Comparing Essays: Simon Black vs. Dennis Lockhart
By Daily Bell Staff - December 02, 2015

Federal Reserve official: Economy on track for 'normalization' phase … "I believe the national economy is on a reasonably solid trajectory," said Dennis Lockhart, president and chief executive officer of the Federal Reserve Bank of Atlanta. Speaking Nov. 19 at a DeKalb Chamber of Commerce general business meeting at the Georgia Aquarium, Lockhart added. – The Champion

Dominant Social Theme: Listen to oracles such as Dennis Lockhart so you may understand, too.

Free-Market Analysis: Once we were even more callow than we are now. Listening to a speech by Dennis Lockhart 15 or 20 years ago (see above excerpt), we probably would have been enormously impressed, thinking he sounded judicious, modest and yet at the same time almost infinitely wise.

Why "infinitely"? Because the speech deals with the US economy and its growth or lack thereof. This is at least a US$16 trillion economy and Lockhart is comfortable evaluating it, and with the help of government numbers, he is apparently comfortable with making determinations about what to do next.


… "I won't predict the outcome [of the upcoming, December FOMC meeting]," Lockhart said. "There are more data points to evaluate over the next four weeks. I will be processing that information to see whether the incoming data change my sense of the health and momentum of the economy.

"On balance, the data have been encouraging and affirm that the economy is growing at a moderate pace. Real final domestic demand data have been quite solid, driven in large part by robust consumer spending," he continued.

Fortunately, we are not living in the past and our understanding of the world has improved a bit; at least we do a better job identifying "poseurs." From our current perch, Lockhart doesn't sound wise at all. In fact, he sounds, well … fatuous and full of himself.

He's going to evaluate "data points" and then like a computer he will "process the information" in order to see whether the vast but delicate mechanism of his mind will "sense" a change.

Gawd. Later in his speech, he does have the modesty to admit that the "inflation picture is not clear." Of course, he does not clarify what kind of inflation he is talking about – monetary or price. But these are details to such a grand intellect. "Survey measures of inflation expectations are not signaling imminent broad disinflation," he announces. Oh, good.

Lockhart supported leaving rates unchanged in October but believes the situation has "settled down now." Thus, he is comfortable "moving off zero soon, conditioned on no marked deterioration in economic conditions."

After this statement the gobbledygook gets thicker, if you can believe. He begins to babble about "phases" of the economy as if it is some sort of lab experiment. The economy's next phase is "normalization," followed by "lift-off."

Lockhart's finely tuned brain is capable not only of discerning economic segmentation; he is actually able to predict variations in the upcoming phases. He sounds like Obi-Wan Kenobi evaluating the Force.

"I think the normalization phase might look somewhat different than one's sense of normal based on historic episodes of rising rates," Lockhart is quoted as saying.

He then goes on a long peroration about "three factors that are key in determining the timing of the start of normalization." One is the level of employment, the second is an appropriate amount of (price) inflation and a third is "global risk."

Impressively, he informs us that the second factor (rising price inflation) is also known as the "whites of their eyes perspective." Lockhart has thus managed in one speech to compare the US economy to an aircraft and the Revolutionary War.

But he is not through yet. Almost in the next breath, he refers to the current zero bound as the "bedrock policy rate." By this, he is implying that the current rate comprises a kind of monetary foundation. Thus, we should give him credit for using three disparate metaphors in one speech – all referring to various elements of the economy.

These are evidences of a mind so mired in memes of "common wisdom" that there is no room for any kind of enlightenment to penetrate. This is a man entirely at ease with deciding on the value and price of currency for a US$16 trillion economy. He acts as if it is his birthright. Or at least as if his intellect justifies the privileges of the price-fixing that he is regularly called upon to perform.

Contrast Lockhart's fatuous, self-importance with a missive we received in our in-box by libertarian entrepreneur Simon Black. Black writes from Santiago, Chile to inform us that the IMF's decision to add the yuan to the SDR basket (we wrote about this yesterday) was not so much a "historic moment" as an irrelevancy.

We don't quite agree with this because there are advantages, given the current fiat system, to being associated with the SDR basket. We pointed them out yesterday and Chinese officials obviously believe they are valuable because China has been seeking to participate for years.

But later in the article, Simon Black makes some historical points that are worth the proverbial price of admission. In fact, he provides us with a frame of reference that Lockhart seems to lack entirely. The "big-picture issue" is that the entire fiat mechanism is gradually toppling. While China's financial system may be marginally better-positioned than that of the US's, both systems are racked by debt, unemployment and dangerous asset bubbles.

What will be the result? Here:

The dollar may be in its twilight, the real change we'll see is the financial system itself. Today, unelected bureaucrats and central bankers conjure money out of thin air and manipulate asset prices in their sole discretion.

OK, maybe three centuries ago when most of the world was illiterate and few people traveled more than ten miles from their homes, this might have been an understandable way to set up a financial system. But today? Give me a break.

This system is so outdated that the head of the IMF might as well have gone to her press conference by horse and buggy. All the technology already exists to make the overlords of our financial system totally irrelevant.

This system is changing. Whether you like it or not, whether you realize it or not, and whether you're prepared or not – it's happening.

This conforms almost exactly to what we wrote yesterday in analyzing the addition of the yuan to the SDR basket. We indicated that the BRICs, and especially China, had seemingly done well over the past decade but this would not last.

A cataclysm is headed our way, we wrote, and Simon Black believes it, too. It is, unfortunately, sure to be a great economic upheaval that will catapult the world into a ruinous Great Depression out of which a truly global economic system is planned to emerge. This is surely the fate in store for us, at least in aggregate. We'll let Black provide our …

After Thoughts

He writes, "You can either have a front-row seat to enjoy the show and benefit from these developments, or you can choose to do nothing and become another victim of history. But make no mistake, it's happening. And looking back, it's going to seem obvious."