Stocks Surge As Yield Curve Crumbles To Fresh 11-Year Flats

Original post

The time for stagflationist’s recalcitrance “will soon be at an end” (Gladiator).

See second verse, same as the first:

22 Luminaries (And Dick Bove) Sign Open Letter To Fed Demanding End Of QE2

N-gDp LPT targeting by stagflationist advocates is unwarranted and destructive. It has now produced, since the advocates banded together and wrote a letter to Janet Yellen, higher prices, a breakout in yields, a falling U.S. dollar, and a credit downgrade from China.

And after all this “irrational exuberance”, stocks have declined into the 4th Elliott wave correction. The Fed acted and produced a “soft landing”?

There’s a very important lesson in the latest failed coup d’é·tat.

See the: “Secular Stagnation Project”

Larry Summers said in December‎: “And as soon as prices stop rising, the economy will lose one of its important props. Since the 1990s, he says, the U.S. has alternated between bubbles and busts.”

It’s once again, FOMC schizophrenia: Do I stop — because inflation is increasing? Or do I go — because R-gDp is falling? [Stagflation’s dilemma, viz., the FOMC’s policy mix]

And for the gold bugs, that transmogrifies into an inflation/deflation debate.

So in case you aren’t tracking the markets, targeting N-gDp LPT, caps real-output, maximizes inflation, and exacerbates trade deficits (exporting aggregate monetary purchasing power, and importing underemployment).

The advanced change in thinking was pointed out and emphasized by Doug Short:

”However, at their December 2012 FOMC meeting, the inflation ceiling was raised to 2.5% while their accommodative measures (low Fed Funds Rate and quantitative easing) were in place.”

Steve Keen’s on to this: “Banks don’t “intermediate loans”, they “originate loans”.

“The fallacy in their thinking is easily demonstrated by looking at the two types of lending – from one non-bank agent to another (Loanable Funds or LF) and by a bank to a non-bank (Bank Originated Money or BOM as an accountant might call it).”

Keen: “A ‘Loanable Funds’ loan simply shuffles existing money from one person’s bank account to another: no new money is created (row 1 in Table 2). A “Bank Originated Money” loan creates a new asset for the Bank, and creates new money as well – which the recipient then spends.”

No, savings never equals investment. Take the “Marshmallow Test”: (1) banks create new money (macro-economics), and incongruously (2) banks loan out the savings that are placed with them (micro-economics).

Thus, all DFI held savings are lost to both consumption and investment, indeed to any type of payment or expenditure. An increase in the proportion of time/savings accounts within the payment’s system destroys money velocity. This is the sole source of both stagflation and secular strangulation. The remuneration of IBDDs exacerbates this disequilibria.