People, Morality, Credit and Economics – A Reflection

Again, I’ve been bothering poor people on economics forums with my points of view…

…so, dear reader, I now, again, get to bother you too!

I recently posted responses to a very good article by a blogger “Sell On News”, here.

His post is duplicated here, for your convenience:

Economics is people not arithmetic

Gold Bubbles and Fiat Money – It’s All About Faith

I posted this recently as a long-winded, sefl-indulgent comment at the Bullion Baron’s blog site: http://www.bullionbaron.com/2011/12/goldsilver-on-verge-of-bubble-phase.html

Enjoy.

My 2c…

I think we will see some more movements down in USD terms, possibly to around $1500.

But, honestly, I think that there will be far too many people (even including “evil” speculators!) that would think $1500 is too cheap for, given the amount of actual and potential fiat/govt carnage in the works, such that $1500 would see the bottom for quite some time.

Personally, i think slow-ish rallies with sharper but less substantial “corrections” will occur after the next substantial phase of selling in PMs – ie. maybe gold to $1500 and silver to $25 USD/ounce…but steps and and down from there, gathering parabolic pace over the next few years.

The truth is, this is currently about Faith – the fundamentals.

But, like many bubbles, it will morph into a fundamentally-based frenzy that will build upon itself until the relative price is significantly divorced from its justifiable basis.

The way it “gets there”, though, is what is confusing many people at the moment, IMHO.

For the “gold is a bubble” crowd, they are confused why such a liquid asset has “bubbled” for so long, has had major corrections, and still keeps going up; for the “gold has fundamentals” crowd, too many of them are too simplistic in their thinking – if it’s supposed to “go up” because of the fundamentals, why does it keep coming down so far and fast, so often?

For both, they underestimate just how significant speculative financialisation is, and just how far it can drag a price in either direction, on a fundamental base or not. For the former, they do not quite realise that it is not REALLY about fiat dilution (printing, etc), but about fiat FAITH…

…where the USD and Gold (PMs) do not actually represent two commodities competing as “money”, but, instead, two stores of mutually-opposed FAITH: the USD as a store of faith in fiat/govt decree; and Gold (PMs) as a store of “non-fiat” or “un-dollar” FAITH.

ie. they are opposite sides of the same coin, so to speak (excuse the pun!).

Thanks again,
Stewart

Me Resuming…Again…

Following on from the last post, I get a little more philosophical, even theological (were that possible!?!?)

Enjoy…

For what it’s worth, here’s my take, in summary:

Government: will screw things up, eventually if not immediately, when it tries to affect certain outcomes (ie. control people, in effect) – rather than simply establishing laws for the land that insist that people treat eachother “well”, and enforce those laws for people that do not treat eachother well.

The Market (ie. people interacting normally with one another) – will screw things up when they don’t treat eachother well, either eventually or immediately. This can happen even within the bounds of very good and reasonable govt laws.

History Resumes…But what is it that is resuming, exactly?

A great blogger, “Sell on News“, at one of my favourite economic and finance blogs, Macrobusiness, wrote an article recently called “History Resumes“.

It was a good article, but I did have some philosophical objections, which I expressed in some comments to the post…and I’ll admit that since it’s been so long since I posted anything here, then it was about time to write something!

I’ll replicate the article, below, and then follow on with my comments.

Enjoy.

The Necessarily Moral and Psychological Basis of Money Systems

Posted this over at the MacroBusiness SuperBlog site, in response to this article (comments section, of course!): Overruled

My thoughts:

1) Money is firstly a moral phenomenon; and then it is a psychological one (built on the chosen moral foundation – trust, etc). ie. the value of said money only exists because of perception, belief, trust, etc…else it will fail as money, as a medium of exchange.

2) Secondly, we look to govts too much – they can only “make” things happen monetarily as much as the people who use the currency/money every day ACCEPT (read: believe, trust) the money to have moral and psychological value; else, again, it will fail as money. Hence, their abilities to “fix” (read, regulate, etc) are limited by the points of Point (1), which they cannot, largely, control.

Peter Schiff on the Institutional Gold Rush – And my Thoughts on Implications for the Coming Gold and Silver Bubbles

I tend to think these days in terms of bubbles: where is funny money going these days to create a bubble? Hence, where are the “bangs” going to come from?

So, i was quite intrigued with this article of Peter Schiff’s at the Daily Bell, particularly in light of one of my current favourite charts, and the article’s implications for Gold, and its “soon-to-be” (IMHO) bubble (though i am still, for the time being, a gold bug with Austrian sympathies!)

Why China is Not Different

Posted this at an online blog recently, in their comments section.

Enjoy.

I think that one of the main reasons that “China is different”, is really, because the USA “was different” – in that the USA was (!) possibly the greatest economic machine ever (?), and China “works” only because the USA first existed…else, Chinese communism would and could never have done what it has done. It is only the stupid, short-sighted USA that enabled them to become what they have become, and are becoming, due to massive USA –> China wealth and productivity transfer.

ie. it took the USA to first legitimately “succeed” for Chinese Communism/centralised-market-weirdness (?) to ride on the back of the USA…else there simply would be now “Wow, China!” that we have today.

So, is China different? Sure, why not.

But i’m still uneasy about the whole “they are different in a way we don’t yet understand”.

And my problem is philosophical and psychological in nature.

Do the Financial Actions of Central Banks Affect the Prices of Everyday Items?

I had a friendly exchange with a few economics acquaintances recently, where we were discussing the role (or not) that Central Banks actions had on prices of items in the “real world” (housing, food, energy, minerals, etc).

Particularly, we were discussing whether recent actions by Central banks around the world – to “bail out” various financial institutions, to directly stimulate, to “Quantitatively Ease”, etc, etc – would affect those aforementioned types of items – food, housing, etc…the sorts of things that people in the real world cared about, as opposed to the many varied financial assets and instruments that exist.

Measures of Affordability in Context. And Is This Chris Joye’s “Fischer Moment”? (Updated)

In case you didn’t know, my favourite property spruiker, Chris Joye (CJ), has recently posted this article in Business Spectator:

A Property Bubble Long Shot

More of the same: ‘we’re right, they’re wrong, Australia is different’:

In one corner we have journalists at The Economist newspaper, who in their latest survey make the extraordinary claim that Australian house prices are overvalued by 56 per cent using their preferred benchmark. In the other corner we have a crowd of the most respected economic minds in Australia, including the Reserve Bank of Australia, the Commonwealth Treasury, almost all market economists, and leading house price index providers, such as RP Data and Rismark.

In my opinion, this is not a goo start – it rings of an argument from authority, which I have little logical respect for. Anyhow, moving on…

Some Thoughts on Government Debts and Money Printing

An particular argument that urks me is when people assert that when inflation occurs due to more money being produced than goods to tie it to, that this is “just inflationary”. And, it is, sure.

But the implicit assumption here is one of near-instantaneous equilibrium of the money supply, as if “things pretty much just go up together, proportionally”; or at least, that and similar explanations are issued at moderators to contentions raised.

But the truth is that inflation, at least as I have perceived and experienced it, is rarely, if ever, uniform.

An Irishman Walks Into a Bar…

Recently read the following from the Delusional Economics blog (article here):

Mary is the proprietor of a bar in Dublin. She realises that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronise her bar. To solve this problem, she comes up with a new marketing plan that allows her customers to drink now, but pay later. She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).

Aussie Officials and The Aussie Housing Bubble (“not”)

I say “not”, because it would, in fact, be political, social and economic suicide for Government employed (or endorsed) officials to say that “there is a housing bubble”, even if they believe there is….

…So the moral here is: just because you don’t hear our officials saying things like “Hmm, yes…it does look bubbly, doesn’t it?”, does not mean there is not one.

Two Million Aussies in “Poverty”

I recently came across this article: LINK

It is simply a mainstream media recognition of what many, myself included, have seen in family, friends, acquaintances, and anecdotally: people are struggling under the weight of their financial obligations, particularly mortgage repayments, credit card interest payments, vehicle operational costs, and simply putting food on the table.

The Australian Housing Bubble Pop: More Unemployment Required, or Something Simpler?

I have to say that this gets my goat a bit, so to speak…

It is common these days for people (especially those denying for whatever reason that Australia is in a housing price bubble) to assert that a significant increase in unemployment is required to cause a significantly reduce Australian House prices, via problems with servicing existing debts, and the subsequent swelling of houses being listed on the market, which the former owners could no longer afford.

The truth is that Housing is just so the “elephant in the room” in this country, over the last decade in particular.

That being true, have the “it’ll be OK, even if it’s not” crew considered what must be happening to our economy if, for whatever reasons, the housing sector gets “sick”?

Inflation: Ron Paul Explains how We Got Into This Mess

I’d be simply silly to try and make everything I put into this blog my own, original content.

Truth is, there are so many people that know so much more that I do, and I might as well share their original thoughts, since I find myself influenced by their thinking anyway…

So, here’s a brief, clearly written and reasoned article by a guy name Ron Paul, written in 2008, and entitled: “Inflation: How We Got Into This Mess“.

Playing With Bubbles – Part 3: The Original Rodrigue Post

This is more of an “FYI” than anything else.

Below is a copy of the original 2006 post by Dr. Rodrigue, that includes that now famous (infamous?) Bubble Psychology chart.

Are These the Winds Before the Hurricane?

re: “Consumer debt rose to record level in the June quarter…”

Playing With Bubbles – Part 2: Rodrigue, and a Closer Look at the Australian Housing Market

Well, in keeping with Part 1, I said I would post more trends if I found them.

My acquaintance “Gim” at the TalkFinance Forum has come through with the goods again.

Upon my casual request, he willingly came through to show trends of Australian state house prices with time.

And the results are indeed interesting.

I post them below and leave you to decide if you think the trends are at least roughly fitting the Rodrigue Bubble Psychology Chart

Playing With Bubbles Part 1: Real-Estate Case-Studies at a Glance – Fitting the Rodrigue Bubble Curve?

I’ll start by showing you a picture of what Dr. Jean-Paul Rodrigue of Hofstra University in New York thinks “bubble” psychology looks like in the “real” economic world:

Interesting, isn’t it?

Intuitively, it seems to make sense, don’t you think?

Markets, Housing, Debt and Price: The Fundamental Importance of Appreciating Continuous, Dynamic Price Discovery

When most people contemplate supply and demand, and the balance of supply and demand market price for an item, they tend to consider Demand as if it were merely “desire”, and neglect the financial ability of the potential buyer to actually afford the current market price.

Here is where simple desire to buy is shown to insufficient – I know this should be obvious but the “means” or “ability” of buyers to afford/demand the market price is so infrequently discussed. Why?

Is Another Capitulation Day Looming In the Short-Term? What About Your Superannuation?

OK, so i read up on a lot of this stuff – the interaction of the human and the technical interests me.

Read this article recently: Capitulation Day Looms

Yeah, sure it’s a bit technical, but the main (edited) excerpt is:

Is Gold an Inflation and Volatility Hedge?

An acquaintance recently pointed me to the following article:

http://host.madison.com/ct/news/opinion/column/article_68f99b80-4258-5f44-a817-5cc64c6e1884.html

Essentially, it dismisses the idea that gold is an inflation and volatility hedge.

Though I find myself partial to gold (and silver….ever held bullion of gold or silver?! ‘Tis Cool…!!), I have to honestly agree.

BUT I must add that the wider economic context is CRITICAL, and cursory glances at selected historical trends (such as is done in the above article) miss so much key, general, macro-economic information – even elements such as, “Do people still value other things? And to what degree, relatively speaking?”

Desperate “Debt Dependent” Households Might Be In For More Pain

An acquaintance recently wrote about how many Australian households are still taking on more debt, despite a number of technical and anecdotal suggestions that many households are struggling to service debts; substantial cost of living pressure seems to be manifesting to the point of “maxxing out” on their ability to meet obligations (including bills)…perhaps this is also the case in other countries?

Instead of reducing debt, selling-up, moving on, cutting back where possible (what I would call “rational” behaviour) there is evidence desperate households are seeking other lines of credit (debt) to subsidise – or just meet – the currently characteristically indebted situation.

Hyperinflation Following Mega-Deflation? Maybe, Maybe Not…

An acquaintance recently critiqued a post I made on a Finance forum recently about low-probability of Hyperinflation. Instead, they said that a kind of “severe” Deflation is far more likely.

For the scope of their reply – that is “What is next?” – I must agree…how economies of the world with “large”, system controlling and degrading debt-loads can avoid a severe deflationary turn NEXT is beyond me…

For, in my opinion, two “opposing” forces (such as inflation and deflation) CAN and indeed DO co-exist, and we would see this at a Macro-Economic level as a “net” (residual) figure, of either net deflation or net inflation: formally this simultaneous co-existance of Deflation and Inflation is termed Biflation.

What to do with the USA Underwater Home Loan?!

I had an acquaintance recently post this on a forum i visit regularly…they’re from the USA, and their home is “underwater”, meaning the market value of their house is worth less than the current debt principal (net amount) they took out for it…ouch…but pretty common in the USA at the moment

Anyway, here’s my two-cents-worth comment to them, for anyone that cares!

They asked:

So….Where Will Interest Rates Go Now?

My brief answer:

(1) Up Slowly…Then

(2) Down Quickly…Then

(3) Up again Quickly (after a near-zero plateau)…

Australia (for example) is still in Stage 1, whereas the USA and Europe are in Stage 2.

Here’s the discussion, if you’re interested…

Hello world!

Hi there.