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Bruce
You are VERY INCORRECT in your assertions of Austrian Economics.
With all rspect what you have basically described in your views of Austrian
Economics is "mainstream economic" thinking, which is flawed to a very large
extent. I will address the many issues & comments you have made.
Firstly if you have assumed from my post that my view of the US economy
is that it will head for a depression , along the lines of what Prechter has
proprted for many years, you are totally mistaken. I am an Elliott
technician, & a very successful one at that. However Precheter is not an
Elliottician, he's a salesman. His metodology for Elliott analysis is
flawed, incoherent & is what I reffer to as "loose form " elliott theory,
which 95% + of the general investing community practices. He has been wrong
for many years & will continue to be so for as far as I can see. He is not
an Elliottician.
My market outlook is very bullish on a longer time scale, but what I
have purported wrt to the US economys depletion of its pool of funding
remains true. As such the implications of this degeneration will evenyually
manifest its self in reality by way of depression, but that will not be for
many decades to come. You must understand the implications of Austrian
economics wrt time. Just because an economy is in a process of degeneration
(via a depletion of its pool of funding as is the case with the US) does not
imply that economic activity & hence its financial markets will collapse
during this phase. In fact it implys just the opposite, as the process of
degeneration & decay is actually instigated by the manipulation of the money
supply & interest rates, hence leading to an economic boom lasting many
years & decades even, low unemployment etc. Only once this manipulation
ceases , does the economy collapse & the implications wrt asset
depriciation, capital outflows etc materialise, but until then the economy
will boom. This is exactly what happened to Japan. It had a major boom with
the nikkie to 40,000 etc, the manipulation ended, & look whats happened
since.
You state that the Japanese economy had stagnant money supply right
when the economy turned south & that they should have expanded money supply.
Your missed the point. The economy collapse precisely because the money
suppy stagnated.... as thats when the BOJ 's manipulation had ened... thats
why it collapsed. You seemed to have confused cause & effect, which is what
mainstrean economists do.. Ever since then the BOJ has been lowering
interest rates (which is what you say will save the economy & is the correct
thing to do), but in actual fact they should allow interest rates to rise,
not decrease. The japanese are caught in a liquidity trap. By lowering
interest rates to "save" the economy (as I state below in the next
paragraph is the "normal" thing they do), they actually further deplete the
pool of funding & exacerbate & prolong the economic misery. They can only
be saved by actually allowing increasing interest rates. This course of
action will make the economy collapse quicker but it will bring about the
end of the economic mailaise in the country very very much sooner. This is
the optimal course of action
Therefore, the superficial traits of a (positively) manipulated economy
is that there is an economic boom in which the reserve bank has shown its
head from time to time. The boom you witness is actually a wealth depleting,
unsustainable economic activity. This artificial lowering of interest rates
eventually causes the meltdown once the reserve/govt policy stops the
manipulation, BUT what happens then is the the reserve actually keeps on
lowering interset rates &/or expand themoney supply once the economy falls
into recession in order to "save" it. They should actually be increasing the
level of interest rates to return to availablity & alllocation of capital in
the market place back to its natural level.
Boom-bust cycles occurr because of reserve bank manipulation.
Activities in the economy are "funded" by loose moinetary policy that do not
accord with the preferences of consumers. Business responds to interest
rates because they view them as the instructions of consumers to proceed
with ventures, but once the reserve bank artificially lowers them & business
proceeds with "unauthorised" ventures they are in fact disregarding
consumer wishes. Real wealth creation can only be created , hence sustained
by real savings, not by money supply manipulation.
As the policy of artificially lowering of rates intensifies, it
attracts more & more activities that are not approved by consumers, hence
the greater the degeneration, & harder the "economic bust" once liquidation
occurrs.
This is what happened in 1987. You state/imply that when the fed
"flooded" the economy with money it "saved" the economy. No, incorrect. What
that was, was the Fed being manipulative further deplateing the pool of
funding in the US, because it not only supported the "unauthorised" business
ventures at the time but actally has promoted more such ventures because of
the increase in money supply. Sure the economic boom continues, but thats
all it is, just a boom, it aint sustainable & will force a massive econimic
contraction eventually An increase in money supply manifests its self in
a booming financial market, increasing GDP, increasinging incomes &
consumer expenditure etc as it has done, & gives the impression that all is
hunky-dory. The FEDS 1987 ACTION WAS JUST A CONTINUATION OF THE
MANIPULATION.. Interset rates should have been allowed to rise inorder to
"kill off" the economic fat & return the economies capital allocation to its
proper levels. The short term pain of such action would greatly outweigh the
disastourous effects of the latter collapse as it would be bigger & herder
eventually. Look at japan.
You seeem to support reserve bank intervention in a qulaified way, such
as in 1987, but this is flawed main stream economic thinking again.
Reserve banks cannot navigate economies, they can only disrupt the normal
allocation & flow of consumer preferences & dictates, thats why THE
ULITIMATE RESERVE BANK IS ONE WHICH IS NON-EXISTENT. Reserve banks create
boom-bust cycles economies by controlling money supply. They can control
GDP etc but this is meaningless. GDP is just a statistically flawed
calculation of final goods in the economy, it has nothing to do with
wealth creation. . If there was not gov't interventoion at all , there will
be no boom-bust cycles, just consistent, sustainable, indefinate wealth
creation.
This is whats happening in the US. The boom in the economy is borne out
of the artificial lowering of interest rate & money suppy manipulation. The
boom can/will last for many more decades primarily because the US dollar is
the worlds reserve currency. As you mention US dollars are expatriated
overseas , & hence normal inflationary pressures which would have normally
caused the reserve bank to raise interest rates (ie end the manipulaion &
bring about the onset of the collapse) will not materialise for a very
extended period of time. (what would happen if demand overseas dried up a
little for US dollars, such may well be the case when the EURO POTENTIALLY
becomes prominent. In any case US dollar satuartion is eventually likely in
some time frame) This allows the manipulation to continue for a very long
time, but it does not mean that the US economy is healthy, infact it implies
that it is excessively degenerate & decayed because of it. It is where the
Japan economy was in the mid 1980's..
Your comments about what should have happened in Japan is short-term
thinking , in that proper wealth creation is irrelevant to you. There is no
use in economic expansion if wealth creation is not present & more
importantly non sustainable over a long period of time. Likewise for you
1929 comments.
Further your remarks justifying Greenspans actions due to your naive
"baby boomers" statement is false. Earnings, incomes etc are representative
of wealth creation, they are readily the by-product of money supply
manipulation. eg, losse monetary policy in displayed by rising corporate
profits, earnings, & supposedly "healthy consumer indicators. That 's not
wealth creation, thats just paper money.
It may come as a shock to you seeing as you support manipulative
reserve bank practices in "saving' economies, but the absolute financial
system is one which is based upon a PURE Gold standard. The prior gold
staandard that as present this century was not Pure. In this way absolute
market efficiency can prevail & inflation in economies will be non-existent,
hence allowing for solid sustainable long term wealth creation.
This discussion has deviated substantially from trading, & i thinkit
best to leave it there
Regards
Peter Karaguleski [KKD]
Krueger Klage Derivatives
>Peter, You've already mentioned you're a follower of Elliot wave theory,
and
>one thing I've noticed about 'wavers" is that often a preconceived notion
of
>what the market should do is reached, and then economic fundamentals are
>"interpreted" to fit the theory.
>
>Prechter's most recent mailing is a perfect example. He has about nine
>charts of huge price runnups in various markets throughout history that
>eventually crashed. He then states because of this evidence, it's almost a
>foregone conclusion that the US markets will be next. In other words,
>there's absolutely no way the current US economic environment could be
>different from these other situations, and therefore we must follow in
their
>footsteps.
>
>I'm an adherent of the Austrian school of economics myself, but I have to
>take issue with your analysis of the Asian meltdown and its lessons for the
>future of the US economy. Comments are inserted below, and are aimed
>primarily at what the future holds for the US:
>
>>Specifically, in japan , whats refferred to as the "pool of funding" has
>been >depleted in japan over the last 30 or so years. The "pool
>>of funding" basically encmpasses the net wealth of a nation. This net
>>wealth is eroded by the artificial manipulation of economics areas of
>>interest, primarily interest rates. In japan specifically, what people
>>referr to as the "bubble economy of the 80's" was the climax of this
>>manipulation of the pool of funding..Once manipulation occurrs, the short
>>term (prehaps many years) benefits of reduced unemployment, high eco
growth
>>rates etc are not sustainable & the economy must collapse & return to
>>the mean. All gov't policies are manipulation. It is basically the
>>misallocation of resources.
>
>There are some problems with this thinking. Manipulated interest rates are
>not the problem in Japan, and never were. The primary problem has been the
>stagnation of Japan's money supply. Right when the economy turned
south,
>Japan actually froze the money supply at the very moment they should have
>been expanding it. Believe or not, they actually made the same mistake the
>Fed made in 1929. The stock market crash did not cause the Great
>Depression, the money supply contraction did. The Fed lowered interest
>rates back then too, and it did no good without more printed money
(although
>the Fed back then had a good excuse- the US was on the gold standard and
>they were required to defend the value of the dollar relative to gold, no
>matter what the economic consequences).
>
>There is no free lunch, and the downside to printing money is inflation,
but
>Japan is currently caught in a deflationary spiral, and inflation is
exactly
>what they need! Japan as a nation is producing too much and not consuming
>enough. Deflation causes conumers to put off spending because they know
>they will be able to buy the same product in the future for less money.
>Inflation does the opposite.
>
>Luckily, the Fed learned from its mistake. After the market crash of 1987,
>the Fed immediately flooded the economy with money, and the crash never
>spilled over into the overall economy. Now granted, this qualified as a
>"manipulated" move in money supply, but it was done for such a short
>duration that the positive greatly outweighed the negative. If you're
>waiting for a Japan style meltdown in the US, you're going to be waiting
for
>a long time...
>
>> The lowering(or increase) of interest rates by reserve banks is a
>>wealth consuming activity to a nation which, because it dosnt correspond
to
>>consumers decision to save more, implies that there isn't an increase in
>the
>>allocation of the means of sustence ( ie productve resources) in the
>>economy.
>
>I'd be interested to know where this information came from, because it
>doesn't comply with anything I ever learned about Austrian economics.
>Interest rates are simply a measure of both the supply and demand for
>capital (money). The Fed only controls short term interest rates. Long
>term interest rates have been falling for years now because America has
>entered a demographic cycle where both savings and spending are greatest
>(the baby boomers are now in the peak earnings period of their business
>careers). This increase in the pool of savings has increased the supply
of
>capital (the savings rate figures released by the BEA are completely bogus,
>which is a topic for another day...), therefore interest rates have fallen.
>This was a clear signal from the free market to Greenspan to cut short term
>rates, because the spread between long and short rates had fallen to
>virtually zero. The fed was not the leader (nor the manipulator), it was
>the follower.
>
>>So capital (hence eventually other economic resources like labour
>>etc.. hence lower unemployment rates in short term) is diverted to less
>>deserving ventures in the economy which otherwise would not have taken
>place
>>(were it not for the artificial lowering of interest rates by the reserve
>>bank)......
>
>Once again, I think you're confusing interest rates with money supply. No
>matter what the interest rate, the supply of investment capital will always
>flow to borrowers ranked from most promising to least, just as the supply
of
>labor will flow from the most promising jobs to the least. As you know,
>Austian economics assumes all entities (borrowers, lenders, workers, etc.)
>in a free market are profit maximizers / loss minimizers.
>
>It is when the money supply is expanded above and beyond what the
productive
>capacity of a nations's economy justifies that borrowers who did not
>"deserve" investment capital will receive it, as will financial markets.
>The US money supply as indicated by M3 has been growing, but a large
>percentage of this money growth (dollars) has flowed overseas and is being
>used as the medium of transaction in countries where there has been a lot
of
>economic instability. The "true" monetary level in the US is very stable.
>
>>this in essence is "fat" in the economy. Eventualy to support
>>this "fat" (ie economic booms in stockmarkets) the reserve needs to keep
>>lowering interest rates etc, otherwise it will all collapse. This is what
>>happened in japan, & recently asia.
>
>As indicated above, this situation doesn't apply to the US, but it is
>important to remember that the problems of Japan are completely different
>from those of the rest of Asia. Japan is caught in a deflationary cycle,
>whereas the rest of Asia is in an inflationary environment due to the
>collapse of the value of their domestic currencies.
>
>> The greater the manipulation the harder the fall & economic problems,
>&
>>hence the longer it takes to restorethe economies natural resource
>>allocations levels
>
>Agreed, but again the manipulation you refer to is not evident in the US
>economy.
>
>> In japan Money supply grew to such an extent by the artificial
lowering
>>of interest rates that in order to keep supporting the economy
>(stockmarket)
>>the govt had to keep printing money, but this is only possible for so
long,
>>so then what happens is you have asset deflation (leading to recession),
>>(eventually you get consummer deflation as incomes dwindle) & due to the
>>excessive money supply, coupled with the massive exsodus of capital from
>>the country due to the asset deflation you get exchange rate
depreciation.,
>>this ofcourse raises riskpremiums in the country & interest rates to
>attract
>>the badly need capital for economic activity........ ie credit crunch.
>
>The problems of Japan are obviously numerous and complex, but in regards to
>money supply policy, the history is indisputable. A chart of Japan's M3
>money supply clearly shows that the level was increasing during the boom
and
>was held flat / contracted over the past several years as their economic
>problems have worsened. I will agree with you that the absolutely morbid
>consumer sentiment in Japan now makes a government induced economic
>stimulation difficult, but that is only because they let the problems go on
>for so long.
>
>>TELL ME .....DOES THIS SOUND FAMILIAR......JAPAN, ASIA (yen, ringitt,
>>comsumer inflation world wide) ....& eventually the USA will succumb to
>this
>>outcome..
>
>Almost as much of the world is currently experiencing disinflation /
>deflation than is experiencing inflation. With all due respect, you still
>haven't offered any specific proof that the US will "succumb to this
>outcome" of other nations.
>
>All the evidence indicates that the US economic AND stock market boom are
>completely real and justified because the demographic forces behind them
are
>real.
>
>Bruce
>
>
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