Working Papers

Take Out the Black Helicopters and You’ve Got Bill Gross

Caroline Baum’s Just What I Said, a collection of her Bloomberg columns from the late 1990s through to the early 2000s, contains a chapter on financial market conspiracy theories.  She also reproduces some of the correspondence she received in response to these columns:

Do you really believe the US dollar is worth anything?  Print what you want but look in the mirror if you want to see a “truly duped” conspirator!  The black helicopter you hear…it is coming for you Caroline.

Take out the black helicopter references and you’ve almost got Bill Gross.

At least some of Baum’s mailbag would appear to be tongue-in-cheek, but you can never be entirely sure:

Yes, Caroline, there are black helicopters and the day of pecuniary recompense for the filthy idolaters of usury is at hand.  Right now, even as I type, the reptilian mercenaries from Cygnet 61 and Zeta Reticuli are emerging from their base camps to lay siege to the money houses of Wall Street…Soon, you’ll start to notice iguana-like chalky stool droppings in banks and financial offices all over Wall Street.  That is the sign it’s time to get out of town and head for the nearest subterranean shelter.

posted on 30 June 2006 by skirchner in Economics, Financial Markets

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Is the Banker to the bankers (the BIS) a closet ‘Swamp Economist’ ? Given their practical stewardship of the global financial economy (as opposed to academic waffle), perhaps they know a thing or two. I think they do.

Henry Thornton notes;

’ The concluding chapter of the BIS report discusses the risks and the policy issues. 

Either way, surprise, surprise, “The appropriate path for global monetary policy in the current circumstances should also be towards tightening. Whether one is more concerned with rising inflationary pressures in the short term, or with the threat from imbalances to sustained growth over time, both sets of indicators point in the same direction.”

Sound familiar, gentle readers?  Overnight, US equities fell out of bed again, snuffing the tentative late-June recovery in asset markets.  Financial markets remain in a fragile state, and continued caution is the recommended approach, as the BIS has cautioned its member central banks.  The world economy is in a tough situation.

The BIS also asks what might be done to avoid again getting into the current tough situation.  “Taken together, these considerations imply that the current conventional approach to the pursuit of price stability might need refinement. ... beyond a certain point danger lurks, as rising asset prices both encourage more speculation and provide the collateral for the related borrowing. All of the historical episodes of “boom and bust” noted above share these dynamic characteristics in very significant measure.”  We whisper “asset inflation matters too”.

And in conclusion: “...the Keynesian analytical framework, which remains the workhorse in the stable of most central bankers, needs modification. A much richer set of indicators is now needed to guide the setting of interest rates, in particular indicators of financial imbalances, both internal and external”.  Dare we whisper “check-list”? ‘

>>> For what it’s worth, the first thing any decent economist would suggest would be to actually measure true inflation (ie general price increases) rather than massaging them down to create more debt for bank profits. Immediate fixes include a more European approach to hedonics.

—> Get rid of hedonic indexes, or at least revise them to allow for diminishing marginal returns.

—> Include the purchase price of housing in the CPI, rather than assuming that ‘everybody’ in the economy rents a property via the ‘rent equivalence’ scam. I strongly believe that there are people in Australia who buy a house to live in.

—> Include food and energy in the core measure, rather than omitting them. Smoothing of volatility is easily achieved via an appropriate Henderson filter. After all, people do use electricity, petrol. People also eat food.

Craig Stevens

PS: for the USA;

Mr. Walter J. (John) Williams operates an excellent and revealing website business named shadowstats.com, in which he analyzes the U.S. government’s “manufactured statistics” and develops statistics which have a better correlation to reality (i.e. his shadowstats).

*Walter J. “John” Williams was born in 1949. He received an A.B. in Economics, cum laude, from Dartmouth College in 1971, and was awarded a M.B.A. from Dartmouth’s Amos Tuck School of Business Administration in 1972, where he was named an Edward Tuck Scholar. During his career as a consulting economist, John has worked with individuals as well as Fortune 500 companies.

In order to get a flavor of the statistics that are manipulated, and the effects of that manipulation, we present a partial summary of an excellent interview (conducted by Kate Welling, Editor and Publisher of Welling @ Weeden), which Williams recently gave regarding the subject of government manipulation.

Williams says that regarding “what used to be called the GNP but is now widely followed as the GDP, (and) the CPI, and the employment numbers, all have had biases built into them that result in overstating economic growth and understating inflation - - both of which are admirable political goals.”

Williams has analyzed and compared the way in which the unemployment figure was historically calculated versus the way it is calculated today. He concluded that if it “were calculated (today) the way it was during the Great Depression, it is now running at about 12%.” As well, he says, “Real CPI is now running at about 8%. And the real GDP is probably in contraction.” Clearly, the government’s methodologies that generated these bogus numbers are all designed to paint a more favorable picture of the economy and the markets than is the reality.

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