Doom and Gloom: What will the result of the largest credit boom in history be?

This was the largest credit boom in history, and it will be the largest bust, no matter what the “stimulus”.

Souce: Mike Shedlock

No economic recovery in sight.

“We’re talking years – not months – before we see a decent recovery in the jobs market,” predicted Sung Won Sohn, economist at the Martin Smith School of Business at California State University. “It is going to get worse before it gets better.”

Source: Right Mind

Try to imagine if you will that the economy is perfectly fine. Everyone is working, business is booming, and last year the budget was nearly balanced. Get that picture in your mind. Now you hear that congress decides to double the size of every govt. budget. What would our reaction be? Well of course we would think this is utterly stupid. We would all be saying how bad an idea this is. The obvious question is if it is a bad idea when times are good why isn’t it an even worse idea when times are bad?

Here is the thing I have learned about the subject of economics…it is complicated. Yes the feds can hand out a billion here and a billion there and “create” jobs. However, what you don’t see are the jobs not created or loss in the private sector as a result of the federal spending. Here is something I am willing to bet on, there is no economic recovery in sight until market interventions stop. Things will get much worse before they get better and better is not going to look like it use to.

Putting the economic blow up back together.

We live in interesting times. We are in the midst of quite a blow up at the moment.

“when things blow up politically, new people pick up the pieces, and then other bright new people start rethinking the proper arrangement of the theoretical puzzle of politics and government. The theoretical puzzle gets put back together very differently, just as the various institutional puzzles get put back together differently, and new words and concepts are developed that help justify (and even actively promote) the new arrangements. In short, some groups win, while others lose.” – Christian Reconstruction – What It Is, What It Isn’t by Gary North and Gary DeMar

Doomsday Financial Scenario

Bob Higgs says…

“I have never been inclined toward touting doomsday financial scenarios. I raise the possibility now only because, as I consider the situation portrayed in the graph of excess reserves linked above, I am unable to foresee how the Fed and the Treasury can navigate through these treacherous waters – waters that their own previous actions have whipped to a foam – without creating terrible financial and economic harm. If the dollar survives the ministrations of Bernanke, Paulson, Bush, and the Obama gang, its survival will be something of a miracle.”

Read the rest here.

Manufacturing ever-higher stock prices.

Scott P. Richert in Chronicles

“Those who claim his mantle today, however, are not simply ideologues on free trade; they have become convinced that money can breed money—and, moreover, that it’s a good thing for it to do so. The only kind of manufacturing they want is the manufacturing of ever-higher stock prices.”

The Coming Collapse of the Middle Class – Elizabeth Warren

Rick pointed out this video. This is one of the best economic videos I have seen in months. I learned a lot. Read Rick’s post for some of the details, but watch the video (1 hour long). What does the world tell us? You should own a home, it is an investment. You must have healthcare, you are irresponsible if you don’t. Paying taxes is patriotic. Get a good education, go to college. Now watch the video and guess what costs have increased the most for the average family since 1970?

401K losses, mildy amusing.

Herrick is putting together some important posts over at The Deliberate Agrarian regarding our economic woes. I must admit I spend a lot of time ruminating about these things.

• Please take time to read Slouching Away from Prosperity – Part I, Part II

I am quoting Herrick’s article here.

I’ve read that the average stock market investor has lost half the value of his portfolio in the recent stock market plunge. A man I work with, who has faithfully saved for years, and invested in stocks, admits to losing $250,000 this year, thus far.

These sort of losses are typical. The remarkable thing to me has been the rather casual reaction people have had towards the loss of such large sums of money. You can easily confirm this by performing a “Twitter” search for the term 401K. Twitter is sort of a mini-blog which people use to quickly publish very short remarks to a network of friends.  Click the link and you will see what I mean. Most folks seem to laugh off losing 50% of the value of their retirement savings. How can this be? How can they remain so calm?

I would love to believe that they are all trusting in the Lord and his promises to care for even the sparrows but I know that is not the case. No, I am sure they are trusting that within a year or two everything will return to normal. As I said I spend a lot of time ruminating about this so here are a few random thoughts regarding 401K’s and retirement.

• Most folks calculate at a minimum 6% growth rate compounded for a number of years in order to retire with a sufficient income to maintain a modest living standard. Even if the market somehow manages to get back to 10,000 this year or next it is going to take years for you to recover the lost value and there is no reason for you to think there won’t be another crash.
• While I believe the U.S. will remain very competitive in comparison to the rest of the world, it is going to become much harder. The only analogy I can think to make here is to say we are entering the “playoffs” and teams which previously seemed easy to beat are going to get a lot tougher. This is going to make it harder to maintain the consistent year to year growth you need to retire.
• The world is not happy with us, and they are not happy with the dollar. It is going to take time but they will not bow to the American Empire forever, they are going to bring us down a notch and it is going to hurt. Sources I read say this could take another 10+ years to happen. Another reason to doubt the market stability required for you to save adequately for retirement.
• There is talk that the govt. will allow people to voluntarily hand their retirement accounts over the govt. in trade for a guaranteed return. There is no reason to think the words voluntarily and guaranteed actually mean anything like…voluntarily and guaranteed.
• Increased centralization and socialization of our economy is only going to make things worse. The only thing the govt. can do efficiently is spread misery.
• It is likely that wages will fall as the number of available workers increase and the number of jobs decrease. Any growth going forward will have to be “real” growth and as such labor rates should be lower. This means less money to save.
• While we may see lower prices in the short term as a result of deflation in the long run the govt. will resort to inflating the monetary supply in order to maintain it’s existence. Prices will rise again eventually, so you won’t be able to make up for less savings with lower prices.
• As G.K. Chesterton says about democracy, one should not ask what you will do with the poor, you should ask what the poor are going to do with you.

If even some of the factors I mentioned here are true you are going to have to seriously rethink how much money you will have when you retire. I didn’t even mention all of the other looming disasters such as Social Security and Medicare.

Now let me ask you one question, and really think about this. If you knew for a fact that in twenty years all of your retirement savings was going to be wiped out,(zero, zilch, nada) what would you be doing now to prepare for that day? Is it fearful or prudent to make such preparations? Are these preparations evidence that you are not trusting in the Lord to care for you and your family?

What say you?

What me worry?

Stay calm folks, no reason to panic here, eh?

How low will the market go?

My very scientific analysis of why I think the Dow will be at 8000 when it stabilizes. I would expect to go lower than this for a while, maybe 6500. Of course there are still plenty of opportunities for the govt. to make things worse.

Causes of the Crisis

George Selgin at WVU on the Crisis.

Watch here (seems to require Internet Explorer)

PerotCharts.com

Ross Perot has launched a new site.

Update: This post is getting a lot of traffic and probably from people who have some interest in economics. If you are not aware of Mises.org I highly recommend you also spend some time looking at what they have to offer, they have an enormous amount of material available.

Technorati Tags: Economics, Government

Marglin on Markets and Community

This is a great episode of EconTalk.

Stephen Marglin of Harvard University and author of The Dismal Science: How Thinking Like an Economist Undermines Community talks with EconTalk host Russ Roberts about the markets and community. Marglin argues that markets and commercial transactions undermine the connections between us. He wants people to pay more attention to what is lost and not just what is gained by the pursuit of material well-being. Topics discussed include the nature of community, the role that voluntary associations play in our lives, the costs and benefits of mobility, the role of insurance in reducing our dependence on each other, and the nature of knowledge.

Anonymous authority, you’re not as free as you think.

The quote below is from an article I found on a Marxist site of all places! I don’t too often find myself in agreement with Marxists but this paragraph is just too good to pass up. The article can be found here. It mentions a school called Summerhill which actually exists, see here, the site is a hoot (“imagine a school where you can play all day if you want to”).

“Our economic system must create men who fit its needs; men who cooperate smoothly; men who want to consume more and more. Our system must create men whose tastes are standardized, men who can be easily influenced, men whose needs can be anticipated. Our system needs men who feel free and independent but who are nevertheless willing to do what is expected of them, men who will fit into the social machine without friction, who can be guided without force, who can be led without leaders, and who can be directed without any aim except the one to “make good.” (For a more detailed analysis of the influence of our industrial system on the character structure of the individual, see E. Fromm, The Sane Society, Rinehart and Co. Inc., New York, 1955.) It is not that authority has disappeared, nor even that it has lost in strength, but that it has been transformed from the overt authority of force to the anonymous authority of persuasion and suggestion. In other words, in order to be adaptable, modern man is obliged to nourish the illusion that everything is done with his consent, even though such consent be extracted from him by subtle manipulation.”

I.O.U.S.A.

Here is a film I am interested in seeing.

Director Patrick Creadon, who made The New York Times crossword puzzle fun on film in his documentary “Wordplay,” calls “I.O.U.S.A.” a primer for ordinary Americans on the financial state of an economy saddled by a rapidly growing federal debt.

Click here to read the Reuters article about the film. This is the I.O.U.S.A. website.

Money As Debt

This video was fun to watch and I learned why the current monetary/banking system requires continuous economic growth in order to keep running (and why deflation is such a potential monster!).

I could not find any critiques of the movie, please leave a comment if you know if any, I am sure there must be a few. The creator’s website is found here.

My economic stimulus package (part of it)

If I made a ten loaves of bread in my kitchen and gave them away to my neighbors I have broken no laws, but if I charge a penny for each loaf I have probably broken multiple laws. This story is an example of a women who was reported to the “authorities” for selling homemade chicken salad. Does the word homemade even have any meaning when you see it in the grocery store? I am sure the laws and restrictions for this sort of activity vary from local to local but there are likely restrictions of some sort almost everywhere.

Did you know that the CBO recommends raising food stamp benefits as a method of “economic stimulus”? You can read Greg Mankiw’s thoughts on that here.

Well on to my economic stimulus package. I believe that if you lifted all restrictions on the preparation and sale of food (laws and taxes) and allowed one neighbor to sell to another without restriction you would see an amazing boom of enterprise. We bought a bread machine last night, we are also buying a wheat grinder. The investment will be over $300. I am positive that even my 5 year old is ready and willing to begin her bread making business and I am sure she could single handily make a return on our investment in a few months, and she would love to do it. This plan would have a greater impact than raising food stamp benefits although the processed food industry might not be too happy about it.

Unemployment is low, inflation is low, wages are rising, this economy is on the move!

“Unemployment is low, inflation is low, wages are rising, this economy is on the move! (crowd cheers)” – President Bush on the State of the Economy 2007

The more I learn about Fractional Reserve Banking, Federal Reserve policies, inflation, and economics in general, the more I see how easy the present banking collapse was to predict. I have found a number of blogs that were sounding the alarm more than a year ago. Read the words above and ask yourself if the man that said them actually believed what he was saying? I can’t believe he did. The BBC put together two short 20 minute programs on the current banking collapse which is both informative and interesting to listen to. If you want a good overview of some of the issues this is a good place to start.

BBC Debt Threat: Credit Monster Part 1, Any Escape Part 2

Here are some questions to think about as talk of recession looms.

• Why do economic stimulus packages always require the govt. to spend more money? Where does the money come from? Aren’t we are already spending money we don’t have (budget deficit)? How is spending money we don’t have good? If it is good why not double or triple the current spending proposals, won’t that be better?
• Why is the president visiting Saudi Arabia?
• Why does Wall Street always want the interest rate lower? If this is so good for the economy why not drop it to zero?
• Name the last Republican president that had a balanced budget or shrank the size of govt.

‘Indoctrinate U’ and a few comments on Marxism

This is a short trailer for a film called ‘Indoctrinate U‘. I have a copy of one of the precursors to this film which was released on the internet a few years ago and I am looking forward to seeing the final cut. I believe one of the interviews in the film is with a economics professor from Bucknell with Marxist sympathies (funny interview as I recall). At the time I had no idea that Marx’s ideas were taken so seriously within Economic departments at major universities.

The other night I listened to an mp3 by Gary North on Marx called ‘The Marx Nobody Knows‘ which I recommend (recorded in 1988). He makes some very insightful remarks regarding the packaging of Marxist thought into Liberation Theology among other things.

Finally, a quote from Chapter III of Human Action.

What induced Marx to invent his ideology-doctrine was the wish to sap the prestige of economics. He was fully aware of his impotence to refute the objections raised by the economists to the practicability of the socialist schemes.
…
His own economic ideas are hardly more than a garbled version of Ricardianism.
…
His only intention was to destroy the reputation of economic teachings which he was unable to refute by means of logic and ratiocination.
…
Marxian polylogism is an abortive makeshift to salvage the untenable doctrines of socialism. Its attempt to substitute intuition for ratiocination appeals to popular superstitions. But it is precisely this attitude that places Marxian polylogism and its offshoot, the so-called “sociology of knowledge,” in irreconcilable antagonism to science and reason.

The whole chapter is worth reading. Marxism as an anti-rationalistic subversion of economics, not another valid competing school of economic thought. We should be concerned with sending our children to any university which legitimizes Marx’s economic theories (your options may be more limited than you know). The points made about polylogism are also very important. I just bookmarked this article on the topic for reading later, it looks like a good overview.

Two Reasons Airfares are on the Rise

1. The Chinese are buying our planes, fewer planes = less supply = higher prices.
2. In order to improve customer service governments are fining airlines and pocketing the money.

Somewhat unrelated but…I have just finished the second episode of three from a PBS documentary called Commanding Heights. Each episode is 2 hours in length I highly recommend this, it is simply fascinating. Please go to the link to learn more

Part 1

Part 2

Part 3

MIT Whizzkid suggests program to subsidize inheritances for the poor.

Here is another reason to read Biblical Economics. Psalms 13:22 says “A good man leaveth an inheritance to his children’s children: and the wealth of the sinner is laid up for the just.” Leaveth means leave for those of you in Rio Linda.

Ivan Werning, a 33 year old tenured whizzkid economics theorist from MIT ran some numbers because that’s what economics theorists do as you know and he came up with this.

His paper shows that the transmission of wealth should be regulated to prevent an accumulation of luck—that children should essentially be insured against the family into which they are born.In a follow-up paper, entitled “Progressive Estate Taxation,” also written with Farhi, Werning discovered that the best approach would be to encourage parents to leave bequests to their children, and that government should, through subsidies, help the poor pass on money to their heirs.

Huh?

Well read R.C.’s book if you get a chance, because these ideas are just about as bad as it gets. There is a chapter which discusses the difference between “equality” and “equity”. The Bible is usually speaking in terms of equity while the world usually speaks in terms of equality. It is a very important distinction to make when thinking about these issues.

The 33 Questions You’re Not Suppose to Ask

I thought this was an excellent interview (scroll down to ‘The 33 Questions’) or click here to begin streaming.

Jeffrey Tucker interviews bestselling author and Mises Institute Senior Fellow, Dr. Thomas E. Woods, Jr. They discuss his recent blockbuster “33 Questions About American History You’re Not Supposed to Ask.” Recorded at the Mises Institute, 24 August 2007. [46:33] Streaming Windows Media Video

This blog entry by the author (How to Get an Education for Free) is also worth reading. I have been working through materials from Mises for about a week.

One of the greatest unsung resources on the web is Mises.org, the website of the Ludwig von Mises Institute (where I am a resident scholar). Want to learn economics, history, philosophy, and more — but in an entertaining way? Do you believe in the principles of a free society? Then this is the place for you.

Read whole books — many fully searchable — online. Listen to hundreds of hours of audio (and view a great deal of video as well). Spice up your morning commute by downloading full-course seminars onto your iPod. Sign up to receive the Daily Article and begin your economic education one day at a time.

Biblical Economics – Follow The Money

My web statistics show a number of you finding this page from a search specifically for this book. After reading this book I suggest you go to mises.org and spend a lot of time there if you really want to expand your knowledge of economics. My original post is below.

I picked up Biblical Economics by R.C. Sproul Jr. while our family was on vacation. The church would benefit greatly from a better understanding of economics and R.C.’s book is a good starting point.

Recently I watched an interview with Richard Freeman (a Harvard labor economist) on YouTube. At one point he mentions that most of the economic growth of the last couple of decades has come from the increase of woman in the workforce. I heard it said someplace that the growth we have experienced since the dot com collapse has been largely due to a massive credit expansion (easy loans). I won’t go into detail but as a result of a change in our economic policies in 1946 the government now has a vested interest in continual economic expansion, i.e. it has a vested interest in seeing your wife and daughters in the work force.

As Christians we have an obligation to see and state the big picture. Consumerism is a problem but one we have because we have means by which to make it a problem. Those means by in large part have come by sending our wives to work, putting our children in state schools to be molded by the state and for the state all in order to continually expand the economy. I am not saying that economic expansion is always bad. It is bad when it is driven by an unbiblical economic system upon the backs of our wives and daughters and at the expense of our families.

My personal interest is not to expand the economy but to expand the Kingdom by raising up Godly seed and I am happy to credit R.C. with teaching me that. I highly recommend the resources of Highlands Study Center if you are interested in learning more. If you want to be encouraged that there are alternatives for our children please read my post on The Return of the Daughters.