Monthly Archives: June 2015

Two possible outcomes for “our” world.

When you read a lot, you eventually stumble upon something really different. The poster above is a good example. I took it out of a very interesting read, pondering no less than the quantic side of our existence (not to be confused with our “dark side”). Now, that is indeed a subject (one in thousands), in which my knowledge is zero (getting closer and closer to the value of Fed thinking).

Not that the matter bothers me at all. My fate is death, and I am almost certain it will come well before those cosmic events take place -if they do at all. In the meantime, I plan to keep sailing every important race I can attend. So I really don’t care. It was just nice, thought provoking, reading. I love reading.

Giving things a second and third thought (using the inner female we all have), I recalled a vexing issue I do care about. It is something that will happen in the immediate future. Something beyond my control, not cosmic (just global), that will -if I am not extra careful- affect my sailing (unless the cost of my carbon membrane sails is cut down to a fourth. Hey can anybody get me a discount at quantum sails?). Let’s give it a fancy name: “the galactic debt meltdown”.

A couple of economists, bloggers and presumed pundits keep on saying the world is broke, and debt will never get paid back. I am one of them. Nobody knows when this will be “official”, and, to make things worse, nobody knows how debt will be reduced as a percentage of global (non-cosmic) GDP. Meaning, we don’t know if it’s going to be real GDP growth, GDP deflator growth, or debt write downs (a bookkeeping entry), that will allow us to get rid of the problem. Lastly, nobody knows the schedule of events to take place. In sum, a “helluva” lot of “unknowns”. The road map is far from the accuracy of differential GPS positioning (the one we use for race-sailing starts).

We have desperately tried to grow ourselves out of debt for the last seven years. We have tried to outgrow debt in real terms, or at least nominally, to no avail. Escape velocity has been a “chimera” in Keynesian groupthink for as long as I can remember (in fact most of Keynesian groupthink is plain, small talk broadcast, wishful thinking). By all means, I am not saying “escape velocity” will not finally come to pass -I just find this outcome included in the category of “infinitesimal probability”. Similar to that of the cosmic events we talked about above.

That leaves us with just two statistically significant alternatives: deflate debt, or hyperinflate GDP (we have already tried to reflate ourselves gently out of the problem). And it is -deep sigh- no other but a Central Bank decision that will orient us, for once and for all, in one or the opposite direction.  When is (as with death), the vital question. It should be over the next couple of months, but it could take years if we can chronify the desease. We should urgently hire some oncologists for the politburos: we are going to need them. Kicking the can forward is requiring, as we reiterate it time and again, an increasingly high level of expertise (and luck!!).

Yes, this can go on further for longer. But, what if we can’t chronify cosmic Keynesian groupthink? What if the whole set up melts down earlier than we think? For a time now, we have had two main drivers of instability: debt and inequality. Both are getting more powerful every day, even as I write. As I said in my post “debt sustainability and/or inequality will end the show”, one of them is likely to end the CB’s show. I humbly stand by everything I said in November. Time will say. I am aware that even a broken watch is right twice a day.

Of course ZIRP -and its upgraded high-octane form (NIRP), money printing, currency wars, and credit creation (57 trillion extra since 2007 and counting), are factors of instability in themselves. They show up in market behaviour (markets keep on “losing their cool”). But the ultimate reason for their existence is related to the omnipresent fictitious/phony asset of global debt (unpayable, and thus unreal) in our global non-consolidated balance sheet. In fact, and underlying all those monetary and fiscal measures, there is only one driver, the debt overhang (regardless of the multiple strategies and measures implemented by Central Banks). One thing I must say. They have seriously improved their implementation techniques. POMO desks are doing a good job -in the wrong direction, and for the wrong reasons- but a very good job indeed. They have almost “mastered” the markets. Continue reading

Stating the obvious … and paying the piper!

It’s been a while since I last wrote for my blog. I haven’t run out of ideas. But, after weeks of reading all day long, I think I am short of brand new ones. Reading others reminds you to remain humble, because you are never as good as you think you are. My readers time (same as mine) is precious. In fact it is the only irreplaceable asset in our personal balance sheet.

All of a sudden it does look like the scenario has changed. By now, most economists with a decent professional level are admitting to the fact that easy money is toxic, and cannot solve it all. Keynesians and neo-classics are allowing for defeat in private. The keynesian sect is already “out” in upper circles. Word will get to financial advisors and the masses before long. Pondering “ad nauseam” the economic atrocities being perpetrated daily by our central bank -and keynesian acolytes- does not generate any incremental added value. And, honest to God, I do not experience any pleasure kicking Keynesians hard, especially when they are in a weak position (about time!).


Finally, some “uncommon sense” is creeping in. Stanley Fisher is talking about market stability as a policy target time and again. Even “the maestro” openly allows for the fact that the Fed is painted into an increasingly narrow corner. Kuroda is, as I write this, very outspoken about the “enough is enough” paradigm when evaluating the exchange rate for the Yen. They are, naturally, allowing for defeat half-heartedly, and with the usual caveats, when not outright excuses. “We had to do it”, “we gained some extra time”, and other similar cover ups. Dudley or Williams are cautiously following the same track.

Bernanke and Krugman are, as was to be expected, the living exception. They will “die-hard”. And astonishingly enough Dragui has also become a “QE-aholic”. Stating the obvious: he surely thinks a lot of himself. And he is not even argentinian (argentino)! You know the adage: if you buy them at fair value and sell them for what they think of themselves, it’s the trade of a lifetime. My wife says converts are the worst. Dragui was late to QE-nomics, and  now …

Focusing on the big picture, I think it is hopeless to brood the huge and long reaching consequences of our economic mistakes of the last two decades (with a Grammy in store for “Bernanke-Krugman” duo performance over the last five). That is how history has always been written, and will be written over and over again. We all pay for the mistakes of others. New mistakes will be made, and we shall have to cope with the after-effects. Nothing new under the sun (idiocy has not affected sunlight up to now). Continue reading