Posted tagged ‘Price Discovery’

Some Econ. Homework

June 22, 2016

The Fed Has Whiffed Again: Massive Monetary Stimulus Has Not Helped Labor, by David Stockman, at The Feds injection of 4 Trillion electronically printed dollars into the economy hasn’t produced a return worth that kind of “investment”. Fewer workers working fewer hours means less is being produced. Just because you print money doesn’t mean goods and services are being produced. It only means goods and services are being demanded by using money not backed by any production. Say’s law is being shown to be true.

“Say’s Law can be explained in the following terms:”

1) “The way that a buyer demands a good is by supplying a different good.”

2) “The supply of one type of good constitutes the demand for other, different goods.”

3) “The source of demand is production, not money. Money is only a temporary parking place for past production.”

“In the modern economy with division of labor, most of us demand goods when we supply our labor. I work as a software engineer. I supply my labor writing computer software. And from that supply I am able to demand other goods, such as coffee.”

Pity The Poor Central Bankers: Playing Masters Of The Universe Is No Longer Fun, by Charles Hugh Smith, at Here is an excerpt from the article: “Central Banks can create free money for financiers, but they can’t move the needle of the real economy, except to distort and cripple it with perverse incentives to gamble borrowed money on malinvestments and skimming operations…….as former Master of the Universe Ben Bernanke noted: “higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending (that) will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.”

I guess former Master of the Universe Ben Bernanke has never read Say’s Law: “The Source of demand is production, not money. Money is only a temporary parking place for past production.

Printing money distorts the pricing system. Market discovery of prices (not Fed manipulated prices) is how information about how much to produce and consume is transmitted to producers and consumers in a free market. The interest rate is the most important of these discoveries, because interest rates coordinates production across time. We live in a world where resources and capital have misallocated for the last decade plus. The cure is to quit printing money and allow the market to set interest rates. What are the odds?

The Fed Pours Water On The Job-Growth Hype, by Ryan McMaken, at The administration and the media has been telling us how good the economy has been doing. I guess the Fed hasn’t received the memo. The Fed would normally raise interest rates if the economy is doing well because it would be afraid of it overheating.  The Fed will adjust its monetary policy to weather they think the economy is too hot, or too cold, or just right. The fact that the Fed has raised the interest rate once by a 1/4 point since they lowered it to near zero in 2008 tells us everything about what the Fed thinks of the economy. So where has most of the $4 trillion in printed money ended up? If you say in the financial markets to prop up asset prices, in order to help banks, go to the head of the class. Do you think these false stock prices can stay afloat without more printed money???

Central Banks Are Wrong About Inflation and Deflation, by Frank Shostak, at Let’s go to Murray Rothbard writing in Man Economy And State for the definition of inflation and deflation.

ROTHBARD: “The process of issuing money beyond any increase in the stock of specie, may be called inflation. A contraction in the money supply outstanding over any period, (aside from a possible net decrease in specie) may be called deflation. Clearly, inflation is the primary event and the primary purpose of monetary intervention. There can be no deflation without an inflation having occurred in some previous period of time.

Movements in the  supply-of-goods and in the demand-for-money schedules are all the results of voluntary changes of preferences on the market. The same is true for increases in the supply of gold or silver. But increases in fiduciary or fiat media (printed money) are acts of fraudulent intervention in the market, distorting voluntary preferences and voluntarily determined pattern of income and wealth. Therefore, the most expedient definition of inflation is one we have set forth above: an increase in the supply of money beyond any increase in specie.”

The absurdity of the various governmental programs for “fighting inflation” now becomes evident. Most people believe that government officials must constantly pace the ramparts, armed with a huge variety of “control” programs designed to combat the inflation enemy. Yet all that is really necessary is the government and the banks (nowadays controlled almost completely by the government) cease inflating. The absurdity of the term “inflationary pressure” also becomes clear. either the government and banks are inflating or they are not; there is no such thing as “inflationary pressure”.


Let’s not be fooled by the “Masters of the Universe’ when it comes to monetary policy and interest rates. With a little bit of reading on the topic, you could come up with the policy for fixing our economic problems. That policy would be to quit electronically printing counterfeit money and allow the market to set the interest rates. The solution is very simple but it is not easy. Why?  Because of the Fed’s previous inflationary policy, the resulting recession that would occur when we implement the cure would be politically difficult for politicians and the Fed to let happen. They have been trying to keep the correction from happening since 08, but at some point economic reality will correct all the Feds previous money printing, and it won’t be pretty.

Why Has Classical Capitalism Devolved Into Crony-Capitalism, by Charles Hugh Smith

September 16, 2014

In this article, Why Has Classical Capitalism Devolved Into Crony-Capitalism, Charles Hugh Smith, ( makes the point that the Elites, consisting of ; people in Government and central bankers, lesser institutions that are closest in orbit around Government and central banks, and organizations and individuals who are orbiting these lesser institutions, think the economy will eventually “heal itself” even after all they have stolen through zero percent interest rates, electronically printed counterfeit money, and Government debt. These three legs of theft are, quoting CHS, “crippling the market’s self-healing immune system: Price discovery. Thanks to ceaseless interventions by central banks, the price discovery mechanism has been shattered: want to know the price of risk? It’s near-zero. Yield on sovereign bonds? Near-zero. And so on. Prices have been so distorted (the ultimate goal of Central Planning everywhere, from China to the EU to Japan to the U.S.) that the illusion of stability is impossible without more intervention.”

Here are his six factors of how, “ market capitalism becomes state-cartel crony-capitalism, a Ponzi scheme of epic proportion...”

1. “Those who control most of the wealth are willing to risk systemic collapse to retain their privileges and wealth. Due to humanity’s virtuosity with rationalization, those at the top always find ways to justify policies that maintain their dominance and downplay the distortions the policies generate. This as true in China as it is in the U.S.”

2. “Short-term thinking: if we fudge the numbers, lower interest rates, etc. today, we (politicians, policy-makers, money managers, etc.) will avoid being sacked tomorrow. The longer term consequences of these politically expedient policies are ignored.”

3. “Legitimate capital accumulation has become more difficult and risky than buying political favors. Global competition and the exhaustion of developed-world consumers has made it difficult to reap outsized profits from legitimate enterprise. In terms of return-on-investment (ROI), buying political favors is far lower risk and generates much higher returns than expanding production or risking investment in R&D.”

4. “The centralization of state/central bank power has increased the leverage of political contributions/lobbying. The greater the concentration of power, the more attractive it is to sociopaths and those seeking to buy state subsidies, sweetheart contracts, protection from competition, etc.”

5. “Any legitimate reform will require dismantling crony-capitalist/state-cartel arrangements. Since that would hurt those at the top of the wealth/power pyramid, reform is politically impossible.”

6. “Understood in this light, it’s clear that central bank monetary policy—zero-interest rates, asset purchases, cheap credit to banks and financiers, QE, etc.—is designed to paper over the structural problems that require real reform.”



If you want to hear an interesting and in-depth explanation about the rise of crony capitalism, listening to Charles Hugh Smith’s interview with Gordon T. Long would be well worth your time ( it also has some great graphs and diagrams).

Related ArticleCentral Bank Monetary Policy Enables Us To Put Off Real Reforms, by Charles Hugh Smith, at

Related ArticleIs There Capitalism After Cronyism?, by Charles Hugh Smith, at