Unmanipulate manipulated economy

SUBHEAD: Breaking the stranglehold of vested interests of g an economy totally dependent on manipulated money and statistics.

By Charles Hugh Smith on 20 January 2015 for Of Two Minds -

Image above: Illustration of American bubble economics by Victor Juhasz. From (http://www.rollingstone.com/politics/news/the-great-american-bubble-machine-20100405).

The word manipulated has the sour taste of officially sanctioned distortion in service of an Elite's interests. At a minimum, manipulation smacks of intent to defraud. If there is no intent to defraud or mislead, then what's the purpose of manipulating statistics, media coverage and official narratives?

As a result, the unsavory reality of our massively manipulated economy is masked by insipid words such as stimulus, easing and investing in our future--as if borrowing and squandering trillions of dollars to further enrich the few at the expense of the many is anything but blatant grift, fraud and embezzlement of taxpayer funds.

Regardless of what slippery words are deployed to mask the manipulation, it doesn't change the reality that the U.S. economy remains a manipulated mess that is dependent on monetary and statistical manipulation.

If you doubt the economy is dependent on monetary and statistical manipulation, then ask yourself what will happen to the economy should the Federal Reserve's zero-interest rate policy (ZIRP) be rescinded, and interest rates return to historic norms.

Ask yourself what happens if the Federal government actually declared the increase in public debt as the true measure of fiscal deficits rather than the ginned-up deficit number--a number that is much less than the actual deficit reflected in the annual increase in public debt.

Ask yourself what the gross domestic product (GDP) would be if hedonic adjustments and other flim-flam were eliminated from the calculation.

Ask yourself what the unemployment number would be if the federal government only counted living-wage jobs (i.e. full-time jobs, those with multiple part-time jobs that equal a full-time job, the self-employed who net a living wage, etc.) and counted every resident of working age who is not disabled as employable.

Left unmanipulated, the statistics would no longer be rosy, and both the economy and our perception of the economy would tank.

The irony of relying on manipulation to prop up an economy designed to serve vested interests is the manipulation becomes permanent, as every participant in the manipulated system optimizes their behavior to exploit the manipulation. Once the manipulation is withdrawn, the economy falls to pieces because participants have optimized their actions to extract the maximum benefit from the manipulation.

To attempt to invest productively makes no financial sense whatsoever. Those who win big in manipulated-money economies are those who leverage bets in what's incentivized by manipulation - debt and speculation.

Instead of seeking constructive investments that generate increased productivity in the economy, players optimize their investments to influence the manipulators in charge (politicos, regulators, central bankers, etc.) or speculate with the excess funds flooding the system as a result of monetary manipulation.

An economy optimized for indebtedness and speculation is akin to a spoiled kid who is rewarded for sitting around playing video games and eating chocolate cake and potato chips. The sugar-high of the chocolate-cake diet feeds the psychological addiction of playing counter-productive, meaningless games all day, and the kid's expanding waistline and deteriorating fitness go unnoticed.

Withdrawing the manipulation that rewards debt and speculation is akin to demanding the spoiled kid start running laps and doing push-ups on a diet of broccoli and carrot sticks. The spoiled kid's tantrums will be epic and unending, as he pulls every trick in the book to escape the discipline of reality and seeks a return to the easy life of squandering his health playing games and eating junk food.

That the game-playing and junk food diet are ultimately destructive are lost on the spoiled kid. In the exact same fashion, the U.S. economy will throw a screaming tantrum the second the monetary and statistical manipulation is unwound, and those sectors that have benefited the most from the manipulation will scream the loudest and longest.

Like the spoiled kid who threatens to hold his breath until he expires (anything to escape the discipline of a functioning market), the sectors that have grown fat on the manipulated money will claim they're having a fatal spell, and that their demise will take down the entire economy.

The only way to save the spoiled kid from the destructive lack of discipline is to call his bluff: go ahead and hold your breath until you expire. Everybody knows it was a bluff, and the kid will grumpily re-enter reality once his bluff has been called.

There is no way to painlessly unmanipulate an economy that has grown dependent on manipulation. Addiction can only be broken by going cold turkey: ending all the manipulation and forcing the economy to adjust to the discipline of reality and an unfettered market for money, credit and risk.

The U.S. can survive the demise of its bloated, unproductive banking sector, the Federal Reserve that enforces the sector's power, and the eradication of its numerous classes of parasites and leeches. Every parasitic vested interest will claim it is essential to the well-being of the nation; the truth is entirely the opposite--each is terribly and intrinsically destructive to the fabric of the nation.

Each parasitic vested interest will sob and moan and threaten to hold its breath, whimpering that the discipline of reality and the unfettered market will kill it. If the discipline of reality and the unfettered market will kill the vested interest, then it is in the best interests of the nation to hurry its demise, as breaking the stranglehold of vested interests is the essential step to rebuilding an economy that isn't dysfunctionally dependent on manipulated money and statistics.

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