Posted on 10/14/2008 12:55:09 PM PDT by Freedom_Is_Not_Free
It has been a long long long time since the S&P 500 corrected to its historic low of a P/E of around 7, and at a level of about 12 we are still some long distance from that. We have had years and years of folks thinking that 14, which used to be the high end of the historical trading range was a new minimum and a safe place to buy.
The Pauleans (the "Austrian School" would be more precise) understand completely why the current fed wants to pump money to fight deflation. They just disagree with the prediction of the outcome.
They believe that pumping money back into the system at this point in the cycle - rather than simply fixing the deflation and putting us back on an even footing - actually extends the required clearing of the boom malinvestments and potentially restarts the next boom cycle, which will lead to another bust and still more pain.
The central difference, I think, is that the Austrians would prefer a free-market system devoid of the boom / bust cycle that they believe is completely a creature of the current banking system.
Now I'm not an economist or a banker, just an open minded thinker, and my self education on this subject leads me to believe that the boom / bust business cycle theory of the Austrian school makes a heck of a lot of sense.
Their explanation is that when the central bank over floods the money supply via the banking system this artificially lowers interest rates causing poor decision making on the part of both borrowers and lenders, leading to an amplification and overcooking of whatever is the "hot market" of the time (i.e. dot.com, housing etc...).
Assuming this is correct (a big assumption with you, I know), what I don't understand is why anyone would want to continue with the current system which produces these painful boom / bust cycles?
My loathing for investing is not a technical one, it is emotional and spiritual. I hate money. I hate all the greed and violence and fraud and egotism that surrounds it. I hate the competition for it. I hate
Long ago I got a nice modest job and made the conscious decision I was never going to worry about money. That involves two crucials components. The most crucial is that you have enough money for sustenance and security. If you have that, then you aren't constantly wondering if you will come up short and suffer materially or socially.
The second component is a conscious choice not to want money and not to be a slave to it and not to let it dictate my decisions and not to second guess myself when it is gone or to defer living a life until retirement so as to hoard money. It is an emotional and spiritual one. It is a conscious decision to be happy with what I have rather than try to have what might make me happy.
To that end I've never had "enough" money. To that end, I've always had more money than I need and have always been a relatively happy person. I'm not the type to drag a coupon book every where I go, or only shop sales, or deny myself what I REALLY REALLY want just becuase the price tag is higher than I think it should be.
That has worked generally great and been completely fine until recently when I decided I would like to live where I really want to live and to travel more. Frankly I wouldn't mind some more money and to an extend, money is freedom. Hence my desire to learn how to be a better investor.
My basic attitude hasn't changed. I still hate money and what people will do for it and what it makes them become. Money can be a weapon. Who doesn't know some real dirtbag with money who brags about it constantly. He has no superior qualities but hides behind a bankroll. People with no money will kill for it. People with extreme money lose sleep at night worrying about the people who want to kill him for it. Would Howard Hughs go insane without money? I just don't know
Now you know where I'm coming from. I love freedom but I'm no capitalist. I hate greed and the pursuit of money and what people will do for it and what it turns them in to. A pretty wise man once said, "What profits a man if he gains the world but loses his soul". That is what I'm talking about. Money is temptation and the more of it the more tempting.
Freedom is great. Security is great. But he who said, "money is the root of all evil", and who said, "It is hard for a rich man to enter the kingdom of heaven. Again I tell you, it is easier for a camel to go through the eye of a needle than for a rich man to enter the kingdom of God"
That is why I've always hated investing. I would like to be independently wealthy so I could just drop out and say "the hell with all y'all" and disappear. But at the same time, I know how insidious money and for that reason, I hate it and hate investing. Money, charity, can do great thing and help many. But it usually ends up just being a cancer in anybody who worships it.
That's what I meant when I said, I hate investing. NOw, I'm sure you are sorry you asked. LOL.
Do you think Bazooka Paul and Chopper Ben are through? I think they are just beginning. Chopper Ben made it crystal clear that he would borrom from the Chinese to add more choppers to his fleet to drop money from the sky if it comes down to it.
They will print and print some more until it becomes obvious the plan has failed and all is collapsing. So long as they think it has any chance to work, they will print and print.
This will cause them to print too long and that is where I am inclined to think Travis McGee may be close to the mark. First a deflationary deep recession/mild depression followed by 20% inflation.
FWIW, there is one person I found who seems to also agree with Travis McGee. That’s Karl Denninger.
You may think Ben & Paulson are done, but they are just getting warmed up.
Spare us the pontificating. You slipped and let your cat out of the bag, and I caught it for future ref.
"I'd like to see mainstreet try to live for 6 months without financiers directing their activities. They be reduced to shooting each other over the last can of campbells." posted on Saturday, October 04, 2008 3:38:33 PM by JasonC
Thanks Jason, but I'd just as soon NOT have your lovely financiers directing my activities.
Especially considering the absolute bloody aborted mess they have made of the financial system.
Simple. There are many megafortunes to be made on the way up, and when the big bust ups occur after a few generations, the new masters of the universe always convince themselves that "it's different this time."
For sure, they are selecting the second option below. They just don't know it, believing that, "It's different this time."
"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."
-~~Ludwig Von Mises
Paulson and Bernanke's delusion is nothing new.
"If recession should threaten serious consequences for business (as is not indicated at present) there is little doubt that the Federal Reserve System would take steps to ease the money market, and so check the movement."
~~Harvard Economic Society, October 19, 1929
"Business will turn for the better this month or next, recovering vigorously in the third quarter and end the year substantially above normal."
~~Harvard Economic Society, May 17, 1930
(Note: Bernanke's great reputation is as an Ivy League economic expert, just like the editors of the old Harvard Economic Society.)
I’m starting to see the light.
THe most dangerous words in economics are, "It's different this time."
"The crisis of the abuses of banking is arrived. The banks have pronounced their own sentence of death. Between two and three hundred millions of dollars of their promissory notes are in the hands of the people, for solid produce and property sold, and they formally declare they will not pay them. This is an act of bankruptcy, of course, and will be so pronounced by any court before which it shall be brought. But cui bono? The laws can only uncover their insolvency, by opening to its suitors their empty vaults. Thus by the dupery of our citizens, and tame acquiescence of our legislators, the nation is plundered of two or three hundred millions of dollars, treble the amount of debt contracted in the Revolutionary war, and which, instead of redeeming our liberty, has been expended on sumptuous houses, carriages, and dinners. A fearful tax! if equalized on all; but overwhelming and convulsive by its partial fall. Everything predicted by the enemies of banks, in the beginning, is now coming to pass. We are to be ruined now by the deluge of bank paper, as we were formerly by the old Continental paper. It is cruel that such revolutions in private fortunes should be at the mercy of avaricious adventurers, who, instead of employing their capital, if any they have, in manufactures, commerce, and other useful pursuits, make it an instrument to burthen all the interchanges of property with their swindling profits, profits which are the price of no useful industry of theirs. Prudent men must be on their guard in this game of Robin's alive, and take care that the spark does not extinguish in their hands. I am an enemy to all banks discounting bills or notes for anything but coin. But our whole country is so fascinated by this Jack-lantern wealth, that they will not stop short of its total and fatal explosion."
~~Thomas Jefferson to Dr. Thomas Cooper, 1814
Hey “Freedom”, would you add me to your ping list?
You can put me in JasonC’s place. ;-)
I’ve never read that quote and it is a good one. Indeed, nothing ever changes and it isn’t different this time. History repeats. But many people fool themselves into believing it is different this time. Then again, most people I know are CLUELESS about history. Absolutely CLUELESS.
They can’t tell you what is different because they have no clue what happened back then. Worse still, THEY HAVE NO CLUE WHAT’S HAPPENING NOW!
Sure. You are on the list. This is just my posts, though.
The real money ping list is by rabscuttle385. Just so you know.
It is purely a point about the scale of the positive externalities we all derive from having a functional financial system, distinct from barter exchange of real goods. When that system is itself in danger, a common good bigger than your petty jealousy is at stake. And your petulance in the matter doesn't deserve the time of day. You simply won't accept a fact of reality as basic as gravity, because you find it humilitating or something. Tough toenails. Your backside also stinks, whether you find it humilitating or not.
This one was from Jason's "Nannie Nannie, I Told You SO!" vanity thread last week. He was getting pummeled over his support of the Infinite Bailout, and let his slip show.
"I'd like to see mainstreet try to live for 6 months without financiers directing their activities. They be reduced to shooting each other over the last can of campbells."
5 posted on Saturday, October 04, 2008 3:38:33 PM by JasonC
Gee, I posted the above before reading your latest burst of intellectual firepower. Thanks JC, I’ll be sure and copy this example of your amazing ego, and patronization of the poor peons who could not survive without your force of brain power. It will be useful to remind the newbies of what a pompous a$$ you are.
Huh? 'Scuse me? This makes udderly no sense. Are you intoxicated or sleepy?
The men around you preserve their civilization only because they can reliably supply themselves at every local store while earning from others who have nothing to do with those they need things from. That system of intermediation depends on the monetary system, and without said system it would collapse. You don't have to like this for it to be true.
Yes, water is wet and the sky is blue. Are you trying to make some profound point? Try harder.
And whether you acknowledge it or not, that means those whose risk taking and investment sets the rates of exchange between your separated inputs to others and what you draw from them, are directing your activities and those of the men supplying you your needs. They are not doing so capriciously and they don't always do so successfully. But if no one did it, you and your neighbors would be hostile foreigners to each other in less than a year.
What blather. It's very tedious listening to a pompous a$$ trying to make Econ 101 sound like rare and treasured wisdom, unknown to the plebes.
It is purely a point about the scale of the positive externalities we all derive from having a functional financial system, distinct from barter exchange of real goods. When that system is itself in danger, a common good bigger than your petty jealousy is at stake. And your petulance in the matter doesn't deserve the time of day. You simply won't accept a fact of reality as basic as gravity, because you find it humilitating or something. Tough toenails. Your backside also stinks, whether you find it humilitating or not.
Can you try to make a point? Try to introduce some knew information or knowledge? The entire above post reveals you to be a complete poser.
Reminds me of the cartoon with some of the rich with a meat grinder and lots of funnels leading to the eye of a needle. I don't like money either. I made enough on one house to pay off both of my houses in 2003. I thought house prices were ridiculous then and I spared no expense or effort even after I sold it (worked like a dog the week before closing fixing the last few problems). I ended up buying yet another house on the river that I really like so now I am back in debt. I sold the paid-off house back to the guy I bought it from and he essentially defaulted. I w.rote off the lien (175k or so) for a handshake. He still owes me a favor or two but his business is essentially dead.
I really don't want to speculate in gold, holding stocks for two days or anything else like that. For one thing it's a big waste of my time when I have more important things to do. But I also need to invest in my future like planting fruit trees (time and money). I need some cushion if the economy goes south and I don't have a big one right now.
The problem, as usual, is credit bubbles (in this case Greenspan's bubble). The credit bubble, credit deflation and (current) monetary inflation to fight credit deflation are what ruins money. Credit also ruins the appreciation of and ultimately the goodness of money. I work hard to get my money, but the credit bubble means big money goes to a bunch of deadbeats and outright jerks. The almost-but-not-quite-jerks are the hedge funds that take $1m and borrow $9m to buy some assets that are appreciating because of the credit bubble itself. They sell the $10m in assets for $11 million, then pay off the $9m and keep $2m for 100% gain.
Then they get greedy and turn into jerks with even more leverage that destroy the financial system. The banks pretend that they didn't really know they were lending to jerks and even pretend the jerks who are long gone will pay them back. Then Paulson says the banks must be saved to loan to Main St. What a joke! Main St knows the real deal and they start to hate jerks with money and eventually just hate money.
Sound (and likable) money stores value that you earned with your labor and innovation. It thus represents the meaning and purpose of your life as a reflection of your intellect and productivity. This applies whether you are white or blue collar. Sound credit is what you extend to someone who is innovative and works hard so they can reward you later with their productivity. Central bank credit begins to destroy the soundness of credit and is not easily noticed and even cheered by the credit bubble shills. Unsound credit inevitably leads to painful contraction, or in our case since we can't stomach the pain, the destruction of sound money.
Mises was not the only one to make such a recommendation based on his belief that it caused the cycle. Henry Simon also thought so, and derived the logical conclusion - that governments forbid all credit transactions, pretty much. Milton Friedman himself demolished those recommendations as not only utopian and unenforceable, but as destructive of economic freedom. The truth of the matter is you can't abolish the cycle without abolishing the freedom that is its true underlying cause. Freedom includes the freedom to screw up or it isn't freedom. Men are falliable and will avail themselves of that "option".
The cycle can't be abolished, but economic freedom can be assailed, capitalists and bankers can be besmirched with filth and blamed for merely not being infallible, and both can be used as excuses to undermine the economic freedoms that brought us our prosperity in the first place. And that is what Pauleans, and Simon, and Mises, would all do. In practice they provide support for populist attacks on capital and capitalists.
The one who was sound on the principle involved, though he was thinking of planning rather than finance, was Hayek. He states the principle accurately. It is unsound to give up economic freedoms seeking economic security, one, because you can't have economic security, full stop. And two, because it isn't worth having compared to economic freedom. We have to simply put up with the insecurity other men's economic freedom can and does cause, as part of the price of liberty, and of the prosperity that flows from that liberty.
And the Pauleans are not simply recommending tighter credit it booms, they are recommending tight credit now, in the smash, when demand for money is not constant but nearly infinite. That is a policy of consciously chosen deflation. It is not economically required - the original arguments Mises advanced for why it was required, were and remain unsound (based on a mistaken theory of capital, which conflated its historical cost with its value, and changes in the aggregate value of capital with savings out of income, only - neither is correct).
Even Mises knows that consciously chosen deflation is just as unsound and destructive (at least) as inflation, and that it does not restore ills cause by a preceding inflation. And sounder monetarists like Friedman know that the monetary policy mistake of deliberately letting the money supply shrink in a downturn, was precisely the error that deepened the great depression, and he opposed such policies vehemently.
The economic debate was entirely definitive, and the Paulean position lost it comprehensively. But every cycle they point to its mere continued existence and pretend they must be right because the cycle isn't gone. A socialist might just as easily pretend he must be right because there is still economic scarcity in the world. He merely alleges that enacting whatever he demands would get rid of something, that every sound economists knows would remain. Which is merely peddling snake oil to the ignorant.
Bernanke isn't a fool. Plenty of amateurs trying to second guess him, are.
There's a world of difference between money used for intermediation and credit used for speculative bubbles. All credit is not bad as I explained in my previous post. But credit extended for increasingly speculative purposes as we have seen in the last two decades is bad as we are now seeing the consequences.
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