Dec 26, 2009

Former Fed bank chief on paying Goldman Sachs counter-parties in full

What was done was appropriate because the potential costs of not doing that were probably exceedingly high. It certainly looked very threatening.

~ Gary Stern, former president of the Federal Reserve Bank of Minneapolis, "Taxpayers Help Goldman Reach Height of Profit in New Skyscraper," Bloomberg.com, December 27, 2009

(Stern stepped down in August as president of the Federal Reserve Bank of Minneapolis.)

Dec 20, 2009

Nouriel Roubini: Jim Rogers's $2,000 gold is "utter nonsense"

[Today's forecast by investor Jim Rogers that gold will double to at least $2,000 an ounce is] utter nonsense. [There is no inflation or] “near-depression” [to drive gold prices that high. If a severe depression came to pass, with investors buying canned goods and hiding out in log cabins,] maybe you want some gold in that scenario. Maybe it will reach $1,100 or so but $1,500 or $2,000 is nonsense.

~ Nouriel Roubini, speech at the Inside Commodities Conference in New York, reported by Bloomberg TV, "Rogers's $2,000 gold 'utter nonsense'," November 5, 2009

(Gold rose to a record $1,098.50 today.)

Dec 18, 2009

Jim Cramer on investing in banks he admittedly knows little about

"The Citigroup (C) deal was a good deal. It just wasn't good for the bank

I was adamant the other day -- some would say rabid -- that you be in on the deal. I specifically did not want you to buy it ahead of the deal, although I am now being ridiculed -- thanks Huffington Post! -- for suggesting that I wanted you in at $3.70.

Look, I have no idea really how Citigroup is doing. That's because they don't know how it is doing. That's the biggest flaw of the joint, of course. But what does matter is that I think that worldwide GDP growth is going to be stronger than people think, and that will cure a lot of the errors of all banks, including Citigroup.

Sometimes, as I say in Getting Back to Even, bad merchandise turns into good merchandise at a price. The idea that so much supply could knock down Citigroup to where the stock traded is of ZERO interest to me. The dilution? It is manageable.

The main thing is the stupidity of the critics who keep calling it a bad deal. A bad deal is one that breaks print, not one that goes up after.

Make judgments only about whether you make or lose money. That's what you can try to control.
The rest is dross ginned up by people who need something to write or talk about."

~Jim Cramer, "Did You Make Money? Then It Was A Good Deal", TheStreet.com, December 18, 2009, (link)

Dec 17, 2009

Alan Greenspan on stock market rally as economic stimulus

“When stock prices go up, the market value of common stock or of equity in banks and other financial institutions rises,” he said. “And the market value of liabilities is importantly affected by the size of the equity market value cushion on banks’ balance sheets.”

~Alan Greenspan, "Greenspan Says Stock Rally Means Lower Stimulus Need", December 17, 2009, Bloomberg.com (link)

Dec 16, 2009

Mortimer Zuckerman on creating jobs

Only massive programmes are equal to the challenge of restoring stable growth to our economy. One such programme would be to establish a National Infrastructure Bank, advocated by prominent Democrat Felix Rohatyn, to which the government would assign the $65bn (£40bn, €45bn) annually allocated to support infrastructure construction nationally. The bank would have the capacity to borrow, with federal guarantees, an additional $200bn. This programme would ensure a rational rather than a political investment in infrastructure, and provide long-term infrastructure development on a major scale with a maximum multiplier effect on the economy.

~ Mortimer Zuckerman, "The free market is not up to the job of creating work," FT.com, October 18, 2009

Time on their 2009 Person of the Year

Professor Bernanke of Princeton was a leading scholar of the Great Depression. He knew how the passive Fed of the 1930s helped create the calamity — through its stubborn refusal to expand the money supply and its tragic lack of imagination and experimentation. Chairman Bernanke of Washington was determined not to be the Fed chairman who presided over Depression 2.0. So when turbulence in U.S. housing markets metastasized into the worst global financial crisis in more than 75 years, he conjured up trillions of new dollars and blasted them into the economy; engineered massive public rescues of failing private companies; ratcheted down interest rates to zero; lent to mutual funds, hedge funds, foreign banks, investment banks, manufacturers, insurers and other borrowers who had never dreamed of receiving Fed cash; jump-started stalled credit markets in everything from car loans to corporate paper; revolutionized housing finance with a breathtaking shopping spree for mortgage bonds; blew up the Fed's balance sheet to three times its previous size; and generally transformed the staid arena of central banking into a stage for desperate improvisation. He didn't just reshape U.S. monetary policy; he led an effort to save the world economy.

~ Time, "Person of the Year 2009," December 16, 2009, by Michael Grunwald

Dec 15, 2009

Bill Gates Sr on estate taxes

Society has a just claim on these fortunes. The facts are clear: The estate tax raises substantial revenue from those with the capacity to pay it.

"Senate’s Baucus Seeks Temporary Extension of Estate Tax in 2010", Bloomberg, December 15, 2009,

Humpty Dumpty on the meaning of words

"When I use a word, "said Humpty Dumpty in rather a scornful tone, "it means just what I choose it to mean - neither more nor less."

"The question is," said Alice, "whether you can make words mean so many different things."

"The question is," said Humpty Dumpty, "which is to be master - that's all."

~ Lewis Carroll, Through the Looking Glass, Chapter VI

Dec 14, 2009

Maria Bartiromo on the Fed's independence

The independence of the Federal Reserve has been one of the greatest things about this country.

~ Maria Bartiromo, as appeared on CNBC, December 14, 2009, 3:10 EST

Dec 11, 2009

Alexander Hamilton, father of the US central bank, on the price of liberty

"The United States debt, foreign and domestic, was the price of liberty"

~Alexander Hamilton, as quoted on the front page of the website of the US Bureau of the Public Debt, a wing of the US Department of the Treasury

Dec 10, 2009

Obama on TARP bailout

There has rarely been a less loved or more necessary emergency program than TARP, which as galling as the assistance to banks may have been indisputably helped prevent a collapse of the entire financial system.

"Obama to extend bailout fund, use a chunk for deficit", CNBC.com, December 10, 2009,

Dec 9, 2009

Walter Williams on the pretense of knowledge

Whether it is health care, education, employment or most other areas of our lives, I ask you: Who has the capacity to master all the complexity to make choices on behalf of others? Each of us possesses only a tiny percentage of the knowledge that would be necessary to make totally informed decisions in our own lives, much less the lives of others. There is only one reason for the forcible transference of decision-making authority over important areas of our private lives to elite decision-makers in Congress and government bureaucracies. Doing so confers control, power, wealth and revenue to society's elite.

~ Walter Williams, "The Pretense of Knowledge," December 2, 2009

VP Joe Biden on the prospects for economic recovery

"We inherited one heck of a mess, as you well know. The GDP was a -6.3%, 740,000 people lost their jobs before I lowered my hand after taking the oath... We're making progress. The GDP's growing, we're going to be producing jobs by the beginning of next year, in the first quarter of next year... it took us a long time to catch up.
...
Here's the deal, we have now, of that recovery act, we've been in business 7, 8 months, the one thing you haven't seen... is those big wasteful projects. No one has come up with anything like, 'You went out there and spent $2-million on something that didn't exist.'
...
First of all, the kind of jobs we're trying to create are not make-work jobs. We're trying to build a new platform, Jon [Stewart], for the 21st century. We're investing in energy, we're investing in education, we're investing in healthcare... these are the kinds of things that are going to provide these guys with real, live jobs that aren't exportable, that are going to be able to be kept here
...
Jobs are going to lag behind growth in this country from somewhere between 12 to 18 months... Everything is growing now... We'll be creating jobs by February or March of next year."

~Vice President Joe Biden, as appeared on Comedy Central's The Daily Show With Jon Stewart, November 17, 2009

Jason Trennert: bullish until "the bill comes due" (2009)

We're bullish until the bill comes due.

~ Jason Trennert, as appeared on CNBC, December 9, 2009, 9:35 EST

Dec 6, 2009

Jesper Parnevik on Tiger Woods transgressions

I feel really sorry for Elin [Nordegren Woods]. I would be especially sad about it since I'm kind of ... I really feel sorry for Elin, since me and my wife were at fault for hooking her up with him. We probably thought he was a better guy than he is. I would probably need to apologize to her and hope she uses a driver next time instead of the 3-iron.

It's a private thing, of course. But when you are the guy he is, the world's best athlete, you should think more before you do stuff. . . And maybe not just do it, like Nike says.

~ Jesper Parnevik, professional golfer, "Jesper Parnevik on Tiger Woods transgressions," Golf Channel, December 3, 2009

Dec 3, 2009

Lloyd Blankfein on dog-piling short sellers

“I’m for markets,” says Blankfein, who today describes the situation [financial panic of 2008] as “tricky.” “But when it felt like it had gotten abusive, when it was free money to short-sellers who were piling on, it felt less like the market and more like it was being manipulated.” He adds, “I crossed over.”

~ Lloyd Blankfein, CEO, Goldman Sachs, "The Bank Job," Vanity Fair, January 2010, by Bethany McLean

Dec 2, 2009

Sovereign wealth funds play bubbles

It will not be too bad this year. Both China and America are addressing bubbles by creating more bubbles and we're just taking advantage of that. So we can't lose.

~ Lou Jiwei, Chairman China’s sovereign wealth fund, China Investment Corporation, "Wealth Fund Muscles Up as Markets Recover," Reuters, August 28, 2009

Nov 27, 2009

Antony Herrey on the coming collapse in Dubai (2008)

Having experienced my fair share of severe down cycles over more than four decades as a real estate developer and investor, the extravagant reports emanating from the Emirates over the past decade or more of islands created in the sea, mile-high skyscrapers in the desert, artificial ski slopes under glass, endless new quantities of unsold condominiums overlooking the Gulf, and the like foretold for me one of the most spectacular collapses of any bubble bust in the long history of excessive speculation. This could not possibly end, it seemed to me, without a horrendous downturn that would turn many of these new monster structures into empty ruins.

~ Antony Herrey, Austrians in Finance chat group, October 20, 2008

Nov 26, 2009

H.L. Mencken on the Puritans

It’s too bad Plymouth Rock didn’t land on the Puritans.

~ H.L. Mencken

Nov 25, 2009

Lyndon B. Johnson on government waste

I believe the Congress and the American people approve my goals of economy and efficiency. I believe they are as opposed to waste as I am. We can and will eliminate it.

~ President Lyndon B. Johnson, speech to Congress in 1965

Nov 21, 2009

New EU president on world government

The climate conference in Copenhagen is another step towards the global management of our planet.

~ Herman von Rompoy, new president of the European Union, "New EU Head Blatantly Admits the Goal of One World Government," LewRockwell.com blog, November 21, 2009

Nov 18, 2009

Charles Goyette on American cronyism

America’s national government has moved way beyond a political spoils system. A spoils system leaves the host alive so that a politician’s occasional ne’er-do-well brother-in-law can be put on the payroll. America has become a piñata: everybody gets a crack at it. Presidents and other elected officials pass the big stick around as a reward to those who help keep them in charge of the piñata party. The American media plays the role of the party’s mariachi bank, keeping festive spirits high. And the people in their demographic and interest groups all line up to take a whack at the goodies. America has become a piñata.

~ Charles Goyette, The Dollar Meltdown

Ben Bernanke on identifying bubbles

It is inherently extraordinarily difficult to know whether an asset’s price is in line with its fundamental value. It’s not obvious to me in any case that there’s any large misalignments currently in the US financial system. The best approach here if at all possible is to use supervisory and regulatory methods to restrain undue risk taking and to make sure the system is resilient in case an asset-price bubble bursts in the future.

~ Ben Bernanke, Federal Reserve chairman, “On the Outlook for the Economy and Policy," NY Economic Club, November 16, 2009

Nov 11, 2009

Ken Fisher: 1,300 on the S&P 500

It’s just a reversal of excessive pessimism. We still have a lot more bull market to go because we had such a huge bear market.

The economy is not recovering at a slow pace. America is faster than people think. Third-quarter GDP numbers knocked the socks off of expectations.

~ Ken Fisher, "Billionaire Fisher Sees S&P 500 Above 1,300 as Economy Recovers," Bloomberg.com, November 10, 2009

(Ken Fisher predicted the S&P 500 would reach 1,300. It closed at 1,093.08 on the day of the interview with Bloomberg.)

Nov 10, 2009

Friedrich Hayek on crises and liberty

Emergencies have always been the pretext on which the safeguards of individual liberty have eroded.

~ Friedrich Hayek

Nov 4, 2009

Blaise Pascal on war and collateral damage

Can any thing be more ridiculous than that a man has a right to kill me because he dwells the other side of the water, and because his prince has a quarrel with mine, although I have none with him?

~ Blaise Pascal, Pensees, IV (1670)

Nov 3, 2009

Charles Gasparino on the fate of Goldman Sachs in 2008

If it weren't for a government bailout they were done.

~ Charles Gasparino, author, The Sellout, as appeared on CNBC, November 3, 2009

Nov 1, 2009

Emerson on the corruption of language

The corruption of man is followed by the corruption of language.

~ Ralph Waldo Emerson, Nature, Chapter 4, Language

John Milton on the corruption of language

When language in common use in any country becomes irregular and depraved, it is followed by their ruin and degradation.

~ John Milton

Oct 29, 2009

WSJ: Fund managers turning defensive

Amid market volatility, several stock-fund managers have been turning defensive. Managers across investment styles have lately been buying stocks of companies that they expect will hold up better through the recession, and are trading at what they consider to be low prices. These include a range of companies, from makers of toothpaste and soaps, to food companies to pharmaceutical firms.

~ WSJ, "Beaten-Up Managers Grab for 'Safter' Picks," March 4, 2009, by Shefali Anand

Mohamed El-Erian, Pimco on the recapitalization of the financial sector

Q: So what is anchoring the markets today?

A: We're seeing a much-needed recapitalization. Over the past decade you've seen the balance sheet of the emerging markets get recapitalized. Then it was the turn of the U.S. corporate and industrial sector on the back of Enron and WorldCom. Today we're seeing the recapitalization of the U.S. financial system. A massive amount of capital has been issued in the past two weeks, some in the form of preferred stock. Once we get through [this period], we'll all look back and realize that it's positive.

Q: Is the worst behind us?

A: We're three-quarters through a major dislocation that has repriced the U.S. financial system. The risk going forward is less about Wall Street and more about the small and midsize banks. They missed much of the current crisis because they never really got into structured products. But they're heavily tied to commercial real estate and the consumer.

~ Mohamed El-Erian, Pimco, "A Peek at Pimco's Long View," BusinessWeek, May 19, 2008

Andrew Jackson on equality under the law and his veto of the recharter of the Bank of the United States

It is to be regretted that the rich and powerful too often bend the acts of government to their selfish purposes. Distinctions in society will always exist under every just government. Equality of talents, of education, or of wealth cannot be produced by human institutions [but]... every man is equally entitled to protection by law; but when the laws undertake to add to these natural and just advantages artificial distinctions, to grant titles, gratuities, and exclusive privileges, to make the rich richer and the potent more powerful, the humble members of society... who have neither the time nor the means of securing like favors to themselves, confine itself to equal protection... it would be an unqualified blessing. In the act before me [to recharter the Bank of the United States] there seems to be a wide and unnecessary departure from these just principles.

~ Andrew Jackson, statement on his veto of the Bank of the United States

(Quoted by Robert Remini, Andrew Jackson and the Bank War, p. 83.)

Andrew Jackson on central banking

[The Bank of the United States (precursor to the Fed)] is a monster, a hydra-headed monster... equipped with horns, hoofs, and a tail so dangerous that it impaired the morals of our people, corrupted our statesmen, and threatened our liberty. It bought up members of Congress by the Dozen... subverted the electoral process, and sought to destroy our republican institutions.

~ Andrew Jackson, March 1829

Oct 28, 2009

AIG on Hank Greenberg's role in creating the ill-fated financial products unit

It strains common sense to accept [Hank] Greenberg's allegations that he was misled or did not appreciate the risks from the multisector CDS book written by AIG.

~ AIG (press release?), "AIG Fires Back Over Greenberg Suit," WSJ, March 4, 2009

Oct 26, 2009

Amelia Earhart on decision making

The most difficult thing is the decision to act, the rest is merely tenacity. The fears are paper tigers. You can do anything you decide to do. You can act to change and control your life; and the procedure, the process is its own reward.

~ Amelia Earhart, aviation pioneer

Oct 25, 2009

Ron Paul on Wall Street, bailouts, and who pulls the strings in DC

You know, it is said that the Congress didn't have enough strings attached to the money that they were giving away, but I think the strings go in the other direction. I think Wall Street has the strings on Washington. And they pull and do what they want and that's where the corruption is. They control the monetary system.

~ Congressman Ron Paul, "Ron Paul on the recession: 'None of this is behind us'," The Hill's Blog Briefing Room, October 20, 2009, by Michael O'Brien

Ludwig von Mises on evil

Do not give in to evil, but proceed ever more boldly against it.

~ Ludwig von Mises

Oct 24, 2009

Charles Schwab on the government rescue of Fannie Mae and Freddie Mac

Q: Friday [July 11] was particularly scary. Do you think that the just-announced rescue plan for Fannie and Freddie will be enough to restore confidence?

A: It truly is a confidence issue. All professionals knew Fannie Mae and Freddie Mac would be sustained by federal assistance if required. I don't think that was really an issue. But yes, it is scary that it was even contemplated that they wouldn't [be backed by the government]. I think the Fed and the Treasury are doing all the things they can do. I wish we would do something like they do in firefighting—put a line in the sand a little bit further away from where the fire is that would stop the contagion that's going on.

~ Charles Schwab, "Chuck Schwab on Scary Markets and Election '08," BusinessWeek, July 16, 2008

Charles Schwab on short sellers and regulation of hedge funds

Q: With the SEC trying to crack down on short-sellers, do you see regulation of the market going too far?

A: It's very natural for us all to overreact in times of stress, but I'm not a fan of unmitigated shorting. We have nearly $2 trillion in hedge funds that simply don't have any reporting responsibilities.

~ Charles Schwab, "Chuck Schwab on Scary Markets and Election '08," BusinessWeek, July 16, 2008

Giff on the aging process

You can't outrun Father Time.

~ Dave Giffen, a.k.a. "Giff the Sage"

Oct 22, 2009

M.S. Peck on evil

Evil is not committed by people who feel uncertain about their righteousness, who question their own motives, who worry about betraying themselves. The evil in this world is committed by the spiritual fat cats, by the Pharisees of our own day, the self-righteous who think they are without sin because they are unwilling to suffer the discomfort of significant self-examination.

~ M.S. Peck, People of the Lie: the Hope for Healing Human Evil (1990)

Oct 21, 2009

Bill Bonner on debt

For much of history, failing to repay debt was regarded as not merely a breach of contract, but a crime. People who failed to repay their debts in timely fashion were thought to have stolen from their lenders; they were put in prison. In the Middle Ages even a dead debtor's children could be sent to prison.

Now, bankruptcy laws allow individuals and businesses to go to rehab. Then, they can stiff creditors again. Neither sin nor crime, debt is now just a cost of doing business.

~ Bill Bonner, "Paying Off Debt Is Like Dying…," LewRockwell.com, October 21, 2009

Rich Karlgaard on the (bad) advice of Forbes columnists

Happily, there is a small but reliable pro-market commentariat that will guide you in understanding the world's economies. Two of them precede me on these pages. I also always listen to Brian Wesbury, the chief economist for First Trust Advisors, and the great Art Laffer of Laffer Associates.

For stock tips, you can't beat Ken Fisher. Even if you have read Ken's FORBES columns, don't miss his new book, The Only Three Questions That Count: Investing by Knowing What Others Don't. Original thinking and witty writing by a great investor.

~ Rich Karlgaard, publisher, Forbes, "Pundits Versus the Market," January 29, 2007

Cicero on education

To add a library to a house is to give that house a soul.

~ Cicero

Oct 20, 2009

Bob Chapman on home equity loan exposure at four large banks

U.S. financial institutions hold almost $1.1 trillion in second liens, also known as home equity loans or "helocs." Some 42% of all helocs are held by four banks—Bank of America, J.P. Morgan Chase, Citibank and Wells Fargo. Since in a traditional mortgage foreclosure the second loan is usually wiped out, these big four banks have an exposure in the hundreds of billions of dollars.

Mortgage-finance consultant Edward Pinto points out that these same lenders have about $800 billion of first mortgage loans on their books, representing 8% of the total outstanding first mortgage loans in the U.S. But they also act as the servicers on almost 60% of total first mortgages, which means they handle negotiations on loan modifications. Thus when a home owner asks one of the big four banks to redo a loan, the banker may have a greater interest in saving the home-equity loan than in protecting the creditors of the first mortgage…

~ Bob Chapman, "US Treasury Controlled by Wall Street," LewRockwell.com, October 20, 2009

Oct 19, 2009

Legg Mason analyst on Countrywide Financial (2007)

The fallout among smaller subprime lenders will give survivors like Countrywide even more market share. We liked the stock when it was trading at $44 a share and we see even more value now.

~ Legg Mason analyst Mitchel Penn, "Top Funds Stand by Subprime Stocks," Fortune, March 9, 2007

(Countrywide, which gets only 10 percent of its revenues from subprime lending, continues to deliver solid growth, he pointed out.)

Bill Miller on his decision to increase his holdings of financial stocks in 2007

We bought financials after the Fed [first] injected liquidity [into the market by cutting the discount rate on Aug. 17, 2007, and then the fed-funds rate on Sept. 18, 2007, continuing into 2008.] That's what you do in a liquidity crisis... This turned out to be a collateral-driven crisis caused by underperforming debt... We've analyzed that mistake and tried to make adjustments to risk management and the portfolio-construction process.

~ Bill Miller, portfolio manager, Legg Mason Value Trust, "It's Miller Time!," Barron's, October 12, 2009

Bill Miller on his decision to invest in Bear Stearns

When it failed in March [2008], it had the highest capital ratios ever. There was no rogue trader... But that didn't stop a run on the bank.

~ Bill Miller, portfolio manager, Legg Mason Value Trust, "It's Miller Time!," Barron's, October 12, 2009

(Bear Stearns was eventually purchased by JPMorgan Chase for $10 a share, leaving Value Trust with a huge loss.)

Hayek on morals and compulsion

Responsibility, not to a superior, but to one's conscience, the awareness of a duty not exacted by compulsion, the necessity to decide which of things one values are to be sacrificed to others, and to bear the consequences of one's decision, are the very essence of any morals which deserve the name.

~ Friedrich A. Hayek, The Road to Serfdom - The Definitive Edition, Page 217

Burton Wheeler on despotism

Every despot has usurped the power of the legislative and judicial branches in the name of the necessity for haste to promote the general welfare of the masses—and then proceeded to reduce them to servitude.

~ Senator Burton K. Wheeler, Montana New Deal Democrat, referring to Franklin D. Roosevelt's attempt to pack the Supreme Court in the mid 1930s

Oct 17, 2009

Justin Fox on the stewardship of the world's oil and gas reserves

Only 7% of the world's estimated oil and gas reserves are in countries that allow companies like ExxonMobil free rein, according to consulting firm PFC Energy. Fully 65% are in the hands of state-owned companies such as Saudi Aramco, and the rest are in the likes of Russia and Venezuela, where Western companies can get a foothold one day but lose it the next.

~ Justin Fox, "No More Gushers," Time, May 31, 2007

Michael Kinsley on libertarians

Libertarians and communitarians (to continue this unjustified generalizing) are different character types. Communitarians tend to be bossy, boring and self-important, if they're not being oversweetened and touchy-feely. Libertarians, by contrast, are not the selfish monsters you might expect. They are earnest and impractical--eager to corner you with their plan for using old refrigerators to reverse global warming or solving the traffic mess by privatizing stoplights. And if you disagree, they're fine with that. It's a free country.

~ Michael Kinsley, "Libertarians Rising," Time, October 29, 2007

Keynes on Lenin and inflation

Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

~ John Maynard Keynes, The Economic Consequences of the Peace

Oct 14, 2009

Henry Adams on politics and hatred

Politics, as a practice, whatever its professions, has always been the systematic organization of hatreds.

~ Henry Adams

Oct 13, 2009

Friedrich Hayek on monetary policy from the mid-1920s to the early 1930s

We must not forget that, for the last six or eight years monetary policy all over the world has followed the advice of the stabilizers. It is high time that their influence, which has already done harm enough, should be overthrown.

~ Friedrich Hayek, 1932

Oct 12, 2009

William Trufant Foster: "Thrift is wasteful" (1931)

The glow of righteous satisfaction that many have felt in their recent savings should be replaced by the knowledge that thrift under certain conditions is very wasteful.

~ William Trufant Foster, leading pre-Keynesian economist in the “underconsumptionist tradition,” September, 1931

Business Week on the global boom (2006)

John Templeton, the elder statesman of global investing, famously remarked that among the four most costly words in market history are "this time is different." Yet we all share a sense, from the factory floor to executive suites, that something new is going on in the global economy. And that something new is optimism. For the first time in history, almost everyone in the world economy has a chance for a better life -- or at least their children do. Let the long boom begin.

~ Business Week, "Let the Good Times Roll," March 27, 2006, by Chris Farrell

Business Week on a new "era of nonexistent inflation and rapid economic growth" (2006)

Nevertheless, despite all the twists, hedges, and cautious asides, a much bigger theme emerged from [Fed chairman] Bernanke's speech. He believes that real bond yields have taken a fundamental step down. If he's right, and I think he is, the significance of lower real rates is a seismic event for everyone from a young, first-time homebuyer to a grizzled venture capitalist. Put it this way: The world economy is on the cusp of an era of nonexistent inflation and rapid economic growth -- a long boom of historic proportions.

~ Business Week, "Let the Good Times Roll," March 27, 2006, by Chris Farrell

Oct 9, 2009

Ludwig von Mises on the impoverishment of the boom

The boom squanders through malinvestment scarce factors of production and reduces the stock available through overconsumption; its alleged blessings are paid for by impoverishment.

~ Ludwig von Mises, Human Action (1949)

David Kramer on Barack Obama winning the 2009 Nobel Peace Prize

If the economically-ignorant Paul Krugman could win the 2008 Nobel Prize in Economics while continuing to promote the exact same economic policies that got us into our current economic mess, why shouldn’t Barack Obama win the 2009 Nobel Peace Prize for escalating an unjust war in Afghanistan plus starting a potential new war by already bombing Pakistan (something even his predecessor didn’t have the “pleasure” of doing)?

What did George Orwell write in 1984? War is Peace? I guess so—at least according to the Nobel Peace Prize committee members.

~ David Kramer, "First Krugman, Now Obama," LewRockwell.com Blog, October 9, 2009

Sep 29, 2009

George Orwell on egalitarianism

ALL ANIMALS ARE EQUAL, BUT SOME ARE MORE EQUAL THAN OTHERS.

~ George Orwell, Animal Farm, Chapter 10

Sep 28, 2009

Barron's on state tax burdens

California has the nation's fourth-highest income tax (10.55%) behind Hawaii and Oregon (both with 11%) and New Jersey (10.75%). It also has the sixth highest overall U.S. tax burden, according to the nonpartisan Tax Foundation. In contrast, Texas has the eighth-lowest tax burden and is one of nine states that don't tax earned income. The others: Washington, Florida, Tennessee, New Hampshire, South Dakota, Wyoming, Nevada and Alaska.

~ Karen Hube, "Fleeing the Tax Man," Barron's, September 28, 2009

Eugene Fama on bubbles and the '29 and '87 stock market crashes

The way I look at it, there were two crashes in the last century. One turned out to be too small. The ’29 crash was too small; the market went down subsequently. The ’87 crash turned out to be too big; the market went up afterwards. So you have two cases: One was an underreaction; the other was an overreaction. That’s exactly what you’d expect if the market’s efficient.

The word “bubble” drives me nuts. For example, people say “the Internet bubble.” Well, if you go back to that time, most people were saying the Internet was going to revolutionize business, so companies that had a leg up on the Internet were going to become very successful. I did a calculation. Microsoft was an example of a corporation that came from the previous revolution, the computer revolution. It was hugely profitable and successful. How many Microsofts would it have taken to justify the whole set of Internet valuations? I think I estimated it to be something like 1.4.

~ Eugene Fama, "Interview with Eugene Fama," November 2, 2007

Sep 27, 2009

Escaping statism

Sep 25, 2009

Alexis de Tocqueville on centralization and war

All military geniuses love centralization, which increases their strength, and all centralizing geniuses love war, which obliges nations to concentrate all powers in the hands of the state.

~ Alexis de Tocqueville, Democracy in America, Volume 2 (1840)

Sep 21, 2009

Ayn Rand on the humanitarian nature of capitalism

If capitalism had never existed, any honest humanitarian should have been struggling to invent it. But when you see men struggling to evade its existence, to misrepresent its nature, and to destroy its last remnants - you may be sure that whatever their motives, love for man is not one of them.

~ Ayn Rand, Capitalism: The Unknown Ideal

Michael Cloud on personal responsibility vs. paternalist government

People are not trying to escape liberty; they are trying to escape personal responsibility. And it is with that Judas bargain that government persuades us to sell our souls, piecemeal, to the lowest bidder.

~ Michael Cloud

George Orwell on man's ability to rationalize

The point is that we are all capable of believing things which we know to be untrue, and then, when we are finally proved wrong, impudently twisting the facts so as to show that we were right. Intellectually, it is possible to carry on this process for an indefinite time: the only check on it is that sooner or later a false belief bumps up against solid reality, usually on a battlefield.

~ George Orwell

Ayn Rand on the Constitution

Today, when a concerted effort is made to obliterate this point, it cannot be repeated too often that the Constitution is a limitation on the government, not on private individuals - that it does not prescribe the conduct of private individuals, only the conduct of the government - that it is not a charter for government power, but a charter of the citizen's protection against the government.

~ Ayn Rand

Albert Einstein on unenforceable laws

Nothing is more destructive of respect for the government and the law of the land than passing laws which cannot be enforced.

~ Albert Einstein

Benjamin Franklin on trading liberty for security

They that can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety.

~ Benjamin Franklin

Ludwig von Mises on the rejection of economic law

Princes and democratic majorities are drunk with power. They must reluctantly admit that they are subject to the laws of nature. But they reject the very notion of economic law . . . economic history is a long record of government policies that failed because they were designed with a bold disregard for the laws of economics.

~ Ludwig von Mises, Human Action, p. 67

Sep 18, 2009

Kevin Duffy on Barack Obama's economic IQ

Barack Obama may know how to give a speech or win an election, but he doesn’t know economics. Neither did practically every president from William McKinley to George W. Bush. Neither do most of the mainstream media, political pundits, and voting population who expect their government to make a silk purse out of a sow’s ear.

~ Kevin Duffy, "Obama Knows...," LewRockwell.com, September 14, 2009

Sep 15, 2009

Leonard Read on education, integrity, and truth

The individual who practices integrity is teachable for, by definition, he is a Truth seeker.

~ Leonard E. Read

Sep 13, 2009

Ludwig von Mises on socialism

In the socialist commonwealth every economic change becomes an undertaking whose success can be neither appraised in advance nor later retrospectively determined. There is only groping in the dark. Socialism is the abolition of rational economy.

~ Ludwig von Mises, Economic Calculation in the Socialist Commonwealth, p. 26

Sep 12, 2009

Lew Rockwell on the "great fakeroo recovery"

A year ago this month, the whole country was in agreement that we had been living an illusion for the previous ten years and that the prosperity we thought we were enjoying was not sustainable. There was no dissent on this point. Even Obama admitted it. Today, the illusion is even more egregious than it was, and yet people are once again embracing it as if it will not end.

The policy response to the downturn has been one of the most short-sighted and economically irrational in the entire history of mankind. Why did they do it? It's all about the politics of the short term. The entire economic structure has been phonied up in order to make a success of the Obama cult. This is the driving motivation, alongside the obvious desire on the part of financial and banking bigshots for a bailout.

~ Lew Rockwell, "The Great Fakeroo Recover," LewRockwell.com, September 9, 2009

Sep 10, 2009

Sir Walter Scott on Lying

Oh what a tangled web we weave,
When first we practice to deceive.

~ Sir Walter Scott, Marmion, 1808

Sep 9, 2009

Voltaire on the presumption of innocence

It is better to risk saving a guilty person than to condemn an innocent one.

~ Voltaire, Zadig (1747)

Bill Laggner on large financial institutions

Everyone sits at the bailout trough in American finance.

~ Bill Laggner, Bearing Asset Management, September 9, 2009

Sep 8, 2009

Samuel Smiles on innovation

He who never made a mistake never made a discovery.

~ Samuel Smiles

Sep 7, 2009

Walter Williams on government lies about Medicare costs

At its start, in 1966, Medicare cost $3 billion. The House Ways and Means Committee, along with President Johnson, estimated that Medicare would cost an inflation-adjusted $12 billion by 1990. In 1990, Medicare topped $107 billion. That's nine times Congress' prediction. Today's Medicare tab comes to $420 billion with no signs of leveling off. How much confidence can we have in any cost estimates by the White House or Congress?

~ Walter Williams, "Washington's Lies," Townhall.com, September 2, 2009

Sep 4, 2009

Herbert Spencer on paternalism and moral hazard

The ultimate result of shielding men from the effects of folly is to fill the world with fools.

~ Herbert Spencer, Essays (1891)

Sep 2, 2009

Glenn Jacobs on equal pay for equal work

We’ve all heard the phrase “equal pay for equal work.” Many of those who habitually repeat this mantra may not realize that it is simply a variation of the discredited labor theory of value (LTV), which is generally associated with Marxian economics. According to the LTV, the value of a product is related to the labor needed to produce it. The LTV prevailed in classical economics until the Marginal Revolution in the late 1800s. The marginalists proved that value is not the result of a product’s inputs, but the result of the subjective judgment of individuals.

~ Glenn Jacobs, "The Fallacy of Equal Pay for Equal Work," Freedom Daily, September 2, 2009

F.A. Hayek on egalitarianism

A claim for equality of material position can be met only by a government with totalitarian powers.

~ F.A. Hayek

Sep 1, 2009

Frédéric Bastiat on the legislator

[T]he legislator, according to the ideas of the ancients, bears the same relation to mankind as the potter does to clay. Unfortunately, when this idea prevails, nobody wants to be the clay, and everyone wants to be the potter.

~ Frédéric Bastiat, “Academic Degrees and Socialism,” [1848]

Aug 21, 2009

Hans Christian Andersen on bubbles

But, the bubble burst when an innocent child loudly exclaimed, for the whole kingdom to hear, that the Emperor had nothing on at all. He had no clothes.

~ Hans Christian Andersen

Aug 16, 2009

John Mackay: Is health care a "right?"

Many promoters of health-care reform believe that people have an intrinsic ethical right to health care—to equal access to doctors, medicines and hospitals. While all of us empathize with those who are sick, how can we say that all people have more of an intrinsic right to health care than they have to food or shelter?

Health care is a service that we all need, but just like food and shelter it is best provided through voluntary and mutually beneficial market exchanges. A careful reading of both the Declaration of Independence and the Constitution will not reveal any intrinsic right to health care, food or shelter. That's because there isn't any. This "right" has never existed in America.

~ John Mackay, co-founder and CEO, Whole Foods Market Inc., "The Whole Foods Alternative to ObamaCare," The Wall Street Journal, August 11, 2009

Fred Hickey on Bernanke's claims that he is not monetizing the debt

I watch every week as tens of billions of dollars are created out of thin air by the Fed in order to purchase U.S. Treasuries and mortgage backed securities. While Bernanke claims that he's not monetizing our debt, it's like a kid sitting in front of an empty plate with chocolate frosting all over his face claiming that he didn't eat the cupcake.

~ Fred Hickey, The High-Tech Strategist, August 3, 2009

Murray Rothbard on Milton Friedman's brand of "free market economics"

Mention "free-market economics" to a member of the lay public and chances are that if he has heard the term at all, he identifies it completely with the name Milton Friedman. For several years, Professor Friedman has won continuing honors from the press and the profession alike, and a school of Friedmanites and "monetarists" has arisen in seeming challenge to the Keynesian orthodoxy.

However, instead of the common response of reverence and awe for "one of our own who has made it," libertarians should greet the whole affair with deep suspicion: "If he’s so devoted a libertarian, how come he’s a favorite of the Establishment?" An advisor of Richard Nixon and a friend and associate of most Administration economists, Friedman has, in fact, made his mark in current policy, and indeed reciprocates as a sort of leading unofficial apologist for Nixonite policy.

In fact, in this as in other such cases, suspicion is precisely the right response for the libertarian, for Professor Friedman’s particular brand of "free-market economics" is hardly calculated to ruffle the feathers of the powers-that-be. Milton Friedman is the Establishment’s Court Libertarian, and it is high time that libertarians awaken to this fact of life.

~ Murray Rothbard, "Milton Friedman Unraveled," article originally appeared in The Individualist in 1971, and was reprinted in the Journal of Libertarian Studies in the Fall 2002 issue

Aug 14, 2009

Jim Cramer: "Things are improving by the day"

Don't let the press confuse you. We are almost at Dow 9,400 because things are better than you think, and still improving by the day.

~ Jim Cramer, CNBC's Mad Money, August 13, 2009

Aug 9, 2009

Tim Geithner asks to raise debt ceiling

Congress has never failed to raise the debt limit when necessary. Because members of both parties have long recognized the need to keep politics away from this issue, these actions have traditionally received bipartisan support. This is clearly a moment in our history that calls for continuation of that tradition.

~ Timothy Geithner, Treasury Secretary, "Geithner asks Congress for higher U.S. debt limit", Washington Post, August 7, 2009

Aug 4, 2009

Health care reader

Jul 17, 2009

Bill Bonner on inflation

Governments are seldom good at anything, but one thing they are undeniably good at is destroying their own currencies. The dollar has lost 95% or so of its value since 1913. That’s a pretty darn good job. Other countries have been even more thorough.

~ Bill Bonner, "Preparing for the New Economy," LewRockwell.com, July 16, 2009

Jim Rogers on socialism in the U.S.

America now owns the car industry. America owns the mortgage industry. America owns a lot of the insurance industry. Karl Marx must be somewhere standing up in his grave cheering. And why is that? America has become a socialist and maybe even communist nation in many ways.

~ Jim Rogers, "'Printing money will lead to serious problems down the road,' says Jim Rogers," Business Intelligence Middle East, July 17, 2009

Jul 16, 2009

Carrie Lukas on the modern feminist movement

Feminists have a vision: To see men and women represented equally, in all disciplines and in all walks of life. They lament that women still assume disproportionate responsibility for housework and childcare, have lower levels of achievement in business and politics, and gravitate away from disciplines like math and science.

If you accept these assumptions, then something can – and indeed should – be done. So long as society is at fault, then the feminist vision can theoretically become reality by changing public education, creating government-subsidized daycare, encouraging more mothers to leave their children for the workforce, and many other measures that change society.

If, however, men and women’s differences are not social constructs – if they are instead the product of innate, biological differences – then no amount of government intervention will create the feminist utopia. Indeed, if gender differences are natural, then the feminist idea of progress isn’t progress at all, and their agenda makes men and women worse off by driving them away from their true preferences in pursuit of feminist fantasy.

~ Carrie L. Lukas, The Politically Incorrect Guide to Women, Sex, and Feminism, p. 6

Jul 13, 2009

Butler Shaffer on justice and 9/11

One of the emptiest words in our culture is "justice." Its vacuous quality is what makes it so popular: it requires little in the way of focused, intelligent explication to employ it. To those on the political "left," justice" gets translated into a demand for money to be taken from some and bestowed upon others. Those on the political "right" use it as a plea for the building of more prisons and the hiring of more police officers to ferret out more persons to fill them. When people tell me "I demand justice," my response is to warn them to temper their insistence, as they might just get it!

When pressed for a definition, I reply that justice is the redistribution of violence. In its simplest form, X commits a wrong upon Y, for which Y demands retaliation against X. In its more complex form in our collectivized world, fifteen Saudis, two men from the United Arab Emirates, one Egyptian, and one Lebanese join in the 9/11 attacks on the World Trade Center buildings. As these men were killed in the process, the demands for "justice" led most Americans to accept the bombing and killing of innocent men, women, and children in such unrelated places as Afghanistan and Iraq! Justice and rationality have little to do with one another.

~ Butler Shaffer, "What Is Justice?," LewRockwell.com, July 13, 2009

Jun 28, 2009

Kevin Duffy on legislating morality

It is impossible to legislate morality. In fact, any attempt requires an immoral act: coercion, thus achieving the exact opposite.

~ Kevin Duffy

Jun 25, 2009

Matt Taibbi on Goldman Sachs gaming the housing bubble

The effects of the housing bubble are well known - it led more or less directly to the collapse of Bear Stearns, Lehman Brothers and AIG, whose toxic portfolio of credit swaps was in significant part composed of the insurance that banks like Goldman bought againsts their own housing portfolios. In fact, at least $13 billion of the taxpayer money given to AIG in the bailout ultimately went to Goldman, meaning that the bank made out on the housing bubble twice: It fucked the investors who bought their horseshit CDOs by betting against its own crappy product, then it turned around and fucked the taxpayer by making him pay off those same bets.

~ Matt Taibbi, "The Great American Bubble Machine," Rolling Stone, July 9-23, 2009

Jun 21, 2009

Ben Bernanke on bailing out AIG

If there's a single episode in this entire 18 months that has made me more angry, I can't think of one, than AIG.

~ Fed chairman Ben Bernanke, March 3, 2009 in Senate testimony

Pericles on politics

Just because you didn't take an interest in politics doesn't mean politics won't take an interest in you.

~ Pericles, 430 BC

Dave McCann on exploring new cultures

I've found that my interest in material things has been almost entirely replaced by my interest in exploring new cultures and making new friends. I have experienced the hospitality of cultures vastly different from my own and forged friendships in almost every corner of the globe.

Spending several months in a sleepy little town with no fast food shops, no night clubs, no Wal-Mart, no sports teams, no TV and not much of anything familiar from our culture could be torture for some people. But being in such a place makes you special in the eyes of the local people. I usually find that they are just as curious about me and American people as I am about them and their customs. It's kind of fun being the object of an entire village's curiosity.

When I show up in such a place, there are often people who have never seen a foreigner. Children are especially curious and sometimes I feel like the Pied Piper with a flock of children following me around. Sharing a meal with a family in a small farming or fishing village, comparing customs and traditions, and laughing with each other as we stumble through the language barriers; these are the moments I enjoy most.

I enjoy spending a day with one of the locals while he does his normal daily activities, like joining a fisherman as he nets fish from his rowboat on the Nile River. I've seen a farmer irrigate his crops using two buckets suspended from a pole across his shoulders and plow his rice paddy with a wooden plow pulled by a pair of water buffalo. I've watched a printer set up his hand-and-foot-operated printing press to print business cards in Arabic.

I have had time to really get to know some people who live a hard but simple life with little or no income and little hope of that ever changing. People adapt. If you cannot afford a car or a TV or a refrigerator or shoes; if you live in a house with a dirt floor and a thatched roof and no running water; if you have to work stooped over in the fields from dawn until dusk from the time you are a child until you are old and feeble; it builds character and teaches you how to relish things that are simple and free, like compassion and humor. I have learned a lot from these people, and I am a better person because of it.

~ Dave McCann, ME '79 from University of Missouri-Rolla, senior field engineer for GE Energy Services, Missouri S&T Magazine, Summer 2009

Jun 19, 2009

Paul Krugman on the impact of Fannie Mae and Freddie Mac on the financial crisis

And now we’ve reached the next stage of our seemingly never-ending financial crisis. This time Fannie Mae and Freddie Mac are in the headlines, with dire warnings of imminent collapse. How worried should we be?

Well, I’m going to take a contrarian position: the storm over these particular lenders is overblown. Fannie and Freddie probably will need a government rescue. But since it’s already clear that that rescue will take place, their problems won’t take down the economy.

~ Paul Krugman, "Fannie, Freddie and You," The New York Times, July 14, 2008

Paul Krugman on regulation of Fannie Mae and Freddie Mac

So whatever bad incentives the implicit federal guarantee creates have been offset by the fact that Fannie and Freddie were and are tightly regulated with regard to the risks they can take. You could say that the Fannie-Freddie experience shows that regulation works.

~ Paul Krugman, "Fannie, Freddie and You," The New York Times, July 14, 2008

Jun 18, 2009

Timothy Geithner on his plans for sweeping financial regulations and expanded power for the Fed

Every financial crisis of the last generation has sparked some effort at reform, but past efforts have begun too late, after the will to act has subsided. We cannot let that happen this time.

~ Treasury Secretary Timothy Geithner, "Geithner Defends Plan to Give Fed Stepped-Up Powers," June 18, 2009, Bloomberg.com

Jun 16, 2009

Paul Krugman and Paul McCulley on the cure for the 2001 recession

The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.

~ Paul Krugman, "Dubya's Double Dip?," The New York Times, August 2, 2002

Jun 11, 2009

Malcom X on the death of capitalism

It is impossible for capitalism to survive, primarily because the system of capitalism needs some blood to suck. Capitalism used to be like an eagle, but now it’s more like a vulture…It’s only a matter of time in my opinion before it will collapse completely.

Malcom X, racial activist, 1962

Michael Moore on the death of capitalism

And I think, really, what we’re seeing now, we’re seeing the end of capitalism. The end of capitalism as we know it and I say good riddance. It hasn’t helped the people or the planet.

~ Michael Moore, filmmaker, as appeared on the Larry King Show on CNN shortly after the presidential election of 2008

Jun 10, 2009

Aldous Huxley on travel

To travel is to discover that everyone is wrong about other countries.

~ Aldous Huxley

Jun 5, 2009

Horace Mann on public education

We who are engaged in the sacred cause of education are entitled to look upon all parents as having given hostages to our cause.

~ Horace Mann

Jun 3, 2009

Bill Fleckenstein on gold being underowned in investment portfolios

According to a story in Commodity Online, gold comprised just 5% of world financial assets in 2008; whereas in 1982 gold comprised 22% of world financial assets. As I've noted before, when I first got into the investment business 30 years ago, it was considered prudent to have at least 5-10% of one's assets in gold. Of course, that asset allocation doesn't take into consideration the general disdain that central banks now have for the purchasing power of any of their currencies, which ought to exacerbate today's demand for gold.

Looked at differently, according to the World Gold Council (and John Hathaway), if global pension funds decided to increase their exposure by about 1.2%, it would require more than 44,000 metric tons, or roughly 27% of all the gold that's ever been mined.

As I noted when the FT changed its tune about gold (May 09: "As Good As Gold"), I think the big story is going to be the establishment-types who -- to potentially hew to the fashionable status of allotting 5-10% of one's financial assets in gold-- ultimately chase the price much higher as they build their positions. And, if the Chinese central bank decides to do that, they have a long ways to go from their base of just under 2%.

~ Bill Fleckenstein

Jun 2, 2009

Otto von Bismarck on the U.S.

God looks after drunks, fools and the United States of America.

~ Otto von Bismarck, 19th century Prussian leader

Kevin Duffy on Townhall.com's boast that "A Republican wave is building -- let's be ready to ride it to victory!"

You can’t be serious. Under Bush II you spent like drunken sailors, doubled the public debt, bailed out reckless speculators with undue government influence (Goldman Sachs, Citigroup, BofA, et al.), and invaded and bombed a country who never invaded us (or had anything to do with 911) into oblivion, tarnishing the American brand of liberty and neutrality. Further, you paved the way for Obama and his radical socialist and authoritarian agenda. This is the vaunted Republican platform of limited government and free enterprise??? On top of that, the only true limited government, freedom loving Republican – Ron Paul – you treated like a pariah. Quite frankly, you and your party disgust me.

~ Kevin Duffy, Bearing Asset Management, May 28, 2009

May 29, 2009

Why does government teach children?

The role of the public official, and in particular of the public school teacher, is "to collect little plastic lumps of human dough from private households and shape them on the social kneadingboard."

~ Edward Alsworth Ross, late 19th century University of Wisconsin sociologist and one of Teddy Roosevelt's favorite writers

May 26, 2009

Senator George Hoar on the seeds of empire planted in the Philippines (1902)

We crushed the only republic in Asia. We made war on the only Christian people in the East. We vulgarized the American flag. We inflicted torture on unarmed men to extort confessions. We put children to death. We established reconcentration camps. We baffled the aspirations of a people for liberty.

~ Republican Senator George F. Hoar of Massachusetts, writing in 1902 about America's involvement in the Philippines

May 19, 2009

Progression from liberty to dependency

A democracy cannot survive as a permanent form of government. It can last only until its citizens discover that they can vote themselves largesse from the public treasury. From that moment on, the majority (who vote) will vote for those candidates promising the greatest benefits from the public purse, with the result that a democracy will always collapse from loose fiscal policies, always followed by a dictatorship. The average age of the world’s greatest democratic nations has been 200 years. Each has been through the following sequence: From bondage to spiritual faith. From faith to great courage. From courage to liberty. From liberty to abundance. From abundance to complacency. From complacency to selfishness. From selfishness to apathy. From apathy to dependency. And from dependency back again into bondage.

~ Lord Thomas MacCauley - 1857

May 9, 2009

William Penn on tyranny

Men must be ruled by God or they will be ruled by tyrants.

~ William Penn

Apr 30, 2009

Henry Morganthau on the New Deal spending binge

We have tried spending money. We are spending more than we have ever spent before and it does not work…..I say after eight years of this Administration we have just as much unemployment as when we started, and an enormous debt to boot!

~ FDR's Treasury secretary and close friend, Henry Morganthau, 1939

Apr 29, 2009

Jim Rogers on the government's ability to fix the economic crisis

[T]he government can't fix the crisis. Everything the government's tried for the past two years has been wrong. That's why the crisis continues. The idea that you can solve a problem of too much debt and too much consumption with more debt and more consumption is ludicrous on its face. What they should have done is just let everybody go bankrupt, let the bankruptcy courts reorganize everything. The Japanese tried this approach of propping up zombie banks and zombie companies; it did not work. And it's not going to work in America either.

~ Jim Rogers, "Q&A: Investment Guru Jim Rogers," Time, April 28, 2009, by Tim Morrison

BofA's Ken Lewis named 2008 Banker of the Year

Despite one of the worst financial crises since the Great Depression, 22 bank failures and a $700 billion government bailout, the American Banker -- a daily chronicle of the industry -- was expected to proceed with its annual ritual at a black-tie celebration on Thursday night in New York.

The publication named Bank of America Corp. Chairman and Chief Executive Kenneth Lewis as Banker of the Year, for the second time in six years. If anyone deserved the award, it is Mr. Lewis. Bank of America, of Charlotte, N.C., is one of the year's survivors, and Mr. Lewis rescued two big firms -- California mortgage lender Countrywide Financial Corp. and New York securities firm Merrill Lynch & Co. -- from collapse.

Still, some shareholders and even banking executives are asking, why name a laureate at all this year?

A new Gallup poll shows only 23% of the public views bankers positively, a record low.

The financial crisis hasn't been kind to some past honorees. Kerry Killinger, the 2001 winner, was ousted as CEO of Seattle-based Washington Mutual Inc. in September over disastrous bets on risky mortgages. The 2005 winner, Ken Thompson, was forced out as CEO of Charlotte-based Wachovia Corp. in June. In 2006, American Banker gave a Lifetime Achievement award to Countrywide CEO Angelo Mozilo, who gambled on subprime loans and saw his company disintegrating before selling out to Bank of America. J.P. Morgan Chase & Co. acquired WaMu in September, and Wells Fargo & Co. is buying Wachovia.

~ The Wall Street Journal, "Believe It or Not, There's a Banker of the Year," December 5, 2008, by Dan Fitzpatrick

Apr 28, 2009

Cato Senior Fellow advocates inflation as economic cure

Recent massive injections of bank reserves by the Fed are probably intended to reverse expectations of price declines. Under current conditions, slightly higher inflation and inflationary expectations could be the very balm essential for pulling the economy out of recession. Of course, it remains true that the Fed must later ensure that demand-driven inflation does not spin out of control. But that's a balancing act for the future, the need for which would not arise unless the economy recovers. Currently, price increase expectations appear to be a precondition rather than a hindrance to achieving an economic recovery.

~ Jagadeesh Gokhale, Senior Fellow, Cato Institute, "Inflation at Cato," LewRockwell.com Blog, April 27, 2009, by David Gordon

Apr 27, 2009

Walter Block on charity vs. welfare

[T]here are those who view charity as a blessed state, and consider contributions a moral obligation. Such people would make charity compulsory, if they could. If, however, an act is made compulsory, it is not charity, for charity is defined as voluntary giving. If an individual is forced to give, he is not a contributor to charity, he is the victim of a robbery.

~ Walter Block, Defending the Undefendable, p. 124

Apr 19, 2009

Anonymous woman on dating prospects

Finding a good man is like finding a parking place; the only available ones are handicapped.

~ Anonymous woman

Apr 13, 2009

Thomas Paine on value of freedom

What we obtain too cheap, we esteem too lightly: it is dearness only that gives every thing its value. Heaven knows how to put a proper price upon its goods; and it would be strange indeed if so celestial an article as freedom should not be highly rated.

~ Thomas Paine

Apr 11, 2009

Sheldon Richman on trust, freedom, and power

How, if we can't trust people with freedom, can we trust them with power?

~ Sheldon Richman

Will Rogers on government

Thank goodness we don't get all the government we pay for.

~ Will Rogers

Mar 31, 2009

Lew Rockwell on Burt Blumert

Burt had a way of maintaining a refreshing distance, remembering what is important and bringing humor to lighten the moment so that others could discern what really matters.

~ Llewellyn H. Rockwell, Jr.

(Video tribute to Burton S. Blumert, 1929-2009)

Burt Blumert on forecasting Armageddon

It's OK to forecast the end of the world, but don't ever give a date.

~ Burton S. Blumert, 1929-2009

(Burt Blumert, a close friend of Murray Rothbard and benefactor of the Mises Institute, passed away of cancer on March 30, 2009. Rest in peace, Burt. You will be greatly missed.)

Mar 30, 2009

Harold S. Kushner on theories of life's quests

Terrible as it was, [Victor Frankl's] experience in Auschwitz reinforced what was already one of his key ideas: Life is not primarily a quest for pleasure, as Freud believed, or a quest for power, as Alfred Adler taught, but a quest for meaning. The greatest task for any person is to find meaning in his of her life. Frankl saw three possible sources for meaning: in work (doing something significant), in love (caring for another person), and in courage during difficult times.

~ Harold S. Kushner, Man's Search For Meaning, Foreword, p. x

Mar 29, 2009

Victor E. Frankl on success and happiness

[S]uccess, like happiness, cannot be pursued; it must ensue, and it only does so as the unintended side-effect of one's dedication to a cause greater than oneself or as the by-product of one's surrender to a person other than oneself. Happiness must happen, and the same holds for success: you have to let it happen by not caring about it.

~ Victor E. Frankl, Man's Search For Meaning, Preface to the 1992 Edition, pp. xiv-xv

Mar 28, 2009

Gene Epstein sees the economy bottoming in Q2 (2009)

The only way to tell if the recent rebound in stocks is truly signaling recovery is to look at supporting data. And those data continue to suggest a bottoming in the economy by the second quarter, which would then turn out to have been duly anticipated by a bottom in the stock market in early March, the first quarter's final month.

~ Gene Epstein, "The Bottom Is in Sight," Barron's, March 30, 2009

Mar 26, 2009

Bill Bonner on modern day depressions

We repeat: there were only two examples of major depressions in the last century. Both came after a huge run-up in debt. And both were met with programs that economists should be ashamed of – bailouts, stimulus, loans, props, safety nets and hooks. In both cases – the ’30s in the United States and the ’90s in Japan – the depressions continued, on and off, for many years. WWII brought an end to the first one – 12 years after it began. The second one continues – nearly 20 years after the crash of the Tokyo stock market.

And now we have a third one…and this time the feds are determined to beat it. What’s their strategy? More firepower! What’s their secret weapon? QE, or quantitative easing, which is actual monetary inflation caused by buying debt directly from the government.

Will it work? Will Geithner/Bernanke succeed where others failed? Will economists finally master depressions…and find a way to get “creative” without the destruction?

Ah…we think we know the answer. But in the meantime, we’re enjoying the show.

~ Bill Bonner, "Get Set for a 15-Year Depression," LewRockwell.com, March 26, 2009

Mar 25, 2009

Treasury Secretary Timothy Geithner on bank bailout

Congressman this plan will work. This plan because of the authority provided not just by Congress but the treasury and the Fed gives us broad ability to do what you need to do to get through a financial crisis like this. It just requires will; It's not about ability. We just need to keep at it. We just need to work with Congress to make sure we do this on a scale that will make it work.

~ Treasury Secretary Geithner speaking to Congress, Bloomberg TV, March 23, 2009

Mar 24, 2009

Ernest Hemingway on inflation and war

The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.

~ Ernest Hemingway

Mar 23, 2009

AIG executive on the company's credit default swap exposure (2007)

It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of those transactions.

~ Joseph J. Cassano, head of AIG Fincancial Products division, August 2007

Mar 22, 2009

John Chambers on the stimulus package

The government is doing the right thing with the stimulus package. Clearly, when others aren't spending, the public sector needs to help lead the way. The U.S. has a real opportunity to redefine how technology is used in areas like health care and education.

~ John Chambers, CEO, Cisco Systems, "The $2.5 Trillion Question," Conde Nast Portfolio, April 2009

Wayne Gretzky on risk taking

You miss 100 percent of the shots you don't take.

~ Wayne Gretzky

Mar 21, 2009

Paul Krugman on the Fed's plan to buy $1 trillion of long-term agency and government bonds

The big policy news this week has been the Fed’s decision to buy $1 trillion of long-term bonds, going beyond the normal policy of buying only short-term debt. Good move — but it’s probably worth pointing out that yes, this does expose the Fed, and indirectly the taxpayer, to some risks. And in so doing, it blurs the line between fiscal and monetary policy.

Now, the Fed isn’t taking on any serious default risk — Treasuries are backed by the full faith etc of the US government, and agency debt is de facto backed by the same, although the market doesn’t seem to believe that. Anyway, the Fed is for these purposes a government agency itself, so all this is debt between different parts of USG.

The Fed is, however, creating a new liability: the monetary base it creates to buy these bonds. In effect, it’s printing $1 trillion of money, and using those funds to buy bonds. Is this inflationary? We hope so! The whole reason for quantitative easing is that normal monetary expansion, printing money to buy short-term debt, has no traction thanks to near-zero rates. Gaining some traction — in effect, having some inflationary effect — is what the policy is all about.

~ Paul Krugman, "Fiscal aspects of quantitative easing (wonkish)," New York Times, March 20, 2009

Mar 19, 2009

Sung Won Sohn on the Fed's decision to spend up to $300 billion over the next six months to buy long-term government bonds

This is going to help everybody. This might help the Fed put Humpty Dumpty back together again.

~ Sung Won Sohn, economist at the Martin Smith School of Business at California State University, "Fed launches $1.2 trillion bid to revive economy," msnbc.com, March 19, 2008

Mar 7, 2009

Margit von Mises on her husband's concern about a great crash coming in the late 1920s

One day Lu told me he had been offered a high position at the Credit Anstalt, the foremost banking institution in Vienna, but that he had decided not to accept it. When I asked him the reason for his refusal, he told me that a great ‘crash’ would be coming and that he did not want his name in any way connected with it. He preferred to write and teach.

~ Margit von Mises, My Years With Ludwig von Mises, pp. 23-24.

Lew Rockwell on socialism and mass murder

[Socialism] was tried in the 20th century. It produced economic stagnation and despair. In its purest form, it extinguished more than one hundred million people.

— Llewellyn H. Rockwell Jr., “Beating Back ObamanomicsLewRockwell.com, March 6, 2009

Mar 3, 2009

Obama calls bottom in stocks

What you’re now seeing is profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal, if you’ve got a long-term perspective on it.

~ President Barack Obama, "Obama Says Now May Be Good Time to Invest in Stocks," Bloomberg, March 3, 2009

Feb 28, 2009

Horace Walpole on thinking and emotions

This world is a comedy to those that think, a tragedy to those that feel.

~ Horace Walpole, 18th century British art historian, writer, antiquarian and politician in a letter to Anne, Countess of Ossory

H.L. Mencken on democracy

I do not believe in democracy, but I am perfectly willing to admit that it provides the only really amusing form of government ever endured by mankind.

~ H.L. Mencken, Notes on Democracy

Sheldon Richman on greed, moral hazard, and financial regulation

Greedy people by definition want more not less. So they will be as concerned to hold on to what they have as they will be to increase their wealth. Risky investment is a way to get more but also a way to end up with less. Greed, therefore, will tend to restrain recklessness if people know their profits and losses belong to them. The corollary is that the restraints on recklessness will be weakened to the extent that people expect the losses to be absorbed by others. Market discipline is the key.

... As Gerald P. O’Driscoll Jr.writes, “Deposit insurance, access to the Fed’s lending, and the implicit (now explicit) government guarantee for banks ‘too big to fail’ all constituted a system of financial corporatism.” What these interventions have in common is the potential to shift losses forcibly from those who should be responsible for them to someone else—making reckless behavior and losses more likely than they would be. That’s the definition of moral hazard.

Greed is an easy target. But blaming greed gets us nowhere. As Lawrence White says, it’s like blaming gravity for a plane crash. It certainly doesn’t suggest any sensible policy response. The religion professor said we need more regulation. But if people are greedy, how do more regulators promise to improve matters? They are people too.

If we can’t trust people with freedom, how can we trust them with power?

~ Sheldon Richman, "The Goal Is Freedom: All About Greed ," Foundation For Economic Education, February 27, 2009

Feb 27, 2009

Ludwig von Mises on social reform

From time to time I entertained the hope that my writings would bear practical fruit and point policy in the right direction. I have always looked for evidence of a change in ideology. But I never actually deceived myself; my theories explain, but cannot slow the decline of a great civilization. I set out to be a reformer, but only became a historian of decline.

~ Ludwig von Mises, autobiography

Spinoza on truth

Truth is its own standard. (veritas norma sui et falsi est)

~ Spinoza

Virgil on fighting evil

Do not give in to evil, but proceed ever more boldly against it. (Tu ne cede malis, sed contra audentior ito.)

~ Virgil

Feb 26, 2009

Bill Bonner on capitalism

What is capitalism, after all? It is not a system…not a plan…not a program. It was not decreed by any half-wit tyrant…nor written into law by any earnest assembly. It has no constitution…and no boundaries. It is merely a recognition of basic principles. “Thou shalt not steal,” it says in the Bible. Capitalism recognizes other peoples’ property. The baker has a right to his oven. The farmer has a right to his land. The capitalist has a right to his money. What they do with these things is up to them.

Will they make mistakes? Of course they will. Will they do evil and obnoxious things? No doubt about it. Will they occasionally lose their heads and overprice their assets…or run the whole economy into too much debt…or blow themselves up in a bubble? You bet.

As Adam Smith described, they will also bumble along to create the wealth of nations.

But larceny wasn’t invented in the 21st century either. Naturally, people want what the capitalists have. Everywhere and always, the thieves will find reasons why they should be able to take it from them. They will respect the environment better, they say. They will invest in “socially responsible” projects, they claim. They will heal the lame and make the blind see. If only they get their hands on your money!

We don’t particularly like capitalism or capitalists. We just don’t like anyone telling us what to do. So, doing unto others as we would have them do unto us, we make no effort to tell others what to do with their money. If they want to give it to Bernie Madoff or to Barack Obama, so be it – just count us out. If they want to invest in CDOs and MBDs…well, good luck to them; but don’t look to us to bail them out.

~ Bill Bonner, "A Broken Down Stock Market," LewRockwell.com, February 26, 2008

Feb 23, 2009

Bill Bonner on evolution

There are two parts to Darwinism as it is popularly understood. One part is based on observation – at which Darwin was a master. The other is extrapolation – not so much on Darwin’s part, but his followers. The problem is that the part that is probably correct is child-like and obvious. And the part that is more grown up is nothing more than empty guesswork. He notes that some animals are better suited to their environments than others. If a polar bear were suddenly born to a hog here in Nicaragua, it probably wouldn’t last long. On the other hand, if a mutation produced a naked polar bear at the North Pole, it wouldn’t stand much of a chance either. Both would probably perish, leaving no heirs or assigns…and thus removing from the gene pool whatever crazy aberration that created them. Some things survive and reproduce; some don’t. The essence of Darwinism is nothing more than that simple-minded observation, as near as we can tell.

But the application of this notion far and wide is a threat to the intellectual eco-system. Because of it, people think they know a lot more than they actually know. To the question, why is the polar bear white, rather than black, they have a ready answer: because evolution made him white. But this is no answer at all…it just postpones thinking until the next question: why did evolution make him that way?

Then, the guesses begin: because he can blend into the snowy background and sneak up on seals. Oh. They tell us, for example, that he covers his nose – which is black – with his paw, so he can get closer without being spotted.

Smart bear. But you’d think if evolution could turn his whole body black it could whitewash his nose too. And what about the seals? Are they morons? You’d think those that couldn’t tell the difference between a bear with his paw over his nose and an iceberg would have been weeded out by now. Besides, why aren’t seals white?

Of course, the biologists and know-it-alls have their answers, but they are just putting 2 and 2 together in the clumsiest way. They really don’t know why polar bears are white. All they know is that nature hasn’t exterminated the white polar bears – yet.

Many of these deep thinkers also believe that Darwin proved that God didn’t create man. Instead, man arose by the process of evolution, they say, one accidental step at a time. Man is the product of pure chance, they claim. As if God couldn’t make it look like an accident, if He wanted!

~ Bill Bonner, "A Broken Down Stock Market," LewRockwell.com, February 26, 2008

Barney Frank on the GSEs: "We see entities that are fundamentally sound financially" (2003)

The more people, in my judgment, exaggerate an issue of safety and soundness, the more people conjure up the possibility of serious financial losses to the Treasury - which I do not see - I think we see entities that are fundamentally sound financially and withstand some of the disaster scenarios. And even if there were a problem the federal government doesn't bail them out, but the more pressure there is there, then the less I think we see in terms of affordable housing.

~ Representative Barney Frank (D-MA), September 10, 2003

Charles Schumer on Fannie Mae and Freddie Mac (2005)

... I think Fannie and Freddie over the years have done an incredibly good job and are an intrinsic part of making America the best-housed people in the world... if you look at the last 20 or whatever years, they've done a very, very good job.

~ Senator Charles Schumer (D-NY), Senate Banking Committe Hearing, April 6, 2005

Hans Sennholz on fiat money

The history of fiat money is little more than a register of monetary follies and inflations. Our present age merely affords another entry in this dismal register.

~ Hans F. Sennholz

Feb 21, 2009

Peter Schiff on investing in Europe and in the euro

Europe certainly has its share of problems, but, unlike the United States, at least it lives within its diminished means. For all its socialism, at least the European Union enjoys a trade surplus and its people still manage to save. As a result the euro will likely be a principal beneficiary of the dollar's demise. That could give Europe a huge boost, helping to contain interest rates and consumer prices on the continent. As a result, the euro zone is definitely an area where we want to invest. Of course, we also want to invest money outside the euro zone, such as in Switzerland, the UK, and Scandinavia, which will also benefit from a strong Europe.

In the long run, the euro as a fiat currency may very well fail like the U.S. dollar. But being the largest nondollar currency issued by a major creditor, it appears certain to thrive in the short term.

~ Peter Schiff, Crash Proof, pp. 179-180

Peter Schiff in the coming boom in China and Asia

Once China allows the dollar to collapse, its domestic purchasing power will surge and its economy will quickly overtake the U.S. economy as the world’s largest. Free from the burden of subsidizing America, the rest of Asia will boom as well.

As it now stands, the United States is the beneficiary of a reverse Marshall Plan, which costs Asian economies a fortune to fund. When they pull the plug, the U.S. economy will go down the drain, and Asian economies will see explosive growth and prosperity. Asia is where the real fortunes will be made. That is why I suggest growth-oriented investments be targeted to Asia. Investing there now is like investing in America in the late nineteenth century.

~ Peter Schiff, Crash Proof, p. 179

Peter Schiff on the inflation vs. deflation debate (2007)

Among those rational enough to perceive the looming economic downturn, a heated debate has arisen that centers on whether the slowdown will be accompanied by inflation or deflation.

Those in the deflation camp believe that money supply will collapse as a natural consequence of the implosion of the biggest credit bubble in U.S. history. As loans go bad, assets, which collateralize these loans, will be sold at fire sale prices to satisfy creditors. It is also argued that a recession will reduce consumer discretionary spending, causing retailers to slash prices to move their bloated inventories. This is the way the situation played out in the 1930's and this is how many expect it to happen today.

However there are several key differences between then and now, which argue against the classic deflationary scenario. In particular, the Fed's ability to pump liquidity into the market in the 1930's was limited by the gold backing requirements on U.S. currency. No such limitations exist today. This distinction is critical. When credit was destroyed after the Crash of 1929, the Fed was not able to simply replace it out of thin air. Today however, the Fed will likely print as much money as necessary to prevent nominal prices from collapsing. In fact, in the infamous speech that spawned his "helicopter" sobriquet, Ben Bernanke explained how the printing press can be used to stop deflation dead in its tracks.

~ Peter Schiff, "Not Your Father's Deflation," Safe Haven, December 21, 2007

Feb 20, 2009

Ben Stein apologizes to Peter Schiff

Next, here’s a lesson I learned in a 12-step program and should have learned better: avoid contempt prior to investigation. When the financial stock meltdown started, I was on a television show with Peter Schiff of Euro Pacific Capital, who warned that Merrill Lynch could be in very bad shape. I glibly said that I thought that its problems were limited and that the stock was a buy. Mr. Schiff was completely right and I was wrong. I had no idea that Mother Merrill, where I have been a happy stockholder for years, had been turned into a such a wild house of high-stakes gambling. I apologize to Mr. Schiff for my dismissal of his views, which turned out to be far superior to mine in this area. (I could do without his acolytes sending me endless hate mail, though.)

~ Ben Stein, "Lessons From the Pits of Travel and Investment," The New York Times, December 9, 2008

Feb 19, 2009

Time on "the committee to save the world" (1999)

Greenspan has a theory about what holds them together: "In analytical people self-esteem relies on the analysis and not on the conclusions." That must be it. The three men have a mania for analysis that has bred a rigorous, unique intellectual honesty. In the Reagan Administration economic policymaking was guided not by analysis but by conclusions--specifically a belief in so-called supply-side economics. No matter what the data showed, the results among Reagan-era economists like Arthur Laffer were always the same: tax cuts and less regulation were the solution. Rubin, Greenspan and Summers have outgrown ideology. Their faith is in the markets and in their own ability to analyze them. "It's unusual," Greenspan says. "In Washington usually you come to the table, and everyone meets, and no one changes their mind. But with us, you have something else."

This pragmatism is a faith that recalls nothing so much as the objectivist philosophy of the novelist and social critic Ayn Rand (The Fountainhead, Atlas Shrugged), which Greenspan has studied intently. During long nights at Rand's apartment and through her articles and letters, Greenspan found in objectivism a sense that markets are an expression of the deepest truths about human nature and that, as a result, they will ultimately be correct.

~ Time, "The Committee to Save the World," (a.k.a. "The Three Marketeers"), February 15, 1999, by Joshua Cooper Ramo

Jeff Tucker on bailouts, moral hazard, and LTCM

The idea is simple. If you are continually willing to protect people from the consequences of their own errors, your benevolence will be factored into the future decisions of the persons rescued. In the long run, they will make even more errors. The principle exists at all levels. The teacher who changes grades when students plead hardship isn't helping in the long run. The teacher is rewarding and thereby encouraging poor study habits. He is creating moral hazard.

So it is in banking and finance. How was it that the hedge fund Long-Term Capital Management, bailed out on pressure from the Fed, believed they could be leveraged 50-100 to 1 in some of the riskiest financial instruments in the world? True, the fund employed people who were said to be the smartest guys on Wall Street, plus two winners of the Nobel Prize in economics, and that gave the firm credibility the town-fair magician can't get. True, also, that returns of 40 percent in 1995 and 1996 reinforced the appearance of superhuman intelligence.

More fundamentally, however, moral hazard was there from the very beginning. Credit has been generally loose in the mid and late nineties. The firm's money was being loaned by banks backed by deposit insurance and an implicit too-big-to-fail doctrine on the Fed. The firm's preferred investment targets (like Russian bonds) were backed by a bailout promise as well. The risk spiraled onwards and upwards until one day it unraveled, and the fund itself was bailed out.

~ Jeffrey Tucker, "Mr. Moral Hazard," The Free Market, December 1998

Peter Schiff on the bargains in Asian stocks

You have a fire sale going on around the world, especially in Asia. There are stocks that are at half the value they were 10 years ago.

~ Peter Schiff, who helps oversee $1 billion at Darien, Connecticut-based Euro Pacific Capital, "Japan Stock Futures Rise; Panasonic, Cnooc Gain in U.S. Trading," Bloomberg, October 29, 2008

Peter Schiff on the free market's ability to self-regulate and moral hazard created by government attempts to limit risk

The free markets regulate themselves. Everybody is greedy, right? But everybody is afraid of losing. There's always risk and there's a tradeoff. And in the free market the risk of loss always counter-balances the greed for profit, and they check each other. But what happens is the government enters into the equation and tries to remove the element of risk. They create a moral hazard, whether it's by Freddie and Fannie guaranteeing mortgages. And now loans are going to be made then in a free market wouldn't be made - because the borrower isn't creditworthy. But when the government steps in and guarantees the loan all the sudden there's no reason to worry about the risk of loss. And when the Federal Reserve makes borrowing money very inexpensive, borrowing is cheap, so the speculation on leverage is a lot cheaper. And so it encourages more of it. And so government's come in and they remove the barriers that would exist in a free market. And then there's all these problems that get created and now the government is about to blame the free market. They're able to say, "well, there wasn't enough regulation," which is nonsense!

~ Peter Schiff, podcast with Lew Rockwell, Nobember 20, 2008

Feb 18, 2009

Peter Schiff on short selling

It’s not everybody’s cup of tea, but an investor of above-average sophistication might reasonably ask, "If the U.S. stock market is a train wreck waiting to happen, why not just sell it short?"…

Here’s why I would recommend against doing this.

Retail brokers normally require investors to hold any short-sale proceeds in U.S. dollars usually earning no interest. The dollar, seen through my famously jaundiced eye, could lose more purchasing power than the security you sold short lost value…

I’ve got a much better idea, which is to borrow dollars and spend them to acquire foreign income-producing assets, using the income to pay the interest. Short selling accomplishes the opposite, as you end up borrowing assets, which will probably have some intrinsic value, and acquiring dollars, which may have none.

~ Peter Schiff, Crash Proof: How to Profit from the Coming Economic Collapse, pp. 112–113

Kevin Duffy on lingering optimism over commodities (2008)

Such optimism indicates the bear market in commodities is likely still in the early innings. We find the arguments of the minority skeptics much more convincing, particularly a) real commodity prices decline over time due to human ingenuity and b) a global recession will sap demand already weakened by high prices.

~ Kevin Duffy, Bearing Asset Management, Azimuth blog, August 28, 2008

Bruce Bartlett on the root cause of the Great Depression: sharp contraction of the money supply

As economists Milton Friedman and Anna Schwartz proved to the satisfaction of most economists, the core economic problem in the early 1930s was a contraction of the money supply by a third. This caused the general price level to fall by about 25%.

Deflation caused real wages to rise, forcing employers to lay off workers to reduce labor costs; it forced businesses to go bankrupt because they had to sell goods for less than they cost to produce; it magnified the burden of debts as borrowers had to repay loans in dollars worth more than those they were lent; and it increased real interest rates and the real burden of taxation.

~ Bruce Bartlett, "The Real Lesson of the New Deal," Forbes.com, February 13, 2009

Bruce Bartlett on the New Deal: FDR did not spend enough

One reason why Republicans strenuously oppose the Obama administration's fiscal stimulus plan is because it repeats the errors of Franklin D. Roosevelt. To them, the New Deal was mainly about vastly expanding government spending and deficits, which Republicans believe made the Great Depression worse rather than better. Therefore, doing so again in the present downturn will also lead to failure.

The true New Deal legacy, however, is more complicated. Serious mistakes were indeed made. In particular, the National Industrial Recovery Act was fundamentally ill-conceived and retarded economic recovery. But in terms of fiscal policy, Roosevelt's error wasn't that he spent too much, but that he didn't spend nearly enough.

~ Bruce Bartlett, "The Real Lesson of the New Deal," Forbes.com, February 13, 2009

Peter Schiff on competing with Asians

It has to do with government. You know, we used to kick their asses - when we had small government, sound money, and less intervention. The reason they're beating us is because we have more government than they do. We have a bigger obstacle to overcome.

~ Peter Schiff, Interview on The Glenn Beck Show, September 29, 2008

Feb 17, 2009

Peter Schiff on the decoupling theory

I think the solution - the world needs to recognise that America is not the engine of the global economy. We are the caboose. Anybody can consume. Little children can consume. The key is to produce. The key is to save, not to borrow. And if America stops consuming and stopped borrowing, that's not going to hurt the global economy, that's going to help the global economy. The rest of the world has been living beneath their means so we can live beyond ours.

~ Peter Schiff, "Schiff, Keen on dateline," News Kontent, September 12, 2008

Professor Steven Keen debating Peter Schiff about the decoupling theory

I wish Peter [Schiff] were right that the rest of the world had its act in order. The rest of the OECD doesn't. It isn't just America that been borrowing more money than it's been earning - the whole of the OECD bar one country, which has France, has been having an increase in ratio of its debt to GDP for the last 30 years. So we're all in the borrowing game. We've all made the mistake of confusing money generated by real production with money you can borrow from a bank. And that's kept on going for so long that it's reached the point now where that game is over. If you like, it's the old "greater fool" philosophy. You make money if you find a greater fool who borrows more money than you did to buy the same asset off you and you get away rich and they end up with even more.

~ Professor Steven Keen, "Schiff, Keen on dateline," News Kontent, September 12, 2008

James West on what it's like living on planet leverage

Living on planet Earth right now is like sailing on the Titanic and knowing we're going too fast and we're bound to hit an iceberg. As a mere passenger, the suggestion that we change course and slow down will be met with derision and antagonism. The captains of the boat, who have been sailing for years and have the epaulets to prove it, know far better than we.

~ James West, "Rethinking Fractional Banking," Seeking Alpha, February 17, 2009