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  • Why The U.S. Is Europe: Central Bank Deficit Funding Thinly Veiled  [View article]
    When I talk about inflation, I don't talk in just the conventional terms. The conventional CPI won't really see runaway inflation. We lost too jobs (almost 9 million) for people to go out and bid up CPI assets. The inflation that seems to be on track will be equities and commodities. The extra CB notes will continue to bid up equities and commodities.

    The Fed and the ECB have made "open-ended" commitments. As such, we don't know really what they are going to do other than they are going to grow their balance sheets. So until real economic opportunities begin to grow (ie massive purges of gov coercion via gov regulations on the markets), then we play a game of equity melt ups that are interupted by short flights back to safety on the latest headline. That is until fiscal policy does something to offset the growth of the Fed's balance sheet with increases in expropriation taxes or more gov regulations.

    Right now based on what the Fed has announced I would expect the S&P to be around 1550 by next March and the US 10 yr to be around 2%. So at that point gas prices of $5/gal could pop the bubble, or war in the ME. The fiscal policy is a little harder to track. Obamacare and Dodd Frank are basically taxes. Taxes cancelling Fed accommodation, and these taxes are slowly phased in behind the scenes. A great example of something that could punch a hole in the bubble would be a sudden adoption of something like Basel III in the US. If banks suddenly had to shrink balance sheets to comply with new capital requirements, they may draw in a lot of lines, people get laid off, unemployment goes up, and presto you have risk off. People flee equities and go back to safety.

    Without the CBs announcing the end dates to their programs and volumes, watching what will trigger the pop to the bubble becomes more problematic. We just need to look for something relatively large that basically "cancels" CB notes. For example an top marginal income tax rate of 50% or a capital gains tax of 40% or a new rule for all banks that require Tier 1 to be 10%. In other words, something that kills a bunch of CB notes very quickly.
    Oct 1, 2012. 12:39 PM | 2 Likes Like |Link to Comment
  • QuickChat #245, September 24, 2012  [View instapost]
    NFP and Unemployment rate come out on Friday. The last time U3 was under 8% was Jan 2009. Anyone remember what was happening in Jan 2009? I would not be surprised to see U3 in October of 2012 to be 7.9%. They say no incumbent has ever been re-elected with U3 over 8%.
    Oct 1, 2012. 11:08 AM | 2 Likes Like |Link to Comment
  • Where Has The QE Rally Gone?  [View article]
    You don't see much difference between John Law and Jean Baptiste Colbert with BB and the Super Drag.
    Oct 1, 2012. 11:05 AM | Likes Like |Link to Comment
  • Baby Boomer Demographics: The Shift Ahead  [View article]
    Ironically, the Nazis had more in common with Marx than they do with Locke, Mises, Hayek, or Jacques Claude Marie Vincent de Gournay.

    The lists are provocatively similar.



    Tyrants aren't defined by their intentions, but if they are suggesting one person should control another. Don't get lost in the rhetoric. There's too much at stake for that.

    Oct 1, 2012. 11:02 AM | Likes Like |Link to Comment
  • Tesla - The Next Government Financed Alternative Energy Debacle  [View article]
    It makes you wonder about the economic incentives. After all, what would be the chances the funding that was used to study global warming or climate change would produce the result from the funding receivers to say, "The conclusions are in that humans have no impact and as such there should be no more funding for people like us."
    Oct 1, 2012. 09:31 AM | 1 Like Like |Link to Comment
  • Why The U.S. Is Europe: Central Bank Deficit Funding Thinly Veiled  [View article]
    "I just want to try something that works."

    If that's true, then consider this.


    What's ironic is that the low interest rates enjoyed by the Dutch, led the British to believe it was the low interest rates that led to the Dutch prosperity, hence the establishment of the Bank of England in 1694. What the British failed to realize is that it was the lack of the Dutch gov driving up the cost of production via taxes and regulation (gov regulation of the economy is not a new thing, in fact govs have been "doing something" for hundreds of years) the way the Spainairds did (and are still doing) that attracted capital to the Netherlands. The Dutch drove down interest rates the old fashioned way. They attracted more capital to the equation and supply and demand found their new equilibrium. The British just wound up creating bubbles and people like John Law with their attempts to set interest rates with the BOE.
    Oct 1, 2012. 09:01 AM | 2 Likes Like |Link to Comment
  • Where Has The QE Rally Gone?  [View article]
    The advocates for gov coercion long ago learned they have to control the language of the debate. Disparaging the prosperity of noncoerced societies has always relied on recasting the terms of the debate in favor of tyranny by using terms such as the "public good". The trick is to simply accept reality, which after all is the very definition of reason.

    An early advocate for tyranny using the "public good" argument - Jacques-Benigne Bossuet.

    Oct 1, 2012. 08:52 AM | 5 Likes Like |Link to Comment
  • Is 2012 Parallel To 1912, 1952 Or 1972?  [View article]
    There are those that believe the Carter lead is a myth. Including this left wing mouth foamer.

    Oct 1, 2012. 08:46 AM | Likes Like |Link to Comment
  • Why The U.S. Is Europe: Central Bank Deficit Funding Thinly Veiled  [View article]
    "Government can provide new technology"

    No. Gov can ask the private actors in the economy if they can provide something, and if they can then gov uses existing wealth in the economy to pay for it. It is just another wealth transfer. The assumption here is that without the gov request, new technology would have not developed. This is specious reasoning. In fact logic would dictate that even better technology would be developed without the gov request, because gov requests run the high risk of being politically (looter) driven.

    It is better to use logic and realize that there is a difference between what gov CAN do, and what we WANT it to do. If a gov could create new technology, then it wouldn't need a populace to support it, and all around the world we would see examples of govs without populations.
    Oct 1, 2012. 07:20 AM | 2 Likes Like |Link to Comment
  • Why The U.S. Is Europe: Central Bank Deficit Funding Thinly Veiled  [View article]
    "do you have some specific thoughts on how to best position your assets in the short term"

    The Fed and ECB have announced QE. We also have fiscal policy moving in the direction of driving up production costs via price blind gov regulations (Obamacare/Dodd Frank/tax increases). The big picture is basically this, note creation is going to outpace asset creation. This means wealth transfer. For the US MBS will become the new "1 yr CD". This asset class will become less attractive the same way the 1 yr CD became less attractive. Right now equities appear to be the place where the wealth is going to be transferred.

    The Fed and the ECB have put in place conditions for their "accommodating". BB is going to do 40 billion per month. This is pretty slow, and the ECB has said that if you want their money you have to play their game. So the melt up will probably be pretty slow. Since there really is not announced end to the programs, the bubble that will build in equities won't necessarily be popped by the CBs like the last few times. What may pop them this time will be something else in the economy.

    It may be fiscal policy that winds up "cancelling" the CB notes and causing asset prices (equities) to fall. The so called Fiscal Cliff presents such opportunities. Massive tax increases, tax increases from Obamacare, and "tax" increases from Dodd Frank (financial regulations are like increasing the FF rate). It may also be energy prices. QE induces risk so people tend to pile into commodities as well, so $5/gal gas could pop the equities bubble. War in the ME could do the same thing.

    The last QEs (both Fed and ECB), the CBs popped the equity bubbles themselves when they halted the growth of their balance sheet. This time since they haven't given a date for the end to the growth of their balance sheets, they won't pop the bubble themselves this time. It will be something else. We will just have to look closely for it. Maybe fiscal policy, maybe energy/food prices, maybe war. We will just have to be vigilant.
    Sep 30, 2012. 06:54 PM | 2 Likes Like |Link to Comment
  • Why The U.S. Is Europe: Central Bank Deficit Funding Thinly Veiled  [View article]
    "You are confusing aggregate supply with aggregate demand"

    This topic confuses a lot of people, most notably Keynes. This is just a regurgitation of an old theory that Keynes had dredged up from history. In the end, supply drives demand. You might be hungry and have very high demand for food, but if no one knows how to grow food, then the hunger and the demand are irrelevant.


    Its really at the heart of why a CB winds up causing wealth transfer rather than acting as a tool that participates in capital creation.

    When a gov monopolizes a money medium, the gov now bears the burden of creating money mediums at a pace concomitant with what the growth in assets via technology would necessitate. This is one of the draw backs of precious metals as a money medium. Their supply is limited by how fast we can find them. So when technology is growing faster than our ability to find precious metals used for money mediums, the speed with which people can trade is diminished, and thus so is their incentive to innovate.

    The point of increasing technology is to increase consumption (a net allows you to consume 10 fish instead of 1). The lack of money mediums curbs the ability to consume, thus the incentive to produce is diminished because there are barriers to consumption (ie a lack of money mediums).

    So yes, if the creation of money mediums is not price sensitive (ie concomitant with technology - asset creation), then the growth in the economy can be slowed. The opposite of this is true as well. If money mediums are created too fast for asset creation, the notes become diluted, and hence the notes loose their consumptive abilities and once again the economy is slowed.

    Here's the problem. You want the right amount of money medium creation. The gov has monopolized money medium creation, and the gov is price blind. As such, the price blind gov will typically be either creating too many money mediums or too few money mediums. Imagine a trajectory of money medium creation that was perfectly correlated to the growth of the economy, and then imagine the Fed Res swerving back and forth over that line like a drunk swerving back and forth over the double yellow line in the road. When the Fed is not perfectly aligned with the yellow line, it is in wealth transference mode (basically all the time).

    This is where you learn to have some of that wealth transference benefit you. The Fed (and fiscal policy as well) will be constantly creating bubbles. If your learn to recognize them, you can benefit from them.

    The real solution is to either make money medium creation the responsibility of the price sensitive areas of your society (markets free of coercion - free markets), or recognize that a CB is really a taxing mechanism and build it into your gov with that perspective so you can have more appropriate controls. Such as not falling for the "gov can stimulate aggregate demand" line that just assumes the economy is not growing because the CB is failing to provide enough CB notes. The problem could be gov mistakes that are driving up the cost of production with price blind regulations, and the price blind CB is allowing the mistake to go on longer than it should because it has a monopoly on money mediums.

    If you want a peaceful and prosperous society, work to remove coercion from all human transactions. Civilization is bringing force under the rule of law.
    Sep 30, 2012. 06:15 PM | 2 Likes Like |Link to Comment
  • Where Has The QE Rally Gone?  [View article]
    Its not "trickle down". Its better labled "exponential prosperity". It allows all the living standards of everyone in the society to improve on sustainable improvements in technology.
    Sep 30, 2012. 12:31 PM | 2 Likes Like |Link to Comment
  • Why The U.S. Is Europe: Central Bank Deficit Funding Thinly Veiled  [View article]
    "Theoretically, if we don't get any new technological advances we can still have productivity increases by investing in more and better equipment to produce goods and services at lower cost until all producers are making maximal application of existing technology."

    "More and better" is technological advancement. It's just production knowledge. It is learning how to use your labor to better utilize the fixed resources in the environment.

    For instance. If you learn to use your hands to catch a fish, you just engaged in a technological advancement. If you learn to make a net to catch 10 fish at a time, you just engaged in a technological advancement. If you learn to trade your net with someone for a stone knife, you just engaged in a technological advancement.

    All these advancements were achieved by prices. Prices are nature's mechanism that tells you when you are better utilizing your labor to convert resources into assets that make your life better. It shows you what is a bad net and what is a good net. It shows you what was a bad trade and what was a good trade.

    Capital, therefore is just stored labor. It is labor stored in the form of assets. You labored to convert resources into something that saves you even more time that allows you to create even more assets. Capital is just the abstract representation of assets. This is why a balance sheet is: assets = capital. The capital represents an ownership right in the assets. The assets are actually just an extension of your body, because you needed your body to create them. As such, any violation of your assets is a violation of your body. It is asset rape.

    This is why a gov (ie a CB) can be so dangerous. The foundation of gov is coercion. Coercion has two uses. It can be used to steal or it can be used as a defense against stealing. A CB has access to gov coercion (try to own more than 24.99% of a BHC without the Fed's permission and see what happens to you).

    Coercion makes you price blind, just as the Fed or the ECB is price blind. This is the reason why the thief waits for you to use your net to catch your fish, and then clonks you on your head to take your fish. Now the economy has shrunk. Two people now must live off the productivity of one. The thief used coercion because the thief is blind to prices with regards to capital/asset creation. The thief doesn't want to engage in technology because it is hard work. The way the economy would have grown is, instead of stealing fish, the second person grew some corn. Then the fisherman and farmer engage in voluntary trade. The new productivity has just grown then economy. The fisherman and the farmer now both have something they didn't have before. As such, their standards of living have gone up.

    A bank just monetizes assets. It prints notes as a physical representation of capital which is an ownership right in assets. This is why the notes can lose value. If they are created faster than assets, they become diluted. Thus you need nature's pricing mechanisms to keep the note creation concomitant with the asset creation.

    When you monopolize banks under the umbrella of gov coercion, the access to that coercion makes them price blind. As such, they become an agent of theft (wealth transfer). The only way a CB will get note creation correct will be just dumb luck, and they certainly won't be able to get it right over a long period of time. Gov's are very short sighted compared to private markets.

    This is why CBs don't control interest rates. Interest rates are just prices for capital. To control all interest rates the CB would have to supply more capital. That means the CB would have to inject more production knowledge into the system, which obviously it can't. What the CB can do is focus on certain "asset" classes. Thus by giving banks CB notes (claims on labor) to buy these asset classes, the CB can manipulate the prices (interest rates) for that asset class (like MBS). In order to do this, since it can't create new capital, is to transfer the wealth from other places in the economy. This depresses that portion of the economy (like the people that had 5% earnings on CDs) to inflate others (like people holding MBS right now that can sell for a gain).

    CBs don't control interest rates. That's not the system that we have. The system we have is some people in the society have access to coercion, and this allows them to transfer wealth. That's all they can do. They can't create wealth (new production knowledge), which is what you really need to "stimulate" an economy, and they can't know where capital should be allocated to. They are blind to prices. If you figure this out you will see that you can start to learn where the wealth is going to be transferred to, and be there when it gets there.
    Sep 30, 2012. 12:28 PM | 1 Like Like |Link to Comment
  • Why The U.S. Is Europe: Central Bank Deficit Funding Thinly Veiled  [View article]
    Talk about your doom and gloom.
    Sep 30, 2012. 11:29 AM | Likes Like |Link to Comment
  • Why The U.S. Is Europe: Central Bank Deficit Funding Thinly Veiled  [View article]
    Never comment for the sake of others. Only comment for your sake. Such an approach gives freedom. Let everyone else wallow in fear of likes or dislikes.
    Sep 30, 2012. 11:27 AM | 2 Likes Like |Link to Comment