This Religion Must Die

It’s Done Untold Harm Were you forwarded this email? [Sign-up to The Daily Reckoning here.]( [Unsubscribe]( [Daily Reckoning] This Religion Must Die - A former Treasury secretary says we need five years of 5% unemployment or more to stop inflation… - Economic Nuremberg trials for everyone involved in promoting Keynesian propaganda… - Then Jim Rickards shows you why the Fed desperately needs new economic forecasting models… Recommended Link [Emergency Broadcast from Jim Rickards]( You’ve seen the news. Stocks are crashing, crypto is plummeting and the Dow seems to just keep going down. That’s why, Jim just went live with [a kill list of 153 stocks]( that he recommends you remove from your portfolio today, before the market closes if possible. This is an extremely urgent situation, and this message should NOT be ignored. But you don’t have long to act. Jim and his team moved heaven and earth to get [this information]( to you as soon as possible. [Click Here Now]( Annapolis, Maryland June 29, 2022 [Brian Maher]Dear Reader, The Federal Reserve has the shrieking economy stretched upon the altar of its beloved Phillips curve… dagger high in hand… prepared to sacrifice its tearful victim. The Phillips curve, Investopedia reminds us, “states that inflation and unemployment have an inverse relationship. Higher inflation is associated with lower unemployment and vice versa.” The Federal Reserve is out to collar today’s galloping inflation. It is therefore plowing ahead with all deliberate speed — jolting interest rates higher and knifing into its balance sheet. If successful it will get inflation back in its stable. Yet the Phillips curve instructs us that reduced inflation equals increased unemployment. The unemployment may be dire, it may be cruel — yet the sacrifice is necessary. There you have the flavor of it. As former Treasury Secretary Larry Summers mumbled recently: We need five years of unemployment above 5% to contain inflation — in other words, we need two years of 7.5% unemployment or five years of 6% unemployment or one year of 10% unemployment. Yet do we? Must we hurl millions into despairing unemployment to choke off inflation? If you are a disciple of Lord John Maynard Keynes and cherish the Phillips curve, the answer is yes. Yet you subscribe to a false theology — with its false clergy, false catechism, false commandments. The dreadful stagflation of the 1970s savagely exposed the fraud. Both inflation and unemployment leapt together, in tandem, the one tied to the other. And in recent years low unemployment went with low inflation — another blow to the faithful. Thus the Phillips curve was reduced to a pitiful caricature of a theory, mugged and pillaged by a vicious gang of facts. As Mr. Saifedean Ammous, author of The Fiat Standard: The Debt Slavery Alternative to Human Civilization, explains: Keynesians think money printing doesn’t cause inflation, but a decrease in unemployment does…. The trade-off between unemployment and inflation is one of the most ridiculous and utterly refuted pieces of Keynesian economic fiction. The 1970s were just a global falsification of this stupidity, and only a completely corrupt criminal could still believe in it today. Yes, Keynesian criminals truly think that putting poor people out of work, lowering their wages and making them destitute will help keep prices down, but no government spending or bank bailout is ever too much. Once the fiat scam is finally unwound, there really ought to be economic Nuremberg trials for everyone involved in promoting Keynesian propaganda. Being a complete moron who actually believes this criminal garbage is not an acceptable defense. This fellow would haul the abovesaid Summers into the dock… to face his suffering victims: Your periodic reminders that Keynesians are deranged sociopaths who genuinely think you can lower inflation by raising unemployment among poor people and ruining their lives instead of just not printing money and handing it to rich bankers. We believe there is great justice here. Why not simply run the printing press in low gear? It would stymie and suppress inflation. And will increasing the unemployment rate decrease consumer prices? As notes economist Thomas Woods: Back on planet Earth, less economic activity means less production, which means more scarcity, which means higher prices. Yet Mr. Summers and others like him cling resolutely to their faith. The Phillips curve is their rock. The Eccles Building at Washington is their Vatican — poped presently by a certain Jerome H. Powell. And they have embarked upon a crusade that will almost certainly come to grief for the American people. Below, Jim Rickards shows you how the Federal Reserve’s botched forecasting models like Phillips curve lead to one crisis after another, and why new models are needed desperately. Read on… Regards, [Brian Maher] Brian Maher Managing Editor, The Daily Reckoning Editor’s note: Jim Rickards has gone live with [an urgent message…]( According to his new system, “Dozens upon dozens of major companies are on the verge of collapse.” In short: Jim’s system has just triggered more than 150 new “sell alerts.” He strongly urges you to jettison these toxic stocks immediately. Do you have many of them in your portfolio? Jim details everything, including giving out the complete list of 153 stocks for FREE. [>Click This Link To Be Taken To Jim’s Urgent Message Now<]( Recommended Link [Biden to Introduce Social Credit System like China?]( [Read more here...]( If you say the wrong thing on Chinese social media, you are labeled “untrustworthy”. They can then take away your ability to travel, restrict internet access, or deny your family the best jobs. They even confiscate your pets. Thanks to Biden’s new Executive Order 14067, a former CIA and Pentagon advisor predicts America will soon become a total surveillance state like China. [See Our Dark Future Here]( The Daily Reckoning Presents: The Fed’s models: garbage in, garbage out… ****************************** The Fed Needs a Reality Check By Jim Rickards [Brian Maher]John Maynard Keynes once wrote, “Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.” Truer words were never spoken.The “defunct economist” in question would be William Phillips, inventor of the Phillips curve, who died in 1975. In its simplest form, the Phillips curve is a single-equation model that describes an inverse relationship between inflation and unemployment. As unemployment declines, inflation goes up, and vice versa. The equation was put forward in an academic paper in 1958 and was considered a useful guide to policy in the 1960s and early 1970s. By the mid-1970s the Phillips curve broke down. The U.S. had high unemployment and high inflation at the same time, something called “stagflation.” Milton Friedman advanced the idea that the Phillips curve could only be valid in the short run because inflation in the long run is always determined by money supply. Economists began to tweak the original equation to add factors — some of which were not empirical at all but model-based. It became a mess of models based on models, none of which bore any particular relationship to reality. By the early 1980s, the Phillips curve was no longer taken seriously and seemed buried once and for all. RIP. But the Phillips curve never really went away! It lived in the hearts of Keynesian economists who could never accept that it was deeply flawed. Unfortunately, if you have defective and obsolete models, you will produce incorrect analysis and bad policy every time. There's no better example of this than the Federal Reserve. The Federal Reserve has done almost nothing right for at least the past 20 years, if not longer. The Fed organized a bailout of Long Term Capital Management in 1998, which arguably should have been allowed to fail (with a Lehman failure right behind) as a cautionary tale for Wall Street. Instead the bubbles got bigger, leading to a more catastrophic collapse in 2008. Greenspan kept rates too low for too long from 2002–2006, which led to the housing bubble and collapse. Air is coming out of the present bubble now, but there’s a long way to go. Why this trail of blunders? The answer is that the Fed is using obsolete and defective models such as the Phillips Curve and the so-called “wealth effect” to guide policy. None of this is new; I’ve been saying it for years in books, interviews and speeches. The Fed’s models are empirically false. Studies have proven how faulty their models are. The Fed has the worst forecasting record in the world. It’s basically been wrong every year since 2009. Need proof? Every year, the Federal Reserve forecasts economic growth on a one-year forward basis. And it’s been wrong every year for the better part of a decade. When I say ‘wrong,’ I mean by orders of magnitude. If the Fed forecast 3.5% growth and actual growth was 3.3%, I would consider that to be awesome. But the Fed would forecast 3.5% growth and it would come in at 2.2%. That’s not even close, considering that growth is confined to plus or minus 4% in the vast majority of years. The Fed assumes so many things about markets that are simply false, like that markets are always efficient, for example. They’re not. Under volatile conditions like these they gap up and down — they don’t move in rational, predictable increments like the “efficient-market hypothesis” supposes. Recommended Link [Trump’s Final Gift To America]( [Read more here...]( There’s a little-known way Trump could – one day – have his revenge. It involves a Federal Ruling he oversaw in the final year of his Presidency that could change America forever… unleash an estimated $15.1 trillion in new wealth… and create countless ways for everyday Americans to benefit. What is this little understood decision? And how will it impact you? [Get The Fact Here]( Equilibrium models like the Fed uses basically say the world runs like a clock and occasionally it gets knocked out of equilibrium. And all you have to do is tweak policy or manipulate some variable to push it back into equilibrium. It’s like resetting a clock. That’s a shorthand way of describing what an equilibrium model is. It treats markets like they’re some kind of machine. It’s a 19th-century, mechanistic approach. But traditional approaches that rely on static models bear little relationship to reality. Twenty-first-century markets aren’t machines and they don’t work in this clockwork fashion. The Fed uses equilibrium models to understand an economy that is not an equilibrium system; it's a complex dynamic system. As a result of these defective models, the Fed printed $3.5 trillion of new money beginning in 2008 to "stimulate" the economy, only to produce the weakest recovery in history. We all know about the flood of money they created during the pandemic. Right now the economy faces severe headwinds in the forms of geopolitical instability, inflation and supply chain disruptions. The chances of recession are high. We may already be in one. The Fed needs interest rates to be between 4% and 5% to fight recession. That’s how much “dry powder” the Fed needs going into a recession. In September 2007, the fed funds rate was at 4.75%, toward the high end of the range. That gave the Fed plenty of room to cut, which it certainly did. The current fed funds target rate is between 1.50–1.75%. If we have a recession the Fed doesn’t have anywhere near the room to cut as it did to fight the Great Recession, even with planned additional hikes. During its hiking cycle that ended in December 2018, the Fed was trying to get rates closer to 5% so they could cut them as much as needed in a new recession. But, they failed. Interest rates only topped out at 2.5%. The market reaction and a slowing economy caused the Fed to reverse course and engage in easing. Can the Fed even get to 2.5% in its upcoming tightening cycle before it reverses course again? Here’s the deeper problem with all the Fed’s manipulations… The problem with any kind of market manipulation (what central bankers call “policy”) is that there’s no way to end it without unintended and usually negative consequences. Once you start down the path of manipulation, it requires more and more manipulation to keep the game going. Finally it no longer becomes possible to turn back without crashing the system. Of course, manipulation by government agencies and central banks always starts out with good intentions. They are trying to “save” the banks or “save” the market from extreme outcomes or crashes. But this desire to save something ignores the fact that bank failures and market crashes are sometimes necessary and healthy to clear out prior excesses and dysfunctions. A crash can clean out the rot, put losses where they belong and allow the system to start over with a clean balance sheet and a strong lesson in prudence. Instead, the central bankers ride to the rescue of corrupt or mismanaged banks. This saves the wrong people (incompetent and corrupt bank managers and investors) and hurts the everyday investor or worker who watches his portfolio implode while the incompetent bank managers get to keep their jobs and big bonuses. All it does is set the stage for a bigger crisis down the road. Regards, Jim Rickards for The Daily Reckoning P.S. Dozens upon dozens of major companies are on the verge of collapse. And if you have their stocks in your portfolio, you could be in serious trouble. My system has just triggered more than 150 new “sell alerts.” I strongly urge you to jettison these toxic stocks immediately. How many of them do you have in your portfolio? In [this briefing]( I detail everything, including the complete list of 153 stocks for FREE. [>Click This Link To Be Taken To My Urgent Message Now<]( --------------------------------------------------------------- Thank you for reading The Daily Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:dr@dailyreckoning.com) [James Rickards][James G. Rickards]( is the editor of Strategic Intelligence. He is an American lawyer, economist, and investment banker with 35 years of experience working in capital markets on Wall Street. 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