Perspectives on the global economic changes

TSJones · Post by **TSJones** » 19 Jul 2014 10:09

Christopher Sidor wrote:Well they are undergoing a shale gas revolution. They are also looking at ways to reduce their dependency on hydro carbon consider the incipient hydrogen revolution and the hybrid cum electric revolution taking place in USA. If USA gets serious and targets to replace 30% of its current electricity production by Renewables, like Germans have, then the gig is up as far as hydro carbon industry is concerned.

Funny part India has not set such a target for itself considering the mammoth wind power potential of Bay of Bengal, the solar power potential and the tidal power potential of Bay of Bengal. This along with the 3 stage thorium cycle should be more than enough to eliminate our dependency on hydro carbons completely for electricity generation

There are numerous options that the US hasn't even seriously given thought too because special interest groups like the coal and oil industry are so very powerful in the political process. The climate change deniers are just one manifestation. There are others.

Austin · Post by **Austin** » 19 Jul 2014 10:26

From what I read the Shale Gas in US are being extracted at loss and all the companies that are in Shale Business are in Red.

Indeed Exxon chief had something like we have to sell our shirts.

I think the shale industry is doing well due to QE once cheap credit dissapears , supporting an industry already in red would be more difficult.

Also recent reports of rise in Earthquakes where shale work is going on has lead to environmental concerns

Christopher Sidor · Post by **Christopher Sidor** » 20 Jul 2014 23:18

This is really going OT but here it goes, we should have a target of having minimum 30% of all of our additional electricity generation capacity being added every year by Renewables, i.e. solar, bio gas, wind, tidal and if possible geo-thermal. 30% by nuclear and the remaining by hydrocarbon and solar. This way we can reduce our import bill substantially. The role of Hydrocarbons in supplying our electricity needs should be capped at 7% at the max, lower if possible.

Virupaksha · Post by **Virupaksha** » 20 Jul 2014 23:47

Christopher Sidor wrote:This is really going OT but here it goes, we should have a target of having minimum 30% of all of our additional electricity generation capacity being added every year by Renewables, i.e. solar, bio gas, wind, tidal and if possible geo-thermal. 30% by nuclear and the remaining by hydrocarbon and solar. This way we can reduce our import bill substantially. The role of Hydrocarbons in supplying our electricity needs should be capped at 7% at the max, lower if possible.

The simple problem is money!!

coal is the cheapest- works out to around 2Rs per unit. Hydro though renewable requires huge number of people relocated. Issues with nuclear needs no elobaration- kudamkulam.
.
Among others the cheapest is solar- they right now are at 8 Rs per unit with huge subsidies. And except for oil, coal, gas & to a very very small extent hydro - none of these are suitable for base load - which for a electricity deficit country means all power.

Until the cost matrix works out, expect coal to be the base. The best in my view is nuclear.

chanakyaa · Post by **chanakyaa** » 21 Jul 2014 06:40

In fact it might be nearer that we thought. By the end of the year 2014 the US Fed will finally end its QE program. The US Fed believes that the recovery has significant wings. The US Fed has said it will keep interest rates low for foreseeable future unless off-course the inflation gene goes berserk. And it is truly remarkable that in spite of all the cash infusion that US Fed did in the past few years the inflation as measured by it has remained stubbornly below 2%. So 2015 will probably be the year to watch out for. Or if not 2015 then at least 2016. This is assuming that the next recession will originate from US.

It just might originate from a point somewhere in Western Pacific.

Disagree. Govt. reported inflation numbers are flat out lie. When I calculated it for my household, the number was higher single digit for last several years. It is a perfect way of taxing citizens in the form of forcing them to accept lower savings rate (nominal rate=real rate+inflation), and passing on the savings in terms of higher inflation to corporations (sort of *subsidy*); hoping revival of the corporate sector, growth in jobs and consumer demand. Imagine what would happen to the economic recovery if govts started telling the truth about real inflation numbers, while printing trillions of currency. Wouldn't it be nice, if one could print unlimited quantities of money without inflation? MBS purchases, part of QE, have reduced as refinance wave slowed.

Austin · Post by **Austin** » 21 Jul 2014 13:45

Krugman: It's starting to look like a recovery

http://globalpublicsquare.blogs.cnn.com ... -recovery/

TSJones · Post by **TSJones** » 22 Jul 2014 11:09

Argentine default?

http://finance.yahoo.com/news/least-one ... 25945.html

As it stands now, if Argentina doesn't pay a group of hedge fund managers over $1.3 billion by July 30, the country could go into default.

For the Republic, that means money printing, inflation, and general disaster.

For investors, like Michael Novogratz of Fortress Investments, that means buying, buying, buying.

"If something doesn't happen and there's a default we're going to see a sell-off," said Novogratz at the CNBC/Institutional Investor Delivering Alpha conference on Wednesday, "but that's an opportunity for capital coming in."

svinayak · Post by **svinayak** » 22 Jul 2014 18:03

The financial forecast is sunny and share

Everyone’s heard of the underground economy known as the black market and its slightly less shady cousin, the gray market. But today’s alternative economies are putting a positive spin on the exchange of goods and services:

• The Sharing Economy (aka the Peer Economy) lets people earn money by renting a spare room, car or other valuable possession (and even time) to strangers. This includes Airbnb, Uber, and Tesla’s open source patents.

• Collaborative Consumption puts buyers and sellers in direct contact via sites like eBay, Craigslist and Krrb.

• The Mesh Economy delivers value via technology. For instance, the Khan Academy offers free world-class education to anyone with access to the Internet. Affordable 3D printing can produce products anywhere.

• The Gift Economy lets people fund start-ups (KickStarter, IndieGoGo), lend money (Kiva), give away unwanted items (Freecycle), and even save lives (blood, bone marrow and organ donations).

• The Circular Economy seeks ways of retaining more of the value of the material, energy, and labor invested in manufacturing. How? By recycling cars, appliances, electronics, and more.

Neshant · Post by **Neshant** » 26 Jul 2014 20:23

chanakyaa · Post by **chanakyaa** » 27 Jul 2014 07:04

http://www.mining.com/this-aussie-town- ... old-75281/

This Aussie town lets people pay for a hotel room with gold

The hotel will take "anything" as payment, as far as it is gold. (Image courtesy of the Rydges Resort and Spa Kalgoorlie).

A hotel in the Wild West mining town of Kalgoorlie, in West Australia, is now allowing travellers to settle bills for accommodation with gold nuggets, bars, rings and “anything” as long as it's the shiny yellow metal.

The idea, reports ABC, came up in light of the upcoming Diggers and Dealers mining conference, to take place in Kalgoorlie from August 4 to 6, but the resort manager Nicholas Parkinson-Bates said he plans to let people pay with gold all year round.

Everyone here knows the value of gold – it's sort of a way of life in Kalgoorlie

"Everyone here knows the value of gold – it's sort of a way of life in Kalgoorlie," he was quoted as saying.

According to the manager of the Rydges Resort and Spa, located 600km east of Perth, trading in gold was standard practice in Kalgoorlie-Boulder in the late 1800s and there are still a few businesses that accept the precious metal as payment.

“People buy cars in gold here (…) I've also heard of some other types of businesses even doctors and stuff who have been accepting gold," Parkinson-Bates told AAP.

Transactions will be carried out through a local buyer with connections to Perth Mint.

Parkinson-Bates noted he would still take a credit card to hold for any extras the guests may spend.

So far no one has paid the hotel in gold yet.

Neshant · Post by **Neshant** » 27 Jul 2014 08:05

It should be the opposite way.

If gold is real money, it will not be spent. Real money disappears into vaults and gets put under lock & key. What does get spent is the 'fake money' presumably paper money. In general over a period of time, people will hang onto the good stuff and spend the bad stuff into circulation.

Its called Gresham's Law.

Gresham's law is an economic principle that states: "When a government overvalues one type of money and undervalues another, the undervalued money will leave the country or disappear from circulation into hoards, while the overvalued money will flood into circulation."[1] It is commonly stated as: "Bad money drives out good".

Austin · Post by **Austin** » 27 Jul 2014 11:21

Keiser Report: Dumb Money

A double header discussing the ‘dumb money’ piling into markets just as the Spectator’s cover story reads: “The Next Crash: We could be on the brink of another financial crisis.” We read through the piece in shock at the obvious signs of misallocation of wealth while chasing dumb bubbles – including a P/E ratio now at 25.6 compared to a historic norm of 16.5.

vic · Post by **vic** » 27 Jul 2014 21:37

I don't think it is dumb money. It may be fallout of rich getting so rich, they have nowhere else to put money.

Austin · Post by **Austin** » 28 Jul 2014 15:40

The Spectator

Think we've done enough to avoid another financial crisis? Think again

Austin · Post by **Austin** » 28 Jul 2014 17:17

BRICS Bank: The New Kid on the Block

Austin · Post by **Austin** » 28 Jul 2014 18:50

John Hussman: "Make No Mistake - This Is An Equity Bubble, And A Highly Advanced One"

TSJones · Post by **TSJones** » 28 Jul 2014 19:51

Austin wrote:John Hussman: "Make No Mistake - This Is An Equity Bubble, And A Highly Advanced One"

.........geez who woulda thunk it?

Austin · Post by **Austin** » 29 Jul 2014 10:02

Marc Faber Responds To CNBC Mockery, Asks "How Has CNBC's Portfolio Done Since 1999?"

Having provided his clarifying perspective on why the markets are extremely fragile and due for a 20-30% correction, Marc Faber was assaulted by CNBC's Scott Wapner reading off a litany of recent calls that have not worked out as planned. His response was notable: "I started to work in 1970, and over that career, somehow, somewhere, I must have made some right calls; otherwise I wouldn't be in business." What CNBC then edited out of the transcript was Faber pointing out his 22% annualized return in his publicly-viewable funds since then and asking - sounding somewhat frustrated at the anchor's mockery (and background snickers) - "I wonder what the CNBC portfolio would look like since 1999?" The response: silence.

It’s pointless to talk to Fed members about economics because they are academics who believe in money printing. Some of them believe they didn’t print enough, and so with these kinds of people, it is like running to the pope.

What do you want to tell them? It’s pointless to spend time with these people trying to convince them that their monetary policies have been very destructive.

They bailed out Mexico in 1994, and there was an EM bubble until 1997. They then bailed out LTCM (Long-Term Capital Management), which gave a signal to leverage up...then they had the Nasdaq bubble, then they printed again and had the housing bubble.

David Hume and Irving Fisher said bubbles are very destructive to the majority of market participants. They lose money, the minority makes money. The Fed doesn’t see it that way so it is pointless to talk to these people

Austin · Post by **Austin** » 30 Jul 2014 10:04

Currency Wars Intensify As Russia Buys 18.6 Tonnes Of Gold In June

TSJones · Post by **TSJones** » 30 Jul 2014 10:29

^^^^IIRC Russia is a net producer of gold. If they are buying locally then they are injecting cash into their economy. If they are buying globally they hedging their currency by taking advantage of their currency's international market worth. They could also be using up foreign exchange credit. Or a combination there of. Just depends. By US presidential executive order yesterday one third of all Russian banks have been excluded from US dollar transactions.

Austin · Post by **Austin** » 30 Jul 2014 13:05

Yes thats true , I suspect in the near future Russia might also allow trading of its Oil/Gas in Renminbi besides USD and Euro and its gold purchase will go up.

Austin · Post by **Austin** » 30 Jul 2014 13:06

Watch the video in the link

Jim Grant: "Gold Is The Ultimate Inoculation Against Harebrained Central Bankers"

Austin · Post by **Austin** » 30 Jul 2014 19:03

Good Q2 GDP for US Economy

Q2 GDP Surges 4%, Beats Estimates Driven By Inventories, Fixed Investment Spike; Historical Data Revised

Moments ago the Commerce department reported Q2 GDP which blew estimates out of the water, printing at 4.0%, above the declining 3.0% consensus, as a result of a surge in Inventories and Fixed Investment, both of which added over 2.5% of the total print, while exports added another 1.23% to the GDP number. The full breakdown by component is shown below.

Here are some additional details via Bloomberg:

2Q personal consumption up 2.5% vs est. up 1.9% (range 1.5%-2.9%); prior revised to 1.2% from 1%
Core PCE q/q 2% vs est. 1.9% (range 1.4%-2.3%)
Gross private investment up 17% in 2Q after falling 6.9% in 1Q
Residential up 7.5% after falling 5.3%
Purchases of durable goods jumped 14%, most since 3Q 2009
Corporate spending up 5.9% vs little changed q/q
Inventory accumulation added 1.7ppts to GDP

Austin · Post by **Austin** » 30 Jul 2014 19:07

Greenspan Fears "False Dawn" In US Economy, Warns Of "Equity Correction At Some Point"

Greenspan has once again weighed in:

*GREENSPAN SAYS 'KEY QUESTION' IS WHETHER U.S. FACES FALSE DAWN
*GREENSPAN PREDICTS AT SOME POINT EQUITIES TO HAVE CORRECTION

Although Greenspan declined to second-guess the Fed, he sees a problem moving toward "normalized" policy for his descendants.

Speaking on Bloomberg TV, Greenspan has lots to say...

*GREENSPAN SAYS `OPEN QUESTION' WHETHER INFLATION WILL SURPRISE
*GREENSPAN DECLINES TO `SECOND GUESS THE FED'
*GREENSPAN SEES `A LOT OF UNCERTAINTY' ON ECONOMY
*GREENSPAN SAYS `WE HAVE A LOT OF UNCERTAINTY OUT THERE'
*GREENSPAN SAYS HE'S CONCERNED BY SLOWER OUTPUT PER HOUR
*GREENSPAN SAYS PRODUCTIVITY WILL HAVE TROUBLE ACCELERATING
*GREENSPAN SEES PROBLEM MOVING TOWARD `NORMALIZED' POLICY

He is also an oil analyst...

*GREENSPAN SAYS OIL MARKET HAS EXCESS CAPACITY, SLACK
*GREENSPAN: WITHOUT MIDDLE EAST TENSION OIL PRICES WOULD FALL
*GREENSPAN: CRUDE WOULD BE $15-$20 LOWER IF NOT FOR MIDEAST WOES

And warns of US fiscal problems...

*GREENSPAN SAYS U.S. LACKS `FISCAL RESOURCES'
*GREENSPAN SAYS U.S. HAS `NO WAY TO FIND NEW REVENUES'
*GREENSPAN SAYS U.S. `RUNNING OUT OF BUFFER IN ECONOMY'
*GREENSPAN SAYS FISCAL POLICY MAY PUT STATUS OF DOLLAR AT RISK

And then there's this...

*GREENSPAN SAYS DOLLAR HELD `IN EXTRAORDINARY ESTEEM'

Austin · Post by **Austin** » 30 Jul 2014 19:45

This should be significant for both countries

Russia and India will pay in national currencies

Russia and India have set up a working group to develop a mechanism for the use of national currencies in mutual settlements. This was announced by the CBR after the meeting, first deputy chairman of Bank of Russia Xenia Yudayeva and executive director of the Reserve Bank of India Govindarazhdana Padmanabhan, reports " Interfax ".

The communication controller noted that the decision to establish a working group to develop such a mechanism is due to the urgency of this issue and the interest from the commercial structures of the two countries.

The group will include representatives of banks and, if necessary, the ministries and departments of the two countries to coordinate its activities will be central banks of Russia and India.

In May it was reported that Russia and China are going to increase the amount of direct payments in national currencies in mutual trade. In a joint statement on the results of the Russian-Chinese summit talks noted that the increase of direct payments in the national currencies of Russia and China will affect not only trade but also investment and lending.

Countries intend to stimulate the growth of mutual investments, including in transport infrastructure, the development of mineral deposits, housing economy in Russia.

Neshant · Post by **Neshant** » 30 Jul 2014 19:57

Neither the stock nor the bond market will crash as both are actively rigged by the Federal Reserve.

The crash will thus manifest in an area the Federal Reserve cannot control.

As always it will take everyone by surprise when it happens.

Christopher Sidor · Post by **Christopher Sidor** » 30 Jul 2014 20:11

TSJones wrote:^^^^IIRC Russia is a net producer of gold. If they are buying locally then they are injecting cash into their economy. If they are buying globally they hedging their currency by taking advantage of their currency's international market worth. They could also be using up foreign exchange credit. Or a combination there of. Just depends. By US presidential executive order yesterday one third of all Russian banks have been excluded from US dollar transactions.

The tendency of US to use its ultimate weapon, exclusion from the dollar trade is going to have repercussions sooner than later. And this will be one of the reason.

Russia might reduce its dependence on Dollar but where can it go? Euro and Pound/Sterling are out of question because the Europeans and Britishers themselves have sanctions against the Russians. Renminbi maybe, but the international market for the same is not big enough. Yen, nah, Japan is too much an American camp follower, more than the Europeans.

Russia might go for bilateral swap with India like the ancient rupee-rouble trade but well that is not too much. India's exports to Russia for the previous financial year, i.e. 2013-14 is some 2.1 Billion USD. India's imports some 3.8 billion USD worth of goods from Russia. The total trade is some 5.9-6.0 Billion USD. A drop in the ocean.

Moreover Russian economy is dependent on the oil and gas. The earnings from this are doled out to the public. If the US and Europeans hit Russia where it hurts, i.e. its oil and gas sector then the gig would be up. But the problem is that Europeans will not do that. Not with their 30% dependence on Russian Oil and Gas. With the existing embargo against Iranian crude and gas there is simply no way to replace the Russian Gazprom. In the future Iranian embargo might be lifted, and Europe might diversify but we are talking at least about a decade before the switch from Russia to Iran plus Turkmenistan can happen. Gazprom is truly the monster in the room as far as Europeans are concerned.

Austin · Post by **Austin** » 30 Jul 2014 22:42

Neshant wrote:Neither the stock nor the bond market will crash as both are actively rigged by the Federal Reserve.

The crash will thus manifest in an area the Federal Reserve cannot control.

As always it will take everyone by surprise when it happens.

Or lets say the Fed or Power that Be Thinks they can control the Stock and Bond Market

TSJones · Post by **TSJones** » 30 Jul 2014 22:47

Christopher Sidor wrote:
TSJones wrote:^^^^IIRC Russia is a net producer of gold. If they are buying locally then they are injecting cash into their economy. If they are buying globally they hedging their currency by taking advantage of their currency's international market worth. They could also be using up foreign exchange credit. Or a combination there of. Just depends. By US presidential executive order yesterday one third of all Russian banks have been excluded from US dollar transactions.
The tendency of US to use its ultimate weapon, exclusion from the dollar trade is going to have repercussions sooner than later. And this will be one of the reason.

Russia might reduce its dependence on Dollar but where can it go? Euro and Pound/Sterling are out of question because the Europeans and Britishers themselves have sanctions against the Russians. Renminbi maybe, but the international market for the same is not big enough. Yen, nah, Japan is too much an American camp follower, more than the Europeans.

Russia might go for bilateral swap with India like the ancient rupee-rouble trade but well that is not too much. India's exports to Russia for the previous financial year, i.e. 2013-14 is some 2.1 Billion USD. India's imports some 3.8 billion USD worth of goods from Russia. The total trade is some 5.9-6.0 Billion USD. A drop in the ocean.

Moreover Russian economy is dependent on the oil and gas. The earnings from this are doled out to the public. If the US and Europeans hit Russia where it hurts, i.e. its oil and gas sector then the gig would be up. But the problem is that Europeans will not do that. Not with their 30% dependence on Russian Oil and Gas. With the existing embargo against Iranian crude and gas there is simply no way to replace the Russian Gazprom. In the future Iranian embargo might be lifted, and Europe might diversify but we are talking at least about a decade before the switch from Russia to Iran plus Turkmenistan can happen. Gazprom is truly the monster in the room as far as Europeans are concerned.

Time will tell. Also embargoed by executive order are all deep drilling technology and fracking tech. This, after exxon/mobile signed a deal of the century with Russia to develop hard to drill oil off shore. Exxon is a major political player in the US. We'll see if the embargo holds up.

Austin · Post by **Austin** » 30 Jul 2014 22:53

I read the current Exxon deal with Rosneft has been exempted from Sanctions that includes Tight Oil.

Yes me too think Sanction wont hold for long Exxon and Rosneft are big players in their own country and Economics would be eventually triumphed over Geopolitics.

TSJones · Post by **TSJones** » 30 Jul 2014 22:54

Neshant wrote:Neither the stock nor the bond market will crash as both are actively rigged by the Federal Reserve.

The crash will thus manifest in an area the Federal Reserve cannot control.

As always it will take everyone by surprise when it happens.

if a trading house in the US has been declared a systemically important financial institution (SIFI) then it will answer to the federal reserve. these changes were made in the last several years. the fed is now the big kahuna in the US economy.

TSJones · Post by **TSJones** » 30 Jul 2014 22:55

Austin wrote:I read the current Exxon deal with Rosneft has been exempted from Sanctions that includes Tight Oil.

maybe. it wouldn't surprise me. extremely powerful.

Austin · Post by **Austin** » 30 Jul 2014 23:03

Fed Tapers Another $10 Billion, Raises Inflation Concerns, Plosser Dissents - Statement Redline

As expected, The FOMC continued its taper pace at $10bn but what was supposed to be a 'steady as she goes' statement had a few surprises:

*PLOSSER DISSENTS ON DECISION, CITING GUIDANCE ON RATE OUTLOOK
*FOMC SEES SIGNIFICANT UNDERUTILIZATION OF LABOR RESOURCES
*FOMC: ODDS OF PERSISTENT SUB-2% INFLATION `DIMINISHED SOMEWHAT'

Austin · Post by **Austin** » 30 Jul 2014 23:04

Six Current Economic Myths And Realities

The following are six of the most prevalent economic myths that appear time and again in the mainstream media. I will give a brief description of each and a brief description of the economic reality, as seen from an Austrian perspective.

Myth #1: Increased money leads to economic prosperity.

This Keynesian myth postulates that increasing aggregate demand through increasing the money supply will lead to more spending, higher employment, increased production, and a higher overall standard of living.

The reality is that an increase in money leads to malinvestment. The time structure of production is thrown into disequilibrium by encouraging investment in projects more remotely removed in time from final consumption. There are insufficient resources in the economy for the profitable completion of all projects, since individual time preference is unchanged, meaning that there is no increase in savings. When prices rise, due to this unchanged time preference, these projects will be liquidated, revealing the loss of capital. Production will be lower than otherwise. Unemployment will increase while workers adapt to economic reality.

Myth #2: Manipulating interest rates leads to economic prosperity.

This is a corollary of Myth #1 but deserves its own discussion. In the Keynesian view lower interest rates always are beneficial; therefore, it is the proper role of the monetary authorities to drive down the interest rate via open market operations.

The reality is that interest rates are a product of the market, reflecting the interplay of the demand for loanable funds and the availability of loanable funds. Historically high or low interest rates can have multiple causes, none of which are prima facie good or bad. For example, rates can be high because entrepreneurs have highly profitable opportunities due to reduced regulation or a breakthrough in technology. If time preference is unchanged and, therefore, savings is unchanged, the interest rate rises and allocates the scarce savings to the most highly desired ends. Or, interest rates can be low due to a change in time preference that leads to increased savings. If entrepreneurial opportunities are unchanged, interest rates will fall. Likewise, demand for loans can be high while savings is high or vice versa. Manipulating the interest rate truly is an act of fantasy by the monetary authorities, who believe that they can know the impact of billions of ever changing decisions affecting the supply of money and demand for money.

Myth #3: Lowering the foreign exchange rate of the currency, to give more local currency in exchange for foreign currency, will lead to an export driven economic recovery.

The reality is that no country can force another to subsidize its economy by manipulating its exchange rate. Giving more local currency subsidizes foreign buyers in the near term, but it creates higher prices in the domestic economy later. Early receivers of the new money–exporters, their employees, their suppliers, etc.–benefit by a transfer of wealth from later receivers of the new money. But as the price level rises from the increase in the domestic money supply, the benefit to foreign buyers evaporates. Then the exporters demand that the monetary authorities conduct another round of exchange rate interventions. The big winners are foreign buyers. Intermediate winners are exporters, but their advantage ends eventually. The losers are non-exporters, especially retired people.

Myth #4: Money expansion will not cause higher prices.

Currently the U.S. government is engaged in a propaganda campaign to convince us that it can both monetize the government’s debt and engage in quantitative easing without causing a rising price level.

The reality is that there is no escaping the fundamentals of economic law in the monetary sphere. Ludwig von Mises and many excellent Austrian economists since, such as Murray N. Rothbard, have explained that the relationship between an increase in money and an increase in the price level is not a mechanical one. Nevertheless, even Mises explained that the basis of all monetary theory is the “Quantity Theory of Money”, that states that there is a positive relationship between the money supply and the price level. In other words, more money eventually leads to higher prices and vice versa. What causes all the confusion is that the price level actually can fall even when the money supply expands, if all of the new money plus some of the existing money stock are hoarded. Mises call this the first stage of the three stages of inflation. The public expects prices to remain the same or even fall, so they do not increase their spending even when the money supply expands. Eventually, though, the public comes to understand that the money supply will keep increasing and that prices will not return to some previous golden age. At this point the public will begin to increase spending to buy at lower prices today rather than higher prices tomorrow. The price level will rise even if the money supply shrinks, because the public spends previously hoarded money faster. This is Mises’ phase two of inflation. In the final stage money loses its value, as the public spends it as fast as possible. This is Mises’ stage three, the “crackup boom”.

Myth #5: More, better, and more vigorously enforced regulations can prevent loan and investment losses.

The politicians and their regulatory agencies believe that prior monetary crises were caused by a combination of stupidity, greed, and criminality by bankers and sellers of investments.

The reality is that no army of regulators armed with the most modern analytical tools and the most powerful means of regulatory enforcement can prevent malinvestment from money supply expansion. The monetary expansion encourages longer term projects for which the cost of money is a major factor in forecasting success. But without an increase in real savings, insufficient resources will ensure that many of these projects will never earn a profit and must be liquidated. Bank and investor losses are inescapable.

Myth #6: Government can prevent hyperinflation.

This is a corollary of Myth #4. If our monetary masters believe that money expansion will not cause higher prices, then they believe that they can prevent hyperinflation; i.e., the total destruction of the monetary unit as a universal medium of exchange.

The reality is that hyperinflation is cause by a loss of confidence in the money unit, which the monetary authorities may be incapable of preventing. Once the panic starts, the demand by the public to hold money falls to zero. Prices skyrocket. Even if the monetary authorities got religion at this point and froze the money supply, the panic will run its course. No one will want to be the last holding worthless paper. More likely, though, the monetary authorities will aid and abet the panic, even if unwittingly, due to political pressure to increase payments to powerful domestic constituencies, such as retirees, the military, the public safety sector, government contractors, etc. This was the case in Revolutionary France, Weimar Germany, and modern day Zimbabwe. The mindset of today’s money masters seems little more advanced.

Conclusion

I encourage Austrian economists to point out these common myths whenever encountered. I have had success writing letters-to-the-editor of major newspapers. Their editors often seem genuinely pleased to receive a polite letter pointing out the Austrian view. Perhaps it is simply a case of controversy selling newspapers. Furthermore, much business writing often has imbedded Keynesian assumptions that drive the narrative toward government intervention. Most business reporters have no economic training, so Austrians should politely point out these errors, too.

Austin · Post by **Austin** » 31 Jul 2014 09:48

Interesting Read

Peter Schiff And Doug Casey On The "Real" State Of The Economy

ArmenT · Post by **ArmenT** » 31 Jul 2014 10:44

From the BBC:
Argentina defaults for second time

Argentina has defaulted on its debt - for the second time in 13 years - after last-minute talks in New York with a group of bond-holders ended in failure.

Interesting times ahead...

Neshant · Post by **Neshant** » 31 Jul 2014 13:34

If they are going to default, they should do it on all debt in one go.

Bond holders are going to get nothing.

panduranghari · Post by **panduranghari** » 31 Jul 2014 17:16

Austin wrote:Currency Wars Intensify As Russia Buys 18.6 Tonnes Of Gold In June

Think now, if you are a person (or country) of "great worth" is it not better to acquire gold over years, at better prices? If you are one person (or country) of "small worth", can you not follow in the footsteps of giants? I tell you, it is an easy path to follow!

Two roads diverged in a yellow wood,
And sorry I could not travel both
And be one traveler, long I stood
And looked down one as far as I could
To where it bent in the undergrowth;

[...]

I shall be telling this with a sigh
Somewhere ages and ages hence:
Two roads diverged in a wood, and I--
I took the one less traveled by,
And that has made all the difference.

--Robert Frost (1874-1963)

panduranghari · Post by **panduranghari** » 31 Jul 2014 17:18

Neshant wrote:Neither the stock nor the bond market will crash as both are actively rigged by the Federal Reserve.

The crash will thus manifest in an area the Federal Reserve cannot control.

As always it will take everyone by surprise when it happens.

Derivatives? The 1000 Trillion dollar Derivative market?

Suraj · Post by **Suraj** » 01 Aug 2014 01:05

It's hard to call the Argentine default a default. Technically they did not run out of money to pay the hedge funds. They simply refused to do so. There was opportunism on both sides. The hedge funds saw one in the existence of that distressed debt that they bought on the cheap. The Argentines made a deal with most of their creditors later to pay N cents on the dollar on that debt, and the hedge funds refused that deal, demanding full payment. It's a good opportunistic tactic... except they were taking on a nation state and not on some corporate entity.

There exists a clause in the bond offering called the RUFO (rights upon future offering) clause, which means that before Dec 31st, if Argentina offered better terms to any of the bondholders, everyone is entitled to those terms too. This means that currently they have many creditors ready to accept N cents per dollar. But if they agreed to pay out $1/$1 to the hedge funds, they will have to pay those terms to everyone else too. This would cost them $15 billion, half their forex reserves.

Argentina simply decided that the easier option would be to refuse to pay at all, thereby turning those who made a deal against the hedge funds who refused and sought full repayment on the distressed debt they bought cheap. At most, it will cost them a more limited amount, depending on how much the hedge funds can convince the judge to freeze in Argentine assets abroad. I support the Argentine action. They are certainly not without blame, but if placed in a position where the current choices are presented, what they did is best for themselves.

This is one more reason why India should never keep its gold in NY or abroad. In a situation like this, that gold comes within the jurisdiction of US law, even if it is 'our gold'. In effect it is our gold lying within their jurisdiction to seize.