Robert Higgs has an excellent blog for the Mises Institute , which was sent to me via e-mail. Higgs traces outstanding post '03 bank credit worldwide over time. The graph goes up at a 30 degree angle from '03 to '08, then flattens in '08. At the end of '08 it shoots up at an 80 degree angle.
The graph suggests that post 9/11, the US and the world have become addicted to easy credit. The brief flattening of credit expansion in '08 precipitated calls of a depression. Higgs notes:
"After the six-month pause, commercial-bank credit zipped upward again, so that by the end of the year, the amount outstanding stood more than 8 percent higher than it had a year earlier. Some credit crunch! Année terrible, indeed."
Higgs echoes Howard S. Katz's repeated calls on Kitco (also here) and on his blog (also as far back as March '08 here) that the "credit crunch" is but a media-driven hoax. If so, you want to invest your cash in gold stocks, gold and commodities. In my own pension fund, TIAA-CREF, there are stock and real estate funds but no hard assets or foreign currency funds (there's a foreign stock fund, but not a foreign CD). Because of the recent volatility in real estate and corporate investment, there may be some short term risk in commercial estate. But the massive credit injection in late '08 makes investment a good idea at this point in time. Stocks should hold their own and real estate should follow, but we're most bullish on commodities.
I help Howard S. Katz with his correspondence, and when he was forecasting a bull market in November, he literally began to receive hate mail from a small number of Kitco readers, and one of his newsletter readers canceled. Howard told me that he views that kind of reaction as signaling a market bottom.
I am glad to see eminent libertarian economists like Robert Higgs supporting this view.
Monday, January 12, 2009
Sunday, January 11, 2009
13th General Meeting of the National Association of Scholars
The National Association of Scholars (NAS) held its 13th general meeting at the Washington Marriott this weekend. I just returned. Steve Balch, who founded NAS in 1987, did an outstanding job in organizing the conference and attracting speakers, who included Ward Connerly, Victor Davis Hanson, Herb London, Greg Lukianoff, Anne Neal, Abigail Thernstrom and Congressman Thomas Petri. The conference had many high points, to include Ward Connerly's and Victor Davis Hanson's two talks each (all of which were phenomenal). For me, the most poignant discussion was that of Greg Lukianoff, director of the Foundation for Individual Rights in Education (FIRE). Greg outline a litany of abuses involving speech codes since 2007. It is depressing that today's colleges and universities continue to suppress speech.
Also excellent was the debate between Peter Wood of NAS and Cary Nelson of the American Association of University Professors (AAUP), which represents the left-wing viewpoint. Wood got the better of Nelson, but Nelson is to be complimented for his integrity in participating in the debate and the entire conference. I was glad to see that the AAUP was interested enough to send a speaker.
Steve Balch is retiring this year, and he deserves considerable praise for founding and making the NAS a vibrant reality.
Also excellent was the debate between Peter Wood of NAS and Cary Nelson of the American Association of University Professors (AAUP), which represents the left-wing viewpoint. Wood got the better of Nelson, but Nelson is to be complimented for his integrity in participating in the debate and the entire conference. I was glad to see that the AAUP was interested enough to send a speaker.
Steve Balch is retiring this year, and he deserves considerable praise for founding and making the NAS a vibrant reality.
Thursday, January 8, 2009
A Modern Management Parable
H/t Don Rubenstein who e-mailed this:
A MODERN PARABLE . . .
A Japanese company ( Toyota ) and an American company (Ford) decided to have a canoe race on the Missouri River. Both teams practiced long and hard to reach their peak performance before the race.
On the big day, the Japanese won by a mile.
The Americans, very discouraged and depressed, decided to investigate the reason for the crushing defeat. A management team made up of senior management was formed to investigate and recommend appropriate action.
Their conclusion was the Japanese had eight people rowing and one person steering, while the American team had eight people steering and one person rowing.
Feeling a deeper study was in order, American management hired a consulting company and paid them a large amount of money for a second opinion.
They advised, of course, that too many people were steering the boat, while not enough people were rowing.
Not sure of how to utilize that information, but wanting to prevent another loss to the Japanese, the rowing team's management structure was totally reorganized to four steering supervisors, three area steering superintendents, and one assistant superintendent steering manager.
They also implemented a new performance system that would give the one person rowing the boat greater incentive to work harder. It was called the 'Rowing Team Quality First Program,' with meetings, dinners, and free pens for the rower. There was discussion of getting new paddles, canoes, and other equipment, extra vacation days for practices and bonuses.
The next year the Japanese won by two miles.
Humiliated, the American management laid off the rower for poor performance, halted development of a new canoe, sold the paddles, and canceled all capital investments for new equipment. The money saved was distributed to the Senior Executives as bonuses and the next year's racing team was out-sourced to India.
The End.
Here's something else to think about:
Ford has spent the last thirty years moving most of its factories out of the US, claiming they can't make money paying American wages.
TOYOTA has spent the last thirty years building more than a dozen plants inside the US. The last quarter's results:
TOYOTA makes $4 billion in profits while Ford racked up $9 billion in losses.
Ford folks are still scratching their heads.
------------
A MODERN PARABLE . . .
A Japanese company ( Toyota ) and an American company (Ford) decided to have a canoe race on the Missouri River. Both teams practiced long and hard to reach their peak performance before the race.
On the big day, the Japanese won by a mile.
The Americans, very discouraged and depressed, decided to investigate the reason for the crushing defeat. A management team made up of senior management was formed to investigate and recommend appropriate action.
Their conclusion was the Japanese had eight people rowing and one person steering, while the American team had eight people steering and one person rowing.
Feeling a deeper study was in order, American management hired a consulting company and paid them a large amount of money for a second opinion.
They advised, of course, that too many people were steering the boat, while not enough people were rowing.
Not sure of how to utilize that information, but wanting to prevent another loss to the Japanese, the rowing team's management structure was totally reorganized to four steering supervisors, three area steering superintendents, and one assistant superintendent steering manager.
They also implemented a new performance system that would give the one person rowing the boat greater incentive to work harder. It was called the 'Rowing Team Quality First Program,' with meetings, dinners, and free pens for the rower. There was discussion of getting new paddles, canoes, and other equipment, extra vacation days for practices and bonuses.
The next year the Japanese won by two miles.
Humiliated, the American management laid off the rower for poor performance, halted development of a new canoe, sold the paddles, and canceled all capital investments for new equipment. The money saved was distributed to the Senior Executives as bonuses and the next year's racing team was out-sourced to India.
The End.
Here's something else to think about:
Ford has spent the last thirty years moving most of its factories out of the US, claiming they can't make money paying American wages.
TOYOTA has spent the last thirty years building more than a dozen plants inside the US. The last quarter's results:
TOYOTA makes $4 billion in profits while Ford racked up $9 billion in losses.
Ford folks are still scratching their heads.
------------
Exchange on Possible Hyper-Inflation Due to Bush, Bernanke and Obama
Jim:
Tripling the money supply! Really?
How... what's the word here... "nice".
Mitchell, then kindly explain how this would not lead to really rapid and really massive price increases as the currency is devalued because it is 3x less scarce. Even gold will go down in value if suddenly huge hoards of it are suddenly found laying in the ground. This is what happened to the Spanish when they started import/stealing all the gold from the New World. Suddenly, it wasn't worth as much back in Europe.
My response:
A couple of points. The monetary base is not the same as the money supply. The Fed deposits cash in banks. The banks then can lend out a multiple of the reserves. The banks can lend out five or six times the deposits, but they haven't been lending out that much. The money stock is about 2-3 times the reserves. So a tripling of reserves can triple the money supply but it won't if the banks don't lend out a multiple of 3 times that amount. The question is, are the banks really in trouble or have they cried wolf?
If they are in trouble and need this large infusion of reserves, will the Fed remove the reserves once the trouble passes? If the answer is "No, the banks are not in trouble, they are just crying wolf," or "No, the Fed won't remove the reserves once the trouble (if any) passes" (and have you heard a clear description of the trouble--or have you just heard over and over that there is trouble but no one says clearly what it is?) then, yes, there could be a tripling of prices.
A better analogy than the Spanish is the Germans in the 1920s or the post-Revolutionary War Continentals, which ended up being worth 2 cents on the dollar. America, believe it or not, invented paper money inflation back in 1776. We can do it again, yes we can, yes we can.
Tripling the money supply! Really?
How... what's the word here... "nice".
Mitchell, then kindly explain how this would not lead to really rapid and really massive price increases as the currency is devalued because it is 3x less scarce. Even gold will go down in value if suddenly huge hoards of it are suddenly found laying in the ground. This is what happened to the Spanish when they started import/stealing all the gold from the New World. Suddenly, it wasn't worth as much back in Europe.
My response:
A couple of points. The monetary base is not the same as the money supply. The Fed deposits cash in banks. The banks then can lend out a multiple of the reserves. The banks can lend out five or six times the deposits, but they haven't been lending out that much. The money stock is about 2-3 times the reserves. So a tripling of reserves can triple the money supply but it won't if the banks don't lend out a multiple of 3 times that amount. The question is, are the banks really in trouble or have they cried wolf?
If they are in trouble and need this large infusion of reserves, will the Fed remove the reserves once the trouble passes? If the answer is "No, the banks are not in trouble, they are just crying wolf," or "No, the Fed won't remove the reserves once the trouble (if any) passes" (and have you heard a clear description of the trouble--or have you just heard over and over that there is trouble but no one says clearly what it is?) then, yes, there could be a tripling of prices.
A better analogy than the Spanish is the Germans in the 1920s or the post-Revolutionary War Continentals, which ended up being worth 2 cents on the dollar. America, believe it or not, invented paper money inflation back in 1776. We can do it again, yes we can, yes we can.
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