Friday, October 31, 2014

Bank of Japan Puts Money Printing on Steroids

Almost always, a central bank will opt for more money printing when economic data show sluggishness, unless they fear an eminent threat of creating significantly elevated price inflation. Overnight, the Bank of Japan announced steps in line with this rule.

The BOJ stunned investors by expanding its ultra-aggressive monetary easing program, saying that a combination of weak demand and a lower oil price meant that more action was needed to banish “a deflationary mindset,” though there is no indication of a "deflation mindset" (putting aside the fact that deflation is not a problem for an economy) .

The Japanese central bank said it would step up its asset purchases so that the monetary base expanded at an annual pace of Y80tn ($724bn), rather than Y60-70tn as in the past.

PMI = purchasing managers index

(Charts via Krugman)

WOW The Insiders Act: The Account Of Swiss Gold Initiative Organization Has Been Frozen

I just wrote yesterday that the Establishment will do everything they can to stop the Swiss Gold Referendum to pass (SEE: Expect Attacks on Gold as the Swiss Gold Referendum Vote Approaches), but I didn't expect reporting this so quickly as a follow up.

Paypal has frozen the funds of an organization where donations could be made to support the campaign to get the referendum passed.

 Egon von Greyerz, who is founder of Matterhorn Asset Management out of Switzerland reports:
I have been involved in the Swiss Gold Initiative.  The Swiss National Bank is opposing this initiative.  They have admitted that it stops their ability to manipulate markets.  The campaign is going well.  The public has generously donated because of KWN and other sites.  But that came to a stop two days ago when Paypal closed the account for donations and they froze the funds that were in that account without any warning.
So unfortunately the campaign cannot receive some of those donations which were just frozen.  Paypal will not even answer the questions we are asking them, but I assume the money will be returned to the donors.  Clearly the powers that be did not want the campaign to receive this money.  We will keep on fighting for this campaign because gold will always have an advantage over worthless printed pieces of paper that governments and central banks create at will in order to manipulate markets.

Thursday, October 30, 2014

Expect Attacks on Gold as the Swiss Gold Referendum Vote Approaches

So Alan Greenspan says. "Buy gold,"  (SEE:HOT Alan Greenspan Says BUY GOLD)  and the gold and silver prices come crashing down. Gold closed down today to $1199.00 per ounce a decline of $26.00(2.11%) and silver closed at $16.45 per ounce, a drop of 81 cents or 4.72%.

Is the Plunge Protection Team at work?

Former Plunge Protection member, Pippa Malmgren has publicly stated that

Longstanding San Francisco's Luna Park Restaurant to Close Because of Higher Minimum Wage

From the SF Eater:
Longstanding Valencia Street hip-casual dinner-and-a-cocktail spot Luna Park will close by the end of the year, the restaurant's owner AJ Gilbert told Uptown Almanac over the weekend. According to Gilbert, the popular brunch spot with the whimsical early-aughts flair, is closing due to an expected increase in labor costs that will come along a $15 minimum wage in San Francisco. Although the minimum wage bill doesn't actually go before voters until election day next week, Gilbert believes it is a sure-thing.

Joseph Salerno on Hyperinflation

Presented at "Inflation: Causes, Consequences, and Cure": a seminar for high school and college students. Hosted at the Mises Institute in Auburn, Alabama, on 11 April 2014. Includes an introduction by Jeff Deist.

Bloomberg Business Week Goes Full Keynesian

The story includes this gem:
There is a doctor in the house, and his prescriptions are more relevant than ever. True, he’s been dead since 1946. But even in the past tense, the British economist, investor, and civil servant John Maynard Keynes has more to teach us about how to save the global economy than an army of modern Ph.D.s equipped with models of dynamic stochastic general equilibrium. The symptoms of the Great Depression that he correctly diagnosed are back, though fortunately on a smaller scale: chronic unemployment, deflation, currency wars, and beggar-thy-neighbor economic policies.

What great timing for the new LibertyClassroom course: John Maynard Keynes: His System and Its Fallacies.

The course is taught by

How Much Income Puts You in the Top 1 Percent of Your Age Group If You're 30? 40? 50?

The richest percentile of Americans makes many hundreds of thousands of dollars a year. So how could a $135,000 salary make you a one-percenter? If you're 31 or younger, that figure puts you ahead of 99 percent of your age group, writes The Atlantic.

To determine what salary you'd have to earn at every age to stay in the top percentile—or even in the top 0.1 percent—here's your at-a-glance chart, from data shared by Fatih Guvenen and Greg Kaplan with The Atlantic. (The median age of both 1 percenters and 0.1 percenters is in the upper 40s.)

This chart partially explains why the 1 percent is such a fluid club (about half of the top 1 percent flips over every year.) To stay in the top percentile, a 30-year-old earning $130,000 in 2010 would have to raise her salary by $80,000 by 35, and then another $70,000 before she turned 45.

Inequality Does Not Reduce Prosperity

By Scott Winship

Since the Great Recession, inequality has loomed large in policy debates in the United States and around the world. Losses from the recession and the slow pace of recovery since have fueled concerns that inequality is not simply unfair but harmful. It is now commonplace to see claims that high and rising inequality levels have held back or worsened living standards among the poor and the middle class, a theme of Thomas Piketty’s best-selling Capital in the Twenty-First Century.

Such concerns may nevertheless be misplaced. The prospect of vast economic returns might, for instance, incentivize more innovation and investment, producing stronger economic growth and higher incomes even among those who do not amass fortunes. By rewarding work and human capital investment, inequality between the upper middle class and the poor could also promote stronger earnings growth for everyone over time.

Read the rest here.

San Francisco Bay Area Venture Capital Investments, Gentrification and the New Nature of Jobs

Kim-Mai Cutler writes at Tech Crunch:
Why is the tech industry migrating to cities anyway?

HOT Alan Greenspan Says BUY GOLD

Alan Greenspan: "Buy gold."

Michael Derby at WSJ reports:
The question of when officials should begin raising interest rates is “one of those questions I cannot answer,” Mr. Greenspan said.

He also said, “I don’t think it’s possible” for the Fed to end its easy-money policies in a trouble-free manner.

“We’ve never had any experience with anything like this, so I’m not going to sit here and tell you exactly how it’s going to come out,” Mr. Greenspan said. But he noted that markets often react to changes in central bank policy unpredictably and not entirely rationally. Recent episodes in which Fed officials hinted at a shift toward higher interest rates have unleashed significant volatility in markets, so there is no reason to suspect that the actual process of boosting rates would be any different, Mr. Greenspan said.

He said the Fed may not even have that much power over the timing of interest-rate increases. The problem as he sees it is an interest rate the Fed pays on the money banks park at the central bank, called reserves. Fed officials plan to use this tool as their primary lever for raising interest rates when the time comes. If bankers decide to put this money to work, creating inflation risks, the Fed may be forced to raise rates, even if the economy isn't ready for it, he warned.

“I think that real pressure is going to occur not by the initiation by the Federal Reserve, but by the markets themselves,” Mr. Greenspan he said.

Mr. Greenspan said gold is a good place to put money these days given its value as a currency outside of the policies conducted by governments.
Greenspan has it correct, the reaction to the Federal Reserve low interest rate policy will not be controlled by the Fed. Markets will move on their own. It is not going to be pretty and with Greenspan advising buying gold, it is clear he knows that part of the market reaction is going to be soaring price inflation.

BTW: This is a very serious but subtle attack on both Ben Bernanke and Janet Yellen monetary policy.

If you are a former Fed chair and you are advising that gold be bought, you are not suggesting that monetary policy is being handled in a competent manner.

Overall. this is the most sound analysis I have seem from the former Fed chairman. Murray Rothbard was right, they only speak truth once they are out of power.

(ht  Nick Badalamenti)

While the Feds Won’t Confiscate Your Retirement Plan… They Will Do This

By Nark Nestmann

Over the last few weeks, I’ve had close to 30 consultations with Nestmann Group clients. And one of their top concerns is that Barack Obama or some future US president will find a way to confiscate the money in their IRAs or 401(k) plans.

It’s not going to happen. Now, I know that’s not what you’re reading from some of my colleagues covering the wealth preservation and asset protection beat.

What’s more, if I’m wrong and the government does confiscate retirement plans or requires them to make mandatory investments (e.g., in long-term government bonds, etc.), the solution some of my colleagues have suggested won’t protect the assets in your plan.

It’s All About Politics

More than 11 million Americans have IRAs. The average balance, according to a recent study by Fidelity Investments, is about $89,000. That amounts to about $1 trillion in money parked away for retirement.

Even more popular than IRAs are 401(k) plans. About 52 million Americans have them, with an average balance of around $86,000. That amounts to about $4.4 trillion.

Could President Obama sign an executive order tomorrow demanding that every dollar in these plans be sent to the US Treasury to pay down the US government’s $18 trillion debt?

Yes, he could. There are all kinds of laws and precedents he could invoke to justify an outright confiscation.

But it’s extremely unlikely that he will. The 63 million Americans with assets in these plans obviously would be outraged by an outright confiscation of their assets. And there’s absolutely no doubt they’d make their displeasure known in the streets and the halls of Congress. Simply put, if Obama or any other president tried this gambit, he’d be impeached in a matter of days or weeks.

What Will Happen

That’s not to say that Congress and the president wouldn’t like to confiscate your retirement funds. They’d do it in a heartbeat if they could find a way to do so without enraging 63 million voters.

What they’re doing now, though, is

Wednesday, October 29, 2014

How Israel Kirzner's Theory of the Entrepreneur Blows Brad Delong Out of the Water

Brad DeLong has a complex and generally uninteresting lefty West Coast-style post out defending former lefty West Coaster, now East Coast money printer, Janet Yellen, for her speech where she discussed the pet lefty  politically correct "problem"  of "inequality."

I don't want to discuss the entire post, but DeLong does write this, which I do want to focus on:
What I and everybody else in the economics community outside of Washington DC see as a fair-minded review of the issues surrounding how parental resources impact opportunity,
Although parental resources may present different types of opportunities. It is simply wrong to suggest that opportunities don't exist in poorer neighborhoods where, indeed, most parents are likely poorer.

One simple example of the differences in opportunities, though far from the only, is the fact that many athletes from basketball players to football players to boxers come from poor neighborhoods.

It is really difficult to expect that a Jewish kid growing up surrounded by wealth is going to, for example, pursue a career in boxing and turn into the next Mike Tyson or Macho Camacho. To be sure, there may be outliers, but the average wealthy kid is going to be too soft to play against a kid from the hood.

Once an ethnic group climbs out of poverty, their exposure to the environment that breeds the physical toughness is gone, and thus you see much less of them in sports, especially the most physically challenging sports. There are no  Jake LaMotta's and Maxie Berger's in boxing anymore.

I use sports as only one example, for sure there are many other obvious examples, including music, acting and comedy, where the poor environment helps brew huge opportunity.

I believe the opportunities for success in these environments goes well beyond these obvious examples. But it is the coddling of the left by the poor,which prevents many to look for and seek out the opportunities which are there. They are told the system is screwing them and that there is nothing they can do about it.  There entrepreneurial spirit is squashed.

For sure, government regulations cut off many opportunities but there are generally ways around such barriers. The real killer for the poor is the lefty chant that the poor are helpless. And this is where Austrian school economist Israel Kirzner's observations about entrepreneurship are so valuable (SEE:Austrian School Economist Named as Possible Nobel Prize Recipient) . Specifically, his observation that one does not need capital, but only know how to get access to capital, to be an entrepreneur, removes the false barrier put up by lefties, and many others, that entrepreneurial success can not be achieved without rich parents or already held capital.

Kirzner's observation, that personally owned capital in not a requirement of an entrepreneur, is a nuclear bomb on the lefty thinking that if you don't have a rich daddy you are screwed.

Why are Lefty Cities so Unaffordable?

Lefty cities seem to have the worst affordability crises, according to Trulia chief economist Jed Kolko.

Derek Thompson at The Atlantic has more:
Kolko's theory isn't an outlier. There is a deep literature tying liberal residents to illiberal housing policies that create affordability crunches for the middle class. In 2010, UCLA economist Matthew Kahn published a study of California cities, which found that liberal metros issued fewer new housing permits. The correlation held over time: As California cities became more liberal, he said, they built fewer homes.

"All homeowners have an incentive to stop new housing," Kahn told me, "because if developers build too many homes, prices fall, and housing is many families' main asset. But in cities with many Democrats and Green Party members, environmental concerns might also be a factor. The movement might be too eager to preserve the past...

I asked Kahn if he had a pet theory for why liberals, who tend to be vocal about income inequality, would be more averse to new housing development, which would help lower-income families. He suggested that it could be the result of good intentions gone bad.

"Developers pursue their own self-interest," Kahn said. "If a developer has an acre, and he thinks it should be a shopping mall, he won't think about neighborhood charm, or historic continuity. Liberals might say that the developer acting in his own self-interest ignores certain externalities, and they'll apply restrictions. But these restrictions [e.g. historic preservation, environmental preservation, and height ceilings] add up, across a city, even if they’re well-intentioned. The affordability issue will rear its head."

Nobel Winner Jean Tirole’s Faulty Views on Monopoly

By Frank Shostak
Frenchman Jean Tirole of the University of Toulouse won the 2014 Nobel Prize in Economic Sciences for devising methods to improve regulation of industries dominated by a few large firms. According to Tirole, large firms undermine the efficient functioning of the market economy by being able to influence the prices and the quantity of products.
Consequently, this undermines the well being of individuals in the economy. On this way of thinking the inefficiency emerges as a result of the deviation from the ideal state of the market as depicted by the “perfect competition” framework.
The “Perfect Competition” Model
In the world of perfect competition a market is characterized by the following features:

Documentary on Economist Walter E. Williams

The documentary is now being aired on public television channels. Be sure to watch the preview which includes a segment on how Williams followed orders in the army.

The clip is here.

The Fed Releases Monetary Policy Statement

Following a regular two-day meeting of the Federal Reserve Open Market Committee, the Fed as expected issued a statement announcing that its fed funds target rate remains at a range of zero to 0.25 percent and  that its bond purchases programs have ended this month. There was one dissent today from Minneapolis Fed president Kocherlakota who preferred to keep the current level of quantitative easing.

Below is the entire Fed statement:

Who Do Young Adults Live With? Spouses Are Out Cohabitation is In

The share of young adults 18 to 34 living with a spouse has plunged from 60% in 1967 to 27% in 2013—a whopping 50% drop. The fraction cohabiting is up nearly 8,000%—from 0.1% to about 5%,  In absolute numbers this is a jump from about 25,000 young adults to 3.5 million. Shares of young adults living alone and living with nonrelatives (friends) is up 217% and 343%, respectively.

(via WSJ)

Even Double Protection of "Bitcoin over Tor" Anonymity Can be Busted in Three Minutes for $2,500

In a paper titled, Bitcoin Over Tor Isn't A Good Idea, written by Ivan Pustogarov, a doctoral student at CryptoLUX, the University of Luxembourg's cryptology research group, and Alex Biryukov, an associate professor who leads the group, the authors write:
The problem here is with anonymity. When people are connecting through Tor, they are expecting to have a higher level of anonymity ... it does provide some level of anonymity, but it is not that hard to break this....A low-resource attacker can gain full control of information flows between all users who chose to use bitcoin over Tor. In particular the attacker can link together user's transactions regardless of pseudonyms used..
Coindesk has more:
 The sort of manipulation described by the authors is known as a 'man-in-the-middle' attack (MitM) and, if successful, could reveal a user's IP address, which can be used to locate the user, and allow an attacker to 'glue', or correlate, the transactions performed by that user from different bitcoin addresses...

As a result, a victim would also be at the attacker's mercy regarding information about his transactions, since they would be able to delay or discard a victim's transactions or blocks.

In an extreme scenario, a bad actor could even dupe a victim into thinking they had received bitcoin when in fact they had not (a so-called 'double-spending attack'), Pustogarov said...
[A] smart attacker could set up a number of bitcoin servers and Tor exit nodes before exploiting the DoS protection system to ban other Tor exit nodes from the bitcoin network.

When a victim uses Tor to connect to the bitcoin network, he will be left with only the attacker's bitcoin servers to connect to, since he has been banned by all other servers. The attacker is now in control of all the information relayed to the user.

Pustogarov and Biryukov estimate that the attack can be mounted for between $2,500 and $7,200 a month. This range would be required to guarantee sufficient bandwidth and/or multiple IP addresses for the attacks.

At the lower limit, an attacker could control a significant portion of Tor exit node bandwidth, allowing him to direct a victim to a malicious bitcoin server. With this amount of bandwidth, a victim would take under three minutes, on average, before connecting to a bitcoin server controlled by an attacker, Pustogarov said.


Estimated Effect of Lower Energy Prices on Inflation

The current growth in domestic oil production will mean, short-term, a decline in energy prices. In the chart below the impact, on the core CPI inflation index, of this energy sector decline can be seen via Capital Economics forecasts.

I must hasten to add, however, the CE forecasts do not take into account the eventual decrease in the desire to hold cash balances which will act as a countervailing force to downward pressure on CPI as a result of increases in energy productivity.

Also, note well that even after taking into account the downward pressure on prices because of the energy boom, CE is still forecasting that price inflation by the end of 2016 will be significantly above the Fed's "target" inflation rate.

They are correct that price inflation will intensify even with the gains in energy productivity, however, it is likely to intensify sooner than CE is forecasting and the climb is likely to be much stronger.