Friday, January 28, 2022

"Young Dr. Frankensteins"

"Young Dr. Frankensteins"
by Bill Bonner

Youghal, Ireland - "The tendency of an inconvertible paper money is to create fictitious wealth, bubbles, which by their bursting produce inconvenience." ~ Lord Liverpool

Cool, schmool. Fair, schmair. What really makes the world a better place? A ‘New Deal?’ A Republican? A Democrat? A master race? Stimulus spending? An Inquisition? Fair Trade? The Rights of Man? Vax mandates? Slavery? Prohibition? Low interest rates? A cheap currency? Diversity? Price controls? Defending Ukraine from the Russians? Or Russia from the Ukrainians?

Blah, blah, blah… what really makes the world a better place is a stable currency and an honest profit. This week, we laughed at the super rich who wish to trade their dollars for cool. We mocked Larry Fink for pushing his own anti-carbon agenda. We ridiculed Abigail Disney for wanting to give more money to a corrupt and wasteful government.

A Mischievous Insight: If they were serious about making things better for others, they’d put their talents, energy and money to work… to earn more money! Because, as far as we know, money is the only measure of how much time, energy (human… and carbon-based) and resources go into a product. Profits are the only measure of whether what comes out is worth the effort. Each dollar earned honestly is a sign that someone else’s life has been improved by at least $1.

That was the un-cool, contrarian, and mischievous insight we left you with yesterday – that making honest profits, rather than cool pronunciamientos, moral awakenings, or ‘The Science’, was really the only way for a company to do any good. Thus, completely out-of-step with the do-gooders, we stumble forward.

In the real sciences, new experiments allow us to probe deeper and deeper into the way the world works. Electrons, photons, interplanetary space – we know more each year. But real scientists also know that they never know the whole story. If only politicians and central bankers were as modest. Instead, they think they have the final word on how things work… and run the same experiments, over and over, to prove it.

We know from many painful trial runs, for example, that price controls don’t work. But get ready for more proof! The Fed has been controlling, indirectly, the most important price in capitalism – the price of capital itself – for the last two decades. It’s created a nightmare economy, hooked on zero cost (free!) money. Now, it can’t ‘normalize’ interest rates… or half the country will go broke.

Meanwhile, French president Emmanuel Macron says he’s going to control the price of energy. In Argentina, as we noted, they’ve been controlling the price of energy for decades – with the all-too-predictable result: shortages.

And here’s the New York Times, urging another experiment in the US; what else – price controls! "America’s recent inflation spike has prompted renewed interest in an idea that many economists and policy experts thought they had long ago left behind for good: price controls."

The NYT, voice of the Elite Establishment is desperate to rehabilitate a disgraced idea: Few economists today defend the Nixon price controls. But some argue that it is unfair to consider their failure a definitive rebuttal of all price caps.

Hey, let’s run the experiment again! Argentina is practically a constant lab experiment. Control prices. Currency and capital controls. Protect key industries from foreign competition. Print more and more money, with an inflation rate currently around 50%. Of course, all of these things have been tried before. The results are hardly a surprise to anyone. But, bless their hearts, the gauchos keep heating up their beakers and letting their hair grow, until their concoctions blow up in their faces.

The biggest and most costly experiment in modern history took place in the Soviet Union between 1917 and 1991. For more than 70 years the lab rats kept at it… even though the result was a foregone conclusion. Central planning – with its thorough price, capital, wage, job, rationing and supply chain controls, from top to bottom – was never going to work. And the Soviets proved it.

Modern Monetary Turkeys: But the experiments go on. Now, Turkey is conducting a goofy test to see if it can become an export powerhouse simply by devaluing its currency. The Turks’ lira lost about half of its value last year. Sure enough, the orders are coming in. Too bad Turkish companies are going broke before they can fill them. Their costs rise… they go out of business.

In this jackassery, Turkey is being advised by none other than Warren Mosler himself, one of the mad Mengeles behind ‘Modern Monetary Theory.’ As the Turks’ economy goes down, Mosler advises the central bank to do the exact opposite of what common sense and experience suggests. He told them to cut their policy rate to zero.

Wow. That ought to help. Already at 50% inflation… Mosler wants the central bank to lower rates… not raise them. Another experiment! How will that work out? We suspect it will go the way of all such experiments and end a bit like Wernher von Braun’s 1977 obituary in the Economist: “He aimed for the stars…and hit London.”

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