More evidence

Even though the government hasn't officially declared our current economic crisis a recession, we all know it's here. Car dealers know for sure, and he's an excerpt from an article on cnn.com regarding a car dealership in Florida:

Mr. Thomas has stopped ordering new vehicles, and he is relentlessly cutting costs, including his own salary. He is slashing medical benefits and matching funds for the retirement accounts of his remaining employees. He has stopped giving free oil changes and tires to charities, stopped offering coffee to customers and even canceled janitorial services for the bathrooms.

Sounds like the contraction phase of the business cycle. Government grows the money supply leading to easy credit, malinvestment occurs, we reach a peak (consumers are tapped), and then the pain begins, as you can see above.

Beware the spin doctors and the ignorant!

The pundits on TV (Dobbs, Beck, Hannity, Colmes, O'Reilly, etc.) and the politicans and bureaucrats are spinning the story and telling us that "free market capitalism" caused our current financial crisis.

Nothing could be further from the truth. The government and its cranky quasi-governmental agencies, like the Fed, Fannie, and Freddie, caused the crisis. But of course, they are never wrong. Now they are spinning the story, not only because they are ignorant of Austrian economics, but because they are constantly seeking legitimacy and power.

As you can read here in this article by a great economist, George Reisman, it's not the market that caused the problem. It's the government. Thanks to mises.org for publishing yet another great article that cuts through the crap.

Refill the punch bowl!

Every time the market tries to take the punch bowl away and end the party, the Fed steps in and refills it. The new punch is simply more "soma" to keep Wall Street happy. Wall Street and the big banks are hooked on the drug, and they want the party to be never ending. Today's action by the Fed, and the subsequent rise in the markets, spells ultimate doom and more pain later. The more the Fed prolongs the party, the greater the ultimate pain will be. There will be a reckoning.

As you recall, soma was the drug most people were hooked on in Aldous Huxley's dystopian novel about the future, Brave New World.

Credit markets freezing in the new economic Ice Age

The perfect storm is forming in the world's credit markets, as described here in this article that was posted on prudentbear.com. I'm urging friends to hold onto their cash and postpone projects around the house as well as the purchase of new cars. I myself have postponed my new garage project. I may need that eight to nine thousand to purchase food. Americans are also now beginning to curb their unquenchable thirst for gasoline. Santa might not show up at the end of the year - it could get quite scary.

The only thing we learn from history is that we don't learn from history

History can be a fantastic guide for the future, and it seems to work pretty well when it comes to macroeconomic policy. But why doesn't the government, especially the "independent" Federal Reserve, learn from its mistakes? Right now they are continuing to "prime the pump" with liquidity to stave off recession. As you can see by this quote from an article by historian/economist Thomas DiLorenzo, the government tried the same thing during the Great Depression to no avail.

"But as Murray Rothbard showed in America’s Great Depression, it was the easy money policies of the early and mid-1920s that created all the malinvestment that was the trigger for the Great Depression. The only wise thing to have done was to allow the liquidation of hundreds of overcapitalized businesses to occur. Instead, the Fed increased the monetary base by 100 percent in five years, causing more of the same overcapitalization problems that were the source of the problem in the first place."

Isn't it the definition of insanity when you do the same thing over and over again and keep getting the same results, but expecting different results?

The article by DiLorenzo appeared in The Free Market, a publication of The Mises Institute, November, 2004. Full article here.

A new era has begun

Ron Paul hit the nail on the head last night at the Republican debate. He said that a new era for America has begun. Nothing could be so true. Decades ago the U.S. was a dominant force in the world, and not necessarily in a negative way. That has changed.

Never before in our history have we faced the threat of a massive amount of people retiring (now, 10,000 baby boomers turn 60 every week). Never before have we had over 700 bases around the world. Never before have we spent more on the military than the rest of the world combined. Never before has most of the world disliked us so much (they actually used to love us). Never before has the Federal Reserve inflated our currency so much and destroyed our dollar so much (three bubbles in eight years!). Never before have we had such a broken health care system (which will get worse once we get "universal health care.")

Never before have we been in such bad shape. Yes, Ron, you are right. A new era has begun.

The drainage of the empire

All empires fail because they bleed financially. As you can see by this article, we're playing right into our enemies hands, who have repeatedly said they want to bleed the U.S. empire dry. How much can we fork over each month, especially now that there's a credit/liquidity bubble about to implode, a few million foreclosures, inflation is up, etc.? We're broke and the only solution is a sound currency and reduction of the empire as the founders and framers wanted.

U.S. banks getting slaughtered in the carnage

Eighty years ago Ludwig von Mises was writing about what is happening to the U.S. and world financial markets today. As Mises and the rest of the Austrian economists knew, whenever you print money out of thin air (it's not backed by anything), bankers run amok with the easy credit while the populace takes the bait, leading to malinvestment. It's simple - the inevitable contraction follows the peak from the Fed-induced expansion.

As you can see in this article, U.S. banks got creamed in the 4th quarter. Also on prudentbear.com today, the president of the IMF said this worldwide crisis could be quite severe. Well, he finally got something right (after the Austrians have been discussing this for a decade).

The solution? Abolish the Fed, get back on the gold standard, and get the government out of the economy. 2008 and 2009 won't be pretty.

Spin and her cousin, denial

Interesting article on the outlook for this year and how Wall Street is still in denial. There will be no recession, Wall Street says, just a correction. Everything will be fine, they say, the bubble was small. Financial pundits who make dire predictions are in the minority as the majority don't want to face the music.

Peter Schiff right on target

Read Peter Schiff's article that appeard on prudentbear.com today. He's one of the few that get it. He often appears on Kudlow and Co. and he's usually the only one sounding the alarm bells as the others say everything's going to be allright.

The Fed just filled the punch bowl again

The Fed has promised more liquidity for the credit bubble. It's like a balloon with a hole in the side. The Fed keeps filling the balloon, but the air keeps rushing out. The more they fill, the greater the ultimate collapse. The Fed is creating a 1930's meltdown. The longer they forestall the pain, the greater the ultimate pain will be. They should let the market correct itself instead of printing more money. I hope everyone's got a lot invested in gold and precious metals. Katy, bar the door!

Repeat of history?

Harvard professor Niall Ferguson offers up a warning to us based on history: the Ottoman Empire acted in a way similar to how the U.S. is acting now - trying to maintain an extended presence around the world and of course, going into tremendous debt. Will we suffer the same fate? Read the interesting article here.

Are they all subprime lepers?

According to some analysts in this article, it seems like banks and other financial institutions are treating each other like subprime lepers. The question is, is it the perfect storm? Real estate and credit bubble popping at the same time, more liquidity (more money printed out of thin air by central banks) not having any effect, and monster firms like Merrill Lynch looking really, really afraid. One analyst in another article from prudentbear.com said that the credit markets are the worst he's seen in 47 years. Are we tipping into the abyss?

Housing bust worst since Great Depression

This article states how bad the bursting of the housing bubble is, and the quote from Jack Malvey at Lehman Brothers sums it all up: “In the end, the story of 2008, 2009 and possibly 2010 will be about the extent and consequences of what promises to be the worst US housing correction since the Great Depression in the 1930s.”

What's so amazing is that the government is trying to fix what they caused while blaming the bubble on "predatory lending." The cause is the massive increase in the money supply since the early 1990's. Excessive money supply by the Federal Reserve leads to easy credit. Easy credit dupes investors into making decisions they would not ordinarily make. The low interest rate and availability is too intriguing and attractive. So easy credit leads to malinvestment. Sure, there are some nefarious types in every industry, but when you're telling that couple they don't qualify for the house and then the Fed drops a pile of money on the table next to you, predictable human behavior kicks in. The mortgage broker or bank lends the money.

The same excessive money supply growth led to the dot.com bubble bursting in 2000. Now more government intervention will lead to messing up the mortgage market even further.

Duffy's dialed in

My good friend of 19 years and principal at Bearing Asset Management, Kevin Duffy, writes this great article about the rah-rah guys who want the credit creation party to never end. Guys like Kevin and Peter Schiff get it while punch bowl crowders like Larry Kudlow do not.

The bottom line is: are you prepared? Are you doing research to find out how to protect yourself? Remember, a month before the stock market collapse in 1929 government officials and big-wig financial types were saying everything looked rosy for the forseeable future. They were wrong - really wrong. From 1998 through 2000, I urged my co-workers at a large investment firm I worked for (we had over $200 billion under management at the time) to find out what moves to make to protect themselves. They gave me that pat herd-mentality answer: "it's different this time." Whenever I hear that, I turn and walk away as quickly as I can.

Get dialed in like Kevin Duffy and make the proper financial moves. That nasty '70's term - stagflation - is coming back with a vengeance.

The chickens are coming home to roost

There are a few sayings that have been around awhile, and the longer they're around, the more important they become. You know, like "you reap what you sow." Or, "there will be a reckoning." And don't forget: "you made your bed, now lie in it." Lastly, though, my all time favorite is the following, which means the same as the others above: "the chickens are coming home to roost."

Where am I going with these antiquated sayings? Federal Reserve policy, of course. When the Fed and other central banks around the world simply print money out of thin air, eventually the chickens come home to roost. This means you can't repeal the fundamental laws of economics and not expect bad things to happen. What is happening? A worldwide credit implosion. See the headlines the other day about the giant Swiss bank UBS? They're writing down another $10 billion in losses! That's on top of the billions they've already lost. And check this article out. The Arab world, the one the U.S. government is making out to be the most evil people on the planet, is now buying stakes in major banks around the world, including U.S. banks. Makes you feel safe, doesn't it?

This article is also quite alarming. The Federal National Mortgage Association, nicknamed Fannie Mae, and the Federal Home Loan Mortgage Association, nicknamed Freddie Mac, are hurting big time. The bottom line is that U.S. government monetary policy, which also caused the stock market crashes in 1929 and 2000, is at it again and the chickens are coming home to roost.

Time to purchase the two most important books of your life: The Case Against the Fed and What Has Government Done to Our Money? Both books are by Murray Rothbard and they're available at mises.org. Then you'll know what's going on and you'll see through the liars at the Fed.

Severe problems

The mortgage mess and the credit liquidity mess (mother of all bubbles) will be causing some severe pain in 2008 and 2009, and probably even after that. Thanks to lewrockwell.com for linking to Mr. Greenberg's blog where he has a mortgage expert, Mark Hanson, discuss the subprime and prime mortgage meltdown. Read the informative article and then go out and get a lockbox to hoard some gold, euros, yen, and maybe a few American dollars.

You couldn't write a better script

Want to screw up a financial system? Love to create credit and market distortions? Like to have American taxpayers bail out cranky government interventions in the banking, mortgage, and securities sectors? You've got it! It's all right here in Washington! Come one, come all!

Now the Secretary of the Treasury is getting in on the act, as you can see by this article. Just one more bandaid to forestall the inevitable: an economic meltdown. The more the government intervenes to put off the pain, the greater the ultimate pain will be. In the last paragraph, George Miller seems to understand the problem.

MSM misses again

The main stream media, or MSM, almost always miss the point. Especially when it comes to economics. They just simplify things, spouting out the conventional wisdom. This article by Yahoo News tries to explain why world financial markets are in bad shape. The writer gives a list of reasons, but misses the root cause: fiat money. That is, paper money not backed by anything but a government's ability to tax citizens to give them their money back. Crazy, right?

Instead of a significant portion of the article devoted to inflationary monetary policies practiced by central banks around the world (like our Federal Reserve), he puts in only this line: "An era of easy money has enabled more risk-taking built on borrowed funds." Let's be like Morpheus in The Matrix, who only offers the truth, and expound on the "easy money" idea so people know the root cause of the upcoming financial catastrophe.

Sucked into the maelstrom

As more banks, mortgage companies, investment houses, etc. are sucked into the maelstrom known as the credit bubble collapse, people wonder: what should be done? After all, some say it's like a perfect storm: oil at almost $100 a barrel, real estate foreclosures way up, big investment companies writing down billions in losses, the dollar collapsing, and threats by foreign nations to move away from the dollar.

Maybe the government should pull an early 1970's Nixon: a 90-day wage and price freeze. Then gas and food can't go up - sounds good, doesn't it? Might sound good, but that would lead to more pain. In fact, the government should do nothing but let the malinvestment wash itself out. It will be painful, but forestalling the pain only makes it worse. Watch the Republican debate Wednesday night, and see who brings up the subject. Only Ron Paul, who understands the markets and the Fed, will. He's the only one with the courage to talk about it.