The Brothers Austrian

Cheers Michael, that piece was phenomenal.

Bashing Goldman Sachs Is Simply a Game for Fools: Michael Lewis

Click here to read it.

MisesBeliever Uncategorized front running, Goldman Sach, Michael Lewis

MisesBeliever Uncategorized austrian school, Change, obama, Rand Paul, ron paul

Fellow ABCT (Austrian Business Cycle Theory) follower, is attempting to take on incumbant Chris Dodd (D) in Connecticut.

Brothers Austrian, will officially endorse him right now! As if that means anything, but hey what the heck. We need to get Ron Paul some help!

To show your support visit http://www.schiffforsenate.com/

I look forward to helping Schiff in his campaign anyway I can.

Cheers

MisesBeliever Uncategorized

Don Boudreaux of the Cafe Heyak blog sent the below letterto the Washingon Post:

Dear Editor:

Five-hundred and thirty-six officials – one at 1600 Pennsylvania Ave. and the others a few blocks down that boulevard of brazen busybodies – are frenetically trying to lord it over ever-more vast aspects of our lives.  Sen. Orrin Hatch wants Washington to correct what he divines to be imperfections in the method of choosing which teams compete in post-season college football games.  Pres. Obama wants to mute changes in oil prices.  And a majority of these savior-wannabes seek to remake health-care delivery, run automobile companies, protect us from financial risks, and, generally, to mandate, prohibit, and regulate us all into velvet-lined shackles.

I have a name for this repulsive social system: Capitolism.

Sincerely,
Donald J. Boudreaux

I think that Don eloquently points out the misgivings of capitolism, I wonder if they printed it?

MisesBeliever Uncategorized

For those that do not follow David Rosenberg of Glusken Sheff (formerly the chief economist of Merrill…I wonder if Merrill Lynch management/board ever read his “Morning Market Memo”?…I am going speculate the answer is no!) had an observation today that I want to share in regards to Canada’s tax the rich policy in the 1990′s:

House Democrats, led by Charlie Rangel, are setting a course to apply a 1% surtax on married couples making $350,000 or more; raising to 2% for those earning in excess of $500,000; and 3% for anybody with audacity to be pulling in more than a cool million (someone has t o pay for Obama’s $550 billion health plan.) We saw this ‘soak-the-rich’ strategy happen in Ontario in the early 1990′s and it let to (i) the brain drain (ii) capital flight; (iii) eroding productivity growth and lower standards of living and (iv) a currency depreciation.

But then again who carries about productivity? The scary part is that the soak the rich legislation will surely pass through the House in whatever form it comes. Politicians, they are Robin Hood’s of the USA, playing the ‘good guy’ in their own a fairy tale.

MisesBeliever Government Spending, Taxes, Uncategorized brain drain, David Rosenberg, obama, Rosenberg

From the grave. You cannot separate savings and investment. Investment is savings and savings is investment!

I caught this on the Big Picture Blog

MisesBeliever Uncategorized

A great short article about where stand in historical terms in regards to personal savings rates.

MisesBeliever Uncategorized

What haunted Henry Hazlitt, still haunts us today: Governments focusing on only what the immediate effects of a policy will be. He refers to their actions as “half truths”. The seen and unseen. The seen of this bailout is that a few hundred thousand auto workers are still employed and the employees/retirees will have benefits.

The unseen: What about the workers that are not part of the auto industry that did get laid off? What about the worker whose 401k is down 40% with no pension plan? What about the guy who saves and saves and saves, only to have the value of savings dwindle via inflation in order to pay for the bailout of the auto worker (I am sorry let’s be honest here, this is a bailout of a group of people that have political pull, not the saving of a so called iconic “American” industry)?  What about the capital resources that are redirected to the auto sector versus another, more viable sector? What about the effect on bond investors?

In a NYT op-ed piece James Glassman claims that this might  “Drive the bond market to ruin”. This is the what I call the “Obama Button”.  It’s like the reset button. What would happen if we pressed the reset button? Who knows right? All bets are off! If I am a bond investor I have to price in whether or not an industry will be “bailed out”.  While the immediate effect is saving a few hundred thousand jobs, the long term effect is that there will be more market volatility because we never no who is next to be part of our “bailout nation” or even how to price the possibility of a bailout. Will the bailout lead to the bonds being “made whole” like they were for Citigroup or will do I price in huge discount in case the government tries to super cede me in the capital structure (think Chrysler secured bondholders).

MisesBeliever Government Spending, Inflation, Interventionism, Taxes, Uncategorized auto industry, bail out, bond market, citigroup, henry hazlitt, obama button

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

A co-worker of mine recently put me on to a great op-ed that was in WSJ Monday morning by on Bubble economics by Steven Gjerstad and Nobel Laurelate Vernon Smith. The whole article is fantastic but I want to focus on one small part of it that really baffled me:

“In 1983, the Bureau of Labor Statistics began to use [for CPI] rental equivalence for homeowner-occupied units instead of direct home-ownership costs. Between 1983 and 1996, the price-to-rental ratio increased from 19.0 to 20.2, so the change had little effect on measured inflation: The CPI underestimated inflation by about 0.1 percentage point per year during this period. Between 1999 and 2006, the price-to-rent ratio shot up from 20.8 to 32.3.

With home price increases out of the CPI and the price-to-rent ratio rapidly increasing, an important component of inflation remained outside the index. In 2004 alone, the price-rent ratio increased 12.3%. Inflation for that year was underestimated by 2.9 percentage points (since “owners’ equivalent rent” is about 23% of the CPI). If home-ownership costs were included in the CPI, inflation would have been 6.2% instead of 3.3%.

With nominal interest rates around 6% and inflation around 6%, the real interest rate was near zero, so household borrowing took off. As measured by the Case-Shiller 10 city index, the accumulated inflation in home-ownership costs between January 1999 and June 2006 was 151%, but the CPI measured a mere 23% increase. As the Federal Reserve monitored inflation in the early part of this decade, home-price increases were no longer visible in the CPI, so the lax monetary policy continued. Even after the Fed began to slowly raise the fed-funds rate in May 2004, the average rate remained low and the bubble continued to inflate for two more years.”

So what does owners equivalent rent really mean according to the BLS?

“(The) BLS asks each homeowner for their estimate of the house’s implicit rent and what occupants would get for their rent (how many rooms, etc.) if the owner did rent their home.”

When the Bureau of Labor and Statistics do their surveying for shelter index portion of CPI they ask the following question (verbatim):

“If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?”

Man I would love to get one of these calls.

If you ask someone about their home value, that is something they probably know about, but if you ask someone about their house’s implicit rental equivalent is, now that is a different story. Most people do not understand the economics of rental properties well enough to give such an opinion. Furthermore, how many people living in Mc-Mansions can even contemplate what their monthly rent would even be when they live in a neighborhood that may not even have on housing unit that charges on a monthly rent basis?

I think Gjerstad and Vernon know what Hazlitt knew decades ago: inflation numbers are blatantly cherry picked and scrubbed to make it seem like the COLA estimates are much lower then they really are.

Furthermore the BLS states that, “Because rents are not volatile, the CPI can use a longer interval between pricing observations than it uses for other consumer items.” I guess we will have take that statement about volatility at face value.

Click here for more information regarding the housing index and CPI

MisesBeliever Inflation, Real Estate, Uncategorized cpi, Hazlitt, housing bubble, Inflation