Global central bankers led by Federal Reserve Chair Janet Yellen gathered in Jackson Hole for their annual Marxist Festival. Of course, those in government are just way too dangerous because whatever they see never involves them as a cause of any problem. It is impossible to see how to engage the economy when you eliminate yourself as an antagonist in the plot.
What we MUST understand is there are two paths in economics. The first was Adam Smith’s approach as to lets see how this thing works and the second Marxist path that saw how it worked, did not approve of that function, and embarked on the path of intervention, manipulation, and control.
Fed Chairman Arthur Burns who presided at the time of the collapse of Bretton Woods in 1971, was rather blunt that this Marxist path of intervention has not been successful at all. The same basic statements were made by Paul Volcker. What you have to understand is this is a battle for confidence of the people and they know that. No Fed Chairman while in office can come out and say what they really think.
All the institutions and provinces knew I advised the central bank of Canada. At an institutional conference in Toronto, the central bank was there with its top 10 people. Everyone would ask me questions about the central bank and what were they looking at and then turn to look at them when I responded. After the session, I went up to the head guy I knew because they were stone-faced the whole time. I said I hope I did not offend them. He said it was a great conference and he wished he could stand-up there and tell these people the same thing.
Central banks have no magic-bullet. They operate the same as everyone one else responding to each other and the latest news. When the markets crashed from the 1989.95 turning point on the ECM, I had two central banks on the phone at the same time asking what the computer said and should they have to intervene. That was the Tokyo Crash 1989.95 that peaked at 38957 against our projection of 39314 but to the day. I explained the focus would be Japan and it should be the start of a 23 to 26 year depression. However, the rest of the world would survive and new highs would still be made going into various targets from Europe and then North America into 2032. No intervention would be needed.
Paul Volcker in his Rediscovery of the Business Cycle explained how this second path that began with Marx and was extended with Keynes had become the doctrine – the age of New Economics.
“The Rediscovery of the Business Cycle – is a sign of the times. Not much more than a decade ago, in what now seems a more innocent age, the ‘New Economics’ had become orthodoxy. Its basic tenet, repeated in similar words in speech after speech, in article after article, was described by one of its leaders as ‘the conviction that business cycles were not inevitable, that government policy could and should keep the economy close to a path of steady real growth at a constant target rate of unemployment.’
Volcker stated that “it was not until the events of 1974 and 1975, when a recession sprung on an unsuspecting world with an intensity unmatched in the post-World War II period, that the lessons of the ‘New Economics’ were seriously challenged.” Nobody is in control. Yet they cannot just stop. The expectations that central banks can manipulate the economy are greatly exaggerated and highly dangerous for it inspires politicians to do as they like assuming no responsibility for their actions.
Now that we have placed the Jackson Hole gathering in its proper context as just another Marxist Festival about how to manipulate the economy next, Yellen made some important statements that were above the heads of most general media. Yellen said labor markets still have further to heal before the economies can handle higher interest rates. The unemployment among the youth in Europe is very alarming and it is a reflection of a collapse in entrepreneurship where people just do not see an opportunity to make money and are not starting new businesses for the future. The internet is causing the collapse of many types of business and France has tried to defend book stores without much success.
This trend of a collapsing labor market is feeding into the need for government to meet their pensions and thus taxes keep rising even in the face of declining economic expansion. Even in the USA, more that 60% of college grads are doing jobs that require no degree. This is the real scary future of jobs on a global scale. What schools are teaching remains stuck in the 20th century pre-internet world!
Nevertheless, international monetary policies are set to diverge as economic recoveries increasingly differ substantially between Europe and the Anglo-Saxon nations. Jobs were at the center of their decision-making policies stating bluntly that greater hiring and wages are still needed to drive-up consumer demand. This is critical in Europe but their socialist policies post-war get in the way of moving forward.
The focus on jobs suggests the Fed and Bank of England will tighten policy within a year as their economies show signs of strengthening moving into 2015.75. However, in contrast, the European Central Bank President and the Bank of Japan acknowledged they may be forced to deploy fresh stimulus. They cannot grasp that their highly socialized economies are collapsing the same as we saw with Russia and China.
Yellen said: “As a consequence, monetary policy ultimately must be conducted in a pragmatic manner that relies not on any particular indicator or model, but instead reflects an ongoing assessment of a wide range of information in the context of our ever-evolving understanding of the economy.”
What Yellen has stated has gone over the heads of most people. She is stating quite frankly that they do not have a fixed model that they watch. This is a fluid problem with tremendous divergences in economic trends of Europe and Japan in contrast to the Anglo-Saxon economies. Obama just wants to impose the very same socialism of Europe for he cannot see that this economic model is what has been imploding. The US tax burden for the average person is still under 30% compared to over 50% for Germany. The higher the tax rate moves, the less disposable income, and the lower economic growth. Sorry – this is just a historical logical fact.
Perhaps one day we will return to the first path and try to live within the cycle that includes weather. But for now, this second path in economics that was set in motion must dominate and move to its ultimate conclusion – crash and burn. It would be nice to think we can stop the trend. Yet, historically we have never accomplished that even once.
Most people cannot even grasp the complexity of what is taking place. We need another Great Depression for this is how we move forward. Only when you destroy what exists do you get the chance to rebuild.
The vast majority of people only think in one-dimension of reducing everything to a cause and effect. Even when people try to create models of the markets, they too are one-dimensional. Sure you can create a cycle on a given market and then a cycle inversion hits the one time you bet the farm. Technical analysis will produce the same inconsistent approach. There is more to everything than meets the eye.