Wednesday, 24 December 2008
Economics as Pseudoscience
By The Mogambo Guru
Around here, Today's Big Burning Question (TBBQ) is "Will the stupid Mogambo ever shut up and actually get any work done?" while I am consumed with my own version of TBBQ, which is "Can the Federal Reserve continue to lower interest rates forever, to zero and beyond, perhaps to negative infinity?"
You will probably agree with me that "negative interest rates" is a very interesting theory, as is "negative infinity" and the concept of a totally flat yield curve where all interest rates for every maturity period, from three-month T-bills to 30-year bonds, all pay the same interest rate! Weird stuff!
Obviously, it is something that we would have hoped would be delved into more deeply, as the headline "Treasury Curve Flattens on Speculation Fed May Go Beyond Cuts" seems to so richly imply.
Alas, it was not to be, and thus the fascination of theoretical "negative interest rates" remains just another amazing artifact of mathematics, like the artificial "consumption function" that is at the root of the econometric neo-Keynesian crapola that is practiced by Ben Bernanke of the Federal Reserve to actually try and guide monetary policy, which they have done to such disastrous consequences, and which is a theory that was previously taught by him as the actual head of the economics department of Princeton University, where nobody in the math department or the history department ever questioned him, his ridiculous theories, or even said, "You must be some kind of moron to think the stupid equation-laden crap coming out of your stupid mouth is real economics, when any semi-literate halfwit can see that the Classical and the Austrian schools of economics are obviously right, whilst you low-wattage 'constant stimulus via deficit spending' morons are going to destroy the dollar and the US economy with your econometric insanity!" which, I think, says all you need to know about the intellectual prowess of Princeton University.
Instead of helping me shame Princeton for promoting the equivalence of astrology as a science and how America is now ruined for it, I found that I had accidentally missed the whole point of the article, and the headline "Treasury Curve Flattens on Speculation Fed May Go Beyond Cuts" was significant in that the important point was that the Fed "may go beyond cuts" in interest rates, and that Ben Bernanke admitted that "there was limited room to lower rates", and now has "suggested" that "the central bank would consider buying Treasuries to prevent yields from rising"!!
Notice the part at the end where I added the two exclamation points as my clever non-verbal editing way of saying, "The freaking Federal Reserve is creating money and credit for its own use so that it can buy increasing amounts of newly-issued Treasury bonds for itself, and other securities and assets, in order to manipulate the supposed free market while giving the government oodles and oodles of new money to spend because the Congressional lowlife morons have now spent us into the grave and are so panicked that they will reflexively respond with MORE deficit-spending for the Federal Reserve to finance by creating the money and credit to pay for it, which will cause inflation and economic distortions a-plenty!!!"
Notice again the use of, not two, but three exclamation points, which is again my clever non-verbal editing way of saying, "I am freaked out at the blatant corruption and fraud that is happening right in front of our noses by Wall Street, Congress and the Federal Reserve, and people ought to be sending me money with which to do emergency research into animating the dead so as to raise an Army of the Undead to descend upon Washington, DC, and eat the brains of anyone tainted with the stench of Congress and the Federal Reserve!"
Mr Bernanke is apparently not afraid of my threats of mobilizing an army of vengeful zombies to send against him and his loathsome ilk, and ignoring me completely, defiantly said that one option open to the Fed is to buy "longer-term Treasury or agency securities on the open market in substantial quantities", which seems really odd, coming as it does at the same time as "International investors purchased a net US$34.6 billion of Treasury notes and bonds in October, compared with purchases of $20.7 billion a month earlier."
Or maybe it isn't odd, as "Investors sold US stocks, corporate bonds and a record amount of debt issued by mortgage-finance companies Fannie Mae and Freddie Mac and other agencies, according to the Treasury."
Bloomberg quoted Suvrat Prakash of BNP Paribas Securities saying that "There is still a lot of demand for assets at these yields. Whenever risky assets are performing as badly as they are now, you see people flock to safe assets."
Safe? Did he say safe? Hell, yes, it's safe! It's as safe as any fiat currency can be; if the government needs a little money to pay you back, it merely gets its central bank to create some credit in the banks from thin air, which becomes money when somebody borrows the money to buy the government debt! Hahahaha! What a racket!
So, since all the world's currencies are now fiat currencies, and they can all be easily inflated by infinite amounts until they are as worthless as a Zimbabwean dollar, thus they are all equally as safe and ultimately as valuable, too! Hahahaha!
About this time, you would normally expect me to switch to a rant on why this means that you should be buying gold, silver and oil, and indeed all commodities, but I will not, as your mere expectation proves that you understand this stuff perfectly!
I am very proud of you, my darling Junior Mogambo Ranger (JMR)!
Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter - an avocational exercise to heap disrespect on those who desperately deserve it.
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