“You’re not only wrong. You’re wrong at the top of your voice.”
- John J. Macreedy (Spencer Tracy), ‘Bad Day at Black Rock’, 1955, dir. John Sturges.
Get your Free
financial review
Every so often you come across a piece of writing that has a blazing clarity, expressing a very great number of informed thoughts simply, but profoundly. What follows is one such piece. We’ve long praised the ability of Twitter (the title ‘X’ is far too soulless) to foster links between like-minded thinkers whom we might otherwise never encounter, and the following piece is to our mind a great example of such serendipitous contact.
It’s written by MarkGB – a retired businessman and consultant. We first came across MarkGB via Twitter, and we then started to follow his below-the-line posts in the Financial Times online edition, gluttons for punishment that we are. The great advantage of a newspaper’s website is that it offers you the instant feedback and insight of its readers and, in this case, many of the readers are a lot more thoughtful than most of the paper’s own writers.
Some time ago, Martin Wolf, surely one of the most overrated economic commentators in the world, published his latest apology on behalf of central banking overreach, in the form of the increasingly ridiculous policies that we now refer to by the acronyms of QE, ZIRP and NIRP (quantitative easing, zero interest rate policy and negative interest rate policy). To get the measure of his column you need only read its final paragraph:
“Criticising the success of our central banks in reflating our crisis-hit economies, because this created today’s financial risks, is not a valid reaction to their actions. It is, however, an extremely valid criticism of finance. It is also a valid criticism of the failure of governments to address the many frailties that still lead to financial excess. The central banks did their job. Unfortunately, almost nobody else has done theirs.”
In terms of analysing the inanities in this argument, where to begin?
- Central banks have not been successful at delivering anything.
- There has been no reflation at an economic level, only an inflation in the prices of financial assets.
- To Wolf, no criticism of central bank policy can ever be valid. (The epitome of “Davos Man”, he is presumably angling for a consulting gig at either the Bank of England or the European Central Bank. Or the World Economic Forum.)
- How can we separate “finance” from the workings of the central bank, which dominates proceedings in the credit market that is at the heart of the global financial crisis ?
- To a man with a hammer, everything looks like a nail. Central banks – until recently – had just one tool, namely control of policy interest rates, which they have now exhausted. Enter QE, then, and the most extreme (and dangerous) monetary experimentation in world history.
But MarkGB does an even better job of rebutting Wolf. What follows is his own response (caution: his language can be a little, erm “robust”), and it may be the most devastating criticism of mainstream Keynesian “thinking” and monetary policy blunders yet committed to text (bold emphasis added is ours):
“Central Banks [CBs] have done their job ?
“The Federal Reserve, along with the other CBs, has spent the past 8 years desperately trying to create inflation. This is because the thing that scares the hell out of them is deflation.
“Deflation is the ‘monster’ because in a debt based monetary system new debt has to be constantly created to keep asset values expanding. When asset values shrink, the debt acquired to ‘buy’ them doesn’t – revealing what was hidden all along – insolvency – which leads to contagion – which leads to bailouts – and the process starts all over again. Except that this time the CBs are afraid the monster will be too big to bail out. For once they are right.
“This Ponzi scheme serves the interests of two groups of people:
- Governments – who borrow billions of dollars every month that they cannot acquire through taxation: this is used to bribe ‘special interests’ with government contracts (military, pharmaceutical, oil etc.), and to bribe the masses with entitlements and benefits. A sizeable proportion is used to pay interest on old debt
- Banks – who raise this ‘money’ for governments by selling their debt into the bond markets, making huge profits in a wide variety of ways: some by performing useful functions, and some that can be summarised as ‘front-running’, ‘insider dealing’ and good old-fashioned ‘selling crap to muppets’
“Here’s what CBs and mainstream economists don’t want you to know:
“They don’t know why they have been unable to create inflation. They’ve rehashed spurious explanations like ‘secular stagnation’, and ‘savings glut’ in an attempt to sound like they do…but they don’t.
“However, whilst they may not have a clue how the real world works…they do have an uncanny ability to get everything backwards…they are the most ‘arse about face’ group of people imaginable.
“Bernanke, Yellen, Draghi, et al were convinced QE and ZIRP/NIRP would be inflationary because their theories told them that if you loosen monetary conditions – make credit very cheap – consumers will rush out to borrow and spend; businesses will invest to meet the increase in demand; banks will increase lending…and hey presto unemployment will fall, companies will pay more to attract a shrinking pool of workers, and inflation will rise…the Phillips curve will indicate where the sweet spot is…and everything will be fine. Except that it doesn’t work that way – the real world has different ideas.
“Beyond a certain level of indebtedness, which we reached earlier this decade, the psychology of the markets shifted…not as in ‘gear change’…but as in ‘tectonic plate’. This is how the shift has affected behaviour:
- Consumers refuse to buy any more crap that they don’t need with money that they don’t have. So they ‘make do’ with what they’ve got. This used to be called ‘common sense’
- Business people – who lose their jobs unless they return earnings to shareholders – realise that an economy where the cost of money is zero is artificial and sick. The last thing they have felt emboldened to do, for years now, is to invest in a glowing future that is nowhere in sight. So instead, they borrow to buy back their own shares, which boosts EPS [earnings per share] and keeps them sitting round the boardroom table…for now anyway
- Savers – a selfish bunch of responsible human beings who are thoroughly disapproved of by economists (a selfish bunch of irresponsible human beings who thoroughly approve of themselves) – rather than thinking ‘what’s the point in saving at these rates, I’ll buy stuff ’…think: I’d better save even more to make sure I can support myself in retirement’
- Banks, who can make billions from front-running the Federal Reserve, who can park their QE back at the Fed for interest, have no imperative to provide loans to the diminishing number of smaller businesses who are still looking to expand
“In short…QE, ZIRP and NIRP have been deflationary, not inflationary.
“When we look at the real economy, we must first debunk the Fed’s claim, via the Bureau of Labour Statistics, that unemployment is around 4%. I.E.: that the labour market is ‘tight’:
There are 255 million Americans of working age. Of these, 102 million are not employed. This represents 40% of the working age population, up from 35% at the millennium. Of those, the percentage of unemployed males in the core group of 25 to 54 is at record highs. Meanwhile the percentage of Americans over 55 who are still in work is soaring…again arse about face…
“Of the 153 million Americans who are employed, 26 million are in low wage, part time jobs. Of those, 8 million hold multiple jobs. 10 million people classify themselves as ‘self-employed’, which includes a large number who are barely scraping by. A further 21 million people work for the government, jobs that generate no revenue, which are therefore funded by private sector taxes.
“Jim Quinn of ‘The Burning Platform’ summarises it thus:
“When it is all said and done, there are approximately 94 million full-time workers in private industry paying taxes to support 102 million non-workers and 21 million government workers. In what world does this represent a strong job market?”
“So: there are a lot more people available in the labour market than is suggested by the BLS. So then the question is this: Why aren’t businesses hiring them? Why do employment surveys consistently quote employers ticking the box that says ‘hard to find workers’ ?
“Here’s Jeffrey Snider from Alhambra Investments:
“Let’s assume the survey results are correct, and that firms are finding it hard to attract candidates. Coming from the other direction, it’s not hard to translate what they are actually saying. In other words, the mainstream always interprets “hard to find workers” as a shortage situation, when that is only one possible interpretation. Since the price of labour over the past decade has barely risen, it isn’t, can’t be, the most likely one.
“Instead, there is an unspoken stipulation that is never explicitly stipulated. Businesses are surely finding it difficult to hire good workers at the rate they want to pay today. Obviously, that rate is insufficient so as to clear market demand for supply. Why don’t they pay that market-clearing rate?
“Simple. Because unlike how the economy is talked about in the media, the one always derived from the unemployment rate, actual business is sluggish and uncertain at best. There is no rush to find qualified workers, because in reality the economy is tight – not favourably tight as in no slack in the labour market, but more so tight in that there is little margin for addition.”
“In summary: the phrase ‘labour shortage’ is yet more blanket macroeconomic garbage from people who’ve never had a real job let alone run a business that employs people. The reality in the markets is this: executives are reluctant to pay wages at a market-clearing rate. This is the same reluctance that leads them to buy back shares rather than invest in the future, the same reluctance that leads consumers to pull back and savers to double down:
“Economic conditions are poor. We are not in a recovery; we are in a depression, which Keynes defined as an extended period of below trend growth. Central Banks don’t understand the problem because central banks are a very large part of the problem.”
Wolf doesn’t “get” the truth about central banks and QE. MarkGB, on the other hand, does.
And this is why we increasingly find that the mainstream media and the dead tree press now have nothing meaningful to bring to the economic debate. Most of what passes for financial and macro-economic analysis today is simply a tired reworking of conventional (neo-Keynesian) thinking. Like the facile bromides of Wolf, such analysis is merely an endless repetition of false beliefs, an incantation of cant.
So if you seek real insight into the causes of our financial plight, and possible solutions, if you are following mainstream sources – the Financial Times, The Economist magazine, the broadsheets in general, most websites – you are looking in the wrong place.
The real insight can currently only be found along those roads less travelled, provided by free thinkers well outside the mainstream. People like MarkGB. You can follow Mark on Twitter via @MarkGBblog.
Criticising Wolf for economic ineptitude, if not outright denial, is admittedly like shooting giant dead fish in a tiny barrel. Another below-the-line responder to his FT piece wrote as follows:
“’The central banks have done their job’. Their monetary policy has now created 3 asset bubbles in 17 years whilst the real economy continues to wither. All they have done is put out fires that they created and each time they make the system more unstable. They have created untold riches for your Davos chums whilst failing the 99% which is why we have Trump in the White House.. You really need to get out of your ivory tower Mr Wolf and meet some people in the real world as these seismic shifts appear to have completely passed you by.”
But as long as you follow at least some independent thinkers, these seismic shifts won’t pass you by. Make no mistake: we are now fighting a war of ideas. In the words of Louis Pasteur,
“Fortune favours the prepared mind.”
If you have found Mark’s commentary and insight useful, please do share it with friends and family. As savers and investors trying to navigate what will likely be the increasingly choppy waters of a post-QE, post-stimulus environment, all of our collective futures are at stake.
………….
As you may know, we also manage bespoke investment portfolios for private clients internationally. We would be delighted to help you too. Because of the current heightened market volatility we are offering a completely free financial review, with no strings attached, to see if our value-oriented approach might benefit your portfolio – with no obligation at all:
Get your Free
financial review
…………
Tim Price is co-manager of the VT Price Value Portfolio and author of ‘Investing through the Looking Glass: a rational guide to irrational financial markets’. You can access a full archive of these weekly investment commentaries here. You can listen to our regular ‘State of the Markets’ podcasts, with Paul Rodriguez of ThinkTrading.com, here. Email us: info@pricevaluepartners.com.
Price Value Partners manage investment portfolios for private clients. We also manage the VT Price Value Portfolio, an unconstrained global fund investing in Benjamin Graham-style value stocks and also in systematic trend-following funds.
“You’re not only wrong. You’re wrong at the top of your voice.”
Get your Free
financial review
Every so often you come across a piece of writing that has a blazing clarity, expressing a very great number of informed thoughts simply, but profoundly. What follows is one such piece. We’ve long praised the ability of Twitter (the title ‘X’ is far too soulless) to foster links between like-minded thinkers whom we might otherwise never encounter, and the following piece is to our mind a great example of such serendipitous contact.
It’s written by MarkGB – a retired businessman and consultant. We first came across MarkGB via Twitter, and we then started to follow his below-the-line posts in the Financial Times online edition, gluttons for punishment that we are. The great advantage of a newspaper’s website is that it offers you the instant feedback and insight of its readers and, in this case, many of the readers are a lot more thoughtful than most of the paper’s own writers.
Some time ago, Martin Wolf, surely one of the most overrated economic commentators in the world, published his latest apology on behalf of central banking overreach, in the form of the increasingly ridiculous policies that we now refer to by the acronyms of QE, ZIRP and NIRP (quantitative easing, zero interest rate policy and negative interest rate policy). To get the measure of his column you need only read its final paragraph:
“Criticising the success of our central banks in reflating our crisis-hit economies, because this created today’s financial risks, is not a valid reaction to their actions. It is, however, an extremely valid criticism of finance. It is also a valid criticism of the failure of governments to address the many frailties that still lead to financial excess. The central banks did their job. Unfortunately, almost nobody else has done theirs.”
In terms of analysing the inanities in this argument, where to begin?
But MarkGB does an even better job of rebutting Wolf. What follows is his own response (caution: his language can be a little, erm “robust”), and it may be the most devastating criticism of mainstream Keynesian “thinking” and monetary policy blunders yet committed to text (bold emphasis added is ours):
“Central Banks [CBs] have done their job ?
“The Federal Reserve, along with the other CBs, has spent the past 8 years desperately trying to create inflation. This is because the thing that scares the hell out of them is deflation.
“Deflation is the ‘monster’ because in a debt based monetary system new debt has to be constantly created to keep asset values expanding. When asset values shrink, the debt acquired to ‘buy’ them doesn’t – revealing what was hidden all along – insolvency – which leads to contagion – which leads to bailouts – and the process starts all over again. Except that this time the CBs are afraid the monster will be too big to bail out. For once they are right.
“This Ponzi scheme serves the interests of two groups of people:
“Here’s what CBs and mainstream economists don’t want you to know:
“They don’t know why they have been unable to create inflation. They’ve rehashed spurious explanations like ‘secular stagnation’, and ‘savings glut’ in an attempt to sound like they do…but they don’t.
“However, whilst they may not have a clue how the real world works…they do have an uncanny ability to get everything backwards…they are the most ‘arse about face’ group of people imaginable.
“Bernanke, Yellen, Draghi, et al were convinced QE and ZIRP/NIRP would be inflationary because their theories told them that if you loosen monetary conditions – make credit very cheap – consumers will rush out to borrow and spend; businesses will invest to meet the increase in demand; banks will increase lending…and hey presto unemployment will fall, companies will pay more to attract a shrinking pool of workers, and inflation will rise…the Phillips curve will indicate where the sweet spot is…and everything will be fine. Except that it doesn’t work that way – the real world has different ideas.
“Beyond a certain level of indebtedness, which we reached earlier this decade, the psychology of the markets shifted…not as in ‘gear change’…but as in ‘tectonic plate’. This is how the shift has affected behaviour:
“In short…QE, ZIRP and NIRP have been deflationary, not inflationary.
“When we look at the real economy, we must first debunk the Fed’s claim, via the Bureau of Labour Statistics, that unemployment is around 4%. I.E.: that the labour market is ‘tight’:
There are 255 million Americans of working age. Of these, 102 million are not employed. This represents 40% of the working age population, up from 35% at the millennium. Of those, the percentage of unemployed males in the core group of 25 to 54 is at record highs. Meanwhile the percentage of Americans over 55 who are still in work is soaring…again arse about face…
“Of the 153 million Americans who are employed, 26 million are in low wage, part time jobs. Of those, 8 million hold multiple jobs. 10 million people classify themselves as ‘self-employed’, which includes a large number who are barely scraping by. A further 21 million people work for the government, jobs that generate no revenue, which are therefore funded by private sector taxes.
“Jim Quinn of ‘The Burning Platform’ summarises it thus:
“When it is all said and done, there are approximately 94 million full-time workers in private industry paying taxes to support 102 million non-workers and 21 million government workers. In what world does this represent a strong job market?”
“So: there are a lot more people available in the labour market than is suggested by the BLS. So then the question is this: Why aren’t businesses hiring them? Why do employment surveys consistently quote employers ticking the box that says ‘hard to find workers’ ?
“Here’s Jeffrey Snider from Alhambra Investments:
“Let’s assume the survey results are correct, and that firms are finding it hard to attract candidates. Coming from the other direction, it’s not hard to translate what they are actually saying. In other words, the mainstream always interprets “hard to find workers” as a shortage situation, when that is only one possible interpretation. Since the price of labour over the past decade has barely risen, it isn’t, can’t be, the most likely one.
“Instead, there is an unspoken stipulation that is never explicitly stipulated. Businesses are surely finding it difficult to hire good workers at the rate they want to pay today. Obviously, that rate is insufficient so as to clear market demand for supply. Why don’t they pay that market-clearing rate?
“Simple. Because unlike how the economy is talked about in the media, the one always derived from the unemployment rate, actual business is sluggish and uncertain at best. There is no rush to find qualified workers, because in reality the economy is tight – not favourably tight as in no slack in the labour market, but more so tight in that there is little margin for addition.”
“In summary: the phrase ‘labour shortage’ is yet more blanket macroeconomic garbage from people who’ve never had a real job let alone run a business that employs people. The reality in the markets is this: executives are reluctant to pay wages at a market-clearing rate. This is the same reluctance that leads them to buy back shares rather than invest in the future, the same reluctance that leads consumers to pull back and savers to double down:
“Economic conditions are poor. We are not in a recovery; we are in a depression, which Keynes defined as an extended period of below trend growth. Central Banks don’t understand the problem because central banks are a very large part of the problem.”
Wolf doesn’t “get” the truth about central banks and QE. MarkGB, on the other hand, does.
And this is why we increasingly find that the mainstream media and the dead tree press now have nothing meaningful to bring to the economic debate. Most of what passes for financial and macro-economic analysis today is simply a tired reworking of conventional (neo-Keynesian) thinking. Like the facile bromides of Wolf, such analysis is merely an endless repetition of false beliefs, an incantation of cant.
So if you seek real insight into the causes of our financial plight, and possible solutions, if you are following mainstream sources – the Financial Times, The Economist magazine, the broadsheets in general, most websites – you are looking in the wrong place.
The real insight can currently only be found along those roads less travelled, provided by free thinkers well outside the mainstream. People like MarkGB. You can follow Mark on Twitter via @MarkGBblog.
Criticising Wolf for economic ineptitude, if not outright denial, is admittedly like shooting giant dead fish in a tiny barrel. Another below-the-line responder to his FT piece wrote as follows:
“’The central banks have done their job’. Their monetary policy has now created 3 asset bubbles in 17 years whilst the real economy continues to wither. All they have done is put out fires that they created and each time they make the system more unstable. They have created untold riches for your Davos chums whilst failing the 99% which is why we have Trump in the White House.. You really need to get out of your ivory tower Mr Wolf and meet some people in the real world as these seismic shifts appear to have completely passed you by.”
But as long as you follow at least some independent thinkers, these seismic shifts won’t pass you by. Make no mistake: we are now fighting a war of ideas. In the words of Louis Pasteur,
“Fortune favours the prepared mind.”
If you have found Mark’s commentary and insight useful, please do share it with friends and family. As savers and investors trying to navigate what will likely be the increasingly choppy waters of a post-QE, post-stimulus environment, all of our collective futures are at stake.
………….
As you may know, we also manage bespoke investment portfolios for private clients internationally. We would be delighted to help you too. Because of the current heightened market volatility we are offering a completely free financial review, with no strings attached, to see if our value-oriented approach might benefit your portfolio – with no obligation at all:
Get your Free
financial review
…………
Tim Price is co-manager of the VT Price Value Portfolio and author of ‘Investing through the Looking Glass: a rational guide to irrational financial markets’. You can access a full archive of these weekly investment commentaries here. You can listen to our regular ‘State of the Markets’ podcasts, with Paul Rodriguez of ThinkTrading.com, here. Email us: info@pricevaluepartners.com.
Price Value Partners manage investment portfolios for private clients. We also manage the VT Price Value Portfolio, an unconstrained global fund investing in Benjamin Graham-style value stocks and also in systematic trend-following funds.
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