Ask a D.C. insider what’s the best way to solve the debt crisis. Nine times out of ten, they’ll recommend taking on more debt. That’s how things operate in the Potomac swamp. Up is down, right is left, digging yourself into more debt is the best way to get out of it. But it wasn’t always like this. In fact, there used to be common sense when it came to the economy. So where did it all go wrong?
Politicians talk about the uninsured. Special interests argue on behalf of those with pre-existing conditions. But why is no one wondering how doctors are affected by the new law? They’re the ones on the frontlines dealing directly with new patients, as well as the red tape that makes bureaucracies go round.
Politicians proclaim the benefits of small business while on the campaign trail. But when they meet in the seedy halls of Congress, they have no problem doing whatever they can to stifle, regulate, and subdue their progress. Instead of siding with entrepreneurs, these politicians often side with political allies and cronies that helped put them into office.
Just because you’re retired doesn’t mean you have to stop working. Especially now that you have all the time in the world to do what you really want. Entrepreneurs don’t only come out of Silicon Valley. They come from all walks of life, from all different ages. If you’re retired and want to stay active while you relax, then find out the steps you need to take in order to start, manage, and grow your next small business.
Austrian economics does more than tell you what happens when the government disturbs market forces. In the hands of knowledgeable investors and entrepreneurs, it can tell you exactly what to expect from the market. Market behavior depends on how people behave. And how people behave is central to the Austrian perspective.
The U.S. dollar has been the world's reserve currency for almost a century, and already there are signs it may be in decline. But that doesn't mean it's not still valuable. On the contrary... As Chris Mayer explains, there are many reasons the U.S. dollar will remain relevant on the world stage for years to come. Read on...
World War II might have dragged the country out of the Great Depression, but it did so at a great price. Central planning took center stage, and politicans and bureaucrats suddenly knew what was best for America, the economy, and your life. On top of that, they replaced the free market with a new economic system… Creditism.
If you’re good at something should you be penalized so others have a chance at success? Should award winning actors and actresses be barred from future Oscar ceremonies to give other men and women the chance to succeed? Success should always be rewarded and encouraged. But what happens when you have a government that wants to even the playing field and take away the spoils of success. Gregory Bresiger finds out...
Practical people often pooh-pooh fiction reading as a time wasting dalliance, dominated by a Marxist coloring of the world. However, fiction readers were given a scientific reason recently for spending hours absorbing fanciful figments of someone’s imagination.
Argentina is suffering the ravages of government debasement of the currency -- i.e., inflation, the process by which government pays for its ever-increasing debts and bills by simply printing more paper currency. The expanded money supply results in a lower value of everyone’s money, which is reflected in the rising prices of the things that money buys.
When government expansion is allowed to continue unabated or when it casts a heavy regulatory shadow on America’s entrepreneurial spirit, the freedoms that we’ve come to know, and perhaps take for granted, slowly begin to slip away.
Its acceptance is as widespread as its justification is important, for it provides the rationale for the Federal Reserve’s unprecedented monetary expansion since 2008. While critics may dispute the wealth effect’s magnitude, few have challenged its conceptual soundness. Such is the purpose of this article. The wealth effect is but a mantra without merit.
Baron Rothschild, the famous French financier, was once heard to say that he knew of only two men who really understood money -- an obscure clerk in the Bank of France and one of the directors of the Bank of England. “Unfortunately,” he added, “they disagree.”
The new reality of Obamacare’s tax credits has left finance reporters to pen articles warning readers to “take care” when considering a tax credit and providing strategies for how best to “protect yourself.” So what do finance reporters know that the White House doesn’t?
Nihilo ex nihilo fit. Out of nothing, nothing comes. First put forward by ancient Greek philosopher Parmenides in the fifth century B.C., Thomas Aquinas and St. Augustine later used this axiom to prove that the universe needed a “first mover” to get things going. Even if the whole thing began with some kind of “Big Bang” moment, it still needed a banger to bang it. Who? God, of course.
Economic theories don’t lend themselves to laboratory testing, so the work of a national appraisal firm is especially enlightening. A new study lends support to the Austrian business cycle theory, which says that the less government is involved, the faster a market will recover.
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 Federal Reserve has grown the monetary base from $827 billion to $3.1 trillion in five years. At the same time banks have stuck $2 trillion more than required in reserves at the Fed. This money lays around fallow, earning just 25 basis points from the central bank. A blossoming to its full potential would mean $20 trillion in new money, eviscerating Ben Bernanke’s deflation fears.
So far these extra reserves do nothing but keep followers of the Austrian School of Economics and fellow inflationphobes up at night. It’s not a matter of if there will be a repeat of Gideon Gono’s Zimbabwe, but rather when it will happen. After all, the Fed is all powerful. Or is it?
Ben Bernanke can lead bankers to liquidity, but he can’t make them lend. Bankers haven’t taken the plunge because other regulators are engaging in what Robert Prechter, renown financial author and stock market analyst, calls “The Hidden War on Credit.”
In the latest Elliott Wave Theorist, Prechter’s financial publication, he points out the Fed is demanding that JPMorgan and Goldman Sachs increase capital levels. Regulators around the world are telling banks the same thing, reduce leverage. This is anything but inflationary.
Freddie Mac and Fannie Mae have been going after big banks for mortgage loan documentation irregularities. In separate actions Bank of America is being sued for racketeering, LIBOR manipulation, violation of the Telephone Consumer Protection Act, violation of federal antitrust laws, failure to modify loans and who knows what else.
As one might expect, all of this litigating does not inspire lending.
Prechter mentions laws in Nevada that make it difficult for creditors to prove they have standing to foreclose. In Las Vegas alone, upwards of 100,000 houses are vacant and/or occupied by people who haven’t made a payment in three or four years. These non-performing assets are stuck on bank and shadow bank balance sheets keeping these lenders from aggressively making new credit.
The Elliott Wave guru lives in the Atlanta area, ground zero for bank failures. When banks fail, bankers are sued by the FDIC. “Various bankers are being charged with fraud and fined tremendous amounts of money and sent to jail because they made ‘unsafe and unsound’ loans,” Prechter writes. “Bankers are scared stiff to make new loans, because government agents are on their backs.”
In fact, American Banker reports civil litigation against bank officers and directors of failed banks is just beginning. “An April report by Cornerstone estimated that the FDIC is on pace to file about 40 lawsuits in 2013, the most in any year since the crisis began.”
At the height of the boom, bankers were beloved, now the inteligencia wants them jailed. “This is not a way to expand credit; it is yet another way to contract it,” writes Prechter.
Flying under the radar is a new bank leverage proposal issued by the FDIC in July. In a post entitled “The $600 Billion Bank Deleveraging No One Is Talking About,” Zero Hedge explains the new proposal will radically reduce the leverage used in the repo lending market. “As Barclays notes, changes to the risk-weightings of low-risk assets in the repo markets means US banks will need to deleverage by raising $30 billion of fresh capital or reducing their (mostly low-risk) assets by $598 billion.”
Bank stock analyst and investor Richard Lashley spoke at the Agora Financial Investment Symposium in Vancouver, making the case for bank shares. Lashley pointed out the banking industry provides less than 30% of total U.S. credit issued, less than half the percentage the industry provided in the 1970’s.
The industry has shrunk to only about 7,000 institutions from 18,000 in 1985. The numbers won’t be growing as the FDIC is not issuing new bank charters. Proposed capital and regulatory requirements are forcing small to mid-sized banks to sell. Larger banks can’t grow organically so they are ready to buy. Lashley believes the industry will shrink further to 3,000 banks.
While Lashley insists the industry is in much better shape than people think, a full five years after the financial crisis there are still 612 banks on the FDIC’s “problem bank” list.
None of this is bullish for increased lending. Lashley points out that the Fed’s quantitative easing policy has been good for banks so much as it has helped real estate values and thus reduced credit losses. It has created massive amounts of cheap deposits, and provided a steep yield curve. However, the money has gone into cash and securities, not loans.
So all this Fed money creation hasn’t spurred lending that would increase the money supply. Prechter explains why this happened citing four myths of central banking.
The first myth is “The Fed will drop money from helicopters.” The central bank has not bought every asset in sight with money created from nowhere. “What the Fed has always done, and is still doing, is buying U.S. Treasury bonds, which are among the safest assets in the world,” writes Prechter. The mortgages purchased by Bernanke and Company are government backed and of recent vintage and so are better quality than mortgages originated at the top of the boom.
Secondly, Prechter states, “Central banks will just print money.” If Cyprus is any indication, bank depositors will take a haircut in a crisis instead of the central bank printing over it.
Third, “Central banks stand ready to be lenders of last resort.” Not necessarily. Prechter cites an article from The Telegraph. “Savings accounts in Spain, Italy and other European countries will be raided if needed to preserve Europe’s single currency by propping up failed banks, a senior Eurozone official has announced.”
And finally, the fourth myth, “Inflation is determined by the expansion of base money.” Prechter argues that inflation is an expansion of money and credit. Meanwhile, Sweden, Norway and France are demanding that people use credit cards instead of cash. Authorities desperately want cash to stay in banks to prop up the debt (asset) side of their balance sheets. “That doesn’t happen in hyperinflationary times; it happens when bankers are worried about deflation,” Prechter writes. When consumers pull cash out banks it is deflationary. When deposits leave, loans must be liquidated.
In his 1934 book, Laissez Faire Club selection, Theories of the Trade Cycle, Alec Macfie pointed out central banks can create money but not money velocity. Since the financial crash, velocity has plunged.
Believing inflation is right around the corner is the popular opinion. But, not necessarily the correct one. Prechter did a Google search on March 13, 2013 “Inflation will rise in 2013.” There were 50,200 results. “Inflation will fall in 2013” on the same date generated 7 results.
I did the same test on August 6th. “Rise” generated 33,400 results, “Fall” generated 8 results.
Resource investing guru Rick Rule likes to say, an investor must either be a contrarian or a victim. Falling inflation is clearly the contrary opinion.