austrian63's Comments

Saut Says Weak Dollar Offset by Rising Stocks

Wed, 02 Dec 2009 18:11:32 -0500

I'm glad the collapsing dollar will be offset by increases in my investment accounts so that when I need to buy a new TV, car, or other appliance that most likely is made some where else with a stronger currency I can cash out my rising stock investments to pay for it since my salary, in dollars, will not keep up with the dollar's devaluation.

In fact, since depreciating a nation's currency works so well why don't we do more of it?

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

Mon, 12 Oct 2009 17:30:37 -0400

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

Fri, 18 Sep 2009 13:37:09 -0400

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

Fri, 18 Sep 2009 13:17:47 -0400

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

Fri, 07 Aug 2009 14:33:48 -0400

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

Tue, 04 Aug 2009 18:38:39 -0400

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?

Tue, 04 Aug 2009 18:31:15 -0400

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).

>
> 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?

Wed, 08 Jul 2009 16:18:16 -0400

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?

Mon, 06 Jul 2009 18:48:57 -0400

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

Mon, 06 Jul 2009 18:40:05 -0400

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

Wed, 01 Jul 2009 11:23:21 -0400

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

Mon, 29 Jun 2009 19:30:41 -0400

Why would you assume that central planning can stimulate innovation?

Mish Shedlock's Inflation Scorecard: June 2009 Update

Wed, 24 Jun 2009 23:18:12 -0400

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?

Tue, 23 Jun 2009 14:10:51 -0400

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?

Mon, 22 Jun 2009 14:37:34 -0400

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

Thu, 18 Jun 2009 18:57:12 -0400

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.

Don't Be Fooled by Inflation

Wed, 17 Jun 2009 14:52:15 -0400

Ricard,

One error in your response. Bernanke has not taken unconventional steps to "DEFLATE" asset bubbles. He has taken unconventional steps to RE-INFLATE asset bubbles and therein lies the rub. There will be a very high price to pay.

Each subsequent market deflation is much more horrific than the previous one and thus requires a much larger dose of the re-inflation drug than the previous one. This is what Hayek decrobes as having "A Tiger by the tail." The cure is the disease and more cure only makes the disease worse until finally the party is unsustainable and even the U.S. Treasury and Federal Reserve with their infinite wisdom and money creation abilities will not be able to sustain the booms.

On May 10 06:21 AM Ricard wrote:

> This is a rather interesting article from Mr. Schiff.
>
> Something I've noted is that he apparently has the reputation of
> getting the macro picture spot on, but unfortunately being unable
> to transform that into portfolio gains. I'd suspect it may have to
> do with market-timing, evidenced by his bold prediction here of a
> 2-year stimulus rally.
>
> Running with this theme (which may very well be correct, and may
> actually give Cetin an A+ in weathering this downturn), it's entirely
> probable that the economy may 'fully recover' from this stimulus
> package as it did from the last one in 2002. Bernanke, like Greenspan
> before him, has taken unconventional actions in trying to deflate
> asset bubbles, and like his predecessor, may have to be held responsible
> for any unpredictable consequences. If this thesis hold true, then
> perhaps, like last time, the bubble will not pop - the landing will
> not only be soft, it will be as if the markets landed on a trampoline,
> propelling them to even higher dizzying heights, until at some point
> the subsequent fall destroys the trampoline, and the markets along
> with it. Maybe during the next 'crisis', the fed will be forced to
> adjust reserve ratios, i.e., the nuclear option.
>
> So, to summarize my rather complicated comment - maybe Schiff has
> a point - markets artificially recover, do not experience the much-needed
> recession and readjusting, and the bubble never pops. My contribution
> to this thesis is that perhaps we are setting the stage for an even
> larger and longer artificial boom.
>
> Anyway, thanks again Mr. Schiff for another interesting read.

Debt Tsunami Not a Serious Threat

Wed, 17 Jun 2009 13:04:57 -0400

Agreed. The same "experts" who are now telling us "green shoots' are everywhere and we can truly vastly inflate the monetary base when booms created by vastly increasing the monetary base become busts and therefore we can prevent recessions forever, never saw the economic slowdown that started in 2007 coming.

The fact they are now telling us to (1) not worry about currency devaluation and (2) the U.S. national debt is not close to being a burden on the domestic and world economy, confirms my very cautious outlook of slow to no growth for the next decade. A reduction in the rate of economic contraction is not growth but the "market" has been treating as such.

Strap on your selt belts for the next wave of insolvencies.

On Jun 06 03:24 PM Fred Voetsch wrote:

> "It looks like in the next few years newly issued Treasury and agency
> guaranteed residential mortgage debt may create a debt tsunami that
> will swamp the economy. Fortunately, looks can be deceiving."
>
>
> I remember hearing this exact same type of comment back in 2007 about
> subprime. I still recall hearing everyone on Fast Money talking about
> how it had only taken a few weeks and the problem was over.
>
> The problem now is that we know the big banks can't fail because
> the debt has been transferred to the taxpayer. THAT is now the problem
> and the average tapayer already had too much debt.
>
> This suggests a zombie economy for years and years to come and given
> that the stock market is still above historic fair value and overpriced
> based on any historically relevant valuation, I expect to see bear
> market rallies that sucker in investors for years to come. I will
> finally go long for good once the majority of people won't go near
> the stock market.

The Geithner-Summers Proposal: Today's Foundation, Tomorrow's Crisis

Mon, 15 Jun 2009 12:49:26 -0400

I have not read their article only your summary but from your summary, the absolute ignorance as well as denial implicit in their belief system is scary. First of all, the idea that the fed will regulate sytemic risk is laughable when the Fed is the proximate cause of all systemic risk. Any one see the fox guarding the hen house here? The fed keeps interest rates artificially low and expands bank reserves so as to make bank credit artificially cheap and plentiful within the economy. Unprofitable projects look profitable when debt is cheap and plentiful. Debt always adds risk. How will the Fed make sure risky behaviour is "controlled" when they keep adding more risk to the mix?

All I can say is fasten your selt belts with these guys in charge. We now have arsonists in charge of putting out fires and improving future fire prevention. The inmates are indeed running the asylum.

Monetary Madness in a Single Chart: Hyperinflation's Just Around the Corner

Sun, 14 Jun 2009 16:22:53 -0400

MBS's are not money. They are not part of M1, M2, M3 or M"pick a number." To state that the Fed has created all of this new money to replace money that was destroyed via the reduction in the value of long-term investments is incorrect. None of these assets are "money" and none of them are included in the monetary measurements. They all have liquidation costs and take time to convert/realize into money. Oh, and your house, which may have also lost value, is not money so the reduction of real estate values also does not represent "destroyed" money.

It is a common, logical fallacy to conclude the new money being created out of thin air merely replaces the old money that was lost due the popping of the Fed's real estate bubble therefore we should not worry about devaluation. Most mainstream economists, who by the way never saw this bubble or its bursting coming, will parrot this view but it does not make it true.

On Jun 13 04:47 AM nobby73 wrote:

> As others have said, this graph is misleading. This money has been
> created to replace the other forms of monetary assets such as MBS,
> which were sucked out of the system.
>
> It makes much more sense to look at broad money supply as you then
> see the monetary base had been expanding at a much faster rate than
> this graph shows and the collapse in the repo market for ABS was
> the hugely deflationary event this stimulus was designed to counter.
>
>
> Were we have seen hyperinflation, eg Weimar Germany or Zimbabwe,
> you see shocks in the relationship between prices and wages. Efforts
> to create price controls which lead to lack of supply of goods followed
> by large wage increases to counter price rises when those controls
> are reduced. I don't see this happening in the US....

Monetary Madness in a Single Chart: Hyperinflation's Just Around the Corner

Fri, 12 Jun 2009 17:47:51 -0400

Not to dminish Laffer's points but he didn't see this coming in 2005 and 2006 when he said the U.S. economy was stronger than it's ever been.

We need to stop calling rising prices inflation. Inflation is growth (just like blowing up a balloon - a bubble) in the money supply. This growth causes a decrease in the Purchasing Power of Money (PPM). Laffer states in his article the Fed signaled a 180 shift from an anti-inflation position to an anti-deflation position. The Fed has NEVER been anti-inflation and has ALWAYS been anti-deflation. Unless you know of any one else besides the Fed who can create money either by printing new paper slips (Federal Reserve Notes) or increasing member bank reserves (expansion of bank credit) only the Fed can create inflation.

Why do we continue to discuss the Fed as if it is sometimes "hawkish" on inflation. The purpose of the Fed is to be the "lender of last resort" and to inflate the money supply. Here's a quick peice of trivia: since 1913 the U.S. dollar has lost approximately 96% of its purchasing power under the watchful eye of the ever hawkish Federal Reserve Bank whose initial mission was, get this, price stabilization. In the 93 years prior to the birth of the Federal Reserve Bank (1820-1913), a terrible time for sure since there was no Central Bank run by geniuses whose very words were worshipped by the chattering classes, what cost $1.00 in 1820 cost $0.63 in 1913 due to increased productivity and the growth of goods and services in the market place competing for dollars. This was a time when money still had both of its original purposes (1) a meduim of exchange and (2) a store of value. It is no longer a store of value thanks to our wise rulers in Washington D.C. But I digress.

Laffer's predictions are most likely true which proves one can actually be right, some times, even for the wrong reasons. Currency devaluation is a better description of what lies ahead and it will entail both rising prices and rising interest rates. It will be very interesting.

Rising Rates, Oil Prices Could Trample Green Shoots

Thu, 11 Jun 2009 13:18:05 -0400

Oil will most likely pass the $100/bbl point before year-end. Mad-Hedge Fund Traised good points above re: the world getting smaller. It will take time for economies to adjust. In the interim, expect much higher prices for food, clothing, raw materials, along with energy and interest rates (cost of money). In essence, the scarcity of resources will become apparent except for labor.

Much higher production costs and currency devaluation will depress the dmand for labor in the U.S. There can be no gain without pain. We cannot have booms that seriously misallocate resources fueled by massive money supply growth without the pain of re-adjustment. The more our government does to prevent the short-term pain of recession the more likely we will have long-term pain. This will become more apparent as energy prices begin spiking again late this year and in 2010.

An Ill Wind Indeed

Wed, 10 Jun 2009 17:09:42 -0400

Paco,

Good article. The truth hurts. It will be interesting to another one of Mises' predictions come true namely the impending currency crisis that awaits us in 2010 or 2011. I have found all of the deflation talk among the chattering classes humerous. It reminds me of Hayek's statement that people should worry about depressions during the booms but that's the time when no one listens. Last summer was the time we should have begun to worry about inflation, or more accurately, currency devaluation but instead the news media and mainstream economists were warning us of the dreaded monster called deflation.

These are the same people who didn't see the real estate bubble. The fact that they were worried about deflation alerted many of us that currency devaluation was the real risk. We are starting to see the beginnings of this now and it will become more evident over the next 12 to 24 months and culminate in a currency crisis. The sad thing is many people who continue to depend on the advice of the mainstream will have their wealth invested in dollar denominated paper assets and will suffer greatly as the savers did in Weimar Germany in 1923.

The Coming Economic Collapse, Part 3

Tue, 09 Jun 2009 18:57:39 -0400

The talk about the Czars makes me wonder why the current administration in Washington now has something like 21 Czars. Czar is the Russian word for Ceasar. Why is it cool for our republic to have Ceasars or is this a sign of the authoritarian future we have to look forward to? Just a thought but watch as the rule of law becomes more and more marginalized in the U.S.

On Jun 09 11:41 AM carey_jim wrote:

> Before they became revolutionaries, some Russians tried to point
> out to the Czar that Rasputin was not a good counselor, but the Czar
> refused to listen.
>
> The Czar learned from Rasputin, among other things, that 2+2 never
> equals four because if it did all would be lost.
>
> How different is America today?

Monetary Policy Is Loose, Yield Curve Steep, Waters Uncharted

Sat, 06 Jun 2009 17:23:31 -0400

Please show me a sustained period in history, since 1933, when the purchasing power of the U.S. dollar has increased year over year. A 3, five or 10 year period when the general price level was falling. Please explain to me how, in a fiat money system, where the central bank has has the ability, will and intention to create new monetary units at the rate of 10+% a year, year over year, ad infinitum, there is a general decrease in all prices.

On Jun 06 03:47 PM Emerald wrote:

> Perhaps you are correct, but not in the near term where the consumer
> has little purchasing power due to the elimination of credit, the
> need to pay down debt and save. This is a deflationary environment.
> Commodities and oil prices are constantly manipulated by the likes
> of GS and others. Banks are not lending out their new government
> money and, hence, no inflation. Debt continues to be destroyed in
> excess of government monetary creation.

Monetary Policy Is Loose, Yield Curve Steep, Waters Uncharted

Fri, 05 Jun 2009 17:35:03 -0400

Everyone is convinced we are in uncharted waters. That is not true. There is a saying there is "nothing new under the sun." It's true. Loose and irresponsible monetary and fiscal policies have been around centuries if not millenia. The term "uncharted waters" is merely used to deflect one from reflecting on what the real but unintended consequences of state mandated loose monetary policy are. Namely, a fall in the purchasing power of the monetary unit, i.e. USD's, and a further erosion of the living standards of the many to benefit the few recipients of the new money.

We all know what the long-term effects are of these policies that are intended to "fix" the short-term problem.

John Taylor's Disingenuousness

Thu, 04 Jun 2009 16:51:32 -0400

Keep in mind we have a "Warfare-Welfare" state. Both camps are threats to liberty and free markets and they both "steal" from the taxpayers.

Neither mind set is consistent with founders who believed first and foremost in liberty and limited government. Warfare and Welfare make limited government impossible.

On May 28 01:26 PM milkchaser wrote:

> There is a justification for the wars in Afghanistan and Iraq. You
> may not consider it sufficient, but the successful effort to keep
> this country free from terrorist attack while liberating 40 million
> souls from despotism is not without its supporters.
>
> When you write "several wars", you overstate (unless you are including
> the figurative wars on cancer, drugs, poverty, etc). These are justified
> as well, although, not nearly as successful as those fought by the
> military.
>
> I cannot think of a trillion dollar weapons system. Even in aggregate,
> weapons systems take several years to add up to a $trillion. I think
> you exaggerate here, as well. As for eliminating them, do you really
> think that missile defense and nuclear missiles are worthless as
> deterrents? My observation of the Iraq war is that our weapon systems
> were quite effective.
>
> Your most egregious overstatement is that these wars caused an "immense"
> cost in treasure and lives. Apparently, you are unfamiliar with the
> history of 20th century warfare. Unlike the current American wars,
> the world wars measured casualties in the millions rather than the
> thousands.
>
> The fire bombing of Tokyo killed more people in one 12-hour period
> than did either of the two A-bomb drops. And yet, by compelling the
> Japanese to surrender, these bombings put an end to a war that was
> killing 250,000 Asians per month (combining Japanese, Chinese, Korean,
> etc). If these devastating bombs shortened the war by only two months,
> they were justified by the lives they saved.
>
> The defense of freedom and property often require stark choices and
> great expense. Our current expenditures are rather limited when compared
> to past sacrifice.
>
> On May 27 03:45 PM Bob 123 wrote:

The Foundations of the Current Crisis: Don't Shoot the Messenger

Thu, 04 Jun 2009 16:43:21 -0400

RE: Greenspan's free market credentials: He may have favored free markets at one time, when he knew Ayn Rand, but it is not possible for someone to be "chairman of the federal reserve bank" which is not a creature of the free market but of government, and be a believer in free markets. Also, it was Greenspan, via the Fed, who created money out of thin air in the 1990's, bailed out LTCM in 1998, and re-flated the tech bubble into the real estate and general equity bubble of the 2000's. This is what interventionists do, not free markets.

Bernanke is cut from the same clothe.

People will never truly understand the causes of this crisis and the dangers of bank credit expansion and bubbles if they continue to believe, in error, that Greenspan was a free marketeer.

On Jun 04 03:59 PM Thomas J. Gordon wrote:

> I will spend a brief moment defending Bernanke here. He didnt' make
> the decision that the federal gov't spend massively in excess of
> the tax take. I am long tbt and I follow Paco so I like a lot of
> what he says. But many of these discussions demonize Greenspan and
> Bernanke and I don't know if I buy it. I don't think they have some
> secret agenda to debase the currency, for which they get some kind
> of personal financial reward. Greenspan has many and high quality
> free market credentials. I say in one of my articles that he drank
> tea in Ayn Rand's apartment. If the federal gov't was spending only
> what they take in in taxes I don't think they would even think about
> expanding the money supply. Yesterday Bernanke took political risk
> by reading Obama/congress the riot act about deficit spending. I
> personally give the guy some credit.

Congress to Approve IMF Gold Sale This Week

Tue, 02 Jun 2009 18:07:58 -0400

China is methodically replacing its U.S. Dollar exposure with gold. This is wise and will eventually make it more likely the dollar will devalue and interest rates will rise, significantly.

Legitimate Green Shoots, Bond Vigilantes and the Audacity of Hope

Tue, 02 Jun 2009 18:03:42 -0400

I believe this rally is the child of the massive liquidity pumped in the economy by the Fed (money created out of thin air) and by emotion (we just want to feel better). Here are a few reasons I believe this rally is not sustainable:

If you strip out the increases in government transfer payments (1) unemployment benefits, (2) COLA's in Social Security benefits, (3) COLA's in military pension benefits, etc., personal incomes were lower in April year over year.

The residential mortgage foreclosure tsunami of prime mortgages has only just begun. Not only have these losses not been adequately reserved for yet by the banks, but these are foreclosures due to continued over reliance on debt by U.S. consumers, job losses and the shrinking real incomes of working Americans.

The commercial mortgage foreclosure storm also has not yet materialized to its fullest. The losses that will be incurred by the large banks and many regionals are not yet reserved for. This does not bode well for large increases in construction spending due to the previous misallocation of resources to this sector.

Non-existant pool of real savings - Capital is the life blood of economic growth and the U.S. has inadequate "equity" capital from real savings. Our economy has appeared to thrive on debt capital in place of equity capital from real savings over the past 20+ years. While this has seemed to be rewarding it is really a symptom of a society that constantly consumes more than it produces.

Of course America embarked on this course long before President Obama took office but I believe his policies are merely a continuation of the past policies of over spending, over leveraging and over consuming, by both government (exponential increases) and individuals that got us here. It seems we have convinced ourselves that we can mis-allocate resources for decades and never suffer the consequences of adjustment back to a sustainable model (high unemployment, decreased spending and benefits, etc.).

The following events are very likely over the next 12 to 18 months:

Much higher interest rates - this will actually be positive in the long-term as it will reward saving and accumulation of capital and not incentivise borrowing or investing in questionable projects.

Dollar devaluation - never good but now unavoidable due to the U.S. government's lack of willingness to live within its means. This will also drive higher interest rates as we must pay lenders (buyers of U.S. Treasuries) higher rates to attract their funds.

Higher and sustained unemployment - due to the shortgage of real capital, a tendancy for foreign capital to flee the U.S. and go to places where it is treated better.

Oil prices in the $100/bbl to $150/bbl range. Due primarily to currency devaluation and the flight to real assets by investors to preserve their capital.

I believe those investors who allocate into real assets, including precious metals and other currencies (espicially currencies of nations with more sustainable balance sheets) will weather the storm much better than those in traditional equity and bond investments.