austrian63

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?

Legitimate Green Shoots, Bond Vigilantes and the Audacity of Hope

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.

Turning Japanese: The Audacity of Reality (Part 3 of 3)

Who is being alarmist? Mr. Quinn by explaining the 20 plus years of profigate spending that got us here or the President by stating that we must pass his spending package now before things get worse so we without questining it.


On Jan 30 09:28 AM BS Detector wrote:

> "This process is unacceptable to the socialist politicians who are
> in domination of the United States today."
>
> Adding the author to the list of people who use the word "socialist"
> without understanding what it means...
>
> "How about well thought out, deliberative, and effective?"
>
> Let me just point out that the Great Depression lasted for a decade
> while politicians took deliberate actions to cure it. It was only
> when WWII happened along, and government spending went parabolic,
> that the Depression was ended.
>
> "Every single dime of the $1 trillion will be borrowed. The government
> will borrow $1 trillion from foreign countries..."
>
> Rhetoric. There are lots and lots of domestic buyers of Treasuries.
>
>
> "Barney Frank and Charlie Rangel will force insolvent banks to lend
> money to companies, consumers, and deadbeats in foreclosure proceedings..."
>
>
> Alarmist nonsense.

The Cost of a Bailout: How Many Zeroes Did You Say?

Great article. The first article I have read on Seeking Alpha that actually points out that boom - bust business cycles do not occur in true free economies but are a natural part of Keynesian, interventionist economies. The Keynesian focus on aggregates over simplifies the trillions of individual decisions that millions, if not billions, of individuals and businesses make on a daily basis. These decisions end up misallocating scarce resources due to artificially low interest rates. This impacts savings and investment.

The data you cite from James Bianco is very telling in that all amounts noted are "inflation" adjusted. Significant and often hyper inflation are inherent parts of Keynesian economics becasue inflation precludes all limits on government spending.

Keep up the good work.