2013 already saw violent unrest in some of the most stable countries in the world like Singapore and Sweden, all underpinned by absolute disgust for the status quo. Whether today or tomorrow, this year or next, there will be a reckoning. The system is far too broken to repair, it must be reset. It’s simply absurd to look at the situation objectively and presume this status quo can continue indefinitely... that this time is different… that we’re somehow special and immune to universal principles.
When newly elected Japanese Prime Minister Shinzo Abe promised new deficit spending and pedal-to-the-metal monetary inflation, the progressive Keynesians were excited. And indeed, debasing the yen seemed to work for a few months, with analysts saying US policymakers should follow Japan’s lead. Yet now Japan’s recovery seems to be collapsing, leading its Cabinet to approve yet another “stimulus” package. Does anyone else have a sense of deja vu?
There are plenty of valid criticisms of Bitcoin, and a clear and thoughtful expression of those criticisms can only help the marketplace improve free-market crypto currencies in the future. Yet the irrational, ramblings of a statist who clearly hasn’t taken two minutes to objectively analyze Bitcoin is of no use to anyone and a disgrace to a supposedly highbrow newspaper like the New York Times.
Every year, David Collum writes a detailed "Year in Review" synopsis full of keen perspective and plenty of wit. This year's is no exception. The 89-page tour-de-force is a must-read this holiday season for perspective on where we have been and where we are going. From Krugman to the abuse of civil liberties, from gold to muni bankruptices, and from Student debt bubble to Cyprus and beyond, Collum covers it all.
There are a thousand lessons to be learned from the Third Reich, from the evils of totalitarianism to the dangers of racial thinking. A key economic lesson is that, rather than curing the Great Depression, Hitler’s military Keynesianism on a massive scale left the German people starving and short of goods. It’s a lesson advocates of building tanks to make us rich, from John McCain to Paul Krugman (and now Shinzo Abe), would do well to learn.
Saying we need continuous financial bubbles to keep full employment is such a flawed conception of economics, it belongs on an island of misfit philosophies. Krugman’s incessant promotion of statism is doing more harm to the economy than good. As an opinion-molder, he is perpetuating the economic malaise of the last few years. More bubbles won’t help the recovery, just harm it more. In the middle of a grease fire, Krugman calls for more pig fat. And the rest of us are the ones left burnt.
"If secular stagnation concerns are relevant to our current economic situation, there are obviously profound policy implications... Some have suggested that a belief in secular stagnation implies the desirability of bubbles to support demand. This idea confuses prediction with recommendation. It is, of course, better to support demand by supporting productive investment or highly valued consumption than by artificially inflating bubbles. On the other hand, it is only rational to recognize that low interest rates raise asset values and drive investors to take greater risks, making bubbles more likely. So the risk of financial instability provides yet another reason why preempting structural stagnation is so profoundly important."
As a distant but interested observer of history and investment markets, Marc Faber is fascinated how major events that arose from longer-term trends are often explained by short-term causes.; and more often than not, bailouts (short-term fixes) create larger problems down the road, and that the authorities should use them only very rarely and with great caution. Faber sides with J.R. Hicks, who maintained that “really catastrophic depression” is likely to occur “when there is profound monetary instability — when the rot in the monetary system goes very deep”. Simply put, a financial crisis doesn’t happen accidentally, but follows after a prolonged period of excesses (expansionary monetary policies and/or fiscal policies leading to excessive credit growth and excessive speculation). The problem lies in timing the onset of the crisis.
The concept of the business cycle and its un-natural intervention-inspired boom-bust process is at the core of the following three minutes of dueling quotes from two of the most infamous public proponents of change (Ron Paul) - "Printing money is not an answer... Like all artificially-created bubbles, the boom... cannot last forever"; and the status quo (Paul Krugman) - "Cut interest rates a couple of percentage points, provide plenty of liquidity, and call me in the morning." You decide who "was" right, and who "will be" right again...
After studying and teaching Keynesian economics for 30 years, it is clear that the “sophisticated” Keynesians really do believe in magic and fairy dust. Lots of fairy dust. Austrians such as Mises and Rothbard have well understood what Keynesians do not: the structures of production within an economy are heterogeneous and can be distorted by government intervention through inflation and massive borrowing. Far from being creatures that can “save” an economy, the Debt Fairy and the Inflation Fairy are the architects of economic disaster. Despite Keynesian protestations that the U.S. and European governments are engaged in “austerity,” the twin fairies are active on both continents. The fairy dust they are sprinkling on the economy, however, is more akin to sprinkling ricin on humans. In the end, the good fairies turn into witches.
I know why someone who is so wrong can get so much media attention. My big question is why do so many "so-called" smart people actually believe him! We need a new, new media outlet, no?
A great many long refuted Keynesian shibboleths keep being resurrected in Krugman's fantasy-land, where economic laws are magically suspended, virtue becomes vice and bubbles and the expropriation of savers the best ways to grow the economy. According to Paul Krugman, saving is evil and savers should therefore be forcibly deprived of positive interest returns. This echoes the 'euthanasia of the rentier' demanded by Keynes, who is the most prominent source of the erroneous underconsumption theory Krugman is propagating. Similar to John Law and scores of inflationists since then, he believes that economic growth is driven by 'spending' and consumption. This is putting the cart before the horse. We don't deny that inflation and deficit spending can create a temporary illusory sense of prosperity by diverting scarce resources from wealth-generating toward wealth-consuming activities. It should however be obvious that this can only lead to severe long term economic problems. Finally it should be pointed out that the idea that economic laws are somehow 'different' in periods of economic contraction is a cop-out mainly designed to prevent people from asking an obvious question: if deficit spending and inflation are so great, why not always pursue them?
Here’s the crucial part of what Summers and Krugman are saying: this is not a temporary gig. This isn’t going to just “get better” on its own over time. This really is, as Mohamed El-Erian of PIMCO would call it, the New Normal. And if you’re Jeremy Grantham or anyone for whom a stock has meaning as a fractional ownership stake in a real-world company rather than as a casino chip that gives you “market exposure” … well, that’s really bad news... Just don’t kid yourself into thinking that your deep dive into the value fundamentals of some large-cap bank has any predictive value whatsoever for the bank’s stock price, or that a return to the happy days of yesteryear is just around the corner. It doesn’t and it’s not, and even if you’re making money you’re going to be miserable and ornery while you wait nostalgically for what you do and what you’re good at to matter again. Spoiler Alert: Godot never shows up.
A new opportunity to play "What's wrong with this picture" arose recently, with Larry Summers’ recent speech at the IMF and Paul Krugman’s follow-up blog. The two economists’ messages are slightly different, but combining them into one fictional character we shall call SK, their comments can be summed up "...essentially, we need to manufacture bubbles to achieve full employment equilibrium." With this new line of reasoning, SK have completely outdone themselves, but not in a good way. Think Jamie Dimon’s infamous “that’s why I’m richer than you” quip. Or, Bill Dudley’s memorable “but the price of iPads is falling” excuse for increases in basic living costs. Dimon and Dudley managed to encapsulate in single sentences much of what’s wrong with their institutions. Yet, they showed baffling ignorance of faults that are clear to the rest of us.
In 1997, the SE Asian Tigers all faced severe economic stresses, partially triggered by a primarily foreign capital-funded massive real estate bubble in Thailand. Today the EXACT same thing is happening as untempered foreign investment into Thailand’s real estate market has created not a “soaring” real estate market as economists always incorrectly explain them, but massive real estate market distortions better known as a bubble.