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 first principle in dealing with government is: Don't be awed by it. What little the government achieves is almost always due to the voluntary participation of its citizens. Those who don't want to help the government can go their own ways without running into much trouble.
National Treasury Union President Colleen M. Kelly recently described the 2014 IRS budget allocation as “woefully inadequate.” But the agency has not proven itself to be an efficient steward of taxpayer dollars. Here are ten ways the IRS lost the trust of the American people.
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.
Given how poorly states like California and Illinois have funded the pension funds for their own employees, one would think that this would stop dead in its tracks any plan to have the government assist in managing private sector funds too. The spate of recent activity, however, suggests otherwise.
The financial world is plodding along like a drunken sailor avoiding debt collectors by keeping no cash in his wallet. It’s not the kind of calm that’s going to last or end well. But the storm will have to wait until after the Olympics.What a game! We’ve never watched ice hockey closely before. But watching […]
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 […]
Amidst all the revelations about how the American people, many of whom are absolutely convinced they live in a free society, have their telephone calls, emails, website visits, and who knows what else under surveillance by their own government, let’s not forget the massive infringements on financial privacy that have gone on for decades.Consider, for […]
The exercise had an awesome name, inspired by the movies: “Quantum Dawn 2.”On July 18, scads of U.S. banks, stock exchanges and government agencies took part in a digital fire drill — a practice run in the event all of Wall Street came under massive cyberattack.This isn’t the first time banks have come under an […]
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 […]
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 […]
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 […]
Our grandparents believed in the value of thrift, but many of their grandchildren don’t.That’s because cultural and economic values have changed dramatically over the last generations as political and media elites have convinced many Americans that saving is passe. So today, under the influence of Keynesian economists who champion government spending and high levels of […]
So Janet Yellen’s first hearing took place a few nights ago. It was fairly boring. She’s expected to sail through and become the next chairperson of the Federal Reserve. Given that the last few years of extraordinary monetary policy have achieved a miserable recovery, what’s she going to do differently?Nothing. Just more of the same. […]
Imagine that everyone in your community is issued a credit card with the same account number. At the end of every month, the bill is totaled and divided equally among you. Suppose that during the first month, you choose not to use the credit card, yet you receive a bill for $100. The next month, […]
From the Tongue-in-Cheek Department of Laissez Faire Books…Washington, D.C. – Jeff Incast, a Democratic representative from California, has tabled a bill that would expand current insider trading laws.He said he was “distressed” by the acquittal of Mark Cuban, whom a jury cleared of civil charges of insider trading brought by the Securities and Exchange Commission […]
Hanging out in Rome, surrounded by ruins of all ages, you can’t help but have big thoughts about the state of the world. Here are a few of mine.No generation during the long fall of the Roman Empire was really aware of it. Each generation accepted the conditions they inherited and worked to survive as […]
I just spoke to a friend, Skinner Layne, who is from Arkansas, but now lives in Santiago, Chile. He emigrated there and is now heading a startup enterprise that is showing great promise. It is called Exosphere. I asked him about the backstory to the company. It turns out that he moved in 2008, six […]
The dream of virtually every American is to retire as early as possible. Who doesn’t want to have each and every day to do exactly what he or she wants to do?Sure, for some people, that would be work. They like having somewhere to go every day, being valued for their services, and the interaction […]
It’s come to this: A typical family’s health insurance costs as much as a typical family car.If you’re a typical American family, your “health” will set you back $20,728 every year. That figure comes gratis of Milliman, a benefits consulting group. A base-model Toyota Camry… the typical family’s most-popular make? It costs $22,055.Milliman’s numbers account […]
The study of crowds has always fascinated people in finance. It’s not hard to understand why. Markets can go to crazy extremes, extremes no one can make sense of. So, one favorite way to explain it away is to say that crowds do dumb things that individuals, upon cooler reflection, would never do. In a […]
Since before the tech bust, we’ve been suggesting that while Americans “think” they’re getting richer… they’re actually heading in the other direction. They’re getting poorer.This proposition has been easier for folks to entertain since housing busted and the financial crisis reversed the “wealth effect” in 2008. With that in mind, let’s take a look at […]
People will be paying more and getting less from their governments as health costs and pension obligations will force state and local governments to adjust their budgets over the next 50 years, according to a new report.The new report from the Government Accountability Office, a nonpartisan congressional agency that audits federal programs, paints a dreary […]
The countries of the developed world are experiencing a new class of refugee — members of the middle and upper classes. These rungs of the socioeconomic ladder are realizing that their countries of residence are in many ways going rapidly downhill without much hope of a short- or medium-term reversal. This is particularly true for […]
I just spoke to a friend, Skinner Layne, who is from Arkansas, but now lives in Santiago, Chile. He emigrated there and is now heading a startup enterprise that is showing great promise. It is called Exosphere. I asked him about the backstory to the company. It turns out that he moved in 2008, six months before the U.S. real estate markets blew up. He left to escape the worst of it.
How did he know that the downturn was coming? His answer came quickly: “The yield curve inverted.”
I was just reading about this very indicator in Mark Skousen’s new book, A Viennese Waltz Down Wall Street. Here, Skousen, investor and economist, explains how the teachings of the Austrian School provide some excellent rules of thumb that allow us to anticipate, and act on, the big turns in the business cycle.
In the Austrian view tracing back a century ago, interest rates indicate the preference for goods sooner, rather than later. If you don’t have the money to get the stuff, you borrow for some period of time. Borrowers pay a higher rate if their payback term is longer. That’s because the risk is higher — who knows what’s going to happen in 30 years? — and lenders expect a higher payoff to wait longer for their money. So naturally, the yield curve should show lower overnight rates than five-year, 10-year, or 30-year rates. That’s why the normal yield curve is positive — that is, upward sloping to the right.
What does it mean for the yield curve to be negative? It’s a bit like water running uphill. You can be pretty sure that there is some seismic shift going on. Usually, it means a Fed tightening. Or it could mean that investors are expecting bankruptcies in the future. It is highly predictive of a coming recession.
When it happens, you can also be sure that hordes of television pundits and economists will emerge to say that there is nothing unusual here. It is a perfectly normal thing, and it’s even healthy — certainly nothing to be alarmed about.
My friend Skinner knew better. How? He had been reading the work of F.A. Hayek and Ludwig von Mises for years. He knew that there are certain constants in economic forces that do not change, no matter what government does. In fact, government and central bank attempts to manipulate the market can have exactly the opposite effect of the advertised results.
TV pundits are quick to agree with everything the Fed does. To spot the policy errors requires special knowledge that comes from reading sound economics.
That doesn’t mean that once you learn economics, you can predict the exact timing of events. In fact, this is also one of the observations of the Austrian School: There are no predictable quantitative relationships in the world of human action. This too differs from the mainstream view, which is forever seeking the magic formula to predict price movements.
I like the way Skousen describes financial markets. He says that prices in markets are like a dance. There are patterns and habits at work. But there are also surprises and improvisations going on. That’s part of the spirit of dance too. But the crucial thing here is that it takes two people to coordinate their moves in a dance, just as in markets, it takes buyers and sellers to make a price. Financial markets bring people together to their mutual benefit.
Nice image, isn’t it? It’s one that he elaborates on at length. In the course of his argument, he criticizes other points of view that don’t account for human decision-making and don’t account for the parameters of those decisions as set by economic reality. For example, just as dancers can’t start flying, markets can’t sustain parabolic price increases in one sector forever, even with Fed intervention.
Why did Skinner choose Chile as his home? Well, he knew it to be the most pro-enterprise country in Latin America, at least so far as he could tell. His reading in the Austrian tradition helped him see why this is important.
And he likes Latin America because it is the new world and doesn’t have economies bogged down by bad habits and massive welfare and regulatory bureaucracies. There is far less sludge in the system to harm economic growth. For this reason, he is very bullish on the whole region — and bearish on the U.S. and Europe.
This too reminds me of something else explored in the Skousen book. He discusses how institutions affect economic growth and can help people make better predictions about coming economic booms. A regime that is friendly to free enterprise might lower taxes or cut regulations. Even a little bit helps. Economies are like sponges for this stuff. Just a bit of encouragement — or, more precisely, just a bit of relaxation of the fetters — can spark huge economic booms.
This is why Skousen strongly suggests following the politics of a country to understand its economic future. He goes so far as to slightly scold fellow Austrians for holding a permanent bearish view on economies. He says that this point of view causes investors to miss economic booms such as, say, those in the 1980s and 2000s. And he is right to this extent: If your goal is to play the markets, it makes sense to be able to discern their upside, as well as their downside.
Monetary policy figures in here substantially. As Skousen says, an economy without a huge debt overhang that is emerging from rough economic times can find itself on an upswing if the Fed is pumping money at a rapid pace. Under this rule, you might have bought stocks in 2009. The problem is that this approach to economic policy cannot last. It creates new problems that cry out for correction. The tricky thing is to be able to spot the turning points.
What do Austrian economics imply about today’s precarious situation? Well, the Fed is making loud noises about pulling back its stimulus program. If the drug of new money is cut off, we could see short-term rates rise and blow up the balance sheets of many businesses, not to mention governments.
The beauty of the Austrian School is, fundamentally, this: It sees economics as an extension of human choice. There is nothing mechanical and predictable about it. But there are certain patterns that emerge just from the logic of human action itself. Skousen’s purpose here is to elucidate that logic and illustrate it with examples from the business pages. The results are interesting: You can gain insight into both worlds. In this book, the rubber of finance truly does meet the road of economics.
I’m intrigued at the confidence with which my friend Skinner took the step to move. Five years later, he has a thriving business and a happy life. He only did it once he had intellectually seceded from mainstream thinking. But just as important, he did it with the aid of solid economic thinking.
Now with Skousen’s book A Viennese Waltz Down Wall Street, anyone can gain access to that knowledge. A selection like this makes a mighty contribution.