The Committee to Destroy the World. Lewitt Michael E.

that Wall Street and other establishment economists accept them at face value. For the real story, look at Table I.2, which shows the actual increase in the prices over the last 10 years of many of the products and services actually used by consumers.

Table I.2 Increase in Prices over the Last 15 Years

      SOURCE: (1) Bloomberg, (2) National Center for Education Services, (3) St. Louis Fed, (4), Trulia, (5) St. Louis Fed.

      Only a professional economist would really believe that the prices of goods and services are not increasing at a rate that threatens the ability of ordinary Americans to maintain a reasonable standard of living. “Official” government inflation statistics, which guide monetary policy, bear little relationship to what is happening in the real world. The fact that monetary policy is based on these numbers is not only an intellectual insult, it is a profound moral betrayal that violates the government’s social compact with its citizens. Monetary policy is guided by a deliberate falsehood perpetrated by a government robbing its citizens of their money and their freedom.

      The Fed’s post-crisis policy was driven by a deliberate attempt to ignite inflation despite the fact that prices are rising just fine on their own in the real world. This policy confiscated the savings of ordinary Americans while triggering serious geopolitical consequences such as the Arab Spring, which was unleashed by higher food prices in the Mideast, and a race by China and Russia for valuable energy resources around the world. There was an enormous disconnect between an activist monetary policy that sought to inflate already inflating prices and a fiscal policy that was shut down during the first six years of the Obama presidency by Senate Majority Leader Harry Reid.

      To some extent, the incredible vitality and innovation of the U.S. technology sector helped counteract some of the effects of these disastrous policies. But despite the revival of Apple, Inc. and the Apple ecosystem of products as well as the advent of new companies such as Facebook, Inc. and Tesla Motors, Inc. and the growth of Amazon.com, Inc. and Google, Inc. and new products pouring out of the biotechnology industry, the United States still saw a disappointing recovery coupled with the largest debt increase in history while the world around it grew dangerously indebted and unstable. In the end, iPhones, “friending,” and producing 50,000 or 100,000 electric cars a year are not going to save us.

       The European Monetary Experiment

      As problematic as U.S. monetary policy was since the crisis, it was even more misguided in Europe. While low rates effectively deprived American savers of enormous amounts of income over the past six years, Europeans experienced a much more dangerous phenomenon beginning in early 2015 when more than €2 trillion of European debt started trading at negative yields in response to a long-awaited and ill-fated quantitative easing program announced by ECB President Mario Draghi in January 2015.

Like the U.S., European governments failed to implement the types of fiscal policies necessary to grow their economies. This left Mario Draghi with little choice (in his own mind at least) but to mimic the failed policies of other central banks. By February 5, 2015, as Table I.3 illustrates, 10-year bond yields in Europe had dropped to historically low levels.13

Table I.3 10-Year Yields at February 5, 2015

      DATA SOURCE: Financial Times.

      These yields deprived individual savers as well as institutions such as insurance companies and pension funds of the ability to earn any meaningful return on their capital. A few months later in April 2015, German 10-year bund yields sank to a mere 5 basis points before markets came to their senses and sold off viciously, moving the yield back up to the high double digits (still absurdly low but better than near-zero). By way of comparison, U.S. 10-year Treasury yields were 1.81 percent on February 5, 2015. When the bond yields of functionally insolvent countries like Spain and Italy are lower than those of the United States, markets are seriously distorted. Even Greece’s 9.53 percent yields were delusionally low; by June they would be 20 percent higher as the country teetered (once again) on the brink of financial collapse.

      The ECB’s QE program was not only doomed to fail for the reasons that all QE programs unaccompanied by meaningful fiscal reforms are doomed to fail but also because European bond markets were ill-suited to such a regime. European bond markets were already illiquid prior to the launch of QE and quickly became dangerously more so afterwards; front-running of the ECB’s bond purchases by hedge funds and other investors depressed yields to absurdly low levels. Many of these investors suffered losses when the market reversed in May 2015 (as I warned in The Credit Strategist) because there were a limited number of buyers for bonds that were little more than certificates of confiscation. The ECB was limited in the bonds it could buy under the terms of its QE program, and private sector buyers started coming to their senses, putting an end to another momentum trade. In broader policy terms, however, QE is what happens when fiscal policymakers lack the courage and wherewithal to enact pro-growth economic reforms and leave it to monetary policymakers to fill the gap.

      The ECB was forced into QE because European politicians were unwilling to stop spending other peoples’ money to prop up over-indebted welfare states like Greece, Spain, Italy, and Portugal. Greece is the most blatant example of a failing state dependent on borrowing money from its neighbors that it can never hope to pay back. But it is not the only example: Spain, Italy, and Portugal (and likely France) are not far behind. Mario Draghi is prepared to tax all Europeans with future inflation (both directly and through currency debasement) to keep these countries afloat and the flawed European Union intact, but that is a promise bound to be broken in the future because it sunders the social contract between governments and their citizens. Sooner or later these countries will not be able to finance their deficits and will move towards default.

      Under the current form of the Maastricht Treaty, the ECB is legally barred from directly financing member states by printing money, but QE is the first step down that road. Markets rely on the ECB to support European sovereign debt, which is why European bond yields dropped to such low levels during the first half of 2015 (and returned to those levels again late in the year). At some point, however, the ECB’s existing tools will prove insufficient and either the Maastricht Treaty will have to be amended (a tall order) or abrogated or European sovereign debt will no longer enjoy the confidence of markets (the latter being the more likely outcome for investors).

      Even more disturbing than the sight of negative yields was the market’s complacency in the face of a phenomenon that violated the very tenets of capitalist economics. If this was the nineteenth century, there literally would be blood in the streets, but modern man has been fooled into worshipping central bankers. The problem with this brand of religion is that investors may think they are worshipping God but are really worshipping the Devil because central banks have made it very clear that they intend to confiscate their citizens’ money through inflation and currency devaluation.

      The Bank of Japan has been doing that for years only to be followed by its Western counterparts. When members of The Committee to Destroy the World complain that inflation is too low in a world in which goods and services grow more expensive every day, they are admitting that they intend to destroy the value of fiat money. In January 2015, the ECB, like other central banks, attempted to solve a solvency problem linked to excessive debt accumulation with policies designed for a liquidity problem. That is like trying to treat cancer with an aspirin regimen.

      The confiscation of capital through artificially negative interest rates in Europe was just a more drastic version of what was happening in the U.S. since it lowered interest rates to zero during the financial crisis. While deflation posed a greater threat in Europe, in the U.S. it was a mirage despite deluded claims by members of the Federal Reserve that inflation is too low. Real world prices of goods and services increased dramatically over the past decade; only economists claim otherwise, which is another reason why the last person you should ask about the economy is an economist.

      Low yields in the U.S. have confiscated enormous amounts