America's Financial Crisis

[Anonymouse]

Re: America's Financial Crisis

My portfolio is down by 1/3 from it's high (which was about one year ago)...that's BAD.

I'd be curious to find out how any of you are fairing/

My investments are very low, as I am still very young and have not worked enough yet to save and invest (school), but in these turbulent times, I would stay away from the stock market.

In times of extreme volatility, you're better off not only (1) diversifying your portfolio, but also (2) investing in safer bets for the long term like bonds or CDs, etc. But to be honest, if I had the dough, I'd much rather invest in commodities. The value of paper currencies is very low, especially when you have something like the dollar. Historically, when the value of paper currencies decline, the price of commodities such as gold increase, as has been occurring in the past several years.

[Armenian]

Re: America's Financial Crisis

I like the oxymoron.

No, really. I live a middle class - debt free - life. I live a modest life. I can afford an upper middle class life, but I wouldn't like the kind of neighbors I would then have. I can afford to live in a bigger home but I prefer one that is sufficient for me and my family. I can afford to drive an expensive car but I prefer one that suits my personality - reliable, efficient and sexy. I live comfortably - below my means. Living below one's means is the secret to living a worry free/comfortable life in a society that emphasizes living beyond one's means.

You do sound wealthy, at least in knowledge.

That is my wealth

american economy is fine, there more worse economies at stake there like our Armenian economy

Mos jan, putting aside Armenia's dismal economy for a moment, why would you think the American economy is doing fine, especially at a time like this? I suspect your parent/parents do well financially. But we are talking about the economic pulse of the nation, not individuals who have managed to secure themselves financially.

[Mos]

Re: America's Financial Crisis

well american economy is not doing good in comparisson to previous standing, but in comparission to most of the economies in the world, it is still strong. Because of Georgian War Armenia has been effected greatly economically to the point where there has been widespread gasoline (benzine) shortages. Armenian economy is more critical right now, even though American economy is not doing so well and people are effected (including my family).

[Azad]

Re: America's Financial Crisis

:
No, really. I live a middle class - debt free - life. I live a modest life. I can afford an upper middle class life, but I wouldn't like the kind of neighbors I would then have. I can afford to live in a bigger home but I prefer one that is sufficient for me and my family. I can afford to drive an expensive car but I prefer one that suits my personality - reliable, efficient and sexy. I live comfortably - below my means. Living below one's means is the secret to living a worry free/comfortable life in a society that emphasizes living beyond one's means.

You do sound like a true Armenian or like most Armenians ... well except CA Armenians. No offense to the posters from CA, I am sure you are not included in that group.

[Azad]

Re: America's Financial Crisis

well american economy is not doing good in comparisson to previous standing, but in comparission to most of the economies in the world, it is still strong. Because of Georgian War Armenia has been effected greatly economically to the point where there has been widespread gasoline (benzine) shortages. Armenian economy is more critical right now, even though American economy is not doing so well and people are effected (including my family).

Mos you can not compare the American economy to a "small tribe of unimportant people, whose wars have all been fought and lost ..." (not the last war). I would rather be in a small country in the corner of the world with some self sufficiency than in the world's super power when the sheet will hit the fan (which will be soon).

[Armenian]

Re: America's Financial Crisis

well american economy is not doing good in comparisson to previous standing, but in comparission to most of the economies in the world, it is still strong.

Compared to the economies of what nations, African nations? Forget the global stock market, the reality is that the economies of certain Persian Gulf states, India, Brazil, China, Russian and many European nations have been doing much better than the economy of the US, even before the recent financial crisis. The US is still standing on its feet because foreign powers like China and Saudi Arabia keep pumping money into the US economy by loaning money, purchasing assets and purchasing government bonds. The reality is, the US economy is hollow, it has no solid foundation. This situation can not be kept indefinitely. Most probably your family is doing well. I hope they are smart enough to protect their assets. When the current financial crisis spreads from the real estate sector, the baking sector and the stock market sector to the rest of the economy, when the nation's social services and infrastructure begins to get affected, you will then see its direct impact on your family.

Because of Georgian War Armenia has been effected greatly economically to the point where there has been widespread gasoline (benzine) shortages. Armenian economy is more critical right now, even though American economy is not doing so well and people are effected (including my family).

Why in the hell would you compare Armenia to America? It's utterly silly. It's like comparing a tiger to a kitten.

[Armanen]

Re: America's Financial Crisis

The 2nd Gilded Age is upon us. It will be much worse than the first.

[Azad]

Re: America's Financial Crisis

Tomorrow (Friday) will be probably the worst disaster for Wall Street. In 12 hours, we will see.

"TOKYO - A massive sell-off on Wall Street and an escalating global equity crisis sent Asian stocks plunging Friday, with Japan's benchmark Nikkei 225 index tumbling more than 10 percent.

"Selling is unstoppable in New York and Tokyo," said Yutaka Miura, senior strategist at Shinko Securities Co. Ltd. in Tokyo. "Investors were gripped by fear."

http://news.yahoo.com/s/ap/20081010/ap_on_bi_ge/world_markets

[Anonymouse]

Re: America's Financial Crisis

Political Power and Economic Ignorance

Daily Article by Jeremie T.A. Rostan | Posted on 10/9/2008

Georges Bush's recent speech in defense of his bailout plan was quite a tour de force. Indeed, it managed to explain the pending recession of the US economy by a previous situation of "easy credit" without mentioning the monstrously inflationist policy of the Federal Reserve — which reached its climax in 2003 and 2004, when it lent dollars at a negative short-term interest rate, and resulted in the creation of more dollars in a seven-year period (2000–2007) than had been created cumulatively in the two centuries since the founding of the United States.

According to the 43rd President, the fault rests entirely on "foreign investors" willing to profit from the competitiveness of the US economy. Logically, the lengthening of the structure of production brought by net investment should have resulted in aggregate profits and economic growth — but not this time. For some reason (which the president deems useless to explain) low interest rates were a curse that somehow led all financial entrepreneurs to dissipate their capital in hopeless ventures and loans.

Because of fractional-reserves policies and the de facto international dollar standard, even the billions of units of the US currency spent abroad are duplicated and sent back to America, where they encourage credit. But George Bush did not mention that.

Finally, he concluded that

1. the Federal Reserve should have its powers extended far beyond their current scope, notably over all financial enterprises, not just banks, and
   
2. a massive bailout of taxed funds was necessary — as an exceptional intervention and some sort of public investment which would help the economy recover and be paid afterwards.

Economic knowledge and political ignorance

As Carl Menger explained, men's knowledge of the causal connections between natural phenomena determines the extent to which they control their own lives.[1] The outcome of their actions is only partly the product of individuals. It also depends on other factors that they do not know how to (or do not have the power to) employ as means towards their ends. Indeed, their knowledge only determines the extent to which men control their own lives theoretically. Practically, their actual control depends on the capital they have accumulated.

The causal connection between the increasing employment of higher-order goods and the increasing quantity (or quality) of 1st-order goods produced lies in the fact that the first increases the number of factors of a given causal process of production that have goods-character — i.e., extends to less proximate ones our power to direct its various factors to the satisfaction of our needs.[2]

Conversely, men's ignorance of the causal connections between natural phenomena — as well as their preference, ceteris paribus, for present satisfactions, which limits their saving — determines the extent to which they do not control their own lives, but rather depend for the satisfaction of their needs on side causes present in their environment.

We can extend this Mengerian analysis and say that men's ignorance of the causal connections between human actions determines the extent to which their control over their own lives and striving towards its improvement is limited by the present side effects of past political interventions.

Indeed, the less they grasp their future consequences, the more they tend to favor policies that seem to permit the immediate attainment of their ends — through coercion.

There is a TV commercial that says, "Imagine if firefighters ruled the world." We see Congress, packed with firefighters, one proposing policies, the others supporting them unanimously. It seems so obvious!

"Do you want more schools?"

"Yeah!"

"Do you want health care for everyone?"

"Yeah!"

It only takes thirty seconds. Then the chief concludes joyfully, "That's the easiest job I have ever had…"

Is it not that obvious and that easy? Do we want jobs for everyone? Then let's make it illegal to fire employees. Do we want everyone to be rich? Then let's distribute wealth…

Yes, we may in fact all share the same goals, in the sense that Ludwig von Mises pointed out: interventionists and partisans of laissez-faire seek the same general and "obvious" ends. But as the author of Human Action noted, the laissez-fairists do not advocate the same means, because the policies promoted by the interventionists overlook two things:

1. the causes of the evils they pretend to fight
   
2. their own future consequences

The causes of the present evils are the effects of similar interventionist policies of the past. The future consequences of present interventionist policies are similar to (but worse than) the present evils they fight.

Still, so complete a lack of understanding is all too common — not only on the part of "the man in the street," but also among those who pretend to teach economics.

You will not believe what I found in an "Advanced Placement" economics test, only a few days ago.

The following is number 7 of a series of "macroeconomics" multiple choice questions:[3]

To counteract a recession, the Federal Reserve should

• A. raise the reserve requirement and the discount rate
• B. sell securities on the open market and raise the discount rate
• C. sell securities on the open market and lower the discount rate
• D. buy securities on the open market and raise the discount rate
• E. buy securities on the open market and lower the discount rate

And the answer is supposedly E.

Notice that the question is not, "Should the Federal Reserve do anything, and if so, what?"

No, the question assumes that the Federal Reserve should do something.

What this question really asks is, what intervention of the Fed will have the immediate effect of stopping a recession? It does not ask, what are the causes of recessions? It does not ask, what will be the long-term effects of the Fed's actions?

From such a perspective, it does seem obvious that aggregate losses today mean diminishing economic activity, compared to the previous period, and a policy of inflation that pumps into the economy the equivalent of the aggregate loss will permit us to maintain as high a level of economic activity as before. And such a policy is "easy": the Federal Reserve only has to turn out more green bills.

But this will only "counteract the recession" and maintain the economic activity, immediately — i.e., it will not maintain it at all. On the contrary, it will result in a new recession — more distant in time, but worse than the present one — which a similar policy originated in the past.

Not all "experts" agreed. One commentator on CNN even acknowledged that the impending recession was a consequence of Alan Greenspan's "lax money policy."

Nevertheless, if some grasped the connection between these present effects and that past cause, few of them seem to have grasped that resorting to the same policies at present will necessarily have the same consequences in the future: to delay the recession, and worsen it.

Is there anything we can learn from such demonstrations of ignorance?

Conclusion: The Iron Law of Economic Ignorance

The worse and more widespread the ignorance of the causal connections between human actions, the higher the level of political intervention in society. The more one understands the causal connections between human actions and grasps the effects of political interventions, the more one opposes the more "obvious" and "easy" policies.

George Bush was certainly the spokesman of a more common attitude when he argued that, even if he opposed interventionism "as a general rule," he favored (as an exception) a massive taxation and inflation plan, because of exceptional circumstances. This only proves a lack of understanding of the fact that a causal connection is a necessity — even in "abnormal" conditions. Once we understand that causes of the same type have always and everywhere the same type of effects, we have to extend to all cases the praxeological principle according to which more of the same type of intervention only delays and worsens the evils it supposedly counteracts.

There is a sad irony to economic ignorance — on top of its disastrous effects. Let's call it the Iron Law of Economic Ignorance: the value of economic knowledge increases with its scarcity. That is, economic knowledge gets more valuable as the economy worsens; but the economy worsens according to the level of political intervention — which is a function of economic ignorance.

http://www.mises.org/story/3135

[Armanen]

Re: America's Financial Crisis

Great article Mouse!