austrian63

Washington Post Crashed-and-Burned-and-Smoking Watch I

So the assumption for the additional deficit spending is that the only portion we ever have to pay back is the interest? The debt will never, erver, ever, ever, have to be repaid?

Mish Shedlock's Inflation Scorecard: June 2009 Update

There is an excellent article by Richard C B Johnsson that shows the CPI index in Japan fluctuated between +1.0% and -1.0% year over year from 1993 to 2001. I would call this price stability not deflation.


On Jul 16 02:50 PM Between The Numbers wrote:

> On Jun 24 11:18 PM austrian63 wrote:

Seven Reasons Doug Kass Is Wrong About the Economy

Economists should focus on the long-term effects of policies and practices and not the short term. One thing that might be different now is the recognizable and unsustainable insolvency of the United States. This will eventually lead to a currency crisis, maybe not this year or next year but eventually. This will be the true "this time it's different" story.

Tax receipts will continue to fall or grow much more slowly than total outlays which will cause larger deficits each year. As the total U.S. debt approaches $15 trillion, it's approx. $12 trillion now, our lenders be very nervous about their ability to redeem they loans they already have outstanding to us (their portfolio of treasuries) and will be unwilling to purchase more treasuries at some point. This will happen we just don't know when. When it does, all bets are off for the argument "this time is just like every time."

Buffett's Betrayal

Great article. Buffet is a crony capitalist and you are correct that no one calls him on it.

Making Ends Meet Gets Harder for U.S. Government

Tax revenues will continue to fall and the U.S. Treasury will continue to be able to successfully sell $1.0 to $2.0 trilion more in debt. At that point the world will finally realize the U.S. economy is unable to grow its way to prosperity and then times will get very tough in Q1 or Q2 of 2010.

What's CNBC's Problem with Gold?

I concur. It's simple supply and demand. More dollars are being created than gold or anything else for that matter. Gold prices will run up as a result of the strategy of de-valuation being implemented.

On another related thought, think about the "output gap" we keep hearing about which is supposed to guarantee that prices will not rise for years. If fewer goods and services are being produced, due to the output gap/idle capacity, but more dollars are being produced, this will be inflationary since there will be more dollars in circulation eventully but fewer goods and services to purchase.

All resources are scarce, except currencies that can be printed or created digitally.


On Aug 04 09:21 AM jt wrote:

> Yes...it is disgustingly simple--the mainstream media (seekingalpha.com/symbo...),
> including CNBC et al, is bought and paid for and controlled through
> desks in DC and NY all belonging to the Bankster Elite family (actually
> it is controlled almost in toto by 6 persons). It is now for US citizens
> what Pravda was for our Russian peasant comrades in the last century...pure
> propaganda...pabulum for the masses..."gentle" brainwashing.
>
> And it's a no-brainer why their masters are anti-gold, as in "DOH!!"...they
> control the printing press. They control the money supply or are
> first on the food chain to receive "new money." (To call it printing
> is now an anachronism as we're essentially dealing with electrons
> in the ether, created with a few keystrokes and placed in the hands
> of the club members.) And as Nathaniel Mayer (Bauer) Rothschild quipped
> in the early 1800s: (and I probably paraphrase) "I care not a whit
> what puppet they put on the throne of England, on the throne of the
> kingdom on which the sun never sets, whoever controls the money supply
> controls the throne, and I control the money supply." He controlled
> the Bank of England, and the Fed is simply one of the demon spawn
> of the Bank of England.
>
> Gold is the canary in the coalmine that warns of the degradation,
> the devaluation, the inflating of the paper currency (note, I did
> not say "money"...gold and silver are money...the FRN "dollar" is
> simply currency...backed by...well, if you don't know what its backed
> by, you can't possibly understand this article or my comment)--the
> higher the price of gold, the more the devaluation of the paper currency
> becomes obvious. So suppression of the price of gold (and its poorer
> cousin silver) is necessary for TPTB to be able to continue to tout
> their "strong dollar" policy...which is simply a bold faced lie,
> nothing more, nothing less.
>
> And the ridiculously low price of gold (compared to new currency
> created, esp. FRNs) is what they have used to justify low interest
> rates (Gibson's Paradox--just ask Larry Summers about that) and the
> lies from the BLS (Bureau of Lying Statistics) about our rate of
> inflation (which of course for anyone with half a background in real
> economics is NOT about prices, but about expansion of the money supply,
> which will in the end bring about all kinds of price inflation while
> in the meantime leading to gross misappropriation of capital).<br/>
>
> And I could go on, but again, the bottom line is exactly as stated
> by our ManAboutDallas...he ain't really MAD at all...but right on
> the money...so to speak '-) jt

U.S. Economy: Is the Fed Predicting Stagnation?

Actually I did not say regime change but regime uncertainty. It was the uncertainty of what the Roosevelt administration would do next that caused GPI to decline precipitously. In fact, the economy did recover somewhat in 1935 and 1936 and the experienced a "depression in a depression" due to new policies from the administration such as the Undistributed Profits tax, the Wagner Act, etc. Regime uncertainty does not mean regimes are changing. It means that businesses and investors (those who hire and produce) are uncertain as to what the regime will do next and fear for their capital therefore, they do not invest in long-term capital projects that increase employment and production. This is exactly what happened from 1936 - 1941.

I propose also that the GD and the current crisis was caused largely by (1) cheap credit and (2) vast expansions in the amount of bank credit. Who caused this?


On Jul 07 03:35 PM dw57 wrote:

> nope, the economy recovered from the GP much earlier. about 35 not
> after WW2.
> business investment plummeted during the 30s do to some thing called
> the great depression
>
> not regime change as you called. if that was the case, then every
> time we had an election we would have a recession/depression just
> like clock work. but it didn't work that way.
> and this recession like the GD, was triggered by stupidity in the
> private sector, with an assist this time from their public sector
> friends

U.S. Economy: Is the Fed Predicting Stagnation?

Gerard,

You mentioned the large reduction in business investment in Q1. This is a very important point because during the 1930's business investment plummented due to "regime uncertainty" during the years of the New Deal. This is happening now and will continue. The business investment rate did not recover to the level of the 1920's until post 1946 when the economy finally recovered from the Great Depression. Gross Private Investment (GPI) will continue to contract during thie New, New Deal.

Outlook for Interest Rates: The Fed's Unpublished Report

Tom,

Why would you expect the Fed to let "us" know what their forecast for interest rates are? Why would you expect any kind of honesty from a central bank whose primary attribute is obfuscation?

The results of Laubach's study are intuitive. With higher debt loads come higher soveriegn risk from slower growth that is the result of crowding out, a smaller private sector and less income and capital within the total economy, etc. What the U.S. government has done over the past 20 to 30 years has been done many times over by kings, emperors, ceasars and finally "democratically" elected leaders. We will get what we ask for. The final chapter is always devaluation of the currency whether it is the coin clipping of centuries past or increases in the fiat money supply via electronic debits of bank reserves and the printing press.

We will see stable interest rates for the the near term which will continue to convice the Fed and the Treasury that we are now in a new era in which money can be created and borrowed without any negative consequences. Call it the final bit of enabling that will bring us to an eventual currency crisis. It will happen. The only question is when.

Those who are students of history and economic fundamentals know that the cure for too much borrowing and consumption is not more borrowing and consumption in a world of scarce resources. Without capital accumulation an economy cannot prosper.

Friedman: The U.S. Needs to Stimulate Innovation and Invention

I would disagree somewhat by saying that Mises and Hayek probably had an even better understanding of what makes a modern economy prosper.


On Jun 30 08:07 AM lorddarley wrote:

> Why is history a dusty pastime that we never learn from? I don't
> think there has been an economist since Adam Smith who really understood
> what makes a country prosperous, and what improves the lot of the
> great mass of its citizens. From his Wealth of Nations (coincidentally
> 1776):
>
> 1. Make something that people in other countries want to buy (i.e.
> nurture exports).
>
> 2. concentrate on making and selling high value products.
>
> 3. import the raw materials and produce from other countries made
> by cheaper labor.
>
> 4. don't be embarrassed by success.
>
> Smith knew that not everyone becomes "middle class" overnight, and
> it didn't trouble him. He recognized that there are divsions of labor.
>
>
> We have deluded ourselves in the US into thinking that Adam Smith
> is wrong headed, and that running a positive balance of trade, or
> recognizing that divisions of labor are natural, is sinful.
>
> Smith's economic principles are unavoidably correct. I wouldn't be
> surprised if there is a dog-eared copy or two in Peking.

Friedman: The U.S. Needs to Stimulate Innovation and Invention

Why would you assume that central planning can stimulate innovation?

Mish Shedlock's Inflation Scorecard: June 2009 Update

That's all very nice but all has to do is look at a few historical and empirical facts:

Check out the historical chart of the CPI for all items from 1913, the birth of the Fed to May 1, 2009.

research.stlouisfed.or...

Sorry about the link. Paste this into your browser. Does anyone seriously think we are at risk of an appreciating dollar because that is really what deflation entails. The past 96 years shows no evidence of a tendancy for sustainable deflation in a fiat currency regime. The period from 1921 to 1941 had relatively flat price levels but once deficit spending was in vogue, this stability disappeared forever.

You can look at the various charts on the St. Louis Fed's web site for differenct periods, etc. The trend toward inflation/currency devaluation is the same.

Are Massive Treasury Auctions Hurting the Stock Market?

Good article. Mish has some good points re: the deflationist argument however I am in the inflationist camp and believe the trend is on the inflationists side. Since the Fed was born in 1913, the U.S. Dollar has lost over 90% of its value, as a medium of exchange, to purchase other items. We may have some temporary breaks in this trend but the trend is still in place for long-term devaluations (reductions in purchasing power). This is inherent to a fiat currency regime.

Mish makes a good argument re: the destruction of credit as a precurser to deflation but I believe he overlooks the fact that even though the middle-class may be credit strapped and thus experiencing "deflation" re: their supply of money to spend, there are other recipients of the new money being created namely, as you mention above, the GS bonuses, government employees, etc. Over time, the money supply always increases and if production is falling at the same time then prices will rise even faster than they otherwise would with fewer godds and services available to purchase.

One thing is for sure, this is an argument that will continue for a time but eventually we will know who was right as we will be able to point to either actual deflation - a general decrease in prices and increased purchasing power of the U.S. Dollar or inflation - a general increase in prices and decreased purchasing power of the U.S. Dollar.

We will just have to wait and see.

Can the Fed Always Win Against Deflation?

Interesting point about about Japan's lost decade of deflation. Asset prices have fallen in Japan but I do not believe the cost of living consumer prices have fallen on a sustainable basis. Just as asset prices have fallen in the U.S., cost of living prices have not regardless of the CPI numbers. For example, over the past 3 years the price of basic food items, auto and homeowners' insurance premiums, health insurance premiums, most service fees whether for a lawyer or a car repair, college tuition, hotel charges, etc. have not fallen. These are the items that most Americans buy on a daily, weekly, monthly basis. Most Americans do not by a home, car, share of Berkshire Hathaway or European vacation on a monthly basis. Yes these prices have "deflated" but not the prices attached to most items that most Americans need to live.

I will agree, over the past 12 months, some commodity prices have fallen as has fuel, temporarily, I might add. One very powerful conceptual argument to support Rockwell's and North's theory is that in a fiat currency regime where the central bank has unlimited power to create money, the purchasing power of money will never increase on a sustainable basis over time. The reason for this is the economics of scarcity. All resources are scarce with the exception of money since it can be created either electronically or printed at virtually no cost to the propducer (the Fed). If a resource is plentiful, such as, money, over time its value as measured by other scarce resources (e.g. gold, labor, food, oil, etc.) will be low. This is the case with fiat currency. It is not scarce by definition. Deflation is never a long-term threat because the purchasing power of the currency is always declining over time because its volume is increased at a much faster rate than the volume of other resources that are scarce by nature.

I also agree that housing prices have further fall but this is asset price deflation and can only occur is inflation existed previously. I remember all of the expert economists saying we had little to no inflation from 2001 to 2007. Funny they missed the inflation hiding in home prices.

One year of falling commodity prices does not a long-term sustainable trend make. The trend is your friend. SInce the Fed's burth in 1913, the mightly U.S. Dollar has lost over 90% of its purchasing power. Anyone still a believer in sustained deflation? If the value of the dollar "cannot be controlled by the Fed" then who, pray tell, was responsible for its decline? Only the Fed can create dollars so if it was not the Fed it must have been some very slick counterfitters who have been increasing the supply of dollars over the past 95+ years in order to reduce its purchasing power.

I do have one question for any interested reader: I hear a lot about the output gap precluding inflation. Does an output gap imply idle capacity and thus a lower level of the production of goods and services than would otherwise be the case? If so, does this imply fewer goods and services available in the market place to be purchased? If there are fewer goods and services (they are more scarce) but there is more money (M1, M2, M...) with which to purchase these goods and services, does this not imply rising prices over time? Yes, there may be many unemployed people due to the output gap whose demand will fall but the new money being created is making its way into someone's bank account or wallet (new government employees, recipients of TARP funds, bonuses paid to Goldman Sachs and PIMCO employees from the new money created, stimulus money to the states for make work projects, etc., etc) and will be used to purchase the ever more scarce goods and services available due to this output gap.

This seems like a scenario in which the unemployed will not only lose their income but what little they may have saved will purchase less than it otherwise would.

In conclusion, I agree with Rockwell and North that the Fed will ALWAYS win against deflation because it can create an unlimited amount of money out of thin air and thus make money a non-scarce resource. The less scarce money is relative to other items it is used to purchase as a medium of exchange, the lower its purchasing power and thus the higher prices will be. This is indeed Bernanke's "cure" for the recession.

Live Discussion: The Dollar, Inflation and Protecting Your Portfolio

Actually he was just towing the Company line that (1) the "Debt Tsunami" is nothing to worry about, (2) there is no inflation/currency devalution - even though your insurance bills, food costs, energy costs, etc. in dollars - are increasing at a faster rate than your nominal income, (3) Keynesian economics will always cure any economic ill and (4) everything will be fine if we just trust our wise Keynesian rulers and stop worring about the long term as the short term is all that matters.


On Jun 18 03:12 PM Stealth031 wrote:

> I'm curious, is Mr. Sunshine a real person or did they put boneheaded
> comments in to make the conversation more interesting? If "Sunshine"
> is real, he must live in the Wonderland with the Mad Hatter where
> nothing makes any sense and logic is nonexistent.