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Acting Man  

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  • Precious Metals Update [View article]
    You must consider that the true US money supply TMS-2 has risen almost 150% since just the year 2000. Monetary inflation has been in extremely high gear over the past decade, accelerating markedly from the pace of the 1980's and 1990's. Back in 1980, when gold reached a blow-off top at $850, money TMS-2 stood at roughly 800 billion dollars. Now it stands at nearly $7.5 trillion, and the currency component alone is 25% higher than the entire money supply in 1980. Gold has plenty of monetary inflation to catch up with.
    Apr 18, 2011. 11:45 AM | 3 Likes Like |Link to Comment
  • 3 Things I Think I Think About the U.S. Economy [View article]
    The argument also overlooks that a future government may well decide a default to be preferable over the 'hyperinflation' option - especially as a lot of US debt is held by foreigners, which circumstance would enable a selective default.
    Better to draw the ire of foreign investors than destroy the entire economy by pursuing hyperinflation may well prove to be a persuasive argument when push comes to shove. After all, what are they going to do? Invade?
    Apr 5, 2011. 06:47 PM | 2 Likes Like |Link to Comment
  • Ganging Up on the Yen [View article]
    You are correct; I should perhaps have put it slightly differently. In order to actually overwhelm the market, the BoJ would have been forced to take truly extraordinary steps in terms of its interventions. It spent some $350 billion over about 18 months in its last big intervention period. I agree that in principle, a central bank should be able to manipulate its own currency downward. However, look at the Swiss - their interventions vs. the euro-CHF cross were relatively speaking an order of magnitude greater and happened over a more compressed time period - and still they failed utterly.
    Mar 23, 2011. 05:00 PM | 1 Like Like |Link to Comment
  • Contemplating Japanese Investment During These Devastating Times [View article]
    This is incorrect, or rather it is incomplete. If it were ONLY a tax on currency holders, then it would be nothing but theft, but the negative effects of monetary inflation go much further than that. It distorts the entire productive structure of the economy and so furthers the consumption of scarce capital. If the government wanted to tax someone, it should introduce a tax - not engage in acts that will harm an already stricken economy further.
    Mar 16, 2011. 02:20 PM | Likes Like |Link to Comment
  • Contemplating Japanese Investment During These Devastating Times [View article]
    You're absolutely correct - I couldn't agree more. I was about to post something similar, but you saved me the time - so instead I will just second you.
    Mar 15, 2011. 08:30 PM | Likes Like |Link to Comment
  • Germany and the PIIGS: Can a Default Be Avoided? Part 2 [View article]
    You have a point. Actually, GIPSI sounds like a usable abbreviation.
    Mar 15, 2011. 01:34 PM | Likes Like |Link to Comment
  • Bernanke and King Defending Their Policies [View article]
    I concur, Lilburn's 'Human Action' comics and Roger Garrison's presentations are excellent introductions to the 'Austrian' point of view for people not yet familiar with it. I highly recommend them.
    As you say, the computer industry is living proof that economic growth does not require rising prices, as the central banks generally maintain. As a rule central bank officials never address such obvious contradictions. Also, for example the period 1870-1910 (the 'gilded age') was a period of gently falling prices due to the gold standard and it was also the period of the highest real economic growth the United States has ever experienced. Never before or after did living standards for society at large increase so quickly. Funny enough, no central bank was required to achieve this economic miracle - and again, I have never heard any central banker address this 'mystery'.
    Mar 7, 2011. 12:43 PM | 1 Like Like |Link to Comment
  • Bernanke and King Defending Their Policies [View article]
    I would note though that in a true free market economy with a market chosen money, it would not necessarily be the case that economic growth leads to money supply inflation and consequently to rising prices.
    If for instance gold were still our money, then economic growth would very likely lead to a decline in the 'general' level of prices - money would buy more goods and services over time.
    Here is why: the supply of gold rises at about 1.5% p.a.; let us say that half of that would be used for jewelry and industrial purposes and half of it would be diverted to monetary use. Then the effective money supply would rise at about 75 basis points p.a. - however, if productivity growth were clocking in at 3% p.a. simultaneously - not an unreasonable estimate - prices would tend to fall by the difference, i.e., slightly over 2% per annum. Needless to say, our living standards would still rise strongly, and more importantly, economic development would be smooth, as opposed to the manic-depressive boom-bust economy the central bank led fiat money system produces. No matter how well intentioned Bernanke and his colleagues may be - they will always be faced with the socialist calculation problem and will therefore most of the time set their interest rate at a level that is not properly reflecting societal time preferences. Hence they will continue to create boom-bust cycles, which over long periods of time leave us far worse off than the free market alternative.
    Mar 7, 2011. 12:34 PM | 1 Like Like |Link to Comment
  • Bernanke and King Defending Their Policies [View article]
    I hold that it is very important to return to the classical definition of inflation as describing an increase in the money supply. By referring to rising prices as 'inflation', the central banks have managed to confuse cause and effect, which only serves to deflect blame from them. Also, due to this obscuring of the cause-effect chain, many people have adopted erroneous views like the one Bernanke espouses with regards to oil prices.
    Mar 7, 2011. 12:24 PM | 1 Like Like |Link to Comment
  • A Crash in Saudi Arabia, Arrogant Eurocrats and a Look at the Markets Part 1 [View article]
    Actually, that wasn't how I meant it - it may not be entirely clear in the way I formulated the sentence about Krugman - because I have written a number of very critical articles about Krugman on the blog in the past, I kind of assumed readers would not misunderstand the reference (search the blog for the keyword 'Krugman' and you will be pleasantly surprised I believe).
    In essence, what Krugman is usually saying is that 'we must deficit spend, print money and support bailouts' while accusing the opponents of such policies to be 'misguided moralists' who want to sacrifice the 'correct economic policy' because it 'conflicts with their view of what is morally right'. So he is definitely not espousing a pro capitalist stance - he uses the argument from morality (it is of course immoral to socialize losses and privatize gains, but that is not the main point) to discredit sound economic policy advice, by basically stating it has nothing to do with sound economics, but merely satisfies the moralistic urges of certain people. In reality however, the arguments forwarded by Krugman's opponents are economically sound, which can be shown both theoretically and empirically.
    Mar 3, 2011. 05:54 PM | 3 Likes Like |Link to Comment
  • Mining Stocks Continue to Offer a Way to Play Rising Gold Prices [View article]
    While it is interesting to see these data, I would like to point out that it makes little sense to make investment decisions in the mining sector based on 'p/e's, 'forward p/e's', 'price to sales', etc.
    First of all, there is a vast difference between established producers, juniors developing production and exploration companies. Comparing all these companies by means of the above yardsticks will not yield useful information. Similarly, things like reserves, mine life, location of mines, cash flow , growth pipeline, leverage of earnings to the price of gold and numerous other fundamentals all seem more important than p/e's or price to sales ratios in finding good picks in this sector. The seemingly 'cheap' stocks quite often turn out to be 'value traps', while the seemingly 'expensive' stocks often deliver superior returns. It may be useful to be aware of the data you present in the overall context, but to use them as a major factor in determining what constitutes good investments in the gold mining sector is not a particularly promising approach in my opinion.
    Feb 25, 2011. 12:20 PM | 1 Like Like |Link to Comment
  • Bill Miller's 15 Largest Long-Term Stock Picks [View article]
    It's a case of 'where are the customers' yachts?'
    His 'glory days' incidentally were coincident with the greatest stock market mania in all of history. IMHO, You can only judge the 'value added' by a fund manager when the seas are rough, not when there is smooth sailing, to stay with the nautical metaphors.
    Feb 22, 2011. 02:02 PM | 1 Like Like |Link to Comment
  • The Teflon Market: When Will It Correct? [View article]
    This could one day create a problem; I have previously commented on this - it complicates the 'draining' of liquidity, should such draining become necessary. This in turn could become important in case the markets are already in a fragile situation.
    Feb 22, 2011. 01:54 PM | Likes Like |Link to Comment
  • The Teflon Market: When Will It Correct? [View article]
    In my case you err . If you read my blog you will notice that this is not my argument at all. I think his job should not even exist. Central economic planning is an impossibility - it founders on the same calculation problem that bedevils a hypothetical communist economic organization. So I am not proposing that anyone can do a 'better job' than Bernanke. I am saying that no-one can do this job. There simply should not be a central bank - money should be left to the free market.
    Feb 22, 2011. 01:42 PM | 2 Likes Like |Link to Comment
  • The Teflon Market: When Will It Correct? [View article]
    Sorry, I thought I did explain it. I have been so busy lately, I am a bit late with catching up. When the Fed creates additional money from thin air, SOMEONE gets this new money first. Initially, it will be the banks or investment banks who sell the securities to the Fed and often also the government, because the banks will often reinvest the proceeds in new government securities. What is important is the fact that the total money supply has now increased by this amount. Whoever has the earliest access to the money can buy goods with it BEFORE their prices have risen due to the increase in money supply. Note here that the creation of new deposit money and reserves by the Fed allows the banks to expand credit from thin air further (so there will be 'early receivers' of new loans).
    Later, once the money has percolated through the economy, prices will have risen (or will have failed to decline, see below). So everyone from wage earners to people depending on fixed income will 'pay' , or will be taxed if you will, by seeing their money losing purchasing power. Moreover, and more importantly, when money from thin air is exchanged for real goods and services, an exchange of nothing for something takes place. You´and I can only exercise a demand for money by first selling our own products (be they goods we produce or our labor) in the marketplace. This means we contribute something to the pool of real funding before receiving money. He who spends money from thin air lays a claim to real goods while contributing nothing to the pool of real funding. As a consequence, fewer goods will be available to those actually producing wealth when they - after having exercised a demand for money by selling their own goods - want to exercise their claims on other goods from the pool. The consequence is a weakening of the pool of wealth and the ability of those producing wealth to produce more of it - which obviously affects us all. The rise in prices is if you will only a symptom of this fact.
    It is also possible that consumer prices will NOT rise because the production of goods and services is keeping pace with the increase in money supply. This does not alter the fact that economic damage has been done. For one thing, these prices would have fallen had no inflation occurred. For another, it is changes in relative prices - a distortion of price signals along the economy's capital structure - that will set into motion a boom that ultimately consumes scarce capital. So it is not necessarily the case that the issuers of long term loans will lose - a good example is provided by the late 1990s boom, when in spite of massive money supply inflation consumer prices did not rise much - but all the other attendant effects of inflation clearly took place.
    As to trading between firms, this is not comparable, since no new money is created when one firm sells bonds to another. The Fed's money supply inflation is fundamentally different , as the Fed need not acquire money to buy bonds by earning it. It simply creates it from thin air. I'm actually not sure why this seems so difficult to grasp.
    Note here, if - hypothetically - it were the case that an increase in the money supply would increase all our bank accounts by the same percentage instantaneously, and raise all prices by the same percentage simultaneously, then the money supply increase would be perfectly neutral. We'd all be aware that we haven't gotten any richer, but no economic damage would occur. It is precisely BECAUSE new money enters the economy at specific points, spent be early receivers, and because prices do not rise uniformly that the policy of inflation is so damaging. By the way, keep in mind here, the 'early receivers' gain only by dint of the fact that prices are still unchanged when they spend the new money.
    Feb 22, 2011. 01:32 PM | Likes Like |Link to Comment