source
Friday, July 31, 2009
GDP: 2nd Quarter 2009 Neagtive 1%
Score one for the green shoots crowd. The second-quarter gross domestic product report Friday clearly showed that the economy is in fact stabilizing.
For the most part, stocks finished the day slightly higher on the GDP news -- a bit of a surprise considering that investors had appeared to already factor in that the nation's gross domestic product probably shrunk at a much lower rate than in the previous two quarters...
Still, consumers don't appear to be convinced just yet that the worst is over. Many are still hunkering down and adding to savings instead of spending. Personal consumption expenditures dipped at a 1.2% rate in the second quarter.
And with the unemployment rate currently at 9.5% and widely expected to rise above 10% before long, the average American many not care if the recession is nearing an end.
"Although the recovery is about to begin, it is a technical recovery. The economy will be growing, but growth will be so modest that 70% to 80% of the population won't notice it," said Bill Hampel, chief economist for the Credit Union National Association. "The unemployment rate is not going to improve for some time so it will look, feel and taste like a recession well until next year."
Thursday, July 30, 2009
Stocks Hit 9 Month Highs
Stocks surged Thursday, hitting their highest levels in nearly 9 months, as investors eyed the latest batch of better-than-expected profits and forecasts and a report that suggested the labor market is starting to stabilize.The Dow Jones industrial average (INDU) rose 83 points, or 0.9%, ending at its best level since Nov. 4. It was also the highest close for the blue-chip index in 2009.
The S&P 500 (SPX) index added 11 points, or 1.2%, ending at its highest point since Nov. 4.
The Nasdaq composite (COMP) gained 16 points, or 0.8%, to reach its highest close since Oct. 1...
Friday brings the biggest economic report of the week, the first reading on second-quarter gross domestic product growth. GDP is expected to have shrank at a 1.5% annualized rate, according to forecasts. GDP shrank at a 5.5% annualized rate in the first quarter.
read the CNN story
Wednesday, July 29, 2009
Stimulus: A History of Failure
The Roman Empire is in some measure a stimulus story. It conquered. It grew. Each conquest brought more booty…gold, silver, land and slaves. And each led to more conquests, which brought forth more booty. But the stimulus of this booty stimulated only the need for more stimulus. It did not stimulate real prosperity. Instead, it undermined it. First, slaves bought by rich landowners destroyed the free labor market and ruined small farmers. And then, imported wheat from the provinces – paid as tribute – put the large-scale farmers out of business too. Italy was then dependent on foreigners for its food...
The first financial crisis of the imperial period came early. Caesar Augustus tried to solve it…with more stimulus. Neither paper money nor the printing press had yet been invented. So, Augustus increased the money supply in the only way he could; he ordered slaves in the silver mines in Spain and France to work around the clock! This extra money did not bring prosperity; it caused price inflation. In a period of about three decades, Rome’s consumer price index almost doubled. Then, when output from the mines could be increased no further, Augustus’s great nephew, Nero, found a new source of stimulus; he reduced the silver content of the coins. This source of stimulus proved ineffective, but enduring. By the time barbarians took over, the silver denarius contained almost no silver at all. Of course, Rome itself was played out too.
Another early and dramatic example of stimulus-in-action came in Spain in the 16th century. The conquistadors increased their supply of money in the time-honored fashion – by stealing it. Galleons brought treasure from the Americas; increasing the Spanish money supply substantially and fatally. The Spaniards had so much stimulus that they laid down their tools. Why should they work? They could buy things.
The discovery of a whole mountain of silver – Potosi – in the middle of the 16th century insured a supply of stimulus that would last for nearly a century. Results? Predictable. Inflation. In the “price revolution” from 1540 to 1640 the cost of living went up throughout Europe. In England, for which we have the most reliable data, prices went up 700%. And Spain, though it covered 40% of its state budget with this easy cash, still defaulted on its debts about once every 15–20 years, from 1557 for the next 10 decades. Spain, like Rome, welcomed stimulus; it never recovered from it.
Now we turn to the biggest misadventure in stimulus ever – the period after the United States “closed the gold window” in 1971. In the 150 years before then, nations could stimulate their own economies with cash and credit, but only to a point. They could overspend; but they had to settle up in gold. After 1971, on the other hand, the sky was the limit – especially in the United States of America. The US could settle its bills in paper, which was then used by foreign central banks as monetary reserves. Since foreign banks were eager to add to their supplies of reserves, there was no effective limit on the amount of stimulus available. The Fed’s adjusted monetary base grew 900% since 1985, and more than doubled this year alone. Total US debt tripled – as percent of GDP...
But now the bubble has blown up; the feds are on the case. What do they offer? More stimulus! Cometh a report this week that $23 trillion has already been put at risk in the various bailouts and credit guarantees. As for the US public debt, it is expected to increase until the country goes broke.
Bernanke's Exit Strategy
My colleagues and I believe that accommodative policies will likely be warranted for an extended period. At some point, however, as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road. The Federal Open Market Committee, which is responsible for setting U.S. monetary policy, has devoted considerable time to issues relating to an exit strategy. We are confident we have the necessary tools to withdraw policy accommodation, when that becomes appropriate, in a smooth and timely manner...
But as the economy recovers, banks should find more opportunities to lend out their reserves. That would produce faster growth in broad money (for example, M1 or M2) and easier credit conditions, which could ultimately result in inflationary pressures—unless we adopt countervailing policy measures. When the time comes to tighten monetary policy, we must either eliminate these large reserve balances or, if they remain, neutralize any potential undesired effects on the economy...
Overall, the Federal Reserve has many effective tools to tighten monetary policy when the economic outlook requires us to do so. As my colleagues and I have stated, however, economic conditions are not likely to warrant tighter monetary policy for an extended period. We will calibrate the timing and pace of any future tightening, together with the mix of tools to best foster our dual objectives of maximum employment and price stability.
read the entire essay
My thoughts: Bernanke failed to see the crisis coming. He will likely miss signs of real recovery. The Fed has utterly failed in achieving the goal of maximum unemployment. It has laid the groundwork for inflation. All that is left is to wait and watch.
Here is much of the youtube video transcribed with commentary.
Martin Feldstein on Obamacare
For the 85 percent of Americans who already have health insurance, the Obama health plan is bad news. It means higher taxes, less health care and no protection if they lose their current insurance because of unemployment or early retirement.
President Obama's primary goal is to extend formal health insurance to those low-income individuals who are currently uninsured despite the nearly $300-billion-a-year Medicaid program. Doing so the Obama way would cost more than $1 trillion over the next 10 years. There surely must be better and less costly ways to improve the health and health care of that low-income group.
Although the president claims he can finance the enormous increase in costs by raising taxes only on high-income individuals, tax experts know that this won't work. Experience shows that raising the top income-tax rate from 35 percent today to more than 45 percent -- the effect of adding the proposed health surcharge to the increase resulting from letting the Bush tax cuts expire for high-income taxpayers -- would change the behavior of high-income individuals in ways that would shrink their taxable incomes and therefore produce less revenue. The result would be larger deficits and higher taxes on the middle class. Because of the unprecedented deficits forecast for the next decade, this is definitely not a time to start a major new spending program.
Tuesday, July 28, 2009
The Great Recession
Already it is the longest. The nonprofit National Bureau of Economic Research, which determines when the U.S. economy slips into recession, says the downturn began in December 2007, 19 months ago. That makes it longer than the wrenching, 16-month recessions of 1973-75 and 1981-82.
The unemployment rate is approaching the peak seen in the 1981-82 recession and the scope of job losses is the worst since the 1948-49 recession. The decline in gross domestic product is the deepest since the 1957-58 downturn, and Americans haven't seen so much of their wealth evaporate since the Great Depression.
The NBER defines a recession as "a significant decline in economic activity spread across the economy, lasting more than a few months." Among the gauges the organization watches are GDP and employment, as well as income, sales and industrial output. Even if the current recession is, as many economists believe, at or near its end, it looks worse than its postwar predecessors.
read the WSJ articleMonday, July 27, 2009
New Home Sales
CNN reports: "Really Good News"
Sales of newly constructed single-family homes spiked 11% in June to an annualized rate of 384,000 homes, according to a report released Monday.
read the CNN story
from Carpe DiemMy thoughts: A slight uptick is not much to get excited about.
GDP For the Current Recession
Did the economy actually grow during the past three months?
A few brave economists actually think it did. But we'll find out for certain on Friday when the government unveils its first take on gross domestic product (GDP) for the second quarter. Still, even the average forecast is for a drop of just 1.5%, significantly better than the previous two quarters.
GDP plunged 6% in the fourth quarter of 2008 and 5.5% in this year's first quarter.
"The pace of decline has slowed way down and we are seeing signs of stability. I expect a negative number in the second quarter but maybe zero growth or better for the third quarter," said Chris Probyn, chief economist with State Street Global Advisors in Boston.
Bernanke on the Economy
"The silver lining in this whole thing is that people are starting to save more, since they saw what happened with 401(k) investments," Bernanke said. "People are adopting good habits, so not only will we will be back on track, but the economy will be stronger than it had been before this started."
The Fed chairman also noted that government regulators are working to ensure that such a crisis can never happen again by addressing the issue of too big to fail and lobbying Congress to pass a regulatory reform bill.
"I don't think we'll ever completely eliminate financial crises, but there are ways to make sure one this severe never happens again," Bernanke said. "We need to have a council or group of regulators that look at the financial system as a whole and look for gaps. And 'too big to fail' has to go."...
Bernanke said the economy is beginning to show signs of improvement, but recovery will be gradual. He said gross domestic product will likely rise by the end of the year into 2010, but job growth will lag. He conceded, "economic forecasts make weather forecasts look like physics," but said unemployment will top out above 10% before falling back in the second half of next year...
"But I was not going to be the Federal Reserve chairman who presided over the second Great Depression."
My thoughts: The increased savings is good. The reason many people started investing in 401(k)s is directly as a result of the Fed's inflationary monetary policy. Sticking your money your the mattress or in a simple savings account will not properly prepare you for retirement. The value of your savings is constantly eroded by inflation. The Fed claims to promote price stability, but 2-3% inflation (their targeted goal) is not stability.
People should realize that 401(k)s are not guaranteed investments. The key to a solid 401(k) is diversity and low costs. Since many people have matching funds by their employer, the amount or "real" loses is small and almost trivial to the amount of money they would have from "investing" in a bank savings account.
People should also realize that retirement investing is along term project. Those who were close to retirement age should have shifted most of their 401(k) portfolio into less risky bonds. There are some funds that do this automatically now. This is a great product for the passive investor.
The Fed has a history of failure. After every failure, they demand more power and control. They fail again and the process repeats itself.
It is time to end the Fed and return to a free market monetary system.
Sunday, July 26, 2009
Economic Recovery
Americans are once again hoping for an economic recovery. If recovery comes, can it be sustained? Or will it soon collapse, as have recent upturns?
The answer depends on how the recovery is financed. If economic recovery is financed from the real savings of the American people, a sustained period of economic growth may occur. But if the recovery is induced by an artificial expansion of banking credit, any upturn will quickly abort...
The key to real growth, therefore, is to increase the amount of savings available for productive investment. If the savings pool is allowed to grow—without being choked by tax increases, government borrowing, or other hindrances—a sustained economic recovery can get under way...
This, then, is the decision we face. Do we reduce taxes and cut government borrowing, thereby expanding the savings pool and permitting a sustained economic recovery? Or do we try to induce yet another artificial recovery through credit expansion, and reap the whirlwind when it collapses?
Sheldon Richman on Health Care Reform
The effort to reinvent medical care is so full of fallacies and bad logic that it would take volumes to properly expose them. Nevertheless, in this short space, let’s take a crack atsome of the problems.
To begin, the “reformers” want to compel insurers to cover people who are already sick for the same price healthy people pay. But if someone is already sick, no government plan to pay his medical bills can be accurately called “insurance.” Insurance is a voluntary way to spread risk. Risk comes from uncertainty. But someone already sick doesn’t face a risk that he might need medical attention for his ailment. He is certain to require the attention. There’s a reason you can’t buy homeowner’s insurance after your house has burned down or life insurance for a deceased person. Why should one expect to be able to buy insurance to cover medical treatment for a disease one already has contracted? When private donors voluntarily pay the bills, we call it charity or philanthropy or benevolence. When government pays them after extracting money by force from taxpayers or by requiring insurance companies to overcharge healthy people who are compelled to buy coverage, we should call it (at the very least) welfare.
If someone wants to defend medical welfare, let him do so. But don’t let him get away with calling it insurance. He not only does violence to the language; he also clouds the discussion. This is another application of the tacit premise that no one should have to pay for his own medical care. Bastiat’s line about the state being the means by which we all try to live at everyone else’s expense comes to mind...
Finally, the way to rig a debate over public policy is to never acknowledge the only genuine alternative to your proposal. Obama says, “I’m confident that when people look at the costs of doing nothing they’re going to say, we can make this happen.” Why is “doing nothing” the alternative to a conscious attempt to reinvent the healthcare industry? While it is true that doing nothing would be preferable to what Obama and his congressional allies want to do, it is not the best alternative. The best alternative is the free market. But have you ever heard the advocates of government control offer an argument against the free market? The answer is no, and the reason is that to argue against it would be to acknowledge it as an alternative. And that they cannot afford to do. Better to have the people think we already have a free market in medicine and that it has failed. That way they will be more likely to win support for government control. The “reformers’” task would be more difficult if people understood that what has created the problems is government, not the free market.
A Free Market in Health Care
There is one reason why there is a health-care crisis in America: socialism and interventionism, both at the federal level and the state level. On the demand side, there are Medicare and Medicaid. On the supply side, there are regulations and occupational licensure of physicians and other health-care providers.
Yet, virtually all of the discussion about how to solve the health-care crisis takes place within well-defined parameters in which Medicare, Medicaid, regulation, and licensure are the given. The discussion then focuses on how to resolve the crisis within those parameters...
Socialism and interventionism are inherently incapable of working. No matter how much time and energy are put into solving the health care crisis, it won’t matter one iota as long as the reformers are operating within the parameters of socialism and interventionism. The results will be same, no matter what the reform: chaos and crisis, which will only produce the need for more reforms down the road...
The freer an economy, the wealthier the society will be, and the better off the poor will be. Conversely, the more socialistic and interventionist an economy, the poorer society will be, and the worse off the people at the bottom of the economic ladder will be...
There is but one solution to the health care crisis — the free market, which would entail a complete separation of health care and the state, in the same way that our ancestors separated church and state.
College Graduate Return Home
They've been dubbed boomerang kids and a recent poll by collegegrad.com shows that 80% of 2009 college graduates moved back in with their parents. That's up quite a bit from recent years.
read the CNN article
read the CNN article
Health Reform Costs
Three committees writing the lead House bill have called for an additional tax to be imposed on income above $280,000 for singles and $350,000 for married couples. The so-called surtax would run as high as 5.4% on income over $1 million.
But House Speaker Nancy Pelosi, D-Calif., this week began pushing for the surtax to apply only to singles making more than $500,000 and couples making more than $1 million...
A surtax is a tax on top of a person's ordinary income tax. In the case of the House-proposed surtax, the income over the threshold would be taxed at both the top income tax rate -- scheduled to be 39.6% --plus the surtax rate.
The Joint Committee on Taxation estimated that the surtax under the $280,000/$350,000 proposal would raise $544 billion over 10 years.
Saturday, July 25, 2009
Peter Schiff on Inflation
In a Wall Street Journal op-ed on Monday, and in congressional testimony later in the week, Fed Chairman Ben Bernanke reassured all that thanks to his accurate foresight and deft use of the Fed’s policy toolkit, he could maintain near zero percent interest rates for an extended period without creating inflation...
The idea that the inflation genie can be painlessly rebottled has no historic precedent. Even mainstream economists, who’ve never met a fiscal stimulus they didn’t like, agree that central banks must act preemptively with regard to inflation. Bernanke is making the case that the new set of liquidity tools, hastily developed in the panic of late 2008, will act just as well in reverse. But liquidity is a lot like liquid, it’s a lot easier to spill than to un-spill. The Chairman believes that his new gadgetry will allow him to perform a feat of monetary magic no other central banker has managed to pull off. But given his history of getting it wrong, why should we assume that this time he will get it right?
The bottom line is that Bernanke has no exit strategy. He can talk about it all he likes, but when it comes time to actually pull the trigger, his nerves will buckle. The current communications campaign is simply an attempt to calm the markets. I doubt few citizens or members of Congress had any hope of understanding the exit strategy mechanisms that Bernanke described. Many likely place their faith in his seeming mastery of financial minutiae. Sadly, as with the mythical “strong dollar policy,” confident talk may be the sum total of the Chairman’s strategy.
read the essay
The idea that the inflation genie can be painlessly rebottled has no historic precedent. Even mainstream economists, who’ve never met a fiscal stimulus they didn’t like, agree that central banks must act preemptively with regard to inflation. Bernanke is making the case that the new set of liquidity tools, hastily developed in the panic of late 2008, will act just as well in reverse. But liquidity is a lot like liquid, it’s a lot easier to spill than to un-spill. The Chairman believes that his new gadgetry will allow him to perform a feat of monetary magic no other central banker has managed to pull off. But given his history of getting it wrong, why should we assume that this time he will get it right?
The bottom line is that Bernanke has no exit strategy. He can talk about it all he likes, but when it comes time to actually pull the trigger, his nerves will buckle. The current communications campaign is simply an attempt to calm the markets. I doubt few citizens or members of Congress had any hope of understanding the exit strategy mechanisms that Bernanke described. Many likely place their faith in his seeming mastery of financial minutiae. Sadly, as with the mythical “strong dollar policy,” confident talk may be the sum total of the Chairman’s strategy.
read the essay
Marc Faber on the Economy
“You cannot create prosperity through money printing and debt growth.”
Faber preached an idea that became the theme of the event: Government fiscal and monetary intervention, “can postpone, but not prevent crisis.
“I believe next year’s economy will face even larger deficits. Their deficit is attempting to stimulate credit growth. Unless real credit growth returns, they will have to put more and more money into the system to maintain the status quo. All polices target consumption. That is a mistake,” Faber said...
"In the period, 2001 -2007, the Fed managed to do something that had never before been done - create a worldwide bubble in just about everything. Stocks, bonds, art, oil, housing - you name it; it went up. The only thing that didn't go up was the dollar," Faber said.
Friday, July 24, 2009
The FED and Price Stability
The Federal Reserve System is fraudulent. Whatever its stated purpose, its effective purpose is to create a mechanism of deficit spending by politicians, through the insidious invisible taxation of monetary debasement (aka inflation). With printed money, the Government can buy services for its voters before the effects of inflation are felt. It is then the voters whose money buys less the following year, as the new money has raised prices, and they are none the wiser.
read the essay
Thursday, July 23, 2009
The Dow Hits 9,000
Stocks rallied Thursday, with the Dow jumping 200 points and hitting its highest point since November, as investors welcomed better-than-expected quarterly results and home sales.The Dow Jones industrial average (INDU) gained 188 points, or 2.1%, closing at its highest point since Nov. 5. The S&P 500 (SPX) index added 22 points, or 2.5%.
The Nasdaq composite (COMP) gained 47 points, or 2.5%. The Nasdaq has now closed higher for 12 consecutive sessions, its longest winning streak since January 1992.
read the CNN storyF.A. Hayek Quote
"(t)he curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."
Home Sales
Home resales rose 3.6 percent in June, from a downwardly revised, seasonally adjusted, annual rate of 4.72 million units to 4.89 million units, the highest level since last October. Distressed properties - foreclosures and short sales - accounting for 31 percent of all sales.
source
Wednesday, July 22, 2009
Bailout Totals: $23.7 Trillion or $3 Trillion
The independent overseer of the $700 billion bailout has caused a ruckus over an important question: How much do taxpayers have on the line?Neil Barofsky, the special inspector general overseeing the Troubled Asset Relief Program, said the total amount committed for federal programs supporting companies, industries and consumers affected by the economic meltdown was $23.7 trillion...
In an interview with CNNMoney on Wednesday, Barofsky said the actual amount of money outstanding is closer to $3 trillion.
Barofsky's math wasn't wrong. It's just that the $23.7 trillion figure assumes that all government rescue programs are used to their full extent and suffered total losses.
My thoughts: When you make bad bets you expect to lose the entire amount. The total will ultimately be closer to 23 than 3.
Tuesday, July 21, 2009
Feldstein: Double-Dip Recession Possible
The U.S. recession may not be coming to an end and there is a risk the economy may experience a “double-dip” contraction, said Martin Feldstein, a professor of economics at Harvard University.
“There is a real danger this is going to be a double dip and that after six months or so we’ll have some more bad news,” Feldstein, the former head of the National Bureau of Economic Research and Reagan administration adviser, said today in an interview on Bloomberg Television. “We could slide down again in the fourth quarter.”
The economy could “flatten out” or “even be positive” in the third quarter, and then it’s likely to contract again in the last three months of the year as the effects of the federal stimulus program wear off and companies finish rebuilding inventories, he said.
“There isn’t going to be enough to sustain a really solid recovery,” he said, even though recent data has provided some “good news” on the economy.
read the story
My thoughts: We are headed for more economic trouble. Many are projecting an end to the current recession. I don't think real prosperity will return for several years. The recovery will was short and weak. Then we will have a serious recession to make this current one look minor.
Monday, July 20, 2009
Marc Faber: Total Collaspe
Faber: "We had a crisis and nothing has been solved ... usually, a major crisis like we had should clean the system but nothing has been cleaned. It's gotten worse politically - this linkage between politicians in America and the Federal
Sunday, July 19, 2009
Saturday, July 18, 2009
Open Letter For Fed Independence
Amidst the debate over systemic regulation, the independence of U.S. monetary policy is at risk. We urge Congress and the Executive Branch to reaffirm their support for and defend the independence of the Federal Reserve System as a foundation of U.S. economic stability. There are three specific risks that must be contained.
First, central bank independence has been shown to be essential for controlling inflation. Sooner or later, the Fed will have to scale back its current unprecedented monetary accommodation. When the Federal Reserve judges it time to begin tightening monetary conditions, it must be allowed to do so without interference. Second, lender of last resort decisions should not be politicized.
Finally, calls to alter the structure or personnel selection of the Federal Reserve System easily could backfire by raising inflation expectations and borrowing costs and dimming prospects for recovery. The democratic legitimacy of the Federal Reserve System is well established by its legal mandate and by the existing appointments process. Frequent communication with the public and testimony before Congress ensure Fed accountability.
If the Federal Reserve is given new responsibilities every effort must be made to avoid compromising its ability to manage monetary policy as it sees fit.
Allan Metzer declines to sign the petition.
“I wrote them back and said, ‘the Fed has rarely been independent and it strikes me that being independent is very unlikely,’” in the current environment, Meltzer tells Deal Journal.
It isn’t that Meltzer, a political economist at Carnegie Mellon University’s Tepper School of Business, thinks the Fed’s recent role rescuing such financial institutions as Bear Stearns, Fannie Mae and Freddie Mac is sound monetary policy. Rather, he faults the committee of academics that drafted the petition for not coming up with constructive ways to keep the Fed independent in face of the current fiscal and political pressures. “It basically says do the right thing,” he says. “That is not very effective.”
Meltzer says history is replete of instances when the Fed bended to political pressure. In the 1930s, the Fed kept interest rates low to help finance government spending for New Deal programs and, later, World War II. In the 1960s, the Johnston administration pressured the Fed to keep rates low to finance its fiscal spending, causing inflation to accelerate. At other times, the Fed has resisted political pressure, as in the 1920s, when Congress wanted it to lower rates to help struggling, over-leveraged farmers, or in 1980s, when the Fed didn’t lower rates even as unemployment soared.
“Now we have the present Fed, which is not at all independent,” Meltzer says. He thinks the current proposal to make the Fed the top regulator of all financial institutions that pose systemic risk is a “terrible idea.”
Friday, July 17, 2009
Tom Woods and the Economy
These recent attacks on capitalism are not only wrong they are misdirected. One of the greatest myths about the free market in the United States is that we have one. The U.S. economy – after a hundred years of Progressive Era reforms, the Square Deal, the New Deal, the Great Society, and, most recently, government ownership stakes, rescue packages, stimulus packages, and bailouts – is a mixed market economy. Behind the façade of the free market is a myriad of government prohibitions, restrictions, and regulations.
So, if it is not the failure of the free market, then what is it that has caused the worst economic crisis in this country since the Great Depression? More importantly, what is the cure?...
Government intervention is the cause of the current economic meltdown, not the cure...
Woods considers the Federal Reserve’s previous interventions in the economy "to push interest rates lower than the market would have set them" to be "the single greatest contributor to the crisis." He equates the Fed’s money and interest rate planning to the now-discredited economic central planning of the Soviet Union. And even though government and Fed intervention is the cause of the crisis: "There is nothing the government or the Federal Reserve can do to improve the situation, and a great deal they can do to prolong it," he writes.
The business boom-bust cycle is not "an inherent feature of the market economy," argues Woods. Following the Austrian economists Ludwig von Mises and F. A. Hayek, he singles out the central bank as the culprit – "the very institution that postures as the protector of the economy and the source of relief from business cycles." Additional government interference is then exactly when prolongs the bust and delays the recovery...
Woods gives his perspective on some cures to restore the economy to health: let firms go bankrupt, abolish Fannie Mae and Freddie Mac, stop the bailouts, cut government spending, end government manipulation of and control over money, and put the actions of the Fed on the table for review – the institution "responsible for more economic instability than any other."
read the essay
So, if it is not the failure of the free market, then what is it that has caused the worst economic crisis in this country since the Great Depression? More importantly, what is the cure?...
Government intervention is the cause of the current economic meltdown, not the cure...
Woods considers the Federal Reserve’s previous interventions in the economy "to push interest rates lower than the market would have set them" to be "the single greatest contributor to the crisis." He equates the Fed’s money and interest rate planning to the now-discredited economic central planning of the Soviet Union. And even though government and Fed intervention is the cause of the crisis: "There is nothing the government or the Federal Reserve can do to improve the situation, and a great deal they can do to prolong it," he writes.
The business boom-bust cycle is not "an inherent feature of the market economy," argues Woods. Following the Austrian economists Ludwig von Mises and F. A. Hayek, he singles out the central bank as the culprit – "the very institution that postures as the protector of the economy and the source of relief from business cycles." Additional government interference is then exactly when prolongs the bust and delays the recovery...
Woods gives his perspective on some cures to restore the economy to health: let firms go bankrupt, abolish Fannie Mae and Freddie Mac, stop the bailouts, cut government spending, end government manipulation of and control over money, and put the actions of the Fed on the table for review – the institution "responsible for more economic instability than any other."
read the essay
Jim Rogers on the Economy
Legendary global investor and chairman of Singapore- based Rogers Holdings, Jim Rogers said on Wednesday the US government’s interventionist economic policy verges on communism.
In an interview with Moneynews's Dan Mangru, Rogers said: "America now owns the car industry. America owns the mortgage industry. America owns a lot of the insurance industry. Karl Marx must be somewhere standing up in his grave cheering. And why is that? America has become a socialist and maybe even communist nation in many ways,” Rogers said.
Addressing the various stimulus packages introduced by the US government, Rogers suggested that President Bush approved two packages, President Obama one, and now there’s talk of a fourth.
“The first stimulus didn’t work. The second stimulus didn’t work. The third stimulus hasn’t worked,” he said.
Rogers is clearly unhappy with the massive monetary easing the Fed has engineered under Chairman Ben Bernanke and he sees inflation and a currency crisis as a result of these policies
Jim Rogers on the Economy
Legendary global investor and chairman of Singapore- based Rogers Holdings, Jim Rogers said on Wednesday the US government’s interventionist economic policy verges on communism.
In an interview with Moneynews's Dan Mangru, Rogers said: "America now owns the car industry. America owns the mortgage industry. America owns a lot of the insurance industry. Karl Marx must be somewhere standing up in his grave cheering. And why is that? America has become a socialist and maybe even communist nation in many ways,” Rogers said.
Addressing the various stimulus packages introduced by the US government, Rogers suggested that President Bush approved two packages, President Obama one, and now there’s talk of a fourth.
“The first stimulus didn’t work. The second stimulus didn’t work. The third stimulus hasn’t worked,” he said.
Rogers is clearly unhappy with the massive monetary easing the Fed has engineered under Chairman Ben Bernanke and he sees inflation and a currecy crisis as a result of these policies
Thursday, July 16, 2009
Steak and Salmon
The lump reducing ring.
Hanger and cast iron grate.
Fillet Mignon. 2.65 pounds total. 3 inches thick.
Salmon. Dizzy Pig's Tsunami Spin and Raging River.
Hanger and cast iron grate.
Fillet Mignon. 2.65 pounds total. 3 inches thick.
Salmon. Dizzy Pig's Tsunami Spin and Raging River.
Wednesday, July 15, 2009
Tuesday, July 14, 2009
Keynesians Economics Refuted, Again
Keynes' final book was a defense of government spending. This is why the book was hailed as a masterpiece. It backed up what all Western governments were already doing: spending money on welfare projects and running massive deficits.
Keynes believed that there could be permanent depression and price deflation. He said that prices do not always clear markets by balancing supply and demand. The General Theory is a convoluted, deliberately incomprehensible book devoted to disproving the fundamental premise of all economics, namely, that the search for profit motivates buyers and sellers to exchange scarce resources...
Keynes was incoherent. This was deliberate. Why do I say Keynes was deliberately incoherent? Because when he chose to write clearly, he was a master of prose. Read The Economic Consequences of the Peace (1919) or Essays in Biography. When he could not sustain an argument, he adopted the strategy of incoherence. Most of The General Theory is incoherent...
What was Keynes after? A fascist state: the fusion of private ownership and socialism...
Keynesians are deflationists, meaning "the free market will produce permanent depression and deflation apart from government spending and central bank inflation." They believe that, without government spending, huge deficits, and central bank inflation, the economy will go into a deflationary spiral and not recover. They invoke the paradox of thrift and the liquidity trap as reasons. Both rely on the same idea: "money saved in a bank is not simultaneously money lent by the bank to increase production or consumption." It is a fallacious idea. It is "currency under the mattress" economics. It is "break in the flow of funds" economics. It is crackpottery...
Whenever you hear about the need for a government stimulus-spending bill, think "crackpot economics." Whenever you hear that deficits don't matter, think "crackpot economics." Whenever you hear about the need for quantitative easing, think "crackpot economics."
read the entire essay
My thoughts: Gary North explains once again that Keynesian soultions will not lead to economic growth and prosperity.
Tom Woods on the Fed
A lot of people seem to believe that although the market economy is a swell system, it requires the equivalent of a Soviet commissar to be in charge of money and interest rates. This belief is altogether misplaced. The Federal Reserve System, or simply "the Fed," is both harmful and unnecessary.
Since the Fed was created in 1913 the dollar has lost at least 95 percent of its value...
We were once told that boom-bust business cycles were a thing of the past because, thanks to the Fed, we now had scientific management of the money supply... To the contrary, they artificially stimulate capital-goods production and long-term investment. They thereby deform the structure of production into a configuration that the public’s freely expressed pattern of saving and consumption will be unable to sustain. When this phony boom inevitably collapses, it is "capitalism" that takes the blame – when in fact the Fed, a non-market institution, is the culprit...
The Fed is the lifeblood of the empire, the great enabler of the perversion of the original American republic into the world’s largest and most powerful government. Even if the central bank did confer a net economic benefit, a contention the great Austrian economists F.A. Hayek and Ludwig von Mises strenuously denied (and indeed Hayek won the Nobel Prize in the process of denying), the alleged benefit could not possibly be worth the destruction of the American soul...
For the sake of American freedom and prosperity, it is long past time that, in the spirit of Andrew Jackson, we killed the monster.
read the essay
My thoughts: Naturally the people in Washington want to extend even more power to the Fed instead of abolishing it. Ron Paul's Audit the Fed bill gained a majority of the House as co-sponsors, yet it is unlikely that the Fed will ever be audited.
Monday, July 13, 2009
Budget Deficit FY 2009
For the first nine months of the fiscal year, which began in October, the total deficit hit $1.09 trillion.
In the first nine months of 2008, the United States government was $285.9 billion in debt. For all of fiscal 2008, the government racked up a $454.8 billion shortfall...
By the end of fiscal 2009, the government expects to be in debt by $1.84 trillion. The Treasury said it expects that its expenditures to approach $4 trillion while its income will only be $2.16 trillion.
For fiscal 2010, Treasury said it expects to have a budget deficit of $1.26 trillion, with $3.59 trillion in expenses and a slightly more robust $2.33 trillion in receipts.read the article
Minimum Wage
In a free market, demand is always a function of price: the higher the price, the lower the demand. What may surprise most politicians is that these rules apply equally to both prices and wages. When employers evaluate their labor and capital needs, cost is a primary factor. When the cost of hiring low-skilled workers moves higher, jobs are lost. Despite this, minimum wage hikes, like the one set to take effect later this month, are always seen as an act of governmental benevolence. Nothing could be further from the truth...
The only way to increase wages is to increase worker productivity. If wages could be raised simply by government mandate, we could set the minimum wage at $100 per hour and solve all problems. It should be clear that, at that level, most of the population would lose their jobs, and the remaining labor would be so expensive that prices for goods and services would skyrocket. That’s the exact burden the minimum wage places on our poor and low-skilled workers, and ultimately every American consumer.
Since our leaders cannot even grasp this simple economic concept, how can we expect them to deal with the more complicated problems that currently confront us?
Saturday, July 11, 2009
Friday, July 10, 2009
Cartoon: Economic Stimulus
Yesterday, Obama took time out of his first presidential trip to Moscow to defend the $787 billion stimulus package, arguing that the measure was the right medicine at the right time. "There's nothing that we would have done differently," he told ABC News.source
My thoughts: Stimulus spending never works because of the lags involved. The theory is flawed as well.
read this article
Gerald Celente on the Economy
"How often does the government have to be wrong, and how wrong do they have to be before people and the media stop taking them seriously?" wondered Celente. "The first spending package didn't deliver as promised, and now Obama's advisors want another stimulus, as if doubling up on failure will achieve success."...
Celente contends there are but three possible explanations for President Obama and his "brilliant" team of economic advisors "misreading how bad the economy was":
- They're ignorant, despite PhD's and impressive résumés.
- They are so arrogant they are incapable of acknowledging that anyone outside the incestuous Beltway circle could possibly get it right ... when they've got it wrong.
- They actually do know better, but are lying.
"None of these suffice as excuses," concluded Celente, "but the inability or unwillingness to make accurate forecasts appears to be a Vice Presidential prerequisite." This past January, departing VP Dick Cheney sloughed off his administration's central role in accelerating the financial crisis and failure to head it off, claiming, "Nobody anywhere was smart enough to figure it out."...
The Greatest Depression is at hand. The stimulus, bailout and buyout packages being forced on the nation by an Administration that "misread how bad the economy was" will only lead to "Obamageddon": The Fall of Empire America.
The Bubble Economy and Credit Expansion
Credit expansion is what was responsible for both the stock market and the real estate bubbles. Since its establishment in 1913 and certainly since the expansion of its powers in World War I, responsibility for credit expansion itself has rested with the Federal Reserve System. The Fed is the source of new and additional reserves for the banking system and determines how much in checking deposits the reserves can support. It has the power to inaugurate and sustain booms and to cut them short. It launched and sustained the stock market and real estate bubbles. It had the power to avoid both of these bubbles and then to stop them at any time. It chose to launch and sustain them rather than to avoid or stop them.
To be responsible for a bubble and its aftermath is to be responsible for a mass illusion of wealth, accompanied by the misdirection of investment, overconsumption, and loss of capital, and the poverty and suffering of millions that follows. This is what can be traced to the doorstep of the Federal Reserve System and those in charge of it...
The real estate bubble, like the stock market bubble before it, was caused by credit expansion. The credit expansion was instigated and sustained by the Federal Reserve System, which could have aborted it at any time but chose not to. As a result, the Federal Reserve System and those in charge of it at during the real estate bubble bear responsibility for major harm to tens of millions of Americans...
The conclusion to be drawn is that the housing bubble was indeed the product of credit expansion, not a "saving glut."
read the entire essay
My thoughts: George Reisman at his best.