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  • The Fed's Window For Hiking Rates Continues To Close [View article]
    Here is an example of gov monopoly power causing a boom and bust. Notice there is no official CB, however there are activities that mimic a central bank. As such, the issue is not a central bank, but what a central bank embodies. That is the power of gov via its monopoly of force to induce people to consume/purchase things at a price that their income would not support in a free market (aka a market FREE of force - the right to choose and refuse without threat of bodily harm) - in a word - subsidies.

    Also note that you cannot claim to be a pacifist and support gov regulation of voluntary associations (ie freedom to contract and trade). If you support gov regulation of voluntary associations, then that means you endorse using force (the opposite of what a pacifists wants) to threaten people's bodies in order to get them to accept your own arbitrary, personal preferences.
    Jul 9, 2015. 12:03 PM | Likes Like |Link to Comment
  • The Fed's Window For Hiking Rates Continues To Close [View article]
    "when central banks artificially lower interest rates "

    This is a common mistake made by low information market participants. Its part of the conventional wisdom that CBs control interest rates. CBs do not control interest rates. CBs control one thing and one thing only - how many CB notes they create. This note creation affects asset prices. Pumping up asset prices for people currently holding the assets is a subsidy for those holders and a tax for anyone that might wanted to purchase those assets. In other words, its just more gov guns engaged in protectionism (aka JB Colbert - they had to bury him in secret because he was so hated).

    Now, the affect on asset prices may induce certain interest rates in the market to be affected a certain direction for a limited time, but this is a far cry from a CB raising or lowering all interest rates and this reality moots the point of "artificially lowering interest rates".

    When the Fed raises its discount rate, it lowers the amount of CB notes it creates (physical or electronic) (or in other words it increases or shrinks its balance sheet - just a debit and credit entry). The typical result of this is an inverted yield curve. This is followed by a decrease in equity prices which brings on a feeling of less wealth, people spend less, cash flows that support equity prices no longer support them, a flight to quality ensues, and presto, lower interest rates - the exact opposite result of what the CB was trying to achieve.

    Notice how an increase in the DR typically precedes a recession. Two noticeable periods where it did not was in the 60s and 90s, wherein there was tax reform to lower taxes and/or spending/regulatory reform that offset the ill effects of the Fed's increases of the DR.

    Hopefully this information will help some of the low information commenters we see on this thread that aren't aware of this. To this end its important for them to be informed that free markets and capitalism do not have cycles of booms and busts. Those cycles only occur when the coercive power of gov is used to herd people into specific sectors of the market which then distort those prices. Gov policy reversal, reverses those distortions, or the market will naturally correct itself when it becomes apparent that there isn't real income to maintain the distorted prices.
    Jul 9, 2015. 11:54 AM | 1 Like Like |Link to Comment
  • The Fed's Window For Hiking Rates Continues To Close [View article]
    I guess it depends on what you mean by "good for the economy". For me a good economy is when the standard of living is increasing for everyone. This is the hallmark of a capitalistic, free market economy. Under a gov regulated economy, the hallmark is the rich get richer and the poor get poorer via waves of boom and busts cycles caused by gov intervention via taxes, regulations, and central banks.

    A central bank is just another form of consumption subsidy. When a CB is being accommodative, it is in subsidy mode. That means "risk-on" for financial assets. Equities will rise and so to will interest rates (or rather the yield curve will steepen). When the CB becomes less accommodative, that means less consumption subsidies and thus risk-off.

    The other factor to consider is the volume of the subsidy change. It can be huge, like the risk-off mode of the Fed from 2004 to 2007, which then brought on the asset collapse that started in mid 2007, or it can be small, like the upcoming proposed 25 bps increase for the discount rate. Either way, what we are really talking about is affects on asset prices, and not a general increase for the standard of living for everyone in the population.

    Increasing the standard of living is dependent on the populace's ability to create abundance. That hangs on the populace's understanding of physics, or in other words, the populace's ability to make things faster, cheaper, and better. That ability hangs on price sensitivity, and price sensitivity hangs on being free from coercion so you are free to learn from your mistakes. Gov guns blind people to prices, just as the Fed is blind to prices. As such, new technology is stifled and old technology is subsidized.

    So, if the Fed raises the DR, all that will really mean is that part of the support for asset prices will fall. That will mean that people currently holding those assets will loose wealth, but the people that then buy those assets at lower prices will see their wealth increased. Its more of a shift (or rather a cease to the transfer of wealth via stealth taxes that a CB represents) of wealth from those that previously benefited back to those that were not benefiting. In some respects that helps the economy by improving price sensitivity, but the real boost would come from reducing gov protectionism of crony businesses by reducing the gov's protectionist regulations and taxes.

    Until we see that, the real growth that would make interest rates go up for a period of time will not occur and thus, we will see low rates for a very long time, regardless of what the Fed does with its discount rate.
    Jul 9, 2015. 10:50 AM | Likes Like |Link to Comment
  • The Future Of Greece, The Euro And The Impact On Global Markets [View article]
    Slavery is a gov regulation. Its basically a 100% income tax. Europe's view was to maximize the value of its colonies by lower costs by lowering wage expense. In their view this was just an example of a gov's long horizon view of how best to regulate the economy for the common good. Their argument was that it provided high returns on investment (aka a high stock market) and guaranteed jobs, guaranteed housing, guaranteed healthcare, guaranteed family planning, and all run by a superior ruling elite to determine what is best for those individuals in life that just don't know what is good for them. They even had capital controls to keep what they considered assets from leaving in the form of the 1854 Fugitive Slave Act. Europe is imposing similar rules. The sign of slavery is that you can't leave.
    Jul 9, 2015. 10:12 AM | 2 Likes Like |Link to Comment
  • The Fed's Window For Hiking Rates Continues To Close [View article]
    "I'll throw in the mal-investment of the domestic gas-oil-fracking implosion "

    Agreed. Note the following.

    "You are correct, the Shale Bubble was predicated upon the assumption that oil prices would remain above 100 USD/bbl for ever or rise even more. The Housing Bubble of the 2000's and the Dot.Com Bubble were based on parallel assumptions. "

    Take note of who said this.
    Jul 9, 2015. 09:31 AM | 3 Likes Like |Link to Comment
  • The Fed's Window For Hiking Rates Continues To Close [View article]
    The Fed may just raise the DR so that they can lower them again in order to "do something" instead of more QE, since it appears the Fed believes they have gotten beatin' up over QE.
    Jul 9, 2015. 08:21 AM | 2 Likes Like |Link to Comment
  • The Future Of Greece, The Euro And The Impact On Global Markets [View article]
    "Just look at the Confederate Flag situation"

    There are all sorts of flag situations.

    Also, what's interesting is that the flag at question in SC is not the Confederate flag, but the battle flag of the army of Northern Va.

    The Confederate flag is something else.

    What's also interesting is that Ernest Hollings raised the battle flag over the SC state capital building.

    "In 1962, during Hollings' term as Governor, the Confederate battle flag was flown above the South Carolina Statehouse underneath the U.S. and state flags where it would remain for thirty-eight years. In 2000 the state legislature voted to move the flag from above the Statehouse to a Confederate soldiers' monument in front of the building.["

    And note Hollings' political affiliation.

    "Political party
    Democratic "

    Life is often more complicated that the simplistic templates that are attempted to be sold to people on a daily basis.
    Jul 8, 2015. 01:24 PM | 1 Like Like |Link to Comment
  • Wall Street Breakfast: Greece Votes 'No' - Now What? [View article]
    Let me add one more thing. Keynes was supposedly to have refuted Say's Law. So, yet again, the Greeks have this wonderful opportunity to prove Keynes right. All they have to do is leave the EU and the Euro, fire up their own fiat currency, and demonstrate that supply does not create its own demand or in other words that people CAN consume what they don't produce.

    The time for the Greeks to teach the world a lesson is at hand.
    Jul 7, 2015. 08:18 AM | Likes Like |Link to Comment
  • Wall Street Breakfast: Greece Votes 'No' - Now What? [View article]
    "Greeks work like anyone else in this world."

    I guess in some ways that is true.
    Jul 7, 2015. 08:12 AM | 1 Like Like |Link to Comment
  • Wall Street Breakfast: Greece Votes 'No' - Now What? [View article]
    "Do you seriously believe this attitude will change as if by magic? "

    Keynes used to make the point that ignoring the truth in order to get his ideals implemented would often be necessary. As such, in keeping with that tradition, I will point out that increased spending on infrastructure will never be corrupted, regardless of all the examples to the contrary.

    As such, I would love to see Greece implement the plan above. It can't possibly fail. All the people that would be in charge would be incorruptible. There is nothing to worry about.
    Jul 6, 2015. 02:51 PM | 3 Likes Like |Link to Comment
  • Wall Street Breakfast: Greece Votes 'No' - Now What? [View article]
    This is a great opportunity for Greece. This is their chance to leave the Euro and embark on a great Keynesian movement. Once they are out of the Euro, they will be able to establish their own central bank and print all the money they need. Remember, money doesn't have to be a store of value, it just needs to exist in order to facilitate transactions. To this end, the Greeks can embark on a grand infrastructure project. They can rebuild all of their roads and bridges, expand the Greek canal, rebuild the Parthenon and all the vacant and crumbling Olympic facilities. Then they can set about doubling the size of their gov workforce, and doubling its pensions. Then they can institute a guaranteed wage for all Greeks of at least 100k drachma/year, and a minimum wage for employed Greeks of 90k drachma/yr. Next, all education will be free, and so will all health care. Then the Greeks can nationalize all the banks, and pass a law that says all unions must get whatever they ask for. This will all be fantastic for aggregate demand.

    Next, only solar and wind will be allowed as an energy source. There is plenty of that in Greece, so there will be no need for oil, coal, or nuclear. Then, to promote local job growth and no off shoring of jobs, the borders will be completely closed off to trade. The Greeks will subscribe to that noble ideal of producing for use instead of for profit. This will force all items to made locally. Imagine the type of smart phone they will create for themselves, or the kind of motorcycle that Varoufakis can ride.

    Also, all income over 90k drachma will be taxed at 90%, and all corporate income will be taxed at 90%. Any corporations attempting to leave Greece will be subject to an exit tax of 100%. However, anyone wanting to immigrate to Greece may do so, and receive citizenship (with all the benefits thereof) and voting rights on day one.

    This will lead to such prosperity in Greece that they will be able to pay back all of their debts, two fold, not that they should, but as an example of how well their Keynesian program worked.

    So, they only question now is, what are they waiting for?
    Jul 6, 2015. 12:02 PM | 8 Likes Like |Link to Comment
  • This Ratio Signals Recessions And Inequality [View article]
    "Stocks are titles to capital goods. "

    Another way of saying this, is that stock notes are claims to real assets. Also realize that all notes are ultimately claims to real assets. We see this in a simple balance sheet.

    Assets = Liabilities + OE

    If you consolidated all balance sheets in the world, cash would wind up on the right side of the balance sheet (since it is really just a claim on assets). Cash, in this day and age, is comprised of central bank notes, but even if it were gold, it would still be true.

    There really is no such thing as fiat currency. All currency is really backed up by the assets that can be procured with those notes. Thus, what makes a note valuable is the claim on assets it represents.

    Stock notes of private companies are price sensitive notes. That is management must engage in activities that increase the asset claim those notes represent by continually creating more and better assets. In other words, stock notes are intended to increase in value.

    Central banks are outspoken in their commitment to depreciate their notes, such as the Feds dedicating to a loss of value in their notes of around 2%.

    Thus, it is natural for people to abandon their central bank notes that are managed to depreciate for stock notes for stock notes that are managed to appreciate. This increased demand for stock notes drives up their price, and the result is a roaring stock market.

    So, when a CB is being accommodative (assuming no other changes in the subsidy mix from gov regulations or taxes) that means the CB is heading more in the direction of depreciating their notes and thus increasing the tendency for people to head towards better managed notes (like stocks). Then when a CB reverses policy (which they tend to do since they are run by poorly educated PHDs), the trend reverses or is mitigated, the better managed notes loose their subsidy, and they fall in price, and presto the boom and bust cycles that are so familiar with in economies that are polluted with gov intervention.

    If you learn to recognize these patterns then you can better protect yourself, and not make predictions that you should sell all LT bonds because yields are going to skyrocket to 5% because the Fed is about to end QE, and then watch rates fall even further (which also meant loosing the gain you could have had by waiting for the right time to sell).
    Jul 1, 2015. 10:03 AM | 2 Likes Like |Link to Comment
  • Summary Of My Post-CPI Thoughts [View article]
    "Conventional wisdom, at the Fed at least, is that wage pressures cause inflation. We know from experience, however, it can come from other sources."

    If it can be demonstrated that wages don't cause inflation, why is it conventional wisdom at the Fed?
    Jun 25, 2015. 02:34 PM | Likes Like |Link to Comment
  • True Or False: The Fed Causes Recessions [View article]
    "You appear to believe that interest rates can be set at a whim by the Federal Reserve Bank (FRB). "

    No, that's a straw man you have assigned to me, because that will be easier for you to argue against than what I actually have said.

    Again, if you want to keep believing unfounded dogma someone has told you and you want to keep losing money because of it, that's your choice. I on the other hand want to be mindful and thoughtful instead of reactionary.

    You keep trying to make arguments based on things you wished people had said or assumed they said.

    The Fed is part of the consumption subsidy mix. Basically all it can do is accelerate consumption but not production. The subsidized consumption leads to distorted prices which is what produces bubbles. Natural forces can pop the bubble, but it is typically the gov itself that does that by drawing in the subsidies either by raising the DR, raising regulations, or raising taxes.

    Learning to observe this interplay is how you can protect yourself from these bubbles and busts, and thereby prevent your wealth from being transferred away from you. Its very similar to the Cantillon Method.

    Of course, as I've said, if you are comfortable losing money, then by all means have at it. For the rest of us in the informed, professional circles, that simply won't do.
    Jun 24, 2015. 05:27 PM | 2 Likes Like |Link to Comment
  • This Ratio Signals Recessions And Inequality [View article]
    "contrary to what you and others have predicted, Treasury yields HAVE been firming up since the end of QE."

    If the data were so contrary to what I was proclaiming and had proclaimed in the past, I would run from the thread as well.

    The Fed may have ended QE, but it really hasn't decreased its balance sheet. However, QE ended in Oct of 2014, but the BOJ began its new round of QE in Nov of 2014 and then the ECB in the first part of 2015. It was only after the ECB really started to get some traction that the 10 yr yield started going up again. During the period when the Fed was only maintaining its balance sheet, and the ECB had not yet started QE, the 10 yr fell into the 1.60s. That's a far cry from the 4% to 5% SOME people predicted.

    If the Fed starts to raise the DR, rates won't go up, they will go down. The short end will trend up a bit, but as asset prices fall (ie equities) people will move to bonds and thus lower bond yields. It will all depend on how much the Fed raises the DR. 25bps may not trigger a recession or a big sell off, but any move in that direction will be risk-off to some extent.
    Jun 24, 2015. 05:19 PM | Likes Like |Link to Comment