From WT's great post:
Something like 90% or more of economists were wrong before the Great depression. Just reading the headlines right before it hit is hilarious, if not scary.
This was presented after the claim that nobody knows how things are going to go. I can certainly understand that impression-- and its been reinforced by decades of keynsian "economists" putting forth pronouncements that turned out to be wrong.
This is because most of what passes for "Economics" these days are political hacks who are putting out bad science to try and justify their political positions. Paul Krugman is a perfect example of this. The guy is not, in any way, an economist.
I think part of the reason politicians are able to screw things up so bad is that people fall for argument from authority
fallacies so easily. (EG: Assuming krugman is an economist because he's presented as one, when in reality he's just regurgitating the modern economic argument for socialism, also known as keynsianism.)
.. the nobel fraud: http://www.lewrockwell.com/anderson/anderson229.html
... is not an economist:http://www.mises.org/article.aspx?Id=1318
... political hackery is prescription for disaster (krugman doing exactly what I allegehttp://www.lewrockwell.com/orig8/beito4.html Real economics is a science, and the hallmark of any science is the ability to make predictions.
The "austrian" school of economics has been correct for the last 90 years, in fact, the founder predicted the great depression:
During the 1920s, Mises and Hayek established the Austrian Institute of Economic Research, which monitored and forecast economic conditions in Europe. As early as 1924, Mises was convinced that an economic crisis was
coming. Based on his path-breaking Theorie des Geldes book, Mises realized that the easy-credit policies of the central banks would lead to disaster under an international gold standard.
One of his students, Fritz Machlup, recalled Misesâ€™s â€œgift of prophecyâ€: â€œAs his assistant in the university seminar which met every Wednesday afternoon, I usually accompanied him home. On these walks we would pass through a passage of the Kreditanstalt in Vienna [one of the largest banks in
Europe]. From 1924, every Wednesday afternoon as we walked through the passage for pedestrians he said: â€˜That will be a big smash.â€™ Mind you, this was from 1924 onwards; yet in 1931, when the crash finally came, I still held some shares of the Kreditanstalt, which of course had become completely worthless.â€4
In the summer of 1929, Mises was offered a high position at the Kreditanstalt Bank. His future wife, Margit, was ecstatic, but Lu surprised her when he decided against it. â€œWhy not?â€ she asked. His response shocked her: â€œA great crash is coming, and I donâ€™t want my name in any way connected with it.â€ He preferred to write and teach.
I was able to successfully profit from the housing crisis because I knew the housing crisis was coming well in advance. I knew this by reading articles on the site from the institute that bears mises's name: www.mises.org
They have a great collection of economics articles on the bailout organized here: http://mises.org/story/3128
Originally posted by Kate and Dan:
And gold is below US$700!
Yep! And if anyone was speculating on the change of gold price over 30 days, I hope they got it right. I certainly wouldn't recommend such short term speculation.
Its important to note that the reason gold has not shot up is because there's been massive selling on the futures markets. The gold futures market (like many derivatives) far exceeds the size of the actual gold market. And when this crisis hit (who knew I was going to be so prescient in my post?) everyone and their brother on wall street was dumping everything they could to free up liquidity. These firms had quite a long position in gold and oil futures (and many other commodities due to the commodities boom) and thus they have exerted significant pressure.
This unwinding is still going on. Thus the spot price of gold has remained low-- even while the demand for gold at the retail level skyrocketed.
That kinda tells you how poorly wall street manages money in a nutshell, but I guess they had no choice. At the the retail level, gold and platinum were in very short supply for Septembert and October, but the price (the spot price everyone quotes) did not go up because they are different markets: The futures market is different from the retail market. Consequently, the spread for buying gold at retail went up (as prices always do when demand exceeds supply). Notice here: http://www.golddealer.com/bullionpage.html
The spread is $86 as I write this (spot of 763 and sell price of 849). Typically the spread is more like $20.
Originally posted by Kate and Dan:
There is absolutely no proof to show that this recession will become a depression even though some news stories like to make it out that way. Though times are tough and uncertainty is rampant, we needn't worry too much about a depression.
Why do you think this? What would you count as "proof"? Also, what's your definition of a depression?
My definition of a depression is a contracting economy. Right now, the growth in the economy, in real terms (eg: inflation adjusted) is less than zero. If GDP is growing at %4 a year and inflation is at %20 a year, then the economy is slowing, thus a depression.
Its hard to say what real GDP is because the government numbers are manipulated, but I don't think the government is saying we're growing at faster than %5. Its also hard to say what the real inflation rate is because, again, the government doesn't even measure inflation (it measures CPI which are two separate things.)
Actually this is a good opportunity to demonstrate the difference between CPI and inflation.
During this crisis the government has printed about $4.3 trillion dollars. The previous total monetary supply was $10T. This means that in the last two months alone, we've had %40 inflation. (Not %40 annualized, more like %480 annualized). Now we can't expect the next 12 months to be like the past two, but then we can't expect them to be too different either. We don't know how much of that %40 in new money will actually be spent by the government (much of it is guarantees on shaky loans, some loans may not turn out to default.) But much of it is real money, so lets say we have had actually %10 inflation put into the economy.
Did prices go up %10 over the past 2 months? No, because the money put into the economy doesn't immediately result in price increases. Further, CPI doesn't measure prices, but a "basket of goods" and that basket of goods is manipulated by including the effects of increased productivity and technology: EG: when a computer goes down in price it does so because of technology, not because we're experiencing deflation. Yet they have the price of a computer in their basket of goods.
The inflation we've been experiencing will, eventually, show up in prices. And thus monetary inflation is a good leading indicator of standard of living declines and consumer prices.
But if you look at monetary inflation and GDP, I don't think there's any other conclusion but that we're in a depression.
[If this isn't obvious: if GDP is growing at %5, that's a measure of growth in the economy in *dollars*, thus if inflation is %10, then that means the value of those dollars has declined by %10, which means that the prior GDP had more purchasing power than the current GDP, which means the new economy is not as large, in objective terms, as the previous one.]
Interestingly, depressions tend to have a deflationary effect (or can) but our government has made it very clear it intends to inflate the hell out of the US dollar. This is not good news-- it may make people think that things are good because their paychecks go up, and stocks go up, but its not real growth, it decline in the value of the unit of account (the dollar) used to price these things. It was inflationary processes that turned the depression of the 1930s into the "Great Depression."
Whether this will be as severe as the great depression, I can't say. But I do think it will be worse, for the reasons I laid out in my original post. The US dollar is no longer going to be the worlds reserve currency, and that means that many decades of past inflation will come home to roost when other countries stop holding massive dollar reserves.
Much of the reason we've gotten along so well in recent years was that other countries were happy to sell us goods and take dollars-- this was a huge trade imbalance. Real goods coming to the US and dollars going away. We don't produce enough to sop up those dollars, so our trading partners held on to them, or sold them to other trading partners. Decades of deficit spending by our government were financed by countries like India, China, Japan, etc, and thus we enjoyed low prices that we wouldn't have if the effect of the monetary inflation wasn't mitigated in this way.
When the music stops, all those dollars will be back on the market, and pretty much all at once. I recommend the book the "hyperinflation reader"... academic study that I've heard about says it only takes about 3 days for hyperinflation to set in. The russian ruble crisis hit in about 24 hours-- between breakfast and lunch on one day I hear people's net worth was wiped out.
We don't think about inflation much because we haven't lived with it much-- we've been exporting it. But that doesn't mean the risk is less-- that means that the repercussions if/when it happens will be more severe.
Originally posted by Kate and Dan:
Even if unemployment skyrockets to 8%, that would still be only a third of what it was in 1933.
Except that the employment statistics from 1933 are collected completely differenly than they are now. So comparing %8 to the %25-%30 from the 1930s is not a direct comparison.
In fact, given the way the statistics are calculated now, I'd say %6 in current "unemployment" is about equal to %30 in 1933 "unemployment".
One of the primary reasons government manipulates the way these statistics are collected is to make the economy look better than it is-- this benefits politicians because it increases the likelihood that they will get re-elected.
I don't think CNN is equipped enough to do a good job of fear mongering... they're just reporting what the "Experts" tell them, and across the spectrum the experts (at least who make it on mainstream media) aren't well informed.
One expert who is pretty well informed is Ron Paul, here's some articles by him:
The Austrians were right: http://www.lewrockwell.com/paul/paul494.html
Against the Auto Bailout:http://www.lewrockwell.com/paul/paul492.html
The March Toward Dictatorship:http://www.lewrockwell.com/paul/paul490.html
I apologize for this post being so long. I think this forum should be one of constructive discussion. If you disagree with me, please defend your claims.
I don't expect everyone to agree with me, but the people acting like concern about the economy is "crazy" are not doing anyone any favors (and lowering the level of discussion.)