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Posted: 6/15/2002 8:10:41 PM EST
Sorry, this is the one I wanted.

Link Posted: 6/15/2002 11:58:58 PM EST
Any chance you coud repost the text?  I can't get their site to come up;  it bombards me with so many cookies and popup windows that my browser crashes.  The only time I've seen anything like it was some porno site I hit (while trying to find an innocuous site reviewing chocolates, believe it or not) which forced me to unplug my network connection to escape.
Link Posted: 6/16/2002 1:34:00 PM EST
The contrarians make money in down markets, hence it's to their benefit when investors crap their pants.

There is a little bias there.
Link Posted: 6/16/2002 2:27:13 PM EST
Any chance you coud repost the text?  I can't get their site to come up;  it bombards me with so many cookies and popup windows that my browser crashes.  The only time I've seen anything like it was some porno site I hit (while trying to find an innocuous site reviewing chocolates, believe it or not) which forced me to unplug my network connection to escape.
View Quote

 The core rate of the consumer price index in Canada, which excludes some food and energy items, rose 2.2 percent in April from a year ago. This prompted the Canadians to increase interest rates, for the second time this year, to head off this inflation. Whoa! Where did this philosophy of responsibility come from?

- The Europeans are considering raising their interest rates, for the same reason; namely, keeping inflation from getting any worse.

- The Australians, the leaders in the race to expand the money supply, have now had to raise interest rates twice in a month to keep the resulting inflation under control. The official line is that they are raising rates to cool a red-hot economy.

- But here in the USA, we have price inflation that is 50% higher than Canada, higher than Australia, high*er than the Europeans, yet we are not raising interest rates. Instead, Greenspan is keeping them at 40-year lows. Perhaps so that he can get some price-inflation started here, hoping that it will make the prices of things, by which I mean stocks and houses particularly, go up in price. Everybody's making money again! Whee!

- Except the poor, of course, who are the ones who ultimately pay the full cost of price-inflation. But better than a price-deflation, eh? In a deflation, it is the rich who pay the full cost by virtue of their assets falling in value. So get them inflation-starters roaring, dude! God forbid there should come a time when the rich were made worse off! What's the point of lobbying and electing compliant legislators if only to lose wealth? So, inflation for everybody!

- Price-inflation is how the excessive credit-created money is finally absorbed into an economy. Little by little, things cost more and more money, as the amount of money reaches, for want of a better word, the hypothesized "equilibrium" with the supply and demand for goods and services. When the happy day arrives price inflation falls to zero; the supply and demand for dollars will again match the supply and demand for goods and services in the new societal scale of values. Remember that in a price-inflation, not only does the price of each thing go up, but the RELATIVE values of all things to all other things will have changed, too. Watermelons could be more expensive than diamonds.

- If the Fed keeps creating more money, then the loop starts all over again. Which just makes it temporarily seem better, like a mother's kiss on a skinned knee. But with the QED reality of making it much worse down the road, as the germs from the mother's lips cause a huge, gangrenous, green and purple, pus-filled infection on that skinned knee. A normal mother sure wouldn't kiss that disgusting, nauseating knee again, but Alan Greenspan puckers up and plants another big ol' sloppy one right on it, every time.

Link Posted: 6/16/2002 2:28:46 PM EST
This is what passes for "monetary policy" at the Greenspan Fed nowadays. And I predict that some of that infection is finally sticking to Mr. Greenspan, and it will fester.

- The amazing thing is that the aggregate "somebody" is buying lots and lots of government notes and bonds every day of the week, to lock in these artificially-low rates for extended periods of time. What am I missing here? When gold is rising, when the dollar is falling, when all around you interest rates are rising, commodity and producer price indexes are rising, when we have a trade deficit so huge that it boggles the mind, when the money supply is increasing at double-digit rates (guaranteeing price-inflation soon), when the government literally said that they are going to float, at LEAST, another $155 billion in debt this year, yet you continue to buy government debt so you can lock in THESE miniscule interest rates? KNOWING that those notes and bonds will drop in price when rates inevitably go up? Wow! I must have missed the day when they explained how THAT works! Must be a derivative thing, eh? If there is a lead-pipe cinch besides gold in this world, it would seem that shorting American debt at these preposterous levels would be it.

- As mentioned above, the government says that it is on track to have a deficit of around $155 billion this year. So, at a time when the trade/current account deficit is already eating up $36 billion a month, the Treasury is going to compound the problem by ripping another $13 billion a month out of the real economy to spend on the Big Government Economy? So what is that, roughly $50 billion a month? A MONTH?

And that assumes that the economic problems will not get any worse, to which I take great exception, as you might have inferred from my hysterical, shrieking tone.

Link Posted: 6/16/2002 2:29:25 PM EST
Greenspan also met with the other central bankers of the world, presumably to cook up some secret new plan to make everything work out just perfectly from here to forever. I will let pass the overwhelming philosophical bias I have against un-elected hotshots, armed with a monopoly on monetary power to be wielded at their random discretion, meeting in secret with foreign nationals of their ilk and hatching secret plans that directly affect ME. And especially when I am certain of the deleterious effects that are sure to follow, as they are meeting in secret again to cook up more secret plans to ameliorate the dismal consequences of their previous secret meetings and secret plans. As the supreme example, the US dollar has lost 95% of its value since the advent of the Fed, and all because of ninety years of secret plans and secret actions of the Fed.

One of the hatched plans is already apparent, as foreign holdings of government debt at the Fed recently jumped by an incredible $17 billion.

They are adding such a special, everything-is-just-wonderful spin on things that Doug Nolan was forced to note, "The question I think we have to ask ourselves is, how is it possible?"

- Business is bad, as costs are rising and companies are said to have no "pricing power" to enhance revenue. How the calculus of rising costs and reduced revenue can be seen as anything other than catastrophic is beyond me. Profits going down is somehow good news in the Bizarro-Land of Wall Street cheerleaders and government wonks. So while the landscape looks familiar, the natives are all talking in tongues, where bad is good. Next up, our savvy talking-heads apply their brilliant analytical skills to prove that up is down, black is white, and (my personal favorite) liabilities are really assets.

- Housing prices that are rising so dramatically in the current housing bubble are causing assessed values of all the other houses in the neighborhood to be ramped up, too. This gives the local government more ad valorem tax money to spend. So everyone is paying, or will soon be paying, higher property taxes, not just those guys buying the more-expensive houses. This reduces aggregate discretionary income from the get-go. And rents will soon be more per month. This reflects not only the landlord paying higher taxes on his rental property, but also the higher taxes on his own house. And so the landlord has to add that little bit of extra price-inflation juice to the rents, to make up for his loss of buying power. Just absolutely freaking wonderful.

Link Posted: 6/16/2002 2:30:14 PM EST
The really bad news is that the local governments are just going to use the extra money to expand their operations, like they always do. There is no end to the list of "critically needed" programs that the local commissars, just like their Congressional commissar counterparts, are just dying to install. This means that in the future, when housing prices come back to some semblance of reality, there is going to be a bigger government to take care of, with more "crucial" spending programs, more "critical" departments, more "pressing needs" to take care of, and more legions of people counting on that government check.

The salubrious effect of reducing ad valorem taxes, freeing up discretionary income, would give the economy a real shot in the arm. As it is, the "shot in the arm" of higher government spending, permanently ramping up it's size and cost, is more like a shot in the head.

- One of the problems and self-doubts I have always had involves the following question: can money be multiplied without banks? Or, put another way, can only banks, through the magic of fractional-banking, multiply money?

When you and I draw up some contract, one of us exchanges ownership of a paid-for asset and the other one exchanges ownership of cash. Equal things are exchanged, as the money and the assets merely change hands. No new money is actually created.

But when a bank uses fractional banking, a single dollar of deposits results in almost a hundred dollars of loan-making potential by the banks nowadays. So, a hundred new dollars is added to the money supply when it is lent. Money IS created.

Of course, using float temporarily creates a sort of "additional money supply." This is when you write a check, but while the check wends its way through the clearing system to your bank, you keep the same money in an interest-paying asset until just before it clears. By the by, the Federal Reserve calculates that the float is $563 million.

Barring that, after all this time, after a lot of head-scratching, almost by the tedious process of elimination, I finally must announce, in print, there-you-are, what the world has been apparently never been waiting for, may I have the envelope please...The Answer!

Only banks can really multiply money. Bummer.

But there is $110 trillion in derivative debt alone. Just where the hell did all that money come from? Now you know why it seems that there is, there must be, some other, simple, why didn't I see this before, it's so simple once it's explained, Answer. But damned if I know what it is.

Link Posted: 6/16/2002 2:31:01 PM EST
Does America really have a positive net worth? The WSJ came out with a chart that showed net worth of citizens and profit-making businesses was $40 trillion. Huh? With the enormous overhang of debt at big, big multiples of that, we have $40 trillion left over after all is said and done? Consumer installment credit alone was up to $1.7 trillion in April. Wow!

All in all, to paraphrase Doug Nolan, how is that even possible?

- Speaking of debt, Kurt Richebacher notes that "All in all, debts rose more than 10 times faster than income" last year. And commenting on the unbelievable deluge of credit-creation by the Fed, Dr. Richebacher adds, "...for the first time in history, the economy and stock market have slumped against the backdrop of rampant money and credit creation." I know what you are thinking. "My God! Things economic are not responding to free money!" Yes, my children, we have surely reached the climax of the most vainglorious period in history when you can't get rapacious, slavering capitalists to borrow cheap money.

- Marshall Auerback, in a June 4 essay, said, "...the Federal Reserve has since the onset of Mr. Greenspan's tenure in reality acted in a manner more befitting a Soviet commissar of the Cold War era." The reason for this unflattering but highly descriptive broadside was the Fed's change of policy on the discount window. No longer, after all these decades, would there be a stigma for ill-managed or unlucky banks going to Daddy Fed, begging for more money to square their books. Getting more credit-creation money is now as easy as just showing up! It is just another example of the Fed underwriting
more and more moral hazard.

- John Dobosz of Forbes.com asked me if I was screeching angry at the parade of bulls in the media, all touting an impending comeback rally in the markets that will take us all to the Promised Land of riches beyond measurement. Actually, no. I feel sorry for them. They will have to live the rest of their lives knowing that they are incompetent, and there is black-and-white proof of their abysmal incompetence. The trusting investing public, who have lost a lot of money and are getting ready to lose a lot more, will spend the rest of their lives remembering the names, probably showing up as "defendant" in court briefs, of those who led them so wrong for so long, and will never trust them again. My heart goes out to all these poor, silly people. So what's to be angry about?

- Service payrolls are up. My question is: if you can make an economy out of services, how come nobody in the entire history of economics, and I mean nobody, has ever advanced that theory? Not one hotshot in the entire literature of economics has even hinted that you can make an economy out of services. The reason is that you cannot have an economy made of services. You can only have an economy based on selling things at a profit. Services are an adjunct to the economic activity of buying and selling things.

Link Posted: 6/16/2002 2:31:53 PM EST
The stunning advance in service payrolls is not surprising, once you discard the stupid idea that private citizens in the private economy are voluntarily buying these services. A lot of these "services" are government out-sourcing. The fact that they are hired by private companies does not make them part of the private economy. To find out what they really are, just look at where their money comes from.

- And all those people performing services for the government booked that whole income stream as start-up loans, renting of office space, hiring employees, buying desks and computers and cars and carpets, hiring cleaning services and hiring copying services and legal services and tax and accounting and payroll services, buying postage and shipping costs and setting up retirement plans and and and...

- I'll tell what "and and and." And all those employees went out and bought houses and cars and vacations and second homes and stocks and jet skis and hired lawn care services and accountants and tax preparation people and got themselves into deep debt all the rest of what is colloquially known as "the good life."

- Then what is the multiplier of government spending? About five. All multipliers are about four or five, as it turns out. Each dollar of government spending produces roughly five dollars in economic activity, the same level of multiplier you would get from any constant source of money. But the money that the government borrowed and spent would have been spent by somebody anyway. You spend it or the government spends it. Either way, it is spent.

- The crucial difference is on WHAT is it spent? This is how a society is permanently changed in response to government spending and meddling. Especially such HUGE freaking spending and meddling as we have today. Without the government, the economy would be composed of buying and selling things that people want to buy. But when government spending gets really big, like now, the whole market structure is changed to what the GOVERNMENT wants to buy, and forces the people in the economy to spend an increasing fraction of THEIR residual monies on things the government wants them to buy, mostly tariff-protected goods, houses, and tax-advantaged goods. But also many expensive defensive goods and services, such as tax preparation, accounting services, liability insurances against a whole universe of now-actionable personal offenses, and legal services.

- And already the combined governments of the USA directly employ more than one out of seven people in the work force directly, for crying out loud! And they spend a fifth of GDP every year to do it. One out of five dollars produced in the whole GDP of the US of A in the buying and selling of goods and services is taxed and spent by the federal government alone! And then the states and locals jump in and bite off another big ol' chunk, crurr-runch, of what's left!!
Link Posted: 6/16/2002 2:32:45 PM EST
And now we add in all these "service employees" performing out-sourced government work, and with a multiplier that is obvious by inspection, pretty soon you are talking about the government BEING the US economy. All the rest of the economic activity that is happening is merely supportive of, and parasitic to, the Big Government Economy. And that's my point exactly.

- The Russians tried it and it failed. The Cubans tried it and it failed. The Mexicans tried it and it failed. The Chinese tried it and it failed. South America, Africa, and most of the rest of the world is still trying it and is failing. All the way back to the Romans, everybody who has tried it has failed. Every fiat currency has failed, or is failing now.

- In fact, one of the few truisms of economics seems to be that anything other than a free market economy and sound money will fail. And ipso facto, the economic system of the USA will fail, also, because it is not a free market economy anymore and it has bad money. It is just another loathsome Big Government Economy.

- The slow-motion, year after year declines in the market averages is giving you the time to think up a clever answer to your children's question in the future: "But dad, the market was ridiculously overpriced, and kept going down and down, year after year, and yet you kept on buying overpriced stocks and borrowing us farther and farther into debt. Was it your plan to have us living under a bridge?" Ugh.

Mogambo Sez: It's a wait-and-see period. The end-of-half is approaching, and there is activity to get the averages up so that the funds won't have to send out those depressing quarterly statements in which they have to admit that you lost more money, again, and big futures rollover plays to lay on replacement positions. There is a meeting of the world's central bankers conniving the goose in their respective economies. But the prevailing weight of a preposterously-high stock market must be too much to ignore, and so I must again advise to short any rallies.

Link Posted: 6/16/2002 2:44:43 PM EST
Thanks.  There's some truth in there, but I think a lot of what he's writing is misguided.  The Fed is walking a tightrope, which is rapidly becoming more threadlike than ropelike IMHO.

But MHO may be weighted too much by the region and field I am in.  I'm hearing better things about the rest of the country.

As for inflation, it's relatively low for the last 20 years.  The Fed and the feds are basically using it as a form of taxation and economic incentive -- spend now or your money will be worth less next year;  the government will print and spend more itself, diluting your savings.
Link Posted: 6/16/2002 2:54:15 PM EST
Link Posted: 6/16/2002 3:06:35 PM EST
Aww, c'mon. Not _all_ prices are rising. Look at stocks for instance. Some can be had for a tenth of what they were sold for just two years ago :)
And cars! When my car was new, the sticker price was about $8,000, I was able to buy it for a mere $1,000! Don't you feel better now? ;)
Link Posted: 6/16/2002 3:07:52 PM EST
Link Posted: 6/16/2002 3:17:06 PM EST
Hmmm. Inflation hurts those with large savings, who would usually be the more wealthy, while helping those with large amounts of debts, like some of the poor... or the USA.
Link Posted: 6/16/2002 3:59:04 PM EST
What gets me, in my own state, California, a state riddled with debt, is that the voters appetite for new bond issues appears to never be satiated. This last election every bond issue passed. Parks, wildlife "habitat" preservation -- you name it. All this results in there being less land available for development, so the price of existing homes continues to rise. Notice I say price, not value. And people are leaving the state, our economy is not that great, and more people are of work than anytime since 1990.

I just don't get it.
Link Posted: 6/16/2002 4:04:29 PM EST
These parallels are striking. One difference is the interest rate part.
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