Headline during testimony of Ben Bernanke before Congress today:
"Does not see any bubbles in the economy at the moment".
The highly educated, super smart cream of the crop could not see the stock market bubble in 2000. They could not see the housing bubble in 2006. Now, 6 years later, everything is just fine again, right ?
What makes a bubble ? What are the telltale signs that give them away ?
When people pour money into investments that guarantee to lose them money. Especially, if they do so with borrowed funds.
The investment that fits that criteria today is bonds, government bonds. When someone buys a 10 year Treasury Note, they are guaranteed a 1.9% return. Inflation though, is running at least at 3% according to the government. According to this source though, it's running at least at double that rate:
http://www.shadowstats.com/
Whoever you want to believe, some statistician or your own wallet, if you entrust your hard earned monies to the government for 10 years, you will be paid back less than you have now.
Ok, that's sign number one for a bubble. What about leverage ? Yes, that applies as well. Indeed, if all the debt being sold was only sold for cash, it would mop up the money supply fairly fast, but government debt is SAFE, so you can borrow about 95% of your purchase.
What can possibly go wrong?
What makes this bubble possible? The promise of the Fed to keep rates at zero percent through 2014. Can they do that ? What if this bubble bursts and long term rates start to go up rapidly ?
No problem: Just print more money to purchase the bonds with, thereby supporting prices and ending the fall ?
Then people might start selling the Dollar, for fear that all that new money will push its value down ?
Then what ?
Wednesday, February 29, 2012
Friday, February 24, 2012
Two Kinds Of Entrepreneurs
There are the ones driven by money and power, the paper pushers who revel in reading up on regulations and find schemes on how to squeeze a buck or two out of the system.
Than there are the self-driven individuals who enjoy creating new things, love solving problems and HATE dealing with paperwork.
As a consumer, as a citizen, you like the second kind. But, as laws and regulations become ever more time-consuming to deal with, who will you get more of ?
In my travels, I have often met very unique individuals who were working on groundbreaking ideas, who then ended up using those ideas just for themselves. They were not willing to put up with the bureaucracy necessary to offer their products to others. This is very unfortunate, since you never know what distance an idea can go unless you try it.
On the other hand, there are the ones who take on the challenges, only to be brought down by those, who use the thicket of regulations to their own competitive advantage.
Watch the 1988 movie "Tucker, a man and his dream" to spend a very entertaining 2 hours and also gain a better understanding of the latter point.
Than there are the self-driven individuals who enjoy creating new things, love solving problems and HATE dealing with paperwork.
As a consumer, as a citizen, you like the second kind. But, as laws and regulations become ever more time-consuming to deal with, who will you get more of ?
In my travels, I have often met very unique individuals who were working on groundbreaking ideas, who then ended up using those ideas just for themselves. They were not willing to put up with the bureaucracy necessary to offer their products to others. This is very unfortunate, since you never know what distance an idea can go unless you try it.
On the other hand, there are the ones who take on the challenges, only to be brought down by those, who use the thicket of regulations to their own competitive advantage.
Watch the 1988 movie "Tucker, a man and his dream" to spend a very entertaining 2 hours and also gain a better understanding of the latter point.
Friday, February 3, 2012
Political Dictionary
Compromise: Some want to get the deficit to zero, some want it to be 10% of income.
In real life, compromise would be perhaps 5% deficit, in Washington it's15% instead.
Some want to reduce spending by 10%, some want to increase spending 10%.
Real life compromise: spending stays the same.
In Washington, spending increases 15%
Getting things done:
In real life, you mow the lawn, redo the kitchen or build a house.
In Washington, more laws and regulations are made to complicate your life without any commensurate benefit.
Politicians:
I see them as blowhards who have not the faintest knowledge on the things they're trying to regulate,
some see them as wise stewards of our nation.
Some are very educated and intelligent, some are fairly dumb. It appears that those of lesser intelligence often have better mass-appeal.
Everyone, though, is vain. No-one wants to admit to mistakes that have been made and that alone is the most important reason why the political class is so detrimental to our well being.
The more intelligent are the more dangerous, because they have even more difficulty admitting to their failures.
The problem with that? Nothing is learned from failed policies and they are instead amplified, as if what failed on a smaller scale will somehow succeed on a bigger one.
Take a look at this chart:
In 1939 there were 504 pages of "code", now it's more than 71,000 !
How many times were we promised a simplification?
Adherents of constitutional, limited government, libertarians, are often labeled anarchists. In my view, what you see depicted in this chart though, represents anarchy.
The law is the constitution. But when Congress is able to enact anything they want, without regard to the supreme law, that is indeed anarchy.
Even only 25 years ago, the IRS tried to maintain the illusion of constitutionality by speaking of "voluntary compliance" with the income tax law. This pretense has been given up, of course.
When 93 of 100 senators vote to give the president the authority to detain citizens without charge or trial, by the military, or an indefinite duration, that is anarchy.
When whistleblowers get tortured and locked up for life, while the murderers he exposed get a slap on the wrist, should I feel safe to write this anymore ?
In 1980, this nation elected a president who, to the world, held all these views that I espouse here. There was great hope that anarchy could be stopped and reversed. But, this great president made a huge mistake: He made compromises and in the end, nothing had changed in this nations march toward the all-powerful, all regulating, state. As a percentage of GDP, the debt had doubled, while the IRS code went from about 26,000 pages to 34,000 pages.
In real life, compromise would be perhaps 5% deficit, in Washington it's15% instead.
Some want to reduce spending by 10%, some want to increase spending 10%.
Real life compromise: spending stays the same.
In Washington, spending increases 15%
Getting things done:
In real life, you mow the lawn, redo the kitchen or build a house.
In Washington, more laws and regulations are made to complicate your life without any commensurate benefit.
Politicians:
I see them as blowhards who have not the faintest knowledge on the things they're trying to regulate,
some see them as wise stewards of our nation.
Some are very educated and intelligent, some are fairly dumb. It appears that those of lesser intelligence often have better mass-appeal.
Everyone, though, is vain. No-one wants to admit to mistakes that have been made and that alone is the most important reason why the political class is so detrimental to our well being.
The more intelligent are the more dangerous, because they have even more difficulty admitting to their failures.
The problem with that? Nothing is learned from failed policies and they are instead amplified, as if what failed on a smaller scale will somehow succeed on a bigger one.
Take a look at this chart:
In 1939 there were 504 pages of "code", now it's more than 71,000 !
How many times were we promised a simplification?
Adherents of constitutional, limited government, libertarians, are often labeled anarchists. In my view, what you see depicted in this chart though, represents anarchy.
The law is the constitution. But when Congress is able to enact anything they want, without regard to the supreme law, that is indeed anarchy.
Even only 25 years ago, the IRS tried to maintain the illusion of constitutionality by speaking of "voluntary compliance" with the income tax law. This pretense has been given up, of course.
When 93 of 100 senators vote to give the president the authority to detain citizens without charge or trial, by the military, or an indefinite duration, that is anarchy.
When whistleblowers get tortured and locked up for life, while the murderers he exposed get a slap on the wrist, should I feel safe to write this anymore ?
In 1980, this nation elected a president who, to the world, held all these views that I espouse here. There was great hope that anarchy could be stopped and reversed. But, this great president made a huge mistake: He made compromises and in the end, nothing had changed in this nations march toward the all-powerful, all regulating, state. As a percentage of GDP, the debt had doubled, while the IRS code went from about 26,000 pages to 34,000 pages.
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