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Some people are confused by what I mean when I say that rates will rise as we move into the sovereign debt crisis, which will pick up steam in 2017 moving into 2020. We are NOT talking about central banks raising rates; we are looking at the FREE MARKET. As people realize that government debt comes with a risk, capital will begin to shift into the private assets. The market will not buy all the government debt that appears ready to explode. With central banks moving negative on short-term rates, smart money will wake up and flip into equities. If equities break-even, that is better than a guaranteed loss in government bonds. In Japan, the 10 year rate just went NEGATIVE so you want to park money with the government for 10 years and pay them to hold it?

Plus, the risk with government bonds will be that they can convert even short-term paper, of say 90 days, to 10-year bonds. Governments have done this before. As banks begin to get in trouble again, smart money will try to get off the grid. Banks will have to pay more for money as those keeping money in banks move out.

The FREE MARKET will force rates higher. Sure, central banks can keep short-term rates NEGATIVE as long as they buy the government debt. But this cannot continue indefinitely. The FREE MARKET will always win. This is how governments fail. The game remains on as long as there are bids at their auctions to sell new debt. What happens when there is NO BID? That is how the FREE MARKET will raise rates. Smart capital will move from public to private debt and equities in addition to gold and real estate on a VERY SELECTED basis.

The Cycle of War turned up in 2014. We have seen an escalation in international war (Russia-Ukraine) and in the Middle East while civil unrest spreads everywhere. This trend will pick up also in 2017 and move into 2020.

A short lesson on wealth creation

January 19, 2016

A short lesson on wealth creation

This morning on CBC Newsworld business reporter John Northcott was describing, in horror, a recent OXFAM report indicating that 62 of the world’s richest people have as much wealth combined ($1.76 trillion) as the poorest half of the planet (3.625 billion). Mr. Northcott and lead anchor Suhana Meharchand made comments about the unfairness of this distribution of wealth. Indeed, if only that amount of wealth could be distributed evenly, this would solve so many of the poverty problems in the world.

One of the benefits of studying economics is the insight it provides in identifying, precisely, how wealth is created and the logical consequences of legally expropriating created wealth and transferring it to other individuals.

The only way that wealth can be created in a free market is producing at profit something that satisfies the wants of your fellow man. Profit is the signal that resources are being used efficiently in production. If a person cannot produce a good or service at a profit, this reveals that costs are too high, the price consumers wish to pay is too low (they have other, more urgent priorities) or both. In other words, losses reflect that resources (including the labour of the resource owners the entrepreneurs bringing necessary inputs together) are not being put to their highest valued used as judged by consumers.

That 62 of the richest people have generated $1.76 trillion is something to be celebrated, not denigrated. A moments thought to how much poorer would be not only the 3.625 billion, but everyone else too if individuals like Bill Gates never created Microsoft. Without Bill Gate’s magnificent impact on humanity I could have been typing this on an Olympia manual typewriter. If #62 ranked Bill Li of China never developed his Chinese internet search engine, countless numbers of welfare improving transactions in China would not occur.

…click on the above link to read the rest of the article…

A Free Market in Interest Rates

December 22, 2015

A Free Market in Interest Rates

Unless you’re living under a rock, you know that we have an administered interest rate. This means that the bureaucrats at the Federal Reserve decide what’s good for the little people. Then they impose it on us.

In trying to return to freedom, many people wonder why couldn’t we let the market set the interest rate. After all, we don’t have a Corn Control Agency or a Lumber Board (pun intended). So why do we have a Federal Open Market Committee? It’s a very good question.

Someone asked it at the recent Cato Monetary Conference. George Selgin answered: no matter if the Fed stands pat or does something, it’s still setting rates. This is a profound truth, which brings us to a fatal flaw in the dollar.

In our irredeemable currency, interest cannot be set by the market. There’s literally no mechanism for it. To understand why, let’s start by looking at the gold standard.

Under gold, the saver always has a choice. If he likes the rate of interest, he can deposit his gold coin. If not, he can withdraw it. By withdrawing, he forces the bank to sell an asset. That in turn ticks down the price of the bond, which is the same as ticking up the rate of interest. His preference has real teeth, and that’s an essential corrective mechanism.

Unfortunately, the government removed gold from the monetary system. Now you can own it, but your choices have no effect on interest. If you buy gold, then you get out of the banking system. However, the seller takes your place, getting rid of his gold and thereby taking your place in the banking system. The dollars and gold merely swap owners, with no effect on interest rates.

…click on the above link to read the rest of the article…

War, Big Government, and Lost Freedom

November 4, 2015

War, Big Government, and Lost Freedom

We are currently marking the hundredth anniversary of the fighting of the First World War. For four years between the summer of 1914 and November 11, 1918, the major world powers were in mortal combat with each other. The conflict radically changed the world. It overthrew the pre-1914 era of relatively limited government and free market economics, and ushered in a new epoch of big government, planned economies, and massive inflations, the full effects from which the world has still not recovered.

All the leading countries of Europe were drawn into the war. It began when the archduke of Austria- Hungary, Franz Ferdinand, and his wife, Sophia, were assassinated in Bosnia in June 1914. The Austro-Hungarian government claimed that the Bosnian-Serb assassin had the clandestine support of the Serbian government, which the government in Belgrade denied.

How a Terrible War Began and Played Out

Ultimatums and counter-ultimatums soon set in motion a series of European military alliances among the Great Powers. In late July and early August, the now-warring parties issued formal declarations of war. Imperial Germany, the Turkish Empire, and Bulgaria supported Austria-Hungary. Imperial Russia supported Serbia, which soon brought in France and Great Britain because these countries were aligned with the czarist government in St. Petersburg. Italy entered the war in 1915 on the side of the British and the French.

The United States joined the conflict in April 1917, a month after the abdication of the Russian czar and the establishment of a democratic government in Russia. But this first attempt at Russian democracy was overthrown in November 1917, when Vladimir Lenin led a communist coup d’état; Lenin’s revolutionary government then signed a separate peace with Imperial Germany and Austria-Hungary in March 1918, taking Russia out of the war.

The arrival of large numbers of American soldiers in France in the summer of 1918, however, turned the balance of forces against Germany on the Western Front.

…click on the above link to read the rest of the article…

Why Big Tech May Be Getting Too Big

September 28, 2015

Why Big Tech May Be Getting Too Big

Conservatives and liberals interminably debate the merits of “the free market” versus “the government.” Which one you trust more delineates the main ideological divide in America.

In reality, they aren’t two separate things and there can’t be a market without government. Legislators, agency heads and judges decide the rules of the game. And, over time, they change the rules.

The important question, too rarely discussed, is who has the most influence over these decisions and in that way wins the game.

Two centuries ago slaves were among the nation’s most valuable assets, and a century ago, perhaps the most valuable asset was land. Then came another shift as factories, machines, railroads and oil transformed America. By the 1920s most Americans were employees, and the most contested property issue was their freedom to organize into unions.

In more recent years, information and ideas have become the most valuable forms of property. This property can’t be concretely weighed or measured, and most of the cost of producing it goes into discovering it or making the first copy. After that, the additional production cost is often zero.

Such “intellectual property” is the key building block of the new economy. Without government decisions over what it is, and who can own it and on what terms, the new economy could not exist.

But as has happened before with other forms of property, the most politically influential owners of the new property are doing their utmost to increase their profits by creating monopolies that must eventually be broken up.

The most valuable intellectual property are platforms so widely used that everyone else has to use them, too. Think of standard operating systems like Microsoft’s Windows or Google’s Android; Google’s search engine; Amazon’s shopping system; and Facebooks’ communication network.

…click on the above link to read the rest of the article…

Venezuela’s Hyperinflation Crack-Up Boom on its Way to Outer Space

July 25, 2015

Venezuela’s Hyperinflation Crack-Up Boom on its Way to Outer Space

Why Stock Markets Are Not an Indicator of the Economy

In a free unhampered market economy based on a sound monetary system – this is to say a market-chosen monetary system with a free banking industry and no central planning institution that is manipulating interest rates and determining the size of the money supply – the gains and losses of shares prices in the stock market will simply be a reflection of entrepreneurial profits achieved in the past, plus embedded expectations of profits likely to be achieved in the future.
Maduro Nicolas Maduro, the hapless president of socialist Venezuela, here seen hung with all sorts of bling supposed to testify to his achievements.

Photo credit: Prensa Presidencial

Under the assumption that such a free market money system would be largely non-inflationary, this mixture of “historical record” and expectations would primarily be expressed by the relative prices of shares. The bulk of the returns achieved by investors would come from dividend payments, as a general inflation of “the market” would be nigh impossible.

And yet, although the stock market as a whole would barely appreciate in price in nominal terms, the gains achieved in real terms as well as real economic growth, would be far stronger than they are under our current, centrally planned system of constant inflation. Moreover, economic progress would be far more equitable as well, as the reverse redistribution of wealth caused by inflationary policy wouldn’t exist.

This is why a rising stock market tells us absolutely nothing about the state of the underlying economy in the present inflationary system. In fact, we once again have a real life example providing ample empirical confirmation of this assertion. Venezuela’s economy is in free-fall. Its desperate socialist government, in an attempt to satisfy the masses of voters who have voted for it in order to receive handouts, is resorting to ever more repressive economic policy and money printing on a truly gargantuan scale to at least keep up theappearance that bread and circuses will continue.

…click on the above link to read the rest of the article…

When Capitalism Turns to Cannibalism

July 16, 2015

When Capitalism Turns to Cannibalism

With authentic growth scarce, there’s no other way to reap huge profits but cannibalism.

When people say “capitalism has failed” or “capitalism has succeeded,” we have to ask: what type of capitalism do you mean? Authentic capitalism, in which capital is placed at risk to earn a return in a competitive, transparent marketplace, or do you mean cartel-state capitalism, or crony-capitalism, or monopoly capitalism or finance capitalism, i.e. the types that dominate the global economy?

As long as most startups crash and burn, and anyone with a few bucks and plenty of inner drive can start an enterprise, authentic capitalism still lives. But let’s face it, authentic capitalism occupies a diminishing corner of the U.S. and global economies.

With a work force of 150 million and around 120 million fulltime workers, the U.S. economy has about 6 million small businesses with employees and a few million self-employed (sole proprietors) who earn a middle-class livelihood: Endangered Species: The Self-Employed Middle Class.

The political and financial influence of small business and the self-employed barely registers on K Street, Wall Street and in Washington D.C. Politicos praise small business in the same way they speak of small family farms as the backbone of American agriculture–as a form of pandering for PR purposes while they pocket the big campaign contributions from Monsanto and Big Ag.

Meanwhile, in the real world, small business is in decline while corporate money floods the financial sector and Washington D.C.

The Washington Post published a study that found U.S. businesses are being destroyed faster than they’re being created. While not exactly a surprise, this is sobering evidence that small enterprise is in structural decline:

The 22.4 million with some self-employment income looks like a big number, but most earn a pittance: only a relative few earn what qualifies as a middle-class income, and 3 million of these are professional-sector corporations or partnerships:

…click on the above link to read the rest of the article…

Chinese stocks: When mispricing becomes more important than pricing

July 12, 2015

Chinese stocks: When mispricing becomes more important than pricing

Defenders of the free market faith tell us that price conveys a great deal of information, enough that you can base an entire economic system on it without any central planning or coordination whatsoever. Whether extreme devotion to this principle is wise may not be so important to determine this week as whether free market prices are actually available in many markets. Recent events surrounding the precipitous decline of the Chinese stock market are illustrative of this problem, but I’ll come back to this a little later.

Years of suppressing the cost of credit through central-bank imposed near zero interest rates has led to the mispricing of anything that depends on credit. The list is long and includes real estate because mortgages are central to its purchase; oil because cheap bank loans and low bond rates financed otherwise uneconomic deposits of tight oil from deep shale deposits in the United States; natural gas in the United States for similar reasons; stocks and bonds because large investors often borrow to buy them; and cheap Chinese consumer goods made more and more available by cheap finance to build the factories that produce them.

The effect is not uniform, that is, cheap credit tends to make some things go up by stimulating demand for them such as real estate, stocks and bonds–while making some things go down such as the price of oil and natural gas because U.S. drillers got cheap financing which encouraged overproduction.

Which brings us to the curious historical irony of a nominally communist regime in China using public credit and regulatory maneuvers to reverse the trend of a crashing domestic stock market. The Shanghai Composite had been down 25 percent in just one month creating fear that the turbocharged Chinese stock market–which had risen 68 percent in one year and almost 150 percent in two–might be crashing.

…click on the above link to read the rest of the article…

Free Financial Markets Are A Hoax

May 27, 2015

Free Financial Markets Are A Hoax

There are no free financial markets in America, or for that matter anywhere in the Western word, and few, if any, free markets of any other kind. The financial markets are rigged by the big banks, the Federal Reserve, and the Treasury in the interests of the profits of the few big banks and the dollar’s exchange value, which is the basis of US power.

There is a contradiction between a strong currency on one hand and on the other hand massive money creation in order to sustain zero and negative interest rates on the massive debt levels. This inconsistency is revealed by rising gold and silver prices.

When gold hit $1,900 an ounce in 2011 the Federal Reserve realized that the precious metal market was going to limit its ability to provide enough liquidity to keep the thoughtlessly deregulated financial system afloat. The rapid deterioration of the dollar in terms of gold and silver would sooner or later spill over into the exchange value of the dollar in currency markets. Something had to be done to drive down and to cap the gold price.

The Fed’s solution was to take advantage of the fact that the prices of gold and silver are determined in the futures market where paper contracts representing gold and silver are traded, and not in markets where the physical metal is actually purchased by people who take possession of it. The Fed realized that uncovered short sales provided enormous leverage over the prices of the metals and that it would be profitable for the bullion banks, such as JPMorgan, Scotia, and HSBC, to short the market heavily and then cover their shorts at lower prices produced by selling as a result of triggering stop-loss orders and margin calls.

…click on the above link to read the rest of the article…

Economist on Gold – A Dissection

May 16, 2015

Economist on Gold – A Dissection

A Proven Contrary Indicator

In early May, the Economist has published an editorial on gold, ominously entitled “Buried”. We wanted to comment on it earlier already, but never seemed to get around to it. It is still worth doing so for a number of reasons.

The Economist is a quintessential establishment publication. It occasionally gives lip service to supporting the free market, but anyone who has ever read it with his eyes open must have noticed that 70% of the content is all about how governments should best centrally plan the economy, while most of the rest is concerned with dispensing advice as to how to expand and preserve Anglo-American imperialism. We are exaggerating a bit for effect here, but in essence we think this describes the magazine well. In other words, its economic stance is essentially indistinguishable from that of the Financial Times or most of the rest of the mainstream financial press.

gold Image credit: Bloomberg

Keynesian shibboleths about “market failure” and the need to prevent it, as well as the alleged need for governments to provide “public goods” and to steer the economy in directions desired by the ruling elite with a variety of taxation and spending schemes as well as monetary interventionism, are dripping from its pages in generous dollops. It never strays beyond the “acceptable” degree of support for free markets, which is essentially book-ended by Milton Friedman (a supporter of central banking, fiat money and positivism in economic science, who comes from an economic school of thought that was regarded as part of the “leftist fringe” in the 1940s as Hans-Hermann Hoppe has pointed out). Needless to say, the default expectation should therefore be that the magazine will be dissing gold – and indeed, it didn’t disappoint.

…click on the above link to read the rest of the article…

The Regulatory State – Central Planning and Bureaucracy on a Rampage

May 14, 2015

The Regulatory State – Central Planning and Bureaucracy on a Rampage

The New 10,000 Commandments Report – It’s Worse than Ever

Before we begin, we should mention that the US economy has long been one of the least regulated among the major regulatory States of the so-called “free” world, and to a large extent this actually still remains true. This introductory remark should give readers an idea of how terrible the situation is in many of the socialist Utopias elsewhere.

climbing_in_bureaucracy__alfredo_martirena

Even in the US though, today’s economic system is light years away from free market capitalism or anything even remotely resembling a “laissez faire” system. We are almost literally drowning in regulations. The extent of this regulatory Moloch and that the very real costs it imposes is seriously retarding economic progress. It is precisely as Bill Bonner recently said: the government’s main job is to look toward the future in order to prevent it from happening.

A great many of today’s regulations have only one goal: to protect established interest groups. Regulations that are ostensibly detrimental to certain unpopular corporatist interests are no different. Among these is e.g. the truly monstrous and nigh impenetrable thicket of financial rules invented after the 2008 crash in a valiant effort to close the barn door long after the horse had escaped. They are unlikely to bother the established large banking interests in the least. The banking cartel is probably elated that it has become virtually impossible for start-ups to ever seriously compete with it. The same is true of many other business regulations; their main effect is to protect the biggest established companies from competition.

…click on the above link to read the rest of the article…

Portrait of the American Oligarchy – The Very Troubling Income and Wealth Trends Since 1989

April 11, 2015

Portrait of the American Oligarchy – The Very Troubling Income and Wealth Trends Since 1989

One of the primary purposes of Liberty Blitzkrieg is to dispel the myth that America is politically a democracy and economically a free market, and prove that it is in fact a centrally planned oligarchy. If the people were well aware of this and fine with it, that’s one thing, but my contention is that the vast majority of the public is merely buying into the myth. This is why the population is so passive and easily controlled. They simply don’t understand what is happening to them. The proverbial frog slowing boiling to death.

Whenever I note that real median incomes in America haven’t increased for decades, many people have a hard time believing it. Nevertheless, as John Adams famously proclaimed: “facts are stubborn things.” Indeed they are, and an article published today by Bloomberg View provides some disturbingly stubborn facts that must be admitted to and faced. We learn that:

If you worry about the declining fortunes of the U.S. middle class, take heed: It might be worse than you realized.

Tracking the middle class can be difficult, because the group is hard to define. Typically, researchers look at households with incomes or net worth in the middle of the entire population. This approach, though, might provide a falsely rosy picture.

Two economists at the Federal Reserve Bank of St. Louis — William Emmons and Bryan Noeth — sought to address this shortcoming by focusing on households’ demographic characteristics, rather than income or wealth. Specifically, they looked at families whose breadwinner was at least 40 years old and had achieved a level of education that would typically allow a middle-class standard of living. Whites and Asians needed exactly a high-school diploma to qualify. For blacks and Hispanics, it took a two-year or four-year college degree — a stark recognition of persistent racial inequality.

…click on the above link to read the rest of the article…

Eating The Seed Corn—–The Fed’s Horrid Corruption Of Corporate Finance

April 9, 2015

Eating The Seed Corn—–The Fed’s Horrid Corruption Of Corporate Finance

Central bank financial repression results in the systematic and severe mispricing of financial assets. And that has sweeping consequences far beyond the munificent windfalls it bestows on the thin slice of mankind that frequents the casinos of Wall Street, London, Tokyo and Shanghai.

The fact is, the prices of money, debt, equity, traded commodities and all their derivatives comprise a vast and instantaneous signaling system that cascades through every nook and cranny of the real economy. When these signals are systematically falsified by a few dozen central bankers they cause hundreds of millions ordinary businessmen, workers, investors and entrepreneurs to alter their economic calculus.

And not in a good way. False signals lead to mistakes, excesses, losses and waste. They ultimately reduce economic efficiency and productivity and lower the rate of economic growth and real wealth gains.

Since the Greenspan age of financial repression incepted in the late 1980s, for example, the returns to savings have been obliterated while the rewards for speculation have soared. That’s important because only savings from current production and income generate additional primary capital that can foster future wealth. By contrast, leveraged speculation merely causes existing financial assets to be re-priced and a temporary redistribution of paper wealth from the cautious to the exuberant.

In an honest free market, in fact, there is no excess return to leveraged speculation at all. Natural market makers arbitrage out the spread between the costs of carry and the returns to carried assets such as long-dated futures contracts, term debt and various and sundry forms of equity and other risk assets.

…click on the above link to read the rest of the article…

The Austrian Case Against Economic Intervention – Ludwig von Mises Institute Canada

December 23, 2014

The Austrian Case Against Economic Intervention – Ludwig von Mises Institute Canada.

The basic unit of all economic activity is the un-coerced, free exchange of one economic good for another based upon the ordinally ranked subjective preferences of each party to the exchange. To achieve maximum satisfaction from the exchange each party must have full ownership and control of the good that he wishes to exchange and may dispose of his property without interference from a third party, such as government. The exchange will take place when each party values the good to be received higher than the good that he gives up. The expected, but by no means guaranteed, result is a total higher satisfaction for both parties. Any subsequent satisfaction or dissatisfaction with the exchange must accrue completely to the parties involved. The expected higher satisfaction that one or each expects may not be dependent upon harming a third party in the process.

Several observations can be deduced from the above explanation. It is not possible for a third party to direct this exchange in order to create a more satisfactory outcome. No third party has ownership of the goods to be exchanged; therefore, no third party can hold a legitimate subjective preference upon which to base an evaluation as to the higher satisfaction to be gained. Furthermore, the higher satisfaction of any exchange cannot be quantified in any cardinal way, for each party’s subjective preference is ordinal only. This rules out all utilitarian measurements of satisfaction upon which interventions may be based. Each exchange is an economic world unto itself. Compiling statistics of the number and dollar amounts of many exchanges is meaningless for other than historical purposes, both because the dollars involved are not representative of the preferences and satisfactions of others not involved in the exchange and because the volume and dollar amounts of future exchanges are independent of past exchanges.

…click on the above link to read the rest of the article…

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