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…
Smart meters are supposed to be our saving grace. Reduce pollution… reduce blackouts… and keep you and your family safe. The truth, though, is the exact opposite. What’s the true agenda behind smart meters? And why are you being lied to? Read on…
You hear a lot about gold these days. But what about silver? Chris Campbell speaks out about the moon metal with one shocking confession. Read on…
Markets have you spooked? You’re not the only one. In today’s Laissez Faire Today, you’ll hear from three market experts on how to stay safe, no matter what direction the overall market heads. Read on…
Savvy investors: Two experts weigh in on why having your own personal gold standard… and betting that Ebola will get worse… could be your best investment decisions of 2014. Read on…
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 […]
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…
Bitcoin has been pretty quiet lately. But that doesn’t mean big things aren’t taking place behind-the-scenes for the digital currency. In today’s Laissez Faire Today, Chris Campbell pulls back the curtain and shows you how Bitcoin is quietly slipping into the mainstream. He also shows you why now could be the time to buy now, or forever hold your peace. Read on…
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…
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…
Next year is the 65th anniversary of the Peanuts comic strip. And Charlie Brown, Snoopy, Lucy and the rest of the gang will appear in their first full-length feature film in 35 years.One small company has the license to the Peanuts brand. The cash flow due to this company could be enormous. In late October, […]
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...
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...
Who can forget Robert Louis Stevenson’s Treasure Island? That map, marked with an “x,” is the stuff of high adventure.There is a modern-day equivalent of a treasure map, and it is just as coveted by those who seek reservoirs of oil and gas. It’s called seismic data.What are seismic data? In essence, they’re collected from […]
When’s the best time to invest in something? When everyone else is trying to get their money out of it. It might go against conventional thinking, but following the crowd usually makes you miss the real opportunities. At one monetary metal conference recently, the smartest guys in the industry sat down to discuss where these real hidden gems lay.
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 […]
Greetings from Maine! Right now, I’m writing from within foghorn distance of the sea. And this gives me an opportunity to tell you a down east tale that should serve as a warning to every investor: Maine’s Great Gold Swindle.I’m not talking about central banks, or manipulation of today’s markets. I’m talking about something from […]
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 […]
I bet you use different kinds of money all the time, sometimes without even realizing it.In various online accounts, I currently have: some dollars, some pounds, and some euros. I have some air miles from two different credit card companies. I have some supermarket rewards points from three different companies. And I also have some […]
Let’s head back in time…In 2004, a mere decade ago, the US national debt rang the register at $7.4 trillion. That represents “debt per citizen” of over $25,000. You, me, your neighbor, your 4-yr old grandson, you name it and they’re portion of the U.S. debt is $25k.But flash forward to today and you’ll see […]
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 […]
Remember that correction we’ve been quietly talking about over the past couple of months?Well, it might be right around the corner. Stocks waited until the last day of the month to nose-dive. The S&P 500 posted its first 2% down day since April — and the Dow wasn’t far behind. Early this morning, futures continue […]
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, […]
I’m sure you’ve seen the news. As if recent, past U.S. policy fiascos in Libya, Egypt and Syria were not enough, the wheels are now coming off the proverbial bus in Iraq, site of so much blood and treasure spent in the last decade.Radical Islamist armies are marching toward Baghdad, slicing through Iraqi government troops […]
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 […]
When you type a website address into a browser, you might have noticed that the letters “http” appear at the front. “HTTP” stands for Hypertext Transfer Protocol. In typing a Web address, you are actually sending an HTTP command to transmit that website to you. Hypertext Transfer Protocol is the means by which information is […]
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 […]
Here’s a fun fact: Although we all hate the U.S. dollar, as it continues to hemorrhage wealth, its foothold as the world’s reserve currency isn’t going to disappear overnight.A Russian gas deal with China won’t change that — as we’ll highlight below.But before we get to the nitty-gritty, let’s dive into a story that’s right […]
In 1995, American agriculture underwent a profound, dangerous change.In that year, Monsanto and other companies pushed through approval for a handful of genetically modified (GM) organisms. These included canola oil tweaked to improve its flavor, potatoes modified to resist pesticide dousing, and tomatoes gene-spliced to delay ripening.“About half of all the crops planted on American […]
Franklin Delano Roosevelt famously used the term “forgotten man” in a 1932 speech to describe those at the bottom of the economic pyramid who, he felt, government should aid.But the originator of the phrase “forgotten man” had a whole different meaning in mind. He aimed to expose the seeming good intentions of government to reveal […]
“As the nation’s central bank, the Federal Reserve derives its authority from the Congress of the United States. It is considered an independent central bank because its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government, it does not receive funding […]
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.