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Pater Tenebrarum

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  • The Scourge Of Central Banking [View article]
    Please note that I make no claim anywhere that there is an imminent threat of hyper-inflation. The extreme case is only considered in the context of the hubris of policymakers who maintain that such outcomes are impossible.
    There need not be a 'loss of productive capacity' to produce hyperinflation. In historical cases of hyperinflation there were of course always extraneous factors contributing to the desperate decisions that ultimately led to a loss of faith in the currency's purchasing power. No policymaker ever embarked on such a policy with the explicit aim to destroy the currency. But these circumstances were different in every case. The revolutionary assembly of France did not face a 'loss of production capacity' for instance. Neither did John Law and the Duc d'Orleans. Nevertheless, they managed to inflate their respective currencies to oblivion.
    Oct 5 01:18 PM | 2 Likes Like |Link to Comment
  • The Scourge Of Central Banking [View article]
    Even the two of us can create credit. If I lend you $100, credit in the economy will have increased by $100, but the money supply will be unaltered. It is different if a commercial bank takes in a $100 deposit, and then creates an additional $90 deposit (via fractional reserve lending) in favor of a borrower. Then both credit and the money supply will have increased. And that makes all the difference with regards to the boom-bust cycle.
    Oct 5 01:12 PM | 1 Like Like |Link to Comment
  • The Scourge Of Central Banking [View article]
    One can not outlaw human error, but a vast misallocation of capital to the extent that it creates the boom-bust cycle is a direct result of suppressing interest rates through the creation of fiduciary media ex nihilo. Why else would resources be misallocated in grand style? When new money created from thin air enters the economy, exchanges of nothing for something take place - while the economy's pool of real funding remains unaltered. And there is a difference between money and credit, even if the two are linked in a fractionally reserved banking system operating with fiat money.
    http://bit.ly/ruq7NZ
    Oct 5 01:10 PM | 2 Likes Like |Link to Comment
  • The Scourge Of Central Banking [View article]
    It is imo very difficult to argue that the stance of monetary policy is 'tight' when the broad true money supply has increased by more than 80% in a little over four years. What we observe, or can infer, is that there has been a concomitant increase in the demand for money (i.e., a demand for holding higher cash balances), which for the time being has confined the inflationary effects to pushing only certain prices up (look at a chart of the CCI to see which ones).
    Oct 5 01:00 PM | 4 Likes Like |Link to Comment
  • The Scourge Of Central Banking [View article]
    Just to make one more point clear: I am not claiming that the US dollar is likely to lose its usefulness as a viable medium of exchange anytime soon. Such a possible 'end game'. a breakdown of the monetary system, is not an event that is hewn in stone. It will depend on the future decisions of policymakers, which we cannot predict with certainty. It is always possible that the inflationary policy is abandoned in time. To me the problems with the policy are of a more imminent and practical nature (as noted further above), mostly to do with capital malinvestment and capital consumption.
    However, it is legitimate to speculate about the possibility of an eventual breakdown. We don't know yet which contingencies might motivate future policymakers to throw caution to the wind. This is why I specifically mentioned that in past examples of crack-up booms, the people responsible never did anything to cause them on purpose, and often enough they were well aware of the dangers. They simply erred when they thought they would have things under control when the time came.
    Oct 5 12:57 PM | 5 Likes Like |Link to Comment
  • The Scourge Of Central Banking [View article]
    Money and treasury debt are not the 'same thing'. I have discussed the topic in some detail here:
    'Money and Credit: There is a Difference'
    http://bit.ly/ruq7NZ

    It is imo quite important to define money correctly.
    Oct 5 12:48 PM | 1 Like Like |Link to Comment
  • The Scourge Of Central Banking [View article]
    It is true that economic calculation is still 'possible', but economic calculation is nevertheless falsified. As noted above, there are no constants in economics. The fact that an 80% increase in the true money supply over four years has not resulted in 'CPI inflation' does by no means prove that everything is just fine. In reality, there has been a price revolution through the entire economic system, as the introduction of additional fiduciary media distorts interest rates, and with them, relative prices in the economy. It is this alteration of relative prices that is the true evil.
    I would think that the housing bubble should convince even the most dedicated empiricists that this is what the main problem with inflation is. The housing bubble stands as a monument to capital malinvestment due to an overly inflationary policy (in 2001-2002, the true US money supply grew by over 20% annualized). Houses and land can for analytical purposes be treated as akin to capital goods, and in the post Nasdaq bubble inflation this was the sector that received a disproportionate share of the new money that was created. Prices in the housing sector were certainly distorted to such an extent that factors of production were drawn en masse into it, in a capital misallocation orgy of nigh unprecedented proportions. The now well known end result was a financial and economic disaster that almost destroyed the banking system. What were our vaunted monetary bureaucrats planning for back then? A crash?
    Moreover, it should be clear that prices would not only be different, but also generally lower than they now are if not for the inflationary policy. How come that anyone actually believes that a handful of bureaucrats can possibly know better than the free market whether prices should be higher or lower, or how much money the economy needs? If central planning were really so great, we could just as well institute a command economy. Sound money cannot be created by bureaucratic fiat - it can only be a creature of the market. 
    Oct 5 12:44 PM | 5 Likes Like |Link to Comment
  • It's Okay To Fight Fed Intentions, Just Not Fed Actions [View article]
    The BoJ is definitely NOT 'easing aggressively' - it is only SAYING so (a policy of 'announcements', with the true buying of assets falling far short of the announced targets) in order to keep overeager politicians off its back. Year-on-year true money supply growth in Japan has recently fallen back to 2.8%, one of the lowest such monetary inflation rates in the world. Quarterly true money supply growth stood at minus 8.7% annualized as of August, i.e., the money supply of Japan actually shrank in the last quarter. US money supply growth (broad money TMS-2) has been between 10%-15.8% annualized for 45 months running.
    Oct 2 04:10 PM | 2 Likes Like |Link to Comment
  • Apple's iPhone 5 Is Already Outselling Nokia's Lumia Windows Phones [View article]
    It looks like there are other reasons than the maps problem for customer dissatisfaction with Apple as well. Here is a recent account from a life-long user and fan of Apple products (iow, the charge that he 'doesn't even use it' can not be brought to bear in this case) -he notes that these products are 'no longer easy to use' and recounts his 'yellow goo' experience with the i-phone (the 'other' stuff that sometimes eats up all its storage):
    http://bit.ly/OBzevJ
    Oct 2 02:46 PM | 1 Like Like |Link to Comment
  • Apple's iPhone 5 Is Already Outselling Nokia's Lumia Windows Phones [View article]
    Apple is famous for not shying away from cannibalizing its own products. It is one of the company's widely acknowledged strengths. But it is a negative for Nokia?
    Sep 26 03:04 PM | 1 Like Like |Link to Comment
  • Amazon's Imminent Liquidity Crunch And Share Price Collapse [View article]
    The problem from the point of view of traders who tried short AMZN on fundamental overvaluation concerns was not so much the question whether or not it is overvalued (it certainly appears to be). The problem has been that it is a stock everybody loves to hate, even while it climbs ever higher. It is a classical contrarian warning sign when every time you stumble on articles on a stock in a strong uptrend 95% of all comments are negative, as are most of the articles themselves.
    Just ask yourself this question: when was the last time anyone recommended to buy AMZN? There is no shortage of bullish exhortations on many other stocks. I honestly cannot even remember when I last read something positive on AMZN as a stock. And yet, here we are...on a split adjusted basis it recently hit nearly $1,600. Mind, I'm not saying it could not be an excellent short in the future - it may well have peaked a few days ago for all I know. Just making a comment on a principle. 
    Sep 26 02:24 AM | Likes Like |Link to Comment
  • Greece: Back In The Headlines [View article]
    I definitely agree he has valid concerns.
    Sep 25 03:12 PM | Likes Like |Link to Comment
  • Greece: Back In The Headlines [View article]
    Definitely a possibility worth considering - I have in fact pondered this already in past articles. The problem is only that after a default, the Greek government will for a time lose all access to external funding. It would likely soon feel the urge to have control over its own printing press again. Also, the ECB can, if so ordered (this would be a political decision), cut off emergency liquidity support to the Greek banking system - which would effectively force Greece out of the euro. I think they would do this if Greece were to decide to default unilaterally.
    However, I also believe that the eurocracy remains eager to keep Greece in the euro area, precisely because the whole project would come under question once a member state leaves. So the most likely outcome will be a new 'haircut' agreement in which the official lenders forgo a large portion of their claims.
    Sep 25 03:08 PM | Likes Like |Link to Comment
  • 3 Signs Apple Is Turning: A Rebuttal [View article]
    I remember someone said the same to me in March of 2000 about the Nasdaq index. Almost the exact same words actually: 'the doomsayers all claimed it would go down, but it hasn't happened'. As it turned out, just because something hasn't happened yet, doesn't mean it never will. Please mind, I'm not commenting on Apple specifically, but on the thinking behind the sentence 'they said it would go down and it hasn't happened', several variations of which can be found in the comments section on every post on Apple. It is a comment on the past that has no bearing whatsoever on the future.
    Sep 25 02:41 PM | Likes Like |Link to Comment
  • What Excessive Bullishness? [View article]
    How about: the options speculations index sits at the third highest reading in all of history, Rydex bull-bear ratio at its most optimistic level EVER, dollar weighted speculator net long positions in stock index futures close to a record high, the three 'risk appetite' indices combined at an all time high, large trader net call purchases at an all time high, small option trader net call exposure the highest since March 2011, NAAIM survey at over 81% bulls, Consensus Inc. and market Vane bullish consensus above 70% bulls (historically in the upper 5% of all readings), mutual fund cash-to-assets ratio within 40 basis points of an all time low (a full percentage point below the March 2000 reading), a 40 percentage point spread between 'smart money' and 'dumb money' confidence...I could go on, but you get the drift. You just happened to pick out three indicators that confirm your bias, but I can pick out 20 that would confirm that bullishness is indeed excessive and thereby confirm a bearish bias - almost needless to say, all the indicators I have listed above (except where indicated otherwise) are showing higher bullish sentiment than at the market's peak in 2007.
    Sep 25 02:25 PM | 3 Likes Like |Link to Comment
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