On Capitalism

     

 

 

Murdered by Barbarians

VIENNA – Real money must reflect the realities of the real economy. If it becomes detached from economic reality, like a clock that no longer tells the right time, it becomes a hazard to everyone.

 

Air FranceGrounded: Air France planes are idled by yet another strike.

Photo credit: Eric Piermont / AFP

 

Read the rest of this entry »

     

 

 

Low Interest Rate Persons

 

She is a low-interest-rate person. She has always been a low-interest-rate person. And I must be honest. I am a low-interest-rate person. If we raise interest rates, and if the dollar starts getting too strong, we’re going to have some very major problems.

— Donald Trump

 

TrumpoYellTwo low interest rate persons! The Trumpsumptive president (Donald the Tremendous) can be seen here indicating the approximate size of the interest rate that will still keep us out of “major problems”.

 

Read the rest of this entry »

     

 

 

Poison Money

BALTIMORE – We live in a world of sin and sorrow, infected by a fraudulent democracy, Facebook, and a corrupt money system. Wheezing, weak, and weary from the exertion of trying to appear “normal,” the economy staggers on.

 

David-Simonds-zombie-high-011Staggering on….

Image credit: David Sidmond

 

Read the rest of this entry »

     

 

 

The Left’s Distorted View of Charles Koch

DUBLIN – We met Charles Koch 40 years ago. In the meantime, he has gotten rich and accumulated enemies.

The leftists seem to think Koch – the CEO of Koch Industries, the second-largest privately held company in the U.S., and a big political donor – is a manipulator, pulling strings, passing out his money, and rigging the system for his own benefit.

They must not have met him. As we recall, he was a nice fellow – upright and sensible, with an earnest and well-meaning disposition.

 

charles kochCharles Koch: not a crony – on the contrary, a lifelong opponent of statism and its corruption.

Photo credit: Bo Rader / MCT / Landov

 

Read the rest of this entry »

     

 

 

Linguistic Perversions

While the whole world is waiting with bated breath whether the bureaucrats running the Federal Reserve will alter, remove or retain a single adjective in their monetary policy statement today, it occurred to us to think a bit about the use of language in the context of economics and financial markets.

Many a word has seen its true meaning altered in our Orwellian age. One example we frequently cite in these pages is the term “inflation”. It once used to mean only one thing: An increase in the supply of money. It is the only way in which the term actually makes logical sense. And yet, in modern times its meaning has been altered to designate what is in fact only one of the many possible consequences of inflation, namely rising prices of consumer goods.

As Ludwig von Mises pointed out, this means that we actually no longer have a single word to describe what the term “inflation” once used to describe. By calling rising prices “inflation”, sight is lost of the root cause of rising prices. This is of course deliberate, as the instigators of inflation are now no longer seen for what they truly are. As a result of this it has become fashionable to call central banks “inflation fighters”. This is akin to calling an armed robber a saint, or calling an arsonist a firefighter.

 

ecb1Police are erecting barbed wire fences around the ECB’s new headquarter in Frankfurt.

Photo credit: Kai Pfaffenbach / Reuters

 

Read the rest of this entry »

     

 

 

Rough Trail

We’re glad we brought out our old “Crash Alert” flag last week. It looks like we may need it.  The Dow plunged 333 points on Tuesday, or nearly 2%.  Back to that in a minute…
“Jorge,” we asked our farm manager, “when was the last time you visited Marta Sandoval at Tacana?”

“Oh… maybe two years ago. She was okay then. A little crazy, maybe.”

“Don’t you have to go every year to count the animals?”

“Not up there. It’s not worth it. She only has about five goats.”

The farm is a marvel of ambiguity. We own it. On paper. But about 100 people live on it… work it… and use it.  In fact, they control some of the best parts of it. They pay us “rent” in the form of a percentage of their animals – about 1 in 20. But since their animals aren’t worth anything, we count, but we don’t bother to collect.

And so, they pay nothing. They – and their descendants – can stay as long as they want.  How long they will want to live in such harsh and lonely conditions is a subject of much conversation and speculation. But most show no signs of wanting to come down.

“They were born there,” says Jorge. “They want to die there too.”

“Can I ride up to Tacana sometime?”

“Yes. The trail is very rough. And you’d never find it on your own. I’ll take you.”

 

hudbThe tattered flag is flying again … sort of.

Image: fmh

 

Read the rest of this entry »

     

 

 

Is This Capitalism's Achilles' Heel?

Is capitalism wrong in some fundamental way?

New Year's Day found your editor up a tree. He was pruning pear trees. The trees had gotten some sort of blight. They're half-dead… and probably should be cut down and burned. Nevertheless, we went out into the cold – pruning shears in hand – and trimmed them.

Why? What was the point? Why invest time in a tree that won't produce?Perhaps it was a just habit.

This weekend, we will undertake another curious task. We bought a house down the road. The house was built in the 1950s. It is a wreck. The smart thing to do would be to tear it down, build a cheap new house and rent it out. The return on investment would be low. But at least it should be positive.

Instead, we are fixing up the house enough to rent it out…more or less as it is. Your editor is tearing off a decrepit porch and rebuilding it…as well as spackling the cracks on the inside and repainting. What for?

If he were to calculate the value of his time, the enterprise would be unprofitable. But what the hell?

Is the house an investment? What else would it be? We're not going to live there; we're going to rent it out. Why then are we not carefully calculating our investment and demanding a return – on time and money – to make it worthwhile?

Perhaps we are not good capitalists? Or perhaps capitalism is flawed?

 

Read the rest of this entry »

     

 

 

Things Not Obvious to San Francisco Fed Chief

Marketwatch reports that San Francisco Fed president John Williams (a noted dove if memory serves) doesn't see the stock market as particularly overvalued at present, even though it sports a CAPE (cyclically adjusted P/E) or “Shiller P/E” of approximately 24, which is in the upper decile of all historical observations – we refer you to a recent article by Doug Short on market valuation in this context.

John Williams is correct insofar as we have not quite yet reached the crazy CAPE valuations of the 1929 peak or the tech mania peak. Of course those are not his yardsticks. With regard to valuations he says:

 

“With respect to stocks being near-record highs and the Fed’s hand in that, Williams said the media talks more about stock prices than the Fed does. Williams said policy makers take economic data, household wealth and money in the stock market into account, but they are not drivers of monetary policy.

“If you look at the valuation of stocks today compared to earnings and dividends and relative to historical averages, it’s not obvious that the stock market is overvalued. In fact a lot of models will tell you that it’s undervalued given how strong profits have been.”

 

(emphasis added)

Which 'models' might he be referring to? We hope not the so-called 'Fed model', a favorite tool of bubble spin doctors, which has been thoroughly debunked by John Hussman on several occasions (see e.g. here for an excellent overview).

When it comes to the S&P's dividend yield, one doesn't really need a 'model' to judge where we stand. A functioning pair of eyes will do just fine:

 


 

SPX dividend yieldSPX dividend yield since 1926. Note that the level of administered interest rates and t-note yields has for the better part of market history proved irrelevant for dividend yields. Thus the 'Fed model' must not only be viewed skeptically with respect to price/earnings ratios, but also with respect to dividend yields. Since the beginning of the late 90s bubble, yields have remained at paltry levels – click to enlarge.

 


Read the rest of this entry »

     

 

 

Theory of Interest and Prices in Paper Currency Part IV (Rising Cycle)

In Part I , we looked at the concepts of nonlinearity, dynamics, multivariate, state, and contiguity. We showed that whatever the relationship may be between prices and the money supply in irredeemable paper currency, it is not a simple matter of rising money supply à rising prices.

In Part II, we discussed the mechanics of the formation of the bid price and ask price, the concepts of stocks and flows, and the central concept of arbitrage. We showed how arbitrage is the key to the money supply in the gold standard; miners add to the aboveground stocks of gold when the cost of producing an ounce of gold is less than the value of one ounce.

In Part III, we looked at how credit comes into existencevia arbitrage with legitimate entrepreneur borrowers. We also looked at the counterfeit credit of the central banks, which is not arbitrage. We introduced the concept of speculation in markets for government promises, compared to legitimate trading of commodities. We also discussed the prerequisite concepts ofMarginal time preference and marginal productivity, and resonance.

Part III ended with a question: “What happens if the central bank pushes the rate of interest below the marginal time preference?”

 

Read the rest of this entry »

     

 

 

A Faible for Socialism

We have often remarked on the soft spot the New York Times has for socialism. It is after all the ideology that is most popular among the self-proclaimed intelligentsia, as can be easily ascertained by observing the unbroken support it enjoys in academe – in spite of the fact that the communist system has collapsed in what was the biggest bankruptcy in human history. Apparently they just failed to 'implement Marxism correctly'. It is easily forgotten today that Western intellectuals were cheering for the Soviet Union throughout its seven decade history, from the Lenin era until its ignominious demise.

Read the rest of this entry »

     

 

 

Richard Duncan on Capitalism

Richard Duncan is a well-known author of popular books on economic topics, such as 'The Dollar Crisis: Causes, Consequences, Cures'. He has just written a new book, again with an apocalyptic theme as the title suggests: “The New Depression: The Breakdown of the Paper Money Economy.”

In order to promote his new book, he is currently touring the financial media to give interviews and familiarize people with what the book is actually about.

Yesterday Marketwatch published an article summarizing both Duncan's analysis and his recommendations. Mish has already posted a brief critique yesterday, which we now want to expand a bit upon.

Let us first take a look at Duncan's analytical claims. We have highlighted the salient points in an excerpt from the Marketwatch article below (we are leaving aside his recommendations for now):

 

„Recognizing that the world operates on a different set of rules from the laissez-faire capitalism of the 19th century is among the key arguments in Duncan’s 2012 book, “The New Depression: The Breakdown of the Paper Money Economy.”

While it might seem like an arcane economic question, Duncan said that, in fact, the stakes are huge.

Global policy makers are running out of time to take advantage of opportunities offered up by the new system to help resolve the crisis, or otherwise face sliding into a corrosive period of economic contraction and rising geopolitical tensions, he said.

“The danger is that this new economic paradigm will collapse through debt deflation,” Duncan said.

Duncan sees the global economy as having undergone a fundamental transformation during the past 43 years. Since changes in 1968 that freed the Federal Reserve from holding physical gold in reserve against dollars in circulation, total global credit has expanded 50 times, or from about $1 trillion to $50 trillion in 2007.

Over that period, credit creation and consumption, or what Duncan calls “creditism,” took hold as the growth dynamic behind the global economy, displacing capitalism, which he says relied upon sound money, hard work and capital accumulation.

[…]

Duncan believes that true capitalism died in 1914, when nations across Europe abandoned gold-backed currencies, running up huge deficits in preparation for what would come to be known as the Great War“

 

Read the rest of this entry »

     

 

 

A Crisis of Capitalism?

Ever since the 2008 financial crisis we have frequently remarked in these pages how ludicrous the assertions are – which keep being repeated ad nauseam in the mainstream media – that the financial and economic crisis was a result of 'laissez faire' allegedly gone too far. Not a week has passed since then without someone coming out and blaming the non-existent free market for the calamity.

First of all, it should be perfectly clear that the Western regulatory democracies do not represent free unhampered market economies. They have a socialistic, centrally planned monetary system and free enterprise and production are restricted by a mountain of licensing laws and administrative legislation that is unsurpassed in the history of mankind. At the center of the financial crisis we  found in fact  one of the most regulated sectors of the economy.

Read the rest of this entry »

Most read in the last 20 days:

  • factoryA Striking Chart
      The Economy and the Stock Market As long time readers know, we are always paying close attention to the manufacturing sector, which is far more important to the US economy than is generally believed. In terms of gross output it is the largest sector of the economy, and it should of course be obvious that saving, investment and production are the only ways to create wealth.   What's left of the Brooklyn Domino Sugar Refinery. Photo credit: Paul Raphaelson   Contrary...
  • trump-putin-1024Trump and Putin Narrowly Escape Assassination Attempt
      The Gloves are Coming Off First a little bit of recent history. Readers are probably aware that some questions about the occasionally malfunctioning Deep State android... no, wait, we'll start again. Questions have recently been raised about the health of presidential candidate Hillary Clinton by various “alt-right” tinfoil hat-wearing conspiracy theorists, such as this one.   The monsters are normally hiding under Hillary's bed, but lately they have come out into the open...
  • swing-voterWhy the Fed Destroyed the Market Economy
      What Have You Done for Me Lately? Swing voters are a fickle bunch.  One election they vote Democrat.  The next they vote Republican. For they have no particular ideology or political philosophy to base their judgment upon.   The primacy of the wallet.   They don’t give a rip about questions of small government or big government.  Nor do they have any druthers about the welfare or warfare state. In effect, they really don’t care.  What’s important to the...
  • trump-mapDonald’s Electoral Struggle
      Wicked and Terrible After touting her pro-labor union record, the Wicked Witch of Chappaqua rhetorically asked, “why am I not 50 points ahead?”  Her chief rival bluntly responded: “because you’re terrible.”*  No truer words have been uttered by any of the candidates about one of their opponents since the start of this extraordinary presidential campaign!   Electoral map (note that the coloration may no longer be applicable...)   That Hillary Clinton is...
  • wallet-367975_960_720Janet Yellen’s Shame
      Playing Politics In honest capitalism, you do what you can to get other people to voluntarily give you money. This usually involves providing goods or services they think are worth the price. You may get a little wild and crazy from time to time, but you are always called to order by your customers.   In the market economy, consumers reign supreme. There is no such thing as a “lost” vote in the marketplace; every penny spent affects production. Mises noted: “Consumers...
  • warren-buffett-gold-coinGet Ready for a New Crisis – in Corporate Debt
      Imposter Dollar OUZILLY, France – We’re going back to basics here at the Diary. We’re getting everyone on the same page... learning together... connecting the dots... trying to figure out what is going on.   The new three dollar bill issued by the Apprehensive States of America.   We made a breakthrough when we identified the source of so many of today’s bizarre and grotesque trends. It’s the money – the new post-1971 dollar. This new dollar is green. You...
  • 4-ip-and-non-def-capital-goods-ordersThe Economy, the Stock Market and the Fed
      John Hussman on Recent Developments We always look forward to John Hussman's weekly missive on the markets. Some people say that he is a “permabear”, but we don't think that is a fair characterization. He is rightly wary of the stock market's historically extremely high valuation and the loose monetary policy driving the surge in asset prices.   The S&P 500 Index and the NYSE advance-decline line. Most market internals weakened steadily until early February 2016, but...
  • silkroadHanjin Marooning in San Pedro Bay
      Global Trade Reversal Expansions and contractions in global trade have played out over long secular trends for thousands of years.  The Silk Road, for example, was established by the Han Dynasty of China in 130 BC, and allowed for continuous trade between East and West for nearly 1,600 years.  In addition to economic trade, the Silk Road was also a conduit for culture and knowledge among its network of civilizations.   A map of the main ancient Silk Road - click to...
  • voltaireGreat Causes, a Sea of Debt and the 2017 Recession
      Great Cause NORMANDY, FRANCE – We continue our work with the bomb squad. Myth disposal is dangerous work: People love their myths more than they love life itself. They may kill for money. But they die for their religions, their governments, their clans... and their ideas.   Famous French hippie and author Voltaire. He wears the same sardonic grin in every painting, whether he's depicted at a young or an old age, doesn't matter. His real name was François-Marie Arouet; he...
  • wilsonand-morganThe Donald Versus Killary: War or Peace?
      War: A Warning from the Past Although history does not exactly repeat itself, it does provide parallels and sometimes quite ominous ones.  Such is the case with the current U.S. Presidential election and the one which occurred one hundred years earlier.   The Donald probably has the better slogan...   The dominating question which hung over the 1916 campaign was whether the country would remain neutral in regard to the horrific slaughter which was taking place on the...
  • hittite-leftoversA Rift in the Space-Time Continuum
      Weird and Unnatural NORMANDY, France – First, a quick look at the markets. The Dow bounced on Monday, recovering 239 points of the nearly 400 it lost on Friday. Why the comeback?   FOMC member Lael Brainard: her comments on Monday were touted as the “reason” for the stock market recovering half of Friday's losses. We suspect the real reason is the triple witching on Friday... Photo via twitter.com   The financial press has a ready answer: “Stocks gain...
  • ukraine-mapCrimea: Digging For The Truth
      Renewed Escalation This summer witnessed a renewed escalation between Russia and Ukraine after Russian President Vladimir Putin accused Ukraine of sending saboteurs to attack Russian troops, targeting “critical infrastructure”. Kiev denied the allegations and claimed Russia’s “fantasy” was nothing but a false pretense to launch a “new invasion”.   August 10: Russian president Putin announces that there was an altercation involving a group of Ukrainian saboteurs at...

Austrian Theory and Investment

Support Acting Man

Own physical gold and silver outside a bank

Archive

j9TJzzN

350x200

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

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

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com