Monday, September 23, 2013

Can’t? ... Then Don’t!

Watching the economy trend through the last few years has been sort of like watching grass grow except that the ground is more like a dirty sand box and the grass is just some phony Astroturf being slowly pushed up through by a balding academic with a penchant for Keynesian economic claptrap.

What you are witnessing is a "recovery" of sorts but not in the typical sense as the majority of activity is being engineered in one way or another by Fed policy and fiscal stimulus.

This is no creepy conspiracy theory either; it’s totally overt and sanctioned by Keynesian policy junkies, academics and statist alike.

If you fail to truly understand this fact, just go through a simple mental exercise of accounting for the $85 billion in bonds and mortgage securities purchased by the Fed each month.

Does a healthy and "real" economy need its central bank to gift its treasury to the tune of $40 billion a month?

Should a market as vast and supposedly robust as the US residential property market require a central bank injection of $45 billion in mortgage fuel every month just to keep everything moving along?

Is it normal that even just the slightest suggestion that this absurd scheme be "tapered" should cause an immediate loss of confidence in the business community, an abrupt and sustained jump in long rates, and a quick back peddling maneuver by the Fed?

Obviously, the answer to all of these questions is unequivocally "NO", but we don’t even ask these questions anymore… it has been too long… we don’t anymore quake at the thought of these unfortunate circumstances because we have generally become dulled to the insanity of it all.

What’s a few trillion dollars here or there?

But the fact remains, and simple logic should suffice here, you can't simply buy your way out of massive economic crisis by flooding the system with phony money and false confidence.

But rather than beating that dead horse any further, let’s consider a simple principle that we should all be able to agree on.

"If something can’t be done, it shouldn't be done."

This principle seems so stupidly simple as to not even be a principle at all… it almost appears to just restate the same concept twice… but not quite.

Let’s take the idea of jumping over a 30 foot wide ravine filled with molten lava.

You stand there at the edge at first just looking at the wide span and thinking "I might just leap across it!" But something stops you… you can’t do it… no one could as it is simply too far across.

So, you don’t even try since you know ahead of time that there is no way to accomplish the task and that even the best attempt would leave you wishing you had stayed put.

The same rule applies for macroeconomic engineering.

Does anyone truly believe that the Feds can effectively solve real "problems" like stamping out poverty, insuring millions of the unprepared and under-prepared against the "vicissitudes of life", making essential goods and services supposedly "free" or rescuing tens of millions of individuals from their hundreds of millions of bad financial decisions?

The Feds couldn't engineer a "real" recovery, so they shouldn't have even tried but now that we are off the ledge and out over the lava, the more important question is… What’s next?