Lost Control & Economic Mythology

A great question to ask is: what was the first important chapter written in nonsensical Economic Mythology? It gave powerful intellectual protection and coverage by economists, and resulted in widespread acceptance. The answer is clearly the break in the Bretton Woods Accord, when in 1971 Nixon broke the gold standard and permitted the USDollar to float on a cloud of arrogance and on a wave of liquidity that is best described as debt mixed with counterfeit. Little known then, but better known now, is the role of the USMilitary in propping up the value and acceptance of the USDollar. The nation and world were told that greater flexibility would result in order to build economies, deal with cyclical problems, and contend with the needs of global population growth. The momentum of destruction is powerful, damage accelerating, and platforms disintegrating. The key to mythology is to recognize it as nonsense spouted by the high priest economists whose handiwork of destruction must be hidden from view, only to see yet another chapter unfold that captures the attention of the innocent and ignorant. The priesthood is left in charge of the intellectual dogma behind mythology, not much different from communist mumbo jumbo about power to the proletariat, complete with a supporting cast of a Politburo. The US Politburo is hidden from view, a cadre of established failed figures continuing to spout policy and to manage Fannie Mae, AIG, and now General Motors. The US Federal Reserve is the keeper of the Holy Grail, now manifested in criminal confiscation and disbursement of USCongressional funds, and a secretive balance sheet. Watch them defy the US Supreme Court. Their dogma is mostly vapor with little substance, sufficient to keep the population in participation or at bay, but at least confused.

THE USDOLLAR CRISIS IN FIRST STAGE

The latest nationally advertised but unrecognized mythology is very convenient, since a USDollar crisis has begun. Political and intellectual cover is needed. The USEconomy would benefit from a lower USDollar, due to a quantum jump in export trade. A lower US$ exchange rate would indeed benefit the USEconomy in general, and US corporations in particular, provided the nation had not shipped a significant portion of its industrial base overseas. This is not the 1970 decade. It did so to capture the low cost of foreign labor, without thought given to the lost capital, lost wages, growing debt, and lost sovereignty from foreign creditor dominance. The US pursued financial dominance, and finally failed as Mother Nature wielded the backside of the Inflation Sword. The Chinese now dictate many key policies. A source reports that they ordered President Obama not to renew Bernanke as USFed Chairman.

The Chinese are the spearhead behind pushing the USDollar off the primal global throne. A lower USDollar will not accomplish much on export trade, given the lost critical mass of export businesses. A lower US$ will, however, spawn a currency crisis, a bank crisis, enough to take the global revolt against the US$ to new levels among creditor nations. The lower US$ will also force a quantum leap in the entire cost structure for the USEconomy, a factor ignored almost totally. The crude oil price has been giving a solid clue on this effect, but it is largely ignored. Somehow, a new USGovt policy to limit crude oil contract positions is a quick fix. It will not work. Goldman Sachs changed their Euro recommended long position immediately before the Chinese delegation met in the White House last week. The quick rise in the USDollar was met by a fierce decline at the end of the week, as the Chinese were major sellers.

The powerful reversal pattern evident since last October has finally begun to break down. It is in the stage #1, confirmed by numerous sources who note growing panic, growing dismantlement of support pillars, and growing expectation of a major currency event. The cyclicals are all negative and weak. The crossover of the 20-week moving average below the more stable 50-week MA is a strong bearish signal. The momentous pile-on is to follow. The breakdown in progress is sufficient to take the gold price over the elusive 1000 level once and for all. Some veteran sources report that the gold price breakout move might be extraordinarily powerful, far stronger than even the gold community expects. The Chinese are defending the gold price, if truth be told. They have resources, in the form of over $2000 billion in savings (a war chest). They have motive, in the form of wanting to install the Yuan as a global reserve currency. And they are very angry, in particular at bank bond fraud, but also at debt monetization. They abhor a widely understood USGovt policy of trying to inflate the debts away at foreign creditor expense. This is seen as betrayal. Decisions among creditors have been made, and a path has begun to deal with the problem.

FIRST MYTHOLOGY EXPOSURE

But before entering the current myth chapter, let's do a quick review. In September 2004, while just a whippersnapper, the Jackass penned an article entitled "Economic Mythology" (CLICK HERE) that featured a pair of lovely Greek statues. A game plan was presented that still makes sense, still explains the captivation and needed diversion. "When complex systems begin to fail, as the US Economy surely has since the 1980 decade, the system absolutely requires a convincing mythology to serve as unquestionable dogma. Ponzi outlined the importance of dogma to perpetuate a system gone awry. In the United States, a complex system has emerged with irrational beliefs which have no bearing on reality… [We see] myths used as mental glue to hold together the internal mechanisms of the US financial system, to maintain foreign confidence in our markets, and to attract enormous sums of capital on a daily basis to keep both Wall Street and the US Economy going… Myths perpetuate because the monetary system cannot stand on its own merits... We have proceeded from one myth to another, hopelessly unwilling and unable to accept the tragedy of the divorce of the USDollar from its golden anchor. All world financial crises can be traced to the Bretton Woods divorce."

In that September 2004 article, major mythology chapters were cited, each that endured for a few years, only to end in disasters blamed on something unrelated. The Reagan Era had the Supply Side economic myth as its powerpack, led by charlatans like Laffer and Phillips. The top down approach created wealth, but mainly for the USMilitary and defense contractors, as the lack of constructive production backfired on the nation. The suppliers in the private sector actually decided to seek Asian shores for lower cost. The victims of economic mythology rarely learn, since they are subjected to a never-ending sequence by high priests.Evidence of the failure of the first myth is the abandoned US manufacturing base, a painful 1987 Black Monday stock bust, a ruinous 1989 Savings & Loan disaster, and the queer birth of the Plunge Protection Team.

The Clinton Era had the New Economy Myth as its powerpack, led by syndicate head Rubin (of Goldman Sachs pedigree) and aided powerfully by high priest Greenspan (tied to Old Europe puppet strings). Rubin spouted about the Strong Dollar Policy designed to attract global capital, to dismember the US manufacturing base, and to further the powerful USTreasury Bond rally fueled by broad discounted leasing of the national gold treasure. Greenspan uttered mythology principles about how high productivity amplified profits in an economy led by financial innovation and offload of risk. A Jackass conclusion was made, "More to the point though, the heart of the myth was false. Corporate profits peaked in 1985 and have trended down for two decades. Productivity, the real surprise, actually has been falling since 1990 despite certain technological developments. We all know about cell phones, fiber optics, broadband connectivity, internet commerce, fast PC's, cavernous storage devices, and breakthroughs in medical research. It has not translated into greater corporate profit nor productivity. Instead, it has resulted in lower consumer prices, cemented by Asian production dominance. The US public saw the technological marvels, as did the tech-ignorant Chairman Greenspan." The productivity statistics are as phony and doctored as the Gross Domestic Product and rely on the very same hedonic lifts that triple count benefits from innovation. Evidence of the failure of the second myth is the historic 2000 stock bust, the associated telecom debt bust, the sharp rise in household debt, the Enron failure, the Arthur Anderson prosecutions, and the WorldCom criminal case. Those bubbles have been replaced with even bigger bubbles, while the accounting and brokerage scandals surely did not end. They resulted in actual bankruptcies and insolvent status.

The Bush II Era had the Macro Economy Myth as its powerpack, led almost solely by high priest Greenspan, but also by syndicate head Paulson (of Goldman Sachs pedigree). It was powered by asset inflation and funded by the flexibility enabled by foreign savings. Greenspan continued on about the wonders of financial innovation and offloaded risk, but he forgot that the risk was accepted by a counter-part. Greenspan totally overlooked that inflation bubbles and fraudulent bonds combine with leverage to wreck an entire banking system. Greenspan is still very revered to this day. Bernanke and others on Manhattan South are given blame, along with unwise home loan borrowers and a handful of reckless bankers who did not bother to require that borrowers have income, assets, or any documentation. No system can survive on foreign credit supply, when the USDollar is so undermined and debauched. No system can survive when it depends on asset price inflation as a source deemed as legitimate wealth even by its high priest. That is heresy, as we painfully witnessed.Evidence of the failure of the third myth is the massive flow of jobs in Asian outsourcing during a Chinese industrial expansion, the Fanny Mae mortgage finance faulty foundation and implosion (nationalization ultimately), dependence upon the housing bubble to continue consumer spending (painful reversal underway), growing trade gaps (reversed only by a borderline economic depression), and growing federal deficits (reaching Weimar levels in the trillion$). The continued evidence is the wreckage of the US banking system itself, a fact that few wish to state clearly and honestly. It cannot be revived.

ONE MUST WONDER WHY AMERICAN ECONOMISTS AND BANKERS PREACH MYTHOLOGY BASED IN HERESY. THEY ARE WELL PAID TO BE WRONG, SINCE THE RULING ELITE ARE OFTEN THE BENEFICIARIES.

SECOND MYTHOLOGY EXPOSURE

Jump forward to September 2006, when the Jackass had refined the message with an update on the same topic, in an article entitled "The Tragedy of Myths Busted" (CLICK HERE). A laundry list of nonsensical baseless principles wrapped in deep falsehood was presented at the time almost three years ago. The mythology has matured into countless elements that weave the belief system into a vaporous fabric that cannot withstand the slightest disturbance. It is utterly amazing how so little has changed in the public attitude toward mythology, the lack of recognition of the related wreckage, and the movement to the next chapter. A Jackass indictment was made. "It is inconceivable to me how any sane, well educated, competent academic Economics professor of repute could defend a single listed item. Yet the great majority of this corrupted profession do precisely that, defend and promote and carry on the great game. The corruption is of the thought process. An economic system dependent upon inflation requires the associated cancerous defensive thought to complement the cancerous policy itself. A certain level of cheerleading is also necessary to keep the public bought in. Almost all current myths will soon unravel in tragic fashion. Do not expect apologies when they do. Expect instead blame to be put on speculators, blame to be put on the mortgage industry (maybe even Fanny Mae & Freddie Mac), blame to be put on reckless consumers, blame to be put on past administrations, blame to be put on Congress, blame to be put on outsourcing corporations, blame to be put on the Chinese. Do not expect much blame to be put on the high priests Greenspan or Samuelson or Friedman. They are untouchable." How prophetic!!

The stated list in 2006 went like this, each serving as mythology planks. Here goes, all totally wrong. Links between the 2000 stock bust and the USEconomic recession that followed were dismissed as spurious. Demand drives commodity prices, with all US$ price basis ignored. The consumer leads corporate capital layouts. The housing bubble can be slowed by prudence without busting the bubble. Interest rate cuts can halt any housing price decline. Higher interest rates reduce the debt volume. The inverted Treasury Yield Curve no longer signals an economic recession. Growth in foreign ownership of USTreasury Bonds is not a problem, since all are trade partners. Gold is a commodity that does not pay a yield, thus a dead asset. The oil cost can be neutralized and monetized via the printed money of inflation, without penalty. Speculation demand has kept the oil price high, a rebuttal to the endless war consequence. The United States is the engine for global economic growth, and its financial markets are the engine for global capital formation. The USEconomy (with trade deficits) is stronger than the European Union (with trade surpluses). A devalued USDollar not only will remedy the trade deficits but will spur economic growth and recovery, even though US industry remains largely in China. Claimed productivity has aided US corporate profits, apart from job cuts. The US military industrial complex provides both financial and economic security, the heavy costs returned as multiplied benefits. The Iraq War will pay for itself. Another Soft Landing cometh, this one for sure. Job growth has been augmented during large corporate job cuts by small business expansion and creation of demand for new workers. The casino gambling gaming sector contributes to the USEconomy. THIS IS REALLY MENTALLY VACANT STUFF, BUT IT CONTINUES !!! Every one of the above widely believed items has been discredited in ugly powerful terms, yet the architects and high priests who utter them continue to ply their trade, hold high offices, and are paid to produce even more of the same effluent.

STRUGGLE FOR NEW MYTHOLOGY CHAPTER

In the wake of the most painful, tragic, and visible ruin of the US banking sector, along with the US credit market, extended naturally to the USEconomy, more mythology has been urgently needed. Tremendous spectacles of failure have come for the central bank franchise system (dictated monetary policy, favored large banks), the fractional banking system (expansion of credit 10x the bank reserves), the unregulated investment bank sector (fraudulent leveraged bond creation), the debt rating collusion enterprise (purchased 'AAA' ratings), the unbridled free rein of credit derivative growth (over one quadrillion dollars in notional value), and much more, the financial system is in dire need for a new and improved magic elixir. The mythology machines desperately need an extremely powerful psychological weapon to act like a broad cloud structure to distribute to the vassals. Their support is not required to uphold the pillars behind the curtains and under the platform stages. That support is needed to enable continued investment in mutual funds, in pension funds, as well as Congressional support for the programs that provide magnificent enrichment to the financial sector. The public has gained some awareness of a certain unsavory role served by Wall Street, which remains in control of the USGovt finance ministry. The ugliest of ugly truths are that the US bank system might be permanently ruined, and the USEconomy might be permanently gutted.

The newest myths are not chapters, since the USEconomic structure is too fractured and festered to support a major theme. Instead, numerous baseless myths are propagated in order to keep the public entranced. They curiously do NOT worship USFed Chairman Bernanke like they did Sir Alan Greenspasm. The current chairman had the distinct disadvantage of presiding over a system in headline-grabbing decline. The former chairman has the distinct advantage of presiding over a system in expansion, with both a mortgage finance bubble and a housing bubble intertwined toward a climax bust.

Here are numerous NEWER MINOR MYTHS that have become prevalent, popular, and useful, each without any merit or inherent value. That never stops a high priest from speaking from a pulpit though. An important factor must also be mentioned. The high priests doing the myth declarations are more and more speaking from lower and lower levels, defying any potential claim of high priest. We have low level and middle level priests spouting mythology principles. The risk is for public rejection, and that is exactly what has begun to happen.

• Cost control by businesses can bring about consistent profits and sustain a USEconomic recovery. The same myth was heard years ago with equipment replacing people (think telephone based customer service systems). A society becomes impoverished without workers, when the supposed new opportunities fail to materialize on US shores. The new business ventures tended to occur in Asia, Latin America, and Eastern Europe, where lower wages are paid and less regulatory overhead exists. Cost control is an integral part of the Grand USEconomic Liquidation that accompanies its deterioration. Cost cuts are finite, since limited to the size of the corporate operations. Perhaps some analysts believe that a company can flourish with only executives and equipment, without technicians and workers. This road leads to further liquidation and minimal business investment, and endless recession.
• The USEconomy can recover from either enormous handouts or steady smaller handouts. Gone is the comprehension that a credible legitimate recovery must involve new industry, a return of industry, or a revitalization of existing industry, in a national initiative to create jobs that produce income and products. Too many people believe the 'Hand to Mouth' mentality. Just last week, a conversation took place with a bright fellow who argued that all the Wall Street handouts would have solved the recession if given to households instead. No mention by him that the household heads needed steady legitimate income. This road leads to a Welfare State.
• The USGovt can stimulate the USEconomy effectively, and bring the nation back from a painful but typical credit cycle. Or is a business cycle? Do they have any idea? My belief is the end of a system cycle!! Most initiatives by the USGovt have been dismal failures, laden with faulty foundations, inadequate in volume by an order of magnitude to address the problem, and avoid the core problems that caused the crisis. The tax reform resulted in lower taxes for the wealthy, and temporary handouts for the middle class. The energy alternative concepts were 95% hot air (untapped for energy production) and 5% reality, pitifully inadequate. The timing of delivery of stimulus was intentionally delayed in order to assure more mutual destruction, which by the way enables more demand for USGovt debt issuance. Now, with political capital spent, the need for more stimulus amidst a stumbling economic performance will go unaddressed. Heck, they would only make it worse! This road leads to a bigger Fascist Business Model implementation, when the last one failed miserably.
• The USGovt can fix the troubled corporation and put it back on its feet. Find a single precedent as example. In most cases, the losses become amplified and grow out of control. The actual purpose of a nationalization might be to cover up the fraud and magnitude of losses. See AIG, which is in hock for $182 billion to the USGovt in loans and aid, yet is still on the verge of failure. No fix there, only a black hole of credit derivative losses. See Fannie Mae, which itself is hemorrhaging money. Their balance sheet is now hidden from view, sufficient to cover up the missing $1500 billion missing from the Papa Bush and Clinton Administrations. See General Motors, which relies upon a 'Cash For Clunker' program whose costs are staggering per car. The GM workers might be better off opening lemonade stands or bankruptcy counseling services. Soon off the assembly line might be electric hybrid cars at twice the price of good reliable Toyota competitive models. Sadly and obviously, the USGovt staffers have no ability in running a business, only in lobbying for businesses. They will usually sell the best assets and leave the USGovt with the losing business units that have entered black holes. This road leads to the worst side of socialism.
• The USGovt financial guarantees for aided firms are limited and will be phased out. Again, no precedent. When will AIG be on its feet independently again? Never! And Fannie Mae? Never! They are both black holes intended to cover up the evidence, whose price tag is absorbed by the public. The USGovt staffers have no ability to force effective restructuring. See Chrysler, whose dealers might have been shut down for questionable reasons, even some profitable ones. This road leads to crippled orphans on an endless dole.
• Financial markets lead the USEconomy, the best forward indicator of all, since markets tend to anticipate a return to corporate profits. This belief contradicts the entire existence of the Working Group for Financial Markets, whose role is to interrupt the natural course of market events. This so-called Plunge Protection Team has been extraordinarily active. With over 70% of all New York Stock Exchange volume originating from Wall Street and major hedge fund program trading, one can argue that the financial market itself is in the midst of a vanishing act. No, not at all! The new battle cry (not a dogma) is promulgated by Wall Street. It states that there is no economy, only financial markets, whose collection creates a need for a management perspective economy. See the inflation expectations, the anticipated Second Half Recovery (that never occur). Just today some idiot spouted about how productivity gains have set up the USEconomy for truly wondrous profits in future quarters. This road leads to a grand window dressing presentation of deep distortions.
• The stock market is not an object of monetary inflation, but rather the stock valuations are a bonafide economic indicator. The financial networks and analysts, along with anchors, firmly believe that rising stocks portend higher corporate profits. The rising stocks might instead portend powerful price inflation. See how corporate S&P500 profits are down 96% from the October 2007 peak. The game is to lower expected earnings per share, so that the low hurdle is easily overcome. Easy money made available to Wall Street finds its way to the stock market, with known daily patterns. The suspension of honest bank accounting rules sure helped since April. This road leads to market crashes, when reality strikes.
• Wall Street has admitted grand errors, painful mistakes, but not fraud. They had to admit something, since they essentially killed their own business, ruined its model, and scared the great majority of its customers. The public has not let Wall Street firms off the hook, with a perception of mistakes and faulty judgment. It is highly doubtful the public realizes the extent of the fraud, which reaches into the trillion$. They surely do not realize the extent of export of fraudulent bonds to foreign financial systems. The regulatory bodies and oversight groups themselves are the subject of scrutiny, collusion, while still staffed from a revolving Wall Street door. This road leads to avoidance of prosecution for the rogue elements rooted in the USGovt finance ministries, all a part of the 'Too Big To Fail' and 'No OnTheJob Training' mentality.
• The Green Shoots cited by USFed Chairman Bernanke are signs of a recovery. The concept falls on its face, since a reduced decline rate of bank losses, in rate of job losses, in rate of foreclosures, these do not indicate recovery. They mean only less bleeding of the victim on the floor. The Green Shoots were painted on scorched earth. Criticism has been surprisingly loud and shrill for claims of Green Shoots, a truly moronic self-serving pronouncement. It is my firm belief that the Green Shoots myth propagated by Bernanke has shattered the entire mythology system, resulting in much greater widespread distrust by the public in the banker establishment, at a time when home foreclosures, home equity losses, and job cuts have contributed to ruinous conditions for the population at large. This road leads to distrust of intermingled government officials and bankers to a degree never seen before in US history.
• The USTreasury auctions continue to proceed successfully, and thus finance the USGovt deficits through bond issuance. The auctions have continued, but their schedule is very frightening since the volume for given days and weeks equals what was once volume for an entire month one year ago. The press networks tell of successful funding for the bonds, even though additional needs are required to keep the stock market afloat. Two deceptions here occur. First, by means of USDollar Swap Facilities, the USDept Treasury is handing money to friendly foreign central banks in order to purchase USTreasurys in hidden or custodial accounts, all indirect bidders. Without them, the auctions would fail miserably. Second, the bid-to-cover ratio is reported in a manner that includes the official primary bond dealers. They, however, are obligated to bid on all auctions. So the 1.92 bid/cover seen last week was an actual failure, since only 92% of bids occurred outside the primary dealers who hustle to unload their inventory. More double counting comes, now that Toronto Dominion and Royal Bank (both of Canada) as well as Nomura (of Japan) join the primary bond dealer ranks. This road leads to staggering hidden monetization of USTreasurys and outright auction failures, BOTH, with severe damage done to the USDollar confidence and reputation.
• A reduction in business inventory levels indicates a powerful USEconomic recovery in the coming months. In typical cycles this is true. A better indicator is inventory/sales ratio. With slower sales should come lower inventory levels from prudent managed style. The public is told of the lower inventory levels, which has an effect on the Gross Domestic Product calculation. The more accurate truth would be that businesses have noticed a pronounced drop in sales activity, and have actively chosen not to replenish inventories. Furthermore, some businesses are in the process of liquidation. It is visible to people on Main Street, but not those on Wall Street. This road leads to continued economic deterioration and job loss.
• An underwater mortgage is only a problem if the owner must sell the property. People can indeed continue to ride out a storm and return to solvency on homes, if the market improves. More likely, people have become prisoners to their homes. This recent housing bubble succeeded in sucking in every possible warm body, in addition to minorities. Given that a large factor behind the USEconomic expansion from 2003 to 2007 was derived from home equity extractions (raids), the argument falls on its face. Households are tapping and ruining their credit cards, with no recourse left in raiding home equity. The national economy has lost an important source of credit. This road leads to the gradual demise of the US consumer, who is tapped out, deeply indebted, and without further avenues to raid.
• The housing inventory improvement indicates bottom is here, and a housing recovery is soon to be realized. It is highly questionable that even the official inventory figures are leveling off. The basic problem is that banks are actively concealing their properties in foreclosure, not putting them up for sale on the market, and thus producing a gigantic overhang of inventory hidden from view. The Real Estate Owned (REO) properties owned by banks are enormous in volume. The proportion of sales in many states from foreclosures equals that of organic (normal) sales, hardly a sign of normalcy. This road leads to the endless housing decline, my forecast made in 2006 and 2007.
• Alternative energy can meet a significant portion of US national energy needs. It could if money spent in Iraq and Afghanistan had been devoted to US needs for six years. It could if money spent on defense in the last two decades, without a global foe, had been devoted to US needs. If could if the big oil corporations did not control the energy policy of the nation. To be sure, some meaningful amount of energy could be supplied from wind farms, solar plants, geothermal projects, and even wave captures. Unfortunately, huge capital outlays are required when capital has been wasted in unproductive ventures. Now capital is scarce. If a national program were indeed enacted for alternative energy, who would administer it? This road leads to continued crude oil dependence and the poverty associated from continued export of capital.
• The USEconomic recovery will come later this year, or early next. This is not new, but worthy of mention since still at work. Time is needed for USGovt stimulus to work its magic. Time is needed for the near 0% interest rate to deliver the Jack Daniels high for energy boost. This is the newest adaptation of the Second Half Recovery nonsense spouted endlessly in past years, each time a false pronouncement. The stimulus programs had almost no stimulus in them. The ultra low near 0% has been in effect for twice as long as ever before. In fact, it has never been this low, and it still has delivered almost no benefits. The pent-up demand for homes and cars was exhausted long ago to form the bubble peak. This road leads to total discredit of US economists and banking officials, perhaps a coffin nail on their depleted confidence levels after bank bond fraud and predatory mortgages that enabled home confiscations.
• A Jobless Recovery is coming, one to be welcomed and even celebrated. It will be the beginning of a deeper revival. The title should cause second thoughts. So we are led to believe that corporate restructure and job cuts can form the basis of a USEconomic recovery, confirmed by higher stock prices. One should instead suspect that the stock market rise is the beginning AND the end of the recovery, sufficient for corporate executives to continue to sell insider stock. The ratio of insider sales to purchases is over 30:1 in recent weeks. Combine USGovt aid to the largest corporations (like banks) with illicit USGovt props of the stock market, and a person of only moderate brain wattage can seen through the deception. This road leads to a permanently crippled economy without recognition.

THE HAT TRICK LETTER PROFITS IN THE CURRENT CRISIS.

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Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics. His career has stretched over 25 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at www.GoldenJackass.com . For personal questions about subscriptions, contact him at [email protected]