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.
Every time Bitcoin crashes, it winds up at a price greater than it’s previous high. Yet the experts still call it a currency fad that will fade away. But a little over a year since it really took up, the digital currency is still going strong, and is once again seeing its price rise. But is there another reason why people are buying Bitcoins.
All paper currency has a shelf life. It could be 5 years or 500 years, but at some point, the value of any paper currency eventually reaches zero. That's why, for centuries, people have turned to one shiny metal to safeguard their personal store of wealth. And, as Jim Rickards explains, you still have that option. Read on...
According to some estimates, one man - whose name you're probably not familiar with - has saved over a billion lives. Who is he? And how has he influenced the current crop of innovators? Josh Grasmick explains...
It’s a destructive cycle that comes around everytime your politicians ask you to take to the polls. The government’s meddling creates unexpected problems that eventually overshadow the planners’ original intentions. But that only leads the way for even more interventions.
Politicians love inflation. It’s a way to pay for the government’s debts without upsetting the public by raising taxes, or their special interests by cutting government. So they’ll flood the economy with easy money and eat away at your savings. But that’s only part of the story...
You can count the number of people who went to jail over the 2008 financial crisis on one hand. Which is strange considering the U.S. loves to put people away in jail. But as one author discovered in his most recent book, having the right connections and a big enough bank account, can protect you from even the worst crimes.
Obama recently claimed this was the “Decade of the Brain”. But it not the first time the government made that promise. The last time they did it, they wasted millions of your tax dollars. Now they’re back for round two. But this time, their failure could mean more than squandered money. It could mean making Alzheimer’s even worse for those who suffer from it.
“So we have, indeed, had a disappointingly slow recovery, and our consistent expectations for a pickup in growth have been dashed over a number of years… And the labor market is behaving in some perplexing ways and showing patterns that are novel.”–Federal Reserve Chairperson Janet Yellen in a speech to the Economic Club of New […]
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.