By Monty Pelerin, on December 8th, 2009 The public has not yet reached the point indicated in the title. The government reached it years ago and is impoverishing the nation.
Neither President Bush’s nor President Obama’s economic policies brought this recession. The event was preordained from years of governmental economic mismanagement and intervention. The crisis could have come sooner, or later. It happened on Bush’s watch. Now Obama must deal with it.
The insanity of current economic policy has been dealt with here before. Keynesian economics, as practiced by politicians, was not what Keynes advocated. He envisioned the role of government as a controller/moderator of the economy, stepping to help in down times. Keynes never proposed a government consistently spending beyond its revenues. The government was expected to run surpluses in good economic times. To understand how badly the Keynesian system was bastardized, one only need know that the last true surplus in this country was 50 years ago! Have we been in a depression for 50 years?
Why has this happened? Politicians are not economists, and they don’t think like economists. Rational politicians live for the moment. Like renters of a home, they do not care about wear and tear or residual value. Politicians “enjoy the home to the fullest.” The residual value of their home (country) is not their concern; staying in the home (retaining office) is. This point was made by Hans-Herman Hoppe in his book Democracy The God That Failed and in this
Continue reading Burning The Furniture and Eating The Seed Corn To Survive
By Monty Pelerin, on November 19th, 2009 Rolfe Winkler posts on gold and states: “Gold is surging because investors see that the Federal Reserve — more concerned with deflation and unemployment than sound money — may be trapped in a never-ending cycle of monetary accommodation.”
He concludes that we and other Western governments are insolvent as shown in the following chart:
Winkler concludes with “So gold won’t make you rich. But it may protect you from becoming poor.” Read his case for gold here.
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By Monty Pelerin, on November 11th, 2009 Chart obtained from Rolfe Winkler
Stocks are off about 80% from their peak, at least as measured in ounces of gold.
This chart shows the Dow priced in ounces of gold. Currently, it takes just under 10 ounces of gold to “buy” the Dow. Over time, this ratio has ranged from 1 to over 40. Some investors use this relationship to determine the relative attractiveness of stocks versus gold.
Others believe that measuring things in gold is a better reflection of inflation than deflating nominal prices by the CPI index. Unfortunately, both methods have deficiencies. Using gold as the deflator, investors who held stock since the 1920s would have lost money, at least in terms of gold. While this might seem unlikely, remember that the value of the dollar today is only worth about 4 cents when compared to its purchasing power when the Federal Reserve was formed in 1913.
The renowned octogenarian, stock market guru, Richard Russell, believes that this ratio is likely to go back to 1 again. That is, one ounce of gold would buy the Dow. Russell doesn’t pretend to know whether or not gold will go to $5,000 and the Dow fall to 5,000 or some other combination of numbers.
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By Monty Pelerin, on November 9th, 2009
Image via Wikipedia
What’s old is new again, or soon to be. Unfortunately, we will probably have to incur an economic collapse before the modern-witch doctors we call economists are finally disgraced. For a variety of reasons, more and more people are questioning the so-called wizards.
Rolfe Winkler states: “If mainstream economists had the intellectual honesty to admit that their theories don’t properly account for debt, if they gave “fringe” thinkers like Minsky and Mises a fair hearing, we might discover the “new” economics that has been under our noses for a hundred years.”
November 9th, 2009
For “new economics,” look to old economists
Posted by: Rolfe Winkler
Tags: rolfe winkler, LM Holt, minsky, Mises
When it comes to managing the business cycle, Keynesian and laissez faire economics have failed rather spectacularly, their prescriptions leading to increasingly violent bubbles and busts. For this reason there have been calls for a “new economics.” To get there, perhaps we just need to rediscover forgotten economists like Hyman Minsky and “New” Economics is “Bad” Economics
By Monty Pelerin, on October 28th, 2009
Image by Getty Images via Daylife
The bailout fiasco is just now starting to show up for the act of desperation that many suspected it was. Instead of allowing markets to resolve a severely over-leveraged and distorted economy, the government decided to try to “bluff” its way through one more time. This strategy has been one used for almost 5 decades. Each time the credit stimulus required is bigger than the last. Each time the distortions to relative prices is made worse. Each time the misallocation of resources becomes greater. Each time the credit levels of individuals and government expand. Each time inflation becomes a bigger problem. Finally, a time comes when malinvestment and credit burdens are too large to be supported. It is probable that we have reached that point. To appreciate how far we have come regarding the abuses of credit creation, one need only note that since the Federal Reserve was created in 1913, the dollar has lost about 96% of its purchasing power. Most of that loss (probably in excess of 90%) has occurred since 1980.
There are still many that believe that government actions will get us out of our predicament. They won’t. When we come out of this mess, it will be in spite of these actions. They will serve to make the problem worse and cause it to last much longer. Japan has been employing similar stimuli for two decades, and its economy has still has not
Continue reading Bailout Fiasco – The US Sinks Into Bankruptcy
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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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