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  • Gold Is Poised for a Big Correction [View article]
    I actually think a blow-off rally in gold is more likely in the near term than a correction. We already had the correction, and it looks like a bullish, upwardly slanted running correction to my eyes.
    Dec 20, 2010. 01:30 PM | Likes Like |Link to Comment
  • ECB Board Members Throw Cold Water on 'QE' - For Now [View article]
    The problem as I see it is actually this: there can be no free market capitalism without failure. By saddling tax payers with the losses of banks that have gotten into trouble due to their misguided speculations, governments have thrown out the capitalist rule book. This can not possibly improve future behavior by credit market participants - socialization of risk is a repudiation of free market principles.
    This has been done everywhere, not just in Ireland of course. Contrary to the assertions of many politicians, the world would not have stopped turning if a few big banks had gone under and their share- and bondholders had suffered losses. The difference should be very clear: these investors took a voluntary risk when they bought said securities. Tax payers on the other hand are forced to pay up. They didn't get any of the profits, but they sure are being saddled with the losses.
    What's more, the losses are no less real because of it - the question is only who shall bear them: those responsible, or everyone else?
    Dec 14, 2010. 02:03 PM | 1 Like Like |Link to Comment
  • ECB Board Members Throw Cold Water on 'QE' - For Now [View article]
    I strongly doubt that the voters in the European nations most strongly affected by the bust will just hold still and accept that they will have to shoulder all of the costs. This seems a political impossibility, just as it appears politically impossible that the stronger nations such as Germany will accede to open-ended bailouts. A period of strong economc growth could perhaps allow for the can to be kicked further down the road, but at the moment a further escalation of the crisis seems almost foreordained.
    Dec 13, 2010. 05:20 PM | 1 Like Like |Link to Comment
  • ECB Board Members Throw Cold Water on 'QE' - For Now [View article]
    It will imo be very difficult to prove fraud in most cases, for the simply reason that the system as such is basically a fraudulent operation enabled by means of a legal privilege.
    To see what I mean by that check the articles on 'fractional reserves banking' at my blog. The first article on the topic concerns itself with the legal questions surrounding modern banking practice from a historical and ethical perspective.
    Given the current legal status, it will in most cases be very difficult to hold people accountable for the part they played in the credit bubble, even though many people would probably agree that ethically questionable activities have taken place and that moreover, society at large has suffered untold economic damage as a result.
    A very profound reform effort will be needed to return the system to traditional legal principles. If we are to avoid future credit bubbles and their long term negative effects, then the system must be changed on a very fundamental level (the recent reform attempts have not really changed anything I fear).
    Dec 13, 2010. 05:15 PM | Likes Like |Link to Comment
  • Gold Is Poised for a Big Correction [View article]
    it is actually quite funny how many gold bears have come out of the woodwork in recent days after a one percent correction off a new all time high in gold.
    GFI, which the writer mentions, has just broken out to a new high for the move. It remains quite a cheap stock actually, given how well things have begun to go on an operational level.
    meanwhile, I can confirm that most fund managers have missed the boat and still don't hold any gold. whenever you ask at a hedge fund conference how many of the people present hold gold, as a rule about 3% of the hands go up.
    from a sentiment perspective i would call the current sentiment 'very cautiously optimistic'. there are no major signs of froth. from a chart perspective, while one can never rule out a short term pullback (probably it would be healthy if one occurred), the chart does not look bearish at all. what most people seem to forget is that gold simply does not top with waning momentum. it always tops in spike moves (this is so because gold is mostly driven by fear).
    Sep 13, 2010. 11:51 AM | 3 Likes Like |Link to Comment
  • The Output Gap: Welcome to the Balance Sheet Recession [View article]
    your assertion that Austrians 'support the fractionally reserved banking system' couldn't be more wrong. you should perhaps first read the Austrians before making ex cathedra pronouncements on Austrian theory. Austrians are the biggest intellectual enemies of fractional reserves banking among all the economic schools of thought (there is a tiny splinter group that disagrees, the so-called neo free banking school). I'm surprised by your mischaracterization because you actually use the Austrian subjectivist theory of value (first formulated by the founder of the school, Carl Menger, in 1871).
    I strongly recommend reading Murray Rothbard's 'The mystery of banking' and 'What has government done to our money' (you can download them for free at Take the time, and maybe you will come around.
    Sep 10, 2010. 03:22 PM | 3 Likes Like |Link to Comment
  • The Output Gap: Welcome to the Balance Sheet Recession [View article]
    Y=C+I+E+G = complete nonsense.
    the economy is not a machine that can be described with a simple tautological equation. it consists of millions of individual economic actors. the entire 'output gap' theory is really useless. it assumes that capital is a sort of self-replicating homogeneous blob that can be kicked into operation willy-nilly. only it has the flu or something at the moment.
    while i don't disagree that the bubble has damaged the economy structurally, what is needed is certainly not 'more consumption expenditure'. this is in fact the Bernanke diagnosis! he does what he does because he wants to 'increase aggregate spending'. however, what is needed to bring the economy back to a solid footing is more savings and sensible investment (i.e. not investment that is distorted by money printing and fiscal deficit spending). the decline in consumption expenditure is a good thing - it shows that the private sector has begun the necessary process of repair and retrenchment in spite of the bureaucrats efforts to the contrary.
    Sep 10, 2010. 03:04 PM | 2 Likes Like |Link to Comment
  • While Geithner sees a continuing U.S. role in guaranteeing mortgages (with or without Fannie and Freddie), Pimco's Bill Gross says it's time to think about "full nationalization" of mortgage financing: "To suggest that the private market come back in is simply impractical. It won’t work."  [View news story]
    i've commented on Gross' atrocious call for nationalization here:

    he sure is talking his book...besides, PIMCO is truly a hot-bed of bad economics. economic liberty is anathema to these supporters of interventionism.
    Aug 20, 2010. 02:38 PM | Likes Like |Link to Comment
  • Gold Is Not in a Bull Market [View article]
    The 'well respected authority' obviously knows very little about how the gold market actually works and how it should be analyzed. Anyone who wastes time with items such as 'jewellery demand' or 'mine and scrap supply' (both are completely irrelevant to gold's price) can be safely ignored.
    Nov 12, 2009. 09:34 AM | Likes Like |Link to Comment
  • U.S. Recession: More Unemployment, Sinking Dollar [View article]
    It absolutely does matter which economic theory one employs. Economic laws are not subject to whim, they are laws; either one's economic premises are correct, or they are not.
    Among the economic theories J. Carey has enumerated, the Austrian school is the only one that offers a rich enough theory of capital , money and credit to actually be able to cogently explain what has happened (and continues to happen).
    However, the Austrian theory is detrimental to the job prospects of economists - since it eschews all forms of intervention and central planning, but instead argues that the free market can not possibly be improved upon (a premise that is both theoretically and empirically sound).
    If economists are not called upon to formulate and implement grandiose plans, they naturally feel 'underused'.
    Also, they have found out that as soon as one provides a 'scientific fig leaf' for statist intervention as Lord Keynes has done, one immediately is showered with tax payer financed grants and jobs, and gets to advise the political class.
    It is therefore in the self-interest of most economists to argue for interventionism.
    The Federal Reserve employs a veritable horde of economists (i encourage everyone to randomly pick a few papers from the Fed's economic research department and read them - if afterwards you feel that there are apparently many people in the world with nothing of value to do, you got the right idea), the main job of whom is to produce nice papers completely removed from the real world that serve to absolve the Federal Reserve of all responsibility for inflation and the boom/bust cycle - in spite of the fact that this institution is the root cause of both.
    These people naturally, will always defend the interventionist doctrines that keep their jobs secure (it is quite different with other people's jobs, as we can see now that the inevitable bust is here).
    As a result, we are showered with economic propaganda while sound economic theory ends up roundly ignored in the mainstream.
    Mr. Jackson performs a valuable service by bringing such sound theory to a wide readership. Economics is too important a topic to be left solely to professional economists.
    Sep 29, 2009. 10:19 PM | Likes Like |Link to Comment
    deflation and liberty are deeply intertwined:
    Sep 10, 2009. 06:50 PM | Likes Like |Link to Comment
  • Why Economists Messed Up [View article]
    with all due respect, Paul Krugman is primarily a political hack, not an economist, in my opinion (Nobel prize notwithstanding).
    i still recall how he disparaged Austrian Economics back in 1998 (proving, in his so-called 'critique' that he did not even remotely understand its concepts, and has therefore probably not read a single work by an Austrian school economist, or if he has, he didn't understand it).
    He and his fellow Keynesians have practically begged Greenspan to 'create a housing bubble to rescue the economy' in 2000-2002 (see Paul McCulley's writings, the Über-Keynesian whose prescriptions remain the same today: more fiscal spending and more money printing please! some new bubble will surely arise and 'save us').
    Keynesian economists have no proper theory of capital - they think it's just an aggregate 'K' in a circular flow model of the economy ('one man's spending', they contend, 'is another man's income', and thus consumer spending must be pushed at all costs. well, we see now where that has landed us).
    Their lack of understanding of capital theory in turn is at the root of their misconceptions about what causes bubbles and busts. Since they do not understand these things, they can not accurately predict them, and can also not be relied upon to deliver the proper 'cures' or policy ideas for the busts that are ultimately caused by the very policies they advocate.
    One thing is correct - most economists are worthless charlatans nowadays, whose forecasting ability ranges far below that of janitors or housewives (this is not idle chit-chat, a study by the magazine 'The Economist' showed that housewives were better economic forecasters than professional economists for every time frame from 1 to 10 years!) - but then, most of them are Keynesians, so there's no big surprise there.
    Krugman must be denounced at every available opportunity, the man is imo dangerous, because through his platform at the NYT he provides a 'scientific' fig leaf for the statist interventionist economic policies that continue to be our ruin.
    Sep 8, 2009. 07:00 PM | 2 Likes Like |Link to Comment
  • ECRI vs. Roubini, Round Two [View article]
    ECRI - the Harvard Economics Society of our time.

    "...despite its severity, we believe that the slump in stock prices will prove an intermediate movement and not the precursor of a business depression such as would entail prolonged further liquidation..."
    - Harvard Economic Society (HES), November 2, 1929

    "... a serious depression seems improbable; [we expect] recovery of business next spring, with further improvement in the fall."
    - HES, November 10, 1929
    "...there are indications that the severest phase of the recession is over..."
    - Harvard Economic Society (HES) Jan 18, 1930

    "... the outlook continues favorable..."
    - HES Mar 29, 1930

    "... the outlook is favorable..."
    - HES Apr 19, 1930

    " May or June the spring recovery forecast in our letters of last December and November should clearly be apparent..."
    - HES May 17, 1930

    "... irregular and conflicting movements of business should soon give way to a sustained recovery..."

    - HES June 28, 1930

    "... the present depression has about spent its force..."
    - HES, Aug 30, 1930

    "We are now near the end of the declining phase of the depression."
    - HES Nov 15, 1930

    "Stabilization at [present] levels is clearly possible."
    - HES Oct 31, 1931
    Sep 4, 2009. 01:31 PM | Likes Like |Link to Comment
  • The Proposal to Limit Commodity Positions Will Hurt Free Markets and Economic Growth [View article]
    Circumscribing speculation in futures markets in order to 'control' prices (in the case of commodities, downward - in stock markets, restrictions are mainly aimed at short selling in order to manipulate prices upward) is bound to backfire. It may well lead to lower prices in the near term, as speculators exit the futures markets, but these lower near term prices are practically guaranteeing higher long term prices, as the incentive to invest in the production of the commodities concerned will be lessened. Furthermore, the government can not stop speculators from continuing to speculate, short of instituting a complete command economy. In all likelihood, restrictions in futures trading will lead to accumulation of physical product off-shore. This will then drive prices even higher, as real shortages will eventually ensue.
    Price volatility in commodities is a poor argument for intervening in these markets by restricting access to them. Commodities have always, and will always be volatile. No government edicts will change this - the end result of restricting access for speculators will be a long term decline in living standards as thinner markets make it more difficult for producers to hedge, and both long term prices and price volatility will likely increase rather than decrease.
    Markets often overshoot or undershoot the prices that would be justified by fundamentals, but this is in the nature of price discovery, which is a process, not an event. The idea that government can 'force' markets to conform to a more 'reasonable' manner of pricing is laughable in the extreme.
    The main reason for rising prices is of course monetary inflation - and yet, the government is not abolishing the Federal Reserve, which is the cause of this inflation. So what this is really about is trying to control what is allowed to feel the effects of inflation - but it is an impossible task.
    Jul 30, 2009. 04:44 PM | Likes Like |Link to Comment
  • Obama's Economic Failure [View article]
    For people interested in the first part of the depression under Hoover, i have written a blog a while ago detailing the events (and comparing them to the policy-maker reaction to the financial crisis of 2008).
    My major source for historical information has been Rothbard's 'America's Great Depression' (a book i highly recommend).

    On Jul 09 03:55 PM WS1835 wrote:

    > Excellent article Gerard!
    > After searching through numerous analyses of the Great Depression
    > and the government response under Hoover and Roosevelt, I have formed
    > three general conclusions:
    > 1) The primary element that turned a short crash/recession into
    > a decade long depression was wage controls. Artificially high wages
    > create high unemployment, reduce export competitiveness, and discourage
    > expansion of the workforce at the beginning of a recovery. With
    > Hoover and Roosefelt both advocating and/or mandating the maintenance
    > of prevailing wage levels rather than allowing them to react to the
    > economic conditions, recovery was made almost impossible.
    > 2) Increases in government spending (even large ones) do not significant
    > affect long term unemployment and do not produce viable economic
    > growth. The effects of public stimulus is generally restricted to
    > make-work employment (WPA, etc) and temporary projects, while it
    > simultaneously displaces private investment and skews labor markets.
    > 3) Decreases in government spending (the larger the better) have
    > significant affects on long term economic growth and tend to greatly
    > shorten the length of economic downturns. Your example of Truman
    > in the late 40's is a good one. Also reference Harding's policy
    > during the aftermath of WWI and Wilson's progressive policies. The
    > post-WWI recession was sharp and sudden, but quickly evaporated in
    > the face of Harding slashing spending/taxes, and adopting a business
    > friendly stance. His policies set the stage for the roaring 20's
    > just as Truman set the stage for the growth of the 50's.
    Jul 10, 2009. 01:51 PM | Likes Like |Link to Comment