Amid an ongoing decline in the price of gold, a major brawl recently broke out in the elite media over … the gold standard. What is this free-for-all all about? And why does it matter? It matters because… the gold standard finally has demonstrated that, after a long eclipse, it is being taken seriously in elite (if not uniformly polite) company.
Filed under: Federal Reserve, World Leaders, Tax Cuts
By ADAM GELLER
Believers hailed its reduced tax rates and deregulation as springboards for economic miracles under the leadership of President Ronald Reagan and British Prime Minister Margaret Thatcher. Critics dismissed the very same ideas as so much trickle-down hocus-pocus and voodoo.
It’s been most of three decades since debate over “supply-side” economic policies was at the center of U.S. politics. But for the moment, talk of conservative economic ideas that were as central to the story of the 1980s as Michael Jackson‘s moonwalk and the first MacIntosh personal computer is back. Why? A pair of its leading proponents have returned to the headlines.
Memories of economic days gone by were rekindled last week when David Stockman, Reagan’s budget director, unleashed a scathing attack on years of decision-making by U.S. leaders, including his former boss. It continued this week, when Thatcher’s death on Monday prompted recollections — some fond, others not so much — of how the Iron Lady imposed her will on a long-stagnant British economy.
‘Time Machine’
The confluence of events got economists waxing about what the past means for today, although there’s disagreement on how much supply-side’s ideas have been abandoned in the U.S. or are just awaiting their moment of return. In the meantime, there was Arthur Laffer, the U.S. economist often called the father of supply-side, back on television three times Monday, recalling a warm friendship with Thatcher that highlighted a time when prevailing wisdom on taxes, deficits, and the roles of government and individuals was very different.
“We’re back in the time machine,” said Yoram Bauman, a Seattle economist who makes a living doing stand-up comedy about the dismal science — and who has long opened with a joke or two about supply-side to test the depth and endurance of his audience’s knowledge.
Supply-side economists argued that reducing taxes through lower rates would encourage work, saving and investment. Early supply-side theory promised that the reduced tax rates could pay for themselves by raising tax revenues. Under Reagan, the government lowered tax rates and reduced government regulation as the Federal Reserve worked to rein in inflation. The administration’s focus on lowering tax rates for the wealthy, labeled “trickle-down economics,” reflected the belief that these gains would encourage the rich to spend and invest more to create jobs for others.
Now that theory — and Bauman’s comic material, for that matter — may have found its moment, but it’s not clear how long it will last.
‘Destruction of Fiscal Rectitude’
It began last week when Stockman wrote a lengthy opinion piece in The New York Times, followed by interviews, to …read more
Source: FULL ARTICLE at DailyFinance
By Charles Biderman, Contributor Princeton Professor and New York Times columnist Paul Krugman must be feeling the heat. In a recent blog he referred to David Stockman’s March 31 brilliant NY Times OpEd was “pathetic and embarrassing.” Why do I say Stockman’s article was brilliant? Stockman’s main point is that, “Sooner or later, within a few years, this latest Wall Street bubble, inflated by an egregious flood of phony money from the Federal Reserve rather than real economic gains, will explode.” …read more
Source: FULL ARTICLE at Forbes Latest
David Stockman’s education began at Harvard Divinity School where he hoped to become a great moral philosopher in the tradition of Christian social activists. It continued with his role as a congressman in Washington in the late 1970s. Then as director of the Office of Management and Budget (OMB) in the early 1980s, he was the cutting edge of the Reagan Revolution and “Morning in America,” which portrayed government as “the problem” and an unconstrained free markets as “the solution”. His subsequent career as a businessman was troubled by bankruptcies and culminated in an indictment. Now his original divinity-school training has resurfaced and he has re-emerged as a fire-and-brimstone preacher. …read more
Source: FULL ARTICLE at Forbes Latest
By John Reeves and Ilan Moscovitz, The Motley Fool
Filed under: Investing
It’s time to come clean: We don’t actually have a secret source in Davos, Switzerland, and we aren’t producing batches and batches of Market Goggles.
Yesterday, April 1, was The Motley Fool‘s de facto annual holiday, and our special report, “The Hugest Bubble in History Set to Explode,” was our April Fool’s Day joke. We hope you enjoyed it. (Special thanks to the annoyed readers who, without realizing the day, wrote to chastise us over the word “Hugest” in the headline.)
Bubble, bubble, toil and trouble
With the S&P 500 wrapping up the first quarter at a record high, there are quite a few pundits, of course, who do believe we are experiencing a market bubble right now.
At the website Minyanville, an anonymous source talks of an impending credit crisis, and warns, “When the music stops, there will be no chairs.” The economic forecaster Harry Dent is far more precise, and declares that we’ll have another crash by this summer. And just last Sunday, David Stockman, President Ronald Reagan‘s former budget director, wrote, “When the latest bubble pops, there will be nothing to stop the collapse. If this sounds like advice to get out of the markets and hide out in cash, it is.”
On the other hand, professor Aswath Damodaran, a valuation expert from New York University, recently attempted to value the entire stock market, and he came away thinking “there are good reasons why US stock prices are elevated.” He notes that cash flows are high right now, and growth prospects are encouraging. After completing his valuation exercise, Damodaran intends to “stop worrying about the overall market and go back to finding undervalued companies.”
So, are we in a bubble or not?
We have no idea. It’s likely, however, that the pundits who are predicting a crash in the near future have no idea either.
How much does a chimp charge?
Philip Tetlock, a professor of psychology at the University of Pennsylvania, has studied the performance of pundits, and the results aren’t encouraging. He found that forecasters performed no better than the “proverbial dart-throwing chimp,” and he also discovered that “the more famous the expert, the less accurate his or her predictions tended to be.”
Tetlock did learn that some pundits performed better than others. The better forecasters tended to be “self-critical, eclectic thinkers who were willing to update their beliefs when faced with contrary evidence.” The less successful ones were more like our secret source: overconfident, persuasive, and committed to some big, overarching vision.
Insist on accountability
Motley Fool co-founder David Gardner has been talking a lot lately about how we must insist on everyday accountability — whether it’s on a stock pick or a market call — from our financial media. Investors need to be able to know which financial predictions to value, and which ones to discard. That’s why …read more
Source: FULL ARTICLE at DailyFinance
By The Huffington Post News Editors
* Stockman, former chief for Reagan, says deficit requires harsh action
* Orszag, former chief for Obama, says gradual fiscal fix limits harm
* Both endorse lower retirement payouts and end to Bush-era tax cuts
NEW YORK, April 1 (Reuters) – Two former U.S. budget chiefs who worked for presidents from opposing political parties said on Monday that the government should reduce military spending, scale back Social Security payments and end decade-old income tax cuts to reduce the federal deficit.
David Stockman, who was Republican Ronald Reagan‘s budget director from 1981 to 1985 and a key architect of tax-cutting policies, and Peter Orszag, budget director for Democratic President Barack Obama from January 2009 until July 2010, agreed the United States spends more on defense than is needed.
Both also said the country would be well-served if better-off citizens paid more taxes and took smaller benefits from the government in their old age.
But the two men, who appeared together at a Thomson Reuters Newsmaker event, were at odds over how quickly and forcefully the government should act to reduce the deficit. Stockman contends the government should dramatically cut spending and raise taxes to pay down the national debt.
Orszag says governments are right to use spending to stretch out the economic adjustments to keep large segments of population from losing their jobs, which itself can cause long-lasting problems.
The men spoke on the eve of the formal publication of Stockman’s new book, “The Great Deformation: The Corruption of Capitalism in America.”
Stockman calls his book, which runs more than 700 pages, a screed. He says he wrote it to call attention to damage caused over 80 years by crony capitalists, spendthrift politicians and central bankers at the Federal Reserve who have inflated financial bubbles by printing money.
Stockman criticizes politicians of both parties, starting with Democrat Franklin Roosevelt in the 1930s and including his former boss Reagan, as well as former …read more
Source: FULL ARTICLE at Huffington Post
In a lengthy op-ed for the Sunday New York Times meant to reveal all that’s wrong with today’s economy, David Stockman, while occasionally very right, succeeded most in showing how little the economy would improve were we to adopt his ideas. A relatively short article couldn’t possibly do justice to all the falsehoods within Stockman’s polemic, but this one will try. …read more
Source: FULL ARTICLE at Forbes Latest
Then, when the Fed’s fire hoses started spraying an elephant soup of liquidity injections in every direction and its balance sheet grew by $1.3 trillion in just thirteen weeks compared to $850 billion during its first ninety-four years, I became convinced that the Fed was flying by the seat of its pants, making it up as it went along. It was evident that its aim was to stop the hissy fit on Wall Street and that the thread of a Great Depression 2.0 was just a cover story for a panicked spree of money printing that exceeded any other episode in recorded human history.
David Stockman, The Great Deformation
David Stockman, former director of the OMB under President Reagan, former US Representative, and veteran financier is an insider’s insider. Few people understand the ways in which both Washington DC and Wall Street work and intersect better than he does.
In his upcoming book, The Great Deformation: The Corruption of Capitalism in America, Stockman lays out how we have devolved from a free market economy into a managed one that operates for the benefit of a privileged few. And when trouble arises, these few are bailed out at the expense of the public good.
By manipulating the price of money through sustained and historically low interest rates, Greenspan and Bernanke created an era of asset mis-pricing that inevitably would need to correct. And when market forces attempted to do so in 2008, Paulson et al hoodwinked the world into believing the repercussions would be so calamitous for all that the institutions responsible for the bad actions that instigated the problem needed to be rescued — in full — at all costs.
Of course, history shows that our markets and economy would have been better off had the system been allowed to correct. Most of the “too big to fail” institutions would have survived or been broken into smaller, more resilient, entities. For those that would have failed, smaller, more responsible banks would have stepped up to replace them – as happens as part of the natural course of a free market system:
Essentially there was a cleansing run on the wholesale funding market in the canyons of Wall Street going on. It would have worked its will, just like JP Morgan allowed it to happen in 1907 when we did not have the Fed getting in the way. Because they stopped it in its tracks after the AIG bailout and then all the alphabet soup of different lines that the Fed threw out, and then the enactment of TARP, the last two investment banks standing were rescued, Goldman and Morgan [Stanley], and they should not have been. As a result of being rescued and having the cleansing liquidation of rotten balance sheets stopped, within a few weeks and certainly months they were back to the same old games, such that Goldman Sachs got $10 billion dollars for the fiscal year that started three months later after that check went out, which was October 2008. For the fiscal 2009 year, Goldman Sachs generated what I call a $29 billion surplus – $13 billion of net income after tax, and on top of that $16 billion of salaries and bonuses, 95% of it which was bonuses.
Therefore, the idea that they were on death’s door does not stack up. Even if they had been, it would not make any difference to the health of the financial system. These firms are supposed to come and go, and if people make really bad bets, if they have a trillion dollar balance sheet with six, seven, eight hundred billion dollars worth of hot-money short-term funding, then they ought to take their just reward, because it would create lessons, it would create discipline. So all the new firms that would have been formed out of the remnants of Goldman Sachs where everybody lost their stock values – which for most of these partners is tens of millions, hundreds of millions – when they formed a new firm, I doubt whether they would have gone back to the old game. What happened was the Fed stopped everything in its tracks, kept Goldman Sachs intact, the reckless Goldman Sachs and the reckless Morgan Stanley, everyone quickly recovered their stock value and the game continues. This is one of the evils that comes from this kind of deep intervention in the capital and money markets.
Stockman’s anger at the unnecessary and unfair capital transfer from taxpayer to TBTF bank is matched only by his concern that, even with those bailouts, the banking system is still unacceptably vulnerable to a repeat of the same crime:
The banks quickly worked out their solvency issues because the Fed basically took it out of the hides of Main Street savers and depositors throughout America. When the Fed panicked, it basically destroyed the free-market interest rate – you cannot have capitalism, you cannot have healthy financial markets without an interest rate, which is the price of money, the price of capital that can freely measure and reflect risk and true economic prospects.
Well, once you basically unplug the pricing mechanism of a capital market and make it entirely an administered rate by the Fed, you are going to cause all kinds of deformationsas I call them, or mal-investments as some of the Austrians used to call them, that basically pollutes and corrupts the system. Look at the deposit rate right now, it is 50 basis points, maybe 40, for six months. As a result of that, probably $400-500 billion a year is being transferred as a fiscal maneuver by the Fed from savers to the banks. They are collecting the spread, they’ve then booked the profits, they’ve rebuilt their book net worth, and they paid back the TARP basically out of what was thieved from the savers of America.
Now they go down and pound the table and whine and pout like JP Morgan and the rest of them,you have to let us do stock buy backs, you have to let us pay out dividends so we can ramp our stock and collect our stock option winnings. It is outrageous that the authorities, after the so-called “near death experience” of 2008 and this massive fiscal safety net and monetary safety net was put out there, is allowing them to pay dividends and to go into the market and buy back their stock. They should be under house arrest in a sense that every dime they are making from this artificial yield group being delivered by the Fed out of the hides of savers should be put on their balance sheet to build up retained earnings, to build up a cushion. I do not care whether it is fifteen or twenty or twenty-five percent common equity and retained earnings-to-assets or not, that is what we should be doing if we are going to protect the system from another raid by these people the next time we get a meltdown, which can happen at any time.
You can see why I talk about corruption, why crony capitalism is so bad. I mean, the Basel capital standards, they are a joke. We are just allowing the banks to go back into the same old game they were playing before. Everybody said the banks in late 2007 were the greatest thing since sliced bread. The market cap of the ten largest banks in America, including from Bear Stearns all the way to Citibank and JP Morgan and Goldman and so forth, was $1.25 trillion. That was up thirty times from where the predecessors of those institutions had been. Only in 1987, when Greenspan took over and began the era of bubble finance – slowly at first then rapidly, eventually, to have the market cap grow thirty times – and then on the eve of the great meltdown see the $1.25 trillion to market cap disappear, vanish, vaporize in panic in September 2008. Only a few months later, $1 trillion of that market cap disappeared in to the abyss and panic, and Bear Stearns is going down, and all the rest.
This tells you the system is dramatically unstable. In a healthy financial system and a free capital market, if I can put it that way, you are not going to have stuff going from nowhere to @1.2 trillion and then back to a trillion practically at the drop of a hat. That is instability; that is a case of a medicated market that is essentially very dangerous and is one of the many adverse consequences and deformations that result from the central-bank dominated, corrupt monetary system that has slowly built up ever since Nixon closed the gold window, but really as I say in my book, going back to 1933 in April when Roosevelt took all the private gold. So we are in a big dead-end trap, and they are digging deeper every time you get a new maneuver.
Reagan Budget Guru Declares: We've Been Lied To, Robbed, And Misled...
(Second column, 3rd story, link)
…read more
Source: Drudge Report
By Robert Lenzner, Forbes Staff President Obama and former President Clinton are adamantly warning that the devilish sequestering of the federal budget is a bout of austerity we should avoid at all costs.Think Britain,Italy, Spain, Greece. Think austerity equals slowdown equals unemployment equals expectation of lower profits. Sequester or no sequester the Congressional Budget Office(okay factor in grains of salt for predicting the future) heralds the first budget deficit under $1 trillion in 5 years if– and that’s the “if” Obama and Clinton want avoided– in order to get down to a deficit of hallelujah! only $845 billion.(see the charts published by the Washington Post’s Wonkblog) Herewith another bunch of ifs, ands or buts that impact the financial future: 1. CBO thinks the federal debt to GDP ratio will stick around 73% for the next 5 years– and not creep up to the 90%-100% troubling level that Harvard economist Ken Rogoff views as certain to stall economic growth. Only thing is CBO thinks the “debt-to-gdp ratio will then start rising again in the latter half of the decade.” 2. Here’s how that will happen. There will be more spending than revenues. So that the necessary match-up won’t take place and leave the deficit to keep growing. The only times they matched up was in 1965, 1968, and 1997, according to the CBO, which is considered politically independent, I am told. 3. The reason for the spread are two; the rise of health care and the net interest cost of servicing the increasing amount of federal debt. Indeed, they are both rising as a % of GDP, while “everything else is falling.” by 2020 CBO believes the US will be “spending as much on interest payments as we are on the Pentagon’s budget or on non-defense discretionary spending.” Ouch! And that’s even with interest rates on securities maturing in 10 years or less under 2%. 4. Here’s the killer as far as I’m concerned. You won’t hear this from Wall St. brokers flogging stocks. It will take 4 more years– until 2017– so a decade since the 2007 meltdown began– for the “economy to return to its full potential.” 5.Yes, growth will pick up AFTER 2014( you have to wait 2 more years) but unemployment won’t reach the 6.5% target for ceasing and desisting from QE until maybe 2016. It will only be 6.8% in the 4th quarter of 2015. The message; expect low interest rates for some time to come. We seem to be mired for at least 5 more years in slow growth that might require further trillions increasing the deficit. David Stockman, who was chief of the Office of Management and Budget in the Reagan administration, flatly predicts a “permanent and insurmountable” fiscal cliff in his new book, ” The Great Deformation, The Corruption of Capitalism in America.” The culprit; the dug-in policies about taxing and spending by the two political parties. Guess I’d rather see sequestering in staggered amounts over the next 4 years. …read more
Source: FULL ARTICLE at Forbes Latest
