Archive for Economics Discussion
Big Mac Index Update
Posted by: | Comments7.28.2010
The Economist Magazine has published its latest Big Mac Index - which shows the cost of the Big Mac in various countries across the world (120).
- Big Mac Cost v USD
Basically, “The Ronald” will set you back much less in Asia than in Europe which leads the Economist to conclude among other things, that the Euro is still overvalued vis a vis the US Dollar (USD).
Professor Richard Florida, well known for his ‘Creative Class” research and 2 books about the “Rise” and Flight” of the “Creative Class,” makes some interesting observations and statistical correlations of his own at his site – Creative Class. he tracks the cost of Big Macs vs quality of life and number of creative workers in an economy vs blue collar workers. His research is interesting – check it out.
By the way, have you traveled lately and have you bought a Big Mac? When I was in Asia I preferred the street food – equally cheap and delicious.
More People Seeking Careers in Asia
Posted by: | Comments7.27.2010
As I have mentioned many times previously on this blog, and every time I talk in front of students at my alma mater (Tufts) regarding jobs, the real opportunities, that come from macro growth, are in Asia and the developing world (Brazil, Eastern Europe, Turkey).
A New York Times article highlights this:
The trend is still small though picking up steam. However, as America increasingly becomes a bunch of mindless TV watchers waiting for their next government handout (sorry, when you extend unemployment benefits beyond 99 weeks, it is no longer unemployment – it’s WELFARE -99 weeks is also enough time to pick up an associate’s degree), overburdening our already bankrupt country, our remaining productive people will flee the coming crippling taxes to dynamic, growing, low tax havens such as Hong Kong, Singapore, Poland, and Brazil (yes “socialist” Brazil’s taxes in many ways are lower than ours).
We have a lot to be scared about – most people in other countries speak 2 languages or more – work harder in school, and generally desire to work to make their lives better. By the way, if your children spend the whole day playing video games, and you justify it with the excuse that their hand-eye coordination is improving, you may need to rethink. Their coordination may become even better when they can’t find a job.
Recession or Worse? You Pick
Posted by: | CommentsGreat Summary here by Denninger
Basically echoes a point I have made before – if you want a painful but short recession, don’t bail anyone out, don’t rescue anyone (think Panic of 1907 – it was a panic but notice the title – “of 1907″ – only one year). If you want 10-20 years of economic malaise (at best – and hyperinflation/deflation/depression at worst) then have government types try to “steer” the economy (think US during GREAT DEPRESSION – 15+ years of government meddling caused by easy Fed credit beforehand).
Think of how foolish that thought is – trying to steer the American economy – do you really think that people in Washington, academics like Bernanke, or former slips and falls lawyers like half of Congress are qualified to steer the economy? I would argue no one is capable of such a task – and government is only capable of making mistakes trying. (furthermore, that group with so many favors to pay back, you know, would not do the right things with an open checkbook – point proven in 2008-2009)
So enjoy the fact that we didn’t crash deeper, but lament the fact that this grinding back and forth will likely be with us for a while – and for those of you not paying attention, outside of the home equity pop, most people have not progressed over the past 10 years. I blame the public emphasis on getting rich using assets and leverage, vs saving and working hard, as a major culprit.
A Debt-Induced Growth Cycle Ends in Disaster
Posted by: | Comments7.16.2010
Following up yesterday’s talk about the thought that, during the long prosperity of 1985-2000 and in the 1920′s, people were of the opinion that modern economic policy had eliminated the risk of economic turbulence – but was merely the calm before the storm.
Here is a follow up to that – a lecture by Steve Keen on the correlation of using debt to expand the economy and its eventual disastrous climax:
He argues that the speed of the downturn is not as quick as the Great Depression due to government spending; but the rate of private deleveraging is increasing faster than that.
Keen also argues that Greenspan and Bernanke caused the Great Recession with cheap credit – low interest rates. We should have had a milder recession not what we are getting.
It seems to be an interesting argument. So many people have opinions – perhaps it just makes sense to keep your bills low, stay flexible, keep a safe place to live and save some money – because the future is unknown, but is sure to be exciting!
Calm Before the Storm
Posted by: | Comments7.15.2010
As I mentioned before, “News from 1930” is a treasure of a website for us history buffs – full of great insight into the headlines of the time, you get a very strange feeling that we really do repeat the same thinking & actions – using different inputs- and that humans are the same in their thinking/responses regardless of era or place.
From the site News from 1930:
Another special reader response edition – a belated reply to Onlooker, who wrote a week or two ago asking if he was accurate in remembering reading about big companies building up cash earlier in the blog, since we’re hearing similar things today. In fact, the same thing had struck me, along with another strangely familiar theme – the idea that apparently became widespread in the 1920′s that the business cycle had been tamed to some extent thanks to better economic information and policy (today commonly referred to as The Great Moderation).
and regarding specific commentary in the WSJ at the time:
Jan. 2, 1931: C. Snyder of Fed. Reserve NY: Contrary to “phantasies of a ‘new era’ of unending prosperity so widely prevalent but little more than a year ago,” it’s clear that the business cycle is still with us “in all its force.”
Mar. 2, 1931: W. Muller, NY Curb Exchange pres., says 1930 left lasting impression on financial world, refuting conclusively the “plateau of prosperity” theory that had overtaken the “business cycle” theory in 1928-29. Even in early 1930, stubborn belief persisted that the business cycle had been defeated, as “organized and determined” multi-billion effort was exerted by business to “dissipate by intervention the already existing forces of depression.”
June 25, 1931: NYSE pres. R. Whitney reviews events of past year. … After the 1919-22 depression, much study was devoted to statistical and economic research, particularly toward understanding of the business cycle. “Unfortunately the long period of great prosperity from 1925 to 1929 persuaded many … that the business cycle had been definitely abolished, and that it had become possible steadily to increase general prosperity indefinitely, without the danger of serious depressions.”
Feb. 20, 2004: B. Bernanke. One of the most striking features of the economic landscape over the past twenty years or so has been a substantial decline in macroeconomic volatility. [What the .... how'd that one get in there? Must be some sort of virus ...]
Many well-known economists, including Mr Bernanke, previously felt, and of course by their actions still do feel, that government spending and money printing can moderate any financial turbulence. They though that in 1928 and they thought that throughout the 1990′s – as the Federal Reserve simply opened the floodgates to cheap money anytime the economy got a little sick. Both times it was simply the calm before the storm
We still have to pay for that foolishness…
Bernanke’s Desktop
Posted by: | CommentsThis is a riot – from Zero Hedge:
Here's What Uncle Ben Looks at All Day
“The Only Regulation That Ever Worked Was Failure” – Rick Santelli
Posted by: | Comments7.7.2010
The only person on CNBC worth listening to (except for certain guest hosts and maybe Joe Kernan and Mark Haynes who are amusing in their own way) is Rick Santelli. Here is a fantastic interview from a guy who has spent almost 30 years at the Chicago Board of Trade as a trader and reporter:
Rick Santelli profile photo
Truly an education! He points out that we need to maintain the “focus on spending” no matter who is in charge of the government. He also emphasizes that we need to control spending before we start considering VAT taxes etc otherwise it all won’t matter…
A couple of final notes from Rick:
On how John Maynard Keynes would not have intended his ideas to be used as they are today: “Keynes supported spending that created jobs… for the cyclical downturns…we have a structural problem now…”
He ends by summarizing the major issues with the Treasury issuing debt and having another government entity, the Fed, buying those bonds. His critique of how this dynamic is poisoning the US economy and the credit markets is first rate stuff…take the time to listen to this 18 minute interview.
Even More Howard – “Obama Worst President in My Lifetime”
Posted by: | Comments7.5.2010
Howard Davidowitz says it and I agree…
Some points from this great interview:
On inheriting a bad economy:
Ok blame Bush on the excessive spending, “I think Bush was a disaster…Obama was given a bad hand. How come we don’t we have a budget for the United States of America (this year)?”
“We are going broke – Medicare, Medicaid…and he (Obama) added another program based on… numbers that were a fraud.”
“We’re doing NOTHING about ANYTHING!”
On Afghanistan:
“I was in the (US) Army…in 4 months I qualified for 8 weapons…we’ve been training the Afghanis for SEVEN years…what’s going on now?…(Afghans) are stealing our money! (see WSJ article on $3B of stolen funds).”
On the BP spill:
“Obama sat in his office for 50 days and didn’t call the president of BP”
Comparing Jimmy Carter to Obama:
“Carter wasn’t as confident…” He feels Obama is much more confident in his wrong ideas than Carter was in his…” (this is a great point – Carter had terrible ideas but so lacked confidence that he lost support, but Obama comes across super confidently – which makes people think he knows what he’s talking about – but his ideas are just as bad).
See the video here:
7.4.2010
More fantastic commentary in typical Howard Davidowitz style – you have to watch – simply fantastic and sadly quite true even though you laugh your way through it with Howard’s emotional, entertaining style:
The Great Reset – Richard Florida Interview
Posted by: | Comments6.26.2010
Richard Florida has very interesting views regarding the changes in the American economy/ work force – which he calls “The Great Reset” which is also, coincidentally, the title of his new book. This interview and his work is required reading for anyone looking to carve out a career these days:
Here is Florida’s website FYI – Creative Class
Here is an interesting quote from the site:
Florida has a similar thought, ‘the Great Reset is not the result of overarching government policy – it’s the result of the multitude of tiny resets that individuals are making all over the world.‘
Acting Man Follows Up With Krugman v Germany
Posted by: | Comments6.24.2010
So what is wrong with a little deflation? What’s so bad about the cost of living falling say, 1/2 of a percent per year? Wouldn’t it be great if things got cheaper? Not in Paul Krugman’s eyes (or others in the academic fantasy land camp such as former Bush advisor Gregory Mankiw).
Here Acting Man Blog follows up on the Krugman follow up to German Economic advisor Axel Weber’s response to his attack on German policy – he brings up excellent points: Read More→
Hoping Krugman’s Interview is One of the Final Death Pangs for Excessive Keynesianism
Posted by: | Comments6.23.10
[THIS IS A GEM - SEE THE QUOTE BELOW FROM GERMAN ECONOMIC ADVISOR WOLFGANG FRANZ WHO UNDERSTANDS WHAT CAUSED THE AMERICAN FINANCIAL CRISIS MUCH BETTER THAN MOST PEOPLE IN THIS COUNTRY]
I’m not going to add or subtract anything from this commentary on Princeton professor Paul Krugman (wait, O YES I AM) – but he really went over the top with this one:
Apparently, Krugman was interviewed by a German newspaper where he blasted the head of the Bundesbank (Axel Weber) and the German government for trying to control spending and balance their budget while the Euro zone is still in a recession. Of course as a super Keynesian, Mr Krugman believes that governments should borrow and spend out of recessions (as if spending about 20% of our tax revenue on debt interest isn’t enough). I can understand why he feels this is right – it worked in the past supposedly, but he fails to give credit for underlying macro growth trends for the past 60 years of economic growth. He, like many academics who never run real money, a real business, or a real life, believes in the ‘omniscience’ of central bankers and government officials.
Mr Krugman even went as far as to hint in his interview that if Germany continued to cut their budget and control spending, and caused a furthering in the recession in the near term which might cause the Euro to fall further, that the US Congress would “retaliate” and that he would support these measures:
(from the Wall Street Journal) Krugman also told Handelsblatt he wouldn’t rule out sanctions against Germany if it continued to rely on its export-driven model. “If the euro falls to parity with the dollar, the Europeans are going to be surprised by the demands that will come out of the U.S. Congress, and I would support that,” he said.
Why would he say that – threatening another country in their newspaper – what if the Chinese Premier came here and threatened the US economically in the NY Times? What was he thinking? (China may do that someday when they’re stronger – it wouldn’t surprise me).
Furthermore, Germany already HAS past experience with the devastation of excessive money printing (see the story of the Weimar Republic here) which brought about the end of an elected government and opened the door for Hitler. They’re not interested in this type of result:
People brought wheelbarrows of this to buy a loaf of bread
Germans want no part of inflationary policies which is why they object to the excessive bailout of Greece and the European Central Bank’s efforts to print money and buy government bonds. In fact, if the troubled European economies don’t take steps to control their spending, I could see a day when Germany would leave the EMU. In fact they have such a good reputation for prudence I would sell my US dollars and buy the German mark if it were to return.
Even though there is a strong history of the dangers of excessive money printing, as outlined in the Wikipedia link above about the German Weimar Republic, Paul Krugman believes that the US, along with Europe in a coordinated action, should spend themselves into oblivion and that the Fed and ECB should crank the printing press into hyperdrive in order to get us out of this recession. Interestingly, the Germans don’t agree. Here is a response to Krugman’s comments from Wolfgang Franz, a German government economic advisor (again from the Wall Street Journal – this is an AWESOME QUOTE):
Wolfgang Franz, who heads the German government’s economic advisory panel known as the Wise Men, tore into Krugman — and the US — in an op-ed in the German business daily Wednesday, titled “How about some facts, Mr. Krugman?”
“Where did the financial crisis begin? Which central bank conducted monetary policy that was too loose? Which country went down the wrong path of social policy by encouraging low income households to take on mortgage loans that they can never pay back? Who in the year 2000 weakened regulations limiting investment bank leverage ratios, let Lehman Brothers collapse in 2008 and thereby tipped world financial markets into chaos?” he wrote.
First off, any non economist can figure out that trying to solve America’s problem of too much spending and too much debt with more spending and more debt is a ridiculous idea – that may have worked for a short while in the past but will lead to a massive implosion when the bills come due. But this is what Krugman argues for.
And anyone who has studied Japan, where they have had multiple stimulus plans and spending, with debt at twice the level percentage-wise as the US, and which still has a dull economy, knows that you can’t print and spend to success. If moneyprinting were the key, Zimbabwe would be the richest country in the world (see more about Zimbabwe’s money printing and attempts at price control here).
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If you want more background on Professor Krugman, go to the New York Times page and search any of his articles (he is a regular contributor there).
Predicting the Wall in Germany 70 Years Before
Posted by: | Comments6.21.2010
I just read this interesting summary of the 19th century book “Pictures of a Socialist Future” by Eugene Richter on the Mises.org website and it made me interested in buying this book – read here:
Mises – Pictures of a Socialist Future
Here is an excerpt from the review:
What inspired Richter to make these grim — yet uncannily accurate — predictions about the “socialistic future”? The most plausible hypothesis is that Richter personally knew the leading socialists from the German Reichstag, and saw them for what they were. I submit that he repeatedly peppered the socialists with unpleasant hypotheticals, from “Under socialism, who will take out the garbage?” to “What will you do if skilled workers flee the country?” When socialist politicians responded with hysteria and evasion, Richter drew the natural inference: “If this is how these ‘idealists’ deal with critical questions before they have power, just imagine how they’ll deal with critical actions after they have power!”
If you enjoy history and economics, this seems to be a worthwhile read – in fact, it’s always enjoyable to read the work of someone who can visualize the future with a solid analysis of current events. This is why you see so many Marc Faber videos on my website!
Enjoy!
Interesting thoughts
Seth Klarman – 1929 Taught People a Lesson, 2008-2009 Did Not
Posted by: | Comments6.15.2010
Super successful/elusive Boston hedge fund manager Seth Klarman (Baupost Group) spoke recently at the Ira Sohn Conference (gathering of value investors – e.g. buffet types).
In his excellent talk, he covered many topics including value investing, the economy, and various opinions. One interesting observation – he compared public reaction to crisis in 1929 to the public reaction to difficulties during 2008/2009. He pointed out that in 1929 people learned a lesson – save more/avoid excessive debt (where for years after, the savings rate in the US was strong); whereas last year, people learned nothing (from Barrons):
The government rescue will inflate the next financial market bubble. He said that while many learned to shun leverage as a lesson from the Great Depression, “the bailout has endowed a generation without any long-lasting lesson.” Huge deficits with no end, entitlements and the beneficence of foreigners mean no margin of safety. “We are kicking problems down the road,” he and many others at the conference said, and he added that if the government doesn’t rein in spending, a disaster like war or a currency collapse would leave the nation in great trouble. Slower economic activity with a margin of safety will help, and will take time. “No rational investor would want to rely on prayer,” Klarman says.
Here is an example of the new attitude where people have no qualms about not paying their debt – from the New York Times:
NY Times -Don’t Pay Don’t Fret
Seeing things like this, I disagree with Seth on one point – people did learn a lesson in 2008/9 – a lesson particularly taught by our government:
If you spend too much and you have friends in Washington we’ll bail you out.
If you run a company into the ground, but politicians need your money or votes we’ll bail you out (beneficiaries: GM, GS).
If you do the right things – save money, keep bills low, and don’t get in trouble, we’ll raise your taxes, give you ZERO interest on your bank account, and cause your savings to lose value to inflation (affected parties: most senior citizens and a few other fools dumb enough not to spend into oblivion and get a bailout)
There seems to be a rapidly falling level of care to shirk one’s bills and take a handout – something I think that government has fomented. If an increasing number of people feel less responsible, that bodes ill for our country. With the behavior of our “leaders,” I can understand why people are increasingly feeling this way (“if ‘they’ they a bailout, I should get one too” – people are saying)- though it still worries me. Time will tell what happens – we can only ignore or prepare…In the meantime:
Before I finish, I thought you’d enjoy more comments from Seth Klarman.
One bit of market wisdom from Seth:
“We’d rather underperform a huge bull market than get clobbered in a bear market” (from Reuters)
Also – here is a speech that Klarman gave at MIT in 2007 – he reflects on patient value investing and discusses the problems at the time and the dangers in the credit market (before the crash). This is good stuff!