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Tuesday, April 22, 2014

Adam Smith's and Lenin's Kisses: Give them Enough Hope.

Plan it Janet decide to Bore us Yellen again this week: “Fundamental to modern thinking on central planning, I mean banking, is the idea that monetary policy is more effective when the public better understands and anticipates how the central bank will respond to evolving economic conditions".

Just who, you may ask, does she mean when she refers to "the public"? And what exactly is modern thinking, and what good is Forward guidance when the seeing eye dog is just as blind as the person he's leading? Which, before she was even appointed, Yellen, assured us she was, as she practically bragged about being completely clueless about the impending Global calamity that jettisoning of Lehmnan Bros would let fester no longer but turn into a full-scale rout.

Does this mean that she really doesn't see that her predecessor has pulled the same stunt that HIS predecessor pulled on him? Because Greedspan, having coaxed the public into financing their asset purchases via ARM's that started at low interest rates, lit the fuse that would cause the financial instruments derived from such low interest rates, to blow sky-high, when he initiated the "baby-steps" of .25% rising interest rates that his successor BB was then stuck with, and which was the catalyst for the concatenating failure initiated by the subprime implosion.

So now, in a similar move, Bernanke has started the same process, under the guise of a diminishing QE, and then bowed out leaving Yellen to continue down the path to economic destruction.

An epiphany of sorts occurred to me this week although perhaps it's  just day-dreaming, I'm not sure. IT was triggered by the term used by economists when they talk of QE, or ZIRP, or even Capitalist growth on a finite planet, and that term is sustainability. As though all we need do is figure out a system that is steady state and it will be sustainable. This sounds rational and even desirable to me. But when you consider that we are, in reality, literally stardust, the earth and our own sun products of an exploding star, you can see that the very engines of creation and source of energy for all life, stars, despite their longevity and awesome power, are quite simply unsustainable; doomed to destruction  by the very forces that created them and ignited their nuclear furnace.

 But all stars don't self-destruct in the same way. Some blow up and then settle down to become white stars and burn in  a more limited capacity for trillions of years, while others blow up in such a cataclysmic way that they collapse into black holes and are so dense, more so than even Paul Krugman, that not even light can escape their gravitational pull. The manner they collapse depends on the  way they lived, and there are certain parallels, I believe, between the fuel available to stars and how that affects their demise, and the fuel of economies and how that affects theirs.

But the one thing they both have in common, is that they rely on that fuel, and once its supply is burned out, once all the hydrogen's been fused into Helium, a reconfiguration takes place mandated by the laws of physics and power of gravity, which is the hidden power we neither see nor comprehend, in the case of the star and in an economic  system, the profit-generating engines it contains.

And the engine  running the current system is misfiring on several cylinders, and the fuel its running on is like the ethanol the government mandates be mixed in with gasoline: on the surface everything runs okay, but the price is high and the energy conversion is deceptively lower. Gasoline at $4/gal, when mixed with ethanol, doesn't get the same mileage, so although it's nominal price hasn't changed, it is more expensive to run your car on a mixture of gas and ethanol, as you will have to fill it up more often even though you drive the exact same number of miles. It's no accident that you didn't know that.

The automotive infrastructure, like the economy itself, is running on fumes, the capital necessary to keep it going as diluted as summer-blend fuel, and even more deceptively. Because, whereas the fact that the general population doesn't know they put less energy-intensive gas into their vehicles for the summer "driving season", it is deception by omission, as well as emission, (now surpassing 12 gigatons/year,  but we won't go into that), whereas the deception in regards to their economic prospects, is one that has been, blatantly, for this entire century, even millennium, to be more dramatic, deliberately engineered.

The purported reason for this is to keep home values from plummeting to their real value, far less than what they are priced at currently, a dynamic which, with more than 60% home ownership, caters to the majority. But whereas we all believe in minority rights, when that minority is renters, they are slammed without the majority giving a damn. Because if the Fed is using/abusing its powers to levitate asset prices above what the market will bear, all the while bloviating about "Free Market Economics," which their very existence belies, then the majority should not be able to take undue advantage of the minority, and therefore, as long as the Fed is allowed to continue its ZIRP policy, and to continue buying up MBS paper, then there needs to be a moratorium on renter evictions, or a re-imposition of rent-control laws, as the tyranny of the majority is crushing and forcing the minority to pay for their own evictions, because if its true that consumers pay Corporate taxes in the guise of higher prices for consumer goods, as per Robert Reich's "Super Capitalism", then it's just as true that renters pay property taxes in the form of higher rent, and it is this source of revenue that's used to pay the officers that come to your door fully armed with loaded weapons on their hips, to throw you into the street because the owner has to raise your rent to pay for the higher taxes he must pay thanks to increased appraised values.

It's because of this exact dynamic that the State of California instituted a "Renters' Credit" on its income tax forms, so it's not something tax official and economists are not fully aware of. It is as if you or I took the engine out of a BMW and replaced it with a Chevy Vega engine so as to get a higher price for the lower quality product. Because the property values of the economic entity known as a Sovereign Sate are derived from the productive capacity of the economy in which they exist, so that if the Central Planners have to lie about it ,even though everyone knows it's a lie, then from that point on, everyone knows that the IOU's issued, the compromised collateral of which is the broken underlying economy, then everyone knows that the price of things no longer even pretends to reflect a thing's actual value, as it has become what the Central Authorities have decided it should be. Like, for example, Venezuela. Except that there, it is the price of bread that is state-controlled; here, it is the price of the only asset most people are allowed to actually own, the roof over their head.

The best way to illustrate this is in the art market. If a millionaire or foundation has mistakenly bought a forgery, as long as the experts maintain that it is an original, Monet, let's say, and not one done by one of his students, which in this case we'll say it is, then the value remains the same, but the price becomes untenable by any but the super rich, or someone already in the market, and so could sell what they have, perhaps a Picasso, to buy what they take for the real thing, the classic pea under the cup scam, who gets caught with the fake when the veil of intrigue gets lifted, as it inevitably does, leaving those new to the game, and therefore unaware of the scam they've bought into, holding the proverbial bag.

Well, now that currencies are no longer pegged to anything in which we all have decided has a stated intrinsic value, such as gold, but is instead predicated on the value of the economy that produces it, then anything that arbitrarily and fraudulently raises the purported value of said economy necessarily misprices everything in that economy and gives a decided advantage to those already in possession of assets and effectively bars all others from entry, or at least pushes the risk of defaulting prices onto the backs of the newcomers who had to pay a premium to get into the so-called Game. Such that Capitalism is, by its own dynamics, transformed into Ante-Capitalism. It is when an economy has reached this point that financial stability becomes equated with economic stability and transmogrifies into class rigidity.

Which finally brings us to the genesis of the title of this post, which was inspired by Yan Lianke's book, "Lenin's Kisses".  The strange plot of the book is that this town in China, a place called Liven, that has a population so replete with the handicapped that those without one are called "wholers", is so determined to "withdraw from society" that it concocts this scheme to buy Lenin's corpse from Russia (the time-frame being the late 90's), as the Russians seem unable to keep it intact, and bring it to Liven where they plan and build a mausoleum in which to ensconce his corpse in a crystal coffin. To get the money to do this, they have to first tour as a group of carnival-like acts that are designed to use the very disabilties that allow them to reside in Liven to wow the public with the talents they have honed to adapt to their shortcomings.

So they feature a paraplegic woman who can embroider on a butterfly's wing, a cripple who uses a bottle for a leg and then vaults over a flaming platform, a blind woman who can tell what you're wearing just by the sound of your approach, a deaf man that lights off firecrackers next to his face, a one-armed man who can thread 27 needles at once, and a 242-year-old woman and her centenarian son.

Everything goes along swimmingly, with storybook success, until the last tour, which ends at the mausoleum for a grand finale performance. But the truck driver for the stage props and portable living quarters of the troupe, jealous that a bunch of crips and deaf and half-blind people are coming away from the enterprise very well-heeled, allows his cohorts to rob their quarters during the show and then locks them all in the Mausoleum and extorts the rest of their earnings, which he's convinced (rightfully so, as it turns out) they've hidden in places the robbers have missed, and then throwing in the rape of four nins, diminutive girls, whose anguished screams the rest of them, except the deaf ones, are left to helplessly listen to in anguish, as a final insult.

So, using Lenin's preserved corpse as a metaphor for the remnants of the Communistic philosophy of State-run banditry, we see the Chinese adopting the corpse as their own, then, by combining it with Capitalism, using the spent forces of each to enable them to construct a society of their own, and withdraw from the aegis of the two forms of State-sponsored extortion, and live their lives, more impoverished, but also more connected to each other and therefore less unstable.  Like Hugo, Lianke is convinced that "the enemy of good is better", and writes this parable about the struggle, not of the individual, as the West would have done, but of the village, one with its own attributes and eccentricities that, although it didn't exactly flourish, had learned the wisdom of the poem with which the book concludes,

I am a blind man, and your leg is lame.
You sit on the cart while I pull it.
My feet stand in for yours,
while I borrow your eyes from you.

To me this shows a grasp of the true meaning of economics. There is  not just "The Economy" as Statists like to pretend, but is the economic interaction of various dynamic forces at different levels of existence, the facilitation of which, the Central, or Federal, Government was instituted to provide. It instead has become an onerous burden as it deliberately undermines the prosperity of the citizenry it pretends to function for, because, in reality, it operates for the benefit of its own constituents. Hence, the only unions, for example, that have any power now, are public employee unions, such that the only employees that receive living wages and benefits anymore, are public employees, without whom the middle class would have all but collapsed already.

And thus we have Adam Smith's Kisses good-bye, as Kamikaze Kapitalism has nothing to do with the economics described in "The Wealth of Nations", even as, like the Russians lining up to view Lenin's corpse, we pretend our economic system and the philosopher whose values it upholds, have anything to do with the man propped up as a symbol of its virtues.

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