Category Archives: Bond Markets

Econ – noise …

White Dog

Harry Truman was reported to demand, “Give me a one-handed economist! All my economists say, On the one hand … on the other.” There were plenty of economic troubles to annoy Truman during his term in office. There was an expansionist USSR,  a ruined post- WWII Europe and Japan, a civil war in China and a disintegrated British empire. The Great Depression had been ‘won’ by the commercial monopolists while American post- depressionary prosperity was still in abeyance. Truman sought advice and it was always, “On one hand … on the other …”

It’s easy to understand Truman’s frustration. As president, he had access – theoretically – to the best and brightest the profession had to offer. Nobody could give him straight answers. Economics is complicated. Modernity adds its own level of illusions, contradictions and paradoxes. What Truman got instead of answers was babbelicious: ‘econ- noise‘.

It is far worse now. The world is inundated with econ- noise. The tactic is for the media to exhaust its customers with conflicting nonsense that nobody can figure out. While confusion reigns the lairdly finance ‘Masters of the Universe’ can run off with whatever isn’t nailed down. For the well- intentioned, the outcome is a haze of misinformation.

How QE is treated by the media is the perfect example. Most of what is blogged or written or TVed about it is econ- noise. To find the truth about QE one must simply look out the window and ask a question. What is out there than can be changed in any material way by a bank using a stream of emails to ‘buy’ another stream of emails from another bank?

Most econ- noise reflects activity that is disconnected from the real world. Econ- noise moves markets or market movements are blamed on it. That’s about it. It fills up the space between advertisements in the media, that is, the ads that have a subject matter incrementally different from what the noise itself is pimping.

Econ- noise either is or forms the backdrop for ‘Shill- speak’. The first issue to keep in mind is whether the noise- emitter has a ‘book’ to ‘talk’. QE is a sales’ pitch for money. All banks sell money, that’s what the Federal Reserve and other central banks are selling. The Fed  has to sell money, if it cannot sell money it has no relevance. If the ‘Brand X’ commercial and investment banks cannot sell money they go out of business. If the Fed cannot find customers it is reduced to being a platform for arm- waving stooges:

Since the Fed cannot convince the hoi- polloi to buy its product it has to sell to the government. This is a shell game since the government is broke and can only pay for the ‘new’ money with identical money it bought from the bank earlier. Confusion is the real purpose behind quantitative easing. It makes no sense for a bank to lend to an entity so that entity can turn around and buy more of the same money. That is what QE is, a shifting of electronic ‘paper’ from the left pants pocket to the right pants pocket … or, from one email account to another. The only way such a silly act can have an effect is if the central banks can trick the rest of the country to follow the lead of the government and buy some money from a bank.

Since the markets are manipulated and the major players are shills for the central banks the markets ‘react’ in ways to sell the QE story. Stocks, commodities, gold and bonds go ‘up’ before any new money hits the street. A place to see the sham in action is the junk bond ‘market’ where the riskiest debt is priced at a level where blue- chip companies would be in a more realistic interest rate environment. Why? There is no really good answer but a lot of background econ- noise.

QE is a bit like Schrödinger’s cat – dead and alive simultaneously.. It cannot change anything because its putative customers are broke and those who aren’t realize if they buy into the scam they soon will be. Meanwhile, the same markets the central banks act to manipulate continue to reprice inputs necessary for modernity to a level more appropriate to their real worth. As a consequence the ‘resource waste’ economy is slowly bankrupting itself from the bottom up.

… until the markets decide to reprice ‘risk’ itself and the bankruptcy becomes universal.

Another furor surrounds the foreclosure ‘awkwardness’ that appears to engulf big banks. Some of the analysis such as from Bill McBride @ Calculated Risk and Yves Smith makes sense but most is simply econ- noise.

What matters is not are poorly underwritten mortgages, missing notes, confused electronic entities, kangaroo courts, investigations or foreclosure moratoria. It isn’t important whether some dude and his loving wife are mistakenly tossed onto the trash heap of homeownership history due to inaccurate or poorly rendered loan documents. It also matters little about bank losses to investor/owners of mortgage- backed securities contrived from the same inaccurate or poorly rendered loans.

What matters is trust in the a systemic scam founded upon the notion that wealth can be bought in a store! How is trust possible?

The real risk is that the ground level participants will price trust at its true value, repudiate their obligations and walk away, ruining everyone involved in the process. BTW, this is what the economics of the fraud demand! The real and implied costs including trust @ a negative value are greater than any possible value of the good itself, the good in this case being all the mortgaged US real estate. Falling real estate prices make the cost overhead worse intensifying pressure for widespread debt repudiation.

Some sort of general default is baked into the cake in this sector. All I can say is it couldn’t happen to a nicer bunch of guys. Any analysis that does not note ‘trust’ risk is econ- noise.

More econ- noise comes from tech promoters who think adding more transistors onto a computer chip somehow translates to economical ‘American Way- lifestyle’. Next to climate change denial fraud this is the arena containing some of the most misleading econ- noise.

Skipping past the noise notices that all forms of mechanization represent an energy loss. What matters is whether these costs are paid out of capital or ‘operating funds’. Fossil and other underground fuels are forms of capital. As any mooch can tell you it is dumb to use capital to defray operating expenses. Unfortunately, the humanoids have been doing just this for 200 years. The consequence is a convergence where the cost of extracting remaining fossil fuel capital is becoming greater than the returns that can be gained from using (wasting) those same fossil fuels.

Oops!

What the ‘Techies’ don’t realize is any ‘efficient’ use is added to current use. The overall demand on capital increases. This is called ‘Jevon’s Paradox’. People who buy ‘efficient’ hybrid cars usually have other inefficient cars they also drive. Car manufacturers can only afford to build efficient cars because they also sell large, gas guzzling SUVs and giant pickup trucks. Without the profits afforded by the giants there isn’t enough revenue to internally subsidize the econobots.

The available energy ‘operating budget’ is the amount of solar insolation that reaches the Earth’s surface and put to work. While there is a lot of insolation, the amount that is currently useful is small. Prudence would suggest using some of the remaining fossil fuel energy capital to increase the ‘solar’ fuels while limiting other drains on capital.

Any other suggestion is more econ- noise.