Wall Street insider doesn’t have access to data that will confirm or deny his warning that the markets are on the verge of a major correction?

If Bill Gross doesn’t know for sure what’s happening in the economy, who does?  Doesn’t his equivocation imply that nobody understands what’s happening or is likely to happen—and therefore no one is really in control?

Speaking of the prospective interest rate changes by the Fed, Mr. Gross said,

“I think the Fed wants to get off zero, if only to get a sense as to whether they can begin the process of getting healthy again.”
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Will the Fed raise interest rates as an experiment to see if it can “get a sense” of whether the economy is “getting healthy again”?

“Get a sense”?

Apparently, like Mr. Gross, the Fed also doesn’t know if the economy is strong, weak or somewhere in between.

Again, we see evidence that people who should know, don’t.

How can anyone really control the economy, if people like Bill Gross and Janet Yellen don’t clearly know what’s happening and can only rely on their “sensing”?

Implication:  No one is in control.

Goldman Sachs Doesn’t Know

Established in A.D. 1869, Goldman Sachs is an American multinational investment banking firm that engages in global investment banking, securities, and other financial services.  In A.D. 2014, Goldman Sachs reported having assets worth $856 billion.

It would be reasonable to suppose that an investment firm as old, rich and powerful as Goldman would have a pretty clear understanding of what’s going on in the economy.

However, on May 26^th, Forbes Magazine published, “Goldman Sachs is Entirely Right About Economic Growth” wherein a Goldman executive voiced his confusion:

“Our problem is that there’s an awful lot of things that are right in economics but which also aren’t very, or even at all, important.  Just as there’s things where we don’t know where we’re right or wrong but we do know that they are extremely important. . . . we don’t know as much about growth and the rate of it as we tend to think we do. The growth figures that are usually bandied about, those for productivity, GDP and so on, all depend upon some underlying assumptions. And we know that we’re at least partially wrong in some of those assumptions. What we don’t know is either how badly we’re wrong nor how important those errors are.”

Get that?  Do you find Goldman’s admissions of ignorance surprising?  Even mind-boggling?

The only knowledge Goldman claims to have is that, “we know that we’re at least partially wrong in some of [our] assumptions.”

Correct me if I’m wrong, but don’t big-time investment banks attract clients and capital by inspiring customer confidence?   How much confidence can Goldman inspire by repeatedly admitting that “we don’t know”?

Whatever pushed Goldman to make such startling admissions, Goldman must be astonished or even frightened by its own, undeniable ignorance concerning economics.

•  Goldman worries that,

“Structural changes in the US economy may have resulted in a statistical understatement of real (economic) growth. . . . The data, might not be picking up changes in the economy resulting from the rapid spread of advanced software and digital content.”

What economic changes could result from the “rapid spread of advanced software and digital content”?   I can think of two:

1)  Increased productivity in terms of actual production divided by actual man-hours of work (one man can now do the work that used to be done by, say, ten); and,

2)  Increased unemployment as, say, nine workers are replaced by one man, a $500 computer and some software.

Virtually every technological advance that increases productivity is a “labor-saving device”.  Increased productivity is supposed to provide the benefit of increased profits.  But, how much “labor” can we “save” without raising unemployment levels to a point where we lose consumers, the economy slows and actual profits (not profit percentages) start to shrink rather than rise?

•  Goldman goes on to argue that,

“If the growth and productivity statistics have been understated, then the inflation statistics will also be over-stated.  And we really are pretty sure that this is the case too.”

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“Pretty sure”?  That’s all they’ve got?  “Pretty sure”?

If “inflation statistics are over-stated,” then we are presumably closer to (or even already in) a period of deflation—which is usually a hallmark of economic depression.

If our inflation statistics are over-stated, is that exaggeration an accident?  Or are they intentionally over-stated to help conceal the implications of deflation (economic recession or depression) from the public?

 “Increases in product quality are known as “hedonic improvement” and there’s a number of reasons why we know that the current inflation statistics don’t properly account for them . . . . but there’s really no obviously exactly correct way to do this.  So, we know that we’re wrong: we just don’t know how importantly we’re wrong.”

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Whew!

First, if there’s no “exactly correct way” to calculate inflation, nobody really knows what the current inflation rate is.  How can the Fed shoot for 2% inflation if nobody knows the real, current rate of inflation?

Second, Goldman says we “know that we’re wrong”—but they don’t know how wrong.

Figuratively speaking, Goldman knows they’ve pushed the wrong button, but they don’t know if that button turned off the sound on the TV or launched an ICBM toward Moscow.

If they don’t know what they’re doing—if they don’t understand the cause-and-effect relationship between whatever they do to whatever happens—then, they’re not in control.

“If we’re over-stating inflation, then all of these other numbers are going to be wrong. And we know that we do know that we’re not quite measuring hedonic improvement correctly.

“And that’s before we come to the problems we’ve got with the newer, digital economy. We know absolutely that we’re measuring the value of new output incorrectly: correctly according to the old rules, yes—but incorrectly in terms of the value being added. And that again makes all three of our numbers wrong.”

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Nobody’s in control because no one can be in control.  The economy is moving forward like a great, rudderless ship.  It’s propelled by its momentum and we seem to be making good speed, but no one is at the helm and no one is really in control.

“All of which leads to an interesting public policy conclusion:

“This is a bit of a death knell for the idea that we should be planning the economy in any detail. You can only plan something if you know what to do.  You can only decide what to do, where to go, if you know where you are.  Being able to plan an economy requires being able to measure it accurately—and we know we’re getting that wrong.  So, we must assume, we would get planning [the economy] wrong, too.”

I’d say it’s the “death knell” for the idea that it’s even possible for our central planners In Washington DC to reliably control to economy to any significant degree.  (I’ll bet the central planners of the former Soviet Union were forced to make similar admissions just before the Soviet Union collapsed in A.D. 1991.)

•  Our predicament isn’t simply based on our technical inability to accurately measure the “new, digital economy”. Our predicament is also based on the fact that the US government is intentionally lying to us, “cooking the books” and exerting unseen influence to make some markets move artificially and irrationally higher and other markets move artificially and irrationally lower.

The idea that the government artificially manipulates market indices and prices is no conspiracy theory.  On March 18, A.D.1988, when President Ronald Reagan signed Executive Order 12631, which created the “Working Group on Financial Markets”—more commonly called the “Plunge Protection Team”.  That team’s purpose was to prevent sudden, uncontrollable declines in the stock and financial markets.

Protecting the markets from sudden crashes may’ve seemed like a good idea at the time, but doing so could only be achieved by manipulating the (theoretically free) markets.   If the free market wants to fall from 18,000 to 4,000, but the Plunge Protection Team stops the fall at 16,000—that’s market manipulation.  The Plunge Protection Team and government have been legally manipulating markets for at least 27 years.

But control of the economy was officially authorized all the way back in A.D. 1913 when the Federal Reserve was created and given two objectives: 1) to control inflation and 2) to cause full employment.  Those two objectives could only be achieved by means of central control of the economy and market manipulation.

It’s not a conspiracy theory.  The Federal Reserve and government have been legally trying to control the economy and manipulate the markets over a century.

Insofar as that’s true, we haven’t had an honest, free-market economy for over a century.  How can anyone control an economy if no one has accurate information on its actual (free-) market indices, commodities prices, inflation rates, etc.?  Have our central planners been blinded by their own lies?

Again, I’m reminded of the metaphor of a huge ship, plunging ahead without captain or rudder, driven only by its momentum.  Yes, the US economy is probably growing, but no one knows how much, how fast or for how long.  Nobody’s in control.

•  “Sure, some things have to be planned. Once you’ve got fiat money, a fractional reserve banking system and a central bank, then obviously someone has to decide what short term interest rates are going to be.”

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Goldman implies that the foundation for “economic control” are fiat currency, fractional reserve banking and the Federal Reserve.  With real money (gold & silver), etc., we’d have a free market and uncontrolled economy.  Without real money we have increased regulations allowing more and more central planning, a loss of liberty, a growing police state, and the prospect of national, economic ruin.

In his A.D. 1776 magnum opus, The Wealth of Nations, Adam Smith coined the term “invisible hand” to describe the unseen processes by means of which the economy and free markets were guided by the people rather than by the government.   Most recently, it’s been clear that we haven’t had free-markets or the “invisible hand” to guide us—we’ve had the “visible hand” of central planners and rising fascism.

Only now, it appears that the central planners’ “visible hand” hasn’t simply lost control of the economy but also lost understanding of the economy and even the ability to control.  If the “visible hand” of central planners fails, will the “invisible hand” of free markets return?

Goldman concludes:

“But given our information scarcity (data we’ve got loads of, it’s information we’re short of) our attempts to plan should be kept to an absolute minimum. Simply because we’ve not got what we need to do more than only what we absolutely have to.”

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Goldman argues that since we no longer have the tools and measurement devices needed to truly control the economy, our central planners should stop trying to control the economy.  Goldman implies that it’s time for the “invisible hand” to regain control

Of course, our central planners will never voluntarily surrender their real or illusory power of control.  With data, without data—with the truth or with lies—you can bet that government will continue to claim that it is—and should be—in control.

But, what happens if America’s central planners are finally forced to admit (as happened in the Soviet Union when it imploded in A.D. 1991) that they have no clue as to how to accurately measure or control the economy?

What happens if the government is forced to admit that “Nobody’s In Control”?

A:  Chaos.  In the extreme, perhaps even national disintegration similar to that of the former Soviet Union.