Keynesian witchcraft

While the mother of all financial bubble continues to inflate, people who have not yet lost their sanity are torn between the need to digest a disturbing truth (there will be no economic recovery, there will be no safe haven within the traditional financial system) and the need for take a break from such madness.

Only the most tender sheep of the flock ignore that governments can no longer deviate from the foolish course that have charted for the economy. In fact, governments can no longer even slow (much less reduce) the speed of the convoy suicide. So no time to lose: this is the time to throw the car, because tomorrow could be too late.

Once safe, we can relax and watch the inexorable process of derailment unruffled. Future victims have been notified and have not heeded the warnings; now we can only take notes from the safety of our shelter and then study the phenomenon in detail, as these engineers who examined again and again the black box recordings after an accident.

The instruction , however, is not incompatible with entertainment. Is it entertaining the show that give academics trying to justify any nonsense arising out of a ministry of economy? It is for those who are shielded from the monetary and financial manipulation .

Bank bailouts at taxpayer expense , quantitative easing, negative interest rates ... all can be blessed with solemn attitude and jargon distracting . At the end of the day , it is what they have done priestly authorities for thousands of years , and nothing indicates that they will quit just when higher traded their services.

One of the most popular myths of Keynesian witchcraft is the "multiplier effect of government spending ." With the help of Mike Shedlock today will discuss the absurdity behind this concept .
public expenditure and GDP

The formula of GDP (Gross Domestic Product ) is: Y = C + I + G + (X - M).

GDP ( Y) is the sum of consumption ( C ) , investment ( I) , government spending (G ) and net exports (X - M).

Keynesian stupidity

By definition , public spending contributes to GDP, no matter how ridiculous it is spending. If the government will pay people for spitting at the moon , that would add to GDP.

But the long-term consequences of such absurdity should be obvious .

Japan is proof enough . All you have is huge amounts of debt and slow growth due to decades of building bridges to nowhere.

Aliens to the rescue

Let's assume for a second that there is a dangerous lack of demand from consumers and that inflation is " too low" . What should we do about it?

In an interview with CNN in 2011, Paul Krugman suggested that aliens could fix the economy .

Krugman said: "It is very difficult to get inflation in a depressed economy . But you can achieve if a public spending program coupled with an expansionary policy by the Federal Reserve implemented . If we discover that a group of aliens planning an attack, and we needed to build a huge infrastructure to defend against the alien threat , and inflation and budget be relegated to the background , this fall would not last more than 18 months. And then if we discovered that ... oops ! we have made ​​a mistake ( ... ) There was a Twilight Zone episode in which scientists simulated an alien threat in order to achieve world peace . This time the threat need to get some fiscal stimulus . "

Apparently , if we pretend an alien threat then we can create inflation and save the world from alleged evils as falling prices and insufficient demand.
What is seen and what is not

There is no doubt that there may be a big jump in GDP if we fight against the aliens ( real or imagined ) . And then what?

Because the long-term effect of foolishly assume a totally unproductive debt is negative , Keynesian economists demand more and more fiscal stimulus ,as does Krugman constantly !

" What you see " in the context of the fight against the aliens is the short-term momentum of GDP. "What we do not see" it is the net subtraction growth in the long term Keynesian economists never taken into consideration.
The trap

Fall into the trap is taken seriously Keynesian economists like Krugman , as doing so we dug deeper and deeper into the pit of debt.

The solution is to value realistically unproductive debt, not increase fiscal stimulus .

However , central banks try to cram more and more debt in a debt clearly overloaded system.

Among the widely accepted but clearly false economic beliefs , is the absurd idea that the fall in consumer prices is bad for the economy and that something must be done about it.

In their attempts to fight the deflationary trend in consumer prices , central banks create very destructive asset bubbles that eventually burst, causing what actually should fear -the deflation of asset bubbles following the excess credit inflados- invested in bank assets
Asset deflation

Central banks should fear deflation of assets , not deflation CPI ( Consumer Price Index ) . Even the BIS ( Bank for International Settlements ) agrees with that statement.

However, both Keynesian economists such as central banks remain united in their goal of producing self-destructive inflation.

The results speak for themselves: booms and busts of increasing amplitude .