Jun
30
2005
We couldn’t have said it better ourselves:
“By electing to condone the greatest equity bubble since the late 1920s, the Fed has been snared in a low real interest rate trap — in effect, locking itself in to a serial bubble-blowing strategy. To counter post-equity bubble aftershocks, the Fed slashed its policy rate by 550 basis points to 1% — vowing that it had learned the tough lessons of Japan (see the now-seminal research report by the Fed’s research staff, “Preventing Deflation: Lessons From Japan’s Experience in the 1990s” by Alan Ahearne; Joseph Gagnon; Jane Haltmaier; Steve Kamin, et. al., June 2002). And then in the face of a full-blown deflation scare — a classic and predictable symptom of a post-bubble shakeout — the Fed maintained an uber-accomodative policy stance that is still in place today. It pushed the real federal funds rate into negative territory for three years (2002-04) before finally taking it up to the zero threshold, where it remains today.”
That’s Stephen Roach of Morgan Stanley in his July 24, 2005 dispatch… There are other real doozies, like this Continue Reading »
Jun
30
2005
Pittsburgh Brewing has been struggling since the demise of the steel mills for a variety of reasons. Revived again and again with public support, this time it appears the brewery needs to fish or cut bait. That means dumping the pension program that requires massive contributions relative to cash flow. If you’ve been a regular reader or attended our most recent economics forum, you know this is a trend going on around the country, and is a taxpayer liability that could make the savings and loan bailout of the 1980s seem tiny by comparison.
I thought this local article was a good read because, while it fails to address the extra burdens the heavy pro labor mentality Pittsburgh places on its employers, it summarizes for the PBGC (the regulatory body of pension) a few items of regulatory cost that are contributing to this predicament. The boiler that fails the environmental inspection for emissions is just such an item. Note also the mandatory taxes for unemployment insurance. Of course, Continue Reading »
Jun
30
2005
“Everything that is really great and inspiring is created by the individual who can labor in freedom.”
— Albert Einstein, ‘Out of My Later Years,’ 1950
Jun
29
2005
Inflation is one of those things we live with as a nuisance fact of life. But just a little digging reveals that inflation is a great tool of policy makers to accomplish goals that citizens would otherwise never allow if requested in plain daylight. It is a fact that inflation is not understood very well. Policy makers take advantage of that ignorance and use inflation to surreptitiously tax savings, making off with booty like a thief in the night. Grove City College economics professor, Hans F. Sennholz offers up a simple an thorough explanation of why understanding inflation is critical for entrepreneurs and savers of all types, and is not as complex as folks might think. Inflation is destructive and it should no longer be accepted as a fact of life.
Jun
29
2005
We regularly follow the commentaries from Bill Gross over at PIMCO to see where one of the nation’s largest bond management firms sees things going. Following such market movers is a good idea since reading into interest rates is critical for gauging the economy and markets as a whole. In his July PIMCO Investment Outlook, Gross suggests that Rome is indeed burning… While it may not be totally ablaze and out of control, he believes some of the moves being made by all participants, including policy makers, may well be adding gasoline to the fire. That would make an inferno all the more likely.
Jun
28
2005
We’ve long ranted about the difference between good growth and bad growth. Essentially, the former requires savings; the latter, lots of money printed by the fed and credit expansion. Stephen Roach at Morgan Stanley explains the seriousness of the situation in his latest dispatch on the subject. We highly recommend this read. This is something that could blind side many and cause a great deal of broken dreams.
Jun
26
2005
“The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit… The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves. This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.”
— Alan Greenspan, 1966, from Gold and Economic Freedom
You’d never know this is the same Greenspan that has presided over the greatest expansion of credit / money supply in the history of the world….
Jun
23
2005
Savings in the US are at a record low level. Its something we have been commenting on for years because without savings, your economy has very little from which to pull investment into growth oriented actions for the economy. Of course, a conversation of savings begs the question of “what is savings?” We’ll save that discussion for a later date, but let it suffice to say, investing and savings are terms that are too frequently used interchangeably. One is not the other, as investment involves risk and can suffer losses — sometimes substantial, since they are more susceptible to the laws of supply and demand.
At any rate, the Financial Times has an informative article talking about the low savings rate, which is currently hovering around 1% in the United States… Far too low in our estimation to kick in a true recovery. And few dare to deny one of the basic laws of economic gravity: You don’t get wealthy by spending. You need to save.
Jun
22
2005
A great morning this a.m… At 7:30 a.m., Its a healthy boy!
Jun
22
2005
“If I have one foot on a block of ice and the other in a fire, I am technically– on average — comfortable.”
—- Source Unknown
Jun
19
2005
“The important thing is not to stop questioning.
— Albert Einstein”
Jun
18
2005
Ok… so the song is actually titled “Spinning Wheel”, but any 70’s influenced person knows “what goes up must come down” (WGUMCD) is a fundamental law of gravity. Given the booming prices in real estate, perhaps its time for a Blood Sweat and Tears reunion.
The Economist frames the problem on a global scale:
In come the waves: The worldwide rise in house prices is the biggest bubble in history. Prepare for the economic pain when it pops.
Is USAToday ringing the exit bell?
More sell homes to lock in big gains
And it may even be bleeding into farmland:
Farmers Feeling Pinch of Rising Land Costs
