Wednesday, August 31, 2011
The U.S. Justice Department is suing to block AT&T Inc.'s proposed $39 billion takeover of T-Mobile USA, saying Wednesday that the combination of the second- and fourth-largest U.S. cellphone companies would hurt competition and likely raise prices.
read the article
Tuesday, August 30, 2011
Monday, August 29, 2011
Jim Buchanan‘s 1987 essay “Keynesian Follies,” reprinted in Vol. 1 of Jim’s Collected Works (pp. 164-178):
Sunday, August 28, 2011
The two presidents have a lot in common. Both inherited an American economy in collapse. And both applied daring, expensive remedies. Mr. Reagan passed the biggest tax cut ever, combined with an agenda of deregulation, monetary restraint and spending controls. Mr. Obama, of course, has given us a $1 trillion spending stimulus.
By the end of the summer of Reagan's third year in office, the economy was soaring. The GDP growth rate was 5% and racing toward 7%, even 8% growth. In 1983 and '84 output was growing so fast the biggest worry was that the economy would "overheat." In the summer of 2011 we have an economy limping along at barely 1% growth and by some indications headed toward a "double-dip" recession. By the end of Reagan's first term, it was Morning in America. Today there is gloomy talk of America in its twilight.
My purpose here is not more Reagan idolatry, but to point out an incontrovertible truth: One program for recovery worked, and the other hasn't...
There is something that is genuinely different this time. It isn't the nature of the crisis Mr. Obama inherited, but the nature of his policy prescriptions. Reagan applied tax cuts and other policies that, yes, took the deficit to unchartered peacetime highs.
My thoughts: Moore is forgetting a few things about Reagan.
Let's not forget that Reagan raised taxes six times (including the then-two biggest tax increases in American history), massively increased welfare and warfare spending, ran huge deficits, stepped up the police state, ended financial privacy as part of his drug war, made Greenspan Fed chairman, undid the healthy "Vietnam syndrome" with his great victory over tiny, unresisting Grenada, and much, much more.
Christina Romer, the University of California at Berkeley economics professor and President Obama's first chief economist, once relayed the old joke that "there are two kinds of students: those who hate economics and those who really hate economics."... Why? Because too often economic theories defy common sense. Alas, the policies of this administration haven't boosted the profession's reputation...
A few months ago Mr. Obama blamed high unemployment on businesses becoming "more efficient with a lot fewer workers," and he mentioned ATMs and airport kiosks. The Luddites are back raging against the machine. If Mr. Obama really wants to get to full employment, why not ban farm equipment?
Or consider the biggest whopper: Mr. Obama's thoroughly discredited $830 billion stimulus bill. We were promised $1.50 or even up to $3 of economic benefit—the mythical "multiplier"—from every dollar the government spent. There was never any acknowledgment that for the government to spend a dollar, it has to take it from the private economy that is then supposed to create jobs. The multiplier theory only works if you believe there's a fairy passing out free dollars...
The grand pursuit of economics is to overcome scarcity and increase the production of goods and services. Keynesians believe that the economic problem is abundance: too much production and goods on the shelf and too few consumers. Consumers lined up for blocks to buy things in empty stores in communist Russia, but that never sparked production. In macroeconomics today, there is a fatal disregard for the heroes of the economy: the entrepreneur, the risk-taker, the one who innovates and creates the things we want to buy. "All economic problems are about removing impediments to supply, not demand," Arthur Laffer reminds us.
So here we are, three years of mostly impotent stimulus experiments and the economy still hobbled. Keynesians would be expected to be second-guessing the wisdom of their theories. Instead, Prof. Romer recently complained that the political system will not allow Mr. Obama to "go back and ask for more" stimulus.
Friday, August 26, 2011
Gasoline futures traded in New York have already spiked, rising 10 cents a gallon this week, largely on fears there will be a disruption in output from the refineries, barge routes or pipelines serving the heavily populated eastern seaboard.
Gross domestic product, the broadest measure of the nation's economic health, rose at an annual rate of 1% in the second quarter, the Commerce Department said.
Thursday, August 25, 2011
Wednesday, August 24, 2011
For those not accustomed to the world of Bugattis, merely paying $2 million for the two sets of keys to your Veyron is only the beginning of an ownership journey. And it is an actual journey; your run-flat tires are only to be removed from their rims in France, and must be replaced every 2,500 miles, at a cost of about $40,000 for all four (made exclusively for the Veyron, the Michelin rubbers are not sold at your local Costco.) A "routine" service runs about $19,000; would you really trust Jiffy Lube with a car that has 10 radiators?
Tuesday, August 23, 2011
Distressing Gap: The following graph shows existing home sales (left axis) and new home sales (right axis) through July. This graph starts in 1994, but the relationship has been fairly steady back to the '60s.
Then along came the housing bubble and bust, and the "distressing gap" appeared due mostly to distressed sales. The flood of distressed sales has kept existing home sales elevated, and depressed new home sales since builders can't compete with the low prices of all the foreclosed properties.
Monday, August 22, 2011
That’s the conclusion of Bloomberg after analyzing 29,346 pages of documents released by the Fed only because Bloomberg went all the way to the US Supreme Court to obtain them.
The top 10 recipients alone account for 56% of the total. The $669 billion these 10 borrowed is, um, rather larger than the “official bailout figure” of $160 billion represented by the TARP program.
Barry Ritholtz writes:
Imagine if the government and the Federal Reserve were run not by knaves and fools and Wall Street sycophants, but instead, were run honestly for the benefit of the taxpaying voter. Imagine the goal was saving the banking system (not the banks), and the financial rescue was for the benefit of the taxpayers, not the bondholders. Naive thoughts, I totally understand, but hear me out.
A person who truly understood what had happened and why would have considered the following actions. Note these are not ideas come about with the benefit of hindsight, but what a small band of insightful people were saying at the time.
An honest broker of the situation would have:
1. Fire the senior management of the banks (see this)
2. Banned all lobbying activity as a condition of any aid (see this)
Instead, we bailed out the bondholders and management, choking off hope for a robust recovery. We are in fact slowly turning Japanese, awaiting the next recession (and the next and the next).
The severe convulsions of the economy are the inevitable result of policies which hamper market activity, the regulator of capitalistic production. If everything possible is done to prevent the market from fulfilling its function of bringing supply and demand into balance, it should come as no surprise that a serious disproportionality between supply and demand persists, that commodities remain unsold, factories stand idle, many millions are unemployed, destitution and misery are growing and that finally, in the wake of all these, destructive radicalism is rampant in politics.
The periodically returning crises of cyclical changes in business conditions are the effect of attempts, undertaken repeatedly, to underbid the interest rates which develop on the unhampered market. These attempts to underbid unhampered market interest rates are made through the intervention of banking policy—by credit expansion through the additional creation of uncovered notes and checking deposits—in order to bring about a boom. The crisis under which we are now suffering is of this type, too. However, it goes beyond the typical business cycle depression, not only in scale but also in character—because the interventions with market processes which evoked the crisis were not limited only to influencing the rate of interest. The interventions have directly affected wage rates and commodity prices, too...
All attempts to emerge from the crisis by new interventionist measures are completely misguided. There is only one way out of the crisis: Forgo every attempt to prevent the impact of market prices on production. Give up the pursuit of policies which seek to establish interest rates, wage rates and commodity prices different from those the market indicates. This may contradict the prevailing view. It certainly is not popular. Today all governments and political parties have full confidence in interventionism and it is not likely that they will abandon their program. However, it is perhaps not too optimistic to assume that those governments and parties whose policies have led to this crisis will some day disappear from the stage and make way for men whose economic program leads, not to destruction and chaos, but to economic development and progress.
Friday, August 19, 2011
"Our true choice is not between tax reduction, on the one hand, and the avoidance of large federal deficits on the other. It is increasingly clear that...an economy hampered by restrictive tax rates will never produce enough revenues to balance our budget just as it will never produce enough jobs or enough profits." John F. Kennedy
Thursday, August 18, 2011
Wednesday, August 17, 2011
Fiat money has worked well since Richard Nixon ended the dollar’s peg to gold 40 years ago this week, but this latest recession must gnaw at believers. If years of ultra-cheap cash give rise to serious inflation or an accelerated retreat of the American currency, the gold standard, however erratic and deflationary, could start to appeal again.
The arrangement born at Bretton Woods and used for nearly three decades was not a true gold standard, as it was entirely intergovernmental and the private holding of gold was illegal in America. It thus lacked the virtue of independence from political meddling, failed to provide anti-inflationary benefits and collapsed once its American sponsors no longer controlled the world economy.
The true gold standard, in which gold coins circulated freely as legal tender, was started in Britain in 1717 and lasted for just under 200 years, interrupted only during the Napoleonic wars.
Compared with an ideal, stable and noninflationary monetary system, free from influence by elected officials, the gold standard has two flaws. The metal’s supply is erratic. It can soar unexpectedly with new discoveries, thus causing currency values to fluctuate. Conversely, new deposits tend to be found slowly, making a gold standard excessively deflationary when population growth is rapid. That is what
contributed to the standard’s breakdown after 1900.
World population growth is now declining after its annual peak of 2.2 percent in the early 1960s. By 2030, it is forecast to fall below the 0.72 percent rate of 1900. That would make a gold standard practicable and not too deflationary.
That doesn’t make it any more likely that central bankers would embrace it, despite advocacy from critics of quantitative easing and the Federal Reserve like Steve Forbes and Ron Paul. For one thing, it would drastically undercut the banks’ influence.
But further chipping at the dollar’s credibility, further downgrades of United States credit or other harmful results from years of very low interest rates could bring more people around to the idea of a new reserve currency. A return to the gold standard remains unlikely, but it’s no longer unthinkable.
Tuesday, August 16, 2011
Monday, August 15, 2011
Sunday, August 14, 2011
It doesn’t matter what you call it or when the policies are imposed, expanding the size and scope of government is bad for prosperity. So the real question is when will the establishment press finally admit that Obamanomics has failed?
The unemployment numbers released today certainly will not be easy to spin. Here’s the chart I periodically update, showing the actual unemployment rate compared to what the White House claimed would happen if we flushed $800 billion down the Washington rathole.
Saturday, August 13, 2011
The unemployment rate decreased to 9.1% (red line).
The Labor Force Participation Rate declined to 63.9% in July (blue line). This is the percentage of the working age population in the labor force. This is a new cycle low - and the lowest participation rate since the early '80s.
The Employment-Population ratio declined to 58.1% in July (black line). This is also at a new cycle low and the lowest since the early '80s.
Faber, who predicted the stock market crash in 1987, turned bearish shortly before the 2007-2009 bear market and called the 2009 lows, believes the markets will now test the July 2010 lows for the S&P 500 at 1,010 and "after that we'll get a QE3 announcement."...
What can the Fed do to support the economy?
"The best they could do for markets would be to collectively resign," Faber suggested.
"Everybody in the world has become a Keynesian, everybody thinks the government should do this and that, the Fed should do this, the Treasury should do that.....I think sometimes the best is to do...nothing!
Reiterating his views on the prospects for another asset purchase program, Faber asked: "What has QE1 and QE2 done for the labor market? Nothing at all, and nothing for the housing market."
"It [QE] has lifted stocks and it created wider wealth inequality in the sense that people who own assets have done well and people who are in the lower income recipient groups are getting hurt from rising energy and food prices," he added.
Friday, August 12, 2011
It is through cooperation and the division of labor that we all can live better lives. Naturally, he laid great stress on the need for peace. The absence of peace is the breakdown of that vital cooperation. This put Mises squarely in the pacifistic
classical-liberal tradition as exemplified by Richard Cobden, John Bright, Frédéric Bastiat, Herbert Spencer, and William Graham Sumner. Mises writes
The liberal critique of the argument in favor of war is fundamentally different from that of the humanitarians. It starts from the premise that not war, but peace, is the father of all things. What alone enables mankind to advance and distinguishes man from the animals is social cooperation. It is labor alone that is productive: it creates wealth and therewith lays the outward foundations for the inward flowering of man. War only destroys; it cannot create. War, carnage, destruction, and devastation we have in common with the predatory beasts of the jungle; constructive labor is our distinctively human characteristic. The liberal abhors war, not, like the humanitarian, in spite of the fact that it has beneficial consequences, but because it has only harmful ones...
We’re all grappling with an uncertain future. Social cooperation unquestionably makes that task easier than if we attempted to go it alone. That’s why individuals formed mutual-aid (fraternal) organizations. Besides camaraderie, these groups provided what the welfare state feebly and coercively provides today: islands of relative security in a sea of uncertainty.
If people support the welfare state, don’t be puzzled. It’s because they cannot see a better voluntarist alternative. That’s where libertarians come in.
We libertarians might have an easier time persuading others if we emphasized that freedom produces ever-more innovative ways to cooperate for mutual benefit and that when government dominates life, social cooperation is imperiled.
read the entire essay
Thursday, August 11, 2011
Wednesday, August 10, 2011
according to Krugman, the economy is stuck in a rut because (a) the federal government has been unwilling to run large enough budget deficits, while (b) the Federal Reserve has been unwilling to create enough new money...
Look again at the two charts above. Anyone with common sense will admit that the last two years have seen unprecedented budget deficits and monetary expansion. Krugman is correct; that hasn't been working at all. It's time to let the free market end this agony and bring us genuine recovery.
read the essay
Of course, the whole theory that the government can stimulate through control and robbery is wrong and counterproductive. It only ends up rewarding government and its friends while the rest of us suffer. If we ever get out of this depression, it will be because government is forced to stop this nonsense, and the economy really stimulated by taking a meat axe to the planning-spending-inflating apparatus.read the entire essay
Tuesday, August 9, 2011
Well, it looks like it’s one down, three to go for the Federal Reserve as, today, they promised to keep short-term interest rates freakishly low for at least the next two years (and possibly much longer) while holding in reserve three other options – changing their mix of assets to lower long term rates (which doesn’t appear to be necessary at the moment), spurring banks to lend by paying less on excess reserves, and, of course, the big kahuna of about a trillion dollars more in Treasury purchases, otherwise known as “QE3″.
By promising to keep rates low “at least through mid-2013″ in the policy statement released earlier today, the central bank assured the nation’s big banks of continuing to make big profits for the next two years on the interest rate spreads.
Of course, this will continue to punish the nation’s savers who, for the foreseeable future, will be looking at rates of one percent or less for certificates of deposit.
Still, we’ll stick with gold. Gold has gone up too. But for completely different reasons. You buy US Treasuries when you have faith in the system and the people running it. You buy gold when you don’t.
T-notes have gone up because the lumpeninvestoriat seeks to protect itself from natural market forces. It looks for safety in the world’s ersatz reserve currency – the dollar. As Alan Greenspan said, the US won’t default. It can always print more dollars!
Gold has gone up because smart people know that there is only one money they can really trust. There is only one currency that won’t disappear. And there is only one financial reserve that will hold up to a real crisis.
That is gold. Gold is back on its throne – as the world’s One True Money. Wise governments, wise investors, and wise families are buying it to protect themselves from the jackasses who run the world’s money system.
A few days ago, Ben Bernanke was asked about gold. Ron Paul asked him if he considered it money. ‘No,’ he said. Gold was just a commodity. Like bauxite or guano.
But now commodities are tumbling. If gold were just a commodity, it should be going down with copper and lead. Instead it is soaring.
Why is that, Ben?
Ha, ha, ha…so you see…the financial world is fun again. Yes, England is smoking from riots. Europe is on the edge of a complete financial meltdown. And America is sinking into depression. But we can still laugh at the morons who rule us. We can guffaw and snicker at the people who are supposed to know what they are doing. We can curl up in spasms of mirth at the knuckleheads who run the world’s financial institutions…
You might expect Fed chief Ben Bernanke to laud QE2 because of its effect on stock prices: Easy money fuels the “wealth effect”… people feel flush as their brokerage accounts grow… and then go out and spend money.
Of course, it’s a dopey notion — based on the idea that consumption grows the economy, not savings and production. But it is what it is.
At yesterday’s close, the S&P 500 is only 70 points away from where the whole QE2 process started nearly a year ago — when Bernanke winked and said it was all but a done deal during his annual speech in Jackson Hole, Wyo.
When Bernanke indicated during his first news conference on April 27, 2011 that QE2 would wind down as scheduled at the end of June, the market topped two days later. The market then entered a holding pattern until the circus over the debt ceiling concluded… then, well, the last week of July through this morning tells the rest of the story.
The market’s “fear gauge” closed out the day at 48...
Going back to its inception in 1993, there are only five other episodes in which the VIX topped 45:
• September 1998: Russian default
• October 1998: Long-Term Capital Management (LTCM) implosion
• August 2002: WorldCom collapse
• September 2008: Lehman Bros. bankruptcy and ensuing Panic of ’08
• May 2010: The incestuous “flash crash.”
In four of five of these spooky episodes, you could have done very nicely for yourself buying the Dow 30 as soon as the VIX topped 45… and holding those shares for a year. The blue chips picked up between 1,500-2,500 points each time.