David Stockman Presentation: "How Crony Capitalism Corrupts the Free Market"

Archived from the live Mises.tv broadcast (available in 720p on YouTube), this lecture by David Stockman was presented at the Mises Circle in Manhattan: "Central Banking, Deposit Insurance, and Economic Decline."

David Stockman Campaigns Against the Fed

David Stockman, a former U.S. politician and businessman, serving as a Republican U.S. Representative from the state of Michigan and as the Director of the Office of Management and Budget, has been on many shows these last few days, is campaigning hard against the Fed. Most of his very informative ones are available on YouTube:

• Interview on Capital Account 
• Interview on CNBC (embedding not allowed)
• Interview on Bloomberg

And some older but quite interesting and long videos. I cannot recommend more the watching of these videos. They give rare views and insights in on history of the US from someone who served under Reagan, and also great Austrian Economics perspective on most of the Fed and US Gov driven economic distortions and unbalances.

• Bill Moyers Interviews David Stockman on Crony Capitalism of Washington & Wall St. (34 min)
• David Stockman on TARP, the Fed, Ron Paul and Reagan (42 min)
• The Forgotten Cause of Sound Money (67 min presentation at the Mises Institute)

And finally, here's the link to The Great Deformation: How Crony Capitalism Corrupts Free Markets and Democracy the latest book by David Stockman which I am really looking forward to reading.

"You're headed for a one-term presidency", Jobs told Obama

Here's a quote from the pages 544 and 545 of Steve Jobs, the ignominious biography of Steve Jobs written by Walter Isaacson. It shows how deeply Jobs understood the fundamentals of economics from a libertarian perspective while PhD, economics professors and MBAs are completely unable to see beyond the lies and nonsensical views of Keynesianism and Monetarism:

"You're headed for a one-term presidency", Jobs told Obama at the outset. To prevent that, he said, the administration needed to be a lot more business-friendly. He described how easy it was to build a factory in China and said that it was almost impossible to do so these days in America, largely because of regulations and unnecessary costs. 

Jobs also attacked America's education system, saying that it was hopelessly antiquated and crippled by union work rules. Until the teachers' unions were broken, there was almost no hope for education reform. Teachers should be treated as professionals, he said, not as industrial assembly-line workers. Principals should be able to hire and fire them based on how good they were. Schools should be staying open until 6 p.m. and be in session eleven months of the year. It was absurd, he added, that American classrooms were still based on teachers standing at a board and using textbooks. All books, learning materials, and assessments should be digital and interactive, tailored to each student and providing feedback in real time. 

I happen to agree on all those points.

Austrian School Economics Teachings for Children

Mike, a reader, asked me privately a question, which I decided to reply to publicly as it might be useful to others. Mike asks:

Do you know of any Libertarian and Austrian School Economics teaching resources for children? I can be long winded for nine and ten year old children, so I thought anything that would present the big picture succinctly and throw in enough meat to stimulate further interest would be great. 

They seem to respond well to video clips, but most of what I can find is too technical for the younger child, and even the older one looses interest if too many charts are involved. 

I know there is a small window of opportunity to align the next generation's mind according to right thinking while I still have some measurable and respectable influence in their eyes. I figure, if I can teach them the correct and true state of affairs and economics and the vast and far-reaching impact and consequences of implemented economic theory, then they will be able to resist indoctrination from police state organizations by using critical thinking and analysis. However, such will not happen by accident, hence my quest seeking suitable teaching materials for them.

Well, Mike, I can recommend that you start with Robert Murphy's Lessons for the Young Economist. The 400 page book is available for free in HTML, PDF and eBook formats from that link, and you can also buy the hard copy from Mises.org and support both Robert Murphy and the Mises Institute.

Here's an interview where Robert Murphy tells everything about his book (YouTube link).

Peter Schiff Testimony Before Congress On Jobs Committee

Peter Schiff before the Congress, trying to explain them the basics of economics and fighting against ignorant Keynesian buffoons asking for higher taxes and more government spending. Peter Schiff is great, as usual. There are two parts available on YouTube: part 1 and part 2.

Very much worth the 30min you invest in watching him.

Academic Research about the Skyscraper Curse

I have already mentioned the Skyscraper Curse about Dubai in early 2009 and London in late 2010 and so I started investigating and looking for more info about this idea as I found it particularly clever and relevant, the most important I will share below with you:

It all got started in Jan 1999 by Andrew Lawrence, a research director at Dresdner Kleinwort Wasserstein who came up with the idea of the Skyscraper Index and its correlation with economic downturns:

The Skyscraper Index is a concept put forward in January 1999 by Andrew Lawrence, research director at Dresdner Kleinwort Wasserstein, which showed that the world's tallest buildings have risen on the eve of economic downturns. Business cycles and skyscraper construction correlate in such a way that investment in skyscrapers peaks when cyclical growth is exhausted and the economy is ready for recession. (Skyscraper Index on Wikipedia)

I was amazed and surprised to find that Austrian Economist Mark Thornton has actually been studying the relations between the construction of record setting skyscrapers and economic cycles.

Mark Thornton has published two papers both available on the Mises Institute web site. Here are the links to the first and the second.

Here is the abstract of first paper:

The construction of skyscrapers that qualify as the “World’s Tallest Building” tends to coincide with major downturns in the economy. The Skyscraper Index, created by economist Andrew Lawrence shows a high level of correlation between skyscraper construction and the business cycle. Is this just a coincidence, or perhaps do skyscrapers cause business cycles? A theoretical foundation of “Cantillon Effects” for the skyscraper index is provided here showing how the basic components of skyscraper construction such as technology are related to key theoretical concepts in economics such as the structure of production. The findings, empirical and theoretical, suggest that the business cycle theory of the Austrian school of economics has much to contribute to our understanding of business cycles, particularly severe ones.

For those lazier among us, he has given numerous very interesting presentations about the historical and economics facts that lead to his conclusions. Embedded below is a 30 min must see session, presented at "Our Enemy, Inflation," the Mises Circle in Houstonon Saturday, 24 January 2009.

Below are a few more useful YouTube links, and I am not embedding in order to avoid an oversized post:

• Skyscrapers and the Housing Crisis [Mark Thornton] Presented at the Ludwig von Mises Institute's 2009 Mises University held in Auburn, Alabama. (50 min)
  
• Skyscrapers and the Housing Crisis | Mark Thornton Lecture presented by Mark Thornton at the Ludwig von Mises Institute's 2010 Mises University conference, the world's leading instructional program in the Austrian School of economics.
  
• Skyscrapers and Economic Cycles: An Interview with Mark Thornton (The Lew Rockwell Show #25)
  

Marc Faber on Obama, Bernanke and Governments in General [Updated]

Marc Faber was interviewed on Bloomberg TV on the 25th of Jan. As usual, he doesn't try to be politically correct, and tells very plainly what he thinks about Obama, Bernanke, and the corruption of any centralized government with lots of humor. Very refreshing.

This 11 min interview is a must watch and is available on YouTube.

[Update:] Another interview, on CNBC this time (embedded below, YouTube link) , during the forum in Russia, where Marc Faber gives his economic and markets outlook: an artificial recovery driven by ultra-expansionary monetary and fiscal stimulus that will lead to further issues down the road. This interview is making some buzz because of the statement Marc Faber gives twice in the course of a few minutes: "Bernanke is liar". 

Marc Faber also explains why rising food prices will lead to a lot of unrest in emerging economies and the poorest countries, and he is very concerned that this will happen in Pakistan. 

Deflation, from an Austrarian School perspective

It's happening: now students of the Austrian School of Economics are finally starting to see that deflation is actually our future. Robert Prechter, Mish and myself were the only people that I am aware of who think from an Austrian perspective and believed we were deflating. Gary Shilling and Harry S. Dent are two other notoriously famous deflationists. Now, add Vijay Boyapati to the list.

Vijay Boyapati is a former Google engineer. In 2007 he started Operation Live Free or Die, a grassroots organization to help Ron Paul's 2008 presidential campaign. Since 2009 he has devoted himself to studying Austrian Economics

Vijay recently published a 28-page article titled "WHY CREDIT DEFLATION IS MORE LIKELY THAN MASS INFLATION: AN AUSTRIAN OVERVIEW OF THE INFLATION VERSUS DEFLATION DEBATE” on Libertarian Papers (link the full article in PDF). Below is the abstract:

This article provides an Austrian overview of the inflation versus deflation debate which has captured the attention of the economics profession in the years following the US housing bust. Much of the Austrian analysis of this debate has focused on the massive expansion of the Federal Reserve’s balance sheet and attendant creation of new reserves. Several Austrian economists have predicted that the creation of new reserves will cause a massive increase in inflation. The money multiplier theory, on which these predictions are based, is criticized and an overview of the Austrian business cycle theory is provided to explain why banks are reluctant to issue new credit. Finally, an analysis of the politics of deflation is provided and a class theory is presented to explain why a policy of controlled credit deflation is more likely than a policy that would result in mass inflation or hyperinflation.

Mish Interview on Frisby's Bulls & Bears

Mish was interviewed on Friday by Dominic Frisby on Frisby's Bulls and Bears.

He discussed his investments ideas and broader economics themes for 2011, including:

• Municipal and state defaults/bankruptcy
• The Irish "bailout"
• Italy being a bigger problem than Spain, and is currently off the radar
• Real Estate: bursting in Australia, and about to burst in Canada, but doesn't comment about the UK because he doesn't know enough about it. "Australia is in a particularly nasty spot", says Mish
• China overheats, has an unemployment problem bigger than the US
• Continuous strengthening of the dollar
• Market sentiment and the extreme bullishness it has reached, both in equities and commodities
• He also discusses Japan, which he likes here, even though the Japanese currency can blow up at any point! So you need to hedge your currency exposure.

I would agree on everything, but Japan. The Yen being at a historical high, and equities markets having rebounded, I'm not sure it's going to be a good investment in USD terms. But I might be wrong.

You can either listen on the embedded player below, or download the MP3 file.

Obama calls for 2 year freeze on feds pay — ObamaCare law ruled unconstitutional

First of all, a news that's about 2 week old, but wasn't mentioned on the blogosphere (probably because it was deflationary which doesn't fit well with the current hyper-inflationist mood?):

(Bloomberg) — President Barack Obama on Monday proposed a two-year freeze of the salaries of some 2 million federal workers, trying to seize the deficit-cutting initiative from Republicans with a sudden, dramatic stroke. Though signaling White House concern over record deficits, the freeze would make only a tiny dent in annual deficits or the nation's $14 trillion debt.

"Small businesses and families are tightening their belts," Obama said in brief remarks at the White House. "The government should, too." The administration said the plan was designed to save more than $5 billion over the first two years.

This got to be a joke. $5 billion, when the budget deficit is in the trillions?

The proposal, which must be approved by Congress, would not apply to the military, but it would affect all others on the Executive Branch payroll. It would not affect members of Congress or their staffs, defense contractors, postal workers or federal court judges and workers.

Of course, Obama the Nobel peace prize winner wouldn't cut on the military. And also, he can't ask Congress to approve a pay freeze to the Congress, can he? These are the limits of democracy.

[...] John Gage, president of the 600,000-member American Federation of Government Employees, called the decision "a slap at working people. ... To symbolically hit at federal employees I think is just wrong." He said the move would not really save as much as the White House claims because federal employees often get just a fraction of projected raises.

Colleen Kelley, head of the 150,000-member National Treasury Employees Union, said union officials would try to derail the proposal in Congress. She may find some sympathy with union-friendly Democrats still in control for another month.

Obviously, the union are going to fight anything that is not a pay raise.

The federal government is the nation's largest employer, with about 2 million workers. About 85 percent of them work outside of the Washington, D.C., area.
[...]
"I did not reach this decision easily, this is not a line item on a federal ledger, these are people's lives," Obama said.

 Of course you didn't, you had to give up on 2 million votes.

Federal workers are an easy target. Polls show rising public anger toward the federal government at a time of high continued unemployment and Wall Street and auto bailouts.

But you hope to offset those 2 million votes. That's the essence of politics.

House members and senators are paid $174,000 a year. Their last pay increase was $4,700 a year at beginning of 2009. The president's pay of $400,000 a year was fixed by Congress in January 2001 and has not changed since then.

Quite a high pay for such incompetents, if you ask me.

Now about ObamaCare, one of the most business-unfriendly and most leftist policies that only exist in Europe for now:

RICHMOND, Va. (AP) — A federal judge declared a key provision of the Obama administration's health care law unconstitutional Monday, siding with Virginia's attorney general in a dispute that both sides agree will ultimately be decided by the U.S. Supreme Court.
[...]
Hudson rejected the government's argument that it has the power under the Constitution to require individuals to buy health insurance, a provision that was set to take effect in 2014.

Thank God, it looks like they have found a copy of the Constitution. Let's hope we'll see many more of such justice decisions.

"Of course, the same reasoning could apply to transportation, housing or nutritional decisions," Hudson wrote. "This broad definition of the economic activity subject to congressional regulation lacks logical limitation" and is unsupported by previous legal cases around the Commerce Clause of the Constitution.

Well, let's hope they do rule on these as well then.

The central issue in Virginia's lawsuit was whether the federal government has the power under the constitution to impose the insurance requirement. The Justice Department said the mandate is a proper exercise of the government's authority under the Commerce Clause.

Anything can go under the Commerce Clause given the current interpretation of it. Tom Woods mentions this fact in many of his presentations at the Mises Institute. Here's on his interviews, available on YouTube:

Jim Rogers, "How I See the World" one hour Q&A session at the Mises' In Alburn Alabama

A great session with Jim Rogers, very much worth listening to the whole thing. I was very pleased to see Lew Rockwell, Doug French, John Denson, talk with and ask questions to Jim Rogers.

Nobel Winner Pissarides is a looser

It's amazing how clueless and incompetent all Nobel laureates in economics are. See Pissarides, just another Keynesian bouffon who believes that the Greater Depression is the results of banks not lending for people to buy houses.

I think a 12 year old would understand that one cannot borrow indefinitely, and that the whole planet's economy cannot be based on buying houses on credit. But to Nobel laureates, the economy is a very simple and closed system, defined a single and simple rule: economies grow because people borrow money to buy houses, and since house prices always rise, people become rich. To Keynesians and Monetarists, this is the virtuous circle. To Austrian economists and to people in the real world, this is the circle of doom.

Oct. 29 (Bloomberg) -- The United States risks an extended period of low economic growth with little job creation and additional emergency measures being considered by the Federal Reserve aren’t likely to work, said Christopher Pissarides, the winner of this year’s Nobel Prize for Economics.
[...]
U.S. Federal Reserve Chairman Ben S. Bernanke said Aug. 27 the central bank would “do all it can” to sustain the economic recovery. Investors anticipate the Fed will carry out more so- called quantitative easing, a move that would pump additional money into the world’s largest economy.

“It cannot achieve much,” Pissarides said. “What we need is for banks to start lending more for house purchases and job creation.”

Just FYI Mr. Pissarides — you would know if you weren't living in your ivory tower — one should not borrow to create useless/wasteful jobs. One borrows to invest in wealth creation. Borrowing to spend is pure waste, is not sustainable, and leads to the mess we are in just now.

Niall Ferguson publicly doubts Keynes

Niall Ferguson is now opposing Keynes views, and the keynesianism methodology of bringing doom to populations across the world. Are we seeing the start of the end of Keynesianism?

Maybe someday, we'll see the President of the United States, Ron Paul, state "we are all Austrians now"?

In a panel about getting America back from the depths of economic despair at The Daily Beast's Innovators Summit in New Orleans, Niall Ferguson, historian and Harvard Business School professor, told Sir Harold Evans that he has some deep doubts about classical Keynesian policies.

Small Businesses confirm their trend over the past many months: economy still deleveraging and deflating

Here are some quotes from the latest NFIB small business monthly report:

LABOR MARKETS
[…] a seasonally adjusted net negative three percent of owners planning to create new jobs, down four points from August, The decline in hiring plans is an unexpected reversal in job creation prospects. Hiring plans continue to underperform the recoveries following previous recessions.

CAPITAL SPENDING
The environment for capital spending is not good. […] Six percent characterized the current period as a good time to expand facilities, up two points, but historically low. A net negative three percent expect business conditions to improve over the next six months, a five point improvement from August, but still more owners expect the economy to weaken than strengthen.

INVENTORIES AND SALES
[…] Overall, it does not appear that sales trends are yet supportive of a recovery in the small business sector. The net percent of owners expecting higher real sales lost three points from August, falling to a net negative three percent of all owners (seasonally adjusted) – a dismal outlook. Hiring and capital spending depend on expectations for growth in future sales, so the outlook for improved spending and hiring is not good. Small business owners continued to liquidate inventories and weak sales trends gave little reason to order new stock. […] September is the 30th negative double digit month in a row and the 40th negative month in a row for inventory reductions.

INFLATION
The weak economy continued to put downward pressure on prices. Seasonally adjusted, the net percent of owners raising prices was a negative 11 percent, a three point decline. September is the 22nd consecutive month in which more owners reported cutting average selling prices that raising them.
[…] On the cost side, four percent of owners cited inflation as their number one problem and only three percent cited the cost of labor, so neither labor costs or materials costs are pressuring owners to raise prices. With no pricing power and real sales volumes weak, profits are not able to recover.

CREDIT MARKETS
Overall, 91 percent reported that all their credit needs were met or that they were not interested in borrowing.[…] The historically high percent of owners who cite weak sales means that investments in new equipment or new workers are not likely to “pay back” and thus loans taken to finance the outlays can’t be repaid.
A near record low 33 percent of all owners reported borrowing on a regular basis. Reported and planned capital spending are at 35 year record low levels, so fewer loans are needed. Sounds like weak credit demand. Those looking for loans predominately are looking for cash flow support, not funds to expand or hire.[…]

COMMENTARY
[…] Inflation? Not a threat. Far more owners have cut prices than raised them for 21 months in a row. Deflation? It certainly feels that way to a quarter of the owners reporting price declines for the goods and services they produce and sell, and apparently a majority at the Federal Reserve are now worried. New “inflation targets” are being floated out there, like two percent (characterized as price stability?). This will be the justification for more “quantitative easing”. Buying more Treasury securities may push rates even lower, but to what end? The impact on home sales will surely be minimal. With mortgage rates at record low levels already, even lower rates are unlikely to invite new entrants to the market. Of course, there may be other “agendas” such as a weakening of the dollar and support for asset prices. This is very dangerous as hundreds of billions of dollars are being “allocated” based on false prices (interest rates). The charade can’t be maintained forever and weakening the dollar only invites others to join the party. And lost in all of this focus on credit is the loss of hundreds of billions in interest rate income for savers. Certainly their spending has been curtailed as a result. Every dollar a borrower saves from some sort of refinance deal is a dollar of interest income lost to savers […]

Now, the writer of this report certainly does understand the economy and think as an Austrian economist. He debunks very easily all the nonsensical theories of the Keynesians and Monetarists. Chapeau bas!

Tom Woods at the Mises "The Delusion of Good Government" Circle

Tom Woods' presentation Our Wise Overlords Are Just Here to Serve Us is now available on YouTube.

Any libertarian should watch this presentation and spread it as much as they can.

Note to feed subscribers: the embedded video doesn't show in the feed, so you can either come on the blog, or follow the YouTube link above.

Frédéric Bastiat as a minarchist and forerunner of the Austrian School of thought

I've just finished reading Frédéric Bastiat's The State and The Law, and I must admit that I'm very impressed.

His work is available for free from many sources, here's the link to his page on the Online Library of Liberty where you can find his books in various PDF format and both English and French.

While reading his book, I've discovered that France was falling into Socialism way before the Second World War, and that many of the traits of the current issues were already seeded at that time, and fought against by Bastiat.

Here are a few notes of interests, from Wikipedia:

[...]
Bastiat was the author of many works on economics and political economy, generally characterized by their clear organization, forceful argumentation, and acerbic wit. Among his better known works is Economic Sophisms, which contains many strongly-worded attacks on statist policies
[...]
Bastiat's most famous work, however, is undoubtedly The Law, originally published as a pamphlet in 1850. It defines, through development, a just system of laws and then demonstrates how such law facilitates a free society.
[...]
Bastiat's work is not well known in France, and is rarely found in the French language, as the author is better known in the United States. 

France is a socialist country and it seems like it has been so since Bastiat's time. Although it's sad and depressing, it's no wonder nobody knows about him in France.

Bastiat asserted that the only purpose of government is to defend the right of an individual to life, liberty, and property. From this definition, Bastiat concluded that the law cannot defend life, liberty and property if it promotes socialist policies inherently opposed to these very things. In this way, he says, the law is perverted and turned against the thing it is supposed to defend.

So Bastiat was a libertarian and a minarchist.

[...]
Because of his stress on the role of consumer demand in initiating economic progress, Bastiat has been described by Mark Thornton, Thomas DiLorenzo, and other economists as a forerunner of the Austrian School.
[...]
One of Bastiat's most important contributions to the field of economics was his admonition to the effect that good economic decisions can only be made by taking into account the "full picture." That is, economic truths should be arrived at by observing not only the immediate consequences – that is, benefits or liabilities – of an economic decision, but also by examining the long-term consequences. Additionally, one must examine the decision's effect not only on a single group of people (say candlemakers) or a single industry (say candles), but on all people and all industries in the society as a whole. As Bastiat famously put it, an economist must take into account both "What is Seen and What is Not Seen."

Bastiat's "rule" was later expounded and developed by Henry Hazlitt in his work Economics in One Lesson, in which Hazlitt borrowed Bastiat's trenchant "Broken Window Fallacy" and went on to demonstrate how it applies to a wide variety of economic falsehoods.

Frédéric Bastiat, you were born on the 30th June 1801 and passed away on the 24th December 1850, before even turning 50. Your views are still considered today, during the Dark-Ages 2.0, as avant-gardiste. You will not be forgotten.

Keynesians say Germany is the problem. I say: setting aside its socialist policies, Germany is what looks the most like a solution and an example to follow

This is probably one of the most nonsensical I have read in the past several years, and god knows how economists, politicians and journalists parroting the two former have been spreading nonsense during the past many years...

Yet again, the beneficial and good sides of the economy are being blamed by Keynesians bouffons and Monetarist clowns, and of course by ignorant socialists at the government.

Let me put a few bullet points to clarify things before we dive into this absurd report:

• Savings (underconsumption) is the base of any investment.
• Investment, not consumption helps the economy become more productive.
• When an economy is growing, prices fall due to improved productivity.
• When an economy export a lot more than it imports, the balance of payment creates a higher demand of the currency of that economy, which then leads that currency to become more expansive than the ones which are only importing.
• If the trend continues, the exporting country becomes less competitive due to a higher currency, and a new balance is created.
• This currently doesn't happen because central banks prevent exporting countries from having their currencies re-evaluated (like China and Germany).

Conclusion:

• Germany is a great country, and its competitiveness is a major benefit for itself and the rest of the world: the whole planet can enjoy German quality, for low price.
• The issue are Central Bankers and politicians, as usual.
• Another issue is the government educating people with nonsensical theories, and journalists reporting absurd and completely wrong news.

Here the quotes from the infamous Bloomberg report:

Aug. 18 (Bloomberg) -- Germany may have become too competitive for its own good.

How is that possible? How twisted must the mind of the person writing this line be?

With exports driving the fastest economic growth since reunification, consumers are failing to respond in kind as companies from Siemens AG to Daimler AG hold fast to the wage restraint that’s given them an international edge. The result: Europe’s largest economy, four times more reliant on exports than the U.S., is firing on only one cylinder.

There are no issues at all with that: Germans are benefiting from falling prices, and they don't need to have their wages increased, due to productivity growth, and a deflationary environment.

That’s unlikely to change as Germany spearheads a push for European fiscal prudence and ignores calls from investors and the Obama administration to do more to help rebalance the global economy by reviving domestic demand. While Chancellor Angela Merkel’s plan to cut 80 billion euros ($103 billion) of spending helps make government bonds attractive to Pacific Investment Management Co., retail stocks may suffer, and the country’s dependence on exports leaves it vulnerable to a global slowdown.

Thank god they ignore Obama. Obama is an ignorant man and his policies are dangerous and destructive.

“Germany has got to work on its domestic demand,” said Andrew Bosomworth, Munich-based head of portfolio management at Pimco, which oversees the world’s largest mutual fund. “Not everybody can export. Somebody has to import.”

So just let the economy find its new balance instead of interfering with it!

French Finance Minister Christine Lagarde, the U.S. Treasury and billionaire George Soros have already urged Germany to do more to smooth out trade flows they say are still too lopsided and pose an obstacle to a global recovery.

Lagarde and Soros are both socialists. The best thing one can do is follow a path exactly opposing their advices.

“Anybody who believes China is a problem has to believe Germany is a problem,” Nobel Prize-winning economist Joseph Stiglitz said in an interview in Sydney on Aug. 5. Germany should consider more stimulus measures to encourage spending and investment at home, he said.

Stiglitz is a Keynesian Bouffon. The best thing one can do is do the opposite of what he suggests.

Exports are driving Germany’s recovery. The economy grew 2.2 percent in the second quarter from the first, yielding an annualized growth rate of about 9 percent that puts it on a footing with emerging markets like China and India.

The benchmark DAX share index has gained 4.2 percent this year compared with a 0.2 percent decline in the Dow Jones Industrial Average. The DAX was little changed at 6207.71 points today. The yield on the German 30-year bund fell to a record 2.978 percent.

Things are going just fine for Germany. Yet, Socialiasts and Keynesians want to fix it...

Merkel has defended Germany’s right to engage as competitively as possible in international trade.

“We won’t surrender our strengths just because our exports are perhaps purchased more than those of other countries,” she said in parliament in Berlin on March 17. “That would be the wrong European answer to the competitiveness of our continent.”

Of course you shouldn't surrender your strengths!

At the same time, wage restraint and fears over pension security are taking their toll on the aging German consumer.

Since Germany’s reunification in 1990, private consumption has risen 21 percent, reflecting a 21-percent increase in real disposable income. In the U.S., by contrast, income surged 71 percent in the same period and private consumption jumped 75 percent.

Where do they get this? Common sense just makes this statement ridiculous. Who is crumbling under debt? Who cannot afford to pay their mortgage, car loan, credit cards, home equity loans? Is that because they are so rich?

“Private consumption will remain sluggish because Germany hasn’t allowed real disposable income to grow more strongly,” said Andreas Scheuerle, an economist at Dekabank in Frankfurt, who co-authored a book on the 100 most important global economic indicators. “Income and consumption walk hand-in-hand.”

How do you allow real disposable to grow? By decree maybe? Andreas Scheuerle seems to have been enjoying German's strong economy for many years without even knowing it and he's now trying to destroy it.

[...] 

Germany’s critics say Merkel’s refusal to bolster the domestic economy is strangling other countries’ export prospects by damping demand for their goods in a country with 82 million people. Those missives are unfair, said Thomas Mayer, chief economist at Deutsche Bank AG in London.

“We were successful in building one of the most competitive economies in the world, why should we ruin that by pumping up wages now?” he said. “That would increase unemployment. And we shouldn’t punish our exporters, that’s idiotic, they’re our crown jewels.”

Germany’s export strength has its roots in the country’s efforts to rebuild its economy through foreign trade after World War II. While consumer demand soared in the U.S. after troops returned home and the economy boomed, spending in poverty- stricken Germany was weak.

Thank god someone is getting it!

In the 1970s, when Germany’s post-war recovery had faded and unemployment increased, the country responded by cutting costs instead of building a stronger domestic services sector. That approach set the tone for future reforms.

Germany once again squeezed labor costs and boosted productivity when it adopted the euro in 1999, attempting to redress the competitive disadvantage its overvalued Mark had left it with after the reunification boom of the early 1990s.

Meanwhile, economies from Spain to Greece allowed employment costs to rise. Today, those nations are grappling with the biggest budget deficits in the region while Germany enjoys a trade advantage.

The country became 13 percent more competitive against its neighbors in the 11 years through 2009, mirroring similar declines in Spain and Greece, according to a wages-based indicator designed by the European Central Bank. Germany is also reaping the benefits internationally of the euro’s 10 percent decline against the dollar this year.

The obvious is totally invisible to journalists and economists. Who would you rather be? Germany? Or Spain and Greece? Is Germany the problem????

“By cutting its budget deficit and resisting a rise in wages to compensate for a decline in the purchasing power of the euro, Germany is actually making it more difficult for other countries to regain competitiveness,” Soros said in a speech on June 23 at Berlin’s Humboldt University. Germany is “the main protagonist” for Europe’s debt crisis, he added.

Merkel’s four-year plan to cut German spending from next year contrasts with U.S. President Barack Obama, who is urging his Group of 20 counterparts to focus on economic growth, saying restoring order to public finances should come in the “medium term.”

Obama and Soros are both socialists. The best thing one can do is follow a path exactly opposing their advices.

Pimco’s Bosomworth said Germany’s propensity to save, both at a state and household level, make the country’s bonds “attractive in the sense that they’re a safe place to be in a world not so friendly to risky assets.”

“We will see still lower yields on German bunds,” he said. The yield on Germany’s 10-year bund fell to 2.33 percent this week, a record low. U.S. 10-year bonds yield 2.63 percent.

German policy makers say Europe’s debt crisis shows why it would be a mistake to stimulate domestic spending again, and ask why Germany should pick up the bill for other nations’ profligacy.

The obvious is totally invisible to journalists and economists. Who would you rather be? Germany? Or Spain and Greece? Is Germany the problem????

“Attempts to blame Germany for problems in those countries and policy recommendations of symmetrical adjustment needs are questionable,” Bundesbank President Axel Weber said on April 26. “Rather, the adjustment process that Germany underwent in the decade preceding the financial crisis may serve as an example.”

The obvious is totally invisible to journalists and economists. Who would you rather be? Germany? Or Spain and Greece? Is Germany the problem????

Update: I just found another article I had saved a while ago, containing the same nonsensical rubbish:

July 28 (Bloomberg) -- Germany’s “short-work” policy showed the world how to survive a recession without losing jobs. Now it’s time to pay the price.

The country’s social welfare-driven economic model, which the International Monetary Fund says is helping to preserve labor-market rigidity, has sheltered it from the worst of the financial crisis. The cost is that as the economy recovers, hiring won’t pick up as much as it does in countries such as the U.S. or the U.K., posing a risk to growth in a nation that needs to ignite household spending.

Remains to see any "hiring" in the UK and US. There's still a lot of "firing" going on and these economies are still falling toward the abyss. Yet, it seems like they are praised for their greatness...

[...]
Under the so-called short-work plan, or Kurzarbeit in German, companies can temporarily move employees onto shorter working weeks to reduce costs during periods of weak demand. They pay only for the hours worked and the government provides up to 67 percent of the remaining wage.

The program supported up to 1.5 million employees at some 63,000 companies and saved as many as 478,251 jobs last year, according to the Federal Labor Agency. In March this year, the latest month for which data are available, some 693,000 people worked fewer hours. The government extended the payment of short-work benefits to a maximum of two years in May 2009. Before the crisis, it was limited to six months.

The idea dates back to 1910, when the government compensated workers who were put on shorter hours in the potash and fertilizer industry during an earnings slump. In 1924, when unemployment climbed to 11 percent, the government introduced nationwide short-work policies similar to those used today. A quarter of the German workforce was enrolled in the program at the time.

This is obviously a bad idea. But it's way better than what we see in France... And it's direct subsidies to the industry, so less interfering with the economy than when the government decides which sector needs to expand or what banks and industries have to do...

[...]
“Companies have replaced rigidly agreed working hours with flexible labor schemes that allow them to breathe with the economy,” said Joerg Kraemer, chief economist at Commerzbank AG in Frankfurt. “Germany’s labor market is less inflexible than commonly thought.”

Yes, indeed.

“It was our top priority to keep our core workforce and preserve knowledge and experience for the next upswing,” said Trumpf Executive Vice President Gerhard Ruebling. “We had layoffs in foreign markets with less flexibility, such as Spain, Japan, Poland and partly also in the U.S.”

This is a safe and sound policy.

[...] 

“Gross domestic product in Germany can expand by more than 7 percent without any increase in employment, if hours worked per employee and hourly productivity were to rise back to their pre-crisis levels,” OECD economists said in a report on July 7. “Achieving GDP growth on this scale is expected to take several years, and thus it is unlikely that the steady decline in the unemployment rate during recent months will continue through the second half of 2010.”

That’s a challenge for Germany, whose economic Achilles Heel has long been the reticence of its consumers to spend. Even as exports boom, the Bundesbank forecasts GDP will rise 1.9 percent this year and 1.4 percent next.

 When there's no firing, there's far less need for hiring. And we'll see what the future holds for Germany. Odds are highly biases in favor of Germany: as usual, the IMF and OECD are proven wrong. Of course, one has first to believe that the economy will improve on the short term. That's highly unlikely.

Jim Rickards presents austrian economics views on CNBC

It's very refreshing to hear someone who's making sense on CNBC. It's the case of Jim Rickards — someone I hadn't heard before. He explains, from a typical Austrian Economics point of view, how the government and private interests are destroying the economy with their bailouts and stimulus plans.

I'm glad to hear him compare 2010 with 1930, because it's exactly what's unfolding for us, in a far bigger scale — The Greater Depression.

Finally Jim Rickards talks about the depression of 1920, and I'm pretty sure that he founds his ideas and inspirations in the great book titled Meltdown written by Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse by Tom Woods.

Here's the video on CNBC, Markets in Wonderland:

Why is Deflation Good?

[Please note there's a follow up to this post: Why Is Deflation Good, Part 2]

CalculatedRisk, the always Keynersian blogger, spotted this post from Krugman, the Keynesian Bouffon  — who also happen to be a Nobel Laureate — who writes about Why Is Deflation Bad?

There are actually three different reasons to worry about deflation, two on the demand side and one on the supply side.

So first of all: when people expect falling prices, they become less willing to spend, and in particular less willing to borrow. ....

A second effect: even aside from expectations of future deflation, falling prices worsen the position of debtors, by increasing the real burden of their debts. Now, you might think this is a zero-sum affair, since creditors experience a corresponding gain. But as Irving Fisher pointed out long ago (pdf), debtors are likely to be forced to cut their spending when their debt burden rises, while creditors aren’t likely to increase their spending by the same amount. ...

Finally, in a deflationary economy, wages as well as prices often have to fall – and it’s a fact of life that it’s very hard to cut nominal wages — there’s downward nominal wage rigidity. 

Debunking Krugman's ridiculous statements:
1- People expecting price to fall become less willing to spend and less willing to borrow.

First of all, let's assume that this is true. Can anyone think it's bad for people without a job and with credit cards loaded to their ceiling on top of several hundreds of thousands of dollars mortgages to reduce spending and borrowing?

Ok, now, as usual, if you want to prove something, you need to prove that it works in 100% of the different scenarii. If you want to disprove something, you just have to find a single example where the statement is invalid. This is causality, which is beyond understanding to 99.9% of economists.
To disprove the fact that falling prices do not prevent people from buying, we can take the example of computers and mobile phones. Prices have been falling for as far as I can remember. Yet sales have been steadily going up.

Finally, here's the economics facts that Keynesians never seem to understand: In a growing economy, by definition, prices tend to fall due to improved productivity. That's how our world was since the creation of money until the creation of central banking. As far as I can remember, in the early 1910s, people were not feeding off worms and leaving in caves...

Our inflationary society is the historical exception. Our inflationary society is unsustainable. Debt cannot grow to infinity. At some point, the limit will be reached, and there's all the reasons to believe that we are at this point. Unsustainable debt will be defaulted, directly by default, or through restructuration.

2 - Falling prices worsen the position of debtors

What Keynesians and socialists do not understand, is that the lender and the debtor have contract binding them to each other. The Lender has lent the money knowing the risks. The Borrower has borrowed in the same circumstances. If the Lender was reckless, and took too much risk, he will lose money due to defaults. This is what interest rates are: the higher the risk the higher the rate.

One can also wonder why should the government be stealing from the lender through inflation to subsidize the borrower.

Side note: I will make a post about Irving Fisher, who's one of the economists which has the best record of completely wrong calls and who also has a complete lack of integrity. I can't believe his name is not associated with his lies and corrupt actions.

3- Downward nominal wage rigidity is an issue


Downward nominal wage rigidity has been created due to long term inflationary policies and a constant brainwashing at schools about why inflation is good and why the government is here to help. In a normal society, where prices generally fall, people would think the opposite way from our current society which is an anomaly and will disappear soon.

Krugman is once again inverting cause and consequence here...

Conclusion: Krugman is wrong on all accounts, as usual with Keynesian economists. I hope this will help you understand why, and help you get out of this bubble world we all have been trapped into.
Keynesian Bouffons are evil and dangerous. Hopefully, Keynesianism will disappear at the same as the collapse of this debt based society and we shall start on sound currency again.

[Update 2011-02-11] Mish has a great post about deflation in Japan: 

Japan Learns to Live with Deflation (If Only Analysts Could Figure Out How)

[Please note there's a follow up to this post: Why Is Deflation Good, Part 2]

Some reading recommendations via Amazon.com:

Less Than Zero: The Case for a Falling Price Level in a Growing Economy:

The Great Depression Ahead:

The Great Depression of Debt:

Mish interview on TechTicker on stimulus and the economy

Short post as I'm away on a long week-end.
Three segments for this video interview.

1. Stimulus will fail
2. Too much optimism in the markets
3. Too much optimism in the economy: there are still no jobs and retail is depressed

The 3rd video is not embeddable so you can watch it here.