1
McKinsey Global Institute, “Debt and (Not Much) Deleveraging,” February 2015, 9. In view of the opacity of China’s economic statistics, the country’s debt could well be much higher. No doubt it is higher than the 2014 figure of $28 trillion as this book comes to press.
2
The federal deficit was $10.6 trillion on the day Barack Obama took office in January 2009. By April 12, 2015, it had increased to $18.152 trillion.
5
See “The Committee to Destroy the World,” The Credit Strategist, April 1, 2015.
6
At least English professors study human nature for a living. Human nature, not the soft science of economics, was the decisive factor guiding the economy after the financial crisis. Economic actors saw low interest rates as a sign that the economy was floundering and reacted by limiting their economic activity, behavior that escaped the rigid and outmoded models of the Federal Reserve’s economists.
7
One had to shudder listening to Fed apologists like former PIMCO economist Paul McCulley appear on CNBC in August 2015 and proclaim that the Fed should “declare victory” and “take a victory lap” with respect to policies that had failed in virtually every respect. Other than preventing a total meltdown of the financial system in 2008 (which their policies led to), these policies have been abject failures. They distorted markets, destroyed liquidity, increased wealth inequality, failed to produce the type of inflation they desired while grotesquely inflating asset prices, failed to promote genuine employment growth (the labor participation rate in 2015 was at its lowest level since the 1970s), and contributed to the largest misallocation of capital in history through the largest debt buildup in history. Federal Reserve governors routinely make public statements demonstrating their total ignorance of how the real economy works while cowering in fear of the markets. They don’t trust markets and neither do their apologists. Rather than declaring victory, they and their cheerleaders should be hanging their heads in shame. The intellectual failures of policymakers and those who pimp for them in the media and on Wall Street have inflicted enormous damage on this country and its economy.
8
Hyman Minsky, Stabilizing an Unstable Economy (New Haven, CT: Yale University Press, 1986), 3.
9
Some economists like Paul Krugman have argued that the stimulus plan was not large enough. The size of the stimulus plan was less important than the substance. A larger bill that failed to direct money into productive investments would have been no more successful than the plan that was adopted.
10
In the first opinion, National Federation of Independent Business v. Sibelius (2012), Justice Roberts ruled that the word “penalty” really meant “tax” to rescue the law, in the process ignoring the long history of jurisprudence that establishes different definitions of the two words. In the second opinion, King v. Burwell (2015), Justice Roberts ruled that the term “Exchange established by the State” really meant “Exchange established by the State or the Federal Government” despite the fact that the words “or the Federal Government” were nowhere written in the law and the legislative history clearly showed that Congress intended the law to require states rather than the federal government to set up the exchanges in question. The language was not a drafting error as intellectually dishonest proponents of the law tried to argue in the press and to the Court. These two opinions usurped the legislative function and constituted nothing other than judicial lawmaking and a clear violation of the separation of powers under the Constitution.
11
While there has been endless debate about the efficacy of quantitative easing, even the Federal Reserve’s own economists concluded that it has failed in its stated goals. See, for example, Stephen D. Williamson, “Current Federal Reserve Policy Under the Lens of Economic History: A Review Essay,” Federal Reserve Bank of St. Louis, Working Paper Series, July 2015, http://research.stlouisfed.org/wp/2015/2015-015.pdf. Mr. Williamson is a Vice President at the Federal Reserve Bank of St. Louis and concludes in this paper that, “There is no work, to my knowledge, that establishes a link from QE to the ultimate goals of the Fed inflation and real economic activity. Indeed, casual evidence suggests that QE has been ineffective in increasing inflation. For example, despite massive central bank asset purchases in the U.S., the Fed is currently falling short of its 2 percent inflation target. Further, Switzerland and Japan, which have balance sheets that are much larger than that of the U.S., relative to GDP, have been experiencing very low inflation or deflation.” Of course, it is difficult to determine who is more confused, the Federal Reserve or Mr. Williamson since inflation in the real world is much higher than official inflation statistics suggest and inflation in financial asset prices has skyrocketed as a result of QE. The bottom line is that as long as we leave our fate in the hands of economists, our gooses are cooked. The real problem is that central bankers don’t trust markets; the world would be much better off if they stopped interfering in them and allowed markets to operate freely.
12
Irving Fisher, The Money Illusion, (New York: Adelphi Company, 1929).
13
European debt traders recklessly traded ahead of ECB purchases of bonds, pushing interest rates into unsustainable territory and setting themselves up for huge losses just a few weeks later when markets began to come to their senses. Several weeks before Bill Gross made his well-publicized recommendation to short German bunds, I recommended in
