Economic Crisis Avoidance Deus ex Machina - Part I: Active Asset Price Inflation - Eric Janszen

[geodrome]

Re: EJ’s Secret Message

Lord_Keynes,

I had a lot of trouble sifting through all the fallacies in your General Theory. Luckily a book has been written, called The Failure of the New Economics by Henry Hazlitt, which is a line-by-line commentary and refutation of the General Theory:

https://www.amazon.com/Failure-New-E.../dp/1388181126

Available for free:
https://mises.org/library/failure-new-economics-0

It was first published 13 years after your death, so you might've missed it. Check it out.

P.S. You're long dead while we are living in your long run.

Thanks for the laughs.

[Chris Coles]

Re: EJ’s Secret Message

Lord_Keynes,

I had a lot of trouble sifting through all the fallacies in your General Theory. Luckily a book has been written, called The Failure of the New Economics by Henry Hazlitt, which is a line-by-line commentary and refutation of the General Theory:

https://www.amazon.com/Failure-New-E.../dp/1388181126

Available for free:
https://mises.org/library/failure-new-economics-0

It was first published 13 years after your death, so you might've missed it. Check it out.

P.S. You're long dead while we are living in your long run.

Thanks for the laughs.

Thanks for that reference. What was most interesting is that the majority of available copies are from the US, very few from the UK, none from Europe.

[jk]

Re: EJ’s Secret Message

“Of the $2.4 trillion of notes & bonds the Treasury Dept offered last year, investors submitted bids for just 2.6 times that amount, data compiled by Bloomberg show. That’s less than any year since 2008.”

Luke Gromen added,
Verified account






4 replies18 retweets37 likes

[jk]

Re: EJ’s Secret Message

“Of the $2.4 trillion of notes & bonds the Treasury Dept offered last year, investors submitted bids for just 2.6 times that amount, data compiled by Bloomberg show. That’s less than any year since 2008.”

@lisaabramowicz1 bloomberg

There’s been a sharp drop-off in demand for US Treasuries in the past 12 months, to the weakest levels since 2008.

[dcarrigg]

Re: EJ’s Secret Message

Lord_Keynes,

I had a lot of trouble sifting through all the fallacies in your General Theory. Luckily a book has been written, called The Failure of the New Economics by Henry Hazlitt, which is a line-by-line commentary and refutation of the General Theory:

https://www.amazon.com/Failure-New-E.../dp/1388181126

Available for free:
https://mises.org/library/failure-new-economics-0

It was first published 13 years after your death, so you might've missed it. Check it out.

P.S. You're long dead while we are living in your long run.

Thanks for the laughs.

FWIW, I found reading Keynes (maybe more reading Minsky on Keynes) worthwhile. I have read Hazlitt and Rothbard as well, but I found Rothbard's "Ethics of Liberty" to be both extreme and barbaric. I presume Keynes wasn't all wrong, even though folks have moved on, in part simply due to the fact that DGSE remains the industry and government standard. It's clearly fallible, and if there's value in rifling through the Austrian lit, it's in that notion (which I think is much better put forth by Von Hayek than Von Mises). But it's pretty undeniable that recessions have been less frequent since the advent of this stuff (EJ posted a good graph about this recently). That's not to say I find no value in heterodox approaches & theories--I've bothered to spend time reading works from the post-Keynesian and Austrian and German Ordoliberal and other schools of thought. But New Keynesianism & the neoclassical synthesis are still the mainstream.

I'm generally heartened by the more recent empirical and behavioral turns in the field. I find that too often it just assumes that general equilibrium theory is Truth with a capital "T," when I think reality clashes with that on a regular basis. Even the empirical studies can be somewhat abused in extrapolation, & I found folks like Taleb valuable reads to check that impulse. I also find a general aversion to power, culture & institutions in the field (even where institutions are discussed, it's at such a 10,000ft level, that the process-grinding reality of them is rarely understood). And I think that aversion does it a great disservice. Common sense tells you it's hard to sell country music in Boston or baseball jerseys in Berlin. And that's just the very tip of a very deep iceberg. Weber's original definition of rationality included this. But the neoclassical folks stripped it out so that they could make graphs assuming only instrumental rationality. I'm not totally certain why the Dutch fell in love with tulips, but I'm pretty certain that if anyone was going to fall in love with tulips, it would have been the Dutch.

Long story short, I'm not sure it's worth dismissing major thinkers in the field. Most can reveal some kernel of truth. Collectively I think they're all missing some things. But I like to take a more-or-less 'American' approach rather than an Austrian one. Pragmatic rather than thought schools. Sift through it and adapt what seems to work to my own thinking, throw out what doesn't seem to work. Been a long time around here since we went on about 'small-r' republicanism, but that's more or less where my politics lie too. I find it a useful position--procedure-oriented again--allows one to adapt pieces of other ideologies, or at least allows space for arguments/debates and politics to play out. Can sit back and be unconcerned whether an idea is 'capitalist' or 'socialist' or whatever and ask instead, "Does it work better than what we're doing now?" And you don't have to do it from only a cold utilitarian perspective either. I took a lot from thinkers like Pettit and Cicero and Douglass. But there's lots of wisdom to be had in lots of places. Ideas can easily bubble up from the ancients or the bible. There are few problems in the modern world that don't have some sort of historical analogue.

[globaleconomicollaps]

Re: EJ’s Secret Message

My thesis is that the transition to what globalism was originally intended to be will be sold to the public as "nationalism", when in reality it will be nations ceding their monetary sovereignty to a supranational body. This has been at play for some time.

https://www.thelocal.fr/20111013/1463

I have a personal vendetta against Breitbart and Bannon. Bannon is indeed a despicable human being, irrespective of his political beliefs, which are not very easy to pin down.

I find your ad hominem of John Maynard Keynes to be distasteful. A century from now, everyone who ever contributed to this site will be dead and forgotten. History will never forget the name John Maynard Keynes.

He was a man interested in peace, and if you at all studied the founding of the United Nations and his many impassioned pleases, his entire desire with the Bancor system was to prevent another world war. Instead, the world war never ended and the US has killed untold millions maintaining a USD empire.

Let me try to organize my ideas:
1) What is economics? It is a branch of politics that disguises political goals with scientific sounding arguments. It is not a science like physics or biology are sciences. This means that, if I find that Keynes was a Nazi sympathizer, I should be able to consider this in my analysis of his writings. For instance Keynes famously promoted the "euthanasia of the rentier". In his day the rentier were ( or were perceived to be) Jewish bankers. This is a call to exterminate Jews. I'm not making an ad hominem attack per se, this is an attack on the man's politics and writing as well. In any case I take issue with the entire idea. If a man says or does something reprehensible this reflects on his work as far as I am concerned. Sorry if you think this is dirty pool, that is just the way I see it. Moreover "Dr.Keynes" it is one thing to think that the guy might have some redeeming characteristics and another thing to name yourself after a noted child molester.

2) Up above you seem to be making the argument that because Marine le Pen met with Ron Paul that this indicates that they want to cede monetary sovereignty to a supranational body. This has me stumped. France has already adopted the euro (i.e ceded monetary sovereignty) . It is the establishment that has promoted Globalization not Le Pen and Ron Paul. Le Pen has shifted her ideas on money quite a bit. She started out as an advocate of the gold standard (and the Franc) but now seems to be in favor of the euro. I think her constituency consists primarily disgruntled working age people who hold euro denominated debt. They stand to benefit from inflation. That is why she is referred to as a populist. Inflation is a popular idea. It took her a while to figure this out, but she now understands that (a) the Euro is a well managed currency and (b) It will continue to experience modest inflation for the foreseeable future. What she ( and the yellow vests ) want is MORE inflation(you know ... growf).

I don't know what Ron Paul wants in the long run. He says he is anti war, but I suspect he wouldn't be above calling in the troops if Puerto Rico was to secede. Marine le Pen is a fascist and will call for a greater France when she takes the throne. She is a old school globalist like Napoleon was a globalist.

3) Under the gold standard national currencies were more or less irrelevant because it was impossible to cause large amounts of inflation. A government that printed more money than was backed by gold in the vaults would rapidly be found out and the public would rush to put their money into gold ( or alternately other national currencies backed by gold). Is this what you mean when you say that le Pen and R. Paul are conspiring to remove monetary sovereignty? When other people use those words they usually mean that sovereignty has been ceded to an organization that will debase the currency (i.e. abuse the trust placed in it). In your formulation this seems to be "How can we best debase the currency while preventing the public from escaping our net". I don't see this as a pro-worker argument at all. More on this in a minute.

The Keynesian argument against the gold standard is that the gold standard retarded growth by constraining the money supply below the natural growth rate of the economy. it also prevented pro-cyclical monetary interventions during periodic recessions. I have been following this guy for a while. His principle argument is that we are looking at the end of growth. By this I understand the end of capitalism. His argument hinges on the fact that population growth in the developed world has largely stopped and that continued population growth in the developing world will not result in economic growth. In brief, in the future Keynesian stimulus will not work anymore and the need for a rapidly growing monetary base will not exist because the underlying economy will be shrinking not growing. This obviates the main arguments against the gold standard.

4) In other posts you claimed to be a Marxist. Do you understand that Keynes was not a leftist? He promoted policies that suppressed revolution by "buying off" disgruntled workers. The point of Keynesian stimulus is to promote "good" inflation ( i.e. inflation of goods and services) but not "bad" inflation (i.e. workers wages). The formula was specifically designed to support capitalism at the expense of working people.

5) You have created something of a straw-man argument with regards to gold bugs. Many people on this site hold gold for a variety of reasons. Almost none of them are what you might call gold bugs. EJ has written extensively on gold here and is an enthusiastic fan. I think his model portfolio holds a modest 15% gold. Wikipedia has a bunch of descriptions of gold bugs. They range from simply being an advocate of gold to promoting any number of theories about gold suppression and indeed promoting the gold standard. I should point out that EJ is pretty vocal in opposing both the "conspiracy theorists" and the classical gold standard.

For the record the gold price has tracked the Dow for 100 years. The Dow is winning, but in actuality you would have had to be a pretty active investor to match these results:


The gold price is going up exponentially marked by periodic sharp rises:


My money is on yet another discontinuity. You are welcome to refer to this as a conspiracy theory if you wish.

[Polish_Silver]

Re: EJ’s Secret Message

Reminds me of an advertisement I heard on AM radio over the holidays that made me laugh; "Prices so low that we're not allowed to say them on the radio!"

I also like the oft used; "...savings up to 40%, or more!" Which is it? Is it up to 40% or is it more? It can't logically be both.

What's sad is that these work on people.

The irrationality of people and institutions is at the root of most of our problems. I am living in Wilton CT now, and I really notice how irrational
things are here. Taxes through the roof, but no sidewalks. Pay to use the city parks, even if you are a resident. pay $700k for a house with your well and septic drain field in the back yard (with water table about 0m ) and no sidewalks. The schools are "good" mainly by making it impossible for low income people to live here.
I don't want to be ejected to the Rant section, so i'll stop here.
z

[Polish_Silver]

Re: wealth effect.

Not sure if your definition of "wealth effect" is inclusive of this, but increasing asset prices allow the collateralizing of increasing credit (for example, re-financing mortgages which frees up cash and credit to buy more property).

It is an important question how asset price growth stimulates the economy. It certainly does, based on the relationship between boom bust cycles, observed
in 1929, 2008, etc. I agree it is not obvious how. During the housing boom, the assumption of perpetually rising prices made people willing to increase credit and spending. I think it might have been similar in 2000 and 1920s: the rising asset prices made debt increase possible, as GRG says.
I

[Slimprofits]

Re: wealth effect.

this thread ....can we get a clean up on aisle 7?

[jk]

Re: wealth effect.

this thread ....can we get a clean up on aisle 7?

it demonstrates the power of a troll to disrupt civil discourse.

[touchring]

Re: EJ’s Secret Message

For the record the gold price has tracked the Dow for 100 years. The Dow is winning, but in actuality you would have had to be a pretty active investor to match these results:


The gold price is going up exponentially marked by periodic sharp rises:

The pricing of gold has thus far been based on the assumption that there is an unlimited supply of gold beneath the ground. Hence gold only needs to mirror inflation, no more, no less. Because there's an unlimited supply that can be dug.

[thriftyandboringinohio]

Re: EJ’s Secret Message

The pricing of gold has thus far been based on the assumption that there is an unlimited supply of gold beneath the ground. Hence gold only needs to mirror inflation, no more, no less. Because there's an unlimited supply that can be dug.

Thanks touchring, that's a view of gold pricing I have never before considered.
My knee-jerk reaction is to disagree and dismiss it, but the idea is pretty good and deserves more consideration than that. Let’s address your point with facts.

At least superficially, the price of gold is widely perceived to rest on the assumption it is rare. Clearly there is not a truly unlimited amount available, the planet is finite. But if we are speaking philosophically and we are including here the faint traces of gold floating in sea water in parts per billion, and the nano-particles dispersed in beach sand, and the amounts way down in the molten core of the earth, there may be such a huge amount that it can be considered unlimited. But we can't get any of that gold at a price some person is actually willing to pay in cash. It seems fair to disregard this vast amount of unconventional gold because it is unrecoverable.

The World Gold Council says we have about 190,000 metric tons of gold mined and above ground now.

Total above ground stocks (end-2017): 190,040 tonnes

Jewellery: 90,718 tonnes, 47.7%
Private investment: 40,035 tonnes, 21.1%
Official sector: 32,575 tonnes, 17.1%
Other: 26,711 tonnes, 14.1%

The World Gold Council also estimates below ground reserves of 54,000 tonnes. That is the amount of gold ore still in the ground at active mines, and gold deposits known to geologists which we expect someone will build a mine to get. Gold mining production has been running about 3,000 tonnes a year. With those last facts we can finally address your point.


The world supply of refined gold above ground goes up about 1.5% each year from mine production, and it can keep doing that for about 20 years at current course and speed. As far as we know, the world supply of refined gold above ground can increase by another 25% in total, and then that’s it, we are out. No more additional gold. If we imagine people become desperate and start bidding up the price ever higher, perhaps small amounts of marginal low grade gold ore could be mined and recovered, but certainly far less than we mine today. And today we only grow the gold supply 1.5% each year.

So I therefore conclude that gold is not a commodity in unlimited supply, like wheat or rice or lumber where we can always get some more. Instead gold is a limited and fixed supply, much like paintings by Rembrandt or like Stradivarius violins. For all practical purposes there just won’t be any more found or made. Its price has little to do with inflation, but instead depends on how much someone wants to pay you to purchase the gold you have in your pocket today.

Did I miss your point entirely?

[touchring]

Re: EJ’s Secret Message

Thanks touchring, that's a view of gold pricing I have never before considered.
My knee-jerk reaction is to disagree and dismiss it, but the idea is pretty good and deserves more consideration than that. Let’s address your point with facts.

At least superficially, the price of gold is widely perceived to rest on the assumption it is rare. Clearly there is not a truly unlimited amount available, the planet is finite. But if we are speaking philosophically and we are including here the faint traces of gold floating in sea water in parts per billion, and the nano-particles dispersed in beach sand, and the amounts way down in the molten core of the earth, there may be such a huge amount that it can be considered unlimited. But we can't get any of that gold at a price some person is actually willing to pay in cash. It seems fair to disregard this vast amount of unconventional gold because it is unrecoverable.

The World Gold Council says we have about 190,000 metric tons of gold mined and above ground now.

Total above ground stocks (end-2017): 190,040 tonnes

Jewellery: 90,718 tonnes, 47.7%
Private investment: 40,035 tonnes, 21.1%
Official sector: 32,575 tonnes, 17.1%
Other: 26,711 tonnes, 14.1%

The World Gold Council also estimates below ground reserves of 54,000 tonnes. That is the amount of gold ore still in the ground at active mines, and gold deposits known to geologists which we expect someone will build a mine to get. Gold mining production has been running about 3,000 tonnes a year. With those last facts we can finally address your point.


The world supply of refined gold above ground goes up about 1.5% each year from mine production, and it can keep doing that for about 20 years at current course and speed. As far as we know, the world supply of refined gold above ground can increase by another 25% in total, and then that’s it, we are out. No more additional gold. If we imagine people become desperate and start bidding up the price ever higher, perhaps small amounts of marginal low grade gold ore could be mined and recovered, but certainly far less than we mine today. And today we only grow the gold supply 1.5% each year.

So I therefore conclude that gold is not a commodity in unlimited supply, like wheat or rice or lumber where we can always get some more. Instead gold is a limited and fixed supply, much like paintings by Rembrandt or like Stradivarius violins. For all practical purposes there just won’t be any more found or made. Its price has little to do with inflation, but instead depends on how much someone wants to pay you to purchase the gold you have in your pocket today.

Did I miss your point entirely?

Thanks for replying. You didn't miss my point but inflation does play a part to some extent as it costs money, energy and labor to dig the gold out of the ground. Gold supply is also inelastic meaning if there's a sudden increase in demand, it's not possible for producers to suddenly produce more gold.

There could be many factors determining the price of gold but the market appears to have not factored in fully the growing scarcity of newly mined gold.

[touchring]

Re: EJ’s Secret Message

Thanks touchring, that's a view of gold pricing I have never before considered.
My knee-jerk reaction is to disagree and dismiss it, but the idea is pretty good and deserves more consideration than that. Let’s address your point with facts.

At least superficially, the price of gold is widely perceived to rest on the assumption it is rare. Clearly there is not a truly unlimited amount available, the planet is finite. But if we are speaking philosophically and we are including here the faint traces of gold floating in sea water in parts per billion, and the nano-particles dispersed in beach sand, and the amounts way down in the molten core of the earth, there may be such a huge amount that it can be considered unlimited. But we can't get any of that gold at a price some person is actually willing to pay in cash. It seems fair to disregard this vast amount of unconventional gold because it is unrecoverable.

The World Gold Council says we have about 190,000 metric tons of gold mined and above ground now.

Total above ground stocks (end-2017): 190,040 tonnes

Jewellery: 90,718 tonnes, 47.7%
Private investment: 40,035 tonnes, 21.1%
Official sector: 32,575 tonnes, 17.1%
Other: 26,711 tonnes, 14.1%

The World Gold Council also estimates below ground reserves of 54,000 tonnes. That is the amount of gold ore still in the ground at active mines, and gold deposits known to geologists which we expect someone will build a mine to get. Gold mining production has been running about 3,000 tonnes a year. With those last facts we can finally address your point.


The world supply of refined gold above ground goes up about 1.5% each year from mine production, and it can keep doing that for about 20 years at current course and speed. As far as we know, the world supply of refined gold above ground can increase by another 25% in total, and then that’s it, we are out. No more additional gold. If we imagine people become desperate and start bidding up the price ever higher, perhaps small amounts of marginal low grade gold ore could be mined and recovered, but certainly far less than we mine today. And today we only grow the gold supply 1.5% each year.

So I therefore conclude that gold is not a commodity in unlimited supply, like wheat or rice or lumber where we can always get some more. Instead gold is a limited and fixed supply, much like paintings by Rembrandt or like Stradivarius violins. For all practical purposes there just won’t be any more found or made. Its price has little to do with inflation, but instead depends on how much someone wants to pay you to purchase the gold you have in your pocket today.

Did I miss your point entirely?

Thanks for replying. You didn't miss my point but inflation does play a part to some extent as it costs money, energy and labor to dig the gold out of the ground. Gold supply is also inelastic meaning if there's a sudden increase in demand, it's not possible for producers to suddenly produce more gold as it will take years to explore and open a new mine.

There could be many factors determining the price of gold but the market appears to have not factored in fully the growing scarcity of newly mined gold.

[thriftyandboringinohio]

Re: EJ’s Secret Message

You are spot on touchring. I don't claim to understand how much the cost of mine production affects the price of gold. Figures for all-in mining cost are murky. Some of the most profitable mines may be producing new gold as low as $600 /oz. Typical cost may be more like $1000/oz. Given that 98% of the gold available to buy today was mined long ago it's tempting to think mining costs are irrelevant. But I can't let go of my suspicion that most of that old gold is not available to buy, so the price of newly mined gold seems pretty important for the market price.

You point about inelastic supply is more clearly true. Plus the small size of the gold supply amplifies those effects. The entire world supply of gold, above ground plus below ground, at today's prices might be worth 10 trillion dollars. That's a big number by any standard, but the size of the world's capital markets (stocks + bonds + bank assets) might be $300 trillion, and world GDP might be $75 trillion. Since the gold supply is both relatively small and highly inelastic, sudden investor interest in gold could make for an explosion in the gold price. But nobody really needs to have gold, not the way people truly need to get food and medicine. So it's just as rational to predict investors might lose interest in gold and the price drops to nearly nothing. It's a fact that a gold price spike COULD happen, but it's only a hope or a hunch that one WILL happen. I've been holding mine for 15 years, and I've become jaded to the wild-eyed predictions of a gold price explosion just around the corner. I've been reading those since 2001. Still I think it's a good wager and I'm happy to bide my time, waiting for a good moment to sell it.