The Brothers Austrian

A headline on Bloomberg recently read: Dollar Is Dirt, Treasuries Are Toast, AAA Is Gone.  This not so surprising sentiment is the title of an opinion piece by Mark Gilbert on the investment news site.

Gilbert lays out three reasons why currency investors are starting to doubt the US government, after all why ‘pick on’ the dollar as he says: “These include the state’s pressure on Bank of America Corp. to buy Merrill Lynch & Co.; the priority given to Chrysler LLC’s unions over the automaker’s secured creditors; and the freedom that some banks will regain to supersize executive bonuses by giving back part of the government money bolstering their balance sheets.”

It’s sad, but I revel in seeing stories like this on such a mainstream, if niche, media outlets.  Will Obama Time Magazine ever run something like this?  Probably not.  A likely op-ed in the New York Times?  Not if it unmasks Krugman for the hack that he is.

As an aside: let’s make it clear … dollar is dirt and treasuries are toast, those things ring true to me.  Adding that AAA is gone means nothing.  Gilbert mentions that even a downgrade to AA makes the USA’s creditworthiness “very strong” — something that is laughable.  Standards and Poor’s ratings are as worthless as the Nationally Recognized Statistical Rating Organization and the Securities and Exchange Commission that props them up.

Teacherman Government Spending, Politics bloomberg, dollar, krugman, mark gilbert, ratings, standard and poor's, treasuries

The title of this posting refers to Cato’s Letter Number 4, by Thomas Gordon. Writing in 1720, Gordon notes the importance of restoring the credit markets in England, but bemoans the idea “that any thing ought to be done to repair the losses, occasioned by folly and covetousness, out of the estates of those, who always foresaw, who always opposed this mighty mischief; much less at the further expence of the honour and trade of the nation.”  Gordon actually calls for the “necks” and “money” of those responsible for the crisis, today it is the calls of the Austrian School for bankruptcy.

Very good Mr. Gordon, you just became relevant in the 21st century. Cato’s Letters (written by Gordon along with John Trenchard) represent some of the most influential 18th century political theory. Murray Rothbard mentions Gordon and Trenchard along with Algernon Sidney and John Locke as the most influential libertarian leaning philosophers during colonial times. But in Cato’s Letter Number 4, we see more than the ideological origins of our founding fathers. We see a true understanding of macroeconomic policy that made people like Ludwig von Mises and Henry Hazlitt shake their heads at the missed historical lesson in the macroeconomic policies of the early 20th century.

Again, to Gordon, “If our money be gone, thank God, our eyes are left: Sharpened by experience and adversities we can see through disguises, and will be no more amused with moon-shine.”

Or so we hope…

Teacherman Uncategorized algernon sidney, austrian school, cato's letters, colonial, henry hazlitt, john locke, john trenchard, libertarian, ludwig von mises, murray rothbard, thomas gordon

Will U.K. lose there AAA rating? Will the U.S. lose its AAA rating? Will the FED take a hint from the market? Will Obama and his Dems and the spend happy Republican pals get the point? Not likely.

Is this the start of what Teacherman was talking about?

MisesBeliever Federal Reserve aaa rating, fed, obama

Many people that I discuss liberty with have a really difficult time understanding the concept in the abstract.  One of the best explanations of liberty in the Austrian/libertarian tradition was put on YouTube by Free Talk Live.  It is worth watching the entire eight minutes.  Enjoy!

Teacherman Liberty austrian, libertarian, Liberty, philosophy

Word finally came down that the insurers will be bailed out; clearly, the insurers have become that buzz phrase known as ‘systematically important’.

Did are the insurers take excessive risk or were they incestuous with the banking/brokerage partners? If you ever get bored, go to the EDGAR website and look at see who actually owns all the financials ‘preferred stock’ … (will save you time — the insurers own a ton). Who owns the insurer stock and banking common stock? Let’s go one step further, who were the biggest buyers of the RMBS and CMBS that the Citi’s and Lehman’s were packaging up?  You guessed it, the insurers or should I say the so called “smart money”.

Last year Allianz infused over billion into HIG … oh how nice of them! I wonder how much HIG stock Allianz holds? 4.5 million shares as of 12/31. I wonder how much in HIG bonds PIMCO holds?

Who is managing the boat loads of toxic debt that you, the tax payer, now owns? You guessed it, the PIMCO’s of the world.

I wonder how many people at PIMCO share an alma mater with late, great GWB or our dear friend of capitalism, President Barack Obama?

Seems to be some sort of fraternity that us common folk have trouble getting into.

Systematic? Yah, I guess there is something very systematic about what’s going on.

Is it the difference between Pepsi and Coke or perhaps is it better to say Pepsi and Coke are both COLA.

MisesBeliever Stock Market bailed out, financials, insurers, obama, pimco, preferred stock, toxic debt

Jack Welsh’s on the Economy: Past the Point of No Return title describes how I have thought about monetary policy after I picked up on the Austrian Business Cycle Theory (his piece is a must read). We have gotten so out of control with credit expansion, by every measure, that I fear the consequences of unwinding it. Again, think of the last pargraph of chapter 23 of Hazlitt’s Economics in One Lesson.

“Like every other tax, inflation acts to determine the individual and business policies we are all forced to follow. It discourages all prudence and thrift. It encourages squandering, gambling, reckless waste of all kinds. It often makes it more profitable to speculate than to produce. It tears apart the whole fabric of stable economic relationships. Its inexcusable injustices drive men toward desperate remedies. It plants the seeds of fascism and communism. It leads men to demand totalitarian controls. It ends invariably in bitter disillusion and collapse.”

MisesBeliever Federal Reserve business cycle, credit, economics in one lesson, Hazlitt, monetary policy

I constantly hear traders, commentators and economists exclaim that gold is expensive right now, but think about this… In 1980 gold hit an intraday high of $895. In current inflation adjusted dollars, that price would of $895 in 1980 is equivalent to $2310 in today’s dollars!

MisesBeliever Gold Gold