What positive steps can we take? The energy that is now expended by well intentioned, freedom-seeking individuals on the destructive course of politics can be turned into powerful steps that will have a positive effect on the future. All are moral, right and just. None require aggressing. Consider the following...
The Affordable Care Act creates a new health insurance marketplace (the exchange). But because of the great uncertainty about what buyers will enter the market and who will buy what product, the law creates three vehicles to reduce insurance company risk.
Politicians and bureaucrats are notorious for manufacturing euphemisms -- clever but deceptive substitutes for what they really mean but don’t want to admit. That’s how the phrase “revenue enhancement” entered the vocabulary. Some of our courageous friends in government couldn’t bring themselves to say “tax hike.”
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.
Facts are easy. You can check facts. What supporters of the Affordable Care Act are doing, on the other hand, transcends factual bungling. It’s far more advanced: a warping of reality so debauched it looks like something out of a tale by H.P. Lovecraft.
The east coast and parts of the southern U.S. were to varying degrees paralyzed by blizzards a few weeks ago. The snow as expected rendered the roads treacherous, and in anticipation of slick streets, shoppers flocked to the grocery stores in advance.The rush into grocery stores, and its aftermath, offers worthwhile lessons in economics.First up, […]
The highest form of charity, argued the 12th-century Jewish philosopher Maimonides, is when the help given enables the receiver to become self-sufficient.But our systems of state charity — aka welfare — have too frequently had the opposite effect: They have actually created dependency. It is time to rethink the way we help people.I’m going to […]
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 […]
President Obama crowed in his State of the Union speech about the economy, even mentioning “a rebounding housing market.” Maybe he was referring to friends in high places, like the seller of Penthouse One in New York, which just closed for $50.9 million, all cash. Millions of mere-mortal homeowners likely wanted to throw something at […]
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 […]
Recent difficulties with implementing the Affordable Care Act have increased opposition to the program. A majority of Americans now oppose it. Problems with the HealthCare.gov website are in all likelihood temporary. However, there are serious long-term problems, particularly considering long-term finance and labor supply issues. Given the mounting difficulties with and growing concerns about the […]
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 […]
“Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.”As the inequality gap grows, there is an ideological battle unfolding in the West.On the one hand, there are those who think government can fix things. It must do more, tax more, […]
On Feb. 7 the United States will once again reach its statutory debt limit, meaning it cannot legally borrow any more money. Since the obvious option of cutting spending to match the amount of revenue that the government collects is off the table for some inexplicable reason, Congress will have to pass a new, higher […]
The New York Times published an interminable article on health care recently. Plenty of facts — how scrupulous are these journalists! — but the article displayed absolutely no comprehension of the basics of cause and effect. I was left wondering about the whole point.The article details how the health care system rewards specialists to an […]
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 […]
Dr. William C. Padgett is a retired optometrist who has been trying to bring an elderly care facility to Beaufort County, North Carolina, for over a decade.“Our senior citizens,” he laments, “are finding that it is difficult and in many cases impossible to find an appropriate long-term care facility locally.” Though he has received several […]
If you don’t have the angst out of your system concerning Wall Street banksters, Government Sachs, and the Affordable Care Act, settle in with Matt Taibbi’s Griftopia to make your blood boil one more time.Investors should be reminded of 2008 as they shrug their shoulders and put their money back in the stock market. The […]
What do 8 of the 10 wealthiest people in the U.S. have in common?Aside from being able to fly in private jets, the common thread is that each of them has made their fortune thanks to a start-up.Let me explain…From tech titans like Bill Gates and Larry Ellison (founders of Microsoft and Oracle, respectively), to […]
“Inequality is the defining challenge of our time,” according to President Obama. It’s certainly the topic of the day for Paul Krugman, Joe Stiglitz and a whole raft of liberal pundits.But have you noticed that hardly anyone else is talking about it? When is the last time you heard a shoeshine person or a taxi […]
In December of last year, I left my career to travel the world for one year.My plan was to visit as many countries as possible on my Star Alliance Around-the-World ticket in the first nine months, then, for the remaining three months, return back to the country that most caught my eye and my curiosity.Nine […]
Economic history is primed to repeat in the nastiest of ways unless the government stops distorting the price of something we use every day.Every product, good, or service has a price, which is essential to rational decision-making. We use prices every day as vital data that guide us. Without true prices, prices not distorted by […]
A new survey from Harvard University found a large majority of young Americans do not believe the law will save them money, do not believe it will improve their health, and do not intend to sign up for insurance through the new exchanges.
Uh-oh!The new pope, Francis from the Pampas, has just warned us to beware the “tyranny” of capitalism.Each man worships his own gods. Some worship at the altar of Jesus of Nazareth. Some at the altar of the Almighty Dollar. The capitalists don’t bad-mouth Francis’ god. You’d think he would cut them the same slack.Bad-mouthing Catholicism […]
The market has selected different things as money throughout history. Some of these items have served as money in isolated places for specific periods of time — for instance, cigarettes in prisoner-of-war camps. Cigarettes continue to be a currency in prisons if allowed, but if not, according to Wikipedia, “postage stamps have become a more […]
The secrecy of the Federal Reserve is legendary, but pressure in recent years has led to some opening up. Already in the last 12 months, we’ve seen some eye-popping records of who received credit during the 2008-09 credit crunch. We’ve seen lists of institutions that the Fed favors, and these lists have confirmed the worst fears. Hint: It’s all about the big banks.
But now we get the really fun stuff. The transcripts, released five years after the fact, of the open market committee meetings provide a fascinating look into how the Fed was thinking about the world just before the greatest market meltdown in modern times. No one at the 2006 meetings saw it coming. Thousands of market commentators, economists and bankers saw it coming, but the Fed — the all-wise and all-knowing Fed — did not see it coming.
That the Fed actually played the largest role in producing the bubble that turned to bust only adds to the irony that the Fed was clueless about the emerging reality on the ground. Ben Bernanke saw some softening in home prices and needed correction to the run-up, but he was somehow sure that there would be a soft landing.
The meetings opened that year with Alan Greenspan at his final meeting and saying his goodbyes. There was some talk about long-term pension problems. Greenspan dismissed it, pointing out that, “We have enough trouble forecasting nine months.” Everyone laughed. Ha ha. Thanks for admitting this — in private.
At this final meeting, the group also heard one of the clearest statements in all the transcripts that there were troubles on the horizon. Fed chief economist David Stockton stated very clearly: “As I contemplate our outlook and the things that I worry about the most on the domestic side of the economy, I’d say the housing sector is clearly one of the biggest risks that you’re currently confronting.”
But the gloom didn’t last long, and the meeting ended with a wildly upbeat report from none other than Timothy Geithner, now secretary of the Treasury. He begins with an over-the-top tribute to Greenspan (“I’d like the record to show that I think you’re pretty terrific”) and continues on with an upbeat forecast of endless growth and happiness forever. Even though he was spectacularly wrong, he is now running the show.
The opening meeting with Bernanke set the tone for all the meetings that followed. Stockton probably sensed that he might be free to speak his mind for the first time in years. He compared the situation in housing to riding a roller coaster blindfolded. “We sense that we’re going over the top, but we just don’t know what lies below.”
But Bernanke intervened to stop all such crazy talk. “I think we are unlikely to see growth being derailed by the housing market,” he said. He assured all present that “the strong fundamentals support a relatively soft landing in housing.”
Ever the pleaser, Geithner agreed. “Equity prices and credit spreads suggest considerable confidence in the prospect for growth,” he said. “Overall financial conditions seem pretty supportive of the expansion.”
Later that summer, Fed Gov. Susan Bies tried again to introduce some caution, pointing out that the banks were all using models that presume falling interest rates and rising home prices. This has allowed many American families to depend on home equity loans more than they should. “It is not clear what may happen when either of those trends turns around,” she cautioned.
Once again, Bernanke smacked down the naysayer. “So far, we are seeing, at worst, an orderly decline in the housing market…As I noted last time, some correction in this market is a healthy thing, and our goal should not be to try to prevent that correction, but rather to ensure that the correction does not overly influence growth in the rest of the economy.”
From the point of view of economic theory, there is an interesting comment made by Dallas Fed president Richard Fisher. He pointed that everyone on the planet was talking about the housing problem, but he cited this as a reason not to be concerned. “If we have not discounted what has been happening in the housing market, we have been living on Mars.”
In other words, he was saying that if something awful were going to happen, it would already have happened. Because everyone was talking about something meant that the awareness of the risk was surely already built into the existing data.
This amounts to a reversal of the old joke about the economist who refused to admit that there is a $20 bill on the ground in front of him on grounds that if the bill were there, someone would have already picked it up. In the same way, if this economist were going to be hit by an oncoming truck, it would have already hit him.
The year ended with Gov. Bies again warning that the risk is much more serious than anyone had yet acknowledged. “A lot of the private mortgages that have been securitized during the past few years really do have much more risk than the investors have been focusing on,” she said. But Bernanke shoots her down yet again: There will be a “soft landing” for the economy.
Look, there is no crime in not knowing the future. No one knows: no palm reader, no philosopher, no economist. You can assemble all the data the world has to offer, but it tells you only about the past. Forecasts are fine, but they are always speculations. The people assembled in the Fed’s meeting room were doing forecasts not unlike what every business in the world does every day. Sometimes they are right, and sometimes they are not.
What is significant here is not that Bernanke did not see the future. The significance is that the power and responsibilities of the Federal Reserve itself are premised on the idea that somehow its managers know something that we do not. They are charged not with planning the past that they can know, but with planning a future that they cannot know. This is the essential error of the central bank’s planning powers.
And there is another problem. The Fed has an institutional bias, and this is clear from the transcripts. It is especially obtuse in taking note of risks and problems that the Fed itself is responsible for creating. In this way, it is just like every other government agency. They all see problems in the world but those that the institution itself caused.
The congratulatory praise of Greenspan at that opening meeting of 2006 is a metaphor for the arrogance and self-congratulatory culture of the entire institution. The Fed imagines itself to be the solution for every problem. The truth is that the Fed itself is the source of a vast number of our problems.