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Don Tiberone[_2_]
March 23rd 09, 02:47 AM
http://www.safehaven.com/article-12895.htm

The Great Depression -- Then and Now and Bloody Journalists
by Gerard Jackson

The economic crisis and the debate -- what there is of one -- about
the alleged anti-recessionary effects of big government spending
policies has once again raised the spectre of the Great Depression and
once again our commentators get it wrong, particularly journalists,
that pesty brood of pseudo intellectuals for whom honest research
appears to be an anathema.

Several years ago Alan Wood, The Australian's economics commentator
wrote about the dismal fate of the "US economic forecasting industry"
that flourished in the 1920s (Dangerous complacency increases
investors' appetite for risk, 22 January 2005). It was their "failure
to see the depression coming [that] put them out of business," wrote
Mr Wood. Just as I expected the tiresome Mr Wood did -- as nearly all
journalists do when writing about the Great Depression -- turn to J.
K. Galbraith's The Great Crash of 1929 for wisdom.

Wood related how Harvard Economic Service's forecasts failed to warn
business of the impending depression. Even in November 1929 it
declared "a severe depression like that of 1920-21 is outside the
range of probability. We are not facing protracted
liquidation." (Galbraith, ibid). The preceding, according to Wood, is
"a prudent reminder of the fallibility of forecasts at a time of the
year when the voices of economic and market prognosticators are loud
in the land." But is it?

Anyone who relies on Galbraith's account of the Great Crash is going
to be seriously led astray, which accounts for why reporters are
absolutely lousy on this subject. His book is a shallow and misleading
work that lacks any permanent value. (The classic work is Murray N.
Rothbard's America's Great Depressio, Richardson & Snyder, New York
City. There is also Benjamin M. Anderson's Economics and the Public
Welfare, LibertyPress, Indianapolis).

What Wood and his fellow hacks clearly do not know is that during the
1920s some economists did warn that a severe depression was
unavoidable. In early 1929, for instance, Friedrich von Hayek warned
that the US economy was heading for a crash. Writing for the Austrian
Institute of Economic Research Report, February 1929, he successfully
predicted that "the boom will collapse within the next few
months." (Factory production began to contract about six months
later).

Then there was Colonel E. C. Harwood -- who founded the American
Institute for Economic Research -- persistently warned that the Fed's
monetary policy would cause a recession. Benjamin M. Anderson used his
position as chief economist at Chase National Bank and editor of the
Chase Economic Bulletin to sound the alarm about the Fed's monetary
policy and the coming crisis that it was generating.

The brilliant Mr Keynes was not so prophetic. Felix Somary, a Swiss
banker, recalled in his The Raven of Zurich (London: C. Hurst, 1960)
that Keynes had approached him in the mid-20s for stock
recommendations. Somary, who subscribed to the Austrian School of
economics, refused to give him any, warning that a speculative bubble
was emerging.

Keynes cockily replied: "There will be no more crashes in our
lifetime." The financial collapse apparently did nothing to dent his
self-confidence. Once the depression was underway he still hailed the
price stabilization scheme that caused it as a "triumph." When it
suited him, Keynes' conceit apparently left him unfazed by mere facts.
On the other hand, D. H. Robertson who had been a supporter of the
Fed's monetary policy began to have serious doubts about it once the
depression struck.

Ludwig von Mises refused an important job at the Kreditanstalt Bank
because, as he told his fiancé, "A great crash is coming, and I don't
want my name in any way connected with it." Mises had been warning for
years that the central banks' loose monetary policies would bring on a
depression.

It is therefore not a question of unsound forecasting but of unsound
economics. Under the influence of Irving Fisher virtually the whole of
the American economics profession had fallen prey, and still has, to
the fallacy that a stable price level means there is no inflation.
(Sir Ralph Hawtrey was one of the guiding lights of this fallacy in
England). Unfortunately the same situation prevails around the world,
hence the present crisis.

The Austrians, however, explained in considerable detail how trying to
stabilise the price level will actually destabilise the economy and
bring on the very depression the policy was designed to avoid.
According to the Austrians the Fed's credit expansion would trigger a
speculative boom, which it did; eventually the Fed would be forced to
apply the monetary brakes, which it did in December 1928 when it froze
the money supply; this would cause malinvestments created by the
credit expansion to start emerging by about the middle of the 1929,
which is exactly what happened; the bubble would then quickly burst
and the economy would go into a fully fledged depression -- the rest,
as they say, is history.

Yet 80 years later we are still being told that economics still failed
to predict the Great Depression, despite the historical fact that a
group of economists succeeded where the mainstream forecasters failed.
Widespread ignorance of this fact among those who are paid to know
better is an intellectual scandal.

Unfortunately Brookes is the only Australian publication in which you
can find this knowledge. You will certainly never find it in
Australia's mainstream media.

March 23rd 09, 03:27 AM
On Mar 22, 9:47*pm, Don Tiberone > wrote:



http://www.takeoverworld.info/cnplinks.html

Mont Pelerin Society ~ among its founders were some of the oldest and
most powerful families in Europe, such as the von Hapsburgs, former
rulers of Austro-Hungarian Empire, and the Thurn und Taxis family,
which ran the intelligence and postal system for that Empire since the
Sixteenth Century.

The Mont Pelerin Society called for a "conservative revolution" - for
the "elimination" of nation states and the return to FEUDALISM a goal
which has characterised all the various European fascist movements of
the 1920s and 1930s, of which the Nazis were merely the most
successful variant...The Mont Pelerin Society is a relic of the
fascist movements of Europe in the 1920s and 1930s. The Mont Pelerin
Society's own members such as Professor Milton Friedman, have
"emphasized" that its policies are those of Adolf Hitler* [meaning
from Hitler's policies in the 1920's and 1930's].*

Needless to say, Hitler's economic policies were NOT worker friendly
at all, and Friedman's policies in Chile mirrored those of Hitler.

-----------------------------------------------------------------------------
http://www.seekgod.ca/cnporg.htm

Mises Institute > http://www.mises.org* [libertarian] or called Ludwig
von Mises Institute~[Ludwig von Mises,* is a CNP/reconstructionist
connected libertarian institute which esteems notables such as
Friedrich von Hayek. Friedrich von Hayek, protégé and colleague of
Mises, is one of the founders of the Mont Pelerin Society, with Mises
a member for at least 13 years.] Jon Basil Utley
Atlas Foundation Project ~ Jon Basil Utley, Charles H. Brunie*
LewRockwell.com > http://www.lewrockwell.com/ ~ Dr. Gary North
Center for Libertarian Studies > http://www.libertarianstudies.org~
Dr. Gary North
Mont Pelerin Society, > http://www.montpelerin.org/[ was formed at
Mont Pelerin in Switzerland in 1947, at a meeting of some of the
leading families of the ancient European oligarchy, chaired by the
economist, Friedrich von Hayek. Mont Pelerin's main thinktank is the
London-based Institute for Economic Affairs (IEA). From there it
expanded worldwide creating thinktanks. Ludwig von Mises, is a CNP/
reconstructionist connected libertarian institute which esteems
notables such as Friedrich von Hayek. Friedrich von Hayek, protégé and
colleague of Mises, is one of the founders of the Mont Pelerin
Society.*
The Mont Pelerin Society was founded in 1947 at a meeting in
Switzerland, in a chalet on the slopes of Mt. Pelerin. According to
various sources, among its founders were some of the oldest and most
powerful families in Europe, such as the von Hapsburgs, former rulers
of Austro-Hungarian Empire, and the Thurn und Taxis family, which ran
the intelligence and postal system for that Empire since the Sixteenth
Century...those present such as Max von Thurn und Taxis, had supported
Hitler during the 1920s and 1930s. The Mont Pelerin Society called for
a "conservative revolution" - for the "elimination" of nation states
and the return to FEUDALISM a goal which has characterised all the
various European fascist movements of the 1920s and 1930s, of which
the Nazis were merely the most successful variant...The Mont Pelerin
Society is a relic of the fascist movements of Europe in the 1920s and
1930s. The Mont Pelerin Society's own members such as Professor Milton
Friedman, have "emphasized" that its policies are those of Adolf
Hitler 43 [meaning from Hitler's policies in the 1920's and 1930's].
Soon after it was founded in 1947, the Mont Pelerin Society moved to
London... Beginning in the mid-1970s, with lavish corporate financing,
the Mont Pelerin Society, spawned a series of "think tanks"
43.*Von*Hayek, the founder, wrote The Road to Serfdom in London in
1944, while teaching at the British Fabian Society's London School of
Economics.
"...in London Friedrich Hayek was creating an organization that would
later re-form as the Mont Pelerin Society. The early group was formed
in 1939 and was known as the Society for the Renovation of Liberalism.
Members of the organization included Frank Knight and Henry Simons of
the University of Chicago, the slavishly pro-British American Fabian
Socialist Walter Lippman, the philosopher Sir Karl Popper, Sir John
Clapham of the Bank of England, and of course, Ludwig von Mises. [a
founding member and for at least 13 years]
All of these early members of Hayek's group then met at Mont Pelerin,
Switzerland to form the influential, highly-secretive, and elitist
Mont Pelerin Society in 1947...From the beginning the Mont Pelerin
Society worked hand-in-hand with the Pan European Union..." 43b* See:
Footnotes* ].~ Dr. Larry P. Arnn;* Dr. Edwin J. Feulner, Jr; George C.
Roche III, Charles H. Brunie; Jameson Campaigne, Jr.; Dr. John A.
Howard; Dr. C. L. "Casey" Kay;*Dr. Paul Craig Roberts, Thomas A. Roe,*
"Father" Rev. Robert Sirico, Mark Skousen*,Dr. Lowell Smith

March 23rd 09, 03:29 AM
On Mar 22, 9:47*pm, Don Tiberone > wrote:

markets are inefficient when all parties in a transaction don’t have
equal access to critical information, which is most of the time:“Adam
Smith’s invisible hand, the idea that free markets lead to efficiency
as if guided by unseen forces, is invisible, at least in part, because
it is not there,”

http://www.bloomberg.com/apps/news?pid=20601087&sid=aTklStlSWcDQ&refer=home

Stiglitz Enabled Obama With Nobel Ideas to Scorn Them (Update1)



By Matthew Benjamin

March 13 (Bloomberg) -- Joseph Stiglitz’s 2003 book “The Roaring
Nineties” is a cornerstone of President Barack Obama’s blueprint to
reshape the U.S. economy. Yet the Nobel Prize- winning economist says
“there’s no natural position for somebody like me” in the new
administration.
A plan Obama was considering to buy illiquid assets on banks’ balance
sheets amounted to swapping taxpayers’ “cash for trash,” Stiglitz, 66,
said in January interviews at the World Economic Forum in Davos,
Switzerland. “I’m hopefully shaping some of the debate and some of the
policies and framing the discussion.”
Like fellow Nobel laureate Paul Krugman, who writes a column for the
New York Times, Stiglitz has his own forum, contributing regularly to
Vanity Fair magazine. His articles, with titles including “Capitalist
Fools,” are spread through the Internet via sites such as
DemocraticUnderground.com and DailyKos.com.
Stiglitz’s work is cited in economic papers by more people than that
of any of his peers, according to a February ranking by Research
Papers in Economics, an international database. Obama adviser Lawrence
Summers is 11th on the list and Federal Reserve Chairman Ben S.
Bernanke 34th.
While Stiglitz’s long-held views on the drawbacks of unfettered
markets are proving prophetic in the global recession, his
outspokenness excludes him from government, said David Ellerman, who
worked with the economist at the World Bank in the 1990s.
Self-Control
“If you’re going to function well in a big bureaucracy, you’ve got to
have a sort of self-control that Joe doesn’t have,” said Ellerman, a
visiting scholar at the University of California, Riverside.
“The Roaring Nineties” (W.W. Norton & Company, 432 pages, $15.95)
argued that the deregulation and market excesses of the 1990s laid the
seeds of later crises. It inspired a speech by Obama a year ago, said
a top aide from the Obama campaign, who spoke on the condition he
wouldn’t be identified. The address laid out the president’s plan to
reinstate and modernize regulation of Wall Street to avoid further
crises.
Stiglitz also mentored several members of Obama’s economic team,
including budget director Peter Orszag, 40, and Jason Furman, 38,
deputy director of the National Economic Council.
Still, Stiglitz is critical of how the president plans to rescue the
economy and questions his appointment of Summers as his top economic
adviser.
It’s “a real concern” that people such as Summers, “who have been
openly on the side of deregulation,” are back in positions of power,
said Stiglitz. The presidential adviser helped secure passage of the
1999 Gramm-Leach-Bliley Act, which repealed longstanding banking
regulations.
Stiglitz Clashes
“Larry Summers has made clear that the events of the last several
years make sweeping reform of our financial regulatory system
absolutely necessary,” said White House spokeswoman Jen Psaki.
“He has been a top adviser to the president on this issue as he has
repeatedly called for swift government action,” she said.
When Stiglitz last worked in Washington, as chief economist at the
World Bank, he clashed with Summers at Treasury and with the lender’s
president, James Wolfensohn, by criticizing International Monetary
Fund policies. Stiglitz said the IMF was hurting poor countries by
demanding they cut budgets, raise interest rates and open capital
markets.
When Stiglitz resigned from the bank in early 2000, his staff drew up
a mock list of reasons for his departure. At the top: “Had Just Seen
One Too Many Hot Summers in Washington.” Another entry: “To Find a
Vaccine for Foot-in-Mouth Disease.”
“Remaining silent when people are pursuing wrong ideas would have been
a form of complicity,” the New York Times quoted Stiglitz as saying of
his departure.
“Rather than muzzle myself, or be muzzled, I decided to leave,” he
said, according to the Times.
Speaking Up
Stiglitz receives more than 50 requests from the media each week for
comments, travels constantly, and delivers a speech almost every day,
said his wife, Anya Schiffrin.
He won the Nobel in 2001 for showing that markets are inefficient when
all parties in a transaction don’t have equal access to critical
information, which is most of the time.
“Adam Smith’s invisible hand -- the idea that free markets lead to
efficiency as if guided by unseen forces -- is invisible, at least in
part, because it is not there,” Stiglitz wrote in a 2002 article in
The Guardian newspaper.
The idea implies that there’s an important role for government to play
in the economy, he wrote.
“This is Joe’s moment in time,” said Jared Bernstein, chief economist
for Vice President Joe Biden.
Bernstein, who calls himself a Stiglitz “disciple,” said the economist
“understood the tendency for markets to fail in ways that nobody else
did. He was way ahead of the rest of us.”
Teacher’s Son
The son of a schoolteacher and an insurance salesman, Stiglitz grew up
in Gary, Indiana, when the local steel industry was beginning to
decline. He was student-government president and debate-team member in
high school and went on to Amherst College and the Massachusetts
Institute of Technology.
At the World Bank, Stiglitz repeatedly criticized IMF handling of the
financial crisis that swept Asia in the late 1990s. He claimed
austerity measures the fund demanded from nations looking for help
risked pushing them into severe recessions.
Stiglitz also questioned the IMF’s motives. “I worry a little bit
about organizations whose function is to deal with crises,” he said in
September 1999. “What are their incentives?”
Soon after leaving the bank, Stiglitz wrote in The New Republic
magazine that fund staffers were “third-rank students from first-rate
universities.”
‘Harsh’ Critic
“There was probably nothing worse he could have said about them,” said
Dean Baker, co-director of the Center for Economic Policy Research in
Washington.
“When he wrote about the IMF, he didn’t make any efforts to be
polite,” Baker said, “he was harsh.”
Stiglitz’s bestselling 2002 book “Globalization and Its
Discontents,” (W.W. Norton & Company, 304 pages, $16.95) denounced
World Bank and IMF policies, along with the way trade liberalization
was being pursued by Washington officials.
His writings and criticism of the IMF prompted an open letter from
Kenneth Rogoff, then research director at the fund.
“Joe, as an academic, you are a towering genius,” Rogoff wrote. “As a
policymaker, however, you were just a bit less impressive.”
Stiglitz, who’s been a professor at Columbia University since 2001 and
chaired the Brooks World Poverty Institute at the University of
Manchester in the U.K. since 2005, shows no signs of curbing his
tongue. Obama graduated from Columbia in 1983 with a degree in
political science.
Failing ‘Giveaway’
The Treasury’s program to inject capital into financial institutions
in return for warrants was “not only a giveaway, but a giveaway that
was designed not to work,” he said.
The financial industry, which has run up more than $1.2 trillion in
losses and writedowns since mid-2007 and whose cooperation Obama needs
to resolve the economic crisis, is “ethically challenged,” he said.
Stiglitz continues to win praise from his peers, however.
“Joe is just one of the most immensely popular economists,” said
George Akerlof, 68, a professor at the University of California,
Berkeley, who shared the 2001 Nobel Prize with Stiglitz and economist
Michael Spence, 65, an emeritus professor at Stanford University.
“Stiglitz is tremendously generous with his ideas,” said Akerlof.
‘Talk Freely’
Stiglitz said he prefers the liberty of his current jobs to the
shackles of politics.
“In my position in life, it’s much better to be in academia, to be
able to talk freely,” he said.
Even academia isn’t prepared to accept some Stiglitz habits. His first
academic job offer, an assistant professorship at MIT in 1966, came
with the proviso that he remember to wear shoes and not spend nights
in his office, he said.
It was one more position on which the economist refused to back down.
“It saved on commuting time,” he said.
To contact the reporter on this story: Matthew Benjamin in Washington
at
Last Updated: March 13, 2009 07:46 EDT

March 23rd 09, 03:30 AM
On Mar 22, 9:47Â*pm, Don Tiberone > wrote:


http://www.huffingtonpost.com/arianna-huffington/laissez-faire-capita...
December 22, 2008
Laissez Faire Capitalism Should Be as Dead as Soviet Communism
By Arianna Huffington
The collapse of Communism as a political system sounded the death
knell for Marxism as an ideology.
But while Laissez-faire capitalism has been a monumental failure in
practice, and soundly defeated at the polls, the ideology is still
alive and kicking.
The only place you can find an American Marxist these days is
teaching 
a college linguistic theory class.
But you can find all manner of free market fundamentalists still on
the Senate floor or in Governor's mansions or showing up on TV trying
to peddle the deregulation snake oil.
Take Sen. John Ensign, chairman of the National Republican Senatorial
Committee, who went on Face the Nation and, with a straight face,
said 
of the economic meltdown: 
http://thehill.com/campaign-2008/ensign-calls-financial-crisis-a-body...
"Unfortunately, it was allowed to be portrayed that this was a result
of deregulation, when in fact it was a result of overregulation."
Or Gov. Mark Sanford, who told Joe Scarborough he was against bailing
out the auto industry because it would "threaten the very market-
based 
system that has created the wealth that this country has
enjoyed."
If a politician announced he was running on a platform of "from each
according to his ability, to each according to his need" he would be
laughed off the stage.
That is also the correct response to anyone who continues to make the
case that markets do best when left alone.
It's time to drive the final nail into the coffin of Laissez-faire
capitalism by treating it like the discredited ideology it inarguably
is.
If not, the Dr. Frankensteins of the right will surely try to revive
the monster and send it marauding through our economy once again.
We've only just begun to bury the financially dead, and the free
market fundamentalists are already looking to deflect the blame.
In a comprehensive piece on what led to the mortgage crisis and the
subsequent financial meltdown, the New York Times shows how the Bush
administration's devotion to unregulated markets was a primary cause
of our economy to ruin. 
http://www.nytimes.com/2008/12/21/business/21admin.html?pagewanted=all
But the otherwise fascinating piece puts too much focus on the
"mistakes" the Bush team made by not paying attention to the warning
signs popping up all around them.
"There is no question we did not recognize the severity of the
problems," claimed Al Hubbard, Bush's former chief economic adviser.
"Had we, we would have attacked them."
But the mistake wasn't in not recognizing the "severity of the
problems" -- the mistake was the ideology that led to the problems.
Communism didn't fail because Soviet leaders didn't execute it well
enough.
Same with free market fundamentalism.
In fact, Bush and his team did a bang-up job executing a defective
theory.
The problem wasn't just the bathwater; the baby itself is rotten to
the core.
William Seidman, the longtime GOP economic advisor who oversaw the
S&L 
bailout in 1991, cuts to the chase:
"This administration made decisions that allowed the free market to
operate as a barroom brawl instead of a prize fight. To make the
market work well, you have to have a lot of rules."
Even Alan Greenspan, whose owl-eyed visage would adorn a Mount
Rushmore of unregulated capitalists, has begun to see the light,
telling a House committee in October that he "made a mistake in
presuming that the self-interests of organizations, specifically
banks 
and others, were such that they were best capable of protecting
their 
own shareholders and their equity in the firms."
But most Republicans are still refusing to see what's right in front
of them.
Especially Bush, our CEO president, who lays the blame not on the
failures of the marketplace but on past administrations and corporate
greed.
"Wall Street got drunk," he says. 
http://www.huffingtonpost.com/greg-mitchell/banned-bush-video-surface...
Maybe so, but who made the last 8 years Happy Hour, and kept serving
up the drinks?
Last week, Ben Smith reported that the GOP was launching "a new, 
in-
house think tank aimed at reviving the party's policy heft."
In a private memo explaining the think tank, RNC chairman Mike Duncan
wrote: 
http://tpmelectioncentral.talkingpointsmemo.com/2008/12/in_internal_m...
"We must show how our ideology can be applied to solve problems."
But, of course, it's that very ideology that's causing the problems.
It's like the old horror movie cliché:
"We've traced the call -- it's coming from inside the house!"
We've got to do everything we can to make sure there will be no
sequels to this political horror.
The blame shifters cannot be allowed to make their case without the
truth being pointed out at every turn.
It's time to relegate free market fundamentalists to the same
standing 
as Marxist ideologues:
intellectual curiosities occasionally trotted out as relics of a
failed philosophy.

March 23rd 09, 03:31 AM
On Mar 22, 9:47*pm, Don Tiberone > wrote:

..

so long milton freidman, and good riddance to you, your philosophies
brought rack and ruin to the world:say hello to galbraith, stiglizt,
krugman, tobin, keynes, robini, kuttner, FDR:“The miserable failures
of capitalist economies in the Great Depression were root causes of
worldwide social and political disasters,”




http://www.bloomberg.com/apps/news?pid=20601109&sid=ajz1hV_afuSQ&refer=exclusive

Yale’s Tobin Guides Obama From Grave as Friedman Is Eclipsed


By Oliver Staley and Michael McKee

Feb. 27 (Bloomberg) -- So long, Milton Friedman. Hello, James Tobin.
After a three-decade run, the free-market philosophies of Friedman
that shaped U.S. policy are being eclipsed by the pro- government
ideas of Tobin, the late Yale economist and Nobel laureate who brought
John Maynard Keynes into the modern era.
Tobin’s stamp is on the $787 billion stimulus signed by President
Barack Obama, former students and colleagues say. His philosophies are
influencing Austan Goolsbee, a former Tobin student advising Obama,
and Ben S. Bernanke, head of the Federal Reserve. Unlike Friedman,
Tobin provides guidance for today’s problems, said Paul Krugman, a
Princeton University economist.
“Hard-line doctrines don’t seem very appropriate at this troubled
moment,” said Krugman, a New York Times columnist who also worked with
Tobin at Yale from 1977 to 1979. “Tobin was never a guru in the way
Milton Friedman was; he never had legions of Samurai ready to spring
to the defense of his theories, but that’s part of why he is so
relevant right now.”
The decision by Bernanke last year to invoke the Fed’s emergency
powers and put mortgages and other assets on the central bank’s
balance sheet “is pure Tobin,” Krugman said. Bernanke cited Tobin’s
1969 essay on monetary theory in a 2004 paper discussing options
available to the Federal Reserve for stimulating the economy when
interest rates approach zero.
Tobin’s experience of the depression as a teenager in the 1930s gave
him a lifelong loathing of unemployment.
‘Livid’ Response
“As a young professor I did a paper where I analyzed the optimal
unemployment rate,” said Joseph Stiglitz, a professor at Columbia
University in New York, who knew Tobin at Yale. “Tobin went livid over
the idea. To him the optimal unemployment rate was zero.”
Like Keynes, Tobin was an advocate for the role of government in
maintaining full employment, said James Galbraith, an economist at the
University of Texas in Austin. The current economic and financial
crisis has validated that philosophy, said Galbraith, a former Tobin
student and the son of the late John Kenneth Galbraith, who was a
friend of Tobin.
“It’s clear that the position that the federal government has a
responsibility for the level of employment, for the economy, has
prevailed,” Galbraith said. “The position that the Fed can walk away
from the level of employment has completely collapsed. That was the
absolutely dominant position coming out of the University of Chicago.”
In contrast to the Friedman-influenced proponents of tax cuts,
deregulation and tight control of the money supply, followers of Tobin
are more receptive to government intervention in the economy,
including stimulus spending.
Herbert Hoover
“I do not believe that over the next two years, we can make major
deficit reduction or balancing the budget a goal,” Goolsbee, nominated
by Obama to the Council of Economic Advisers, said at a Senate hearing
on Jan. 15. “I think that would run the risk of repeating one of the
mistakes of Herbert Hoover that led us into Depression.”
Goolsbee was Tobin’s research assistant at Yale.
Tobin was born in 1918 in Champaign, Illinois, the son of a former
reporter who was a publicist for the University of Illinois football
team. His high school years during the depression motivated him to
study economics at Harvard University in Cambridge, Massachusetts,
Tobin said in an essay written for the Nobel committee.
“The miserable failures of capitalist economies in the Great
Depression were root causes of worldwide social and political
disasters,” he wrote. Economics “offered the hope, as it still does,
that improved understanding could better the lot of mankind.”
Nobel Winners
Tobin, who died in 2002, won the 1981 Nobel Memorial Prize in Economic
Sciences for his analysis of the effect of financial markets on
inflation and employment. His followers have been honored as well.
Krugman won the 2008 prize, for work on international trade and
economic geography. Stiglitz shared the 2001 award, which cited
analyses of markets in which some participants have much better
information than others.
Tobin helped pioneer the study of financial markets and their
importance to economic performance, said William Brainard, a Yale
colleague and friend.
“He believed financial markets could serve a valuable service in
diversifying risk and moving capital in efficient ways,” Brainard
said. “But he was not someone who believed the market always got it
right and that private incentives were always aligned with the public
good.”
Keynes, who died in 1946, was the British economist whose ideas helped
shape U.S. policies for more than four decades, beginning in President
Franklin D. Roosevelt’s New Deal.
Discredited Idea?
Not all economists accept that Tobin’s theory of government
intervention has replaced the Friedman model.
John Cochrane, a finance professor at the Booth School of Business at
the University of Chicago, said that while Tobin made contributions to
investing theory, the idea that spending can spur the economy was
discredited decades ago.
“It’s not part of what anybody has taught graduate students since the
1960s,” Cochrane said. “They are fairy tales that have been proved
false. It is very comforting in times of stress to go back to the
fairy tales we heard as children but it doesn’t make them less false.”
To borrow money to pay for the spending, the government will issue
bonds, which means investors will be buying U.S. Treasuries instead of
investing in equities or products, negating the stimulative effect,
Cochrane said. It also will do nothing to unlock frozen credit, he
said.
‘Tobin Tax’
Tobin proposed taxing financial transactions to slow the flow of money
to and from markets. Tobin worried that too much efficiency would
create instability in the markets as transaction costs fell, said
Stiglitz. While there was a flurry of interest in what became known as
the “Tobin Tax” during the Asian financial crisis of the late 1990s,
the idea never received political support.
Tobin’s understanding of the role of financial markets in the economy
was rooted in his study of the decisions made by investors, and he was
the intellectual force behind many of the tools they use today,
Stiglitz said.
He devised the Q Ratio, a formula that divides total market
capitalization by the cost of replacing assets. Q of greater than one
suggests a fast-growing company with incentive to make new capital
investments; a Q lower than one suggests a company that might be ripe
for takeover because buying its shares would cost less than replacing
its assets.
“He’s the father of modern asset pricing,” Stiglitz said.
After Harvard, where he studied under the late Joseph Schumpeter, he
spent four years in the U.S. Navy, serving on a destroyer that
supported the invasion of North Africa.
Wouk Character
While training to be an officer, he served with Herman Wouk, who later
wrote “The Caine Mutiny.” Tobin was Wouk’s model for a character
called Tobit, a “mandarin-like midshipman” who had “a domed forehead,
measured quiet speech and a mind like a sponge.”
Tobin began teaching at Yale, in New Haven, Connecticut, in 1950,
leaving in 1961 and 1962 to serve on the U.S. Council of Economic
Advisors under President John F. Kennedy.
At Yale, he put his stamp on generations of economists who studied or
taught there. Those include Goolsbee, Krugman, Stiglitz, and
Galbraith. Others influenced by Tobin at Yale include Robert Shiller,
a Yale economist and creator of the Case/Shiller home price index;
Nouriel Roubini, the New York University economist who predicted the
financial collapse; Janet Yellen, president of the Federal Reserve
Bank of San Francisco; and David Swensen, Yale’s investment manager.
Levin’s Wish
Tobin’s influence on today’s policy makers is still not as powerful as
former students would like to see. Richard Levin, the president of
Yale, said Tobin would have wanted the stimulus package to create more
jobs and contain fewer tax cuts.
“Tobin’s insights are what’s needed right now,” Levin said. “I wish
policy makers would listen more carefully to Tobin.”
To contact the reporter on this story: Oliver Staley in New York at
; Michael McKee in New York at
.
Last Updated: February 27, 2009 00:00 EST

March 23rd 09, 03:32 AM
On Mar 22, 9:47*pm, Don Tiberone > wrote:



In 1972, Friedman helped persuade U.S. Treasury Secretary George
Shultz, former dean of Chicago’s business school, to approve the first
financial futures contracts in foreign currencies, Such derivatives
grew more complex after Chicago economists created the mathematical
formulas to price them, helping spawn a $683 trillion market that’s
proved to be a root of today’s financial system breakdown “When
Friedman’s Platonic ideas of free-market virtues are put into
practice, they have too often generated a systemic orgy of competitive
greed -- whose remedies, ironically, entail countermeasures of
nationalization,” they are now finished, SNICKER!


where are all of the stupid cranks that are indoctrinated in the
sleazy, unworkable, dangerous, crank science going to work now. they
are the laughing stock of the world, the butt of jokes from sea to
shining sea.


http://www.bloomberg.com/apps/news?pid=20601109&sid=a3GVhIHGyWRM&refer=home

Friedman Would Be Roiled as Chicago Disciples Rue Repudiation


By John Lippert

Dec. 23 (Bloomberg) -- John Cochrane was steaming as word of U.S.
Treasury Secretary Henry Paulson’s plan to buy $700 billion in
troubled mortgage assets rippled across the University of Chicago in
September.
Cochrane had been teaching at the bastion of free-market economics for
14 years and this struck at everything that he -- and the school --
stood for.
“We all wandered the hallway thinking, How could this possibly make
sense?” says Cochrane, 51, recalling his incredulity at Paulson’s
attempt to prop up the mortgage industry and the banks that had
precipitated the housing market’s boom and bust.
During a lunch held on a balcony with a view of Rockefeller Memorial
Chapel, Cochrane, son-in-law of Chicago efficient-market theorist
Eugene Fama, and some colleagues made their stand.
They wrote a petition attacking Paulson’s proposal, sent it to
economists nationwide and collected 230 signatures. Republican Senator
Richard Shelby of Alabama waved the document as he scorned the rescue.
When Congress rejected it on Sept. 29, Cochrane fired off
congratulatory e-mails.
The victory was short-lived. Lawmakers approved the plan four days
later, swayed by what Cochrane calls a pinata of pork-barrel
amendments.
“We should have a recession,” Cochrane said in November, speaking to
students and investors in a conference room that looks out on Lake
Michigan. “People who spend their lives pounding nails in Nevada need
something else to do.”
Unusual Role
At the University of Chicago, once ascendant free-market acolytes are
finding themselves in an unusual role: They’re battling a wave of
government intervention more sweeping than any since the Great
Depression as the U.S. struggles with the worst recession in seven
decades.
By the end of November, the government had committed $8.5 trillion, or
more than half the value of everything produced in the country in
2007, to save the financial system.
The European Union had ponied up more than $3 trillion to guarantee
bank loans and provide capital to lenders. And China had unveiled a
$586 billion stimulus plan and its biggest interest-rate cut in 11
years.
The intrusion is anathema to the so-called Chicago School of economics
and its patriarch, the late Milton Friedman.
Nobel Dominance
For half a century, Chicago’s hands-off principles have permeated
financial thinking and shaped global markets, earning the university
10 Nobel Memorial Prizes in Economic Sciences starting in 1969, more
than double the four each won by Columbia University, Harvard
University, Princeton University and the University of California,
Berkeley.
Chicago’s laissez-faire imprint underpins everything from U.S.
President Ronald Reagan’s 1981 tax cuts and the fall of communism that
decade to quantitative investment strategies.
In 1972, Friedman helped persuade U.S. Treasury Secretary George
Shultz, former dean of Chicago’s business school, to approve the first
financial futures contracts in foreign currencies.
Such derivatives grew more complex after Chicago economists created
the mathematical formulas to price them, helping spawn a $683 trillion
market that’s proved to be a root of today’s financial system
breakdown.
On Dec. 16, the U.S. Federal Reserve cut its target lending rate to as
low as zero for the first time and said it will buy mortgage- backed
securities.
Free Market
Friedman, who died in 2006 at age 94, defined the Chicago School in
1974 as he spoke to a board of trustees dinner.
“‘Chicago’ stands for a belief in the efficacy of the free market as a
means of organizing resources, for skepticism about government
intervention into economic affairs,” he said.
Friedman was explaining a movement that had taken hold in the U.S. and
was percolating in Europe and South America.
“By the mid-1970s, there was a whole generation in government and
academia who’d trained at Chicago or places influenced by it,” says
Ross Emmett, a Michigan State University professor who’s written three
books on the school.
Today, 10 percent of Chicago undergraduates study economics. Alumni of
Chicago’s graduate business school, now called the Booth School of
Business, run states and companies.
Jon Corzine, the former chief executive officer of Goldman, Sachs &
Co. who earned his MBA in 1973, is governor of New Jersey. Peter
Peterson, who graduated with an MBA in 1951, co-founded Blackstone
Group LP, the world’s largest private equity firm.
David Booth, a 1971 MBA graduate for whom the school is now named,
donated $300 million in November, the largest endowment given to the
university.
Booth School
Booth, who founded Dimensional Fund Advisors Inc., bases his funds on
Fama’s theory that a market digests information affecting prices so
well that even professional investors can’t outsmart it for long. Even
with his U.S. Micro Cap Portfolio fund down 40 percent in 2008 through
Dec. 22, Booth says quantitative investing is less vulnerable during a
slump than stock picking that relies on human judgment.
“This supports our theory in that predicting the market is even more
difficult than we expected,” he says.
Unlike Booth, 62, much of the academic world is reassessing Chicago
School hallmarks. That’s true even in the limestone buildings on the
211-acre (85-hectare) Hyde Park campus in which professors teach
Friedman’s theories.
‘Systemic Orgy’
On Oct. 14, about 250 students and professors debated an
administration-backed plan for a $200 million research center to be
named for Friedman. The protesters argued that the institute would
enshrine policies that have brought economies near collapse.
“When Friedman’s Platonic ideas of free-market virtues are put into
practice, they have too often generated a systemic orgy of competitive
greed -- whose remedies, ironically, entail countermeasures of
nationalization,” Marshall Sahlins, an emeritus professor of
anthropology, said during the debate, speaking in a room adorned with
murals of female students parading through the campus in medieval
gowns.
Sahlins, 77, noted a few weeks later socialist and capitalist
countries alike are regulating or nationalizing financial institutions
in a rebuff to Friedman.
Off campus, the global meltdown is stirring anti-Chicago economists,
who were voices in the wilderness during decades of lax government
oversight of markets.
Joseph Stiglitz, who won one of Columbia’s economics Nobels, says the
approach of Friedman and his followers helped cause today’s turmoil.
‘Bears the Blame’
“The Chicago School bears the blame for providing a seeming
intellectual foundation for the idea that markets are self- adjusting
and the best role for government is to do nothing,” says Stiglitz, 65,
who received his Nobel in 2001.
University of Texas economist James Galbraith says Friedman’s ideology
has run its course. He says hands-off policies were convenient for
American capitalists after World War II as they vied with government-
favored labor unions at home and Soviet expansion overseas.
“The inability of Friedman’s successors to say anything useful about
what’s happening in financial markets today means their influence is
finished,” he says.
Instead, Galbraith, 56, says policy-makers are rediscovering the ideas
of his father, Harvard professor John Kenneth Galbraith, and economist
John Maynard Keynes of the University of Cambridge.
Keynes, who died in 1946, argued that governments should spend to
combat the unemployment that free markets tolerate. Galbraith, who
died in 2006, rejected mathematical models and technical analyses as
divorced from reality.
Obama’s Role
Barack Obama, who will referee the laissez-faire versus free- market
debate as U.S. president, has pledged the largest spending on
infrastructure since the 1950s to save or create 3 million jobs.
Obama, 47, has deep roots on the university’s campus in Hyde Park, a
middle-class enclave 7 miles south of downtown Chicago. His Victorian
house is a five-minute walk from the school’s northern edge. He taught
constitutional law there for 12 years, stepping down when he was
elected to the U.S. Senate in 2004.
Obama tapped fellow Chicago professor Austan Goolsbee as staff
director of his President’s Economic Recovery Advisory Board, which
will propose ways to revive growth.
Goolsbee, 39, who was Obama’s chief economist during the campaign, has
taught at the business school since 1995. Goolsbee says Obama’s top
priority is to prevent the crisis from spiraling into a depression.
Yet he insists Obama won’t overregulate.
‘Chicago School’ Democrat
“If the president-elect were not a ‘University of Chicago Democrat,’
then the natural response would be to just try to turn back the clock
to what was there before,” he says.
“Because Obama comes out of a framework where the market is not the
enemy, there’s a possibility we can create new institutions to guard
against excess without going back to what was wrong in the old
regime.”
Goolsbee supports bigger capital requirements for banks and other
institutions that can borrow from the Federal Reserve, and wants
expanded monitoring of hedge fund firms and ratings companies.
Derivatives may need to be traded through clearinghouses, like those
used in Chicago wheat pits, which act as counterparties for each trade
and can suspend traders with insufficient collateral.
“Getting us out of the hole we’re in, promoting oversight and making
investments so the economy can grow doesn’t make you anti- market,”
Goolsbee says. “It’s totally pro-market.”
Already, some of the university’s top economists have abandoned hard-
line Friedmanism for the middle ground.
Douglas Diamond, a finance professor at Chicago since 1979, declined
to sign Cochrane’s petition damning Paulson’s bailout. Diamond says he
knew the Sept. 29 vote against the rescue would spur investors to pull
assets from banks. He says governments have no choice but to provide
safety nets for banks and tougher oversight.
‘Crazy Stuff’
“The vote was the beginning of people believing crazy stuff, like the
U.S. might find it politically expedient to let its financial system
go,” Diamond, 55, says.
Robert Lucas, a Chicago economist who won a Nobel in 1995 for a theory
that argued against governments trying to fine-tune consumer demand,
says deregulation may have gone too far.
Depression-era laws that separated commercial and investment banks
helped depositors decide if they wanted secure accounts or riskier
investments. Today, without these distinctions, people can’t be sure
if their investments, or those of their customers, are safe.
“I’m changing my views on bank regulation every week,” Lucas, 71,
says. “It was an area I saw as under control. Now I don’t believe
that.”
Lucas says he voted for Obama, the only Democrat besides Bill Clinton
he’d supported in 44 years. He concluded the candidate was comfortable
talking with professional economists. He describes Goolsbee, whom he
has met in faculty workshops, as a serious scholar.
‘Survival of Fittest’
Chicago students seem less concerned about the debate swirling through
their campus than with finding -- or keeping -- a job.
Milos Dedovic, an emigre from Serbia, is studying for his MBA at
night. He works for Continental AG, Europe’s second-largest auto parts
maker, managing sales of transmission control modules to General
Motors Corp. Dedovic, 38, says his MBA will help make him secure even
if he loses his job.
“If the economy is spiraling down, you get survival of the fittest,
where skills and accreditation matter even more,” he says.
The university got its start in 1892 as a haven for researchers, not
would-be managers.
William Rainey Harper, a Bible scholar who taught at Yale, attracted
oil magnate John D. Rockefeller as his benefactor. Harper broke with
then prevailing Ivy League practices by hiring Jews, finance professor
Fama says. By 1946, Chicago was luring stars such as Enrico Fermi,
father of the self-sustaining nuclear reaction.
Keynesian Orthodoxy
Friedman’s parents were Jews who emigrated from what’s now Ukraine.
When he joined the faculty in 1946, he allied with Friedrich Hayek, a
London School of Economics professor who later transferred to Chicago.
They sought to discredit Keynes, who argued that deficits in
government budgets could revive demand in recessions. They viewed
rising government power as a step toward left-wing totalitarianism and
wanted to stop it, says Philip Mirowski, a University of Notre Dame
economist.
Friedman challenged Keynesian orthodoxy with work that culminated in a
Nobel Prize in 1976. He argued that consumers decide how much to save
based on earnings prospects throughout their lifetimes, not on short-
term government efforts to manipulate demand. Friedman demonstrated
that inflation and unemployment may rise in tandem and that
governments cause inflation by printing too much money.
‘Change My Mind’
Lucas, the 1995 Nobel laureate, recalls Friedman convincing him in a
90-minute undergraduate class in 1960 that labor was subject to the
same economic laws as other commodities. Friedman argued that minimum
wage laws, which Lucas saw as humanitarian, harm workers by reducing
demand for their services.
“I never thought I could change my mind like that,” Lucas says.
Deirdre McCloskey, now an economist at the University of Illinois,
Chicago, remembers laughing with fellow Harvard undergraduates in 1963
at Friedman’s claim that free markets allocate resources better than
governments. She says Harvard-trained bureaucrats enjoyed prestige
following World War II. She switched her support to Friedman after the
Vietnam War destroyed her faith that such bureaucrats knew what they
were doing.
Friedman, who stood 5 feet 3 inches (160 centimeters), was a fierce
debater, McCloskey recalls.
“He always asks, persistently, ‘How do you know?’” McCloskey, now 66,
wrote in the Eastern Economic Review in 2003. “It’s a terrifying
question, because most of the time we can’t say.”
‘Shock Therapy’
Friedman was chief economic adviser to Republican presidential
candidate Barry Goldwater in 1964. He began attracting nonacademic
audiences with a Newsweek magazine column that ran from 1966 to ’84.
When Reagan was governor of California, Friedman campaigned with him
in 1973 for limits to property taxes that had fueled government growth
in the state.
In 1975, Friedman traveled to Chile and met dictator Augusto Pinochet,
who’d seized power two years earlier in a coup in which thousands
died, including Socialist President Salvador Allende. Pinochet
practiced “shock therapy,” including monetary controls, to tame
inflation.
Friedman’s friend Alan Walters, later an adviser to British Prime
Minister Margaret Thatcher, went to Chile to monitor what he viewed as
laboratory-like conditions for shock therapy, says Andy Beckett in
“Pinochet in Piccadilly” (Faber & Faber, 2002).
India and China
Walters, 82, taught at the London School of Economics and at Johns
Hopkins University in Baltimore, later serving as vice chairman of AIG
Trading Group Inc. He was fascinated by “the Chicago boys” who trained
in Hyde Park and became advisers to post-Soviet governments in Eastern
Europe after serving in Chile.
Students reacted differently. After the coup, a generation of Latin
Americans refused to study at Chicago, says James Heckman, 64, an
economist at the university who won a Nobel in 2000.
McCloskey, who taught in the Chicago economics department for 12 years
starting in 1968, says several professors played bigger roles than
Friedman in Chile. His opposition to training economists for Shah
Mohammed Reza Pahlavi of Iran shows he didn’t coddle dictators, she
says. McCloskey still trusts Friedman’s teachings.
“The big event of the last 20 years is the success of free markets in
India and China,” says McCloskey via telephone from South Africa,
where she’s a visiting professor at the University of the Free State
in Bloemfontein.
“This is more important than any financial crisis and makes it really
hard to argue for a return to central planning.”
In 1977, Friedman reached the then mandatory retirement age of 65 and
left for the Hoover Institution at Stanford University.
Black-Scholes
While wrapping up his Hyde Park career, he reviewed the early research
of professors Fischer Black and Myron Scholes, who gave Chicago
theories a bigger and more direct role in financial markets.
The pair provided a foundation for trading call options on stocks by
creating a formula to link the value of the options to share price and
volatility, time remaining on the option and interest rates.
The Black-Scholes model helped spark the global derivatives market.
At the time, Fama was positing that securities prices reflect the
collective wisdom of all participants. This “efficient market” theory
helped make him the No. 1 scholarly business writer, with 250,828
downloads of academic papers as of Dec. 22, according to Social
Science Research Network.
Fama’s theory helped pave the way for the recent economic crisis by
sanctioning limited government, Notre Dame’s Mirowski says.
“Fama taught that no human being knows enough to understand how
resources should be allocated,” he says. “All you can do is let the
market have greater and greater ability to repackage information and
risk. The result is, people bought mortgage-backed securities with no
idea whether borrowers could repay.”
AIG’s Long Position
Fama, 69, who favors casual shirts and chinos on campus, joined the
Chicago faculty in 1963. When he opened his financial theory class on
Sept. 29, the day Congress voted down Paulson’s bailout, he placed
efficient-market equations from his 1976 textbook on an overhead
projector.
Fama says he never denied the possibility of unexpected events even
though he’d spent a lifetime showing that markets effectively digest
information. He was stunned that American International Group Inc.,
once the world’s largest insurer, sold $441 billion in unhedged and
undercapitalized insurance on securitized debt, much of it tied to
mortgage values.
“No one expected a player like AIG to take a long position and not
hedge themselves,” Fama says. He says the government may have been
able to stabilize the U.S. financial system at a lower cost by letting
AIG collapse.
Bailout Mania
Bailing out Detroit automakers will simply postpone their demise as
they reel from expenses promised for employee retirement plans, he
says.
Cochrane, who circulated the anti-rescue petition, says a rash of
bailouts will expand government and kill entrepreneurship.
“People don’t notice businesses that didn’t start,” he says. Cochrane
says he was encouraged by the Fed’s Dec. 16 rate cut and its plan to
buy mortgage-backed securities, saying these moves will help unfreeze
capital markets.
“This is exactly the right thing for a central bank to be doing in the
midst of a credit crunch,” he says.
Fama and Cochrane have more in common than their outlooks. Cochrane is
married to Fama’s daughter Elizabeth, a finance Ph.D. who writes
fiction for young adults. Their families have dinner together twice a
week; on campus, their offices adjoin.
Cochrane’s Vindication
Cochrane’s has a photo of himself in a glider in which he competes. He
says he felt vindicated in November when Paulson abandoned the idea of
buying mortgage assets. He advocates patience as markets rebuild
themselves.
In the future, people who originate securities will retain a higher
percentage of the debt, understand risks better and earn smaller
profits, he says.
For now, he says, when a U.S. bank fails, a hedge fund in Denmark may
bear the brunt, which is an improvement from the Depression era, when
neighborhoods surrounding a bank were devastated.
“That’s risk being spread all around the world,” he says.
Cochrane says he now represents a minority viewpoint among Chicago’s
business faculty. He says Diamond, who declined to sign the petition,
holds a majority view, which posits financial institutions must be
rescued and regulated.
Bank Failures
Diamond began studying bank failures when he was a doctoral student at
Yale in the 1970s. The 1963 book that Friedman wrote with Anna
Schwartz, “A Monetary History of the United States, 1867- 1960,”
provided the foundation. A copy, held together by Scotch tape, sits on
Diamond’s desk, even though he concluded at Yale that a main premise
was wrong.
Diamond rejects Friedman’s view that banks failed in the 1930s because
the U.S. money supply contracted as panicky Americans started hoarding
cash and the Fed reacted too slowly. Diamond sees the money supply as
less significant than Friedman did.
Banks failed, he says, because their assets weren’t readily converted
into the cash that depositors were demanding.
During the 1980s, Diamond’s research was similar to that of Fed
Chairman Ben S. Bernanke, 55, whom he calls a good friend. The two
postulated that because bankers accumulate experience in assessing
risk, they play a key role in the economy.
In the past decade, bankers failed to properly grasp risk because of a
“witch’s brew” of mistakes, Diamond says.
Real-Life Experiment
Former Fed Chairman Alan Greenspan’s 1 percent interest rate in 2003
-- a 45-year low -- flooded Wall Street with so much cash that banks
could increase profits with short-term borrowing to service long-term
liabilities, Diamond says. The mismatch grew more dangerous as
Greenspan resisted regulation of off-balance-sheet structured
investment vehicles, which banks used to circumvent capital
requirements.
Reagan’s $4.5 billion rescue of Continental Illinois National Bank &
Trust Co. in 1984 convinced bankers that bailouts would come if things
turned bad, Diamond says.
By 2007, a quarter of assets held by big U.S. investment banks came
from short-term borrowing, up from 12 percent three years earlier.
Goolsbee describes the plan Obama is formulating -- tax relief for
workers, investment in technology and infrastructure and more
oversight of financial markets -- as pragmatic and data-driven. He
says Friedman would approve of Obama’s determination to keep policy
making rooted in the economic methodologies developed at Chicago.
The University of Texas’s Galbraith compares Obama to pragmatic
philosopher John Dewey, whose ideas sparked educational reform in the
20th century. While on the Chicago faculty in 1896, Dewey started the
school that the Obama and Goolsbee children attend.
With his inauguration on Jan. 20, Obama faces a real-life experiment
in organizing financial markets amid turmoil few presidents have
navigated.
His success will be measured partly by how he uses the University of
Chicago as an intellectual anchor -- and whether he can meld its free-
market heritage with today’s nonstop intervention to bring order to
uncharted times.
To contact the reporter on this story: John Lippert in Chicago at
.
Last Updated: December 23, 2008 00:01 EST

Don Tiberone[_2_]
March 23rd 09, 04:13 AM
http://www.economist.com/finance/displaystory.cfm?story_id=13104022

Irving Fisher
Out of Keynes's shadow

Feb 12th 2009 | WASHINGTON, DC
From The Economist print edition
Today’s crisis has given new relevance to the ideas of another great
economist of the Depression era

Sue Vago

SHORTLY after he was elected president, Barack Obama sounded a
warning: “We are facing an economic crisis of historic proportions…We
now risk falling into a deflationary spiral that could increase our
massive debt even further.” The address evoked not just the horror of
the Depression, but one of the era’s most important thinkers: Irving
Fisher.

Though once America’s most famous economist, Fisher is now almost
forgotten by the public. If he is remembered, it is usually for
perhaps the worst stockmarket call in history. In October 1929 he
declared that stocks had reached a “permanently high plateau”. Today
it is John Maynard Keynes, his British contemporary, who is cited,
debated and followed. Yet Fisher laid the foundation for much of
modern monetary economics; Keynes called Fisher the “great-
grandparent” of his own theories on how monetary forces influenced the
real economy. (They first met in London in 1912 and reportedly got
along well.)

As parallels to the 1930s multiply, Fisher is relevant again. As it
was then, the United States is now awash in debt. No matter that it is
mostly “inside” or “internal” debt—owed by Americans to other
Americans. As the underlying collateral declines in value and incomes
shrink, the real burden of debt rises. Debts go bad, weakening banks,
forcing asset sales and driving prices down further. Fisher showed how
such a spiral could turn mere busts into depressions. In 1933 he
wrote:

Over investment and over speculation are often important; but they
would have far less serious results were they not conducted with
borrowed money. The very effort of individuals to lessen their burden
of debts increases it, because of the mass effect of the stampede to
liquidate…the more debtors pay, the more they owe. The more the
economic boat tips, the more it tends to tip.

Though they seldom invoke Fisher, policymakers in America are applying
his ideas. In academia Ben Bernanke, now the chairman of the Federal
Reserve, sought to formalise Fisher’s debt-deflation theory. His
research has shaped his response to this crisis. He decided to bail
out Bear Stearns in March 2008 partly so that a sudden liquidation of
the investment bank’s positions did not trigger a cycle of falling
asset prices and default. Indeed, some say the Fed has learnt Fisher
too well: from 2001 to 2004, to contain the deflationary shock waves
of the tech-stock collapse, it kept interest rates low and thus helped
to inflate a new bubble, in property.

Were Fisher alive today, “he would tell us we have to avoid deflation,
and to worry about all that inside debt,” says Robert Dimand, an
economist at Brock University in Canada, who has studied Fisher in
depth. “The ideal thing is to avoid these situations. Unfortunately,
we are in one.”

Fisher was born in 1867 and earned his PhD from Yale in 1891. In 1898
he nearly died of tuberculosis, an experience that turned him into a
lifelong crusader for diet, fresh air, Prohibition and public health.
For a while he also promoted eugenics. His causes, both healthy and
repugnant, combined with a lack of humour and high self-regard, did
not make him popular.

In 1894, on a trip to Switzerland, he saw, in water cascading into
mountain pools, a way to “define precisely the relationships among
wealth, capital, interest and income,” Robert Loring Allen, a
biographer of Fisher, wrote. “The flowing water, moving into the pool
at a certain volume per unit of time, was income. The pool, a given
volume of water at a particular moment, became capital.” Over the next
30 years he established many of the central concepts of financial
economics.

In 1911, in “The Purchasing Power of Money”, Fisher formalised the
quantity theory of money, which holds that the supply of money times
its velocity—the rate at which a dollar circulates through the market—
is equal to output multiplied by the price level. Perhaps more
important, he explained how changing velocity and prices could cause
real interest rates to deviate from nominal ones. In this way,
monetary forces could produce booms and busts, although they had no
long-run effect on output. Furthermore, Fisher held that the dollar’s
value should be maintained relative not to gold but to a basket of
commodities, making him the spiritual father of all modern central
banks that target price stability.

During the 1920s Fisher became rich from the invention and sale of a
card-index system. He used the money to buy stocks on margin, and by
1929 was worth $10m. He was also a prominent financial guru. Alas, two
weeks after he saw the “plateau” the stockmarket crashed.

To his cost, Fisher remained optimistic as the Depression wore on. He
lost his fortune and his home and lived out his life on the generosity
of his sister-in-law and Yale. But his work continued. He was
prominent among the 1,028 economists who in vain petitioned Herbert
Hoover to veto the infamous Smoot-Hawley tariff of 1930. And he
developed his debt-deflation theory. In 1933 in Econometrica,
published by the Econometric Society, which he co-founded, he
described debt deflation as a sequence of distress-selling, falling
asset prices, rising real interest rates, more distress-selling,
falling velocity, declining net worth, rising bankruptcies, bank runs,
curtailment of credit, dumping of assets by banks, growing distrust
and hoarding. Chart 1 is his: it shows how deflation increased the
burden of debt.

Fisher was adamant that ending deflation required abandoning the gold
standard, and repeatedly implored Franklin Roosevelt to do so. (Keynes
was of similar mind.) Roosevelt devalued the dollar soon after
becoming president in 1933. The devaluation and a bank holiday marked
the bottom of the Depression, though true recovery was still far off.
But Fisher had at best a slight influence on Roosevelt’s decision. His
reputation had fallen so far that even fellow academics ignored him.

Contemporary critics did poke a hole in his debt-deflation hypothesis:
rising real debt makes debtors worse off but creditors better off, so
the net effect should be nil. Mr Bernanke plugged this in the 1980s.
“Collateral facilitates credit extension,” he said in June 2007, just
before the crisis began in earnest. “However, in the 1930s, declining
output and falling prices (which increased real debt burdens) led to
widespread financial distress among borrowers, lessening their
capacity to pledge collateral…Borrowers’ cash flows and liquidity were
also impaired, which likewise increased the risks to lenders.” Mr
Bernanke and Mark Gertler of New York University dubbed this “the
financial accelerator”.

The downward spiral can start even when inflation remains positive—for
example, when it drops unexpectedly. Consider a borrower who expects
inflation of 2% and takes out a loan with a 5% interest rate. If
instead inflation falls to 1%, the real interest rate rises from 3% to
4%, increasing the burden of repayment.

Asset deflation can do much the same thing. If house prices are
expected to rise by 10% a year, a buyer willingly borrows the whole
purchase price, because his home will soon be worth more than the
loan. A lender is happy to make the loan for the same reason. But if
prices fall by 10% instead, the house will soon be worth less than the
loan. Both homeowner and lender face a greater risk of bankruptcy.

Today, debt in America excluding that of financial institutions and
the federal government is about 190% of GDP, the highest since the
1930s, according to the Bank Credit Analyst, a financial-research
journal (see chart 2). There are important differences between then
and now. Debt was lower at the start of the Depression, at 164% of
GDP. Mortgage debt was modest relative to home values, and prices were
not notably bloated: they fell by 24% between 1929 and 1933, says
Edward Pinto, a consultant, so were roughly flat in real terms. Debt
burdens shot up because of deflation and shrinking output; nominal GDP
fell by 46% between 1929 and 1933.

Debt burdens are high today mostly because so much was borrowed in the
recent past. This began as a logical response to declining real
interest rates, low inflation, rising asset prices and less frequent
recessions, all of which made leverage less dangerous. But rising
leverage eventually bred easy credit and overvalued homes.

Even without recession, falling home prices would have impaired enough
mortgage debt to destabilise the financial system (see chart 3).
Recession makes those dynamics more virulent; deflation could do
similar damage. Broad price indices fell in late 2008. Granted, that
was caused in part by a one-off fall in petrol costs; but America’s
core inflation rate, which excludes food and energy, has fallen from
2.5% in September to 1.8%. Goldman Sachs sees it falling to 0.25% in
the next two years.

That is low enough to mean falling wages for many households and
falling prices for many firms. More widespread and deeper deflation
would mean that property prices would have to fall even further to
restore equilibrium with household incomes, creating another round of
delinquencies, defaults and foreclosures.

What is the solution? Fisher wrote that it was “always economically
possible to stop or prevent such a depression simply by reflating the
price level up to the average level at which outstanding debts were
contracted.” Alas, reflation is not so simple. Although stabilising
nominal home prices would help short-circuit the debt-deflation
dynamics now under way, any effort to maintain them at unrealistically
high levels (where they still are in many cities) is likely to fail.
Higher inflation could help bring down real home prices while allowing
nominal home prices to stabilise, and reduce real debt burdens. But
creating inflation is easier said than done: it requires boosting
aggregate demand enough to consume existing economic slack, through
either monetary or fiscal policy.

Though the Fed does not expect deflation, last month it did say that
“inflation could persist for a time below” optimal levels. It is
mulling a formal inflation target which, by encouraging people to
expect positive inflation, would make deflation less likely. But its
practical tools for preventing deflation are limited. In December its
short-term interest-rate target in effect hit zero. The Taylor rule, a
popular rule of thumb, suggests it should be six percentage points
below. The Fed is now trying to push down long-term interest rates by
buying mortgage-backed and perhaps Treasury securities. With
conventional monetary ammunition spent, fiscal policy has become more
important.

In 2002 Mr Bernanke argued the government could ultimately always
generate inflation by having the Fed finance large increases in
government spending directly, by purchasing Treasury debt. Martin
Barnes of the Bank Credit Analyst thinks this highly unlikely: “You’d
have capital flight out of the dollar. The only way it works is if
every country is doing it, or with capital controls.”

Fisher died in 1947, a year after Keynes, and remains in his shadow.
Mr Dimand notes that Fisher never pulled the many strands of his
thought together into a grand synthesis as Keynes did in “The General
Theory of Employment, Interest and Money”. More important, Keynes’s
advocacy of aggressive fiscal policy overcame the limitations of
Fisher’s purely monetary remedies for the Depression.

Yet Fisher’s insights remain vital. They have filtered, perhaps
unconsciously, into the thinking of today’s policymakers. On February
8th Lawrence Summers, Mr Obama’s principal economic adviser, called
for the rapid passage of a fiscal stimulus “to contain what is a very
damaging and potentially deflationary spiral.” His advice bridges
Fisher and Keynes.

March 23rd 09, 04:50 AM
On Mar 22, 11:08*pm, Don Tiberone > wrote:

except keynes did not advocate giving money to the wealthy, he felt
it was a waste of time and money. he advocated getting it to where it
was needed the most, and would be used the quickest. he was also
against free trade, because the money would leak offshore, and
stimulate someone else.
so what brown is doing and obama is partially doing, is not keynes.

March 23rd 09, 06:53 AM
expect a backlash against socialism soon.
it will be te biggest bloodbath in recorded history. you can see it
coming a mile away.


"THE BLACK HAND" is the name of the international
terrorist group that is causing all the problems.

Poetic Justice[_2_]
March 23rd 09, 02:53 PM
wrote:
> On Mar 22, 11:08 pm, Don Tiberone > wrote:
>
> except keynes did not advocate giving money to the wealthy, he felt
> it was a waste of time and money. he advocated getting it to where it
> was needed the most, and would be used the quickest. he was also

And that is Government?


> against free trade, because the money would leak offshore, and
> stimulate someone else.
> so what brown is doing and obama is partially doing, is not keynes.

Obama is Socialist... his plans(no matter how you spin them) will have
some socialistic outcome.

4929 Dead, 62 since 1/20/09
March 23rd 09, 03:11 PM
On Mon, 23 Mar 2009 10:53:19 -0400, Poetic Justice wrote:

> wrote:
>> On Mar 22, 11:08 pm, Don Tiberone > wrote:
>>
>> except keynes did not advocate giving money to the wealthy, he felt
>> it was a waste of time and money. he advocated getting it to where it
>> was needed the most, and would be used the quickest. he was also
>
> And that is Government?
>
>
>> against free trade, because the money would leak offshore, and
>> stimulate someone else.
>> so what brown is doing and obama is partially doing, is not keynes.
>
> Obama is Socialist... his plans(no matter how you spin them) will have
> some socialistic outcome.

You don't know what a socialist is, bubbles. You just toss the word
around the same way a three year old calls people "booger nose".

--
“Man will never be free until the last king is strangled with the
entrails of the last priest.” -Dennis Diderot Pay your taxes so the
rich don't have to. Atheist #2211

thunder
March 23rd 09, 03:26 PM
On Mon, 23 Mar 2009 10:11:19 -0500, 4929 Dead, 62 since 1/20/09 wrote:


>> Obama is Socialist... his plans(no matter how you spin them) will have
>> some socialistic outcome.
>
> You don't know what a socialist is, bubbles. You just toss the word
> around the same way a three year old calls people "booger nose".

At this precise moment in time, I wonder what is the bigger epithet,
socialist or capitalist.

John Galt[_2_]
March 23rd 09, 03:42 PM
thunder wrote:
> On Mon, 23 Mar 2009 10:11:19 -0500, 4929 Dead, 62 since 1/20/09 wrote:
>
>
>>> Obama is Socialist... his plans(no matter how you spin them) will have
>>> some socialistic outcome.
>> You don't know what a socialist is, bubbles. You just toss the word
>> around the same way a three year old calls people "booger nose".
>
> At this precise moment in time, I wonder what is the bigger epithet,
> socialist or capitalist.

In the US? 'Socialist'. It will get you asked to 'step outside' at 95%
of the bars in the country.

JG

thunder
March 23rd 09, 03:46 PM
On Mon, 23 Mar 2009 10:42:44 -0500, John Galt wrote:

> thunder wrote:
>> On Mon, 23 Mar 2009 10:11:19 -0500, 4929 Dead, 62 since 1/20/09 wrote:
>>
>>
>>>> Obama is Socialist... his plans(no matter how you spin them) will
>>>> have some socialistic outcome.
>>> You don't know what a socialist is, bubbles. You just toss the word
>>> around the same way a three year old calls people "booger nose".
>>
>> At this precise moment in time, I wonder what is the bigger epithet,
>> socialist or capitalist.
>
> In the US? 'Socialist'. It will get you asked to 'step outside' at 95%
> of the bars in the country.
>
> JG

And saying you are a Wall Street Capitalist?

Poetic Justice[_2_]
March 23rd 09, 03:46 PM
4929 Dead, 62 since 1/20/09 wrote:
> On Mon, 23 Mar 2009 10:53:19 -0400, Poetic Justice wrote:
>
>> wrote:
>>> On Mar 22, 11:08 pm, Don Tiberone > wrote:
>>>
>>> except keynes did not advocate giving money to the wealthy, he felt
>>> it was a waste of time and money. he advocated getting it to where it
>>> was needed the most, and would be used the quickest. he was also
>> And that is Government?
>>
>>
>>> against free trade, because the money would leak offshore, and
>>> stimulate someone else.
>>> so what brown is doing and obama is partially doing, is not keynes.
>> Obama is Socialist... his plans(no matter how you spin them) will have
>> some socialistic outcome.
>
> You don't know what a socialist is, bubbles. You just toss the word
> around the same way a three year old calls people "booger nose".

It must be you who "don't know", since more people everyday are seeing
Obama's socialist tendencies. That's OK, you're just slow... you'll
catch up some day.

John Galt[_2_]
March 23rd 09, 03:51 PM
thunder wrote:
> On Mon, 23 Mar 2009 10:42:44 -0500, John Galt wrote:
>
>> thunder wrote:
>>> On Mon, 23 Mar 2009 10:11:19 -0500, 4929 Dead, 62 since 1/20/09 wrote:
>>>
>>>
>>>>> Obama is Socialist... his plans(no matter how you spin them) will
>>>>> have some socialistic outcome.
>>>> You don't know what a socialist is, bubbles. You just toss the word
>>>> around the same way a three year old calls people "booger nose".
>>> At this precise moment in time, I wonder what is the bigger epithet,
>>> socialist or capitalist.
>> In the US? 'Socialist'. It will get you asked to 'step outside' at 95%
>> of the bars in the country.
>>
>> JG
>
> And saying you are a Wall Street Capitalist?

I'm a capitalist, sure. I can't say if I'm a "Wall Street Capitalist" or
not, since I don't know how that term differs from generic capitalism,
as you define it.

JG

Poetic Justice[_2_]
March 23rd 09, 03:52 PM
thunder wrote:
> On Mon, 23 Mar 2009 10:11:19 -0500, 4929 Dead, 62 since 1/20/09 wrote:
>
>
>>> Obama is Socialist... his plans(no matter how you spin them) will have
>>> some socialistic outcome.
>> You don't know what a socialist is, bubbles. You just toss the word
>> around the same way a three year old calls people "booger nose".
>
> At this precise moment in time, I wonder what is the bigger epithet,
> socialist or capitalist.

The Democrat-Socialists are trying to bad mouth capitalism and destroy
its appeal. That's how they do things, rather than outshining someone
or something, the Democrats attack and try to destroy them. It's classic
Democrat behavior.


Democrats are now just leftist like Liberals and Socialists.... and we
know that the left/Democrats strive for mediocrity.




--

http://OutSourcedNews.com
“Any fourth grade history student knows socialism has failed in every
country, at every time in history,” said Putin. “President Obama and
his fellow Democrats are either idiots or deliberately trying to
destroy their own economy.” - Vladimir Putin -

Poetic Justice[_2_]
March 23rd 09, 04:26 PM
John Galt wrote:
> thunder wrote:
>> On Mon, 23 Mar 2009 10:42:44 -0500, John Galt wrote:
>>
>>> thunder wrote:
>>>> On Mon, 23 Mar 2009 10:11:19 -0500, 4929 Dead, 62 since 1/20/09 wrote:
>>>>
>>>>
>>>>>> Obama is Socialist... his plans(no matter how you spin them) will
>>>>>> have some socialistic outcome.
>>>>> You don't know what a socialist is, bubbles. You just toss the word
>>>>> around the same way a three year old calls people "booger nose".
>>>> At this precise moment in time, I wonder what is the bigger epithet,
>>>> socialist or capitalist.
>>> In the US? 'Socialist'. It will get you asked to 'step outside' at 95%
>>> of the bars in the country.
>>>
>>> JG
>>
>> And saying you are a Wall Street Capitalist?

.....is not as bad as saying you are a politician.




> I'm a capitalist, sure. I can't say if I'm a "Wall Street Capitalist" or
> not, since I don't know how that term differs from generic capitalism,
> as you define it.
>
> JG

March 23rd 09, 04:28 PM
Poetic Justice wrote:
> thunder wrote:
>> On Mon, 23 Mar 2009 10:11:19 -0500, 4929 Dead, 62 since 1/20/09 wrote:
>>
>>
>>>> Obama is Socialist... his plans(no matter how you spin them) will have
>>>> some socialistic outcome.
>>> You don't know what a socialist is, bubbles. You just toss the word
>>> around the same way a three year old calls people "booger nose".
>>
>> At this precise moment in time, I wonder what is the bigger epithet,
>> socialist or capitalist.
>
> The Democrat-Socialists are trying to bad mouth capitalism and destroy
> its appeal. That's how they do things, rather than outshining someone
> or something, the Democrats attack and try to destroy them. It's classic
> Democrat behavior.
>
>
> Democrats are now just leftist like Liberals and Socialists.... and we
> know that the left/Democrats strive for mediocrity.
>
>
>
>

Why is it Republicans always ascribe their own worst traits to Liberals?

4929 Dead, 62 since 1/20/09
March 23rd 09, 04:32 PM
On Mon, 23 Mar 2009 11:46:52 -0400, Poetic Justice
> wrote:

>4929 Dead, 62 since 1/20/09 wrote:
>> On Mon, 23 Mar 2009 10:53:19 -0400, Poetic Justice wrote:
>>
>>> wrote:
>>>> On Mar 22, 11:08 pm, Don Tiberone > wrote:
>>>>
>>>> except keynes did not advocate giving money to the wealthy, he felt
>>>> it was a waste of time and money. he advocated getting it to where it
>>>> was needed the most, and would be used the quickest. he was also
>>> And that is Government?
>>>
>>>
>>>> against free trade, because the money would leak offshore, and
>>>> stimulate someone else.
>>>> so what brown is doing and obama is partially doing, is not keynes.
>>> Obama is Socialist... his plans(no matter how you spin them) will have
>>> some socialistic outcome.
>>
>> You don't know what a socialist is, bubbles. You just toss the word
>> around the same way a three year old calls people "booger nose".
>
>It must be you who "don't know", since more people everyday are seeing
>Obama's socialist tendencies. That's OK, you're just slow... you'll
>catch up some day.

You just keep jumping up and down and squeaking your sad, silly little
line.

Are they paying you to sell your little pink ass to the banks?

Oh, they aren't, you say...?

John Galt[_2_]
March 23rd 09, 04:58 PM
Poetic Justice wrote:
> John Galt wrote:
>> thunder wrote:
>>> On Mon, 23 Mar 2009 10:42:44 -0500, John Galt wrote:
>>>
>>>> thunder wrote:
>>>>> On Mon, 23 Mar 2009 10:11:19 -0500, 4929 Dead, 62 since 1/20/09 wrote:
>>>>>
>>>>>
>>>>>>> Obama is Socialist... his plans(no matter how you spin them) will
>>>>>>> have some socialistic outcome.
>>>>>> You don't know what a socialist is, bubbles. You just toss the word
>>>>>> around the same way a three year old calls people "booger nose".
>>>>> At this precise moment in time, I wonder what is the bigger epithet,
>>>>> socialist or capitalist.
>>>> In the US? 'Socialist'. It will get you asked to 'step outside' at 95%
>>>> of the bars in the country.
>>>>
>>>> JG
>>>
>>> And saying you are a Wall Street Capitalist?
>
> ....is not as bad as saying you are a politician.

Well, that's granted. :-)

JG
>
>> I'm a capitalist, sure. I can't say if I'm a "Wall Street Capitalist"
>> or not, since I don't know how that term differs from generic
>> capitalism, as you define it.
>>
>> JG

March 24th 09, 04:37 AM
On Mar 23, 10:11*am, "4929 Dead, 62 since 1/20/09"
> wrote:
> On Mon, 23 Mar 2009 10:53:19 -0400, Poetic Justice wrote:
> > wrote:
> >> On Mar 22, 11:08 pm, Don Tiberone > wrote:
>
> >> *except keynes did not advocate giving money to the wealthy, he felt
> >> it was a waste of time and money. he advocated getting it to where it
> >> was needed the most, and would be used the quickest. he was also
>
> > And that is Government?
>
> >> against free trade, because the money would leak offshore, and
> >> stimulate someone else.
> >> *so what brown is doing and obama is partially doing, is not keynes.
>
> > Obama is Socialist... his plans(no matter how you spin them) will have
> > some socialistic outcome.
>
> You don't know what a socialist is, bubbles. *You just toss the word
> around the same way a three year old calls people "booger nose".
>

that is correct. he embarrasses himself every time he parrots that.


> --
> “Man will never be free until the last king is strangled with the
> entrails of the last priest.” -Dennis Diderot * * Pay your taxes so the
> rich don't have to. * * Atheist #2211

March 24th 09, 04:41 AM
On Mar 23, 10:52*am, Poetic Justice >
wrote:
> thunder wrote:
> > On Mon, 23 Mar 2009 10:11:19 -0500, 4929 Dead, 62 since 1/20/09 wrote:
>
> >>> Obama is Socialist... his plans(no matter how you spin them) will have
> >>> some socialistic outcome.
> >> You don't know what a socialist is, bubbles. *You just toss the word
> >> around the same way a three year old calls people "booger nose".
>
> > At this precise moment in time, I wonder what is the bigger epithet,
> > socialist or capitalist.
>
> The Democrat-Socialists are trying to bad mouth capitalism and destroy
> its appeal. *That's how they do things, rather than outshining someone
> or something, the Democrats attack and try to destroy them. It's classic
> Democrat behavior.
>
> Democrats are now just leftist like Liberals and Socialists.... and we
> know that the left/Democrats strive for mediocrity.
>
> --

the real problem is that capital, has once again destroyed their own
markets. just as they did under other well known socialists, such as
harding, and coolidge, and today, bush:)
today, capital is begging labor to bail them out. no one is putting a
gun to their heads to take that darn government money.


>
> http://OutSourcedNews.com
> “Any fourth grade history student knows socialism has failed in every
> country, at every time in history,” said Putin. “President Obama and
> his fellow Democrats are either idiots or deliberately trying to
> destroy their own economy.” - Vladimir Putin -

March 24th 09, 04:42 AM
On Mar 22, 9:47Â*pm, Don Tiberone > wrote:

Are Peter Schiff and the Gold Bugs Wrong Again?: The vast majority of
our money supply is in the form of electronic credit. Electronic
credit can be destroyed, while physical notes issued by a central bank
cannot. This is why deflation is possible in a credit based monetary
system, but not in a paper based monetary system





http://finance.yahoo.com/tech-ticker/article/216235/Are-Peter-Schiff-and-the-Gold-Bugs-Wrong-Again;_ylt=Ahruwv4zWEeq_g4WnMnWkdG7YWsA?tickers=%5 Egspc,GLD,GDX,UUP,UDN?sec=topStories&pos=9&asset=TBD&ccode=TBD

Are Peter Schiff and the Gold Bugs Wrong Again?
Posted Mar 23, 2009 08:58am EDT by Joe Weisenthal

From The Business Insider, March 23, 2009:
We really enjoy the critique of guys like Peter Schiff, who slam our
system of banking. But in terms of using his philosophy as investment
advice, it's dicey, since he's been saying the same thing for years
and the collapse hasn't happened yet.
Then in the last year, the financial system really did start to
collapse, but the bet went the wrong way for Schiff.
Still, Schiff and his ilk are confident that vindication is right
around the corner. The the dollar will collapse and gold will regain
its crown. It's just a matter of being patient -- and in the view of
many, at this point we're basically there.
Indeed with the Fed now literally creating money for so-called
quantitative easing, serilus currency debasement may be close at hand.
Matt Stiles, who writes at Stockhouse.com, who also happens to
identify with the Austrian School of economics, argues why these
hyperinflation fears are way overblown, and why we won't see a
Zimbabwe scenario here:
It is often said that we live with a "fiat currency" or with "paper
money." This is not entirely accurate. A very small portion of our
total supply of money and credit is in the form of physical currency.
It depends on how you count it, but regardless, it is under 10% of the
total. This is what differentiates our monetary system with that of
Zimbabwe or Weimar Germany circa 1920's. Their economies were based on
nearly 100% physical currency because nobody would accept the promises
of government in order to issue credit. 

The vast majority of our
money supply is in the form of electronic credit. Electronic credit
can be destroyed, while physical notes issued by a central bank
cannot. This is why deflation is possible in a credit based monetary
system, but not in a paper based monetary system.
....
All in all, the central banks are not nearly as powerful as they'd
have you believe. The amount of the total money supply that is
controlled by them is minimal. They won't tell you that. They'd prefer
you to think that just by them moving their lips they can affect the
entire economy's decision making processes. It simply ain't so.

This begs the question: why is gold going up? Who knows. It has a mind
of it's own. But if it really only moved due to inflation concerns, it
wouldn't have declined 75% over two inflationary decades (80's, 90's)
would it? If inflationary concerns were real, we would see TIP yields
rising along with the gold price. They're not. We'd also be seeing
other typical inflation hedges rising - like property prices. That is
obviously not the case. A better explanation is that gold is rising
because of increased instability...
For more coverage and to view the full post, see The Business Insider.

Poetic Justice[_2_]
March 24th 09, 05:35 AM
wrote:
> On Mar 23, 10:11 am, "4929 Dead, 62 since 1/20/09"
> > wrote:
>> On Mon, 23 Mar 2009 10:53:19 -0400, Poetic Justice wrote:
>>> wrote:
>>>> On Mar 22, 11:08 pm, Don Tiberone > wrote:
>>>> except keynes did not advocate giving money to the wealthy, he felt
>>>> it was a waste of time and money. he advocated getting it to where it
>>>> was needed the most, and would be used the quickest. he was also
>>> And that is Government?
>>>> against free trade, because the money would leak offshore, and
>>>> stimulate someone else.
>>>> so what brown is doing and obama is partially doing, is not keynes.
>>> Obama is Socialist... his plans(no matter how you spin them) will have
>>> some socialistic outcome.
>> You don't know what a socialist is, bubbles. You just toss the word
>> around the same way a three year old calls people "booger nose".
>>
>
> that is correct. he embarrasses himself every time he parrots that.
>

Yep I laugh at you every time someone else calls Obama a Socialist. You
must be a really slow Liberal. They're all slow but you're pushing the
envelope.

>
>> --
>> “Man will never be free until the last king is strangled with the
>> entrails of the last priest.” -Dennis Diderot Pay your taxes so the
>> rich don't have to. Atheist #2211
>

Don Tiberone[_2_]
March 24th 09, 05:48 AM
On Mar 23, 8:42 pm, wrote:
> On Mar 22, 9:47 pm, Don Tiberone > wrote:
>
> Are Peter Schiff and the Gold Bugs Wrong Again?: The vast majority of
> our money supply is in the form of electronic credit. Electronic
> credit can be destroyed, while physical notes issued by a central bank
> cannot. This is why deflation is possible in a credit based monetary
> system, but not in a paper based monetary system
>
> http://finance.yahoo.com/tech-ticker/article/216235/Are-Peter-Schiff-...
>
> Are Peter Schiff and the Gold Bugs Wrong Again?
> Posted Mar 23, 2009 08:58am EDT by Joe Weisenthal
>
> From The Business Insider, March 23, 2009:
> We really enjoy the critique of guys like Peter Schiff, who slam our
> system of banking. But in terms of using his philosophy as investment
> advice, it's dicey, since he's been saying the same thing for years
> and the collapse hasn't happened yet.
> Then in the last year, the financial system really did start to
> collapse, but the bet went the wrong way for Schiff.
> Still, Schiff and his ilk are confident that vindication is right
> around the corner. The the dollar will collapse and gold will regain
> its crown. It's just a matter of being patient -- and in the view of
> many, at this point we're basically there.
> Indeed with the Fed now literally creating money for so-called
> quantitative easing, serilus currency debasement may be close at hand.
> Matt Stiles, who writes at Stockhouse.com, who also happens to
> identify with the Austrian School of economics, argues why these
> hyperinflation fears are way overblown, and why we won't see a
> Zimbabwe scenario here:
> It is often said that we live with a "fiat currency" or with "paper
> money." This is not entirely accurate. A very small portion of our
> total supply of money and credit is in the form of physical currency.
> It depends on how you count it, but regardless, it is under 10% of the
> total. This is what differentiates our monetary system with that of
> Zimbabwe or Weimar Germany circa 1920's. Their economies were based on
> nearly 100% physical currency because nobody would accept the promises
> of government in order to issue credit. 

The vast majority of our
> money supply is in the form of electronic credit. Electronic credit
> can be destroyed, while physical notes issued by a central bank
> cannot. This is why deflation is possible in a credit based monetary
> system, but not in a paper based monetary system.
> ...
> All in all, the central banks are not nearly as powerful as they'd
> have you believe. The amount of the total money supply that is
> controlled by them is minimal. They won't tell you that. They'd prefer
> you to think that just by them moving their lips they can affect the
> entire economy's decision making processes. It simply ain't so.
>
> This begs the question: why is gold going up? Who knows. It has a mind
> of it's own. But if it really only moved due to inflation concerns, it
> wouldn't have declined 75% over two inflationary decades (80's, 90's)
> would it? If inflationary concerns were real, we would see TIP yields
> rising along with the gold price. They're not. We'd also be seeing
> other typical inflation hedges rising - like property prices. That is
> obviously not the case. A better explanation is that gold is rising
> because of increased instability...
> For more coverage and to view the full post, see The Business Insider.

http://www.safehaven.com/article-11977.htm

Gold's Behaviour During A Bubble
by Bob Hoye

• Gold shares were expected to decline with the financial markets into
dislocating conditions expected to culminate in November.

• Gold's nominal price in dollars was likely to decline as most of the
panics would occur with the dollar rising against most other
currencies and most commodities.

• This was based upon the course of significant events though previous
great bubbles and their consequent contractions. The following page of
charts shows the pattern for gold's real price through the biggest
manias, including the first one in 1720. Within this, the gold premium
which was at 118 in August 1873 fell to 106 as the crash ended in that
November.

• Typically, gold's real price declines through a financial mania, and
just as typically gold shares underperform the stock market.

GOLD'S BEHAVIOUR DURING A POST-BUBBLE CONTRACTION

• Typically, gold's real price increases during the economic and
financial contraction that is consequent to a bubble.

• More specifically, we used the behavior of the yield curve and
credit spreads through the 1929 and 1873 manias as a model for the
path that would define the eventual collapse of our bubble. This
expected that the key reversal to adversity would occur close to June
2007. The reversal in the yield curve was accomplished in that May and
spreads reversed in that fateful June.

• Of interest is that the real price of gold, as represented by our
Gold/Commodities Index, reached a high of 255 in June 2003. Then as
that boom launched, the index began a cyclical decline, which
reflected diminishing profitability for gold producers. Rising
commodities relative to gold reflects basic mining costs rising
relative to bullion sales.

• The most reliable indicator of the end of a mania has been the
change in the yield curve. It was significant that this was also the
cyclical low for our index at 143 in May 2007. With November's panic,
it increased to a high of 339. We thought that this measure of gold
would double on its cyclical bull market, which has further to run.

• This has been indicating that operating costs have been falling
relative to the price of gold and it should soon begin to drive
earnings up, as earnings for most sectors remain under the pressure of
falling prices.

• The rise in the real price also increases the valuation of gold
deposits.

SUPPLY, DEMAND AND OTHER SUPERSTITIONS

• Although gold is an essential part of the yield curve, no
traditional supply/demand research on gold has ever anticipated the
beginning of a classic financial contraction.

• Mainly, conventional analysis seems to be tedious gossip about what
central banks are doing with their reserves, what's happening with the
Souks, Indian wedding seasons and the monsoons. Marketing and treasury
departments at big mining companies turn gossip into reports so that
the CEO can appear to be well-informed to the board of directors and
the media.

• Equally tedious has been all the finger-pointing about
"conspiracies" as an explanation about why gold and silver are not
conforming to the dictates of traditional fundamental analysis.

• For two decades the World Gold Council has focused upon jewellery
consumption as the key to gold's price trends. Indeed, such demand
grew strongly during this, as well as the new financial era that blew
out in 1929. Interestingly, this consumption was essentially
overwhelmed by the decline in investment demand that is one of the
features of a financial mania. Producers suffered poor operating
margins. The real price typically declines and then with some irony
the wonderful demand for jewellery slumps as the real price goes up in
a crash. The point being is that in the real world analysis of
jewellery consumption can be misleading - especially during a
financial mania and its consequence.

• Then there is macroeconomic research. This uses hundreds of Fourier
equations to project gold prices, which seems to go over well with the
treasury departments of the big mining companies. The more popular
services will provide three price forecasts. One is a moderately
rising trend line, another rises less steeply, and the third declines.
This saves both modeler and subscriber from making a judgment call.
Moreover, the accounting departments don't so much care whether the
method is reliable. Any price will do, so long as it is for the year-
end.

OUTLOOK FOR GOLD STOCKS

• Gold shares had been likely to decline as part of the typical fall
crash, which would likely clear around mid November, and our advice
since late October has been to cover shorts in silver stocks and to
get long the gold sector.

• A new bull market for gold shares has been expected to start in
November and run for a few years.

• This has been expected to encompass the whole gold sector, including
exploration stocks.

• Based upon previous post-bubble contractions, this could run for
around 20 years. Of course, the usual business cycle would prevail,
with the gold sector doing well on the recessions.

GOLD/SILVER RATIO

• Beyond being something to trade, the gold/silver ratio has been a
reliable indicator of credit conditions. It declines during a boom and
does its greatest service when it typically signals the contraction by
increasing. The key move in 2008 occurred with the turn up in May from
46. This was with the reversal in the credit markets and the technical
break out at 54 in August anticipated the fall disaster. Often during
the more acute phase of a panic, silver can dramatically plunge
relative to gold.

• With the break above 54 our target on the full contraction became
around 100. That level for the ratio was reached with the banking
crisis that ended in late 1990, when the last of the 1980 adventures
in crude, gold, silver and real estate were finally written off.

• From a high close of 84 on October 28 with that panic the ratio
declined to 71 with the stock market rebound to November 5. The next
rise with the next panic was to 83.5 on Friday, November 21, and the
ratio can decline for a few months as the financial markets recover in
the first quarter.

MECHANISM

One of the most fascinating aspects of great credit manias is that all
six since 1720 have occurred with a senior central bank with the
dangerous prerogative of issue. Each bubble was identified by the
street as such until our era of asset inflations. Perhaps our
financial establishment has been so ignorant of the dynamics of a
mania they were unable to make the call in real time.

On the latest example, as late as December 2007 the advice was that
nothing could go wrong:

"The truth is that Fed governors, together with their crack staff
of Ph.D economists and market analysts, are as close to an economic
dream team as we are ever likely to see."

- Gregory Mankiw, New York Times, December 23, 2007

So despite the inability of our policymakers to forecast another
financial disaster such as initially discovered last January,
confidence remained that a full-out panic could be prevented.

The fall crash was remarkably similar to it counterparts in 1929 and
1873.

Historically, at the peak of each mania the establishment took credit
for the prosperity, and then found scapegoats in the bust. The
mechanism seems to be at the boom the central banks seem to be in
control, but the truth is that once prices of the speculative games
turn down, power is immediately shifted to Mister Margin. In past
examples, this overwhelmed policymakers and continued until the
contraction ran its course.

The notion that "liquidity" was driving prices up was dead wrong, as
soaring prices fostered the most aggressive experiment in leverage in
history. And as much of this involved being long the hot items against
cheap money in dollar and yen terms is was natural that as forced
liquidation started it would be accompanied by a rising dollar and
yen.

Typically, one of the features of a post-bubble contraction has been
the senior currency becoming strong relative to most commodities, and
currencies for most of the time. This seems due to the flight to the
unique liquidity found in treasury bills in the senior currency as
well as in gold. This has been working out.

In so many words, the investment demand for gold has been soaring as
the wildest creation of credit in history has been contacting. Once a
mania is over traditional liquidity always disappears and the role of
a rising real price of gold seems designed to increase production,
which eventually increases real liquidity in the global financial
system.

Our review covers three hundred years of history and while there is no
guarantee that the pattern will continue to work out, there is no
guarantee that it won't.

It is appropriate to be fully positioned for a great bull market in
the gold sector.

• The basic theme has been down in a boom and up in a bust.

• Typically, the post-bubble bull market can run for 3 or 4 years.

• Typically, this has been within a 20-year bull market.

• Historically, we have used the CPI as recorded in the senior
currency.

• For convenience, we currently use our Gold/Commodities Index.

March 24th 09, 04:15 PM
On Mar 24, 12:35*am, Poetic Justice >
wrote:
> wrote:
> > On Mar 23, 10:11 am, "4929 Dead, 62 since 1/20/09"
> > > wrote:
> >> On Mon, 23 Mar 2009 10:53:19 -0400, Poetic Justice wrote:
> >>> wrote:
> >>>> On Mar 22, 11:08 pm, Don Tiberone > wrote:
> >>>> *except keynes did not advocate giving money to the wealthy, he felt
> >>>> it was a waste of time and money. he advocated getting it to where it
> >>>> was needed the most, and would be used the quickest. he was also
> >>> And that is Government?
> >>>> against free trade, because the money would leak offshore, and
> >>>> stimulate someone else.
> >>>> *so what brown is doing and obama is partially doing, is not keynes.
> >>> Obama is Socialist... his plans(no matter how you spin them) will have
> >>> some socialistic outcome.
> >> You don't know what a socialist is, bubbles. *You just toss the word
> >> around the same way a three year old calls people "booger nose".
>
> > *that is correct. he embarrasses himself every time he parrots that.
>
> Yep I laugh at you every time someone else calls Obama a Socialist. *You
> must be a really slow Liberal. *They're all slow but you're pushing the
> envelope.
>

i never voted for bush:)


>
>
> >> --
> >> “Man will never be free until the last king is strangled with the
> >> entrails of the last priest.” -Dennis Diderot * * Pay your taxes so the
> >> rich don't have to. * * Atheist #2211

March 24th 09, 04:22 PM
On Mar 24, 12:48Â*am, Don Tiberone > wrote:
> On Mar 23, 8:42 pm, wrote:
>
>
>
> > On Mar 22, 9:47 pm, Don Tiberone > wrote:
>
> > Are Peter Schiff and the Gold Bugs Wrong Again?: The vast majority of
> > our money supply is in the form of electronic credit. Electronic
> > credit can be destroyed, while physical notes issued by a central bank
> > cannot. This is why deflation is possible in a credit based monetary
> > system, but not in a paper based monetary system
>
> >http://finance.yahoo.com/tech-ticker/article/216235/Are-Peter-Schiff-...
>
> > Are Peter Schiff and the Gold Bugs Wrong Again?
> > Posted Mar 23, 2009 08:58am EDT by Joe Weisenthal
>
> > From The Business Insider, March 23, 2009:
> > We really enjoy the critique of guys like Peter Schiff, who slam our
> > system of banking. But in terms of using his philosophy as investment
> > advice, it's dicey, since he's been saying the same thing for years
> > and the collapse hasn't happened yet.
> > Then in the last year, the financial system really did start to
> > collapse, but the bet went the wrong way for Schiff.
> > Still, Schiff and his ilk are confident that vindication is right
> > around the corner. The the dollar will collapse and gold will regain
> > its crown. It's just a matter of being patient -- and in the view of
> > many, at this point we're basically there.
> > Indeed with the Fed now literally creating money for so-called
> > quantitative easing, serilus currency debasement may be close at hand.
> > Matt Stiles, who writes at Stockhouse.com, who also happens to
> > identify with the Austrian School of economics, argues why these
> > hyperinflation fears are way overblown, and why we won't see a
> > Zimbabwe scenario here:
> > It is often said that we live with a "fiat currency" or with "paper
> > money." This is not entirely accurate. A very small portion of our
> > total supply of money and credit is in the form of physical currency.
> > It depends on how you count it, but regardless, it is under 10% of the
> > total. This is what differentiates our monetary system with that of
> > Zimbabwe or Weimar Germany circa 1920's. Their economies were based on
> > nearly 100% physical currency because nobody would accept the promises
> > of government in order to issue credit. 

The vast majority of our
> > money supply is in the form of electronic credit. Electronic credit
> > can be destroyed, while physical notes issued by a central bank
> > cannot. This is why deflation is possible in a credit based monetary
> > system, but not in a paper based monetary system.
> > ...
> > All in all, the central banks are not nearly as powerful as they'd
> > have you believe. The amount of the total money supply that is
> > controlled by them is minimal. They won't tell you that. They'd prefer
> > you to think that just by them moving their lips they can affect the
> > entire economy's decision making processes. It simply ain't so.
>
> > This begs the question: why is gold going up? Who knows. It has a mind
> > of it's own. But if it really only moved due to inflation concerns, it
> > wouldn't have declined 75% over two inflationary decades (80's, 90's)
> > would it? If inflationary concerns were real, we would see TIP yields
> > rising along with the gold price. They're not. We'd also be seeing
> > other typical inflation hedges rising - like property prices. That is
> > obviously not the case. A better explanation is that gold is rising
> > because of increased instability...
> > For more coverage and to view the full post, see The Business Insider.
>
> http://www.safehaven.com/article-11977.htm
>
> Gold's Behaviour During A Bubble
> by Bob Hoye
>
> • Gold shares were expected to decline with the financial markets into
> dislocating conditions expected to culminate in November.
>
> • Gold's nominal price in dollars was likely to decline as most of the
> panics would occur with the dollar rising against most other
> currencies and most commodities.
>
> • This was based upon the course of significant events though previous
> great bubbles and their consequent contractions. The following page of
> charts shows the pattern for gold's real price through the biggest
> manias, including the first one in 1720. Within this, the gold premium
> which was at 118 in August 1873 fell to 106 as the crash ended in that
> November.
>
> • Typically, gold's real price declines through a financial mania, and
> just as typically gold shares underperform the stock market.
>
> GOLD'S BEHAVIOUR DURING A POST-BUBBLE CONTRACTION
>
> • Typically, gold's real price increases during the economic and
> financial contraction that is consequent to a bubble.
>
> • More specifically, we used the behavior of the yield curve and
> credit spreads through the 1929 and 1873 manias as a model for the
> path that would define the eventual collapse of our bubble. This
> expected that the key reversal to adversity would occur close to June
> 2007. The reversal in the yield curve was accomplished in that May and
> spreads reversed in that fateful June.
>
> • Of interest is that the real price of gold, as represented by our
> Gold/Commodities Index, reached a high of 255 in June 2003. Then as
> that boom launched, the index began a cyclical decline, which
> reflected diminishing profitability for gold producers. Rising
> commodities relative to gold reflects basic mining costs rising
> relative to bullion sales.
>
> • The most reliable indicator of the end of a mania has been the
> change in the yield curve. It was significant that this was also the
> cyclical low for our index at 143 in May 2007. With November's panic,
> it increased to a high of 339. We thought that this measure of gold
> would double on its cyclical bull market, which has further to run.
>
> • This has been indicating that operating costs have been falling
> relative to the price of gold and it should soon begin to drive
> earnings up, as earnings for most sectors remain under the pressure of
> falling prices.
>
> • The rise in the real price also increases the valuation of gold
> deposits.
>
> SUPPLY, DEMAND AND OTHER SUPERSTITIONS
>
> • Although gold is an essential part of the yield curve, no
> traditional supply/demand research on gold has ever anticipated the
> beginning of a classic financial contraction.
>
> • Mainly, conventional analysis seems to be tedious gossip about what
> central banks are doing with their reserves, what's happening with the
> Souks, Indian wedding seasons and the monsoons. Marketing and treasury
> departments at big mining companies turn gossip into reports so that
> the CEO can appear to be well-informed to the board of directors and
> the media.
>
> • Equally tedious has been all the finger-pointing about
> "conspiracies" as an explanation about why gold and silver are not
> conforming to the dictates of traditional fundamental analysis.
>
> • For two decades the World Gold Council has focused upon jewellery
> consumption as the key to gold's price trends. Indeed, such demand
> grew strongly during this, as well as the new financial era that blew
> out in 1929. Interestingly, this consumption was essentially
> overwhelmed by the decline in investment demand that is one of the
> features of a financial mania. Producers suffered poor operating
> margins. The real price typically declines and then with some irony
> the wonderful demand for jewellery slumps as the real price goes up in
> a crash. The point being is that in the real world analysis of
> jewellery consumption can be misleading - especially during a
> financial mania and its consequence.
>
> • Then there is macroeconomic research. This uses hundreds of Fourier
> equations to project gold prices, which seems to go over well with the
> treasury departments of the big mining companies. The more popular
> services will provide three price forecasts. One is a moderately
> rising trend line, another rises less steeply, and the third declines.
> This saves both modeler and subscriber from making a judgment call.
> Moreover, the accounting departments don't so much care whether the
> method is reliable. Any price will do, so long as it is for the year-
> end.
>
> OUTLOOK FOR GOLD STOCKS
>
> • Gold shares had been likely to decline as part of the typical fall
> crash, which would likely clear around mid November, and our advice
> since late October has been to cover shorts in silver stocks and to
> get long the gold sector.
>
> • A new bull market for gold shares has been expected to start in
> November and run for a few years.
>
> • This has been expected to encompass the whole gold sector, including
> exploration stocks.
>
> • Based upon previous post-bubble contractions, this could run for
> around 20 years. Of course, the usual business cycle would prevail,
> with the gold sector doing well on the recessions.
>
> GOLD/SILVER RATIO
>
> • Beyond being something to trade, the gold/silver ratio has been a
> reliable indicator of credit conditions. It declines during a boom and
> does its greatest service when it typically signals the contraction by
> increasing. The key move in 2008 occurred with the turn up in May from
> 46. This was with the reversal in the credit markets and the technical
> break out at 54 in August anticipated the fall disaster. Often during
> the more acute phase of a panic, silver can dramatically plunge
> relative to gold.
>
> • With the break above 54 our target on the full contraction became
> around 100. That level for the ratio was reached with the banking
> crisis that ended in late 1990, when the last of the 1980 adventures
> in crude, gold, silver and real estate were finally written off.
>
> • From a high close of 84 on October 28 with that panic the ratio
> declined to 71 with the stock market rebound to November 5. The next
> rise with the next panic was to 83.5 on Friday, November 21, and the
> ratio can decline for a few months as the financial markets recover in
> the first quarter.
>
> MECHANISM
>
> One of the most fascinating aspects of great credit manias is that all
> six since 1720 have occurred with a senior central bank with the
> dangerous prerogative of issue. Each bubble was identified by the
> street as such until our era of asset inflations. Perhaps our
> financial establishment has been so ignorant of the ...
>
> read more »

but, its still not money, its a commodity, a asset. and in a
deflating economy, most assets get sold off for less than they are
worth, because the holder of the asset, needs to raise cash to pay
their bills.
if you can hang onto it, good for you. you might make out well, you
never know. but most will be forced off into selling their assets to
raise cash. that bodes ill for any sustained rally.

Don Tiberone[_2_]
March 25th 09, 01:41 AM
On Mar 24, 8:19 am, wrote:

> gold is not accepted at my local store. however, gold does have
> value. in jewelry, and electronics. it is a commodity, that is subject
> to demand. today demand is falling for gold and silver.
> gold and silver are a asset, that one must sell in a deflating
> economy to raise the cash to pay their bills. other wise fiat money
> would be long gone, and gold would reign supreme.

Central banks hold gold reserves just like they hold any other
currency reserves. Simple as that. Go to a gold dealer if you want
cash, the same way you go to a bank. The gold dealer will most likely
still be around. Your bank may or may not.

In terms of demand falling for gold, jewelry demand, yes. But
investment demand is soaring. Demand has never been higher. If you
want to buy gold coins, you'll have to pay a premium otherwise, you
can't buy it. Even while gold was selling off last year due to
deleveraging, demand was soaring. Paper gold was selling off. Physical
gold demand was soaring. Paper gold and physical gold aren't the same
thing. Hedge funds were loaded up with paper gold and forced to sell
off last year. As predicted, gold would bounce back after the initial
sell-off. The same thing happened during the last 2 deflationary debt
collapses in 1873 and 1929. The senior currency and the real price of
gold would rise together. Bottomline is, gold was up last year and up
again this year. Sure the nominal price gain will be muted due to
deleveraging but the real price of gold has been soaring. Certainly
doing much better than most everything else.