Economic Wisdom

Conscience

2012-01-18T08:32:00.001+13:00

The greatest task a person of conscience is called to is to rise to the occasion in his own times.

Wall Street

2012-01-08T19:21:00.002+13:00

Wall Street sells dreams...hopes...and pies in the sky.

Sure, its labor force tends to dress well. They often go to the best schools. They are smart. They are presentable. But get close enough, and you will see they struggle to mask the moral strain of flogging hopeless investments to people who they believe were “born yesterday.”

Wall Streeters are not bad people. They are not dumb people. Neither saints nor sinners, they are just like the rest of us. But their industry encourages a huge fraud: that they are there to help you make money.

They are not. They are there to help themselves make money.

How?

By taking it from YOU.

The financial industry is very large and very profitable. The service it pretends to provide is helping to match worthwhile investment projects with the capital they need. The service it actually provides is separating fools from their money.

Bill Bonner on Wall Street.

Man for All Seasons

2011-12-17T18:38:00.000+13:00

It is rare for a decent man to seek public office. He is ashamed of pandering. He is embarrassed by the stupidity of his own slogans. He is appalled by the low-lifes and quasi criminals with whom he must associate and from whom he must beg support.

Bill Bonner on the US election. The entire article is worth a read and a laugh.

Misunderstanding Capitalism

2011-12-06T19:19:00.000+13:00

Everybody wants wealth, power and status. (The rich are just better at it.)

They want to get it in the easiest possible way.

And the easiest way is to take it away from someone else.

That’s what government does. It allows the rich to get rich...supporting their stocks and real estate holdings with artificially low rates and expandable paper money. Then, when the rich go too far, it bails them out with even lower rates and even more ersatz paper money. The rich get their dividends; the politicians get their sinecures and campaign contributions; the middle classes lose their jobs, their houses, and their standards of living.

The masses never even try to figure this out. They only know that the game is rigged against them...and they get angry.

Bill Bonner on Misunderstanding Capitalism

Sovereign Default

2011-11-11T13:28:00.001+13:00

Greece may not actually default, depending on the rescue measures that come its way. But Greece is already bankrupt. The creditors to Greece should understand that history is not on their side. In fact, the creditors to every sovereign borrower should understand that history is not on their side.

“While a European sovereign default has appeared inconceivable in recent history,” a recent Wall Street Journal article observes, “defaults and debt re-schedulings were actually a common feature of the European financial landscape throughout the nineteenth century and up until the end of World War II, according to the economists Carmen Reinhart and Kenneth Rogoff.

“Greece has defaulted or rescheduled its debt five times since gaining independence in 1829...”

Governments default. That’s what they do. They tax; they squander the tax revenues; they default. This is the established unnatural order of the governmental world. The Greek crisis may be the first sovereign debt debacle of recent times, but it won’t be the last.

Eric Fry on No Cure for Sovereign Default

Everybody Hates Capitalism

2011-11-02T19:45:00.000+13:00

Few people really like capitalism — even people who call themselves capitalists. The feds could probably round them all up and gun them down in an afternoon. Capitalism is too chancy…too unpredictable…and too uncontrollable. No wonder so few people are fond of it; capitalism is a poor friend. It is disloyal. It is mischievous and willful. It is hard to get along with.

Capitalism offers is no sure route to success. You can be smart, work hard, and go to the best schools. There is still no guarantee that you will succeed.

Nor, once you’ve succeeded, is there any sure way to maintain your wealth, power and status. Wealth has no fidelity, neither to any one person, group, or family. It goes where it wants. It is fickle and unreliable.

Bill Bonner in Everybody Hates Capitalism

Important Events

2011-09-18T19:22:00.000+12:00

The Lehman bankruptcy was a much more important event than 9/11. It marked the end of a 60-year credit expansion. Maybe it marked the high water mark for the US Empire, too. And the beginning of the end for the US dollar-based world monetary system.

Bill Bonner on
Dead Men Don't Spend

Leadership

2011-09-13T11:38:00.000+12:00

Leadership is really a question of influence. In the past, leadership was based on power or position. Today leadership is based on choice. In other words, leaders used to get to pick their followers and tell them what to do. Today followers pick their leaders based on whom they trust and whom they want to be like.

Communities of Jesus

2011-07-19T18:44:00.000+12:00

I want to see communities of Christ birthed (we don’t have to call them churches if your stomach can’t handle that) where true justice can be planted and infest neighborhoods. I want to see places of resistance called into being where individuals together can witness against the consumerist and pornographic excesses of American culture gone badly. Forgive me for sounding like an anarchist but this is what I think matters.

David Fitch on The Church in the Present Tense

Society v Government

2011-07-08T13:02:00.000+12:00

Some writers have so confounded society with government, as to leave little or no distinction between them; whereas they are not only different, but have different origins. Society is produced by our wants, and government by our wickedness; the former promotes our happiness positively by uniting our affections, the latter negatively by restraining our vices. The one encourages intercourse, the other creates distinctions. The first is a patron, the last a punisher.

Society in every state is a blessing, but government even in its best state is but a necessary evil; in its worst state an intolerable one: for when we suffer, or are exposed to the same miseries by a government, which we might expect in a country without government, our calamity is heightened by reflecting that we furnish the means by which we suffer. Government, like dress, is the badge of lost innocence; the palaces of kings are built on the ruins of the bowers of paradise.

Thomas Paine

Serving not Ruling

2011-06-17T08:18:00.001+12:00

The political novelty that God brings into the world is a community of those who serve instead of ruling, who suffer instead of inflicting suffering, whose fellowship crosses social lines instead of reinforcing them. The new Christian community in which the walls are broken down not by human idealism or democratic legalism but by the work of Christ is not only a vehicle of the gospel or only a fruit of the gospel; it is the good news.

JH Yoder, Royal Priesthood, p.91

Patriotism

2011-06-02T16:29:00.000+12:00

Patriotism, once a simple concept, had become both confusing and contentious. What obligations, if any, did patriotism impose? And if the answer was none -- the option Americans seemed increasingly to prefer -- then was patriotism itself still a viable proposition?

Wanting to answer that question in the affirmative -- to distract attention from the fact that patriotism had become little more than an excuse for fireworks displays and taking the occasional day off from work -- people and politicians alike found a way to do so by exalting those Americans actually choosing to serve in uniform. The thinking went this way: soldiers offer living proof that America is a place still worth dying for, that patriotism (at least in some quarters) remains alive and well; by common consent, therefore, soldiers are the nation’s “best,” committed to “something bigger than self” in a land otherwise increasingly absorbed in pursuing a material and narcissistic definition of self-fulfillment.

In effect, soldiers offer much-needed assurance that old-fashioned values still survive, even if confined to a small and unrepresentative segment of American society. Rather than Everyman, today’s warrior has ascended to the status of icon, deemed morally superior to the nation for which he or she fights, the repository of virtues that prop up, however precariously, the nation’s increasingly sketchy claim to singularity.

Politically, therefore, “supporting the troops” has become a categorical imperative across the political spectrum. In theory, such support might find expression in a determination to protect those troops from abuse, and so translate into wariness about committing soldiers to unnecessary or unnecessarily costly wars. In practice, however, “supporting the troops” has found expression in an insistence upon providing the Pentagon with open-ended drawing rights on the nation’s treasury, thereby creating massive barriers to any proposal to affect more than symbolic reductions in military spending.

Andrew Bavecich on Patrotism.

Hope

2011-03-25T16:51:00.000+13:00

A leader is a dealer in hope.

Napoleon Bonaparte

Kicking the Bastards Out

2011-03-21T17:07:00.000+13:00

The truth is, however, that running the bastards out of town is at most only half the battle, because there are always plenty of bastards waiting in the wings to betray the revolution and assume power themselves. In fact, chances are that the new bastards have already made powerful contacts within the military and police and quiet agreements with foreign governments to reinstate a moderated form of the old system even before the old bastard is finally ousted. They will assume the throne and re-enslave the people, perhaps slightly less onerously than before, but enslave them nonetheless.

The people are usually unaware of these betrayals, caught up as they inevitably are in the mania of the struggle to oust the old tyrant. Their entire focus has heretofore been on making sure the old bastard actually leaves and doesn’t come back, and they have developed a natural sense of camaraderie with their countrymen who participated in the revolution. They are thus open to being duped by betrayers who claim to be revolutionaries just like everyone else, but who actually have their own self-interest in mind, not the people’s freedom.

As soon as the old bastard leaves town, and with him the raison d’être of the protest and revolution, the people inevitably emerge in an intoxicated state. They are drunk on patriotism and chauvinistic nationalism, which they imbibed during the struggle to oust the old bastard. They observed that the victory of the revolutionaries was a result of their collective action, and they swell with pride for their nation and their countrymen. They let pride and collectivist thinking blind them to their individual vulnerability at the most critical moment of all. They are prideful sitting ducks.

The new bastards waiting in the wings will use this pride-induced blindness to maneuver themselves into the presidential palace. They will sing sweet songs to the revolutionaries, and claim to be the "representatives of the revolution," but they will now be sleeping under the same roof as the old bastard. Soon, the old representatives of the military and police will come to pay their respects at the presidential palace. Next, the representatives of various foreign governments will come to pay their respects and congratulate the new bastard, to be followed by the representatives of the labor unions, bureaucracies, and powerful corporations. They all come singing the praises of the new bastard, and they all come bearing gifts of various kinds. If he accepts their gifts, and he will, the death of the revolution is thereby consummated.

The people’s pride will not be quickly extinguished, however. They will boast for years, if not centuries, about their glorious revolution, and they will naively assume that any old bastard that lives in the presidential palace is a representative of the "revolution." They won’t even realize that the revolution was lost at the very moment that the old bastard fled town. The people’s pride and complacency allowed it to be lost.

One day, long after the revolution, some of them will look around and realize the new bastard is exactly the same as the old bastard they chased out of town so long ago. The new bastard imprisons and tortures people just like the last bastard.

Mark R. Crovelli on the Egyptian Revolution

Religion and Progress

2011-02-12T19:44:00.002+13:00

Why is Islam so much more virulent and troublesome than Christianity at the moment? Part of the reason is that it necessarily places itself at the center of society-law, government, economics, morality, the works. Another factor is that most "Christian" societies, especially in Europe and cosmopolitan areas of the U.S., don't take their nominal religion all that seriously, at least not beyond paying lip service. They see it more as cultural decoration, much the way the more sophisticated ancients saw their traditional gods or secular Jews today see Judaism. But that's not at all the case with the average Muslim.

Doug Casey, who is an Atheist

Untouchable Military Spending

2011-01-29T10:25:00.000+13:00

The passage of time has transformed World War II from a massive tragedy into a morality tale, one that casts opponents of intervention as blackguards. Whether explicitly or implicitly, the debate over how the United States should respond to some ostensible threat -- Iraq in 2003, Iran today -- replays the debate finally ended by the events of December 7, 1941. To express skepticism about the necessity and prudence of using military power is to invite the charge of being an appeaser or an isolationist. Few politicians or individuals aspiring to power will risk the consequences of being tagged with that label.

In this sense, American politics remains stuck in the 1930s -- always discovering a new Hitler, always privileging Churchillian rhetoric -- even though the circumstances in which we live today bear scant resemblance to that earlier time. There was only one Hitler and he’s long dead. As for Churchill, his achievements and legacy are far more mixed than his battalions of defenders are willing to acknowledge. And if any one figure deserves particular credit for demolishing Hitler’s Reich and winning World War II, it’s Josef Stalin, a dictator as vile and murderous as Hitler himself.

Until Americans accept these facts, until they come to a more nuanced view of World War II that takes fully into account the political and moral implications of the U.S. alliance with the Soviet Union and the U.S. campaign of obliteration bombing directed against Germany and Japan, the mythic version of “the Good War” will continue to provide glib justifications for continuing to dodge that perennial question: How much is enough?

Andrew Bacevich on why Military Spending is unstoppable.

Bipartisan Cooperation

2011-01-20T19:12:00.000+13:00

The real problem in Washington and the economy is deeper…it won’t be fixed by bipartisan cooperation – because both parties are wrong. They have to be wrong. They have to respond to the marginal voter, who is a lunkhead.

Bill Bonner on Misconceptions About the Consumer's Role in a US Recovery.

Truth and Jackasses

2011-01-10T09:43:00.002+13:00

You always have to separate the cheap and tawdry from what is really worthwhile. You can't recognize something that is beautiful unless you can also recognize something that is ugly. And you can't really appreciate the truth unless you can compare it to a lie.

"Trouble is, it's not all equally balanced out. For every truth, there are hundreds of lies. For every noble, honorable, sincere and intelligent man there are hundreds of jackasses.

Bill Bonner

Selection

2011-01-05T08:58:00.000+13:00

Any account of anything is bound to be selective. The human intellect does not have the capacity for comprehending the sum of things in a single panoramic view. Selection is unavoidable, but it also inevitably arbitrary; and, the greater the mass of information from which a selection has to be made, the more disputable will be the investigator’s choice.

Arnold Toynbee in A Study of History.

Job Creation

2010-12-28T12:50:00.006+13:00

A businessman does not spend his day considering how a job is to be created. On the contrary, if he is a successful businessman, he spends his time thinking about those activities that he can engage in to produce a profit. Once he has determined the profitable activity, he then channels resources to achieve the desired result: making money.

It is from this profit motive, this potential increase in productive activity, that jobs are created. As a developer, I do not hire an employee before I have conceived of a construction activity that will earn me a decent return. I hire an employee when I have a productive need for his services. As Say so clearly understood, it is the productive activity that creates the employment that puts money in people's pockets that can then be used to purchase other products.

Fred Buzzeo on Job Creation.

Beast

2010-12-24T10:14:00.000+13:00

The most alluring and dangerous deity in the United States is the omnipresent, syncretistic god of nationalism mixed with Christianity lite.

Michael Gorman in Reading Revelation Responsibly: Uncivil Worship and Witness: Following the Lamb into the New Creation (p.56).

Not Ready

2010-12-10T12:43:00.002+13:00

Except for the very old, Americans have generally lived pretty easy, comfortable, safe, and prosperous lives.

That's why this downturn will be worse than the Great Depression. Americans are not prepared for adversity. During the Great Depression, most people still lived on farms. They heated their houses with wood they cut themselves. They grew their own vegetables. They canned their own fruit. They raised their own hogs. They knew how to survive.

That's not true today. We don't know what would happen in a major crisis. But people are not ready for it. They depend on the system...the cash machines and grocery stores...and the unemployment compensation and food stamps. I don't think they could stand it if theses things break down.

Bill Bonner's Particularly Gloomy Friend

Beauty

2010-11-08T14:03:00.005+13:00

That's the great beauty of a real economy! It rarely takes you where you want to go...especially if you're an activist central planner or an interventionist finance minister. But no matter how much you struggle with it...no matter how badly you manipulate it...no matter how much you try to stitch it up with rules and regulations...

...it ALWAYS takes you where you deserve to go.

Bill Bonner

Democracy

2010-11-04T16:40:00.000+13:00

If the idea of democracy is that voters put their heads together and select the most worthy candidate, the whole thing is a fraud. Just look at Congress. What voters really do is select the fellow with the best haircut, the best line of guff, or the smoothest fundraising machinery. And it helps to have name recognition. That’s how popular actors – such as Ronald Reagan and Arnold Schwarzenegger – were able to break into the business. People do not really select the best man for the job; they have no way of knowing what the job is or who would be best for it. Instead, they buy their candidates like bath soap...based on the jingle that most appeals to them.

Bill Bonner writing about America.

Government

2010-10-30T20:32:00.000+13:00

William Godwin said,

Government can have only two legitimate purposes: the suppression of injustice against individuals...and the common defense against external invasion.

Fatal Attraction

2010-10-20T15:22:00.002+13:00

One justification for democracy is that it provides us with ways of aligning government policies with the citizenry’s requirements and of holding governments accountable when their decisions do not accord with the majority’s wishes. But what happens when some citizens begin viewing these mechanisms as a means for encouraging elected officials to use the state to provide them with whatever they want, such as apparently limitless economic security? And what happens when many elected officials believe it is their responsibility to provide the demanded security, or, more cynically, regard welfare programs as a useful tool to create constituencies that can be relied upon to vote for them?

Samuel Gregg on Fatal Attraction: Democracy and the Welfare State

Fiction

2010-10-09T13:38:00.001+13:00

Government is the great fiction through which everybody endeavors to live at the expense of everybody else.

Frédéric Bastiat

Debt is Dangerous

2010-10-07T14:44:00.001+13:00

Debt implies a strong statement about the future, and a high degree of reliance on forecasts. If you borrow $100 and invest in a project, you still owe $100 even if you fail in the project (but you do a lot better if you succeed). So debt is dangerous if you are overconfident about the future.

Nassim Nicholas Taleb

Trade and Freedom

2010-08-19T18:47:00.001+12:00

Trade does not require force. Free trade consists simply in letting people buy and sell as they want to buy and sell. It is protection that requires force, for it consists in preventing people from doing what they want to do … What protection teaches us is to do to ourselves in time of peace what enemies seek to do to us in time of war.

Wisdom from Henry George

Risk Models

2010-05-05T20:08:00.002+12:00

The problem wasn’t so much with the models themselves, but with how they were utilized. Rather than being used to discipline individual traders and trading desks, they were used to justify bigger and bigger speculative positions, and more and more leverage.
The risk models that were commonly used on Wall Street failed abysmally. Not only did they fail to protect their users from a bad outcome, they made such an outcome far more likely. In short, the risk models added to systemic risk.
In part, this was a failure of statistical modelling. The techniques that the risk modelers used weren’t up to the task they set for themselves. But it was also a problem of how the models were used. Rather than looking on them as a useful but limited tool, banks and other institutions used them as a substitute for proper risk management, and as a justification for taking on more leverage and more risk. This explains how the risk models made the entire system more risky.
At it’s root, the problem is conceptual. The financial market isn’t a deterministic system underpinned by laws of nature, and attempts to treat it like one—such as contemporary risk-management techniques—are destined to backfire.

John Cassidy on Whats wrong with Risk Models

Merchants and Warlords

2010-04-25T11:43:00.001+12:00

The economic surge across Europe at the turn of the first millennium created new opportunities for long distance trade. Merchants thus had an incentive to take political action to lower the transaction costs associated with doing business. The overlapping taxes and incompatible monetary systems of the feudal system gave them reason to escape to territory where they could conduct their business without interference from feudal lords.

Merchants who were able to form or settle in self-regulating towns, where impersonal legal codes protected their property rights and set predictable tax rates, prospered. In turn, this prosperity gave them the power and means either to form their own armies for self-defense against warlord predation, or to bargain with kings who promised them protection and universal fair trade rules that extended over larger territories

Marten, Kiberly in “Warlordism in Comparative Perspective”. International Security, Vol. 31, No. 3: Winter 2006/2007; p. 60.

Courage is Missing

2010-04-20T11:33:00.000+12:00

Courage is always missing in politicians. It is like saying basketball players aren’t normally short. It isn’t a useful attribute. To be morally courageous is to say something different, which reduces your chances of winning an election. ..... My generation has been catastrophic. I was born in 1948 so I am more or less the same age as George W. Bush, Bill Clinton, Hillary Clinton, Gerhard Schröder, Tony Blair and Gordon Brown – a pretty crappy generation, when you come to think of it, and many names could be added. It is a generation that grew up in the 1960s in Western Europe or in America, in a world of no hard choices, neither economic nor political. There were no wars they had to fight. They did not have to fight in the Vietnam War. They grew up believing that no matter what choice they made, there would be no disastrous consequences. The result is that whatever the differences of appearance, style and personality, these are people for whom making an unpopular choice is very hard.

Traditionally leaders rose to power through wars or conquest. We have had six, seven generations of leaders who came to power exclusively by political manoeuvring, which is historically very unusual. It’s like inbreeding: there are no external inputs, no new kinds of people, only the political class breeding itself. This isn’t an argument in favour of war, just a historical fact.

Tony Judt on The Way Thing Are.

WW2 was a Failure?

2010-04-16T20:20:00.000+12:00

Not one of the positive goals set forth in the Atlantic Charter and the Four Freedoms has been realized. There is no peace today, either formal or real. Over a great part of the world there is neither freedom of religion nor freedom of speech and expression. Freedom from fear and want is no~ an outstanding characteristic of the present age. The right of national self-determination, so vigorously affirmed in the Atlantic Charter, has been violated on a scale and with a brutality seldom equalled in European history."

No war in history has killed so many people and left such a legacy of miserable, uprooted, destitute, dispossessed, human beings.

William Henry Chamberlain in America's Second Crusade.

Fools and their Money

2010-04-12T20:15:00.000+12:00

Capitalism doesn’t like it when idiots have too much money. So it uses people like Goldman to help take it away from them. That’s what Lloyd Blankfein meant when he said Goldman was doing “God’s work.”

We don’t know if God wanted Goldman to blow up the world economy…but capitalism seemed to be calling for it. And it looked like capitalism was going to blow up the bomb tosser, too. Unfortunately, the feds stepped in. They bailed out AIG…and the whole financial industry – including Goldman. Now, they lend the big banks money for practically nothing…which the banks lend back to the feds at 4%. The banks make money. They restock their reserves with US Treasury debt. And the feds get to finance their gigantic deficits. It’s great for everyone – until it blows up too.

Bill Bonner on Separating Fools from their Money.

Cultural Mandate

2010-04-08T09:15:00.000+12:00

The only way to cultivate and fill the earth without descending into a barbaric struggle for survival is to take advantage of the social division of labor, capital accumulation and wise entrepreneurship. Allowing these sources of economic progress to flourish requires the security provided by peace and private property sustained by and combined with cultural values such as a forsaking of theft and low social time preferences.

Shawn Ritenour on Why Economics Should Be Important for Christians. The complete article is worth a read.

Jesus is Lord and King

2010-04-05T07:42:00.002+12:00

Jesus in the Gospels... has received God's anointing as the chosen king, but another king is currently on the throne. The story of the Gospels is one in which Jesus inaugurates a new reign of God and deals a deathblow to the imposter king through his death on the cross. If the Cross is the defeat of the old king, the Resurrection is the enthronement of the new. Jesus now literally sits... at the right hand of God. Though the preexistent Christ has always been God's agent in the creation and rule of the world, the human Jesus is now joined to that role as Lord and king over all.

J.R. Daniel Kirk in A Resurrection That Matters

What is Money?

2010-03-22T18:39:00.000+13:00

Aristotle, in the fourth century BC, was the first person to define what money is. And what is it? It’s a store of value and a medium of exchange. The paper we use today is a medium of exchange – it got that way because governments made it illegal not to accept it – but it’s not a good store of value. And it’s rapidly and radically becoming less of a store of value.

What we use as money today is actually not money; it’s currency. Technically, that’s simply a word that indicates a government substitute for money.

Doug Casey at the Daily Reckoning.

Patsy Revolt

2010-03-17T09:10:00.000+13:00

There are more clowns in economics than in the circus. They invented an economic model that has been very popular for more than 50 years – particularly in the US and Britain........ The new theories seemed to give everyone what they most wanted. Politicians could spend even more money that didn’t belong to them. Consumers could enjoy a standard of living they couldn’t afford. And the financial industry could earn huge fees by selling debt to people who couldn’t pay it back.

Never before had so many people been so happily engaged in acts of reckless larceny and legerdemain. As time wore on, more and more people lived at someone else’s expense. Lobbying and lawyering became lucrative professions. Bucket shops and banks neared respectability. Every imperfection was a call for legislation. Every traffic accident was an opportunity for wealth redistribution. And every trend was fully leveraged.

If there was anyone still solvent in America or Britain in the 21st century, it was not the fault of the banks. They invented subprime loans and securitizations to profit from segments of the market that had theretofore been spared. By 2005 even jobless people could get themselves into debt. Then, the bankers found ways to hide debt…and ways to allow the public sector to borrow more heavily. Goldman Sachs did for Greece essentially what it had done for the subprime borrowers in the private sector – it helped them to go broke.

As long as people thought they were getting something for nothing, this economic model enjoyed wide support. But now that they are getting nothing for something, the masses are unhappy....

Taxes are going up. Services are going down. And taxpayers are being asked to pay for the banks’ losses…and pay interest on money spent years ago. Until now, they were borrowing money that would have to be repaid sometime in the future. But today is the tomorrow they didn’t worry about yesterday. So, the patsies are in revolt.....

The rioters can go home, in other words. The system will collapse on its own.

Bill Bonner on The Patsy Revolt.

Politics Cannot Be Fixed

2010-03-13T21:40:00.002+13:00

We face a dilemma in that most Americans are committed to democratic governance and many Americans want elected officials to assume responsibility for matters that they cannot manage.

American politics is not broken: it is working in the dysfunctional way that it should be working, given its unwieldy size and scope. What may be breaking are naïve idealistic beliefs that politicians can use a large and intrusive government to serve "the people." And the demise of such beliefs would be a good thing.

The idea of public-spirited politicians acting through large and unlimited government is utopian.

The basic lesson here is that politics cannot be fixed.

D W MacKenzie on Politics Cannot Be Fixed.

Democracy is Temporary

2010-02-18T13:50:00.000+13:00

A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largess (generous benefits) from the public treasury. From that moment on, the majority always votes for the candidate promising the most benefits from the public treasury, with the results that a democracy always collapses over loose fiscal policy, always followed by dictatorship.

The average age of the world's greatest civilizations has been two hundred years. These nations have progressed through this sequence: from bondage to spiritual faith, from spiritual faith to great courage; from great courage to liberty; from liberty to abundance; from abundance to selfishness; from selfishness to complacency; from complacency to apathy; from apathy to dependence; from dependence back to bondage.

Alexander Frazer Tyler in "The Decline and Fall of the Athenian Republic," (1776).

Poltical Eschatology

2010-02-04T20:20:00.001+13:00

We need to start thinking about church/state relations in eschatological categories. If we think of them in static categories, the Christian church will find it hard to avoid becoming reactionary. That kind of conservatism is the way of death.

The Marxists know what they are supposed to be doing right now because they have an eschatology of the state. They say that the dictatorship of the proletariat will eventually wither away, which is perfect nonsense, but they nevertheless do have an eschatology of the thing. But when believing Christians get involved in politics they are hampered by the fact that politics is inherently an eschatological discipline, and their eschatology is either lurid, confused, pessimistic, or non-existent....

So I want to think of where church/state relations are headed teleologically -- we need a political eschatology. This will orient us where we need to be oriented. Man was created to be informed by the past, but oriented by the future, not the past.

So the central question I am trying to ask and answer in this discussion is this: where is the Spirit taking us, considered in thousand year chunks?

Douglas Wilson on The Future is True East

Botox Economy

2010-01-31T21:09:00.000+13:00

The global economy is currently taking the "botox" cure. A flood of money from central banks and governments – "financial botox" - has temporarily covered up unresolved and deep-seated problems.

Satyajit Das on the Botox Economy.

Pass the Parcel

2010-01-26T21:03:00.000+13:00

It’s the last game of pass the parcel. When the tech bubble burst, balance sheet problems were passed to the household sector [through mortgages]. This time they are being passed to the public sector [through governments’ assumption of banks’ debts]. There’s nobody left to pass it to in the future.

David Bowers of Absolute Strategy Research

Symptoms

2010-01-23T20:58:00.000+13:00

Governments and central banks have dealt with symptoms but not addressed the underlying causes of the Global Financial Crisis.

Satyajit Das on the Botox Economy

US Idolatry and False Messianism

2009-12-14T20:10:00.005+13:00

Contra Celsum has a brilliant and insightful series of posts explaining why America the United States of America has become such a bellicose and aggressive nation in the last hundred years.

US Idolatry and False Messianism, Part I.

US Idolatry and False Messianism, Part II

US Idolatry and False Messianism, Part III

US Idolatry and False Messianism, Part IV

US Idolatry and False Messianism, Part V

US Idolatry and False Messianism, Part VI

Politics and Power

2009-12-05T17:02:00.000+13:00

Power should not be won but destroyed. No matter for what noble purpose new laws are passed, they will only benefit in the long run the people who can play politics — power politics — the best.

Donald Meinshausen

Independence of the Fed

2009-11-30T21:25:00.000+13:00

Independent? Of you and me, to be sure, but not independent of Goldman, B of A, JPMorgan Chase, and the other old boys up there in the big city.

Robert Higgs dishes it out to Big Ben.

Who Wins at War

2009-11-25T19:10:00.000+13:00

Why of course the people don't want war. Why should some poor slob on a farm want to risk his life in a war when the best he can get out of it is to come back to his farm in one piece? Naturally the common people don't want war neither in Russia, nor in England, nor for that matter in Germany. That is understood. But, after all, it is the leaders of the country who determine the policy and it is always a simple matter to drag the people along, whether it is a democracy, or a fascist dictatorship, or a parliament, or a communist dictatorship.

Voice or no voice, the people can always be brought to the bidding of the leaders. That is easy. All you have to do is tell them they are being attacked, and denounce the peacemakers for lack of patriotism and exposing the country to danger. It works the same in any country.

Hermann Goering, President of the Nazi Reichstag

Regulation is Big Bikkies

2009-11-20T20:04:00.000+13:00

It is often said that deregulation, especially during the last eight years, is one of the central causes of the financial crisis.... In fact, during the last eight years, federal spending on regulation in the category of finance and banking has gone up notably. This trend is similar to the one we have seen in the last 50 years.

Overall, it is hard to argue that deregulation of the financial services industry was rampant in Washington when the spending on finance and banking regulatory agencies kept growing so fast.

Veronique de Rugy at the American.

Deregulation Myth

2009-11-12T19:53:00.000+13:00

A popular myth among leftists is that the financial crisis was caused by "deregulation". Of course, when pressed on exactly what deregulation was involved, they usually can't give an answer, revealing a blind faith that whatever the problem it had to involve lack of regulation.

Among the minority of leftists that can give a more specific description of what regulation was lacking, the 1999 repeal of the Glass-Steagal act (which prohibited companies from pursuing both commercial banking and investment banking) is the most common reply. Yet there is no evidence whatsoever of that having any negative role.

The companies that contributed the most to the bubble and subsequently suffered the most were companies that were either pure mortgage institutions like Freddie Mac and Fannie Mae, pure investment banks like Bear Stearns and Lehman Brothers or an insurance company (AIG which invested heavily in Credit Default Swaps that insured dodgy mortgages). None of those companies had been affected by the repeal of Glass-Steagal.

Stefan Karlsson on the Deregulation Myth.

Moral Defect with Democracy

2009-11-07T16:44:00.001+13:00

I wish to claim that democracy’s gravest defect has little or nothing to do with the defects traditionally ascribed to it. I maintain that its severest defect, indeed, a flaw so critical that it gives democracy the potential to destroy civilization, pertains to its effect in corrupting the people’s moral judgment...

If you or I were to threaten a neighbor with violence unless he handed over a specified sum of money, we would be universally recognized as engaged in extortion or attempted robbery.... Likewise, if I were to send a private Predator drone to Pakistan to fire explosive missiles into villages, killing women, children, and other innocent persons, I would be seen as a monstrous mass murderer, and demands would be made that I be apprehended and “brought to justice” or killed.

Yet when President Obama causes deaths in this way, no such demands are made. How did Barack Obama come by the right to kill innocent people? By democratic election to the presidency of the United States, of course. Most people actually believe, and act on the belief, that mere election to a political office can endow a person with standing to disregard the moral requirements applicable to people in general.....

Everybody understands, however, without any advanced instruction in the matter, that murder and robbery are wrong, and that no one has a justifiable right to bully his neighbors simply because he does like the way in which they are conducting their lives..... (yet) most people give a moral pass to such criminal actions when democratically elected functionaries take them. This presumed moral immunity by virtue of election to public office is... a montrous mistake in moral reasoning....

Robert Higgs on Democracy’s Most Critical Defect.

To Big to Fail is a Dumb Idea

2009-10-31T16:24:00.002+13:00

The essential dynamic of the market economy is that good businesses succeed and bad ones do not. There is a sense in which the bankruptcy of Lehman was a triumph of capitalism, not a failure. It was badly run, it employed greedy and overpaid individuals, and the services it provided were of marginal social value at best. It took risks that did not come off and went bust. That is how the market economy works.

John Kay at the Financial Times on Too big to Fail is too Dumb an Idea to Keep.

Capitalism does not Need Greed

2009-10-24T09:02:00.000+13:00

Adam Smith never argued that the more selfish we are, the better a market works. His point, rather, is that in a free market, each of us can pursue ends within our narrow sphere of competence and concern—our “self-interest”—and yet an order will emerge that vastly exceeds anyone’s deliberations.

Finally, and most importantly, Smith argued that capitalism channels greed. He recognized that human beings are not as virtuous as we ought to be. While many of us may live modestly virtuous lives under the right conditions, it is the rare individual who ever achieves heroic virtue. Given that reality, we should want a social order that channels proper self-interest as well as selfishness into socially desirable outcomes. Any system this side of heaven that can’t channel human selfishness is doomed to failure. That’s the genius of the market economy.

And that’s the problem with socialism and all sorts of nanny-state regulatory prescriptions: They don’t fit the human condition. They concentrate enormous power in the hands of a few political leaders and expect them to remain uncorrupted by the power. Then through aggressive wealth redistribution and hyper-regulation, they discourage the productive pursuit of self-interest, through hard work and enterprise. Instead, they encourage people to pursue their self-interest in unproductive ways such as hoarding, lobbying, or getting the government to steal for them.

In contrast, capitalism is fit for real, fallen human beings. “In spite of their natural selfishness and rapacity,” Smith wrote, business people “are led by an invisible hand ... and thus without intending it, without knowing it, advance the interest of the society.” Notice he says “in spite of.” His point isn’t that the butcher should be selfish, or even that the butcher’s selfishness particularly helps. Rather, he argues that even if the butcher is selfish, he can’t make you buy his meat. He has to offer you meat at a price you’ll willingly buy. He has to look for ways to set up a win-win exchange. Surely that’s good.

So a free market can channel the greed of a butcher. But that’s not the only thing it can channel. It can just as easily channel a butcher’s noble desire for excellence of craft, or his desire to serve his customers well because he likes his neighbors, or his desire to build a successful business that will allow his brilliant daughter to attend better schools and fully develop her gifts. Capitalism doesn’t need greed. What capitalism does need is human creativity and initiative.

Jay Richards explains why Greed is not Good and It is not Capitalism.

Diagnostics and Therapeutics

2009-10-19T19:32:00.003+13:00

Since the Great Depression, the American public has generally approved of an active, interventionist federal government. In a perceived crisis, most people want the government to “do something.” Of course, most politicians and government functionaries, for perfectly understandable self-serving reasons, are quite pleased to respond to such public demands for action ― after all, taking such action promises to butter their bread more thickly.

Franklin D. Roosevelt enthusiastically supported an approach whereby the government would “take a method and try it; if it fails, admit it frankly and try another. But above all, try something.” Likewise, more recently, despite the great confusion that prevailed about the current recession’s causes and about the best means of moderating or reversing it, Barack Obama, soon after taking office, declared, “The time for talk is over. The time for action is now.” In both instances the president was presuming that successful therapy can be administered without a sound diagnosis. This presumption is foolish, however, if one’s interest lies not in mollifying a bewildered electorate, but in implementing a genuine remedy for the perceived problem...

Yet, one thing we do know: Many Americans now believe many things about their government that are false, and they expect much from the government that the rulers cannot provide. The public at large embraces myths about what the government can do, what it actually does, and how it goes about doing it...

Robert Higgs on Diagnostics and Therapeutics in Political Economy.

Fool's Game for the Masses

2009-10-15T21:09:00.003+13:00

I go through life constantly bemused by all the weight that people put on partisan political loyalties and on adherence to the normative demarcations the parties promote. Henry Adams observed that “politics, as a practice, whatever its professions, has always been the systematic organization of hatreds.” This marshalling of hatreds is not the whole of politics, to be sure, but it is an essential element. Thus, Democrats encourage people to hate big corporations, and Republicans encourage people to hate welfare recipients.

Of course, it’s all a fraud, designed to distract people from the overriding reality of political life, which is that the state and its principal supporters are constantly screwing the rest of us, regardless of which party happens to control the presidency and the Congress. Amid all the partisan sound and fury, hardly anybody notices that political reality boils down to two “parties”:
those who, in one way or another, use state power to bully and live at the expense of others; and
those unfortunate others.

Robert Higgs on Partisan Politics.

Chesterton Chestnut

2009-09-24T18:17:00.002+12:00

The whole modern world has divided itself into Conservatives and Progressives. The business of Progressives is to go on making mistakes. The business of the Conservatives is to prevent the mistakes from being corrected.

GK Chesterton

Truth to Power

2009-09-19T18:11:00.003+12:00

The vast majority of Christians in America have accepted the Constantinian notion that the primary political task of the church is to rule, to be in charge. What that means at the very least is that Christians are to play a prophetic role in the political court of Washington DC. Second, it means that most Christians have accepted the modern dichotomies of left/right, liberal/conservative, Democrat/Republican.

In accepting these two "truths" the problem becomes clear. As Christians, instead of identifying ourselves as primarily kingdom citizens, we see ourselves first and foremost as Democrats or Republicans, conservatives or liberals. The Sermon on the Mount gets eclipsed by the political platforms of the DNC and the RNC. We like to say that we transcend such earthly contrived political conventions, but we can point to very little evidence to show that this is indeed the case. James Dobson is clearly a conservative Republican and Jim Wallis is obviously a liberal Democrat. The only truth they speak to power is their own Republican or Democratic truth to the power of the other party. The criticism of their own is basically absent or woefully inadequate at best. It appears that both men desire to play the role of Nathan in David's court, but they find they only have influence in that court when "David" is part of their own party; and then their prophetic denunciations are reserved only for the opposition outside the court and not those who are in power. They have very little of a prophetic nature to say to the king from their own party whom they serve. In other words, the church cannot speak truth to power because the church itself is up to its armpits in power and, therefore, has a stake in such power.

In cosying up to the principalities and powers, Christians on the left and the right have chosen the politics of power over the politics of witness; indeed, they cannot even imagine, in spite of what they say, what the politics of the Kingdom of God might look like apart from the politics of left and right.

Allan Brevere on Why the Church in America cannot Speak the Truth to Power

Bludgeoning

2009-09-11T16:44:00.001+12:00

Democracy means simply the bludgeoning of the people by the people for the people.

Oscar Wilde

Limited Government

2009-08-31T20:48:00.000+12:00

A "limited government" is a contradiction. Either it is limited (in which case, the entity doing the limiting is sovereign), or it is government. It cannot be both.

John Sampson on Limited Government.

Gospel or State

2009-08-27T18:26:00.003+12:00

The long history of Christendom is astonishingly plentiful in magnificent moral, intellectual, and cultural achievements... But it has also been the history of a constant struggle between the power of a the gospel to alter and shape society and the power of the state to absorb every useful institution into itself.

David Bentley Hart, a historian of ideas, in Atheist Delusions: The Christian Revolution and Its Fashionable Enemies.

Paper Money

2009-08-04T18:44:00.000+12:00

Daniel Webster said,

We are in danger of being overwhelmed with irredeemable paper, mere paper, representing not gold nor silver; no sir, representing nothing but broken promises, bad faith, bankrupt corporations, cheated creditors and a ruined people.

Of all contrivances for cheating the laboring classes of mankind, none has been more effective than that which deludes them with paper money.

and quantitative easing.

Nation State

2009-07-28T19:29:00.000+12:00

The nation state. Interesting phrase. It is different from the state, which is ancient. The nation state as we know it is a modern invention -- also called the managerial state. The idea is that the state survives and is independent from its head. It has a life that exists outside the dictator, president, monarch, or whatever. It is also called the impersonal state, and its heartbeat is the bureaucracy, and it certainly has a genesis in the late medieval period. It is the only state anyone in the developed world has known for centuries.

Jeffery Tucker at Mises.org.

Economists

2009-07-24T08:54:00.002+12:00

Critics argue that economists missed the origins of the crisis; failed to appreciate its worst symptoms; and cannot now agree about the cure. In other words, economists misread the economy on the way up, misread it on the way down and now mistake the right way out.

The Economist on Economists.

No one Saw it Coming????

2009-07-18T19:33:00.000+12:00

I do not know anyone who predicted this course of events. This should give us cause to reflect on how hard a job it is to make genuinely useful forecasts. What we have seen is truly a ‘tail’ outcome – the kind of outcome that the routine forecasting process never predicts. But it has occurred, it has implications, and so we must reflect on it.

Glenn Stevens, Governor of the Reserve Bank of Australia quoted by Dirk J Bezemer of the University of Groningen. Dirk proves that the common wisdom is wrong and lists a number of economist who saw it coming. The full article is worth a read.

Economists

2009-07-15T08:42:00.000+12:00

Long gone are the days when economists thought deeply about how life actually works. Adam Smith, Adam Ferguson, Anne-Robert Turgot – the great "moral philosophers" – all died hundreds of years ago. Since then, the trade has gone bad. They're all numbers guys now. An economist, of the modern variety, is a statistician...an extrapolator...and a mountebank. If numbers go up two months in a row, he predicts they will go up another one. He rarely stops to ask whether his numbers really make any sense.

Bill Bonner on Bubble Deniers.

Saving or Borrowing

2009-07-11T08:36:00.002+12:00

In 2005, Americans saved nothing. Not even aluminum foil or string. Now, the savings rate is approaching 5% of disposable income - a big turnaround.

We know from logic and experience that saving money - not spending it - is the key to getting wealthier. Saving money gives you capital. And it’s capital accumulation - in the form of factories, roads, ships, buildings, machines…and raw savings - that gives people the ability to produce more. It may take a man with a shovel a whole day to dig a decent grave. Give him capital - in the form of a backhoe - and he can bury everyone in town. That’s why capitalism works. It rewards the fellow who saves his money.

Yet every yahoo economist in the year of our Lord 2009 takes news of rising savings rates like the death of Michael Jackson. If households don’t consume, they reason, how can a consumer economy grow?

The problem is that you can’t really grow an economy by borrowing and spending.

Recent history proves it. Despite the biggest splurge of borrowing and spending in history, the US consumer economy barely grew at all.

Bill Bonner on the Great Credit Contraction.

Austrian Economics

2009-07-06T17:16:00.000+12:00

What distinguishes the Austrian School and will lend it everlasting fame is its doctrine of economic action, in contrast to one of economic equilibrium or nonaction. The Austrian School makes use of the ideas of rest and equilibrium, without which economic thought cannot get along. But it is always aware of the purely instrumental nature of these ideas.

The Austrian School aims to account for prices actually paid in the market, and not just prices that might be paid under certain never-realizable conditions. It rejects the mathematical method, not because of ignorance or an aversion to mathematical accuracy, but because it does not place importance upon the detailed description of the condition of a hypothetical and static equilibrium.

The Austrian School has never succumbed to the fatal illusion that values can be measured, and has never misunderstood that statistical data has nothing to do with economic theory, but belongs to the history of economics alone.

From the Memoirs by Ludwig von Mises.

Extraordinary Evil?

2009-07-01T19:07:00.002+12:00

Poor Bernie Madoff. The man has been ordered to spend 150 years in the hoosegow. What for? Who did he kill? A century and a half seems a little excessive for a financial crime. You could hold up three liquor stores and rape a whole convent and still not get 150 years. With a little bit of good lawyer-ing, a history of child abuse in the family, and good behavior in the big house, you'd be back on the street in 18 months.

But all the papers seem delighted. "Locked up for Life!" says one of today's headlines. The judge "threw the book at him," says another. His victims wanted him to get no mercy. The judge gave him none, imposing the maximum sentence. He is "extraordinarily evil," said the man on the bench.

Justice has been done. Right? ......

But, what is the point of keeping Madoff in prison? He represents no threat. Rather than pay $30,000 per year to keep him locked up, we suggest that he be forced to do community service work. He should be pressed into service as the next head of the Federal Reserve after Ben Bernanke's term expires in December. With Madoff in the big office, there would be no longer any illusions about what sort of bank the Fed is running.

Bill Bonner puts the evil of the century into perspective.

Baby Boom Thieves

2009-06-27T09:02:00.002+12:00

Generations X (30-45) and Y (15-30) need to wake up and see the massive inter-generational theft happening before their eyes. Baby-boomers need to be shocked into knowing they are being shortsighted and will end up living in two retirement islands and having to visit their grandchildren overseas.

Bernard Hickey of interest.co.nz at the Herald.

Business Pressure

2009-06-23T16:38:00.000+12:00

If you feel you are being forced to buy something by a business,
you will usually find a government law or regulation behind their power.

Following

2009-06-19T07:57:00.002+12:00

Twitter is not a social network. It is a tool for social and political elites (the followed) to lead their sheep (the followers).

The whole world “followed” the beast (Rev 13:3).

People think that we are living in the age of democracy,
but multitudes are being deceived into serving the beast,
while thinking they are free.

I do not follow Twitter; I am following Jesus.

Hoorah for Capitalism

2009-06-17T20:13:00.001+12:00

The rich hate capitalism because it threatens to take away their money. The poor hate it because they think it keeps them from getting any money in the first place. And everywhere you look, the chiselers are offering bailouts, boondoggles and bamboozles. With so many people trying to improve on capitalism, it’s a wonder they’ve never come up with something better.

When you leave people alone: some people watch TV...some blabber about politics...and some build wealth. The rules are simple: Thou shalt not steal, it saith in the Bible. Do unto others as you would have them do unto you, Jesus added. Everything else - from hedge funds to derivatives - is merely an elaboration. People make deals with their neighbors in order to get what they want. One plants the wheat; the other bakes the bread. As long as they respect each other's deals and each other's property, everything goes tolerably well.

The western, capitalist economies are in the midst of their own perestroika. They are being restructured. But not by the world-improvers. Instead, they are being restructured by capitalism itself... Leave capitalism alone and it will do the job far faster and far better than the meddlers could ever do.

From Hoorah for Capitalism by Bill Bonner

Making Things Work

2009-06-11T07:36:00.003+12:00

..many governmental actions -- including several pursued by Franklin Roosevelt during the Great Depression -- can make things worse. I wish I could be confident that the array of U.S. policies already in place and those likely forthcoming will be helpful. But I think it more likely that the economy will eventually recover despite these policies, rather than because of them.

Wisdom from Robert Barro at the Wall Street Journal. Read the full article

Collective Prolifigacy

2009-06-04T18:39:00.003+12:00

This is a crisis brought on by our collective profligacy, which manifested itself in too much spending, too much debt and no savings. The normal way to get out of a situation like that is to spend less, reduce borrowing and save more. I’m wondering why we haven’t taken that approach – well, I know why, but I still question the response.

Julian Robertson quoted by Rolfe Winkler at Option Armageddon

Higher Interest Rates

2009-05-29T18:20:00.002+12:00

We know that interest rates are going to go up eventually. But no-one wants the cost of borrowing to go up right now - least of all the world's overextended governments. That's why the ructions in the US government bond market this week has people nervous.......

But the second lesson is more fundamental: we all have higher interest rates in our future. And when I say higher, I don't just mean higher than the record lows they are at today, I mean higher than they were before the crunch. An era of cheap money partly got us into this mess. Thanks to the mountain of public debt now sitting on government balance sheets, it's a fair bet that money is going to more expensive when we come out the other side....

The financial crisis has generated a "scrambling for public funds of war-like proportions". Other things equal, basic economic theory suggests that a rise in government borrowing on that scale will push up the long-term cost of borrowing once the recovery gets going. Of course, that might not happen overnight, especially with so much slack in the big economies due to the recession. But even sceptics about the effect of borrowing on rates would probably accept that this kind of rise in government debt will have an effect on the cost of debt....

When the advanced economies pull out of this crisis, the level of public debt is going to be the central fact of economic and political life for years to come.

Stephanie Flanders at BBC.

Inflation Rescue

2009-05-29T13:20:00.000+12:00

Liam Halligan wrote,

For what we're doing instead is surely a folly of historic proportions. The Bank of England is about to start printing money. We're piling government debt on top of debt. Our leaders seem to have decided that the only solution is to inflate away the UK's crippling liabilities – while spinning a yarn the danger is deflation instead.

Well, the money market won't have it. The UK's foreign creditors, in particular, won't buy gilts if they see our currency being debauched. Then we'll be in serious trouble – facing an IMF bail-out and with our credit rating shot. But don't worry – the bankers will still get their bonus …

End of Plentiful Debt

2009-05-20T20:26:00.003+12:00

There is confusion between the "disease" — high levels of debt — and the "cure" — the reduction of the level of debt now under way (deleveraging). Debt within the financial system is falling as some borrowers default, destroying existing debt and also limiting the capacity for further credit creation. Total losses from the crisis are estimated by the International Monetary Fund at about $US4.1 trillion ($A5.4 trillion), of which $US2.7 trillion will be borne by financial institutions.

Government ownership, or de facto nationalisation, has become the primary option to recapitalise the banking system in many countries. Even after recapitalisation there is likely to be a capital shortfall in the global banking system of about $US1 trillion-plus, forcing a contraction in global credit of about 20-30 per cent from existing levels. This is much more than a banking problem. At this point it affects the real economy.

Satyajit Das at The Age on End of the Age of Plentiful Debt.

Houses and Money

2009-05-19T19:49:00.000+12:00

Modern people live with an assumption that house prices will always rise. This is a false view. The intrinsic value of a house declines over time as it deteriorates and become old fashioned. What actually happens is the money loses its value over time, as central banks and governments manipulate their country’s currency. People confuse a decline in the value of money with an increase in the value of their houses. That latter is an illusion (unless captured by leverage).

Cover the Countryside with Concrete?

2009-05-16T20:19:00.000+12:00

The Japanese experience does not make Bill Bonner enthusistic about stimulus programs.

In this morning’s paper is a front-page article describing how Japan “wasted trillions” on its various stimulus programs.
Japan’s rural areas have been paved over and filled in with roads, dams, and other big infrastructure projects, the legacy of trillions of dollars spent to lift the economy from a severe downturn caused by the bursting of a real estate bubble in the late 1980s (The International Herald Tribune).
Public spending was so aggressive, it boosted Japan’s government debt to 180% of GDP – more than two times the current U.S. level. But did all that cement buy Japan out of its slump?

You be the judge. Housing prices in Japan are now back down to where they were in 1975 – nearly 90% below the late-’80s peak. And stocks? The Nikkei index is back down to where it was a quarter century ago. Stocks sell for half their book value – and they’re still considered too expensive for beaten-down, hyper-fearful Japanese investors. The downturn began in 1990. Over the following 19 years, it did more property damage than the Great Tokyo Fire of ’23 and the Enola Gay combined, wiping out wealth equal to three times the country’s GDP. This was despite interest rates at zero...and a heroic effort at Keynesian stimulation.

If America were to follow Japan’s example, it would have to leave its interest rates near zero for the next decade...and add about $10 TRILLION to its public debt. And if it got the same results, you’ll be able to sell your house in 2026 for the same price you paid in 1992.
In a nutshell,Japan’s experience suggests that infrastructure spending, while a blunt instrument, can help revive a developed economy, say many economists (The International Herald Tribune).
Are these, perhaps, the same economists who thought America’s super-consumption, eternal-debt economy would never fail? The same economists who thought the bankers were providing a public service, by offering so many people so much credit...and then planting their debt bombs all over the planet? The same economists who forecast rising stock prices in 2008?

Capital

2009-05-15T07:48:00.002+12:00

The French word for livestock, “cheptel,” is the root for the word “capital.” This reminds us of the nature of capital. The first capital was livestock. Keeping livestock is more productive than hunting and gathering.

Crowding Out

2009-05-11T19:33:00.002+12:00

What the Federal Reserve and Treasury have set in motion is the mother of all crowdings-out. The Fed is compelled to buy substantial amounts of Treasuries to prevent the federal deficit from turning into a $1.8 trillion black hole that sucks in all the free savings of the world and then some. The moment that yields start to rise, the stock market reacts negatively. There is no “give” in the economy for any substantial rise in yields: the penalty to growth expectations is exacted immediately.

By ballooning the deficit and tying the credit of the United States to the balance sheet of the banking system, the Fed has avoided panic, but has crippled the economy for the long term. There is no way to finance the deficit except by suppressing financing for everyone else. The massive amount of liquidity created by the Fed has no inflationary effect as long as the market does not want to hold real assets — and it will not as long as the federal government sucks up the available savings. The most likely scenario is a paralytic, zombie-like stasis.

From Seeking Alpha.

Fractional Reserve Lending

2009-05-07T19:36:00.001+12:00

Fractional Reserve Lending (FRL) is fraudulent. Indeed, FRL in conjunction with micro-mismanagement of interest rates by the Fed is the root cause of the financial crisis we are in.

Mish Shedlock at Global Economic Analysis. This is really worth reading.

Caring for Property

2009-05-04T18:05:00.002+12:00

Perhaps the most important proposition in the economics of property rights is that people will not care for a resource they do not own as well as they will care for a resource they do own. It is amazing how much fashionable economic belief — for example, nearly everything ever advanced in support of socialism, as well as the bulk of what passes for environmentalist policy proposals — fails to take adequate account of this virtually axiomatic proposition.

But don’t take my word for it — or even the word of any of my illustrious former collegues at the University of Washington. Take the word of Jesus of Nazareth.

In the tenth chapter of the Gospel According to John, Jesus is trying to make a point, but his listeners are not getting it, so he finally gives them a parable he can be sure they will understand (verses 11-13):
The good shepherd lays down his life for the sheep. The hired hand, who is not the shepherd and does not own the sheep, sees the wolf coming and leaves the sheep and runs away — and the wolf snatches them and scatters them. The hired hand runs away because a hired hand does not care for the sheep. I am the good shepherd. I know my own and my own know me.
Hired hands must be monitored closely if the owner is to prevent them from diminishing or destroying the value of the capital he has provided for them to work with.

Robert Higgs at the Independent.

Participatory Facism

2009-04-30T19:41:00.001+12:00

Economist Robert Higgs has convincingly argued that the real tendency is not toward pure socialism, but toward a mixed economy and corporate liberalism. This means a corporate state where big business, special interests and the governing elite together rule over an economy of heavily regulated and politically connected crony capitalism. The public also tends to be included in a semi-democratic fashion -- unlike in outright totalitarian regimes of the past, there is wide enfranchisement and encouragement that the people engage in the system.

There is just enough of an opening for business and just enough of an illusion of public involvement that neither economic law nor public opinion will cause the government to fold over, despite its many tyrannical vagaries and encroachments on the liberties of the people. Higgs calls this system "participatory fascism" -- the economics of corporatist central planning coupled with a democratic form of government -- and says it is the dominating tendency in the modern developed world.

Discussion of fascism, like socialism, is often dismissed as hyperbolic, but the fundamental features of fascist central planning can be seen in our economic system. Politically protected big business, cartels, nominal private property rights, a welfare state and socialized risk -- crony capitalism and social interventionism -- mark both systems.

From The Mixed Economy in Crisis by Anthony Gregory at Campaign for Liberty.

Derivatives and Risk

2009-04-27T14:18:00.000+12:00

Martin Wolf - whom finance ministers and leading economists read in order to find out what to think - had a nice turn of phrase. Derivatives, he said, did not - as advertised - transfer the risk to those people most able to manage it. "They transferred the risk to those least able to understand it."

But when Wall Street's vaults were open, what did they find? They hadn't transferred it at all! So much risk was left in the hands of the people who created it that - when it blew up - it flattened the entire investment banking industry.

Bill Bonner at the Daily Reckoning.

Hoarding is not Saving

2009-04-24T14:03:00.000+12:00

To the extent that "hoarding" or, more accurately, an increase in the demand for money for cash holding takes place, it is not because people have decided to save. What is actually going on is that business firms and investors have decided that they need to change the composition of their already accumulated savings in favor of holding more cash and less of other assets.

For example, an individual may decide that instead of being 90 percent invested in stocks and other securities and having only 10 percent of his savings in cash in his checking account, he needs to increase his cash holding to 20 or 25 percent of his savings.

Similarly, a corporation may decide that it needs to increase its cash holding relative to its other assets in order to be better able to meet its bills coming due. Indeed, this is happening right now as more and more firms find that they can no longer count on being able to borrow money for such purposes.

George Reisman

Naivety

2009-04-21T13:48:00.000+12:00

The 1929 crash exposed the naivety and ignorance of bankers, businessmen, Wall Street experts and academic economists high and low; it showed they did not understand the system they had been so confidently manipulating. They had tried to substitute their own well-meaning policies for what Adam Smith called ‘the invisible hand’ of the market and they had wrought disaster. Far from demonstrating, as Keynes and his school later argued—at the time Keynes failed to predict either the crash or the extent and duration of the Depression—the dangers of a self regulating economy, the degringolade indicated the opposite: the risks of ill-informed meddling.

Paul Johnson in Modern Times. I doubt that the G20 has done any better.

Search for Profit

2009-04-16T14:17:00.000+12:00

The search for profit and the avoidance of loss is the essence of the capitalist process. In a market economy, individuals and firms have incentives to discover products and services that consumers want and then produce them at the lowest cost. Profits become a signal of success and a reward for serving consumers efficiently. Contrariwise, when losses appear, they signal failure and inflict a penalty on firms for producing poor products or having bloated costs of production.

Dom Armentano (Professor Emeritus at the University of Hartford CT) on Bailout Baloney

Morality and Force

2009-04-13T13:09:00.001+12:00

Do you not see, first, that — as a mental abstract — physical force is directly opposed to morality; and, secondly, that it practically drives out of existence the moral forces? How can an act done under compulsion have any moral element in it, seeing that what is moral is the free act of an intelligent being? If you tie a man's hands there is nothing moral about his not committing murder. Such an abstaining from murder is a mechanical act; and just the same in kind, though less in degree, are the acts which men are compelled to do under penalties imposed upon them by their fellow men. Those who would drive their fellow men into the performance of any good actions do not see that the very elements of morality — the free act following on the free choice — are as much absent in those upon whom they practice their legislation as in a flock of sheep penned in by hurdles.

Auberon Herbert quoted at Christian Libertarianism.

Facism Not Socialism

2009-04-03T14:25:00.003+13:00

Truth is, socialism is not the wave of the future. Indeed, it is already almost as dead as the dodo. Hardly anybody in a position of political power or influence now wants to establish socialism along the lines of the Soviets or the Maoists. Everyone knows that doing so is a one-way ticket to widespread poverty, which leaves precious little surplus for the political kingpins to rip off.

No, the world is converging ever more visibly, not toward socialism, but toward what I (following Charlotte Twight’s usage) have for many years been calling participatory fascism. The hallmarks of this system are, on the political side, the trappings of democracy (parties, elections, procedural niceties, etc.), and, on the economic side, the form of private property rights (though not much of the substance that characterizes the real thing).

The beauty of this system is that the political system can easily be corrupted so that the power elite retains a firm hold on the state, despite the appearance that they rule only with the consent of the governed. The major political parties appear to compete, but for the most part they coalesce and conspire; on the basics, they are in complete agreement. The apparent “consent” they enjoy they actually manufacture by their control of the mass media, the schools and universities, and other key institutions, and no political opinion outside the 40-yard lines ever receives a hearing in serious political circles.

And while the ruling establishment retains an iron grip on state power, it allows entrepreneurs just enough room for maneuver so that innovators can continue to produce the new products, new methods of production, new raw materials, and new organizational forms that move the economy forward.

The most enterprising entrepreneurs can still get rich, although even they will see a large chunk of the fruits of their labors ripped away by the state. Productivity will increase sufficiently to keep a growing supply of creature comforts and amusements flowing to the masses, who are content with these things, along with the illusion of security that state functionaries induce in the people....

How do you think we got into our present situation, anyhow? It’s not as though the masses were repeatedly given what they didn’t want. They had plenty of opportunities to say no to dependency on the state, but they turned away; and they do not intend to go back any time soon to what they imagine to be an unbearably harsh style of life. Rugged individualism might have been okay for their great-grandparents, but they want no part of it.

All of which leaves us—by which I mean nearly everybody on earth—converging on the only form of politico-economic system that has a stable equilibrium in our present ideological circumstances: participatory fascism. I am not saying that this system is the only one possible, forever and ever, amen. I am saying, however, that until the world’s people abandon en masse the collectivist ideologies that now determine their social cognition, policy evaluation, political practices, and personal identities, any hope for moving to a freer form of economic order as a stable equilibrium is virtually nil.

Robert Higgs says We are Not All Socialists Now.

Anger at Wall Street

2009-03-31T13:31:00.000+13:00

The Wall street traders who were doing this stuff for constant profits on a day to day basis were on a Sherman’s March through these companies, financed by our 401(k)s, and all their incentives were for short-term profits. They burnt down the house with our money and walked away as rich as hell.

Jon Stewart made this statement during his interview of Jim Cramer. The interview has created a great deal of debate. I do not take either man seriously, because they are both more interested in their performance than the truth. My only comment is that the statement quoted above sums up the anger that many Americans are currently feeling.

Participatory Fascism

2009-03-28T18:45:00.003+13:00

Economist Robert Higgs has convincingly argued that the real tendency is not toward pure socialism, but toward a mixed economy and corporate liberalism. This means a corporate state where big business, special interests and the governing elite together rule over an economy of heavily regulated and politically connected crony capitalism. The public also tends to be included in a semi-democratic fashion -- unlike in outright totalitarian regimes of the past, there is wide enfranchisement and encouragement that the people engage in the system.

There is just enough of an opening for business and just enough of an illusion of public involvement that neither economic law nor public opinion will cause the government to fold over, despite its many tyrannical vagaries and encroachments on the liberties of the people. Higgs calls this system "participatory fascism" -- the economics of corporatist central planning coupled with a democratic form of government -- and says it is the dominating tendency in the modern developed world.

Discussion of fascism, like socialism, is often dismissed as hyperbolic, but the fundamental features of fascist central planning can be seen in our economic system. Politically protected big business, cartels, nominal private property rights, a welfare state and socialized risk -- crony capitalism and social interventionism -- mark both systems.

From The Mixed Economy in Crisis Anthony by Gregory at Campaign for Liberty.

They Understood the Danger

2009-03-26T16:19:00.000+13:00

During 2004-07 I saw the financial industry stacking up the powder kegs that would eventually blow up. I tried on occasion to warn people. But my warnings fell on deaf ears at Lehman and elsewhere, but not for the reasons you might think.

I recall numerous conversations with senior people at various global financial firms on topics ranging from Fed policy, to the US/UK housing markets, securitisation and its potential pitfalls, the CDS tangle, and so on. One thing that is clear to me is that key people at these firms were aware for the most part what risks they were taking. They knew that it was all going to blow up someday, if not so spectacularly as it now has done. But they all believed that somehow they would be quicker and cleverer than rival firms, that they would effectively hedge themselves and they would get out first, before things got really ugly. As you well know, that sort of collective "greater fool theory" mindset is characteristic of bubbles and, if widely held, almost ensures that liquidity will dry up suddenly as markets turn for the worse.

Believe me, they knew they were playing with fire to a much greater extent than is currently acknowledged.

These words were written by a correspondent with Bill Bonner at the Daily Reckoning. The wide boys new that they were playing with fire, but they did not put the petrol away, because the money was too good. They thought that they would be clever enough to get out before it all blew up in their faces. Well they weren't and now the taxpayers are bailing them out.

Subprime Primer

2009-03-24T13:47:00.002+13:00

Subprime primer.

Debt and GDP.

2009-03-22T13:50:00.001+13:00

Economic growth is a function of population growth plus improving productivity.

GDP is simply a nation’s output: it must grow if the increasing population is to be fed, and because we are an endlessly inventive and curious species, stuff gets invented all the time and new ways of doing things are found. New technology constantly improves productivity, which means the same number of people can produce more stuff by doing less.

The only problem that occurred over the past ten years – the only one in my view – is that debt grew faster than economic growth.

That is, the present generation borrowed excessively from the future to pay for a better life today. It’s now payback time.

Alan Kohler at the Business Spectator.

Whos Afraid of the Big Bad Wolf

2009-03-21T13:41:00.000+13:00

Though there are indeed militant forms of Islam that have a wide following, terrorists number only a handful; and these have by now been largely contained. In the years since 9/11,
Al Qaeda Central — the group led by Osama bin Laden and Ayman Zawahiri — has been unable to launch a major attack anywhere. It was a terrorist organization; it has become a communications company, producing the occasional videotape rather than actual terrorism. (p. 13)
Nowadays, terrorist Muslim groups are confined to the local, with "almost no connection to Al Qaeda Central." The local terrorism of these groups cannot succeed.
[It has] a crippling weakness; it kills locals, thus alienating ordinary Muslims…. Over the last six years [i.e., through 2007], support for bin Laden has fallen steadily throughout the Muslim world. (p. 13)

David Gordon reviewing The Post-American World by Fareed Zakaria.

State Murder

2009-03-20T14:00:00.000+13:00

R.J. Rummel of the University of Hawaii calculates that in the twentieth century alone, governments murdered about 162,000,000 million of their own subjects. This figure doesn’t include the tens of millions of foreigners they killed in war.

Cause of the Crisis

2009-03-19T14:28:00.000+13:00

The current crisis stems from changes that have been quietly taking root in the west for many years. Half a century ago, banking appeared to be a relatively simple craft. When commercial banks extended loans, they typically kept those on their own books – and they used rudimentary calculations (combined with knowledge of their customers) when deciding whether to lend or not.

From the 1970s onwards, however, two revolutions occurred: banks started to sell their credit risk on to third-party investors in the blossoming capital markets; and they adopted complex computer-based systems for measuring credit risk that were often imported from the hard sciences – and designed by statistical “geeks” such as Mr den Braber at RBS.

Until the summer of 2007, most investors, bankers and policymakers assumed that those revolutions represented real “progress” that was beneficial for the economy as a whole.

Regulators were delighted that banks were shedding credit exposures.....

Bankers were even more thrilled, because when they repackaged loans for sale to outside investors, they garnered fees at almost every stage of the “slicing and dicing” chain.

Moreover, when banks shed credit risk, regulators permitted them to make more loans – enabling more credit to be pumped into the economy, creating even more bank fees.......

When a team at JPMorgan developed credit derivatives in the late 1990s, a favourite buzzword in their market literature was that these derivatives would promote “market completion” – or more perfect free markets. In reality, many of the new products were so specialised that they were never traded in “free” markets at all.

The result was that a set of innovations that were supposed to create freer markets actually produced an opaque world in which risk was being concentrated – and in ways almost nobody understood. By 2006, it could “take a whole weekend” for computers to perform the calculations needed to assess the risks of complex CDOs, admit officials at Standard & Poor’s rating agency.

Most investors were happy to buy products such as CDOs because they trusted the value of credit ratings. ....

In July 2007, this blind faith started to crack....

Gillian Tett in the Business Spectator.

Post War Rationalisations

2009-03-17T14:15:00.000+13:00

Each country, each national group, each political party fashioned its own version of the war and , as time went on, burnished remembrance and amnesia into self-serving myth. For some peoples, such as Serbs and Jews, a narrative of victimhood was a potion that came to serve as justification for resurgent nationalism. For the British, the lone struggle of 1940-1, the heroism of the few in the Battle of Britain and the many in the Blitz, reinvigorated national self-consciousness. For the French, the petty day-to-day accommodations that most had made with the occupier were overshadowed by the legend of resistance, that the Vichy regime had been made in France and supported, at least, initially, by the great majority of the French people.

For Germans the chief components of wartime memory were the agonies of the eastern front, the terror of Allied carpet-bombing of German cities, and the flight of civilian population from the path of the Russian army in East Prussia and elsewhere in the east…. From 1947 onwards the Cold War rendered the earlier struggle of the German army against Bolshevism somehow respectable. Military service on the eastern fron became a virtual badge of honour with all responsibility for the attendant atrocities against prisoners of war and civilians shunted onto the shoulders of the disbanded police state apparatus….For many Germans the terrible losses from Allied bombings of German cities somehow canceled out the crimes committed by the Nazis.

From Barbarism & Civilization: A History of Europe in Our Time by Bernard Wasserstein

Barbarism and Civilisation

2009-03-16T14:09:00.000+13:00

During the past century Europe was the scene of some of the most savage episodes of collective violence in the recorded history of the human species. Yet the same period has also seen incontestable improvements in many aspects of the life of most inhabitants of the continent: human life has been extended, on average, by more than half; standards of living have increased dramatically; illiteracy has been all but eliminated; women, ethnic minorities, and homosexuals have advanced closer to equality of respect and opportunity.
---------------
The root of European disorder in 1914 was not…class, but ethnicity. Solidarities and antagonisms based on ethnicity, for reasons that lie buried in human hearts, answer to some of the most deeply rooted and instinctive social feelings of our species. European history in our time shows how futile it is to ignore them.

From Barbarism & Civilization: A History of Europe in Our Time by Bernard Wasserstein