Friday, September 30, 2011

NEIN, NEIN, NEIN, and the death of EU Fiscal Union

Ambrose Evans-Pritchard has the most negative take on the recent vote in the Parliament. If his interpretation is accurate, the EU may indeed be doomed and rumors of the Germans printing up d-marks may indeed be very accurate. Here's Pritchard:

Judging by the commentary, there has been a colossal misunderstanding around the world of what has just has happened in Germany. The significance of yesterday’s vote by the Bundestag to make the EU’s €440bn rescue fund (EFSF) more flexible is not that the outcome was a "Yes".

This assent was a foregone conclusion, given the backing of the opposition Social Democrats and Greens. In any case, the vote merely ratifies the EU deal reached more than two months ago – itself too little, too late, rendered largely worthless by very fast-moving events.

The significance is entirely the opposite. The furious debate over the erosion of German fiscal sovereignty and democracy – as well as the escalating costs of the EU rescue machinery – has made it absolutely clear that the Bundestag will not prop up the ruins of monetary union for much longer.

Horst Seehofer, the leader of Bavaria’s Social Christians, said his party would go "this far, and no further"...

This great eruption of feeling in Germany has been the transforming political and strategic fact of Europe over the summer. Finance Minister Wolfgang Schäuble is no doubt scrambling around trying to find some formula to breach his pledge that there is no secret plan to leverage the EFSF into the stratosphere.

He will try to pretend that this is not a flagrant double-cross. But his scheming with the French is largely irrelevant at this point. Bigger events are rolling over him. If he really thinks he can dupe the Bundestag yet again, he is out of his mind. And will soon be out of office.

As Bundestag president Norbert Lammert said yesterday, lawmakers had a nasty feeling that they had been "bounced" into backing far-reaching demands. This can never be allowed to happen again. He warned too that Germany's legislature would not give up its fiscal sovereignty to any EU body.

In a sense, the Bundestag vote was much like the ruling by the Constitutional Court earlier this month. It too said "Yes" to the bail-out machinery, but that was not relevant fact. What mattered was the Court’s implicit warning that Germany had reached the outer boundaries of EU integration, that German democracy is under threat, and its explicit warning that the Bundestag’s fiscal powers could not be alienated to Brussels...

Repeat after me:







Get used to it. This is the political reality of Europe, since nothing of importance can be done without Germany. All else is wishful thinking, clutching at straws, and evasion. If this means the euro will shed some members or blow apart – as it almost certainly does – then the rest of the world must prepare for the day.
I am not familiar enough with German politics to pass judgement on Pritchard's view. All I know is that the Bundestag voted for one more round of Greek bailoiut money. That's the way it's been going, round by round. I'm sure that most German's are tired of being played for saps. The question is do they have what it takes to ring in their leaders and stop them from going in a direction the German people don't want to go. That is will the German people really be able to stop even more bailouts for the PIIGS.

Perhaps the solution will be that the Germans go back to the d-mark, and the ECB without the obstruction of the Germans prints euros as though the entire non-German EZ was an olive republic.

(htGrahamDugas) on Lessons for Obama from Zimbabwe

Things can improve rapidly if you free an economy and maintain a conservative monetary policy. explains:

Hard to imagine it was just four years ago that pundits across the globe were slinging harsh and vilifying attacks against Zimbabwe’s President Robert Mugabe. They asserted that Mugabe under the banner of populism and black sovereignty had run and was continuing to run the country’s economy into the ground. Inflation’s was at an unimaginable rate of 100,000 percent which eventually grew to 231 million percent.The shelves of many stores were almost empty much of the time, and prices were constantly increasing due to hyperinflation. For the general population, it was estimated that four out of five people were unemployed and that the situation was so bad that about 3,000 people a day were reported to be crossing Zimbabwe’s borders into neighboring countries.

This is no longer the case, thanks namely to policies put in place and established by the same supposedly villainous Robert Mugabe. No longer does the African nation suffer with the highest rate of inflation in the world. Now just a few years’ latter goods are back on the shelves of local stores. Why, because of the government’s decision to replace the Zimbabwe dollar with the South African rand and the US dollar.

Zimbabwe’s economy has produced economic growth for two successive years due to positive policies and strong commodity prices, and this according to the International Monetary Fund. Although this southern African country’s economy was beaten down by hyperinflation which reached 500 billion percent in 2008, it grew 5.7 percent in 2009. Now as it stands, Zimbabwe has a budget surplus and demonstrates additional signs of improvement. The economy of Zimbabwe grew close to 8 percent in 2010 is expected to grow near 10 percent this year...

I often wonder why these occurrences in Zimbabwe and imposed by President Mugabe have received vapid coverage in mainstream western media and not openly discussed and acknowledged by President Obama. After all it was just last year when the nation‘s central bank introduced a $50 billion note (at the time enough to buy just two loaves of bread). It was implemented to avoid cash shortages because at the time, like our dollar, theirs was virtually worthless. The simple lesson for the President should be to learn from what transpired in Zimbabwe, but he will not. Some economists have suggested that with the Federal Reserve Bank incessant use of quantitative easing (printing fiat money willy nily), that the U.S. economy will enter “hyperinflation” similar to what we saw in Zimbabwe. Why? Because no matter what, the artificiality of the US economy will be subjected to the reluctance of the Federal Reserve to raise interest rates. We are already seeing large increases in everything from commodities to basic goods and with government debt growing so much, inflation has to start to accelerate at a dangerous rate.

...politicians figure the best way to grow (which isn’t growth) our economy is by printing new money to pay its debts, and borrow hundreds of billions more abroad in the form of Treasury obligations that someday must be paid...

From what has been said and written, it is pellucid that Dr. Ron Paul understands this as well as Robert Mugabe. The query is does or can President Obama and can he learn from them both?

Hotel Occupancy Rate Continues to Improve

In year-over-year comparisons for the week, occupancy rose 4.1 percent to 66.8 percent, average daily rate increased 4.0 percent to US$107.24, and revenue per available room finished the week up 8.3 percent to US$71.65, reports

In the chart above, the sharp decline in 2001 was related to 9/11, and the sharp increase towards the end of 2005 was due to Hurricane Katrina. The occupancy rate collapsed in 2008 as a result of the recession, and has slowly recovered back to the median, another indication that a recovery is in progress. A Fed money printing manipulated recovery, though it may be.


The Government Attack on S&P

Since S&P downgraded U.S. government debt, the SEC has begun a review of S&P’s methodology for the downgrade and whether proper review procedures were followed.

Now, SEC inspectors are saying a large credit rating firm “appeared to allow” for a pending rating decision to be disclosed to certain people before the action was publicly announced.

Don't be surprised when S&P is announced as the agency. These type of inside tips occur on Wall Street on a daily basis and the SEC could nail any ratings agency or news service if they wanted to.

Pre-internet, I'm told a trader used to get calls just minutes before a major wire service moved market moving news across the tape.

This is one of the dangers of over-regulation. Often the government ignores violations but uses the regulations as a way to keep people in line. S&P stepped way out of line, in the government's view, and they are going to get smacked every way the government can think of smacking S&P.

Chris Christie's Big Problem

Last night, I asked a D.C. insider about Chris Christie. He stated the obvious, which will be one of the attack points if he can be lured into the race:

Chris Christie is one jelly donut away from a heart attack.

Prices Are Going Up Faster Than a Year Ago

The below chart was created by the Dallas Federal Reserve.

The chart plots the evolution of the distribution of price increases in the monthly component data over the past year. The chart shows the percentage of components each month, weighted by their shares in total spending, for which prices grew between 0 and 2 percent (at an annual rate); between 2 and 3 percent; between 3 and 5 percent; between 5 and 10 percent; and more than 10 percent.

Thus, you can see that the purple chart area is narrowing, which means fewer prices are going up on an annual basis in the range of 0% to 2%. On the other hand, the blue range is increasing which are prices that are climbing between 2% and 3%. Most interesting is the green region, which is up over the last two months. This sector is of prices that are going up on an annual rate of more than 10%. It shows that 14.8% of prices are climbing at an annual rate of more than 10% (The low was 3.8% climbing 10% plus in Nov 2010).

Bottom line, if it feels that prices are climbing much faster than is reported by the BLS, it's because many prices are. Over 50% of prices are now climbing at an annual rate greater than 2%, whereas in September 2010, more than 50% of prices were climbing at a rate less than 2%.

HOT: Berlin Currency Talks

Put this down in your notebook under: curious.

Yesterday, I reported that the insider Philippa Malmgren was speculating that Germany is printing up marks to prepare for an exit from the euro.

Now, Bloomberg is reprorting:

French Finance Minister Francois Baroin and German Finance Minister Wolfgang Schaeuble will attend talks on currencies in Berlin on Oct. 6, the German government said today at a press conference.

The talks will also be attended by Christine Lagarde, managing director of the International Monetary Fund, European Central Bank President Jean-Claude Trichet, Chancellor Angela Merkel, World Bank President Robert Zoellick and Angel Gurria, secretary general of the Organization for Economic Cooperation and Development.
As Hans Palmstierna writes to me in an email:

France+Germany+World Bank+IMF+OECD - what could they possibly have to discuss about currencies?

I thought there was only one currency in Europe these days. What's with the plural?

Thursday, September 29, 2011

Oh Geez, Charles Koch Advised Friedrich Hayek to Sign Up for Social Security

The interventionists will never let us hear the end of this.

A researcher has found correspondence between Friedrich Hayek and billionaire Charles Koch, where Koch urged Hayek to sign up for Social Security payments, to insure that Hayek, recovering from a gall bladder operation, would be able to make a trip to the US with the knowledge that he would be covered by Medicare for any medical emergencies.

Walter Block, I'm guessing, would consider Hayek justified in taking SS payments, since Hayek paid into the program for many years. But, where does Koch get off throwing this at Hayek without as much as a nod to the libertarian principles involved in such a decision?

What was behind all this?

Koch wanted Hayek to visit the US and spend some time at the Koch-controlled Institute for Humane Studies. How bad did the exchange get between Koch and Hayek? Here's The Nation, breaking the story:

A few weeks later, the institute reported the good news: Professor Hayek had indeed opted into Social Security while he was teaching at Chicago and had paid into the program for ten years. He was eligible for benefits. On August 10, 1973, Koch wrote a letter appealing to Hayek to accept a shorter stay at the IHS, hard-selling Hayek on Social Security’s retirement benefits, which Koch encouraged Hayek to draw on even outside America. He also assured Hayek that Medicare, which had been created in 1965 by the Social Security amendments as part of Lyndon Johnson’s Great Society programs, would cover his medical needs.

Koch writes: “You may be interested in the information that we uncovered on the
insurance and other benefits that would be available to you in this country.
Since you have paid into the United States Social Security Program for a full
forty quarters, you are entitled to Social Security payments while living
anywhere in the Free World. Also, at any time you are in the United States, you
are automatically entitled to hospital coverage.”

Then, taking on the unlikely role of Social Security Administration customer service rep, Koch adds, “In order to be eligible for medical coverage you must apply during the registration period which is anytime from January 1 to March 31. For your
further information, I am enclosing a pamphlet on Social Security.”

The Nation then gets carried away, painting the entire libertarian movement as having what appears to be the opportunistic bent of Koch:

Why didn’t Charles Koch offer to put up some of his enormous wealth to pay for Hayek’s temporary medical insurance? One obvious answer: because the state had already offered a better and freer program. But perhaps Koch’s stinginess also reveals the social ethic behind libertarian values: every man for himself; selfishness is a virtue.
To long term observers of the libertarian movement, this early opportunistic move by Koch will come as no surprise. It's likely why he attempts to distant himself from the parts of the libertarian movement that promote the great economists Ludwig von Mises and Murray Rothbard. For an opportunist, like Koch, Mises and Rothbard are simply too principled.

It's also likely why Koch puts up with the beltarians around him. For an opportunist, these malleable types who can love the Fed and love war, when it's necessary, and still with a straight face think they are lovers of liberty, are just what an opportunist needs.

Ignoring, Mises, Rothbard and Ron Paul, is something a beltarian can do with the greatest of ease. It's about as easy for them as it is for Charles Koch slipping a Social Security pamphlet into an envelope and sending it off to Hayek.

Russian Central Bank to Offer Gold-Backed Loans

Bob Murphy emails to point out some news that was not widely disseminated by MSM (I wonder why?)

Russia's central bank announced in late-August that they will start to offer gold-backed loans for up to 90 days at an interest rate of 7 percent.

The rate on the facility is in line with the central bank's Lombard rate on borrowing secured against high-quality bonds.

The instrument is not likely to see much demand at first, but it sure looks like the Russians are thinking long term and that gold is a part of their long term thoughts.

In the meantime, the latest from the Fed is that they don't own any gold, but they have "receipts" from the Treasury that may, or may not, have gold backing.

Office Rental Surge Continues in Parts of California

Fed money printing continues to have impact in Silicon Valley and, now,other California areas.

A Meyers LLC reports office space absorption growing dramatically in various submarkets in Orange County, San Francisco, San Diego and Santa Clara County.

In 2Q11, Silicon Valley experienced 469,892 sf of net absorption, according to Meyers.

In Orange county, the Greater Airport submarket, which includes Costa Mesa, Irvine and Newport Beach saw 208,716 sf of net office space absorbed.

Prior to this release, most indication were of growing strength in Silicon Valley and San Francisco, the strength in southern California suggests that, as I expected, the strength will expand in other regions.

All indications point to a manipulated boom on the way.

With Bernanke printing money the way he is, those who are forecasting a double-dip are going to be way off.

Elizabeth Warren Blowback $5 Monthly Charge for Debit Cards

Bank of America plans to introduce a $5 monthly debit card usage fee for many of its account holders beginning early next year, the company said.

"The economics of offering a debit card have changed," said Bank of America spokeswoman Anne Pace.

The Dodd-Frank Act's Durbin amendment, which takes effect October 1, and inspired by America's great interventionist, Elizabeth Warren, caps fees banks can charge merchants for processing debit cards to 21 cents per transaction, potentially costing banks billions of dollars in fee income. The banks are going to try and get it from cardholders.

Yup, the sheriff past through town and left a mess.

Syrians Pelt U.S. Ambassador With Tomatoes

U.S. ambassador Robert Ford was barraged with tomatoes by a crowd loyal to the regime of Syrian President Bashar al Assad. Ford was meeting with politician Hassan Abdul Azim when about 100 protesters surrounded the office and tried to get in. Meanwhile Syria once again accused the U.S. of inciting violence against its military.


Forget the Judge, Bob Murphy Gets Interviewed in Slovakia

I think the television anchor is fascinated by Murphy's economic wisdom. View here.

UPDATE: Bob Murphy emails:

In all seriousness, you would be shocked at how many people over there knew about the Mises Institute, Ron Paul, etc

Has Germany Gone Schizophrenic?

What's up with Germany? German Chancellor Angela Merkel continues to pose tough on handing more money to Greece, but manages to vote for every bailout that is proposed by the eurozone.

The German people are against more bailouts, yet, just today, Germany's parliament approved reforms to the European Financial Stability Facility that would allow the fund to participate in the primary market and to recapitalize European banks.

Clearly, the people of Germany are leaning one way and the political leaders another, and so the bailouts get approved.

However, we shouldn't discount Philippa Malmgren's report that the German's are printing up marks and plan on re-introducing that currency. It may not happen this week, but even German officials realize that the bailout of the PIIGS can't go on forever without serious inflationary consequences.

The printing up of the marks, if indeed it is occurring, may be a sign that German political leaders have not gone completely EuroZone insane and that they know that things may get so bad that they may have to ignore bankster pressures and go it alone at some point in the not too distant future.

SUPER HOT: Insider Reports Germany Printing Up Marks will Abandon Euro

Long-time EPJ readers know that I have long identified Philippa Malmgren as a major insider.

She was Special Assistant to the President for Economic Policy on the National Economic Council (President Bush). She was also a member of the President's Working Group on Financial Markets, aka, the Plunge Protection Team. Her client list includes every elite corporate firm in the world (The list is here.).

She is now reporting, according to the Sweden's largest business paper, Dagens Industri, that she expects the Germans will announce they will return to the Deutschmark and that they have already ordered the new currency printed up.

UPDATE: This is what appears on her web site. Apparently, she is "speculating" that Germany is printing up marks:

News to expect in the coming days and weeks...

•The Germans announce they are re-introducing the Deutschmark. They have already ordered the new currency and asked that the printers hurry up.
To get a sense on how deep an insider she is, check out this gossip she also reports:

Apparently, Lagarde and Trichet spent a day after Jackson Hole, in a heated argument with Lagarde pushing for a more realistic assessment of the Eurozone debt and of the true condition of Eurozone bank exposures to the debt. Trichet, in contrast, believes that it is possible to buy time and lead the market to believe a resolution is possible. Lagarde’s view is that many European banks are fundamentally insolvent and that’s why they are taking liquidity directly from the ECB. This is before the defaults even occur. Trichet’s view is that the banks might be able to earn their way back to health if they had more time. The cynical view is that Trichet does not want the Euro to end or a bank crisis on his watch. It is said that this was the principal issue that led to Jurgen Stark’s resignation: Stark and Lagarde favor facing the facts as soon as possible whereas Trichet does not want his legacy marred and or he believes that it is always worth buying a little more time.


The FDA Totally Explained

James Altucher writes:

Let’s start with the worst and most corrupt semi-government institution known to
mankind: the Food and Drug Administration. The administration that lets you
smoke as many cigarettes as you need to get lung cancer, drink a ton of alcohol
to get liver cancer, but then won’t let you take any of the drugs or treatments
for lung cancer or liver cancer.
Read Altucher's full positively brilliant take on the FDA, medical doctors and the entire medical industry, here.

Wednesday, September 28, 2011

The Fed Responds: We Don't Own Any Gold

The Federal Reserve has responded to one of two "Herman Cain Letters" I have sent (See here and here). The response was to my inquiry relative to the Fed's listing on their H4.1 weekly release of a line item: "Gold Stock" 0f $11.041 billion. I had asked to see the gold, or have it audited. The Fed responded: "The Federal Reserve Board does not own gold."

Their full reponse would have made Bernie Madoff proud. I reproduce it in full below and also reproduce my follow up "Herman Cain questions".

The Fed's response (My bold):

Dear Mr. Wenzel:

Thank you for your inquiry. The Federal Reserve Board does not own gold. Therefore, the Department of the Treasury is best situated to respond to your questions. With regard to your reference to gold stocks, the information to follow, from the Board's website, should be helpful. It appears in an interactive guide to our weekly balance sheet (the H.4.1.) and describes why we have a line item on Table 1 for "Gold Stocks."

"The gold stock of the United States is held by the Treasury and consists of gold that has been monetized: the Treasury has issued certificates reflecting the value of the gold to the Federal Reserve in return for a credit for the same dollar value to the Treasury's accounts. The gold stock also includes unmonetized gold, against which certificates have not been issued by the Treasury (although virtually all the Treasury's gold has been monetized since 1974).

The value of the gold stock is recorded on Federal Reserve and Treasury books at $42.22 per troy ounce, the so-called official U.S. government price established by international agreement and confirmed by Congress in 1973. If the Treasury buys or sells gold, however, the purchase or sale is executed at market prices.

Acquisition of gold, and its monetization by the Treasury, can affect reserve balances at depository institutions. Acquisition increases reserve balances. "Gold stock" and "Treasury cash holdings" rise, but the "U.S. Treasury, general account" balance falls. Monetization leaves the gold stock unchanged, but reduces Treasury cash holdings and increases the Treasury's general account. Monetization itself does not alter reserve balances, but these balances increase when the Treasury spends the proceeds or shifts the proceeds to the accounts that it maintains with depository institutions."

There is a separate line item on Table 8 of the H.4.1 for Gold Certificates. Here's the text that describes that entry:

"The gold certificate account reflects the receipts issued to the Reserve Banks by the Treasury against its gold holdings. In return, the Reserve Banks issue an equal value of credits to the general account of the Treasury, computed at the statutory price of $42.22 per troy ounce. Because nearly all of the gold held by the Treasury has been monetized in this fashion, the Federal Reserve Banks' gold certificate account of $11 billion represents the nation's entire official gold stock."

Again, we thank you for your question. I hope this information is helpful.

Sincerely, SKS, Board Staff
My follow-up:

Dear SKS,

Thank you for your quick response to my email. Your response raises a number of questions with regard to what you refer to as "our weekly balance sheet".

I have looked at balance sheets for decades and have never come across a "balance sheet" such as the type posted weekly by the Federal Reserve. Has any outside accounting firm looked at what you call a "balance sheet" and stated that it is an acceptable "balance sheet" that conforms to generally accepted accounting principles or to any accounting principles in any fashion?

Further, I am curious at to why, in Table 1, the reference to the certificates states only "gold stock" without a footnote indicating that it is not in fact gold stock but certificates, when explanatory footnotes appear on many other items. What is the thinking behind the lack of a full explanation in the top section of what you refer to as a "balance sheet"? I have never seen such a failure to indicate such footnote on a top line of a balance sheet before.

As for the gold certificates, could you please tell me how often the Federal Reserve conducts an audit of the gold held by the Treasury that backs up what you (the Fed) call "receipts"?

Further I note that the Treasury "Balance Sheet" lists gold holdings of $11,041 million. The same as the Federal Reserve. This would indicate that all the gold held by the Treasury is held for the benefit of the Federal Reserve.

However, the Treasury gold position on the "Balance Sheet" also contains this footnote:

(4) gold (including gold deposits and, if appropriate, gold swapped)3

Has anyone at the Federal Reserve contacted the Treasury to determine if the Treasury has swapped out its gold? In other words, has anyone at the Federal Reserve attempted to determine that the Federal Reserve holds "gold certificates" that, indeed, can be converted to gold?

If it has been determined that the Treasury does not hold the gold to back up the
certificates or has swapped the gold out, shouldn't this be noted on what you
refer to as a "balance sheet", especially given that the Treasury on its balance
sheet has such a preliminary footnote already?

Thank you for your quick response to my "Herman Cain questions" and I trust these additional "Herman Cain questions" will produce as rapid a response.


Bob Wenzel

Krugman Works Out His Mind at the 92nd St Y

In what must have been one hell of a show, NYT columinist Paul Krugman told an audience at the New York City 92nd St Y that in order to reverse the current lumbering economy:
What we need is actually the financial equivalent of war.
He went on to state that
What actually brought the Great Depression to an end was the enormous public spending program otherwise known as World War II.
Robert Higgs exploded the absurdity of war as an economic stimulant ages ago:

Looking to the World War II model of how to deal with today's economic crisis is nonsense. Whatever else the war might have accomplished, it did not produce conditions that we may properly describe as genuine prosperity.

Government spending — whether on our current armed forces and their more than 800 foreign bases or on "green" energy and other government-favored projects — does not produce prosperity. It only diverts resources, as it always has in the past, from the genuinely productive private economy and bulks up an already bloated government.
And Bob Murphy ripped Krugman's head off on this point using Krugman's own words:
As a last point, you might be thinking, "What about World War II? Isn't that a great example of the Keynesian multiplier at work?"

Well, Robert Barro ran the numbers and said no, it wasn't. And in his response, did Paul Krugman challenge the math? Nope, Krugman said that only a "bonehead" would have thought World War II would show the power of the multiplier. So we can't use that as an example to justify the Keynesian models.
Then Krugman called for more inflation! HuffPo has the details:
We have not had the kind of aggressive policies either from the Fed or from the federal government that the depth of the crisis really calls for," Krugman said. 
Krugman said he believes that the Federal Reserve should print more money to spur "above-average" inflation for five years, raising prices to bring down both unemployment and debt.
Ludwig von Mises warned about what inflation really is about:
Inflationism, however, is not an isolated phenomenon. It is only one piece in the total framework of politico-economic and socio-philosophical ideas of our time. Just as the sound money policy of gold standard advocates went hand in hand with liberalism, free trade, capitalism and peace, so is inflationism part and parcel of imperialism, militarism, protectionism, statism and socialism.
It is, thus, may not be an accident that Krugman cheers on inflation and tells us in the next breath that World War II did great things for the economy. That's what  imperialistic, militaristic, statist socialists do.

Why Bridget Should Work for the Federal Reserve

She explains in this video why the dollar is a money that is sounder than gold.

Perhaps Bob Murphy could school her, since he wrote:
We need to explain why money has a certain exchange value on the market. It won't do (so these economists thought) to merely explain this by saying people have a marginal utility for money because of its purchasing power. After all, that's what we're trying to explain in the first place—why can people buy things with money?

Mises eluded this apparent circularity by his regression theorem. In the first place, yes, people trade away real goods for units of money, because they have a higher marginal utility for the money units than for the other commodities given away. It's also true that the economist cannot stop there; he must explain why people have a marginal utility for money. (This is not the case for other goods. The economist explains the exchange value for a Picasso by saying that the buyer derives utility from the painting, and at that point the explanation stops.)

People value units of money because of their expected purchasing power; money will allow people to receive real goods and services in the future, and hence people are willing to give up real goods and services now in order to attain cash balances. Thus the expected future purchasing power of money explains its current purchasing power.

But haven't we just run into the same problem of an alleged circularity? Aren't we merely explaining the purchasing power of money by reference to the purchasing power of money?

No, Mises pointed out, because of the time element. People today expect money to have a certain purchasing power tomorrow, because of their memory of its purchasing power yesterday. We then push the problem back one step. People yesterday anticipated today's purchasing power, because they remembered that money could be exchanged for other goods and services two days ago. And so on.

So far, Mises's explanation still seems dubious; it appears to involve an infinite regress. But this is not the case, because of Menger's explanation of the origin of money. We can trace the purchasing power of money back through time, until we reach the point at which people first emerged from a state of barter. And at that point, the purchasing power of the money commodity can be explained in just the same way that the exchange value of any commodity is explained. People valued gold for its own sake before it became a money, and thus a satisfactory theory of the current market value of gold must trace back its development until the point when gold was not a medium of exchange.
The critical difference between fiat and commodity money is that fiat money can be produced in virtually unlimited quantities at very low cost. In this respect, the person who controls the printing press of a fiat currency is in a much stronger position than the person who owns a gold mine. With just some ink and paper, the printing press can create a million new dollars quite easily, whereas the owner of the gold mine would need to hire workers to operate expensive equipment in order to bring forth new amounts of gold having the same market value.

My Second "Herman Cain Letter" to the Fed

During various campaign stops, the Republican presidential candidate and former Chairman of the Federal Reserve Bank of Kansas City, Herman Cain, has suggested that there is no need for another audit of the Fed, that sufficient audits have been conducted. He also has said that if there were any questions about how the Fed works, that one should just call up a Fed public relations department and that they would go over concerns.

This prompted me to contact the New York Federal Reserve and ask them about trading they have done with Primary Dealers, such as Goldman Sachs. That email is here.

Below  I reproduce a second email that I have sent. This one to the Federal Reserve Board of Governors hot shot PR person Linda Robertson who is based at the Fed headquartes in Washington D.C.

Dear Ms Robertson,

During various campaign stops, Republican presidential candidate Herman Cain has suggested that there is no need for another audit of the Fed, that sufficient audits have been conducted. He also has said that if there were any questions about how the Fed works, that one should just call up a Fed public relations department and that they would go over concerns. This is why I am contacting you.

My concern is with the gold stock numbers that are listed regularly on the Federal Reserve Condition Statement of Federal Reserve Banks  of roughly $11 billion.
As per Mr. Cain's suggestion, I would like to see this gold or be provided with the name of an independent person or firm, that I would be comfortable with, that has seen the gold, audited the gold and is willing to swear under oath that the gold exists in the quantities stated on your Condition Statement of Federal Reserve Banks..

As per Mr. Cain's suggestion, I would like to set up an appointment with you so that we can get started on my concern immediately.

As I wrote in a letter to the New York Federal Reserve, I want to commend the new openness program the Federal Reserve has adopted, as indicated by Mr. Cain. I would have thought that it would have been much more difficult to get a complete picture of the gold the Federal Reserve indicates it holds on its Condition Statement of Federal Reserve Banks.
 Best regards,

Robert Wenzel
Editor and Publisher

Europe's High-Risk Gamble

My favorite mainstream economist, Martin Feldstein, is out with an excellent analysis of the current crisis in the EuroZone, below is the takeaway from his report.

The Greek government needs to escape from an otherwise impossible situation. It has an unmanageable level of government debt (150% of GDP, rising this year by ten percentage points), a collapsing economy (with GDP down by more than 7% this year, pushing the unemployment rate up to 16%), a chronic balance-of-payments deficit (now at 8% of GDP), and insolvent banks that are rapidly losing deposits.

The only way out is for Greece to default on its sovereign debt. When it does, it must write down the principal value of that debt by at least 50%. The current plan to reduce the present value of privately held bonds by 20% is just a first small step toward this outcome...

The markets are fully aware that Greece, being insolvent, will eventually default. That’s why the interest rate on Greek three-year government debt recently soared past 100% and the yield on ten-year bonds is 22%, implying that a €100 principal payable in ten years is worth less than €14 today.

Why, then, are political leaders in France and Germany trying so hard to prevent – or, more accurately, to postpone – the inevitable? There are two reasons.

First, the banks and other financial institutions in Germany and France have large exposures to Greek government debt, both directly and through the credit that they have extended to Greek and other eurozone banks. Postponing a default gives the French and German financial institutions time to build up their capital, reduce their exposure to Greek banks by not renewing credit when loans come due, and sell Greek bonds to the European Central Bank.

The second, and more important, reason for the Franco-German struggle to postpone a Greek default is the risk that a Greek default would induce sovereign defaults in other countries and runs on other banking systems, particularly in Spain and Italy. This risk was highlighted by the recent downgrade of Italy’s credit rating by Standard & Poor’s.

A default by either of those large countries would have disastrous implications for the banks and other financial institutions in France and Germany. The European Financial Stability Fund is large enough to cover Greece’s financing needs but not large enough to finance Italy and Spain if they lose access to private markets. So European politicians hope that by showing that even Greece can avoid default, private markets will gain enough confidence in the viability of Italy and Spain to continue lending to their governments at reasonable rates and financing their banks.

If Greece is allowed to default in the coming weeks, financial markets will indeed regard defaults by Spain and Italy as much more likely. That could cause their interest rates to spike upward and their national debts to rise rapidly, thus making them effectively insolvent. By postponing a Greek default for two years, Europe’s politicians hope to give Spain and Italy time to prove that they are financially viable.

Two years could allow markets to see whether Spain’s banks can handle the decline of local real-estate prices, or whether mortgage defaults will lead to widespread bank failures, requiring the Spanish government to finance large deposit guarantees. The next two years would also disclose the financial conditions of Spain’s regional governments, which have incurred debts that are ultimately guaranteed by the central government....

If Spain and Italy do look sound enough at the end of two years, European political leaders can allow Greece to default without fear of dangerous contagion. Portugal might follow Greece in a sovereign default and in leaving the eurozone. But the larger countries would be able to fund themselves at reasonable interest rates, and the current eurozone system could continue.

If, however, Spain or Italy does not persuade markets over the next two years that they are financially sound, interest rates for their governments and banks will rise sharply, and it will be clear that they are insolvent. At that point, they will default. They would also be at least temporarily unable to borrow and would be strongly tempted to leave the single currency.

But there is a greater and more immediate danger: Even if Spain and Italy are fundamentally sound, there may not be two years to find out. The level of Greek interest rates shows that markets believe that Greece will default very soon. And even before that default occurs, interest rates on Spanish or Italian debt could rise sharply, putting these countries on a financially impossible path. The eurozone’s politicians may learn the hard way that trying to fool markets is a dangerous strategy.

I Have Finally Decided to Act on a Herman Cain Suggestion

During various campaign stops, Republican presidential candidate Herman Cain has suggested that there is no need for another audit of the Fed, that sufficient audits have been conducted. He also has said that if there were any questions about how the Fed works, that one should just call up a Fed public relations department and that they would go over concerns.

My specific concerns center around trades the New York Fed has conducted with Primary Dealers (e.g Goldman Sachs). I have heard from sources that the New York Fed, at times, has conducted trades with Primary Dealers that have been hugely profitable for the dealers, at the time of the trades. It would be nice to sit down with the Fed and go over these concerns as Herman Cain suggests can be done.

I have thus contacted the New York Fed and spoke to Eric Pajonk in the NY Feds public relations department. He asked that I put my request in an email. The email is below and is self explanatory. I'll keep you posted with the Fed's response

from Robert Wenzel
Sent at 11:56 AM (GMT-04:00).

date Wed, Sep 28, 2011 at 11:56 AM

Dear Mr. Pajonk,

As per your request I am sending this email as a follow up to our phone conversation. This is to advise that I would like to set up an appointment to review the trading that the Federal Reserve has done over recent years with Primary Dealers. Specifically, I am interested in looking at individual trades conducted that show, the security involved, the date of trades, the Primary Dealer involved (e.g. Goldman Sachs) and the price at which individual trades were executed, for the years 2008 to date. I believe this would be an important way to determine if the rumors I have heard that the NY Fed "shoveled" money to the Primary Dealers through these trades has any validity.

I am making this request at the suggestion Herman Cain. You noted in our conversation that you did not know who Mr Cain is. As background, he is the former Chairman of the Board of the Federal Reserve Bank of Kansas City and also a candidate for the Republican nomination for the presidency.

I have viewed various YouTube videos where Mr. Cain has told the audience that there is no need for an additional audit of the Federal Reserve , that individuals should just call up the Public Relations departments of the Fed and set up appointments to go over any concerns.

I want to commend the new openness program the Federal Reserve has adopted, as indicated by Mr. Cain. I would have thought that the prices at which Primary Dealers conducted trades with the Federal Reserve is something that would have only been uncovered via an audit, but the new openness as indicated by Mr. Cain is a great thing.

I am thinking of starting my review of the transactions on Friday. Do the offices open at 8:00 AM or 9:00 AM?

Best Regards,

Bob Wenzel

Robert Wenzel
Editor & Publisher

Is Jamie Dimon Throwing President Obama under the Bus?

Leading bankster and JPMorgan chief Jamie Dimon met privately  “in a discreet one-on-one” with Mitt Romney on Tuesday morning before a fund-raiser at Brasserie 8¹/2 hosted by Highbridge Capital, a JPMorgan-owned hedge fund, NyPo is reporting.

Dimon cannot publicly endorse a candidate because he sits on the board of the Federal Reserve Bank of New York. But he donated to Democratic candidates in 2008 and privately supported Obama. No such donation so far this year.
 Dimon  has also met with other potential Republican nominees, according to NyPo's source. Dimon may just be covering all bases. It makes sense to have a bet down on all the horses in the race, but clearly, at best, Dimon doesn't think Obama has a lock on re-election.

Fed President: The Fed is Under Attack by Ron Paul

The Fed is feeling the heat.

Federal Reserve Bank of Dallas President Richard Fisher said the central bank’s independence is under attack from both ends of the political spectrum in Congress.

“We are being attacked from the right and from the left, and I don’t see much difference between a certain congressman from Texas named Ron Paul and a certain congressman from Massachusetts named Barney Frank,” Fisher said in response to audience questions after a speech in Dallas yesterday, reports Bloomberg.

It's difficult to see how Barney Frank is a threat to the Fed, but he is right on about Ron Paul. Fisher mischarecterizes the heat a bit though when he states that Ron Paul is attacking "the central bank’s independence." This implies that the attack is about getting control of the money making dashboard of the Fed to control when the Fed prints and for whose benefit. What Ron Paul really wants to do is shutdown the Fed's money printing apparatus so that there is no one to influence.

Amazon to Unveil $99 Tablet: "Kindle Fire"

Again, innovation booms and prices drop in the least regulated sectors of the economy.

The Kindle Fire will have a 7-inch display and sell for as low as $99, compared with $499 for Apple’s cheapest iPad.

Bloombeg reports:
The Kindle Fire doesn’t have an embedded camera or a microphone. The device offers Wi-Fi connectivity, though not 3G access, and comes with a 30-day free trial of Amazon Prime, the company’s $79-a-year membership service that includes streaming video and free two-day shipping.
Amazon has painted over the rough surfaces of Google’s Android operating system with a fresh and easy-to-use interface and tied the device closely to its own large and growing content library of movies, magazines and music.
Imagine what would happen in the medical and pharmaceutical industries if they weren't wasting so much time playing footsie with regulators.

Why It Makes Sense Not to Pay Off Your Mortgage---Even If You are about to Retire

Shelly K. Schwartz at CNBC writes:

The countdown to retirement is on for millions of baby boomers and, thanks to a lifetime of diligent saving, some have amassed enough wealth to pay off their mortgages and live debt free.

Conventional wisdom says it's best to pay off your mortgage before retirement, but given the low-interest rate environment, and the need to preserve cash in an unstable economy, that strategy is no longer absolute.

“Paying off your house is one goal, but having a zero-mortgage liability is not the answer for everyone,” says Jennie Fierstein, a certified financial planner (CFP) in Westborough, Mass. “If you don’t have a stream of resources to replenish it, you might do yourself a disservice by taking money out of the bank to pay off your mortgage.”
There's a lot of wisdom in these words, especially given the price inflation environment we are headed into.

If you have a long-term mortgage with a fixed rate at current levels, at some point the payments will become insignificant relative to your income (even retirement income that is adjusted for inflation).

If you have, say, $100,000 that you have been considering using to pay off your mortgage, it may be much more prudent to put 25% in oils stocks, 25% in silver coins and 50% in nickels. I'm not kidding about the nickels. The current nickel metal content is 75% copper and 25% nickel. The melt value of a nickel is more than 5 cents. If price inflation heats up the way, I expect the melt value to really climb. Nickels will disappear from circulation and climb in value, just like silver coins have done. (A current silver coin is worth $2.28)

But what's great about the nickel as an investment is that if I am wrong and there is no great inflation, your investment stays in tact and you can just spend the nickels (or use it to payoff your mortgage).

Here's more from Schwartz on why paying off your mortgage in full is likely a bad idea:
CFP Fierstein agrees, noting most retirees are advised to withdraw no more than 4 percent from their nest egg each year to ensure they won’t outlive their income.

Thus, if you take $200,000 out of a $500,000 portfolio to pay off your house, your income based on that 4 percent drawdown rate would drop to $12,000 from $20,000 per year. (The $20,000, of course, would have had to help pay for your mortgage.)...

[Further] don’t forget to factor in the effect of the mortgage-interest tax deduction.
If you’re in the 30 percent tax bracket and you’re able to claim the full deduction, a 5 percent loan is really only costing you roughly 3.5 percent.
Bottom line: The country is a financial wreck. Debt at the state, local and federal levels is suffocating government. Most likely the government will respond to this by getting the Federal Reserve to print money and depreciate the dollar. During such a period you want to own assets that will protect you against price inflation and you also want to owe money long term at fixed rates that you can pay off in the cheaper dollars that Fed will be creating.

In other words, think twice about conventional wisdom that says you should payoff your mortgage. If you have a long term fixed rate mortgage at the current record low rates, and put your assets in the right place, paying off your mortgage is likely the last thing you want to do.

The Importance of Allowing Citizens Choice in Currency

Richard Ebeling emails:
Earlier this week I participated in the Utah Monetary Summit in Salt Lake City, devoted to discussing the significance of the Utah Legal Tender Act of March 2011, which gave citizens of that state legal right to transact and contract in U.S. gold and silver coins instead of Federal Reserve Notes, as a stepping stone to full choice in currency for the American citizenry.

I have posted on Northwood University's blog, "In Defense of Capitalism & Human Progress," the talk that I gave as the closing after dinner speaker at the event, on "Government Controlled Money or Choice in Currency?"

I discuss the disastrous history with government monopoly paper money, especially during the last century, and the importance of people having the right to choose the money they wish to accept, hold and use, both to protect themselves from the government's abuse of the monetary printing press and as a way to take power away from government to plunder society.
Here's a takeaway from Richard's speech:

The fact is, the modern welfare state is bankrupt. It is bankrupt ideologically; no one really any longer believes that the Interventionist- Redistributive State will bring mankind material happiness or social harmony. Everyone knows that it is nothing more than a vast and corrupt political machine through which, as Frederic Bastiat said long ago, everyone tries to live at everyone else’s expense.

In the process, the productive capacity of the society slowly grinds to a halt, as more and more people turn from productive self-responsibility to redistributive dependency. It also generates a mental attitude and a political presumption of legitimacy to that redistributive dependence that pervades each and every income group and social category throughout the nation.

Most opinion polls show that a fairly sizable majority of the American people think that government is too big, spends too much, and taxes far too excessively. But once the questions turn to “specifics” of cutting particular government programs, it is soon seen how the tentacles of the welfare state reach into virtually everyone’s pocket.

It is not only that government taxes people in varying amounts to feed the redistributive process. It is also the case that there are few people in the land who do not have some type of money, program, or benefit put into their pockets by government. Most people cannot imagine living without their government redistributive “fix.” And, admittedly, breaking people’s addiction to their government benefits, subsidies, protections, and special favors would and will involve serious withdrawal pains.

This also means that the welfare state is rapidly reaching financial bankruptcy, as well. Neither taxation nor borrowing of private savings can or will be able to cover all the costs of current and future government spending under existing interventionist and redistributive legislation and regulation.

The government may very well, therefore, use its most important financial resource to keep moving the wheels of political spending. Those in political power may more and more turn the handle of the monetary printing press, and they may turn it faster and faster...

Taking away from the government its power of compelling the citizenry to accept money that it monopolistically controls and abuses may serve as an important legal and economic change to force the government and those who live at its spending trough to face the reality of the welfare state’s ideological and fiscal bankruptcy before it is too late to avert a complete collapse of the society.

Choice in currency may be a valuable avenue for helping to restore the American tradition and practice of individual rights, free markets, and limited government under the rule of law. And it can be an important legacy for us to leave to our children and grandchildren, so they may, hopefully, live out their lives in liberty for the remainder of the twenty-first century.
The entire speech is here.

Tuesday, September 27, 2011

Germany Slams Geithner

Rumors have been circulating that the EuroZone is about to increase its current emergency lending limit of €440bn  by up to €2 trillion. The plan is based on an outline suggested by US Treasury Secretary Geithner.

It, bottom line, would result in the European Central Bank most likely printing money to create the funds for the larger lending pool. Markets for the last 24 hours have climbed on anticipation of the announcement of the plan.

Now that plan appears in jeopardy as  German finance minister Wolfgang Schauble said it is a "stupid" plan.

Ambrose Evans-Pritchard reports:
"I don't understand how anyone in the European Commission can have such a stupid idea. The result would be to endanger the AAA sovereign debt ratings of other member states. It makes no sense," he said.
Mr Schauble told Washington to mind its own business after President Barack Obama rebuked EU leaders for failing to recapitalise banks and allowing the debt crisis to escalate to the point where it is "scaring the world".
"It's always much easier to give advice to others than to decide for yourself. I am well prepared to give advice to the US government," he said.
In perhaps the understatement of his career, Evans-Pritchard continues:
The comments risk irritating the White House. US Treasury Secretary Tim Geithner has been a key driver of plans to give the EFSF enough firepower to shore up Italy and Spain, fearing a drift into "cascading default, bank runs and catastrophic risk" without dramatic action.
The EZ is a mad structure, with Germany talking out of both sides of its mouth. German Chancellor Angela Merkel continues to lead the tough talk in line with her Finance Minister. The tough talk, in her case, though, is the result of domestic pressures, she is a bankster puppet, rather than a true hardliner like Schauble.

When all is said and done, and the shouting stops, Greece will get it's next tranche of money, due in October, but the Geithner/bankster long-term  plan will be suspended in air. 

The Lying Cain on His Position about Auditing the Fed

Herman Cain, candidate for the Republican presidential nomination, will release a book on October 4, This Is Herman Cain!: My Journey to the White House

Daily Caller obtained an advance copy of the book and reports that in the book:
Cain said [Ron]Paul’s fan [sic] have “stretched the truth” by accusing him of not wanting to audit the fed.

“I have never said that,” Cain wrote. “I have said: ‘I don’t think you’re going to find anything to audit on the Federal Reserve.’ But they want you to believe that Herman Cain doesn’t want the Federal Reserve to be audited.”:
In the below clip, Cain says, while hosting the Neil Boortz Radio Show on 12/29/10, in reference to an audit of the Fed:

We don't need to waste money with another commission or an audit that is not necessary.
Cain is a former deputy chairman (1992–94) and chairman (1995–96) of the board of directors to the Federal Reserve Bank of Kansas City.

Cain sure backs up organizations he has been previously affiliated with. He has been calling for an increase in defense spending, but rarely mentions the fact that he worked as a mathematician in ballistics as a civilian employee of the United States Navy.

Sometimes It Pays to be an Austrian Economist

Andre Grillon sends along this picture of the car belonging to Austrian School Economist Huerta de Soto.

UPDATE: Grillon says, it's chauffeur driven too.

“Ron Paul Is 100% Genuine!”

According to a body language expert Tonya Rheiman, Ron Paul is the real thing.

Fighting Milwaukee's Taxi Cartel

Mark Meranta of the Institute for Justice emails to report:

This morning, IJ launched a huge economic liberty lawsuit that provides a textbook case of protectionism and regulatory capture. Currently, Milwaukee allows only 321 taxicabs on its streets—almost half of which are owned by Milwaukee County Supervisor Joe Sanfelippo.
That is about one cab for every 1,850 residents, one of the highest ratios in the country. This cap on taxi permits has sent permit costs skyrocketing, from $85 to $150,000—putting the dream of owning a taxi business out of most people’s reach.
Get a load of this quote from Sanfelippo as reported by the Milwaukee Journal-Sentinel:
One of the biggest permit holders is Michael Sanfelippo, who controls 162 permits. He says that when Milwaukee had more permits, no one could make a decent living and the quality of cabs and service suffered.

"This is not a cab town," he said.

Sanfelippo, who also operates American United, a dispatching service for cabs, scoffed at the notion that the permits would command $150,000.

"I think the last couple I bought were maybe $80,000," he said.

Bruce Bartlett Logic

At NYT, the former Beltarian, now Keynesian, Bruce Bartlett just went off on low taxes and small government, he writes:
Low taxes and small government are not the keys to prosperity. If they were, these five countries and many others where taxes as a share of G.D.P. are in the single digits would be magnets for immigration and investment.
He had lists 5 countries that he considers low tax, small government countries. Among them, Equatorial Guinea , of which he says:
The people are poor and have little freedom.
Bartlett does not explain how it can be possible to have small government and little freedom simultaneously. Who the hell is keeping the people from being free if it isn't the government?

Another example Bartlett uses is Libya, where he quotes a Heritage study and tells us that:
...government revenues are just 3.4 percent of G.D.P.
Does Bartlett take this number seriously and also believe that Libya was small government?  It is believed 10 to 20 percent of Libyans worked in surveillance for Gaddafi's Revolutionary Committees. As far as government revenues being at 3.4% of GDP, that's only because the multi-billions in oil revenue Gaddafi skimmed  went into his pocket before it got listed as government revenue.

Bartlett's anti-tax, anti-small government attack using Equatorial Guinea, Myanamar, Chad, the Congo and Libya as examples of such is simply off the wall.

Is this what eventually happens to Beltarian minds?

Roger Stone Endorses Gary Johnson

I think Roger Stone is an interesting character, but outside of Ed Rollins and the Bushies, who the hell has ever heard of him?

What this endorsement probably means is that Donald Trump has decided not to sign any checks with Roger Stone's name on them. 


A Most Powerful Argument Against Gun Registration

LaTi is reporting that a remake of the movie Red Dawn is going to be released in theatres next year.

Free trade will apparently have an impact on the movie:
In the original "Red Dawn," a group of teenagers in a Washington town battle invading Soviet forces; in the remake, the invaders were changed to Chinese. But that decision turned the film into a hot potato.
After MGM emerged from bankruptcy in late 2009 and decided it wouldn’t release the movie, no other studio wanted to touch “Red Dawn” for fear of offending the government of China, a hugely important market in the increasingly global film business.

As a result, the movie’s producers last winter used digital technology and creative editing to change most of the invaders to North Koreans. (Staunchly communist North Korea is economically isolated and not a market for any American products.) Still, it took most of the year to find a distributor willing to take the movie on.
I sure hope in the remake they don't cut out a line that appeared in original. Early in the original, a Russian commander tells a soldier something along the lines, "Go down to the townhall and get the list of everyone in this town that owns a registered gun."

It's pretty scary when you think about it that a list exists that could be compromised by a domestic or foreign group that could identify peaceful, decent people who have guns for their own protection.

A Quote I Can Use the Next Time Paul Krugman Posts Misleading Numbers

"This goes beyond holding views I disagree with (as does much of what happens in this debate). This is a deliberate attempt to fool readers, demonstrating that there is no good faith here."- Paul Krugman

David Koch Pushing Chris Christie Entry Into Presidential Race

NYT is reporting that David Koch is pushing New Jersey Governor Chris Christie to enter the race for nomination as the Republican presidential candidate.

NYT lists Koch, as a member of the "Draft Christie committee".  NYT also lists Kenneth G. Langone, the billionaire Home Depot founder, Paul E. Singer, a hedge fund magnate and Charles Schwab, as members of what NYT calls a "small but influential group."

NYT goes on:
In recent months, Christie enthusiasts have lighted up the phone lines between Manhattan and Trenton trying to persuade the governor to enter the Republican field amid growing concern about the current contenders.

Several dozen potential Christie backers attended a meeting in July convened by Mr. Langone to introduce the governor to top-shelf Republican donors, many of them on the sidelines so far in the 2012 campaign. Others saw him in action in June, when Mr. Christie quietly flew to Colorado to speak at a private retreat hosted by Mr. Koch and his brother, Charles, another prominent Republican donor.
 Given the growing strength of Ron Paul in the Republican race, Koch support for Christie will have many libertarians scratching their heads. There is no indication that Christie has any libertarian leanings, and their are many indications he is simply a front man for Republican elite, who are unhappy with the performances of Mitt Romney and Rick Perry in the Republican presidential nomination race.

To think that Koch and the ultimate Wall Street insider, Langone, are sitting in a room plotting the launch of a Christie campaign is likely to cause any libertarian outside the Beltway to shudder.

Jon Stewart Gives Ron Paul Some Campaign Advice

Ron Paul appeared on Jon Stewart's The Daily Show. The interview is simply awesome. Stewart treats Dr. Paul with respect and Dr. Paul gets the opportunity to discuss many of his views in detail.

The clip is here.

Rand Paul versus Rockefeller and Regulations

Senator Rand Paul is single-handedly blocking legislation that would strengthen safety rules for oil and gas pipelines, reports WaPo.

The Senate Commerce, Science and Transportation Committee approved the bill in May without opposition. It would authorize more federal safety inspectors, and pipeline companies would have to confirm that their records on how much pressure their pipelines can tolerate are accurate.

According to WaPo, under the bill, federal regulators could order that automatic shutoff valves be installed on new pipelines so leaks can be halted sooner. And it directs regulators to determine whether mandatory inspections of aging pipelines in densely populated areas should be expanded to include lines in rural areas. It would be paid for by industry fees.

The bill’s main sponsors — Sens. Jay Rockefeller, D-W.Va., the committee’s chairman, and Frank Lautenberg, D-N.J. — have been trying to bring it to the Senate floor for passage by “unanimous consent,” essentially a voice vote. That requires Democratic and Republican leaders to check with each of their party members for objections.

Rand Paul is the only Senator objecting, even support for the measure from Kentucky companies hasn’t budged Paul.

Officials familiar with Paul’s objections, reports WaPo, said he has told lobbyists and company officials that he’s not opposed to any specific part of the bill, just to the notion of additional federal regulation.

“The rationale behind the hold is that he came to Congress as a person that doesn’t want to provide more regulatory authority to the regulators. He wants to look at those (regulations) and pull back where he can,” said Kyle Rogers, a vice president at the American Gas Association

The Future is in Mongolia

Mongolia plans to give every one of its citizens shares in the company that owns the Tavan Tolgoi coking coal mine, when it launches its international IPO early next year. Toshi Maeda reports the details in the video below.

Although this report states that the value of stock given to Mongolian citizens in this project is only $300 per person. This is only the first of many IPOs that Mongolian citizens will participate in. Mongolia is extremely rich in many minerals and they are only now being developed.

As I have reported, some believe that in a very short period every Mongolian will become a millionaire. For the young and extremely adventurous, who can also tolerate extremely cold winters, Mongolia is the place to be.

Monday, September 26, 2011

Another Day of Heavy Plotting by Geithner

On Tuesday morning, Treasury Secretary Geithner will meet at the Treasury with U.S. and Chinese business leaders to discuss efforts "to boost global growth."

In the afternoon, Secretary Geithner will meet with business leaders at an event hosted by the U.S. Chamber of Commerce and the U.S. Global Leadership Coalition to discuss the importance of maintaining "US legacy of leadership and support for the Multilateral Development Banks."

Taki's Take on DSK's Wife

Taki Theodoracopulos writes:

GSTAAD—It’s been very sunny and hot, with the bluest of blue skies above and the greenest of green mountains around me. It does not get any better than this. The farmers have cut their grass and packed it for the winter’s feed, soon the cows will be coming down from the hills, and the Swiss franc will continue going through the roof. Life is now so expensive in Switzerland, even the rich are starting to complain. Sixty greenbacks for a grilled cheese in a top hotel’s terrace is a bit steep unless one has access to the Gaddafi sovereign wealth fund, which I am sure some Swiss bankers do. Still, I know worse places to be: the Hamptons during Labor Day weekend; in Tripoli before the mongrel dog and his syphilitic children cut and ran to Algeria...

For the moment I’m sitting pretty on my lawn, trying to make some mischief. I failed to do so last week by announcing Saif Gaddafi’s arrival at the Palace hotel. No one in their right mind took it seriously—not even the hacks, who twenty years ago believed me when I wrote that Mrs. Saddam Hussein had moved in for the duration. Back then, journalists arrived and began snooping around. The Palace’s owner, Ernst Scherz, a very old friend, found it amusing and refused to deny it. The hacks drank copiously at the bar and everything was hunky-dory until the powers back home froze their expense accounts. Gildo, the greatest maître d’ ever, still talks about it when he’s not singing arias from Don Giovanni, which he knows by heart.

Which brings me to a Don Giovanni wannabe: the froglike DSK, newly free to seduce more good lookers from Africa and its environs. There’s not much I’ve ever disagreed with in Stephen Glover’s writings except for his recent description of that phony socialist pig’s wife as a tolerant French woman because “her class and background” require it. Actually, it is she who wants France’s top prize even more than the short fat man with bulging eyes and oversized ego. Let’s not forget that DSK’s first wife got him connected with the right people in les Grandes Écoles, which landed him his first good job as a lecturer. After that he used his second wife to get him in tight with the civil servants who steered him and recommended him to eventually become Minister of Finance. Now his third good job—being a billionaire—is financing his bid for France’s top spot. Anne Sinclair is no babe in the woods. She resigned her popular TV chat show when her pig husband was appointed a minister, claiming it might be a conflict of interest. It was nothing of the sort. She had inside info that the show was about to be canceled, so she bailed and ended up looking more honest than Honest Abe—who was dishonest as hell, incidentally.
Read the rest here.

Former Google Marketing Manager: It's Time to Raise Taxes on the Rich

Doug Edwards, the former Director of Consumer Marketing & Brand Management for Google, today asked President Obama, at a Linkedin townhall, to raise his taxes.

He specifically said that he wanted more money to go to Pell grants. A Pell Grant is money the federal government provides for students who need it to pay for college.

But if Edwards really wants to see more money go to needy college students, the big question to hom should be: Why don't you just give your money to needy college students? Although Edwards framed his statement to the President in the singular, "please raise my taxes" what he is really calling for is that the taxes of others be raised.

Further, although he couched his tax demand in terms of Pell grants, that's not how it works. Tax money goes to the government, where the government will do with it what it pleases. A lot of it will go to killing machines, from drones to other advanced weaponry. Some will go to the bureaucratic machine so that minimum wage laws will be enforced across the country, so that the unskilled will never have the chance to learn on the job.

Some will go to the FDA where the money will be used by the FDA to impose a greater layer of bureaucracy on drug makers (especially those not politically connected) thus slowing down those attempting to introduce new drugs in the country.

So when Edwards tells us he wants more Pell grants, we should ask him if he also wants more drones, more unemployment among the unskilled and fewer pharmaceutical drugs released into the market, because that's really where the money is going to go, if Edwards cry to raise "his" taxes becomes reality and all our taxes are raised. If he wants to pay for a likley worthless education of some financially needy person with money that he wants taxed away, then he should leave the drones, the delayed drugs, the wars, and us out of it, and just make the payments to the students.

Tim Carney points out that Edwards has given $300,000 to politicians since 2000. That's about 60 Pell Grants he could have provided.

Now, really, instead of trying to influence politicians to do things to us him, he should really mind his own business instead of making this phony pitch in his name, when he wants all our taxes raised to pay for all kinds of damn truly insane things:

Mankiw Expalins How to Get Around the WSJ Paywall

Harvard professor and the world's greatest economic text book salesman, Greg Mankiw, takes time to explain to his readers how to get around WSJ's paywall, here.

Billionaire Jews on Obama's Mind?

A Freudian slip?

Over the weekend, President Obama spoke before the Congressional Black Caucus. According to the White House transcript, this is what was on his teleprompter:

When you start saying, at a time when the top one-tenth of 1 percent has seen their incomes go up four or five times over the last 20 years, and folks at the bottom have seen their incomes decline -- and your response is that you want poor folks to pay more?

Give me a break.

If asking a billionaire to pay the same tax rate as a janitor makes me a warrior for the working class, I wear that with a badge of honor. I have no problem with that

This is what he actually said:

If asking a billionaire to pay the same tax rate as a Jew, uh, as a janitor makes me a warrior for the working class, I wear that with a badge of honor. I have no problem with that.
Let's go to the videotape (at the 19:31 mark):

(Via Drudge)

Russian Finance Minister Alexei Kudrin Fired

That didn't take long. Less than 24 hours after dissing President Medvedev, he's gone.

The rumor is that he will be replaced by a former Goldmanite.

The Tom Woods Kansas Problem

Over at LRC, Tom Woods writes:
For a variety of reasons we moved to Topeka, Kansas last year. If I don't meet some like-minded people soon, I am going to lose my mind. The Libertarians of Northeast Kansas, a group I've just learned about, have asked me to speak at their monthly meeting this Thursday at 7:00pm at Annie's Place (a restaurant) in Topeka. If you live in the area, I can't tell you how glad I would be to meet you
If you are in the Topeka area and have never heard Tom speak in person, don't miss the opportunity. Speakers don't come much better than Tom.

The Billionaires of Gotham: Koch, Soros and Bloomberg

The New York region placed 63 billionaires on the new list of Forbes' 400 Richest Americans.

They were led by David Koch, George Soros and Michael Bloomberg.

Koch finished 4th on the Forbes list with a net worth of $25 billion, Soros was 7th with $22 billion, and Bloomberg ranked 12th at $19.5 billion.

Seemingly bored with their billions, all three are grand plotters, who want to change the world into their vision---a vision that keeps them at the top and playing the world as though it is a multi-dimensional game of Monopoly.

Jamie Dimon Loses His Cool in Private Bankster Meeting

All is not well among banksters.

Jamie Dimon of JPMorgan Chase launched a tirade at Mark Carney, Bank of Canada governor, in a closed-door meeting in front of more than two dozen bankers and finance officials, reports FT.

 Lloyd Blankfein, of all people, ended up acting as something of a peacemaker. FT again:
The atmosphere was so bad after the meeting that....Blankfein...emailed the central banker to try to smooth relations, people familiar with the matter said.
Dimon told Carney that many of the new international capital rules discriminated against US banks and he was going to continue to use the phrase “anti-American”, to describe what is going on, because it seemed to resonate with people who might be able to modify the reforms.
Bankster feuds, it doesn't get better than this.

What Ron Paul Should Say

Best selling New York Times author, and historian, Tom Woods says it should be this:
“We have just experienced one of the worst financial disasters in history. If we think we can prevent a repeat of this by reforming the tax code and repealing a few regulations, we have lost our minds. We need serious, systemic changes, not some talking points from 1982, but that’s all we’re hearing on this stage.

“My supporters are always on my case that I should criticize my opponents more and boast about my record. I prefer to keep the discussion on the level of ideas. But this moment in history is so crucial to our future, and Americans are so uneasy and concerned, that I have no choice. So let me be blunt: I warned of the housing collapse years before it happened, and I have been speaking out against our monetary system — cautioning that it would lead to precisely the kind of collapse we’ve just seen — for decades. My opponents do not even seem interested in figuring out what caused the crisis or trying to make serious repairs to our system. It’s just the same old talking points.

“My fellow Americans, this is serious business. We’re not deciding who’s the most smooth or telegenic. We’re deciding who really understands what’s happening to our economy and knows how to put things right. If you want a president with the credibility and the knowledge to lead our country through this very dangerous moment in history, I am your man.”
This clear thinking to the point style, btw, is why Tom should consider entering the political field.

Sunday, September 25, 2011

A GMU Economist Gets Negative on the World (When He's Not Optimistic About It)

The Great Stagnation is one of the most confused economic books I have ever read, bar none.

When reading the book, on page after page, I simply became amazed at the sloppy thinking. In that sense, it ultimately became a page turner, the big question being would the entire book be poorly argued? The answer turned out to be, for the most part, yes.

I am simply stunned at the positive reviews this book has received. In the book, written by George Mason University Professor Tyler Cowen, Cowen argues that as far as the economy is concerned we have "eaten all the low lying fruit."  And thus his first great error.

A key concept in economics is that we do not have perfect knowledge. In other words, we do not know what we don't know. We don't know what in the future will be considered low lying fruit.

It can well be imagined that when man first learned how to control fire, that the Tyler Cowen of the day would have declared that our ancestors had "eaten all the low lying fruit." And certainly when the wheel was invented, another Cowen would have said that all the low lying fruit had been eaten. And before the dawn of agriculture, another Cowen could have easily said that our ancestors had (literally) eaten all the low lying peaches and apples. Where would the Cowens of the world ever stop their negative views on the advancement of civilization, with the invention of the steam engine, the radio, the television, the airplane, open heart surgery, the smart phone?

There is no smooth path from invention to invention, no smooth path from advancement to advancement, but it is simply absurd to declare, as Cowen does on page 7 of his book that:
We have failed to recognize that we are at a technological plateau and the trees are more bare than we would like to think. That's it. That is what has gone wrong.
One would think that a little bit of Friedrich Hayek would have seeped into Cowen's thinking, that there is no grand central planner that sees all. Does Cowen seriously believe he knows what every man is thinking, what designs sit on the table of some great thinker, what lab experiment is about to be launched that will perhaps change our view of the world in a profound way?

Does he seriously think that he knows there is no new Steve Jobs out there? Does he think technology will stop advancing with the smart phone?

Further, does he not understand that many advancements are made incrementally? That the automobile continues to advance since the days of the Model T?

How can this one man, Tyler Cowen, declare he knows we are at a technological plateau, apparently both with regard to small advances and great ones?

One answer Cowen has is that:
Life in broad material terms isn't so different from what it was in 1953. We still drive cars, use refrigerators and turn on the light switch, even if dimmers are more common these days.
This means, of course, that Cowen dismisses the microwave, the smartphone, color televisions, personal computers, lap tops, open heart surgery and breast implants as nothing. The absurdity of this argument is in the prices we pay for the products I have listed above. If these things didn't make a material difference in our lives, we wouldn't be spending a good portion of our waking days earning money to buy the things the all knowing Cowen dismisses as not so different from 1953.

Cowen then goes on to do a mixing of government activities with those of the private sector. He tells us, correctly, that the government trip to the moon resulted only in teflon and tang. Yet, nowhere does he point out this was a government project that no sane private sector operator would have taken on, at the time. Cowen declares that the trip to the moon wasn't like the development of the railroad or the automoblie. Well yeah, the railroad and automobile began as private sector ventures that met a consumer need.

He then tells us that one-third of college students will drop out, a marked rise since the 1960s. Again Cowen here is using a sector that is heavily dominated by the government.

But then, out of the blue, after declaring that all the low hanging fruit has been eaten. Cowen makes a 180-degree turn and writes:
The fact that we've enjoyed a number of forms of low-hanging fruit in the past-and not just one-suggests that we might be due for some more of it in some form. This makes me an optimist for the longer run.
Go figure. Then on page 22 he tells us:
If one sentence were to sum up the mechanism driving the  Great Stagnation, it is this: Recent innovations are geared to private goods than to public goods.
What the hell is he talking about here? All the innovations that he said haven't occurred since 1953? Is he implying that the only important innovations are in public goods?

Apparently so, because he goes on to say, again, that nothing has significantly changed materially for him since he was a kid. But he then goes on to say (p.41)
In most sectors of the economy, if we spend a lot more money, we usually get something that is better.
Since we are spending more on microwaves and smartphones than when Cowen was a child, this contradicts his claim that things haven't changed for the better.

Cowen also discusses the internet in the book and tells us that (p. 47)
...the new low-hanging fruit is in our minds and not so much in the revenue-generating sector of the economy.
He seems to bemoan the little revenue generation from the internet, "relative to how much it shapes our lives." But so what? This is the like being sorry that water doesn't generate more revenue "relative to how much it shapes our lives."  Where does it say that how important something is to us has to cost a lot? This is simply the paradox of value. The paradox exists because it appears there is contradiction, say, between water which is on the whole more useful, in terms of survival, than diamonds, though diamonds command a higher price in the market.

The paradox is solved via the theory of marginal utility, which is based on the subjective theory of value, which says that the price at which an object trades in the market is determined neither by how much labor was exerted in its production, as in the labor theory of value, nor on how useful it is on a whole (total utility). Rather, its price is determined by its marginal utility.

Apparently, Cowen doesn't get this at some level. (It should be noted that Cowen writes at a blog named, Marginal Revolution). As for his charge that there is little revenue from the internet, Silicon Valley is currently booming because of the many potential opportunities in the internet sector.

But Cowen insists that there is not much employment in the internet sector and thus suggests bizarrely that some of the current unemployment problem is the result of this (p 51):
This is one of the reasons we have been seeing a "jobless recovery"
He, thus, apparently doesn't think wage markets clear and thinks that there are causes of unemployment beyond  minimum wage laws and unemployment payments, like the development of the internet!

The book is full of what I have outlined above, misunderstanding about facts, misunderstanding of basic economics and contradictions. Almost any point I have argued above in pointing out errors in the book could be argued from another direction that Cowen didn't mean such, since he often takes the opposite position only pages away (and sometimes he uses words in an odd manner, e. g. at points "private goods" seem to mean to him goods that the rich buy and "public goods" are middle class goods, wrap your head around that peculiar word use)

The only position he doesn't take is that the current economic crisis was caused by the Federal Reserve, though he blames just about everything else:
We thought we were richer than we thought...We were all, more or less, overconfident

Regulators should have done more to limit risk taking
Overconfidence can never fuel a boom if  a central bank isn't there supporting it with money, and regulators may be able to redirect the flow of money, but if the Fed is printing it, the money will enter the economy somewhere. Thus, in Cowen's very pedestrian explanations of the crisis, he does a terrible thing in not identifying the Federal Reserve as the key culprit of the crisis.

And so, start to finish, The Great Stagnation is a terrible book, filled with confusion, contradiction and a strong dose of slippery wording that gives Cowen the ability to argue any point from any position, in the future, based on this absurd book.