There is a tendency of the modern age (post-modern) to disregard conventions of the past as mere anachronisms suited only to academic curiosity about how people lived in less “civilized” times. There is much to be said about that impulse, not the least of which is the caution of such hubris. In seeking out history you often find that those “simpler” years held a great deal of wisdom that is timeless and equally applicable.

I think that is why so many people even today are drawn to Abraham Lincoln, not just the Great Emancipator but really as a philosopher. He fought the Civil War with a steadiness not common in any era, often because he could reduce the dynamic complexities to something far more manageable. In so many cases, that meant simply understanding both his own limitations and his place, as President, in the entire process.

In early 1862, for example, General George McClellan had embarked on a seemingly bold strategy to fashion a mighty army and lead it in an indirect and amphibious route to capture Richmond. McClellan was from the older military school which held, almost in a perfect echo of the more chivalric sense of fighting, that armies spent most of the “campaign season” maneuvering into one maybe two large, set battles. Thus when he embarked toward Fortress Monroe on the Virginia Peninsula, he “required” a massive formation.

After arriving in Virginia, McClellan was extremely cautious in moving forward (again, deference to maneuvers) all the while calling and pleading for reinforcements despite any actual combat. To Lincoln, it was a general with a purpose spent solely on building an army and no sense to lead it. At one point, he was heard to remark, “If General McClellan does not want to use the Army, I would like to borrow it for a time, provided I could see how it could be made to do something.”

This exasperation, however, did not extend fully to the process in which McClellan was engaged. Whatever his personal feelings on the military progress, Lincoln earnestly endeavored to fulfill the General’s requests. More volunteers were called, including preparations for receiving these thousands of new and green troops (and even paying for them with fiat currency, the newly authorized “greenbacks”). Again, despite any personal reservations, Lincoln saw his own limitations and made the best of what was really a horrible situation.

On one side there was his General in charge of the main fighting force, not just in the East but in the hopes for quickly ending the war. On the other was a muster process so fraught with inaccuracy and inanity that the War Department had no idea what to expect. McClellan had upwards of 100,000 soldiers on the Peninsula, but wanted double that amount if not more. In trying to obtain at least some of them, state recruitment figures most often diverged from the strength of the brigades they claimed ready for transport, and that neither matched the actual number of soldiers on the trains arriving in Washington.

Lincoln’s personal secretaries, John Nicolay and John Hay (imagine a personal staff of exactly two), recalled how Lincoln on more than one occasion referred to this maddening process as “trying to shovel fleas across a barnyard, not half of them get there.”

In his folksy and agrarian framing, Lincoln was observing the fact that, though he was both chief executive and commander in chief, his true power over the process of making war was indeed severely limited by real world conditions of dynamism. That is a timeless sentiment in all too short supply today, particularly in a world overflowing with centralized claims of financial control.

We see this in every corner of the developed world, with central banks acting now in fully embraced central planning. This is most evident in Japan (though the US and Europe aren’t all that far behind) where the Abe administration and his “printing press” at the Bank of Japan have proceeded to decimate their trade balance in a manner directly contradicting every single expectation that was predicated on this idea of control. Adding insult to that now is the latest figures showing a rather stark drop in household spending in Japan, coming at a time when “inflation” is acting accordingly.

An AP article on this today shows, I believe, this rift between expectations of control and the real world processes as they exist in a dynamic and open system.

The government also reported Friday that core consumer prices rose 1.3 percent in February, though a large share of the increase was due to rising energy costs.

“Though a large share of the increase was due to rising energy costs.” What does the AP think inflation is? I think it obvious that the mainstream perspective on “inflation” runs only as a central bank “stimulus” tool. Reality, in contrast, has made a habit of dramatic intrusion to the fantasy to show, yet again, the Bank of Japan is really just shoveling fleas across a barnyard.

Prime Minister Shinzo Abe is striving to spur inflation to pull Japan out of a two-decade economic slump. The strategy hinges on getting consumers and businesses to make purchases sooner rather than later. But so far wages have not risen, and the rising cost of living seems to be triggering still more belt-tightening.

The net result of this is exactly as Mr. Lincoln suggested a century and a half ago, that despite all intentions “not half of them get there.” Instead of being able to control the conclusion, Japan’s entire “barnyard” is now infested with fleas, as nearly all the latest data confirms.

What does the Bank of Japan do for this obvious failure to achieve stated outcomes, or of the greater infestation it has already wrought? It intends to fashion a larger shovel and breed even more fleas.

“Household spending data for February is not that good,” said Junko Nishioka, an economist at RBS Japan Securities. But she noted that prices for durable goods such as television sets are rising as manufacturers pass higher costs for imported components on to consumers.

Japan used to have very few imported components to be subjected to the yen’s intentional devaluation. But there is very little understanding of process in modern central banks, a failure to recognize that econometrics is as far from “science” as nineteenth century warfare. You would think that the Japanese would try to follow Lincoln’s eventual realizations; that continuing the process would only court inevitable disaster – Lincoln changed generals, tactics, even the entire orientation of the war. In Japan, QE is seemingly perpetual regardless of outcomes. Though nine times does not appear to be the charm, the fleas will continue.

 

Click here to sign up for our free weekly e-newsletter.

“Wealth preservation and accumulation through thoughtful investing.”

For information on Alhambra Investment Partners’ money management services and global portfolio approach to capital preservation, contact us at: jhudak@alhambrapartners.com or 561-686-6844 . You can also book an appointment for a free, no-obligation consultation using our contact form.

Print Friendly, PDF & Email