Charles Hugh Smith has an interesting post about how the world-wide orgy of “stimulus” spending, with money created by expanding debt, is working (emphases in original):
We can summarize the official “solution” to the Global Financial Meltdown of 2008 in one line: borrow and blow trillions–of yen, yuan, dollars, euros, reals, you name it.
The goal of borrowing and blowing trillions was to re-invigorate “growth”— any kind of “growth,” no matter how wasteful, unproductive or even counter-productive it might be: wars, nation-building, ghost cities, needless MRIs, useless college diplomas, bridge to nowhere–anything the borrowed money was squandered on counts as “growth” in the Keynesian status quo.
Unsurprisingly, this strategy yields diminishing returns as the negative returns on all this debt-fueled spending piles up. While the yield on the “investment” is either negative or only fleetingly positive, the interest due on the debt is forever. That’s the source of diminishing returns in a nutshell.
Here’s one of the graphs illustrating the point, but go read the whole thing.
At The Economist, someone identified only as R.A. wants the world’s central bankers to work harder at increasing inflation. I think it’s Paul Krugman writing anonymously.
Alone among big rich economies, Japan is now actively trying to raise inflation, in hopes of finally kicking its low rate, low growth habit. Higher inflation is the only reasonable way forward:
This would let central banks cut effective borrowing costs despite the zero bound on interest rates, since inflation reduces the burden of repaying a given loan. Just as important, higher inflation would speed up interest-rate normalisation.
The rich world’s central banks are behaving with a dangerous complacency. Low and falling inflation will retard ongoing recoveries. …
If low inflation retards economic growth, then Venezuela’s economy must be growing like crazy:
In a recent Cato Policy Report, Brian Domitrovic contrasted the growth of government in the past 15 years with the comparable period before that, and suggested that what this country needs is another tax revolt:
For about 15 years now, the federal government, in all its myriad activities, has been in major expansion mode. The Federal Reserve, the regulatory apparatus, the tax code, the police and surveillance machinery of the state — all of these extensions of the government have broadened their reach, power, and ambition in significant fashion since the late 1990s.
The basic metric that reflects all this is the level of federal spending. In 2013 the government of the United States spent 55 percent more money — in real, inflation-adjusted terms — than it did in 1999. Economic growth in that 14-year span has been 30 percent. …
The moment is apt, then, to reclaim a tradition of our recent history, a tradition that the big-government 21st century is striving to suppress. This is the great successful effort to slow Leviathan of a generation and a half ago — the effort that gave us the Ronald Reagan revolution of the 1980s.
By all means, read the whole thing. But this graph clearly illustrates one of the key points:
Nick Leghorn reports that the law of supply and demand is still operative in the firearms market:
After the gun control scare earlier this year, demand for AR-15 rifles went through the roof. People were maxing out their credit cards on fears that America’s favorite firearm was about to be banned by the powers that be. This cleared the entire available stock of guns, and made manufacturers ramp up to meet demand.
It was good times for manufacturers, but now the AR-15 bubble has burst and things are looking downright depressing for manufacturers.
By now, everyone who “needed” an AR-15 has found one. Even if they emptied their bank accounts to do it, they have their rifle. But with sales slowing down, the price of an AR-15 is cratering. …
The good news is that cheap AR-15s are about to flood the market. If you’ve been waiting for the “right” time to buy a good entry level gun, this is it. …
The bad news is that ammunition is still scarce. It’s on the shelves, but stores haven’t lifted their “one box per person” limit yet. So while you can buy a gun, you still can’t feed it. And God help you if you need some .22lr.
Woohoo! Cheap ARs for everyone! I guess I should go to next weekend’s Tanner gun show. And bring my checkbook. 🙂
A while back, people who worry about the growing mountains of sovereign debt pointed to Greece as the canary in the coal mine. We have a new canary, and he’s got a bad cough: Cyprus. The Eurocrats are funding a bailout of Cyprus by doing what debt-laden governments with no respect for the rule of law or the sanctity of contracts usually end up doing eventually: seizing the assets of savers.
I’m not shedding any tears for the Russian klepto-billionaires who parked their ill-gotten riches in Cyprus. And maybe only a few for the Cypriots who until now believed they could get something for nothing through the miracle of endless government borrowing. But prudent and frugal folks throughout the heavily-indebted nations of Europe must be wondering when the EU will come after their savings. Under the mattress or in a hole in the back yard must be starting to look like better options than a bank account.
Think it can’t happen in the good old USA? It already has. In April 1933, a month after taking office, FDR issued an executive order (under the “Trading with the Enemy Act of 1917”) outlawing the private ownership of gold coins, bullion, and gold certificates. Owners had a month to turn it all in or face 10 years in prison. They were reimbursed at face value — the owner of a $20 gold double eagle (which contained gold worth $19.99 at the time) was given $20 in currency. But once all the gold had been turned in, FDR quickly devalued the dollar by 59%. That double eagle, had the owner been allowed to keep it, would have been worth $35. Essentially, this was a confiscation of wealth that makes the Cyprus “haircut” look picayune.
More recently and on a smaller scale, when the Obama administration turned GM into Government Motors, they abrogated contracts and confiscated the assets of bondholders in order to turn them over to their friends in the UAW.
And for some time now, left-wing activists and Obama administration officials (but I repeat myself) have been talking about how “unfair to poor people” 401k and IRA accounts are and suggesting that the government should do for retirement accounts what it’s doing for health care: take over.
Fiat money allows governments to confiscate wealth slowly and stealthily by inflating the currency, thus shrinking both your savings and their debt. But if (when) things start to go out of control and panic sets in, they’ll come after your savings more directly and immediately. You might want to be prepared.
Here’s something else from Mark J. Perry, the cockeyed optimist of the dismal science:
Relative to our total household spending, Americans have the cheapest food on the planet – only 6.6% of the average household budget goes to food consumed at home. European countries like Spain, France and Norway spend twice that amount on food as a share of total expenditures, and consumers in countries like Turkey, China and Mexico spend three times as much of their budgets on food as Americans.
Another measure of food affordability, total food expenditures in the U.S. as a share of disposable income (see chart above, USDA data here), shows that food has become more affordable in the U.S. over time. Spending on food has fallen from more than 25% of the average American’s income in 1933 to only 9.4% in 2010, an all-time low. Between 1980 and 2010, the share of disposable income spent on food in the U.S. fell from 13.2% to 9.4%, which is equivalent to almost a 4% increase in the average American’s disposable income over the last 30 years. And a number of countries in the list below spend more on food as a share of household expenditures today than Americans spent on food during the Great Depression.
… Americans spend less on food as a share of our household expenditures than consumers anywhere else in the world.
Most goods and services have gotten cheaper, better, or both over time. It’s called progress. I can think of two main exceptions, which keep taking a larger and larger share of the average American’s income. Both are largely under the control of the government, with lots of regulations and subsidies (!): education and health care.
The Obama campaign continues to hammer Romney for his association with Bain Capital, the private equity firm they portray as a “vampire” that profited from layoffs and plant closures. So Todd Shepherd at Colorado Peak Politics decided to play the ever-popular “sauce for the goose, sauce for the gander” game.
It seems that former Denver mayor Federico Peña, who is again this year (as in 2008) Obama National Campaign Co-chair, is every bit as much a “venture capital vampire” as R0mney. Since 2000, Peña has been a partner in the private equity firm Vestar Capital. Shepherd documented some of the recent Obama campaign contributions of Peña and Vestar managing director James Kelley. Then he highlighted some of Vestar’s layoffs and plant closures at the companies it acquired, like Del Monte Foods and Solo Cup Company.
To his credit, Shepherd pointed out that Vestar Capital isn’t a bunch of “evil corporate raiders.” Neither is Bain Capital. These firms serve a valuable purpose, rescuing ailing companies when they can and redirecting resources to more valued uses when they can’t. Their goal certainly is (and ought to be) to make money. But in the process, they improve the economy and make us all better off.
Inefficient, uncompetitive companies failing and factories shutting down are an essential aspect of economic growth and progress, leading to more wealth and better products, jobs, and living standards for all. If that idea is new or strange to you, read about Joseph Schumpeter’s concept of Creative Destruction.
Almost complete deregulation of the financial system
I know, I know, but hear me out.
What should be the goal of financial reform? Its goal should be not to prevent bubbles and busts, which are the normal result of an economy full of “animal spirits” (quiet, the Austrians in the back!), but to prevent the busts from a) necessitating taxpayer bailouts and b) having ripple effects that threaten the very existence of the financial system and wreck the economy, and by the way c) still ensure that credit flows throughout the economy (i.e., don’t destroy the village in order to save it).
Read the whole thing. It’s not a pure libertarian proposal by any means, and I’m not knowledgeable enough about banking and finance to evaluate it intelligently. But it strikes me as an interesting and at least superficially plausible proposal.
My friend David knows much more about such things than I do, and I’m interested in his opinion. Maybe he’ll let us know what he thinks.
Colin Gregory Palmer Grey, who apparently divides his time between time management coaching, public speaking, and producing informative and amusing videos on a wide variety of subjects, thinks that it’s time to kill the penny. Watch this clever video and see if you don’t agree.
Grey’s mention of the half-penny brought back a memory. In Britain, the half-penny persisted much longer than in the U.S. (until 1969, according to Wikipedia), and they called it a “ha’penny” (pronounced “hay-penny”). Back in my youth, I really liked Peter, Paul, and Mary, and they had a lovely song about wassailing in England called “A Soalin'” that includes this lyric:
I have a little pocket to put a penny in
If you haven’t got a penny, a ha’penny will do
If you haven’t got a ha’penny, then God bless you
This just boggles my mind. Investors are paying the German government to take their money and hold onto it for 3 to 12 months:
Continuing the schizoid overnight theme, we look at Germany which just sold €3.9 billion in 6 month zero-coupon Bubills at a record low yield of -0.0122% (negative) compared to 0.001% previously. The bid to cover was 1.8 compared to 3.8 before. As per the FT: “German short-term debt has traded at negative yields in the secondary market for some weeks with three-month, six-month and one-year debt all below zero. Bills for six-month debt hit a low of minus 0.3 per cent shortly after Christmas…
Why would any rational person buy a bond that pays negative interest when they have a perfectly good mattress to put the cash under?
One of the commenters at Zero Hedge described it succinctly:
Peter Schiff (a.k.a. Dr. Doom), who predicted the sub-prime mortgage crisis and the collapse of the housing bubble and auto industry, has wrapped up his testimony before the House Subcommittee on Government Reform and Stimulus Oversight. I strongly urge you to watch this 22-minute video of some of the highlights of his testimony last week. If you’re familiar with Austrian economics or Frederic Bastiat, some of what he says may ring a bell.
Schiff is the CEO of Euro Pacific Capital and the son of famed tax protestor Irwin Schiff. He has a blog* and an internet radio show, and is a frequent guest on cable news shows. I really like this Schiff quote, which channels Bastiat:
You can always see the jobs that government creates. What you don’t see are the jobs that they destroy.
Ryan Swift has a nice post about Schiff’s testimony, along with a couple of alternative video excerpts of his testimony (there’s a fair amount of overlap with the video above, which I found at Zero Hedge).
There’s a compelling 5-minute reason.tv interview with Schiff here.
* This post originally linked to an unofficial blog that’s not Peter Schiff’s. Thanks to Anthony Nelson of SchiffGold.com, I’ve corrected the link so that it points to Peter Schiff’s actual blog.
MineFund has a couple of graphs that every American needs to look at. The first shows the change in purchasing power for the US dollar from 1792 to today. The second shows the same for gold.
The relentless and near-precipitous decline in the value of the dollar after it was "unfettered" from gold is sobering. With the Federal Reserve creating new dollars ("monetizing the debt") hand over fist, what do you suppose that graph will look like a few years from now?