By Monty Pelerin, on February 24th, 2010
In Jimmy Carter’s reign, the Wall Street Journal editorialized about “Ratcheting to Ruin.” The title derived from the fact that each cycle high in unemployment was higher than previous ones, and each cycle high in inflation was also. “Stagflation” was coined to describe what up until then was believed to be impossible in the Keynesian world. This period ushered in a new era in both politics and economics. Carter was replaced by Reagan, and Keynes was replaced by Friedman.
Thirty years later Keynes is back in vogue, Obama has ascended to the White House and times are again reminiscent of the Carter era. The economy is awful. Fear and dissatisfaction prevail. Politicians are held in contempt. There is one major difference – Carter did not face an “ides of March” event.
In Shakespeare’s Julius Caesar, a soothsayer warned Caesar to “beware the Ides of March.” The prescient warning did not help Caesar. As Obama approaches his March moment, no warning can change his fate.
Ben Bernanke promised to end Quantitative Easing (the printing of money to stimulate the economy and fund the deficits) by the end of March. Some believe his commitment was a “campaign promise” to ensure his Senate reconfirmation. Others believe it was a real commitment, necessary to maintain a stable dollar. Shortly, the world will find out.
Mr. Bernanke, quite unintentionally and through no fault of his own, will be Obama’s Brutus, regardless of his decision. To understand why, some numbers are necessary. Government needs funding this year
Continue reading Obama’s “Ides-of-March” Moment is Near
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By Monty Pelerin, on February 12th, 2010 “US government debt is a safe haven the way Pearl Harbor was a safe haven in 1941.” Niall Ferguson
The idea that our debt is somehow a safe-haven is a sad reflection on the rest of the world. Europe may be in a pickle with the Greece (and more generally, PIGS) problem, but it is not unique. All western economies suffer from overleverage, which itself brings risk. All are interdependent with one another.
A problem in Greece affects Europe more directly than it does the US. But it would be wrong to assume that the US is immune to such “noise!” In an unstable world, a grain of sand can start an avalanche that swallows the entire system. In the the late 1990s the Asian Contagion that threatened the world’s financial system was started by just such a grain of sand — the Thai baht.
The interconnectedness of countries via an unstable currency system makes us and everyone else potentially vulnerable to seemingly “insignificant” events in galaxies far, far away. The amount of debt around the world is especially conducive to what might seem like small change triggering major events. The metaphor of a butterfly flapping its wings 10,000 miles away affecting outcomes locally is probably more correct today than any other time in history.
Niall Ferguson in “A Greek Crisis Coming to America” states:
It began in Athens. It is spreading to Continue reading In an Economy (Galaxy) Far, Far Away …
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By Monty Pelerin, on January 26th, 2010 For those who are interested in getting a lot of investing ideas for 2010 and beyond, check out the collection at The Kirk Report. A variety of different viewpoints that might help you think through what may happen in the next year. Some might even be correct.
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By Monty Pelerin, on January 14th, 2010 It is very difficult to determine how our economic situation plays out. The economy continues to weaken. There is no recovery under way. Markets generally seem overvalued.
On top of the economic situation is the political environment. Weak or incompetent Presidents are generally not good for markets. Here are two results from Rasmussen:
With the economy and the political situation deteriorating, perhaps it might be time to pull some chips out of the market. On the other hand, perhaps the market is reading a major reordering of the Congress in 2010 and levitating on that possibility. Your guess is as good as mine.
I see little upside regardless of a change in political conditions, at least not from current levels.
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By Monty Pelerin, on January 3rd, 2010 The recovery of the stock market in 2009 was impressive. The Dow Jones hit bottom in March at 6,547 and recovered to close the year at 10,428, an intra-year gain of about 59%. This occurred despite deteriorating economic conditions. Yes, third quarter GDP was positive (although revised downward to 2.2%). The fourth quarter is likely to come in positive as well.
While government and their rented economists tell us that we are in recovery, virtually all growth is from direct government spending or government-induced spending from programs such as Cash for Clunkers.
There are limits to how much the government can continue to spend. More importantly, there can be no recovery without private sector growth, and that has not occurred.
The private sector continues to shrink, as measured by growing unemployment and declining state income and sales tax collections. The Wall Street Journal reported:
State and local tax revenues tend to lag behind the downturns as well as the upturns in the economy because of the time it takes for collections to catch up with depressed store sales and diminished incomes. The third quarter was the fourth consecutive quarter in which tax collections were below year-ago levels. Through the first three quarters of 2009 state and local tax revenues totaled $875 billion, nearly 8% below the $951 billion collected in the first three quarters of 2008. In the same period, federal receipts were down nearly 19%. WSJ, pA3,
Continue reading Market Manipulation?
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Friedrich von Hayek
Friedrich von Hayek founded the Mont Pelerin Society.
“Monty Pelerin” is a pseudonym chosen by this blogger to convey general agreement with the philosophy, goals and spirit of the Mont Pelerin Society. No other connection exists between the blogger and the Society.
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