Home  l  Broadcast  l  WrapUp  l  Storm Watch  l  Editorial Archives  l  About Us  l  Contact Us

PREFACE

JW’s qualifications for assuming the prosecutor role are 22 years of experience in practicing statistics in the business world, backed by a Ph.D. in Statistics from a leading university and two years of teaching practice. He has worked in the computer industry, in the retail sector, and in a private consulting firm engaged in marketing research. Contact with academia, work associates, and former government statisticians, has enabled him to acquire a keen second-hand view of inner workings at various federal agencies. His personal practice, as well as discussions with colleagues and managers has allowed him to develop and refine an objective opinion regarding the economist profession based on actual experience.

While economist capabilities are generally competent, an acidic vein runs through much of their work. Vibrant statistical lifeblood has been largely displaced by political inspiration. Work might frequently be described as analytically shoddy, deceptive in representation, and clinging to heretical and discredited methods. Overtly misleading aggregate statistics are now routinely disseminated as part of their (witch)craft. Lately, psychological defensive fronts have been opened, which employ “1984-like” group-speak to deceptively redefine economic terms. Has Political Correctness now infected economics?

This indictment is not intended as humorous, nor as legally binding. Before citing the 12 counts in detail, I will expand upon three critical background factors which create conditions ripe for exploitation by this bungling and largely inept profession. The scientific method is not an integral weapon in their arsenal. The nature of economics renders deficient policy nearly impossible to disprove. Most challenges degrade into a useless political debate. Illiteracy among the public leads to submission, silence, blind trust, desperation, and surprisingly deep commitment of capital in the form of life savings. The public either accepts the system for what it is, or distrusts it while feeling helpless, commitment notwithstanding. Academia has built an economist ivory tower with the majority of paths more political than analytical. The eyes of Nobel are very much aware, shunning their heretical enclaves. The leading academic economist communities have mutated into political priesthood, hawking ideology every bit as much as Karl Marx. After delineation of the charges, a conclusion is offered as Friends of the Court are cited. Their numbers are few, but their economic forecasting efforts are as significant and expert as they are unwelcome and accurate.

THE NATURE OF ECONOMICS

The economics field does not lend itself easily to “controlled experiments” in a scientific method framework. One cannot submit contending policies within an experiment in tax rates or federal subsidies, for instance, in order to test which policy produces the desired intended effect for both business encouragement and federal revenue generation. Nor can one submit the population or a given business sector to a formal factorial design, rotating experimental settings on a quarterly basis in order to carefully analyze policy alternatives under examination. Such is too impractical. However, the United States does offer diversity wherein certain states can supply valuable laboratory information on competing policies. State leaders, regulatory officials, and consulting analysts routinely learn from the successes and failures observed within our 50 states. But comparative results are tainted by what are called “confounding factors.” What succeeds in Massachusetts or Ohio might not work in North Carolina or Texas. The people are different, as are educational backgrounds, proximity to labor talent, geography, natural resources, and state laws & taxation. Over the decades, a few more progressive states such as Wisconsin, New York, Oregon, and California have offered themselves for experimental policy. The rest of the nation was quick to observe and learn.

A critical requirement within an experiment calls for holding other factors constant. Economics simply cannot enforce such constraints when determining the success of certain policy alternatives. One cannot duplicate the weather, or social trend-making events, let alone policy interference on rules of the game. External events are not controllable, nor can international flare-ups be properly anticipated. Far too many participants are involved in setting policy, such as state legislatures, municipal boards, federal and regulatory agencies, and independent Congressional committees. Most are influenced to some extent by corporate lobby efforts. Competing companies do not stand still either. Typically, experiments devised for statistical analysis are absolutely chock-full of confounded effects. The problem is so pernicious that even experts fight loudly and emotionally over interpretation of results from changed policy, each attempting to discredit the other while pointing a finger at what they consider a deflected confounding effect. The consequence of experimental shortcomings is that bad policy cannot easily be disproved, nor can sound policy be validated.

Most guiding policy bears its fruit often with a lagged time effect, only to breed enormous controversy. The disastrous 1972 Nixon Wage Price Freeze restricted supply, resulting in price inflation from shortages, but only later in the following years. Carter was inappropriately blamed for much of that harmful rising price trend, which was compounded by OPEC’s quadrupling of oil prices. Carter was labeled as the worst economic steward our nation had seen since Hoover. That shameful title emphatically belongs around Richard Nixon’s neck. The prudent trimming of federal government bureaucracy by George Bush Sr. in 1989-1992 cleared the path for his successor, Bill Clinton. Bush was voted out of office during the recession triggered by the Gulf War; while Clinton was given a firm foundation for economic expansion. The hyper-extension of credit during the Clinton years, amplified by Greenspan’s insistence to underwrite all economic and financial accidents with unprecedented monetary liquidity, created the bubble in stocks up to the year 2000. Many unenlightened people, including members of the press & media, incorrectly place some blame for its natural bust on George W. Bush. Federal Reserve tightening aided the termination of the speculative mania. The lag effect is truly remarkable from a political viewpoint, whereby actions bring about responses in 1-3 years. Each president is railed or credited for the decisions made by his predecessor. An entire article would be necessary to treat this topic adequately.

ILLITERACY AMONG THE PUBLIC

Vast illiteracy exists among the voting public, business sector, and investment community. Until recent years, economics had not been taught at the high school level, and now only in the best high schools. The topics are not easily understood, and worse, considered either too boring or so abstract as to be useless. Theory of the firm (micro economics) typically is the dominant course of formal study, not national aggregate and international study (macro economics). The relevant topics now are often macro econ-based, where comprehension is worse than micro-econ. Some applications of supply & demand do crop up. Most people I speak with personally harbor no illusions about any resident capability whatsoever in the economics field. Their quantitative training has admittedly been surpassed by mounting financial complexity. The public’s minimal comprehension forces them in their ignorance to trust officials, leaders, and corporate analysts to make right decisions. Most ordinary people are totally overwhelmed by the subject. Those who offer dissent are led into opposing political camps, where depth of understanding may be no more enlightened nor less beholden to past history. Their opposing positions tend to have theoretical adversarial stances, which quickly slide into ideological political platforms. It becomes a debate, lacking any credible levels of proof, evidence, or justification, then morphs into a useless jabber match. Economists should afford competent leadership over the unskilled public, providing stewardship over public policy with a minimum of political jockeying, and a maximum of competent analysis, drawing on Europe’s vast history. American economists seem almost never to quote Europeans, nor heed their words of caution, despite several centuries of experience. I believe economists fail miserably, albeit in a tough environment.

Many advanced degree programs in the sciences can be conferred with zero formal training in economics. MBA programs do contain some training, but most graduates only have a basic exposure. Yet these well-funded seedbeds produce our corporate leaders. Worse, law school yields most legislative leaders in Congress and state houses. I am unaware of any economics courses taught in programs leading to jurisprudence degrees. States do often draw their governors from the ranks of business, to their credit. With roots in Wall Street, is New Jersey Senator Corzine impartial in dealing with brokerage house corruption? Is it even appropriate for a very wealthy man to finance his own campaign, devoid of broad support, at least initially?

The economic talent shortage problem is even more frightening. The formally trained are apparently not so well trained after all. Over the years I have personally come into contact with at least a dozen colleagues with M.S. or Ph.D. degrees in Economics. Few have continued within their native field, as most migrated to related work like sales forecasting, or public policy, or marketing research, or business development. A year ago a certain VP had a conversation with me regarding the US Dollar. I had reminded him of my spring 2002 expectation that our US Dollar currency would suffer significant devaluation. He was intrigued by the description of Gresham’s Law, whereby bad money displaces good money. He actually stated concern that another “wannabee” currency was trying to displace the US Dollar. I claimed that the US Dollar was the wannabee, and had completely supplanted gold and its standard, which had lasted centuries. My claim came with a stern warning of severe consequences to the world monetary system and economic order. He found nothing awry with a monetary system based on a currency whose foundation to be US Treasury debt. He holds a B.S. in Economics, and with a certain satisfaction stated to me that the cheaper dollar will make our vast foreign imports less expensive, thus aiding our economy. The opposite is true, as I pointed out, laying the groundwork for renewed price inflation, imported back from Asia. I claimed that price inflation via imports would reverse 20 years of US exported monetary inflation. He shook his head saying, “this stuff ain't easy.” No, the field of economics is not easy. Many people naturally grasp at notions that, although expedient, are opposite to effective and constructive. Economics seems to be a unique field where people tend to promote precisely the wrong position and policy in an appeal to human nature and a yielding to political pressure (e.g. trade barriers).

“The Death of Literacy” by Jim Puplava (March 2002)
http://www.financialsense.com/stormwatch/oldupdates/2002/0301.htm

ACADEMIA’S IVORY TOWER

Any serious discussion of economics must begin with academia, since it produces tomorrow’s analysts and is tapped by politicians for public service. The university economics community has unfortunately become the province of the abstruse, arcane, and irrelevant during the last few decades. Much research tends to be inordinately focused, far too advanced in theory, or remote in relevance. Certainly, many bright and dedicated people make worthwhile contributions. Some are actual critics of the growing trend toward central planning. Where has the leadership been during one tumultuous decade after another since the 1970s? It has been notably absent. Instead, economists have become apologists and ideologues, teaching mainly Keynesian principles, which defend the system. Their espoused principles support, if not plead for, greater state power and control.

I identify three serious problems with academia, crowned by lack of Nobel recognition. The nature of their economics research seems tilted toward the abstruse, topics of questionable relevance. The connections and associations with political groups have been natural, to be expected since executive appointments are oftentimes made from academia. But associations have led to camps such as the Harvard School of thought, known for its hardcore liberal beliefs and broad gov't stimulus approaches. Harvard has become an apologist, defending the US Dollar as the reserve asset to enjoy world exporter recycling, and favoring generous applications of federally created credit, from which to satisfy socialist appetites. Their leading figures are Paul Samuelson and Milton Friedman, who support the Keynesian viewpoint favoring constant government involvement in the private sector. Proliferation of debt and monetary inflation has required indoctrination in order to sustain public approval of spending patterns gone far out of control. Any aspiring professor in the North East whose belief structure fails to conform to the dominant mainstream will simply not be considered for either a post or a chair. Economist academia has become heavily politicized.

Lastly, the Economics curriculum is incomplete; course offerings bypass both governing cycles and waves of mass behavior. I refer to the Kondratiev Cycle, which stipulates super-cycles lasting roughly one human lifetime. Past K-Winters have climaxed following the 1870 railroad (over)expansion and following the 1920 car/radio (over)expansion, killing the monetary standard in each case. What lies ahead for the US Dollar standard as we contend with the latest K-Winter? The world now struggles with the resolution of 1990s information technology and telecom (over)expansion. Note the common theme of overbuilt transportation behind each speculative peak. Behind each climax was a credit explosion, followed by a contraction. I know of no graduate programs covering this super-cycle topic. Also, I refer to the Elliott Wave theory, which provides surprisingly effective models for both the occurrence and extent of climax tops in the stock markets worldwide. I know of no graduate programs covering this topic. Universities typically are a hotbed of intellectual curiosity and challenge to the system. But with economics, the structural status quo seems to be uncontested. It is deeply entrenched. The foundation to our entire system is assumed sound and firm.

A few of my pet peeves are worthy of mention. Instead of leading the Federal Reserve with guidance and analysis, some in academia see fit to form a Shadow Open Market Committee to handicap and second-guess monetary policy. Why not question such central planning instead of watchdogging it? Why not offer competent critique of the Fed’s abysmal track record? Where is their concern on an incredible explosion in national debts at all levels? If the Fed has run amok, who but economists are to lead it away from reckless ways? The trend with each passing decade is for more federal control and less free market. In fact, efforts should be directed at simplifying their formal analytical methods. A special name is given to their brand of arcane analysis; they call their field Econometrics. Their extensions to well-grounded established statistical theory include such intractable methods as “structural equations”, which offer unstable solutions. How ironic, unstable solutions accompany unstable economies! Many certainly fine men and women labor in academia as economists. Far too few are competent statisticians. Much supposed analysis is shallow and superficial, as if part of a promotional catch phrase or marketing byline. Their soft research is laced with politics; while their hard research depends upon unreliable methodology. Shortcomings of their analytics are outlined in greater detail in what follows.

Nobel prizes in Economics have steadily been awarded in recent years. One might find it curious that the award winners hail from related fields such as mathematics and psychology. Princeton Psychology professor Daniel Kahneman shared a recent Economics Nobel prize for extending the work of Amos Tversky on the asymmetric bias of spending patterns following principal loss. Over ten years ago, Herbert Simon (from my alma mater Carnegie Mellon University) won an Economics Nobel prize for his mathematical model for interactive brain function. The recent hit movie “A Beautiful Mind” featured the life of John Nash, who received an Economics Nobel prize as a mathematician advancing Adam Smith’s theory on maximizing collective utility.

The prizes for economist researchers are loudly absent. Are they largely political promoters and frontmen? I believe worse. I believe their community has succumbed to the temptation of promoting political party agendas, with its principal spokesmen soaking up adulation and enjoying icon status. Institutional economists have fast become a political priesthood, which has sold out solid defensible analysis methodology in favor of adaptive malleable political ideology. Their central function is in the promotion and justification of federal budgets, support of brokerage house strategic calls, and upholding the imperial dollar currency.

“The Kondratiev Winter” an interview of Ian Gordon (July 2002)
www.financialsense.com/transcriptions/Gordon.htm

“Cycles” by Wally Bently (April 2002)
www.gold-eagle.com/editorials_02/wallybently040502.html

COUNTS WITHIN INDICTMENT

1) Ignorance and Revision of History

• Ignorance of super-cycle phenomenon of credit expansion and contraction
  * Pattern repeats with corrections once every 60-70 years since 1776

• Ignorance of Elliott Wave explaining mass behavior and price movement

• Revision of Great Depression historical account, ascribing the cause to insufficient monetary liquidity, when actual collapse came in response to excessive credit expansion
  * Inability to point out parallels early between 1930 and 2000

• Silence in pointing out parallels with 1970 decade and 2000 decade
  * In London Gold Pool defense of #35 price, last year’s #330 defense

• Failure to properly attach blame or credit to previous president policy
  * Overlook lagged effect, preferring political blaming game

• Result: Concealed and eliminated learning opportunities

“Revisionist View of the Great Depression” by Antal Fekete (March 2002)
www.gold-eagle.com/editorials_02/fekete030602.html
www.gold-eagle.com/editorials_02/fekete031302.html

2) Intellectual Support of an Intervention Policy

• Federal Reserve exists from Congressional forfeiture of its constitutional responsibility, exposing it to the power influence of large private bankers and political leaders alike

• Excessive tightening by Fed has led to recessions, while more chronic excessive easy policy by Fed has led to asset bubbles
  * Fed Governors do not respect the credit market equilibrium forces

• Explicit and implicit support of (not a single peep of objection) the Federal Reserve as it issued credit for numerous accidents from 1988 to 2001

• Nixon’s Wage Price Freeze in 1972 created horrendous supply imbalances

• John Meriwether’s LTCM failure was not permitted to resolve itself, and did not result in a permanent bar of him from the financial world, thus allowing him to continue operating as a hedge fund manager

• Greenspan has taken interventionist policy to unprecedented heights
  * in circumventing recessions within the business cycle
  * in underwriting international financial accidents
  * in a disastrous monetary expansion attempt to repeal the super-cycle debt cleansing process
  * in purchasing S&P, TBond futures via Exchange Stabilization Fund 

• Nonexistent warnings of new bubble formation within credit markets
  * Huge implications for Mortgage Backed Securities and Real Estate
  * Tragic implications in consumer debt, as bankruptcies soar
  * Securitized debts are saturating bond markets, deceiving unsuspecting investors on inherent risk

• Public cheerleading of elevated stock valuations
  * Economists heartily endorsed New Economy proclamations
  * Greenspan defended stock valuations, citing fast information flow, greater efficiency with supply chains, and leaner inventory systems
  * Greenspan continues to pronounce productivity as both the economy’s and the stock market’s reigning achievement, justifying valuations
  * Fed Model (S&P) assumes an expanding economy, and relies upon Wall Street skewed earnings projections

• Result: Increasing volatility with each successive cycle, with no attempt to explain the rising instability and its link to intervention

“Capitalism’s Paradox, the Fed” by Ed Bugos (March 2002)
http://www.goldenbar.com/Briefs/23Mar02Brief.htm

3) Disputable Assumptions used as Policy Foundation

• Assumptions are dictated with little evidence of veracity, and without debate to unsuspecting masses and Congressional leaders.
• Examples from the last 15-20 years:
  * GDP growth rate above a certain level produces price inflation
     + Monetary and credit expansion causes price inflation
  + Greater growth results in supply rising to meet rising demand
  * Jobless rate below a certain level produces labor cost inflation
  + Disregards Mexican labor pool following NAFTA passage
  * Increased monetary and credit expansion can alleviate problems owing to hyper-expansion in credit and its ensuing collapse
  + A widely accepted absurdity with political appeal
  + Forestalls balance sheet cleansing, which is mandatory for the economic recovery itself
  + Disregards structural imbalances caused by decades of inflation
• Global trade will open up trade and new markets
     * A one-way street has developed, with jobs leaving our economy
• Examples from the last 5 years:
  * A Strong US Dollar policy is in our nation’s best interest
  + The policy helps to sell US Treasury debt and S&P stocks
  + US businesses are rendered uncompetitive
  * Low interest rates will stimulate the US Economy
  + The indebted, the speculators certainly benefit
  + Savers and retired certainly do not benefit
  + With low demand for capital equipment, low rates slow the economy
  * Consumption must be encouraged to lead the economic recovery
  + Consumption is largely funded by additional debt
  + Every recovery in history has been led by investment and savings, augmented by pent-up demand for cars, housing, and capital equipment
• Result: Confuses debate behind decision making process

4) Myopic Statistical Analysis Methods

• Confuse entirely different background economic conditions when citing past effects from previous decades
  * Response to stimulus from current bear market cannot be expected to invoke the same response as from past recent bull market
  * Justify current stock valuations by comparing against past bull correction levels
  * Conclude household debt levels are not a problem, since they had not been a problem in the past
• Naively form aggregate perspectives within analysis
  * Consumer spending forecasts totally avoid household debt
  * Expect growth in GDP from low inventory levels alone
  * Expect US exports to rise after dollar devaluation
  + Foreign economies will be much weaker
  + Our manufactured products contain 35-40% imported components
  + High labor costs and high worker health costs cannot overcome the motives to seek contracts with Chinese and Indian outsources
  * Defend tax rate increases for purpose of raising tax revenue, decry tax rate cuts as resulting in reduced tax revenue
  + Almost all historical evidence is to the contrary
• Make assumptions, calling them facts
  * Expect capital expenditures to rise from merely lower interest rates
  * Label high productivity as the driver for economic recovery
• Result: Really bad analysis

5) Incomplete Statistical Analysis System

• Ignore major drivers and dynamics of change
  * US Dollar devaluation is a process trend, unleashing profound effects in a vicious circle, feeding upon itself
  * Exporting nations continually seek to debase their currencies
  * Exhaustion of cars and housing demand after low-cost financing
  * Social Security Trust Fund is tragically underfunded
  * Pension underfunding will sabotage capex, R&D, other vital operations
  * Rising debt levels of households and corporations
  + Fully 75% of GDP is sapped by debt service!!!
  * Falling interest rates drove the 1990 decade of prosperity
  + Not so much rising (fictitious, distorted) productivity

• Underestimate key financial market effects on the economy
  * End to low-cost mortgage refinancing will stall spending
  * Reversal of rate swaps will smother corporate earnings
  * IPO stock issuances funded capex, now at standstill
  * Stock buybacks bleed R&D funding, product development
  * Minefield of bank derivatives threatens overnight annihilation
  * Heightened leverage from low interest rates, e.g. real estate
  * Asymmetric wealth loss effect indicates strong pullback in spending
  * Renewed speculation in commodities with new low-cost money
  * Upcoming federal monetization of debts will present inflation risk
• Result: Really bad forecasts

6) Legislative Divisions to Promote Political Agendas

• Keynesians align with liberal political camps
  * Economic tinkering and interference is the hallmark of stimulus
  * Defend highly destructive price controls, costly social safety nets
  * The end result is proliferation of bureaucracy and socialism, as well as enormous current imbalances
• Laissez-Faire advocates align with conservative political camps
  * Constant battle to reverse disruptive taxation and other obstacles
  * The wealthy class fare much better in surviving the obstacle course
• Economists have lapsed into the role of hired guns within opposing political camps
  * They justify peculiar assumptions within annual budgets
  * Federal budget projections are laughable for future years
     + Assumptions and models are often pure fiction and farcical
• Consequence is increasing amplitude in expansion and recession business cycles, and reckless counsel to our leadership
  * Rep Bernie Sanders accused Greenspan of presiding over the largest transfer of wealth in modern history, from middle class to rich
  * Where exactly is the scholarship and adept statistical analysis?
• Result: Constant pointless political squabbling fills newspapers

7) Institutional Conflict of Interest

• Major role now in defense of the presidential administration position
  * Serve as “priests” spouting dogma and ideology
  * Indoctrinate the masses with dubious new system rules

• Role in defense of brokerage house strategic equity analysis
  * Almost never expect a recession or a bear market in stocks
• Corporations fund monetary academics with endowed chairs, research grants, consulting deals, honorariums, and prizes
  * Academia rarely utters a critical word against official economic policy
• Producing a future expectation based upon rational and logic methods?
  * Or a team player, sold out in defending a business?
  * Or working for a paycheck, easily led to a justification?
• Result: Never any advanced warning of recessions or bear markets

8) Distortion in Economic Reporting

• Economic data reports have come under severe scrutiny and suspicion
  * Many aggregate measures are inconsistent with the pool of individual leading company figures
  * The label “jobless recovery” is an absurd contradiction, like “uplifting descent”
  * Some argue that Enron methods are evident throughout federal accounting
  * Foreign sources are noticing the clear deceptions

• Seasonal adjustment carries the potential for grand distortions
  * Seasonal adjustment thrown into turmoil from Y2K expenditures, disrupting any semblance of stable seasonal basis determination
  * e.g. in statistics such as GDP growth, retail spending, consumer durables, inventories, income, jobless applications, housing, etc.

• Backward revisions are unfavorable in at least 75% of cases
  * Pervasively unfavorable direction indicates blatant bias

• Quality adjustments (hedonics) distort productivity rate to the extreme!
  * Speed of processors, storage access speed, network switch speed, internet bandwidth
     + Horrendous distortion exaggerates actual spending and work
  + Deceptive tactic to justify historically high stock valuations
  * Principal beneficiary of productivity gains has been consumers

• Chain-weighted Gross Domestic Product benefits from understated CPI rate
  * Measured price inflation is clearly below the real observed rate for consumers
  * Chain-weighting compounds the positive distortion to GDP
  * Results in overstated GDP, can turn a technical recession into a stall speed

• Absurd adjustments exaggerate income and savings
  * $800 billion annual grant in self-paid rent to & from homeowners
  * $300 billion annual grant in credits for free checking accounts
  * Results in negative savings transformed into a positive figure

• Sampling methods are questionable for jobless rate
  * Anyone working minimal hours is deemed as “employed”
  * No longer counts frustrated workers whose benefits have run out
  * Actually measures the percentage who are receiving jobless benefits
  * Assumptions made on small business creation, and associated new jobs
  * Routinely removed one year later, without acknowledgment

• Result: Life signs of the economy are not a reflection of reality

“Statistical Revisionism and Wizardry” by Michael Hodges (updated June 2002)
http://mwhodges.home.att.net/statistic-wizardry.htm#top

9) Pursuit of Public Adulation by Fed Chairman (Pied Piper)

• Public mandate and adulation triumph over sound independent policy
  * Management of banking system or folk hero? Perhaps bartender?
  * Knighthood dub could mimic Sports Illustrated cover curse
• Now actively endorses shift from stock to bond bubble
  * Tried to kill the 30-yr Treasury Bond, to force long-term rates down
  * Actively urges citizens to refinance homes and perpetuate spending
  * New bubbles in bonds, mortgage finance, and real estate
• Gradual inducement to gamble with entire life savings and pension funds
  * Former governor Angell applauds discouragement from savings, spurring additional risk-taking, in response to Nov2002 rate cut
  * Wreckage of pension funds leads to temptation to take greater risk
• After declaring “Irrational Exuberance”, he yielded to public pressure
  * Easy money policy satisfied citizens, producing asset bubble
• Early year research argued forcefully the benefits of gold-backed dollar
  * Predicted demise of debt-backed currency, verified in recent brief conversation with Congressman Ron Paul
  * Spoke eagerly at chance to override K-Winter breakdown
  + Believes extreme monetary expansion can prevail
     + Continued credit extension fails to cleanse balance sheets
  * Greenspan might act as “Atlas Shrugged” by his hero Ayn Rand
  + Central character resignedly contributed to systemic destruction
• Extremist procedures passed off as economic and banking policy!!!
  * Admits that bubbles are not visible or foreseeable (to him)
• Result: Debt structured against false asset values, colossal losses to investors and pension funds, leaving the entire economy at risk

“The Economic Consequences of Mr. Greenspan” by Antal Fekete (Dec 2001)
www.gold-eagle.com/editorials_01/fekete120701pv.html

“The Worst in History: 1929-30 vs. 1999-2000” by Kurt Richebächer (May 2000)
www.gold-eagle.com/editorials_00/richebacher051000.html

10) Collusion with Corrupt Financial Power Elite

• Economists act as sales agents for bankers, brokerages, politicians
  * Competence “sold out” for shared power, influence, celebrity status
• Promotion role intuitively colludes with press/media, finance, and national leadership toward instilling acceptance, obedience to Ruling Class
  * Fortify the “status quo” in the power structure
• Promotion role mollifies the underclass, justifying a socialist safety net
• Faulty debt-driven system appeals most to the Financial Elite
  * Fiscal & Monetary responsibility would limit access to money
  * Defend heavily invested system of banking and currency
  * The wealthy (not the poor) can borrow large sums of money
• Funding elite speculation in bonds and yield curve carry trade
  * Amplifies monetary inflation by means of geared leverage
• Result: Gulf between rich and poor has widened

11) Deceptive Indoctrination of Economic Definitions

• Redefine important terms and concepts for a debt-based economy
• Apparent full cooperation from the press & media, mute opposition
• Exploits ignorance and illiteracy among the public
• Conscious attempt to abuse “framing” -- psychological technique
• Redefined (framed) terms legitimize the debt-based economy
  * Legal tender, now money
  * Credit access, now wealth
  * Monetary inflation, now Fed liquidity
  * Deflation, now poor pricing power
  * Foreign dependence, now recycled trade gap
  * Indebted currency, now dollar reserve
  * Rising unemployment, now increased productivity
  * general market risk, now volatility
  * Stock investment, now channeled savings
  * Mortgage investment, now hard real estate asset
  * Accounting fraud, now financial engineering
  * Derivatives, now off-loaded risk
  * Cutting interest income, now reducing interest expense
  * REFI consumption bubble, now managing home equity
  * Fiscal bankruptcy, now federal stimulus
  * Slow-motion recession, now jobless recovery
  * Capital hemorrhage, now global trade
  * Herbert Hoover, now Sir Alan Greenspan
• Result:  The public has little fear of rising indebtedness or imminent danger

12) Benign Negligence during Pillage of National Gold Treasure

• Tacit approval as the US Gold treasure was sold in order to subsidize Treasury Bonds during the entire 1990 decadE
  * Both yen carry trade and gold carry trade bolstered US economy
  * Was carry trade a primary impetus behind the previous expansion?
  * Was carry trade a primary thrust behind the dollar strength?
  * Resolution of extensive carry trades now threatens US Dollar
  * US Dollar decline now entering into a vicious circle
• Cooperation enlisted from European Central Bank
  * Washington Agreement represents end to the gold plunder
  * Private bankers and gold miners serve as willing agents
     + Commercial short positions equate to over 3 years production
     + Miner forward sales go beyond economic purposes
• China quietly shows evidence of building Central Bank gold reserves
• Islamic nations embarking on new Gold Dinar currency
• Result: Enduring recession from US Dollar crisis, rising Asian strength

FRIENDS OF THE COURT

The venerable John K. Galbraith stands as the dominant elder statesman for the dismal science of economics. He provides a refreshingly candid perspective toward our nation’s economists. It is not flattering. In his 1975 book entitled Money: Whence it came, Where it Went, he wrote: “The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it.” Of those who practice this craft, he claims…

In the status hierarchy of my profession, the Wall Street economist holds a strangely prominent role. Typically, though not always, he lacks academic standing, analytical achievement, or significant publication. Research is foreign to him; independent thought unknown.

“Incurable Optimists: Wall Street Economists don’t have Recession in their vocabulary”
by Galbraith (December 2001)
www.prospect.org/webfeatures/2001/12/galbraith-j-12-10.html

I offer several friends of the court, beginning with Stephen Roach of Morgan Stanley, and Jim Grant of the Grant Interest Rate Observer periodical. Each is tremendously talented, verified by the visceral and hostile objections, disputes, and animosity they generate from the financial community. I am surprised that Roach’s employment is secure at this Wall Street firm, since his consistently correct views and forecasts over the past three years must have been detrimental to their trading and investment banking business. Grant’s independence renders him a constant thorn in the sides of both Fed Chairmen and presidential Councils of Economic Advisors. Bush’s current Economic Council is perhaps the most inept in decades. Obtaining the work of Jim Grant is much more difficult and expensive. These two economists have no political agenda, little affiliation with corporate interests, and thus are considered maverick outsiders. Some regard them as troublemaker gadflies, if not antagonists, especially Grant. He is harshly critical of Chairman Greenspan. As far back as March 2000, in his monthly publication he criticized claims of either a New Economy or vastly increased productivity. He debunked the “hedonic adjustments” behind government statistical fraud when he wrote…

The reported boom in manufacturing efficiency in the last half of 1999 was the result of not one, but two misapprehensions, relate Medoff and Harless. Not only did the government statistics exaggerate the output of the computer industry over those six Y2K-obsessed months (for reasons having to do with the way in which computer prices are calculated). They also grossly underestimated the number of hours worked to achieve those results. It was this twin error that, in no small part, enlarged the legend of the productivity boom and uncorked the newest bottle of speculative moonshine. Rarely has a botched calculation delighted and enriched so many guileless people.  - Jim Grant (March 2000)

In summer 2002 after the asset bubble disclaimer speech made by Chairman Greenspan at the Jackson Hole Conference, Grant had more to say.

He [Greenspan] was a very poor central bank chairman. He was passive in the face of what will go down as a very destructive bubble… Don’t put too much stock in this bureaucracy called the Fed. When I am asked what I would do if I were the Fed Chairman, my invariable answer is ’Resign.’ - Jim Grant (August 2002)

Although not economists, David Tice of Prudent Bear and Bill Gross of PIMCO, display uncanny skill in analyzing and interpreting many aspects of the economy as it relates to the financial industry (economy, stocks, bonds, currencies). Tice and his partner Doug Noland direct constant urgent warnings about the unprecedented levels of debt obligations weighing down our entire economy. They provide a regular flurry of debt data that is frightening. Gross and his partner Paul McCulley are simply brilliant and thorough, unequivocally willing to label many standing policies as bungling. They ably identify the dangers of the current bond bubbles, and their architect, Chairman Greenspan. John Mauldin of Millennium Wave produces an altruistic weekly letter with great depth and strong analysis. But he tends to be very conventionally positioned, conservatively aligned, careful not to insult or go counter to the establishment.

Besides the aforementioned, I have not observed many prominent economists with a track record rivaling theirs. Several show solid capability, such as Krugman of The New York Times, Wyss of Standard & Poor, Sohn of Wells Fargo, and Kasriel of Northern Trust. Even these bright economists are beset by mental impediments, a certain servitude to the debt gods, and loyalty to the debt-based foundation to our system. Krugman remained far too loyal to Greenspan, expressing faith into the new decade that the Fed could repair the damage with easier monetary policy. In autumn 2001, I wrote him a letter to the editor questioning that fidelity, only to have it fall on deaf ears. Wyss claims to observe an economic recovery without job growth, unable to discern the contradiction. The steady Kasriel has been critical of Humphrey Hawkins testimony before Congress, where discussions regularly pertain to everything but monetary policy. He places much responsibility for creating the stock bubble at the Fed’s doorstep.

The Fed is a price fixer; it fixes the price of short-term credit. If there is an increase in demand for credit, interest rates want to rise. But because the Fed is fixing the price of credit to keep rates from rising, it has to create more reserves or allow banks to create more money, and that is what leads to bubbles.  - Paul Kasriel (Aug 2002)

Various brokerage economists like Bernstein and Sullivan offer sound opinions, but in time their optimistic outlook dissolves to make visible clear vested interest. They each have consistently pointed out threats to the nascent recovery, in fairness. It must be tough working for Wall Street. A brokerage house economist who remains negative about the economic recovery might be selling computer hardware at retail outlets in the next quarter.

I hold Roach in ultimate high regard for independence, competence, and integrity. A sample of Roach’s work follows. His November 2002 essay offers a critique of the climax 50-bpt Fed rate cut last autumn, hardly the stuff to earn a thank you note from anyone but an investor. His more recent essays point out the weakness and clear risk to this recovery, identify the poor quality of its fundamentals, if it is indeed a recovery at all.

And yet the Fed is trying to persuade us that it has now done enough to arrest this deflationary dynamic. Of course, that is the same argument that has been made repeatedly since this monetary easing cycle began now some 525 bpt ago back in early 2001. The place where I always get stuck in this argument is on the issue of traction -- which sectors of the US economy can now be expected to respond to the Fed’s monetary stimulus. There are three obvious candidates -- the interest-rate-sensitive sectors of consumer durables, homebuilding activity, and business capital spending. In my opinion, the response of each of these sectors to Fed easing is likely to prove most disappointing. Here’s why.

Normally, at this stage in a business cycle, there is a good deal of pent-up demand for items like cars and homes; as such, lower interest rates typically are quite effective in unleashing that demand and spurring vigorous recovery. That’s unlikely to be the case in the current cycle. Demand in these two sectors never fell in the recession of 2001 and they have remained resilient in the subsequent recovery. That means there is no pent-up demand that can now be unleashed by Fed easing. Just ask Detroit, where car buyers are now suffering from zero-interest-rate fatigue. The same is true of capital spending -- a sector that remains constrained by the twin pressures of the capacity overhang of the late 1990s and the ongoing imperatives of corporate cost cutting. In a deflationary climate, why would businesses compound their lack of pricing leverage by adding to aggregate supply? Fed easing is unlikely to change the capex calculus in the current climate.

Archive of Stephen Roach Editorials
www.morganstanley.com/GEFdata/digests/digests.html

A maverick with keen insight is Jim Puplava of Financial Sense Online. Like Mauldin, he is a fund manager. By the spring of 2001, Puplava outlined in prescient detail a pathogenesis of the Perfect Storm Scenario. He carefully notes how debt collapse keeps the liquidation process continuing, thus more depleted pricing power and pockets of deflation. He stresses how low rates slow the economy, only to threaten debt service further. He carefully warns that government regulation and environmental obstacles inhibit commodity supply of necessities, which are tied less to debts typically. Derivatives hold down material prices artificially, through leveraged gearing, all within a cash system. As the overvalued US Dollar adjusts downward in correction, momentum should gain as jetstream FOREX winds collide with these massive fronts identified by the low-pressure product zone and the high-pressure commodity zone. The result could produce a rare Perfect Storm. We are well along the carefully described ominous frightening path. Eventually, bonds and the US Dollar will head downhill together in unison, in departure from the current pattern.

Puplava’s periodic updates are fortified with arguments and stern warnings, as the storm slowly develops and feeds upon itself. He maintains that government intervention actions, although implored by the public and politicians, only serve to increase the intensity of the low-high pressure storm gradient, and to delay the inevitable storm. The primary beneficiary of the storm will be commodities in short supply, given the huge inventory overhang and crushing debt load inherent to the finished product arena. Gov't response will be more liquidity, the widely perceived panacea. As newly extended credit (margin money) seeks the best investment opportunity, commodities will offer the most viable “path of least resistance.”

Puplava Perfect Storm Series
www.financialsense.com/series2/perspectives2.html

Storm Series Update Archive
www.financialsense.com/stormwatch/oldupdates/main.html

I would be remiss if not to mention Ravi Batra, an Economics professor from Southern Methodist University in Texas. Years ago his extraordinary predictions foresaw the fall of the Shah of Iran and the advent of their ruling clergy, the collapse of the Soviet Union, and the gradual demise of the US Dollar from its position of supremacy. He forecasts continued deflationary stress for the US economy, leading potentially to a inflationary depression as our currency undergoes a crisis in devaluation at a time when debts suffer writedowns in default. His work is founded upon the premise that in the United States, spending levels chronically outpace income growth. Each passing month sees consumer spending outstrip personal income, funded by debt, but raises few alarms. On a worldwide basis, he maintains that production has vastly outpaced income growth. The result is a crescendo of excess capacity rolling out excess supply, enabled by plentiful credit, seen now! Ensuing balance sheet repair leads to recession on the world stage, which can easily cause a depression as our overvalued world currency, the US Dollar, must face a steep correction. Our omnipresent debt levels are just too great. By default, since gold does not formally undergird it, and its collateral continues to be depleted, enormous debt implicitly backs the US Dollar currency. The US Dollar has essentially morphed into a junk bond. Conditions lead us on the path to rising prices and rising interest rates, even as the world economy falters.

Crash of the Millennium, by Ravi Batra, Harmony Books 1999

CLOSING REMARKS

Economists have failed in a magnificent, grand, and truly frightening manner. I mince no words. No topic or concept rings more loudly as “inflation” for its twisted policy and even more twisted understanding, owing in part to the propaganda for public acceptance of a twisted definition. The irony derives from inflation’s role in destroying the financial and monetary system. I sometimes think that economists believe that laws of gravity could be repealed if only they could blow enough of their arrogant hot air under objects containing mass. Their interpretations and dealings with “deflation” should offer a true parallel in twisted thought and policy. In fact, it is already well along, as Chairman Greenspan has duped the nation into believing that the price deflation aftermath stemming from decades of unchecked monetary inflation requires yet more ballooning inflation. The bond market has revolted, and the mortgage finance sector is vulnerable. Soon, mortgage finance companies will drop like flies, and the Gov't Sponsored Enterprises like Fanny Mae and Freddy Mac will face annihilation.

“Inflation” is defined as an expansion of the monetary base, i.e. the supply of money from either the authorized printing of dollars or the bank extension of credit, PERIOD. Economists cannot define it. They cannot measure it. They don’t know how to fight it. They are unaware of the price our economy pays in overcoming it, in the manner they perceive it. How are rock-bottom interest rates and evermore Fed liquidity (aka monetary inflation) supposed to cure an economy suffering from over-expansion, excess capacity, over-production, and extreme indebtedness arising from excessive extension of credit??? Try giving Jack Daniels to a drunk in detox! Try giving a nuclear reactor core field trip to a cancer victim! Nowhere is American illiteracy more dangerous now, than to allow the Fed to continue on this disastrous course.

Ned Schmidt cites a better price inflation measure in the Median CPI, developed by the Cleveland Fed, where the best of federal statisticians are located. The Median CPI tends to behave more stably, with fewer false moves, and more reliable measurements. Steve Saville offers the ECRI’s Future Inflation Gauge, which portends short-term interest rates. It acts like a leading indicator for the Fed Funds Rate. No, the Naive CPI represents a governmental attempt to minimize COLA (cost of living adjustments) to federal pensions, and to suppress reported price inflation. It ignores costs of property tax, town/city usage fees, insurance, college tuition, and much more. A lower improperly stated CPI also allows for exaggeration of the chain-weighted gross domestic product figure, compounding the error into an over-stated GDP calculation.

Economists prefer to define inflation in terms of what “real inflation” causes, i.e. price increases. Like calling a broken jaw “a roundhouse punch”, or calling a broken back “a ladder fall”, or calling a car crash “a wreckless driving.” If you inflate, you plant the seeds of eventual price rises. We have suffered such pervasive chronic abuse of the monetary inflation mechanism, that the risk might materialize for witnessing both a deep recession and price inflation. The recession could come from widespread liquidation (of debts and inventories) with consequent lost jobs. The price inflation could come from futile continued monetary expansion while battling reduction in money supply and suffering deflation in multiple sectors. Current imbalances have never been this great in modern recorded history, and they are getting worse with each passing year. The Fed may soon find itself stuck in a Japan-like Liquidity Trap, where continued money printing is useless in treating debt-ridden balance sheets. At the same time, Argentine-like shock waves could easily occur, as foreign capital flight inevitably takes place. Such is the cage where economist ineptitude is laid bare for all to see.

I will close this long indictment with a contrast of the absurd against the wise, Milton Friedman from the Keynesian School versus Ludwig von Mises from the Austrian School. Frank Shostak of Man Financial is a harsh critic of the clowns who are mismanaging our economy. He is deep, and speaks with very stern tone. He contrasts these two men’s opinions. Friedman lectures that if price inflation is anticipated, then it can be averted by an offsetting infusion of monetary injections. This alchemist somehow believes matter can be neutralized by anti-matter? Unexpected price inflation, he claims, leads to a misallocation of resources and thus weakens the economy. I believe he confuses the effects of monetary inflation with shortage. He regards money supply as a tool that can stabilize price rises, and thereby promote real economic growth. Wow! So wealth can be printed, even produced as electronic entries on computers, but also supply and demand can be regulated by the same mechanism? Now that is productivity! Perhaps Friedman advocates prudent use of Jack Daniels whisky at alcoholism rehabilitation facilities? What incredible insanity, accepted as qualification for face time with the presidential economic council of advisors!!!

Shostak quotes Murray Rothbard from his famous book America’s Great Depression when he wrote, “The fact that general prices were more or less stable during the 1920’s told most economists that there was no inflationary threat, and therefore the events of the Great Depression caught them completely unaware.” Shostak goes on to say the inflation issue should be viewed in simpler terms. When more money circulates to chase a given level of goods and services, prices will rise. When credit is extended to create inflated asset prices, prices will eventually fall after the process goes too far, and develops downhill momentum founded upon profit taking. Prices more widely will fall when the asset arena price decline joins forces with debt default and product liquidation. So abuse and careless monetary growth can lead to BOTH inflation and deflation!!!

Von Mises explains the futility of the Federal Reserve’s mandate in his essay “Inflation: An Unworkable Fiscal Policy.”

Inflation, as this term was always used everywhere and especially in this country, means increasing the quantity of money and bank notes in circulation and the quantity of bank deposits subject to check. But people today use the term ‘inflation’ to refer to the phenomenon that is an inevitable consequence of inflation, that is the tendency of all prices and wage rates to rise. The result of this deplorable confusion is that there is no term left to signify the cause of this rise in prices and wages. There is no longer any word available to signify the phenomenon that has been, up to now, called inflation. . . . As you cannot talk about something that has no name, you cannot fight it. Those who pretend to fight inflation are in fact only fighting what is the inevitable consequence of inflation, rising prices. Their ventures are doomed to failure because they do not attack the root of the evil. They try to keep prices low while firmly committed to a policy of increasing the quantity of money that must necessarily make them soar. As long as this terminological confusion is not entirely wiped out, there cannot be any question of stopping inflation. - Ludwig von Mises

“Defining Inflation” by Frank Shostak (March 2002)
www.gold-eagle.com/editorials_02/shostak031202.html

“Housing Bust: Median CPI versus Naïve CPI” by Ned Schmidt (Aug 2002)
www.321gold.com/editorials/schmidt/schmidt080202.html

“The Inflation Problem: Future Inflation Gauge” by Steve Saville (Sept 2002)
www.321gold.com/editorials/saville/saville092002.html

Consider the alternative and controversial Austrian School of Economics, dismissed by the great majority as impractical and infeasible despite its simplicity. Their primary tenets constitute central bank management of a currency backed by hard assets such as gold, and strict limitations placed upon fractional banking lending practices. Obviously, our swelling socialist structures, and freedoms to extend credit (even when unwise) collide with such tenets. The von Mises community serves as principal advocate for the Austrian School of Economics, with Kurt Richebächer their chief living spokesman. How many graduates in advanced Economics programs claim allegiance, let alone awareness, to this School of thought? Probably a small minority, despite its excellent track record in alerting imminent danger and warning of developed crises. Our economic and political systems do not want to hear alerts and warnings!!!

“What is Austrian Economics?” (November 2002)
www.mises.org/austrian.asp

Former Fed Chairman Paul Volcker once said that it was the job of the Central Bankers worldwide to prove von Mises and Richebächer wrong. They have not done so. He warned: “The truly unique power of a central bank, after all, is the power to create money, and ultimately the power to create is the power to destroy.” Economists failed to warn the coming of the Great Depression and its destruction. They failed again to prevent or warn the coming of the current economic malaise in the wake of the Great 2000 Stock Bust, whose outcome remains unwritten and still uncertain, but whose destruction is unmistakable. Now we find two-thirds of sectors suffering months of price deflation, despite the denial of economists. As they next wage battle against deflation, their incompetence, deception, and collusion will be seen from the opposite side of the pricing bench. Economists cannot define “deflation.”  They don’t know where it came from. They don’t know how to fight it. In this environment, their prescribed low interest rates are slowing the economy, not stimulating it. Demand for money is weak, as 25% of our nation’s mfg capacity lies idle. Twice as much interest income is received, compared to interest cost paid out. So lower rates beget even lower rates. Their new weapon against deflation has been billed as “monetization.” They unwittingly are setting out to feed the low-high pressure storm gradient described by Puplava. They will purchase federal debt, agency debt, major bank debt, S&P stock index futures, especially bank index stock share blocks, all with dollars created from thin air, adding to dollar supply. The resulting effect on the currency markets is exactly what is required to accelerate the Perfect Storm.

Dissenters today are mere pilgrims in an unholy land.
The cabal of economists is fast becoming recognized as an EDEN OF FOOLS.

© 2003 Jim Willie CB
August 21, 2003

PERSONAL ASIDE: It is my sincere curiosity how many readers are willing to make the commitment to pay a nominal $8-10 per month charge for regularly timed clarification on economic matters, to debunk conventional claims, and to provide guidance through the minefields in today’s confusing financial world. In my mind, the value would far exceed daytime efforts within even the most productive marketing research. By night I work to uncover the financial chicanery and travesty in progress, a larger endeavor to be sure, with far greater implications to the world. Something very ugly this way comes, on the tail end of the dissipating bond market bubble and real estate decline that has begun. The long treacherous ride ahead requires a guide. Hmmm.

Professional crossroads lie ahead in my life. For months now, my efforts along the economy, gold and currency front have been given away. I am excited by the prospect of performing a labor of love, as well as receiving compensation. New opportunities must be explored as life’s challenges dictate change and open new doorways. An informal survey would be helpful in gauging interest in an investment letter. If interested in a monthly paid subscription to a newsletter with primary focus on the economy, with direct implications on currencies, gold, and international finance, let me know. Near-term and long-term precious metals investing would be the focus. If you wish, please shoot a quick email to me: Email

Jim Willie's archived editorials at FSU

Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a Ph.D. in Statistics. His career has stretched over 22 years. He aspires to one day join the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at www.GoldenJackass.com.

Home  l  Broadcast  l  WrapUp  l  Storm Watch  l  Editorial Archives  l  About Us  l  Contact Us