The United States and the United Kingdom are both pursuing similar strategies to deal with this global recession: print more money. France and Germany are taking a rather different track and talking about reducing government spending. Germany went so far as to argue before the last G-20 meeting that if it were to reduce itself to “stimulus” spending, then it would become a burden on the rest of Europe; their reasoning being that they would eventually have to raise taxes to pay off their increased debt load and that that would cause a drag on the rest of the European economy.
It looks like Keynesianism isn’t a huge hit in France or Germany, as they are managing to avoid the peer pressure of their deficit spending neighbors. I’m sure Helicopter Ben is calling them up saying, “Come on! Everybody’s doing it.” But no dice. In fact, the President of the European Union Mirek Topolanek recently came out and called Obama’s plan to get us out of the recession a “road to hell“.
Ouch. Continue reading Attention Dr. Lacy Hunt: Your Plan’s Not Going So Hot
Increasingly various Chinese sources have been going on about their dollar woes. A year ago it was just an academic. Freedom of expression is a limited commodity in totalitarian China, so if you see an academic coming out making statements critical of China’s trading partner you can probably surmise that that message is coming from higher up’s in China’s chain of command. Having a lesser known academic figure make the statement was a way to distance the criticism from the official channels.
But that kind of subtle criticism didn’t seem to have made much of an impact. In fact, we spent the next year attempting to solve every round of bad news by borrowing or printing more money. Last month, the Premier himself said that he was concerned about the value of his country’s investment in the US Dollar. No longer relying in mere academic to hurl criticism, the Chinese wanted us to know on no uncertain terms that they were starting to get a little peeved. We responded to that proclamation by having Helicopter Ben print up $200 Billion or so and start buying US Treasuries- the highest form of inflationary money printing there is.
Now, China’s pissed. “How pissed?” you ask. So pissed that their central bank just came out and called for a new reserve currency. Having the central bank of your major trading partner and holder of close to $2 trillion in your country’s debt come out and call for a new currency to replace yours is not usually considered a good sign. It’s a bit like taking a woman out on a date and having her say that she would very much like to have children someday… with someone who is almost completely unlike you. Rocky times are clearly ahead for this relationship.
But you wouldn’t know that by looking at the US Stock market. Both the Dow and the NASDAQ were up 6.8% today. Continue reading “The Dollar Sucks!” Says China’s Central Bank
I have a friend of mine doing hard time in the California State Prison system. Drugs and armed robbery were his crimes, but the real roots lay in his childhood. I told him as much, and urged him to take a look at his childhood upbringing in the hopes that he might exorcise some of his demons. Towards that end, I sent him the book One of a Kind: The Rise and Fall of Stuey ‘,The Kid’, Ungar, The World’s Greatest Poker Player.
I’m sure most of my readers will have no idea who Stu Ungar is, but, as the title of the book says, he was the greatest poker player the world has ever seen. He is estimated to have made over $30 million dollars over the course of his poker career, but he’d continually throw the money away on drugs or other gambling addictions. He went from broke to millionaire and back to broke four separate times over the course of his life. He died so penniless that this friends had to take a collection for his funeral.
I send my friend this story because I wanted him to understand that talent and ability are no replacement for a good understanding of yourself. That’s a lesson I hope he’ll come to learn before he gets out.
He wrote me this letter and I wanted to share it with my readers: Continue reading Investment Ideas from Prison
Just a quick note to pat myself on the back. In a prior blog I wrote:
f Roger is right, and the banks are no longer able to function as the traditional engine of inflation, then I’m sure Ben is prepared to either go around them to offer credit to consumers directly. Such a scenario could take place in a variety of ways, with the most likely being that Fannie Mae and Freddie Mac start offering 4% 40 year mortgages and refinances straight to consumers. Since both of these lending institutions have now been nationalized, relatively few people would need to be involved in that decision. Fannie and Freddie create the money to give to consumers, and the Fed buys the notes. Voila, inflation.
Today, gold rallied strongly as Ben announced that the Fed:
will spend up to $300 billion over the next six months to buy long-term government bonds, a new step aimed at lifting the country out of recession by lowering rates on mortgages and other consumer debt.
At the same time, the Fed left a key short-term bank lending rate at a record low of between zero and 0.25 percent…
The Fed also said it will buy more mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac to help that battered market. The central bank will buy an additional $750 billion, bringing its total purchases of these securities to $1.25 trillion. It also will boost its purchase of Fannie and Freddie debt to $200 billion. Continue reading “Helicopter” Ben Starts Printing Up a Storm
In the first two parts of this series on the conspiracy theories that surround the Federal Reserve, we looked at the popular G Edward Griffin conspiracy which traced the formation of the Federal Reserve from the Jekyll Island meeting forward to present. As I laid out in both parts I and II, the Jekyll Island meeting was the culmination of the national banking power over US politics. It was literally a meeting of the nations power brokers (the “money trust”) in a smoke filled room where the future of the nation was discussed.
The Jekyll Island meeting is an easy target for conspiracy theorists. The problem lay in that they then make this rather credible event the lynch pin of a broader, all encompassing conspiracy. In Griffin’s case, the Jekyll Island meeting plays the frontman for a conspiracy of “Fabian Socialists” who were behind not only Woodrow Wilson, but everything else from the Soviet Union to the US Environmentalist movement. Griffin’s conspirators wait behind the power of the United Nations to strip away our power when we are weakest in the name of Socialism.
Griffin commits three logical fallacies: Continue reading Conspiracy Theories That Surround The Federal Reserve: Part III
My last entry explored the popular conspiracy elements contained in G. Edward Griffin’s The Creature from Jekyll Island: A Second Look at the Federal Reserve In part two of this series, I’m going to be looking at the particular conspiracies that I have come to accept as part of the formation of the Federal Reserve.
The period of American history that is crucial to understanding the formation of the Federal Reserve is the last 1800s. Unfortunately, this is a period of American history where most Americans are completely ignorant. US history as it is taught in most schools pays scant attention to this period in history. The US History most of us learn in school spends most of its time discussing Colonial History, the Revolutionary War, the Civil War, and Cold War. No major wars occured during the late 1800s, so its just not considered worth spending much time on. If anything, the only time this period in history gets mentioned is by Democrats trying to remind us how bad this period of time was- back when the goverment’s role was small and bureaucrats and regulators had overrun the nation. This “Gilded Age of the Robber Barons” (as they term it) was surely a vicious time that we can’t afford to go back to.
I derided this attitude in a prior blog, “Who’s Afraid of the Big Bad Robber Barons?” The people who attack this period in history most, tend to be those who understand it the least. The Industrial Revolution was underway during this period and society was in upheaval.The United States was becoming a mammoth industrial power and the real wages of the working man increased dramatically; real wages for labor have only stagnated since, so let’s not be too hasty in our condemnation of this era of the Robber Barons. The foundations of the nation we would become today were all laid during that period. Continue reading Conspiracy Theories That Surround The Federal Reserve: Part II
As my personal friends know, I’m a fan of the Howard Stern show. This week the Stern show had two separate moments that showed just how deep this recession has affected people. First, Howard Stern did a segment of the Mexican Delivery game. Howard typically does this when he has porn stars in. The two in question were Kagney Linn and Tory Lane.
The crux of the game is that Howard Stern orders something to be delivered by a Mexican; I have no idea how he arranges this. He has the delivery man make the delivery in-studio and then gets them on the microphone and offers them a hefty tip or the chance to see the girls naked. In times past, the man making the delivery has gone for the chance at flesh, but that’s not what happened this time around. According to HowardStern.com:
Howard then welcomed Raoul, the first Mexican delivery guy, to the studio and offered him a $50 tip – or the opportunity to see Tory and Kagney naked. Raoul chose the money, so Howard upped the offer to $50 or a naked hug from Tory (with bonus tit-squeeze).
Again Raoul went with the money. Howard asked Tory what went wrong, and she blamed the translator: “I don’t believe the translator’s telling him [the correct deal].”
The second delivery guy, Hector, said he hadn’t been laid in six months – so Howard had the girls strip down to get him started and offered Hector a $25 tip or the chance to hug, squeeze and slap the girls.
Hector chose the money. Howard was shocked: “The economy has really turned.” Tory got depressed: “Gimme that food.” Continue reading Open Letter to Artie Lange
This nation was founded on hard money. It says right in our Article I, Section 10 of the US Constitution that, “No State shall … make any Thing but gold and silver Coin a Tender in Payment of Debt.” We lived as a hard-money nation for well over a century; Americans would only accept gold or silver coin in payment of debt or bank notes that were redeemable in same. That’s not the world we live in today, and on that, most everyone can agree. As for how we got here, there are many different versions of history. This article is the first in a three part series that will examine the history of how this came about, including the various conspiracy theories surrounding it.
The pedestrian version of the story is that the American public wanted government oversight over the banking industry, so Congress convened a series of hearings — The Pujo Hearings — as they gathered the necessary information to act. Soon, the Federal Reserve Act was drafted. This provided for a large bureaucracy that included a Federal Reserve Bank in most major cities. Their purpose for having them spread across the nation was two-fold: first, to distribute the power of the Fed far and wide, ensuring each region adequate representation. Secondly, to provide a local Federal Reserve Bank for oversight of the regional banks, making sure they were responsibly conducting their business in a manner not endangering to their depositors. The Federal Reserve Act also empowered the Fed to be the “lender of last resort”; essentially, it was allowed to create money from nothing so that it may purchase US Treasury bonds from troubled banks. The Act was sold as a means of breaking up the power of the banking industry and returning it to those representing the people, to promote responsible banking, and make bank failures a thing of the past.
The first book I ever read on the Fed was G. Edward Griffin’s The Creature from Jekyll Island: A Second Look at the Federal Reserve, which tells a far more gripping tale of the its creation. Continue reading Conspiracy Theories That Surround The Federal Reserve: Part I
As I mentioned last week, I expect the market to find a temporary bottom at some point this year and to stage a significant rally. However, I expect that this rally will prove to be a bear trap, as the market will then fall far more to find its true bottom a couple of years from now.
I don’t base this prediction on any sort of economic theory, but rather on history. Prior to the Federal Reserve Act of 1913, economic contractions were short and violent affairs. The Panic of 1907, for instance, was over and done with in a single year. The panic spelled the end of the Knickerbocker Trust Corporation, and many small regional banks failed and wiped out their depositors. This kind of “liquidation” of struggling companies was viewed as a necessary evil back then. No one likes liquidation, but it does its work quickly.
Things are different these days. John Maynard Keynes came along and theorized that all economic downturns were caused by “insufficient demand.” He argued that politicians needed to juice the economy with easy money to get consumers spending again. The fact that Keynes’s theory is nothing more than math piled on top of a foundation that’s part conjecture, and part shaky definitions, did not stop it from becoming popular. Similarly, the fact that Keynes’s prescription of juicing the economy with easy money does not seem to actually prevent recession — but, rather, prolong it, until it becomes far larger and more devastating — has not caused it to since fall from grace. Politicians get elected on promises to give money to their supporters and Keynes’s theory makes it their primary mission to do so.
This is why Keynesianism never goes out of style. Continue reading Will the Real Market Bottom Please Stand Up?
Given the massive amount of money being pumped into the global economic system, higher prices down the road are a given. It’s possible that prices may fall in the short term, but no currency can withstand a determined onslaught by its own central bank and national government for long. I consider gold a no brainer in this environment. It’s a store of value that does well both in inflationary times and, as we saw last year, in deflationary times.
But I’m not content just to park my money in physical gold and leave it at that. The trader in me wants to make a leveraged play to make the most off of gold’s bright future. Gold mining shares would seem an excellent play then. Not only do you get exposure to the gold market, but you get the benefits of stock ownership. In the past, whenever I would introduce the idea of owning gold as a form of investment, people would laugh my suggestion off because they just couldn’t imagine how anything would be better than owning “stocks for the long run.” Of course, they aren’t saying that anymore.
Gold mining shares are a nice compromise in terms of investment philosophy. If the American dollar does fall from grace as we goldbugs suggest then owning shares of a gold mining company will be a tremendous boon. If the dollar continues to stubbornly hang on, and we somehow manage to resume normal economic growth, then I still own equities and should get the traditional benefits of equity appreciation. Continue reading Gold Mining or Gold Bullion for 2009?