Wednesday, September 7, 2011

‘It’s the debt, stupid,’ redux

Watch for unprecedented manipulation of the unemployment rate, as the administration comes to terms with the fact it is the relationship of the unemployment rate to its adaptation level that is the strongest single determinant of confidence in the United States of America.  The general public, including unsophisticated investors and even types like yours truly with a Ph.D. in economics, distrust the stock market and look at any manufactured gains there as simply more evidence of the expropriation of the public by the kleptocracy.

We learned in macro thirty-five years ago that when effective demand collapses in the depression, increased monetary “stimulus” is like “pushing on a string”—the public and businesses don’t want to borrow in a collapsing economy.  The only lesson Bernanke seems to have taken from his studies of the Depression (and from his current crop of colleagues) is that banks can’t be permitted to lose any money.

Three links by sources I trust sum it up pretty well:

It's A Long Hard (may be in the archives after September 2011)

An Imminent Downturn: Whom Will Our Leaders Defend? – John Hussman.  Hussman has developed a robust logistic model on more than just the yield curve, something I would do if I were paid to to do.

‘Helicopter Ben’ risks destroying credit creation – Bill Gross.  An almost comical whine seemingly on behalf of the banks by Bill Gross, who points out that the proposed contortionist “Operation Twist” will not help the banks to create credit, of course missing the main point that in a multi-generational deflationary collapse of effective demand very few want to borrow except the carry trade operators who are having fun blowing bubbles right and left to sucker the poor forcibly “risk on” public in to parting with more of their money.

By the way, I may have been the first to coin the phrase, “It’s the debt, stupid,” but I welcome any contributions to substantiating that claim.  Here’s the earliest reference I can find on the site:

The Animal Spirits Page: It's the debt, stupid

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