David Stockman, architect of President Reagan’s economic turnaround known as ‘Morning in America’, warns of the looming collapse of free market prosperity and the destruction of American wealth.
Plus: Emergency actions viewers can take now to protect themselves from the crisis.
As I've said previously, the recession is not over. In 2011, I remember posting an article on Facebook from Lew Rockwell talking about America entering another great depression. It drew the ire of skeptics.
In fact, my motivation for starting The Goins Report in 2009 was precisely because I began to understand free-market economics, and I knew that the president's stimulus plan, and all other forms of violent economic intervention into the markets, was not going to save us...period.
My friends very incorrectly even thought I was a George Bush supporter because I came of age intellectually at the end of 2008 and opposed Obama's policies from the beginning. But if I had come of age a year earlier, or two years earlier, I would have been just as vocal about George W. Bush.
So I went on the intellectual warpath and began to warn friends about the intrinsic shortcomings of government economic policy.
And I proceeded to prepare myself for the downturns and dollar crises that I thought would come.
But now I want to share a link with you to help you, while there is still time.
Time and again, the true free-markets economists have warned that the current economy "recovery" is no recovery at all. While I can not say when, or where, or what will cause the next economic bubble to pop -- and indeed no good free-market economist tries -- I know that the ball is up in the air, and it is being continuously hit upwards by government and central bank policies. But every volley ball game has to end. The ball must come down eventually.
But it doesn't have to come down on you or your side of the court.
You can be on the winning team.
"The prudent sees danger and hides himself, but the simple go on and suffer for it." Proverbs 22:3 (ESV)
This should give you some pause the next time a politician advocates passing a law for the benefit of the American people.
According to a 2012 report from USA Today, Congress passed only 61 laws at the time of the article's publication (August 14-15, 2012), and could possibly be the least productive congress since 1947.
Here's a chart and following it is my take on those numbers:
Fewer laws have been passed by this Congress than by any other in the
last 65 years. Number of laws passed each year by Congress since 1947:
30 years, 8,269 laws passed, and none of them prevented the housing crisis, the decline of the dollar, gave us Federal Reserve transparency, undid the money monopoly at the Fed, prevented war, limited executive power. (I start counting 30 years at 1977 and end at 2007--when the housing crisis was really evident.)
Will any law passed in 2012 and beyond the article's publication date prevent the next crisis? Limit executive power? Decentralize economic power?
About 45,000 fewer jobs were added in April than economists expected, and the unemployment rate dropped to 8.1 percent due to more than a half million people giving up the job search. CNN Money reacted with the headline “hiring fizzles.”
University of Maryland Economist Peter Morici wrote in response the jobs report, “The economy added 115,000 jobs in April - much less than expected and not enough to keep up with natural population growth. The unemployment rate fell to 8.1 percent because another 522,000 adults quit looking for work and are no longer counted.”
(RTTNews) - Activity in the U.S. manufacturing sector unexpectedly expanded at a faster rate in the month of April, according to a report released by the Institute for Supply Management on Tuesday, with the index of activity in the sector rising to a ten-month high.
The ISM said its purchasing managers index climbed to 54.8 in April from 53.4 in March, with a reading above 50 indicating an expansion in manufacturing activity. The increase surprised economists, who had expected the index to edge down to a reading of 53.0.
With the unexpected increase, the purchasing managers index rose to its highest level since coming in at 55.8 in June of 2011.
Washington (GoinsReport.com) – An MIT economist said Monday that he isn’t convinced that the steps taken to address the financial crisis of 2008 have actually “fixed” the problems that led up to it.
Simon Johnson, a professor at the Massachusetts Institute of Technology and frequent New York Times contributor, said: “I’m not convinced that we’ve fixed the problems that led to the financial crisis.”
He continued: “There’s a huge contingent liability that looms over us.”
Contingent liabilities are possible obligations to pay a sum depending on how history plays out.
Because obligations are only “possible” at a certain time, and future events dictate if an obligation becomes due, contingent liabilities are kept off the books of financial statements of private firms and, in this case, the fiscal statements of the government.
Johnson made his remarks at the Peterson Institute for International Economics to discuss his new book “White House Burning: The Founding Fathers, Our National Debt, And Why It Matters To You.”
When asked by GoinsReport.com to identify some of the problems that he thought haven’t been fixed yet, Johnson further stated that “the very big banks” were still a problem.
“On the financial side, the main problem is the very big banks, the so-called “too big to fail” banks. It’s very hard to manage problems or liquidation at one of those banks,” Johnson said.
Johnson said that Title II of the Dodd-Frank Wall Street financial reform bill, which authorizes the FDIC to place large, nonbank corporations into a process similar to bankruptcy and allows for the orderly liquidation of nonbank financial institutions covered and not-covered by the Federal Deposit Insurance Corporation, and FDIC’s current attempts to put forth resolution plans are steps “in the right direction.”
“I think these are steps in the right direction but the structures are still very fragile,” he said.
“So the essence of the problem is very big financial corporations that are effectively government subsidized and encouraged to take excessive risk when those structures become high leverage and blow themselves up,” Johnson continued.
“So it comes on top of the spending versus revenue gap that has been developing for some time. On top of that you have a big crisis. And if you can finance it, if you can go through this without a disaster, best-case you have another 40, 50, 80 percent GDP increase in debt. That’s a huge fiscal risk.”
Johnson also pointed out that it is “awkward” that Congressional Budget Office doesn’t score that “huge fiscal risk” because it does score other kinds of contingent liabilities, such as Medicare.
“They should do the same thing with the financial crisis, but they don’t,” he said.
Johnson, alongside Sheila Bair, the former FDIC chair, recently sent a letter on March 30, 2012 to the Federal Reserve giving recommendations on how to dissolve the large financial institutions.
He also said that Medicare would be a contingent liability 50 years down the road.
(GoinsReport.com) -- An MIT economist said that although all the GOP Presidential candidates economic proposals are, in his view, “equally bad,” he pointed out that Rep. Ron Paul’s (R-Texas) economic proposals to balance the budget are “extreme.”
Simon Johnson, professor at the Massachusetts institute of Technology and frequent contributor to the New York Times, made his remarks after speaking about his new book “White House Burning: The Founding Fathers, Our National Debt, And Why It Matters To You” at the Peter Institute for International Economics.
The Paul proposal rapidly cuts spending by closing five cabinet departments, including the Department of Education, and ends foreign wars and corporate subsidies, while returning most other spending to 2006 levels, thus relieving the budget of $1 trillion after Paul’s first year.
GoinsReport.com asked: “Pulling out the Ron Paul plan which would cut a trillion (dollars), including five cabinet departments would go away, is that a bad way to move forward?”
Johnson said: “Mr. Paul’s proposals are very extreme and he wants to reduce revenue. So he wants to make some extreme spending cuts and reduce revenue but he still gets debt relative to GDP 90 percent. That’s a high level of debt because he’s so keen on cutting revenue.”
Johnson was referring to results found by the Center for a Responsible Federal Budget when it produced a report in February called “Primary Numbers: The GOP candidates and the National Debt,” which analyzed the fiscal consequences of each GOP presidential candidates’ economic proposals.
In that study, Paul’s plan in the worst-case scenario, dubbed the “high-debt” scenario, would increase the debt as a share of GDP to 93 percent of the economy by 2021.
However, as Johnson later acknowledged, the debt as a share of GDP is lower in two more optimistic scenarios.
In the low-debt scenario, Paul’s plan brings the debt as a share of GDP to 67 percent of the economy. In the intermediate-debt scenario, Paul’s plan brings the debt as a share of GDP.
“In the most optimistic scenario the debt goes down closer to 80 percent,” Johnson said. “But it’s still a high level of debt relative to what we’ve had historically and what would be safe for the United States going forward.”
Johnson, when asked if wanting to balance the budget in three years was a “bad idea,” didn’t comment on whether it was a bad idea or not but instead said it was “unnecessary.”
“You have to look at exactly how the economy is doing. Because if you have a big enough boom to get the revenues going back, then it makes it much easier to balance the budget,” Johnson said.
“But I think the amount of fiscal adjustment or austerity he wants to do upfront is probably more than the economy can handle at this point. So I would be much more cautious in my approach,” he continued.
Johnson also told GoinsReport.com what he thought about the other three Republicans seeking the presidential nomination.
“Well, what I think with regards to the budget, they’re all on the side of too much cutting taxes and being careful about the debt,” Johnson said. “They claim to be fiscally conservative but they’re not conservative actually by any historical comparison. They’re rather irresponsible.”
When asked whether he thought their proposals “cut too fast, too soon,” Johnson said “absolutely.”
“Look, we undermine tax revenue for more than 30 years in this country,” Johnson said. “We’ve had a big tax revolt. We can’t afford to cut taxes at this point. We need to control spending and raise revenue. Not cut revenue.
He added that no plan sticks out to him and that they are all “equally bad.”
“I think Mr. Newt Gingrich’s plan is the worst but the others are all pretty bad,” Johnson said. “There’s not much to choose between them.”
The CFRB study that Johnson refers to contradicts the Ron Paul 2012 campaign’s claim that the Paul proposal balances the budget by year three by saying that it, nor any other candidates’ plan, balances the budget at all.
(CNSNews.com) – Federal Reserve Chairman Ben Bernanke said that the current trajectory of the federal budget – marked by large annual deficits – was “clearly unsustainable” and that “serious economic consequences” could result.
“Having a large and increasing level of government debt relative to national income runs the risk of serious economic consequences,” Bernanke told the Senate Budget Committee Tuesday.
Despite the fact that last week, when the world received news that the Federal Reserve would be rejecting sound economic sense (for the umpteenth time) and begin QE2 (or the second dose of Quantitative Easing) to stimulate the economy, it is great to know that the world is waking up to the disaster of Federal Reserve monetary policy. Japan, China, Germany, and a host of other leaders, and even critics within the Federal Reserve itself, are against the new injection of money into the economy - and rightly so!
In this latest video by Peter Schiff, he criticizes the Fed and humorously points out their only solution to crises: inflate a burst bubble by printing up more money and lowering interest rates. Schiff addresses the nonsense:
Didn't we just blow two bubbles? According to Ben Bernanke we now need a new stock market bubble to cure the recession caused by the housing bubble which was created because the Fed tried to cure the recession caused by the bursting of the previous stock market bubble. So is this it? Is this all they know? Serial bubble blowing forever creating bubbles?
Because people within the Fed are distancing themselves from Ben Bernanke, I must say that the genius behind this new plan is looking lonely in his decision, and he is looking quite clueless. But the world isn't. The other good news is that concerns about inflation may bring a rise to new gold standard. This is a step in the right direction. Next, we Austrians hope, 100 percent reserve Banking.
"If the public does not understand the economics of depression, there is little hope that we can avoid disastrous government policies. Unless the free market receives sufficient popular support, our economic future is bleak." David Gordon
2. The Republican Party still is the party of war and unnecessary defense spending.
3. Oh, and the economy is still in the toilet and the Republicans don't have a clue as to how to let the market correct it.
(Notice I didn't say the Republicans didn't know how to "fix" it - as if the Republicans were a bunch of Mr. Fix Its with tools in hand, smiles on faces, and a blueprint to lay down the groundwork for the economy. No. If I said that, that would make them central planners.)
In November of 2009, George Reisman gave this speech that articulated how we can get out of this current mess. I have watched this speech three times since then; the main reason is because, well, I fell asleep each time. Mr. Reisman sounds a lot like Jimminy Cricket, or at least some soothing narrator you would hear in an old Disney film. And although this speech is only 41 minutes, about four minutes shorter than a university lecture, the speaker is boring enough to put you to sleep.
Nevertheless, it is an important speech. And just like how we may have that one professor who puts us to sleep, it is during those times when we are falling asleep in class that the professor may be saying some of the most important things.
Listen to the professor.
And on a blog named after him, you can read this entire speech. I'd recommend, to stay awake, following the above video and reading the speech at the same time.
As I was reading the course description for History 575 (The Great Centralizer: Lincoln and the Growth of Statism) it reminded of the fact that Abraham Lincoln "ignored how most of the rest of the world ended slavery peacefully." As Ron Paul reminds us in the above video, instead of fighting the civil war...well...I'll just let Ron tell you.
Here is part of the transcript, excerpted from RonPaul.com:
D.L. Hugley: So you were against George Bush’s big spending too?
Ron Paul: Oh, absolutely. And certainly I was against his foreign policy and his violation of personal civil liberties. The privacy that he was invading and the secrecy of government… I didn’t like any of that. I am sort of an old-fashioned conservative that believes in the constitution.
And here the other part that I thoroughly enjoyed:
D.L. Hugley: Ron, you are too human to be a Republican. Now, I was on Bill Maher about a year and a half ago or so, and you came on by satellite, and you were explaining about the Civil War and how it didn’t need to be fought. And I was at first like, ‘Is he saying that it didn’t need to be fought?’ But when you explained it to me, I thought it was one of the most pragmatic, reasonable things I have ever heard a politician say.
Ron Paul: Well, you know the other nations in the West that had slavery all got rid of slavery without a civil war. The motivation behind the Civil War had more to do than just the slavery issue. So we lost 600,000 Americans and there is lot of residual, probably some left over today. There is still residual. So you could have, with a small fraction of the money and no deaths, just bought the slaves, you know, and freed the slaves. That’s what Britain and some other nations did and that just makes a lot more sense than fighting a war and killing each other. I know I don’t like this war as a solution to our problems.
"I'm one of your middle class Americans, and quite frankly, I'm exhausted. I'm exhausted of defending you, defending your administration, defending the mantle of change that I voted for, and deeply disappointed with where we are right now. I have been told that I voted for a man who said he was going to change things in a meaningful way for the middle class. I'm one of those people, and I'm waiting sir, I'm waiting. And I don't feel it yet." ~A frustrated Obama Supporter
Although I didn't vote for Obama, and I didn't expect his policies to work, which is different from saying I don't support him at all, I can completely understand where this woman is coming from. She was offered one thing and given another; promised a pony - one that would grow and gallop into the dawn of economic recovery - and given a python - a really nasty python that even bites back sometimes. The rhetoric is confronting the reality, and, man, I wouldn't want to be the general when all my tired, desperate, exasperated soldiers are thinking about mutiny.
And it never helps the general to laugh at his soldiers desperate plea, like Obama does in this town hall meeting. It may cause more disillusionment and stir more anger.
Note to self: When running for office, take all questions seriously and show compassion. Do not laugh at those who support you, nor at those who do not.
Rather than saying the Tea Parties are joining the Republican Party, Ron Paul says the Republicans, in their desperation, are joining the Tea Parties as a strategic maneuver.
After reading Crash Proof: How to Profit from the Coming Economic Collapse (I began it Monday morning and finished Thursday evening) I was well prepared to answer a friend's objections to my assertion that there will be a "Greater Depression."
Honestly, my arguments come straight out of Crash Proof.
The argument all started when I posted a link to an article from LewRockwell.com on my Facebook page. The article advocated that the second Great Depression is on the way and suggested 20 items that will be needed to survive. My comment over the link was this:
Preparedness is the best way to weather the coming economic storm...believe me the worst has yet to come...it simply hasn't happened yet...all our politicians have done is simply push off the financial day of reckoning...in doing so we now have more to reckon with...(think of it as pushing off a student loan to a later date...the interest accrues and the total you have to pay back is more.)
And I think that was enough to get the ball rolling.
My friend and I have a somewhat interesting history. We both attended the same university (he is a 2009 graduate; I am a 2010 graduate). In the spring of 2008, he actually was the one to convince me to join the Barack Obama campaign at our school (before then I had no political affiliation; although I leaned Democrat). I did for a while, even up to the 2008-2009 school year, but then I left (I actually joined College Republicans afterward, but I left that too, only to go back a year later); he remained a dedicated member of the campaign and Young Democrats. And like most people who argue from different positions, we hold profound disagreements in maybe just about everything (except religion).
Here is the argument thread:
HIM: "We're headed for a great recovery. Lets not forget that over the last six months our economy has grown grew by about 4.5%, a very aggressive growth rate, and one of the highest clips in the western world over the same time period. The American consumer finally feels confident enough to spend again, and so do businesses. Soon they'll begin accelerated hiring. We've almost turned the corner. Hardly proof my friend of an economic apocalypse."
ME: "So we are working with the same statistics, but we are obviously interpreting things differently. If I understand you correctly then consumption, consumer confidence and hiring is evidence for economic recovery. If that is so that is where we depart ways. I don't understand your 4.5% statistic -- is this production? consumption? something else?"
HIM: "economic productivity....and hiring, productivity, consumption and consumer confidence are evidence of an economic recovery, indeed they are the hallmarks of one. A simple truth is becoming clear Chris: The economic relief package passed by the Congress is working. The Obama Admin. saved us from economic abyss. I hasten to add that if we didn't ... See Morepass the relief packages more Americans would be unemployed, more houses would have been forclosed, more businesses would have closed, and American influence would have further waned around the world. Thank God we acted"
ME: "I noticed you left out production. An increase in productivity means employers are doing more with less workers, which is good on one hand, but on the other it also means that payrolls are still tight and employers can't afford to put people back on staff. Productivity deals with efficiency, yet production deals with the quantity of goods being ... See Moremade. My point is that we need an increase in production before any serious recovery really happens. When more money is injected into the system via relief packages, yes on the one hand people can pay for goods, keep their homes, keep businesses going, but that comes at a price. The increase in the supply of money into the system without increase of goods and services will lead to price inflation. In other words, you just socialized the pain to everyone else because the U.S. Dollar loses purchasing power.
Second, we have a massive trade deficit and we are in debt up to the moon. Consumption would only be good if we were using our own money to buy things. But we are not; we borrow billions of dollars a day from China. The consumption ends when China stops playing our game. I don't believe China will finance our consumption indefinitely.
Third, we need to go back to savings and under-consumption to move forward. Until people learn how to save again to produce goods we will never move forward.
I'll wager (nothing) on this, if the Obama administration (or any future administration) has to continue to pass relief packages then I think that proves my points both that the economy is not recovering and the relief efforts only delayed the necessary economic depression. Why necessary? Because absent the bailouts all those bad assets would have been liquidated and better company would have picked up the slack. But instead by bailing them out a company with a bad balance gets off the hook, as if they had a change of heart or quickly change their bad practices. They were failing for a reason. Let em' fail."
HIM: A few problems with you thesis,
One, "now hiring" signs are being posted in businesses and shops across America. Last month we added 300,000 jobs to our economy. The month before we added an addtional 160,000. Thats almost a half of million jobs added...in sixity days!
Second, most economic forecasters believe that the odds of a double dip and a spike in inflation are quite low over the next four quarters.
Third, the notion that China would dump a signficant amount of American debt in the near future is laughable. Clearly it would dramatically alter US Chinese relations. Moreover, I don't see the wisdom in undermining your biggest trading partner. But most importantly dumping our debt would depress the Chinese economy. Its a lose-lose, which is means its non starter.
Our economy is growing precisely because of the bold actions of this adminstration. We need economic reform, we need to cut spending, reduce the size of government and increase revenue, perhaps with a VAT tax of some kind, or a modest income tax increase. For the first time in almost a decade we're on the right road again, and we can't afford to turn around.
[END]
As you can see I left the arguments intact, grammatical and spelling mistakes included. I let my friend have the last go around, but it was really enjoyable to hear the other side of the argument, and get someone to grapple with my economic pessimism. While I agree that we need to cut spending and reduce the size of government, I definitely disagree with the idea that a VAT tax of any kind or a modest income tax is the solution to our economic ills. My main concern with that thesis is that people need to save more, not save less by giving more money to the government.
As for his appeal to "most economic forecasters" I find this to be the least robust response; and I think other Austrian economists would too. Our belief, if I have been amongst these group of thinkers long enough to speak as an authority, is that mainstream thought, for the most part, has gotten the whole economy wrong; their prognoses are incorrect, and so are their prescriptions.
Finally, I disagree with his view on China. Lose-lose situation it may be for China--on the one hand, they can dump our debt and depress their economy; or they can keep our debt and hold devaluing U.S. dollars--but in the long run China will be better off by dumping our debt. In fact, the purchasing power of the Yen will increase dramatically, while the U.S. dollar's purchasing power will plummet. I didn't address everything in this recap, but I think I addressed enough.
Also, watching this lecture that I personally attended and partially recorded would be a quick primer on Austrian Economic thought, and thus would be helpful to understanding my position.
[Update on 5-20-10] Peter Schiff argues that the fundamentals of the economy are still unstable and that the bigger financial crisis has yet to come; he also argues that the perceived recovery is a sham and the new financial regulatory reform is merely going to exacerbate the problems that are already there.
