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Media Catches Up to Economic Reality

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01/21/2016

Enough economic warning signs are going off that the mainstream media is finally coming to grips with the fact that the debt and fiat money-fueled economy simply isn't quite as solid as the Federal Reserve and other central planners would have us believe.

The Wall Street Journal, for example, put together a wonderful graphic highlighting the Fed's habit of being overly optimistic on their GDP predictions.

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Meanwhile, CNBC ran a piece last week warning that "A recession worse than 2008 is coming." In a wonderfully blistering attack on "Wall Street apologists," Michael Pinto highlights how the Federal Reserve has pushed us into unprecedented conditions and that those who have full confidence in it's ability to navigate the economy through the current story is delusional:  

Banks may be better off today than they were leading up to the Great Recession but the government and Fed's balance sheets have become insolvent in the wake of their inane effort to borrow and print the economy back to health. As a result, the federal government's debt has now soared to nearly 600 percent of total revenue. And the Fed has spent the last eight years leveraging up its balance sheet 77-to-1 in its goal to peg short-term interest rates at zero percent.

Therefore, this inevitable, and by all accounts brutal upcoming recession, will coincide with two unprecedented and extremely dangerous conditions that should make the next downturn worse than 2008.

First, the Fed will not be able to lower interest rates and provide any debt-service relief for the economy. In the wake of the Great Recession, former Fed Chair Ben Bernanke took the overnight interbank lending rate down to zero percent from 5.25 percent and printed $3.7 trillion. The Fed bought longer-term debt in order to push mortgages and nearly every other form of debt to record lows.

How does Pinto see this all ending?

Look for chaos in currency, bond and equity markets on an international scale throughout 2016. Indeed, it already has begun.

As Dr. Joseph Salerno highlighted yesterday, this is notably different than what we were hearing from the mainstream just a year ago, (though right in line with what readers have found on Mises.org in articles like this, this, this or this.)

Today, Barron's also got in on the action, highlighting the warning signs flashing from Dr. Mark Thornton's famous Skyscraper Curse.

Could there be more to so-called Skyscraper Curse than just fun and games? Let’s hope not as this phenomenon –- and the forces that tend to drive it -- goes truly global, as in the entire international financial system. According to the Council on Tall Buildings and Urban Habitat, the world just reached the 100 super-tall-skyscraper mark (defined as buildings 300 meters and higher). That No. 100 is in New York (432 Park Avenue) might not surprise investors suffering deep losses on Wall Street. Most of these projects are in Asia and the Middle East, though, raising many other what-if’s.

Most interesting is how quickly the projects are popping up –- both literally and figuratively. It took 80 years to get to the first 50 super-tall buildings from 1930 to 2010, but just five years to add the next 50. The next 50 of the future could be completed in even less time. What does this say about the state of the global economy today and where it might be heading? Perhaps nothing. Or, perhaps everything.

Efforts to building the tallest tower are as much about hubris and excess as technology. “Of course, the building of record-setting skyscrapers does not cause world economic crisis,” explains Mark Thornton of the Ludwig von Mises Institute, which espouses the Austrian school of economics. “The records are merely symptoms of the underlying cause of world economic bubbles: sustained artificially low interest rates by central banks.”

The nonsense of the political theater aside, 2016 is already shaping up to be a volatile year. Hopefully, unlike 2008, the public will learn that more debt, easy money and larger Federal Reserve balance sheets will never be pillars of prosperity.

Related:

To hear more from Dr. Thornton on the current economic environment, check out his interviews this week with Dr. Ron Paul on The Liberty Report and Edward Harrison of RT's Boom and Bust.

Tho is an assistant editor for the Mises Wire, and can assist with questions from the press.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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