Money talks. BS walks.

Sep 26, 2013

Paris, France

Another day. Another 61 point drop for the Dow. Gold up $19.

Is the stock market finally rolling over? Has the magic spell of QE finally been broken? Maybe. Our 'Crash Alert' flag still flies - just in case.

Money talks. BS walks.

Walking through the Federal Reserve for the last few years has been a lot of BS about 'transparency' and 'forward guidance.' We've even seen articles in the press about the policy of 'forward guidance' being worthy of a Nobel Prize...and how it represents a new breakthrough in central banking theory and practice.

Supposedly, all they had to do was to tell the market what it intended to do. That should be enough. Then, investors and business could react to the 'guidance' as if it had been delivered to them by Moses on stone tablets. The Fed, in its omniscience, would know precisely what interest rates the economy would need, not only now, but even six months ahead! In other words, the Fed expected us to believe that it could know two unknowable things at once - the future of the economy...and the interest rate needed by investors, borrowers and lenders that would improve the economy.

In the event, the Fed told the market back in June that it would begin tapering in the fall. Children went back to school. Autumn arrived. The leaves started to turn color. And the Fed announced has decided that the US economy is not ready for tapering.

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What? The Fed didn't know what shape the economy would be in after all. So what was all that blah blah about forward guidance? Turned out, it wasn't guidance at all, it was folderol. The old bumble, stumble, waffle and cheat.

If these guys have Ph.Ds in economics it makes us wonder. Either Ph.Ds are given out like business cards. Or economics is all claptrap. Maybe both.

Having guided the market towards tapering, what did they think? Either the market had taken them seriously...and had already made its peace with slowing QE from the Fed. Or, the market had not believed the Fed...and was waiting to see what it would really do.

Either way, the Fed still had the same problem in front of it. It had to do something. Either taper or not taper. And it had no clue.

As it turned out, the Fed decided not to taper, making nonsense of its operating doctrine, undermining its credibility and leaving investors with the impression - correct! - that the Fed was in fact just making it up as it went along.

What a marvelous time to be read the newspaper...and to watch slapstick economics at work. All those Ph.Ds. All those theories. All those data and formulae. And all of it complete garbage.

The underlying conceit of the feds is that they can make the economy better. No theory has ever proposed making this a plausible proposition on any level. Economists don't know what a "better" economy is. Is a better economy one that is spending...or saving? Is it one in which people are all working...or in which they are enjoying their leisure? Is it better for prices to be stable...or falling? How much debt should people have? They don't know.

Hey, check out the headlines (these compiled yesterday by colleague Justice Litle):

Millionaire optimism hits 9 ½-year high
America's Toilet Turnaround: Manufacturing in the U.S. Rises -
Household Net Worth Up on Rising Stocks, Home Prices - Real Time
Economics - WSJ
Home Prices Rising at Fastest Pace Since Start of Bubble - Real Time Economics - WSJ
Sales of New U.S. Homes Rose in August Following July Plunge - Bloomberg

Sound pretty good? Who knows? Are more expensive houses a good thing? Is it 'better' for the US to make its own toilets? And millionaires? On the evidence, the last time they were this optimistic was at the beginning of the most disappointing decade since the Great Depression.

The feds pretend they know it all. Anyone can read their public comments and realize that they are just humming and faking it. They don't know how to make an economy better...but they know how to make it better for them! And that is an economy that is delusional and largely dysfunctional.

Why so? It's all about money, power and status. Wealth that matters is relative, not absolute. People don't necessarily want more; but they definitely want more than their friends and neighbors. The feds get wealth, power and status by taking them, not by earning them. And it is easier to take them from delusional people who believe they are making headway too. But the masses shouldn't really make progress...because that would make them wealthier and less dependent. The feds prefer a population that is poor, dependent, ignorant and docile. (That alone explains most of what people see as 'failed' government programs. They're not failures at all - not from the feds' perspective.)

QE doesn't work?'ve missed the point... It's a great success. You've got to be delusional to believe in get poorer, the longer it goes on... and you become more dependent as more and more of the economy's resources come under the feds' control...

Taper off? Not if they can avoid it!

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

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