economy

Diane Swonk’s broken window fallacy

Posted by

0

Marketwatch picked up Diane Swonk’s twitter fee.  An “economist”, Swonk says that Hurricane Sandy will lead to “perverse stimulus”, ironically even mentioning the replacement of broken windows.  Evidently, Bastiat and Hazlett are not on her reading list.  Here is why economist like Swonk, who follows in line with the even greater idiot-economist, Dr. Paul Krugman, are perpetuating a fallacy:


The ironic thing is that Zerohedge pointed to this video yesterday for those who would talk about all the jobs that Sandy will create.

In the case of the aftermath of Hurricane Sandy, we can be sure that the Federal government will “stimulate” by borrowing money.  But since the government is already over-leveraged, the Federal Reserve’s Bernanke (also an PhD economist) will provide quantitative easing and create these repair dollars out of nothing, which will in turn result in devaluation of the currency. Is Hurricane Sandy the straw which will break the hyperinflation back, sending the US into uncontrollable currency debasement?  This remains to be seen.  It does not bode well in my view.

Monty Pelerin: It’s the numbers, stupid

Posted by

0

Monty Pelerin shared some comments and a video which explains why the United States government is going to collapse economically. This is why the new Obama ad, in which President Obama says that he will tax the wealthy to “pay down our debt” is utter mendacity. This video shows that the United States Federal budget cannot be balanced. It is mathematically not possible without some maturity. Going after US expats around the world will not solve the problem. But we can be sure that as long as the USA cannot get its fiscal house in order, the government will continue to demagogue against expats.

It’s the numbers, stupid, by Monty Pelerin

Most people have no idea of the unsustainability of government spending. The path which the government blindly follows ensures a complete and total collapse of the US. What has happened in Greece (and things will get much worse there) is exactly what will occur in the US. A complete and total economic collapse is inevitable.

The reasons for this ending and its inevitability are explained in this short (5 minute) presentation by Hal Mason in an email that has been circulating. The simplicity of his presentation allows understanding for even the economically illiterate. Simple arithmetic is sufficient to understand the impossibility of our current path and our inevitable ending.

This short video should be watched by everyone, including those not yet old enough to vote. It should be shown in every high school and college classroom. Anyone that cannot understand this presentation should not be allowed out without a guardian.

It’s the numbers, Stupid and the people who elect the corrupt, self-serving politicians in Washington who continue down this road to destruction.

Monty Pelerin article used with permission.  Cross posted at Isaac Brock Society.

The greatest derivative fraud of all: The US Dollar

Posted by

6

An article by Bruce Johnson at the American Thinker, “Are All Securities Created Equal?, questions whether the bundling of securities and derivatives is really “capitalism”.  His contention is that bundled derivative products are too many steps removed from where wealth creation takes place and critics should not blame “capitalism” for what happens.

I responsed with the following comment:

An honest market where derivatives are sold is good for capitalism, because it creates a bridge between those who have capital (savers and investors) and those who need it (businesses).  Stocks are derivatives:  they are certificates of paper that represents parts of companies.  I sell stock options.  These are derivatives of stocks whose trade is based on an underlying stock position.  Options provide an opportunity for market participants to reduce their risk–by selling positions, I take on the risk of others at a premium.

The problem with the mortgage CDOs is that they were packaged liar-loans that the lenders who made them knew the borrowers could never pay back, and so they bundled them and sold them in order to avoid their own bankruptcy. This is a sign of systemic corruption in the US mortgage industry: banks, brokers, borrowers, and bureaucracies are all corrupt.

The current United States form of capitalism is on its last legs, as the Federal Reserve kicks the can down the road of the greatest derivative fraud of all time:  the US dollar.  It used to be a derivative of gold, then it became a derivative of the “full faith and credit of the United States”.  Since that isn’t worth bucket of warm spit anymore, the dollar itself is a fraud.

I have a saying every time one of my many purchases from China stops working:  The Chinese pretend to give us products that work, and we pretend to give them money that’s worth something.

Dan Mitchell on why extra-territorial corporate taxes makes the United States uncompetitive world-wide

Posted by

0

Dan Mitchel explains cogently why US extra-territorial taxation penalizes American businesses and makes it impossible for them to compete on a level playing field with foreign companies.  He doesn’t even touch on the subject of why US international taxation of individual US citizens living outside the borders of the United States. This penalizes American companies for hiring US citizens overseas, not to  mention how it destroys the lives of US citizens abroad.  On that, read Roger Conklin.  Hat tip Isaac Brock Society.

The education bubble: Larry Summers quote

Posted by

0

Zero Hedge writes, citing Larry Summers:

“The central irony of financial crisis is that while it is caused by too much confidence, too much borrowing and lending and too much spending, it can only be resolved with more confidence, more borrowing and lending, and more spending.” Larry Summers, source

It is only fitting that the sequel to what to a large majority of people is the dumbest quote in history, will once again come from Larry Summers:

“Rather than focusing on lowering already epically low rates, governments that enjoy such low borrowing costs can improve their creditworthiness by borrowing more not less.”  Larry Summers, source.

I guess that Summers has never heard of debt to equity ratio.  A strong debt to equity ratio is a crucial criterion in a creditworthiness equation; the problem with borrowing more is that the debt that greatly increases the numerator will at the same time decrease the denominator because:  equity = assets minus liabilities (debt); debt/equity ratio = debt/assets-debt.  Thus, the debt to equity ratio must necessarily increase, reducing the credit-worthiness of the entity.

Thus, mathematically speaking, the only way to increase creditworthiness is to increase assets without increasing liabilities.  Deficit spending, in most cases, does the opposite–it increases debt without increasing assets, thus destroying the creditworthiness of the government.

What does this have to do with the education bubble?  Larry Summers was president of Harvard University, the smartest university in the world, that produced such luminous graduates as George W. Bush and Barack Hussein Obama.