Are you a deflationist? Or an inflationist? No matter which way you believe the wind will blow, the truth is this: it’s up in the air. But, as Jim Rickards explains, there are things you can do to cover your assets, no matter which one wins the tug-of-war. Read on…
There are two things you shouldn’t do this Election Day: one, vote; two, buy gold. Why? Chris Campbell explores this and more in today’s Laissez Faire Today. Read on…
America has about 4% of the world’s population, yet houses 25% of the world’s incarcerated. What’s going on here? Chris Campbell digs deep into the industry to figure out the truth. While many blame the private prison industry, the real culprit, says Chris, begins right outside your door. Read on…
“While I heartily subscribe to your premise of pursuing one’s dream,” one reader, Donald J., wrote, “there are alternate perspectives worth considering.”[We’re listening… go on.]“Some wiseguy once said that life is what happens to you while you’re waiting for something better to come along. Milton put it a little more poetically in one of his […]
Want to get rich? Don’t listen to financial “gurus,” says Chris Campbell. In today’s Laissez Faire Today, Chris shares a Zen proverb and shows how understanding it is the only real way to get rich (and live a rich life). Read on…
Sometimes life deals you lemons. It’s up to you to make lemonade. This month’s Insider Cellar recommended winemaker had no intention of making wine when his family settled just north of Santa Barbara. When our reluctant winemaker’s father walked his land in the early 1980s, he was probably disappointed when he discovered the soil did not have the nutrients to support his strawberry crop
Ben Franklin once said, “An ounce of prevention is worth a pound of cure.” In today’s Laissez Faire Today, you’ll learn about one FREE website that has the potential to not only keep your family safe – but also open your eyes to what’s happening in your own neighborhood. Chris Campbell has all the details. Read on…
All over the world, power is dying. The dictators and tyrants of the world are no longer able to wield it like they once used to. And they’re losing it to the “little guy.” Chris Campbell shows you how to be the king of your castle by taking advantage of this fact. Today, you’ll learn how to grab “power gaps” in the market and channel them into your product idea or project. Read on…
The fireflies along the tidal rivers of Malaysia show "feats of synchrony that occur spontaneously, almost as if nature has an eerie yearning for order." Chris Campbell tells you where else this might occur in the world. Also, new technology may revolutionize the agriculture industry and what we think of as a farm.
Jeff Davis is running for Governor in Hawaii and has an interesting campaign strategy. Also, what motivates hackers is revealed and the findings might surprise you. Finally, Ferguson is discussed in a new light. Chris Campbell has more...
This month, I’m going to tell you a hard truth. It’s one that Wall Street brokers and financial analysts try to hide. It’s one that most newsletter writers choose to ignore. In fact—when it comes to the financial world—this is a “secret” that everyone knows… but no one will mention.
When the government pumps trillions of dollars into the economy, they’re not actually printing the money. It enters as digital entries in banks across the country. It’s made the system fast, responsive, and, unfortunately, vulnerable. Now our money is no longer something we hold in our hands, but something that exists on a very susceptible network.
The so-called recovery is only built on debt and printed cash declares our own Byron King. In the long term, the only option for the government to continue financing it's operations is to print too many dollars. Money printing has it's limits, however. It's Byron's opinion that at some point, perhaps very soon, the government will have to turn to more desperate measures. Namely, capital controls. In the following featured essay, Byron outlines 4 probably ways the government will take your cash and one play you can buy through your broker to prepare today. Read on...
Americans expatriate because they want to get out of the country. Corporations expatriate for similar reasons. Clem Chambers explains...
In a 2009 article, the Huffington Post went into considerable detail about the number of people with PhD degrees in economics employed by the Board of Governors of the Federal Reserve System. This is the government’s branch of the Federal Reserve. It is not one of the 12 regional Federal Reserve banks, all of which […]
They lurk somewhere in everyone’s 401(k) program. Tick, tick… And it might be years before you discover them. Tick, tick… By the time you do… Kaboom! It’s too late. They’ve already blown up your retirement.
The U.S. dollar is the dominant global reserve currency. All markets, including stocks, bonds, commodities, and foreign exchange are affected by the value of the dollar.The value of the dollar, in effect, its “price” is determined by interest rates. When the Federal Reserve manipulates interest rates, it is manipulating, and therefore distorting, every market in […]
The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance or the get-rich-quick adventurer. They will die poor.– Jesse Livermore, How to Trade in StocksThe trouble with capitalism’s guardians is that they have no […]
John Foust, a Democrat running for the 10th congressional seat in Northern Virginia, is — like Gov. Terry McAuliffe and other state Democrats — gung-ho to expand Medicaid. His wife’s position is, shall we say, a bit more nuanced.Foust has slammed his opponent, Republican Del. Barbara Comstock, for her opposition to expansion. He has spoken […]
The midterm election season is upon us, and it’s a tossup whether the Republicans will win the Senate, or if President Obama, seemingly oblivious as conflict flares up around the world, will, through his continuous campaigning, keep Harry Reid in his majority leader seat.The only thing we know for sure is that sociopaths will be […]
One industry is expected to grow from an estimated $77 billion sector by the end of 2014… to around $700 billion in 2024. And that, frankly, is a conservative estimate, as you’ll see below. This isn’t because of some resource boom or new discovery. This isn’t because of funny business or a trader play. This is real spending, done by real companies to combat a very real threat. It’s already an established industry but poised for exponential growth. Because the problem it combats is growing exponentially.
Alexander Hamilton was America’s first Secretary of Treasury under President George Washington. When he first entered office in 1789, America was an agricultural nation of just 4 million still broke from its financially costly victory over the British Empire in the Revolutionary War.The states had accumulated relatively massive debts to finance that war, which mostly […]
A great technology solves a problem that we didn’t know we had. It makes us aware of deprivations we didn’t know existed until we discover the new thing. Once discovered, we can’t go back.People in the 1950s, for example, never missed the smart phone. They were pleased to have a phone at all. But today, […]
Fifty years after the 1929 crash, a group of money managers and investment thinkers put together a collection of essays looking back at that experience. The result was a distillation of some pretty fine investment wisdom. Timely, I think, to review now.One of the contributors was Arthur Zeikel, then with Merrill Lynch. The title of […]
Although the mainstream media have turned its attention away from the wreckage of Obamacare, don’t think for a second that all is well.As the politicos in D.C. focus their attention on the midterm elections in November, now is a great time to study, prepare, and seek out the most affordable, accessible, and highest quality options […]
Where do great investors come from?I’m not sure what the hurdle rate for greatness is, but Guy Spier has put up impressive results. His Aquamarine Fund has returned 463% since inception in 1997, versus just 167% for the S&P 500 (a broad proxy for the market). Put another way, $1 million invested at inception is […]
Turn on the tube and economic ignorance seems to be everywhere. There is constant shilling for more government. Business is demonized. Man is said to be trashing the environment. “Workers and women are oppressed” is the constant mantra.And members of the clueless media nod their heads in unison.Only John Stossel has provided the fresh air […]
In early July 1944, delegates from 44 countries gathered at the Mount Washington Hotel in Bretton Woods, New Hampshire. A three-week summit took place, at which a new system was agreed to regulate the international monetary and financial order after the Second World War.The U.S. was already the world’s commercial powerhouse, having eclipsed the British […]
In the minds of many people around the world, including in the United States, the term “capitalism” carries the idea of unfairness, exploitation, undeserved privilege and power, and immoral profit making. What is often difficult to get people to understand is that this misplaced conception of “capitalism” has nothing to do with real free markets […]
Some people are saying it is just what the doctor ordered. Others are saying that the cure is worse than the disease.The Affordable Care Act? Reengagement in Iraq? Tea Party bullying in the GOP?Not this time. Just as protracted in the corridors of Congress and the White House is the debate over the proposed reform […]
I made a choice five months ago. And that choice has saved my life. This wasn’t some instantaneous decision, with danger near. It wasn’t some great “eureka” moment, either. There probably isn’t a person out there who would question what I did. In fact, more and more people are making the exact same choice every day. And each one does it to the sound of applause.
In 2012, money mandarins running the European Union chose stagnation over restructuring. Here’s a consequence of that choice: expectations for a self-sustaining economic recovery keep getting crushed.Two years ago, European Central Bank (ECB) chief Mario Draghi promised to do “whatever it takes” to hold the eurozone together. He bluffed nervous investors into believing in a […]
People jacked up about income inequality can find a new hobby. The 1% are victims of a doomsday machine, and the countdown is ticking. Machine, thy name is “family.”This came to mind as I was reading a preview of Columbia Professor Andrew Ang’s forthcoming, must-read book on Asset Management. Ang is that oxymoron, an exciting […]
For his U.S. economic history class at UNLV, Murray Rothbard gave us the assignment to write a 10-page paper. The paper could be on anything we wanted it to be. However, we had to clear the topic with him.
When I proposed writing about the Great Depression, Murray was thrilled and rattled off a number of sources. Near the top of his list was a book he described as “fantastic, except it has a terrible title.”
That book is this week’s Laissez Faire Club selection — Economics and the Public Welfare: A Financial and Economic History of the United States, 1914-1946 by Benjamin M. Anderson. As you can imagine, this is a book I have very fond memories of. My copy still has paper clips marking several pages. The text is underlined throughout.
Anderson was one of the first economists to provide a systematic account of the causes of the Great Depression. It remains the most reliable documentary guide to precisely what happened, before, during, and after. That is the essence of this book.
Anderson had feet both in academia and banking. He was on the faculty at Columbia and later at Harvard, and then joined National Bank of Commerce in 1918. Two years later, he moved to Chase National Bank to serve as economist and editor of the Chase Economic Bulletin.
He was also a world-class chess player and wrote what’s been described as a brilliant preface to Jose Capablanca’s book A Primer of Chess. Sadly, Anderson never saw Economics and the Public Welfare in print. He died of a heart attack just prior to its publication.
The years between the forming of the Federal Reserve and the end of World War II are some of the most interesting and formative years in U.S. economic history. Of course, the common narrative we constantly hear is the “monetarist” version parroted by Ben Bernanke that the central bank erred on the side of tightness and the money supply plunged, lengthening the Great Depression, and it was ultimately only fixed with a massive government works program known as WWII.
Instead, imagine having a correspondent on the ground keeping a rich, informed diary of the day-to-day, week-to-week, and year-to-year events as seen through the eyes of an Austrian economist, from the creation of the Federal Reserve through the Great Depression to Bretton Woods. That is what Economics and the Public Welfare is.
Anderson provides some theory along the way, but what this great book primarily does is chronicle monetary and economic events from the beginning of the Fed’s operation to after the war. Politics, stock prices, and banking and trade data, plus a fast-paced narrative combine to make the reader feel like he or she is there.
As you would expect a bank economist would, Anderson provides a blizzard of numbers to provide emphasis for his story.
For instance, Anderson provides the principal resource and liability items of the Federal Reserve during the war. Total resources ballooned from $637 million in 1915 to $5.2 billion in 1918. On the liabilities side, Federal Reserve notes in circulation exploded as well, from $165 million to $2.5 billion, as did member banks’ reserve deposits, which increased from $398 million to $1.7 billion.
As measured by percentage growth, this is greater balance sheet growth than the Bernanke Fed post ’08 crash. Seeing these astonishing numbers triggers a realization: The years from 2008-13 amount to our own World War I. One hundred years ago, this sort of thing led to the post-boom crash of 1920 and unleashed the distortions of the roaring ’20s that led to the second major crash of 1929.
Back in these days, the banking system also found itself flush with reserves. With bank reserves held at the Fed and not being lent out, the money market tightened and rates increased, despite bank credit expanding. After dropping to 1% in 1915, the bank call rate rose sharply to 7% in 1917. Bond yields also went up. “The pressure of firm money rates undoubtedly did a great deal to retard bank expansion and to hold it down to necessary things,” Anderson wrote.
Of course, in similar fashion, bank reserves are also piling up at today’s Fed, and money is, indeed, tight for the average person. Even so, the Fed of those days was not nearly as reckless as ours is today. The Bernanke Fed works overtime to keep money tight but rates uber-low in aid of the government, big banks, and speculators on Wall Street.
If you haven’t ever heard of Benjamin Anderson and wonder about his hard money, anti-Keynesian bona fides (after all, he did work for a bank), this quote from Chapter 1 gives you an idea:
“The very inelasticity of our prewar (World War I) system made it safer than the extreme ductility of mismanaged credit under the Federal Reserve System in the period since early 1924. The whole world was, moreover, far safer financially when each of the main countries stood on its own feet and carried its own gold.”
More than once, the reader will stumble upon a sentence that will make him smile. What’s old is new again. We’ve taken note that Iowa farmland is looking bubblelike in 2012 and 2013. Sure enough, in his chapter on the 1920-21 crisis (what, you’ve never heard of that one?), Anderson offers a small section “Land Speculation — Iowa.”
In a footnote, the author remembers what an Iowa City banker told him. “I know that you economists say that land is only worth what it will produce, but it does look like some of this land around here is worth a thousand dollars an acre.”
Plugging that $1,000 into the inflation calculator turns up a number of $11,100 per acre in 2011. It’s almost eerie that the average price of land in O’Brien County, Iowa, last year was $12,862 per acre, a 35% increase over the 2011 average.
Not so famously, the government didn’t intervene in those unenlightened dark ages. Wages and wholesale price levels crashed. The result, says Anderson: “In 1920-21, we took our losses, we readjusted our financial structure, we endured our depression, and in August 1921, we started up again. By the spring of 1923, we had reached new highs in industrial production and we had labor shortages in many lines.”
The chapter I have bookmarked with the most passages highlighted is “Digression on Keynes.” For nearly 20 pages, Anderson takes on Lord Keynes, whom he describes as “a dangerously unsound thinker.” Anderson points out that Keynes heavily influenced Roosevelt and all economists who worked for the government. In The General Theory, Keynes targets a passage from J.S. Mill out of context to challenge the idea that aggregate supply and aggregate demand grow together.
The author points out that Keynes and his followers think in aggregates. He provides an aggregate supply function and an aggregate demand function. While human action is economics, there is no discussion of interrelationships. “Nowhere is there a recognition that different elements in the aggregate supply give rise to demand for other elements in the aggregate supply.”
Our governments, corporations, and individuals pile up debt seemingly with impunity. The ideas of balanced budgets and living within our means are thought to be quaint. Modern Keynesians like Paul Krugman pooh-pooh the notion of balanced budgets and fiscal restraint. Where could he get such a notion? Anderson explains:
“Where economists generally have held that saving and avoiding unnecessary debt and paying off debt where possible are good things, Keynes holds that they are bad things. He disparages depreciation reserves for business corporations. He disparages amortization of public debt by municipalities. He disparages additions to corporate surpluses out of earnings.”
There are entire books devoted to challenging Lord Keynes and The General Theory. But, Anderson’s short chapter will provide you all the ammunition you need.
Near the end, the author reprints a memo he penned for private circulation that eventually found its way throughout government. The contents of the memo are considerable. However, one small snippet speaks to current Fed policy:
“Inflation is not something that you can turn off and on like water at a faucet. Inflation and deflation are not simple terms and they are not simple opposites. There is no financial Westinghouse air brake by means of which an inflationary movement can be tapered off and brought gently to an end without shock. Rather, inflationary forces engendered in defiance of sound financial policy may seem harmless for a long time and then suddenly break force into great violence.”
There is an enormous amount of wisdom in this book. Everyone trying to understand monetary and economic policy during the Depression or today and the subsequent effects should have Economics and the Public Welfare loaded and ready to read cover to cover, or to refer to often. Anderson is an indispensable guide to government monetary policy, as it happened, that still haunts us today.
Being the kind of guy he was, Rothbard recommended Anderson’s great book before recommending his own America’s Great Depression. Both are amazing. But Murray had the benefit of Anderson’s work in writing his. He cites him no less than 15 times.