A couple chart set-ups impervious to the Reinhart-Rogoff “controversy”

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“A bureaucracy is sure to think that its duty is to augment official power, official business, or official members, rather than to leave free the energies of mankind; it overdoes the quantity of government, as well as impairs its quality. The truth is, that a skilled bureaucracy is, though it boasts of an appearance of science, quite inconsistent with the true principles of the art of business.”

-Walter Bagehot


A couple chart set-ups impervious to the Reinhart-Rogoff “controversy”

Did you hear? The truth shall set us free.

No longer are we repressed by a debt-to-GDP level of 90%. Countries can now confidently ratchet up their debt levels without worrying about long-term growth.

The world is good again because we can resume a reality crafted for us by some higher power (i.e. beuraucrats).

[End sarcasm, for now...]

If you don’t know what I’m talking about, read this paper from Hoisington Capital Management published in 2012 and notice the contributions of Reinhart and Rogoff to its basic concepts and principles.

Basically, they found that high and rising debt levels become a problem when you start spending far more than you produce. Weird, I know.

And while few have pinpointed a precise and universal debt threshold where, which after having crossed, growth levels begin to slow and eventually reverse. Even fewer will agree that there is such a threshold because every economy is different. (Agreed – the IMF has determined emerging market economies run into trouble at debt levels far lower than developed market economies because they lack depth in their capital markets, among other things.)

But Reinhart and Rogoff suggested there was a level at which you could generally expect to see less bang for your proverbial borrowed buck. For them, that level was 90% debt-to-GDP.

That level has been easily surpassed by most developed market economies. Which is why every Keynesian and Krugmanian ignoramus breathed a collective sigh of relief when Reinhart and Rogoff’s work was completely and utterly “discredited” due to an excel spreadsheet error that neglected to include a handful of countries in critical calculations.

So what was the final takeaway from this investigation into alleged anti-government collusion?

Well, not a whole lot.

The revelation does indeed change the numbers to some degree, but the gist of their research stays the same: governments cannot take on endless amounts of debt and expect growth to track alongside without meaningful slowdown until the point where debt actually becomes a negative force acting on growth.

Interesting, because you would think governments around the world were just approved for a new credit card with no limit (and no penalties worth speaking of).

And that’s because we know who controls the language these days ...

Beholden to the stereotypical mindless liberal foot soldiers and neo-conservatives in sheep’s clothing, who are in turn beholden to the globalist financial aristocracy, our media laps up and regurgitates anything and everything which might suggest the government does indeed need to play an ever larger role in rescuing society from the evils done by free and unregulated markets.

So here we’ve seen a very credible, albeit laissez faire, warning to world governments and its people happily defenestrated in front of our very eyes, not because it contained a few errors but because it doesn’t fit the script.

[Begin sarcasm ...]

It’s a good thing our media willingly and thoroughly scrutinizes the collusion of too-big-to-fail banks in artificially setting LIBOR rates and interest rate swap prices as well as the artificial price setting of money via central bank interest rate policy. Otherwise,

It is a joke. But few have enough time to understand this truth when they’re more worried about keeping their head above water in an economy driven by lies that perpetuate a problem created by these very same lies.

And that’s exactly what our esteemed leaders rely upon.

But before I make this a miserable day for you, let me get to a few chart set-ups that suggest risk appetite may take a breather here soon ...

Currency Currents, 30 April 2013 -- Chart Set-Ups ...

JR Crooks