When the government pumps trillions of dollars into the economy, they’re not actually printing the money. It enters as digital entries in banks across the country. It’s made the system fast, responsive, and, unfortunately, vulnerable. Now our money is no longer something we hold in our hands, but something that exists on a very susceptible network.
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 […]
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, […]
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 […]
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 […]
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 […]
Picture the scene. It’s 2020. You’re at the checkout in a convenience store with a carton of milk. But you’ve got no cash and you’ve left your cards at home. No problem. You scan your right index finger; the green light flashes. Purchase approved and you leave. Easy.Is this a realistic vision of the future, […]
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 […]
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 […]
“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 […]
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, […]
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 […]
Entrepreneurs are high-tailing it out of the United States, and it’s the politicians’ faultThe U.S. government is driving some of its most productive citizens abroad. The only beneficiaries are countries such as Singapore and Switzerland, which offer sanctuary to Americans fleeing avaricious Uncle Sam.Three years ago Eduardo Saverin, one of Facebook’s founders, joined 1,780 other […]
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...
As the world gets more digital, people forget about the benefits of transacting in cash. And government officials know that.
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...
Harold Hamm isn’t your typical entrepreneur. His life’s story shows you success in America doesn’t always depend on a fat checkbook
No other price pops during a boom like that of condominiums. The common view among savvy real estate types is condos are the last to jump and the first to crash. A decade ago, Bernanke’s post-Sept. 11 easy money fueled condo prices and in turn high-rise residential construction from coast to coast.
In downtown Miami, 22,200 condo units were built in the 2003-08 boom. Many sat empty as prices plunged 60%. Now, just five years after the crash, a new condo boom is underway in the Sunshine State.
Interest rates are still low, making memories short. “How many condo units are necessary in this town?” asked builder Carlo Melo rhetorically. “Unlimited. Because we are selling to the world.”
Nothing clears a crystal ball like a bubble. Fearless developers have proposed 118 condo towers for the Miami area, and 35 are already under construction, reports The Wall Street Journal. Downtown has 41 projects on the drawing board that would add 12,100 new units.
“This boom is very reminiscent of where we were a decade ago,” said Peter Zalewski, principal at Condo Vultures LLC, a real estate consultancy.
It’s very reminiscent of the many booms that have taken place for centuries. I wrote about three famous bubbles and the inevitable crashes in the Laissez Faire Club selection Early Speculative Bubbles.
The Mississippi and South Sea bubbles, along with tulip mania, set the standard for financial manias as far back as 1636 in Amsterdam. Back then, trading tulip bulbs was all the rage. Before the mania, the Bank of Amsterdam offered sound money and free coinage. But as precious metals flooded the Netherlands from all over the world, the influx of money ignited the animal spirits. Coins, debauched by leaders around Europe, flowed into the Bank of Amsterdam to be re-coined at a fair value.
Formal futures markets developed to trade tulip bulbs, with no margin required. The frenzy peaked in January 1637, when the Witte Croonen bulb rose in price by 26 times, only to fall to 1/20th of its peak price a week later.
While tulip mania was relatively short in duration, the crash led to a doubling of bankruptcies in Amsterdam.
The tulip mania portion of Early Speculative Bubbles is what makes the book truly unique. This is the only Austrian business cycle theory analysis of the frenzy. My thesis is that tulip mania was caused by monetary factors like all other bubbles and crashes.
The Bank of Amsterdam inspired John Law, the world’s first Keynesian (even though Keynes hadn’t even been born yet). As founder of France’s first central bank, he abandoned the institution’s sound money ways. Instead, he sought to repair the French economy with copious amounts of paper money to refinance France’s stifling war debts. Sound familiar?
Law is easily the most interesting economist, monetary theorist, and central banker of all time. He killed a man in a duel, gambled his way across Europe and, along with his friend Philippe II, the Duke of Orleans, enjoyed what one biographer called “extraordinary success with the opposite sex.”
Law flooded the French economy with both banknotes and Mississippi Co. shares. Ever the promoter, Law used various gimmicks like rights offerings, special dividends, and options to allow people to buy increasingly more shares. The common Frenchman couldn’t get enough. As author Janet Gleeson writes, “Like gluttons at a Mississippi banquet, most investors ingenuously accepted the opportunity to gorge themselves and never considered the consequence.”
Ultimately, the Mississippi Co. owned nothing of value other than the trading rights the government had granted the company to pay off its debt.
As I point out in the book, the English looked on from across the channel and were jealous. British war debts were choking that economy as well. Sir John Blunt and the Hollow Sword Blade Co. copied Law and formed the South Sea Co., which sold stock and used the proceeds to buy government debt. Its assets were exclusive trading rights with South America.
The company’s shares tripled in a matter of weeks, but crashed quickly. Even the brilliant Sir Isaac Newton went broke. The South Sea bubble was short, as I explain, because the Bank of England stayed out of the South Sea frenzy. Investors had a place to run to with their money. In France, Mississippi Co. investors could trade the shares only for equally inflated banknotes. Gold and silver were outlawed.
I wrote the first edition of Early Speculative Bubbles in 1992 as my master’s thesis under Murray Rothbard’s direction, long before the current flurry of bubbles and busts. Although I didn’t know when or what the next bubbles would be, my concluding sentence was:
“What can be predicted with absolute accuracy is that fiat money, fractional reserve banking, central banks, Keynesian monetary policies, and self-serving politicians will combine to ensure that there will be many more booms and speculative bubbles for future economists and historians to chronicle.”
Since then, financial markets have been a series of bubbles and crashes. Not often do bubbles inflate so quickly in the same place after a crash. However, the Fed’s endless policy of easy money has gone where no central bank has gone before.
This Miami condo boom is said to be different because 85-90% of buyers are foreign and they’re paying cash. Developers are demanding that buyers fund 50% of the purchase price upfront to finance a portion of the construction. Less dependence on high-leverage bank lending leads bulls to assume cheap money isn’t fueling this boom and nothing can go wrong.
But nothing could be further from the truth. The malinvestments from the last condo boom were never fully cleared, with cheap money propping up redundant projects. Buyer project financing is a product of the central bank lowering interest rates below the natural rate. Low rates push investors, foreign and domestic, into riskier assets.
Grant’s Interest Rate Observer analyst David Peligal returned to Miami recently to find a project proposing to include a private helipad on its roof. He inspected a 1,500-square-foot unit just like the one he toured in 2011. Two years ago, the vacant unit was priced at $640,000. The current unit is listed for $749,000 and has been vacant for five months.
“With more supply hitting the market next,” Peligal says, “that could be a harbinger of something no developer wants.”
This is a lesson learned over and over again. Through the centuries, from Amsterdam to Miami, bubbles form and pop, spreading financial agony in their wake. Early Speculative Bubbles combines theory with storytelling about three famous bubbles that foreshadowed today’s financial tragedies.