Chris Butler_

Origin of U.S. Dollar as Legal Tender and Its Link to Depression

Great article, but was this disclaimer at the end necessary: "Rothbard is a Libertarian of the Austrian School variety, so read his book keeping his biases in mind"? Like, there are other economics authors without biases? Where do we find these agenda-less economists?

Thanks for the great read.

Are We Seeing a Bogus Dip?

Curve fitting. That's all Paulsen is doing. I can't believe such weak logic has enabled this man to stay in his profession for as long as it has.

His first point about how, historically, rallies do not end after 30 days is absurd. "Real estate never goes down on a national scale." Historicism is dangerous when applied to markets. The market does not care what happened in each of the last 20 recessions. You know what kind of rally ends after 30 days? A 30-day rally.

His second point is essentially don't count the March low because it was caused by a bank run. Absurd again. Since when have technicians assessed the cause of market bottoms and thrown some out because, well, that hardly ever happens. Please. Feel free to revise history if you'd like, but stay away from my money.

Finally, the whole notion of an "alternative bottom," aside from begging for a punchline, is pertinent only to those living in an "alternative reality." The reality in which I dwell and invest makes tops and bottoms that can be verified through the passage of time and they can bee seen with a naked eye on a chart.

For those of you that buy the "alternative bottom" thesis, perhaps you should have "alternatively sold" at the "alternative top" in the S&P 500 yesterday. What? You don't remember when the S&P 500 soared to 2,000? Oh. Maybe that was just *my* alternative reality. My bad.

Auditing the Fed Is Economic Suicide

The economy will benefit from all increases in transparency in its economic institutions. If you're looking for some economic theory to back this assertion (from those that may suggest I read an economics text book) you may want to start with Hayek's "The Use of Knowledge in Society." www.econlib.org/librar...

Regarding inflation, I'm pretty sure Friedman would disagree with the naive notion that knowing what the Fed is doing (per audit) "causes inflation." Instead, inflation "is always and everywhere a monetary phenomenon." See www.amazon.com/Monetar...

I'm not concerned with the prospects of "politicizing the Fed." It's already politicized. The Fed Chairman already testifies before Congress several times per year. I'm more concerned with increasing the powers of the most powerful institution in the world and allowing them to continue to operate in a completely opaque fashion.

81 Bank Failures So Far in 2009: But It's All Relative

I think John Lounsberry’s article makes two of my points regarding numbers of branches and % of GDP comparisons (along with a much needed inflation adjustement), I'd add two points that make this author's point seem even less convincing:

1) How many more banks would have failed from the 2008 fiasco had we actually allowed them to fail like we did in the Great Depression? Due to the difference in political will in the two timeframes, we're comparing apples to oranges.
2) What do you say we wait until the "all clear" signal is given in this crisis before we start adding up the damage for comparisons with the Great Depression? We just found out that the FDIC's list of troubled banks has exploded. Presumably, some of those banks are on their way to shutting their doors. Unless, of course, we allow them to mark their troubled loans to fantasy or simply bail them out.

Investors 'Swarming Back into Leveraged Finance Markets'

That's a great update - thank you. FRN issuance makes sense in this environment but I find the renewed risk appetite inexplicable - at least a little premature. And I have to admit, I'm amazed there even exists a journal titled "US Leveraged Finance Quarterly Review." Nice work.

How Big Will the Market Pullback Be?

Your point about S&P overestimates of earnings over the past two years is a good one. But I do think we need to be a little less focused on historical precedents. This economy is not that of 2001 or 1929. The causes of the recessions in each period examined are not very similar to the causes of this recession.

You have an inventory adjustment in the 2001 recession and the Great Depression of 1929 to 1933 still stirs debate over ultimate causes. At the very least, we can say leverage in the stock market played a significant role. Poor fiscal and monetary policy are viable culprits as well. This recession is the result of a crisis in the housing market, among other things (and exacerbated by an overleveraged consumer).

The government's response to this recession is without precedent. Fiscal and monetary stimulus, I think, have made historical comparisons irrelevent as a guide to the future. As a result, I'm willing to acknowledge that a decoupling between market and economy could persist for some time. Ultimately, though, fundamentals matter and if it ever appears as though the earnings forecasts are in need of revisions across the board, we'll see a significant retreat in stock prices.

At the moment, however, even though I believe that stimulus can take us only so far (with a commensurate amount of pain later), and that earnings estimates have completely disregarded the depth of the problem with consumer spending, a bearish tone seems to ring hollow in the current market environment. I think a more accurate view of investor sentiment will emerge once volume picks up post-summer.

Credit Conditions in the Absence of Consumer Protection

I agree with the overall direction of your comments: consumers need protection in financial products in much the same way we need protection from, say, food manufacturers. But your example of a cereal box listing its complete contents is not protection per se - it's disclosure. Which do you prefer? Protection or disclosure?

I also have a problem with your naive notion that "any changes in what banks did were a form of 'financial innovation' that must naturally benefit everyone. But this is exactly the attitude that brought us to subprime, Alt-A, and other 'exotic' (i.e., misleading rip-off) mortgages." Exactly how is a mortgage misleading? Or is it just exotic mortgages given to people with poor credit histories that are misleading? How are exotic mortgages misleading (I'm not saying they are not, but aside from a number of cases of fraud, I'm not sure the product itself misleads anyone).

Further, bank innovation is note solely responsible for the sub-prime mortgage mess. How about the societal notion, compounded by Federal legislation, that everyone ought to "participate in the American dream" of owning a house. Let's not forget that at least some of this mess is a result of actually wanting to do something beneficial for the have-nots. It's crazy to assume that the whole problem was borne out of malicious intent. This premise has no basis in fact.

I think it extremely naive, and a bit dangerous, to single out bankers as the sole culprit responsible for this mess. It was a complex problem, rife with enablers and compounded by horrendous errors in risk estimation.

Behind the Income Tax Numbers: Top 1% Paid 40% of Total

Come on. Please tell me you're not this shortsighted. The "rich" don't just pay 40% of total tax on 70% of total income (I'm taking your figure here to be accurate). They also take a bulk of the entrepreneurial risk in this country. The evil rich provide the funding for commerce in this country through equity and debt finance. Creating new economic value through the entrepreneurial process and financing of America's commerce, of course, leads to job creation. If you have a job, you may very well work for the evil rich, at their leisure.

It seems a little strange this has to be explained on a economics, finance and investment forum.

Having said all that, we will always disagree about who pays what in this country. Is 40% too low? Too high? I don't know, but taking capital from the productive class and giving it to the non-productive class - whatever the amount - seems like a waste of capital to me. I grew up middle class and can honestly say that I think having a healthy middle class is good for a country. However, I do not believe such a class ought to be artificially created at the expense of the rich simply for the sake of "evening things out a bit." That strategy has severe repurcussions.

On Aug 02 10:29 AM herbert hoover wrote:

> They may have paid 40% of the taxes but they made 70 percent of the
> income! Not a bad tradeoff in my book.

Treasury Auctions: More Misdirection

Thank you for pointing this out - I had no idea. I take it this decrease in transparency will not be addressed in the new financial reform legislation?

China Pays Too Much for Oil in Iraq at $16 a Barrel

Did you forget that by the word "freedom" we mean free to be zombies? Free to make bad, costly financial mistakes? Free to be greedy?

Say what you want but I'll take freedom and all the errors and social malaise that comes with it ahead of any alternative. Many free people are intelligent, tuned in, and aware. Many made money off of the mistakes of other free people because they saw the consequences of these mistakes coming. After all, I'm free to short the S&P 500.

As far as oil is concerned, had we *more* freedom, we'd be drilling oil on our own land and we'd not be talking about how the Chinese are kicking butt with their acquisitions.


On Jun 26 04:34 AM fairguy wrote:

>
> Wrong. The chinese have been practicing capitalism for decades already.
> Hong Kong is quite free. China doesn't hate US, they afraid of what
> freedom can do to their people. It can turn them into vegetables.
>
>
> US is too occuppied with OJ Simpson, Britney Spears, American Idols,
> America's Got Talent (lol), Miley Cyrus, Madonna, Lindsay Lohan,
> Jennifer Lopez, Paris Hilton, Christina Aguilera, Brad Pitt, Justin
> Timberlake and now Michael Jackson's death and Mark Sanford's sex
> scandal. It's not hard to out maneuver them when the whole population
> is only half awake. Look at what freedom had done to your nation's
> financial health.
>
> On Jun 26 01:48 AM User 357705 wrote:

Obama's Dance of the Seven Veils

Sorry, but one way I measure the effectiveness of any US policy is to see if it "stokes anger worldwide." If the proposal receives angry chirping out of Europe, we're probably on the right track.

I don't even buy the argument that our model of capitalism stokes any global anger at all. Foreign governments sure do buy a lot of our government paper (despite their official proclamations and despite their "anger").

Foreign corporations sure do like selling the US consumer their goods. That must really enrage them.

Foreign countries aren't too "angry" to bend over backwards to offer their cheap labor to our manufacturers.

You're mixing up what foreign governments "say" and what their citizens "do."

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

Great post. Your comments on education are, I think, quite accurate. I've been whining for the better part of the last 9 months that we have not had an open discussion about the causes of our current crisis. But even if we did, the lack of education and a lack of widespread access to "the truth" would probably not get us very far.

Your best point though is the quote you give to your clients that starts "Find me one histroy book..." which, in my opinion, is one of the best explanations of the cycle of "crisis thinking." Crises of every kind ultimately lead to an increased role for government to play.

Thank you for a great article.

Healthcare Proposals Should Change Market Incentives

First of all, the comment above mine inaccurately credits Socrates with the quote "do no harm." It's almost universally believed to be from Hippocrates, hence the Hippocratic Oath from which it comes.

More on point, however, the author of this post makes the argument that the capitalist system doesn't work in healthcare because patients cannot internalize expenses. Why? We're told the reason is that patients simply don't have the money. Actually, that's wrong. We don't know if they have the money. The problem is they never pay what the doctor would charge and uninsured person. I don't care to shop cost/benefit on doctors because all I'm worried about (as an insured person) is benefit. Insurance will charge me the same whether I see Doctor Good or Doctor Bad. Cost of service is no longer relevant to me. Only cost of insurance.

As far as benefit is concerned, we're told here that even smart people can't figure out if outcomes were worth the cost. We will only know in "the aggregate." There are so many problems with that statement, I hardly know where to start. Suffice it to say that if I have cancer, I don't want my doctor concerning herself with whether a treatment is worth the cost in the aggregate. Let me worry about the cost. And at that particular time, I can assure you I'm not going to care much about "the aggregate."

The Market Decline Was Expected but Will It Continue?

I agree that gold-backed money won't "help create wealth" and, not having exact numbers, I'd agree with the contention that "there isn't enough gold to pay our bills." But printing money out of thin air actually destroys wealth through inflation. And while printing money out of thin air may pay our bills, we are then penalized by the inflation it cuases - both directly and as a result of a falling dollar. A gold standard will not help us now, but to the extent that profligate credit creation and unabashed & unfunded Congressional spending have put us in this mess, it would have helped.


On Jun 23 12:09 PM joes wrote:

> I went to financialaspirations.com, reads like a lot of the analysis
> that you read from one group that always elevates countries like
> Brazil, China and India as economic threats.
>
> This shows a poor understanding of Globalization and the opportunities
> that are available to the most innovative democracy on Earth, the
> US. But our "American" model of the future has to be a global strategy
> that keeps our friends close and our enemies closer.
>
> The idea that a gold standard would help is beyond funny, and indicative
> of an ancient approach to economics. It won't help create wealth,
> there isn't enough gold to pay our bills so we need to innovate and
> regulate at a feverish pace.
>
> Lucky for us we live in the best place on earth to pursue those goals.

Structural Shift in the U.S. Economy Is Really in Supply

Nice work, John. Your point that "pumping up aggregate demand is an attempt to stop this restructuring or, at least, slow it down" is right on target. I would add that in order to regain competitiveness in manufacturing (and one could debate the desirability of that), there *needs* to be a dramatic restructuring.