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 […]
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 […]
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 […]
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 […]
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 […]
It might sound like the latest new product from Apple, but IPAB is actually the newest major legal challenge to Obamacare.Recently, a three-judge panel in the 9th Circuit Court of Appeals in San Francisco heard arguments about the Independent Payment Advisory Board, or IPAB, a 15-member panel created by the Affordable Care Act and empowered […]
Americans have come to believe that the IRS and the income tax are inevitable parts of our lives. After all, most everyone alive today has lived his entire life under federal income taxation.It wasn’t always that way. For some 125 years, the American people lived without having any tax imposed upon their income.The obvious question […]
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 […]
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 […]
The Keynesian disaster recovery plan has been to lower rates, force people to take more risk in search of yield, and entice others to borrow and spend and, magically, more jobs will be created. If people won’t buy stocks, central banks will.Back in 2011, Ben Bernanke, when asked if QE2 was driving up stock prices, […]
I want to share some insight and give you a front-row seat to America’s next big shale play.Let’s get to it…Over the past 10 years, the U.S. has turned the ship around, quite literally.We’ve gone from a country that was expecting to import massive amounts of oil and gas — to a country that’s sitting […]
Whatever your views on the role of government, one thing is clear: There will be no way to pay for it if the economy doesn’t grow. And I’m not talking by a measly percentage point or two. If we can’t find our way back to 5% annual economic growth or above soon, America’s accumulated federal […]
According to the Bureau of Labor Statistics, consumer prices are rising at a 2.1% annual rate. This suggests to us that the current stock market boom will die with a bang, rather than a whimper.Fed economists say they don’t think inflation rates are rising. They think the most recent reading is a fluke. But why […]
Politicians love raising the minimum wage because they don’t have to ask voters to pay more in taxes. They just dump the costs onto shop owners. But they don’t act like politicians and go into debt to pretend like they have all the money in the world. They face real world situations. And sometimes that means replacing workers with more affordable options...
Regulation is supposed to keep you safe and make the economy function smoothly. At least that’s what they tell you in the news. But there’s another cost to regulation. One that you won’t hear about unless you have to deal with directly. And for the people in the economy who do, they’re the ones who have to pay the final cost.
The experts will tell you the recession is over, but they’re only torturing the data to hide the truth. The economy never recovered from the downturn it experienced. But the downturn happened in 2000, not 2008. The country’s been in the middle of a 14 year recession and hardly anyone knows the truth.
In announcing QE3, Ben Bernanke’s words betrayed not the slightest doubt that this is the right thing. More Fed bond purchases, combined with three more years of zero interest rates, he said, will quicken economic growth and cause unemployment to fall. And the punditry class all nodded in unison.
I know that this is government and such officials have to pretend to be infallible. It’s their way. The slightest indication of doubt can cause the whole propaganda apparatus to unravel. But for any thinking person, his arrogance alone raises questions about the credibility of his policy. It is all the more suspicious that the elites tell us that he should be believed unquestioningly.
Those of us who knew with certainty that QE1 and QE2 would not accomplish those goals — he’s been at this for nearly five years! — could only stare in amazement at his certitude. It is actually extremely alarming. Nothing could be more dangerous than a Fed chairman with a bad theory of economics that he is dedicated to pushing until the bitter end.
The truth is that he is wrong. Does he know this in his heart? Hard to say. He does know that this policy is good for the people and causes he really cares about. On paper, the Fed has a dual mandate to push maximum employment and stable prices, but this is only the intellectual gloss. In reality, the Fed has dual clients: the banking/financial sector and the government. His policies are good for both, for now. They are not good for the rest of us.
Bernanke is quick to cite the academic literature. But only of a special type: the studies that reinforce his views. His citations are cherry-picked in the extreme. He completely ignores and disdainfully dismisses anyone who has doubts that bond purchases by the Fed are going to cause the economy to get on track.
Following the announcement of QE3, I was invited to be on a panel on the live feed at The Huffington Post. I was there with a Washington Post reporter, along with some economics bloggers and writers. It was five against one. They were all confident, in various degrees, that the chairman was doing the right thing, and bristled at any suggestion that there was a downside or that the Fed chairman might not be the policy genius he thinks he is.
What will be the effects of QE3? This much we know: The economy is not suffering for lack of QE3. The economy is suffering because of a broken banking system caused by QE1 and QE2. The capital sector is laden down with artificiality, thanks to QE1 and QE2. Unemployment remains high, and nearly catastrophic for young people, thanks to the high costs of hiring due to regulations and mandates.
And actually, even the number of the QEs is wrong. This isn’t No. 3. This whole policy actually began after Sept. 11, back in 2001, pushed as a way to stabilize the system following the terrorist attacks in order to put U.S. national honor on display. The result was what is now commonly called the “lost decade,” in which middle-class household income was devastated and American standards of living slipped into a relentless fall.
There it is in blue and white. Look at this: Artificially low interest rates haven’t caused prosperity. They have caused the opposite. Even the graph itself looks eerily like a heart rate monitor.
Rather than admit error, Bernanke is like an arrogant old-world physician who is sure that bleeding is the only way forward. If it doesn’t seem to work, it can only be because it wasn’t done enough. Indeed, bloodletting itself was a common practice from the ancient world until the late 19th century — historical proof that a bad practice can continue for ages despite any evidence of its success. For centuries!
Loose monetary policy is the bloodletting of the 21st century, a policy that persists simply because so many people are intellectually invested in it and are unwilling to face the evidence of the failure of their own theory.
QE3 reverses none of what ails the economy. It doesn’t reduce hiring costs. It doesn’t contribute to liquidating bad investments and inspiring the development of solid new ones. It doesn’t reward the sacrifice of current consumption for future investment that is necessary for the building of future prosperity. All is does it drain economic energy. It only means more bleeding of the patient.
So let’s look at the actual effects of this policy:
1. QE3 kills the traditional institution of saving for a generation. It used to be that responsible people would save money, putting it in banks to earn interest. The interest earned was the reward for forestalling current consumption. It’s the parable of the talents all over again. Not everyone wants to be an investor. But everyone can put money in the bank.
What can we do now? You feel like a chump when you look at your bank statement. But don’t blame the banks. Blame the central banks. Bernanke is the one controlling this system, driving interest rates to zero precisely to punish your saving and cause you to splurge in the hopes that this will somehow fire up economic growth.
Remember how George Bush urged Americans to go out and spend money after Sept. 11? This, he said, was the best way for average Americans to show the terrorists a thing or two. All these years later, this anti-saving mentality has been the prevailing ideology. The results have been an abysmal failure.
2.QE3 will drive money to financial innovations that make money for insiders, but are forbidding to the rest of the public. New money has to go somewhere. It typically chases the most-fashionable investments, and traditional saving or dividends are certainly not fashionable. What is fashionable is high-speed programmed trading managed by large institutions.
Does no one remember that this is how the housing boom was created in the first place? Institutions bundled mortgages into marketable packages that glossed over critical questions of risk. It was as if risk didn’t exist. Everyone figured that the federal government would come to the rescue should anything happen. Mostly people assumed that nothing would happen.
Then the whole system blew up. Regrets were all around. For a while. Then the elites must have decided that the whole system wasn’t so bad after all, so they attempted to patch it up. QE3 represents an attempt to re-create the bubble economy in the financial sector. Rinse, repeat.
3. QE3 will keep borrowing costs of the federal government at artificially low levels. Ever wonder why Congress and the president act as if economic law doesn’t exist? They used to worry about the cost of borrowing. But now that is driven to zero. The Fed has provided mad-spending politicians the greatest subsidy they’ve ever had. They can run deficits and debts as high as Mars and not worry about the results. QE3 rewards this outlook yet again.
So don’t look for austerity here anytime soon. The chains have been loosed. They will continue their spending rampage. And the longer it continues, the higher the stakes. Interest rates must remain low forever, for even the slightest uptick will blow budget projections to smithereens. This is how the Fed gets the rest of the government invested in its moral corruptions.
4. QE3 will do nothing to reduce unemployment for those who are most affected by it. The new money will cause boomlets and some hiring, but not among the young, who are now at the point of despair. I just took what must have been my 20th phone call from a smart 20-something who is out of work, living at home, despairing for his future prospects, lost and confused, and thinking terrible thoughts. He wanted to know whether Bernanke’s action will help him. Tragically, the answer is no.
5. QE3 will bring inflation. Maybe it will bring hyperinflation. But that only happens if the banks start using their phonied-up balance sheets as the basis for new money expansion. But why would they do this? It is not in their interest so long as the payout rate is near zero. Another scenario that leads to hyperinflation is the global dumping of the dollar and its dethronement from its status as the world reserve currency.
Barring those scenarios, inflation is likely to take different forms. We’ve already seen this in commodities, health care, energy, and education. But what we don’t see is the glorious deflation that would be affecting all these sectors if market forces prevailed — deflation such as we’ve seen in technology that has been such a gift to humanity. It is the absence of a rise in the purchasing power of the dollar that is the real price we will pay.
Or maybe the laws of economics will be repealed by someone. Maybe alchemy will work this time. Maybe something that has never worked in all of human history will suddenly and inexplicably start to work. That’s seems to be what the Bernanke partisans are hoping for.
A main part of the problem here is purely intellectual. The government has socialized the money. It has taken total ownership of it, purporting to manage it in the same way the Soviets claimed they would manage wheat production and heavy industry. No surprise: We see the usual results of socialism in practice: overutilization of resources, diminishing value of the things socialized, and an inability to imagine that the world can work in any other way.
Ludwig von Mises wrote his book Socialism in 1922. It blew the whole idea out of the water. It seems crazy in retrospect, but Mises’ claim shocked a generation of intellectuals. Mostly, they rejected what he said. It took many decades for the faith in the idea of socialism to finally fail.
It’s a good idea to look back at this sweeping work and stand in awe of his argument. How could it have failed to convince? There can be only one reason. Bad theory is like a disease. Once a civilization catches it, it is hard to shake. It’s this way with the idea of monetary socialism. People find it inconceivable that the free market can manage money. We have to have central planners, don’t we, and shouldn’t we trust them all to do the right thing?
Mises’ book is a model, in my view. That’s why we are releasing it with a new introduction this week in the Laissez Faire Club. The introduction is breezy and brilliant, written by one of the world’s foremost experts in the field: Peter J. Boettke of George Mason University. He sets up the context and explains Mises’ position with utmost clarity and enthusiasm. You really must read this, and also Mises’ book itself. The best way is to join the Club. It will remind you just how long error can persist, and what must be done to combat it.