The Brothers Austrian

This mission is for Obama guys!

In case you missed it, there was some hulla balloo in downtown New York City Monday when the federal government sent Air Force One (along with its paparazzi) on a secret mission.  It seems like the secret mission included a photo op flyby of the Statue of Liberty.  The planes logically took a path most similar to the ones taken on 9/11.  Genius.

Like any good Austro-libertarian I asked myself if a private company, say XYZ Company, would have the hubris to complete such a mission.  In all honesty you know what, perhaps it would.  It’s impossible to know for sure.  One thing that we do know is that there would be immediate backlash from potential consumers of XYZ Company.  In other words, they would be accountable.  In this case, however, other than some trumped up anger from the president (and likely a fired employee), the government will go unscathed.  After all. what can we really do?

To top all of this off, the government spent $328k on this folly.  That should sicken each and every one of you.  As Federal Reserve inflates our money supply by the trillion, the same government still has the pretense to send Airforce One on this special mission.  Can’t say I’m surprised.

Teacherman General, Government Spending 9/11, airforce one, Federal Reserve, government, money supply, obama

“The chains of habit are too weak to be felt until they are too strong to be broken.”
–Samuel Johnson

U.S. consumption has driven global growth for years. South Pacific countries sold us their spare capacity which drove and modernized their economies at a seemingly unrealistic pace. Foreigners have been building dollar reserves for decades. Many of those countries have rightly realized that perhaps they should use those dollars to buy U.S. assets rather than hold treasuries. It is one thing to exploit foreign labor, but now foreigners have put their surpluses (their money/capital) to work buying up U.S. assets, thus exploiting us. Touché. Now, profits generated from the selling to the U.S. consumer go oversees rather than staying here.

The consumer was being squeezed on all sides entering into 2008. Higher fuel prices, falling housing prices, stagnant wages, higher unemployment, and rising food costs.

Household debt as a percentage of GDP is almost 100% as the below chart illustrates.

Pundits argued that rising household net worth would allow spending to continue forever and ever as net worth continued it climb in 2004, 2005 and 2006. Now household net worth is falling at an unprecedented rate. In 2008 household net worth declined an astounding to $11.2 trillion to $51.5 trillion (Random Factoid $trillion in household net worth vs. 600 trillion in outstanding derivatives in the U.S.).  In 2007, residential mortgages outstanding, in percentage terms   were equivalent to 78% of US GDP. In 2006 residential mortgages made up an outstanding 36% of total U.S. debt outstanding. When this crisis started in 2007 Gary Shilling said that we would need vacant supply to fall below 600k homes now he estimates that there currently are 2.1 million in excess supply. Shilling estimates that housing prices could fall anther 20% (ughh what’s that going to do to household net worth?).

A sad fact now apparent to most of us, the U.S. consumer is tapped and they are not coming back for years … not months. I am now realizing why the Fed has chosen to monetize this debt, clearly the people who have burrowed(or should I say lent…ah what the hell…both) can’t afford for the Fed not to.

Now let me get this straight…the Fed is going to buy back these mortgages via Fannie and Freddie, an issue treasuries to do so? Now the Fed is going to buy back treasuries (monetizing: printing money) to keep rates down so lenders can then make more loans to people who are insolvent? Meanwhile oil is walking its way back up the ladder towards $100 (granted I believe will break $40 once more) because oil is finite and fiat dollars are not. Food costs are not slowing the way they should if an economy is truly productive, wages are declining, productivity(…well is there such thing as productivity in Never Never land?) is declining and the government is scaring the entrepreneur back into his/her shell with taxes.

Jefferson is rolling over in grave as we speak.

Wendall Wilkie Federal Reserve, Free trade, General, Real Estate consumer, dollar, foreign labor, trade, treasuries

Have you ever stopped to think about how much efficiently you could have learned something? Or what about when you realize everything you thought you knew was wrong? I am sure some very smart people were convinced the world was flat and were quite perturbed when learned the world was actually round. Well I would say I just realized everything that I had been taught/thought about the history of the U.S. was dead wrong.

At Syracuse University, as a history major, I was taught that it was Roosevelt’s quarterbacking in the 30’s that helped the U.S. recovery from the depression. I was essentially taught, like the rest of us, that fiat monetary system created by the Federal Reserve was necessary to provide the economy the “flexibility” to soften the blows that were supposedly considered a natural occurrence of the market (this is painful to think about). If you are reading the blog, you probably have had the experience that I had when I discovered the plethora of readings that come from what is known as the “Austrian” school of economic thought. My first reading was Economic Policy: Thoughts for today and Tomorrow. From there it all just snowballed for me. Hayek, Hazlitt, Rothbard. But honestly it really only took me about the first 25 pages of that first Von Mises book and I was hooked. Like I had discovered a new religion and that I was saved….and then I immediately felt as if I had been robbed.

I thought to myself, “How could I not have heard of this school thought…I was a double major.” One would think that if you majored in both political science and history that I would have come across this “Austrian” school of thought. This just did not make sense.

What I do realize is that history is written by the victors. America came out of the WWII the strongest nation which had seemingly won WWII (no one really won, everyone lost in my opinion). We had amassed an enormous amount of wealth throughout the 19th and early 20th century. Subsequently although Roosevelt was in charge during the majority of America’s most prolonged down turn he and his “brain trust” are viewed as saviors.

What’s my point? I honestly believe that Mr. Obama and Mr. Bernanke are two of America’s best and brightest, however their current “humanactions” are a mold/consequence  of their life experiences. Obama happened to attend a college that teaches its students to believe that they know better than the collective. They believe can smooth out market upheaval with their policies rather than recognizing its their policy  their school of thought that caused the problems.   What if Mr. Bernanke was scientist that could have cured cancer but he was instead taught that cancer can’t be cured but merely slowed down and then at very end of his life he realizes he could have cured cancer all along but he was taught it can only be slowed down.

This is my glass have full post. I will try not to succomb to the idea (at least not tonight) that this mess came about because politicians and other self interested individuals were/are trying retain their power through inflation and wealth redistribution.

Wendall Wilkie Entrepreneurship, Federal Reserve, Free trade, General, History, Real Estate austrian, education, Federal Reserve, hayek, Hazlitt, syracuse university

Mises has a post today that is somewhat tangential to an article that my brother wrote on the blog a few weeks ago.  This gist of the article about a anti-free market conference recently held at Harvard.  The goal of the conference, as Woods appropriately puts it, “Why do people still think the interaction of free individuals is a superior economic system to one directed by Harvard Ph.D.s like us?”

I’d really like to know from all of these free market bashers, what free market they are talking about?  The one where government facilitate subprime mortgages, pushed interest rates artificially low, regultes so-called ratings agencies, and monopolizes currency production?

Teacherman General free market, harvard, mises

Welcome to the Brothers Austrian.  This blog will address economic and political issues.  Your editors are two brothers, and their friends, who see things from a libertarian and Austrian school of economics lens.  I am Teacherman, a teacher of high school history at a independent school in the US.  My brother is Bondsman and is knee deep in some of these issues working for a Bond firm in New York, City.

Teacherman General austrian school, brothers, Economics, libertarian, political