austrian63

On Jim Rogers and False Statements

Actually, Rogers is a student of history and he knows that Hoover and then Roosevelt turned a 2 year recession into a 12 year depression by continuing to prop up failing businesses and individuals. And guess what, the innocent suffered.

Rogers point is that there will be suffering both for the failed businesses and individuals and the businesses and individuals who did the rught thing however, these interventions will increase the level of suffering not decrease them. He sees this because it's happened before. He also knows that those who do not know history are doomed to repeat it.

On Bernanke's Defense of TALF

It's a beautiful thing to see the excitement that abounds for TALF among the talking heads at CNBC. It was high debt levels from easy money at artificially low interest rates (thanks Alan and Ben) that created the credit bubble. The U.S. is massively over leveraged now. Only in Neverland can additional massive amounts of debt cure a bust that was caused by ....massive amounts of debt.

Now I know why my essays that I wrote in my applications for Columbia and Penn (Wharton) were not considered "smart" enough for me to be accepted to these premier academic institutions whose alumni, among other Ivy League schools, are now "fixing" the financial crisis.

Is Paul Ryan's 'Sound Money' Plan Sound?

I don't like Ryan's "commodity basket" idea for sound money although the concept of "sound" money is good and without sound money, we will never end the boom-bust inflationary cycle brought on by unsound money. Another problem with Ryan's approach is the Fed would be in charge. I don't know about you but I don't want an arsonist as Fire Chief.

Tim,

You ended your article with the comment " It's hard to imagine how, in any sort of "stagflation" scenario, the Fed would be raising rates or contracting the money supply with economic growth still sluggish." Actually, raising interest rates and promoting saving IS the right thing to do in a recession since much capital has been destroyed. When I say capital I mean savings and equity. Flooding the economy with more debt and more easy money will only prolong the recession that's why we should be ready for a long recession.

There can be no Investment without Saving, Treasury capital is debt for the U.S and Savings for the Chinese. I find it ludicrous that the U.S. Treasury borrowed money (took on debt) to make an equity investment in Citigroup. Again, there was no net equity created in this transaction.

Just think, if the Chinese did not have a 30% to 40% savings rate they could not buy our Treasury debt and continue to finance our debt orgy.

All Banks Are Insolvent if You Believe They Are

In the fractional reserve banking world, all banks are insolvent. They get a pass from the Fed.

Fractional reserve banking is an insolvent and bankrupt system.

What's Wrong with the CPI

Don,

You are absolutely correct re: the CPI's understatement of general price increases. The M2 money supply grew enormously from 2002 through 2006 and this inflation in the money supply did increase ALL prices not just real estate and equities.

The CPI is a contrived metric that shows whatever the Fed and the government want it to show. We all know that you cannot create money out of thin air and not cause general price increases over time.

So long free markets: The roots of today's crisis are to be found in the financial deregulation of the 1980s, George Soros says. We're seeing the end of a free-market model that has dominated capitalist countries for three decades.

Soros knows better. We have not had a "free market" in the U.S. since before WW I. Just one small example: Who "fixes" interest rates? That's right - the U.S. government not the mythical, staw-man/idea of the "free market."

What he really means is so long mixed economy and hello 100% centrally planned economy.

He's very happy about this because he is a fascist.

A Whiff of Reflation in the Air, Part II

Agreed. Deflation is a contrived boogey man. Currency devaluation is in our future.


On Feb 20 03:46 PM Mr. Big wrote:

> The only reason why we don't have hyperinflation in the U.S. (that's
> right, I said hyperinflation) is because of the false pretense that
> investors have on the ability of the U.S. government to make good
> on its debt obligations. Investors continually believe that an entity
> as mighty as the U.S.A. can never default on a loan. I believe this
> to be false and one should really be very careful to make such assumptions
> because this can potentially be the biggest burn of a lifetime.
>
>
> If you really want to determine how creditworthy the U.S. government
> is, you honestly don't need to dig too deep into your research:
>
>
> 1) $10 trillion in funded debt
> 2) $40 trillion in unfunded debt (medicare/social security)
> 3) $1 trillion dollar budget deficits
> 4) $1 to $2 trillion in new borrowing required over next 1 to 2 years
> to fund bailouts and stimulus.
>
> Let's ignore, for the moment, #3 and #4. Let's assume that the budget
> is perfectly balanced and that there is no recession that would require
> costly bailouts and stimulus.
>
> Using a conservative estimate on the cost of debt (#1 and #2) at
> 2.5% annually, that equals $1.3 trillion in INTEREST PAYMENTS ONLY.
> The U.S. only reports $249 billion in interest payments for FY2008,
> but that just means that the present value of the unfunded liabilities
> must go up by a trillion dollars for every year the U.S. ignores
> the problem (there's no free lunch). So the true economical interest
> costs on the national debt is really $1.3 trillion, not the $249
> billion as reported by the government.
>
> Total government receipts in 2008 only amounted to $2.5 trillion.
> Non-discretionary (i.e. mandatory) spending, excluding interest on
> borrowing was $1.6 trillion. So that leaves $900 billion. That doesn't
> even cover the true interest costs for the true level of debt. And
> we haven't yet factored in the entire defense budget and other important
> discretionary expenditures.
>
> Some people argue that the U.S. can simply grow their way out of
> this apparent enigma. Well, according to the Government Accountability
> Office, that would require double-digit GDP growth for the next 75
> years! The last I checked, the 10-year average growth was probably
> in the 3 to 5% range (at most).
>
> So, here we have a country who can't pay their bills without relying
> on debt. A country whose production output that can never grow fast
> enough go support its level of debt. Really, what we are talking
> about here is NEGATIVE EQUITY on the U.S. balance sheet.
>
> Yet.....for some reason, most people in the world believe that the
> U.S. government is creditworthy enough to warrant a AAA rating. It
> simply defies logic.
>
> Unless the U.S. government decides to shoot their poor and sick,
> a default on U.S. goverment paper within the next 20 or so years
> is not just a probability.....it's a mathematical certainty.
>
> In the absence of heavy tax increases (and the hike in taxes will
> be crippling), the U.S. was NO CHOICE but to inflate their way out
> of the mess. And it has already begun.
>
> We just don't see it yet, because of the correction in commodities
> prices and other forces that are not U.S. centric. But once those
> play out, we're looking at a potential hyperinflation scenario in
> the U.S. and an accompanying credit rating downgrade on its debt.
>
>
> This is one of those rare occasions where the pricing of U.S. treasuries
> is all wrong. And perhaps a golden opportunity to make some money.
>
>
> Work the numbers. Be conservative in your assumptions if you must.
> But you will reach the same conclusions.

Obama's Foreclosure Plan: A Closer Look

I agree with Alex R with one small difference: If neighbor B can't afford his mortgage, he should be foreclosed on and suffer the consequences of his actions.

In other words "This whole fairness outcry has really reached childish proportions. Just suck it up and look at the big picture."


On Feb 20 01:55 PM AlexR wrote:

> Neighbor A just needs to stop whining about inequity and understand
> the fact that if Neighbor B goes into foreclosure, that house will
> sell in auction for $100K or less. And as if that was not enough
> to bring Neighbor A's house price down with it, wait until the new
> investor-owner (as most foreclosure buyers are) rents it out. Once
> Neighbor B is gone Neighbor A will think geez, they were such nice
> neighbors. And when everyone around him are renters and empty houses,
> good luck selling, even for $100K.
>
> This whole fairness outcry has really reached childish proportions.
> Just suck it up and look at the big picture.

Rick Santelli Speaks for the Silent Majority

Interesting that you are more concerned about Rick's use of personal pronouns than the substance of his message.

Can't see the forest for the pronouns?


On Feb 19 07:21 PM User 360465 wrote:

> Has anyone ever exposed Mr. Santelli to the use of the personal pronoun?
> It's "people WHO" not "people that"...so embarrassing to hear him
> rant on TV at such a low skill level with the language. One doesn't
> have to be very bright to be a mainstream media spokesperson...I
> see that now.
> Review your pronouns, Rick!

Acknowledging Our 'Animal Spirits'

Clark shows his economic illiteracy when he states that " One of the government's roles is to offset the animal spirits." First, the Keynesian notion of animal spirits sounds really neat and philosophically deep at first blush but has no meaning at all. Has any one ever defined it? Second, if the government's role is to "offset animal spirits" why was it also the government's role to create the boom in the first place with artificially low interest rates and expand the money supply via bank credit expansion, et.al that led to the bust?

His statement shows a total lack of understanding of the role of the Federal Reserve System and our fractional reserve banking system. It was the government that lowered interest rates and pushed ever more credit out to the American consumer and businesses through the banking system via Fed policy - thank you Mr. Greenspan - free market believer - NOT.

The idea that central bankers should identify bubbles and gently deflate them also makes no sense. Central bankers inflate/create the bubbles in the first place via growth of the money supply. This is analogous to the old saying of the fox guarding the hen house.

I want a gig where I can create a problem or crisis and then ride in on a white horse and claim to be all knowing (pretense of knowledge) and save the day and get paid a nice salary to boot! Oh, my solutions will not work but I can blame this on those rascally "animal spirits" of the chaotic free market.

Gold: The Only Remaining Bubble?

Alan,

It was the "inflation" increase in the money supply, that caused the inflated prices in real estate, equities, etc. from 2002 - 2006. The Fed is inflating the money supply now at an even greater rate. All of this new money represents cash balances in some one's possession. The increase in the money supply debases the currency over time. As a result, assets with intrinsic value will increase in value as measured by inflated/debased currencies. Inflation does not impact all goods at the same rate or time. For example, the CPI, which is merely a measure of the general price level, as defined by the Fed, and does not measure monetary growth. The CPI is also a metric developed by the goverment which also grows/inflates the money supply. Like grading your own tests in high school.

Growth in the money supply is inflation and is the proximate cause of increases in the general price level over time.

Even though real estate prices are still falling due to their inflated levels, most other prices in dollar terms are not falling. Creating money out of thin air defies the economics of scarecity and devalues all existing dollars in circulation as they were not created from capital investment or labor but by government "fiat." This leads to another Keynesian myth of the nutrality of money. As the domestic and international markets begin to realize the debasement that is occurring and the increased credit risk of the U.S., interest rates and prices, in dollars, will rise. This is a natural economic law and cannot be prevented by Ben Bernancke, the President, Congress or any of the economically illiterate expert economists that most politicians listen to. Low growth does not preclude currency debasement and rising prices. Low growth and higher prices can and will exist together if our current monetary and fiscal policies are continued.


On Feb 18 05:26 PM Alan Brochstein wrote:

> You raise a good point. I wasn't trying to cite Japan as an example
> of deflation but rather that inflation never came despite years and
> years of stimulus, low interest rates and monetary expansion. I don't
> think that our situation is quite the same as Japan's, unfortunately,
> in that as many of the gold proponents point out, we are externally
> financed. Our consumption for years above and beyond our means at
> all levels (government, consumer and business) helped to keep the
> economy going and prices rising. We now have asset prices of all
> sorts (except gold) declining dramatically and credit constricting.
> These conditions will keep a lid on prices no matter what the Fed
> and the Treasury try to do in my opinion. The higher savings rate
> ahead for individuals and the conscious efforts of companies to constrain
> their own debt will lead to low levels of consumption. Additionally,
> as governments face pressure on their fiscal fronts, they will be
> forced to raise taxes, another impediment for growth.

Gold: The Only Remaining Bubble?

Gold is simply a safe haven. Your arguments against inflation are not correct. I challenge you to research and publish the actual year over year rate of deflation (reduction in the general price level) in Japan during the 1990's. In fact, you must strip out real estate, equities and fuel from your rate. Then see if actual daily costs, food, insurance, health care, wage rates, commodities, etc. actually were in a "deflationary spiral." I bet the rate of general price decline in the daily costs of living will surprise you by how small it was and that many costs actually increased.

General price level declines are not possible in fiat currency economies as the paper money is not backed by a tangible asset.

I also disagree with your asessment of the Treasury bubble or lkack thereof. This is the current bubble and when it pops, gold will probably become more of a safe haven. Treasuries, and the dollar, are only backed by the "full faith and credit" of the U.S. Government which has no ability or intention of paying off its debt. Here are the "assets" that back the dollar and Treasury Debt Securities:

The U.S. tax revenues, which are decreasing.
The U.S. budget deficit which is increasing-lack of fiscal discipline usually harms borrowers-it will eventually harm the U.S.
The U.S. trade deficit is large and will continue in perpetuity.
Unfunded Social Security and other entitlement liabilities
The now "unknown" assets on the Fed's expanding balance sheet.

Once holders of treasuries realize this, they will begin to liquidate their treasury holdings as their yields are not compensating them for their risk. Moody's created a new AAA rating for the U.S. and the U.K. that states these countries' securities are "AAA with a risk of default." The U.S.'s sovereign rating is now lower than Norway's.

In my college finance courses years ago, the Treasury rate was the "risk free" rate. I suppise things change when a nation goes on a 20 year deficit spending spree. The U.S. is broke and mathematically insovent. Treasury yields will eventually reflect this.

It will be interesting to see how our government addresses these issues as they begin to bubble up.

The Curious Case of U.S. Market Confidence

The content of the "Stimulus" bill is irrelevant. Stimulus spending by the government causes a net reduction to GDP when it is 100% financed in the capital markets. Private and sovereign equity that might have been invested in new enterprises and technologies will be "invested" in treasury securities instead. Mathematically speaking, debt financed government spending always reduces aggregate GDP because it diverts/consumes risk capital and risk capital is the primary creator of jobs, wealth and tax revenue.

The jobless rate in January of 2010 will be 11.0% and the 30 year treasury rate will be north of 5.5%.

GE's (GE) Immelt wants Congress to pass stimulus now. "The U.S. is in the eye of its most severe financial storm in nearly a century and urgent action is needed... Time is absolutely of the essence."

Immelt is a crony capitalist. Of course he wants the stimulus to pass. The market will humble him when interest rates begin to spike later this year. If GE could not keep its AAA rating with historically interest rates imagine the trouble GE will be in when 30 year treasury yield spike to 7, 8 or 9% as foreign investors begin to shun U.S. Treasuries due to the high probability of (1) sovereign default or (2) dollar devaluation which benefits irresponsible borrowers.

Sleepwalking to Economic Oblivion

Spot on. It's a shame that most Americans believe the boom-bust business cycle is a natural part of the free market out of economic ignorance and the overwhelming acceptance of Keynes' theory which does not even include capital theory. We Austrians can at least find peace in that we know what the results of the continued massive government interference will be and we can plan our lives accordingly.


On Feb 06 08:10 AM wdhalgren wrote:

> It's good to hear a few Austrian voices through the Keynesian clamor.
> Unfortunately the mainstream media have set their course, long ago
> in fact. Most Americans will suffer through the coming economic disaster
> without ever knowing that we had choices; that the Federal Reserve
> is not an essential (or helpful) function of government, that fiat
> money is not true money, or that government spending does not create
> wealth. These concepts are rarely given genuine discussion, to the
> point of being radicalized. Even when the system breaks down, this
> will be branded as a failure of free markets and capitalism, regardless
> of the fact that we abandoned both early in the 20th century.