Any thoughts on his speech Tuesday night?
I at least agree with one or two things that he said: now is the time to tackle all of these big challenges. I mean, everything's in the crapper, so why not do all the crazy stuff now, right?
Although he didn't say it, there continue to be rumors of banks being nationalized, which just gives me the heebie-jeebies...and of all the Presidents to tackle social security reform (or its complete phase out!), Obama and his socialist tendencies is the last person I would have wanted to do that.
Sad though, that I do kinda agree with him that we "wasted" our many years of surplus. However, I believe it is turning out that the supposed surplus wasn't so much a surplus as much as it was a wave of strong GDP based on underlying and accumulating household debt.
Separately, if Obama does open up his energy policy to include more nuclear plant developments, I might be finding myself a job at the NRC. We'll just have to see:)
Showing posts with label Economy. Show all posts
Showing posts with label Economy. Show all posts
2009-02-24
2009-01-20
On the list of bad ideas
http://www.businessweek.com/bwdaily/dnflash/content/jan2009/db20090119_561565.htm?chan=rss_topStories_ssi_5
Are we really as smart as we think we are? Printing money is going to save the economy?
Why don't we just tell everyone that their dollar today will only be worth fifty-cents tomorrow, so you'd better go blow your life savings today? And this will save the economy. In effect, it is the exact same thing proposed above.
2008-11-11
Free Markets are [Probably] Rational
Whilst on my drive home yesterday I listened to the daily financial show, Marketplace, that comes on at 6pm on our NPR station. The story, for which I have attached a link below, bemoaned how markets are irrational. And this contrary to the theory put forth by Milton Freidman that they should be rational. When they say rational, we mean that we expect market prices of stocks to behave in accordance with the appropriate information. If profits and revenue at Company Z are up, then the stock price should go up. If the credit rating of Company B is downgraded, then the price should go down. But this isn't bearing up in what we are seeing in the market today.
I would argue that a FREE market would more than likely be rational. The reason our markets today are not behaving rationally is because they're not free. Can anyone guess the true market value of GM stock? No. And no because the price of GM stock today has a lot more to do with what the government may or may not do in its little magic box than what GM is actually worth.
This same logic applies to any bank stock in existence today. And this spreads from there to the entire economy because of the equally magic and mysterious "securities" created by a bunch of MBAs -- otherwise brilliant people I'm sure, aside from being so stupid. Well the rest of the economy bought this financial junk, gambling on the brains of an MBA degree. Now nobody knows what they or anybody else actually owns in terms of assets.
A lot of, again, otherwise brilliant people, forgot one of the investment rules of thumbs that only applies to us individuals of little brain: if you don't understand what you are investing in, you probably shouldn't.
Here's the link to the article: http://marketplace.publicradio.org/display/web/2008/11/10/economic_theory/.
I would argue that a FREE market would more than likely be rational. The reason our markets today are not behaving rationally is because they're not free. Can anyone guess the true market value of GM stock? No. And no because the price of GM stock today has a lot more to do with what the government may or may not do in its little magic box than what GM is actually worth.
This same logic applies to any bank stock in existence today. And this spreads from there to the entire economy because of the equally magic and mysterious "securities" created by a bunch of MBAs -- otherwise brilliant people I'm sure, aside from being so stupid. Well the rest of the economy bought this financial junk, gambling on the brains of an MBA degree. Now nobody knows what they or anybody else actually owns in terms of assets.
A lot of, again, otherwise brilliant people, forgot one of the investment rules of thumbs that only applies to us individuals of little brain: if you don't understand what you are investing in, you probably shouldn't.
Here's the link to the article: http://marketplace.publicradio.org/display/web/2008/11/10/economic_theory/.
2008-10-24
Reasonable People Can Disagree
This post will be in regards to a conversation that Brooke and I had yesterday afternoon. Brooke asked me what I felt about the current economic situation, its causes, and possible solution. We then proceeded to exchange our mildly-educated opinions and the resources who led us down that particular path. Here, I am going to repeat my opinion and reference my sources, to which I can own credit for said opinion.
Let me start first, though, by addressing the post title and conceede that the adjective reasonable when applied to my brother and myself is somewhat dubious. That being established, let's proceed to the boredom.
My answer to Brooke was short and sweet, and something like the following: "The less the government tries to do, the better off everyone will be." This espouses a laizes-faire, free-market view and approach of the current situation. My opinion is that the less the government tries to bail-out, force lending, and stabilize prices the faster the economy will hit bottom and proceed to recovery. The economy is headed south as part of a predictable central-bank created business cycle (more on this later). When on the downswing like this, there will be a bottom, and government intervention will result in either a slowing of the downfall (delaying recovery) or, much worse, a time-delay in the downfall, making the inevitable fall that much worse when it does come. This is much like hitting the snooze bar; the time comes when you have to get out of bed. Your head still hurts and now you're ten minutes late.
The business cycle I refer to above is that described in the Austrian Business Cycle Theory, or ABCT. According to the ABCT, cheap credit created by Federal Reserve Bank policies are the primary factor in the booms and busts we see in the economy. The Fed lowers interest rates, banks lend, people and institutions borrow, the money supply is artificially expanded, and the economy gets "drunk" on this infusion of cash (that is not backed up by anything solid such as savings, much less anything more solid like precious metals). The Fed, ever wary of inflationary pressures, eventually has to pull the plug and raise interest rates. The music stops, the party is over, Wall Street gives a nice big vomit, and the hangover begins (lets all hope we don't pass out).
Great analogy, right? So what do I mean by "drunk." Well what I mean is this: When the economy gets a infusion of cheap-credit cash, it has to go somewhere. Where it eventually goes is to portions of the economy that are ONLY viable because of the cheap credit, i.e. ventures that are profitable when the Fed has the funds rate at 1%, but are not when that rate rises. This is what is called a bubble. In the 80's with the Savings & Loan crisis, what we had was a commercial real-estate bubble. Now we're seen the demise of a residential real-estate bubble. This is compounded by a financial bubble that was perched on the back of the housing bubble. And, as we will see in the comming weeks, further compounded by the personal debt bubble that was also perched on home values. Bubbles are inflationary. Home prices were rising faster that incomes. This is not sustainable. When reality sets in, home values adjust to true market levels and this should be expected. But this is the very thing the government wants to stop as soon as possible. They want to prop up inflated home values. This is not only insane, but also likely impossible.
The popular thought is that they just need to prime the financial pump and get money, huge sums of cash, flowing again. Somewhere. Anywhere. And we'll all be okay. Sustainable lending practices can ONLY be supported by savings. That is what a bank is supposed to do: Take savings and funnel it into borrowers who need capital. But banks are collapsing because they are taking loans to make loans, and the tip of the inverted pyramid, the real savings, are being eroding. Look at banks today. Everyone is all in a hussy because they are not lending. They're sitting on cash. This is obviously terrible. They should, rather, be shelling it out willy-nilly to the economic equivalent of crack-addicts. No. Consciously or not, banks are doing what they are supposed to be doing in a recession: accumulating savings.
Now a rebuttal to Brooke's response.
His reply was what we see all over the media and in the current political climate: more and better regulation. Like McPalin, the idea is that their either wasn't enough regulators or the regulators were sleeping at the wheel. Well this line of thinking pre-supposes a great deal. That regulators are smarter and better than industry. Just yesterday, Greenspan was on Capitol Hill saying he was shocked at the current crisis. If he didn't see it comming why do we think a few extra neck-ties in Washington will? If the CEO's of countless financial institutions didn't see it comming, how will borrowing a hand-full of their inferiors and placing them on a tax-funded payroll going to solve the problem? I can't see that it will.
And now, my source.
I've been spending time on the website of the Ludwig Von Mises institute at www.mises.org. This is a libertarian think tank, based out of Auburn, Alabama who primarily focus on economics, the Austrian School of economics to be presice, and also spill out into general libertarian mantra which I'm not as keen on. There is too much to read there in my lifetime, so I'll share a few highlights from their blog that I have come across recently:
That's it for now. If I come across any more goodies I'll be sure to share.
Let me start first, though, by addressing the post title and conceede that the adjective reasonable when applied to my brother and myself is somewhat dubious. That being established, let's proceed to the boredom.
My answer to Brooke was short and sweet, and something like the following: "The less the government tries to do, the better off everyone will be." This espouses a laizes-faire, free-market view and approach of the current situation. My opinion is that the less the government tries to bail-out, force lending, and stabilize prices the faster the economy will hit bottom and proceed to recovery. The economy is headed south as part of a predictable central-bank created business cycle (more on this later). When on the downswing like this, there will be a bottom, and government intervention will result in either a slowing of the downfall (delaying recovery) or, much worse, a time-delay in the downfall, making the inevitable fall that much worse when it does come. This is much like hitting the snooze bar; the time comes when you have to get out of bed. Your head still hurts and now you're ten minutes late.
The business cycle I refer to above is that described in the Austrian Business Cycle Theory, or ABCT. According to the ABCT, cheap credit created by Federal Reserve Bank policies are the primary factor in the booms and busts we see in the economy. The Fed lowers interest rates, banks lend, people and institutions borrow, the money supply is artificially expanded, and the economy gets "drunk" on this infusion of cash (that is not backed up by anything solid such as savings, much less anything more solid like precious metals). The Fed, ever wary of inflationary pressures, eventually has to pull the plug and raise interest rates. The music stops, the party is over, Wall Street gives a nice big vomit, and the hangover begins (lets all hope we don't pass out).
Great analogy, right? So what do I mean by "drunk." Well what I mean is this: When the economy gets a infusion of cheap-credit cash, it has to go somewhere. Where it eventually goes is to portions of the economy that are ONLY viable because of the cheap credit, i.e. ventures that are profitable when the Fed has the funds rate at 1%, but are not when that rate rises. This is what is called a bubble. In the 80's with the Savings & Loan crisis, what we had was a commercial real-estate bubble. Now we're seen the demise of a residential real-estate bubble. This is compounded by a financial bubble that was perched on the back of the housing bubble. And, as we will see in the comming weeks, further compounded by the personal debt bubble that was also perched on home values. Bubbles are inflationary. Home prices were rising faster that incomes. This is not sustainable. When reality sets in, home values adjust to true market levels and this should be expected. But this is the very thing the government wants to stop as soon as possible. They want to prop up inflated home values. This is not only insane, but also likely impossible.
The popular thought is that they just need to prime the financial pump and get money, huge sums of cash, flowing again. Somewhere. Anywhere. And we'll all be okay. Sustainable lending practices can ONLY be supported by savings. That is what a bank is supposed to do: Take savings and funnel it into borrowers who need capital. But banks are collapsing because they are taking loans to make loans, and the tip of the inverted pyramid, the real savings, are being eroding. Look at banks today. Everyone is all in a hussy because they are not lending. They're sitting on cash. This is obviously terrible. They should, rather, be shelling it out willy-nilly to the economic equivalent of crack-addicts. No. Consciously or not, banks are doing what they are supposed to be doing in a recession: accumulating savings.
Now a rebuttal to Brooke's response.
His reply was what we see all over the media and in the current political climate: more and better regulation. Like McPalin, the idea is that their either wasn't enough regulators or the regulators were sleeping at the wheel. Well this line of thinking pre-supposes a great deal. That regulators are smarter and better than industry. Just yesterday, Greenspan was on Capitol Hill saying he was shocked at the current crisis. If he didn't see it comming why do we think a few extra neck-ties in Washington will? If the CEO's of countless financial institutions didn't see it comming, how will borrowing a hand-full of their inferiors and placing them on a tax-funded payroll going to solve the problem? I can't see that it will.
And now, my source.
I've been spending time on the website of the Ludwig Von Mises institute at www.mises.org. This is a libertarian think tank, based out of Auburn, Alabama who primarily focus on economics, the Austrian School of economics to be presice, and also spill out into general libertarian mantra which I'm not as keen on. There is too much to read there in my lifetime, so I'll share a few highlights from their blog that I have come across recently:
- Economic Depressions: Their Cause and Cure - probably a more eloquent treatment of my thesis above.
- Did Joseph Wharton Cause The US Financial Meltdown? - a fun jab at elite universities and MBAs.
That's it for now. If I come across any more goodies I'll be sure to share.
2008-10-09
Ever the Optimist
So today the Dow hit a low it hasn't seen since Spring of '03. This means that if I start investing today, I can make up for having not invested during the first few years out of school.
2008-10-01
Proud to Say I'm from Alabama
I just wish I could say that I voted there.
From the Nashville City Paper:
Alexander (Senator from TN) told his colleagues, "We've got to give the Secretary of Treasury enough money and enough authority to be able to buy all the junk in the middle of the economic highway and get if off the road and hope he is able to sell it for about what he paid for it, or at least to minimize our losses."
From an interview on CNBC:
"I believe the Senate will pass it overwhelmingly tonight," said Corker, a Republican [from Tennessee] who serves on the Senate banking Committee. Corker said in the interview that he was pleased with provisions for increased depositor insurance limits, adding he doesn't want to see any more measures added on.
From the Birmingham News (AL.com):
The two Republican senators from Alabama, Richard Shelby and Jeff Sessions, are expected to oppose the $700 billion bail out.
2008-09-29
Mixed Signals, Entertainment, and Opinion
Mixed Signals
So last night, Wachovia bites the dust. Today, the house is to vote on the bailout (as of this writing the house has already canned the plan).
But what is waiting in my E-mail inbox when I get to work?
A notice that Bank of America has increased the limit on our credit card.
I'm not sure what to think. Does this mean that Bank of America is a solid bet? Or rather, does Bank of America think that I am a solid bet?
Entertainment
On Saturday, our family started the day a bit unusually. Our normal Saturday routine is to head over to the Franklin Farmer's market. Well this weekend we had other plans.
I put gas in the mower. I then hitched up the dump-cart which Andrea got me for my birthday, threw the family in the back and then proceeded to drive around the front yard.
Now I'm fairly certain that this very scenario has been described in one of Jeff Foxworthy's routines through the years, but it was fun nonetheless and the kids enjoyed it.
Opinion
The house voted down the bailout. At least that is what they said when they voted. They might vote again on a similar bill Thursday. There might have been some hanging chads in today's vote or something.
Anyway...at the moment, I am proud that we at least have two more days to allow free markets -- as opposed to a central planner -- to decide where our money does and doesn't go. Call it a gamble, but I like my chances on the open market.
To hear people like Obama (and to some degree Bush and McCain as well) say that free markets have failed is short-hand for I like socialism more than capitalism. Ever heard of the business cycle? There are ups and downs in any economy. To say that free markets have failed because we're now in a down-swing is pretty short-sighted at best and downright stupid at worst. Yes, the stock market is down, today. It would have been down today anyway with the Wachovia news. And it might be up again tomorrow. Who knows? If anybody knew for sure they be in the game making money hand over fist one way or another. What about Wachovia, you say? Shouldn't we have more regulation to prevent bank collapses? Wachovia screwed up and now they're out of business. Looks like they just regulated themselves fairly efficiently if you ask me.
That's all the opinion I'll make you suffer through today.
So last night, Wachovia bites the dust. Today, the house is to vote on the bailout (as of this writing the house has already canned the plan).
But what is waiting in my E-mail inbox when I get to work?
A notice that Bank of America has increased the limit on our credit card.
I'm not sure what to think. Does this mean that Bank of America is a solid bet? Or rather, does Bank of America think that I am a solid bet?
Entertainment
On Saturday, our family started the day a bit unusually. Our normal Saturday routine is to head over to the Franklin Farmer's market. Well this weekend we had other plans.
I put gas in the mower. I then hitched up the dump-cart which Andrea got me for my birthday, threw the family in the back and then proceeded to drive around the front yard.
Now I'm fairly certain that this very scenario has been described in one of Jeff Foxworthy's routines through the years, but it was fun nonetheless and the kids enjoyed it.
Opinion
The house voted down the bailout. At least that is what they said when they voted. They might vote again on a similar bill Thursday. There might have been some hanging chads in today's vote or something.
Anyway...at the moment, I am proud that we at least have two more days to allow free markets -- as opposed to a central planner -- to decide where our money does and doesn't go. Call it a gamble, but I like my chances on the open market.
To hear people like Obama (and to some degree Bush and McCain as well) say that free markets have failed is short-hand for I like socialism more than capitalism. Ever heard of the business cycle? There are ups and downs in any economy. To say that free markets have failed because we're now in a down-swing is pretty short-sighted at best and downright stupid at worst. Yes, the stock market is down, today. It would have been down today anyway with the Wachovia news. And it might be up again tomorrow. Who knows? If anybody knew for sure they be in the game making money hand over fist one way or another. What about Wachovia, you say? Shouldn't we have more regulation to prevent bank collapses? Wachovia screwed up and now they're out of business. Looks like they just regulated themselves fairly efficiently if you ask me.
That's all the opinion I'll make you suffer through today.
2008-09-23
Bailout?
Ok. I am not a banker, nor an economist. I understand a little about how this works, but I would love to hear from the familial bankers and construction weenie (haha) what their thoughts are on this. My first take on this is that this is not a solid idea. Don't get me wrong, Heather and I are being greatly affected by this. It turns out that the house we put a contract on, the current mortgage holder of that house is Indymac, which is currently owned by the Federal government. Hence, the large amount of waiting we're having to do, since the mortgage process is now like an extended multi-month long trip to the DMV. The Feds at Indymac even told the seller's real estate agent: "It's taking 60 - 90 days to get around to the paperwork, so don't call us, we'll call you. But you can send in letters and faxes." (I guess they need things to burn?) Anyway, Heather and I are being affected by this like many others, and we're financially sound. What I want to know is, how would the government buying all these "troubled assets" be a good thing? Are we simply "passing the buck" (literally speaking) to the next generation? A report said that, "the aim is for the government to buy the securities at a discount, hold onto them and then sell them for a profit." Anyway, I am just not sold on this idea. I think I'd rather pay the heavy "finanical meltdown" pricetag now rather than wait a generation from now and have China effectively blackmail us with all of the treasury note debts we'll be owing them...talk about a meltdown. Enough of my unskilled rants- speak to us, Oh great bankers and weenie.
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