Dear Senator Lieberman:
I contributed to your recent campaign fund because I respect your views on the Iraqi War and your courage to stand up to the left-wing ideologues who have increasingly dominated the Democratic Party. I DISAGREE with your recent proposal to limit commodity speculation by pension funds. While short term price fluctuations over 1-2 years may result from speculation, if there is no underlying demand to support the price increases then the increases will reverse. On the other hand, no one really knows whether the price increases in oil result from speculation or from demand ensuing from general inflation. As you are undoubtedly aware, the Federal Reserve Bank has inflated the number of dollars in circulation around the World by a significant percentage, approximately 8 percent, over the past 25 years. These dollars have reduced interest rates, stimulating economic activity that has not been all that productive. In other words, the Fed has caused the sub-prime crisis, the tech bubble and probably stimulated excessive investment in commodities in the early 1990s. The excessive commodity investment led to low commodity prices in the 1990s (my former employer's stock, INCO or International Nickel, was selling at $10 per share for almost two decades). In turn, commodities firms closed. As well, farm land was used to develop real estate projects. This has led to shortages now in a range of commodities, to include milk, bread, gold and oil. I note that in the recent period of high gasoline prices, the gold price increases of the past 5 years have abated and gold has been below $900 for the past few weeks. If speculation is causing a run-up in oil prices, why isn't it causing a run-up in gold prices?
The correct response to excessive monetary expansion is not to limit speculation but rather to change the institutional structure, which is corrupt, that has led to the creation of large dollar investments in hedge funds, investment banks, Enron, and Bear Stearns. In other words, the Fed is corrupt and it should be changed institutionally. I believe it should be abolished in favor of competitive money supplies. That is, the money supply should be privatized. Illegalizing speculation will not end the problem of increasing gas and other prices. You are attempting to stop water from breaking through the dyke by passing a law against the ocean tides. Your proposal is misguided.
Showing posts with label commodity speculation. Show all posts
Showing posts with label commodity speculation. Show all posts
Thursday, June 26, 2008
Tuesday, June 3, 2008
Media Deception About Inflation
About two years ago I veered from my focus on higher education into the subject of inflation. The reason is that, based on my recollection of the 1970s, when an inflation begins there is considerable media distortion about the reason. The cause of inflation is monetary. The reason for the media distortion is that inflation has two effects. One is to boost the stock market, the other is to boost consumer prices. The media has a vested interest in an increasing stock market, and so tends to lie about the reason. Inflation and the stock market are caused by monetary expansion.
Monetary expansion boosts the stock market for this reason. Interest is the price of money. The stock market computes future earnings with an implicit discount rate. By printing money, the Fed lowers the discount rate. Thus, when the Fed "reduces the interest rates" (prints money) it increases the stock market valuation.
Now, who benefits from the boost that monetary inflation gives to the stock market? The answer, of course, is corporate executives who hold stock options, Wall Street stock jobbers, asset holders in general, home owners and debtors. Who is harmed by inflation? People who work for a living, who are thrifty, who do not have debt and have to pay for necessities with the dollars that the Fed has devalued.
The largest debtors are big businesses. Media companies are corporate enterprises just like any other, and they hold debt. Therefore, their executives benefit from inflation. Therefore, there is considerable pressure on media outlets to lie about the reasons for inflation.
Not surprisingly, my concern about potential lying in the media have materialized recently in response to Congressional testimony by Michael Masters. First, on Fox Business News, there was a panel discussion that included much verbiage about how commodity speculators are causing inflation. Second, when I opened the New York Sun, Liz Peek's article "Time to Intervene in Commodities Markets" likewise omits the underlying monetary cause of price inflation. Price inflation is a monetary phenomenon, a fact that Fox as well as Peek omit. Instead, Peek, like Fox, attributes inflation to speculators. The media lying circus has begun.
Fox and the Sun are two of the few "Republican" sources, which is why I am loyal to them. It is a testimony to Wall Street's and corporate power that superstition is presented as news when the few "conservative" sources discuss inflation much like the New York Times.
As my good friend Howard S. Katz has put it, when reading about the economy, assume anything that the mass media says is the opposite of the truth. If the media says that high interest rates are hurting you, conclude that they are helping you. If the media says that there is a "sub-prime crisis", conclude that the bloated house prices that have been causing middle class bankruptcies for the past two decades are moderating. If the media says that inflation is caused by commodity speculation, assume that it is caused by monetary expansion. If the media says that a depression is near, assume that the stock market is about to go up.
Smart men have become rich in this way.
I have responded to Ms. Peek's and Fox's "news" pieces with the following letter:
>"Thanks for your article 'Time to Intervene in Commodities Markets'. I disagree with Mr. Masters's argument. Neither he nor anyone else is smart enough to know when to intervene in markets. The S&P 500 is up 1500% since January 1970. Is that a reason to cap stock prices? If not, then why is a 183% increase in commodity prices, 12.2% of the 38 year stock price increase, a reason to cap commodity prices? If pension funds wish to hold commodities as a hedge against inflation, should the federal government tell plan participants that they must suffer from inflation?
"Given that the global supply of dollars has increased by 8% a year for the past 2 1/2 decades and the Greenspan/Bernanke Fed have been on a money printing spree since 2000, why attribute rising commodity prices to speculation? Why not the money supply? Does Mr. Masters have a theory as to why printing money does not cause inflation? And is he a relative of Jimmy Carter?
"Perhaps a more useful story would be on the reason the M-3 monetary statistic is no longer published and what the growth in the quantity of M-3 has looked like since 1983. And might there be a connection between money supply and inflation? I mean, duh."
Monetary expansion boosts the stock market for this reason. Interest is the price of money. The stock market computes future earnings with an implicit discount rate. By printing money, the Fed lowers the discount rate. Thus, when the Fed "reduces the interest rates" (prints money) it increases the stock market valuation.
Now, who benefits from the boost that monetary inflation gives to the stock market? The answer, of course, is corporate executives who hold stock options, Wall Street stock jobbers, asset holders in general, home owners and debtors. Who is harmed by inflation? People who work for a living, who are thrifty, who do not have debt and have to pay for necessities with the dollars that the Fed has devalued.
The largest debtors are big businesses. Media companies are corporate enterprises just like any other, and they hold debt. Therefore, their executives benefit from inflation. Therefore, there is considerable pressure on media outlets to lie about the reasons for inflation.
Not surprisingly, my concern about potential lying in the media have materialized recently in response to Congressional testimony by Michael Masters. First, on Fox Business News, there was a panel discussion that included much verbiage about how commodity speculators are causing inflation. Second, when I opened the New York Sun, Liz Peek's article "Time to Intervene in Commodities Markets" likewise omits the underlying monetary cause of price inflation. Price inflation is a monetary phenomenon, a fact that Fox as well as Peek omit. Instead, Peek, like Fox, attributes inflation to speculators. The media lying circus has begun.
Fox and the Sun are two of the few "Republican" sources, which is why I am loyal to them. It is a testimony to Wall Street's and corporate power that superstition is presented as news when the few "conservative" sources discuss inflation much like the New York Times.
As my good friend Howard S. Katz has put it, when reading about the economy, assume anything that the mass media says is the opposite of the truth. If the media says that high interest rates are hurting you, conclude that they are helping you. If the media says that there is a "sub-prime crisis", conclude that the bloated house prices that have been causing middle class bankruptcies for the past two decades are moderating. If the media says that inflation is caused by commodity speculation, assume that it is caused by monetary expansion. If the media says that a depression is near, assume that the stock market is about to go up.
Smart men have become rich in this way.
I have responded to Ms. Peek's and Fox's "news" pieces with the following letter:
>"Thanks for your article 'Time to Intervene in Commodities Markets'. I disagree with Mr. Masters's argument. Neither he nor anyone else is smart enough to know when to intervene in markets. The S&P 500 is up 1500% since January 1970. Is that a reason to cap stock prices? If not, then why is a 183% increase in commodity prices, 12.2% of the 38 year stock price increase, a reason to cap commodity prices? If pension funds wish to hold commodities as a hedge against inflation, should the federal government tell plan participants that they must suffer from inflation?
"Given that the global supply of dollars has increased by 8% a year for the past 2 1/2 decades and the Greenspan/Bernanke Fed have been on a money printing spree since 2000, why attribute rising commodity prices to speculation? Why not the money supply? Does Mr. Masters have a theory as to why printing money does not cause inflation? And is he a relative of Jimmy Carter?
"Perhaps a more useful story would be on the reason the M-3 monetary statistic is no longer published and what the growth in the quantity of M-3 has looked like since 1983. And might there be a connection between money supply and inflation? I mean, duh."
Sunday, May 18, 2008
Correction in Gold and Oil Prices?
Is there going to be a correction in gold, oil and other commodity prices in the coming weeks? It seems like a distinct possibility.
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