Paul Singer’s Reality Check

Dialogue with the Alter Ego on Mr. Singer’s “fake growth, fake money, fake jobs”- comment

Question by Alter Ego of Noah denkt™ (AE): As you know, Paul Singer of Elliott Management Corp. became famous for successfully challenging the Argentina debt restructuring deal of 2005 and 2010. He is now in the news again for railing against the positive numbers which the US economic recovery is apparently producing at this time (see: http://www.bloomberg.com/news/2014-11-04/singer-s-elliott-says-optimism-on-u-s-growth-unwarranted.html). In his third-quarter letter to investors he argues that loose monetary politics won’t create lasting growth, that the official inflation number is understating the actual inflation and that the 5.6% employment rate inspires little satisfaction because of a low labor participation rate and stagnant wage increases. His assessment culminates in the following assertion : “Nobody can predict how long governments can get away with fake growth, fake money, fake jobs, fake financial stability, fake inflation numbers and fake income growth” (…) . “We do not think this optimism is warranted, and we think a lot of the data is cooked or misleading,” (…) “A good deal of the economic and jobs growth since the crisis has been fake growth, with very little chance of being self-reinforcing and sustainable.” What does Noah denkt™ make of Mr. Singer’s assessment?

Answer by Noah denkt™ (Nd): Well, we obviously don’t share Mr. Singer’s belief that a lot of data is actively “cooked” by the government to look good. But we do agree with his general view that said numbers are quite misleading due to the enormous infusion of cheap central bank money which has happened ever since the financial crisis broke. Just think about the fact that this year alone the Federal Reserve apparently bought ¾ of all treasuries issued by the US government. (see: http://news.sky.com/video/1362953/is-end-of-qe-a-force-for-good) That doesn’t sound like a balanced economy at all, does it?

AE: Probably not. But nobody is seriously disputing the need for at times even massive state intervention in order to balance substantial distortions in the market place?

Nd: No, nobody is disputing that. It is equally important though to not lose sight of the fact that the current rebalancing of the market place is still due to outside government intervention and not due to the flow of indigenous free market forces. And that is what Mr. Singer has alluded to.

AE: Does it seem to Noah denkt™ as if too many market players were losing sight of this fact?

Nd: At the very least, it appears as if public opinion isn’t sufficiently worried about that.

AE: How can you say that when Tuesday’s mid-term elections just made the discontent very plain which the US public seems to harbor vis-a-vis the current state of the economy? Would you not have thought that current economic numbers would have helped President Obama to avoid the terrible defeat which he actually received at the polls?

Nd: Well, the mere fact that people are surprised by the magnitude of his defeat shows that they weren’t bracing themselves enough for the possibility of a dramatic surprise. In other words, they would be less surprised if they had had a better sense of the fragility of the overall situation.

AE: So you yourself were not surprised then about the magnitude of President Obama’s defeat on Tuesday?

Nd: The truth is that we couldn’t even focus on this election to begin with since the general state of things is so nauseating that it makes it impossible for us to continue with business as usual.

AE: And you think that you are mentally paralyzed or awash with indifference because of the Keynesian attempts at Quantitative Easing?

Nd: That may, in no small amount, be true.

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