Are manias the byproduct of irrational exuberance, as Yale prof, Robert Shiller’s same titled book asserts? That’s an idea correctly refuted by one of my favorite economists, Frank Shostak, in a worthy article that discusses the real reasons behind why so many investors and entrepreneurs end up making the massive errors that Shiller wants to foff off on the “old animal” spirits theory. Give the good Doctor a read because he does a good job at pinning the cause of bubbles and their crashes where they firmly belong: on the price fixers for money and credit at the Federal Reserve and other central banks.
Coincidentally, I read a Gary North 50th Anniversary piece on Ayn Rand’s Atlas Shrugged, which dovetails nicely with Dr. Shostak’s observations. North rightfully criticizes Rand’s idealistic view of the capitalist, but not for the tired socialist reasons many of us who generally like Rand’s work usually hear.
Combine both pieces and you get an interesting clarity on the fundamental purpose and priorities of most entrepreneurial types, and how meddling on different fronts perverts the natural goodness preserved by the natural balance of free markets.
In that context, readers stand to learn a bit about why present policies pursued by governments and their central banks are on a collision course with economic gravity 101. Plan accordingly!
With that in mind, we found news that Social Security benefits will be raised by 2.3% as the cost of living adjustment nearly laughable. Only, with the average recipient getting only an additional $24 for a total average of $1070 next year, its too pathetic a story.
With our expectations that inflation will only worsen as the credit crisis deepens into recession, those on fixed income and dependent upon politicians for their retirement will be in for a serious wake up call. That’s going to send politicians scrambling for solutions to yet another problem of its own making.
So much for Goldilocks and soft landings into perpetuity, which is what so much of Wall Street appeared to have come to believe in. That’s Noureil Roubini explaining that the crisis is not just one of credit, but of insolvency. We’d say its going to be far deeper than Roubini expects for reasons explained time and again: decades of bubbles smoothed over with excessive credit expansion beget perversions that slowly drag an economy further into the morass and away from genuine savings-based, production-backed economic expansion. After all credit expansion is money supply expansion, which can be done these days with a few keystrokes at the Fed. That’s easier than doing legitimate wealth production, but don’t let such economic gravity get in the way of rock n’ roll star Wall Street economists, analysts, and hedge fund managers, all of whom are close to the spigot of fresh credit and were, up until recently, feeling the fun front-side benefits of an inflation.
It was actually the opposite for those on the lower end of the wage spectrum. While Wall Street profits drove GDP, and record bonuses were forthcoming to those putting all the credit fueled activity together, folks on the low end actually didn’t feel too well. Arguably a dual economy had emerged where blue collar types were in the grip of a recession while white collar types more glued into the modern credit and regulation mercantilist infrastructure (bankers, CPAs, consultants, attorneys, etc.) were doing quite well charging tolls and partying on the credit expansion.
In one way, I’m sympathetic to the institutional reluctance to face the music. I’d give a lot to mark my weight to ‘model’ rather than to ‘market.’ - Warren Buffett, Fortune, 8/16/07 (On the financial institution practice of valuing subprime assets on the basis of a computer model rather than the free market price.)
Is academia biased towards proving man made global warming AND government ordained solutions? This is something worth considering. We’ve certainly heard a lot about the scientist that received some funding from Exxon as spouting lies for Exxon because they pay him to do so, but should grants being handed out — OR NOT — based on if the research sets out with the purpose of justifying one side or the other without clearly looking at counter-evidence be under similar scrutiny? Just because it comes through academia does not mean that it does not have a funding bias.
Now, while what’s good for the goose is good for the gander, we’re not fans of discrediting an argument simply based on funding sources along. Either the evidence holds up or it does not. However, we should be aware that one side or the other will clearly appear to be the correct side if 95% of funding goes to supporting the specific outcome — simply because the massive lopsided volume alone will give it an appearance of overwhelming academic support.
When we are told 95% of scientists think global warming is man made and the government needs to act now, perhaps we ought to weigh that 95% figure more carefully? Moreover, it should be noted that a counter poll suggested the numbers are closer to 1) 40% agree man’s the problem and the state is the solution, 40% 2) think man’s a contributor among a host of others, but not enough evidence suggests a prudent government forced solution given the lack of evidence, and 3) 20% who don’t buy it’s man’s fault.
In our lead off post about global warming, we presented our concerns about those who stand to gain financially and politically by hopping on the global warming bandwagon — especially anything that involves giving more power to government to regulate and doll out mandates and spending to “solve the problem.” The problem is that many with ulterior motives are a strong part of the lobby for “the government’s gotta do something to stop it before we all die” side. Big business interests with solutions to manufactured problems are nothing new, as are big business interests with theoretical solutions to problems that could be solved by the free market without government. Then there are the one-worlders and socialists who like every ounce of liberty, freedom and wealth to be dolled out by central planners who know better than us all. Many of both groups actually believe in the idea of the “noble lie” (ala Plato & Strauss) to justify their higher order objectives since they believe most commoners are too dumb to understand the world, hence it is up to the self-anointed types to tell us lies for our own good.
At any rate, with a multitude of special interests — the Exxon’s of the world included — don’t buy either side without knowing whose interests are what and getting a better understanding of the big picture.
NOTE: In the past we’ve been accused of presenting only one side of this debate — that we show only those who don’t buy global warming. This is true, but that’s because 99% of the rest of the media is showing the other side. See our opening on the subject for more behind why we’re continuing with this series. We don’t recommend taking one side or the other without personally looking into both sides. Accepting the pro or anti side at their word is dangerous.
“It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” — Henry Ford
The National Association of Home Builders housing market index has fallen to 30 — to a 16-year low, beating a MarketWatch survey of economists’ expectations by three points. Meanwhile, tightening home lending standards from banks appears to be a contributing factor, with the Federal Reserve indicating that banks have dramatically tightened their standards — as if such was not inevitable? We also find it not surprising that building permits dropped to a 10-year-low, despite housing starts gaining 2.5% from the prior month. Permits are down 28% and starts down 16% in the last 12 months.
We should also note that it is expected that the median home price for existing homes will likely drop 1% in 2007. The last time the nation experienced any median home price decline was during The Great Depression. With the Conference Board’s index of leading economic indicators dropping 0.5% in April confirming a sliding economy (and, again, surprising expectations), Bernanke finally joined the crowd observing the obvious by pointing out “Curbs on this lending are expected to be a source of some restraint on home purchases and residential investment in coming quarters… We are likely to see further increases in delinquencies and foreclosures this year and next as many adjustable-rate loans face interest-rate resets.” Gee. Thanks for the heads-up, Benji.
“We are now taught to believe that legerdemain tricks upon paper can produce as solid wealth as hard labor in the earth. It is vain for common sense to urge that nothing can produce but nothing; that it is an idle dream to believe in a philosopher’s stone which is to turn everything into gold, and to redeem man from the original sentence of his Maker, ‘in the sweat of his brow shall he eat his bread.” –Thomas Jefferson
We recently described the current phenomena of the U.S. consumer ramping up borrowing from the lender of last resort – the credit card companies. Last week, MasterCard announced profits jumping 70% for the first quarter. Now the reason seems apparent. On May 7, the Fed released their latest Consumer Credit statistics. Total Consumer Credit in March rose $13.5 Billion – a significant increase from February’s $5.6 Billion rise. Effectively, in one month, Total Consumer Credit rose from an annual rate of 2.8% to 6.7%. What’s far more alarming is the increase in Revolving Consumer Credit, which jumped from an annual pace of 2.9% in February – to 9.2% in March.
This week we also learn that economists are forecasting slower consumer spending. Based on the above statistics alone – that’s quite a logical statement – and something we’ve been warning about as inevitable, for a long time. Not surprisingly, we learn today that Toyota is forecasting it’s slowest growth in a decade largely due to weakening American demand.
The recent job growth numbers from the Bureau of Labor and Statistics came in at an anemic 88,000 for April, 2007. Given the statistical error in this non-farm payroll number is +/- 129,000, that figure is near indistinguishable from flat-zero or a contraction. Yet the market didn’t seem to care much — even in the wake of the previous week’s alarmingly tepid GDP estimate of 1.3%, the worst housing numbers in decades, abysmal auto sales - with the three major U.S. indexes up about 1.5% for the week.
If that has you scratching you head and worried, you’re not seeing half of it: What’s really alarming, is the behind-the-scenes fudging that goes on with employment numbers each spring through a little known manipulation called the Birth / Death Model, which assumed that a mind-boggling 317,000 jobs were added in April — the highest B/D model number used since April 2000 (the last number we had easily available). This number– 17% higher than one year ago, and up from 128,000 in March — in the face of an obviously slowing economy (confirmed by the aforementioned Commerce Department GDP estimate of 1.3%) is simply unbelievable.
Recently we posted on global warming and the nuances and the appropriate role for man in response. We did so in response to the massive rush to legislate based on what we find to be suspect analysis of the problem, and even dicier — if not downright dangerous — proposals for solutions.
Consider this rebuttal to Al Gore’s highly popular “An inconvenient Truth”:
As part of our prior stated objective of providing alternative views on the rush to legislate government solutions to global warming, here are a few fresh articles:
Again, our purpose is not to pick one side or the other, but to foster open discussion on what we find to still be an open debate. For our original post on why we feel this way, click here.
While supporters of the recent (last 12 months) barrage of global warming alarmism are quick to say that the scientific community is in complete agreement, and that anyone who disagrees must be in the pocket of big oil, to that we say “not so fast!” Never mind the liberal elite lobbying for Al Gore to receive a Nobel Peace Prize for his film, An Inconvenient Truth.
Its not that we don’t believe man has made an impact. It is that we are not entirely convinced that we have enough information to fully understand said impact, and for that matter, to fully understand the hows and whys behind the environmental adjustments we see.
As well, we are entirely against the reflexive reactions that are shouting down those who bring up a contrary view.
In a tradition that is as regular as Tax Day (only more frequent), the New York Times is again updating us on the vast discrepancy in income between the top wage earners and most U.S. taxpayers. The slant of most such articles is one to suggest remedy is required, with the implication that the redistributionistas ought to help level the playing field in order to make things more “fair” — whatever that’s supposed to mean.
Many regular readers might expect our publication to defend the free market and the rights of individuals to keep what they’ve duly earn. After all, most wage earners do not find themselves among the top 1% earning more than $348,000 by collecting welfare checks or blaming society for their problems. Most are providing something of value in exchange for what they earn. The demand for what it is they offer — a unique talent, service or product, is what gets them their wage, after all. Right?
Well, that’s the idea — at least with free market capitalism.
However, assertions that the U.S. is a system of free market capitalism is a MYTH. Today it more closely resembles what should be called a neo-fascist state.
Gasp! Did you just read the word “Fascist” being used to describe the U.S.? Indeed you did, but not in the context often used by radicals mislabeled as “anarchists” (who are really Marxists) who protest world trade meetings.
“Those who do not know history are doomed to repeat it.” Yes, that phrase is a cliche and overused. I’ve always liked Mark Twaine’s read on it: “History doesn’t repeat, but it sure does rhyme a lot.”
Whichever you prefer, we talk day in and day out here at Vigilant Investor and on our Podcast about the serious problems of the economy and, especially, the dollar. To understand what is in store for the dollar and how it has been made possible, you need to understand the context of the dollar in history. Most importantly, you must understand the present nature of banking and the private central banking cartel that manages the system, called the Federal Reserve.
The video above tells the story. I cannot stress how important the subject matter is for all to understand in the context of the vigilant investing of all things: your money, time, votes, family, business, etc, etc. Take 41 minutes out of your day and learn why.
Don’t have time to watch it now? Dowload it here, and upload it to your iPod for your next commute, run, plane ride, etc. There really is no excuse!
Ron Paul is a gem, and thankfully he is the ranking member of the committee that gets to grill Ben Bernanke each month on the shadowy (literally) doings of the secretive Federal Reserve. It seems so many politicians are either so far down the socialist path, they think confiscation of wealth through Fed inflation is a good thing, or they are simply too economically illiterate to understand the real implications. Too bad Congressman Paul is only allowed 5 minutes. It would be interesting to see him spar with the Fed Chief publicly.
“To suppose that the value of a common stock is determined purely by a corporation’s earnings discounted by the relevant interest rates and adjusted for the marginal tax rate is to forget that people have burned witches, gone to war on a whim, risen to the defense of Josef Stalin, and believed Orson Wells when he told them over the radio that the Martians had landed.”
Is academia biased towards proving man made global warming AND government ordained solutions? This is something worth considering. We’ve certainly heard a lot about the scientist that received some funding from Exxon as spouting lies for Exxon because they pay him to do so, but should grants being handed out — OR NOT — based on if the research sets out with the purpose of justifying one side or the other without clearly looking at counter-evidence be under similar scrutiny? Just because it comes through academia does not mean that it does not have a funding bias.
