April 28th, 2010 by Alex
This is a preview of an episode of NOVA on PBS titled Mind Over Money. You can watch the whole thing here. The episode looks at how emotion causes people to make irrational money decisions, and how those decisions make the economy irrational.
April 26th, 2010 by Alex
This is Australian (not Austrian) economist Steve Keen from September of 2009. He’s in the deflationist camp. And he talks about how it is private money creation through lending that first causes inflation; government money creation he claims is a kind of after effect.
That seems basically right to me; that is why in Dissolving Dollars I used the phrase “too much debt (not money) chasing too few debt free goods and services” to describe inflation. Just consider these words by William C. Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York from July of 2009.
“A related concern is the question of whether the Federal Reserve will be able to act quickly enough once it determines that it is time to raise rates. This concern reflects the view that the excess reserves sitting on banks’ balance sheets are essentially “dry tinder” that could quickly fuel excessive credit creation and put the Fed behind the curve in tightening monetary policy…In terms of imagery, this concern seems compelling—the banks sitting on piles of money that could be used to extend credit on a moment’s notice. However, this reasoning ignores a very important point. Based on how monetary policy has been conducted for several decades, banks have always had the ability to expand credit whenever they like. They don’t need a pile of “dry tinder” in the form of excess reserves to do so. That is because the Federal Reserve has committed itself to supply sufficient reserves to keep the fed funds rate at its target. If banks want to expand credit and that drives up the demand for reserves, the Fed automatically meets that demand in its conduct of monetary policy. In terms of the ability to expand credit rapidly, it makes no difference whether the banks have lots of excess reserves or not.” http://www.newyorkfed.org/newsevents/speeches/2009/dud090729.html
April 24th, 2010 by Alex
A lot of people wish they had put all their money into the stock market in March of 2009, but if they were really the type of people with the guts to do that they would have already had all their money in the market well before the bottom.
The broad money supply (M3) is now not growing, but actually contracting. And M2 money supply is at least nearly contracting. That is not conducive to a growing economy. All it is conducive to is money floating around looking for a place to go. The only thing really growing is government and the government can’t grow without taking resources away from the private sector. And unless the private sector is prospering, there is nothing to fund the government except for borrowing and printing money. The problem with government printing money doesn’t really show up in full form unless that money is expanded by the banking system through increased demand to borrow and confidence to lend. Increased demand for borrowing and confidence to lend requires a positive economic outlook. So, from a money supply stand point, unless the economy really heats up and everyone becomes positive, I don’t see any really big inflation coming anytime soon due to money supply growth. I only see big inflation if people start bailing on the dollar.
In the near future, regardless of what the official numbers say, if the economy is weak it will be reflected in the economic health of states (since states don’t print their own money, except North Dakota). If states are in trouble, then the federal government will need to print money to bail them out. The imbalance between growth of government and lack of growth in the real economy is where the inflation danger rests. That is where we will see an inflationary depression scenario: rising prices without real economic growth and real wealth creation.
I don’t make short-term forecasts because I have no idea about things in the short-term. For instance, a rogue event like a big terrorist attack could mess up even the best forecast short-term. All I know is that long term, if you put your money in something like the Dow Jones Industrials for the next 40 years, you’ll average about 5% gain per year plus whatever dividends you get (probably no more than 3%). That might meet or beat the inflation rate, or it might not. And you might be down as much as 50% at some point between now and then if you start that strategy right now. Unless we learn how to manufacture gold in the next 40 years, I think gold is just as good as and probably better than most stocks. If we do learn to manufacture gold, then we’ll be well on our way to a post-economics world, so investing won’t matter much. Because the less scarcity there is, the less need for economic activity there is. In a world without scarcity there is no need for an economy. The basic formula of economics is: put as little as possible in to get as much as possible out. If economics is allowed to work to its conclusion, in the future, we’ll all live like royalty on a few minutes of work per day–especially if we start spending most of our time in evermore immersive virtual realities.
But anyway, for now, the bail out bubble rolls on, but I personally have no confidence in where it is rolling to.
April 24th, 2010 by Alex
The part of this clip I liked the best is were Ron Paul points out how people like Matthews are inconsistent in their support of liberties and social justice.
