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Jim Cook



Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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Best of Doug Noland
December 11, 2012
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From my distant vantage point, I (‘master of the obvious”) see a low likelihood of meaningful spending restraint.  The serious entitlement spending issue will, not unexpectedly, be left for another day – and then another.  Even republican proposals have most so-called “savings” occurring a decade out.  Not surprisingly, at least from the “government finance Bubble” perspective, the previous huge inflationary surge in federal outlays has essentially become today’s new baseline.  Off the table.  Non-negotiable.  Instead, “cuts” are basically commitments to somehow – and in some undetermined ways – reduce future (generally 10-20 years) expenditure growth.

Not coincidently, dysfunctional fiscal policy was conjoined this week with dysfunctional monetary policy.  Clearly, serious fiscal restraint will not be forth coming until the markets forcibly squeeze it out of Washington.  The bond and stock markets should today be pressuring the Administration and Congress  - yet that’s not in the cards with the Fed talking $85 bn of monthly QE starting in January.

This week, Bill Dudley, president of the Federal Reserve Bank of New York, joined the ranks of Fed policymakers signaling support for greater monetary stimulus.  At the same time, Mr. Dudley confidently stated that “we will absolutely take away the punchbowl when the time is right.”  Well, I can state with confidence that the Fed absolutely won’t.  Factually, the Federal Reserve repeatedly hasn’t (i.e. 1988, 1993, 1999, 2005/06).

Tuesday from Paul Volcker (CNBC interview): “It’s [when to remove stimulus] a very hard judgment to make.   Sometimes you’ll be wrong.  But you’ve got to – I think that is the chronic problem of any central bank because the implication is you have to begin tightening before the excess demand, before the bubbles, before the inflationary process is under way because it’s more difficult if you’re too late.  But if you do it, by definition, people are going to complain.  ‘Why are you removing the proverbial punch bowl before the party’s really gotten drunken?’ But that’s what a responsible host does.  He waters the punch bowl in time.”

I respect Mr. Volcker.  He is among a select very few with real inflation-fighting credentials.  Yet I also don’t believe he recognizes the nature of current inflationary manifestations.   Mr. Volcker warns of the need for reducing stimulus before the “inflationary process” commences, without appreciating the monetary Bubble already unleashed by profligate Federal spending coupled with profligate Federal Reserve monetary policy.  Dudley, Volcker and others can surmise a timely removal of the punchbowl, yet I recall Mr. Henry Kaufman arguing convincingly back in 1999 that there would be severe consequences associated with the Fed having badly missed its timing.  Little did we know at the time…

My thesis remains that we are at the late-stage of an historic multi-decade global Credit Bubble.  At its core, this monetary fiasco is about a failed experiment with unconstrained global electronic-based finance.  Using history as a guide, Credit Bubbles and associated manias tend to turn highly unstable near a cycle’s end.  From an inflationary cycle perspective, one can expect increasingly desperate policy measures in a fateful effort to sustain the unwieldy Credit boom.   One would also hope to see more vocal dissent from those opposing a further ratcheting up of monetary inflation.