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Pater Tenebrarum

 
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  • 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 mises.org). Take the time, and maybe you will come around.
    Sep 10 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 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:

    www.acting-man.com/?p=...

    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 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 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 10:19 PM | Likes Like |Link to Comment
  • THE DEFLATION FEAR: WHAT IS IT REALLY?  [View instapost]
    deflation and liberty are deeply intertwined:

    mises.org/story/3231
    Sep 10 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 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

    "...by 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 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 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).

    www.acting-man.com/200...


    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'.

    www.bea.gov/industry/g...
    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:

    www.acting-man.com/200...

    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: en.wikipedia.org/wiki/...
    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
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