The Abysmal Science of the Inflation Deniers

The difference between dismal science and abysmal science is that the first is true but discouraging while the second is encouraging but false. Climate change notwithstanding, abysmal science is clearly predominant when it comes to questions about the economy.

We can easily see obvious special interests at work when “big oil” pays scientists to prove that emitting massive amounts of carbon into the atmosphere has not caused [or meaningfully contributed to] rising air and ocean temperatures. However, we praise central bank scientists [who work for “big money”] for their faithful service in the public interest when they assures us that pumping trillions of units of “financial carbon” [aka fiat credit] into the global economy has not caused [or meaningfully contributed to] inflation  … and that, in fact, we need even more of it. The reason for this inconsistent response is that Americans no longer think scientifically [at least in economics] … we do not take the time [or do not possess the ability] to consider the economic facts which make a strong case for the proposition that

• the price of  essentials is rising much faster than what is officially reported and
• this [intentionally?] under-reported inflation is ravaging the largest part of our society.

So what are these facts?

In "The Middle Class Squeeze", Charles Moore makes a statement that is confusing to those who think about it, because it is bad science … comparing apples and oranges.

"My own children, who started work in London in the last two years, earn a little less, in real terms, than I did when I began in 1979, yet house prices are 15 times higher."

 

 The Apples

The "real" wages Moore's children earn today are "a little less" than his real wages were in 1979, because for 30 years the nominal prices of the things some government considered essential to a family [and thus included in its official price index] have risen "a little" faster than the nominal wages of Moore and his children [which nominal wages were also rising during those 30 years but at a lower rate]. In other words, even though his children's wages are nominally much higher than his were in 1979, the current "purchasing power" of his children's wages is really "a little" lower than the purchasing power of his wages 30 years ago ... and this is due to the difference between the rates of increase [over 30 years] in the nominal wages and the nominal prices of those things included in the government's official price index. Now that is good science !

 

The Oranges

However, when it comes to the price of housing, which is NOT included in the government's official price index, Moore sadly and unscientifically groans that nominal housing prices have risen 15-fold over the same 30 years. If Moore were a good scientist, he would have noted that his children's real wages when considered in terms of the explosion in nominal housing prices since 1979 had virtually "collapsed" when compared with his real wages in terms of housing prices in 1979. And this collapse of real wages in terms of exploding housing prices is important, since housing has always been a large percentage of the average family's overall cost of living. And those seeking to explain this wage collapse can find the easy answer in unreported housing price increases which were officially excluded from the government’s price index causing it to be dramatically under-reported. Bad science is dangerous !

 

Alchemy Redux

But there is more … something other than wages and prices had changed over those 30 years which may help explain the effects Moore observed ... and that was credit and interest rates. It turns out that in the 1980's the scientists at the Federal Reserve, foremost of which was America’s own Alan Greenspan, began live experimentation with a new monetary theory which, simply stated, claimed that:

The correct financial injections of fiat credit into the real economy would somehow [Greenspan claimed it was through the mysterious forces of free markets] make everyone's life better ... faster ... with no downside for anyone.

This theory, if proven true, would be the realization of an economic dream as old as kings ... make base materials into gold suddenly without work … mint your way to prosperity … politicians loved it … business leaders praised the Maestro … this was to be the previously unimaginable achievement of financial alchemy ... which Wikipedia defines as:

"chemistry of the subtlest kind which allows one to observe extraordinary operations at a more rapid pace – operations that require a long time for nature to produce."

 

GNP=QE²

And so was born the new science of fiat credit with rapidly increasing consumption, investment and faster economic growth. Of course, there were some unanticipated bumps along the road:

• American jobs first went to Japan ... then to Mexico ... then to China ... then to India ... and soon now to a new group of Asian nations under a secret international trade agreement.
• And even when everything seemed great, there were sudden unexplained collapses in the economy ... as if it was exhausted and needed a rest.
• Furthermore, as Moore [and most everyone else] observed, wages and prices of all sorts began to rise [with some like housing soaring] year after year though at different rates causing complex socio-economic effects across the globe.

 Nevertheless, central bank scientists considered the overall results of their theory to be acceptable ... even desirable [although for whom remains unclear] ... and proudly persisted in their real-time experimentation ... increasing the injections of fiat credit whenever the economy showed any signs of weakness. By the time of the unanticipated great recession in 2008, the head American central bank scientist, one Ben Bernanke, radically posited that unlimited and infinite injections of fiat credit were the only reasonable response to recurring and more severe bouts of economic weakness. Bernanke’s theory of quantitative easing took Greenspan’s “doubling down” to an exponential order of magnitude never imagined [much less attempted] by scientists before him … this, the pundits proclaimed, was true and bold genius ... and the theory spread across the entire globe.

 

Another Unexpected Development: Temperatures Rising

Meanwhile in the late 20th century, climate scientists began to form a new theory that rapidly increasing carbon dioxide emissions [resulting from rapid economic consumption and growth] were building up in the oceans and atmosphere and might, at some critical point in the future, via an already known and proven greenhouse effect, cause global water and air temperatures to rise ... with potentially disastrous [although not yet completely predictable] effects. However, it was not long before other scientists [mostly hired by big oil and big business] began to present opposing theories denying that increased human carbon emissions were causing or meaningfully contributing to change in the planet’s climate.

 

The Unthinkable ? ... not again !

Science has a long history of the unthinkable being proven true. But often that has required scientists across disciplines to think together ... because our planet's bio-chemical and socio-economic systems are complex and more interdependent that we have thus far been able to imagine. But, for the sake of argument, let’s posit a theory of our own.

• We have become the victims of bad science in central banking.
• Pumping trillions of units of “financial carbon” [aka fiat credit] into the economy has not only caused a consistent rise in global prices overall [causing real wages to collapse] but has resulted in massive and accelerated emissions of real carbon into the atmosphere causing [or meaningfully contributing to] a consistent rise in global temperatures overall [causing the overall quality of human life on the planet to fall].
• Thus the unanticipated consequences of bad central bank science have now extended beyond the economy per se ... into the planet's physical oceans and atmosphere.
• The dire socio-economic and atmospheric extremes [including such seemingly unrelated things as income inequality, market crashes, droughts and floods] which the planet and its people are experiencing with increasing frequency and severity are inter-connected … and ultimately caused … by the bad [and still largely unchallenged] science of conflicted central bankers working on behalf of “big money”.
• We must dismiss [even prosecute violations of law by] the abysmal central bank scientists who intentionally mislead us so that they [and their constituents] can profit [even temporarily] at our expense.
• We must be willing to become [for awhile at least] dismal scientists who honestly listen to the evidence even though it  consistently points to the need for painful changes to our socio-economic and atmospheric behavior.

From the Mouths of Two Witnesses

Perhaps, it is no coincidence that Pope Francis, who appears to be a thoughtful and reasonable [if simple] man, is warning Americans that our socio-economic and atmospheric lives are interconnected and that we must radically change our behavior if we are to avoid devastating economic and biological consequences. Does this simple man somehow suspect a real connection between economic and ecological forces which our greatest scientific minds are missing? It would not be the first time that simple powers of unbiased observation discovered truths that the greatest thinkers missed even though, in retrospect, the truths appeared obvious to any thorough but unbiased person.

 

Go Big or Go Home

Perhaps, it is time for everyday Americans to stand up and break the shackles placed on us by the bad science of special interest controlled central bank alchemists and to re-engage honest [albeit dismal for the moment] science in our economic lives. For who knows the breadth and significance of the goodness which the virtuous actions based on good science might once again [not suddenly but over time] bring to us [and our progeny] economically and in the quality of our lives on the planet.

Gross is not the issue

In his September 23, 2015 commentary entitled "Saved by Zero", Janus manager Bill Gross seems to second guess the Fed's zero interest rate actions without taking a position.

He reports that

"Ken Rogoff and Carmen Reinhart have meticulously documented periods of 'financial repression', long stretches of years and in some cases decades where short-term and even long-term yields were capped and suppressed below the level of inflation."

... but does not object to financial repression or interest rate suppression in principle ... just in application.

He alleges as

"fact that while 0% or .25% or other countries’ financially suppressed yields might be appropriate for keeping their economy’s head above water, they act as a weight or an economic “sinker” that ultimately lowers economic growth as well."

... but asks only for this to be acknowledged in the minutes of a central bank meeting.

He appears convinced that

"zero bound interest rates destroy the savings function of capitalism, which is a necessary and in fact synchronous component of investment."

... but is willing to settle for something that lets that vital savings function "survive – if only on a shoestring."

Finally, he laments that

"Mainstream America ... [is] on a revolving spit, being slowly cooked alive while central bankers focus on their Taylor models and fight non-existent inflation."

... but feels called only to give his "advice" to the financial malefactors.

Laws are not Fashions ... or vice versa.

The reason most people lose their way and wander in endless cycles when seeking to understand the role and effect of central banking is that they fail to distinguish between what is legal and what is fashionable.

• Laws connect the fundamental and invisible principles of social order with the unavoidable and obvious consequences that arise from obeying or violating them as evidenced by history.
• Fashions link anticipated but mutable human perceptions with the assumed but uncertain human actions that may give rise to them which only time can show to be true or false.

Mr. Gross does nothing other than deal in an unprincipled manner with central banking fashions. He fails to grasp that the real issue is

• not whether he [or anyone else] perceives the outcomes of central bank actions to be desirable
• but rather whether the actions of the central bankers are legal or illegal.

 Law enables freedom. Fashion incites tyranny.

Is resistance futile?

Reuters reports that in their increasingly radical but doomed and futile attempts to "stimulate" real economies that are still faltering around the world after years [in one case decades] of extreme monetary policies [now referred to as "financial repression"] consisting of:

• massive injections of fiat credit [usually extended directly to governments or GSEs] and
• interest rates forced to zero [ZIRP],

central banks are considering even more radical and desperate steps forward. The point for us is simple:

• it is time to turn back to the law because
• where human beings or institutions no longer observe the law, they are doomed to wander into an increasingly confusing and desolate social wilderness characterized by increasingly extreme and deviant stimulation and repression.

It is well past time to make the FED obey the Federal Reserve Act and stop dragging us into an economic wilderness it can neither understand nor control.

1. Targeting even higher inflation ... say 4-6% annually for starters.

The thought here is that if the central bank simply floods the economy with more "money" in the form of fiat credit [new loans made available by the central bank which are not backed by any real savings or by anything else of value for that matter], it will somehow

• seduce people into increasing spending on various things [assets and/or consumables]
• resulting in a jump in the demand for [relative to supply of] those things [be they stocks, houses, cars or just groceries]
• which would in turn cause the prices of those things to rise faster
• resulting in higher rates of price inflation on [i.e constantly rising prices of] those things.

Its lack of sound economics notwithstanding, this type of policy has already failed because it is hard to seduce somebody [with the promise of a new loan] who is already worried about his/her ability to repay existing personal debt [incurred during prior seductions] when wages are not rising and jobs are uncertain.


The only possible result of such a policy would be unleashing the financially irresponsible among us [starting on Wall Street] to reach levels of obscenity in their indulgence only dreamed of by history's most decadent deviants.

2. Making the central bank the permanent purchaser and everlasting holder of government debt.

The idea here is that the government can simultaneously

• buy the weapons to wage the wars needed to sustain the profitability of the military industrial complex [guns] AND
• make the continuous welfare payments needed to keep its citizens happy [butter]
• with the central bank permanently "printing" all the money needed to "buy" bonds [let's make them 1000 year bonds while we are at it] that finance the government's perpetual deficits
• until such time [if ever] as the real economy ... somehow ... miraculously ... begins to grow again at an acceptable rate.

This line of thinking has no rebuttal ... because it is delusional ... pure and simple nonsense.

3. Charging you to keep "money" in your bank account.

This is call using "negative" interest rates and is intended to force you to spend your money as quickly as you get it. If you want to "save" any money for your retirement [or for any other purpose] and you try to do so by putting the money in a bank account, the bank will charge you for the privilege of making a deposit ... and you will not be able to avoid this charge because there will be no such thing as "cash" you can withdraw and hold ... all money will be electronic and will exist ONLY in the central bank computer files. The idea is that faced with the systematic loss of your savings, you will choose [like a rapist lets a victim choose] to spend the money on something [anything] and to save nothing.

This perverse idea results in the saver paying the bank to make a deposit while the bank still collects from the borrower for making a loan ... because there is now NO LINK between the saver and the borrower. The saver is no longer needed or wanted in society ... only borrowers need apply. The central bank will provide fiat credit to replace real savings forever. Indeed, the object is to eliminate any private savings of any sort.

And lest you think negative interest rate policy [NIRP] is mere science fiction, it was suggested by one member of the US Federal Reserve Bank at their September 2015 meeting as the final solution for dealing with those persistently reprehensible savers who are bent on destroying the economy with their self-righteous frugality.

How do you resist tyranny? Require obedience to law.

Hannah Arendt caused a furor at the Eichmann trial by asking why the Jews did not resist Nazi repression during the Holocaust ... even if it meant death ... since the death of the Jews was the obvious goal of the Nazis. She was not the first or the last to ponder that. But hopefully Americans will be able to give history an answer of sorts to that question ... as we are reduced, without a whimper much less resistance, to financial slavery and ultimately financial death by a reprobate central bank that has become lawless.

Welcome to the future ...
"lower your shields and surrender your ships ... we will add your biological and technological distinctiveness to our own ... your culture will adapt to service us ... resistance is futile."

Law of Monetary Equality

Rowan County Kentucky Clerk Kim Davis is in jail as of this writing because she refused to comply with the law of marriage equality in her actions as a public official. Although Davis was technically jailed for contempt of court, casual observers quickly concluded that what she really held in contempt was the rule of law ... without which constitutional democracy is meaningless. The White House solemnly summarized the situation in four sentences:

1. No public official is above the rule of law.
2. Certainly not the President of the United States.
3. But neither is the Rowan county clerk.
4. That’s a principle that is enshrined in our Constitution and in our democracy.

The problem is only two of these sentences are true ... but "half truths" means "half lies".

Sadly, however, few Americans are even aware of [much less understand] the American law of monetary equality [known as the Federal Reserve Act] which, for over 100 years, has more or less successfully safeguarded our common right to our common currency. And yet this law is even MORE IMPORTANT than any law of marriage equality in the scope and severity of the consequences when it is violated. Back alley "counterfeiters" who break the law of monetary equality are put in jail. So why do we continue to allow Federal Reserve public officials [in league with powerful special interests] to break this law with "sovereign immunity" from the devastating damages they are causing socially?

If "no public official" is above the rule of law, as the White House announced, then the past and present members of the Fed need to be brought up on charges for their actions in violation of the Federal Reserve Act ... denying monetary equality not only to Americans but to every person worldwide who has ever trusted in the US currency as an honest store of wealth with which to manage the events of one's economic lifetime.