Thursday, August 11, 2011
Wednesday, August 10, 2011
Bob Murphy Destroys Krugman (and Keynes)
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
Lew Rockwell on the Economic Crisis
Rockwell writes:
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
Fed Holds Rates Steady
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.
Bill Bonner on the Economy and Gold
Bonner writes:
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…
Wealth Effect
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.
Fear Gauge
n the wake of “Great S&P Downgrade” volatility in the stock market as measured by the VIX — the volume of S&P 500 index options — jumped 50% yesterday. 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.
The S & P 500 and Federal Reserve Intervention
If a picture is worth a thousand words, this chart needs little additional explanation — except perhaps for those who are puzzled by the Jackson Hole callout. The reference is to Chairman Bernanke's speech at the Fed's 2010 annual symposium in Jackson Hole, Wyoming. Bernanke strongly hinted about the forthcoming Federal Reserve intervention that was subsequently initiated in November, namely, the second round of quantitative easing, aka QE2.
source
Illusion of Wealth
Credit expansion cannot increase the supply of real goods. It merely brings about a rearrangement. It diverts capital investment away from the course prescribed by the state of economic wealth and market conditions. It causes production to pursue paths which it would not follow unless the economy were to acquire an increase in material goods. As a result, the upswing lacks a solid base. It is not real prosperity. It is illusory prosperity. It did not develop from an increase in economic wealth. Rather, it arose because the credit expansion created the illusion of such an increase. Sooner or later it must become apparent that this economic situation is built on sand.
Ludwig von Mises, Causes of the Economic Crisis, 1931
Ludwig von Mises, Causes of the Economic Crisis, 1931
Gold Recent Run
Gold reached a new intraday high of $1,782.50 per ounce in electronic trading before backing down to $1,746.20. That's an increase of $33, or about 2%, compared to its Monday close. On Monday, gold broke $1,700 for the first time...
Gold is also still far from its true peak, when adjusted for inflation. The metal hit its real record on Jan. 21, 1980, when it rose to $825.50 an ounce. Adjusted for inflation to 2011 dollars, that translates to an all-time record of $2,261.33 an ounce.
Monday, August 8, 2011
Greenspan is Pro-Printing Press
Former Federal Reserve Chairman, Alan Greenspan, appeared on MSNBC's meet the Press where he made a shockingly blatant statement that is sure to make its way around the 'Net at lightning speed.
What makes this ironic, is that many free-market and Austrian economists believe Greenspan's policy of taking interest rates to historic lows at the Fed were responsible for the subprime mortgage and credit crises and the bubble in the real estate and stock markets which culminated in the 2008 market meltdown and real estate crash. In fact, Time Magazine placed him 3rd on a list of 25 people to blame for the financial crisis, and this is probably so.
While Greenspan has spent much of his time since the crisis attempting to rewrite history and his participation in the worst economic downturn since the Great Depression, mainstream media appearances such as this one will not liekly do much to help his efforts.
In this MSNBC interview, Greenspan was asked, "Are US Treasury bonds still safe to invest in?" You have to listen to his answer to believe it. Greenspan sits there and utters a single sentence that basically says what no dollar-debt holder wants to hear: We will devalue your debt into the ground by cranking up the printing presses.
Government Spending and Budget Cuts
There has been a lot of political effort and focus on the debt issue, and that is an improvement. So how big is the current change? Congress could only get a small down payment on cuts into legislation immediately. The Congressional Budget Office (CBO) scored the cuts as $917 billion over 10 years. To get more cuts, a Joint Select Committee is tasked with coming up with another $1200 billion more. If they fail, automatic cuts of $1500 billion are planned.
10 year cuts now: $917 B
Joint Committee: $1,200 B
Total: $2,117 B
So the total will be closer to $2.1 to 2.4 trillion, or 5% of expenditures. That is not enough with a current deficit at 40 % of expenditures. Compared to the projected expenditures of $45.8 trillion over this time frame, the effects will be small. A chart of the size of the initial cuts in blue compared to the projected expenditures in red puts the relative size in perspective:
The conclusion is that the best the government could do in making cuts is not enough to change the story that we will be spending more than we can afford, and that the scenario of dollar depreciation and gold rise will continue.
Saturday, August 6, 2011
AAA-rating Gone
Late Friday, the United States was booted out of a prestigious group of countries that boast a spotless credit rating.
Now only 15 countries (and the very small Isle of Man) hold the triple-A rating from both Standard & Poor's and Moody's...
The United States for example, has seen its dollar become the world's No. 1 reserve currency because its bonds are held in such high regard by investors. They're backed by the "full faith and credit of the U.S. government" -- which until now, has never seriously been called into question.
On Friday, S&P downgraded the United States to AA+, an investment grade level just one notch below triple-A. It marked the first time the world's largest economy has been downgraded, since Moody's first gave the country a credit rating in 1917.
S&P cited estimates that U.S. government debt would balloon to 79% of the size of the entire U.S. economy by 2015, and 85% by 2021 -- a level S&P says is consistent with AA+ rated countries.
Friday, August 5, 2011
July Unemployment 9.1%
The Labor Department reported that U.S. nonfarm payrolls rose 117,000 in July, the private sector adding 154,000 new jobs, and employment gains in May and June were revised upward by a combined 56,000. The jobless rate fell from 9.2 percent to 9.1 percent, however, this was largely the result of 193,000 people dropping out of the labor force.
Thursday, August 4, 2011
Peter Schiff on the Economy
Schiff thinks the U.S. is headed not just for a recession but rather a full-blown depression. On the upside, he believes the coming economic situation will look familiar.
"The Depression [in the wake of the financial crisis] was temporarily interrupted by a bunch of stimulus which ultimately weakened the economy further," says Schiff. He adds the government's likely knee-jerk response of stimulating is, "probably going to be the fatal dose, the lethal dose" prior to "a complete economic collapse."
Which is precisely why Schiff wasn't among those expecting a debt deal relief rally last Monday morning. The attention paid to the deal was a "massive victory for propaganda that would have done Goebbels proud" (yes, this Goebbels). Schiff believes the real crisis wasn't the debt ceiling but spending and debt, both of which were effectively worsened by the deal.
"The reckless thing to do was to raise the debt ceiling" he says. Exacerbating matters Schiff thinks the ceiling is going to have to be raised yet again before President Obama leaves office. Not that the chance for DC to spend more freely will help the economy. "The reason we can't grow the economy is because the government is in the way... There's no jobs because there's no recovery."
By way of a cheery goodbye Schiff concludes, "We're on a collision course for disaster. All we can do, all your viewers can do is brace for impact...Buy gold. Buy silver... Get as far away as you can from U.S. currency and the U.S. economy."
Wednesday, August 3, 2011
Tuesday, August 2, 2011
Ron Paul on the Budget
Ron Paul writes:
In reality, bringing our fiscal house into order is not that complicated or excruciatingly painful at all. If we simply kept spending at current levels, by their definition of cuts that would save nearly $400 billion in the next few years, versus the $25 billion the Budget Control Act claims to cut. It would only take us five years to cut $1 trillion in Washington math just by holding the line on spending. That is hardly austere or catastrophic.
A balanced budget is similarly simple and within reach if Washington had just a tiny amount of fiscal common sense. Our revenues currently stand at approximately $2.2 trillion a year and are likely to remain stagnant as the recession continues. Our outlays are $3.7 trillion and projected to grow every year. Yet we only have to go back to 2004 for federal outlays of $2.2 trillion, and the government was far from small that year. If we simply referred to that year’s spending levels, which would hardly do us fear, we would have a balanced budget right now. If we held the line on spending and the economy actually did grow as estimated, the budget would balance on its own by 2015 with no cuts whatsoever...
In Washington terms a simple freeze in spending would be a much bigger cut than any plan being discussed. If politicians simply cannot bear to implement actual cuts to actual spending, just freezing the budget would give the economy the best chance to catch its breath, recover and grow.
Don't Worry About Defense Cuts
The United States could substantially cut its defense budget and still spend more money on our military than every country that even plausibly threatens us combined. Can someone explain why that isn't enough?
Monday, August 1, 2011
Income inequality and Income Mobility
Thomas Sowell writes:
"Only by focusing on the income brackets, instead of the actual people moving between those brackets, have the intelligentsia been able to verbally create a "problem" for which a "solution" is necessary. They have created a powerful vision of "classes" with "disparities" and "inequities" in income, caused by "barriers" created by "society." But the routine rise of millions of people out of the lowest quintile over time makes a mockery of the "barriers" assumed by many, if not most, of the intelligentsia."
source
Saturday, July 30, 2011
GDP 2nd Quarter 2011: 1.3%
In the “advance” estimate for the second quarter, the Commerce Department reported that real economic growth in the U.S. increased at an annual rate of 1.3 percent, far below consensus estimates of a two percent rate, and, as part of the annual data revisions, growth in the first quarter was revised downward, from a 1.8 percent rate to just 0.4 percent.
source
Friedman v Rothbard
How can you tell if a person truly advocates a free market economy? Simple. He prefers Rothbard to Friedman.
Here are a few excerpts from a recent exchange sparked by this article. Missing Milton Friedman.
Tim Lee writes:
Gary North responds:
George Selgin and Donald Boudreaux have also weighed in. Robert Wenzel details most of the debate here.
Here are a few excerpts from a recent exchange sparked by this article. Missing Milton Friedman.
Tim Lee writes:
If only the free-market right still had such a powerfully persuasive "technician advising the state how to be more efficient", our economy might now be slightly less screwed. Maybe it would help were "advising the state to be more efficient" less widely considered "evil work".
Gary North responds:
We need less efficient government. Friedman never grasped this. Rothbard did. The few Establishment economists and columnists who have read Rothbard have never forgiven him for this...
Friedman was the main apologist for fiat money in the free market camp. He believed in free market liberty, but not where it is really important: education (vouchers based on state-confiscated money) and money itself (central banking based on a grant of state power: a monopoly). Murray Rothbard challenged both ideas. He therefore remains a pariah to the Establishment.
George Selgin and Donald Boudreaux have also weighed in. Robert Wenzel details most of the debate here.
Great Recession: The "Recovery" Continues
According to the Bureau of
At the worst point, real GDP was off 5.1% from the 2007 peak. Since the most common definition of a depression is a 10%+ decline in real GDP, the 2007 recession was not a depression. Note: There is no formal definition of a depression. Some people use other definitions such as the duration below the previous peak. By that definition, using both GDP and employment, this seems like the "Lesser depression", but not by the common definition.
source
GDP Revisions: Recession Worse than Originally Believed
GDP: Not only has growth slowed, but the recession was significantly worse than earlier estimates suggested. Real GDP is still not back to the pre-recession peak.
source
Wednesday, July 27, 2011
Tuesday, July 26, 2011
Monday, July 25, 2011
Gold Standard Advantages
Under a gold standard, money regains its primary purpose as a vital tool of free markets instead of serving as a corrupted instrument of government policy. Genuine economic growth—as opposed to the money illusion of artificial wealth reflected in bloated equities or housing prices—is no longer sacrificed to monetary policy encumbered by the fiscal failures of government.
Judy Shelton
Judy Shelton
Mercantalism
"No politician ever gained power by not interfering in the market, and no special interest ever sponged off the rest of society by competing in the free market. That's all the analysis you need to understand mercantilism."
2nd Quarter GDP Estimates
This graph shows the quarterly GDP growth (at an annual rate) for the last 30 years.
The consensus is that real GDP increased 1.8% annualized in Q2. The estimate for Q2 is in blue.
Back-to-back weak quarters and a sluggish and choppy recovery ...
source
Chicago Fed Economic Activity
The Chicago Fed National Activity Index increased to –0.46 in June from –0.55 in May; however, the index remained negative for the third consecutive month. Three of the four broad categories of indicators that make up the index improved in June, but only one made a positive contribution to the index.
source
Sunday, July 24, 2011
Saturday, July 23, 2011
Debt Default
Bill Bonner writes:
And here we find a political movement The Daily Reckoning can stand…far…behind... the part that actually wants the US government to default.
Whoa! We know what you’re thinking. A default would be dangerous. Suicidal. Unthinkable. Ben Bernanke. Tim Geithner. Larry Summers. They all said so! The old folks wouldn’t get their medicine. The soldiers wouldn’t get their ammunition. Tops would go back onto honey pots all over the Washington DC area. The whole system would fall into anarchy and pandemonium. There would be riots. Revolution. Bourbon would disappear from the liquor store shelves. The dead would rise from their graves and the living would fall into the open holes. A man would be happy to see his dead wife alive again. Another would be even happier to see his living wife dead!
Well, maybe they’re right. It would probably be a catastrophe. A disaster. But let’s take the chance anyway!
Because the real problem is debt. The quicker it is eliminated…the faster the economy can get back to work.
So, don’t raise the debt ceiling. Let the feds figure out how to get by like everyone else – spending no more than they take in as income. Is that really so tough?
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