JohnAl

Why Too-Big-to-Fail Shouldn't Be Codified

Some great points in this article.

Still another reason why institutionalizing "too big to fail" is a bad idea is because it will further legitimize political interference in these (and other?) institutions. In the long run, is that good for the economy?

And as the author points out, where's the proof that adding an additional layer of regulation will stop this from happening again? All it does is make someone (the regulators) accountable when it does happen again. Great. So there'll be somebody to blame and a head to lop off, but the taxpayers will still be on the hook, just as happened last year.

Back to the drawing board, Barney.

Defaulting in Plain Sight

"So the people of the world wait patiently for reality to assert itself."

Apt description of where we are.

Those fiat "currency-thingies"... they're overdue for a run.

MELTDOWN

Meltdown does a wonderful job of explaining the crisis, in layman's terms, from the Austrian free market perspective. After reading it I bought copies for both of my kids.

Major Banks Now Much Too Big to Fail

The question for investors is "what now?"

This should be unwound, but there seems to be little sentiment for that - at least not right now - and it would also be exceedingly difficult to do. So this seems unlikely to happen any time soon.

The current consensus is for additional government regulation and oversight. If we're lucky, the government will mismanage this to the point of regulating the too bigs out of existence, or at least to the extent that less regulated competitors can gain a foothold and in time can drive them out of business. But that's if we're lucky. More likely that the too bigs will plod along, hampered by the regulation but holding on, always complaining about over regulation while the government regulatory bureaucracies continue to expand.

A third alternative is status quo. Essentially, economic rule by the too big oligarchy. Economic fascism, where the too bigs enjoy private profits and losses continue to be socialized.

Bernanke's Renomination: Hold the Applause

"Third, Mr Bernanke is cut from the same market libertarian cloth that got the Fed into this mess. Steeped in the Greenspan credo that markets know better than regulators, Mr Bernanke was aligned with the prevailing Fed mindset that abrogated its regulatory authority in the era of excess."

I find much to agree with in Mr. Roach's criticism of Dr. Bernanke, but the statement above strikes me as either ignorant or a poor attempt at newspeak. It's "libertarian" to be running a central bank manipulating interest rates and creating money out of thin air?

I doubt Mr. Roach is ignorant, so I can't help but think that he's attempting to blame the free market for the Fed's excesses here.

Not that the current system favors MS or anything...

The Federal Reserve Is Immoral

Fine write up, Tim. Thank you.

It's heartening to see so many people starting to understand the damage that a centrally controlled monetary system continues to cause.

We're in desperate need of a sustainable economy and we'll never get there as long as savers, the suppliers of capital, are punished.

The interest rate needs to be allowed to float freely. Business expands when savings rates are high, because interest rates are low because consumers want to save. Likewise, businesses produce more for consumers when savings rates are low, because interest rates are higher because consumers want to spend. There is an equilibrium between business expansion and production and the consumer's desire to spend now or save for later spending. But this equilibrium can only be achieved if the interest rate (the cost of borrowing / the reward for saving) is allowed to float freely.

But that's not what our masters want. They think they can control the economy better than the free market. They think they need to force expansion and spending now, so they lower interest rates and punish saving at the very time when people feel the greatest need to save.

If they'd just get out of the way the economy would fix itself. It would take time - because of the size of the mess they've made - but equilibrium would eventually be reached. But they continue to make matters worse.

The Fed needs to be abolished - immediately.

Peter Schiff vs. the Fed

Mr. McMorris,

Is it simple minded to think that monetary metals like gold and silver might retain their value better than fiat money, which can be created out of thin air?

You seem to understand that creating currency out of thin air devalues that currency and that this helps debtors. But you ignore the fact that doing this hurts holders and creditors of that currency.

When new money is created out of thin air, some people are helped, but others are hurt. Saving and lending are discouraged, while borrowing and spending is encouraged.

Is this what we want? Will this lead to a sustainable economy?

On Aug 09 09:20 PM Brian McMorris wrote:

> Puravi...you make sensible, well informed comments that reflect reality.
> But all the "goldheads" visiting this site can only spout their blind
> faith in colored dirt. I have no idea why people think gold and
> silver are their salvation. Are they all zombies?
>
> People should understand, like you do, that fiat currency represents
> the productive capacity and assets of the nation that issues that
> currency. America is not going away. Our national assets are fixed.
> The only thing that printing money does is make those assets equal
> to a larger number of dollars (devalues dollars).
>
> And here is where the mindless hoards really miss the point: when
> the country is faced with a massive Deflation (who can deny that
> houses and labor are worth less today than last year) due to a massive
> financial panic, a global psychological reaction, the best thing
> to do is Reflate the dollar back to where it was. This should pull
> the value of all those assets back closer to where they were and
> solve most of the credit problem. It is really simple math.
>
> But if you are drinking the Schiff / Roubini Koolaid, you can't think
> such simple thoughts and must instead come up with apocalytic scenarios.
> And you might even have your net worth in silver and gold, which
> of course, might influence how you argue this point.
>
> Keep up the good fight. But know that it is always the contrarians
> who win at the game of investing.

Peter Schiff vs. the Fed

At the end of this discussion, Scarborough states that he'd like to see Schiff and O'Donnell debate health care. That debate did take place later, and it's a must see, if only to get a glimpse of just how frightened leftists like O'Donnell are of Schiff, the most articulate defender of free markets on the national scene. That "interview" can be seen here:

www.youtube.com/watch?...

Forget Goldman, Start Worrying About the Government

What we are increasingly witnessing is the merging of government and corporate power. Fascism.

You don't blame JUST the government or JUST the corporation for fascism - at least not when they've both entered into the relationship without coercion, which is clearly the case here. You blame them both. The author is right to point out that there should be more focus on the government's role in this, but Goldman deserves every bit of ridicule they've been receiving as well.

FED SECRECY

The Fed's mandate is to stabilize the currency. At that, that done one helluva job. The dollar has only lost 95% of it's value since the Fed's inception.

They're either incompetent, crooks, or a combination of the two.

Whichever, CLEARLY, the people's representatives need to be able to watch what they're doing. Go Representative Paul!

In Economic No Man's Land

This bust is a doozy because it's correcting one helluva boom.

The main problem now is that the government is doing everything in it's power to slow the correction. The bad decisions made during the boom need to be liquidated. Resources need to be reallocated. In a true market economy prices would now be falling, which would allow people to save more. As savings increased, interest rates would drop and new business opportunities would emerge. Employment would follow.

We're lucky some of this (greater savings, at least) is actually happening, given everything the government is doing wrong.

We no longer have a market economy. Government now determines resource allocation. The Fed determines interest rates and the money supply. The government is spending like there's no tomorrow and the Fed is making money free. But it doesn't matter. People still need to save - they need to get out from underwater. Except now it will take longer since prices aren't dropping as much as they should and as fast as they would were the Fed not inflating.

And since the government, not the market, is now in charge of resource allocation - who knows if the new economy, once one eventually emerges, will be sustainable?

Is Inflation a Fact… Or Just an Opinion? Part I

Day after day the debate rages. Deflation or inflation?

Clearly, the credit bubble is still deflating. Clearly, the monetary base has expanded. But expansion of the monetary base isn't enough to fuel price inflation. Price inflation requires credit expansion, and that isn't happening. Lenders aren't lending and borrowers aren't borrowing.

Has the game changed? I think so, at least temporarily, Last fall was ugly and what has happened since has been even uglier. Lenders and borrows are scared. Money holders are scared. The result? Stagnation. Everybody waits to see what is going to happen.

And what IS going to happen? Eventually, inflation will win out. It has to. Politicians won't stop spending (until the printing press is taken away.) Stagnation may go on for years though. Like the 30's. The longer it goes on the more likely we'll see hyperinflation in the end because the Fed won't want to stop the spree once it starts. Unless there's a political (i.e. free market) revolution - which IS a possibility.

Today's strategy... wait, and watch. Watch carefully.

Obama: Wrong on the Economy, Wrong on Healthcare (Part 1)

"And now Obama wants to grant the Fed absolute control of the financial industry? Are you kidding me? I can’t believe what I’m witnessing. I’ve been in disbelief now for over a year. Someone please wake me up when this nightmare ends; but not a minute before."

You have nightmares too? Every night I dream that I have to get up at 3 AM in order to just stay current on the latest government/central bank/crony capitalist scam to steal my savings and destroy my children's future.

From Free Markets to Absolute Power: The Warped Views of 'Bank Speak'

"If it is a given the Federal Reserve played a primary role in the creation of the Great Depression, then such a role would be acknowledged and affirmed by a general consensus. "

Very few historians understand economics. In fact, very few "economists" do either. If you're interested in the truth about the cause of the great depression, check out Thomas Woods' new book, Meltdown, or if you really want the details, ready Murray Rothbard's America's Great Depression.

The Dollar Ain't Picture Perfect, But What's Better?

The history of money is the history of how those who control it - almost always governments - use that control to rob others of their wealth. In ancient times it was through debasement of the gold or silver coins. In modern times it's done via the printing press (real or electronic).

It's a complete pipe dream of course, but in the best of all possible modern worlds, money would be privatized. As long as they maintain control governments won't let it happen, but there's no reason that privatized, electronic, PM or commodity backed currencies couldn't work as the world's reserve currency(s). All users of such a currency would need would be trust in it's future value, trust which could be built over time through regular audits by trusted entities.

The current problem with the dollar (and to an extent it's always there with every government fiat currency) is that there is a growing lack of trust in it's future value. With good reason.

Oh, and a privatized money would have one other effect. Some of us think it would a quite positive effect on most everyone's wealth. It would reduce government's ability to borrow, and without the ability to borrow government would be forced to downsize to a size that the citizenry were willing to support through current taxation.