Posted by: Dr Churchill | May 24, 2013

Exercising Monetary Policy through the thorny flower of Propaganda

Since Federal Reserve Chairman Ben Bernanke testified before the Joint Economic Committee of the US Congress last Wednesday morning — all hell broke loose.  The Beard was simply commenting on the economic outlook and responding to the inane questions usually asked by lawmakers about the likely path of the United States monetary policy…

Still this business as usual meeting spurred a sea change. Immediately after, the calm before the storm was heavily felt dropping the barometer quickly and then  several ”not so very nice things” happened seemingly all at once.

The most obvious one is that the  financial markets have experienced severe turmoil. Triple-digit gains in the Dow Jones Industrial Average that rallied the morning and then turned ugly bears taking the Dow to negative territory later that same afternoon.

The least obvious side effect — or rather desired by the Administration ”main effect” is the deflation of the ever rising balloon of helium all the traders are inhaling from. We all know the effects of laughing gas on the mind and the long term effects of the pervasive exuberant outlook and what it usually results into. And combating this was the intended effect. Because the assorted Wall Street and City types and their minion imitators elsewhere — are all drinking their own Cool-Aid.  It was a time for a Sober Up.

A day at the Sanctuary was needed. Or maybe a week in Purgatory for the most exuberant types. And some had to be taken out of the game for good…

And if it took a little propaganda to do all that — and exaggerated the cure too much — it’s no problem.

Am just saying… this is what happened.

This is what me thinks.

Although I tend to be alert for BS in the so-called Congressional commissions… this one was used deftly for effect, but swung a little too far. Especially bipartisan Congressional ones, like Think Tanks and such —  they always have some interesting ‘code’ to derive from. Now the Joint Economic Committee meeting of the US House of Representatives shall be closely watched for propaganda pronouncements that might rock the markets and change the world. Or at least make some rich men poor, and vice versa.

Especially now that they are looking at Monetary Policy overhaul and certainly at the robust economic and business actions we need to undertake because of the power of this type of propaganda. Seeing as that meeting itself spurred a 7.3% plunge in the Japanese stock market — we best be warned. This is economic warfare at it’s most subtle…

And the Nikkei negative fall precipitated a series of dominoes falling, which in turn dragged down the main exchanges in Shanghai, Tokyo, Frankfurt, London, Paris and Rome, followed by bourses spinning wildly almost everywhere else.

That’s all the action ‘elsewhere’ on Thursday morning that affected everyone’s portfolios…

This Propaganda induced Butterfly effect then turned back home, sending all of the U.S. stocks on a roller-coaster ride and some in a definite tailspin… This is the blowback or the residue of the nuclear weapon falling on Hiroshima being blown across the Pacific instantly to irradiate the US like nuclear winds from Fukushima.

Butterfly Effect baby… Or maybe we should be calling it ‘the Beard’ effect for  Mr Bernanke used this effect masterfully.

By the way — You must be thinking like the WSJ, What Gives?

Because they think and wonder, what Mr. Bernanke must be thinking…

And they assume the Beard is thinking: “Was it something I said?”

Yet maybe we should be asking ourselves a bunch of totally different questions:

Does it make sense for financial and economic outcomes to be so highly dependent on the pronouncements of a single individual?

Would it be better if monetary policy were more rules-based and less discretionary?”

Would a more resilient economy handle these pronouncements better?

Or be taking them with a pinch of salt?

The honest answer to the last question is “of course.”

Still this mechanism is a setup, involving not just Economic and Monetary policy — but the intersection of all three and even more importantly it’s involving Leadership,  Politics, Propaganda, Lies, Intentions, and even this opinion, and the resultant conversation of all the above. And whether you act upon it or not — the markets do. Because Markets do listen and act randomly at will.

Forget Nash and his economic equilibrium… Because Markets are always seeking for their own benefit primarily. The invisible hand nonsense is clearly evident as well.  Because we are all contributing to a better Dynamic Equilibrium and jockey for position. Who is in pole position makes a great difference same as who is not moving and / or moving in the opposite direction.  These are the three strategies, which you might follow based on what you do, what you like to do, what you do a lot of, or what you do not do at all.

Propaganda has a bad name, because this is what repressive regimes use to glorify their leaders, motivate their citizens and demonize their enemies. And because it is about lies and distortion, manipulation and misrepresentation.

But it is also, about alerting people to the risks of overinflated expectations, the risks of exuberant optimism, the horrors of disease, or it is about inoculating kids with vaccines, and making sure children learn how to cross the road safely and about building a perfectly legitimate sense of common purpose among the citizens of a democracy.

So Propaganda as used by Mr Bernanke can be good too. Or intended for good even though the Fallout can be devastating. Because this incredible tool of  Power and Persuasion, takes a broad approach towards its subjects, and is a blunt instrument making it’s practitioners unduly weak in censoring it’s effects — much like nuclear weapons – having caused a lot of collateral damages across the board.

But the operative question for students of Government leaders, Policy makers, and Policy wonks alike, is this: How do we assess the decision to action apparatus as it exists right now in order to manage expectations with a more careful use of propaganda?

Words are powerful. Sometimes way too powerful — certainly more than expected.

And now we are caught in a trap of assessing something economically that is inherently uneconomic and unpolitical, or as I think, purely political.

Still to all of us the response  it’s to the ever present Pavlovian dogwhistle.

All the Market Makers are trained to behave thus in response. And as it turns out, crowd actions lead to lemur behaviour, mass riots and worse

Yet in our case — we respond based on the sound of the whistle — which you either hear or You don’t and sound judgement about discernment and deliberation.

Carnage on the Street isn’t but a flight of fancy.

And we treat it as we would the wings of the aforementioned Butterfly.





Still it’s good to know and the US elected Representatives acting as Truth Gatherers and Lawmakers should remember — that the power to regulate the value of money is enumerated in the same sentence (Article I, Section 8) as the power to fix the standard of weights and measures.

And a bit of adjustment is always necessary there because the market mechanisms always outrun the ways and means of regulating for Fair Play in an Evolutionary Darwinian playfield.

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