Peter Schiff and I diverge on some important points. For instance I don’t think he gives the Chinese economic system a hard enough time. I think he totally recognizes the crony nature of the place but I think it’s more fragile than he does.
And he’s been plenty wrong at times. (Who hasn’t been?)
Calls to reform, audit, and even eliminate the Federal Reserve have been growing in recent years. We certainly call for an end to the Fed and I encourage anyone interested in monetary policy and the Federal Reserve to read Free Prices Now by ACC co-founder Hunter Lewis. Hunter is a scholar of the highest order and a remarkably successful financier. If you want to understand the sins of the Federal Reserve read his book.
But many people already understand the sins of the Fed and many of these people gathered in a counter summit to the party the Federal Reserve was having this week in Jackson Hole Wyoming. One of the people criticizing the Fed was Benn Steil who, believe it or not, is a director of international economics at The Council on Foreign Relations.
This piece is from Alejandro Chafuen and it is 2 years old. But in light of the current Fed confab in Jackson Hole and the ongoing market twitches, drops, and government induced rallies I think it deserves another view.
The Chinese have just cut rates and reduced the reserve requirements for banks. Now US stock futures are indicating a strong open to the upside. See, everything is fine. At least if you work for a high frequency trading firm.
Wall Street broadly is hoping, praying, that the central bank mojo will work again. We’ll see.
It could have been a whole lot worse. The Dow opened down over 1000 points this morning. Then markets rallied. Then they fell off again. Massive shifts in markets. Craziness.
Now the world looks to Asia.
Why is the stock market turning down now? Why the current carnage?
Here’s a good dose of gloom for you. The author is not saying it will happen, but he is arguing that Dow 5000 is not completely crazy. Frankly I’d be for it. If we could carve out all of the central bank fluff created post-2008 and returned to a real live market such a crash would be worth it. (It might not be so great for all those baby boomers who have ridden the Fed induced rally right before retirement however.)
I wouldn’t say that a crash on this scale or a re-institution of real, at least close to honest pricing in equities is likely. But I would say the both are possible. (OK, perhaps one is possible.)
In the meantime go cook a steak on the grill. It’s supposed to be nice weather in most of the USA this weekend. Monday can wait.
Goldman played the American people and continues to play the American people. It has alums placed all through the US government and in the EU. The reason sorry old Greece got into the European Union was because of some Goldman sleight of hand. So to some degree that particular corner of the ongoing financial crisis is Goldman’s fault.
Goldman Sachs should be no more. In 2008 it should have died. Kaput. Done. But instead Bush Treasury Secretary Hank Paulson, a former Goldman CEO, made sure that the firm which was leveraged to insane levels lived. Why did it live? Because it was connected.
I like Art Cashin. I used to read his UBS column and it was always full of great stories about the old days, even from before he came on the scene. I learned some interesting stuff from this guy. I can still picture in my mind’s eye him wearing his “Dow 10,000″ hat in 2008. (The joke being that he got the hat when the Dow was moving up and not crashing down like it was in 2008.)
Look at it this way. If you are part of the vast, generally assetless or nearly assetless middle class you won’t have to watch the value of what you have decline. I guess that’s a good thing, sort of.
The world is slowing. China is in serious trouble and the ripples emanating from Beijing are becoming waves. The Keynesian experiment post-Crash is failing. (As the Austrian economists said it would.)
World markets are built right now on cotton candy and the rainbow dreams of central bankers. There isn’t a lot of support below world asset prices as John Ficenec at The Telegraph explains.
Cheap money feels good initially. Nearly everyone is happy when central banks open the floodgates (or helicopter doors) and cash spills into the economy. Hooray! Money! Why is it here now instead of yesterday? Who knows? Get while the getting’s good. Look, the stock market’s rising – whoopee! Monetary tequila. Bottoms up!
But the morning, the aching, head thumping morning always comes after such a binge.
“All I know is Ben Bernanke was tending bar. Goldman Sachs was buying me drinks. Everyone was having a great time. (Except those teetotalers the Austrian economists sitting in the back. They’re never any fun.) But everything after that is hazy. Where am I?”
“Son, you’re smack dab in the middle of an economic depression.”
“Oh man, really? Who are you?”
“I’m the Austrian economist who was sitting in the back of the bar. Get your hat. I’ll drive you home Mr. Keynes.”
“No, no. What I need – what we all need is more tequila.”
“Suit yourself.” Said the Austrian economist as he walked out level headed and sober into the blinding summer sun.
“Kind of a debt supernova.”
It’s a bold statement from a guy who makes bold statements. He’s of course been bearish for a good long while as readers of this site know. However, he is speaking in broad terms here. He is putting together pieces on a global scale. Plus he understands that the market booms we’ve experienced, driven by central banks are not fundamentally sound. That is the key.
Seriously, what is wrong with these people? Our American principal of federalism allows states to go their own way on drugs. The 10th Amendment makes that pretty clear, and the old “affecting” interstate commerce bit is tripe. (Though the New Deal was built around this nonsense.)
The Feds and in this case the FED are afraid of devolution of power away from Washington fundamentally. That’s it.
Let these businesses do business. Coloradans want this type of business. It’s in their state. Leave them alone.
Mr Reich generally needs to be taken with a grain of salt. He has been, and as far as I know, continues to be fundamentally wrong on the most important economic questions. Saying that, he has flashes of insight on political issues, and here’s one.
Of course we issue the standard disclaimers with this piece that we do with many of the folks we choose to feature here who we feel are too enamored with the state.
That he still can’t grasp (or is frankly willing to admit) that for the most part this country should thank its lucky stars for the TEA Party and the mini-revolt of 2009 is a big flaw in his argument. Another one is that he says that the TEA Party promoted “outright racism.” (I almost didn’t run his piece because of this chunk of baloney. A few memes promoted in the Huffington Post don’t count. I was there. I never saw it. Ever. I’m betting Reich didn’t attend many rallies.)
And yet another myth he promotes is the idea of some kind of post-World War 2 golden age of government. That is just a flat out misunderstanding of the situation.
In 1964, Americans agreed by 64% to 29% that government was run for the benefit of all the people. By 2012, the response had reversed, with voters saying by 79% to 19% that government was “run by a few big interests looking after themselves.”
This may be true but this is because before the information revolution the average person didn’t understand how the game, the government game, was played. It is, and has always been played for powerful interests. It’s just that we know it now. It was because Americans were basically ignorant (through no fault of their own) that 64% of people thought government was run for the benefit of the people.
They may have THOUGHT it was. But it wasn’t.
We woke up. Mr. Reich hasn’t. At least on this very important point.
So why run his piece?
Got to have an official fall guy I guess. This fellow was sufficiently powerless so he got pinned.