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  • Economists Ignore 33,000,000 Americans When Calculating Income Inequality [View article]
    Rich in Quebec,
    Pure, unhindered capitalism generates enormous wealth and enormous economic inequality. Pure, unhindered socialism does the opposite; it generates social equality at the expense of wealth creation. Even F.A. Hayek pro-ported a balance of the two. The tricky question is what is the right balance for the right society at the right time. Economists and politicians will debate this issue forever.
    Oct 28 10:31 PM | Likes Like |Link to Comment
  • The Fed, David Einhorn, And The Search For The Mythical Free Lunch [View article]
    Well said. We need deflation, creative destruction, liquidation of bad assets, bankruptcy of irresponsible banks; so we can have reinvestment on a firm foundation. This, of course, would be painful and I don't think the Fed would ever allow it to happen. BB will continue to print, modeling after the Japanese scenario, all the while hoping and praying for a production explosion to grow us out of this trap. But with baby boomers retiring, and the current Ponzi structure of Medicare and Social Security; an explosion of productivity just won't happen without some miracle.
    By the way, how is it that Japan can continue to run a debt:GDP of > 230% and keep bond yields so low? Why do the Japanese investors and the bank of Japan plow everything back into government debt, the more they put in now, the more they have to put in later. 50% of their tax revenue goes to paying the interest on their debt. What happens when 100% of their federal revenue goes to paying the interest on their debt and the deficit is still not balanced? It that the new insolvency point for central banks?
    Oct 28 10:30 PM | 11 Likes Like |Link to Comment
  • Cheap Debt Is Good News For Stocks [View instapost]
    "As uncertainty comes out of the system, pent-up cash balances need to be deployed."

    I agree on that premise, but I just don't think uncertainty will abate any time soon. With the EU situation, Japan's new trade deficit and debt disaster, China's hard landing, etc; we are still in for firms to take a defensive posture for quite some time. In the current global situation the paradox of thrift will cause more hoarding of cash for some time going forward thereby suppressing the velocity of money and encouraging the Fed to continue it's easy money policies to prevent a deflationary death spiral. When these firms finally do start spending their reserves, watch out for inflation! We will definitely see the S&P advance (at least in nominal terms!).
    Oct 28 10:29 PM | Likes Like |Link to Comment
  • Einhorn Slams QE: Is The Fed Destroying The Economy? [View article]
    They are all interfering policies, including, as you alluded to, increasing rates and thereby increasing returns for savers. When the Fed sets the overnight rate down to 0.17, that subsidizes debt. The banks wouldnt be lending to each other at that rate and to investors for 3% fixed for 30 year terms without the Fed. That's the problem, the govt has to keep interfering more and more because of unintended consequences of their policies. The actual debt is not "up to the market" when the 21 primary dealers are required to bid on debt and you have the Fed bidding up the prices/down the rates at a tune of 61% of treasuries (WSJ 3/2012). If it were "up to the market" with no govt involvement do you actually think we could finance our debt so cheaply? The Austrians are right, planners can't even get the supply of money right, just as the Soviets couldn't even produce the right number of toilet paper rolls.
    Oct 28 11:10 AM | 2 Likes Like |Link to Comment
  • What Is The Fed Doing? I Love Ben Bernanke [View article]
    "Who loses on this QE3 thing? Probably the big banks."

    Good article, and I agree the Fed is smart to stimulate the banks by purchasing these MBS, at least they will be collecting digits for the Treasury in, at least, nominal terms. At least this will have the appearance of offsetting the deficit to a degree. Logical Thought is right about the Fed's real losses, but the Fed just cares about digits, not purchase power or wealth creation. They could care less about loosing wealth/purchase power in real terms as long as their digits look better. But, do you really think the Primary Dealers are "loosing" having the Fed put all their junk assets on its balance sheet? BB is buying these MBS in a desperate attempt to keep the banks solvent for God's sake.
    Oct 27 11:57 PM | Likes Like |Link to Comment
  • Einhorn Slams QE: Is The Fed Destroying The Economy? [View article]
    Interesting article, I wouldn't have considered punishing savers with negative real rates would cause those savers to save more! But it does make sense. Einhorn brilliantly illustrates yet another unintended consequence of manipulating the money supply. Hayek's principles of "moral hazard" and "the pretense of knowledge" applies to central banks too. Without a natural price discovery mechanism for debt; the market cannot allocate it's capital efficiently.
    Oct 27 11:56 PM | 1 Like Like |Link to Comment