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Pater Tenebrarum

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  • 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 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 01:51 PM | Likes Like |Link to Comment
  • The Austrians Are Right: Consumer Demand Does Not Drive the Economy [View article]
    Mr. Jackson, thank you for your effort of setting right one of the gravest errors of modern mainstream economics.
    As some of the comments to your blog reveal, economic ignorance is truly widespread after decades of statist and Keynesian propaganda. It is important that voices like yours, that cut so decisively through the fog of ignorance, be heard.
    For anyone doubting the importance of the manufacturing sector to the economy, i would recommend looking at the BEA's gross output per industry accounts (link below). These show what fails to be counted in 'GDP', which as Mr. Jackson correctly remarks, should be called a 'Net Domesitc Product' rather then 'Gross'.
    Jul 10 01:22 PM | Likes Like |Link to Comment
  • Did the ECB Save COMEX from Gold Default? [View article]
    re.: 'I agree that gold is Barbaric.'

    agree with whom? Keynes? if not for governments enforcing legal tender laws, gold would be our money.
    no-one in his right mind would accept unbacked pieces of paper with ink slapped on them in payment. it only 'works' because it is enforced at gunpoint, basically.
    due to the fact that taxes can be paid with fiat money there exists a demand for it, failing that there would be no such demand - and of course, taxes are anything but voluntary contributions.

    On Apr 02 10:05 PM Francis Schutte wrote:

    > What ever is written or said about Gold, history will judge like
    > it did many times in the past. Yes, I agree that gold is Barbaric.
    > However, each time the authorities did what is done today, people
    > with Gold came out a lot better than people holding Fiat paper money
    > and Govenment bonds. I still hold a lot of Reichsmarks, and even
    > Gold guanranteed government bonds. An heritage of my grand father.
    > I advice all wise noses to READ some history books. The Age of uncertainty
    > by Galbraith is one I would advice for it explaines why we have the
    > same cycles over and over again.
    > In the end, whatever happens, there is no doubt holders of Gold will
    > survive. Of course, I can be wrong...but in this case, they'll have
    > to rewrite all history books.
    Apr 3 12:00 AM | Likes Like |Link to Comment
  • Prime Minister Rudd's Growth Gap Myth [View article]
    'The classical / Austrian ideology is still alive and well, decades after Andrew Mellon and Herbert Hoover's hands-off approach, protectionism, and monetary contraction in the midst of depression should have killed it. '

    You should brush up on your history. Hoover was the first big interventionist - during his reign, the Federal Government's deficit soared to an unprecedented record high. FDR called him a 'spendthrift' during the election campaign - only to pick up right where Hoover left off. The idea that Hoover was using a 'laissez faire' approach has been thoroughly demolished in Rothbard's 'America's Great Depression' , which focuses on the Hoover years. As an aside, protectionism is as un-Austrian a policy as there can be. Austrian economists are practically the only ones advocating genuine free trade. Also, the Fed pumped up its balance sheet by 98% annualized between 1929 and 1932 - in other words, it engaged in frantic monetary pumping - bank reserves outside of the Fed's control shrank in spite of it. So the widely accepted story that the 'Fed failed to pump' is a falsehood as well.

    For a brief overview of Hoover the interventionist, go to:

    what the modern statist propaganda preaches about Hoover is basically a lie. funny enough, in the time of Hoover and FDR the true facts were well known and there was heated debate about them. somehow, historical revisionism managed to change all that.

    On Feb 18 02:49 PM Chris B wrote:

    > The classical / Austrian ideology is still alive and well, decades
    > after Andrew Mellon and Herbert Hoover's hands-off approach, protectionism,
    > and monetary contraction in the midst of depression should have killed
    > it.
    > Yes, we should study history and do our homework. The experiences
    > of the great depression and recovery, the Japan deflation, &
    > the Swedish bank crisis tell us exactly what the results of different
    > policies will be.
    > Classical/Austrian view --> great depression
    > Weak, cheap, tiny, and mostly symbolic stimulus/reform attempts -->
    > Japan's lost decade
    > Massive govt. intervention or reform --> Sweden's successful recovery,
    > US during late depression / WW2
    > I'm all for dissenting views and criticism, but this article ignores
    > or distorts both facts and history in favor of clever slogans and
    > a misunderstanding of economic terms (i.e. inflation), which makes
    > it the typical internet banter. The Weimer hyperinflation was caused
    > by forced reparation payments under threat of military force, not
    > Keynsian stimulus attempts. The last sentence establishes that this
    > is a political rant, not an economic analysis.
    > Brief Sweden info:
    Mar 27 08:25 AM | Likes Like |Link to Comment
  • Gold Economics Questionable; Facts Forecast Lower Prices [View article]
    'I remain skeptical that the amount of currency in the system is actually increasing, since the velocity of money has fallen so precipitously.'

    this sentence makes no sense whatsoever. the velocity of money is not an independent causative variable at all for one thing (it is merely a lagging symptom of the thrust of monetary policy at an earlier time), and the supply of money is increasing by leaps and bounds currently - which has nothing to do with velocity. it may have escaped your notice, but the monetary base has increased by 100% over the past year, while broader monetary aggregates are currently all growing at double digit annualized rates.
    we can rest reasonably assured that Mr. Bernanke will keep it that way.
    as an additional point, the prospect of the current money supply inflation resulting in higher prices down the road is not the only thing motivating buyers of gold.
    the possibility of a wholesale collapse of the monetary system must be considered as well.
    just look what became of the 'well contained' little problem of subprime mortgages. recent actions by the authorities, including the Fed's announcement of accelerated monetization of debt, all reek of increasing desperation. there can be no assurance the current system will survive, hence people buy gold.
    Mar 24 10:12 AM | 2 Likes Like |Link to Comment
  • Are U.S. Banks Really Worthless? [View article]
    my back-of-the envelope calculation shows that the losses they have admitted to so far (which are only a small fraction of the true losses, since a lot of stuff has been hidden under the level 3 accounting rug or remains off balance sheet) amount to more than twice the capital of the entire US banking system at the end of 2007. several large banks (such as C and BAC) are de facto insolvent, and would have been in chapter 11 proceedings for quite some time already if not for the treasury guaranteeing their losses and keeping these zombies on artificial life support with tax payer funded capital injections. shareholders continue to trun the risk to be diluted into oblivion as the losses continue to mount in the ongoing global depression. outright nationalization of the zombie banks down the road is practically assured. the collateral backing their huge exposure to mortgage debt continues to falter at accelerating rates of change. house prices are likely to fall anopther 20 to 40%, and the markit indexes show already that the entire sub-prime loan area is a COMPLETE write-off.
    AAA rated debt pools trade for 35 cents on the dollar. leveraged corporate loans are likewise going down the drain, and so are increasingly credit card loans and other consumer loans. there's no mileage in pretending that things are not what they are. the system is kaput - which is why Bernanke announces today that he will print up another $1,1 TRILLION in new 'money'. good luck with that! ( oh , and the rubes all just got poorer again courtesy of the Fed diluting the value of their savings).
    Mar 18 04:12 PM | Likes Like |Link to Comment
  • Why the U.S. Dollar Is Vulnerable to Decline Now [View article]
    while the dollar does look potentially vulnerable to a correction, i doubt it will be falling a whole lot. first one must ask: against what is it supposed to fall? surely not against the euro, but that terminally ill currency makes up 60% of the DXY basket considered in the chart at the beginning of the article.
    there is a reason why the dollar has been, and continues to be strong. we have a global debt crisis, and most of this debt is denominated in dollars. banks worldwide have trouble financing their dollar liabilities, as their dollar-denominated assets (CDOs, MBS, etc) have crashed in value. this creates a steady stream of insatiable dollar demand, and is set to continue to support the dollar for quite some time, especially against the euro. it matters little that economic fundamentals in the US are no less catastrophic as they are elsewhere. the dollars HAVE to be bought, like it or not.
    Mar 6 09:26 PM | 1 Like Like |Link to Comment
  • Still Blaming the Market Victims [View article]
    i agree with this article 100%. one can not spend one's way to prosperity. if that were the case, Zimbabwe would be a utopia of riches.
    i have recently taken Krugman to task as well:
    Jan 7 11:38 AM | Likes Like |Link to Comment
  • Gold Price and the Money Supply [View article]
    the problem with your study is its starting point - 1971. prior to 1971, the gold price had been fixed at $35/oz. for almost 40 years, but there was a lot of monetary inflation in those 40 years, which your study perforce ignores. therefore one could argue that the run-up in the early 70's merely corrected gold's undervaluation vis-a-vis those 4 earlier decades of inflation. it may be better to use the 1974 price - the first major price peak in the run-up - as the 'fair value' starting point , or move the starting point further back in time, to 1933 ,and use the amount of TMS extant then .
    Dec 8 03:52 PM | Likes Like |Link to Comment
  • The Fed is Deflating: 10 Reasons Why [View article]
    sorry, the Fed is decidedly NOT deflating. the narrow money gauges such as M1 and the monetary base are not growing due to sweeps - which have made it unnecessary for banks to keep reserves at the Fed for all the credit they have been creating. meanwhile, the credit creation is now a non-M1 component of M2, and if we look at MZM, it's growing at a parabolic rate of change. the Fed has put out over 50% of its balance sheet in dubious 'short term financing' via new special facilities, and you really believe it is 'deflating'? come on, you can't be serious.
    Apr 1 11:14 AM | Likes Like |Link to Comment
  • Gold and Silver Bells Are Ringing [View article]
    the bell that is currently ringing the loudest is the alarm bell. gold and gold stocks have failed to make new highs for the past 12 months now, while paper assets have been soaring world-wide. it won't take much for the gold stock indexes to break long-standing uptrend lines.
    the dollar is very oversold and widely hated - and has only just begun to bounce off support that has held for decades. you bet it's a 'drag' on the metals - and will likely continue to be one. every tiny bounce in gold stocks has recently met with selling , which has of late grown more determined.
    this is not to say that the secular bull market is over, but it could be in for a rest, and that rest could be very painful for holders of precious metals shares. the 1970's mid-cycle correction produced a 60% sell-off in gold stocks between 1974 and 1976, if something similar happens here, one would do best to sit it out. in short, one should now wait to see if the supports actually hold, and only adopt an outright bullish posture when they clearly do.
    May 25 12:42 PM | Likes Like |Link to Comment
  • Gold and Silver Bells Are Ringing [View article]
    May 25 12:41 PM | Likes Like |Link to Comment