Monday, November 22, 2010

New Crash Coming, Hyperinflation

It looks like QE2 is designed to lower long-term rates so people can borrow to buy depressed houses and other real estate, thus propping up prices. The fed is the bankers bank and those member banks are sitting on real estate backed assets which are worth far less than their face value. They have repossessed lots of houses and need to dump them on the market soon. The fed is just trying to boost the prices so that banks can continue to report strong earnings and not force them to recognize losses on their lousy real estate deals. Thus we are seeing the beginnings of a new bubble where house prices will bubble up to where they were before the 2008 crash, and maybe overshoot those, and drag other assets into the bubble such as gold and silver. Obama is going along with this, just as did Bush during the Greenspan Bernanke dot-com and house bubbles. So we see a third bubble taking shape much like bubbles of the last dozen years. Most likely another crash. This time China will be more important. They have already announced they want to cool their economy at the same time that Bernanke is letting the dollar slide which will also cut China exports to the USA. We are also seeing oil, food, and other prices suddenly starting to rise and other prices are going up with our economic recovery. The recent bubbles were not accompanied by inflation because China Wal-Mart etc. was flooding USA with low-cost goods. This bubble we will not be so lucky and will see some inflation that may become imbedded in core inflation and force interest rates higher. The problem with bubbles is that they burst. As interest rates go higher people will cut their buying of houses and their prices will crash. QE2 may start a bubble but excessively loose monetary policy can sow the seeds of its own destruction by the inflationary pressures that it may release. Bond holders and China may panic and just dump the bonds back into the market and cause interest rates to skyrocket faster than what Bernanke thinks. We saw in the 1970s stagflation cured by Volcker
Mr. Volcker raised interest rates sharply in his “October massacre” of 1979. Other than the Volcker years, the central bank has largely lurched from one mistake to another. After a loose-money decade in the 1920s, it let the nation’s money supply collapse in 1930-32, a proximate cause of the Depression. Later, it overexpanded the money supply in 1965-79, leading to soaring inflation. After 1995, the chairmen, Alan Greenspan and now Ben Bernanke, made the same mistake, expanding the money supply far faster than the rate of United States economic growth. This caused bubbles in stocks, real estate and commodities for which the world is now paying the price.

Saturday, November 13, 2010

Bankers, Elites, Conspiracies

Humans have a strong herd instinct so during booms they become wildly optimistic and greedy --they borrow too much, get over-extended, then get clobbered in the inevitable crash. Then they become fearful, depressed, and think the recession will never end. In the great depression unemployment was 95% in the San Francisco Mission District (Irish back then) which became the epicenter of the dot-com boom 6 decades later. I remember sitting at the New York City Hilton Christmas tree December 27 1982 AFA meetings looking for a job after the stock market had suffered for 10 years and it looked like USA was getting taken over by Japan and everybody was depressed. Within a few months the stock market took off and did not crash much for decades. I can remember the 1970s when the Dow was 600 something and now it is over 11,000. Houses have done well in many areas of the country. I got a free account at and printed out the annual Dow Jones:
31-Dec-1973 850.86
31-Dec-1974 616.24
31-Dec-1975 852.41
31-Dec-1976 1004.65
30-Dec-1977 831.17
29-Dec-1978 805.01
31-Dec-1979 838.74
31-Dec-1980 963.99
31-Dec-1981 875.00
31-Dec-1982 1046.54
30-Dec-1983 1258.64
31-Dec-1984 1211.57
31-Dec-1985 1546.67
31-Dec-1986 1895.95
31-Dec-1987 1938.83
30-Dec-1988 2168.57
29-Dec-1989 2753.20
31-Dec-1990 2633.66
31-Dec-1991 3168.83
31-Dec-1992 3301.11
31-Dec-1993 3754.09
30-Dec-1994 3834.44
29-Dec-1995 5117.12
31-Dec-1996 6448.26
31-Dec-1997 7908.24
31-Dec-1998 9181.43
31-Dec-1999 11497.12
29-Dec-2000 10786.85
31-Dec-2001 10021.50
31-Dec-2002 8341.63

While the market goes up and down, there needs to be a good reason to suggest that the long run upward trend will not continue. Dumb and crooked politicians and regulators are not a good reason because they have been around for a long time.

"Let us break this down."Pessimistic" is a characterization of the nature or direction of Chapman's predictions. Thus pessimistic is defined as against what the lamestream media is telling persons what is happening or going to happen. What the lamestream media saying is therefore perceived as the benchmark to be measured against. What is the predictive validity of the mainstream? Less than 50% which would be random in a binary system and much less given the many possible alternative scenarios."

I agree that most media cannot forecast, and they cannot even figure out the history. They are trying to entertain, sell newspapers and get people to buy things and vote in particular ways. The media were full of optimism during the boom and pessimism during the bust. The 1970s was even more depressed than today.

"Time and time again Bernanke and his predecessor Greenspan fail to make accurate assessments about anything. Much of their public statements can be characterized as making excuses about why their plans did not work and their assessments were wrong due to changed circumstances"

I heard them over and over again say they did not anticipate the recent crash and the severity of the following recession (although now everybody seems to think that everybody knows that recessions are long and severe after such a financial crisis). I do believe they do not know what was going on. This means we should be careful about any of their policy prescriptions. In fairness, Greenspan did coin the term 'irrational exuberance' in 1996 but failed to do anything to rein it in.

"In fact Greenspan admitted he made up terms and statements as he went along. Add to this the adamant refusal of Federal Reserve authorities to even be audited."

I don't think the politicians want to audit them. If people elect politicians who do not care, then the bankers can do what they want with help from the other elites.

"Meanwhile their lifetime banking and corporate associates continue to receive bigger and bigger payola at the expense of the average American."

Most Americans do not study economics and don't know how the financial system works, nor do their elected politicians. So bankers get to do what they want, with help from the other elites. When much of the population is uneducated, these 'elites' gain power with a small clique running everything. Most third world countries operate this way.

"A conspiracy is defined as two or more persons engaged in a plot that have taken active steps to advance the fulfillment of the goal of that plot. This is loose definition and one that reflects criminal law. Never the less the circumstantial evidence suggests that the Fed and the fully owned and controlled lamestream media are the ones actually engaged in a conspiracy to defraud the American public."

Much of what they do is legal, and the illegal parts are done by idiots that they payoff. The elites -- bankers, lawyers, lobbyists can rig the game to get rich and scot-free and let the idiots rot in jail (most of them do not get caught either). I don't know if the elites can be called a 'conspiracy' because they are probably not smart enough to see how it all fits together. They are just responding to incentives and manipulating the system to bend it in their direction in their own small part of the system. It's just the way the system has evolved and many elites not be happy with this system, even those who get a lot of money from it. It is dysfunctional and will weaken the USA in the long run.

I agree on the investment recommendation for agricultural land. World population is exploding and they will buy food and especially water which is scarcer than food. Some people like gold jewelry but they will buy that after they get food and water. Numerous companies in India, China, Brazil, Russia and elsewhere will be a better investment than gold -- they pay dividends and get larger price appreciation.

"Frankly as a seasoned licensed criminal investigator circumstantial evidence would cast doubt on much of what the powers that be characterized as a given or a fact including birth certificates, Al Qaeda causation or Weapons of mass destruction. This does not imply the end of times but a contrarian investment scenario. Would I want to invest in TIPS that pay well under the actual inflation rate and are subject to increasing federal and state tax rates or would I be better off investing in gold or silver or agricultural land when 40 million American live on food stamps and the currency is rapidly losing purchasing against food and other commodities?"

He is relentlessly pessimistic and conspiratorial which makes me suspicious. Unfortunately, he may be right. USA financial system may be in for more than a bumpy ride, maybe a complete hyperinflationary collapse. Even if we can't catch the crooks, maybe we should make them pay higher taxes?

“Dr. Bernanke unfortunately does not understand economics, he does not understand currencies, he does not understand finance,” Rogers, 68, said in a lecture at Oxford University’s Balliol College yesterday. “All he understands is printing money.” “His whole intellectual career has been based on the study of printing money,” he said. “Give the guy a printing press, he’s going to run it as fast as he can.”

The Fed Helps Stabilize the Economy

There are no good data series that go back much before WWII so economic performance of that era must be uncovered by careful historical analysis. Most researchers conclude that the economy was stabilized by the introduction of the Federal Reserve and reforms motivated by the great depression. There were frequent depressions before the great depression but none since. Canceling depression-era reforms such as Glass-Steagall helped cause the crash of 2008.

I have done considerable digging around for old data (some is on this computer) and most show much worse gyrations in business activity the farther you go back into history. The 2008 crash was unusual, as was the 1970s oil supply disruption. The Federal Reserve helped the USA to live easy for a long time. Also helping the USA economy recently has been loans and low-priced goods from foreigners. If people want to borrow and spend it is hard for the Fed to stop them. Similarly a gold standard cannot stop people from borrowing and spending. But I will fault the Fed for the severity of the two recent bubbles -- tighter money could have raised interest rates and stopped some of the recent housing bubble, for example. High interest rates would also have boosted the dollar thus motivating people to quit using credit cards to buy foreign goods, taking out auto loans, etc. So laxity by the Fed lately has helped lead to the current malaise. I think many consumers have learned their lesson but in a few years we will have a new naïve generation to educate.

The fed needs to worry about house and asset price inflation as well as consumer good inflation.

The average duration of the 11 recessions between 1945 and 2001 is 10 months, compared to 18 months for recessions between 1919 and 1945, and 22 months for recessions from 1854 to 1919. Because of the great changes in the economy over the centuries, it is difficult to compare the severity of modern recessions to early recessions. Recessions after World War II appear to have been less severe than earlier recessions