Promo For Mish's Economic Analysis

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Nichoman's picture
Nichoman
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Promo For Mish's Economic Analysis

Folks...

 

A quick plug for a link Chris has about  Mish's Economic Analysis at...

http://globaleconomicanalysis.blogspot.com/

 

This site has several excellent financial oriented articles explaining much of what is happening and why.  For those who haven't visited and want to understand more.  Reviewing at least the last 2 weeks articles found at least 2/3 very helpful if not more from my olde MBA days.

 

Encourage others, including Chris or Erik to provide their inputs on their articles.  Those who have read my posts, know am a "facts and data" person...which most of these articles do a very good job of highlighting and explaining relevant topics and issues....toward greater understanding.

 

Nichoman

 

 

switters's picture
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Re: Promo For Mish's Economic Analysis

I've been following Mish's blog for about six months now and I agree that he is a very astute analyst.  He got deflation right where many were wrong, and he really understands the root of the current crisis.

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Re: Promo For Mish's Economic Analysis

November 21, 2008

The Truth About Bailouts
Peter Schiff


As the Federal bailout bonanza prepares to spread beyond the mortgage and financial sectors to fill Detroit's depleted coffers, few economic or policy analysts have spared a thought for the destitution of the U.S. government itself. Put simply, our government doesn't have enough spare cash to bailout a lemonade stand let alone a bloated and failing industry that is losing tens of billions of dollars per month. Washington can only offer funds that it has borrowed from abroad or printed. Unfortunately, the nation is in the grips of a delusion that money derived from these sources has the power to heal. But history has clearly shown that borrowed or printed money only has the power to destroy.

The argument that energizes the pro-Detroit camp is that the government should extend the same courtesy to the rank and file auto workers that it lavished upon the fat cats of Wall Street. While two wrongs certainly do not make a right, the fact remains that the Wall Street firms are still floundering despite the bailouts. What's worse, the money spent was either printed or borrowed from abroad. Both options are destructive to America.

When it comes to bailouts, the real discussions are not centered in Washington but rather in Beijing, Tokyo, and Riyadh. With no money of our own, our ability to bailout our own citizens is completely dependent on the world's willingness to foot the bill. While I am sure that Bush and Paulson are doing their best to convince the world that open ended financing of the United States is in the global interest, my guess is that, unlike Congress, our foreign creditors will see through the self-serving nature of our plea.

Like any bailout, our foreign creditors should consider the moral hazard of rewarding bad behavior, and the old investment adage of not throwing good money after bad. By continuing to "lend" us money, the world is merely delaying the necessary rebalancing of our upside down economy. By continuing to subsidize our reckless and outsized consumption, the world merely delays the inevitable re-balancing and exacerbates the underlying problem at the root of the current global financial crisis.

If Washington bails out General Motors, the funds will never be recovered. GM will simply burn through the bailout money and then be back for more. Talk of designing a new fleet of "green" cars that will pave the way to profitability by spurring a new buying spree is simply delusional. Given the staggering "legacy" costs of health care and pensions for millions of current and former workers, Detroit cannot produce cars profitably. Unless these costs are seriously brought down, and there is very little chance that they will be, Detroit will remain a bottomless money pit.

Similarly any money that the world lends to America to finance more consumption will never be repaid. We will simply blow through it, and be back, hat in hand, begging for more. As we painfully learned in the housing bust, lending people money that they cannot pay back makes no sense. This applies equally to foreign central banks lending to America as it does to commercial banks lending to homeowners.

So for the same reasons that Washington should not bail out General Motors, the world should not bailout America. Like GM, our economy is in desperate need of a restructuring. Spending must be replaced with savings, and consumption with production. The service sector must shrink and manufacturing must expand to fill the void. The dollar must fall, wages in America must be brought down to a competitive level, and hopefully government spending and burdensome regulation can be reduced.

This transformation will not be fun, but it is necessary. Our standard of living must decline to reflect years of reckless consumption and the disintegration of our industrial base. Only by swallowing this tough medicine now will our sick economy ever recover. By accepting a lower standard of living today, we will eventually be rewarded with a higher one tomorrow.

For a more in depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar denominated investments, read my new book “Crash Proof: How to Profit from the Coming Economic Collapse.”

Many people have had to eat their words when they disagreed with Peter Schiff, (Mish will eat his too) he tells people what caused the problem and then he tells them what will happen in the future not what is happening now. Of course when you blow up a bubble and then you pop it it will deflate, soon you will see a reversal and monetary inflation will take over. As The Mogambo Guru says, we're all freakin doomed (wafd).

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Re: Promo For Mish's Economic Analysis

For the record, Mish openly applies Austrian Theory in his analyses. The skeptics who believe it's another ideology don't know economics. It's no more an ideology than Newtonian Mechanics is an ideology. Peter Schiff hasn't mentioned where his understanding of markets come from, but from what I can see, it's right out of Austrian Theory. He has no need to quote any of the Austrian thinkers anymore than one has to quote Newton. There is no better system of logic for understanding the real world of economics than Austrian Theory.

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Re: Promo For Mish's Economic Analysis

I've been following Mish's blog for about six months now and I agree
that he is a very astute analyst.  He got deflation right where many
were wrong, and he really understands the root of the current crisis.

I agree that Mish is a great analyst and I've learned a lot from him over time.

My one caveat is that I think he holds a belief about deflation.

I am trying to remain agnostic on the issue because I am not yet sure which way it will all turn out.  In this environment, held  beliefs can be a real killer. So I am careful when reading his posts on deflation to not accept them as gospel but instead as just another point of view.

For now I prefer to remain open to the possibility that massive inflation could still lie in our (not-too-distant) future.  

Best,
Chris

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Re: Promo For Mish's Economic Analysis
cmartenson wrote:

I agree that Mish is a great analyst and I've learned a lot from him over time. 

My one caveat is that I think he holds a belief about deflation.

I am trying to remain agnostic on the issue because I am not yet sure which way it will all turn out.  In this environment, held  beliefs can be a real killer. So I am careful when reading his posts on deflation to not accept them as gospel but instead as just another point of view.

For now I prefer to remain open to the possibility that massive inflation could still lie in our (not-too-distant) future.  

Best,
Chris

Well stated. 

Add...Any view is based on assumptions, which may or may not be properly weighted or valid under changing conditions.    Thus...need for systematic analysis...correlation studies...scale analysis, etc.   In my profession, there are over 100 Rules and Principles that can be applied in forecasting...which is essentially what were doing here.   The truth is we never have enough data and can only estimate through careful analysis. 

Agnostic is an accurate and useful word.  Since were striving for objectivity and open mindedness.

 

--Nichoman     

 

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Re: Promo For Mish's Economic Analysis

Chris,

I agree that it's wise to keep an open mind about the deflation/inflation question, as nobody really knows what's going to happen.  But I don't think that Mish is predicting that we won't end up with hyperinflation at some point, is he?  This is a question I've wanted to ask him, because I don't have a clear sense of what his timelines are even after following his blog for six months.  Does he think we're headed for a decade of deflation a la Japan?  Or has he simply been arguing that the initial collapse would be deflationary?  I really don't know.

Anyone else?

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Re: Promo For Mish's Economic Analysis

by The Mogambo Guru

Jim Sinclair of jsmineset.com had a link to the essay "Before Saving the US" at ChinaStakes.com, written by a guy named Xiang Songzuo, which starts out, "The nature of the current global financial crisis is the biggest debt crisis in America's history", which is certainly not news.

Then the article gets right in our American faces and keeps hammering at us: "Statistics show that America's internal and external debt exceeds $60 trillion, over 400% of the country's annual GDP of a bit over $14 trillion. Of that total, family debt (including mortgages), financial and non-financial firms' debt, and municipal and national debt come to about $15 trillion, $17 trillion, $22 trillion, $3.5 trillion, and $11 trillion, respectively, though it is hard to tell how these debts have been split up among foreign governments, financial firms, companies, and individuals."

Naturally, as a proud American, I take the aggressive approach and sneer, saying, "So? Tell us something that we don't know! Hahaha!"

In an apparent response, he goes on, "To relieve the crisis, the US must repay its debts, and to do that it needs to live a more frugal life instead of asking others to continue lending it the money to maintain its over-consumption."

So, still being a smug American, I say, "Says who? You? Hahaha! We're Americans, and we have a fiat currency, and we can just print up all the money to pay you off! And everybody else, too, suckers! How do you like them apples? Hahaha!"

Apparently, Xiang is unimpressed with my typically American solution to the debt problem, as with all problems, and continues, "The first thing the government needs to do is reduce spending and the deficit. Correspondingly, the US needs to cut military disbursement, stop its global expansion and the robbing of oil resources from other countries."

Again, I am instantly indignant, and my anger shows through when I say, "Hey! Deficit spending like profligate morons while running around the world taking what we want and killing anybody that gets in our way characterizes The American Way! You are proposing to destroy our native culture, you insensitive, genocidal, racist bastards! I'll sue you all!"

Apparently, even Chinese people know that I am just a big blowhard, and instead of insulting me and calling my bluff, we are given some sinisterly interesting advice - namely, "Families and individuals should stop anticipating their income to buy houses and travel globally. Instead, they should warmly welcome foreigners to travel to and spend money in the US. "

Boinggggg! Proving once again that being a paranoid lunatic has its upside, I am able to instantly decipher this to mean that the "Secret Chinese Plan" is for us to sell them everything we have to pay our debts, and then act as courteous hosts and hostesses as they travel the country, inspecting their vast holdings and indulging in various, ummm, indulgences involving our women-folk and enslaving us all on vast rice and pig farms where we will be given pork-fried rice to eat, as much as we want, which is the only upside to this whole mess, as far as I can see.

And these Chinese may be onto something with this commodities thing, because I am betting that commodities will be soaring from here on out, as Dailytech.com reports that "All four major global temperature tracking outlets (Hadley, NASA's GISS, UAH, RSS) have released updated data. All show that over the past year, global temperatures have dropped precipitously."

The article goes on with the specifics, namely that "The total amount of cooling ranges from 0.65C up to 0.75C - a value large enough to wipe out most of the warming recorded over the past 100 years. All in one year's time. For all four sources, it's the single fastest temperature change ever recorded, either up or down."

This explains the subhead: "Twelve-month long drop in world temperatures wipes out a century of warming", although it does not explain why such a momentous piece of news does not have at least one exclamation point! Hell, I'd give it two, and I don't know anything about it!

The Bad, Bad News (BBN) is not just that this kind of poor punctuation is rampant, but that this abrupt dropping of global temperature has a nasty habit of portending "little ice ages", and this, along with the mysterious and ominous disappearance of sunspots, has me running outside, yelling at some kids playing down the block, "Hey! You stupid kids! Run home and tell your parents that they should be buying gold, silver, oil and commodities of all kinds because crop yields in the future will be catastrophically low, and if they don't, then they are stupid! And when they don't follow your advice, you can remind them a few years from now about how you warned them, but they were too stupid to listen to you, which is what all parents like to hear from their teenage children! Hahahaha!"

Well, I hope they do, not that it will do any good, but at least I made their children a little more obnoxious, which makes me smile in smug satisfaction.

And I bought some more commodity plays, which made me smile ditto! Whee! This investing stuff is easy!

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Re: Promo For Mish's Economic Analysis

Great Video of Peter schooling the children at CNBC, the faces they make are hilarious...

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Re: Promo For Mish's Economic Analysis

My one caveat is that I think he holds a belief about deflation.

I don't read him that way. I haven't seen him argue that it won't return. He argues that the money supply is contracting because defaults in financial assetst outweigh the money the feds are creating. On that, he's been correct. Mish is not predicting or arguing for inflation because there is no evidence of it yet. The difference between him and the inflationists is time horizons. I've come to lean Mish's way, but I watch for the signs that the inflationists are looking for. This deflation could last several years before it's run its course. If Mish is as good as I think he is, he'll be sounding the alarms when the evidence is recognizable. It's impossible to predict market behavior far in advance; it's like predicting the weather.

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Re: Promo For Mish's Economic Analysis

@gregroberts...

Your correct about the observational data indicating a slight cooling or neutral temperature has been the case for over a year.   There is much vigorous discussion...leave it at that...nature and time will show us the truth.

BTW...there are 6 obervational datasets most of us look at.  In the camp the most scientifically valid is sea surface temperature which most folks are not familiar with due to Thermodynamic considerations (greatest heat content).   The worlds oceans mean temperatures stopped rising several years ago.  Second are Satellite Derved readings due to global coverage.  Surface Observationsn are poorest and arguably fatally flawed due to land use issues such as urban effects...improper site locaitons...very poor coverage.

FWIW...There is much going on that will remedy the magnitude of man-made versus natural climate change in the next 5 to 10 years.   

Optimistic if we don't blow ourselves up...by late this century we will use the unique properties of water to mitigate if not marginally manage World Climate because of its incredible specific heat capacity (second greatest in Universe) and most non-linear (i.e. ability to access and generate energy) thermodynamic properties we can access.   Second is E-M aspects applied to water properties to create a type of "solid state air conditioning/heating cycle".      

Nichoman

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Re: Promo For Mish's Economic Analysis
hewittr wrote:

My one caveat is that I think he holds a belief about deflation.

I don't read him that way. I haven't seen him argue that it won't return. He argues that the money supply is contracting because defaults in financial assetst outweigh the money the feds are creating. On that, he's been correct. Mish is not predicting or arguing for inflation because there is no evidence of it yet. The difference between him and the inflationists is time horizons. I've come to lean Mish's way, but I watch for the signs that the inflationists are looking for. This deflation could last several years before it's run its course. If Mish is as good as I think he is, he'll be sounding the alarms when the evidence is recognizable. It's impossible to predict market behavior far in advance; it's like predicting the weather.

hewittr,

Have you ever read a prediction by Mish of how long this deflationary period will last?  He'd probably hasn't made such a prediction, because as you said, forecasting market behavior far in advance is as fruitless as forecasting the weather years ahead of time.  But I've been wondering if he foresees a Japan-style decade long deflation or something more on the order of a few years.

In the end it doesn't matter much because I have no control over it and I don't have a lot of money to protect.  Most of what I do have is in gold and silver, which could arguably do well in either scenario.

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Re: Promo For Mish's Economic Analysis

Here's a short test to tell you where you stand economically and politically

http://politicalcompass.org/test

My scores

Economic Left/Right: 6.00
Social Libertarian/Authoritarian: -3.90

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Re: Promo For Mish's Economic Analysis

Have you ever read a prediction by Mish of how long this deflationary period will last?

No. This recitation from his site gives a sense of magnitude for what has to run its course if or when inflation will return. How long is anybody's guess.

The S&P 500 is down about 45% this year, credit is collapsing,
foreclosures are at all time highs, credit card defaults are soaring,
unemployment has risen from 4.4% to 6.5%, short term treasury yileds
have collapsed to 0%, and the long bond yield has fallen like a brick,
yet only in the last couple weeks has anyone in the mainstream media
been talking about deflation. That alone should tell you how silly it
is to be focusing on prices as a measure of deflation.

Auto
manufacturers, insurance companies, banks, and brokerages are all
effectively bankrupt. Banks have lent out 10 times more than can be
paid back, and brokerages are in even worse shape

Those who focused on Peak Credit and its counterpart Peak Earnings saw
this coming. Those blindly looking at prices or money supply alone are
still trying to figure out how and why treasury yields are where they
are, the stock market has collapsed, commodities have plunged, and
banks are scared to death to lend.

Looking ahead, there is
every reason to expect increasing foreclosures, rising unemployment,
rising bankruptcies, rising defaults, and rising corporate bond yields.
Yet Bernanke cannot cut rates other than symbolically as the Fed Funds
Rate is effectively trading at zero.

Welcome to deflation Ben Bernanke. You, Greenspan, and the Fed caused it with your serially bubble blowing activities.

My personal opinion: When these events have run their course, the economy will have shrunken considerably. That's when our economy will be sensitive to massive government inflationary spending. I put this in some amount of indeterminate years. I'll guess no less than two years.

Most of what I do have is in gold and silver, which could arguably do well in either scenario. 

That's the best strategy to take. It's said that a depression is when you are out of work. I foresaw the traps that so many have fallen into, so I haven't been affected in the least. If anything, the deflation is helping me strenghen my personal finances.

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Re: Promo For Mish's Economic Analysis

Hewittr

Though I read Austrian economics and believe I have a grasp of its essence, you can articulate it much better. I don't have the benefit of a college education though James Grant have said he read about Austrian theories everywhere except in school.

I read an article from a Prof Zimmerman ( http://www.citizeneconomists.com/) asserting that the Gold standard as being debunked.....or another bubble. I wanted to provide a coherent reply but

I think you can do a much better job. I invite you to give the professor a coherent explanation of what the gold standard was really about. If you have time to slay another dragon of an erroneous belief. Thanks.

 

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Re: Promo For Mish's Economic Analysis

Mish likes gold these days:

Three Points On Global Stimlatin'

1) Dollar bears need to "Think Outside The US" when it comes to monetary problems. The US does not have a monopoly on problems.

2)
With every country in on the act, those expecting to see a complete
collapse of the US dollar over this Stimlatin' are most likely severely
mistaken.

3) As far as Stimlatin' goes, gold is likely to be one beneficiary.

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