Monday, April 13, 2020

Economic Dr. Mengele

The stupidity, callousness, and corruption just doesn’t quit.  This is a follow-up to an earlier John Mauldin column, where I asked the question Who Will Count the Cost?  Mauldin has continued to write about how wonderful it is that the economy is being destroyed in order to fight the corona; his latest: Bending the Inflation Curve. 

I will get a couple of simple points out of the way – points where Mauldin is wrong, but not points worth spending further time on: Mauldin confuses deflation with depression; Mauldin confuses consumer price and asset price increases with inflation. 

Further, I won’t spend any time on the countless trillions being spent by the Federal government, or created from the Fed (to include the leverage on top of that).  I can’t keep up with the numbers.  Mauldin calls it $8 trillion thus far, and counting.  Good enough for me.

So, why do I read Mauldin?  I find him to be a good gauge for what those who make meaningful financial and economic decisions are up to.  Nothing more.

Before starting with Mauldin, it is worth taking a look at an analysis done at The Market Ticker: Stop IT NOW Fraudsters.  (it is from this post where I got the idea for the title of my post.) 

It is not a long read; I will summarize: every projection model of this corona was wrong, wrong to the high side, and wrong by a factor ranging from two to twenty-five times.  Not 25%...twenty-five times.  And these errors were as compared to the lower boundary of the projections – not the mid-point, not the high end.

And before you say “thank God they put the house-arrest measures in place, see how well these worked!”, it is noted – by those who ran the models: COVID-19 projections assuming full social distancing through May 2020.

And this says nothing of the gross manipulation of the “data” (and I use that term in the loosest sense imaginable) of the number of people diagnosed with and claimed to have died due to the corona).

Now, on to Mauldin:

But thankfully, we are starting to see the curves bend. (emphasis in original)

Well, we are certainly seeing them bend in the national deficit, the unemployment numbers, the Fed’s balance sheet.  These are certainly bending.  Mauldin recognizes this.

Nevertheless, much of the economic damage is already done.

Well, you can’t cry over spilt milk.  Nevertheless, no, much of the economic damage is not already done.

Close to 17 million people have filed for unemployment in the last 3 weeks.

Mauldin sees that the number will grow much higher:

That potential 20–25% of unemployed also represents significant numbers of children and family members who are also without money.

What of the damage done here?  Out of these countless millions of unemployed, how many will ever find similar employment in the future?  After a few years out of the labor market, who will want to hire them?  Many of these are young people: in restaurants, hotels, retail, etc.  This purposefully-driven economic destruction will cost them for the rest of their lives.

Mauldin, without a blink, cites Fed Chairman Powell, who says “Our ability is limited by the law.”  Don’t you take great comfort in that?  Well, wait…what limits the law?

The Fed needs the Treasury Secretary's permission to do this.  That means Trump must approve this….

Not that I would feel any better if it had to get through Congress.  In any case, one wonders why Mauldin even bothered saying anything about “the law,” when he further writes:

This program did not appear overnight. It took days, if not weeks, to figure out how to contort the laws in order to do this.

What is the point of law if there is no point to law?

Lacy Hunt told me in an email and then telephone call that this last $2.2 trillion is not money printing. They are simply buying already existing bonds, not unlike QE in the past when the Federal Reserve bought US government bonds.

I guess Lacy Hunt belongs in the same turnip truck with Mauldin.  “Well, buying US government bonds is money printing, but buying other bonds is not money printing.”  And it is irrelevant whether the Fed buys existing bonds or bonds purchased directly from the issuer.  It is truly irrelevant.

This is not like Venezuela, Argentina, or Zimbabwe. Not even close.

This is the truest thing Mauldin has ever written.  He is right: it isn’t close.  None of these countries ever had the ability to come up with $8 trillion in a matter of a couple of weeks.

Now, why does Mauldin believe inflation (price inflation) is not on the horizon? Well, this is the good news: because we will soon have 20% or greater unemployment, demand has fallen through the floor!  This is brilliant. 

We (meaning those like Mauldin and his buddies) will get to see our asset prices increase without having to suffer through a higher cost for gasoline because no one else is working and won’t be driving anywhere.  And this is precisely the deal they wanted: create a fake crisis (the corona) as a pretext to keep the game going longer.  If is costs us throwing a few bones ($1200) to the masses, so be it.


Speaking of unemployment, you will recall the tragedy of Mauldin’s daughter – lost both jobs just after her husband went to return to school; thereafter she had a stroke.  Well, we get an update:

My daughter Amanda (who is recovering well from her stroke, thank you!) had a $71,000 hospital bill. I did not realize they did not have insurance when her husband left to go to pilot school. The hospital “renegotiated” the bill down to $56,000, and wants them to make $5,000-a-month payments. They are both now unemployed with two children.

I wonder how Amanda feels reading her dad’s missives?  “Amanda, your situation is worth it, for the greater good.”  That sounds lovely.  We can certainly feel sorry for, and pray for, Amanda.  God save her any further pain resulting from her father’s advice.


  1. This from Dean Baker:

    "While the deficits and resulting debt are typically presented as a generational burden, the opposite is often the case. How have we made our children better off if we put their parents out of work? There is also the issue that larger deficits can be used to support investments, such as education and child care, infrastructure, and research and development into clean energy and other areas.

    We hand down a whole economy and society, as well as the natural environment, to future generations. If we want to talk about generational equity, we have to look at that full picture, because the national debt tells us basically nothing."

    1. “…because the national debt tells us basically nothing.”

      It tells us many things. It tells us something about the level of corruption in a society; it tells us something about the lack of concern for the future, as it indicates that spending and consuming is good and saving and investment is bad; it tells us that our time preference is conducive to waste.

      No society thrived by continuously spending more than was earned – meaning consuming more than was produced. Such societies are doomed, not only from financial rot, but from moral rot.

      Other than this, I agree – the national debt tells us basically nothing.

    2. Ahmed, I will add...based on your comments here the last few days, you really have to improve the quality of economic commentators that you read.

    3. " If we want to talk about generational equity, we have to look at that full picture"

      So what Dean is saying is that instead of saving money that I can hand down to my children by way of a traditional inheritance, I should instead buy my dream home today with all the amenities I like and exactly where I want to live, by going into extreme debt (multiples of my personal GDP), and then somehow saddle my kids with the debt when I die.

      They might be starting out life with crushing debt because of choices that were made without their consent, but hey, at least they'll have my dream house, as long as they can pay the continually increasing property taxes and make the minimum payments every month.

      I'm smugly satisfied with this analogy, but in real life the situation is much worse. What do we have to show for the 25(?) trillion (not including unfunded liabilities) the US government has spent in our names? Failed wars and massive retrogressive entitlement programs? At least my children would have the house, for a few months anyway.

  2. "This is the truest thing Mauldin has ever written. He is right: it isn’t close. None of these countries ever had the ability to come up with $8 trillion in a matter of a couple of weeks."

    I honestly don't know what it would take for the US dollar's devaluation to go hyperbolic. It seems that in every crisis of the last 40 years, demand for the dollar has only increased, no matter how big the Fed's balance sheet gets.

    I think this must be a result of all the debt denominated in dollars that people and governments owe all over the world. Also it probably has much more to do with the people who typically get the new money from the Fed first and how they spend it. The money gets funneled into investments and savings accounts (yes they're different Ahmed!), not into the price of bread or milk. That comes way later and at a much slower pace.

    I also think price inflation is shielded from the effects of the new money because of how phony the economy has become. All the new money just flows into asset prices and stays locked in.

    The stock market has become the market. In the not too distant future, everyone will just be day traders, and we'll all be dutifully buying the latest ETFs that the Fed is purchasing, so that our 'wealth' keeps pace with everyone else's, while we do and produce nothing.

    Obviously it could never get to that point without reality kicking us all hard in the groin (from the backside), but it does make you wonder how far the economy can lean toward the Utopian ideal of everyone riding the FED-500 and the FED Industrial Average ever upwards and collecting their 'living wage' unemployment checks from the government.

    1. "I also think price inflation is shielded from the effects of the new money because of how phony the economy has become."

      I will add, in the age of no restraint (since the closing of the gold window in 1971), the US has outsourced production to low cost countries - first Mexico, then China.

      Had the currency not been inflated, we would have seen prices fall tremendously. IN the meantime, the wealthy have seen their asset values skyrocket.

      So: I lose my middle class manufacturing job to Mexico / China, and all I have to show for it is...Wal-Mart.

      Eternal Consumption Engine
      Every time I get a little bit bored
      Eternal Consumption Engine
      Head to the Wally-Mart store
      Eternal Consumption Engine
      Livin' high on the greasy hog
      Eternal Consumption Engine
      As long as they don't deport my job
      Eternal Consumption Engine
      Cause Everything's is made in China
      Eternal Consumption Engine
      Everything nowadays is made in China

      Eternal Consumption Engine, Primus