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Monday, September 8, 2014

Procrustes Revisited

Procrustes, you'll remember, was the mythological bandit (slain by Theseus), who invited wayfarers into his house and offered them a bed that fit all sizes perfectly, every time.  It fit because Procrustes stretched those who were too short on a wrack, and cut off the feet or legs of those who were too tall.

Procrustean logic is now all the rage in financial circles.  Here are some of the current tortured truisms:

The market is not in a bubble because rates are so low.

Wow.  In other words the very reason that the market is in a staggering bubble (protracted negative real rates) is the reason that the market can not be in a bubble.

The market can't crash because Zero Interest Rate Policy baskstops the market until the real economy recovers.

Sounds similar to the last, but this one is even more convoluted as it argues that weakness in the broad economy can be remedied by giving massive amounts of capital to the top one percent who will then support the economy by buying more stocks and making themselves ever richer.

The strength of the stock market and real estate markets show that the economy is in recovery.

A third permutation of the same argument that enhancing the wealth of the one percent somehow magically makes everyone richer.

Extensive deleveraging has repaired US balance sheets, and assures a robust recovery.

This one is just an outright fantasy, as this chart of the US total credit market illustrates:

And the All time Great from Paul Krugman:

The Fed's money creation policy hasn't been Dangerously Inflationary - as THEY claimed -  therefor, it hasn't been dangerous at all.

This tortured argument uses a series of tortured propositions:

A) You make up a Straw Man, which always begins: "THEY CLAIM" "They" can be the liberals, the conservatives,. the gold bugs, the mainstream media, the conspiracy nuts,  - anyone at all.

B) You state the claim of the straw man in absdurd generalities wherein none of the terms are defined  (like inflation, dangerous, or even They)

C) You categorically refute the generality, based on the observation that it hasn't come true in the recent past.

D) You conclude with your own absurd generality wherein none of your terms are defined.

Every step of this rhetorical gambit is entirely logic free.   But all 4 steps thrown together make for an amazing exercise in rhetorical absurdity.

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