My Wife Says I’m Cynical On The Global Economy

‘You are becoming too cynical,’ my wife said to me.

The scene: I was reading the weekend edition of The Wall Street Journal over breakfast at the Island Vintage Coffee cafe in Honolulu…scrambled eggs, coffee and a leisurely read of the WSJ.

In my mind, I was content. My utterances, however, obviously conveyed a different message to my wife.

In Australia, I read snippets of the WSJ online and usually out of earshot from my wife. Therefore, her ‘cynical’comment caught me unawares.

I proceeded to explain to her, article by article, why my five cents’ worth of commentary was warranted. Big mistake. My animated explanations only confirmed her assessment.

Here are some of the articles that pressed my buttons…and I had only read up to page 10 (of 52 pages) at this stage.

Page One – Mortgage Giants Set to Loosen Lending

‘Fannie Mae, Freddie Mac and mortgage lenders are nearing an agreement that could lower barriers and restrictions on borrowers with weak credit…’

The apparent method in this madness is to expand access to home loans amid the sluggish housing recovery. The agreement will enablelenders to be protected against claims from making bad loans.

Are the policymakers so blinded by the need to move the GDP needle into positive territory (albeit temporarily) they’ll revert back to policies that landed them in the pickle in the first place? Obviously they are. The reason for having tighter lending restrictions as opposed to free-for-all lending to anyone with a heartbeat was to restore some semblance of integrity into the financial system. It appears nothing has been learnt.

I began to chew my scrambled eggs harder.

Page 1 – China Tries Jolt of Money to Lift Tired Economy

‘China’s central bank is planning to inject 200 billion yuan (US$32.6 billion) into the banking system…’

What is this, Groundhog Day? China’s central bank pumped $80 billion into the banks only a month ago. Whether the word ‘inject’was used consciously or not in the opening paragraph, it’s an appropriate description when you have a global economy addicted to debt, debt and more debt. The economic veins are pumped full of the stuff. The global economy is sluggish due to the massive doses of debt in the system — not from the lack of it. Yet, the officials in the US (with lower loan barriers) and China are determined to pursue the only treatment they are qualified to administer…more debt.

Applying the logic of a central banker, I took a deep gulp of my double shot coffee to calm my heart.

Page 2 – Yellen Decries Widening Wealth Inequality

Federal Reserve Chairwoman said rising inequality of wealth and income in the US was impeding economic mobility at the heart of American values.’

Forgive me, but I thought the US Federal Reserve wanted to create the ‘wealth effect’. When the Fed gives out free and abundant money, who do you think will grab the lion’s share? The poor are not well enough connected to tap into that pipeline. The poor get thrown a few scraps — food stamps, disability payments — to keep them sufficiently satisfied to maintain public order.

Yellen’s concern is nothing more than an empty vessel making a loud noise, and it’s absolute hypocrisy.

The Federal Reserve’s policies have always been designed to enrich its mates on Wall Street. After all, it’s the Wall Street investment firms that stump up the hundreds of thousands of dollars in speaker fees former Fed chiefs command in their ‘retirement’.

After reading Yellen’s comments, my wife nearly had to perform the Heimlich manoeuvre on me.

When my normal colour returned, I asked my wife to order a second double shot coffee to calm me down.

Onwards we go.

Page 4 – On Trail, Clinton Tests Themes for Possible 2016 Run

Appearing in liberal Philadelphia, Hilary Clinton told a campaign crowd that corporations have too much clout…Mrs. Clinton said corporations ‘seem to have all the rights but none of the responsibilities of people.’

Is this the same Hilary Clinton who, along with her cigar loving (lying and cheating) husband, accepted hundreds of millions of dollars from corporations to fund their respective election campaigns? Do individuals pay Bill his $10 million per annum in speaking fees?

I thought Yellen was a hypocrite. Hilary puts her in the shade. Absolutely shameless. Hilary’s strategy has always been simple — tell the people what they want to hear.

Hilary’s approach is straight out of the Oscar Ameringer (1870-1943) political playbook:

Politics is the gentle art of getting votes from the poor and campaign funds from the rich by promising to protect each from the other.’

If Clinton is the leading candidate to become US President in 2016, then there is absolutely no doubt in my mind that the US debt ship is going to continue to sail, full steam ahead, towards Niagara Falls.

To be fair, no matter which Bozo the Clown the US elects, they will be the captain of a ship on a one-way journey. Don’t believe me? Remember this from the 2006 US debt ceiling debate (emphasis mine)?

The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our government’s reckless fiscal policies. […] Increasing America’s debt weakens us domestically and internationally. Leadership means that ‘the buck stops here’. Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better. 

I took that from a speech by then Senator Barack Obama, who voted NO to raising the ceiling.

But since Obama took office in 2009, US public debt has risen by $7.6 trillion (from US$10 trillion to $17.6 trillion).

Can my heart stand another coffee?

I press on.

Page 10 – Bold Action Urged to Spur Eurozone

European Central Bank Officials fanned across Europe on Friday delivering a common message to governments that bold measures are needed to reform their economies, raise productivity, and improve the eurozones’ anemic growth outlook.’

Governments’ and ‘bold action’ do not belong in the same sentence. Governments always, always, always take the line of least resistance…unless, of course, they aren’t concerned about the next election).

Do you think any European governments would take these truly bold actions?

  • Admit socialism has failed and reduce welfare dependency

  • Relax labour laws to make it easier for employers to hire and fire

  • Abolish minimum wage rates to enable young workers an opportunity to enter workforce

  • Provide tax incentives for businesses to invest in equipment, training, etc.

  • Begin repaying debt

Any politician reading this action list is likely to choke on their breakfast as well. None of these bold actions produces immediate growth, which runs counter to the ECB’s growth driven agenda.

But how can the debt bloated, welfare dependent, high level of youth unemployed and ageing (boomer retiree) European economy achieve growth in its current state? It can’t. Therefore, it can only resort to the printing presses to achieve this immediate and artificial aim…provided the Germans permit the ECB to go down this track.

Naturally, the markets would welcome any sort of bond buying program to reduce interest rates and weaken the euro, but this is short-termism, not bold action.

A weaker euro will only export Europe’s deflation to the US and around we go again. We’ll have more stimulus provided by an incompetent Fed chairperson at the behest of a lying politician.

What do we make of this?

Policy makers in the US, China and Europe continue to try to create growth with more forms of debt. Brilliant.

Janet Yellen unable to join the dots between the Fed’s policies and the wealth divide. Brilliant.

And the Clinton family stay true to their family values. Brilliant.

Cynical or realist? I’ll let you be the judge. Now for the sports page.

Vern Gowdie
Editor, Gowdie Family Wealth

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Vern Gowdie has been involved in financial planning since 1986. In 1999, Personal Investor magazine ranked Vern as one of Australia’s Top 50 financial planners. His previous firm, Gowdie Financial Planning was recognized in 2004, 2005, 2006 & 2007, by Independent Financial Adviser (IFA) magazine as one of the top five financial planning firms in Australia. He has been writing his 'Big Picture' column for regional newspapers since 2005 and has been a commentator on financial matters for Prime Radio talkback. His contrarian views often place him at odds with the financial planning profession. Vern is is Founder and Chairman of the Gowdie Family Wealth advisory service, a monthly newsletter with a clear aim: to help you build and protect wealth for future generations of your family. He is also editor of The Gowdie Letter, which aims to help you protect and grow your wealth during the great credit contraction. To have Vern’s enlightening market critique and commentary delivered straight to your inbox, take out a free subscription to Markets and Money here. Official websites and financial eletters Vern writes for:

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