Mark Wallace

Our Current Economic Illusions

A very perceptive comment indeed. Please write some more.


On Dec 04 09:57 AM sunnsea wrote:

> If you want to see what a real growth recovery looks like, check
> the GDP numbers from 1933 to 1936. Then it was 9 to 10% annually
> climbing out of a 25% unemployment rate in 1932. Enough to cut the
> unemployment rate to 14% by 1936, an 11% drop. You need at least
> 8 to 9% annual growth to reduce unemployment by 3%.
>
> In our situation you have TARP money being day-traded, stimulus money
> that is mostly tax cuts with only about 10% directed toward actual
> projects. Therefore, most of the GDP "growth" is non-productive and
> even today's job figures all of the high wage sectors are still losing
> lots of jobs. So the overall "productivity" numbers are highly misleading.
> Simply adding trillions of dollars from day-trading gains divided
> by a shrinking workforce is not "productivity." Clearly a whole new
> set of numbers and criteria are needed to match an economy that is
> doing less and less work and more and more program stock trading
> but not distributing the gains from the program trading throughout
> the economy, in fact I would call this new paradigm, the "anti-economy."
> It is in fact, the end of work for most people but not the end of
> program trading.

How to Fix the Fed - A Lesson from AIG

The Fed's job used to be taking away the punchbowl just as the party started to get going. It's new job, since at least the 1990s, has been to pour large quantities of alcohol into the punchbowl each and every time the orgy of speculation fostered by Wall Street seemed to be subsiding. The underlying fundamentals of the U.S. economy have been declining since the mid 1970s. The first expedient to create an artificial prosperity was massive new credit creation, beginning in 1982. Check the charts showing total credit market debt as a percent of GDP and you will see an approximate tripling of the rate of growth from 1982 on. Next from the Fed's bag of tricks was sequential bubble-blowing -- first the tech bubble, then the housing bubble. What we have now is a bubble dependent economy. The Fed is desperately trying to engineer a new bubble, preferably in the equities market, but prospects for this are not good at this point.

Could England Be Headed for a Sudden Stop?

A giant deflation is precisely what is needed. It will, in Andrew Mellon's words, help purge the rottenness out of the system.


On Nov 22 11:37 AM swaps wrote:

> In this deflationary environment with no money around Britian like
> the U S. has to just print money and distribute it. The Rothschild
> banking syhstem apparently does not have enough money to loan to
> governments - instead governments are having to make imaginary loans
> to the banks who are now saved and paying themselves huge bonuses
> so they won't go elsewhere to "makek more" Why should large governments
> think they have to borrow if they have more outgo than income?<br/>
> And how in heck are Britain and the U. S. going to pay back any new
> debts when they have clearly demonstrated the inability to pay down
> the huge debt obligations already accumulated since 1913 and the
> banking takeover of the nation?
> No government should be issuing new debt to investors whether other
> governments or individuals.. Just print money and get it out there.
> Investors should be deploying their money only to businesses so they
> have the capital to operate and expand as opportunities arise.<br/>
> By dumbly thinking that a large once dynamic country like Britian
> or the U. S. has to go hat in hand year after year to borrow and
> be ever further indebted to bankers or other nations who tell it
> what to do has resulted in this situation. Obviously, listening to
> bankers and borrowing from them has the same consequences as it did
> hundreds of years ago when kings were decapitated or run off after
> piling up debts to finance dreams of empire or revenge..
> So far the western world is proving only that history repeats itsel
> over and over when it comes to money. That staying with the bondage
> of usury banking only results in periodic chaos, economic collapse
> and people arguing how to resume with an economic system that is
> inherently flawed to begin with.
> Printing money will not cause inflation. But trying to raise taxes
> to pay off more borrowed money will be futher deflationary.
> Paying interest on a loan is a drag on spending, whether public or
> private. Thus it is deflationary, the dreaded monster of the banking
> system.

Could England Be Headed for a Sudden Stop?

Who would you rather lend money to, a sovereign nation who can print the money to pay you off or a private party who cannot print it? The Bank of England's borrowings will suck money away from the private sector, competing with the private sector for loans and ultimately making less capital available in that sphere. Finally, after the bulk of private sector indebtedness has been retired through repayment or eliminated via default, the contractionary forces will be spent and the stage will be set for the great hyperinflation everyone is talking about now (but is still at least a number of years in the future).

Whitney Gets Bearish: Will She Be Right Again?

Just for the record, Bob Prechter put out an advisory in late February 2009 telling his subscribers the stock market decline was about to end. He was about 2 to 3 weeks early on that call. He put out another advisory in early August 2009 telling subscribers that the rally was ending. Obviously, he has been early (and may be outright wrong -- too soon to tell, though). Personally, I have the feeling that there is much worse to come for equities but don't have any sense of the timing. My view is that anyone who buys at these levels and holds will very deeply regret it over the next two to three years.


On Nov 17 08:38 PM gal wrote:

> Meredith Whitney made one very correct call back in 2007 but like
> many others (ie Henry Blodgett, Elaine Gazerelli, Dr. Roubini, Bob
> Prechter), she overstayed her bearish position and virtually missed
> the entire bull market in financial stocks in 2009. Yes, she turned
> bullish on GS for a week or two after it had a 150% move up but what's
> that among investors. Now, she's not turned bearish but merely restating
> an existing position and extending to the entire market, something
> she is even less competent in than bank stocks. So, rather than giving
> her credibility, you should be condemning her for treading into an
> arena she is not capable of serving.

The Fed and Fannie Mae: Throwing Money Down a Black Hole

Let's see if we can follow the money on this. Mortgage loans are originated by the private sector and then sold to Fannie and Freddie. Fannie and Freddie finance their purchase of these loans by issuing their own obligations, which are euphemistically and optimistically called "securities." These so-called "securities" are then purchased by the Fed using its electronic printing press. The upshot is that the debt is being monetized, and you have an entire industry, home finance, that is on life support. And, despite that life support, housing prices are continuing to fall in many parts of our nation. My question is this: what would happen to housing prices if Fannie and Freddie were declared bankrupt and shut down? What would a house be worth if you couldn't get a loan and had to pay cash? There is your answer.

Marc Faber: Equities Safer than Dollars

Your comments are well written and hilarious! Although the dollar bill may be found only in museums at some point in the future, the path to that point is very uncertain. The staggering amount of dollar-denominated debt in the system, $50 trillion or so, is a gigantic synthetic short against the dollar. If you're a publicly traded company and have $10 billion in bonds outstanding, you can't repay that debt in Euros or yen or pesos. You have to repay it in dollars, and if you have other currencies you have to sell them for dollars to repay the loan. So the dollar may go a lot higher in the short run if the economy starts to implode. After the carnage is over -- whenever that may be -- the dollar will likely sink into the sunset.

On Sep 29 11:45 AM Joseph L. Shaefer wrote:

> Marc Faber and I agree that equities are safer than dollars -- and
> that foreign equities denominated in stronger currencies are an even
> better bet.
>
> But, gosh, to say equities are stronger than dollars may be damning
> with faint praise. Diving with great whites with chum dangling from
> your dive belt may be safer than dollars. Walking down dark alleys
> in Detroit with $50 bills hanging out of your pocket may be safer
> than dollars. Wandering into caves in Afghanistan with two Mormon
> missionaries shouting, "Hello, is anybody home?" may be safer than
> dollars...

Bank of America's Gain Is Taxpayers' Loss

Privatize the profits and socialize the losses. Isn't that the model here? Hasn't that been the model for a very long time?

What's Plausible for the Fiscal Outlook?

Christina Romer, one of Obama's top economic advisors, has published a paper indicating that each dollar of increased taxes decreases gross domestic product by three dollars. As a nation, we are not going to be able to tax our way out of the fiscal dilemma in which we find ourselves. Raising taxes in any major way will absolutely crush this economy. Franklin Delano Roosevelt tried that in the mid 1930s, and the result was the 1937 recession.

What's Plausible for the Fiscal Outlook?

Your comments are very perceptive and very true.


On Aug 31 09:56 AM Kevin_T wrote:

> Do these projections factor in the change in behavior of people and
> businesses if taxes are raised massively? You don't just collect
> all that extra money, people start taking action to save taxes instead
> of making money. They demand more vacation and perks instead of raises.
> More of the economy moves underground. More business moves offshore.
> Small business that would have been started are not started at all.
> More 2nd income households revert to single income. More people decide
> to not work at all. As the reward for work and economic risk decreases
> there is less work and less taking of risk.
>
> Big tax increases only bring in a percentage of the revenue that
> might be expected and that percentage tends to decrease over time
> as people adjust their behavior to it. That needs to be factored
> into any calculations.

How PHEVs and EVs Will Sabotage America's Drive for Energy Independence

This is a very interesting article, and the author has been generous with his time in responding to some not very complimentary remarks. However, I have to wonder whether there is really much to worry about. I can't see all that many Americans shelling out $40,000 to buy a Volt or Leaf. I own a Prius and get about 40 mpg in city stop and go driving and around 46 mpg on the highway. Personally, I would not pay an extra $18,000 to improve on this kind of mileage.

Celebrating the 'Recovery': I'm Disgusted

The optimistic American real estate and equity investor is like the frog who is slowly being boiled. He accommodates himself to rising unemployment, falling GDP, etc. while always remaining watchful for "green shoots" and hoping for the best. Stocks always go up in the long run, right? Now, we won't ruin our day by thinking about Japan, where the Nikkei has lost about 75 percent of its value over the last 20 years. I mean, the Japanese are pure idiots when it comes to economics, right? They may have Toyota and we have Chrysler, but we also have Bernanke! Dow 30,000 here we come!

Why This Rally Will Continue

I was long this market from mid April through the end of last week. There may well be some more upside, but the easy money has already been made. Anyone long the market at this point better really want to own it, and if they make money they've earned it because they are taking an almost unbelievable risk at this point. People vividly remember what happened last fall. All it will take now is several really big down days and there will be a mass stampede toward the exits.

The Golden State Standard: California Creates a Currency

Article I, Section 10 of the Constitution of the United States: "No State shall . . . coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder . . ." The Supreme Court generally has interpreted the prohibition against emitting "Bills of Credit" as a ban on the issuance of money substitutes or a circulating currency.

Austrian School of Economics Is on the Rise

This country has not had pure capitalism for at least 70 years now. When you have government sponsored deposit insurance, a central bank, Medicare, Medicaid, Social Security, etc. you don't have capitalism. What we have is Crony Capitalism, where the politically well connected receive all kinds of direct and indirect benefits and the parasitic classes are pacified through government giveaways financed by taxing the middle class.


On Jul 12 02:49 PM PhillyDan wrote:

> Yes, the capitalists will care for the poor, needy and the least
> among us....Give me a break! Capitalism run amok is what got us in
> our financial mess. In order to have an effective economic system,
> we need to have a hybrid system mixed with elements of capitalism
> and socialism (safety nets to protect and provide for people in tough
> times) which is what we have in place now. I agree that it needs
> reworking from time to time but a mix of 70/30 of Capitialism/Socialism
> is a good mix that allows for economic growth but not at the expense
> of destroying the infrastructure, the environment, or providing a
> backstop for people in times of need.
> Vienna comments above about Austria are a good example of a sustainable
> system that is fair for all Americans and allows even the Capitalists
> to make their profits.
>
> "and fourth get the government out of all social programs and set
> up the mechanics for private capital to provide, health care, pensions,
> and so on"