The elephant in the room

- Richard FeynmanLet's start with New Keynesian economics.

It certainly hasn't worked, other than providing intellectual cover for the greatest wealth inequality since 1929.

Tom Hoenig: “I am convinced that mild deflation is no worse than mild inflation. So, if you’re between those two, and you manage accordingly, and you come up on average at zero, you’ve done the world a big favor. And the United States is a country who can lead that. And that’s what the gold standard was all about to begin with.”

Judy Shelton: “About getting down to zero inflation and mild deflation - it’s not only a good thing, but it’s a natural order of things. Technology increases the standard of living at a lower price.”

Hoenig: “On the repo - or what I call the swap arrangements - I’m very concerned about them, because what you’re doing, and what you’re being forced to do is the Treasury is looking to the Fed to fund Japan’s purchases of U.S. debt so that Japan doesn’t find itself selling U.S. debt and therefore depressing the price and raising interest rates.”

“We are in an economy that is boosted by the media and by governments, where they pretend that everything is very good. And it’s very good if you are a large stockholder or a large asset holder, because the money printing by the devious central banks has boosted asset prices enormously, and actually has been negative for ordinary people because in the last few years their cost of living has been rising more rapidly than their wages.

We have essentially in the world the highest wealth inequality we ever had, with the rich people becoming immensely rich. And I’m not complaining, because I’m involved in the financial market. So I benefit from money printing. But as an economist and social observer you can see - I read quite a lot about economics and social issues. My view is that it’s been a disaster for ordinary people.”

“Rational accounting man, which would be price insensitive people that are following accounting rules and regulation or instructions that are noneconomic related, and what we would call boundedly-rational agents. People who are making decisions based upon the risk they’re taking, skin in the game, their own capital, tacit knowledge, right? And we model things that way.

So you can think of passive as a subset of rational accounting man. And rational accounting man dominates most markets, because all bank traders, all pension fund traders, all insurance traders, all central bank traders, all FX reserve managers are rational accounting men. When they buy something, they’re not thinking about the value of it for their retirement. They’re thinking about the regulatory requirements around accounting and risk and usually an annual compensation period. That is a very different thought process than somebody who’s trying to make a 30-year investment decision to fund his retirement where losses are his and failures to achieve his investment goals impair his own lifestyle. Those are two very different decision- makers.”

“Rational accounting men even in losses do not behave like price-sensitive investors because they don’t mark to market.

The central banks who bought all the bonds are sitting on massive unrealized losses. The FX reserve managers are sitting on massive unrealized losses. The banks are sitting on massive unrealized losses. The pension funds and insurance companies that are a big part of some of the other side of stuff we do with duration extending callable-note structures with embedded Bermudan swaptions that are masking duration in the form of structured complex derivative products, have really massive unrealized losses, and nobody’s cut the positions yet.

Nobody’s freed the capital that’s tied up in those things, or the lack of capital. Nobody’s recognized the accounting losses.”

“The mistake that everybody makes is saying, ‘It’s been calm for so long. It’s been calm. Why do you think that’s going to happen? Why do you think that having survived all the way from 30% of debt to GDP to 130% of debt to GDP, and nothing’s blown up? So why should we worry about it?’

All the more reason why you should worry about it. Obviously the imbalance, the fragility is building…[We want to capture] "that tail that the the flawed methodology doesn't recognize exists."

Example Via SuperGrok (I edited some here. Sorry but the A.I. explanation isn’t bad)

Consider a volatile stock (or leveraged investment) with the following sequence of annual returns over four years:

• Year 1: +50%

• Year 2: −40%

• Year 3: +50%

• Year 4: −40%

You start with $100 invested and fully reinvest (no withdrawals or additions).

Step-by-step wealth path (what actually happens to you over time):

• End of Year 1:

  100×1.50=150

• End of Year 2:

  150×0.60=90

• End of Year 3:

  90×1.50=135

• End of Year 4:

  135×0.60=81

Your final wealth is $81. You have lost 19% of your capital overall.

The two different averages:

1. Arithmetic (ensemble-style) average of the yearly returns - this is the figure often quoted as the “average return.” It looks attractive: +5% per year suggests your money should grow.

2. Time-average (geometric) growth rate — what your single trajectory actually experiences. Skipping the math, you're DOWN 5.1% per year.

• The ensemble/expected-value view (the +5% arithmetic average) describes what happens if you average across many parallel investors or many possible sequences at a fixed point in time. A few lucky sequences grow very large and pull the average up.

• The time-average view describes what a single investor actually experiences by living through the sequence of returns one year after another. Because wealth multiplies (each return is applied to the current balance), the order and compounding matter. In this case the typical long-run experience is a decline.

“This is the classic signature of a non-ergodic process: the time average does not equal the ensemble average. Stock-market (and most investment) wealth dynamics are multiplicative, so they are generally non-ergodic. Maximizing the arithmetic expected return can therefore lead to strategies that look good on paper but systematically erode an individual’s wealth over time. Ergodicity economics instead recommends optimizing the time-average growth rate (often related to the geometric mean or logarithmic growth).”

I’m reminded of this cartoon:

And I’m reminded of this classic 2009 article:

Meet the decade’s best-performing U.S. diversified stock mutual fund: Ken Heebner’s $3.7 billion CGM Focus Fund, which rose more than 18% annually and outpaced its closest rival by more than three percentage points.

Too bad investors weren’t around to enjoy much of those gains. The typical CGM Focus shareholder lost 11% annually in the 10 years ending Nov. 30, according to investment research firm Morningstar Inc.

Cash-strapped borrowers turn to scrip

When you read political polls, the political polls overwhelmingly say the number one issue in the country - bar none – is inflation, cost of living, affordability, whichever phrase you want to use for it. People are going to vote on that.

The DSA, the Democrat Socialists of America, are screaming that the reason that they’re rising to power is the cost of living, affordability, and the anger that is pushing into everybody. Okay, I understand that.

But then I listen to my economist friends and then they’ll say, “Oh, the one-year swaps rate or the two-year break even rate - inflation is not a problem, and it’s well anchored and it’s under control.”

We’re about to have a political revolution in this country because of cost of living and affordability, and all the economists that I talked to are saying that there’s nothing to see here. Move along.

1. Banks experience direct losses from loans secured by private credit funds.
   Banks have a total of $1.32 trillion in loans to nondepository financial institutions (NDFIs).

2. Banks lose their biggest engine of loan growth.
   NDFI loans have been the straw that stirs the drink for bank loan growth for over a decade, and no category comes close to its compound annual growth rate of 21.9%.

3. Private credit will no longer bail banks out of bad deals.

4. Contagion causes a cascading drop in values.

Danny Jones: “The real evidence is on the hard drives, because there’s girls that were there that testified that [Epstein] had rooms as big as this room right now, that were filled with servers and computers and monitors that were recording all that footage that he had not only on the island, but in New York, the Zorro ranch - everywhere. On a plane that was rigged. Everywhere. Where’s all that footage?

Juval Aviv: “I can’t tell you.”

Check out this August 2019 article: Jeffrey Epstein’s Bodyguard on His Former Boss’s Lifestyle, Cruelty, Suicide.

Same vibe as above video clip. People were scared.

From the book, "Relentless Pursuit," by Bradley Edwards, an anecdote from Epstein's former bodyguard, "a Russian mixed martial arts fighter":

On one occasion, after returning to New York just after completing his Florida “jail” sentence, Epstein yelled to this bodyguard that they needed to leave in a hurry. It was clear to him that whatever the reason, it was important and Jeffrey was pissed. Even to his professional bodyguard, when Jeffrey was pissed, he was scary. On that occasion, Jeffrey demanded that the Suburban be brought around quickly. Jojo, the driver, also understood this was an emergency in Jeffrey’s world. Jeffrey didn’t talk during the car ride from the mansion to the Wall Street office of a major league hedge fund manager whom the bodyguard couldn’t (or wouldn’t) identify.

They got to the office building and Epstein got out of the car with purpose, walking briskly to the front door of the high tower. His bodyguard was trying to keep up.

They headed to the elevator and Epstein didn’t stop to tell the front desk that he had arrived. When he got up to the floor of the hedge fund, Epstein, still on a mission, walked straight toward the back of the office complex to what his bodyguard referred to as the “president’s” office.

Epstein opened the door without knocking and barged in. He walked to the chair side of the desk, leaned over to the “president,” and said, “You need to get that money to Israel immediately. Like f***ing yesterday.”

As the story was relayed to me, the man on the receiving end of Epstein’s demand was shaking. This man was another Wall Street billionaire who made his own rules. With his voice quivering, he responded to Epstein, saying, “I wired thirty million dollars today. It’s already there. You can check.” Without a word to him, Epstein turned around and walked out, leaving the building the same way he’d come in.

His bodyguard had no idea what that conversation was about, but he knew it was important. He also believed that it epitomized what Jeffrey did for a living, when he was not getting “massages.”

I’m reminded of Cindy McCain’s words: “They were afraid of him.”

Remember - she was married to one of the most powerful men in the world, and they knew, and they did nothing.

“I’ve been a recovering neocon for six years now. The foolishness with which we ricocheted around the world intervening, thinking it was in our best interests, when really we just overturned the table and created something worse in almost every single scenario has led to - I mean the hubris of the Pentagon is that they want to now tell other countries how to do counterinsurgency based on what we did in Iraq and Afghanistan! Are you kidding me? So you really have learned nothing. Nothing. You’re right that the trust that our political leaders or our generals would have our best interest in mind is totally broken. It’s totally broken. I acknowledge that completely, and the last thing I want is my son deploying to the Donbas to defend eastern Ukraine.”

• “We took a lot of casualties in Iraq and Afghanistan because we refused to do certain things that we could have done much easier, things we could have done in ways that would have killed a lot more of their civilians or preserved a few of our soldiers lives. And we chose not to do that. And it’s unfortunate, because over the course of the war on terror and I think largely in more recent years, due to the compulsive need in our political discourse to find ways to rationalize everything that we see the state of Israel do, it’s forced us to really compromise on a lot of those values, because if you don’t compromise on them then you have to condemn what’s going on in Gaza. And so we’ve lost a lot of that over the course of the last few decades. We’ve been poisoned and polluted by it.”

• “I know from personal experience that the guys themselves, those are our best people, and they’re often criticized by people who are not fit to tie their boot laces. Those guys, if you give them a good reason, they will go fight. They will risk their own life unnecessarily to avoid the possibility of harming an enemy civilian. That’s who these guys are. But when you remove that sense of honor that’s been on every recruiting ad and recruiting poster going back as far as you can imagine, when you tell them that we’re going to launch a sneak attack in the middle of negotiations on a much weaker country, we’re going to threaten to end their civilization, and destroy their civilian infrastructure over a war we started for reasons that nobody’s really bothered to even articulate to the American public, it becomes much more difficult to get those guys to do their job.”

• “We may in a total war like the Second World War get drive ourselves to the point that we’re firebombing cities, but there are still certain basic rules of fairness, like you don’t start a war of aggression with a sneak attack in the middle of negotiations. People would have said, “Yeah, but America wouldn’t do that.” Even our enemies would have said that. And when you have achieved that, when you’ve gotten to a place where that really is true of your people, that’s something that you really have to hold on to because the minute you let go of that bar, that ledge, you start falling down into that very dark place.”

• “When you stop seeing and treating people you’re in conflict with as human beings, and see them purely as a material obstacle to whatever goal you’ve set for yourself, you’re handing the reins over to Satan at that point.”

• “One of the real issues with prolonged, protracted war is the degradation of the spirit of the societies that are engaged in it.”

• “You saw very quickly that we essentially abandoned a lot of places that a lot of Arab countries have spent a lot of money, a lot of credibility with their own people, they’ve spent a lot building up their relationship with the United States for this eventuality. And they found out what that was worth very quickly, when we started moving a lot of our resources over to, honestly, much less strategically critical areas of defense around Israel.”

• “The bravest thing that Donald Trump could do is to admit this was a mistake, pay some restitution to those girls families, and get out of there. Stop doing it.”

“You fell victim to one of the classic blunders. The most famous is ‘Never get involved in a land war in Asia.’

“I frankly think his biggest mistake was allowing himself to be caught in this nowhere position. He should have gone with the hawks for an outright victory or he should have pulled out. The kind of strategy we were following merely emphasized the grim truth of General McArthur’s famous statement, “The U.S. should never get involved in a land war in Asia.””

(April 1961)

“Kennedy appreciated MacArthur’s soothing judgment on Cuba (and would soon change the military’s top leadership—perhaps in keeping with MacArthur’s views), but then shifted the subject to Laos and Vietnam, where communist insurgencies were gaining strength. The Congress, he added, was pressuring him to deploy U.S. troops in response. MacArthur disagreed vehemently: “Anyone wanting to commit ground troops to Asia should have his head examined,” he said.

That same day, Kennedy memorialized what MacArthur told him: “MacArthur believes it would be a mistake to fight in Laos,” he wrote in a memorandum of the meeting, adding, “He thinks our line should be Japan, Formosa, and the Philippines.” MacArthur’s warning about fighting in Asia impressed Kennedy, who repeated it in the months ahead and especially whenever military leaders urged him to take action.”

Anyway, they killed JFK and got their war.

Reminded me of this real photo:

Ghislaine Maxwell "really believes that she's going to be pardoned by Trump. She believes it. She was promised by the attorney general."

-

Published eleven days before Epstein was suicided:

• Fein: Trump’s unilateral war flouts the Constitution

• The last time we followed the Constitution and declared WAR was in 1942, against Rumania. We've been involved in a lot of wars since though.

Matt Bracken

Joe, I was in Beirut in 1983. I led the NavSpecWarDet from MARG 1-83. A SEAL Platoon, a 35' Seafox boat and crew, and an SDV (mini sub) and crew. To call the bombing of the Marine "barracks" an act of terrorism is incorrect.

Scroll halfway down

this page to see some pictures etc.

First, it was not "a barracks," not ever. This is the accepted cover story for a total and fatal breakdown in USMC military discipline. I was there in the spring of 83, not the fall, but I was in that BLT HQ building 100 times. It was NEVER a "barracks." The troops should have been dispersed out in their 20-man GP tents. The fact that Marine officers looked the other way as cold rainy Autumn weather came in, and let their troops slip into the BLT HQ building, is on the Marines. There should have been no more than 20 or 30 on "duty sections" manning comms etc. over night in that building.

We went into Beirut as part of the Multi-National Peacekeeping Force. We went as "neutral referees." This was after Israel drove tanks up to the Beirut suburbs, and their proxy Christian phalangist militias went into the Sabra and Shatila refugee camps, and slaughtered 100s of women and children, with Israeli air and artillery cover.

Wiki, top up front:
"From 16 to 18 September 1982, between 1,300 and 3,500 civilians—mostly Palestinians and Lebanese Shias—were killed in Beirut's Sabra neighborhood and the adjacent Shatila refugee camp by the Lebanese Forces, one of the main Christian militias in Lebanon, with the support of the Israel Defense Forces (IDF)"

The world was horrified. This was when CNN was brand new with 24 hour news coverage. It took years for the My Lai massacre in Vietnam to be exposed. It took hours for the Sabra and Shatila massacres to be seen around the world, while the bodies were still bleeding and warm.

Reagan said ENOUGH, and told Menachem Begin and Ariel Sharon (defense minister) to back off, or not another dollar from America. And he sent in the U.S. Marines, joined by Brits, French and Italians. But we went in as neutrals, to keep the sides apart. Umpires. Referees. Neutrals. The PLO were put on USN ships and carried to Tunisia. That was the mission.

But, inevitably, "friction happens" when combatants are using the same roads and living space. We call it "clearing lanes of fire for our defense," they call it "chopping down our trees and tearing down some homes and businesses." One thing led to another, and by the Autumn of 83, we had USMC snipers trading shots with the proto-Hezbollah (they did not formally exist yet) shooters. Then came mortars. Both ways. Then artillery. Both ways. Then the battleship New Jersey was firing 16" shells deep into Lebanon.

Our status as "neutral umpires" was over and done. We were combatants. The Seabees used backhoes to dig big holes for the Marines' 20-man GP tents, to put them below ground level, due to the threat of mortars and arty. And then it began to rain, cold rain, and the holes filled with water. Wood pallets were the floors, you know the deal. The troops, on cots, were below ground level, but it sucked. So they began to slip into the BLT HQ building, with their fart sacks and ground pads. Cozy, compared to tents in the rain and mud.

Until 100s of Marines were bunched up in that building, nice and dry. But making a big fat juicy target. This is while the New Jersey was firing 16" shells inland, and our snipers and mortar teams were trading shots with theirs.

And the big target incorrectly known to history as "the Marine Barracks" was hit with a truck bomb, that drove straight into the open foyer of the building.

The Marine sentries were not allowed to have magazines in their rifles without getting permission from an officer. No vehicle barricades had been built. It was about a block and a half from the busy wide-open main Beirut airport road to the front of the building. The rest is history.

But this was 100% a military action against a military target, a military that was engaged in warfare. It was not terrorism. They were, by October of 83, combatants. And they were killed as much by that fatal lapse in USMC military discipline, by letting them bunch up in the BLT HQ building over night, as they were by the truck bomb.

And they were certainly not 168 grade school girls, killed by Tomahawk missiles during a sneak-attack assassination missile strike. During negotiations.

The crux of the matter is 1923, not 1933. It was no coincidence that Hitler’s beerhouse putsch of November 8, 1923 was made when inflation had reached an absurd level—one dollar equaling 4.2 billion marks. The extremism of the right and the left was the direct result of the abysmal living conditions engendered by inflation.

And, though the beerhouse putsch failed, the blood of the Nazi “martyrs” watered the seed of the horrifying Nazi advance. Hitler used his detention to write “Mein Kampf”, the abortion of his earlier plans inspired his followers and the sinister forces behind them to provide him with another and better chance.

If any logical chain of events can ever be established with certitude, it is the one which brought Nazism in the wake of inflation and economic misery.

Professor Willi Frischauer

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Ralph Newman, Incident At Exeter

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