Finance

The Banality of Monetary Central Planning

By David Stockman  |  April 29, 2019

Half of the harm that is done in this world
Is due to people who want to feel important.
They don’t mean to do harm – but the harm does not
interest them.
Or they do not see it, or they justify it
Because they are absorbed in the endless struggle
To think well of themselves.

– T.S. Eliot, “The Cocktail Party,” Act I, Scene 1 (1949)

“Inflation targeting” is the essence of monetary central planning’s evil.

By now, it’s a given that financial repression by central banks drives the cost of debt and other forms of capital to sub-economic levels. Do it on a global basis and you’re going to get grotesque malinvestment all over the place. How many “ghost cities” dot the Red Ponzi?

The long-term consequences are misallocated resources, dead-weight loss of gross domestic product (GDP), and destruction of true wealth.

But, in the short run, it generates powerful disinflationary effects. That’s due to the tendency of firms to price at variable costs in the face of excess production and supply.

Yet the fools who run the central banks have become so addicted to a 2.00% inflation target that they keep injecting liquidity into financial markets in pursuit of this will-o-the-wisp.

The first “inflation targeting” ship – helmed by then-obscure Ben Bernanke – landed in Japan in the early 1990s.

Today, after he went global with the recent crisis, there’s $10 trillion of sovereign debt bearing negative yields – fuel for the carry trade that still makes Wall Street go…

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This inflation obsession would be bad enough even if the general price level for goods and services were an immutable, objective thing subject to a divinely revealed measuring stick.

Let’s look at those measuring sticks actually in use. The popular price indices used in the U.S., Europe, Japan, and elsewhere are bureaucrat- confected approximations representations of market models.

They’re “guesstimates.” And they’ve been subject to massive tinkering and adjustment in recent decades. Today’s hip new thing is “hedonics,” which explain quality improvements in the things we buy.

It’s a curious thing, though. The informal and then the formal adoption of “inflation targeting” was a 25-year process. During this time, apparatchiks at government statistics mills have become ever more accommodating to the idea that rising prices aren’t really rising much at all.

Of course, they’re not… not after they’re “adjusted” for every manner of newfangled change in the marketplace, whether it adds value for consumers or not.

To make them the lodestar for one of the most consequential policy choices a central bank makes is pure folly.

But what we have is a monetary politburo. And these lunatics are so into “targeting” that they want to do “price level” now…

What that means is any shortfall from the nonsensical-in-the-first-place 2.00% (and te two decimal places are indeed cruciallyimportant…) would be “banked up” in the price index.

And a “banked up” shortfall will justify higher-than-2.00% annual targets in future years. That’s just until the cumulative 2.00% price level was achieved, though, so no biggie…

David Stockman’s Chilling Prediction…

The Father of Reaganomics has returned with a dire warning:

“Trump may be the Great Disruptor, but he’s going to fail at one of his core campaign promises. And his failure could cost you your freedoms AND your wealth.”

To learn more about Stockman’s prophecy and to find out what you can do to protect yourself, your family, and your assets, just go here.

We know a lot about the Federal Reserve. Jerome Powell’s abandonment of “normalization” and capitulation to the Donald only provide additional evidence that it’ll do what it must to preserve its own place in empire’s establishment.

That means “easy money.”

And, of course, the Donald will demand more… and more… and more.

He recently tweeted that the “Stock Market” would be “up 5000 to 10,000 additional points” and GDP growth would be north of 4% “with almost no inflation” if only the Fed hadn’t gotten in the way of his wondrous economic program.

We needed more “QE,” not “QT” at all. And we still need a 50-basis-point rate-cut…

The Trump Boom is a figment of the Donald’s imagination. Here are the data…

After $280 billion of tax cuts in 2018, the growth rate of real final sales in the fourth quarter was 2.588%. The growth rate of real final sales in 2017 – the year before the tax cut – was 2.586%.

Here’s the thing. Central bankers have gone mad with their destruction of sound money. Now, they’ve turned into central planners, and that’s totally political.

What do you expect the Tweeter-in-Chief to do?

This evil, it creeps…

This Is Good

Desperate times call for… “common sense” measures.

And these are desperate times… Markets are corrupted by monetary central planning. They’re confused. And the road back is going to be treacherous.

We’re looking at a major re-pricing for all financial assets. And thousand-point intraday or day-to-day swings are part of that equation. Those can be frightening… for “buy and hold” investors.

I have a different approach, one that combines strategy and tactics into a plan flexible enough for you to survive and thrive amid the coming chaos. It’s called “The Stockman Model.”

All we’re after is a little stability, perhaps a chance to pocket a windfall when opportunity presents…

To common sense,

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David Stockman

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David Stockman

David Stockman is the ultimate Washington insider turned iconoclast. He began his career in Washington as a young man and quickly rose through the ranks of the Republican Party to become the Director of the Office of Management and Budget under President Ronald Reagan. After leaving the White House, Stockman had a 20-year career on Wall Street.MORE FROM AUTHOR