Friday, June 30, 2006
Thursday, June 29, 2006
As widely expected, the central bank's policy-setting Federal Open Market Committee voted unanimously to lift the benchmark federal funds rate target a quarter-percentage point to 5.25 percent, its highest since March 2001.
In a statement announcing its action, the Fed said moderating growth should help ease price pressures, even though it held out the possibility it could extend a two-year credit tightening campaign.
Notice the emphasis on economic growth as a source of inflation. What they don't talk about is the role that money creation has in bringing about inflation. You will not hear a US central banker allude to money supply growth as the cause of inflation, although this is the classical definition. Tally up some broad money supply measure using the available statistics (now that M3 is no longer reported by the Fed) and then tell me where inflation is heading.
We can focus on "price inflation" as measured by core CPI or we can look at money and credit creation to judge liquidity in the system. I'll watch the latter and I'll look to the analysis of those who are knowledgeable enough to relay that information in a way that I can understand. This essay by Dr. Marc Faber, incorporating the work of Doug Noland and others, is an example.
The stock and bond markets rallied today on what was reasoned to be good news. Here's how Reuters summed it up:
U.S. stock and government bond prices rose and the dollar tumbled as financial markets saw the statement as suggesting chances of another boost to borrowing costs in August as lower than traders had wagered before the meeting.
By late afternoon, the blue chip Dow Jones industrial average <.DJI> surged 217.24 points, or 1.98 percent, the biggest one day percentage gain in over a year.
Well, let's see what happens on Friday.
Wednesday, June 28, 2006
The focus on Russia comes at an interesting time. The upcoming G8 summit in St. Petersburg has been prefaced by verbal sparring between American and Russian leaders over the state of democracy in Russia. This week, former Russian prime minister Mikhail Kasyanov appealed to G8 nations to confront Russia on its drift from representative democracy.
Meanwhile, preparation for Rosneft's IPO has refocused attention on how the Russian oil company snatched its main asset, Yuganskneftgaz, from the wreckage of Yukos' tax battle with Russian authorities. From the Toronto Star:
In a filing to the U.K. Financial Services Authority released yesterday, Yukos said its Yuganskneftegaz unit had been "expropriated from Yukos by actions of the Russian state in proceedings which were contrary to Russian law ... and under unlawful proceedings, which would not be recognized or enforced by the English courts.''
"There is a serious risk that the offering of shares ... would constitute the offering for sale of criminal property," Yukos said
Rosneft has apparently outlined some of the concerns and risks surrounding its IPO in a prospectus filing, but some seasoned investors did not need the written warning before expressing disinterest. From a June 13 Reuters article:
Mark Mobius, a seasoned emerging markets fund manager who runs $30 billion of assets at Templeton, was sceptical of Rosneft's IPO and the valuation of more than $100 billion which some have given the company.
"I don't know what they're smoking," Mobius told Reuters. "Frankly, we're not interested at all. We just don't see any reason why we should be owning a company subject to legal disputes."
As articles in the Financial Times and The Independent have pointed out, suspicion over recent political and business dealings in Russia seem to point us back to the original phase of murky deals, in which Russia's first generation of oligarchs took control of highly prized assets following the Soviet Union's collapse.
Tuesday, June 27, 2006
Buffett's businesslike approach to all endeavors is well noted, and his ideas on philanthropy have shown no departure from this personality streak. He is probably one of the early proponents of the now fashionable view that charitable giving should be judged by indicators of effectiveness. There should concrete terms laid out for measuring the efficiency of charitable organizations and return on money donated.
In Roger Lowenstein's 1995 biography, Buffett: The Making of an American Capitalist, the author concluded that Buffett's charitable interests were "aimed at alleviating or preventing future sources of grief, such as a future war or a future oversupply of people" (Buffett was long concerned with problems arising out of overpopulation). Does Buffett's backing of the Gates Foundation signal his interest in spending resources to curb current suffering?
RWE AG, the large German utility, thought that the water delivery business would be a natural complement to its electricity, gas, and waste disposal services. Now RWE plans to exit the US market as protests against its ownership of a California town's water system serves as a template for widespread outcry over corporate water buyouts.
Companies like RWE have found that regulation is never predictable. The Journal reports that RWE found itself fighting in town referendums and state legislatures across the country. The company is planning to divest its American Water subsidiary in an IPO. Similar plans are in place for the Thames Water unit, which it bought in 2000.
Suez and RWE have had to pull out of markets across the globe as problems arose. Complaints and protests over bad service, health concerns, and pricing policies have increased. Privatizations progressed at a slower rate than once thought and higher-than-expected operating costs have reduced companies' returns.
Monday, June 26, 2006
The first article I read about the survey mentioned that cost of living in two Brazilian cities, Sao Paulo and Rio de Janiero, had risen sharply (according to their jump in the survey rankings). I wondered if this was due to the Brazilian currency's recent strength against the dollar or some type of goods shortage. Mercer's press release put it down to the following factors:
Sao Paulo and Rio de Janeiro are the most expensive cities in Latin America moving up from 119th and 124th positions to 34th and 40th place respectively. These movements are due to the strong appreciation of the Brazilian Real against the US dollar (more than 20 %), which has occurred as a result of solid economic growth and increased foreign investment over the last two years, together with reduced public debt and high interest rates. In particular, the cost of international-standard accommodation has risen significantly in these cities.
The relationship between the US dollar and foreign currencies played a major role in moving cities up or down in the rankings. A strengthening currency and high accommodation costs for expatriate workers seem to be the most visible factors in moving cities up the expense pole.
Both seemed to have played a role in Moscow's rise to the top spot, as the St. Petersburg Times reports that the ruble has gained 6.5 percent against the US dollar this year.
Sunday, June 25, 2006
Saturday, June 24, 2006
Last week on the Financial Sense Newshour (June 17th 3rd hour segment), Jim Puplava and John Loeffler played back an on air debate between Peter and Diane Swonk of Mesirow Financial that centered on the basic definition of inflation and how it comes about. Jim and John then paused the playback at points to discuss and respond to the counterarguments and sophistry put forth by "economist" Swonk.
To say that Peter's debate opponent lacked knowledge of the true nature of inflation would be putting it mildly. Video file of the June 13 CNBC Squawk Box debate. Squawk being the operative word here.
Swonk's willful ignorance and the arrogance that inevitably accompanies it are on full display here. Sadly, this type of attitude is prevalent throughout the 24-hour media spectrum, and this is what passes for news and "insightful commentary" these days.
There is no shame in not having an understanding of a certain issue or topic. None of us can ever know all there is to know in the world or even a small fraction of it. The proper thing is to get the best possible understanding of an area of interest before passing one's self off as an expert.
If anyone reading this entry would like a more classic understanding of inflation, please see Jim Puplava's excellent 2 part article series, "The Great Inflation". I highly recommend Jim's writing and commentary as an introduction to some of the more complex, and often misunderstood, economic and financial issues.
Friday, June 23, 2006
U.S. Treasury Secretary John Snow on Friday defended a secret program for monitoring financial transactions, calling it "government at its best" and a valuable aid for fighting terrorism.
For nearly five years since the Sept. 11 2001 terror attacks, Treasury has been tapping into records of the Society for Worldwide Interbank Financial Telecommunications (SWIFT) for evidence of potential activity by terror groups.
Despite Treasury's efforts to keep it quiet, the New York Times laid the program out in detail on Friday, forcing Treasury to confirm it while complaining about the revelation.
"As part of our efforts to track the funds of terrorists, we are confirming that we have subpoenaed records on terrorist-related transactions from SWIFT," Treasury Under Secretary Stuart Levey told a hastily called news conference.
I get the feeling that I am not the only one who enjoys the "government at its best" assertion.
All the usual justifications for these surveillance/spying programs have been trotted out. It is an "effective tool" in combatting the social ill or crime in question (international terrorism), it will be tightly focused on targeting only the individual bad guys, it will serve justice, polling shows that the American public supports this policy, etc.
Oh and here's one more point attributed to Snow (I believe at this point in the article they're referring to Tony Snow, White House spokesman):
Snow said the program was "entirely consistent" with efforts to strengthen government activities and to protect America from potential attacks by terror groups.
I would agree with that. It seems entirely consistent with the nature of PATRIOT Act, NSA phone tapping, and all other manner of domesting spying programs. I don't think there's any question that this type of activity will be shown to yield some much heralded "results". It's just a matter of the rights and privacies that will be subject to violation over time.
We can achieve almost any end in this world if we pay no regard to how it comes about. Sift through enough sand and you are bound to uncover some pebble or stone. Maybe I am wrong and this is the type of thing that must be done.
I just have to wonder how it is that so many are willing to believe that the scope of these dragnets will remain limited over time. Look, for example, at the increased implementation of RICO indictments and property seizures over time. Are these invasive government programs the best way to achieve security and discourage the spread of terrorism and crime?
Gold competes with the Bernanke dollar, just as it did with the Greenspan dollar and just as it has with government-issued money since the invention of the printing press. The historical record is undebatable: 1) Currencies ultimately lose their value. 2) Gold is a lousy long-term investment. 3) Yet when markets lose confidence in paper, there is nothing quite like a Krugerrand.
Taxation not only supports the currency directly due to the need to obtain the currency in order to pay the tax, it supports it indirectly by fostering the general belief that the currency is actually worth something.
Wednesday, June 21, 2006
A report by Capgemini and Merrill Lynch shows the number of dollar millionaires increasing across the globe. There's a number of articles out on the subject today, many of them taking national slant (stories about Indian millionaires, stories of British and Swiss based millionaires).
Let me include this India focused article, since it includes a nice little world wealth graphic. By the way, the number of millionaires in the world is now 8.7 million. The correct number for US millionaires is shown in the graphic, 2.9 million.
On the increase in millionaires and "ultra rich" (characterized as those with $30 mil), the Chicago Tribune writes:
The number of millionaires has nearly doubled since 1996, though the 6.5 percent growth rate in millionaires last year slowed slightly from 6.6 percent in 2004.
But the ranks of the ultra-rich, those worth more than $30 million, climbed by more than 10 percent last year, to 85,400. Merrill Lynch said the ultra-rich did better because they found "select pockets" of high-growth investments in Asia, Latin America and the Middle East.
If you'd like to see all the various takes on the millionaire story, check the related stories at Google News. Personally, I'm wondering how many of these millionaires are floating up past the mark due to significant money supply expansion worldwide. Are the new millionaires and the "ultra-rich" outpacing inflation with their investments?
Tuesday, June 20, 2006
Recently China, scouring the globe for raw materials to feed its booming economy, has been drawn to Africa as an abundant source of minerals, and has started investing heavily in countries like Angola.
China has increased their involvement with Africa as part of its race to secure the needed resources to fuel its expansion. As energy and mineral supplies become increasingly scarce and developing nations compete with developed countries for supply, countries like China are going to places that the West has largely avoided.
Some say that China's move to secure needed resources from African nations will increase corruption, as money flowing in from China decreases the odds that a country like Angola will adopt the IMF's policies on transparency and accountability.
The Angolan example is far from unique across Africa, where trade with China has exploded in the last few years.
And in the rush for resources, China has no qualms about dealing with countries that the west has criticised or shunned, such as Zimbabwe and Sudan.
China says it has a strict policy of non-interference in other nations' affairs.
It won't tell the countries it deals with what to do and vigorously defends its policy in Africa.
"Sudan is a sovereign country and I'm sorry that we do not develop relations according to US or UK or any other country's instruction," said Zhou Yuxiao, chargé d'affaires at the Chinese embassy in South Africa.
One thing is certain; given the reciprocal nature of China-African relations, the Chinese will probably enjoy a warmer welcome than the one recently extended by the US. See "China's growing focus on Africa" for more background on the importance of Chinese-African trade and China's laissez-faire stance towards the traditionally shunned nations.
Monday, June 19, 2006
The latest offer includes three significant concessions, one of which is integration of Deutsche Börse's information technology business into Euronext's.
Deutsche Börse also agreed that after a merger only German equities would be cleared through its Eurex subsidiary, leaving current Euronext clearing services in the hands of its LCH.Clearnet platform.
Thirdly, Deutsche Börse tried to address fears that the merger would get bogged down in scrutiny from European Union competition authorities by seeking advance clearance of the deal.
Deutsche Bourse has not offered any added financial incentive with their latest offer, though Deutsche Borse chairman Kurt Viermetz said their bid could be increased as a "final option".
NYSE chief John Thain insists that a merger with the NYSE would be the better option for Euronext. He also raised the possibility that NYSE Group might set up a London exchange of its own or aquire the London Stock Exchange should Euronext fail to deliver the level of business it expects from international share listings.
With the current flap over the possibility of US regulatory creep into foreign markets, I have to wonder how feasible the strategy of setting up an NYSE-sponsored London exchange would be. NYSE swooping in to buy the LSE might prove a more likely option, given NASDAQ's recently weakened financial condition. Nasdaq's credit rating was cut to junk status in May amid debt burdens and questions over the reasoning behind its attempt to gain a strategic interest in the LSE. Still, concerns over spread of Sarbanes-Oxley style regulations persist.
Sunday, June 18, 2006
Saturday, June 17, 2006
Mary spoke on the topics of commodities and emerging markets, but I was also pleased to see her answer to the wrap up question about financial advice for young people starting out. Have a look at "Protecting assets, starting out...what to do" in Howestreet's video interviews.
Friday, June 16, 2006
In fact, most of the news stories regarding Gates' decision to step back from his day to day leadership role seem to direct most of the attention to his philanthropy. In that respect, Gates seems to getting a bit of the Carnegie treatment; by proclaiming that he will give away most of his wealth during his lifetime Gates has won some favor with the public and past detractors. Forbes interview with Bill Gates and Steve Ballmer.
Thursday, June 15, 2006
Financial Times reports that UK's Financial Services Authority has noted that US securities regulation could possibly extend its reach into the UK market, given certain circumstances that might arise out of US ownership of the London Stock Exchange.
These worries over "regulatory creep" were originally voiced when the exchange merger deals were gearing up; see "Exchange Fever" post.
NYSE chief John Thain is still pushing for the Euronext-NYSE merger, saying that it would boost Paris' standing as a regional financial center. He went on to add that the deal would create a "world champion", invoking (and enlarging) the currently favored notion of strategically aligned business entities. From NEWS.com.au:
"An NYSE-Euronext marriage would give birth to a world champion, and that would not be the case in the scenario of a Euronext-Deutsche Boerse merger."
Wednesday, June 14, 2006
The estate tax raises very little money. In fact, even at its height the estate tax accounted for only a little more than 1% of federal revenues. A congressional Joint Economic committee report estimates that Americans spend as much avoiding estate taxes—paying attorneys and accountants—as they do paying estate taxes. A study by a Stanford professor concluded that “True revenues associated with estate taxation may well have been near zero, or even negative.”
It’s no longer a matter of tax policy or economics—the arguments in favor of the estate tax have all been demolished. Instead, the estate tax survives purely because of politics.
The real motivation behind the estate tax is a deep-seated hostility to property rights, and a misguided fear of family dynasties. But people don’t keep money in mattresses anymore. Money inherited from an estate is either spent, saved, or invested—all of which are better for the economy than sending it to Washington, where bureaucratic overhead consumes at least 50 cents of every dollar.
If you truly own your property, you have the right to dispose of it any way you wish. You can sell it, give it away, or direct who will receive it when you die. This control is the essence of property rights. If you can’t control what happens to your property, you don’t really own it.
I'd have to say that I agree with his argument. What's funny about this is that I'm reminded of something I read in the Financial Times the other day. Here's how they summed up the political view of the estate tax:
The policy arguments over estate tax are by now rote. Those against it (usually Republicans) say it is unfair; those for it (mostly Democrats) say it redistributes wealth.
Democrats are mostly for it because it redistributes wealth. This in turn reminds me of a quote I read just yesterday. I can't recall it perfectly, but someone remarked that the difference between the left in Europe and America is that the Europeans didn't mind calling themselves socialists, whereas the Americans adopted the banner of Democrat.
Anyway, I didn't mean for this to become one of those party politics discussions. If you're interested in the issue of estate tax and property rights, give Ron Paul's piece a look. You can read the full essay here.
Tuesday, June 13, 2006
It was a rough day for commodities as well. Gold continued its correction as the August gold contract fell $44.50, or 7.3%, to close at $566.80. Silver, platinum, and copper also had notable declines. While the recent correction has been rough, one investor quoted in a Bloomberg article took a longer term view:
Some investors say the price decline offers a buying opportunity for some metals.
HSBC Holdings Plc estimated last month about $100 billion will be invested in commodity indexes by the end of 2006, compared with $10 billion at the end of 2003.
``This is not the end of the commodities rally,'' said Michael Widmer, an analyst at Macquarie Bank Ltd. in London. ``The fundamentals for most commodities, such as gold, are strong.''
Moore of Dunvegan, who sold some shares of the StreetTracks Gold Trust exchange-traded fund as the metal was rising to a 26- year high, said he's considering buying metals.
``We're more interested in gold and metals generally,'' Moore said. ``There's still a bull run in gold, and the money will be back.''
Monday, June 12, 2006
Chirac and the European bankers seem to be pushing for the creation of a regional powerhouse to compete with Wall Street.
The Financial Times reported on June 7th that "France has no veto over a merger by Euronext, a Netherlands based company", but "political opposition could create headaches for the heavily regulated stock exchange operator".
Recent news from Reuters shows that German bankers are still optimistic that a deal between Euronext and Deutsche Borse can be reached.
The first thing that comes to mind by the way, is Marc Faber mentioning a year or two ago in a Barron's roundtable that there were good opportunities for real estate investment in Berlin. There was another article on the pick up in property transactions and investments in Berlin in the weekend edition of the Financial Times and it just goes to show you, as I mentioned in the last post, that Marc really uses a broad scope when viewing the investment arena.
The first full article I'm going to include comes from John Rubino of Dollarcollapse.com and is entitled, "Look Out Below". John has picked up on the news that noted entrepreneur and real estate investor Marcel Arsenault has sounded the alarm for a drop in overheated real estate prices. Arsenault's arguments are reproduced in the article and his overview of the real estate market concludes by drawing out his firm's strategy for investing during the next few years of an expected market drop. In short, Arsenault is not only looking to liquidate some of his holdings, he is also hoping to form a "vulture fund" to pick up distressed properties in the not too distant future.
In contrast to the views expressed by Messrs. Rubino and Arsenault, David Lareah of the National Association of Realtors says there is no bubble in real estate. Check out Mish's blog for a link to the original article and a deconstruction of Lareah's arguments.
Here's a thought: Richard Russell of the Dow Theory Letter has been agonizing over the housing index and stock charts for some time now. He's been noting the recent breakdowns in chart patterns that seem to be taking place across the board in most of the leading housing stocks. What gives? Does this signal big trouble for the national housing market and the shares of leading home builders who are running into problems with more unsold inventory? Russell seems to think so, and I wouldn't doubt that he's going to be right on this one.
And while we're persuing this line of thought, I see another post at Mish's blog that might suggest added problems for Lennar. The homebuilder is being accused of shoddy work by a Florida broker who adds that the problems will not be limited to the homes built in his state. This could spell trouble in the form of lawsuits for some of the other homebuilders who have employed similar shortcut methods.
Saturday, June 10, 2006
Here in America, kids (with increasing involvement of their parents) are doing more and more to outdistance themselves from their peers in the hopes of getting the college admission or job internship of their choice. Numbers of college bound students continue to increase and education costs are skyrocketing, but the university diplomas being awarded (or rather, sold) are increasingly viewed as rubber stamp products.
But it is not just the diploma that ends up as an assembly line good. The university system also wants to put their stamp on you. The pursuit of knowledge and "higher learning" has taken a backseat to socializing the "student" and certifying him or her as a uniform product, ready to be molded in the team-driven corporate image or funneled off to graduate level training.
In the 1983 film, Risky Business, Tom Cruise's character, Joel Goodson is a high school student trying to nail down his future. With his life plans contingent upon an admission to Princeton, Joel is sweating it big time in advance of an interview with a university admissions officer. Despite Joel's solid grades, test scores and extracuricular activities, he is informed that his record is not quite Princeton material. Joel's only recourse is to put on a jubilant face and talk up his back up plan - "Looks like University of Illinois!"
Interestingly, today Joel's transcript would probably not even secure his place at the state school. The acceptance standards have gone kiting upwards, but the discourse has been homogenized and dumbed down. College is the new high-school.
So what is really going on in the academic world? What are some of the educators saying about the role of the university? I wanted to get a quick sense of what kind of information was out there, and surveyed the terms "universities" and "selling certification" by means of a quick Google search. Here's an example of what I found. From a post entitled "The economics of academia - part I":
I'll try to explain what I think is involved in what the students and their parents are buying from the university. Here's what it's not: knowledge. If the goal of going to college was just to obtain information, then a library card or a good internet connection would be much more cost effective.
So what are universities selling students and parents? In large measure, we're selling certification, and the potential for enhanced economic success that comes with it. Students are not just our customers, they're our product.
Parents, students, and the teachers themselves are sensing this. In a perverse turn of logic, the diminishing returns seem to encourage an even greater sense of competition for preferred placement. Over the course of the past year I've noticed a steady stream of articles cataloguing this trend. The latest, appearing in this weekend's Wall Street Journal, is entitled "Internships For Sale". The piece lays out the current trend in which companies are offering summer internship placement through school charity auctions. Here are quotes excerpted from the print edition:
"Schools say internships have strong appeal at charity auctions with parents who see them as resume builders for college applications".
"But critics say the practice raises questions. Connections have long played a role in getting internships. But putting them up for sale can mean discounting the merit of a potential candidate altogether."
After reading the thing, I'm still trying to figure out who wins and who loses out. Some of the internships are paid positions, but the parents may have doled out more to secure the spot than the position pays. Of course, this is beside the point for eager parents and resume builders who feel that the experience value and the potential for making contacts surpass the monetary cost. By the end of the piece though, some of the company participants were even backing off from the program descriptions, insisting that they were not "internships" but rather, job "shadowing programs". Nice: just as long as someone brings me my coffee.
The kids and their parents are so willing to play the game that they will offer themselves as indentured servants or even pay for the privilege of working their way into the organization of their choice. It's not enough to be bright or hard working or both. You have to be "actively involved" and prove you're a good person. Kids today are giving up all their free time outside of school to actively pursue the do-gooding and interning that might help to secure the college berth or job of their choice. What I want to know: is it worth it?
So far, kids and parents seem to be taking the pragmatic view that it is. As long as college and the corporate workplace stand as the modern pillars of success, the prescribed path will be taken by the multitudes.
But what about the kids who want to think and act for themselves? What role is there for the individual who does not care to work and think by committee process? For those young people who truly want to learn and understand the world around them, rather than play cynical games for acceptance? Shouldn't we value a young person who is true to himself and others? The thinking, moral person who does a thing because he is moved to, not for how it looks on paper.
Maybe we would make this country, and even this world, a better place if we were to encourage this kind of learning and introspection. I'm even inclined to believe that we'd all be a little bit freer, and certainly happier, more civil, and more prosperous if we did. Your comments are welcome.
Friday, June 09, 2006
Thursday, June 08, 2006
Richard Russell, of the Dow Theory Letters newsletter, gives a background of the Dow Theory and the importance of values in the stock market. He also shares his view of gold and money, which will be familiar to his readers.
Ron Brown picks up the discussion in a seperate interview segment. Ron shares his views regarding precious metals and the workings of the world monetary system. A very plain spoken man, Ron spans a broad scope and gets to the core of issues like inflation and examining the definition of money. I had not heard Mr. Brown speak before this interview, but I must say that he has wrapped up a number of issues in an interesting and clear manner. I actually found his interview to be the most interesting part of the broadcast.
Wednesday, June 07, 2006
Specific attention was given to the legitamization of commodities as an asset class in light of recent academic studies which bolstered his view that tangible assets could serve as an attractive area of investment. For more on those studies, see Barry Bannister's research into commodities and inflation cycles, as well as G. Gorton and K. Rouwenhorst's paper "Facts and Fantasies about Commodity Futures".
PS: the same issue of Barron's included an adjoining article that gave a technical look of the gold price. It was one of the few informed examinations of gold's dollar-denominated price movement I've seen in a mainstream financial outlet to date.
Tuesday, June 06, 2006
Monday, June 05, 2006
Bernanke said recent increases in measures of inflation ``are unwelcome'' and he will ensure the trend isn't sustained, at a banking group's conference. Futures traders raised bets the central bank will raise borrowing costs to 5.25 percent later this month, three days after a jobs report indicating the economy slowed more than forecast prompted them to pare expectations.
More news on the Fed watch front, as Reuters weighs in with two Bernanke centered stories of its own. The first is a brief three paragraph piece entitled, "Bernanke says flat yield curve makes his job harder". Here's an excerpt:
Federal Reserve Chairman Ben Bernanke said on Monday that low long-term yields were complicating monetary policy because it was hard to be sure what was responsible for the flatness of the yield curve
I thought they solved that mystery with the "savings glut" theory they advanced not so long ago. Ah well, on to the next piece.
A second Reuters report centered on comments Bernanke made Monday regarding the shape of the US consumer. "Consumers in good shape: Fed's Beranke", reports the Fed Chairman does not see household debt as a major burden to Americans. Quote:
"I think under the current circumstances that the broad aggregate of U.S. consumers are in increasingly good financial condition," Bernanke said during a panel discussion at the International Monetary Conference, sponsored by the American Bankers Association.
Yes. Increasingly good financial condition? I suppose that's why recent college graduates are saddled with debt, right in lockstep with their parents. I thought mommy entering the workforce was going to help pay the bills. What's that you say? Inflation and increased consumer lending have taken their toll on the US consumer as real wages shrink and debt is increasingly used by many families as a last resort to make it to the end of the month? I'm sorry, I don't have that in my book.
Sunday, June 04, 2006
I can practically assure you that the ideas discussed in this interview will not be heard on Monday's major business and cable news broadcasts. If you want to open yourself up to some less-than-popular notions regarding economic reality, give this broadcast a listen.
One section I found particularly engaging occurs with the group fleshing out the idea of the credit cycle's emerging preeminence over the conventional business cycle. Lots more though, including a comment on fractional reserve banking, a subject that was discussed by Paul van Eeden in Thursday's post.
Lest you think that this post is the work of a gloomy Gus, let me mention that it is warm and sunny and the first Stone Roses LP is finishing its spin. What is the sentiment meter reading on that?
Friday, June 02, 2006
While on a trip to Israel reporters asked Milton Friedman to explain “the whole Torah” of economics while standing on one foot. Friedman simply said, “There is no such thing as a free lunch, and all the rest is merely an explanation.” Taking this as a point of departure we may speculate as follows: If reporters had asked Niccolo Machiavelli about the “Torah” of politics he might have held up one foot and said, “Politics is about gaining and holding power, and all the rest is merely explanation.” If Robert Michels were asked to comment further, he might have explained that democracy is merely another way of organizing oligarchy. Americans are taught to regard democracy as a good and noble thing, but democracy isn’t all it’s cracked up to be. The authors of the U.S. Constitution feared democracy, even as the ancients called it the worst form of government.
I find this interesting due to the persistant myth, widely held among peoples of the North American and European continents, that democracy is so glorious its form must be brought to distant lands as a cure for the ills of savage, backwards societies. This change from above in favor of democracy should even be imposed by force, the thinking holds, if necessary to secure a "better life" for the poor subjects of a nation controlled by despotic rulers.
My personal feeling is that even if we were to stumble on the perfect form of governance, it would be folly for one group to try and force the system on another. If we've truly discovered the touchstone of human/political organization it would be adopted by those who are ready to accept it, demand it, or stand up and fight for it.
What do we in the meantime with our supposed "good intentions?". I am not a political thinker or world traveler. I have no great insight into the workings of the world. All I know is what I can see, hear, and sense. The world seems to direct its energy towards a great homogenization and a creation of some worldwide standard. One common currency, one government, one international "peacekeeping force", one accepted manner of dress. The doctrine of political correctness has been instrumental in laying down one prescribed manner of thought. Religious war also seems to be a long running thread in this overarching theme.
We have taken these "grand ideals" and built up towering infrastructures around them. What would happen if we took a wrecking ball to this tottering mass? Could we learn to live by the principles of free association and the golden rule? Some might claim this is not a reasonable scenario. If this is the case, then do we really think that peace and liberty are sustainable in the world we have today?
I wonder if there is some truth to what Hans-Herman Hoppe said in an Austrian Economics Newsletter interview:
It is a ridiculous idea that we need the state to tell social authorities that they need to adhere to a uniform set of rules and obey a single master. Society does not need uniform modes of association. Market exchange makes social harmony possible even within the framework of radical diversity.
Today's so-called multiculturalists don't see that there is a difference between having a globe with many different cultures and imposing that diversity on each point on the globe. It is a difference between a regime of private property and a statist regime where the rest of us merely obey. Ultimately, those are the only two systems from which we have to choose.
Thursday, June 01, 2006
Here are Paul's own words on the possible dollar value of gold should it retain its place in the currency system:
Many hardcore believers in the gold standard feel that fractional banking has to be demolished. I personally never liked the idea of fractional banking, but I also don't think the population at large is ready to do without it. And, even if fractional banking were eliminated and a pure gold standard recreated, the temptation to issue receipts in excess of gold on deposit would just exert itself again.
So instead of the most conservative extreme of a gold standard without the ability of debt creation, let's consider what would happen if we accepted fractional banking, but just took away governments' right to seigniorage.
If we add together all the currency in circulation (notes and coins) in the US, Japan, China, Britain, Canada, Russia, Australia and the European Union, converted to US dollars for simplicity, we arrive at $2.6 trillion. These countries represent roughly 80% of the world's GDP so by extrapolation we can estimate that all the currency in circulation in the world today is approximately $3.25 trillion.
Total historical gold production is about 5 billion ounces and most of it is still around. If all the gold in the world were converted to money to replace existing notes and coins, it would imply a gold price of $650 an ounce.
There may be some ensuing disagreement over van Eeden's methods with regards to his definition of money outstanding. While I'm sure that Paul has thought of the problem in terms that seem rational to him, I have the feeling that some gold and silver bugs might argue with his estimation as being too conservative.
This is just personal speculation, but I think that some gold and silver bugs would want to expand the definition of outstanding currency to include certain forms of debt, bank holdings, etc. Some are obviously using different rationale for their gold price targets. James Turk has recently reiterated his call of $2,000-$8,000 an oz. gold and silver bug Jason Hommel has done some reasoning of his own and came up with a $36,000 gold price target.
Price targets aside, the reason I've included a link to Paul's essay is because of the clarity with which he addresses this topic. I think that if you read "Musings on a Gold Standard" and the 2003 "Gold Price" article linked within, you'll have an understanding of gold and money that is sadly lacking among most Americans. If you don't believe me, go to your local bank and quiz them on these points if you like.