Worked this morning and gotta work tonight so a just a quick post I did over at LvMIC:
It was only a matter of time:
(Reuters) – The world’s major central banks acted jointly on Wednesday to provide cheaper dollar funding to European banks facing a credit crunch as the euro zone’s debt crisis drove EU ministers to urge more IMF help to avert financial disaster. The emergency move by the U.S. Federal Reserve, the European Central Bank, and the central banks of Japan, Britain, Canada and Switzerland recalled coordinated action to stabilize global markets in the 2008 financial crisis after the collapse of Lehman Brothers.
Since Germany’s Supreme Court ruled against letting the ECB turn the euro spigot on high without the approval of German’s parliament, the rest of the developed world will be forced to come to the rescue. What that really means is taxpayers will foot the bill for another big kick of the financial can down the road. As Mises wrote:
The assistance of inflation is invoked whenever a government is unwilling to increase taxation or unable to raise a loan; that is the truth of the matter.
With bond yields in Euro zone countries creeping upward and outbursts of social unrest due to higher taxes and cuts in welfare spending, the last resort of currency devaluation is being employed yet again. To paraphrase investor Marc Faber on the mindset of Keynesian central bankers, the solution is always to print money and if that doesn’t work, print more money. The global currency race to the bottom is as fascinating to watch as it is demoralizing.
Still the best George Carlin skit ever (warning, adult language):
"It's a big club, and you ain't it!"
After yesterday's less-than-surprising Bloomberg report on the extent of the Federal Reserve's bailouts at the height of the financial crisis, here comes a full fledged dose of crony capitalism that makes Solyndra look like an honest mistake.
Remember former Treasury Secretary, former CEO of Goldman Sachs, and "tanks in the streets" scaremonger Henry Paulson? Of course you do since his hand was in your wallet back in 2008. It turns out that he warned a couple of his hedge fund buddies about the then-forthcoming nationalization of housing giants Fannie Mae and Freddie Mac in the hot, hot summer of 2008.
Nov. 29 (Bloomberg) -- Treasury Secretary Henry Paulson stepped off the elevator into the Third Avenue offices of hedge fund Eton Park Capital Management LP in Manhattan. It was July 21, 2008, and market fears were mounting. Four months earlier, Bear Stearns Cos. had sold itself for just $10 a share to JPMorgan Chase & Co.
Now, amid tumbling home prices and near-record foreclosures, attention was focused on a new source of contagion: Fannie Mae and Freddie Mac, which together had more than $5 trillion in mortgage-backed securities and other debt outstanding, Bloomberg Markets reports in its January issue.
Paulson had been pushing a plan in Congress to open lines of credit to the two struggling firms and to grant authority for the Treasury Department to buy equity in them. Yet he had told reporters on July 13 that the firms must remain shareholder owned and had testified at a Senate hearing two days later that giving the government new power to intervene made actual intervention improbable.
Try not to punch a hole in the wall after reading what comes next:
On the morning of July 21, before the Eton Park meeting, Paulson had spoken to New York Times reporters and editors, according to his Treasury Department schedule. A Times article the next day said the Federal Reserve and the Office of the Comptroller of the Currency were inspecting Fannie and Freddie's books and cited Paulson as saying he expected their examination would give a signal of confidence to the markets.
At the Eton Park meeting, he sent a different message, according to a fund manager who attended. Over sandwiches and pasta salad, he delivered that information to a group of men capable of profiting from any disclosure.
Around the conference room table were a dozen or so hedge- fund managers and other Wall Street executives -- at least five of them alumni of Goldman Sachs Group Inc., of which Paulson was chief executive officer and chairman from 1999 to 2006. In addition to Eton Park founder Eric Mindich, they included such boldface names as Lone Pine Capital LLC founder Stephen Mandel, Dinakar Singh of TPG-Axon Capital Management LP and Daniel Och of Och-Ziff Capital Management Group LLC.
After a perfunctory discussion of the market turmoil, the fund manager says, the discussion turned to Fannie Mae and Freddie Mac. Paulson said he had erred by not punishing Bear Stearns shareholders more severely. The secretary, then 62, went on to describe a possible scenario for placing Fannie and Freddie into “conservatorship” -- a government seizure designed to allow the firms to continue operations despite heavy losses in the mortgage markets.
Stock Wipeout
Paulson explained that under this scenario, the common stock of the two government-sponsored enterprises, or GSEs, would be effectively wiped out. So too would the various classes of preferred stock, he said.
The fund manager says he was shocked that Paulson would furnish such specific information -- to his mind, leaving little doubt that the Treasury Department would carry out the plan. The managers attending the meeting were thus given a choice opportunity to trade on that information.
Ron Paul has no choice but to run with this. We should see Congressional subpoenas, heated and desperate testimony, and, if we are really lucky, maybe some type of house arrest for this scumbag. Jail would be preferred but that's not how things work for Paulson's kind. What's funny is that there is a silver lining in all this. Those in the know already realize the Federal Reserve is a product of big banker privilege. This report, outraging as it is, isn't some new revelation on how the Fed and the revolving door between Wall Street and Washington works. It's just more proof of George Carlin's brilliant tirade. I only hope it opens a few more eyes to the absolute corruptibility that embodies power centers.
In less aggravating news, I just posted this over at LvMIC:
Canadian Finance Minister Jim Flaherty said on Sunday the government would eliminate tariffs on dozens more products used by Canadian manufacturers, aiming to lower their costs and encourage more hiring.The initiative would scrap custom duties on 70 items used by businesses in sectors such as food processing, furniture and transportation equipment. Flaherty, who estimated the tariff cuts would save Canadian businesses C$32 million ($30.5 million) a year, said the cuts were part of the Conservative government’s overall free trade policy. “We believe in free trade in Canada,” Flaherty said on CTV’s “Question Period” program. “Some of these old-fashioned tariffs get in the way. So we’re getting rid of them.”
Well this is certainly a step in the right direct. Despite the “we must stimulate exports through currency devaluation” dogma exhorted by classical mercantilists and mainstream Keynesians, exports can be stimulated in more effective ways than impoverishing those on fixed income with currency dilution. As M. Perry mentions, tariffs are essentially a tax on imported goods paid by all consumers. Reducing tariffs or duties is essentially the same as cutting taxes. Both leave more income in the hands of the productive private sector rather than the grubby mitts of the state. At the same time, productive inputs that a country imports often increase in cost due to tariffs and trade restrictions. So while tariffs restrict foreign competition domestically, they also increase the price of potential manufacturing inputs like capital goods that are produced cheaper abroad. Tariffs and duties are the product of isolationism and provide economic benefits for the few at the expense of the masses. Canadians should embrace Flaherty’s endorsement of free trade.
Good news for Canada, but bad news for Europe today (but great for inflationists!). Via Zerohedge:
As noted yesterday, the ECB had to sterilize €203.5 billion in cumulative bond purchases. Instead, it only got bids for €194.2 billion from a paltry 85 bidders. This means that for the first time, as shown on the chart below, the ratio of Bids to Bonds for Sterilization fell under 1. What is much worse, is that this happened on the day of the weekly 7-day MRO, during which a total of 192 banks took a combined €265.5 billion from the ECB's weekly 1.25% handout. The amount tops the 247 billion that 178 banks took last week and is the second week running that demand hit a new two-year high. In other words, despite demanding the most amount of money in 2 years, the banks were unable to flip all that cash and "sterilize" monetized paper. This is very bad news as it confirms that the SMP program is coming to a forceful close as banks withdraw in their shells and any further PIIGS bonds purchases will be no longer sterilized above some threshold level, somewhere in the high €100's, low €200 Bns. Whether this is the final straw that pushes the ECB to print outright remains to be seen: it is surely providing the needed dead cat bounce to the EURUSD as hopes that Draghi will finally do as the banks demand have once again resurfaced. (my emphasis)
I was watching CNBC for a few hours today and all the parrot talk was on whether or not the ECB is getting ready to print. This new development certainly isn't going to deter the Central Bank but almost nothing will at this point. It's only a matter of days now before Draghi joins Bernanke in the race to the bottom.
The following is a draft for the American Thinker ---------------------------------------------------------
Oh geez, here we go again. New York Times columnist and Democrat mouthpiece masquerading-as-an-economist Paul Krugman has penned a new plan on how the federal government can snatch up some more revenue. Per usual, Krugman is shaking his Princeton pom poms for an increase in tax rates. And guess which class of people he wants to raise taxes on? No, it isn't the 46% who don't pay a dime of income taxes. It's those monocle wearing, worker enslaving capitalists of course!
So why is Krugman in favor of raising taxes in a severe recession despite the objections from not only every major school of economic thought but also his idol John M. Keynes?
Nonetheless, at some point we’ll have to rein in budget deficits. And when we do, here’s a thought: How about making increased revenue an important part of the deal?
At some point? Excuse me if I'm just the least bit skeptical of Mr. "alien hoax’s” sincerity of genuinely wanting to make substantial cuts to the deficit; let alone the federal debt. Even so, no group is more ripe for tax plundering than the super rich as Krugman points the wallet snatchers known as the IRS in their direction.
Once upon a time America was a middle-class nation, in which the super-elite’s income was no big deal. But that was another country.
The I.R.S. reports that in 2007, that is, before the economic crisis, the top 0.1 percent of taxpayers — roughly speaking, people with annual incomes over $2 million — had a combined income of more than a trillion dollars. That’s a lot of money, and it wouldn’t be hard to devise taxes that would raise a significant amount of revenue from those super-high-income individuals.
You can almost picture the saliva dripping from Krugman's mouth when he types "a combined income of more than a trillion dollars." Even if Uncle Sam did the unthinkable and siphoned off another $1 trillion from the private, productive economy, that wouldn't even cover three fourths of the annual deficit in 2011. With the deficit set to continue its upward streak for decades to come, another $1 trillion injection into government coffers starts to lose its ripple effect within just a few years. At least Krugman, being a Nobel Laureate, recognizes that completely soaking the super rich would literally destroy economic progress reliant on capital accumulation. That's why he calls for a return to the 70% tax rate despite evidence that high income earners hardly ever paid such a grotesque rate:
For example, a recent report by the nonpartisan Tax Policy Center points out that before 1980 very-high-income individuals fell into tax brackets well above the 35 percent top rate that applies today. According to the center’s analysis, restoring those high-income brackets would have raised $78 billion in 2007, or more than half a percent of G.D.P. I’ve extrapolated that number using Congressional Budget Office projections, and what I get for the next decade is that high-income taxation could shave more than $1 trillion off the deficit.
The key phrase here is off the deficit. No mention of the federal debt. No mention of projected deficit increases. Just a fairy tale assumption that extra tax revenue won't be used by politicians to buy more votes. Next Krugman endorses what the puppet masters behind Occupy Wall Street, bankrolled by George Soros, have been dreaming of: a tax on all financial transactions known as the Tobin Tax:
And then there’s the idea of taxing financial transactions, which have exploded in recent decades. The economic value of all this trading is dubious at best.
Considering that humans act to fulfill ends, its quite a stretch for a Nobel Prize winning economist to claim that financial transactions have "dubious" economic value. Broken down, all these transactions are is the conveyance of information. The quicker market information is dispersed, the sooner productive assets and services are put into more efficient use. The impact from such a phenomena can't be calculated in lieu of it disappearing all together. If such transactions held no value, then why would traders utilize them in the first place? Krugman takes it a step further:
In fact, there’s considerable evidence suggesting that too much trading is going on. Still, nobody is proposing a punitive tax.
In typical Krugman style, he mentions evidence of a suspicious claim without actually citing it. What really constitutes "too much trading" and how can such a suggestion even be measured?And sorry Paul, all taxes are punitive no matter how much divinity you think blesses the halls of Congress.
But wouldn’t such a tax hurt economic growth? As I said, the evidence suggests not — if anything, it suggests that to the extent that taxing financial transactions reduces the volume of wheeling and dealing, that would be a good thing.
Talk about misinterpreting cause and effect. Krugman sees financial trading and the invention of instruments such as mortgage backed securities as another sector not yet completely wrapped in the patronizing leash of government regulators. He often regards these transactions as destructive while citing their contribution to the financial crisis. What Krugman deliberately avoids mentioning is that these instruments were a response to over regulation of an industry that is the lifeblood of capitalism.When regulators, drunk on their own authority, make profit seeking more difficult, alternative avenues of profitability are sought.Derivatives, mortgage backed securities, et al. were only the outcome of an overreaching government.In an effort to justify the taxes, Krugman mentions countries like Hong Kong and Singapore, which rank as more economically free than the U.S., already impose financial transaction taxes.What he really means is that despite these barriers on the free flow of information, Hong Kong and Singapore still have dynamic economies due to adopted free market measures.Don’t expect such an admission however as it flies in the face of the progressive narrative.
Another week, another Paul Krugman article trumpeting tax increases and demagoguing the rich.The man won’t rest till taxpayers are milked dry and the economy devolves back into serfdom.Heaven save us if Krugman’s policies are actually put into action.
--------------------------------------------------------------------- Last August, Bloombergnews revealed some uncovered details from its hard fought "right to know" request it launched against the Federal Reserve and its actions in the wake of the financial crisis. The $1.2 trillion bailout kept both U.S. and foreign banks from going through the unthinkable: actually facing the consequences of their financial losses.
Today, Bloomberg has revealed more information from the "right to know" request which suggests that taxpayers paid a bigger price than was originally let on. Somehow, I remain not at all surprised.
A fresh narrative of the financial crisis of 2007 to 2009 emerges from 29,000 pages of Fed documents obtained under the Freedom of Information Act and central bank records of more than 21,000 transactions. While Fed officials say that almost all of the loans were repaid and there have been no losses, details suggest taxpayers paid a price beyond dollars as the secret funding helped preserve a broken status quo and enabled the biggest banks to grow even bigger.
The size of the bailout came to light after Bloomberg LP, the parent of Bloomberg News, won a court case against the Fed and a group of the biggest U.S. banks called Clearing House Association LLC to force lending details into the open.
$7.77 Trillion
The amount of money the central bank parceled out was surprising even to Gary H. Stern, president of the Federal Reserve Bank of Minneapolis from 1985 to 2009, who says he “wasn’t aware of the magnitude.” It dwarfed the Treasury Department’s better-known $700 billion Troubled Asset Relief Program, or TARP. Add up guarantees and lending limits, and the Fed had committed $7.77 trillion as of March 2009 to rescuing the financial system, more than half the value of everything produced in the U.S. that year. “TARP at least had some strings attached,” says Brad Miller, a North Carolina Democrat on the House Financial Services Committee, referring to the program’s executive-pay ceiling. “With the Fed programs, there was nothing.”
This report comes on the heels of a Wall Street Journal piece that details how banking insiders are briefed on the Fed's upcoming policy manuevers before they are made public:
Hours after an Aug. 15 meeting with Federal Reserve Chairman Ben Bernanke in his office, Nancy Lazar made a hasty call to investor clients: The Fed was dusting off an obscure 1960s-era strategy known as Operation Twist.
The news pointed to a boom in long-term bonds. It was a good call. Over the next five weeks, prices on 10-year Treasury bonds soared, offering double-digit returns in an otherwise dismal year. By the time the Fed announced its $400 billion Operation Twist on Sept. 21, the window for quick profits had all but slammed shut.
Ms. Lazar is among a group of well-connected investors and analysts with access to top Federal Reserve officials who give them a chance at early clues to the central bank's next policy moves, according to interviews and hundreds of pages of documents obtained by The Wall Street Journal through open records searches. Ms. Lazar, an economist with International Strategy & Investment Group Inc., wouldn't comment for this article.
New York Federal Reserve Bank President William Dudley also meets regularly with investors, both in his office with individuals and in committee groups. The New York Fed, one of 12 regional banks that constitute the Federal Reserve System, has the strongest ties to investors because it conducts the Fed's bond-market transactions. Mr. Dudley, who also is vice chairman of the Federal Open Market Committee, which sets the nation's monetary policy, acknowledged the discussions could give the misperception that investors with access to Fed officials have an advantage.
Over the past two-and-a-half years, Mr. Dudley has had dozens of private meetings, according to his calendar, which lists SAC Capital Advisors, Citadel Investment Group, Duquesne Capital Management, and Tudor Investments, among others. Lloyd Blankfein, chief of Goldman Sachs Group Inc., and Mr. Fink, of BlackRock, also had private meetings, according to Mr. Dudley's calendar. These investors employ strategies tied to interest-rate policy and economic trends—making snippets of information as subtle as head nods and body language extremely valuable.
Just as Hayek taught, power centers attract the kind of people who are more than willing to exploit centralized authority for personal gain. Central Banks have always been a tool for insiders to gain an edge on competitors; we just have explicit proof now. With the Fed expected to purchase more mortgage backed securities in the first quarter of 2012, don't expect much protest from these reports.
In other news, it looks like Barney Frank is retiring from Congress. I can only assume he is going back to drug dealing and running a prostitution ring out of his apartment so I am more than happy to see him going back to making an honest living. And who could forget all his classic moments such as my favorite:
It often takes a great deal of courage to admit when you are just plain wrong. It takes an even greater amount of chutzpah to admit that you are wrong when your mistake has caused years of misery for millions and the true pain hasn't yet manifested itself. With that being said, it looks like the New York Federal Reserve Bank, the most powerful, government aided private bank in the world, has finally done it. They actually admitted what everyone has known for years: they were wrong when it came to the financial crisis! Via Simon Potter, the Executive Vice President and Director of Economic Research at the NY Fed, writing at the ironically named Liberty Street blog:
Looking through our briefing materials and other sources such as New York Fed staff reports reveals that the Bank’s economic research staff, like most other economists, were behind the curve as the financial crisis developed, even though many of our economists made important contributions to the understanding of the crisis. Three main failures in our real-time forecasting stand out:
Misunderstanding of the housing boom. Staff analysis of the increase in house prices did not find convincing evidence of overvaluation (see, for example, McCarthy and Peach [2004] and Himmelberg, Mayer, and Sinai [2005]). Thus, we downplayed the risk of a substantial fall in house prices. A robust approach would have put the bar much lower than convincing evidence.
A lack of analysis of the rapid growth of new forms of mortgage finance. Here the reliance on the assumption of efficient markets appears to have dulled our awareness of many of the risks building in financial markets in 2005-07. However, a March 2008 New York Fed staff report by Ashcraft and Schuermann provided a detailed analysis of how incentives were misaligned throughout the securitization process of subprime mortgages—meaning that the market was not functioning efficiently.
Insufficient weight given to the powerful adverse feedback loops between the financial system and the real economy. Despite a good understanding of the risk of a financial crisis from mid-2007 onward, we were unable to fully connect the dots to real activity until 2008. Eventually, by building on the insights of Adrian and Shin (2008), we gained a better grasp of the power of these feedback loops.
However, the biggest failure was the complacency resulting from the apparent ease of maintaining financial and economic stability during the Great Moderation.
Funny, there is no mention of former Fed Chairman Alan Greenspan's lowering of interest rates from 2001-2003. No mention of a literal collapse in money printing come the summer of 2008 after double digit growth just months before. Just a weak "we didn't see it coming but then again neither did anyone else" excuse put out on the inconspicuous time of 6pm on 11/5/2011 (Black Friday). Ilene of Zerohedge summed up the laughable post brilliantly:
The excuse that most other professional forecasters didn't foresee it is just that, an excuse. Some professional forecasters did see it. They were derided as Cassandras and dismissed by Wall Street and Fed insiders, who are only beholden to each other, and to their own delusions.
Millions of amateur economic forecasters who frequented the financial message boards and blogs saw what was happening and what was coming. They had one important advantage. They live in the real world, not inside the Beltway, not within the marble halls and equally hardened thought processes of the Fed, and not in the ivory towers of academia, a word which sounds like a disease, because it is a disease. Not only do these environments cause delusional thinking, they attract delusional people. The same is true of policy makers.
I call it elitist personality disorder. It leads to delusions of grandeur, delusions of omniscience and omnipotence, and the unwillingness to take responsibility for failure and incompetence, instead engaging in blame shifting.
Indeed, it would seem like Mr. Potter could take a few lessons from the many Austrian economists who predicted the crisis years before it hit. Perhaps then he would have a better understanding of the business cycle and how central banking causes it.
Gail Collins has an interesting piece out on Ron Paul today in the New York Times. While William Anderson over at the LRC blog has already adequately criticized her piece, I must say it isn't all that bad. Sure she brushes him off as a radical who *gasp* wants monetary freedom and a foreign policy of peace, but she makes a pleasant admission at the end:
Basically, Paul seems to want to revert to the 18th century, when every bank could set its own monetary policy and every community ran its own schools — presuming, of course, the community wanted to pay for them.
“The founders of this country were well educated, mostly by being home-schooled or taught in schools associated with a church,” he reasons. Those of us who were not born in the gentry could presumably go back to sowing and reaping hay.
Naturally, a man with such a wide range of pet peeves is going to make waves in his own party. “Chicken-hawks are individuals who dodged the draft when their numbers came up but who later became champions of senseless and undeclared wars when they were influencing foreign policy,” Paul writes in his chapter on conscription. “Former Vice President Cheney is the best example of this disgraceful behavior.”
Really, you can’t totally dislike the guy.
And the point is that while Paul is critical on the wolves in sheep clothing known as "limited government conservatives," you really do know what you are going to get with Paul. He has laid out his positions for decades and has only changed his view on one topic (the death penalty I believe). While Collins may find solace in praising a candidate who bucks against his own party, she is forever blind to the real meaning behind Paul's stances. Getting rid of things such as minimum wage and child labor laws don't take us back to the 18th century but actually bring us forward to an age where the rights of the individual are actually respected. It is mercantilism and labor regulations that are products of the past, not great steps toward the future those who believe in the divinity of government would have us believe.
The following is a draft for a Policymic.com article.
A few days ago, NATO warplanes attacked a village in the Kandahar, Afghanistan killing seven civilians including 6 children. The attack was due to "insurgent action" according to NATO. Days later, two army bases in Pakistan were attacked by NATO helicopters and warplanes because of an "incident" near the border. 28 Pakistani soldiers lost their lives. NATO claims to be launching investigations into these instances.
Is it just me or is America's foreign policy going to get me killed one day?
Nearly a century and a half ago, the United States engaged in its first experiment with imperialism. Only a mere two months after the end of the Civil War, a virtual war was launched against the Plains Indians at the behest of the powerful railroad lobby that had already been subsidized by the U.S. government in return for financing the Republican Party's campaign efforts. The military industrial complex was just as much alive back then as it is now. The campaign launched against the Plain Indians was brutal as thousands of villages were attacked under the orders to kill anyone and everyone.
Today, the same kind of blood lust dominates our foreign policy though in a subtler manner. The Republican presidential candidate debates are filled with calls for military action with Iran if they do the impossible: defy the wishes of the United States and U.N. Iran is labeled a rogue state while our foreign policy is responsible for deaths of thousands of civilians. Talk about the pot calling the kettle black.
It's almost as if our "leaders"really think that a half a century of meddling around in the affairs of sovereign nations shouldn't motivate anger or blow back toward us. As Texas Congressman and presidential candidate Ron Paul explained when it comes to collateral damage through drone strikes, “for every one (civilian) you kill, you create 10 new ones who hate our guts and want to do us harm."
Our foreign policy is not keeping us safe; in fact it's putting America in more danger. Despite the denial by those who find naive comfort in metaphorically wrapping themselves in the American flag; it was our interventionist policy that grew anti-U.S. sentiment prior to the 9/11 attacks. It was the fault of the generals and intelligence agencies that engaged in covert dictation through force and not "America's fault" as Bob Schieffer suggested. Even Michael Scheuer, former head of the CIA unit in charge of tracking Osama bin Laden, has acknowledged our presence in the Middle East motivates terrorism.
Meanwhile, those who speak out against perpetual warfare (no sugar coat-that's essentially what it is) are labeled as "isolationists" when nothing could be further from the truth. Supporting free trade and non interference with all nations is a policy of peace and cooperation. War is what distances countries from having working relations. Warmongering is not only the policy of isolationism but of undermining our safety.
I fear for the day when another attack motivated by aggressive foreign policy reaches our shores. Everyday brings reports of death and destruction brought about by U.S. or NATO conducted attacks. When it is revealed that young children are the casualty of our mindless efforts, it's heart wrenching to think that money I am forced to fork over partially funded their deaths. Actions have consequences and there will be blow black. Civil liberties will continue to be lost and the police state will grow to "protect" us. It will be incremental as to quell outrage as much as possible. If there is any doubt about the anger our foreign policy brings about, just consider how you would feel if armed troops from another country roamed U.S. streets and someone close to you lost their life due to collateral damage.
-------------------------------------------------------------- Needs a lot of work and not sure what direction I really want to go in with but it's a good start.
Sounds simple enough, right? All Ben Bernanke and the technocrats at the Federal Reserve need to do is simply leave the switch to the money-printer on "high" setting and watch prosperity flow as dollars engulf the world. Problem is, Bernanke is already printing at roughly a rate of 15% annually for the past 6 months. The Consumer Price Index, which was fixed in the late '90s to undervalue the inflation rate so much that PIMCO head Bill Gross famously called it "a haute con job," is already running at 3.5% for the year. A recent report from Mail Online out of the U.K. showed that Brits can save 50% on their Christmas shopping by hopping across the pond to the U.S. -- a clear sign of an ever-weakening dollar.
Romer, like many neo-Keynesians, is convinced that if inflation could just be ginned up a little more, we could all feed on a free economic lunch. Pesky things like speculative asset bubbles (housing, anyone?) don't concern her, despite the fact that newly created money always enters the economy through different sectors.
Another issue with "targeting NGDP" is what economist and Nobel laureate Friedrich Hayek called "The Pretense of Knowledge." Alan Greenspan famously dropped interest rates to historically low levels to fight the dot-com bubble burst he created with the same policies in the late '90s. This easy credit financed a housing bubble in turn. Greenspan was often labeled the "maestro" during his time as Fed head because of his supposedly wondrous skills at "guiding" the economy through interest rate manipulation. One deep recession later, and we can all see how apt a term that is now.
The idea behind targeting NGDP assumes that Bernanke, after failing to boost the economy for over three years, can somehow hit a target that's dictated by the actions of billions acting homogenously. Putting money in the hands of banks and individuals doesn't guarantee that said money is spent in a fashion to boost NGDP. As financial blogger Mike "Mish" Shedlock puts it, "[f]or starters the Fed cannot spend money, it can only lend it. Thus the Fed has at best an indirect affect on GDP." The real danger lies in the overshooting of a target which can lead to out-of-control inflation. To think that just a few men are capable of coordinating the independent spending habits of hundreds of millions is sheer idol-worshiping at the altar of governmental central planning.
The great Jim Rogers is out with another good interview/podcast. This time it's with China Money Podcast and it can be checked out by clicking on the link. Rogers goes on about why the Chinese stock market is going to stagnate and why the U.S. is headed for economic problems in a few years. He also mentions that the Renminbi stands a good chance of appreciating against the dollar if it becomes freely traded. This seems to be the general consensus among Austrian type investors who see potential for China after the inevitable bust that occurs.
Ready to have your head spin by reading some suggestions from a Cornell economics professor on why Black Friday is doing unconscionable damage to shoppers and workers? Well get ready because Robert Frank, writing in the New York Times, is going to fix society through the best coercive social engineering device around: taxation. First on the horrible pain and misery Black Friday brings to those chained-up slaves known as retail workers:
In recent years, large retail chains have been competing to be the first to open their doors on Black Friday. The race is driven by the theory that stores with the earliest start time capture the most buyers and make the most sales. For many years, stores opened at a reasonable hour. Then, some started opening at 5 a.m., prompting complaints from employees about having to go to sleep early on Thanksgiving and miss out on time with their families. But retailers ignored those complaints, because their earlier start time proved so successful in luring customers away from rival outlets.
Those rivals, of course, didn’t sit idly by. Their inevitable response was to open earlier themselves, restoring competitive balance. Other retailers began opening at 4 a.m., then 3 a.m., and, eventually, at midnight. Several malls have promoted “Moonlight Madness.” Last year Toys “R” Us opened at 10 p.m. on Thanksgiving. This year, Wal-Mart will do the same. The costs to store owners and their employees and families are enormous: millions must now spend time away from home on the one occasion that all Americans, regardless of religion or cultural background, share as a family holiday.
Amazingly, Frank has determined the time employees voluntarily give up time from their families in order to work is "enormous" in cost. No a priori deduction or explanation given. Just a brash assumption over interpersonal utility comparisons that are unmeasurable as numerical expressions. Next, Frank implies that no one likes Black Friday shopping and it is irrational that it exists:
These costs might be worth bearing if they led to even larger gains. But when all outlets open earlier, no one benefits. Few people actually want to shop in the wee hours, and the purchases that do occur then are presumably offset, dollar for dollar, by reduced sales during normal business hours. Even the shoppers who turn out for early openings seem motivated primarily by a fear that others might snap up bargains before they get there. But if all stores opened later, there would be no fewer bargains than before.
So let's get this straight, even though businesses and shoppers receive no benefits from Black Friday, they still go through the process like mindless cogs in a machine anyway? The core of Frank's objection to Black Friday comes from the business hours that now extend into Thanksgiving night. His solution?
Black Friday (or, more accurately, Black Thursday Night) is only hours away, so it’s too late to do anything about early openings this year. But we can start thinking about what can be done to protect our future Thanksgivings. Many societies employ “blue laws” — laws that mandate closing times, usually on Sundays. But there is a simpler, more flexible, way to approach this problem. Inspired by the 9-9-9 proposal of the Republican presidential contender Herman Cain, I call it the 6-6-6 plan — an across-the-board 6 percent national sales tax (on top of any existing state and local sales taxes) in effect from 6 p.m. on Thanksgiving to 6 a.m. on Black Friday. This plan would leave both stores and consumers free to decide for themselves whether middle-of-the-night shopping is worth it.
Oh yes, we must protect Thanksgiving above all else! How else will society survive?! So we must bring in the parasitic institution known as the state to get its grubby paws on another source of income as to socially engineer "good" behavior. Businesses and consumers will always be free to decide when they will shop; the difference with Frank's plan is that "plucking of the goose feathers" will be greater between "6 p.m. on Thanksgiving to 6 a.m. on Black Friday."
Even if some retailers decided to stick with the early openings and even if some shoppers showed up, the country would reap a significant benefit. As every mature adult realizes, we have to tax something, and the revenue from my 6-6-6 plan would make it possible to reduce taxes on other activities that are actually useful.
Translation: if retailers still want to reap the potential gains of their own property, my taxation scheme means the government will benefit off their back as well as consumers. As every child naively believes, legalized robbery must exist. I say my ironically named 6-6-6 plan will make it possible to reduce taxes but then again I think the government is run by angels and won't just squander the new revenue on another vote buying endeavor.
Despite Frank's best effort, he speaks only for himself and his own system of values by suggesting businesses and consumers should be taxed more as to spend Thanksgiving in a more meaningful way. Rather than let people freely decide if they want to engage in market transactions at any hour of the night, those who see society ripe for plundering will always zero in on potential thievery like Black Friday.
Gotta work some crazy hours today and tomorrow so another quick post. First, I apparently had an article over at the American Thinker last week but didn't realize it got published. Entitled "Insider Trading Is Fine - But Not in Congress" here is an excerpt:
Insider trading, which is essentially the quick disbursement of relevant market information by individuals closest to select industries, shouldn't be illegal by itself. This argument has been made numerous times by economists Murray Rothbard and John Tamny. This particular passage by Rothbard outlines the sheer absurdity of insider trading laws:
There is another critical aspect to the current Reign of Terror over Wall Street. Freedom of speech, and the right of privacy, particularly cherished possessions of man, have disappeared. Wall Streeters are literally afraid to talk to one another, because muttering over a martini that "Hey, Jim, it looks like XYZ will merge," or even, "Arbus is coming out soon with a hot new product," might well mean indictment, heavy fines, and jail terms. And where are the intrepid guardians of the First Amendment in all this? But of course, it is literally impossible to stamp out insider trading, or Wall Streeters talking to another, just as even the Soviet Union, with all its awesome powers of enforcement, has been unable to stamp out dissent or "black (free) market" currency trading.
Much to the dismay of those who regard government as the great equalizer in society, humanity is inherently unequal. Certain people have better access to information than do others. In the realm of a market economy, the faster industry information is shared, the sooner productive factors are designated to more efficient use. Our world of scarce resources necessitates the allotment of information as soon as possible.
The irrationality of insider trading prohibition can be thought about in another way. Suppose a stock trader overhears a conversation at a bar between two executives of, say, Apple. The executives are expecting a supply chain disruption of raw materials to a key manufacturing plant. This information is not public yet. Because of this "insider information," our stock trader decides against buying more shares of Apple. The next day, Apple stock tanks, and the stock trader isn't at a loss because he refrained from buying a stock he was initially going to purchase. Should he then be prosecuted? How does one prosecute non-action?
But though a case can be made for private-sector insider trading, the dynamics of congressional insider trading are drastically different. Congress members have unique access to information by the very fact that they dictate much of how the economy behaves and reacts to regulations and legislation. And, if you can imagine, congressional members have exempted themselves from prosecution for insider trading activity. How convenient.
One of the commenters said it was the stupidest article he ever read; a clear sign of my ever growing popularity. Some people just have a child-like faith in "public institutions" and supposed norms that they can't see the obvious when it is explained in a perfectly clear fashion to them.
I wrote a quick blog post on privatizing roads in Canada and Thanksgiving today at LvMIC entitled "You Say Toll Roads, I Say Privatize." Here is an excerpt:
Basic economics teaches us a few things; namely the idea that when a service is in higher demand, its price should rise. This reaction not only protects against shortages but incentivizes the use of substitutes. According to the poll, most Canadians recognize this problem and are seeking to rectify what they see as an over-use of highways. Admittedly, their logic is spot on when it comes to the issue of decreasing congestion by increasing the price of usage.
However, this simple economic phenomena isn’t so simple when it comes to “public” goods. As Kheiriddin notes:
So why do most politicians speed away at the very mention of road tolls? For the same reason they shun user fees for health care and decry parents’ topping up funding for public schools. These are all imagined to be universal goods — paid for by all and equally accessible to all, even if some citizens make greater use of them than others.
What she classifies as “universal” goods are really “public” goods. And the problem with “public” goods is that their costs aren’t always bared by those who make direct use of said goods. Since today happens to be Thanksgiving, it would help to bring up the lesson on socialism that many early American colonists had to learn the hard way. Though not mentioned nearly enough in the history curriculum of the U.S. public school system, the beginning years for the European settlers were anything but gravy (pardon the pun). As Richard J. Maybury wrote:
In his History of Plymouth Plantation, the governor of the colony, William Bradford, reported that the colonists went hungry for years, because they refused to work in the fields. They preferred instead to steal food. He says the colony was riddled with “corruption,” and with “confusion and discontent.” The crops were small because “much was stolen both by night and day, before it became scarce eatable.” In the harvest feasts of 1621 and 1622, “all had their hungry bellies filled,” but only briefly. The prevailing condition during those years was not the abundance the official story claims, it was famine and death. The first “Thanksgiving” was not so much a celebration as it was the last meal of condemned men.
So then how did the settlers finally obtain an abundant food supply? Capitalism of course!
After the poor harvest of 1622, writes Bradford, “they began to think how they might raise as much corn as they could, and obtain a better crop.” They began to question their form of economic organization.
This had required that “all profits & benefits that are got by trade, working, fishing, or any other means” were to be placed in the common stock of the colony, and that, “all such persons as are of this colony, are to have their meat, drink, apparel, and all provisions out of the common stock.” A person was to put into the common stock all he could, and take out only what he needed.
This “from each according to his ability, to each according to his need” was an early form of socialism, and it is why the Pilgrims were starving. Bradford writes that “young men that are most able and fit for labor and service” complained about being forced to “spend their time and strength to work for other men’s wives and children.” Also, “the strong, or man of parts, had no more in division of victuals and clothes, than he that was weak.” So the young and strong refused to work and the total amount of food produced was never adequate. To rectify this situation, in 1623 Bradford abolished socialism. He gave each household a parcel of land and told them they could keep what they produced, or trade it away as they saw fit. In other words, he replaced socialism with a free market, and that was the end of famines.
The solution to all cases of public goods wrought with overuse and declining quality is to establish a new system of ownership that deals with both problems: privatize it! Not only does private control enforce conservatism (what business sits idly by as its money generating asset declines in value?) but it also internalizes costs as a means to prevent overuse and free riders. This falls completely in line with Kheiriddin’s proposal:
Sorry folks, but at some point, the rubber will have to hit the road. On the highway, as in life, you get what you pay for — and if you use it, you should pick up part of the tab.
Not too bad considering I had to work overnight and wrote it after I got home at 7am. I wanna end by pointing out some pics of a modern day bank run in Latvia. Here is some background via Bloomberg Businessweek:
Nov. 23 (Bloomberg) -- Lithuanian prosecutors issued an arrest warrant for Vladimir Antonov and Raimondas Baranauskas who are former shareholders of Bankas Snoras AB.
Both men are suspected of embezzlement and document forgery, the Prosecutor General said in a statement on its website today. Baranauskas is also suspected of accounting fraud and abuse of authority, it said. Antonov’s spokeswoman, Natalja Olesik, couldn’t be reached on her mobile phone for a response to the allegations. Calls to Antonov’s U.K. and Latvian phone numbers were not answered.
The Baltic nation’s government took over Snoras on Nov. 16 after the central bank discovered at least 300 million euros ($402 million) in assets were missing. Latvia’s bank regulator suspended operations of Latvijas Krajbanka AS, the country’s sixth-biggest deposit bank which is owned by Snoras, on Nov. 21, saying 100 million lati ($190.7 million) was missing.
Depositors can withdraw 50 lati a day beginning today for the rest of the week, said Krumane at a press conference.
Deposits are insured for up to 100,000 euros and the total cost of paying out the insurance may be 350 million lati, which will be covered by the 149 million lati in the deposit insurance fund and borrowing, said Krumane.
Snoras Bank resumed cash withdrawal operations at three of its offices today. Customers can withdraw 500 litai per day.(my emphasis)
Of course under a fractional reserve banking system, such withdraws have a chance of collapsing the system hence the limit on the amount able to be withdrawn. As I wrote about already, there is a slow movement in Greece to withdraw money from the banks which will most likely bring about a bank holiday declaration. I am shopping around an article right now on the subject and I hope to find a buyer soon before it actually happens.
Had to work eight hours this morning (2 am-10:30 am) and have to work 10 pm to 4: 30 am tonight so no real post today but just mentioning the article I had in the Press and Journal today entitled "Bad Theory Hurts Our Recovery." An excerpt:
Heise’s claim that cuts in government spending won’t lead to growth flies in the face of actual history. In the Depression of 1920 (betcha don’t remember this one brought up in school) unemployment hit 12 percent and GNP fell 17 percent. Yet President Harding slashed income tax rates, cut the government almost in half within two years, and the national debt was reduced by a third.
The Federal Reserve’s intervention was “hardly noticeable” according to historian Tom Woods. What followed would be classified as an economic miracle by today’s standards as unemployment fell to 2.4 percent in 1923. The market had effectively been allowed to clear without Washington, still not the full-blown leviathan created in the New Deal, coming to the rescue.
The same impact was seen after World War II when wage and price controls were removed and government spending was cut by as much as 40 percent in one year and the economy boomed thereafter. Funny how freedom works.
While Heise is correct in that we live in a country run by corporations that engage in a highly militaristic foreign policy, he naively blames Republicans only. News flash: Both parties are as corrupt as a Chicago election.
In a true free market, corporations only obtain their power and influence from providing goods to consenting consumers. As long as Uncle Sam has the printing press, war can be fought in perpetuity. The institution of government, which exercises a monopoly of force and coercion over a given geographical area provides all the enticements for Wall Street and big business to buddy up with. Out comes a regulatory state so riddled in mandates and restrictions that small start-up companies can’t compete.
Let me first say that when it comes to financial commentators, Caroline Baum is easily near the top of my list. Not only does she succinctly outline the workings of monetary policy and the disastrous consequences it can have on the economy but she does it with a prose so pointed and entertaining that it pains me to be critical of her work. However, something really stuck out in her BloombergBusinessweek column today. On where to place blame regarding U.S. Congress' supercommittee failure to reach a deal on deficit reduction she goes to the whipping boy of tax reformers known as tax breaks:
Blame Grover Norquist. The president of Americans for Tax Reform, a taxpayer advocacy group, asks elected officials to sign a pledge that commits them to never raise taxes on anyone. The pledge has 279 signatories, almost all Republicans, in the 112th Congress.
Norquist views the elimination of tax breaks as a tax increase. That’s nonsense. A tax break for one industry or interest group, without a revenue offset, means a bigger deficit. That’s why such breaks are called “tax expenditures.” They’re government spending by another name.
Besides, when Congress writes an exemption or deduction into the tax code, unless it cuts spending (see definition of real cut, above), eventually someone else’s taxes go up. Where was Norquist’s pledge when an estimated $1.1 trillion of annual tax expenditures was created?
Now Ms. Baum is correct in that a tax break not offset by a cut in spending results in an increase in the deficit. And of course government spending is always a tax as the debt must be paid off eventually (at least in theory). But she is ultimately wrong to blame tax breaks for exacerbating the federal debt when it is really spending that is the key issue. Tax breaks and loopholes are only the private sector's way of retrieving an ability lost: to operate without the barrel of government pointed and standing by to confiscate income upon profit. Mises spoke on tax loopholes over six decades ago:
Many people object [to tax loopholes]. They stress the fact that most of the laws which aim at planning or at expropriation by means of progressive taxation have left some loopholes which offer to private enterprise a margin within which it can go on. That such loopholes still exist and that thanks to them this country is still a free country is certainly true. But this loopholes capitalism is not a lasting system. It is a respite. Powerful forces are at work to close these loopholes. From day to day the field in which private enterprise is free to operate is narrowed down.
Many writers denounce tax exemptions and levy their fire at the tax-exempt, particularly those instrumental in obtaining the exemptions for themselves. These writers include those advocates of the free market who treat a tax exemption as a special privilege and attack it as equivalent to a subsidy and therefore inconsistent with the free market. Yet an exemption from taxation or any other burden is notequivalent to a subsidy. There is a key difference. In the latter case a man is receiving a special grant of privilege wrested from his fellow men; in the former he is escaping a burden imposed on other men. Whereas the one is done at the expense of his fellow men, the other is not. For in the former case, the grantee is participating in the acquisition of loot; in the latter, he escapes payment of tribute to the looters. To blame him for escaping is equivalent to blaming the slave for fleeing his master.
It is clear that if a certain burden is unjust, blame should be levied, not on the man who escapes the burden, but on the man or men who impose it in the first place. If a tax is in fact unjust, and some are exempt from it, the hue and cry should not be to extend the tax to everyone, but on the contrary to extend the exemption to everyone.
Caroline Baum has provided some of the most eloquent yet forceful defenses of free market capitalism throughout her years as a commentator. That's why it's a shame to see her attacking tax breaks which are one of the last defenses business has in not having its hard earned income confiscated. Not only should tax breaks be defended, they should be increased and extended to everyone as Rothbard notes. The problem isn't the slave looking to lighten the pain of the whiplash but the whip bearer itself known as the state.
I was asked to write a post on a recent article advocating for toll roads up in Canada. I just want to draft some ideas really quick on why "public" roads are so poorly maintained:
The key thing to remember about "public" goods such as roads is that their shortcomings in maintenance and quality is due primarily to the fact that they are "public." Private ownership necessitates conservation as to maintain value. Human action is unpredictable but doesn't tend toward self destruction in terms of maintaining cash flow. The pollution of communist China is testament to the "tragedy of commons" which dominates all public property.
The number one question I have encountered in advocating for a privatized road system is "what would it look like?" The truth is that's impossible to conceive what a road system would work under complete private ownership. Twenty years ago, Joe Public couldn't have imagined that in just a few years he would have access to the internet and have an abundance of information literally at his fingertips. There is just no telling what entrepreneurship will bring to building roads. For all we know, it could resemble something out of futuristic novel.
Unnecessarily strict rules for employing paid duty police officers are costing Toronto taxpayers as much as $2 million each year, a city audit has found.
The official findings won’t be released for weeks, but a draft copy obtained by the Star recommends reviewing some “debatable” permit criteria, particularly for road work.
“When construction takes place close to a signalized intersection, there are certainly situations where a paid duty officer would be needed to direct traffic,” the report says. “However, there are also situations where the use of warning signs, barriers and other devices … would be sufficient.”
The auditor’s findings mirror those of a December 2009 Star investigation that found private companies, taxpayers and community groups were forced to waste millions of dollars hiring paid duty officers for jobs that could be done by crossing guards or even pylons.
------------------------------------------------------- I will work on it a bit tomorrow but my time is really limited this week due to black Friday coming up.
I wanna end by pointing out this great video of Ron Paul dealing with a bunch of Occupy Wall Streeters who caused a small situation at one of his speeches: He is forever a gentleman.
Color me a shade of unsurprised blue. Financial oligarch and big government buddy George Soros is out with another plan to save the EU. Rather than rely on the forced but subtle nationalization of the banks by euro governments, Soros goes right for the money printer. Via Financial Times:
Since the Soros plan would take some time to prepare, in the interim the ECB is left to deal with a rapidly deteriorating situation on its own. On Monday the Bundesbank’s president questioned the right of the ECB to act as a lender of last resort. On Tuesday contagion spread to the rest of the eurozone. The financial markets are testing the ECB and want to find out what it is allowed to do. It is imperative that the ECB should not fail that test. The central bank must stop the bond run at all costs because it is endangering the stability of the single currency. The best way to do it in the near term is to impose a ceiling on the yield of sovereign bonds issued by governments that follow responsible fiscal policies and are not subject to adjustment programmes. The ceiling could be initially fixed, at say 5 per cent, and lowered gradually as conditions permit. By standing ready to buy unlimited amounts the ECB would effectively turn the interest rate ceiling into a floor from which bond prices would gradually rise without the ECB actually having to buy unlimited amounts.
So as the bond vigilantes become increasing wary of euro politicians to, well, stop being politicians, the European Central Bank must continually enter into the market to suppress bond yields. This is already occurring of course but just not at the rate or size Soros wants to see. I tackled the so-called "Soros plan" over at the American Thinker a few weeks back:
So let's sum it up: if the undercapitalized banks want to be shored up by corrupt politicians giving away taxpayer money, then they become wards of the state. If they take the deal and refuse to play along, then they really become wards of the state. That way the banks are recapitalized to fund the paying down of the debt of Euro governments in order to shore up the banks so the banks fund the paying down of the debt of Euro governments to shore up the banks...oh, and the ECB inflates to help the process (merry-go-round) along. This can all start after Greece goes into a controlled default, where bondholders are protected against massive losses, of course.
Soros falls back on what all central bank apologists inevitably resort to in times of fiscal emergencies: more money printing. The Cantillion effects of new money entering the economy and altering relative prices compared to others while distorting the structure of production goes unacknowledged as it so often does by Soros and his peers. Expect more calls for intervention as the euro crisis continues.
Meanwhile, David Zervos of Jefferies is calling for the Fed to start printing for Europe. Someday these guys are gonna realize their stomach is completely empty from all the "free lunches" that don't exist. And it won't be a pretty sight.
The following is a draft for the American Thinker:
The Problem with NGDP Targeting
The monetary policy of targeting National Gross Domestic Product has started to become vogue in many economic and political circles. Christina Romer, the architect behind President Obama’s first stimulus failure and professor of economics at the ideology vacuum known as the University of California, Berkley, recenlty penned a New York Times editorial outlining the issue:
Mr. Bernanke needs to steal a page from the Volcker playbook. To forcefully tackle the unemployment problem, he needs to set a new policy framework — in this case, to begin targeting the path of nominal gross domestic product.
Nominal G.D.P. is just a technical term for the dollar value of everything we produce. It is total output (real G.D.P.) times the current prices we pay. Adopting this target would mean that the Fed is making a commitment to keep nominal G.D.P. on a sensible path.
More specifically, normal output growth for our economy is about 2 1/2 percent a year, and the Fed believes that 2 percent inflation is appropriate. So a reasonable target for nominal G.D.P. growth is around 4 1/2 percent.
Sounds simple enough right? All Ben Bernanke and his technocrats at the Federal Reserve need to do is simply leave the switch on the dollar printer on its “high” setting and watch prosperity flow as dollars engulf the world. Problem is, Bernanke is already printing at roughly a 15% annually for the past 6 months. A recent report from Mail Online out of the U.K. showed that Brits can save 50% on their Christmas shopping by hopping across the pond to the U.S.
Romer, like many Neo-Keynesians, is convinced that if inflation could just be ginned up a little more, we could all feed on a free economic lunch. Pesky things like asset bubbles (housing anyone?) don’t concern Romer despite the fact that newly created money always enters the economy through different sectors.
Another issue with “targeting NGDP” is what economist and Nobel laureate Fredriech Hayek called “The Pretense of Knowledge.” Alan Greenspan famously dropped interest rates to historically low levels to fight the dot-cum bubble burst he created with his low interest rate policies in the late 90’s. This easy credit financed a housing bubble in turn. Greenspan was often labeled the “Maestro” because of his supposedly wondrous skills at finessing the economy through his central planning of interest rates. We can all see how that worked out.
The idea behind targeting NGDP assumes that Bernanke, after failing to boost the economy for over three years, can somehow hit a target which the actions of billions determine. Putting money in the hands of banks and individuals doesn’t guarantee that money is spent in a way to boost NGDP. As financial blogger Mike “Mish” Shedlock puts it, “For starters the Fed cannot spend money, it can only lend it. Thus the Fed has at best an indirect affect on GDP.” The real danger lies in the overshooting of a target which can to lead to out of control inflation. To think that just a few men are capable of coordinating the independent spending habits of billions is sheer idol worshipping at the tome of governmental central planning.
In the end, businessmen and entrepreneurs don’t keep their eyes on what potential National Gross Domestic Product could be. The owner of my preferred local pizza hut isn’t scanning national economic statistics to see if NGDP has a possibility of hitting 5% a year from now. He monitors of number of factors like input prices, output prices, tax rates, regulations, and profitability potential. There are other, more accurate measures to calculate such factors outside a statistic so grossly simplified that its only use is parade fodder by politicians who think they save the world by spending other people's money.
Targeting NGDP is just an excuse for the only real tool the Federal Reserve has in its belt: inflation. After an unprecedented increase in the monetary base in response to the financial crisis, it’s hard to believe that more money printing is the answer. All it accomplished was the illusion of prosperity by the stock market and increased food and gas prices.
If further impoverishing the middle and lower class is the Keynesian agenda, consider it fulfilled. NGDP targeting will just be more of the same as it sets the stage for another economic bust.
---------------------------------------------------------------------------- Still needs a bit of work but it's getting there.
I also want to point out a post I just did over at LvMIC on the looming Canadian housing bubble.
Update- Ron Paul's best "debate" (not sure if forums count as debates) performance to date: See what happens when the guy gets to talk in more than 30 second bursts?
“I have directed Secretary Connally to suspend temporarily the convertibility of the American dollar except in amounts and conditions determined to be in the interest of monetary stability and in the best interests of the United States.… The effect of this action, in other words, will be to stabilize the dollar."
With these words, President Richard Nixon took a scalpel to the notion that the state can ever be trusted with a redeemable money supply.While Americans had been thieved decades earlier under Franklin Roosevelt’s Executive Order 6102, Nixon’s hoodwink of the international community was one for the history books.It was the final goal of Leviathan’s relentless pursuit of controlling all that is monetary.The result has been the dollar’s loss of 82% in terms of purchase power with a federal bureaucracy sucking about $4 trillion every year from the private sector to boot.
It's hard to keep track of the volatility of idiocy coming from the Eurozone these days. Each new announcement of a deal suppresses bond yields for a day or two till it all unravels when its revealed that the deal was a farce. This goes back and forth as the entire region is working its way to either a separation or a complete fiscal and monetary union. Supposedly, Germany has already begun working behind the scenes to draft a plan for a true one-country solution. Via The Telegraph:
Angela Merkel, the German chancellor, is today expected to tell David Cameron that Britain does not need a referendum on EU treaty changes, despite demands from senior Conservatives for more powers to be repatriated to Britain.
The leaked memo, written by the German foreign office, discloses radical plans for an intrusive new European body that will be able to take over the economies of beleaguered eurozone countries.
It discloses that the EU’s largest economy is also preparing for other European countries, which are too large to be bailed out, to default on their debts — effectively going bankrupt. It will prompt fears that German plans to deal with the eurozone crisis involve an erosion of national sovereignty that could pave the way for a European “super state” with its own tax and spending plans set in Brussels.
To paraphrase the great Albert Jay Nock, whenever government intervention cause unforeseen consequences, the immediate response by those in the media and academia is to make the case for further intervention. There is hardly a call for a more hands-off policy. This wholly reactionary appeal for further centralization of power and control isn't surprising as it's the prime motivator for a state. The great unwashed are incapable of ruling themselves so its up to the benevolence of elected leaders to guide them through life. New York Times token conservative David Brooks made a startling revelation on the origins of the European Union in a recent article:
Then there was the elitism. Off the record, Europe’s technocrats would say the most blatantly condescending things: History had taught them that Europe’s peoples were not to be trusted and government should be run from the top by people like themselves.
With such a rich history of power grabs and exploitation, the citizens of Greece as well as the whole of the Eurozone should prepare themselves for what could be another wealth confiscation. Inflationary policies that enrich the elite banker class at the expense of the lower and middle class are one thing as they cause Cantillion effects which distort the whole of the economy. Direct thievery is another and it shouldn't be disregarded but prepared for. In fact, the people of Greece appear to be preparing themselves already. As I pointed out earlier, and emerging barter economy has already developed. Via Mish, there is evidence of a movement to slowly withdraw funds from banks before a possible abandonment of the euro and reimposing of the drachma:
In the end, there is one simple question to ask. Would you rather trust your money in your hands or the hands of the politicians and bankers who created the disaster to begin with? The answer should be obvious.
I also want to point out a great BBC interview with Kyle Bass where he brilliant defends his use of credit default swaps and becoming rich by betting against the housing bubble. Despite the hostile interviewer, Bass handles himself quite well and makes the moral and ethical case for hedging oneself against destructive government and central bank policies. The interview is highly recommended and has plenty of quotable lines.
