Ask a D.C. insider what’s the best way to solve the debt crisis. Nine times out of ten, they’ll recommend taking on more debt. That’s how things operate in the Potomac swamp. Up is down, right is left, digging yourself into more debt is the best way to get out of it. But it wasn’t always like this. In fact, there used to be common sense when it came to the economy. So where did it all go wrong?
Just because you’re retired doesn’t mean you have to stop working. Especially now that you have all the time in the world to do what you really want. Entrepreneurs don’t only come out of Silicon Valley. They come from all walks of life, from all different ages. If you’re retired and want to stay active while you relax, then find out the steps you need to take in order to start, manage, and grow your next small business.
Austrian economics does more than tell you what happens when the government disturbs market forces. In the hands of knowledgeable investors and entrepreneurs, it can tell you exactly what to expect from the market. Market behavior depends on how people behave. And how people behave is central to the Austrian perspective.
The U.S. dollar has been the world's reserve currency for almost a century, and already there are signs it may be in decline. But that doesn't mean it's not still valuable. On the contrary... As Chris Mayer explains, there are many reasons the U.S. dollar will remain relevant on the world stage for years to come. Read on...
The government will do whatever it takes to make sure it has enough of your money to fund itself. On the surface you might think that means enduring a grueling audit. But the IRS and the government is more than willing to ignore your privacy in the cold relentless pursuit of the money they think they deserve. As they get bigger and bigger every year, the smaller and smaller your paycheck becomes as they leach off it.
World War II might have dragged the country out of the Great Depression, but it did so at a great price. Central planning took center stage, and politicans and bureaucrats suddenly knew what was best for America, the economy, and your life. On top of that, they replaced the free market with a new economic system… Creditism.
Argentina is suffering the ravages of government debasement of the currency -- i.e., inflation, the process by which government pays for its ever-increasing debts and bills by simply printing more paper currency. The expanded money supply results in a lower value of everyone’s money, which is reflected in the rising prices of the things that money buys.
Its acceptance is as widespread as its justification is important, for it provides the rationale for the Federal Reserve’s unprecedented monetary expansion since 2008. While critics may dispute the wealth effect’s magnitude, few have challenged its conceptual soundness. Such is the purpose of this article. The wealth effect is but a mantra without merit.
Baron Rothschild, the famous French financier, was once heard to say that he knew of only two men who really understood money -- an obscure clerk in the Bank of France and one of the directors of the Bank of England. “Unfortunately,” he added, “they disagree.”
The saga of All Saints could soon be coming to a community near you. Thanks partly to the scandal surrounding the IRS’ targeting of conservative groups, the agency has proposed a new set of rules for a huge number of social-welfare groups that claim tax exemption under Section 501(c)4 of the tax code.
Nihilo ex nihilo fit. Out of nothing, nothing comes. First put forward by ancient Greek philosopher Parmenides in the fifth century B.C., Thomas Aquinas and St. Augustine later used this axiom to prove that the universe needed a “first mover” to get things going. Even if the whole thing began with some kind of “Big Bang” moment, it still needed a banger to bang it. Who? God, of course.
It’s easy to be negative about the U.S. economy these days. Find a glint of silver, and folks come running to point out all of the dark clouds looming about. This, of course, is what we got last week when the monthly jobs report was released from the U.S. Department of Labor (DOL). Folks pooh-poohed the number of jobs and whining that they’re not enough or that it’s less than a bunch of economists thought that it might be. But you know what? Stuff ’em.
Given how poorly states like California and Illinois have funded the pension funds for their own employees, one would think that this would stop dead in its tracks any plan to have the government assist in managing private sector funds too. The spate of recent activity, however, suggests otherwise.
The financial world is plodding along like a drunken sailor avoiding debt collectors by keeping no cash in his wallet. It’s not the kind of calm that’s going to last or end well. But the storm will have to wait until after the Olympics.What a game! We’ve never watched ice hockey closely before. But watching […]
“When they come for my gun, they will have to pry it out of my cold, dead hands,” is a common refrain I often hear from the Neo-Cons when there is a threat, credible or otherwise, that the U.S. government is going to take their firearms.And, when I hear this crazy talk, I agree with […]
Last year was quite the year for Bitcoin. We’ve seen exponential growth in Bitcoin’s exchange rate and extensive coverage in the media. Another phenomenon we have witnessed is the proliferation of alternative cryptocurrencies, five of which we’ve provided below.What all of these cryptocurrencies have in common is that they rely on a decentralized network to […]
The nonpartisan Congressional Budget Office is acting in a bipartisan way to cover up the biggest single threat to the bipartisan political alliance that is stripping America of its wealth: the United States Congress.There is no question that the following policy is bipartisan. Democrats and Republicans in Congress are completely agreed that the following information […]
Amidst all the revelations about how the American people, many of whom are absolutely convinced they live in a free society, have their telephone calls, emails, website visits, and who knows what else under surveillance by their own government, let’s not forget the massive infringements on financial privacy that have gone on for decades.Consider, for […]
Image: ShutterstockBitInstant CEO Charlie Shrem, along with alleged co-conspirator Robert Faiella, was arrested by federal authorities last week for allegedly laundering more than $1 million worth of Bitcoins. This is a tiny amount compared to the largest drug-and-terrorism money laundering case ever. Yet when British bank HSBC was found guilty in 2012 of laundering billions, […]
The exercise had an awesome name, inspired by the movies: “Quantum Dawn 2.”On July 18, scads of U.S. banks, stock exchanges and government agencies took part in a digital fire drill — a practice run in the event all of Wall Street came under massive cyberattack.This isn’t the first time banks have come under an […]
The faces of the Detroit bankruptcy are the thousands of pensioners whose promised benefits are suddenly part of the restructure negotiation. When Motown filed for Chapter 9 last July, the city had $11.5 billion in unsecured liabilities. The vast majority of this was pension and health care benefits owed to retired city employees.The images of […]
So you’ve maneuvered the Obamacare website, plugged in your top-secret information and found out how much you are forced to pay to avoid a fine.And for some of you, it turns out you qualify for a government subsidy — making the premium sound like a bargain. But signing on that line to accept the government’s […]
The Largest Company in History:“The United States Corporation of Government (USCOG)”I follow global social and commercial networks, looking for entrepreneurial opportunities.Innovation surges when industry and government models change. Buggy whips. Landline phones. Railroads. The Soviet Union. Apartheid South Africa. All marked social and commercial innovation, both bad and good.We are witnessing a new form of […]
We’d like to give the banks in Australia some credit. They’ve finally gone and done it. They have caught up with 1960s technology. They’ve figured out how to use PIN numbers.How to only use PIN numbers, that is. They’re considering scrapping signatures on credit cards to cut down on fraud. Apparently, having to verify your […]
We put in a good-citizen call to the SEC the other day.“There’s a massive scheme to manipulate stock prices,” we told the friendly agent.“I have to tell you that your call is being monitored so that we can better serve the public,” he replied.“Oh, don’t worry about that. The NSA is tapping our call anyway.”“Are […]
Bitcoins are largely considered digital currency (or “crypto currency”) so you’d expect it to be treated like currency on a retail web site. But the Internal Revenue Service might not think so.
Politicians — elected officials — are street smart rather than book smart.If you care about influencing government policy it helps to know how they think.Forbes contributor Nathan Lewis argues that:“Too much is done today on the oral tradition. That is, literally, what it is. In this post-Gutenberg age, we have some better alternatives.“Thus, we need […]
Americans today live like there’s no tomorrow. You can see this in the data regarding retirement. People behave like they will never retire, and the prophecy is self-fulfilling. Under these conditions, they won’t.
A new survey shows that 57% of households have less than $25,000 in total household savings and investments. And the trend line looks terrible and is getting worse.
Meanwhile, everyone is living longer, but not healthier, meaning that people will be more dependent in their older years than ever before.
The moralists are quick to condemn this as resulting from a deep character problem in all of us. But economists prefer to look more deeply at institutional factors. What could account for such shabby planning on the part of American households?
Look at monetary policy. Where’s the reward for saving? It’s not there. The Fed has nearly abolished the normal rate of return on savings.
More than that, a policy of zero interest encourages living for the day, spending as much as you can, and leveraging up lifestyle. After all, where’s the downside? Zero rates suggest little or no risk to borrowing. They suggest that there is no reward for saving. The signal is all is right with the world, so spend, spend, spend. In other words, this isn’t a character flaw at work. People are merely responding to the signals they get. The Fed, not the human heart, deserves the blame.
I’ve spent a good part of the week doing a close study of Ludwig von Mises’ writing on the business cycle, which Laissez Faire has collected in a handy volume called The Illusion of Wealth, edited by Robert Murphy. What I found here has surprised me. What we get from this theory is not a mechanistic caricature as portrayed by Paul Krugman and others. It’s not as easy as: 1) The Fed expands money, 2) production revs up, 3) price inflation goes nuts, and 4) the system crashes.
Mises’ views are much more subtle and complex than that. The effects of loose money and artificially low interest rates do not always show up in the form of a general increase in prices. It all depends on the response of the banking system and the expectations of consumers. More likely, the price effects will show up in particular sectors like the stock market and wages. This is where the cyclical activity can be observed, says Mises. All the while, such a policy depletes capital and savings, leaving the economy more fragile in dealing with future contingencies.
According to Mises, there are two vehicles for economic progress: “the accumulation of additional capital goods by means of saving” and “improvement in technological methods of production.”
If you look around the world today, you see gobs of technological improvement. In fact, we’ve seen astonishing amounts of it over the last 15 years. This is exactly what Mises’ theory would predict. When the Fed lowers the interest rate, the pace at which new technologies come to market increases. The risk of failure is lower.
The common view is that when scientists and engineers discover stuff, it is quickly shoved out into use and becomes part of our lives. End of story.
This is not how Mises views the situation at all. In his view, there is vastly more technology available than is ever put to use at any moment of time. It’s like it is stored in a huge warehouse. The hand of the market — powered by capital accumulation — reaches into the warehouse and pulls out technology and tries it out in the marketplace to see if it can succeed or if it will fail. The entire process is nicely balanced: New things are supported by savings and capital.
The entire balance is upset when the Fed lowers rates of interest and injects speed into the system. The hand that reaches into the knowledge warehouse works at a much faster pace. We get ever more cool things to use at an ever increasing pace. This innovation is not fake; it really is a source of economic progress.
So what’s the problem? The problem occurs on the other end of the scale, in the realm of saving and capital. Here we see depletion. Consumers leverage up. Businesses expand dramatically. Everything in sight is put to use as soon as possible. There is no rest, no pulling back, no waiting. Everything must happen now, as if there is no tomorrow. This particularly affects the financial industry, which grows larger and larger despite fewer and fewer real resources.
This tendency toward relentless capital depletion, combined with a hyped-up pace of technological development, perfectly describes our economic times. If we look at what has happened to individuals saving since the Fed got in the business of interest-rate manipulation as a full-time gig, we see a steady rate of savings become utterly wild. It is depleted in the boom, and then panic sets in during the bust. Once the crisis settles, private saving plummets again.
This is a direct result of Fed policy that has been driving rates systematically lower over the decades and intervening ever more in the market’s signaling mechanism.
Meanwhile, we are literally addicted to technological progress. We have to have it at increasing rates else we stop growing. The progress is real, but too necessary to sustain prosperity. It’s like a person who goes to the gym and gets stronger and stronger, but must or else he can’t run or walk at all. The economy is not self-sustaining. The credit has to flow and flow to keep underwriting innovation.
And as Mises would predict, what seems like economic progress is not entirely fake but it comes with a rub. Incomes aren’t really increasing, because capital is not being accumulated. Prosperity exists and continues apace, but it has a very weak foundation. It is nothing more than a “castle in the air,” as Mises would say. (In the original German, the word is Luftschloss, meaning a dream that is not realistic.)
Notice that the scenario that Mises maps out here can include such things as the hyperinflation of history and legend, but it need not. Bad money does damage either way. And the damage is long term — not a crisis tomorrow or the next day, but a long-run effect that slowly erodes the foundation of a growing economy.
This is not the usual business cycle story that we hear attributed to the Austrians, but it is the one told by Mises in his most mature writings collected in this wonderful book ,The Illusion of Wealth. The scenario doesn’t make the headlines and doesn’t embolden politics movements, but it is no less real.
People can live in a house a long time without paying attention to the reality that the foundation that holds up the building is cracked and rotting. What’s the way out in this case? We need sound money with market-based interest rates. It’s not we who are corrupt, but the policymakers behind the Fed who are choosing short-term gains over long-term sustainability.