One Bad Idea After Another

Ben Bernanke is frequently in the news these days. The latest occasion concerns his opinion on the Fed’s “inflation” target, i.e., the target for the speed at which money should be debased relative to consumer goods in order to finally attain centrally planned economic nirvana.

Price inflation is currently deemed to be “too low” by our bien pensants, in spite of the fact that the broad US money supply TMS-2 has more than doubled since 2008 (as of March, it is very close to $11 trillion, up from $5.3 trn. in early 2008). If recent CPI data are to be believed (which requires a bit of a leap of faith), consumers may actually get slightly more goods and services for their money henceforth. What an unimaginable horror!

 

CPICPI dips ever so slightly into negative territory year-on-year – the nightmare of central planners around the world – click to enlarge.

 

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Ben “I Didn’t See It Coming” Bernanke Hired by Big Hedge Fund

Ben Bernanke is not only blogging now and thereby making an unwelcome contribution to lowering the citizenry’s aggregate economic intelligence, he has also decided to once again follow in the footsteps of his predecessor, “Maestro” Alan Greenspan, by joining a hedge fund. Bernanke is calling in some markers and is about to cash in by becoming an advisor to the Citadel Group, the world’s most highly leveraged large hedge fund and HFT shop.

 

 

citlogo

 

 

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Industrious Hands

In politics and economics, most people believe what isn’t true: that the common folk select their leaders … and that these leaders are wiser than God.

We recall an early experiment. The pilgrims washed up in the wrong place … and then proceeded to almost exterminate themselves with clumsy central planning.

Their system discouraged work and encouraged zombies. Wrote Plymouth County governor William Bradford:

 

[The system of] taking away of property and bringing [it] into a commonwealth [caused] confusion and discontent [and] retarded much employment that would have been to benefit and comfort [of the settlers].

 

Some went to work for the Indians, cutting wood and fetching water in exchange for a “capful of corn.” Others starved.

Finally, the colonists abandoned central financial planning and collective production. Families were given individual plots of land, which they were able to cultivate for themselves. The colony was saved.

“This had very good success,” Bradford wrote, “for it made all hands very industrious.”

 

BradfordCity fathers hewn in stone, sternly gaze across the lawn …William Bradford, governor of Plymout County, 1590-1657

Photo credit: cataloft  / flickr

 

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Gold and Gold Stocks Beginning to Look Better Again

Gold isn’t doing much in dollar terms – apart from the fact that it apparently still doesn’t really want to stay below the $1,200 level – but it remains quite strong in euro terms. In yen terms it isn’t really doing much lately, but remains well above the lows seen in the past two years. Obviously, the people who either buy gold as insurance or refuse to sell it at current prices (=high reservation demand) remain at work. The source of demand at the margin represented by today’s gold buyers has much to do with concerns that the central bank policy induced party in “risk” will inevitably end. This is to say, these buyers look beyond fundamentals in the here and now toward the day when it insurance may actually be needed (we have first mentioned this last year as it were, and believe it continues to be true). It is a case of better having insurance and not needing it, than one day realizing that one needs it but doesn’t have it.

 

18K Picasso Gold Brooch,Tiffany & Co

Image credit: Tiffany & Co

 

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Citigroup’s Chief Economist Joins the Cash Ban Bandwagon

We have discussed the views of Citigroup’s chief economist Willem Buiter previously in these pages (see “A Dose of Buiternomics” for details), on occasion of his coming out as a supporter of assorted monetary cranks, such as Silvio Gesell, to name one. Not to put too fine a point to it, Buiter is a monetary crank too.

Buiter is always shilling for more central bank intervention, and it seems no plan can ever be too silly or too extreme for him. In fact, he seems to have made the propagation of utterly crazy ideas his trademark.

Buiter has now joined one of his famous colleagues, Kenneth Rogoff, another intellectual enamored with central planning, in clamoring for a cash ban (for our discussion of Rogoff, see “Meet Kenneth Rogoff, Unreconstructed Statist”). Both Buiter and Rogoff want to make it impossible for citizens to escape the latest depredations of central bankers, such as the imposition of negative interest rates. This is to be done by forcing them to keep their money in accounts at fractionally reserved banks.

 

web1_WSOP-FINAL-TABLE_111114DB_020_6If Buiter gets his way, there won’t be a WSOP final table with piles of cash anymore.

Photo credit: David Becker / Las Vegas Review-Journal

 

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Headfirst into the Sublime

Today, we plunge into the sublime. That’s right: We are leaving the ridiculous behind. Instead, it’s headfirst into the dark pool of things we will never understand and probably never should try.

First, we pause to take note of the latest debt binge. Reports Bloomberg:

 

“Just when debt-addicted American companies were starting to worry that Federal Reserve Chair Janet Yellen was going to take their proverbial punch bowl away, along came Mario Draghi.

The European Central Bank president has made borrowing so cheap in the region that foreign corporations are selling record amounts of debt. Forget the deeper, bigger US corporate-bond market. Borrowing in euro is all the rage these days because it’s about 2 percentage points less expensive to do so.

About 65% of the record 60 billion euro of investment-grade bonds sold in March came from overseas companies, according to a March 27 Bank of America report. And a lot of those sellers are based in the US. […]

The trend comes down to basic math. Yields on investment-grade bonds in Europe have fallen to 0.99%, compared with 2.9% on those in the US, according to Bank of America Merrill Lynch index data.”

 

Like all borrowing binges, this one is likely to end badly …

 

Euro high yield indexBofA/Merrill Lynch euro “high yield” index. The new era of return-free risk created by the allegedly well-meaning bureaucrats manning central banks, via St Louis Federal Reserve Research – click to enlarge.

 

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Fantastic Progress

We ended last week wondering what had gone wrong: How come the 21st century has turned out to be such a dud?

Where are the jaw-dropping new inventions? Where are the rising incomes? Where is the dynamic, sizzling economy we expected?

Back in about 1963, we recall trying to picture ourselves in the 21st century. The rate of progress then was so fantastic we had to stretch to imagine it.

Every year, Chevrolet, Ford and Chrysler put out a new and better automobile. In 50 more years, surely cars would be regularly flying through the air!

In 1969, Neil Armstrong walked on the moon. It was just a matter of time before we had a colony there… from which we could explore the solar system.

Then in 1970, the pocket electronic calculator appeared. Half a century later, imagine the condensed knowledge and computing power we would be able to carry around.

 

jetsonsThe question should not be whether the government should or shouldn’t build and administer roads – the question should be: “Where the hell are our flying cars?”

Cartoon : Hanna / Barbera

 

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The Madness of Negative Bond Yields

As we have frequently discussed in these pages, time preference must always be positive on a society-wide basis – it is a praxeological law that future goods and/or satisfactions are valued at a discount to identical present goods. We emphasize “identical” here because sometimes people are asserting that there are exceptions, such as in the famous example that men would prefer having ice in the summer over having it in the winter (thus, in wintertime, ice available in the future would be valued more highly). However, “summer ice” is not identical to “winter ice”, even though it has the same physical properties. The reason is that the satisfaction if provides is not the same.

 

bank

 

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Not Loud and Clear Enough for the Governor

This isn’t yet another in a long series of articles lamenting the Federal Reserve, power, politicians, corruption, and the hopelessness of fighting the status quo. What’s the marginal utility of the Nth plus one article reiterating these points? Nearly zero. No, this article is about something else.

It’s about you.

What would you do, if you were governor, and a fringe issue turned into a bill came to your desk? To all appearances, there is little popular support. The benefits, if any, seem far removed from the practical business of governing. Few people even cared.

What’s that, you say? Gold isn’t like that? There are many people who want gold, the benefits are important, and what could be more practical than honest money? I can’t hear you. I CAN’T HEAR YOU!

Neither could Governor Ducey.

Do you value honest money? Do you understand how and why the regime of the paper dollar is hurting us? If you care, please consider calling your legislators in Arizona or wherever you are. Please consider donating to the Gold Standard Institute. We can do a lot with a little, but we can’t change the monetary system without your support.

 

indian-head-gold-eagle-with-motto

$10 in gold, “Indian Head” , 1914. At the time the dollar was still strictly defined by its metallic weight

 

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Dudes, Where’s My Money?

Over the weekend, conservative German newspaper FAZ (Frankfurter Allgemeine Zeitung) reported that euro-group negotiators were allegedly “shocked” by the lack of viable reform plans offered by Greece and the general attitude of the Greek delegate. As Reuters reports:

 

“Euro zone officials were shocked at Greece’s failure to outline plans for structural reforms at last week’s talks in Brussels, a German newspaper on Saturday cited participants as saying, adding the Greek representative behaved like a “taxi driver”. A meeting of deputy finance ministers on Thursday gave Athens a six working day deadline to present revised economic reform plans before euro zone finance ministers meet on April 24 to consider unlocking emergency funding to keep Greece afloat.

Euro zone sources told the Frankfurter Allgemeine Sonntagszeitung that they were disappointed and shocked at Athens’ lack of movement in its plans, and in particular its reluctance to talk about cutting civil servants’ pensions.

The mood between Greece’s leftist government and its euro zone partners, especially Germany, has deteriorated in the last few weeks, with personal recriminations flying between ministers and calls from Athens for Berlin to pay war reparations.

The paper said at last week’s meeting the Greek representative just asked where the money was “like a taxi driver”, according to sources, and insisted his country would soon be bankrupt.

The euro zone sources told the paper that Greece’s creditors do not believe this is the case and that it would be a domestic political issue if Athens is unable to fully pay salaries and pensions.

The paper also said that German Finance Minister Wolfgang Schaeuble, who has taken a tough line toward Greece in bailout talks, would have to get the Bundestag lower house of parliament to vote on any fundamental changes to the reform program.

 

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Less rich, Less Free, Less Safe and Less Smart

Yesterday, we spent the day riding up to Tacana. So few people have been there, we thought it might be a ranch myth. More about that soon …

The last Diary recounted what a flop the 21st century has turned out to be so far. We focused on the economy. We might just as well have looked at education, health care, human liberty, safety, politics or war.

Almost everywhere you look things appear to be degrading. We are less rich, less free, less safe and probably less smart than we were 15 years ago.

 

retirement-2

Cartoon by Gary Varvel

 

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Is Inequality a Bad Thing?

We couldn’t believe what we were seeing when coming across the following headline at Reuters recently:Fed’s Yellen says research needed to understand inequality issue”. Seriously? Maybe we can help the good chairwoman out a bit. First of all, human beings are already born unequal. With that we not only mean that they are born in different social strata, but that they are usually born with unequal talents, brains, physique, and so forth.

 

Janet YellenFed chair Janet Yellen – she doesn’t look concerned here, but of course we don’t want her to constantly wear a frown. Anyway, inequality is on her mind she says.

Photo credit: AP

 

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A Great Time to be Alive

What a great time to be alive!

Mankind stood on the foothills of Olympus ready to join the assembly of gods – rollicking, frolicking and generally misbehaving without regret.

The World Wide Web was gaining velocity. It was widely believed that breakthroughs in communications had “removed the speed limits” to economic growth. Information was now readily and easily available to everyone.

Any dope in Peoria could go on the Web and find out how to manufacture a bomb in his basement or make a cherry pie in his kitchen.

And the genius in Kuala Lumpur or Kabul was now liberated from the lowbred, backward and benighted people around him; he could see what fun it would be to have a Beverly Hills ZIP code.

And he could reach across the World Wide Web and get a chisel and a steel file to create a killer website … and free himself from his miserable circumstances.

 

Mount-Olympus
Mount Olympus – where the ancient Greeks suspected the gods to reside, with Zeus as chairman of the Pantheon. The top of the mountain often disappears in the clouds, so it was a good spot to place the gods in. Latter-day mountaineers spoiled the fun by reporting they couldn’t find anything up there.

Photo via toutiao.com / Author unknown

 

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A Tragic Accident

A little over 5 years ago, on April 10 2010, a Polish Tu-154 with numerous high ranking Polish officials crashed at the Smolensk airport in dense fog – all 96 people aboard were killed. Among the dead were then Polish president Lech Kaczynski and his wife, the Poland’s general chief of staff and other senior officers, the president of the central bank, the deputy foreign minister, assorted other government officials, 18 members of parliament, high ranking members of the clergy and relatives of victims of the Katyn massacre. They had been on their way to a commemoration of the massacre, marking its 70th anniversary.

To bring readers up to speed on this event: the massacre was a series of mass executions of Polish nationals carried out by Stalin’s NKVD, the Soviet secret police. The first and largest of these executions happened in Katyn forest. It is estimated that the victims numbered 22,000 all in all. Soviet secret police chief Lavrentiy Beria proposed to execute all members of Poland’s officer corps in 1940, and Stalin and the politburo approved the proposal. When the mass graves were discovered by the German army in 1943, the Soviet government immediately moved to cover it up and blamed the Nazis – a ruse that was kept up until 1990, when Gorbachev finally admitted the truth, just one year before the Soviet system collapsed.

 

Katyń,_ekshumacja_ofiar

Exhumation of the dead in a mass grave in Katyn forest in 1943

Photo credit: Author unknown , via Polish Red Cross delegation

 

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Government-Subsidized Alternative Energy Madness

It is our contention that without government subsidies, most of the so-called “alternative energy” industry would not exist. In fact, as you will see in the addendum further below, it barely manages to hang on with subsidies. This follows quite simply from the fact that anything that can be done profitably and is economically viable doesn’t need government subsidies in the first place – it will simply be done voluntarily by the private sector.

 

obamasolarvets

President Obama announces his latest green energy boondoggle

Photo credit: AP

 

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THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

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