Mr. Bernanke's Manipulation Nation

Historians have attributed the adjective of "great" to many periods of human activity. We've had a Great Potato Famine, Great Bull markets, a Great Depression, etc. I wonder if this period will go down as the Great Manipulation.

Before Congress, when asked if the Fed engaged in manipulation of the stock market, Mr. Bernanke sputtered a bit, then answered coyly that the Fed attempts to "influence the stock market". Disregarding semantics, his answer was unequivocally unacceptable. By trying to influence behavior on such a massive scale, regardless of whether it is in direct support of some altruistic mandate or charter, the Fed, by the Congress that utters such mandates, is elevated to a deity, albeit a critically flawed deity as it has omnipotence but lacks omniscience.

Your recents posts (noted below) relentlessly hammer out an inescapable truth under which its weight the Great Manipulation is creaking and groaning. People are waking up to once arcane concepts only known to professional traders and money managers such as relative performance. Karl Denninger reports that while the stock market has risen rather quickly, purchasing power has actually gone down once taxes and fees are included. Dr. Marc Faber points out the history of stock market moves during periods of rapid money printing as net-net. A good hedge perhaps but not a money maker (but as Mr. Denninger points out it is a loss when fees and taxes are included). Chris Whalen uncovers another subtle manipulation: banking and home building cause economic recovery. In actuality real economic growth, which results in greater prosperity should be the reason for growth in banking and homebuilding.

You committed heresy not too long ago by pointing out that in most cases no wealth is accrued by owning a house. Adjustments for inflation do not create wealth (greater purchasing power), it just takes more currency to buy the same item. Interested persons, those owning houses, wish to make heretics like yourself drink a hemlock cocktail, after all, they have borrowed heavily against their so-called equity and thought they were being smart for doing so.

Few are so self-deprecating as to admit they were caught in the vortex of a decades-long mania in an equally decades-long and continuing Great Manipulation.

Oh yes, the Great Manipulation is continuing full steam. In 1983 Greenspan chaired a commission on how to fix Social Security. In 1985 Americans were convinced to pay higher taxes and all would be well. Today we are borrowing to make payouts. Today Congress and the Administration are trying to hammer out "a deal" that brings down deficits which will ultimately result in lower payouts and raised taxes. But no one wants to talk to the American people about what happened to all the money, the 15% of all incomes that was collected to make SS payouts (a point made on a Patrick.net post). Regardless of whether the money was diverted to other social programs (for our own good), this was a fraud committed by the American government on the American people. Instead of accountability, the bait is being dangled once more.

If I may digress, greater taxation and decreased spending will not work in the long run because debt must and does grow exponentially and greater taxation and spending cuts are linear events.

Ben Bernanke boldly pontificated in his Fed Chairman campaign speech in 2002 that he could, at least theoretically, force (manipulate) people to spend(borrow), by reducing interest rates and unleashing the power of the printing press. This was sweet Siren music to American politician's and debt holder's/seller's ears. They didn't hear or chose not to hear the "theoretical" caveat. All they knew was that this man would continue the Greenspan Put. They heard that he would transfer the savings of the prudent to the pockets of debt holders and speculators. They heard that they could continue to enjoy the political cover of increased public spending without having to raise taxes (and real economic output) to pay for it.

In the Great Manipulation, we are being told that if China allows its currency to appreciate, all will be well. Jobs will be more equally distributed globally and the masses will prosper and be happy.

In reality, population growth is bumping up against technology growth. Automation has replaced much of the manufacturing workforce. What's left are diametrically opposed niche industries that require either high levels of education (at the right schools), or nearly no education at all, resulting in fewer productive people bearing the responsibility of providing for an ever-growing number of unproductive people. Whether for populist reasons or just because humans seem to have a proclivity to simplify by slapping labels on things, or even more probably because of their addiction to conflict, this has been dubbed "class warfare".

The Great Manipulation is not necessarily a conspiracy. The flight crew of a passenger airliner is not engaging in a conspiracy when trying to keep passengers calm during an emergency. However, it is along this thin line where contradictions and perversions exist. State secrets in a democratic republic could be considered a necessary oxymoron. Completely incompatible and self-contradictory is the idea that a self-governing people need to be kept in the dark about the true aims of the state. However, we are to accept that it is necessary to protect us from our enemies, whoever they might be. This immediately opens to door to the perversions of greed and corruption and lessens the ability of the self-governed to govern wisely.

Economic truths cannot be plainly stated by any high-ranking public official lest a panic in the markets is set off. If a politician is so bold as to state the truth, especially one we do not wish to hear, they will most assuredly lose the next election. As you have pointed out in previous posts, this creates an atmosphere where lying becomes banal. The idea of a government by the people for the people becomes a cliche.

If the GM is a conspiracy, surely the conspirators must know that they will kill the golden goose (labor). As the wages of those who are productive are effectively reduced to that of subsistence, they will, at different points along this continuum, opt out. To conduct a reductio ad absurdum, there will be plenty of goods but nobody with the money to purchase them. Under this circumstance how do the wealthy stay as such?

To be balanced, we must consider the complexity of human beings. We are very critical of government but must acknowledge the fact that when some of the most enlightened economic bloggers got together, they could all agree on what was wrong but could not agree on the fix. We must also consider the nature of markets. Viewing the same set of data, two participants come to completely opposite conclusions, therefore, one will buy believing that they will be able to sell it at a higher price, and one will sell believing that they will be able to buy it back at a lower price. Given time horizon a person can be wrong but still win. Such is the complex nature of human interaction.

The biggest problem with the Great Manipulation is that it must increase in amplitude and complexity at an exponential rate in perpetuity. It cannot. They are not trying to land the crippled aircraft, they are trying to keep it aloft with all engines out and a glide ratio that's telling them "we're not gonna make it". It's hopeless, they just can't say it, or so they think.

Therefore, it must all come crashing down. It must because no one is consciously going to cause a mass die-off -- and if we are honest, that is what we are facing as economies cannot produce enough revenue to support unproductive sectors of the population and all resources become limited. This is something that most cannot or do not want to comprehend. Barring some technological breakthrough that doesn't get caught up in decades of testing and analysis, the human system will forcibly shrink to a level that is sustainable by its environment.

Perhaps, as a new renaissance emerges, the lessons learned from the Great Manipulation will lead to something better. If history is any guide and human nature remains fixed as it is, the only thing that will emerge is the beginning of another cycle that ends in catastrophe.

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