Another day. Another drop for the Dow. Gold up $19 an ounce.
Is the US stock market finally rolling over? Has the magic spell of QE finally been broken? Maybe. Our “Crash Alert” flag, tattered and torn, still flies – just in case.
Money talks. BS walks.
Walking through the Fed for the last few years has been a lot of BS about “transparency” and “forward guidance.”
We’ve even seen articles in the press claiming the policy of “forward guidance” was worthy of a Nobel Prize… and how it represents a new breakthrough in central banking theory and practice.
Supposedly, all the Fed had to do was tell the market what it intended to do. That should be enough. Then investors and business could react to the “guidance” as though it had been delivered to them by Moses on stone tablets.
The Fed, in its omniscience, would know precisely what interest rates the economy would need, not only now, but even six months ahead!
In other words, the Fed expected us to believe it could know two unknowable things at once – our economic future and the interest rate needed by investors, borrowers and lenders to improve that economic future.
Ben Bernanke first mentioned that the Fed might start to taper its bond buying later this year back in May. Children went back to school. Fall arrived. The leaves started to turn color. Then last week the Fed announced that it had decided that the US economy is not ready for tapering after all.
What? The Fed didn’t know what shape the economy would be in after all?
So what was all that stuff about forward guidance? Turns out, it wasn’t guidance at all. It was folderol. The old bumble, stumble, waffle and cheat.
If these guys have PhDs in economics, it makes us wonder. Either PhDs are given out like business cards. Or all economics is claptrap. Maybe both!
Having guided the market towards tapering, what did they think? Either the market had taken them seriously… and had already made its peace with slowing QE. Or the market did not take the Fed seriously… and was waiting to see what it would really do.
Either way, the Fed still had the same problem in front of it. It had to do something. Either taper or not taper. And it had no clue what to do.
As it turned out, the Fed decided not to taper. This made a nonsense of its operating doctrine, undermined its credibility and left investors with the impression – correct! – that the Fed was just making it up as it went along.
What a marvelous time to be alive… to read the newspapers… and to watch slapstick economics at work. All those PhDs. All those theories. All that data. All those formulae. And all of it complete garbage.
The underlying conceit of the Fed is that it can make the economy better. No theory has ever proposed making this a plausible proposition on any level.
Economists don’t know what a “better” economy is. Is a better economy one that is spending… or saving?
Is it one in which people are all working… or in which they are enjoying their leisure?
Is it better for prices to be stable… or falling?
How much debt should people have?
They don’t know.
An Inconvenient Truth
Hey, check out these headlines compiled yesterday by colleague Justice Litle:
Sounds pretty good? Who knows?
Are more expensive houses a good thing?
Is it “better” for the US to make its own toilets?
And millionaires? On the evidence, the last time they were this optimistic was at the beginning of the most disappointing decade since the Great Depression.
The feds pretend they know it all. Anyone can read their public comments and realize they are just humming and faking it.
Here’s the inconvenient truth: The Feds don’t know how to make an economy better. But they know how to make it better for themselves. And that is an economy that is delusional and largely dysfunctional.
It’s all about money, power and status. Wealth that matters is relative, not absolute. People don’t necessarily want more; but they definitely want more than their friends and neighbors.
The feds get wealth, power and status by taking them, not by earning them. And it is easier to take them from delusional people who believe they are making headway too.
But the masses shouldn’t really make progress… because that would make them wealthier and less dependent.
The feds prefer a population that is poor, dependent, ignorant and docile. (That alone explains most of what people see as “failed” government programs. They’re not failures at all from the feds’ perspective.)
QE doesn’t work? Ha! You’ve missed the point…
It’s a great success. You’ve just got to be delusional to believe in it.
Because you get poorer the longer it goes on. And you become more dependent as more and more of the economy’s resources come under the feds’ control.
Taper? Not if the Fed can avoid it!
Why America Is Never Going Broke
From the desk of Justice Litle, Editor, Strategic Wealth Report
Today, I want to finish dealing with the reader feedback I received from my claim last Wednesday that the American declinists are wrong.
As you’ll recall, the feedback (and there was a lot of it) boiled down to three assertions.
Again, I am fully aware that what I am about to say is sacrilege to some. But the United States government will not go broke for at least the next 100 years. (Plenty of time, in other words, to profit from the rising share prices of its unrivaled businesses.)
Consider the following five facts:
1) The US is an agrarian superpower – We feed the world. Only the European Union exports more food.
2) The US is fast becoming an energy superpower – It is projected to overtake Saudi Arabia as an oil producer by 2020. And by 2030 it is expected to become a net energy exporter.
3) The US is a technology superpower – It is the most innovative economy. And more entrepreneurially and commercially dynamic than any other country in the world.
4) The US is a real-estate superpower – Thanks to desirability factors relating to location, amenities, business opportunities and rule of law, US real estate is some of the most sought-after in the world. To buy this real estate, you must first trade your pesos, ringgit or renminbi for dollars.
5) The US has the most profitable corporations in the world – Apple, Google, ExxonMobil, IBM are all US corporations that pay (mainly) US taxes. To buy shares in these corporations, you must first trade your shekels, yuan or rubles for dollars.
The US is governed by rule of law. That means the US government has the power to levy taxes against the country’s asset base. And the US asset base is the most impressive asset base on the planet.
Not just in terms of present wealth – which is huge – but in terms of future wealth too, the earnings potential of all those innovative US companies and US minds will create untold wealth.
Like it or not, the US government gets a cut of all that through the taxes it levies.
Missing Half the Equation
The debt math is scary, but only in a vacuum.
If you worry about whether the government can pay its bills, you must consider the asset side of the nation’s balance sheet as well as the liability side. If you only look at the liabilities side, you are missing more than half the equation.
Let’s imagine a man with $500 million worth of debt. Would you worry about his finances?
Now, let’s imagine you found out that man was Bill Gates. Would you keep worrying? I doubt it.
America is like Bill Gates times ten thousand – with aircraft carriers and cruise missiles to boot. And a huge silo of food that others want to eat. And ownership of the most valuable patents in the world. And taxation rights on the innovation stream that will produce more such patents.
So let me repeat: The US government is never going broke.
Bottom line: America’s advantages are structural, powerful and permanent. No other country has these advantages. Certainly not China. Or Europe.
Peak oil was the only real threat to US dominance… and now that threat is gone.
Editor’s Note: Justice is focused turning his “big picture” themes into investment profits. If you are interested in learning how, you can access a free issue of his macro investing newsletter, Strategic Wealth Report, here.