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My Two Cents By Andy Sutton Theres an old quote along the lines of if youre going to lie, make it a big one, repeat it like crazy, and eventually, people will regard it as truth. Truth is awfully cheap these days. For as buffaloed as most people are with the state of economic affairs not only in the United States, but also in the rest of the world, youd think they still believed the Earth was flat. The biggest problem with a lie is that is needs a champion. Or lots of them. The more the better. When we deal with economic lies, weve already laid out directly from the mouth of the IMF that one of the roles of policymakers is to manage the expectations of the public. Put in plain English, that means policymakers are to say and do anything to gain the confidence of the public. That is precisely what weve witnessed over these past several decades. What we have now is a rabid and virulent form of neo-Keynesianism that takes Keynes garbage economics (which he clearly stated was a short-term fix) and put it into perpetuity. Along the way, this kind of stunt is going to need a lot of help. Enter the economic Stink-Tanks. They call themselves thinkers, but there is very little of that going on for the most part. However, there is an awful lot of stinky fabrication, junk science, garbage economics, and other hogwash that emanates from them, all under the banner of educated brilliance. Economics is clearly not the only field where this sort of thing goes on, but were going to limit the discussion to that. You the reader can then apply it elsewhere. This week two pieces of such propaganda came across my desk. One is a quarterly publication from the not-so-USFed, which, among other things, is a form of stink-tank, and the other from the American Institute of Economic Research (AIER). Both had some real gems in them. And for all you flat-Earth folks who still believe the fairy tale that the fed is part of the government, Ive scanned the intro page. Note that James Bullard is titled President and CEO of the St. Louis Fed.The United States has one president and no CEOs. Private corporations, however, all have presidents and CEOs. Each fed regional bank (there are 12) has a president and CEO. Still think the Earth is flat? That is another thing about big lies. Sometimes the liars dont even try to hide them. The lie is perpetuated in plain sight by ignorance and laziness. But I digress. The Regional Economist January 2014 Well focus on the presidents message. By the way, you can receive a copy of this publication free of charge (you pay for it through inflation) directly from the not-so-USFed by clicking here. I encourage people to receive these publications and to read them. If youre going to engage in a meaningful pursuit of the truth, then it is a good idea to know what the other side is up to. Mr. Bullards remarks pertain to the summer of 2008 and the lead-up to the blowout fracture of the financial markets that ensued that fall and to the overarching macroeconomic factors that were in place prior to the market collapse. While many think that the financial crisis began in 2008, in fact conventional dating puts the beginning of the financial crisis in August 2007. Therefore, the crisis had been continuing for more than a year by the time of Lehman-AIG, and the Fed had been responding to the situation. In particular, the Federal Open Market Committee (FOMC) had lowered short the federal funds rate target sequentially between September 2007 and March 2008 from 5.25 percent to 2.25 percent. Lets note first that, despite the unconstitutional nature of a private bank having control of the nations money (Article I, Section VIII of the US Constitution), the feds only two mandates are maximum employment and price stability. Bullard goes on to state that we now know the recession started in 2007 and ended in July 2009. This implies that they didnt know when they started playing with rates. Why then were they jamming the fed funds rate downward if they didnt know we were in a recession? Ill leave you, the reader, to draw your own conclusions, but my opinion is that they knew full well that things were really starting to tank. And if we left that recession in 2009, why are savers still being punished by near-zero rates almost five years later? Ill also note for you that despite the massive intervention, the crash still happened and a trainload of money changed hands. Most will scream incompetence, but I dont buy it. These are not stupid people. Nearly all of these markets are a zero-sum game. Someone wins big, someone loses big. We know who lost in 2008 and we know who was handed additional trillions in pledges, bailouts, and junk asset purchases. To give credit where credit is due, he points out that one of the results of the sloppy monetary policy was a bubble in commodities. Thats a bad bubble. If they blow one up in housing prices, thats a good bubble. If they run the equity markets to Mars and beyond, thats a good bubble. In those cases, people think theyre getting rich and clowns can write and sell books on how to retire early by merely doing cash out refinances until you die. However, commodity price increases eventually work their way into consumer prices and you have a hard time convincing even the flat Earth crowd that the economy is just brilliantly performing when their cost of living is going up by double digits. Above anything else, note that here is a bald-faced admission that accommodative monetary policy blows up bubbles. Yet we hear mental midget economic experts (reporters basically) in the financial press assert that such is not the case. Again, the truth is hidden in plain sight. Speaking of double-digit cost of living increases. Just imagine what is going to happen to prices and unemployment when the minimum wage is jacked up north of $10/hour as the Congress is being urged to do.We can take a long walk down that rabbit trail another time, but price controls always create inefficiencies and what we economists call welfare losses. Again, you need to ask yourself if the folks calling the shots are just that dim that they cant grasp what a third grader can understand or if there are other motives. Incidentally, the manipulation of interest rates in the manner described above is another form of a price control. It creates inefficiency and welfare loss. Beyond incentivizing risk-taking and financial irresponsibility, these moves have disincentivized responsible fiscal behavior and forced savers to expose themselves to unnecessary risk in the murky water of the equity markets in search of returns to combat cost of living increases that, according to the fed and government, dont exist. Another characteristic of big lies is that they often have their own definitions. For example, a recession in commonly accepted definitions of economic thinking (or lack thereof) is two consecutive quarters of negative GDP growth. Weve been around the mulberry bush so many times weve worn a path on this whole issue of the fraudulent nature of how our GDP is calculated globally. The really sad thing is that it is nearly impossible to get enough accurate data to actually construct an actual GDP. The input data is garbage; therefore the output will be of the same nature. AIER Global Expectations Rising Theres that E word again expectations. I will admit to not following the work of the AIER. This material was sent to me by a totally frustrated and confused subscriber to their products. This latest issue, written by one of their senior research fellows, contains more flat Earth neo-Keynesian tripe. In fact, it really isnt research per se, but is more of a restatement of the IMFs party line, which is that growth is exploding, there is no price inflation, the Eurozone debt crisis is long over, the moon is made of cheese, and that there are little green men running around on Mars. The AIER, like most other stink-tanks, has its own proprietary measurements for gauging this and that. Of course since theyre proprietary, you cant look at the methodology or anything else, which makes those measurements about as useful as a wetsuit in the Sahara desert. The format of the publication is even Orwellian as the tripe is mentioned twice once in text and once in highlights. A few examples: The January update shows that IMF economists expect global growth to accelerate in 2014, led by advanced economies. The US is the worlds third-largest exporter behind China and the European Union. Since 1985, nominal dollar exports have grown more than 630 percent. Just a couple of observations: First the restatement of the IMFs forecast, which isnt research, but rather a piggybacking endorsement of the establishments party line. Its not independent. Second, since when do we compare nations with trading blocs with regards to global trade? Finally, the 630% nominal growth in exports comes down to around a 6.75%/annum increase over the 28-year period. Remember, theyre talking nominal, which means not adjusted for inflation. You adjust that 630% by even a modest 5% inflation rate, which has been easily observed over that time, and export growth is absolutely pathetic to near nonexistent. But the 630% sounds awfully nice, doesnt it? Despite the small dissertation of trade, there is not even a single mention of the gross imbalance that persists to this day. It is one of those annoying little trends that are thrown out when the stink-tanks get busy. Take a look at the last 5 years of trade deficits:
The fact that this imbalance represents a massive drag on the USEconomy isnt even mentioned. Only the positives are highlighted. The flat Earth crowd will look at the above chart and point to the improving trend. Much of that comes from the fact that import growth is slowing, which is good. Among the reasons why, however, are a stagnant and weak domestic economy. Again, this is a good news bad news reality. Of course the negative side of it receives no mention from the economic stink-tanks because then theyd have to explain away why were not consuming as much Chinese garbage. They cant blame it on oil, because oil prices have remained stubbornly high. They cant attribute it to falling import prices because theyve been mostly flat, according to the government, which is another can of worms. There is one thing that will end the trade deficit quickly and that is when we see a predominance of international trade being conducted outside the paradigm of the petrodollar. Then America will be able to import only as much as it exports unless it possesses the gold or is willing to part with even more national assets to do additional external purchases. The best guess at this point is that many of our prized assets, such as our national parks, will be ceded to the Chinese to partially cover our existing debt albatross. Some go as far as to assert that has already happened. 
The real kicker, and then Ill stop torturing you for the week, is the various indices of economic indicators. Again, there is no methodology given. Predictably, every indicator is on green, full speed ahead. I guess thats why people are leaving the workforce in droves, record numbers of Americans are on food stamps and disability, and why consumer credit continues to explode upward. AIERs coincident and lagging indicators are all positive and have been so for around 2 years now, yet during that same time, all the drags I mentioned above have continued to become more pronounced. Of the leading indicators in the AIER report, 9 were judged to have a positive trend in January. Five of them were at cycle highs, including M1 money supply (Keynesian bias), index of common stock prices, yield curve index, average workweek in manufacturing, and new orders for consumer goods. For those keeping score, the AIERs various indexes are about as skewed as the Conference Boards. The stock index indicator is a laugher unless they dont count the current month, which would have been January. And even if it doesnt, it is still a laugher because it is pretty obvious that QE has blown up a nasty bubble, as Mr. Bullard so overtly stated is possible in the previous section of this essay. As to the manufacturing workweek situation, the jobs will be coming back to America. In my opinion, were going to be doing exactly what the Chinese have been doing for almost two decades now. Yes, the jobs will be back, but they wont be the jobs you thought theyd be. Theyll be subsistence level at best, and well be making trinkets for the new wealth centers of the world. That is already the trend. Just go and look at the great job creation weve seen during this robust recovery (sic).Most of them have been of the temporary and minimum wage variety. Again, if incomes were skyrocketing as the stink-tanks would have you believe, then why are people diving further and further into debt? That dog wont hunt. The AIER analysis concludes with the stink-tank hedging its bets on everything from consumers to the stock market. Ive always said the real answer comes after the word but and that is exactly what is going on here. Europe, according the AIER, is under the threat of deflation. Since when is your money becoming worth more a threat? It isnt. Deflation, rather, is a threat to the global monetary mischief known as fiat currency. Closer to the truth is the fact that inflation has created most of the economic growth over the past several decades. Thats the threat. It is to this crooked establishment, and nothing else. So to my good friend who sent me the AIER piece, rest assured, youre not going crazy and youre not delusional. The piece, while instructive, isnt worth the paper it is printed on. Andrew W. Sutton, MBA Chief Market Strategist Sutton & Associates, LLC http://www.sutton-associates.net andy@suttonfinance.net Sutton & Associates, LLC is a Registered Investment Adviser in the Commonwealth of Pennsylvania. This message, and its contents is intended solely for the entity named herein. If you have received this message in error, please reply to the message's originator then delete the message from your system. Interested in what is going on in the markets and the economy? Read Andy Sutton's weekly market and economic commentary 'My Two Cents' - go to www.my2centsonline.com
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