economic doomsaying

Discussion
1

Amarcy summarized five alleged signs of a likely economic crisis in our near
future:

1. A huge national debt.
2. Export deficit
3. Low savings rate
4. A perilous real estate market (next sector to bust?)
5. A paper, not goods, based economy

1. Our national debt to GDP ratio is where it was in the 1950s. Our ratio of
debt held by the public (i.e. excluding Social Security Trust Fund) to GDP
is lower than in Germany and Japan. The real problem to worry about is not
national debt (as bad as it is), but our unfunded liabilities in Social
Security and Medicare, each of which is larger than the national debt.

2 & 3. These are really the same problem; see
Tech Central Station for details. The standard
mistake made by economic xenophobes about international trade is to think of
it as a zero-sum game, in which we have to worry about our national
"competitiveness". Individual firms and workers indeed need to worry about
competition from overseas, but they also need to worry about competition
from other states and from other counties and even from across the street.
What people need to understand about comparative advantage
(Comparative advantage - Wikipedia) is that trade is
beneficial even for a nation that is not a productivity leader in any
industry. Comparative advantage derives from being better at something than
you are at other things, not from being better at something than everyone
else is. Freshman economics textbooks have mathematical proofs of this
principle, and yet most pundits and politicians who debate "competitiveness"
are ignorant of it.

4. Yes, real estate is overvalued by up to perhaps 20%, thanks to the bond
market bubble. See Yahoo | Mail, Weather, Search, Politics, News, Finance, Sports & Videos for details,
and Yahoo | Mail, Weather, Search, Politics, News, Finance, Sports & Videos for why the housing bubble
is unlikely to cause an economic crisis.

5. This is one of the most insidious myths of folk economics. The big
mistake of Marxism is the labor theory of value -- that the true value of a
widget is measured by the labor that produced it. The big mistake of folk
economics is the widget theory of value -- that the true value of labor is
measured by the widgets it produces. The foundation of economic science is
the market theory of value -- that the true value of anything is measured by
revealed preferences as expressed in market prices.

I would say the biggest domestic economic problems of our generation are

1. unfunded entitlement liabilities as a consequence of our aging
population and the socialization of the healthcare and retirement savings
industries;
2. a low savings rate (due mainly to the pyramid-style socialization of
the retirement savings industry, and a tax structure that favors consumption
and debt over investment);
3. rent-seeking by special
<http://marketliberal.org/SpecialInterests.html&gt; interests.

The greatest domestic economic dangers facing our generation are

1. our own version of Eurosclerosis, brought on by European-style nanny
statism;
2. economic xenophobia; and
  
3. eco-pessimistic neophobia.

I don't see much chance of the policy-making elites in America allowing our
politicians to give us either depression or hyperinflation.

Brian Holtz
Yahoo! Inc.
2004 Libertarian candidate for Congress, CA14 (Silicon Valley)
http://marketliberal.org/&gt;
blog: http://knowinghumans.net/&gt;
book: http://humanknowledge.net/&gt;

2

Brian, I could quibble with you but largely we can agree.Grinding
persistent stagflation will probably the course we take. Like Marx
said, not one man in amillion will be able to identify the source of
the malaise. On the other hand we have had a fiat currency worldwide
for over 30 years now, and historically ever single fiat currency has
ended in hyperinflation. It could take a In the damn lies
separtment... total debt , state federal, local, corporate,
andindividual is around 390 percent of gdp, much highrt than in 1929,
which as Hyman Minski reminds us , starts to deverly limit
choices.Real estate is highly leveraged. More than 50 percent of bay
areabuyers choose variable rate, no principal mortgages. Of rates rise
or the job market softens,a decline could be dramatic. The Japanese do
have a much larger National debt than us but they save enough to fund
it. We are dependantr on foreigners to fund oours.and the Japanese
fave languished in economic hell for nearly twenty years. You are
correct about US government obligations being completely unfundable.
However that is the number one reason my bets are on hyperinflation.
The checks will always go out., even if the congress has to pack the
fed with Ben Bernanke clones. They will have the fed monetize the
debt, ie buy government bonds, ie print the money. The politicians
will blame the resulting inflation on greedy businessmen, and if that
doesn't work, of what the heck, blame the Jews, or the Terrorists, or
better yet, Jewish Terrorists.

3

No, No. Not doomsaying at all. As I said, let's be aware of the
weaknesses our economy is experiencing, and offer free-market
solutions to remey them! We might be having a little problem agreeing
on what those weaknesses are (i.e., "the true value of anything is
measured by revealed preferences as expressed in market prices" makes
me think of Enron stock), but we have a good list to start.

Marcy

Amarcy summarized five alleged signs of a likely economic crisis in

our near

future:

> 1. A huge national debt.
> 2. Export deficit
> 3. Low savings rate
> 4. A perilous real estate market (next sector to bust?)
> 5. A paper, not goods, based economy

1. Our national debt to GDP ratio is where it was in the 1950s. Our

ratio of

debt held by the public (i.e. excluding Social Security Trust Fund)

to GDP

is lower than in Germany and Japan. The real problem to worry about

is not

national debt (as bad as it is), but our unfunded liabilities in

Social

Security and Medicare, each of which is larger than the national

debt.

2 & 3. These are really the same problem; see
Tech Central Station for details. The

standard

mistake made by economic xenophobes about international trade is to

think of

it as a zero-sum game, in which we have to worry about our national
"competitiveness". Individual firms and workers indeed need to

worry about

competition from overseas, but they also need to worry about

competition

from other states and from other counties and even from across the

street.

What people need to understand about comparative advantage
(Comparative advantage - Wikipedia) is that trade

is

beneficial even for a nation that is not a productivity leader in

any

industry. Comparative advantage derives from being better at

something than

you are at other things, not from being better at something than

everyone

else is. Freshman economics textbooks have mathematical proofs of

this

principle, and yet most pundits and politicians who

debate "competitiveness"

are ignorant of it.

4. Yes, real estate is overvalued by up to perhaps 20%, thanks to

the bond

market bubble. See Yahoo | Mail, Weather, Search, Politics, News, Finance, Sports & Videos for

details,

and Yahoo | Mail, Weather, Search, Politics, News, Finance, Sports & Videos for why the

housing bubble

is unlikely to cause an economic crisis.

5. This is one of the most insidious myths of folk economics. The

big

mistake of Marxism is the labor theory of value -- that the true

value of a

widget is measured by the labor that produced it. The big mistake

of folk

economics is the widget theory of value -- that the true value of

labor is

measured by the widgets it produces. The foundation of economic

science is

the market theory of value -- that the true value of anything is

measured by

revealed preferences as expressed in market prices.

I would say the biggest domestic economic problems of our

generation are

1. unfunded entitlement liabilities as a consequence of our aging
population and the socialization of the healthcare and retirement

savings

industries;
2. a low savings rate (due mainly to the pyramid-style

socialization of

the retirement savings industry, and a tax structure that favors

consumption

and debt over investment);
3. rent-seeking by special
<http://marketliberal.org/SpecialInterests.html&gt; interests.

The greatest domestic economic dangers facing our generation are

1. our own version of Eurosclerosis, brought on by European-

style nanny

statism;
2. economic xenophobia; and
  
3. eco-pessimistic neophobia.

I don't see much chance of the policy-making elites in America

allowing our

4

"I don't see much chance of the policy-making elites in America
allowing our politicians to give us either depression or
hyperinflation." Brian, this statement has a few underlying
assumptions. I will accepth that there is a policy making elite, and I
will even accept thathey can reliably contril the politicians. But I
assert that all of economic history shows that politicians cannot
always get the economy to bahave they want. As Mises said" A central
Bank can print itself into trouble but never print itself out of
trouble. The unfunded liabilities dwarf the ability of the world to
pay for them. As long as we have a democracy, congress will make every
attempt to meet the obligations, or at least appear to. Thus after the
cpi is tweaked doen as much as possible, the social security checks
will go out. The Fed will be told to buy the resulting debt.
Socialized medicine is inevevitable. The die was cast with the Philip
Burton Act. Once hosppitals were forced to take all comers regardless
of ability to pay, the doen hill slide bagan.At this point the
government is so deep into the whole mess, I see no way out. The good
thing about going ahead and socializing it is that it leaves the field
open for some private medicine completely free of the government,
maybe. Other unfunded liabilities include federal and military
pension, and a hole alphabet soup of trust funds. Last year the
treasury spent all of the 250 billion bucks extra that Social Security
collected above what it paid out. I think the savings problem is much
deeper than you say. the really big disincentive to savings is
inflation and low interest rates. Both the result of continuous money
creation by the fed and other central banks. Americans are fully aware
that wall street is a crooked crap shoot. Saving in a bank or money
market is a ticket for confiscation. So they speculate in real estate,
or just go ahead and plain gamble, or hope the social security is
there for them. So I think the problem rests swurely an the FOMC for
incessantly creating more and more money twenty five years. And I
dont't think you can have a healthy prosperous economy pushing paper
around forever. We have lived off pur prior wealth and the kindness of
foreign borrowers for quite a while. A six percent current account
deficit is not sustainable forever. .. Oh just to finish the social
security privitization arguement. It aint gonna happen. Not as long as
the public can't get a decent safe return in a bank, and not as long
as the public sees thier money gobbled up by inflation at who knows
what rate. So long as the fed creates so much price instability, and
artificially holds down rates by massive money creation, the public
will insist that the risks of saving for old age be socialized, and
frankly I can't blame them. Depreciating the money is thievery. And
from what I ahve seen in Eastern Europe, as compared to Baltimore,
Cleveland, Detroit, Rochester, reural Arkansas, or the tenderloin, The
social results of relentless teiving inflation under so called
capitalism are far worse than Vommunism with a hatrd undepreciating
currency. I'm not advocating Communism, but at least when the money
is solid, you can sneak some work under the radar, and your earnings
won't be stolen bit by bit day and night, asleep and awake.
Linnertarians need to get seriously angry and motivated to educate the
public that capitalism works great when the money is solid. That
iflation and depressions are caused by the government canctioned
banking system. Oh and as I discussed the other day, the trade system
is broken because without gold flows, central banks can manipulate
currency values. I could explain it again, but I'm tired. Somebody
needs to tellLou Dobbs, who always is bitching about outsourcing, that
the relative value of the dollar and Yuan would not be an issue if we
were on a worldwide gold standard and not a third retread of worldwide
fiat central banking put together by FDR at Bretton Woods.

Oh, I bought some shares of ScharffenBurger chockolate ina pp when
the company started and it's being bought out by Hersheys. I made
atidy profit, and I am putting all into gold. mostly in the form of
Perth gold certificates. They are liquid, un taxed, redeemable through
out the world, and the gold is stored in Perth and guaranteed by the
western Australian government. I do not trust wallstreets Gold etf's
as they have long custodial chains, and are permitted to lease the
god out, in essence they are frauds to allow the gold cartel to short
investors gold. The whores on wall street are shameless.As a group
they hate gold because they live on credit wxpansion, endless,
incessant, credit expnsion, starving savers, adnrewarding gamblers.
And the ability of the fed to endlessly print money means that the big
wakk street players can take any risk they choose as long as its big
enough. If they lose they double down and hold. They stay in a big
losing trade nomatter what.Because they know as long as its big
enough, the fed will resque them, and as long as they hold trade, they
never have to book the loss. Reagans biggst mistake was ever
deregulating the banks and brokerages, as long as they had access to
fed credit, they were just higly subsidized welfare gamblers. The
public doesnt know how, but they know in thier hearts the game is
riggedon Wall Street.The only way to ever make it honest again is to
have honest sound money.The Democratic Party got it's strt by wanting
to abolish Hamilton's repugnant First Nation Bank of the United
States. Andrew Jackson Got elected on that platform, and he did it.
Weree American's smarter then?
I think if libertarians got tofether on the issue, really learned
Austrian economics, really strted to educate the public, this could
end up being a winnig issue. Especially when the shit relly strts to
clog up the fan.

5

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6

Lets not forget a few things about enron and stock prices. First the
fraud was aided and abetted by enrons bankers, who have paid hugh
judgements but not a single indictment. Second of all at this point
stock prices in general have very littke to do with the underlying
valuse of the company. They have to do with intersection of credit
expansion, mob pschology, adn show biz, with of course manipulation by
the working froup for market stabilization otherwise known as the ppt,
the plunge protection team. Every time for the last few years that
market has reached critical technical poits, a large very large future
buyer steps ipre market. Also there is very strong correlation between
the repo pool and the market.Since reagan by executive order created
the ppt, it has been used to manipulate the market.This is why the
market remains at historically high pe ratios, and volatility has
disappeared.The feds massive liquidity injections in 201 both in
January and September drove bonds down and the market up also. The
repo pool is the ultimate scam for the New York Banksters. I calll it
the Wimpy scam. Remember wimpy, he was the guy who would gladly pay
you tuesday for a hamburger today. When when theFed wants to inject
liquidity, which really is exactly what it sounds like, ... so when it
wants to inject liquidity up the economy, it call the member banks of
thenew york fed and asks them how much they will pay in interest if
the fed lends them x billion for a week. The highest interst bid gets
thecash to hold for a week, usually at very low interest. Man I wish
I could get in on that scam. The sum of all the outstanding repo
agreements is the repo pool. There are traders on a private bb I am
on whomake alot of money playing spiders , Sand P futures based on
the correlation with the repo pool. Also the big banks are eavily in
the market and make no bones about the hugh profits they can make
because they can ride any position out because got the full power of
the fed behind them. Man Derek, you and Ed Crane got seriously
mesmerized by the BS they spin in Chicago. You are the straight man

7

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8

Because every fiat system has failed in the past and ther is no way to
know when this one will blow up or when the fed might let one bank
hang, at least it's sharehokers, kike it did with Chicago in the
seventies, and because the balnce sheets are inpenetrable, especially
JP Morgans HUNDRENS OF TRILLIONS of derivatives, I wouldn't touch any
bank stock, nor would I dare short one. The scam of the repo pool is
that the fed just creates the cash out of thin air, and only the
member banks of the NY Fed are allowed to bid on the interst rate the
fed will be paid, besides, many of the members of the BY Fed are also
owners, and get a piece of the profits. If the Fed is going to create
money out of thin air and dilute the value of all the previously
existing dollars, and all the currencies based on dollars in the whole
freakin world, the least it could do is hold an open auction, not just
for the New York insiders. These guys get to hold hundreds of billions
of dollars at waaay below market rates. Yea each individual repo is
only for a week, but the pool is eternal. The only difference between
Citi and the bum on the corner in front of Wallgreens, is the bum aint
thinkin big enough, "Hey man lemme hold 50 billion, I'm good for it, I
pay you back next week, with interst, hee hee heee hee hee.

9

oh, and one other thing, if you think the primary interest of bank
mangement is shareholder value, I gotta brige you might be interested
in. Compenstion at the upper levels of the financial industry is
legendary. And are all the ny Banks publicly traded, aren't some
partnerships or some other form of business held by the insiders.

10

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11

Derek,

Correct! Prices do reflect what the public knows, and I would add,
understands. What is unknown, or ignored, might instead be reflected
in "exhuberance" or the tulip bulb syndrome. Remember, I have
nothing against exhuberance or tulip bulbs, I just prefer to be aware
of their existence.

Marcy

--- In lpsf-discuss@yahoogroups.com, "Derek E. Jensen "
<derekj72@g...> wrote:

Marcy:
Security prices fully reflect all of the publicly available

information

about the firms upon which they are a residual claim.
In the case of Enron what we saw was fraud. It's a testament to

the

market's efficiency that once this fraud was known or suspected, it

was

reflected in the price of Enron shares extremely rapidly.
-Derek

>
> No, No. Not doomsaying at all. As I said, let's be aware of the
> weaknesses our economy is experiencing, and offer free-market
> solutions to remey them! We might be having a little problem

agreeing

> on what those weaknesses are (i.e., "the true value of anything is
> measured by revealed preferences as expressed in market prices"

makes

> me think of Enron stock), but we have a good list to start.
>
> Marcy
>
>
>
> --- In lpsf-discuss@yahoogroups.com, "Brian Holtz" <brian@h...>

wrote:

> > Amarcy summarized five alleged signs of a likely economic

crisis in

> our near
> > future:
> >
> > > 1. A huge national debt.
> > > 2. Export deficit
> > > 3. Low savings rate
> > > 4. A perilous real estate market (next sector to bust?)
> > > 5. A paper, not goods, based economy
> >
> > 1. Our national debt to GDP ratio is where it was in the 1950s.

Our

> ratio of
> > debt held by the public (i.e. excluding Social Security Trust

Fund)

> to GDP
> > is lower than in Germany and Japan. The real problem to worry

about

> is not
> > national debt (as bad as it is), but our unfunded liabilities in
> Social
> > Security and Medicare, each of which is larger than the national
> debt.
> >
> > 2 & 3. These are really the same problem; see
> > Tech Central Station for details. The
> standard
> > mistake made by economic xenophobes about international trade

is to

> think of
> > it as a zero-sum game, in which we have to worry about our

national

> > "competitiveness". Individual firms and workers indeed need to
> worry about
> > competition from overseas, but they also need to worry about
> competition
> > from other states and from other counties and even from across

the

> street.
> > What people need to understand about comparative advantage
> > (Comparative advantage - Wikipedia) is that

trade

> is
> > beneficial even for a nation that is not a productivity leader

in

> any
> > industry. Comparative advantage derives from being better at
> something than
> > you are at other things, not from being better at something than
> everyone
> > else is. Freshman economics textbooks have mathematical proofs

of

> this
> > principle, and yet most pundits and politicians who
> debate "competitiveness"
> > are ignorant of it.
> >
> > 4. Yes, real estate is overvalued by up to perhaps 20%, thanks

to

> the bond
> > market bubble. See Yahoo | Mail, Weather, Search, Politics, News, Finance, Sports & Videos

for

> details,
> > and Yahoo | Mail, Weather, Search, Politics, News, Finance, Sports & Videos for why the
> housing bubble
> > is unlikely to cause an economic crisis.
> >
> > 5. This is one of the most insidious myths of folk economics.

The

> big
> > mistake of Marxism is the labor theory of value -- that the true
> value of a
> > widget is measured by the labor that produced it. The big

mistake

> of folk
> > economics is the widget theory of value -- that the true value

of

> labor is
> > measured by the widgets it produces. The foundation of economic
> science is
> > the market theory of value -- that the true value of anything is
> measured by
> > revealed preferences as expressed in market prices.
> >
> > I would say the biggest domestic economic problems of our
> generation are
> >
> > 1. unfunded entitlement liabilities as a consequence of our

aging

> > population and the socialization of the healthcare and

retirement

12

Phil,

Me, I will keep my eyes open for some profit I might derive from
banks, like some very affordable repo real estate they might be
selling -- real estate the bank clients "purchased" with no money
down. Shhheeeeeshhhh!

Marcy

--- In lpsf-discuss@yahoogroups.com, "ricochetboy" <philzberg@e...>
wrote:

Because every fiat system has failed in the past and ther is no way

to

know when this one will blow up or when the fed might let one bank
hang, at least it's sharehokers, kike it did with Chicago in the
seventies, and because the balnce sheets are inpenetrable,

especially

JP Morgans HUNDRENS OF TRILLIONS of derivatives, I wouldn't touch

any

bank stock, nor would I dare short one. The scam of the repo pool is
that the fed just creates the cash out of thin air, and only the
member banks of the NY Fed are allowed to bid on the interst rate

the

fed will be paid, besides, many of the members of the BY Fed are

also

owners, and get a piece of the profits. If the Fed is going to

create

money out of thin air and dilute the value of all the previously
existing dollars, and all the currencies based on dollars in the

whole

freakin world, the least it could do is hold an open auction, not

just

for the New York insiders. These guys get to hold hundreds of

billions

of dollars at waaay below market rates. Yea each individual repo is
only for a week, but the pool is eternal. The only difference

between

Citi and the bum on the corner in front of Wallgreens, is the bum

aint

thinkin big enough, "Hey man lemme hold 50 billion, I'm good for

it, I

13

With a sstock market that has become a casino, withfew long term
holders, and with the banks themsekves having the ability to trade
bank stock, and with all the other moral and fincial effects of
floating the economy on a ses of frausulent liquidity, it seems that
the shareholders reign on themangement in many companies istenuous.
I've got a good story from city to illustrate. Sandy Weill , whose
final careeer path was launched from running auserous small time high
interest loan outfit called houshold finance, leveraged that into a
position at American Ecpress. When he got fired from that position he
nested himself in an apartment above a prominent Manhattan restaurant,
because he knew it was important to see and be seen in the right
places. He was right, he worked the room into a co chairmanship of
Citi with the John Reid.spelling questionable. In the middle of the
ttelecom boom, he was ina struggle to get Reed off the board adn have
City for himself. The chairman of ATwas on the board and he wanted his
vote.The ATT chairman was miffed cuz Citi's telecom analyst I think
the name was grubman, was giving ATT poor mark. Weill tells the ATT
guy, I'll take care of it. He calls Grubman, or whatever his name was,
and sayswhat have I gotta do to get you to upgrade T. Grubman was
desperate to get his kid into the Westside YMCA pre school. Wiel has
Citi give the Y a few mil, grubman's kid gets in, he ATT fuy is happy
and Reed packs his bags for Conneticut. Grubman latter gets in hot
water for keeping a buy on Worldcom long after he should have. All
this from weils biography. Shareholder interest, ny tuchas. Where is
the share holder interstr in the employees of New Your Banking and
investment firms taking home over 20 Billion bucks in bonuses last
december. The system lumbers along on residual ethics froma bygone era
when we had honest monay, and perhaps the good behavior of people such
as yourself. But ethics are unsermined by easy money, and we have had
a lot of that for a very long time.

Oh and I guess I didn't make the scam in the repo ckear enough. Lets
say City is the high bidder for a fifty billion dollar repo. Alan
Greenspan shuffles through some papers and pickup the phone and pushes
speed dial 1. Huy Sandy, this is Al, you got the repo. Fax me over a
promise. So Sandy faces Al a not that says, If you give me 50 billion
today, I'll five you fifty billlion 10 million in a week. Al tears the
fac off the machine and pushes the intercom button, Ben Bernanke comes
in. Ben Boy, take care of this repo. Ben puts the fax in the filing
cabinet, and opens up the Feds ledger. In the asset column he puts,
Fac from Sandy promising 50 billion plus in a week, and in the
liabilitycolumn he putss 50 billion wired to Citi. Then he goes ofer
to his Helicopter Simulator, where he has the installed the button
that wires money. He dials up Citi, then he clicks the number pad up
to 5o billion adn pushes Send. Viola. He just created 50 freakin
billion dollars and all he had to do was push a button. This diluted
all the dollars and all the money based on dollars in the whole wide
world. Whats worse is that this money will get multiplied many fold by
the credit creating power of fractional reserve banking. Further
diluting all pre scisting dollars. And you ask why this is a scam?
Karl Marz figured this one out a hundred andfifty years ago. Why the
heck could't Milton Friedman.

You could enact every little Chicago School psuedo market innovation,
but until the financial system isheld accountable to the same rules as
every other busines and until the governmentstops forcing people to
use a particulatr type of money and granting special priveledges to
the players in the finacial system, in other words, until we have a
free market financial system operating under the normal safeguards of
contract law, we will have problems with inflation and deflation and
stagnation.