Two Weeks in the Life of Nouriel Roubini

I call Nouriel Roubini the most connected economist going, and it's a well deserved label. He doesn't sit on his butt, he is out there moving around, making the connections. Here are selected Roubini tweets from over roughly the last two weeks, these kinds of tweets from Roubini are not at all uncommon:

I am off to California for business meetings. Forthcoming tomorrow my plan for an orderly restructuring of the Greek public debt -July 12

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I am in San Francisco http://yfrog.com/kf5weqbj  -July 14

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 I am in Cusco, Peru for an international macro-policy conference. No time to visit to the Machu Picchu this year on its 100th yr discovery! -July 17

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I am in Shanghai to give the keynote speech at at a financial institute event http://yfrog.com/kf2fkmbj -July 25

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I am now in Hong Kong after Shanghai for talks & meets -July 26

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I am now in Sydney after Melbourne. Dual speed growth in Australia where resource sectors & regions are booming while retail/housing is weak -July 28

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I am keynoting a conference on Hamilton Island on the Great Barrier Reef http://yfrog.com/h4782wgj -July 29

Mitt Romney Advisor Goes Wacky Defending Ben Bernanke

Harvard professor and the world's greatest economic textbook hustler Greg Mankiw is now economic advisor for presidential candidate Mitt Romney. Mankiw's first major move since being named Romney's advisor is to come out in his NYT column as a supporter of Fed chairman Ben Bernanke.

His defense is about as wacky as they come. Mankiw writes:

Mr. Bernanke has worked tirelessly to shepherd the economy through the worst financial crisis since the Great Depression, and yet, for all his efforts, seems vastly underappreciated.

Tirelessly? At times Bernanke has caused the money supply to grow by 25% on an annualized basis, at other times it has slowed to near 0%. This is perhaps tireless work, nevertheless this wild money manipulation is the direct cause of the current volatile economy. Mankiw may think Bernanke's work is "underappreciated," I think Bernanke's mad money manipulations are hardly understood and there is nothing to appreciate about what he has done.

Mankiw goes on:

....the signals in the financial markets are reassuring. The interest rate on a 10-year Treasury bond, for instance, is now about 2.8 percent. A 10-year inflation-protected Treasury bond yields about 0.4 percent.

The difference between those yields, the so-called “break-even inflation rate,” is the inflation rate at which the two bonds earn the same return. That figure is now a bit over 2 percent, a sign that the market does not expect inflation in the coming decade to differ much from that experienced over the last five years.

But then he reports correctly that the Fed has been buying 10-year bonds:

The Fed used its main weapon against recession — cuts in short-term interest rates — aggressively as the depth of the downturn became apparent. And it turned to various unconventional weapons as well, including two rounds of quantitative easing — essentially buying bonds — in an attempt to lower long-term interest rates.

So Mankiw is admitting here that the Fed distorted the interest rate market in long-term Treasury bonds by buying them.  Got that? The Fed drove rates down on Treasury bonds, which completely blows up Mankiw's contention in the earlier paragraph that I quote, where he uses that same Fed distorted bond interest rate to prove price inflation is only a "bit over 2%."

In truth, we don't know what the rate would be if the Fed hadn't intervened. It would have most assuredly been higher, we just don't know by how much. Further, the Fed's driving of short-term rates lower, also has an impact on long-term rates. Thus although we can't know for sure how much of a distortion has been caused over all, whenever the Fed has stopped manipulating rates, they tend to go up by hundreds of basis points. In other words, Mankiw couldn't be more wrong in his contention that "the markets" suggest inflation 10 years out will only be around 2%. The market is in fact being manipulated by the Fed and we don't know where unmanipulated markets would trade other than much higher.

Bottom line: NYT continues to publish work from economists, who really, on a very basic level, don't know what the hell they are writing about. And, I shudder to think what recommendations Mankiw is giving Romney.

Who is After Lloyd Blankfein?

Last week I commented on an odd profile of Goldman Sachs CEO Lloyd Blankefein. I concluded that post this way:

But the bigger story here is that the Blankfein profile was done at all. Blankfein isn't the kind of guy that wants to waste time on nonsense like this. He must really think there is a chance he is going to lose his job. This was a desperate attempt to make Blankfein look human to the masses.

Today, the Washington Post contains a blistering attack on GS and Blankfein, the story contains no new news items, it's just a rehash of old stories strung together in blistering fashion.

The attack is first and foremost an attack on Blankfein and as a byproduct an attack on GS. These kinds of attacks don't happen by accident. It's also a bit odd that the attack is coming from a D.C. paper. Who is after Lloyd Blankfein? Do you think that Blankfein regrets calling a fog audible, when America's passive-aggressive president called a sit down?

WSJ on the Greatness of Mad Leaders

Well, this is insane.

EPJ's Taylor Conant reports on WSJ's promotion of madness as an important quality in leaders during times of crisis, here.

A DSK Mistress Surfaces

A DSK mistress has surfaced. She has given an interview to a Swiss magazine and has Gloria Allred representing her. According to NyPo, the woman has also been interviewed by Ken Thompson, who represents DSK accuser Nafissatou Diallo.

The mistress (left) told the Swiss magazine, L'illustre, when asked if he was violentt:

"What is violence? A man who pushes you against a wall and who hugs you, is that violent?For me, this is not violent. He was not [violent] with me. Neither physically nor verbally....I didn't see myself as a mistress in life,. We were both stupefied by this intensity, this chemistry between us."

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While I'm on the subject of DSK, there is something I find odd in the interview the Sofitel maid gave to Newsweek.

We know that the maid entered room 2820 three times, twice before entering DSK's room (room 2806) and once after. Her explanation according to Newsweek is that she left her cleaning supplies in room 2820. It's possible I guess, except for the fact that maids tend to have a very mechanized routine and she had 14 rooms to clean. I have never seen a maid leave cleaning supplies in one room to check on another room and I certainly have never seen a maid enter one room with her supplies locked in another room. That's just not the way maids tend to operate. For all practical purposes, they do piece work and are trained on the most efficient manner to clean rooms. A back and forth and another back and forth just doesn't suggest efficiency. There may be a very plausible explanation for all of this back and forth, but it does appear unusual behavior to me. It sure would be interesting to know who the guest was that was staying in room 2820.

Taki Explains the Greek Crisis

Taki writes:

Pouring money in will not make Greek industry competitive. Pouring money in is the problem, not the solution. All that the summit in Brussels accomplished was giving Greece breathing space. It will not work. What is needed is a change in the culture, and that takes decades if not centuries. The Eurocrooks are taking this ancient continent down the Suwannee. They couldn’t care less as long as they keep their salaries and privileges. A borderless continent conceived by technocrats is an LSD illusion, a scam, and a monetary union without full political unification is the biggest scam of all. Yet the Eurocooks insist that lending more moolah is the answer. Greeks see fraud and corruption everywhere and refuse to play ball. The state, with EU money, has spoiled them, and now it demands sacrifices. It doesn’t work like this. This year will be the third in a row that the Greek economy has shrunk. Does anyone in their right mind still believe that things will improve and that everything will one day be hunky-dory?

The Eurocrooks are taking us down, and we’re doing nothing about it. Everyone’s playing for time in order to be able to keep the motorcycle outriders and the arse-licking and bowing and scraping which go with being in power.

I wrote this last year and I was proved right. Next year I expect to be named a prophet.

Bonus coverage, Taki reports on marching orders from Rupert Murdoch:

Back in 1994, Sue Douglas and John Witherow hired me to write the “Atticus” column for the Sunday Times. Witherow proposed 80K. “I get 80 from the Speccie,” I told them. “Cut the crap,” said Sue, “the Spectator doesn’t pay you 80,000 pounds per annum.” The penny dropped and all I said was, “Where’s the contract? I’ll sign anything.”

The funny thing was that a week later at a New York party, the great Rupert himself came up to me and told me how happy he was “that you were joining our family.” I was flattered until I heard him say to his wife Anna, whom I was seated next to at dinner, to be very careful about what she said in front of me. Couple of years later, at a New York bash, Rupert approached me and asked me to “stir it up a bit”—namely, to go after Mort Zuckerman, owner of the New York Daily News, direct competitor to Rupert’s New York Post. Which I did, until I was told that Rupert had ordered the then-editor of the Post—I also had a column there—never to allow me to attack Zuckerman. Go figure!

Martin Feldstein on What's Really Behind the Deficit Problem

My favorite establishment, insider economist, Harvard Professor Martin Feldstein tells it like it is with regard to the U.S. deficit, in the clip below. He is also pretty good on the eurozone crisis, although I don't know why he and other economists contend that a move to an independent currency will make these countries suddenly competitive in a way that can't be done by just allowing wages and other prices to adjust to market conditions within the eurozone.

Ron and Rand Paul Do a Double Team Attack on the Debt Crisis

Neil Cavuto conducts a great interview with Ron Paul and Rand Paul. Rand Paul is good in this interview, but his father really shows him how its done and nails it.

A few notes. Rand Paul points out that financial institutions that are required by their bylaws to own only Triple A securities are changing their bylaws to read Triple A securities OR government securities. As Rand Paul correctly points out, this will mean that even if U.S. government securities ever fall to junk status, these institutions that are supposedly among the most conservative, could end up owning government junk. If Enron could have pulled such a trick, they would still be in business.

Rand Paul also comments on his suspicion that a backroom deal has already been completed by congressional leaders and the President on the debt deal and that what is going on in front of the cameras is all political theatre.

Very important, Ron Paul warns in the interview that price inflation is going to really heat up by next summer. I think he is spot on here. Indeed, the accelerated price inflation has already started, but will intensify.

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How California Could Be Impacted by the Debt Negotiations

There won't be much that will be cut from government spending as part of the debt negotiations, but one area that could be cut dramatically is federal revenues given to states. The states simply don't have the pool of voters at the ready with which to scare politicians into protecting handouts to states---and those handouts are huge. Consider the case of California.

According to the San Francisco Chronicle, California gets $79 billion a year from the federal government - nearly 40 percent of what it spends. The state now spends $208.5 billion a year, $79 billion of it from the federal government.

Even with federal assistance, California is on the financial edge. It is still not known how the ultimate debt plan will develop, but a significant cut in the assistance could put the government of California over the edge very rapidly. Not that it isn't headed in that direction anyway, but things would be speeded up dramatically. 

The Vicious Attacks on Murray Rothbard

You just know that the thought of Murray Rothbard is having an impact when insider wannabes come out swinging at Rothbard to prove their establishment credentials. To become a mafia made-man you have to take someone down, pretty much anyone. But to make it on Establishment Row, you have to take a swing at Murray Rothbard. It doesn't matter if you miss, because you will, but it appears the swing is now mandatory.

Gary North has a great piece on even Economist magazine writers having a go at Rothbard. Following the North piece, George Selgin took a swing calling Rothbard, get this, a bad to mediocre monetary economist. (Major-Freedom replies to that here) Not to be out done by Selgin, Donald Boudreaux writes on a Facebook page:

Rothbard wasn't 1/100th the economist that Friedman was.

Not surprisingly, Boudreaux teaches at the rabid anti-Rothbard George Mason University. What gives?

Jaffi Joe in a comment below explains:

I started my interest in economics by reading Smith, Bastiat, Say, Ricardo, Mill, etc. I got through the classics and then started reading Fisher, Keynes, Samuelson, Friedman, etc. All of this time I had never even heard of Austrian economics until about 4 years ago (Ron Paul mentioned it), so I began reading Mises, Menger, Hayek, you know, the regulars. But, it was not until I started reading Rothbard that it really sank in.

Of course the establishment economists and media will attempt to make Rothbard fall into a memory hole. Not only did he write in an extremely straight-forward and easy to understand language, but he also covered a wide range of sciences and topics (economics, political theory, history...). And, as it just so happens, a lot of people are beginning to read his work these days.

The establishment is merely trying to nip this one in the bud. They see Rothbard (and, Austrian econ in general) getting a resurgence, so the only way for them to combat this trend is to talk trash about it. They know, just as most Austrians do, that it is extremely hard to go back to being a statist after having read a few of Rothbard's books. Trust me, the last thing that they want is to have a bunch of ancaps running around; we might end their gravy train.

The attacks on Rothbard are downright vicious and the promotion of the establishment's token supposed free market economist, Milton Freidman, in his place is absurd. Rothbard never made any of the serious demonstrable errors that Friedman made in monetary theory and methodology. About the best that could be said about Friedman is that he sure knew how to pick his errors. They managed to get him the Presidential Medal of Freedom in 1988. It was awarded to him by that other free market poser, Ronald Reagan. 

Somehow, I can't see Rothbard walking in the White House to get a medal from a guy Rothbard dubbed a warmonger. Oh yes, this is what Rothbard taught us five years before Friedman grabbed his medal in a ceremony that would have likely embarrassed a Roman emperor:

The world is in very dangerous waters. The "true" or rhetorical Ronald Reagan, the second Reagan of the conservative "Let Reagan Be Reagan" slogan, has functioned only in the world of rhetoric since the beginning of his misbegotten Administration, or arguably since he embraced the Rockefeller Republicans at the convention of 1980. The rhetorical Reagan, the "Get Big Government Off Our Backs," free market, war-with-Russia stance, has been particularly eclipsed since the end of the first year of his Administration. In economics, quasi-libertarians, monetarists, and supply-siders have been elbowed aside since 1982, and replaced by the same kind of quasi-conservative Keynesians who brought us the Nixon and Ford Administrations. In foreign policy, however, while the war fanatics like Richard Allen and Richard Pipes were booted out after a year, there has recently been a recrudescence of war-hawk domination by a troika of old Reagan buddy Judge William P. Clark, national security adviser whose admitted total ignorance of foreign affairs seems especially to qualify him for a top foreign policy post; Cap Weinberger of Bechtel Corporation and the Defense Department; and neo-conservative hatchet-lady and political scientist Jeane Kirkpatrick, whose contribution to political theory was to distinguish between "good" authoritarian and "bad" totalitarian torture...

Don't for a minute think that the Selgins and Bodreuaxs of the world don't know who is handing out the medals. Rothbard knew also. The only difference is that Rothbard did not have trouble speaking truth to power and it is paying off for all of us now. Rothbard's writings are as popular as ever, and we can all learn from them. Friedman's book sales are pretty much limited to required readings that appear on reading lists of Keynesian economics professors.

But don't take my word on the greatness of Rothbard. Read Rothbard for yourself right here and judge on your own as to whether Rothbard wrote consistently with clarity on a broad range of topics that cause bafflement by most of us as to how one man could be so knowledgeable and prolific. And then after you have read Rothbard, contrast what you have read with the vicious comments of the Selgin and Bodreaux.

A Few Comments for George Selgin

I had planned to take up a defense, today, of the manner in which Murray Rothbard  discussed wage rigidities in his writings and explain the how the manner in which he did so was not contradictory, as George Selgin charged, below.

However, I find in the comments a brilliant defense of Rothbard by Major-Freedom that covers the topic in the manner I planned and beyond. Enjoy:

Major_Freedom said...

George Selgin:

The theory part of America's Great Depression is in fact one of the things I had in mind when calling Rothbard a "bad" monetary economist. He devotes much of it to arguing that prices are in fact perfectly flexible downwards, so that monetarists and others are wrong in claiming that downward price rigidities tend to cause a collapse of spending to lead to a serious collapse of sales and employment. Then, when he turns to history, he assails Hoover's interventions for deepening the depression by...contributing to downward inflexibility of prices!

That's disingenuous. When Rothbard argued that prices can adjust downward, the context he made that argument is a laissez-faire market, not a government hampered market. If the government enacts regulations that make prices rigid, then of COURSE prices would not be flexible downward. Rothbard devoted a large section of MES to price controls. It would be silly to claim that Rothbard contradicted himself when he said that prices are flexible in a free market, and that price controls make prices rigid.

Your criticism of Rothbard is desperate and reeks of nothing but mindless antagonism.

Naturally when it comes to arguing the harmful consequences of monetary expansion Rothbard doesn't hesitate to take price rigidities for granted, rather than pretending that they were invented in 1930: you can't have the ABCT if prices adjust at once to their equilibrium levels.

Not true. ABCT is not compromised by the existence of price flexibility. ABCT is a theory of how inflation distorts the real capital structure of the economy during a credit financed boom, which, you guessed it, changes relative prices. ABCT relies upon price flexibility. The inevitable bust is also accompanied by, you guessed it, changes in prices.

But who can seriously believe that prices (including wage rates) are less rigid downward than they are upward? Here again Friedman had the more plausible view, which was that downward rigidities were more rather than less important.

Friedman, and apparently you, are ignoring WHY wage earners and other economic actors would be resistant to falling wages. You have no tenable explanation, which is why you chalk it up to "resisting wage declines until starvation", but in reality, it is because of decades of Federal Reserve generated inflation, which has made prices gradually rise for decade after decade, and when people are born into such a system, and live through it, they come to adapt to price increases as a matter of course. Couple that with unemployment insurance, food stamps, and other government "safety nets", and resisting wage declines becomes yet another government creation.

If we lived in a society with a commodity standard, and prices gradually fell over time for decades and decades, and if there were no government safety nets, then resistance to wage declines would no doubt be virtually absent. People would come to expect gradual wage rate declines as money became more and more valuable over time, and as the population increased over time.

Concerning "Koch" economists and such: contemptible ad-hominem arguments like that are another bad Rothbardian legacy. In any event, I teach at UGA, not GMU, and so can't be tarred with that particular brush. Nor have I ever attacked Lew Rockwell. My criticisms have all been aimed at Rothbard and those who thoughtlessly repeat his monetary economics fallacies. I make no apologies for them.

Oh please. Every time you post on Mises.org, you ad hominem all the "Rothbardians" who "have posters of Rothbard on their walls" etc. For you to complain about ad hominem reminds me of a certain kitchen item calling another kitchen item a specific shade.

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Major_Freedom said...

I no less than Rothbard have always insisted that the only reliable way to have money behave in a fashion consistent with avoiding business cycles is to abolish central banks and otherwise get governments' out of the business of supplying money. Those who characterize me as apologizing central banks and centrally managed money cannot even claim to have paid attention to the titles of my writings!

You have made specific arguments on what the Fed should do, what monetary policy should be, rules based central bank inflation targeting, and a host of other inflationist arguments.

Claiming these are only ideas given the fact that the Fed has to exist, is like advising a murderer or thief on how to efficiently murder or steal, then telling others "well, if the murderer or thief has to exist, then I'm just helping them murder and steal so that they do it "efficiently."

Not all of us have life sized posters of Milton Friedman in our bedrooms you know. Some of us have principles that will not be compromised.

Unfortunately, by the time you self-styled Friedmanite cultists realize the errors of your ways (much like Friedman in his later life, when he came around to Rothbard's position) the damage will have already been done.

Did you know that your name is constantly used as a straw man by anti-Austrian Keynesians and other statists who say things like "Even George Selgin agrees with me."? It's people like you who are hampering change for the better. You compromising fools perpetuate the very systems you claim to be against, and you don't even know it, because you're too busy worrying about tenure and being accepted by the establishment.

Chicago is a Financial Train Wreck

The city of Chicago faces an estimated budget gap of $635.7 million next year, and the deficit could approach $800 million by 2014, Chicago Mayor Rahm Emanuel said today, revealing his initial budget projections for fiscal year 2012, according to Business Insider.

The shortfall is nearly $50 million bigger than the city estimated when Emanuel took office in May.

“We have a structural problem, and the moment of truth has arrived,” Emanuel said at a news conference today, noting that Chicago has faced a budget shortfall since 2001. “An economic recovery will not solve this problem for us.”

Emanuel, who will release his fiscal plan in October, reiterated his pledge not to raise taxes and promised not to solve the problem using one-time fiscal solutions.

I remind that these dire projections are based for the most part om interest rates remaining at current levels. When rates starts to climb, the deficits will explode beyond any bureaucrats current imagination.

Details of Federal Reserve Meeting with Primary Dealers

This is real inside baseball stuff, but it is important for those of trading the Treasury market. For the rest of you, move to the last paragraph and note that dealers are telling Treasury that they might be able to repo their MBS portfolio to raise cash. In a way, the repo of the MBS portfolio would be the start of the liquidation of the government . I'm all for it and government land and buildings should be next. That's how you handle a budget crisis: cut back and liquidate assets.

Via Zero Hedge:

Treasury officials held a 12 pm meeting today with all 20 primary dealers to discuss market developments and financing options. They did not want to discuss specific contingencies related to the debt ceiling but did want to outline a course of action aimed at preserving access to the markets.

First, Monday’s bill auction will be held as scheduled. Second, if there is a debt ceiling hike enacted before Wednesday’s 9am refunding announcement, the announcement, WI trading, and auctions will proceed as usual.

However, if there is no debt ceiling extension, three possible options were discussed:

1) Delay the August refunding and issue a short-dated cash management bill as a substitute. The bill could be rolled, as needed. The coupon auctions would be rescheduled when the debt ceiling was hiked.

2) Hold auctions as scheduled but at much smaller sizes using up only the available borrowing authority created by the maturing issues. There are $24 bil of securities maturing on the 15th. Dealers were concerned that you would have illiquid issues and playing catch up once the debt ceiling was raised, which would cause bigger problems.

3) Announce a conditional refunding with WI trading. The auctions would occur as soon as the debt ceiling was hiked. Dealers argued that this was not a viable option either because markets would be unable to price the securities given the timing uncertainty.

Also, one dealer suggested auctioning a full size 10-year security, delaying the 3-year until the end of the month and blending in the 30-year to subsequent cycles

Treasury indicated that dealers need to be prepared for the possibility that auctions (even coupon auctions) will be announced, auctioned and settled on the same day (although Treasury agreed that a 24 to 48 hour period of WI trading would be preferable).

There was significant amount of discussion surrounding money markets conditions (particularly, CP) but policymakers did not provide any hints regarding if and how they might respond.

Dealers suggested that the Treasury might be able to repo their MBS portfolio to raise cash. However, Treasury officials did not offer any comment on this possibility.

Club for Growth Will Not Oppose Boehner Hike in Debt Ceiling Bill

Another phony big government fighter goes down in flames. They can't even come out against raising the debt ceiling.

Cop Cars Spotted Outside New York Fed...

CNBC is reporting.

It's much too much, though, to believe these guys are finally going to get arrested. More likely, the Fed's copy of  The General Theory and a copy of Milton Friedman's A Monetary History of the United States were stolen.

Newmont Prez: Gold to Break Above $1750

Newmont Mining Chief Executive Richard O'Brien said gold will rise to $1,750 an ounce in 2012 due to inflationary pressures and continued uncertainty in U.S. and European economies.

"I think we’ll continue to see pressure on gold prices for many years to come," he told CNBC Friday. For the mining company "it is a boon for our business."

These exact price predictions are fun to note, but shouldn't be taken too seriously. As long as the Fed continues to print money the gold price will climb. And the more the gold price climbs, the more people consider buying some gold. For all we know, this could mean $2,000 per ounce gold by the end of 2011. We are in a massive gold climb. At some point, if the Fed continues to print money, everyone will want to own gold. Think about the demand-side pressure from that happening.

Gold Closes the Week at a Record High

Gold closed on the Comex at $1627.70, a new all-time high.

It should be noted that while the debt debates are likely having some upward impact on the gold price. Prices can't go up without the money around to push prices higher. At the end of the day, Ben Bernanke at the Federal Reserve are responsible for the gold price climb.

Debt Ceiling Raised to $16.994 Trillion in Latest Boehner Bill

A $2.7 trillion increase. I wonder how long it will really take to hit this new ceiling. Interest rates will soon skyrocket, which will result in skyrocketing funding requirements for the Treasury.

The Ghost of Murray Rothbard Drives Estabishment Economists Crazy

In an important article, Gary North explains why Establishment economists want to push the economic theories of Murray Rothbard down a memory hole, while they simultaneously attempt to resurrect the views of technocrat Milton Friedman.

The key takeaways from North are:

[Friedman]  argued that the FED did not inflate enough in 1930-33. He wrote this in A Monetary History of the United States (Princeton University Press, 1963).

In that same year, across town (Princeton), another publisher released Murray Rothbard's America's Great Depression, which argued that the FED indeed caused the depression . . . by its expansionist policies, 1926-29. The battle on this issue began in 1963. It still goes on. Establishment economists blame too little government, too little monetary inflation. Rothbard blamed too much of both.
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The [Rothbard] ghost did something considered intolerable, 40 years ago. He said that Milton Friedman on the money question was just another promoter of fiat money.
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[Friedman]  was a self-conscious disciple of Irving Fisher, the self-professed socialist (if push ever came to shove) and incomparably bad forecaster who announced in September 1929 that the stock market had reached a permanent plateau. He went on to lose his personal fortune (he invented the Rolodex) and his sister-in-law's fortune in the Great Depression. He became a laughing stock among economists, a great embarrassment to the profession. Yet he invented the index number, which is basic to the ideal of targeting inflation by the Federal Reserve System. It was Friedman who almost single-handedly resurrected Fisher's reputation in the 1950s from the grave that it so rightly deserved. Friedman called him the greatest American economist in history.

Ever since late 2008, Ron Paul has reminded the public, in effect, "we Austrians told you so, and we also told you why -- the Federal Reserve's policies under Greenspan and Bernanke." The Federal Reserve caused the crisis of 2008. To expect it to be able to cure it safely is naive.
 
The Friedmanites, who did not see the crisis coming in 2007 -- but a lot of Austrians did, and said so in print -- were caught flat-footed. They are now enraged at Ron Paul and the Austrian economists. So, there is no hue and cry from Fiedmanites over the massive expansion of the monetary base.
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Friedman spent his career devising strategies to make the government more efficient. He was a technician who, as a Treasury Department staff economist, advised the U.S. Treasury on how to be more efficient, beginning in 1943, with his technical support for New York Federal Reserve Chairman Beardsley Ruml's plan to impose withholding taxes on the American people. The government got more efficient, fast. Revenues from income taxes (personal and corporate) quadrupled from $8 billion to $34 billion, 1942-1944.

We need less efficient government. Friedman never grasped this. Rothbard did. The few Establishment economists and columnists who have read Rothbard have never forgiven him for this.
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The Austrians argue that monetary policy should be decentralized by means of the use of precious metals coins. All other schools of economics, invoking Keynes and Fisher, believe that monetary policy should be centralized in a committee of university-screened graduates of state-accredited universities. These people must be given the power of the state to enforce their policies. Without state-licensed fiat money, the public would be in control. The Establishment will not tolerate this.

Friedman was the main apologist for fiat money in the free market camp. He believed in free market liberty, but not where it is really important: education (vouchers based on state-confiscated money) and money itself (central banking based on a grant of state power: a monopoly). Murray Rothbard challenged both ideas. He therefore remains a pariah to the Establishment.

Ron Paul: ‘No Doubt’ U.S. Debt Ceiling Will Be Raised

As usual, Ron Paul gets it right.

While the vote may not come today, “there’s no doubt they will raise the debt limit and we will go back to spending again,”  Congressma Paul told Bloomberg Television in an interview. “We’re not going to fail to pay our interest and take care of the bond market. But, we are going to fail to protect the value of our currency.”

George Selgin's Sandbox

I think I am recovered enough from the shock to offer my first comments on George Selgin's view that Murray Rothbard was a "bad to mediocre" monetary economist, who held a naive version of Austrian business cycle theory.

In my view, Rothbard's early chapters in his book, America's Great Depression, offer the best explanation of the business cycle and best critique of opposing theories. What can you say about someone such as Selgin, who charges that Rothbard was bad to mediocre, after an examination of some of Selgin's own economic thinking?

A quick glance at some of Selgin's work and one realizes he travels in the confused world of theory that is  never linked with the real world, he speaks of the dubious measurement of a price-index, but attempts to get himself off the hook by telling us he is only discussing theory "and not the problems of implementing various price level policies." Well, please excuse Murray Rothbard for dealing in the real world and not the world of impossible to measure indexes upon which policy is to be designed.

But despite these problems, Selgin marches on and at one point writes:

Admittedly, arguments such as those made here concerning the burden of price adjustments under various price-level policies are distressingly dependent upon artificial assumptions. One must admit that, in reality, any single price adjustment can be expected to have secondary effects.

Selgin goes on to argue for a "productivity norm adjustment" but never explains why the  "secondary effects" will eventually dovetail into the price-level he desires. This is especially important given that it is difficult, if not impossible, to measure productivity gains in an ever changing world, and measures of productivity are the key to Selgin's "productivity norm adjustment." It should never be forgotten that Alan Greenspan in his memoir, The Age of Turbulence, reported that the Bureau of Labor Statistics and the Commerce Department missed the productivity gains of the personal computer!

So aside from the debate over why you would want to adjust prices from the market rate in the first place, Selgin is dealing in the never, never land where accurate price indexes and productivity levels can apparently be determined with the snap of a finger. In other words, Selgin's monetary policy prescription can't be executed in the real world. It is fairy tale stuff. And he calls, Rothbard naive for not wanting to play in his sandbox with imaginary friends who instantly and accurately calculate real world price levels and productivity. Amazing.

China's Economic Miracle May Be About to Come Off the Rails

Jeremy Warner in The Telegraph notes:

Largely invisible on a radar screen dominated by concerns over the US and eurozone debt crises, the Chinese economic miracle, one of the few apparent bright spots that remains in a world beset by trouble, has in recent weeks also been showing unnerving signs of strain. Indeed, it may even be about to come off the rails entirely – quite literally.

Thanks to the link from Lew Rockwell, who also points out that the developing crisis in China is no secret to those who read the EPJ Daily Alert. Lew writes about the China crisis, "as any reader of your daily email has long known."

George Selgin Logic

Oh dear, thank heavens George Selgin is defending Milton Friedman and not Murray Rothbard. First Selgin has this to say about Rothbard monetary theory (A monetary theory, I must add I have used to warn of business cycle moves here and globally, for years)

As a monetary economist (I don't pretend to judge Rothbard's other economic contributions) Rothbard was mediocre to bad. His version of the Austrian business cycle theory was naive--in essence it equated behavior of M consistent with keeping interest rates at their "natural" levels with the elimination of fractional-reserve banking, an equation that holds only with the help of about a dozen auxilliary assumptions, all of which are patently false. He then went on to conjure up an equally false history of banking and of bank contracts designed to square his theory of the cycle, with its implied condemnation of fractional reserve banking, with his libertarian ethics.

 But, he goes on to defend Friedman this way:

Milton long regretted the part he played as a young economist in the move to tax withholding; and by the 80s he had come around to advocating a frozen monetary base, which is an approach to shutting down the Fed that I myself favor. So even with respect to these matters there's no reason at all why even the most uncompromising libertarian shouldn't want to regard Milton as a comrade in arms. If he took longer to become almost as radically libertarian as Rothbard, the fact was merely a measure of his desire to form his own ideas gradually rather than receive them en bloc from someone else.

Got that?

Friedman is great becasue in his 80's he came along to Murray's supposed terrible monetary views.

Krugman Spots the Problems in the Eurozone

The European Central Bank continues to maintain a tight money policy, which if it continues will lead to an Austrian Business Cycle crash. None other than Paul Krugman has spotted the developing crisis:

For some reason events in European bonds markets aren’t making big headlines. But they should be: even as the GOP does its best to destroy America’s credit, things are falling apart, with a vengeance, on the other side of the Atlantic.

The interest rate spread between Italian and German bonds is now higher than it was before the big European rescue package was announced. Since the purpose of that package was, first and foremost, to calm markets before Italy and Spain sank into self-fulfilling debt spirals, this is very bad news.

Also, German interest rates are plunging. This does not reflect greater confidence in German solvency; if anything, investors are less confident in that respect, as the potential costs of a peripheral bailout start to get reflected in credit assessments of the core economies. What this is surely about, instead, is the growing sense that European recovery is sputtering out, and that the European Central Bank — which sets short-term rates — will eventually call off or even reverse its planned rate hikes, with rates staying low for a long time.

It remains to be seen what actions the ECB takes, but Krugman is correct about the facts. Though he goes on to call it the Japanification of the eurozone, when it is simply the liquidation of malinvestments caused by earlier ECB money printing. 

Google Now Has a URL Shortner

Shorten any url at goo.gl

I'm sure the Department of Justice Anti-Trust Division (goo.gl/vj49K) will be all over this in no time.

Some Sanity on the Debt Ceiling Talks, from Ron Paul

Ron Paul exposes the phoniness of the current debt reduction negotiations by calling for a simple freeze in spending at current levels. Congress won't go for this because what is going on are phony cut porposals.

If Congress was really having trouble coming to grips with the size of real spending cuts, then Ron Paul's proposal would be a no brainer. But what we really have is smoke and mirror negotiations, with a battle over whose smoke and mirrors will be used.



(Via Lew Rockwell's Political Theatre)

Very Cool: Rothbard Reading Hayek

Richard Ebeling emails:

Dear Bob,

I don't know if you recall or have a copy of the enclosed interview with F.A. Hayek that appeared in the June 1975 issue of the "Gold and Silver Newsletter." But on the off-chance that you do not, I thought I'd send it along.

It is noteworthy for Hayek talking about his "prediction" of the coming of the 1929 downturn, why the Great Depression occurred and was prolonged due to misguided government policy, his views and interpretation of Keynes, and then giving his "read" on the status of American and European economic problems in the middle of the 1970s. He also talks about the role of gold in economic and international affairs.

Sorry about the underlining and marginal doodles. But this is a photocopy of Murray Rothbard's copy of this newsletter, which I borrowed from him at the time. And all the markings on the pages are Murray's.

The full Hayek interview is here.

A Swamp Monster Disses Ron Paul

TIME Magazine columnist Michael Scherer, who writes a column called Swampland, is out with one of the most distorted attacks on Ron Paul since, well, the beginning of Time.

I guess there will be more of this from the establishment as Dr. Paul climbs in the polls, but this one runs Congressman Paul's views through a distortion mirror at least a dozen times and comes out with these conclusions:

[Ron Paul]argues that this [a default] will mean, as the President, Wall Street and the Treasury Secretary argue, an increase in interest rates, not just for the government, but for regular Americans. The cost of car loans would go up. The cost of house loans would go up (and the values would probably come down), as would the monthly payments for people with adjustable rate mortgages. The amount small businesses pay to get loans to expand their business would go up....

So to summarize, here is what Ron Paul, who may yet win the biggest GOP polling test of 2011, is advocating: Less short term employment, slower economic growth, and higher costs for things that Americans buy regularly.

Nowhere does Ron Paul say that defaulting on the U.S. debt will result in higher interest rates in the private sector. In fact, getting the government out of the debt market will increase by trillions the amount that is available from the markets for the private sector.

Interest rates are currently distorted downward by the Federal Reserve for the benefit of the banksters, and getting the Fed out of the way would likely result in the market pushing rates higher, but a U.S. government default would do nothing but result in downward pressure on private sector rates, as the lack of governement borrowing would stop the massive crowding out of the private sector now being done by government borrowing.

All the new funds available for the private sector (not sucked up as they are now by government borrowing) would, contrary to Scherer's contention, result in a booming economy built on real savings that is not subject to the volatility of the business cycle.

Scherer is also way off on his contention that a default would result in higher prices. Where he gets this theory I have no idea. There is no economist on the planet that I am aware of that contends that a U.S default would be price inflationary. Without the U.S. Treasury issuing billions in new securities monthly, the Fed would have one less reason to print new money and cause price inflation.

Scherer's Swampland attack on Ron Paul is a horror. It is the most distorted attack on Ron Paul to date. The establishment is obviously getting desperate with this kind of attack that doesn't even belong in a swamp, but in a garbage dump.

Keynesians Fooled Again on Jobless Claims Number

The consensus among mainstream economists (chiefly Keynesians) was that this weeks jobless claims number would come in between 405,000 to 436,000. Instead, the number came in much lower.

Initial jobless claims dropped  24,000 in the July 23 week to 398,000 for the first sub-400,000 reading since early April (in a partial offset the prior week was revised 4,000 higher to 422,000). The four-week average of 413,750 is down a steep 8,500 in the week for a nearly 15,000 improvement from the month-ago reading.

Continuing claims have also been coming down.  For the July 16 week they were down 17,000 to 3.703 million.

It should also be noted that the non seasonally adjusted claims plunged from 470K to 366K, a 104K move in one week. In other words, the BLS seasonal adjustment muted out a much larger real drop.

Employment is a lagging indicator, but the accelerating money growth has been going on long enough to even impact this indicator. A price inflationary recovery is well on its way. Trend following Keynesians are at least a month away from recognizing the trend.

Why Warren Buffett is a Failure at Tax Policy

Warren Buffett is talking tax policy again. His commentary is an accumulation of errors, confusion, egalitarianism and interventionist policy recommendations.

He is again bemoaning the supposed fact that the rich pay a lower tax rate than the secretaries of the rich, but instead of calling for lower taxes for secretaries (Don't they need the money?), he is calling for higher taxes on the rich. Go figure.

One problem with his "the secretaries are paying higher taxes" is that this does not apply versus those simply earning high incomes. They are already paying at the highest tax rate, as the chart below shows. Lower tax rates do often apply for banksters and crony capitalists who get various tax breaks, but, again, instead of calling for more tax breaks for secretaries, he wants the income of the rich taxed even more, with one exception.  He wants tax breaks for corporate jets to continue. (The fact that he owns a corporate jet leasing business through Berkshire Hathaway is surely a coincidence).

Here's Steve Moore in Thursday's WSJ on what's really going on at the tax level for those with high incomes:

The Oracle of Omaha is at it again. On July 7, Warren Buffett told Bloomberg: "I think the rich have a responsibility to pay higher tax rates." Then he groused that his wealthy friends are "paying lower tax rates than the people who are serving us the food." Mr. Buffett has been voicing this complaint for years, once observing that his personal tax rate of 17.7% is lower than that of his receptionist (30%).

During Monday night's national address, President Obama recited the Buffet line that millionaires and billionaires pay lower tax rates than their secretaries. Democrats in Congress routinely cite Mr. Buffett's tax confessions as irrefutable evidence that tax rates on the very rich are too low and the system is unfair. And the system would be unfair, if Mr. Buffett's tax facts were the whole truth. But they aren't.

I don't know the details of Warren Buffet's personal taxes, and he hasn't made them public. But the IRS does provide reliable data on effective tax rates—the overall share of their income that various groups pay in federal income taxes (not including state or local taxes) after accounting for all deductions and exemptions. These are different than marginal tax rates, which are paid on the next dollar of income and now peak at 35% for individuals.

IRS data for 2008, for example, show that households in the top 10% of earners (above about $114,000) paid 19% of their income to the feds (see chart above). Those in the top 1% (above $380,000) paid 23.3%. The top 0.1% of earners, with incomes of $2 million or more, end up paying a slightly lower tax of 22.7%, because they get more of their income from investments (more about this below).

So what about the rest of us? According to IRS data, a median-income household ($35,000) in 2008 paid about 4% of its income in federal income tax.

So we already have a very progressive income tax system, despite Buffett's suggestion that the situation is otherwise. This may satisfy many who buy into President Obama's mantra that the "rich should pitch in their fair share."---and they may want even more of a progressive tax system.  But  there is a great danger with  progressive taxation. Ludwig von Mises explains:

The philosophy underlying the system of progressive taxation is that the income and the wealth of the well-to-do classes can be freely tapped. What the advocates of these tax rates fail to realize is that the greater part of the income taxes away would not have been consumed but saved and invested. In fact, this fiscal policy does not only prevent the further accumulation of new capital. It brings about capital decumulation.

Bottom line: There is a danger in taxing the rich, that Buffett and the President fail to acknowledge. The rich are the ones who provide the funds to build the base of capital goods that make an economy productive. Every increase in taxes "on the rich"  results in a cut in this production.

In the old days, Buffett used to readily admit that he was not skilled in forecasting the direction of the overall economy and that he, therefore, stayed away from doing so. Now, however, he apparently considers himself  an expert on tax policy, but he fails to understand a key factor.

He is good at understanding money flows, and that's about it. That's what made him a great investor. But, he has no imagination and readily admits that he stays away from technology companies. He comes out of the Benjamin Graham school of equity analysis, which is about studying cash flows (and balance sheets).

When he is calling for higher taxes on the rich, he is simply putting his cash flow analysis to government revenues and expenses. But, he is failing to look beyond how the government taxation impacts the overall economy, something he admits he is not good at. If he looked beyond the simple cash flows, he would understand that money flowing into the government bureaucracy results in operations like the floundering Post Office, the Department of Education, the National Interagency Fire Center.
 and corporate cronyism gone wild. At the same time, money that stays in the private sector funds such marvels as Apple, Google and, yes, Berkshire Hathaway's own operations. Buffett considers none of this. How could he? He tells us he can not accurately view the future of technology companies. But. also, he fails to dig in and look at the belly of the bureaucracy. Could Buffett honestly call for higher taxes on anyone, if he really took the time to study inside the belly of the bureaucratic beast, where new tax money would flow? I suggest he would vomit.

It's a combination of Buffett going over to the dark side, especially once he started competing with Donald Rumsfeld  for the affections of the ultimate insider Kay Graham (and then he got the oligarch's edge on that Goldman Sachs deal), and a skill set that ends abruptly at cash flow analysis that has turned Buffett into one of the worst tax policy advisers going, probably right up there with Paul Krugman and Robert Reich---and they don't even use cash flow analysis to get to the same absurd tax policy views that he holds.

(Chart via Mark Perry)

This is is Really What a Government Should Do that Faces Financial Difficulties

Sell off assets.

The financially troubled U.S. Postal Service has sold a former postal distribution center in Marina del Rey for $44 million.

If Congress was serious about bringing financial order to the U.S. government, they would be debating which assets to liquidate---not under what conditions the debt ceiling should be raised, so more borrowing can be conducted.

The Very Overrated Rick Perry

Michael Brendan Dougherty takes an important and serious look at Texas Governor Rick Perry and finds Perry has been running Texas the way recent presidents have been running the country, with an added twist of religion (My numeration):

1.While Perry has lately crafted the image of a more-Republican-than-thou conservative, he was actually a Democrat in the 1980s. He supported Al Gore in the Democratic presidential primary in 1988. And he supported a massive $5.7 billion tax-hike in 1987, which was opposed by most Texas Republican legislators...

2. While Texas can claim to have added 37 percent of all American jobs since the beginning of our anemic economic recovery, Massimo Calabresi points out that in that same time period, Texas’ unemployment rate has actually gone up from 7.7 percent to 8.0, leaving it in the middle of the pack of all states. Texas adds jobs, sure. But their labor force is growing faster. And many of the new jobs are low-wage; the Lone Star state has the largest percentage of minimum wage jobs in the country...

3.Texas’ debt has doubled from $13.7 billion to $34.08 billion since 2001. Texas had its largest ever budget deficit last year, $27 billion. Perry and his Republican legislature closed the gap by delaying a $2.3 billion payment to schools by a day to push it into the next year. He also had the state’s accountants revise their prediction for the growth of land values, and his budget writers assume that Texas will maintain the exact same number of children in its public schools, despite the fastest growing population in the country...

4.He approved mandatory HPV vaccinations for all Texas public school girls above the objections of the religious right...

5. Perry’s religiosity goes beyond investing common American political maxims with Biblical language the way Obama does. Perry has encouraged Texas residents to pray for rain, a decision that was widely mocked. And he is holding a Day of Prayer and Fasting on August 6 that will include a panoply of pastors whose views go beyond the Evangelical mainstream...

An Awesome Tom Woods Appearance on the John Stossel Show

Tom Woods takes on unions and FDR in this John Stossel segment. As this clip shows, Woods is one of the best defenders of free market economics going.

The Heritage Fund on National Health Service as Conservative Reform

Paul Krugman has the Heritage Fund smoked out on this one. In response to my earlier post, a friend emails:

I attended a closed Heritage briefing in the middle 1980s where they argued that, allegedly as in Britain and Australia, a national health service would be a great conservative reform in the US.

Tyler Cowen on a Very Important Keynesian Point

GMU's Tyler Cowen writes:

Observed low Treasury rates do not signal weak vigilantes...This is, in fact, a very Keynesian point. Spanning doesn’t hold. Markets aren’t complete. Low rates on Treasury securities are signaling fear, not safety. The price of gold, and Swiss francs, are very high right now.

This is a great observation by Cowen except for the fact that short-term rates are climbing, dramatically.

In early July, the 3 month Treasury was yielding as low as 0.01%. Yesterday, when Cowen wrote his post, the 3 month Treasury was yielding 0.07%, a 600% increase.

Clearly, the markets are very concerned about a short-term delay in interest payments. So is Cowen's Keynesian mumbo-jumbo as off as his reading of the direction of rates? It appears so.

Republican Origins of Obamacare

Paul Krugman has this correct. When the Republicans are in power, they are as bad as the Democrats:

The essence of Obamacare, as of Romneycare, is a three-legged stool of regulation and subsidies: community rating requiring insurers to make the same policies available to everyone regardless of health status; an individual mandate, requiring everyone to purchase insurance, so that healthy people don’t opt out; and subsidies to keep insurance affordable for those with lower incomes.

The original Heritage plan from 1989 had all these features.

These days, Heritage strives mightily to deny the obvious; it picks at essentially minor differences between what it used to advocate and the plan Democrats actually passed, and tries to make them seem like a big deal. But this is disinformation. The essential features of the ACA — above all, the mandate — are ideas Republicans used to support.

Rand Paul: The Truth is Reid, Boehner Plans Will Add $7 To $8 Trillion To Debt

Senator Rand Paul tells it like it is. The accounting on the Reid and Boehner plans are phony. There's a multi-trillion increasing baseline. The Reid and Boehner plans only cut some of the baseline increase. There are no real cuts.

"Both of these plans will add somewhere between $7 to $8 trillion over 10 years. The real disservice to the American people is they need to be honest about their accounting up here," Rand Paul told Neill Cavuto on FOX News.

"None of these cut spending, none of these cuts the deficit. Both plans will add $7 to $8 trillion. I don't think our country can withstand that addition of new debt," said Rand.

The video is here.

The White House Explains Why $950 Billion Equals $1.2 Trillion

If you want to understand D.C. math, check out this OMB defense of the Boehner plan, as explained by Ezra Klein:

On Tuesday, the Congressional Budget Office assessed Boehner's proposal and concluded it would cut spending by about $950 billion over the next 10 years. Boehner had promised something closer to $1.2 trillion, and so his office immediately promised to head back to the drawing board and amp up the cuts. "We promised that we will cut spending more than we increase the debt limit – with no tax hikes – and we will keep that promise<" said Boehner spokesman Michael Steele. "As we speak, Congressional staff are looking at options to re-write the legislation to meet our pledge."

Enter OMB Director Jack Lew. Earlier in the day, his office had issued an almost-veto threat on behalf of the White House. So no one would mistake them as fans of the Boehner plan. But in a blog post Tuesday evening, Lew rallied to the plan's defense, arguing that Boehner's plan only undershot its spending target because the CBO tested it against the "adjusted March baseline," which includes the cuts passed as part of the appropriations deal that kept the government's lights on earlier this year.

Why does that matter? Because depending on which baseline you use, the cuts don't need to be as deep. Lew argues that the two parties have agreed we need to cut $4 trillion starting from the CBO's January estimate. And if you start from that estimate, Boehner's plan cuts $1.1 trillion.

Keep in mind that this is also the budget plan that puts the biggest spending cuts off until the year 2021.

Roubini: Ireland, Portugal Are Insolvent

Mr. Insider, Nouriel Roubini, says Ireland and Portugal are insolvent.

Under conditions of insolvency, a Greek style debt swap only delays the day of reckoning and increases the dimensions of the crisis.

President Jello-Ness?

Yikes!

The Republican National Committee has just put out a statement calling President Obama "His Jello-Ness, The President".

Boehner Plan Backloads Spending Cuts into Never, Never Land

Surprise, surprise. The Boehner plan backloads cuts into never, never land. The largest cuts will come in the year 2021.

From the Congressional Budget Office, the budget cuts under the Boehner plan (in billions of dollars)


2012 -4

2013. -20

2014 -58

2015 -66

2016 -73

2017  -79

2018 -87

2019 -95

2020 -103

2021 -111

There really are no serious cuts coming. This is all political theatre. Congress and the President are just really counting on Bernanke to buy up any securities issued by the Treasury.

The Ron Paul Super PAC is Born

Sign up for email updates, join the Facebook page, follow on Twitter, and consider a donation!  There are no donation caps for a Super PAC, so donations can be made in any amount.

(Note:I am on the Super PAC advisory committee-RW)

Taibbi Comes Out Against a Tax Holiday

A proposal to reduce taxes on multinational corporations who bring their money back into the country from offshore is being promoted in the House of Representatives.

Matt  Taibbi seems to think this is the worst idea since the American Revolution: 

The madness that is the proposed tax repatriation holiday is continuing and gathering steam...One thing that people must understand about this tax repatriation business is that it’s a wholly bipartisan affair. It’s not solely the work of evil Republicans. This is a scheme that requires heavies in both parties to help ram the knotty, hard-to-sell legislation through.

Of course, revulsion at a tax break is nothing new, as Murray Rothbard pointed out:

Many writers denounce tax exemptions and levy their fire at the tax-exempt, particularly those instrumental in obtaining the exemptions for themselves....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.

Taibbi is decades late on his outrage and as always is on the interventionist side of the debate. Will someone please hand the man a Mao Suit.

Conspiracy Theory Alert: Ron Paul Hearing Web Site Down

Congressman Ron Paul is holding a meeting of the Monetary Policy Subcommittee. Scheduled to testify is monetary policy hawk and Kansas City Fed President Thomas Hoenig. The Congressional web site that was to be broadcasting the hearing is down.

Lagarde Admits: IMF Uses Crises to Expand

International Monetary Fund chief Christine Lagarde admits in the second half of this video what libertarians have been warning about for years, that governments use crises to expand (See Robert Higgs, Crisis and Leviathan)

In the case of Largade, she seems proud of the fact that her global bankster agency will expand as crises develop, never to shrink again. Whereas in the past, governments seemed to react and grow as a crisis developed, Lagarde is taking things to a new level and expanding in anticipation of future crises.

Here it is, global bankster expansion by crisis explained:

What Government Might Look Like if the Debt Ceiling isn't Raised

No new regulations. No new harassment of the private sector. No new plotting by Goldman Sachs and JPMorgan Chase. Just this guy sleeping.

Think about it.

It's Time to Close the U.S. Post Service...

and allow the private sector to deliver the mail.

The Postal Service is expected to announce today the closing of 3,653 post offices over the next 10 years. Enough of these 10 year plans. USPS could run out of money by as early as the end of August. They should not be refunded. The USPS is a bureaucratic monstrosity. Let's see what creative ideas entrepreneurs can come up with for delivering mail.

The Coming China Crash

As money supply growth continues to be slowed by China's central bank, The People's Bank of China, indications are that China will face a classic Austrian Business Cycle downturn, including a stock market crash.

A friend in the steel industry sends along this report from SBB Analytics China:

China's crude steel production dropped by 3.1% in the first 10 days of July to 1.955m tons per day.

 Steel prices according to the report, however, were up a bit, suggesting that what China will face is stagflation, rising prices and a declining economy.

Trailer: Margin Call

The trailer for Margin Call is out. The film is a supposed thriller that revolves around the key people at a investment bank over a 24-hour period during the early stages of the financial crisis.

The cast includes Kevin Spacey, Jeremy Irons and Demi Moore.

The trailer sounds terrible and, of course, there appears that there is no indication at all of the role the Federal Reserve played in the financial crisis. The film is scheduled to be released in late October.

DeBeers Earnings Jump on Soaring Diamond Prices

DeBeers earned more from its diamonds in the first half of the year than any prior interim period, ever. Market prices for diamonds are now near their pre-crisis peaks.

DeBeers reported in their earnings statement that average market prices rose by 35 per cent in the six months to June.

The price climb should be viewed as another indication of the accelerating price inflation. Looks like Paul Krugman won't be able to include diamond prices in his super-core price index, perhaps ant spray.

Case-Shiller: Home Prices Increase in May

The Case-Shiller Home Price index of 20 major metro areas increased 1% compared with April, according to the S&P/Case-Shiller. The 10-city index rose 1.1% month-over-month.

Sixteen out of the 20 metro areas posted increases. Only Detroit. Las Vegas and Tampa were down on the month---all three of these cities continue to have large foreclosure overhang.  Phoenix, also a city with large foreclosure overhang, was unchanged.

Prices were still lower from one year ago, pretty much across the board.  Washington D.C. was the only city to experience price increases over a 12-month period, not surprising given that the federal government continues to grow. D.C. prices were up 1.3% from May 2010. 

The May climb in prices is the second in a row and indicates that the recent growth in money supply is having an impact. If the money growth continues, housing prices will have likely seen their lows for this business cycle.

The Completely Mad Alan Greenspan

Alan Greenspan is out with an odd piece in today's FT. In it, he warns of the dangers of governments who rush to prevent failure of large firms:

What is not conjectural, however, is that American policymakers, in recent years, faced with the choice to assist a major firm or risk negative economic fallout, have regrettably almost always chosen to intervene. Failure to act would have evoked little praise, even if no problems subsequently arose; but scorn, and worse from Congress, if inaction was followed by severe economic repercussions. Regulatory policy, as a consequence, has become highly skewed towards maximizing short-term bail-out assistance at a cost to long-term prosperity.

This bias leads to an excess of buffers at the expense of our standards of living.

This is all very true. But it is pretty much like the town hooker discussing the virtues of abstinence. When Greenspan ran the Fed, he rushed to protect the elitists, whenever there was a signal of a serious downturn on Wall Street. And, hey, didn't the housing bubble develop under Greenspan's watch?

In the same piece, while warning against bailouts, Greenspan notices the $1.6 trillion in excess reserves and appears to prefer that these reserves be in the system propping up the entire economy:
Mad. Since these excess reserves are Federal Reserve "high powered" money, even if only 10% were moved into the system it would cause such a price inflation that it might even move Greenspan's memoir out of the dollar bin.

Bank managements, currently repairing their demonstrably flawed risk management paradigm, have been moving aggressively to build adequate capital to enable them to lend. For the moment they are expanding their loan portfolios only marginally. Most of the new capital appears to have buffer status, rather than being directly involved in spurring day-to-day lending. Deep uncertainty about our economic future, as well as the potential level of regulatory capital, has unsettled bank lending. More than $1,600bn in deposits (excess reserves) at Federal Reserve banks are lying largely dormant despite available commercial and industrial loans that, according to the Fed, entail “minimal risk” and are yielding far more than the 25 basis points Reserve banks are paying on such deposits. The excess reserves thus seem to have taken on the status of a buffer, rather than actively participating in, and engendering, lending and economic activity.

HOT: Ron Paul Gets Major Iowa Endorsement

Cory Adams - the Republican chairman of Story County in Iowa – endorsed the Ron Paul at a campaign event in Ames, Iowa.
CNN explains why this is such a big deal:

That's significant for a few reasons. Ames is the largest city in Story County, home to over 50,000 residents. And it is in this city that a widely-watched showdown between the GOP presidential candidates will play out on August 13. The Ames Straw Poll will test the candidates' popularity and could be a sign of their electability. 

Having the endorsement of such an influential political figure in and around Ames will surely give Paul's campaign something to boast about as it aims for a strong showing in that contest.
Adams explained to CNN the rationale behind his endorsement of Paul.

"I try to go for the candidates that line up mostly with the values, the principles of the [nation's] founders," Adams said. "Out of all the candidates in this cycle, I found Ron Paul to be the one with the longest, most consistent voting record to back up those principles and concepts."

How might Adams' endorsement help Paul with voters?

Adams explained: "Back in 2008 there were a lot of people within the Republican Party that kind of disregarded Congressman Paul. And basically didn't just count him in and/or wouldn't even mention him. So when you can have a county chair who is part of the Republican Party, part of the establishment and support him, it gives him more credibility within the party and brings him back from the fringe."

Apple's Plans for Grand Central Station

Apple is paying Charlie Palmer’s Metrazur restaurant $5 million to vacate its space on the Grand Central Terminal’s east balcony more than eight years before its lease expires, reports WSJ.

Apple plans to put one of its stores in the location.

Obama....Again

POTUS speaks to the nation at 9:00 PM ET, about debt extension.

Ron Paul Sounds Optimistic about Iowa

Politico quotes Radio Iowa:

Presidential candidate Ron Paul seems to be raising the stakes for his finish in next month’s Iowa Republican Party Straw Poll.

“I wished I could say I’m the front-runner and nobody’s ahead of me and it’s a shoe-in,” Paul said this morning. “But the truth is that we can do and will do very, very well and hopefully come in first.”

Rival Michele Bachmann is now calling herself an “underdog” in that upcoming competition, while Tim Pawlenty says, win or lose, the Straw Poll’s outcome won’t decide whether he’ll stay in the race.

Paul spoke to about 100 people this morning in Ames — the city that will host the Straw Poll festivities. Paul called his Iowa supporters a “unique” group of “driven” people.

“Voting in the Ames Straw (Poll), when you think of it nationally…since you get so much attention and can make-or-break some people in campaigning, it’s worth a lot more than a hundred individuals voting, it could be to a thousand of votes for (just one person) to show up and vote and make a difference in a race,” Paul said. “That’s why I’m here…That’s why I think the Ames Straw (Poll) is important.”

The Iowa straw poll is set for Saturday, August 13. IF Congressman Paul comes in big in Iowa, there is plenty of time to use that momentum for New Hampshire and the Iowa caucuses. The New Hampshire Primary is set for February 14, 2012. The Iowa caucuses are February 6.

The Revolving Door at the SEC

If you don't think Wall Street insiders have captured the SEC, read this from a Michael Smallberg report:

If you’re looking for evidence of the revolving door that spins between the federal government and Wall Street, look no further than Daniel Gallagher, President Barack Obama’s recently announced nominee for Securities and Exchange Commission commissioner...

Obama’s nomination of Gallagher to help lead the agency during a critical time in its history is also the latest example of the agency’s coziness to the industry it oversees.

Gallagher is currently a partner at WilmerHale. The pricey law firm’s high-profile clients have included Goldman Sachs, JPMorgan Chase, Citigroup and other Wall Street giants regulated by the SEC. If the Senate confirms him, this would be Gallagher’s second spin through the revolving door — he previously left WilmerHale to join the SEC in January 2006, only to return to the firm in 2010. And he would be the latest on an ever-expanding list of WilmerHale alumni at the SEC, including the current general counsel, deputy general counsel, associate general counsel, corporation finance division director, enforcement division chief counsel and deputy secretary.

Of course, the revolving door spins in both directions. Many former SEC employees leave the agency to join WilmerHale and other legal, accounting and consulting firms that represent clients in the securities industry. Several recent reports by the SEC Inspector General have raised troubling questions about whether the promise of future employment representing Wall Street causes some SEC officials to treat potential employers and their clients with a lighter touch.

The Project On Government Oversight (POGO), where I work as an investigator, just released a new report and database showing that hundreds of former SEC employees have recently taken jobs representing clients before the SEC.

All told, POGO’s database shows that 219 former SEC employees filed 789 statements between 2006 and 2010 announcing their intent to appear before the SEC or communicate with its staff on behalf of private clients. One former employee had to file 20 statements during this time period in order to disclose all his clients and the issues on which he expected to appear before the SEC. Another former employee filed his first statement just two days after leaving the agency.

Bottom line: Power centers such as the SEC are regularly captured by the elite in the regulated industry. The industry employs former regulators so that they can skate by regulations, while lobbying for regulations which will limit, if not completely stop, those attempting to enter the industry and compete against the controlling giants.

The only solution to this problem is to eliminate the agencies that become the power centers. The SEC seldom catches any fraud at an early stage, the Bernie Madoff scheme is evidence of that. Meanwhile, the agency allows government operated Ponzi schemes to go on without interference and runs blocking schemes for the big boys, like Goldman Sachs and JPMorgan Chase.

The SEC should be among the first agencies to go, if serious budget cutting ever comes about. It's nothing but a training school for future technocrats of the Wall Street oligopoly.

Understanding the Pressure on Ratings Agencies Not to Downgrade U.S. Debt

Marc Joffe, who formerly worked as a Senior Director at Moody’s Analytics, expalins what a downgrade would mean from a ratings agency perspective and why agencies are slow to make such downgrades:

... sovereign rating changes may impact other ratings in ways that create commercial challenges for rating agencies and investors. Given the dependence of numerous bond-issuing entities on the US government, a Treasury downgrade may trigger a large number of municipal, corporate and structured finance issuer downgrades as well. This cascade of downgrades would impose challenges on a rating agency’s internal systems, staff research skills and relationships with affected issuers.

To the extent that certain institutional investors are restricted to investing in AAA securities, a Treasury downgrade would result in the forced liquidation of many assets. Institutional investors – who often purchase research, data and analytics from ratings firms – may react negatively to such a scenario. Moreover, such portfolio changes could substantially impact interest rates. If these interest rate changes are blamed on the rating agencies, they may suffer reputational consequences.

Such concerns may unduly retard rating changes that appear justified by the issuer’s credit status...

(Thanks 2 Jeffrey Rogers Hummel)

The Murray Rothbard Influence on Ben Bernanke?

W.W. at Economist magazine is out with a rant that could only come from someone who has never looked at money supply data in his life.

He contends that Fed chairman Bernanke is not aggressively expanding money supply because of an indirect Murray Rothbard influence on Bernanke via Ron Paul:

Now, I don't claim that the right, loosely defined, is chock full of Murray Rothbard fanatics. And whatever it is that is keeping Ben Bernanke's Fed from loosening up, it's not the enduring intellectual legacy of Murray Rothbard. At least, not directly. But I do believe elements of Ron Paul's Rothbardian monetary philosophy enjoy a great deal of currency on the grassroots right, and I believe this exerts a considerable gravitational force on the institutional right, such that arguments for zero or very low inflation are accorded more weight than they would were Milton Friedman still in full effect.

"...keeping Ben Bernanke's Fed from loosening up"? What planet does this man measure money supply on? Money supply is exploding. The recent data show 13-week annualized SA M2 money supply growth at 8.2%! At the start of the year 13-week annualized SA M2 money supply growth was half the current rate at 4.2%.

But W.W. wants to bring Milton Friedman back into the picture and his rule-based money printing:

Scott Sumner, a professor of economics at Bentley University who identifies himself as a "neo-monetarist", has argued that Friedman would have supported monetary stimulus. And he has argued, on neo-Friedmanite grounds, that tight monetary policy both precipitated and exacerbated our recent recession. I happen to think Mr Sumner is correct, but his expansionary prescription remains anathema on the right.

He then tells us that:

Although sophisticated Austrian-school monetary economists such as George Selgin and Larry White defend rule-based inflation-targeting policies not all that different from Mr Sumner's neo-monetarist nominal GDP-targeting rule, the ghost of Murray Rothbard looms much larger on the free-market right.

If W.W. had a deep and sophisticated understanding of Austrian economics, he would know that Austrians view the increasing of the money supply as the cause of the business cycle. Thus, what White and Selgin are promoting is not a "sophisticated" Austrian school monetary theory, but a non-Austrian theory, that's sounds a lot more Friedmanite than Austrian.

Indeed, in his rant, W.W. does quote Rothbard on Friedman:

In common with their Keynesian colleagues, the Friedmanites wish to give to the central government absolute control over these macro areas, in order to manipulate the economy for social ends, while maintaining that the micro world can still remain free. In short, Friedmanites as well as Keynesians concede the vital macro sphere to statism as the supposedly necessary framework for the micro-freedom of the free market.

In reality, the macro and micro spheres are integrated and intertwined, as the Austrians have shown. It is impossible to concede the macro sphere to the State while attempting to retain freedom on the micro level.

W.W. though fails to quote Rothbard's analysis of Friedman's view or Rothbard's biting conclusion about Friedman's money policy:

Milton Friedman is, purely and simply, a statist-inflationist, albeit a more moderate inflationist than most of the Keynesians. But that is small consolation indeed, and hardly qualifies Friedman as a free-market economist in this vital area.

In short, it comes as no surprise that Friedman policy prescriptions would fall in line with those of out and out Keynesians. They are different doses of the same prescription. And Friedman is sinking down the memory hole, not becasue he has a more "sophisticated" monetary plan, but because the Keynesians already incorporate his money printing schemes and they don't have any use for his free market views relative to government interventions. He doesn't have a significant role on the anti-interventionist side because when the chips come down, specifically on monetary policy, he is as much of an interventionist as Paul Krugman and that crowd. Who needs him? As an economic theorist, he has a split-personality.

It isn't so surprising that Friedman's legacy is not carried on after his death, but that he was given so much attention when he was alive. This can only be attributed to his argumentative style when he stuck to defending free markets. His style resonated with people, but following his death, when he no longer comments on the issues of the day, he has nothing that causes people to grab on to his thinking. What he had right is done in a more logical form by Ludwig von Mises and Murray Rothbard. What he got wrong is taken to a more extreme degree by the Krugman's Joe Stiglitz's and Robert Reich's of the world, so they don't need nor want his theories.

The split-personality intellectual views of Friedman have no core supporters. The few calling for a rise of Friedmanite thinking have simply not recognized this. They are going to have a long wait, if they think there is going to be a groundswell of support for Friedmanite split thinking.

And if these guys think Bernanke has found Rothbard (while Bernanke is printing money at an 8.2% annual rate) well then, I would like to invite them up to San Francisco to see the awesome fog machine I am selling up there.

Update: A friend tells me that W.W. is most likely Will Wilkerson, a self described libertarian.

Wilkerson writes:

 I uphold libertarian principles and believe wholeheartedly in minimal government, or no government if it would work....

I guess this means liberty with a bankster run central bank.  Yup, that's the forgotten Milton Friedman, alright.