Ron Paul questioned Treasury Secretary Timothy Geithner today on Capitol Hill. Both men seemed to be talking past each other a bit. Geithner reminds me of a friend who never gives you a concrete answer; thus, he is perfect for his position as tax collector. I cannot resist asking the question… what is going on with his hair? Did it always look like that or is it just due to poor video quality?
by John Browne – Senior Market Strategist, Euro Pacific Capital
Over the past two years, the federal government and the Federal Reserve have dispersed trillions of public dollars, run up enormous deficits, and kept interest rates at zero. In just about any economic textbook, this combination of policies would be described as the perfect recipe for inflation. Yet, with the exception of the usual increases in health care and education, prices by and large are not rising. Many have concluded that our economic leadership has simply outsmarted the textbooks.
The benign CPI figures are serving as a rallying point behind which the financial talking-heads are forming a parade of optimism. The low CPI is their ‘proof’ that inflation is not a pressing concern. This view is two dimensional.
Inflation is classically described simply as an increase in the money supply. Although these changes will impact price levels, it doesn’t necessarily follow that prices will rise when inflation is high. Instead, inflation may merely result in stable prices at a time when prices would otherwise be falling.
In the popular mentality, however, inflation is simply defined as prices rising. After decades of steadily rising prices, people seem to have forgotten that prices sometimes fall. In light of the bursting of a number of record-breaking, government-fueled asset bubbles, prices should be declining across the board (as they did in the Great Depression). The fact that prices are stable, or have even rallied in some sectors, indicates that inflation is already spreading across the economy.
For the most part, the value of the dollar is given cursory attention by the financial media. Typically, its movements are assigned an importance on par with much less determinative metrics such as natural gas futures and construction permits. It’s only when major milestones are reached that anyone really takes notice of the dollar. We are living through one of those times.
The great dollar rally of 2008-2009 has come full circle. When the financial crisis exploded in its full ugliness in mid-2008, the dollar, which had steadily declined over the previous four to five years, put in a rally for the record books. By March 2009, as investors across the world sought safety from the financial storm, the index had surged more than 25%. Since then, the dollar has steadily declined to the point where nearly all those gains have vanished. In short, the panic rally has given way to the long term trend.
So, as the dollar index makes fresh 52-week lows on a nearly daily basis, discussion on the greenback is heating up. And while real insight on the topic is hard to find, the debate centers on the battle between two conventional opinions – both of which are wrong.
The first camp, which is generally supportive of government intervention in the economy, argues that dollar’s decline is a positive for both the economy and the stock market. The second camp, which tends to fall on the more conservative end of the political spectrum, views the dollar’s decline as a problem but feels that tough talk and slightly higher interest rates are all that is needed to restore ‘King Dollar’ to its throne.
First of all, a weak dollar is no better for Americans than a lower paying job is for a worker. And although I would prefer that the dollar remain strong, I know that currency values are a function of supply and demand, not wishful thinking. The past years of reckless monetary and fiscal policy have created conditions that must push the dollar down. Vastly expanded debt levels and monetary expansion have created a greater supply of dollars, while poor investment performance and diminished industrial capacity have lessened the demand for dollars.
Ron Paul was interviewed by Tavis Smiley on his PBS show last night. I remember really enjoying Smiley’s questioning and demeanor throughout his questioning during one of the GOP primary debates during the campaign of 2008. A debate that some of us here at Liberty Maven attended.
In this interview they discuss the U.S. foreign policy in Afghanistan, Ron Paul’s new book “End the Fed“, and how the Fed can be audited and eventually abolished.
by John Browne – Senior Market Strategist, Euro Pacific Capital
In a small bit of Washington irony, a government panel convened this week under the guise of ensuring ‘expressive freedom’ on the Internet, while at the same time the Obama Administration put Fox News on notice that ideological rectitude would be a prerequisite for White House engagement.
This heightened wrangling with the media comes at a time when ordinary Americans are rapidly becoming disillusioned with the major parties. Their disgust is evident in innumerable web discussion sites that, for many, have replaced the major media outlets as the primary source of information. In its focus to keep control of the conversation, the Administration is seeking to disguise the fact that the ‘change’ Mr. Obama promised in the election is unlikely to materialize.
Wishful thinking of the Nobel committee aside, what we have seen thus far from Obama is simply more of what had been delivered by the prior administration.
Obama renewed our military commitment to the quagmire that is Afghanistan. But he is hesitating now that the United Nations has uncovered fraud in the recent presidential elections there. Whether or not one believes the war is winnable, this type of hollow chest-pounding did not help anyone under G. W. Bush, and will not under Obama.
This morning Ron Paul appeared for an interview on the state of the economy and the Goldman Sachs “bailout” on CNN “American Morning”.
As usual Dr. Paul defends the free market even when asked rather convoluted questions about “how much” the government should support the market. I found the interview a bit odd. In that both the host and Paul were trying to find some kind of middle ground between a government managed economy and a free market position. The common point implied that the government shouldn’t be bailing out these big Wall Street firms like Goldman Sachs yet they continue to use tax payer money to do so.
Check out the video below. NOTE: The audio/video sync appears to be off as is custom on some videos processed by Youtube.
On October 15, 2009, I gave a lecture at Moravian College in Bethlehem on the horrendous economics of the stimulus plan, and why free market solutions will work far better. An MP3 is not yet available, but a PDF is here. The video playing prior to the lecture is below. This is only the latest in a series of economic lectures, including on the financial crisis. If you are interested in having me speak with your group, feel free to contact the campaign from the TowneForCongress.com home page.
First, I want to reassure everyone this talk will not be a campaign speech; its based on an economics article that I wrote in January 2009, before the stimulus plan was passed and before my candidacy – although I am from Nazareth, which by the way, was the original settlement the Moravians founded when they arrived from their failed colony in South Carolina – at the time I was living in Shanghai.
Regardless, these days when one looks at the economy, you must clearly also factor in the interventions by government. So much so, it is a wonder that the field has not yet been renamed “governomics.”
Ever wonder what happened to that sense of hope and change that most of the voters in the United States were swept up by last fall?
America does need“hope.” America does need “change.”
However, the mainstream Republican and Democratic party machines are both repeating like bad records – “morespending,moretaxes,morewar,more debt.”
If you flip the record, all you hear is “lessliberty,fewerjobs,lessprosperity.”
Whydoesn’tAmerica consider a sound money and slashing federal spending?
Whydoesn’tAmerica consider auditing and cutting back the powers of the ruinous FED?
Whydoesn’tAmerica consider destroying theIMMORALandUNNECESSARY federal income tax?
Whydoesn’tAmerica consider a different foreign policy – where there is third choice besides bombing or economic sanctions? Why not replace the blowback our foreign policy has resulted in with a little love and peaceful trade?
While all the talk at present is about economic corners turned and markets charging ahead, no one is paying much notice to an American economy deteriorating before our eyes. These myopic commentators seem to be simply moving past the now almost-universally held conclusion that before the crash of 2008, our economy was on an unsustainable course. If these imbalances had been corrected, then perhaps I too would be joining in the euphoria. But evidence abounds that we have not veered at all from that dangerous path.
Last week, the Bureau of Economic Analysis reported that consumer spending as a percentage of U.S. GDP has risen to 71%, a post-World War II record. This level is notably higher than other wealthy industrialized countries, and vastly higher than the levels sustained by China and other emerging economies. At the same time, our industrial output is contracting, our trade deficit is expanding once again (after contracting earlier in the year), and our savings rate is plummeting (after an early year surge).
The data confirms that government stimuli are worsening the structural imbalances underlying our economy. The recent ‘rebound’ in GDP is not resulting from increased economic output, but merely from the fact that we are borrowing more than ever. That is precisely how we got ourselves into this mess. An economy cannot grow indefinitely by borrowing more than it produces. Not only is such a course untenable, but the added debt ensures a deeper recession when the bills come due.
This soon-to-be-called depression will not end until the pendulum of consumer spending habits swings violently in the other direction. This will be a jarring change, but it is the splash of cold water that we need to return our economy to viability. I believe that consumer spending as a share of GDP will need to temporarily contract to roughly 50% of GDP, before eventually moving toward its historic mean of 65%. Such a move would indicate a restoration of our personal savings, a decline in borrowing and trade deficits, and an increased industrial output. That would be a real recovery.
In the meantime, the higher the spending percentage climbs, the more painful the ultimate decline becomes.
It doesn’t matter how many times you’ve sent Congress a letter on a given issue, or even if you sent one yesterday — every new fact we give you is a new opportunity to tell Congress what you want. Seize the opportunity!
Liberty Maven
by John Browne – Senior Market Strategist, Euro Pacific Capital
by Peter Schiff, president of Euro Pacific Capital and author of 
“, and how the Fed can be audited and eventually abolished.
Ever wonder what happened to that sense of hope and change that most of the voters in the United States were swept up by last fall?
by Peter Schiff, president of Euro Pacific Capital and author of 
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