Friedrich vs. The Fiats

“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

-F.A. Hayek


Friedrich von Hayek isn’t who the Fiat Fools want to read about this morning. So let’s unite as a community of capitalists and pass this message around to the legions of Keynesians out there who need a wakeup call. We are running out of time. The Western world’s fiat currency system is failing.


I’d wager that 2 out of every 3 anchors on CNBC don’t even know who Hayek is, which is actually quite sad when you think about it. The group-thinkers of American finance cannot begin to respect the history of economics if they’ve never studied it.


Friedrich von Hayek is the father of the Austrian School of Economics. Unlike John Maynard Keynes, who was actually a currency trader before he realized how easy it was to grandstand against the British politicians of his time, Hayek had a multi-factor risk management model that hinged on marked-to-market prices.


Hayek won the 1974 Nobel Prize in Economics for his "pioneering work in the theory of money and economic fluctuations and [his] penetrating analysis of the interdependence of economic, social and institutional phenomena.” (Wikipedia;


What’s most important about Hayek’s work is that it was built on the principle that market prices should clear freely and that we should stay as far away as possible from the tyranny of political power, socialist influence, and collectivist thought. In his day, his views provided the foundations for some of Paul Volcker’s actions, and the death bed for the Keynesian political pandering of then head of the US Federal Reserve, Arthur Burns.


Burns and Bernanke have a lot in common – both have pandered to the political winds of debauching their citizenry’s currency in order to artificially inflate prices. Some might even call marking the cost of bank capital to model like this, price fixing. I’m not sure I am willing to go that far yet, but I am willing to go on the record stating plainly that the Japanese, American, and European economic experiments of Fiat Fools has failed.


Getting right back to what’s happening out there in the market that’s in front of us this morning, we continue to witness an unbelievably blind belief that the US Federal Reserve and the European Central Banks know exactly what they are doing.


Ben Bernanke may indeed be a wonderful historian of the Great Depression, but when it comes to financial forecasting he is borderline incompetent. His inflation forecasting track record since he took over at the Fed in 2006 speaks for itself – it’s just plain ugly. On the growth side, his forecasts continue to be a, if not THE, lagging indicator.


In the Fed’s minutes yesterday, Bernanke’s boys upped their growth forecast for US GDP from a range of +2.8%-3.5% to +3.2-3.7%. The man has to be kidding me. AFTER calling this the greatest of “emergency” like depressions, cutting rates to ZERO, then acknowledging that Mr. Macro Market had it right and that US GDP wouldn’t be depressionary, NOW he is upping his forecasts right before US GDP is setting up to slow again sequentially!


Sorry Keynesian fans, this nonsense of piling policy mistake upon policy mistake as we pile debt upon debt has to stop. And soon, or this country is heading to at least as dark a place that some Western Europeans are heading to real-time.


Unlike during my 2008 criticisms of Bernanke and Paulson’s decisions to destruct America’s balance sheet for the sake of Groupthink Inc’s compensation structures, this time around we have an army of you who have the ability to forward this note to whoever has the spine to be accountable.  It’s time to stand up to the Fiat Fools. It’s time for a modern day enlightenment. It’s time to show them that there is a better way.


Saying that “no one saw it coming” this time around won’t cut it. The lack of leadership and accountability in our country has every opportunity to be righted. It always has. From New Haven to Omaha, please stand with us and continue to form the line. As George Washington said, it’s time to “guard against the impostures of pretended patriotism.” America’s legacy stands on the shoulders of competent giants. We know you are out there. Stand tall.


We remain short the SP500 (SPY) in order to protect our friends, our firm, and our handshake. We will not go down with the men who don’t  know what they don’t know “about what they imagine they can design.” Our immediate term TRADE lines of support and resistance for the SP500 are now 1099 and 1040, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


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