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    • Fri Nov 21st 15:52 PM | Rating: 0 0
      Commented on:
      The Downfall of Keynesian Economics and the U.S. (Part 3 of 3)
      "In the meantime, crowding out is the name of the game, as government indulges itself in one final act of self-preservation. If you're a real, producing company that wants to borrow money, tough luck."

      What's happening is not crowding out; if this were the case, yields between Treasuries and other debt would be narrowing, not widening, which is what has occurred. Yields on some Treasuries are at all-time lows. This doesn't happen because of increased government borrowing - the cause of crowding out.

      Because of the massive amount of uncertainty in the markets right now, buyers of debt are fleeing anything but the safest vehicles around. As things settle down, investors will be more willing to take on more risk. But for now, the fear keeps them where they feel safe - in Treasuries.

      As for real, producing companies unable to borrow money - look to the banks, who are still trying to firm up their capital. If you're a bank worried about surviving losses you've been unable to quantify, you're not trying to lend out the capital you have.
      View article »
    • Fri Nov 21st 13:33 PM | Rating: 0 0
      Commented on:
      The Downfall of Keynesian Economics and the U.S. (Part 3 of 3)
      "How "safe" do you think your Treasuries will be when the government needs to fund untold trillions of dollars over the next few years and none of the regular foreign buyers show up because they are too busy funding the needs in their own troubled economies?? The last remaining bubbles of American finance - Treasuries and the US Dollar - will burst and like all burst bubbles,it will be a mess. Or do you arrogantly assume that foreigners will let their own people starve just to save arrogant Americans like you??"

      You make several questionable assumptions:

      1. "the government needs to fund untold trillions of dollars over the next few years" How many is "untold"? One? Two? Three maybe? In an economy of 14 trillion dollars (well, maybe 13 trillion now), this is hardly unprecedented.

      2. "none of the regular foreign buyers show up because they are too busy funding the needs in their own troubled economies" If the world's economy is in such bad shape, US treasuries will continue to be the safest place to keep money. And, believe it or not, there will still be money.

      3. "The last remaining bubbles of American finance - Treasuries and the US Dollar - will burst and like all burst bubbles,it will be a mess." The dollar's value has increased during this crisis from historically low levels. The dollar is less valuable now than it was in more valuable now, in terms of foreign currencies, than it was between 1996 and 2006. Where's the bubble? And as for Treasuries - you think speculation is driving the price of Treasuries up? Seriously? Do you know what a bubble is?

      4. "Or do you arrogantly assume that foreigners will let their own people starve just to save arrogant Americans like you??" You assume that I'm arrogant, likely because I pointed out (correctly) that US Treasuries are currently viewed worldwide as the safest place to keep money. Evidence: 30 year treasuries traded at all-time low yields yesterday. 30 YEAR Treasuries. Chew on that for a while. Now, I may be arrogant, but describing US debt that way is no indication of it.

      Oh, you also assume for some reason that one question mark isn't sufficient.
      View article »
    • Fri Nov 21st 08:58 AM | Rating: +3 -1
      Commented on:
      The Downfall of Keynesian Economics and the U.S. (Part 3 of 3)
      Once again, the author fails in his stated attempt to lay blame for our ills at the feet of John Maynard Keynes. The discussions here have very little to do with Keynesian theory at all.

      Now, specific problems:

      1. If the banker is aware that there is only $300 in the monetary base, and he has it all, he won't be a banker. Why would he lend out money if there isn't any money to repay as interest?

      2. "The answer is hyperinflation, and that is most likely the course that the Federal Reserve will take." Most likely based on what?

      3. You show the scary monetary base chart, which takes off higher in the end. What you don't show is the actions of banks in the last year, while they have been deleveraging like mad to raise their capital levels. This IS a decrease in the overall money supply (which we used to measure - M3), and the fed's recent actions are meant to counteract this hugely deflationary action by the banking industry.

      4. "Those signs come in the form of negative net sales of U.S. treasuries by foreigners..." Really? Why then is the dollar appreciating against all currencies except the Yen and why then are treasuries currently trading at historically low yields?

      5. "...credit crunch making new loans more and more unavailable..." Which is because the banks have had to deleverage in response to much greater potential losses than previously expected.

      6. "...and the deflation seen in financial markets." And commodity markets. And all other markets EXCEPT for US Treasury securities, which are seen by the market as SAFER THAN ANYTHING ELSE.

      7. "The U.S. government and Federal Reserve will fight this with every tool they have, resulting in an end game of hyperinflation." Hogwash. The preferred share investments by the TARP aer structured such that as the banks regain their footing, take their losses, and start to function normally again, they will have a strong incentive to pay off the loans (reducing the monetary base) as they increase to normal levels their leverage (increasing the monetary base). The Fed and Treasury are well aware that in normal times their actions would be highly inflationary. These are not normal times.

      8. More worthless, unsupported attacks on Keynesianism. And then: "We had a near implosion as a result of these theories in the early 1980’s." Without even a mention of the oil shocks of the early 1970s, which sent inflation rippling through the economy, or of the institution and repeal of wage and price controls, which, like a coiled spring, sent prices much higher. These had nothing to do with Keynes, and had much more impact on prices in the late 1970s than anything related to theory specific to Keynes'.

      9. Let us not forget that Ronald Reagan's huge deficit spending (well, at least at first, during the recessions) fell nicely into line with Keynesian theory.
      View article »
    • Fri Nov 21st 08:37 AM | Rating: 0 0
      Commented on:
      The Downfall of Keynesian Economics and the U.S. (Part 2 of 3)
      Again, there's nothing here to indict Keynesian economic theory.
      View article »
    • Fri Nov 21st 08:34 AM | Rating: 0 0
      Commented on:
      The Downfall of Keynesian Economics and the U.S. (Part 1 of 3)
      There is nothing here indicting Keynesian economics in the least.
      View article »
    • Thu Nov 20th 13:54 PM | Rating: 0 0
      Commented on:
      Chart of Initial Jobless Claims
      Seems like a better chart would be the change in jobless claims against the change in the index.
      View article »
    • Thu Nov 20th 13:05 PM | Rating: 0 0
      Commented on:
      Berkshire Hathaway's Stock Slump
      Who cares about negative comments? Is it that hard to just ignore things?
      View article »
    • Thu Nov 20th 08:18 AM | Rating: +1 0
      Commented on:
      Inflation Is Bad for Stocks...
      Deflation is obviously bad. As for inflation, I'd like to see a comparison based on the rate of change rather than the rate itself. Investors hate uncertainty; in our history, highly inflationary times have been highly uncertain times.
      View article »
    • Thu Nov 20th 08:07 AM | Rating: +1 0
      Commented on:
      Berkshire Hathaway's Stock Slump
      Need to include dividends to get S&P total returns.
      View article »
    • Mon Nov 17th 14:58 PM | Rating: 0 0
      Commented on:
      The Reykjavik Scenario (or How Interest Rates Can't Control Monetary Inflation)
      You're pulling my leg, right? You're torturing yourself to continue your charade.

      "When interest rates rise, lenders are encouraged to lend, and thereby the cash supply is increased and inflation is increased and so the real rates are brought low."

      Except, of course, there are fewer borrowers at higher interest rates. Once again you ignore the demand side of the equation. But that's a minor matter, since you're ignoring the market pricing mechanism as well. Lending rates are determined through competition. And of course lenders also factor expected inflation into their interest rates.

      And of course, what we're talking about are not rates between banks and borrowers, but rates between the banks and the Fed. This is in a very real sense the cost of money to the banks. Lower the cost of money and the banks have a greater incentive to lend, because the profits are larger. Given time, profits will be squeezed out and new equilibriums will be reached across the lending markets at lower interest rates.

      Seriously, this isn't rocket science.

      "The exchange rate is not a good indicator of the inflation rate at all."

      Who said anything about exchange rates? Do you not know what the Nikkei is?

      "The money supply was contracting, was it not?"

      Strictly speaking, no, M1 was not contracting at all. Was M2 or M3 contracting? Of course it was. Was it because of interest rate changes? Not at all.

      "Yet the interest rates were falling, making Japan less desirable to foreign investors, and so the exchange rates fell off even though the cash contraction was diving into deflation."

      Shift your arguments all you want. The highest central bank interest rates persisted more than halfway through the market collapse.

      "Where are you getting that info?"

      So you really have no clue at all, then. Nikkei is from Yahoo finance, the rates of the BOJ are easy to find.

      "I remember when the Nikkei crash was THE big news story, it was also stated that interest rates were already virtually zero and couldn't be lowered anymore."

      So your beliefs are based on your obviously fuzzy recollections of something that happened more than 15 years ago. Now I understand completely. Good bye.
      View article »
    • Mon Nov 17th 08:30 AM | Rating: 0 0
      Commented on:
      The Reykjavik Scenario (or How Interest Rates Can't Control Monetary Inflation)
      "It isn't claimed, but it is clearly displayed."

      No, actually, it's not. What's shown is deflation. Once again, with feeling, since the real interest rate equals the nominal interest rate plus inflation, how exactly would the real interest rate and the nominal interest rate be inversely correlated?

      "The [Japanese] rates went down to virtual zero WHILE the [Japanese] markets were collapsing."

      Naturally, of course, unsurprisingly, you're wrong yet again. Please look at the data. The Nikkei fell more than 60 percent—from a high of 40,000 at the end of 1989 to under 15,000 by 1992. Japan raised the discount rate from 2.5% in the beginning of 1989 to 6% at the end of 1990. Starting in mid 1991, when the market had already lost 40% from its peak, the discount rate was lowered several times over the next 5 years. When the market reached its 8/92 bottom, more than 60% off the peak, the discount rate was still 3.25%. The rate continued to be cut, to 0.5% in 1995 and eventually to 0.1% in 2001 - not at all WHILE the markets were collapsing. Most of the collapse occurred before the discount rate was cut ONCE.

      Of course, it's necessary to consider the nature of the savings patterns of the Japanese people vs. the American people, but that's beyond my patience to explain.
      View article »
    • Mon Nov 17th 08:04 AM | Rating: 0 0
      Commented on:
      Deflation Now; Inflation's Coming
      No analysis? Fine.

      The world's banks have been deleveraging for some time, as they have reassessed their risks and sought to raise their capital levels. This deleveraging is a direct reduction in the monetary base (M3 specifically). The rapid infusions by central banks are meant to stem the drop in M3 by providing the added capital the banks needed to raise.

      The trick comes on the other end, when the banks wipe out the excess risk and seek to raise their leverage. That's when inflation becomes an issue. The preferred investments by the central banks are designed to prevent this inflation automatically, as the banks will seek to redeem these shares and their high dividend rates as they return to a more normal operating state.

      There are other problems, but the structure of the preferred bank infusions makes clear that the Fed/Treasury are aware of the longer-term implications of what they're doing.
      View article »
    • Sat Nov 15th 22:35 PM | Rating: 0 0
      Commented on:
      The Reykjavik Scenario (or How Interest Rates Can't Control Monetary Inflation)
      You are intentionally ignorant. You're not even bothering to follow where I point to learn something. So I guess a more blatant method is necessary. From www.federalreserve.gov...:

      "Open Market Operations"

      "Open market operations--purchases and sales of U.S. Treasury and federal agency securities--are the Federal Reserve's principal tool for implementing monetary policy. The short-term objective for open market operations is specified by the Federal Open Market Committee (FOMC). This objective can be a desired quantity of reserves or a desired price (the federal funds rate). The federal funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight.

      "The Federal Reserve's objective for open market operations has varied over the years. During the 1980s, the focus gradually shifted toward attaining a specified level of the federal funds rate, a process that was largely complete by the end of the decade. Beginning in 1994, the FOMC began announcing changes in its policy stance, and in 1995 it began to explicitly state its target level for the federal funds rate. Since February 2000, the statement issued by the FOMC shortly after each of its meetings usually has included the Committee's assessment of the risks to the attainment of its long-run goals of price stability and sustainable economic growth.

      "For more information on open market operations, see the article in the Federal Reserve Bulletin (102 KB PDF). [www.federalreserve.gov...]

      From that article:

      "Open market operations are the Federal Reserve’s principal tool for implementing monetary policy. These purchases and sales of U.S. Treasury and federal agency securities largely determine the federal
      funds rate—the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight...

      "The market in which the lending of Federal Reserve balances takes place is the federal funds market, and the interest rate at which the loan is made is the federal funds rate. Federal funds lending is not collateralized; therefore, different depository institutions pay different rates for loans depending on their creditworthiness. Depository institutions can arrange transactions directly between themselves, or for large transactions they can use a federal funds broker. Typically, the term ‘‘federal funds rate’’ refers to the rate at which the most creditworthy institutions borrow and lend balances in the brokered market."

      Once again, slowly:

      (a) the federal funds rate IS the overnight lending rate;
      (b) the market determines the ACTUAL federal funds rate;
      (c) the Fed declares a TARGET for the federal funds rate;
      (d) the FOMC conducts open market operations to attempt to move the effective federal funds rate to the target.

      "How do you suppose that any negotiation is possible? Checks and wire transfers must be cleared through the interbank accounts. These accounts will fluctuate daily regardless what any institution does or wants done. Only public activity affects these accounts, and the interest charged and paid is simply declared by the Fed."

      Now it sounds like you're confusing the federal funds rate with the discount rate. But clearly, you should go do some reading and then come back.

      "Proving causation is impossible. Your point was to dismiss correlation that fails to support your mindset."

      Proving causation is impossible? Are you trying to move into philosophy now? If I run over you with my car, is it possible to prove the cause of your injuries? Of course it is.

      Now, as for dismissing correlation that fails to support one's mindset, you're the one who is ignoring decades of evidence that belies your assertion. From the last 80 years of data, you pulled out 5% that appears to support your assertion, ignoring the remaining 95%. Even your own cited page states: “the nominal interest rate was declining over the course of the economic decline from 1929 to 1933 but BECAUSE THE RATE OF INFLATION WAS NEGATIVE the real interest rate was much higher than the nominal interest rate [emphasis added]. YOUR OWN SOURCE doesn’t claim an inverse correlation between nominal interest rates and real interest rates.

      But let’s get more basic. Do you know the definition of real interest rates? It’s the nominal rate plus inflation. That’s it! So how could there possibly be an inverse correlation?

      By the way, here’s that fed chart I mentioned last time: www.newyorkfed.org/cha.../ . On this page (www.ny.frb.org/markets...) that links to it you will find this text: “By trading government securities, the New York Fed affects the federal funds rate, which is the interest rate at which depository institutions lend balances to each other overnight.” Are you still going to insist that you’re right, without citing a single source, when I now have both the main fed and the NY fed websites stating that THE FEDERAL FUNDS RATE IS THE OVERNIGHT LENDING RATE?

      “I am telling you that deflation is a symptom of money supply tactics and nothing else.”

      What are “money supply tactics”? Deflation occurs when the money supply doesn’t grow fast enough or shrinks, which is what has been happening as the banks deleverage.

      “In the 70s, nominal rates soared and real rates went negative.”

      In the 1970s, we had wage and price controls and oil shocks, both of which had significant impacts on inflation. High inflation is what caused the real interest rate to become negative.

      “Every time nominal rates are adjusted, the real rates move in the opposite direction.”

      You’re making a fool of yourself. You should just stop.

      “The fed does not create money.”

      Of course it does. That money created by the fed is a fraction of M3 does not mean the fed doesn’t create money.

      “We are discussing macro economics. Micro principles are not applicable to the macro economy.”

      Actually, what I was talking about was the functioning and interconnection of a couple of very specific money markets. Certainly microeconomics. Back to the question: do you have any economics training at all?

      The timetable link is there. I’m not surprised you couldn’t find it, however. en.wikipedia.org/wiki/...

      “Why should [the fed and Treasury throw money at everything] if cash contraction is not a problem?”

      I never said the money supply was not shrinking. I’m saying you have no clue as to the reasons for it.

      “The cash contraction is caused by the fact that cutting interest rates discourage lenders from lending, and no amount fed activity will encourage banks to lend again until the Fed hikes rates again.”

      You are apparently an ignoramus. You present no evidence to back your assertions, you ignore evidence handed to you that refutes your beliefs, and yet you are steadfast. Why am I wasting my time?

      “Again I suggest you look at the experience of Japan.”

      I’m just going to give you a quick quote on this:

      “The government attempted to offset the stronger yen by drastically easing monetary policy between January 1986 and February 1987. During this period, the Bank of Japan (BOJ) cut the discount rate in half from 5 percent to 2.5 percent. Following the economic stimulus, asset prices in the real estate and stock markets inflated, creating one of the biggest financial bubbles in history. The government responded by tightening monetary policy, raising rates five times, to 6 percent in 1989 and 1990. After these increases, the market collapsed.” [mises.org/story/1099]

      Again, doesn’t follow your incredibly incorrect theory.
      View article »
    • Sat Nov 15th 10:09 AM | Rating: 0 -1
      Commented on:
      GE, Goldman Bond Spreads: Unrealistic and Unsustainable
      Based on the thinking behind the article, would you expect him to be invested any other way? Are you as skeptical of somebody who's bullish and long?
      View article »
    • Fri Nov 14th 10:27 AM | Rating: 0 0
      Commented on:
      Will Apple Beat 2009 Revenue Consensus?
      Also, remember, they've still got revenue coming in from the 1st gen iPhone deal, where they get a monthly cut from AT&T. That will contribute meningfully to revenue during the first couple of quarters, but not so much thereafter.

      "While a moderate to deep recession will undoubtedly affect Apple's business, the natural growth rate and penetration in even a flat economic environment will offset the negative effects of a slowdown. Unless we're talking 10-12% unemployment and 5-6% negative GDP growth throughout 2009, the analyst consensus simply makes no sense."

      We are NOT in a flat economic environment. We are in an extraordinarily fearful environment. Until the fear is taken care of, I expect consumer spending will be greatly reduced, which will hit all retailers to some degree. It's possible that the last week or two before Christmas will be gangbusters, if markets stabilize, people feel confident in their jobs, and the media stop reporting the worst possible economic news every...single...day. But I'm inclined to think not. I think nearly all consumer-related companies are going to see an unprecedented drop in sales this quarter, which will basically be a dead loss, since Christmas is a once-per-year event.

      As an aside about the media: I watched a thestreet.com video with Arthur (yes the curve guy) Laffer, who basically said that the huge amounts of debt that we're adding to the national balance sheet will be a big drag on future economic growth, which needs to be solved by reduced future government spending rather than tax increases, as Obama described in his campaign. He also said that Obama could change into a more Bill Clinton-like economic President, and said he could turn out to be one of our best Presidents. The headline on the story: "Laffer: Obama will tax us to death."
      View article »
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