Mish's Global Economic Trend Analysis

Tantalizing Stupidity and the Case for Gold

Posted: 10 Oct 2015 05:45 PM PDT

Financial Repression Insanity

Purportedly the Fed is ready willing and able to go to next step of financial repression insanity: Negative Interest Rates.

Federal Reserve officials now seem open to deploying negative interest rates to combat the next serious recession even though they rejected that option during the darkest days of the financial crisis in 2009 and 2010.

"Some of the experiences [in Europe] suggest maybe can we use negative interest rates and the costs aren't as great as you anticipate," said William Dudley, the president of the New York Fed, in an interview on CNBC on Friday.

Bernanke told Bloomberg Radio last week he didn't deploy negative rates because he was "afraid" zero interest rates would have adverse effects on money markets funds -- a concern they wouldn't be able to recover management fees -- and the federal-funds market might not work. Staff work told him the benefits were not great.

But events in Europe over the past few years have changed his mind. In Europe, the European Central Bank, the Swiss National Bank and the central banks of Denmark and Sweden have deployed negative rates to some small degree.

"We see now in the past few years that it has been made to work in some European countries," he said.

In fact, Narayana Kocherlakota, the dovish president of the Minneapolis Fed, projected negative rates in his latest forecast of the path of interest rates released last month.

Kocherlakota said he was willing to push rates down to give a boost to the labor market, which he said has stagnated after a strong 2014.

Although negative rates have a "Dr. Strangelove" feel, pushing rates into negative territory works in many ways just like a regular decline in interest rates that we're all used to, said Miles Kimball, an economics professor at the University of Michigan and an advocate of negative rates.

But the benefits are tantalizing, especially given the low productivity growth path facing the U.S.

With negative rates, "aggregate demand is no longer scarce," Kimball said.

Tantalizing Stupidity

For starters, negative interest rates should be seen as what they are: theft.

Actually, the inflationist policies of central banks are theft, but negative interest rate proposals go one step further down the rabbit hole.

With this proposal, we can add Narayana Kocherlakota, president of the Minneapolis Fed, and Miles Kimball, an economics professor at the University of Michigan to the never-ending list of economically illiterate jackasses.

There is absolutely no benefit with financial repression measures that further punish those on fixed income. The positive effects these clowns see are nothing but a mirage that will vanish as soon as asset bubbles collapse.

The problem is debt coupled with asset bubbles created by debt, yet the proposed solution is to make people spend more while taking away scarce resources of those who save.

Financial Repression

I recently discussed financial repression with Gordon Long.

Link if video does not play: Mish's Monthly Macro w/Gordon T Long

Our focus in that interview was the sorry state of affairs in Illinois. Our next interview no doubt will be on negative interest rates.

Case for Gold

It is F*ing stupid to attempt to force people to spend money on things they don't want or need on the inane belief demand is too low and wasting money is the cure.

These economic idiots will never stop, which is one reason why I am firmly committed to gold over the long haul.

Mike "Mish" Shedlock

US Abandons Scheme to Arm Rebels, Instead Adopts Rand Paul's Proposal to Arm Kurds; Hillary Flashbacks

Posted: 10 Oct 2015 12:41 PM PDT

Russian interference in Syria has had one positive aspect already: US Scraps Scheme to Create Syrian Rebel Force.

The US is halting a controversial $500m programme to create a rebel force in Syria after concluding that it was having practically no impact in the battle against Isis fighters in the war-torn country.

Instead of trying to build up a new force of fighters — training them outside Syria and then sending them back in equipped — the Pentagon will now focus on arming and training a smaller number of leaders of Arab and Kurdish groups in Syria that have had some success fighting the Islamist militant group Isis.

Since arming Syrian al Qaeda "rebel" terrorists was always a bad idea, I would call this bit of news a distinct positive.

Hillary Flashbacks

Last Year the Guardian reported Hillary Clinton Wanted to Arm Syrian Rebels, Memoir Reveals.

On February 1, 2015, the Washington Times reported Secret Benghazi Report Reveals Hillary's Libya War Push Armed al Qaeda-Tied Terrorists.

On July 1, in the Washington Times article Hillary's Secret War Judge Andrew Napolitano listed his conclusion after reviewing documents and emails from a period in which Hillary Clinton was secretary of state.

Napolitano stated "What I saw has persuaded me beyond a reasonable doubt and to a moral certainty that Mrs. Clinton provided material assistance to terrorists and lied to Congress in a venue where the law required her to be truthful."

Succession of Bad Ideas

Recall that one of the reasons president Bush gave for invading Iraq was that Hussein was harboring al Qaeda. In reality, al Qaeda did not exist in Iraq to any degree until the US invaded and put in a dangerously unstable government. ISIS was the direct result.

In the wake of the Iraq mess, the US armed alleged "moderate rebels" in three places. It backfired in Libya, Iraq, and Syria.

Arming al Qaeda is absurd.

Rand Paul on Arming Kurds

In a March 10 interview, senator Rand Paul said Arm the Kurds to Battle ISIS and Radical Islam, Give Them Kurdistan.

In an exclusive interview with Breitbart News, likely 2016 GOP presidential candidate Sen. Rand Paul (R-KY) staked out a bold position on a foreign policy matter—pushing to arm Kurdish fighters against the Islamic State of Iraq and Syria (ISIS) even more than the U.S. has already done, but also calling for the creation of a new nation of Kurdistan.

"Part of the problem is the Kurds aren't getting enough arms," Paul said. "The Kurds are the best fighters. The arms are going through Baghdad to get to the Kurds and they're being siphoned off and they're not getting what they need. I think any arms coming from us or coming from any European countries ought to go directly to the Kurds. They seem to be the most effective and most determined fighters."

"But I would go one step further: I would draw new lines for Kurdistan and I would promise them a country," Paul said.

Map-Making Problems

Should the US be drawing lines, promising to build countries? Or should the US tell the Kurds that if they create a country, the US would recognize it? Something else?

A Wikipedia Map of Kurdistan highlights the issues with re-drawing lines.

"Contemporary use of the term refers to four parts of a greater Kurdistan, which include parts of southeastern Turkey (Northern Kurdistan), northern Syria (Western Kurdistan), northern Iraq (Southern Kurdistan), and western Iran (Eastern Kurdistan). Some Kurdish nationalist organizations seek to create an independent nation state of Kurdistan, consisting of some or all of the areas with Kurdish majority, while others campaign for greater Kurdish autonomy within the existing national boundaries."

The Kurds are fighting ISIS in Iraq and Syria. Turkey is fighting the Kurds in Turkey.

Turkey does not want an independent Kurdistan in Iraq for fear it will lose part of Turkey in the process. And what about Iran? Would it cede territory to a new Kurdish state?

Simply put, the US should not be in the map-making business. Nor should the US arm terrorists. But what is the definition of terrorist?

Terrorism in the Eyes of the Beholder

The US has a definition of "terrorist" that it frequently and foolishly overlooks with terrible results.
Syria has a definition that would include US-backed al Qaeda rebels.
Turkey has a definition that would include the independence-minded Kurds in Turkey.
The Kurds have a fourth definition, and Iran a fifth.
Of course Lebanon, Israel, and the Palestinians all have their overlapping definitions too.

Twin Blasts at Turkish Peace Rally

In an unfortunate incident this weekend, Twin Blasts at Turkish Peace Rally Kill at Least 86.

A twin bombing in Ankara has killed at least 86 people at a peace rally, the deadliest attack in Turkey's history.

The blasts took place on Saturday near a train station where a crowd of supporters of the Peoples' Democracy Party (HDP) had gathered ahead of the rally to protest against armed clashes between security forces and Kurdish insurgents.

Authorities have called the attack an act of terror and are said to be looking into reports that two suicide bombers were involved.

The bombing comes just three weeks ahead of an early election in which the ruling Justice and Development Party (AKP) hopes to regain the parliamentary majority it lost in the June poll after a surprisingly strong showing by the pro-Kurdish HDP.

The run-up to the November 1 vote has already been marred by widespread violence across the country, particularly in the Kurdish south-east, after the collapse of a ceasefire between the government and the Kurdistan Workers' Party (PKK).

Kurdistan Worker's Party

Wikipedia reports the Kurdistan Worker's Party "(PKK) is usually used interchangeably for the name of its armed wing, the People's Defence Force (HPG), which was formerly called the Kurdistan National Liberty Army (ARGK). The PKK is listed as a terrorist organization internationally by several states and organizations, including the North Atlantic Treaty Organisation (NATO) and the European Union. However countries such as India, China, Russia, Switzerland and Egypt have not designated the PKK as a terrorist organization. Also, the UN has not listed the PKK as a terrorist organisation."

Mideast Mapmaking

Reason.Com had these comments on mapmaking.

Paul didn't merely say that if the Kurds succeed in carving out a territory, the U.S. should recognize it. He said America should actively involve itself in launching the state and establishing its borders.

Eugene McCarthy once wisecracked that you can blame most of the world's problems on British mapmakers, who casually carved countries out of their dying empire without regard for whether the boundaries they were drawing made much sense.

I can't say I have much faith that mapmakers based in Washington would do a more impressive job — and I have even less faith that it would be worth any ordinary American's while to get tangled up in the conflicts that would inevitably follow.

Mish Proposals

Let's get out of the map-making business, forever.
If the Kurds want to fight ISIS, it's reasonable to help them on the grounds this is their legitimate battle, not ours, and also because ISIS is essentially a US creation. Also note that ISIS, unlike Saddam Hussein, is a potential security threat, if not a genuine one already.
If Russia wants to take on ISIS, let them, or better yet, welcome them.
No US troops
Let's get to the bottom of this Hillary mess, whatever it takes.

Mike "Mish" Shedlock

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Mish's Global Economic Trend Analysis

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