Friday, July 20, 2007

We've Learned Our Lessons

Last night a friend advanced the hypothesis that "we've learned our lessons." His implication was that the Federal Reserve Board is firmly in control of the money supply and there won't be a complete dollar meltdown. Ironically, that statement was made in the context of the Las Vegas housing market which is in the throws of a Fed-induced meltdown.

Even people like my friend that know we should all be as liquid as possible and heavily weighted toward hard asset investments aren't grasping the significance of the writing on the wall. The dollar is at all time lows, the current-account deficit is staggering, real price levels of staples (not the faux CPI-U which even ticked up hard last month) are rising incredibly fast, and, most tellingly, foreclosures are moving past sub-prime mortgages and cutting huge swaths in regular mortgages.

I think my friend treated the stats I threw at him incredulously, even though deep down he knows they are right. Not surprisingly, they are the exact stats that came up during Ben Bernanke's recent visit to the House Financial Services Committee (which I hadn't seen until this morning):

It doesn't appear to me that Bernanke has learned his lessons at all (even beyond the belief that the Federal Reserve can magically manipulate the money supply without doing a lot of damage).

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Monday, July 16, 2007

Cheap TVs and Cars - A How-To

Photograph: Bishop Asare/EPA

At night, retailers dream about throngs of customers storming the aisles and snapping up the highest-priced items. The customers flood the check-out lanes with their purchases and fist-fulls of cash. It would be better than the day after Thanksgiving. Or, would it?

As with most questions the answer is, "it depends."

Zimbabweans are shopping like there's no tomorrow. With police patrolling the aisles of Harare's electrical shops to enforce massive government-ordered price cuts, the widescreen TVs were the first things to go, for as little as £20. Across the country, shoes, clothes, toiletries and different kinds of food were all swept from the shelves as a nation with the world's fastest shrinking economy gorged itself on one last spending spree.

Car dealers said officials were trying to force them to sell vehicles at the official exchange rate, effectively meaning that a car costing £15,000 could be had for £30 by changing money on the blackmarket. The owners of several dealerships have been arrested.

President Robert Mugabe's order that all shop prices be cut by at least half, and sometimes several times more, has forced stores to open to hordes of customers waving thick blocks of near worthless money given new value by the price cuts. The police and groups of ruling party supporters could be seen leading the charge for a bargain.
For the monetary-exchange challenged, that's $US 61.10 for a $US 30,550 car. I'll bet the vast majority didn't even have to finance.

What's the penalty if you don't comply with the government?

The price cuts were ordered by the joint operation command, a committee of army, intelligence and police officers closely tied to the ruling Zanu-PF and chaired by Mr Mugabe.

The government despatched security personnel and party cadres, including its notorious "green bomber" thugs, to enforce the price cuts, in some cases by beating up shop managers who did not implement them quickly enough.
Sounds awfully peaceful to me. So, what is the result of "Operation Reduce Prices"?

The impact of the price cuts was felt almost immediately as fuel virtually disappeared from sale after garages were forced to sell petrol for 23p a litre, less than they paid the state-owned supplier.

The police and army broke the locks on petrol pumps at some garages and tanks ran dry amid panic buying. Now petrol is available only on the blackmarket, at more than seven times the official price and three times what garages had been charging. By Saturday, most minibus taxis had gone from the roads because drivers could not find petrol. Crowds of workers were left on kerbs for hours trying to get to or from their jobs.

The riot police had to be called out to the South African-owned Makro super store in Harare after thousands of people stormed the shop after it was forced to slash prices. The scenes were replicated in stores throughout Harare. The Bata shoe chain's shops were stripped bare in two days by people snapping up pairs for as little as 20p.

Food is still available, although bread, sugar, cornmeal and other staples are hard to find, and meat has all but disappeared because livestock owners say it is now uneconomic to slaughter their animals. Much of the meat that is available is goat slaughtered in backyards and sold in informal markets.

The rest of the food supply - already severely undermined by drought and lack of production on land seized from white farmers - is also under threat after Mr Mugabe threatened to take over manufacturers if they shut down their plants on the grounds that they were uneconomic. "Factories must produce. If they don't, we will take you over ... We will seize the factories," he said.
Darn. If only there was some type of science that could predict such an outcome. Oh, wait! Here it is:

Economists say the price cuts will only deepen the national crisis, leaving many shops bare because they will not be able to afford to restock while official retail prices remain lower than the cost of buying wholesale or importing. Mr Mugabe has dismissed such warnings as "bookish economics".
The sick part of that statement is that he's right. Economists tend to be extremely bookish - if it can't be observed from their desk chair, they aren't interested in it. Until progenitors of the "dismal science" learn to actually use the scientific method "bookish" is the best you can say of them. The Zimbabwe scenario, repeated so many times throughout history, will continue until they do.

However, to do so would require work (something that economists tend to praise, but eschew at all costs). It would require proofs and controlled experiments. It would require hypothesis and testing. It would require publishing results incongruous with personal bias.

Worse, it would require funding. Funding that would have to come from sources open to the possibility of results antithetical to their social agendas.

It's much more fun, I guess, to live in a world where governments promote mass starvation and genocide at the point of a gun.

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Wednesday, July 11, 2007

Fiat Money and the Business Cycle

2008 Presidential candidate Congressman Ron Paul has, as one of his campaign issues, returning sound money from its current outlaw status. It's an easy process, actually, of reversing the steps by which fiat currency gained its hegemony. It is as simple as removing capital gains taxes on the items people may choose to use as money and calling off the dogs at the Treasury Department that are currently spreading personal opinions as legal fact in regard to alternative currencies.

Congressman Paul is promoting sound money with a populist message: the Federal Reserve is exacting an "inflation tax" by debasing the very dollars in your wallet. It's a simple message (simplified further by his supporters to "abolish the Fed") as far as it goes, and non-controversial from the standpoint that no one other than Ron Paul supporters has even bothered to notice it.

What I've noticed, though, is that Paul seems to be studiously avoiding the subject of fiat money and the business cycle. I have to wonder if he isn't missing an opportunity right now to talk about this far more lecherous effect of the federal reserve system. This will be a controversial topic - what better time to broach something controversial than when everybody seems to be ignoring you?

Respected economists and high finance types are going to start throwing bolts of lightning if an "abolish the Fed" campaign gains the least bit attraction. The axes that unions and corporations will throw at a non-corporatist candidate will pale in comparison.

Big investors, lenders, and borrowers are far too addicted to easy credit to give up without a big fight.

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Tuesday, July 10, 2007

33 Questions

What could possibly rival a good, long economics rant in terms of yawn-inducement? Paint drying? Grass growing? Paris Hilton?

Nope. It's an astrophysics lecture. I mean, come ON! All math, no theory; just plug in the numbers and launch the rocket already! Open the book the night before the final, memorize the formulas and presto: you've got a B.

In close second comes a history lecture. It's not the subject matter; history has a certain [voyeuristic?] allure where you get points for the details and for discovering the nasty secrets of dead people who can't spin the conversation. Nevertheless, most history profs have a way of taking a fascinating subject and turning it into a torture session.

When a historian starts speaking, I immediately flash to the scene in Mrs. Doubtfire where William Newman drones on about ornithischia.

One historian, though, has captured my attention for the past couple of years. He's got a way of parsing out the important details of an historical event, teasing you with the most interesting tidbits, and then leaving you with a never-ending stream of source material. Not surprisingly, this makes Thomas E. Woods, Jr. the envy of historians who don't understand why people sleep through their lectures.

More importantly to Professor Woods, however, they are also envious of his books. They are written as he speaks: more information than you could possibly want to know presented in a way that leaves you wanting more. Unable to compete with him for eyeballs and attention spans, the history-trolls attack him in reviews without offering any contradiction to his work.

You know the best reads, music, and movies are the ones most castigated by the New York Times. Woods' book, The Politically Incorrect Guide to American History, was definitely targeted by the Times and, yes, it's great. (I gave a copy of it to my mother-in-law for Christmas, and I love my mother-in-law!)

So, I got a little excited this morning when I received an e-mail reminding me that today is the official release of Woods' latest book, 33 Questions About American History You're Not Supposed to Ask. From everything I've read, Woods wrote this book just to poke sticks at the history-trolls. Here's an example:

How wild was the "wild" West?

The standard story there, seared into the American consciousness and folklore by motion pictures and other tall tales, is one of constant chaos and peril. But historians have been rejecting that old view for some time. In fact, implausible as this may sound, what is most impressive about the old West was how peaceful and cooperative it was. Although you'd never know it, scholars have repeatedly shown that the old West was actually safer than most American cities today.

In the absence of formal government, voluntary institutions emerged that defined and enforced property rights and adjudicated disputes. Far from a land of lawlessness and violence, a myth spun from tales designed to sell dime novels, the old West actually constitutes a fascinating case study of the ability of market institutions, even in apparently impossible conditions, to facilitate peaceful interaction and to carry out functions we normally associate with government.

The story is all the more impressive when we recall the inauspicious circumstances in which these events occurred. The settlers were men of vastly different backgrounds. They had no intention of putting down permanent roots; they intended to make their fortune and return back home. They were complete strangers with no pre-existing community camaraderie on which to build. And yet, according to Andrew Morriss of Case Western Reserve University School of Law, "This amazing polyglot of men seeking rapid wealth, and with virtually no intention of building a lasting society, created a set of customary legal institutions which not only flourished in California but successfully adapted to conditions across the West."

Seems pretty tame, but watch the book reviews over the next few weeks. The more vicious the attacks are, the more you know you want to read this book.

UPDATE: Thomas Woods on WHO's "Mickelson in the Morning".

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Monday, July 02, 2007

Corey Maye, who attempted to repel invaders in his home remains in jail on a life sentence. Maye, who apparently wasn't master of his castle when the Sheriff's son broke in, has gotten the "break" of no longer being on death row. He should consider himself lucky he didn't suffer Kathryn Johnston's fate.

Canadian Stephen Lawrence faces five years in jail for founding the Internet payment processor Neteller PLC after being kidnapped by US Marshalls in January 2007. His co-founder, John Lefebvre, who hasn't been with the company since 2005, still faces charges.

Almost a year after his kidnapping, David Carruthers remains under house arrest in St. Louis. He and Gary Kaplan will face testimony against them from their own company, BetOnSports PCL, for the same reason Lawrence plead guilty - so their customers could get their funds.

But, hey, Scooter's free, so I guess everything else is OK.

On a totally related note, read Lysander Spooner's No Treason.

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Sunday, July 01, 2007

Speaking of... currencies, sound money, and inflation, here's Congressman Ron Paul giving a speech at a campaign rally in Des Moines, IA, yesterday:

Part I

Part II

Part III

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