I hope turkey day treated you like a prom date! It's been awhile since updating this site but I feel it is time again to disperse some knowledge packs. enjoy!
1st video is gr8.
-JE
Sunday, November 29, 2009
Wednesday, January 7, 2009
As the world turds....
On January 5, Ron Paul addressed the House Financial Services Committee’s hearing on the Madoff Ponzi scandal. He pointed out that Bernard Madoff was operating under the supervision of the SEC, that more regulation will only make the job of cunning fraudsters easier because they can claim to be approved by the government, and that two of the biggest government-run Ponzi schemes are the Social Security system and even the monetary system itself. These scams create a climate of fraud that sucks in the people and teaches them to imitate the government. This outrage must be stopped and it can be done by abolishing the Federal Reserve and the SEC, and returning to an honest monetary system based on gold and/or free competition in currencies.
“For a good many years now, since the 1930s, every time a problem like this comes up, like in the Depression, we think that it is a lack of regulation, so we introduce regulatory agencies like the SEC, and, like after Enron, that was a major problem so we appropriate more money, and hire more people… that doesn’t do any good.
But this circumstance I think really makes my point, that the approach is completely wrong. [The approach] that the regulatory agencies are preempting people from doing bad things, just doesn’t work. There are millions and millions and millions of transactions. You can’t do it. All they do is give a false sense of security.
This is a perfect example of it. The SEC was involved with Madoff over the last decade. And that sort of gives the stamp of approval and says, “oh, must be okay”. So everybody’s guard is let down. This creates the moral hazard that allows people to make these mistakes and not to assume responsibility for themselves.
Does that mean we should ignore the problem? No! The problem comes because people commit fraud. And fraud laws are on the books. All the people involved with Enron were prosecuted under state laws of fraud, and the market took care of the stocks. But just adding on new regulations and spending millions and millions if not billions of dollars on regulating enterprise doesn’t do any good. It contributes to it. It is the problem.
We should look more to how the atmosphere is created by the Congress. If you look at the principle of fractional reserve banking, that in a way is a Ponzi scheme. This gets people doing things and building a mountain of debt… debt on debt, in this manner.
Also, if you really want to look at a big Ponzi scheme, and it is said too often that people end up doing what governments to, if we set examples, and believe me, everybody knows the Social Security system is a Ponzi scheme.
So yes, 50 billion dollars is horrendous, but what about an 8 trillion dollar loss in the stock market? So what do we do? We rush and pump in 8 trillion dollars. Where do we get the money? We create it out of thin air, furthering this whole idea of moral hazard and believing that we can create an unmanageable system.
It’s not the fault of the individuals at the SEC. They have an impossible job and they have to pretend they’re doing something to feel relevant the same way we do here in the Congress. We have to feel relevant we need the market to work, we need to get rid of the bad policies, the monetary system, and these mountains of debt. We say, well we’re relevant because we’re gonna hire more bureaucrats and we’re gonna appropriate more money we don’t have. And we’re gonna solve all our problems.
We’ve been doing this for 78 years, and we’ll do it again, but believe me, this will not solve our problems. We need to think about eliminating this whole regulatory process. And actually, we don’t need the SEC at all, and we could thrive even better and we would dwell on self-reliance, self-policing and the idea that people can’t commit fraud, but the government should not commit fraud either. We should not set an example.”
“For a good many years now, since the 1930s, every time a problem like this comes up, like in the Depression, we think that it is a lack of regulation, so we introduce regulatory agencies like the SEC, and, like after Enron, that was a major problem so we appropriate more money, and hire more people… that doesn’t do any good.
But this circumstance I think really makes my point, that the approach is completely wrong. [The approach] that the regulatory agencies are preempting people from doing bad things, just doesn’t work. There are millions and millions and millions of transactions. You can’t do it. All they do is give a false sense of security.
This is a perfect example of it. The SEC was involved with Madoff over the last decade. And that sort of gives the stamp of approval and says, “oh, must be okay”. So everybody’s guard is let down. This creates the moral hazard that allows people to make these mistakes and not to assume responsibility for themselves.
Does that mean we should ignore the problem? No! The problem comes because people commit fraud. And fraud laws are on the books. All the people involved with Enron were prosecuted under state laws of fraud, and the market took care of the stocks. But just adding on new regulations and spending millions and millions if not billions of dollars on regulating enterprise doesn’t do any good. It contributes to it. It is the problem.
We should look more to how the atmosphere is created by the Congress. If you look at the principle of fractional reserve banking, that in a way is a Ponzi scheme. This gets people doing things and building a mountain of debt… debt on debt, in this manner.
Also, if you really want to look at a big Ponzi scheme, and it is said too often that people end up doing what governments to, if we set examples, and believe me, everybody knows the Social Security system is a Ponzi scheme.
So yes, 50 billion dollars is horrendous, but what about an 8 trillion dollar loss in the stock market? So what do we do? We rush and pump in 8 trillion dollars. Where do we get the money? We create it out of thin air, furthering this whole idea of moral hazard and believing that we can create an unmanageable system.
It’s not the fault of the individuals at the SEC. They have an impossible job and they have to pretend they’re doing something to feel relevant the same way we do here in the Congress. We have to feel relevant we need the market to work, we need to get rid of the bad policies, the monetary system, and these mountains of debt. We say, well we’re relevant because we’re gonna hire more bureaucrats and we’re gonna appropriate more money we don’t have. And we’re gonna solve all our problems.
We’ve been doing this for 78 years, and we’ll do it again, but believe me, this will not solve our problems. We need to think about eliminating this whole regulatory process. And actually, we don’t need the SEC at all, and we could thrive even better and we would dwell on self-reliance, self-policing and the idea that people can’t commit fraud, but the government should not commit fraud either. We should not set an example.”
Thursday, December 18, 2008
The freedom to fail is an essential part of freedom.
Hello all,
Found this article about our economic freedom versus Socialist Intervention in our "capitalist" system. The main point that struck me was how this dialogue is not being brought up on Mainstream media. Has anyone heard a CNN pundit come out and say things like this... sadly the rhetorical answer is No.... Hope you enjoy.
-Julian
Doomed to Collapse?
By tmartin • December 17, 2008
Economic Freedom or Socialist Intervention?
by Ron Paul
The freedom to fail is an essential part of freedom. Government-provided financial security necessitates relinquishing the very essence of freedom. Last week, the big 3 American automakers came back to Capitol Hill with their hands out to the government. Congress spent this past week debating how much money to give them and what strings should be attached. Though the bailout plan for the auto industry has suffered what I would call a temporary setback in the Senate, other avenues for public funding are being explored through the Federal Reserve and the Treasury Department. I am afraid the American auto industry will soon learn that having billions rain down from Washington will not be the blessing one might expect.
The government, after it subsidizes an industry, tends to become a very demanding benefactor. Politicians may not have any real idea about how to build a car, run a bank, educate a child, heal the sick or build a road, but they are quite adept at using carrots and sticks to manipulate and threaten those who do. Most of the federal control over education, roads, healthcare, and now banking and soon auto manufacturing, is done through money, mandates and conditions. The bailout proposal we were considering would force automobile manufacturers to submit their business plans for the approval of a new federal “car czar.” This bureaucrat would have the authority to approve the automakers’ restructuring plan, monitor implementation of the plan, and even stop certain transactions he determines are inconsistent with the companies’ long-term viability.
One could argue that if billions of taxpayer dollars are going to flow into a failing industry, then representatives of those taxpayers have “bought” a say in how that industry is run - which is precisely why bailouts are such a bad idea for both the industry and the taxpayers. The federal government has neither the competence nor the Constitutional authority to tell private companies, such as automakers, how to run their businesses. I would have thought that failed experiments with central planning and government control of business that caused so much harm in the last century would have taught my colleagues the folly of making businesses obey politicians and bureaucrats instead of heeding the wishes of consumers, employees, and stockholders. But the auto industry is in danger of learning for themselves one of the oldest lessons in politics: he who pays the fiddler calls the tune.
It is not the job of government to sustain business. The government should get out of the way, and instead examine excessive regulations, tax policy and red tape that have been hostile to manufacturing in this country. We should get back on a sustainable economic course in this country, or we are doomed to collapse, as the Soviets did, under the crushing burden of big government and a strangled economy that can no longer pay for it.
Found this article about our economic freedom versus Socialist Intervention in our "capitalist" system. The main point that struck me was how this dialogue is not being brought up on Mainstream media. Has anyone heard a CNN pundit come out and say things like this... sadly the rhetorical answer is No.... Hope you enjoy.
-Julian
Doomed to Collapse?
By tmartin • December 17, 2008
Economic Freedom or Socialist Intervention?
by Ron Paul
The freedom to fail is an essential part of freedom. Government-provided financial security necessitates relinquishing the very essence of freedom. Last week, the big 3 American automakers came back to Capitol Hill with their hands out to the government. Congress spent this past week debating how much money to give them and what strings should be attached. Though the bailout plan for the auto industry has suffered what I would call a temporary setback in the Senate, other avenues for public funding are being explored through the Federal Reserve and the Treasury Department. I am afraid the American auto industry will soon learn that having billions rain down from Washington will not be the blessing one might expect.
The government, after it subsidizes an industry, tends to become a very demanding benefactor. Politicians may not have any real idea about how to build a car, run a bank, educate a child, heal the sick or build a road, but they are quite adept at using carrots and sticks to manipulate and threaten those who do. Most of the federal control over education, roads, healthcare, and now banking and soon auto manufacturing, is done through money, mandates and conditions. The bailout proposal we were considering would force automobile manufacturers to submit their business plans for the approval of a new federal “car czar.” This bureaucrat would have the authority to approve the automakers’ restructuring plan, monitor implementation of the plan, and even stop certain transactions he determines are inconsistent with the companies’ long-term viability.
One could argue that if billions of taxpayer dollars are going to flow into a failing industry, then representatives of those taxpayers have “bought” a say in how that industry is run - which is precisely why bailouts are such a bad idea for both the industry and the taxpayers. The federal government has neither the competence nor the Constitutional authority to tell private companies, such as automakers, how to run their businesses. I would have thought that failed experiments with central planning and government control of business that caused so much harm in the last century would have taught my colleagues the folly of making businesses obey politicians and bureaucrats instead of heeding the wishes of consumers, employees, and stockholders. But the auto industry is in danger of learning for themselves one of the oldest lessons in politics: he who pays the fiddler calls the tune.
It is not the job of government to sustain business. The government should get out of the way, and instead examine excessive regulations, tax policy and red tape that have been hostile to manufacturing in this country. We should get back on a sustainable economic course in this country, or we are doomed to collapse, as the Soviets did, under the crushing burden of big government and a strangled economy that can no longer pay for it.
Monday, December 8, 2008
"Please stop beating me to death" - American Taxpayers
The Fallacy That Government Creates Jobs
by Daniel J. Mitchell
Dan Mitchell is a senior fellow at the Cato Institute and co-author of Global Tax Revolution: The Rise of Tax Competition and the Battle to Defend It
Added to cato.org on December 5, 2008
President-elect Obama has announced that he wants a big "stimulus" package to create 2.5 million jobs by 2011. Many of the details are unclear, including how much new government spending he will propose and how he is measuring job creation. Press reports suggest the incoming administration is looking at $400 billion-$500 billion over the next two years, but the Washington Post reports that Democrats are talking about as much as $700 billion during that time period.
Not surprisingly, the prospect of all this new spending (above and beyond the record spending increases during the past eight years) has triggered a feeding frenzy among special interests. Home builders, auto companies, road builders, state and local governments, the education establishment, the food stamp lobby, the green lobby, and alternative energy companies are among the groups fighting for a place at the public trough.
Dan Mitchell is a senior fellow at the Cato Institute and co-author of Global Tax Revolution: The Rise of Tax Competition and the Battle to Defend It
More by Daniel J. Mitchell
It would be easy to dismiss this orgy of new spending as the spoils of war. The Democrats won the election, after all, and now they intend to reward the various special interests that supported them. But that's not a complete explanation. Some supporters of this new spending seem genuinely convinced that the federal government can create jobs.
In part, this is a debate about Keynesian economics, which is the theory that the economy can be boosted if the government borrows money and then gives it to people so they will spend it. This supposedly "primes the pump" as the money circulates through the economy. Keynesian theory sounds good, and it would be nice if it made sense, but it has a rather glaring logical fallacy. It overlooks the fact that, in the real world, government can't inject money into the economy without first taking money out of the economy. More specifically, the theory only looks at one-half of the equation — the part where government puts money in the economy's right pocket. But where does the government get that money? It borrows it, which means it comes out of the economy's left pocket. There is no increase in what Keynesians refer to as aggregate demand. Keynesianism doesn't boost national income, it merely redistributes it. The pie is sliced differently, but it's not any bigger.
The real world evidence also shows that Keynesianism does not work. Both Hoover and Roosevelt dramatically increased spending, and neither showed any aversion to running up big deficits, yet the economy was terrible all through the 1930s. Keynesian stimulus schemes also were tried by Gerald Ford and George W. Bush and had no impact on the economy. Keynesianism also failed in Japan during the 1990s.
It would be easy to dismiss this orgy of new spending as the spoils of war.
To be fair, the inability of Keynesianism to boost growth may not necessarily mean that government spending does not create jobs. Moreover, the argument that government can create jobs is not dependent on Keynesian economics. Politicians from both parties, for instance, argued in favor of pork-filled transportation bills earlier this decade when the economy was enjoying strong growth — and job creation generally was their primary talking point.
Unfortunately, no matter how the issue is analyzed, there is virtually no support for the notion that government spending creates jobs. Indeed, the more relevant consideration is the degree to which bigger government destroys jobs. Both the theoretical and empirical evidence argues against the notion that big government boosts job creation. Theory and evidence lead to three unavoidable conclusions:
The theory of government-instigated job creation overlooks the loss of resources available to the productive sector of the economy. Frederic Bastiat, the great French economist (yes, there were admirable French economists, albeit all of them lived in the 1800s), is well known for many reasons, including his explanation of the "seen" and the "unseen." If the government decides to build a "Bridge to Nowhere," it is very easy to see the workers who are employed on that project. This is the "seen." But what is less obvious is that the resources to build that bridge are taken from the private sector and thus are no longer available for other uses. This is the "unseen."
So-called stimulus packages have little bang for the buck. Even if one assumes that money floats down from Heaven and we don't have to worry about the "unseen," government is never an efficient way to achieve an objective. Based on the amount of money that is being discussed and the claims of how many jobs will be created, Harvard Professor Greg Mankiw filled in the blanks and calculated that each new job (assuming they actually materialize) will cost $280,000. But since money doesn't come from Heaven, this calculation is only a partial measure of cost. In reality, the cost of each government job should reflect how that $280,000 would have been spent more productively in the private sector.
Government workers are grossly overpaid. There are several reasons why it costs so much for the government to "create" a job, including the inherent inefficiency of the public sector. But the dominant factor is probably the excessive compensation packages for bureaucrats. According to Bureau of Economic Analysis data, the average employee for the federal government now gets paid nearly twice as much as workers in the productive sector of the economy.
Notwithstanding these points, it is quite likely that politicians in Washington will pass a boondoggle-filled "stimulus" bill. While there may be a few naïve folks who think a big increase in the burden of government somehow is a recipe for job creation, politicians have a self-interested motive to move in that direction because it increases their power and influence.
They win and taxpayers lose.
by Daniel J. Mitchell
Dan Mitchell is a senior fellow at the Cato Institute and co-author of Global Tax Revolution: The Rise of Tax Competition and the Battle to Defend It
Added to cato.org on December 5, 2008
President-elect Obama has announced that he wants a big "stimulus" package to create 2.5 million jobs by 2011. Many of the details are unclear, including how much new government spending he will propose and how he is measuring job creation. Press reports suggest the incoming administration is looking at $400 billion-$500 billion over the next two years, but the Washington Post reports that Democrats are talking about as much as $700 billion during that time period.
Not surprisingly, the prospect of all this new spending (above and beyond the record spending increases during the past eight years) has triggered a feeding frenzy among special interests. Home builders, auto companies, road builders, state and local governments, the education establishment, the food stamp lobby, the green lobby, and alternative energy companies are among the groups fighting for a place at the public trough.
Dan Mitchell is a senior fellow at the Cato Institute and co-author of Global Tax Revolution: The Rise of Tax Competition and the Battle to Defend It
More by Daniel J. Mitchell
It would be easy to dismiss this orgy of new spending as the spoils of war. The Democrats won the election, after all, and now they intend to reward the various special interests that supported them. But that's not a complete explanation. Some supporters of this new spending seem genuinely convinced that the federal government can create jobs.
In part, this is a debate about Keynesian economics, which is the theory that the economy can be boosted if the government borrows money and then gives it to people so they will spend it. This supposedly "primes the pump" as the money circulates through the economy. Keynesian theory sounds good, and it would be nice if it made sense, but it has a rather glaring logical fallacy. It overlooks the fact that, in the real world, government can't inject money into the economy without first taking money out of the economy. More specifically, the theory only looks at one-half of the equation — the part where government puts money in the economy's right pocket. But where does the government get that money? It borrows it, which means it comes out of the economy's left pocket. There is no increase in what Keynesians refer to as aggregate demand. Keynesianism doesn't boost national income, it merely redistributes it. The pie is sliced differently, but it's not any bigger.
The real world evidence also shows that Keynesianism does not work. Both Hoover and Roosevelt dramatically increased spending, and neither showed any aversion to running up big deficits, yet the economy was terrible all through the 1930s. Keynesian stimulus schemes also were tried by Gerald Ford and George W. Bush and had no impact on the economy. Keynesianism also failed in Japan during the 1990s.
It would be easy to dismiss this orgy of new spending as the spoils of war.
To be fair, the inability of Keynesianism to boost growth may not necessarily mean that government spending does not create jobs. Moreover, the argument that government can create jobs is not dependent on Keynesian economics. Politicians from both parties, for instance, argued in favor of pork-filled transportation bills earlier this decade when the economy was enjoying strong growth — and job creation generally was their primary talking point.
Unfortunately, no matter how the issue is analyzed, there is virtually no support for the notion that government spending creates jobs. Indeed, the more relevant consideration is the degree to which bigger government destroys jobs. Both the theoretical and empirical evidence argues against the notion that big government boosts job creation. Theory and evidence lead to three unavoidable conclusions:
The theory of government-instigated job creation overlooks the loss of resources available to the productive sector of the economy. Frederic Bastiat, the great French economist (yes, there were admirable French economists, albeit all of them lived in the 1800s), is well known for many reasons, including his explanation of the "seen" and the "unseen." If the government decides to build a "Bridge to Nowhere," it is very easy to see the workers who are employed on that project. This is the "seen." But what is less obvious is that the resources to build that bridge are taken from the private sector and thus are no longer available for other uses. This is the "unseen."
So-called stimulus packages have little bang for the buck. Even if one assumes that money floats down from Heaven and we don't have to worry about the "unseen," government is never an efficient way to achieve an objective. Based on the amount of money that is being discussed and the claims of how many jobs will be created, Harvard Professor Greg Mankiw filled in the blanks and calculated that each new job (assuming they actually materialize) will cost $280,000. But since money doesn't come from Heaven, this calculation is only a partial measure of cost. In reality, the cost of each government job should reflect how that $280,000 would have been spent more productively in the private sector.
Government workers are grossly overpaid. There are several reasons why it costs so much for the government to "create" a job, including the inherent inefficiency of the public sector. But the dominant factor is probably the excessive compensation packages for bureaucrats. According to Bureau of Economic Analysis data, the average employee for the federal government now gets paid nearly twice as much as workers in the productive sector of the economy.
Notwithstanding these points, it is quite likely that politicians in Washington will pass a boondoggle-filled "stimulus" bill. While there may be a few naïve folks who think a big increase in the burden of government somehow is a recipe for job creation, politicians have a self-interested motive to move in that direction because it increases their power and influence.
They win and taxpayers lose.
Friday, December 5, 2008
China Bitch slaps Bernanke and Paulson's runaway spending
China Tells U.S. to Get Economy in Order
Thursday, December 4, 2008 11:00 PM
BEIJING — China is urging Washington to rein in debt-fueled spending and stabilize its economy in high-level talks on their commercial relations, reflecting Beijing's growing economic assertiveness.
Speaking at the opening of the Strategic Economic Dialogue, Vice Premier Wang Qishan appealed Thursday to Treasury Secretary Henry Paulson and other U.S. officials to take steps to calm the global financial crisis and protect Beijing's U.S. investments. China's central bank governor said U.S. financial excesses were to blame for the crisis.
"The important reasons for the U.S. financial crisis include excessive consumption and high leverage," said Gov. Zhou Xiaochuan, according to Jin Qi, a central bank official who briefed reporters. "The United States should speed up domestic adjustment, raise its savings rate and reduce its trade and fiscal deficits." (hey not a bad idea! instead of spending borrowed dollars, the chineese, are suggesting we actually save a little coin. What a novel idea!)
The unusually pointed Chinese comments reflected the close links between the world's biggest and fourth-biggest economies and the global significance of their ability to maintain steady trade relations.
Paulson said engagement between China and the United States has helped in managing the crisis. Officials said both sides stressed the importance of cooperation to combat a potential rise in trade protectionism.
The two-day meeting, due to wrap up Friday, was not expected to produce breakthroughs on trade or other sensitive issues. The two sides signed a pact Thursday to cooperate in financing for projects to improve energy efficiency.
Speaking earlier as Paulson listened, Wang appealed to Washington to "take the necessary measures to stabilize the economy and financial markets, as well as to guarantee the safety of China's assets and investments in the United States."
Wang did not elaborate, but Beijing owns $585 billion in Treasury debt that has helped to finance U.S. budget deficits and its holdings of other U.S. assets are growing. But the weak dollar and financial turmoil have fueled Chinese anxiety about such investments.
Wang also said Beijing wants to see progress in reforms of international financial institutions _ a reference to its desire for a bigger role in the International Monetary Fund and other bodies.
U.S. officials said China promised more currency reforms. Washington and other trading partners say China's yuan is kept undervalued, giving its exporters an unfair price advantage and adding to its trade surplus. Some American lawmakers are calling for punitive action against Beijing.
"The Chinese continued to reinforce to us that they were committed to continued reform, and by that I mean continued appreciation (of the yuan) over time," said an American official who briefed reporters on condition he not be identified further.
The yuan has risen 20 percent against the dollar since Beijing cut its peg to the dollar in July 2005. But it has fallen this week in government-controlled trading _ including a nearly 1 percent decline Monday, its biggest one-day drop in three years _ in what analysts suggested was a message from Beijing to go easy on the issue.
The yuan's drop Monday also might have been meant as a warning to President-elect Barack Obama, that talks will be more effective than confrontation, said Frank F.X. Gong, chief Asia economist for JP Morgan Securities Ltd. Obama has yet to say whether he will continue the dialogue. Some analysts have speculated that Obama and the U.S. Congress will take a harder line on China.
China's economic growth is expected to slow this year to about 9 percent, down from last year's 11.9 percent. Communist leaders worry about rising job losses and possible unrest.
Beijing is launching a 4 trillion yuan ($586 billion) stimulus package meant to revive slowing growth through heavy spending on construction and other projects.
Thursday, December 4, 2008 11:00 PM
BEIJING — China is urging Washington to rein in debt-fueled spending and stabilize its economy in high-level talks on their commercial relations, reflecting Beijing's growing economic assertiveness.
Speaking at the opening of the Strategic Economic Dialogue, Vice Premier Wang Qishan appealed Thursday to Treasury Secretary Henry Paulson and other U.S. officials to take steps to calm the global financial crisis and protect Beijing's U.S. investments. China's central bank governor said U.S. financial excesses were to blame for the crisis.
"The important reasons for the U.S. financial crisis include excessive consumption and high leverage," said Gov. Zhou Xiaochuan, according to Jin Qi, a central bank official who briefed reporters. "The United States should speed up domestic adjustment, raise its savings rate and reduce its trade and fiscal deficits." (hey not a bad idea! instead of spending borrowed dollars, the chineese, are suggesting we actually save a little coin. What a novel idea!)
The unusually pointed Chinese comments reflected the close links between the world's biggest and fourth-biggest economies and the global significance of their ability to maintain steady trade relations.
Paulson said engagement between China and the United States has helped in managing the crisis. Officials said both sides stressed the importance of cooperation to combat a potential rise in trade protectionism.
The two-day meeting, due to wrap up Friday, was not expected to produce breakthroughs on trade or other sensitive issues. The two sides signed a pact Thursday to cooperate in financing for projects to improve energy efficiency.
Speaking earlier as Paulson listened, Wang appealed to Washington to "take the necessary measures to stabilize the economy and financial markets, as well as to guarantee the safety of China's assets and investments in the United States."
Wang did not elaborate, but Beijing owns $585 billion in Treasury debt that has helped to finance U.S. budget deficits and its holdings of other U.S. assets are growing. But the weak dollar and financial turmoil have fueled Chinese anxiety about such investments.
Wang also said Beijing wants to see progress in reforms of international financial institutions _ a reference to its desire for a bigger role in the International Monetary Fund and other bodies.
U.S. officials said China promised more currency reforms. Washington and other trading partners say China's yuan is kept undervalued, giving its exporters an unfair price advantage and adding to its trade surplus. Some American lawmakers are calling for punitive action against Beijing.
"The Chinese continued to reinforce to us that they were committed to continued reform, and by that I mean continued appreciation (of the yuan) over time," said an American official who briefed reporters on condition he not be identified further.
The yuan has risen 20 percent against the dollar since Beijing cut its peg to the dollar in July 2005. But it has fallen this week in government-controlled trading _ including a nearly 1 percent decline Monday, its biggest one-day drop in three years _ in what analysts suggested was a message from Beijing to go easy on the issue.
The yuan's drop Monday also might have been meant as a warning to President-elect Barack Obama, that talks will be more effective than confrontation, said Frank F.X. Gong, chief Asia economist for JP Morgan Securities Ltd. Obama has yet to say whether he will continue the dialogue. Some analysts have speculated that Obama and the U.S. Congress will take a harder line on China.
China's economic growth is expected to slow this year to about 9 percent, down from last year's 11.9 percent. Communist leaders worry about rising job losses and possible unrest.
Beijing is launching a 4 trillion yuan ($586 billion) stimulus package meant to revive slowing growth through heavy spending on construction and other projects.
Thursday, December 4, 2008
Invest in inflation protected securities... its going to get ugly.
‘Printing Money’ Makes TIPS a Buy, Credit Suisse’s Jersey Says
By Thomas R. Keene and Cordell Eddings
Dec. 3 (Bloomberg) -- U.S. actions meant to thaw credit markets will lead to inflation, making Treasury Inflation Protected Securities attractive, said Ira Jersey, an interest- rate strategist at Credit Suisse Group AG.
“The Federal Reserve is increasing its balance sheet and now printing money, and that’s all quantitative easing is, printing money,” Jersey said in an interview with Bloomberg Radio in New York. “Ultimately this ends with inflation being significantly higher than the market is anticipating right now. Things like TIPS in 10 or 20 years are a better value.”
Traders’ expectations for inflation over the next decade have waned as the U.S. recession deepened and the price of crude oil sank more than 68 percent from a record in July, yields show. The difference between rates on 10-year TIPS and conventional notes touched a record low of negative 8 basis points on Nov. 20. The so-called breakeven rate was 49 basis points today.
Credit Suisse reversed its forecast for a steeper Treasury yield curve after Fed Chairman Ben S. Bernanke said Dec. 1 that the central bank would consider buying U.S. government debt and target long-term interest rates. Yields on all maturities of Treasuries have dropped to record lows, with the 30-year bond touching 3.1655 percent yesterday.
“I’m not sure there is a lot of value in the 30-year sector,” Jersey said. “In the very long end you have a big need for duration in the market. Pension plans and insurance companies who are attempting to match their liabilities with assets, particularly fixed-income assets, mean the long end has been much tighter and much lower than it would be normally.”
Duration is a measure of price sensitivity to interest-rate change expressed as a number of years.
Jersey also said there is value in the corporate market, where BBB-rated industrial debt is priced at default rates higher than those seen during the Depression.
“The question is do you think things are going to be worse than the Great Depression?” said Jersey. “We don’t think so.”
To contact the reporter on this story: Cordell Eddings in New York at ceddings3@bloomberg.netThomas R. Keene in New York at tkeene@bloomberg.net Last Updated: December 3, 2008 13:11 EST
By Thomas R. Keene and Cordell Eddings
Dec. 3 (Bloomberg) -- U.S. actions meant to thaw credit markets will lead to inflation, making Treasury Inflation Protected Securities attractive, said Ira Jersey, an interest- rate strategist at Credit Suisse Group AG.
“The Federal Reserve is increasing its balance sheet and now printing money, and that’s all quantitative easing is, printing money,” Jersey said in an interview with Bloomberg Radio in New York. “Ultimately this ends with inflation being significantly higher than the market is anticipating right now. Things like TIPS in 10 or 20 years are a better value.”
Traders’ expectations for inflation over the next decade have waned as the U.S. recession deepened and the price of crude oil sank more than 68 percent from a record in July, yields show. The difference between rates on 10-year TIPS and conventional notes touched a record low of negative 8 basis points on Nov. 20. The so-called breakeven rate was 49 basis points today.
Credit Suisse reversed its forecast for a steeper Treasury yield curve after Fed Chairman Ben S. Bernanke said Dec. 1 that the central bank would consider buying U.S. government debt and target long-term interest rates. Yields on all maturities of Treasuries have dropped to record lows, with the 30-year bond touching 3.1655 percent yesterday.
“I’m not sure there is a lot of value in the 30-year sector,” Jersey said. “In the very long end you have a big need for duration in the market. Pension plans and insurance companies who are attempting to match their liabilities with assets, particularly fixed-income assets, mean the long end has been much tighter and much lower than it would be normally.”
Duration is a measure of price sensitivity to interest-rate change expressed as a number of years.
Jersey also said there is value in the corporate market, where BBB-rated industrial debt is priced at default rates higher than those seen during the Depression.
“The question is do you think things are going to be worse than the Great Depression?” said Jersey. “We don’t think so.”
To contact the reporter on this story: Cordell Eddings in New York at ceddings3@bloomberg.netThomas R. Keene in New York at tkeene@bloomberg.net Last Updated: December 3, 2008 13:11 EST
Wednesday, December 3, 2008
Nonsense about Deflation
Nonsense about Deflation
We are now hearing ominous warnings about imminent deflation. Checking the welcome page at AOL this morning, I see that the lead item in the financial news section heralds "The Looming Threat of Deflation." This headline encapsulates two highly problematic ideas. The first is that deflation would necessarily be a bad thing. The second is that deflation is likely to occur in the near term.
That deflation is always and everywhere a bad thing—not simply a bearer of bad news but bad news in itself—is now an almost universal article of faith among mainstream economists and financial commentators. Clicking on the scary headline, I opened an article by Ted Allrich, who is described as "the founder of The Online Investor and author of the book Comfort Zone Investing: Build Wealth and Sleep Well at Night." Allrich's article, which does nothing to alter my belief that most investment "experts" are simply charlatans, encapsulates virtually every untutored and fallacious idea you've ever encountered in regard to deflation.
As he tells the story, deflation brings on all the horrors in the catalog of economic devastation.
As prices decline, businesses sell less, then go out of business. Fewer goods and services are offered. Less doesn't become more. It becomes less.
As businesses fold, capital dries up because investors don't believe any business will make it, no matter what the product or service. Investors hang on to their cash. Hording becomes synonymous with survival. Wall Street (what's left of it) can't find capital for new companies to grow. Investors won't invest.…
So with deflation, there is less of everything. Businesses don't grow. Jobs are fewer. Capital is not available. Everything comes to a slow and grinding halt.
Allrich concludes his litany of deflation horrors, naturally, by singing the praises of inflation: "Regular inflation, in fact, can be a good thing since it suggests an ever growing economy where jobs are plentiful and goods and services abound. "
Well, all right, we can't expect Allrich to have read George Selgin's splendid little book Less Than Zero: The Case for a Falling Price Level in a Growing Economy (London: Institute of Economic Affairs, 1997). After all, the book has been available for only eleven years, and investment experts are busy people.
But why, one wonders, has he not taken to heart what I wrote thirty-seven years ago in my first book, The Transformation of the American Economy, 1865–1914 (New York: Wiley, 1971), on p. 21: "Notably, rapid economic growth occurred both before and after 1897; neither a falling nor a rising general price level was uniquely associated with economic growth." To elaborate just a bit, the rate of economic growth from 1866 to 1897, a period of secular deflation, was perhaps the greatest ever experienced by the US economy during a period of comparable length. Real GDP grew by more than 4 percent per year, on average, notwithstanding the persistent deflation.
So, even if you've not mastered the works of Ludwig von Mises and Murray Rothbard, even if you are a confirmed positivist in your methodological bent (as I was in 1971), you can see clearly that the rate of economic growth and the rate of price-level change have been independent, at least within the ranges of these variables in US economic history. (Hyperinflation or hyperdeflation would be another matter: either would be devastating by making economic calculation and long-term contracting virtually impossible.)
Any decent economics teacher makes sure that before the students have gone more than a week or two, they have mastered the difference between absolute (nominal) and relative (real) prices. All of economic analysis hinges on this understanding. Yet practicing politicians, investment gurus, news media hyperventilators, and others who play important roles in influencing public opinion are completely lacking in this basic understanding. The upshot is a destructive bias in favor of secular inflation, with the risk of periodic bouts of rapid inflation.
Which brings us to the second question: for better or worse, does deflation actually loom at present? If it does, its occurrence will surprise me greatly, because the Fed has been creating base money as if there were no tomorrow, and if the bailouts continue, as seems likely, more of the same is virtually certain. So far, the huge spurt in base money has simply been absorbed and held by the banks in the form of (legally) excess reserves, but the likelihood that the banks will sit on $268 billion of excess reserves forever is nil. Once they feel more secure, their loans and investments will go forth in search of a higher yield than the Fed pays them (since a recent change in policy) on their reserves, and at that point the banking system's money multiplier will kick in with terrific force.
In short, given the monetary conditions now prevailing, the greater threat by far is inflation, not deflation. And contrary to what the investment "experts," the politicians, and the mainstream economists believe, inflation is not a benign element in the economy's operation. It is, as it has always been, the most dangerous and destructive form of taxation.
We are now hearing ominous warnings about imminent deflation. Checking the welcome page at AOL this morning, I see that the lead item in the financial news section heralds "The Looming Threat of Deflation." This headline encapsulates two highly problematic ideas. The first is that deflation would necessarily be a bad thing. The second is that deflation is likely to occur in the near term.
That deflation is always and everywhere a bad thing—not simply a bearer of bad news but bad news in itself—is now an almost universal article of faith among mainstream economists and financial commentators. Clicking on the scary headline, I opened an article by Ted Allrich, who is described as "the founder of The Online Investor and author of the book Comfort Zone Investing: Build Wealth and Sleep Well at Night." Allrich's article, which does nothing to alter my belief that most investment "experts" are simply charlatans, encapsulates virtually every untutored and fallacious idea you've ever encountered in regard to deflation.
As he tells the story, deflation brings on all the horrors in the catalog of economic devastation.
As prices decline, businesses sell less, then go out of business. Fewer goods and services are offered. Less doesn't become more. It becomes less.
As businesses fold, capital dries up because investors don't believe any business will make it, no matter what the product or service. Investors hang on to their cash. Hording becomes synonymous with survival. Wall Street (what's left of it) can't find capital for new companies to grow. Investors won't invest.…
So with deflation, there is less of everything. Businesses don't grow. Jobs are fewer. Capital is not available. Everything comes to a slow and grinding halt.
Allrich concludes his litany of deflation horrors, naturally, by singing the praises of inflation: "Regular inflation, in fact, can be a good thing since it suggests an ever growing economy where jobs are plentiful and goods and services abound. "
Well, all right, we can't expect Allrich to have read George Selgin's splendid little book Less Than Zero: The Case for a Falling Price Level in a Growing Economy (London: Institute of Economic Affairs, 1997). After all, the book has been available for only eleven years, and investment experts are busy people.
But why, one wonders, has he not taken to heart what I wrote thirty-seven years ago in my first book, The Transformation of the American Economy, 1865–1914 (New York: Wiley, 1971), on p. 21: "Notably, rapid economic growth occurred both before and after 1897; neither a falling nor a rising general price level was uniquely associated with economic growth." To elaborate just a bit, the rate of economic growth from 1866 to 1897, a period of secular deflation, was perhaps the greatest ever experienced by the US economy during a period of comparable length. Real GDP grew by more than 4 percent per year, on average, notwithstanding the persistent deflation.
So, even if you've not mastered the works of Ludwig von Mises and Murray Rothbard, even if you are a confirmed positivist in your methodological bent (as I was in 1971), you can see clearly that the rate of economic growth and the rate of price-level change have been independent, at least within the ranges of these variables in US economic history. (Hyperinflation or hyperdeflation would be another matter: either would be devastating by making economic calculation and long-term contracting virtually impossible.)
Any decent economics teacher makes sure that before the students have gone more than a week or two, they have mastered the difference between absolute (nominal) and relative (real) prices. All of economic analysis hinges on this understanding. Yet practicing politicians, investment gurus, news media hyperventilators, and others who play important roles in influencing public opinion are completely lacking in this basic understanding. The upshot is a destructive bias in favor of secular inflation, with the risk of periodic bouts of rapid inflation.
Which brings us to the second question: for better or worse, does deflation actually loom at present? If it does, its occurrence will surprise me greatly, because the Fed has been creating base money as if there were no tomorrow, and if the bailouts continue, as seems likely, more of the same is virtually certain. So far, the huge spurt in base money has simply been absorbed and held by the banks in the form of (legally) excess reserves, but the likelihood that the banks will sit on $268 billion of excess reserves forever is nil. Once they feel more secure, their loans and investments will go forth in search of a higher yield than the Fed pays them (since a recent change in policy) on their reserves, and at that point the banking system's money multiplier will kick in with terrific force.
In short, given the monetary conditions now prevailing, the greater threat by far is inflation, not deflation. And contrary to what the investment "experts," the politicians, and the mainstream economists believe, inflation is not a benign element in the economy's operation. It is, as it has always been, the most dangerous and destructive form of taxation.
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