Carlos Lam

The Foundations of the Current Crisis: Don't Shoot the Messenger

On Jun 04 06:39 PM Thomas J. Gordon wrote:

> I understand the comments of people who think that no good can come
> of creating paper/electronic money in excess. Intuitively I buy
> what you're saying. How can it create real economic wealth to simply
> print extra money? But I am saying a hard money, no caca, person
> like Milton Friedman did find at least one case where he was for
> a rapid expansion of the money supply. We should ask Anna Schwarz,
> she's still alive.

Your question presupposes the existence of a central bank. A better question is: would the Great Depression have been as bad as it was if there had been no central bank to begin with?

As the Dollar Continues to Collapse, Where Will You Put Your Money?

On May 26 04:25 PM MattZN wrote:

> People seem to forget that the 30-year mortgage which is responsible
> for the expansion of our middle class from WW2 on would not exist
> without government help.

Without government "help," perhaps we'd have a stronger currency and people would be able to purchase their homes from savings as they do in many Asian countries. And maybe if we didn't have tax benefits for home ownership, we wouldn't be in such a mess as we are in now. That's the problem with government intervention: the unintended consequences are severe but the opportunity costs "given up" when government intervened are invisible. Examples: if we had let Chrysler go bankrupt 30 years ago, maybe our auto industry would've gotten the message and cleaned itself up. If we had let LTCM go under in the late 1990s, maybe Wall Street wouldn't have convinced itself that the Treasury and Fed would ride to its rescue and--as a result--wouldn't have become overleveraged.

> So only
> a complete idiot would decide not to support the banks out of spite
> and let everything go to hell on purpose.

Refusing to force productive Americans to bail out irresponsible behavior is now viewed as idiocy? No wonder we're in trouble!

> Fortunately our new government
> is, finally, not made up of complete idiots.

Maybe not idiots but certainly people who have some sort of deficiency in calculating their taxes (i.e. Tim "TurboTax" Geithner).

> The problem is that nobody knows how to manage
> a deflationary environment. The Japanese tried and failed, I'll
> remind you.

The Keynesian-enthralled Japanese government borrowed and spent money, its central bank cut rates to zero, and -- as you point out -- nothing happened. Why are we -- and we're trying the same thing -- any different?

> In anycase, I don't measure the progress of our society by the value
> of the dollar. The dollar is just another commodity in my view.
> Everything is relative, including the dollar. What matters the most
> is the standard of living we are able to attain through modest work
> ethic, education, saving, and frugality (or at least, not partaking
> in the excesses of the last decade). Anyone can do it.

Your last paragraph leaves me in a conundrum. You say that you value saving, but -- earlier in your post -- you seem to support Chmn. Bernanke, who is trying to stoke inflationary fires so that we'll spend, not save. Chmn. Greenspan did just as much to kill saving: he left interest rates so low that money went into a real estate bubble in search of higher returns. You can't have it both ways: either you believe that saving is good and allow money to earn a true rate of interest or you (like Chmn. Bernanke) believe that inflation is good and artificially lower the interest rate.

As the Dollar Continues to Collapse, Where Will You Put Your Money?

On May 26 06:34 AM Perry1961 wrote:

> Also,the Fed will be draining
> liquidity and raising rates long before Europe and Japan can afford
> to do the same.

Wow! You seem to have a lot of confidence in Chmn. Bernanke. I do not. The Fed has jettisoned any semblance of independence during this crisis by working hand-in-glove with the U.S. Treasury: TARP, TALF, monetizing the debt, etc. Moreover, it is clear that Chmn. Bernanke's dreams are haunted by the deflation boogieman, and he will be loath to raise rates lest the economy return to negative growth. Additionally, Chmn. Bernanke has been incorrect before (remember how problems were "contained" within the sub-prime sector?), so his track record doesn't really give me confidence. Finally, Chmn. Bernanke's term ends in January 2010; do you really think that he's going to increase rates before then, given the natural desire to "earn" re-appointment from Pres. Obama?

As the Dollar Continues to Collapse, Where Will You Put Your Money?

On May 25 01:09 PM MattZN wrote:

During
> the late 70's and early 80's my parents got squeezed like everyone
> else, but their mortgage payments also went down considerably relative
> to their wages and we squeaked through.

I do not doubt that the Fed is attempting to inflate away debts (particularly the debt of the U.S. government). However, your post makes a very big assumption: that wage increases will keep pace with rising prices. We have less production now than we did during the 70s and 80s and more consumption-driven industries. Moreover, the government CPI--on which many employers base their COLAs--has been massaged using hedonic adjustments and substitutions. All in all, I agree that inflation will eat away at the load of many families' fixed rate debt, but I think that the bulk of America will still suffer.

Nothing About This Economy Is Surprising

On Apr 30 10:12 AM Mutual Fund Wealth wrote:

> Waaaay too much history here folks. Get with the program and learn
> how to invest wisely no matter how the global markets are performing
> at any given time. There are always sectors of the market place

Looking at history IS a way to learn how to invest wisely. That's what Peter Schiff & Paco Ahlgren are doing when looking at the Dow/gold ratio. That's what Jim Rogers is doing when looking at the savings flows moving from London to NYC to Asia. History isn't THE key, but it is A key.

Marc Faber, Jim Rogers and Boone Pickens - Bullish on Oil

> The decrease in the price of crude oil is not temporary. The fact
> of the matter is that the decline in price is primarily due to a
> rapid increase in the supply of many alternatives to crude oil.
> The decline is not temporary.
>
> Crude oil is being DISPLACED by the other energy sources which are
> rapidly arriving on the market.

I do not disagree that crude will eventually be displaced to a large degree -- coal was king in the late 1800s -- but the timing is the question. While the factors you cite are correct, they cannot satiate the demand for oil that exists in the west and in China and India. Until the displacement comes, opportunities exist to buy this most basic staple of the energy sector and its producers at decent prices.

Marc Faber, Jim Rogers and Boone Pickens - Bullish on Oil

The posters who note that increased exploration/developmen... has collapsed because of the price of oil are correct. There will be less oil "in the pipeline" than there would have been had prices remained over $100/barrel. At some point -- and I have no idea when -- petroleum will be replaced by some other fuel because it will become "too expensive" compared with the other fuel. Whether this will be some form of switchgrass ethanol, natural gas, or hydrogen I have no idea. The conservative play right now, however, is to be long oil. Even if western economies slow down, developing nations (especially China and India) are going to be buying large quantities of petroleum.