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EJ
01-16-09, 07:20 PM
http://www.itulip.com/images/schumpeter.jpgThe Ground Gives Way

Words heard from Henry Paulson July 2008 compelled us to note That dreaded phrase: ''The system is fundamentally sound'' (http://www.itulip.com/forums/showthread.php?p=41363#post41363). Our observation is that every time in history during a financial crisis that a Treasury Secretary or other government authority utters that phrase it means that the system is fundamentally unsound -- head for the hills. Continuing our historical perspective, this week's business and economic news recall an excerpt that we first ran in 1999, from the brilliant economist Joseph A. Schumpeter's (1883 - 1950) classic book, Business Cycles, published in 1939. His theories on the relationship among firms, credit creation, and money in booms and busts are unmatched -- and prescient. First, today's headlines.

• Circuit City to close 567 remaining US stores
• ConocoPhillips to Take $34 Billion Charges, Cut Staff
• Intel's Net Plunges 90% as Demand Dries Up
• California delaying tax refunds and welfare payments amid cash crisis
• Nearly 40K job cuts announced as weakness persists
• Deflation concerns grow as consumer prices shrink
• Shipping rates hit zero as trade sinks
• Trichet Vision Unravels as Italy, Spain Debt Shunned
• Baltic Protests Erupt as EU’s Worst Economies Shake
• German Bond Auction Fails to Attract Enough Demand

May an analysis of our current crisis eight years from now read like this?

On Consumer Credit
Consumers' borrowing is one of the most conspicuous danger points in the secondary phenomena of prosperity, and consumers' debts are among the most conspicuous weak spots in recession and depression.

In other words, we shall readily understand why the load of debt thus light heartedly incurred by people who foresaw nothing but booms should become a serious matter whenever incomes fell, and that construction would then contribute, directly and through the effects on the credit structure of impaired values of real estate, as much to a depression as it had contributed to the preceding booms. Nothing is so likely to produce cumulative depressive processes as such commitments of a vast number of households to an overhead financed to a great extent by commercial banks. - Joseph A. Schumpeter -- Business Cycles, 1939
On Businesses Creating their Own Money via Credit
If innovation is financed by credit creation, the shifting of the factors is effected not by the withdrawal of funds -- "canceling the old order" -- from the old firms, but by the reduction of the purchasing power of existing funds which are left with the old firms while newly created funds are put at the disposal of entrepreneurs: the new "order to the factor" comes, as it were, on top of the old one, which is not thereby canceled. It will be shown later how this will affect prices and values and produce a string of important consequences which are responsible for many characteristic features of the capitalist process. This side of credit creation may also be clarified by means of the analogy with the issue of government fiat, although in all other respects the differences are much more important than the similarities.

By confining the manufacture of credit to banks (within his model), we are roughly conforming to fact. But this restriction is not necessary. In various ways, firms may create means of payments themselves. A bill of exchange or a note is not, in itself, such a means. On the contrary, it generally requires financing and thus figures on the demand rather than the supply side of the money market. If, however, it circulates in such a way as to effect payments, it becomes an addition to the circulating medium. Historically, this has occurred repeatedly. An example is afforded by the practice which prevailed in the Lancashire cotton industry until at least the middle of the nineteenth century. Manufactures and traders drew bills on each other which, after acceptance, were used for the settlement of debts due to other manufacturers and traders, much as bank notes would be. This should be taken into account in any estimate of the quantity of credit creation. - Joseph A. Schumpeter -- Business Cycles, 1939
On Money Failures
We insisted above on the differences between the issue of government fiat and credit creation by banks, not because of the difference between the creating agencies but because of the difference in the purposes usually associated with the two, which is what accounts for the difference in effects. For it must never be forgotten that the theory of credit creation as, for that matter, the theory of saving, entirely turns on the purpose for which the created -- or saved -- means of payment are used and on the success which attends that purpose. The quantity-theory aspect or, as we might also say, the aggregative aspect of the practice is entirely secondary. The trouble with John Law was not that he created means of payment in vacuo, but that he used them for purposes which failed to succeed. This will have to be emphasized again and again. - Joseph A. Schumpeter -- Business Cycles, 1939
On Liar Loans and other Lax Lending Practices
It is important for the functioning of the system that the banker should know, and be able to judge, what his credit is used for and that he should be an independent agent. To realize this is to understand what banking means... Even if he confines himself to the most regular of commodity bills and looks with aversion on any paper that displays a suspiciously round figure, the banker must not onlyknow what the transaction is which he is asked to finance and how it is likely to turn out, but he must also know the customer, his business, and even his private habits, and get, by frequently, "talking things over with him," a clear picture of his situation. But if banks finance innovation, all this becomes immeasurably more important. - Joseph A. Schumpeter -- Business Cycles, 1939
On a Low Banking Standards and Bank Regulation
Whatever our theories, we must all recognize that the leading functions are not simple matters which people can be expected to perform as effectively as they can be expected to leave an employment that offers a lower for one that offers a higher wage, or to produce beans instead of peas if it pays better; but that they are difficult to fulfill, so much so that many of those who attempt to fill them are hopelessly below the mark in a sense in which even the subaverage workman, craftsman, farmer is not. This is, of course, so with entrepreneurs. But in their case we take account of it by recognizing from the start that a majority of would-be entrepreneurs never get their projects under sail and that, of those who do, nine out of ten fail to make success of them. In the case of bankers, however, failure to be up to what is very high mark interferes with the working of the system as a whole. Moreover, bankers may, at some times and in some countries, fail to be up to the mark corporatively: that is to say, tradition and standards may be absent to such a degree that practically anyone, however lacking in aptitude and training, can drift into the banking business, find customers, and deal with them according to his own ideas. In such countries or times, wildcat banking develops. This in itself is sufficient to turn the history of capitalist evolution into a history of catastrophes. One of the results of our historical sketch will, in fact, be that the failure of the banking community machine accounts for most of the events which the majority of observers call "catastrophes."

Not less important for the functioning of the capitalist machine is it that banks should be independent agents... This means, practically speaking, that banks and their officers must not have any stake in the gains of enterprise beyond what is implied by the loan contract. - Joseph A. Schumpeter -- Business Cycles, 1939
On Excessive Speculation in Residential and Commercial Real Estate
But under the circumstances of that period (the 1920s boom) and in the glow of its uncritical optimism, neither costs nor interest charges mattered much. It seemed more important to get quickly the home one wanted -- or the skyscraper the prospective rents of which in any case compared favorably with the rare on mortgage bonds -- than to bother whether it would cost a few thousand dollars -- or in the case of the skyscraper, a million or so -- more or less, provided money was readily forthcoming at those rates. And it was. First mortgages on urban real estate represent, on the one hand, not all the loans that were made available for building and, on the other hand, also financed not only other types of building but other things than building. But it is still permissible to point to the fact that they increased from, roughly, 13 billion in 1922 to, roughly, 27 in 1929... This increase is out of all proportion, not only with the increase in what can in any reasonable sense be called savings, but also with the expansion of bank credit in other lines of business, and illustrates well how a cheap money policy may affect other sectors than those in which it is conspicuously successful in bringing down rates.

On Over-Optimism
In the prosperity phase, investment from innovating activity increases consumers spending almost as quickly as producers spending. ...old firms will react to this situation and... many of them will 'speculate' on this situation. A new factory in a village, for example, means better business for the local grocers, who will accordingly place bigger orders with wholesalers, who in turn will do the same with manufacturers, and these will expand production or try to do so, and so on. But in doing this many people will act on the assumption that the rates of change they observe will continue indefinitely, and enter into transactions which will result in losses as soon as facts fail to verify that assumption... New borrowing will then no longer be confined to entrepreneurs, and 'deposits' will be created to finance general expansion, each loan tending to induce another loan, each rise in prices another rise'... this is a well-known cumulative process Schumpeter called "the secondary wave." In it is included the clusters of errors, waves of optimism, and overindebtedness... - Joseph A. Schumpeter -- Business Cycles, 1939
On American Bank Epidemics
The American debt situation and the American bank epidemics -- there were three of them -- are in a class by themselves. Given the way in which both firms and households had run into debt during the twenties, the accumulated load -- in many cases, though not in all, very sensitive to a fall in price level -- was instrumental in precipitating depression. In particular, it set into motion a vicious spiral within which everybody's efforts to reduce that loan for a time, only availed to increase it. There is thus no objection to the debt-deflation theory of the American crisis, provided it does not mean more than this. The element it stresses is part of the mechanism of any serious depression. But increase of total indebtedness at the rate at which it had occurred in this country is neither a normal element of the mechanisms of Kondratieff downgrades nor in itself an "understandable" incident, like speculative excesses and the debts induced by these. It must be attributed to the humor of the times, to cheap money policies, and to the practices of concerns eager to push their sales; and it enters the class of understandable incidents only if we include specifically American conditions among our data. Similarly, bank failures are of course very regular occurrences in the course of any major crisis and invariably an important cause of secondary phenomena... Those epidemics cannot, however, be considered as wholly explained by the ordinary mechanism of crises or by the mechanism plus the fact of excessive indebtedness all round or even by all that plus the stock exchange crash. The American epidemics become fully understandable only if account be taken of the weaknesses peculiar to the American banking structure... - Joseph A. Schumpeter -- Business Cycles, 1939
On Drawing the Wrong Conclusions from an Incorrect Reading of Data Made Irrelevant by Structural Economic Change

It is of the utmost importance to realize this: given the actual facts which it was then possible for either businessman or economists to observe, those diagnoses -- or even the prognosis that, with the existing structure of debt, those facts plus a drastic fall in price level would cause major trouble but that nothing else would -- were not simply wrong. What nobody saw, though some people may have felt it, was that those fundamental data from which diagnoses and prognoses were made, were themselves in a state of flux and that they would be swamped by the torrents of a process of readjustment corresponding in magnitude to the extent of the industrial revolution of the preceding 30 years. People, for the most part, stood their ground firmly. But that ground itself was about to give way.

- Joseph A. Schumpeter -- Business Cycles, 1939
Are we are seeing data "swamped by the torrents of a process of readjustment corresponding in magnitude to the extent" of the FIRE Economy of the preceding 30 years?


http://www.itulip.com/images/M1multiplier1980-2009.gif

http://www.itulip.com/images/TOTRESNS01011925-11012008.gif


Was the FIRE Economy a form of corporatism, much as Schumpeter forecast?

How will our political economy develop out of the global crisis that the demise of the FIRE Economy is creating?

I leave you with this from his Capitalism, Socialism and Democracy (http://en.wikipedia.org/wiki/Capitalism,_Socialism_and_Democracy), and a view of the future that strikes us as unfortunately prophetic.
Schumpeter's theory is that the success of capitalism will lead to a form of corporatism and a fostering of values hostile to capitalism, especially among intellectuals. The intellectual and social climate needed to allow entrepreneurship to thrive will not exist in advanced capitalism; it will be replaced by socialism in some form. There will not be a revolution, but merely a trend in parliaments to elect social democratic parties of one stripe or another. He argued that capitalism's collapse from within will come about as democratic majorities vote for the creation of a welfare state and place restrictions upon entrepreneurship that will burden and destroy the capitalist structure. Schumpeter emphasizes throughout this book that he is analyzing trends, not engaging in political advocacy. In his vision, the intellectual class will play an important role in capitalism's demise. The term "intellectuals" denotes a class of persons in a position to develop critiques of societal matters for which they are not directly responsible and able to stand up for the interests of strata to which they themselves do not belong. - Wikipedia (http://en.wikipedia.org/wiki/Joseph_Schumpeter)
iTulip Select (http://www.itulip.com/forums/showthread.php?t=1032): The Investment Thesis for the Next Cycle™
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vinoveri
01-16-09, 08:20 PM
http://www.itulip.com/images/schumpeter.jpgThe Ground Gives Way

Words heard from Henry Paulson July 2008 compelled us to note That dreaded phrase: ''The system is fundamentally sound'' (http://www.itulip.com/forums/showthread.php?p=41363#post41363). Our observation is that every time in history during a financial crisis that a Treasury Secretary or other government authority utters that phrase it means that the system is fundamentally unsound -- head for the hills. Continuing our historical perspective, this week's business and economic news recall an excerpt that we first ran in 1999, from the brilliant economist Joseph A. Schumpeter's (1883 - 1950) classic book, Business Cycles, published in 1939. His theories on the relationship among firms, credit creation, and money in booms and busts are unmatched -- and prescient. First, today's headlines.

• Circuit City to close 567 remaining US stores
• ConocoPhillips to Take $34 Billion Charges, Cut Staff
• Intel's Net Plunges 90% as Demand Dries Up
• California delaying tax refunds and welfare payments amid cash crisis
• Nearly 40K job cuts announced as weakness persists
• Deflation concerns grow as consumer prices shrink
• Shipping rates hit zero as trade sinks
• Trichet Vision Unravels as Italy, Spain Debt Shunned
• Baltic Protests Erupt as EU’s Worst Economies Shake
• German Bond Auction Fails to Attract Enough Demand

May an analysis of our current crisis eight years from now read like this?

....
...
...
Are we are seeing data "swamped by the torrents of a process of readjustment corresponding in magnitude to the extent" of the FIRE Economy of the preceding 30 years? Was the FIRE Economy a form of corporatism, much as Schumpeter forecast? I leave you with this from his Capitalism, Socialism and Democracy (http://en.wikipedia.org/wiki/Capitalism,_Socialism_and_Democracy), and a view of the future that strikes us as unfortunately prophetic.

Schumpeter's theory is that the success of capitalism will lead to a form of corporatism and a fostering of values hostile to capitalism, especially among intellectuals. The intellectual and social climate needed to allow entrepreneurship to thrive will not exist in advanced capitalism; it will be replaced by socialism in some form. There will not be a revolution, but merely a trend in parliaments to elect social democratic parties of one stripe or another. He argued that capitalism's collapse from within will come about as democratic majorities vote for the creation of a welfare state and place restrictions upon entrepreneurship that will burden and destroy the capitalist structure. Schumpeter emphasizes throughout this book that he is analyzing trends, not engaging in political advocacy. In his vision, the intellectual class will play an important role in capitalism's demise. The term "intellectuals" denotes a class of persons in a position to develop critiques of societal matters for which they are not directly responsible and able to stand up for the interests of strata to which they themselves do not belong. - Wikipedia (http://en.wikipedia.org/wiki/Joseph_Schumpeter)


What groups are representative of Intellectuals of today?

A good part, probably a majority of the Academics especially in the social sciences, no? University Profess and Admin are very powerful forces when they choose to be. Expert opinion by peer reviewed organization is relied on by the public and the political establishment, and perhaps well it should be ... well if it doesn't blatant violate common sense AND the purveyors of the knowledge and wisdom are not incentived by power or wealth.

Mega
01-16-09, 08:51 PM
Just HOW BAD are things going to get?
Mike

audrey_girl
01-16-09, 09:17 PM
Just HOW BAD are things going to get?
Mike

pretty, pretty bad:

http://www.youtube.com/watch?v=Y6yq5O8GXUo&feature=related
:(

BadJuju
01-16-09, 09:20 PM
You must simply be prepared for what is to come. I am building a stockpile of food. :)

vanvaley1
01-16-09, 09:24 PM
How bad are things going to get? Have you watched the Detroit Lions or St. Louis Rams play football? One a more serious note, http://jessescrossroadscafe.blogspot.com/
has an article and video that seems to infer that we should be alert as things could get ugly. The article is "Weekend Viewing:The White House Coup of 1933- BBC4". Perhaps a hint at an ominous future if we're not vigilant?

BadJuju
01-16-09, 09:39 PM
pretty, pretty bad:

http://www.youtube.com/watch?v=Y6yq5O8GXUo&feature=related
:(

You could also have a more positive outlook about it. The level of wealth destruction that is sure to ensue will do a lot to remove conspicuous consumption, which is bleeding the world of its resources. :) Live frugally, live happily.

pwcmba
01-16-09, 11:17 PM
Forget about getting your precious metals in a timely fashion-

"High Activity Market Alert
The precious metals industry is experiencing a substantial surge in activity which may cause delays. We apologize for this inconvenience and are working hard to get you your package as soon as possible. From the date of your confirmed order to the time you receive it can currently take as long as 3 to 4 weeks."

https://online.kitco.com/bullion/completelist.html

Slimprofits
01-16-09, 11:35 PM
Forget about getting your precious metals in a timely fashion-

"High Activity Market Alert
The precious metals industry is experiencing a substantial surge in activity which may cause delays. We apologize for this inconvenience and are working hard to get you your package as soon as possible. From the date of your confirmed order to the time you receive it can currently take as long as 3 to 4 weeks."

https://online.kitco.com/bullion/completelist.html

It depends where you are. I'm in a mostly rural, sparsely populated county in California and the one coin shop has been been stocked up with US and Canadian minted gold since the beginning of December and he's selling at a lower premium than Apmex.com for example. Not to many buyers around here, but lots of and lots of people are unloading their jewelry.

LargoWinch
01-16-09, 11:38 PM
I am a bit annoyed with the "doom and goom" and 02.

Look, inflation 10% real i-rates per year x 5 years will NOT turn North America into Argentina.

It will be bad no doubt, but what about the 70s, the 30s? No civil unrest then: so please lets keep things grounded here.

LargoWinch
01-16-09, 11:41 PM
Forget about getting your precious metals in a timely fashion-

"High Activity Market Alert
The precious metals industry is experiencing a substantial surge in activity which may cause delays. We apologize for this inconvenience and are working hard to get you your package as soon as possible. From the date of your confirmed order to the time you receive it can currently take as long as 3 to 4 weeks."

https://online.kitco.com/bullion/completelist.html

pwcmba, there is TONS of gold waiting to be sold to you at the right price, make no mistakes about it.

In my book, crude oil is alot more attractive now given that one ounce of gold buys you roughly 24 barrels of crude oil.

It is time to remember that gold is not the only currency or thing going up in nominal value during inflation.

FRED
01-16-09, 11:53 PM
I am a bit annoyed with the "doom and goom" and 02.

Look, inflation 10% real i-rates per year x 5 years will NOT turn North America into Argentina.

It will be bad no doubt, but what about the 70s, the 30s? No civil unrest then: so please lets keep things grounded here.

Agree. The US will weather the storm, better than others. No ox drawn Mercedes. No digging for cans of tuna under the rubble.

Sharky
01-17-09, 05:29 AM
Look, inflation 10% real i-rates per year x 5 years will NOT turn North America into Argentina.

What makes you think it will average only 10%?

As of Nov 2008, the adjusted monetary base was growing at 75% year over year. I'm not a doom-and-gloomer, but the odds of inflation only being 10% per year after that kind of input would seem to be pretty small -- and it seems like the worst spikes are probably yet to come.

Southernguy
01-17-09, 06:49 AM
LW: I agree, there´s surely tons of gold to be sold at the right price.
With your other assertion, about oil, I also agree, buy there is a "little" practical problem, how do you store oil?
How safe are oil based ETF´s, noting that there´s always some kind of counterparty risk in futures transactions?
I bought some GSG, then sold it, making one of my very rare trading profits, but I hesitate to commit a very large amount to those instruments.
Comments are welcome.

Rajiv
01-17-09, 06:50 AM
Methinks that Fred is whistling past the graveyard!

we_are_toast
01-17-09, 10:21 AM
I leave you with this from his Capitalism, Socialism and Democracy (http://en.wikipedia.org/wiki/Capitalism,_Socialism_and_Democracy), and a view of the future that strikes us as unfortunately prophetic.
Schumpeter's theory is that the success of capitalism will lead to a form of corporatism and a fostering of values hostile to capitalism, especially among intellectuals. The intellectual and social climate needed to allow entrepreneurship to thrive will not exist in advanced capitalism; it will be replaced by socialism in some form. There will not be a revolution, but merely a trend in parliaments to elect social democratic parties of one stripe or another. He argued that capitalism's collapse from within will come about as democratic majorities vote for the creation of a welfare state and place restrictions upon entrepreneurship that will burden and destroy the capitalist structure. Schumpeter emphasizes throughout this book that he is analyzing trends, not engaging in political advocacy. In his vision, the intellectual class will play an important role in capitalism's demise. The term "intellectuals" denotes a class of persons in a position to develop critiques of societal matters for which they are not directly responsible and able to stand up for the interests of strata to which they themselves do not belong. - Wikipedia (http://en.wikipedia.org/wiki/Joseph_Schumpeter)


I am a bit concerned with this paragraph. This implication that the end of capitalism and the beginning of socialism may come about due to the "intellectuals", could very easily add fuel to a fire that we may not want to be stoking right now.

One could argue that there has been an anti-intellectual trend in this country since 1980 when "intellectualism" was related to "elitism" in many political campaigns. The culmination of this trend resulted in the past 8 years which led to a purging of governmental expertise for political and religious loyalists. Factual data and reasoning skills were not only ignored, but discouraged, contributing vastly to the enormous problems we currently face. The more repressive form of government we currently have, due to the latest wave against "intellectuals" is more totalitarian than socialistic.

Even here on iTulip there are some who reject reasonable argument and factual data in favor of political rants and mysticism.


EJ
For these readers I will continue to share the manufactured rumors, grand fantasies, desperate wishes, and gnawing fears that pass for investment advice in these peculiar times under the title “Playing in Traffic” with my usual warning that all short term market price movement predictions should be regarded with grave suspicion, particularly those with charts attached with lines on them showing support levels, double tops, head and shoulders formations, and other assorted mumbo jumbo bullshit.
FRED:
This clearly expressed explanation of Astrology, PHI, Fibonacci and other fraudulent magical thinking based "systems" of market prediction is the final word on the topic. All future references to these will be linked here and the threads closed. We have serious issues to discuss in 2009. This is a waste of iTulip community brain power. I'm closing this thread.History has shown that in times of great economic stress, the anti-intellectual/elitist fervor can lead to very unpleasant and violent consequences. No matter how you may try to clearly define "intellectual" the anti-intellectual crowd will redefine it to meet their own emotional needs.

I would hope that the class warfare speech will be cautiously approached. The last thing I want to see right now is Joe the Plumber, with a pitchfork in one hand and a bible in the other, down at the entrance of the local university calling for the heads of the "intellectual" socialists.

jk
01-17-09, 10:39 AM
With your other assertion, about oil, I also agree, buy there is a "little" practical problem, how do you store oil?
How safe are oil based ETF´s, noting that there´s always some kind of counterparty risk in futures transactions?
<snip>
Comments are welcome.
you might want to look into canadian energy-based income trusts. these are smaller companies devoted to production more than exploration, and paying big dividends. i conceptualize them as storing oil for me, underground, and then pumping a barrel or two for sale each year, sending me the proceeds.

metalman
01-17-09, 10:54 AM
I am a bit concerned with this paragraph. This implication that the end of capitalism and the beginning of socialism may come about due to the "intellectuals", could very easily add fuel to a fire that we may not want to be stoking right now.

One could argue that there has been an anti-intellectual trend in this country since 1980 when "intellectualism" was related to "elitism" in many political campaigns. The culmination of this trend resulted in the past 8 years which led to a purging of governmental expertise for political and religious loyalists. Factual data and reasoning skills were not only ignored, but discouraged, contributing vastly to the enormous problems we currently face. The more repressive form of government we currently have, due to the latest wave against "intellectuals" is more totalitarian than socialistic.

he's very clear on this point... "The term "intellectuals" denotes a class of persons in a position to develop critiques of societal matters for which they are not directly responsible".

he's talking about lack of accountability and it is a HUGE problem with our political system... as you can see everywhere... such as when the fed gov't pols force states to spend money they don't have. this is socialism in one sentence... setting rules that the rule makers don't suffer the consequences of and don't have to live by.


Even here on iTulip there are some who reject reasonable argument and factual data in favor of political rants and mysticism.astrology is anti-intellectual. magical thinking is anti-intellectual. conspiracy theories are anti-intellectual. thank god itulip can tell the difference. if i wanted to go to prisonplanet.com's forum i would.


History has shown that in times of great economic stress, the anti-intellectual/elitist fervor can lead to very unpleasant and violent consequences. No matter how you may try to clearly define "intellectual" the anti-intellectual crowd will redefine it to meet their own emotional needs. that's right. they start to... as ej has said before... frame arguments as 'four legs good, two legs bad' ala the book animal farm.


I would hope that the class warfare speech will be cautiously approached. The last thing I want to see right now is Joe the Plumber, with a pitchfork in one hand and a bible in the other, down at the entrance of the local university calling for the heads of the "intellectual" socialists.that's not what he's saying. he's saying those who are accountable for their decisions are the ones who should be making the decisions. it's not about class. it's about accountability and the corruption that results when there isn't enough of it.

jk
01-17-09, 11:12 AM
'four legs good, two legs bad' ala the book animal house.
although THAT quote is from orwell's animal farm, there IS one quote from animal house that is germane: after returning from their road trip having thoroughly trashed the car that freshman pledge "flounder" borrowed from his older brother, one of the frat guys says: "flounder, you made a big mistake; you trusted us!"

metalman
01-17-09, 11:15 AM
Just HOW BAD are things going to get?
Mike

been reading this guy ej's stuff for 10 yrs. including this quotation of schumpeter... (http://www.itulip.com/depression.htm) july 1999. it all keeps playing out like a grade b horror flick.

how bad will it get? watching this all play out over the years, re-reading this and other old stuff here... (http://www.itulip.com/sheeple.html) i can't help it but figure that if we did a + b + c and got x + y + z as a result in the 1930s that we do a + b again but do d instead of c (pump shitloads of $$$ into the banks) we will get a different result x + y + n. as to better or worse, dunno. but can't you just feel it, as schumpeter said? the whole friggin thing is just coming apart. what a set-up...


Poll finds high hopes for Obama, economic plans (http://www.google.com/hostednews/ap/article/ALeqM5jye2lJN2jj4Bi5rooDwdJhZ4bsPAD95OG65G0)
The Associated Press - <nobr>18 hours ago</nobr>
With the US facing the gravest economic crisis since the Great Depression, the poll found broad optimism that Obama could help turn things around.

metalman
01-17-09, 11:18 AM
although THAT quote is from orwell's animal farm, there IS one quote from animal house that is germane: after returning from their road trip having thoroughly trashed the car that freshman pledge "flounder" borrowed from his older brother, one of the frat guys says: "flounder, you made a big mistake; you trusted us!"

ha ha! meant animal farm not house! but... yes... they both apply to current circumstances :D

Drifter
01-17-09, 02:06 PM
you might want to look into canadian energy-based income trusts. these are smaller companies devoted to production more than exploration, and paying big dividends. i conceptualize them as storing oil for me, underground, and then pumping a barrel or two for sale each year, sending me the proceeds.

JK, I have the utmost respect, especially for you and EJ, but my worst investing experience was with Canadian energy trusts. A while back the Canadian government changed the rules on trusts and tanked the market. I took my lumps and walked away, taking away the lesson that what the governments create, they can take away.

So, as long as the political risk, and exchange rate fluctuations are taken into consideration, yes, consider Canadian energy trusts.

raja
01-17-09, 03:06 PM
JK, I have the utmost respect, especially for you and EJ, but my worst investing experience was with Canadian energy trusts. A while back the Canadian government changed the rules on trusts and tanked the market. I took my lumps and walked away, taking away the lesson that what the governments create, they can take away.

So, as long as the political risk, and exchange rate fluctuations are taken into consideration, yes, consider Canadian energy trusts.I would love to be in Canadian energy trusts with their juicy dividends, and the slow but inevitable effect of dwindling oil supplies making their product ever more valuable . . . and I'm guessing that the political stuff has already been priced in.
But . . . visions of half the stores closed in the US and 20% unemployment quickly dispells any urge to invest there :eek:

Chief Tomahawk
01-17-09, 07:37 PM
Meanwhile, in Vancouver, BC:

http://futronomics.blogspot.com/2009/01/olympic-sized-depression-hitting.html

ThePythonicCow
01-17-09, 09:19 PM
The last thing I want to see right now is Joe the Plumber, with a pitchfork in one hand and a bible in the other, down at the entrance of the local university calling for the heads of the "intellectual" socialists.
With Sarah 'Barracuda' Palin by his side ... I kinda like that image myself :).


conspiracy theories are anti-intellectual.... not if they're out to get you :D.

Contemptuous
01-17-09, 10:03 PM
We _are_toast -

Of course, iTulip offers peerless analysis, and a very robust analytic method, but if you find the two "scathing indictments" of "the mumbo jumbo that is called technical analysis" in it's many forms below (from Fred and EJ) to be akin to scalpels applied deftly to the debunking of any value in this field, I would respectfully suggest these indictments are more akin to a blunt butter knife, as the field of technical analysis is vast and highly varied, and contains in it's midst some of the foremost investors of the past century. We are not talking about theorists but one or two members of a tiny elite of the most successful investors and speculators in history. Take Mr. William Delbert Gann for example - he was not only a technician, but an extremely esoteric one at that, venturing eclectically into all kinds of theories as a framework for his trading. This guy could give Jesse Livermore a run for his money. I'd like to see EJ and Fred ever have addressed Mr. Gann as a fraud to his person, as this guy quite demonstrably has out-guessed even the redoubtable iTulip in the course of a very well documented career. There must have been a very shrewd method tucked away in what iTulip would consider to be his technician's nuttiness. Here's the bio of one of the most outlandishly esoteric "technicians" in the history of the markets.

I've posted this before somewhere but it bears reminding that delegating an entire class of market participants (technically inclined market analysts) of which WD Gann is a prime example to the dustbin is open to question. I must remark on the docility with which this assertion is met by apparently everyone here (no-one voices dissent, while one or two reiterate it's "self-evident truth"). Sorry guys. The assertion runs into a few awkward standouts such as Gann, so inquiring minds might wonder whether it can be quite that universal. WD Gann is only one example - although he was quintessentially the technician, his performance in the top 1% of market players in history leaves one wondering whether his extraordinary acuity on market direction functioned in spite of the great effort he put into the technical aspects, or because of them. To suggest he owes his succes in spite of his technician's inclinations and work becomes a strained point. Schumpeter, Martin Mayer, et. al are of course brilliant economists and venture into much broader views than WD Gann was ever interested to study, but neither of them went out and extracted fifty million USD from the treacherous markets like this guy. Presumably if we find a summary assertion here untenable by such a glaring example to the contrary, we are allowed and even encouraged to point it out.

WD Gann casts a rather imposing shadow onto market history. I'd say he's a good candidate for "mere technicians" having a few actionable tricks up their sleeves.

And to pique Fred's profoundly anti-esoteric bent, take note of the distinctly esoteric aspects of Gann's life and work. ;) This guy according to Fred had to have been a little out to lunch, yet he managed to out-trade 99% of everyone else in 200 years? Hmm.

Here - the stuff at this link will have the great majority of iTuliper's guffawing. I personally have no opinion on it (I'm agnostic), although it does seem pretty far out in left field! What we are left with subsequently is the real point - that this guy's trading acuity and towering track record, leaves the rest of us in our entire collectivity amounting to not much more than one candle-power in comparison. Who else here has had the astuteness to take 50 million dollars out of the stock and commodity markets, eh? http://www.traderslog.com/gannsquare.htm

You wrote: "Even here on iTulip there are some who reject reasonable argument and factual data in favor of political rants and mysticism.". This assessment contains such a degree of uninquiring stereotype (presumably it's a definition of "technical indicators" being equivalent to "mysticism" which you've swallowed whole as issued by iTulip) as to obviate the genuine inquiry it purports to champion.

Otherwise think all your posting is great! So please accept this critique in a sporting way.

WD Gann

Considered by some to be the greatest trader of all time, William Delbert Gann was born on a farm outside of Lufkin, Texas on June 6, 1878. The firstborn of 11 children, Gann never graduated from grammar school or attended high school, having the obligation of working his family's farm. His was raised as a Baptist and kept his faith throughout his life. Gann began his trading career working in a brokerage in Texarkana while attending business school at night. He married Rena May Smith, and had two daughters. He moved to New York City in 1903 at the age of 25 and opened his own brokerage firm, W.D. Gann & Co. In 1919 at the age of 41 he began publishing a daily market letter, the Supply and Demand Letter. The letter covered both stocks and commodities and made annual forecasts. In 1924 Gann's published his first book, Truth of the Stock Tape. His market forecasts during the twenties have been said to be 85 percent accurate. Gann also made forecasts outside the world of investing: he is said to have predicted the elections of Wilson and Harding among others. In his 1927 book, the Tunnel Through the Air, he predicted the attack on the United States by Japan. In his forecast for 1929, he predicted the market would hit new highs until early April, then experience a sharp break, then resume with new highs until September 3. Then it would top and afterward would come the biggest market crash in its history. Gann prospered during the Depression, which he predicted would end in 1932. He acquired seats on various commodities exchanges, traded for his own account, wrote Wall Street Stock Selector in 1930 and New Stock Trend Detector in 1936. He bought a plane in 1932 so he could fly over crop areas making observations to use in his forecasts. He later moved to Miami, Florida where he continued his writings and studies up until his death from stomach cancer in 1955 at the age of 77. W.D. Gann is said to have taken more than 50 million dollars in profits out of the markets. He was buried with his second wife in Green-Wood Cemetery in Brooklyn at a location that looks toward Wall Street.


Even here on iTulip there are some who reject reasonable argument and factual data in favor of political rants and mysticism.

Quote:
<TABLE cellSpacing=0 cellPadding=6 width="100%" border=0><TBODY><TR><TD class=alt2 style="BORDER-RIGHT: 1px inset; BORDER-TOP: 1px inset; BORDER-LEFT: 1px inset; BORDER-BOTTOM: 1px inset">EJ
For these readers I will continue to share the manufactured rumors, grand fantasies, desperate wishes, and gnawing fears that pass for investment advice in these peculiar times under the title “Playing in Traffic” with my usual warning that all short term market price movement predictions should be regarded with grave suspicion, particularly those with charts attached with lines on them showing support levels, double tops, head and shoulders formations, and other assorted mumbo jumbo bullshit.
</TD></TR></TBODY></TABLE>
Quote:
<TABLE cellSpacing=0 cellPadding=6 width="100%" border=0><TBODY><TR><TD class=alt2 style="BORDER-RIGHT: 1px inset; BORDER-TOP: 1px inset; BORDER-LEFT: 1px inset; BORDER-BOTTOM: 1px inset">FRED:
This clearly expressed explanation of Astrology, PHI, Fibonacci and other fraudulent magical thinking based "systems" of market prediction is the final word on the topic. All future references to these will be linked here and the threads closed. We have serious issues to discuss in 2009. This is a waste of iTulip community brain power. I'm closing this thread.
</TD></TR></TBODY></TABLE>


The current best user of Gann's methodology - Gann Global (technical analyst prattling "mumbojumboese") has logged this market collapse in time and price decline in commodities / equities and compared it to the handful of other largest declines in history. Out of a detailed database of hundreds of other logged declines, in all markets spanning three centuries, the time compression vs. magnitude decline of the current event is without comparables. Not hyperbole. That conclusion, supported by one of the largest market databases in the world (detailed market historian for 30 years) is already enough to nail this simple but eye popping fact to the floor. Now that is what you might call **interesting**. His documented point is A) nothing in 300+ years comes close to this decline in ferocity of time compression, and B) no comparable decline in history concluded in a single leg down, which is all that this event has completed. Not entirely useless input from a hack technician.

Here's more useless input from the same hack technician (I checked - these bulletins were indeed released and dated as claimed). Besides, this guy is well above trying to be cute on points like this. This humble "hack technician" has really got a handy bag of tricks, eh? Meanwhile at iTulip we solemnly proclaim that "no-one can predict short term market moves". People ought to check around. More likely than not one or two other experienced technical analysts were reading this imminent break as well. Follow this one's eminently sensible comparative methodology and there is not much too mysterious about how he discerns parabolic blow-offs - their extent, or their windows for probable conclusion. I know of at least one other who got his clients out a month or two before Gann Global did, also with 30 years in the markets. Big deal. Skeptical iTulipers need to rediscover the value of agnosticism. Then these notions get handily demystified.

WHAT SUBSCRIBERS WERE TOLD IN 2008 (GANN GLOBAL)

On July 3, 2008, prior to the financial meltdown I issued an all-out sell signal in the stock market. 2 ½ weeks later on July 22, 2008 I issued an all-out sell signal in all investments tied to natural resource, energy and precious metals prices. I held a webinar for subscribers only and at that time I used the analogy of a theater in which every seat had been filled by investors and speculators. The 7-year commodity bull market off the 2001 low was one of the greatest wealth building moves in history. As of July 2008, it was our perception that the last of the late-comers had bought into the bullish argument and that one of the greatest deflationary moves in history would take place. At that webinar, I said that once someone screamed "fire" in this financial theater, subscribers would need to hit the exits before the inevitable stampede. Not only did we implore them to get out, but we made specific recommendations to enter short positions - specifically in the crude oil.

GRG55
01-17-09, 11:48 PM
Agree. The US will weather the storm, better than others. No ox drawn Mercedes. No digging for cans of tuna under the rubble.


Yes. But I for one would have no objection to catfood in the executive cafeterias of the bailed out banks. ;)

ThePythonicCow
01-18-09, 12:39 AM
Which Schumpeter book(s) would you (EJ, metalman, ...) recommend for my modest economics library?

I started a search to purchase "Business Cycles", but the few copies available on Amazon cost between $132 and $600+, which is a bit rich for me, especially the $600+ copy.

Several other Schumpeter books were available however, at more ordinary prices, such as "The Theory of Economic Development", "History of Economic Analysis", "Capitalism, Socialism, and Democracy", and "Ten Great Economists".

[P.S. - Lordy, lordy. Half.com has "Business Cycles" for $1,950.00 at http://product.half.ebay.com/_W0QQprZ710869QQcpidZ1044822.]

ThePythonicCow
01-18-09, 01:01 AM
I must remark on the docility with which this assertion is met by apparently everyone here (no-one voices dissent, while one or two reiterate it's "self-evident truth"). Sorry guys.
Joseph A. Schumpeter (http://www.amazon.com/s/ref=si3_rdr_bb_author?index=books&field%2dauthor%2dexact=Joseph%20A%2e%20Schumpeter) , in his "History of Economic Analysis: With a New Introduction" (http://www.amazon.com/History-Economic-Analysis-New-Introduction/dp/0195105591/ref=si3_rdr_bb_product) dissents, if I read him correctly. See the first few pages of Chapter 1, which are online for all to view at Amazon: http://www.amazon.com/History-Economic-Analysis-New-Introduction/dp/0195105591 In Chapter 1 "Introduction and Plan," Section 2 "Why do we study the history of economics?", he recommends we do not arbitrarily exclude various alternative methods.

GRG55
01-18-09, 01:09 AM
JK, I have the utmost respect, especially for you and EJ, but my worst investing experience was with Canadian energy trusts. A while back the Canadian government changed the rules on trusts and tanked the market. I took my lumps and walked away, taking away the lesson that what the governments create, they can take away.

So, as long as the political risk, and exchange rate fluctuations are taken into consideration, yes, consider Canadian energy trusts.

Once again, oil is the most political of commodities. One needs to be careful how one plays it, no matter which jurisdiction, or method [commodity or equities]. Political risk is inseparable from investing in oil.

ThePythonicCow
01-18-09, 01:26 AM
I leave you with this from his Capitalism, Socialism and Democracy (http://en.wikipedia.org/wiki/Capitalism,_Socialism_and_Democracy), and a view of the future that strikes us as unfortunately prophetic.
... it will be replaced by socialism in some form


Spot on. This Schumpeter guy is good.

Thanks, EJ, for the delightful quotes.

doom&gloom
01-18-09, 02:21 AM
Some Schumpeter readings:

Schumpeter: In his own words...
http://www.scribd.com/doc/258405/Schumpeter-in-His-Own-Words

Schumpeter: Theory of the Business Cycle
http://www.scribd.com/doc/7053417/Joseph-Schumpeter-Theory-of-the-Business-Cycle-1931

tsetsefly
01-18-09, 04:40 AM
EJ, or anyone who might know,
what where Von Mises and Hayek's views on these schumpeter's predictions?

*T*
01-18-09, 08:57 AM
And to follow Lukester's point I would point out that the existence of credit cycles logically contradicts the assertion that all technical analysis is bunk.

c1ue
01-18-09, 11:26 AM
And to follow Lukester's point I would point out that the existence of credit cycles logically contradicts the assertion that all technical analysis is bunk.

I'm not sure I follow.

Because there is a day and night cycle, therefore technical analysis is valid?

The problem with this assertion is that each and every credit cycle is not identical. Sometimes they break higher, sometimes they break lower, sometimes the government intervenes.

How then does a simple graphing of arbitrary indices take this into account?

open4
01-18-09, 11:49 AM
[quote=EJ;71000]http://www.itulip.com/images/schumpeter.jpgThe Ground Gives Way


I leave you with this from his Capitalism, Socialism and Democracy (http://en.wikipedia.org/wiki/Capitalism,_Socialism_and_Democracy), and a view of the future that strikes us as unfortunately prophetic.

Schumpeter's theory is that the success of capitalism will lead to a form of corporatism and a fostering of values hostile to capitalism, especially among intellectuals. The intellectual and social climate needed to allow entrepreneurship to thrive will not exist in advanced capitalism; it will be replaced by socialism in some form. There will not be a revolution, but merely a trend in parliaments to elect social democratic parties of one stripe or another. He argued that capitalism's collapse from within will come about as democratic majorities vote for the creation of a welfare state and place restrictions upon entrepreneurship that will burden and destroy the capitalist structure. Schumpeter emphasizes throughout this book that he is analyzing trends, not engaging in political advocacy. In his vision, the intellectual class will play an important role in capitalism's demise. The term "intellectuals" denotes a class of persons in a position to develop critiques of societal matters for which they are not directly responsible and able to stand up for the interests of strata to which they themselves do not belong. - Wikipedia (http://en.wikipedia.org/wiki/Joseph_Schumpeter)





Yes it was accurately prophetic and it is this structure that has just catalyzed its own comprehensive destruction, it is not that the intellectuals who have influenced things in strata to which they do not belong were without vested interest in the outcome though the illusion of detachment provides an ideal platform to accelerate change towards Schumpeter's prediction also it was not to Schumpeter's benefit to undermine the illusory objectivity of the club of intellectual,

With the likely force of inevitable future disruptions the need for best practicable means may move us away from this terminal structure for some time but it is very dependent on the depth of disruption also most intellectuals being intelectual know when its good for them to hide and play diferent tunes,

metalman
01-18-09, 12:01 PM
I'm not sure I follow.

Because there is a day and night cycle, therefore technical analysis is valid?

The problem with this assertion is that each and every credit cycle is not identical. Sometimes they break higher, sometimes they break lower, sometimes the government intervenes.

How then does a simple graphing of arbitrary indices take this into account?

night and day are true cycles... repeated, based on the movements of objects in physical space, without intelligent outside interference, thus predictable.

markets only ever APPEAR to be cycles. actually, the are in a state of constant change. if two or three changes share features in common, it is human nature to see a pattern and look for it to happen again. it might, or not, and sooner, or not, depending on chance, or interference by government or other intelligence... and i use the word loosely :D

look at any chartist's charts and his forecasts... carefully go back over the history... compare each call at each point in time across both bear and bull markets... chartists do best in bull markets when everything is going up, like everyone else... and i guarantee you you will find he is wrong at least half of the time, just like jim cramer, just like the wonder monkey.

ThePythonicCow
01-18-09, 11:16 PM
markets only ever APPEAR to be cycles. actually, the are in a state of constant change. What you describe is, just looking at these words, indistinguisable from random noise. I don't think that's accurate.

While the cycles are not as obvious and robust as planetary motions, there are cyclical aspects to the market. The problem is that rather than having one dominant cycle that you can (rather literally) set your clock by, the aggregate signal is the summation of changing, untold elements, some quite transitory, some roughly periodic for a while, some strongly aperiodic, most quite unknown or at least unobvious to market analysts, and all too numerous and entangled with feedback loops and conceptual ambiguities to possibly analyze with scientific accuracy.

So you can get better than even odds of successful predictions just long enough to get cocky, raise your bet, and get wiped out. And hindsight, alternative theories and various conspiracy theories can all seem to have, to the right person on the right day, tantalizing insights into what is going on.

This is entirely and quite different from something like a mathematical random function, in which each value is quite unrelated to and probably discontinuous from nearby values.

In short - there are transitory periodic patterns, amidst alot of noise, aperiodic patterns and confusions.

jimmygu3
01-18-09, 11:43 PM
although THAT quote is from orwell's animal farm, there IS one quote from animal house that is germane: after returning from their road trip having thoroughly trashed the car that freshman pledge "flounder" borrowed from his older brother, one of the frat guys says: "flounder, you made a big mistake; you trusted us!"

Was it over when the Germans bombed Pearl Harbor? Hell no!

-B. Blutarsky

bart
01-18-09, 11:56 PM
And to follow Lukester's point I would point out that the existence of credit cycles logically contradicts the assertion that all technical analysis is bunk.

An imperfect but valid analogy:
TA is just a bunch of tools. Some people can't use a screwdriver or pliers or other tools, or hire someone to do odd jobs for them.
When a screwdriver slips and gouges the material, its not the tool's fault either.


No one will disagree with investing with the trend being part of the wisest path... and a simple trend line does nothing other than reveal if one is still investing with the trend on whatever time frame they use and prefer. The trend line tool is like any other tool - it takes time and practice to become good at its use.


Lastly:
“All through time, people have basically acted and re-acted the same way in the market as a result of: greed, fear, ignorance, and hope – that is why the numerical (technical) formations and patterns recur on a constant basis”
-- Jesse Livermore, "How to Trade in Stocks"


Its almost amusing how many folk are "religious" about TA - on both sides. Even EJ, who is not a TA fan, grants that there are such things as a trade within a trade.

Some have success with trading and/or TA and some don't - its no more complex than that. It works for me, and I use it - just like any set of good tools with which one has experience.

*T*
01-19-09, 07:22 AM
I'm not sure I follow.

Because there is a day and night cycle, therefore technical analysis is valid?

The problem with this assertion is that each and every credit cycle is not identical. Sometimes they break higher, sometimes they break lower, sometimes the government intervenes.

How then does a simple graphing of arbitrary indices take this into account?

I am not saying all technical analysis is valid (that would not be true).

I am saying that credit cycles on any given timescale imply rising and falling liquidity. Market indices are basically liquidity barometers.

Deviations from the Markov-chain random-walk type assumptions are apparent on longer timescales when you analyse the time series.

*T*
01-19-09, 07:27 AM
Its almost amusing how many folk are "religious" about TA - on both sides. Even EJ, who is not a TA fan, grants that there are such things as a trade within a trade.

I am not religious about TA, much of it is bunk. I used to be religiously anti-TA. But I have seen moving averages bounced off, trendlines form etc too many times to ignore.

Edit: sorry I have got so off-topic.

marvenger
01-19-09, 09:47 AM
http://www.itulip.com/images/schumpeter.jpgSchumpeter's theory is that the success of capitalism will lead to a form of corporatism and a fostering of values hostile to capitalism, especially among intellectuals. The intellectual and social climate needed to allow entrepreneurship to thrive will not exist in advanced capitalism; it will be replaced by socialism in some form. There will not be a revolution, but merely a trend in parliaments to elect social democratic parties of one stripe or another. He argued that capitalism's collapse from within will come about as democratic majorities vote for the creation of a welfare state and place restrictions upon entrepreneurship that will burden and destroy the capitalist structure. Schumpeter emphasizes throughout this book that he is analyzing trends, not engaging in political advocacy. In his vision, the intellectual class will play an important role in capitalism's demise. The term "intellectuals" denotes a class of persons in a position to develop critiques of societal matters for which they are not directly responsible and able to stand up for the interests of strata to which they themselves do not belong.

Capitalism has its problems too, to point out trends to a more collective mindset as a form of mass horrendous stupidity as the shit hits the fan from capitalist excesses seems a bit rich.

We need both mindsets it seems in some kind of balance. As far as I can tell socialists can be thankful for some of the outcomes generated by those with capitalist mindsets and capitalists can be likewise be very thankful for positive elements brought about by those with a more socialistic perspective.

The successful capitalists have been concentrating their wealth and power over the last couple of decades and due to time proven human faults they blew it again. Now the state is having to step in to fill the void. To now start blaming people who try to look beyond their own self interest, now matter how infused with flaws their theories undoubtedly must be, strikes me as being particularly lame and striking at an easy target; and extremely ideological.

Not being a doomer I take your concerns are not involving some kind of socialist revolution but rather greater state involvement. Sorry, the purely self interested goons that you idolise so greatly were plenty involved in necessitating the state intervention that they apparently ideologically abhor but accept readily when they achieve too big to fail status.

LargoWinch
01-19-09, 10:26 AM
Yes. But I for one would have no objection to catfood in the executive cafeterias of the bailed out banks. ;)

...or what about some delicious Maple Leaf food?

http://barfblog.foodsafety.ksu.edu/uploads/image/Maple-leaf-listeria-3.jpg

For more on this inside joke:
http://www.google.com/hostednews/canadianpress/article/ALeqM5jXkRCnSTsYh1tjYMQHN05u0c1x0Q

LargoWinch
01-19-09, 10:27 AM
Also, a bunker update! Looks nice.

LargoWinch
01-19-09, 10:43 AM
What makes you think it will average only 10%?

As of Nov 2008, the adjusted monetary base was growing at 75% year over year. I'm not a doom-and-gloomer, but the odds of inflation only being 10% per year after that kind of input would seem to be pretty small -- and it seems like the worst spikes are probably yet to come.

Sharky, what I meant - in a not so clear way I must admit - is that inflation running 20% per year (see EJ's previous work and forecast) coupled with a benchmark rate of say 10% (that is my guess, without supporting data), hence giving us 10% real negative rates.

EJ is assuming that this 20% inflation scenario will last for about 5 years or about 100% for the period (lets ignore compounding for now).

The above would be pretty bad, but it does not mean Argentina. It looks to me more like the 70s on steroids and that is far away from the madmax scenario.

LargoWinch
01-19-09, 10:58 AM
Once again, oil is the most political of commodities. One needs to be careful how one plays it, no matter which jurisdiction, or method [commodity or equities]. Political risk is inseparable from investing in oil.

That is why I never trade my crude ETF (HOU.TO); I am not that smart.

My strategy is actually quite simple:

a) If gold in $CAD buys you more than 10 barrels of oil: buy crude.

b) If gold in $CAD buys less than 10 barrels of oil: buy gold.

Sounds cliche, but "hey" at least it is a strategy, which is better than no strategy at all!

At the latest count one ounce of gold in $CAD = $1,050 and one barrel of crude was only $US34 that is a 31 to 1 ratio; hence I am buying crude (I mix the USD and $CAD because my ETF is based on crude's price in USD but $CAD hedged).

LargoWinch
01-19-09, 11:01 AM
you might want to look into canadian energy-based income trusts. these are smaller companies devoted to production more than exploration, and paying big dividends. i conceptualize them as storing oil for me, underground, and then pumping a barrel or two for sale each year, sending me the proceeds.

An example of such income trusts is the following:

http://ichart.finance.yahoo.com/z?s=COS-UN.TO&t=5y&q=l&l=off&z=m&a=v&p=s

EJ
01-19-09, 11:37 AM
Capitalism has its problems too, to point out trends to a more collective mindset as a form of mass horrendous stupidity as the shit hits the fan from capitalist excesses seems a bit rich.

We need both mindsets it seems in some kind of balance. As far as I can tell socialists can be thankful for some of the outcomes generated by those with capitalist mindsets and capitalists can be likewise be very thankful for positive elements brought about by those with a more socialistic perspective.

The successful capitalists have been concentrating their wealth and power over the last couple of decades and due to time proven human faults they blew it again. Now the state is having to step in to fill the void. To now start blaming people who try to look beyond their own self interest, now matter how infused with flaws their theories undoubtedly must be, strikes me as being particularly lame and striking at an easy target; and extremely ideological.

Not being a doomer I take your concerns are not involving some kind of socialist revolution but rather greater state involvement. Sorry, the purely self interested goons that you idolise so greatly were plenty involved in necessitating the state intervention that they apparently ideologically abhor but accept readily when they achieve too big to fail status.

"The intellectual and social climate needed to allow entrepreneurship to thrive will not exist in advanced capitalism." - Schumpeter

Allow me to give you a specific example. Last week in an exchange I had with Henry Liu of Asia Times, a back-and-forth on how to address the global economic crisis from China's perspective, Henry promoted an idea that is currently in favor within the Obama administration: use tax incentives to penalize companies for laying off employees and reward them for hiring. Such an idea can only be contemplated by someone who has never run a business and understands nothing about how competitive markets operate.

When I was running a high tech start-up Q1 2001 to Q1 2005, from the depths of the IT capital expenditure depression to the start of its recovery, we at times had to cut our own salaries and lay off employees. We did not do so because we enjoyed it. We did so to as part of a strategy to survive our competitors, who may not have been as willing to make the collective sacrifices needed to weather the storm. The pool of customers may have been shrinking in the IT CapEx depression, but then so was the number of companies vying for them. In concert with layoffs we pursued other cost reductions, such as re-negotiating the lease with the landlord. More importantly we adopted a more capital efficient business model than our competitors'. We were able to approach cash flow break-even on the $28MM I raised versus the $60MM or more our competitors raised. In a capital constrained environment, that gave us a huge advantage. We also pursued a targeted vertical market strategy that further improved our efficient by lowering cost of sales. When the dust settled, we had outlived many of our competitors, and as the market for our products grew, so did we, growing 40% quarterly for years, and we soon doubled our number of employees. We had a better team, strategy, and product than our competitor's did. At the time I met with potential acquirers in 2004, we had over 200 customers while our nearest had fewer than 20.

If the US government had in response to the recession in 2001 provided tax incentives for hiring and penalties for us to lay off employees when we needed to in, we might have gone out of business, while weaker yet better capitalized and less capital efficient companies survived us.

Multiply this across all industries as is contemplated and you see the problem: it rewards uncompetitive decision making.

But it's actually worse than that because these companies are funded by private equity, by venture capital, by individuals putting money at risk. The reason venture capital is successful in the US but not in Europe or other countries were government interferes in the private sector in the way Henry is suggesting is that start-ups are vulnerable to market forces anyway; to make them additionally vulnerable to arbitrary government policy makes venture investing a non-starter. For the US that means we can forget about innovation. I'm not saying that a single rule to tax layoffs and reward hiring will kill technology start-ups, but the idea is evidence that Schumpeter's prediction is coming true: "The intellectual and social climate needed to allow entrepreneurship to thrive will not exist in advanced capitalism.

Do not confuse FIRE Economy with innovation capitalism. For decades the two have lived in uneasy coexistence. But now the political response to the collapse of the FIRE Economy threatens to kill the goose that laid the golden egg. The FIRE Economy made the US uncompetitive by burdening employees with debt so that salaries must be higher than in many other countries in order for employees to pay their past tuition bills, health care, and housing. Now the collapsing FIRE Economy is producing high unemployment, and the result is a wave of policies designed to rescue economy -- bank and large company bailouts -- that do not take into account that part of the economy that has the only chance of delivering the US from its long term crisis of underinvestment (low savings), dependence on debt financing, and over-consumption.

Do not confuse rent seekers for entrepreneurs. Donald Trump is no Eric Schmidt.

vinoveri
01-19-09, 11:57 AM
"The intellectual and social climate needed to allow entrepreneurship to thrive will not exist in advanced capitalism." - Schumpeter

Allow me to give you a specific example. Last week in an exchange I had with Henry Liu of Asia Times, a back-and-forth on how to address the global economic crisis from China's perspective, Henry promoted an idea that is currently in favor within the Obama administration: use tax incentives to penalize companies for laying off employees and reward them for hiring. Such an idea can only be contemplated by someone who has never run a business and understands nothing about how competitive markets operate.

When I was running a high tech start-up Q1 2001 to Q1 2005, from the depths of the IT capital expenditure depression to the start of its recovery, we at times had to cut our own salaries and lay off employees. We did not do so because we enjoyed it. We did so to as part of a strategy to survive our competitors, who may not have been as willing to make the collective sacrifices needed to weather the storm. The pool of customers may have been shrinking in the IT CapEx depression, but then so was the number of companies vying for them. In concert with layoffs we pursued other cost reductions, such as re-negotiating the lease with the landlord. More importantly we adopted a more capital efficient business model than our competitors'. We were able to approach cash flow break-even on the $28MM I raised versus the $60MM or more our competitors raised. In a capital constrained environment, that gave us a huge advantage. We also pursued a targeted vertical market strategy that further improved our efficient by lowering cost of sales. When the dust settled, we had outlived many of our competitors, and as the market for our products grew, so did we, growing 40% quarterly for years, and we soon doubled our number of employees. We had a better team, strategy, and product than our competitor's did. At the time I met with potential acquirers in 2004, we had over 200 customers while our nearest had fewer than 20.

If the US government had in response to the recession in 2001 provided tax incentives for hiring and penalties for us to lay off employees when we needed to in, we might have gone out of business, while weaker yet better capitalized and less capital efficient companies survived us.

Multiply this across all industries as is contemplated and you see the problem: it rewards uncompetitive decision making.

But it's actually worse than that because these companies are funded by private equity, by venture capital, by individuals putting money at risk. The reason venture capital is successful in the US but not in Europe or other countries were government interferes in the private sector in the way Henry is suggesting is that start-ups are vulnerable to market forces anyway; to make them additionally vulnerable to arbitrary government policy makes venture investing a non-starter. For the US that means we can forget about innovation. I'm not saying that a single rule to tax layoffs and reward hiring will kill technology start-ups, but the idea is evidence that Schumpeter's prediction is coming true: "The intellectual and social climate needed to allow entrepreneurship to thrive will not exist in advanced capitalism.

Do not confuse FIRE Economy with innovation capitalism. For decades the two have lived in uneasy harmony. But not the political response to the collapse of the FIRE Economy threatens to kill the goose that laid the golden egg. The FIRE Economy made the US uncompetitive by burdening employees with debt so that salaries must be higher than in many other countries in order for employees to pay their past tuition bills, health care, and housing. Now the collapsing FIRE Economy is producing high unemployment, and the result is a wave of policies designed to rescue economy -- bank and large company bailouts -- that do not take into account that part of the economy that has the only chance of delivering the US from its long term crisis of underinvestment (low savings), dependence on debt financing, and over-consumption.

Do not confuse rent seekers for entrepreneurs. Donald Trump is no Eric Schmidt.

Well put. Couldn't agree more. The strength of the U.S. and its populace has always been its ingenuity and inventiveness, willingness to take risks and work hard. Contrary to what our critics contend, this "cowboy" attitude coupled with the historical capital of decency and good will that we've built up is what has and will serve well in the future. to the extent the gov encourages or discourages these will undoubtedly impact where we head.

Couldn't help but suggest this clarification.
"Mutiply this across all indsutries and you see the problem: it rewards mediocrity resulting in a mediocracy.:)

Slimprofits
01-19-09, 01:42 PM
"The intellectual and social climate needed to allow entrepreneurship to thrive will not exist in advanced capitalism." - Schumpeter

Allow me to give you a specific example. Last week in an exchange I had with Henry Liu of Asia Times, a back-and-forth on how to address the global economic crisis from China's perspective, Henry promoted an idea that is currently in favor within the Obama administration: use tax incentives to penalize companies for laying off employees and reward them for hiring. Such an idea can only be contemplated by someone who has never run a business and understands nothing about how competitive markets operate.

When I was running a high tech start-up Q1 2001 to Q1 2005, from the depths of the IT capital expenditure depression to the start of its recovery, we at times had to cut our own salaries and lay off employees. We did not do so because we enjoyed it. We did so to as part of a strategy to survive our competitors, who may not have been as willing to make the collective sacrifices needed to weather the storm. The pool of customers may have been shrinking in the IT CapEx depression, but then so was the number of companies vying for them. In concert with layoffs we pursued other cost reductions, such as re-negotiating the lease with the landlord. More importantly we adopted a more capital efficient business model than our competitors'. We were able to approach cash flow break-even on the $28MM I raised versus the $60MM or more our competitors raised. In a capital constrained environment, that gave us a huge advantage. We also pursued a targeted vertical market strategy that further improved our efficient by lowering cost of sales. When the dust settled, we had outlived many of our competitors, and as the market for our products grew, so did we, growing 40% quarterly for years, and we soon doubled our number of employees. We had a better team, strategy, and product than our competitor's did. At the time I met with potential acquirers in 2004, we had over 200 customers while our nearest had fewer than 20.

If the US government had in response to the recession in 2001 provided tax incentives for hiring and penalties for us to lay off employees when we needed to in, we might have gone out of business, while weaker yet better capitalized and less capital efficient companies survived us.

Multiply this across all industries as is contemplated and you see the problem: it rewards uncompetitive decision making.

But it's actually worse than that because these companies are funded by private equity, by venture capital, by individuals putting money at risk. The reason venture capital is successful in the US but not in Europe or other countries were government interferes in the private sector in the way Henry is suggesting is that start-ups are vulnerable to market forces anyway; to make them additionally vulnerable to arbitrary government policy makes venture investing a non-starter. For the US that means we can forget about innovation. I'm not saying that a single rule to tax layoffs and reward hiring will kill technology start-ups, but the idea is evidence that Schumpeter's prediction is coming true: "The intellectual and social climate needed to allow entrepreneurship to thrive will not exist in advanced capitalism.

Do not confuse FIRE Economy with innovation capitalism. For decades the two have lived in uneasy harmony. But not the political response to the collapse of the FIRE Economy threatens to kill the goose that laid the golden egg. The FIRE Economy made the US uncompetitive by burdening employees with debt so that salaries must be higher than in many other countries in order for employees to pay their past tuition bills, health care, and housing. Now the collapsing FIRE Economy is producing high unemployment, and the result is a wave of policies designed to rescue economy -- bank and large company bailouts -- that do not take into account that part of the economy that has the only chance of delivering the US from its long term crisis of underinvestment (low savings), dependence on debt financing, and over-consumption.

Do not confuse rent seekers for entrepreneurs. Donald Trump is no Eric Schmidt.

What would it take to convince people that think along your lines to run for public office or is that a non-starter? Maybe we need an army of retired entrepreneurs instead of current lawyers in Washington.

Do you have suggestions for campaign financing rules in the U.S.? That is one of the commentaries that I've looked forward to on Itulip since "the Politics of FIRE" series.

marvenger
01-19-09, 07:02 PM
"The intellectual and social climate needed to allow entrepreneurship to thrive will not exist in advanced capitalism." - Schumpeter

Allow me to give you a specific example. Last week in an exchange I had with Henry Liu of Asia Times, a back-and-forth on how to address the global economic crisis, Henry promoted an idea that is in favor in the Obama administration: using tax incentives to penalize companies for laying off employees and rewarding them for hiring. Such an idea can only be contemplated by someone who has never run a business and understands nothing about how competititve markets operate.

When I was running a ahigh tech start-up Q1 2001 to Q1 2005, from the depths of the IT capital expenditure depression to the start of its recovery, we at times had to cut our own salaries and lay off employees. We did not do so because we enjoyed it. We did so to as part of a strategy to survive our competitors, who may not have been as willing to make the collective sacrifices needed to weather the storm. The pool of customers may have been shrinking in the IT CapEx depression, but then so was the number of companies vying for them. In concert with layoffs we pursued other cost reductions, such as re-nototiating the lease with the landlaord. More importantly we adopted a more capital efficient business model than our competitiors'. We were able to approach cash flow break-even on the $28MM I raised versus the $60MM or more our competitors raised. In a capital constrained environment, that gave us a huge advantage. We also pursued a targeted vertical market strategy that further improved our efficienty by lowering cost of sales. When the dust settled, we have outlived many of our competititors, and as the market for our products grew, so did we, growing 40% quarterly, and we soon doubled our number of employees. We had a better team, strategy, and product. At the time I met with potential acquirers in 2004, we had over 200 customers while our nearest had fewer than 20.

If the US government had in response to the recession in 2001 provided tax incentives for our competitors to hire, and penalties for us to lay off employees when we needed to in, we might have gone out of business, while weaker yet better capitalized and less capital efficient companies survived us.

Mutiply this across all indsutries and you see the problem: it rewards mediocracy.

But it's actually worse than that because these companies are funded by private equity, by venture capital, by individuals putting money at risk. The reason venture capital is successful in the US but not in Europe or other countires were government interferes in the private sector in the way Henry is suggesting is that start-ups are vulnerable to market forces anyway; to make them additionally vulnerable to arbitrary government policy makes venture investing a non-starter. For the US that means we can forget about innovation. I'm not saying that a single rule to tax layoffs and reward hiring will kill technolgy start-ups, but the idea is evidence that Schumpeter's prediction is coming true: "The intellectual and social climate needed to allow entrepreneurship to thrive will not exist in advanced capitalism.

Do not confuse FIRE Economy with innovation capitalism. For decades the two have lived in uneasy harmony. But not the policital response to the collapse of the FIRE Economy threatens to kill the goose that laid the golden egg. The FIRE Economy made the US uncompetitive by burdening employees with debt so that salaries must be higher than in many other countries in order for employees to pay their past tuition bills, health care, and housing. Now the collapsing FIRE Economy is producing high unemployment, and the result is a wave of policies designed to rescue economy -- bank and large company bailouts -- that do not take into account that part of the economy that has the only chance of delivering the US from its long term crisis of underinvestment (low savings), dependence on debt financing, and over-consumption.

Do not confuse rent seekers for entrepreneurs. Donald Trump is no Eric Schmidt.

I understand the rent seeking nature of the fire economy and the productive nature of the real economy and I'm in complete favour of a move towards equity based investment and bankers learning new skills as farm hands.

The piece just struck me as being more than a little black and white in its treatment of intellectuals and their association with socialism. It seems to me that its intellectual endeavour that has lead you to a career as an entrepreneur because you believe this activity provides for the needs of you and your community in the optimum way. I believe you are looking beyond your own self interest in arriving at this career choice decision, I could be wrong but with your grasp of finance it seems you could have made more money by following this career path.

Capitalism argues in an altruistic way that this systems provides the most for all, but its clear that capitalism only works as well as the system in which it operates to provide the most for all, and its intellectual endeavour outside of self interest that achieves these altruistic ends.

It wasn't just market forces that ended the appalling working conditions during the industrial revolution and i'm sure some industrialists lost out big time due to the new conditions forced on their hiring policies.

I agree socially minded policies often have unintended consequences but that isn't all they have. Like everything you have to try to maximise the positives and minimise the negatives. I think there is some truth to the invisible hand of the market but unfortunately it does need a guiding hand from intellectual effort despite the flaws that these efforts undoubtedly create.

Rajiv
01-20-09, 12:30 AM
The current Banking structure also contributes to Venture Capital being and being perceived as an expensive source of capital due to it relative scarcity. If and when Banking shifts to an equity based model (Islamic model), this should result in greater availability of Venture funds, and to availability of less expensive venture money (of course the risk profile of investments will always play a role in the cost of capital!)

Compound Interest money appears to have a lower cost (in the short term) to it -- but it is very expensive over a longer term.

The difference between Venture money cost and Compound interest cost can be appreciated in the following curves from Margrit Kennedy's work - Four Basic Misconceptions About Money (http://userpage.fu-berlin.de/%7Eroehrigw/kennedy/english/chap1.htm)

'A' being Venture money, and 'C' being compound interest money!

http://userpage.fu-berlin.de/%7Eroehrigw/kennedy/english/fig1.jpg

The Outback Oracle
01-20-09, 01:08 AM
Sharky, what I meant - in a not so clear way I must admit - is that inflation running 20% per year (see EJ's previous work and forecast) coupled with a benchmark rate of say 10% (that is my guess, without supporting data), hence giving us 10% real negative rates.

EJ is assuming that this 20% inflation scenario will last for about 5 years or about 100% for the period (lets ignore compounding for now).

The above would be pretty bad, but it does not mean Argentina. It looks to me more like the 70s on steroids and that is far away from the madmax scenario.

10% a year negative interest rates....how the hell do you work that out? OK Start with $100...earn 10% Income tax marginal rate let's say 40%..so you are left with $6.00. But inflation has cost you 20%...so you are negative 14%!!!!!!! Now repeat for 5 years and I don't have a table immediately to hand but i reckon after 5 years your $100 would be worth what....40% pf what you started out with ...well that's OK eh....stealing from someone else because we are a bunch ofprofligate, self indulgent, selfish lot of bastards is OK.
Well anyway, it's only those retired or approaching that who are really affected. They got to be getting a bit old so it doesn't matter if they starve to death!!!
Damnd if i know - but a society in which stealing from one group to give to another reckless undeserving lot is promoted as public policy and regarded as right , has a short life-span.
Negative interest rates have brought us to this pretty fix...how in teh name of God are they now going to magically fix it all??????????????????????

ThePythonicCow
01-20-09, 06:03 AM
...how in teh name of God are they now going to magically fix it all??????????????????????

I don't know, but I'll wager it won't be done in the name of God ;).

bart
01-20-09, 09:09 AM
...
If and when Banking shifts to an equity based model (Islamic model)
...


The thought has crossed my mind that the Middle East troubles aren't all about oil.

LazyBoy
01-20-09, 10:21 AM
[Schumpeter] argued that capitalism's collapse from within will come about as democratic majorities vote for the creation of a welfare state and place restrictions upon entrepreneurship that will burden and destroy the capitalist structure.

Is this what ituliper's really think is causing the current collapse? The welfare state?!

FRED
01-20-09, 10:23 AM
Is this what ituliper's really think is causing the current collapse? The welfare state?!

No. It was precipitated by policies that resulted from the capture of the US federal, state, and local governments by the Finance, Insurance, and Real Estate industries.

vinoveri
01-20-09, 10:30 AM
No. It was precipitated by policies that resulted from the capture of the US federal, state, and local governments by the Finance, Insurance, and Real Estate industries.

I.e., the corporate welfare state, or more precisely the rentier welfare state.

LazyBoy
01-20-09, 10:40 AM
The strength of the U.S. and its populace has always been its ingenuity and inventiveness, willingness to take risks and work hard. Contrary to what our critics contend, this "cowboy" attitude coupled with the historical capital of decency and good will that we've built up is what has and will serve well in the future.


I guess I'm more cynical about the "U.S. and its populace".

IMO, "ingenuity and inventiveness" is more often used to work the system than for the greater good. Credit Default Swaps and many other financial instruments and techniques were quite ingenious.

And regarding the "willingness to...work hard", it seems there are a lot of people who won't get off the couch. This is not The Greatest Generation we're talking about here.

And "historical capital of decency and good will that we've built up". Have I fallen for a troll?

Maybe I'm too cynical. Maybe as things get worse, we'll start to shine and do amazing things. I'd love to see that. But I wouldn't bet any money on it.

LazyBoy
01-20-09, 10:55 AM
No. It was precipitated by policies that resulted from the capture of the US federal, state, and local governments by the Finance, Insurance, and Real Estate industries.
Fine. I guess I'm having trouble finding the "unfortunately prophetic" part of the wikipedia quote at the end of the article.

c1ue
01-20-09, 11:22 AM
Is this what ituliper's really think is causing the current collapse? The welfare state?!

Welfare for whom? Bankers? :)

FRED
01-20-09, 11:23 AM
Fine. I guess I'm having trouble finding the "unfortunately prophetic" part of the wikipedia quote at the end of the article.

The capture of the US federal, state, and local governments by the Finance, Insurance, and Real Estate industries is a form of corporatism based on values that are hostile to capitalism, as Schumpeter predicted.

ThePythonicCow
01-20-09, 01:52 PM
No. It was precipitated by policies that resulted from the capture of the US federal, state, and local governments by the Finance, Insurance, and Real Estate industries.


I.e., the corporate welfare state, or more precisely the rentier welfare state.

I may not be up on my terminology, but I don't read what FRED wrote the same as I read what Vinoveri wrote. To me a welfare state would be one in which (excessive) money is transferred to the welfare recipients, in this case the corporations and rentiers.

While no doubt that is an element of what is happening, I tend more to agree with what I think FRED wrote. I read "capture of ... governments" to mean undue control, not just to extract (excessive) money, but also to manipulate policy and propaganda, and to abuse regulatory, taxing, military and other powers to various ends chosen by the capturers.

What the most powerful "need" the most is power, control. That is, what they fear is the loss of power.

vinoveri
01-20-09, 03:53 PM
I may not be up on my terminology, but I don't read what FRED wrote the same as I read what Vinoveri wrote. To me a welfare state would be one in which (excessive) money is transferred to the welfare recipients, in this case the corporations and rentiers.

While no doubt that is an element of what is happening, I tend more to agree with what I think FRED wrote. I read "capture of ... governments" to mean undue control, not just to extract (excessive) money, but also to manipulate policy and propaganda, and to abuse regulatory, taxing, military and other powers to various ends chosen by the capturers.

What the most powerful "need" the most is power, control. That is, what they fear is the loss of power.

Agreed.
I was a bit sloppy in not making the distinction. I think the term welfare state connotes, for most, what you describe - money being transferred to the welfare recipients directly from the gov, e.g., military industrial complex, auto industry et cet including tax and regulatory breaks and the like. And of course in any other time, the gov giving $100s Billions to private banks would most likely not fly (as it is today).

Could though the monetary system as we know it with its inherent bias towards and inevitable inflation be construed as a welfare system to the rentiers and banks?
I suppose its not so much "welfare" in terms of transfer payments, but rather a system that allow banks and "preferred dealers" to borrow low and lend high, and to get to use the fiat money first as its created by the Fed, among other things.

DrYB/C
01-20-09, 04:55 PM
1. Quote from Quick Comment: “How will our political economy develop out of the global crisis that the demise of the FIRE Economy is creating?

I leave you with this from his Capitalism, Socialism and Democracy, and a view of the future that strikes us as unfortunately prophetic.

Schumpeter's theory is that the success of capitalism will lead to a form of corporatism and a fostering of values hostile to capitalism, especially among intellectuals….He argued that capitalism's collapse from within will come about as democratic majorities vote for the creation of a welfare state and place restrictions upon entrepreneurship that will burden and destroy the capitalist structure….”

2. Quote: “The Marxist Leon Trotsky understood this. Speaking of German and Italian fascism, Trotsky said fascism requires “a great deal of socialist demagogy. This is necessary for the creation of the mass movement. The genuine basis (for fascism) is the petty bourgeoisie. In Italy, it has a very large base — the petty bourgeoisie of the towns and cities, and the peasantry. In Germany, likewise, there is a large base for fascism.” Mussolini’s fascist mass movement did not consist primarily of “petty bourgeoisie” followers as Trotsky seems to indicate, but had a large number of more affluent middle and upper class followers as well, an important and indeed required element due to the fact fascism is not a truly revolutionary ideology but one that preserves the socioeconomic status quo at all costs under the cover of revolution. As the communist political theorist Antonio Gramsci correctly noted, fascism represents the “Caesarism” of the ruling elite….”
http://www.infowars.com/?p=7205

When itulip and infowars are of the same mind, the world has truly changed. Easter Island, anyone??

Related:
1. What Recession? The $170 Million Inauguration
Obama's Inauguration Has Been Financed Partially by Bailed-Out Wall Street Executives
http://abcnews.go.com/Business/Inauguration/Story?id=6665946&page=1
2. Celebrities make service pledge videos to Obama on MySpace
http://rawstory.com/news/2008/Celebrities_make_service_pledge_videos_to_0119.htm l

p.s.
The only market for entrepreneurs will be in helping the FIRE-Economy Kings secure their crown.

Pan-global economic breakdown and war will make tangible the costs of failing to choose Green Fascism.

Green Fascism will be chosen.

FRED
01-20-09, 10:11 PM
When itulip and infowars are of the same mind, the world has truly changed. Easter Island, anyone??

I can hand select a section of Mein Kampf and of of Pat Buchanan's State of Emergency: The Third World Invasion and Conquest of America that agree, but that does not make Pat Buchanan a Nazi.

metalman
01-20-09, 11:38 PM
I can hand select a section of Mein Kampf and of of Pat Buchanan's State of Emergency: The Third World Invasion and Conquest of America that agree, but that does not make Pat Buchanan a Nazi.

he, he. next... itulip is just like prisonplanet but without the CRAZY!

seobook
01-21-09, 06:05 AM
Which Schumpeter book(s) would you (EJ, metalman, ...) recommend for my modest economics library?

I started a search to purchase "Business Cycles", but the few copies available on Amazon cost between $132 and $600+, which is a bit rich for me, especially the $600+ copy.

Several other Schumpeter books were available however, at more ordinary prices, such as "The Theory of Economic Development", "History of Economic Analysis", "Capitalism, Socialism, and Democracy", and "Ten Great Economists".

[P.S. - Lordy, lordy. Half.com has "Business Cycles" for $1,950.00 at http://product.half.ebay.com/_W0QQprZ710869QQcpidZ1044822.]
found this link to an abridged PDF version on Google
classiques.uqac.ca/classiques/Schumpeter_joseph/business_cycles/schumpeter_business_cycles.pdf
for that price you could always print it out and put it in a binder

DrYB/C
01-21-09, 11:56 AM
I can hand select a section of Mein Kampf and of of Pat Buchanan's State of Emergency: The Third World Invasion and Conquest of America that agree, but that does not make Pat Buchanan a Nazi.

Agreed, but wherein lies the difference? It lies in rational responses to easily discernible facts (itulip) versus irrational responses to said facts (infowars).

p.s.
No offense was meant; truth lies in many different places, and I look for it, and find it, everywhere.

ThePythonicCow
01-21-09, 01:32 PM
found this link to an abridged PDF version on Google
classiques.uqac.ca/classiques/Schumpeter_joseph/business_cycles/schumpeter_business_cycles.pdf
for that price you could always print it out and put it in a binder

Aha - thanks.

I also just realized, that as a newly enrolled student (economics) at a University (Univ. North Texas) with a major library, I likely had access to the book via my University library. Sure enough, I do, both the original and the abridged version.

I recommend you sell Amazon short ... my book purchasing budget was just adjusted downward.

Rajiv
01-22-09, 06:28 AM
Finance the Islamic way at Michigan bank (http://www.breitbart.com/article.php?id=D95MG7DG0&show_article=1)


Big financial institutions have been battered by mortgages gone bad. But a tiny Michigan bank is getting attention in the industry by turning a profit on loans without even charging interest.

Its specialty: financial products that comply with Islamic law. That means no collecting interest, no short selling and no contracts that are considered exceedingly risky.

It also rules out some of the activity that got Western finance in trouble—subprime mortgages, credit default swaps and the like.

"When you look at the economic crisis we're in, if you were to follow Islamic or Sharia financing, you couldn't have this crisis," said John Sickler, corporate director for the bank, University Islamic Financial Corp. in Ann Arbor.

Islamic finance operations aren't prohibited from making a profit. Far from it. Instead, banks that comply with Islamic law, or Sharia, earn money from fees that are part of the cost of the loan, some paid up front and some over time.

University Islamic Financial has two types of financing, one called a marked-up installment sale and the other a lease-to-purchase sale. Fees in both cases are comparable to interest payments in traditional loans, bank officials say.

For example: A seller who bought a house for $100,000 could sell it for $120,000 or even $300,000, provided the buyer agrees it's a fair deal. The home could be sold on an installment plan negotiated by buyer and seller.

The bank is a subsidiary of Michigan-based University Bank, and its leaders say they have talked recently with executives from two national banks hoping to learn more about the business.

Islamic law says money cannot grow by itself, the way it does with compounding interest. Trade is acceptable as long as the equal amounts of money are traded or two different things are swapped with a fairly negotiated price.
.
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GRG55
01-22-09, 10:40 PM
Finance the Islamic way at Michigan bank (http://www.breitbart.com/article.php?id=D95MG7DG0&show_article=1)



"When you look at the economic crisis we're in, if you were to follow Islamic or Sharia financing, you couldn't have this crisis," said John Sickler, corporate director for the bank, University Islamic Financial Corp. in Ann Arbor.

I don't know how he can make such a statement. To suggest that Islamic finance is some sort of panacea completely ignores the current banking situation in the Arabian Gulf. To save their economies more and more of the Gulf states are having to bail out their banking systems, including Islamic investment banks.

There is no restriction to foolish lending or making bad deals.

Rajiv
01-23-09, 01:45 AM
There is no restriction to foolish lending or making bad deals.

Totally agree -- However, the downside in Sharia banking appears to be more limited -- That said, it appears that everybody and their brother was trying to circumvent the spirit of Sharia finance and invest in instruments that would violate the restrictions imposed by Sharia finance strictures!

TRake
01-23-09, 05:21 AM
Metalman,

I definitely feel it and I see it. I agree with your a+b-c/x=-x(c-(a+b))/xx scenario. The smoke and mirrors is to build hope and confusion. We must look at the reality of the situation to see what is to come. It will not happen over night. It will happen over time. I see it as a sine wave where the government is applying different methods in order to dampen the swings. I am just looking for a total loss of control which is also what I do daily on my job. In my current occupation if you pass the knee of the curve then all is lost. I associate that knee with the inflation curve, but I have yet to see the point of no return for inflation. In the electricity industry, it doesn't happen immediately, but once the knee is past you only have a few seconds before it is lights out and at that point the computer takes over and goes into pre programmed survival mode. I see the markets and economy the same.

I somewhat disagreed with one of your earlier statements. If you could expand on your thoughts on conspiracy theories I would appreciate it. I don't think that all conspiracy theories are anti-intellectual. There is a truth out there that maybe few know. I think that most consider it a waste of time when they fail to find the truth.

Sharky
01-25-09, 02:17 AM
I'm not saying that a single rule to tax layoffs and reward hiring will kill technology start-ups, but the idea is evidence that Schumpeter's prediction is coming true: "The intellectual and social climate needed to allow entrepreneurship to thrive will not exist in advanced capitalism.

That statement assumes that the economic system in the US recently has been capitalism. But how can massive government intervention in the economy reasonably be called capitalism? No, the system in the US is closer to corporatism, moving toward fascism (the marriage of corporations and the state). It's about as far from true laissez-faire ("hand-off") capitalism as one could imagine.

Perhaps a more accurate statement would be that corporatism eventually destroys entrepreneurship.

Rajiv
01-25-09, 04:13 AM
It's about as far from true laissez-faire ("hand-off") capitalism as one could imagine.

Could you please give me your definition of that term, and historical incidences of when it was practiced, and if there is such an instant, why the practice did not persist?

metalman
01-25-09, 11:16 AM
Could you please give me your definition of that term, and historical incidences of when it was practiced, and if there is such an instant, why the practice did not persist?

rajiv, i can answer that. :)

pure free market capitalism, without interference by gov't (taxes to pay for infrastructure, regulate markets to punish fraud, laws to bust up monopolies and prevent the externalization of costs like pollution, and all the other evils of gov't) was practiced briefly here, in the lost city of atlantis. the wonders of this marvelous economic/political system were lost when some idiot (no doubt a gov't employee!) left the door open one night after letting the cat out and water flooded the place out.

http://www.schools.nsw.edu.au/events/statecompetitions/webawards/winners2006/secondary/10/images/Atlantis_sm.jpg

WDCRob
01-25-09, 05:16 PM
Could you please give me your definition of that term, and historical incidences of when it was practiced, and if there is such an instant, why the practice did not persist?

Good luck with this one. Asked and unanswered many times.

Sharky
01-25-09, 05:21 PM
Could you please give me your definition of that term, and historical incidences of when it was practiced, and if there is such an instant, why the practice did not persist?

The definition of laissez-faire capitalism is simple: a complete separation of business and state.

In its true form, it has never been practiced. The closest the world seems to have come was the US in the late 19th century -- a (somewhat bumpy) period of unprecedented growth and increasing prosperity.

It didn't last because some businesses eventually discovered that government could damage them. So they fought back by putting their own candidates forward and by working in other ways to influence legislation in their favor. Corporatism was born.

open4
01-25-09, 05:50 PM
Metalman,


I definitely feel it and I see it. I agree with your a+b-c/x=-x(c-(a+b))/xx scenario. The smoke and mirrors is to build hope and confusion. We must look at the reality of the situation to see what is to come. It will not happen over night. It will happen over time. I see it as a sine wave where the government is applying different methods in order to dampen the swings. I am just looking for a total loss of control which is also what I do daily on my job. In my current occupation if you pass the knee of the curve then all is lost. I associate that knee with the inflation curve, but I have yet to see the point of no return for inflation. In the electricity industry, it doesn't happen immediately, but once the knee is past you only have a few seconds before it is lights out and at that point the computer takes over and goes into pre programmed survival mode. I see the markets and economy the same.

I somewhat disagreed with one of your earlier statements. If you could expand on your thoughts on conspiracy theories I would appreciate it. I don't think that all conspiracy theories are anti-intellectual. There is a truth out there that maybe few know. I think that most consider it a waste of time when they fail to find the truth.

Precisely how do you define the word ''conspiracy'' and do you define it differently when combined with the word ''theory''

WDCRob
01-25-09, 06:09 PM
It didn't last because some businesses eventually discovered that government could damage them. So they fought back by putting their own candidates forward and by working in other ways to influence legislation in their favor.

You say 'potato,' I say 'WTF?'

That the poor Robber Barons were beset on all sides by the evils of regulation, and so had to (just had to!) resort to buying government to protect themselves is an interesting reading of history.

metalman
01-25-09, 06:14 PM
Precisely how do you define the word ''conspiracy'' and do you define it differently when combined with the word ''theory''

to me a conspiracy is an improbably collection of parties collaborating over an improbably long period and keeping a baziilion pages of logistical information secret that's needed to keep the conspiracy coordinated, without anyone defecting to spill the beans, or form new competing alliances. a theory is 60 guys who know each other since college, share board seats together, revolve around the same social circles, etc., and share common goals, connections, and ideas about how things ought to go in their own interests.

Sharky
01-25-09, 07:18 PM
You say 'potato,' I say 'WTF?'

That the poor Robber Barons were beset on all sides by the evils of regulation, and so had to (just had to!) resort to buying government to protect themselves is an interesting reading of history.

By "Robber Barons" do you mean the industrialists who employed millions and brought never-before-seen wealth to the country, immeasurably raising the overall standard of living? The ones who hundreds of thousands more saught to be employed by? Those robber barons?

If you don't care for my reading of history, here's a quote from The Story of American Railroads, by Holbrook:

"Almost from the first, too, the railroads had to undergo the harassments of politicians and their catch-poles, or to pay blackmail in one way or another. The method was almost sure-fire; the politico, usually a member of a state legislature, thought up some law or regulation that would be costly or awkward to the railroads in his state. He then put this into the form of a bill, talked loudly about it, about how it must pass if the sovereign people were to be protected against the monster railroad, and then waited for some hireling of the railroad to dissuade him by a method as old as man. There is record of as many as thirty-five bills that would harass railroads being introduced at one sitting of the legislature."

Rajiv
01-25-09, 08:46 PM
Rather depends upon who is writing the history doesn't it?

Another reading of the relationship of government and the railroad barons

From Howard Zinn - Declarations of Independence (http://www.thirdworldtraveler.com/Zinn/EconomicJustice_DI.html)


The first Congress also adopted the economic program of Alexander Hamilton, which provided money for bankers setting up a national bank, subsidies to manufacturers in the form of tariffs, and a government guarantee for bondholders. To pay for all those subsidies to the rich, it began to exact taxes from poor farmers. When farmers in western Pennsylvania rebelled against this in 1794 (Whiskey Rebellion), the army was sent to enforce the laws.

This was only the beginning in the history of the United States of the long dependency of the rich on the government. In the decades before the Civil War, great fortunes were made because state legislatures gave special help to capitalists. The builders of railroads and canals, needing large sums of money, were not told Raise your own capital. They became dependents of the government, using their initial capital not to start construction, but to bribe legislators. In Wisconsin in 1856 the LaCrosse and Milwaukee Railroad got a million acres free, after distributing about $900,000 in stocks and bonds to seventy-two state legislators and the governor.

Altogether, in the decade of the 1850s, state governments gave railroad speculators 25 million acres of public land, free of charge, along with millions of dollars in loans. During the Civil War, the national government gave a gift of over 100 million acres to various railroad capitalists.

The first transcontinental railroad was not built by laissez-faire. The railroad capitalists did it with government land and money. The great romantic story of the American railroads owes everything to government welfare. The Central Pacific, starting on the West Coast, got 9 million acres of free land and $24 million in loans (after spending $200,000 in Washington for bribes). The Union Pacific, starting in Nebraska and going west, got l2 million acres of free land and $27 million in government loans.

And what did the government do for the 20,000 workers-war veterans and Irish immigrants-who laid five miles of track a day, who died by the hundreds in the heat and the cold? Did it give their families a bit of land as payment for their sacrifice? Did it give loans to the 10,000 Chinese and 3,000 Irish, who worked on the Central Pacific for $l or $2 a day? No, because that would be welfare, a departure from the principle of laissez-faire.

The historical practice in the United States of aid to the rich and laissez-faire for the poor was particularly evident in the 1920S, when the secretary of the treasury was Andrew Mellon. One of the wealthiest men in America, he sat atop a vast empire of coal, coke, gas, oil, and aluminum. Mellon cut taxes for the very rich, whose high living gave the decade its name "The Jazz Age." Meanwhile, many millions of Americans lived in poverty, with no aid from the government."

metalman
01-25-09, 09:29 PM
Rather depends upon who is writing the history doesn't it?

Another reading of the relationship of government and the railroad barons

From Howard Zinn - Declarations of Independence (http://www.thirdworldtraveler.com/Zinn/EconomicJustice_DI.html)

the lefty railroad history is correct and the right wing history is bosh, or it's the other way around. seriously, there's truth and lies in both.

Rajiv
01-25-09, 10:26 PM
the lefty railroad history is correct and the right wing history is bosh, or it's the other way around. seriously, there's truth and lies in both.

Not really! And I think the difference in our opinion rests upon an understanding of the difference between the conduct of modern academic history versus popular history.

Academic history relies primarily on documentary evidence -- while popular history is more hearsay. Thus a popular history of say the "dotcom bust" may be quite different from the academic history, and the imputation of causes and effects of the same could be quite different.

While academic historians can and do differ in the depiction and documentation of events, and may selectively choose from what documents to draw upon, that limitation - to use documentary evidence - limits the range of conclusions.

Zinn uses documentary evidence to highlight the impact of events on the common man ("middle class" in today's parlance.) as is done in his seminal book - A People's History Of The United States (http://www.historyisaweapon.com/zinnapeopleshistory.html)

Holbrook as a popular historian, relies on a "folk history." Folk history depends primarily on people's perceptions of events -- and those perception can often be quite different from the actual events -- these perceptions are often manipulated by popular media, as is vey well presented in the documentary - The Century of the Self (http://www.itulip.com/forums/showthread.php?t=3366&highlight=century) and the documentary "Spin" (http://www.itulip.com/forums/showthread.php?t=3313)

open4
01-26-09, 11:13 AM
Yes it can be all of those things it can also be any type of human interaction Websters define conspiring as,

1: to join in a secret agreement to do an unlawful or wrongful act or an act which becomes unlawful as a result of the secret agreement

2: to act in harmony toward a common end

from Latin conspiratio = Union

So it can be said whenever people act together they are always involved in a conspiracy, the word is so ambiguous that it has no worth of meaning,

Scot
01-26-09, 05:28 PM
Not really! And I think the difference in our opinion rests upon an understanding of the difference between the conduct of modern academic history versus popular history.

Academic history relies primarily on documentary evidence -- while popular history is more hearsay. Thus a popular history of say the "dotcom bust" may be quite different from the academic history, and the imputation of causes and effects of the same could be quite different.

While academic historians can and do differ in the depiction and documentation of events, and may selectively choose from what documents to draw upon, that limitation - to use documentary evidence - limits the range of conclusions.

Zinn uses documentary evidence to highlight the impact of events on the common man ("middle class" in today's parlance.) as is done in his seminal book - A People's History Of The United States (http://www.historyisaweapon.com/zinnapeopleshistory.html)

Holbrook as a popular historian, relies on a "folk history." Folk history depends primarily on people's perceptions of events -- and those perception can often be quite different from the actual events -- these perceptions are often manipulated by popular media, as is vey well presented in the documentary - The Century of the Self (http://www.itulip.com/forums/showthread.php?t=3366&highlight=century) and the documentary "Spin" (http://www.itulip.com/forums/showthread.php?t=3313)

The arrogance! "I think the difference in our opinion rests upon an understanding of the difference between the conduct of modern academic history versus popular history", you write. If I were metalman, I'd slug you one.

Why don't you just get some balls and tell him honestly that you think you're the gifted thinker and he's just the naive amateur?

And Zinn could use a little "folk history" as you call it. By omitting other's perceptions of events, he give himself permission to project his own perceptions onto those events -- worse, he projects his own values onto those events. And in the process he creates descriptions of happenings that are full of subjective value judgments.

Take the very passage you quoted were Zinn uses the word "welfare" to describe the subsidies given to build the railroads.

Now why would he use the word "welfare" instead of "subsidy"? Because welfare is see more negatively that subsidy. He uses the word welfare because he's intentionally trying to manipulate the reader into making a judgment about the railroad companies. He's intentionally obscuring the difference between the two. And while the degree of difference may be small and may depend on context, it's especially important when talking about the history of the railroads in the US.

Maybe loans and land giveaways weren't done as charity. Maybe each state involved thought that it was going to get something in return economically. There was competition among states for rail. It's possible to characterize loans and land give-away as genuine investments. That's not welfare. Perhaps there should be some more discussion on this point.

But you see, Zinn doesn't care that's there may be important differences between railroad subsidies and welfare. He wants to manipulate. He's made up his mind about who the villains were.

And he want's to make up yours.

If Zinn were honest, he'd have called the book Zinn's History of the United States. But he claims to speak for "the people". No wonder you like him. I think you're full of the same false modesty.

WDCRob
01-26-09, 05:35 PM
May not be welfare, but it's hardly an example of a never-existed Libertarian Utopia either.

Rajiv
01-26-09, 09:01 PM
I tnink it is you who is being arrogant here and not me!

You owe me an apology here! I think you have stepped beyond the line of civility, and have advocated an act of violence towards me. You seem to subscribe to the thought that violence should be used to solve differences of opinion rather than discussing points of logic and documented fact.

After that first paragraph, the rest of your comments are meaningless, and not worth replying to!