September 14, 2011


 

Enjoy a virtual trip down memory lane with the following excerpts I’ve selected to commemorate the first birthday of My Take! I’ve enjoyed sharing My Take with you and really appreciate all the positive feedback you have given me. Interestingly, the beginning of the movement to fight for fiscal discipline actually began in June of 2010, just three months before I started writing My Take. Here are some highlights from that first article and a few of my other favorites..

 

 

Starving The Beast

June 2010


 It is agreed among fiscal conservatives that the US is on a collision course toward a fiscal train wreck. One way to prevent such a wreck is to stop providing government the money it wants to spend on new programs. We may or may not be able to starve it through paying less tax, but we can take away its borrowing power, at least to some extent.
 
This would totally deprive government of additional cash to spend. A constitutional amendment to limit spending will take too long to pass. And a freeze on government spending can be bypassed easily as the "pay as you go" rule has been. We just passed $290 billion in new spending since the first of the year without paying for it under the guise of "emergency spending.” But pay as you go does not prevent government spending for emergencies, so everything now is an emergency. It is not out of the question that enough votes in Congress to block the next hike in taxes and the national debt could be possible in 2011. A "new" Congress is needed to accomplish this task. Consider this fact in the voting booth this November. Which candidate up for office in either party has the character to force the government to live within its means?

Another thing that can be done is to freeze taxes where they are. The present tax rates are set to expire; by making them permanent, we would provide the nation with predictability. People will be able to plan long-term. Once we know we are not going to tax or borrow any more than we are today, we will know our budget and our limits. Congress can fight it out on where best to spend the money. But the money will be finite.


I know a lot of you want to slash government spending and cut tax rates. I seriously doubt that is politically possible, or advisable, under current conditions. You don't drastically cut spending or reduce or increase taxes in the bad times. You do that in the good times -- in times of stability. We have certain obligations we have promised which we need to meet. What is politically possible, however, is to freeze taxes and borrowing at present levels. This is not a cut. It is a limit. Politically it can be sold because it freezes revenues and expenditures at the highest levels mankind has ever known. But it also says to government "no more!”

 

However, cuts will still need to be made in government due to the fact that we are running a deficit. If the cuts are fair it is very doable. For example, I would offer cutting all corporate welfare and tax loopholes together with all business and farm subsidies over five years for a return of an equal cut in entitlements and cuts in needless bureaucracy. I would suggest that the republicans make up the list of government cuts while the democrats make up the list of business cuts. Could get interesting. Even if the debt ceiling is raised, the mere attempt at blocking such an increase will give us leverage to cut more spending than otherwise.


 

A lot of people believe that this nation is doomed to collapse. The course of future events is not yet written. It is dependent on the decisions ahead made by governments here and all over the world. To the degree we return to fiscal discipline and face up to the hard choices necessary to achieve that goal we will prosper over time. To the degree we don't -- we won't.


It's that simple.

 

 

Welcome To The Revolution

September 21, 2010

 

 

 

There comes a time when popular discontent evolves into political action. According to recent polls, over 60% of the population of this country believes we are heading in the wrong direction. There is an intellectual battle plan developing from many corners of America. From fiscal conservatism to legislative ideas on how exactly to return this nation to a simpler, less government dominated society, people are beginning to mobilize. The proponents of these ideas are far and wide -- and they are deadly serious about getting them legislated into law...

 

Republican as well as Democrat incumbents have been roundly defeated by more fiscally conservative newcomers. Old blood is being replaced by new blood. And the "old blood" of big spenders and over-regulators will likely "run in the streets" during this November's elections. The Tea Party has been firing Republican incumbents, left and right. They must first beat the establishment Republicans, and then beat the Democrats. As of today, they are on track to fulfill their pledge to kick the career politicians out.

Welcome to the first shots fired in the revolution of 2010.

 

 

 

Theory, Reality, And Investing

 

October 7, 2010

 

 

 

Peter Schiff is absolutely sure we are headed for an inflationary depression. Bob Precter is predicting a deflationary depression. Some are predicting moderate growth with low inflation. But whatever the prediction, it is based on certain premises and the integration of the important facts, as an individual sees them, into a coherent projection of the shape of the future.


That's what makes the fed's forecast of a 4 to 4.5% growth rate in GDP next year so fascinating to me. Personally, I would love to place a very large bet and take the under on that forecast.


I have always done well at forecasting. I use theory to integrate what I consider the more important factors, which I weigh and prioritize, and integrate into probabilities. It works well for me. What the fed does is extrapolate. They build models and determine what IS and carry that scenario forward. Like I say, I seriously doubt we will hit anything like 4% plus in 2011. 2% is more like it...


Black boxes and programmed trading are all based on numbers and formulas. They will rip you apart if you stand in their way. Investors, especially traders, need to be aware of both theoretical and technical analysis. And they need to be aware of the other side of all arguments.


All bears need to understand the case of the bulls; and all bulls need to know the case of the bears. Let us all understand, once and for all, there is theory and there is reality. To the degree a theory correctly identifies reality it is a good theory. To the degree it does not -- it is not. The key is to know when it isn’t...


Black boxes don't think -- they're boxes! They act and they re-act as programmed machines. Mistakes tend to be reinforced and compounded by these non-thinking entities. The flash crash was a perfect example of blind trading. The crash of '87 was another. Neither of these crashes affected the economy. The economy returned back to its original course without any systemic damage. But damage was done to any investor or trader in their wake.


So, in the last analysis, theory is important -- but reality rules. Whether a trader or a long term investor, have respect for the turmoil of markets, up or down. In today's world they will be with us for the foreseeable future.


 

 

On QE2

November 5, 2010

 

 

When the Fed initially increased the money supply by a trillion dollars the immediate reaction was that we were headed for runaway inflation. I wrote an article called "Re-thinking The Inflation Scenario,” where I stated that this time will be different. It has been. (You can read that article and my arguments at that time, by accessing the archives.) My reasoning then, was much as it is today.


Earlier this year when the full focus of the Fed was on their "exit policy" I suggested that the Fed was too tight and should ease. (See "On Quantitative Easing,” also in the archives.) Today, all the focus is on QE2. Here is my present take on the subject...


All markets have been rising in anticipation of quantitative easing. Many commentators are outright saying that the Fed is printing money at historic levels. It has reached a hysterical pitch. The fact is that since January, M2 has been increasing at a 3% rate. Velocity is low, and although credit is cheap, its availability is scarce. Money and credit has been relatively tight, not booming as implied…


It is excessive money chasing goods that cause prices to progressively rise. It is the fear of inflation that causes interest rates to progressively rise. Today, we have neither. And, as I pointed out last week, there is no commodity price "inflation" as stated. Some commodities are falling and some are hitting record highs, yet the CRB is nowhere near its highs. The CRB is presently just above 300 right above its 200 weekly moving averages. That's down from 480 in January of 2008! (Even after QE2 ended, and all the talk about commodity spikes, the CRB stands today at only 335. PN)


My take on QE2 is that it is reasonable. It is not excessive. It is done with a full understanding that at some point the Fed may be forced to remove money from the economy. And it is a policy not too different from that which Milton Friedman advocated. In my opinion (an opinion that probably 8 out of 10 of you reading this disagree with) QE2 will end up being neutral -- neither creating much inflation, nor helping the economy much either.


 

 

The Death Of A Theory

December 17, 2010


Myths die hard. So do theories, even when proven wrong. We may be witnessing the death of a very popular economic theory that has been around for almost a century.


It is "Keynesianism." This theory was developed during the Great Depression by Lord Keynes. It held that when we had a severe downturn in the economy and the unemployment rate rose, the solution was to increase government spending and/or decrease taxes. The resulting deficit would increase demand for goods and would stimulate production, the economy, and lower unemployment.


Whenever you hear the argument that we need to get more money into the hands of the consumer to create demand, you are hearing the ideas of John Maynard Keynes.


Today the public is quite aware of the impotence of government spending to stimulate the economy. The average "man on the street" has come to the conclusion that government programs are pretty much worthless. The ideas of Lord Keynes are under attack from all intellectual quarters, leaving only the most liberal economists left to argue the case. And what is their case? That we spent too little, that to really get the job done we must increase the deficit and debt many times over. Only then will we get the true effects of a Keynesian stimulus.


Well, that is not going to happen. In fact, there is a good chance that once we return to free market economics, we will rarely hear the name of John Maynard Keynes spoken again, and even then, in a negative sense. Today, the dirtiest word in Washington is "stimulus." Add to that the taboo and highly hated phrases, "bail-outs,” "ear marks,” and "too big to fail," and you can see how far we have come as a nation in such a short time.


Keynes’ days are over.

 


Looking Forward: 2011

January 2, 2011

 

In my yearly forecast letter last year, "Looking Forward: A Year In Transition," I expected the shape of 2010 to be up better than most expected in the beginning of the year, and tail off by the end of the year. I stated:


I believe the recovery will be cut short as the artificial government stimulation ends, which could only be temporary at best by any economic theory anyway. This, together with higher taxes, inflation, and interest rates, will lead to a double dip recession in 2011, in my view. At best we should be left with an L shaped recovery for as far as the eye can see. Whether we have a double dip recession or an L shaped economy, there is no getting around the fact that we are about to hit a mountain of debt accumulation that will serve as a wall against any return to the robust growth of the last 25 years. That era is over.

 

The L shaped scenario was what we were set up to go into in 2011, (in fact I was going to entitle this article "Looking Forward: A Year Of L"). I assumed a possible double dip in 2011 if we were dealt a really bad blow from housing, or another round of banking and financial problems. But given the extension of the tax rates, as is, the defeat of the omnibus spending bill, which opens the door for more immediate government spending cuts, the revolutionary result of the November elections, and the free trade agreement with South Korea, with several other treaties possibly to come, I am more confident that we can avoid a double dip recession.


 


Battle Lines!

February 24, 2011

 

There is a war going on, the winner of which will determine the very direction the United States will take. It is a battle for nothing less than freedom, individual rights, and property rights. The fight is against government domination through control and regulation, and it is a war that has been fought throughout the world since the dawn of mankind.


The war looks like this:

 

Big Government                                                   Limited Government

 

More Government Spending                               Less Government Spending


Higher Tax Rates                              VS             Lower Tax Rates


Greater Government Control                              Less Government Control

 

More Regulation                                                  Less Regulation


Less Individual Choice                                         More Individual Choice



If you are leaning toward the left side of this ledger--you are on the wrong web site.


Let me say at the outset that I believe this battle will be won by the freedom fighters. Here, and around the world. Never before have I seen such an outpouring of pro-freedom sentiment. Those in power who are on the wrong side of this issue are about to lose position and power. Their days are numbered.


Last election, America kicked out most of the pro big government, and anti-freedom congressmen. More will be deposed next time. Dictators around the world will fall one by one. Think about this…arguments that were tolerated, even accepted, a few years ago are being laughed at today. Take excessive government spending for example; no longer is a decrease in the increase of government spending passing for true spending “cuts.” When the President claimed his budget would cut a trillion dollars over ten years, his plan was immediately condemned in light of the fact that it actually adds seven trillion to the national debt. Because of this, Obama’s budget was declared "Dead on Arrival.”

 

 

This battle will be won by the pro freedom faction here in America. The evidence of fiscal irresponsibility is out in the open, and playing games with our future will no longer be tolerated. I encourage every individual who cares about returning this country to a sound fiscal and monetary policy to participate in this fight.

 

Simply complaining about too much government will do nothing to free us from the corruption and lack of responsibility those in power have demonstrated. The battle can only be won by those who stand up and fight for the right of individuals. It is our right to make our own choices, keep our own money, and live our lives without government interference. The fight will be won by those of us who clearly define what is right, and fair, and who fearlessly outline what must be done to solve our problems.

 

Those who merely tell us how bad things are from the sidelines, and who insist nothing can be done to change the world, should take notice. The world is changing. A new day has dawned…


 

 

Is The Fed Monetizing The Debt?

March 11, 2011


There is heated debate going on between those who believe the Fed is creating huge amounts of money that will inevitably lead to soaring inflation, and those who don't. What makes this debate singularly important -- and interesting -- is it is a debate between free market advocates, all who believe an artificial increase in money and credit, is inflationary.


The essence of the argument is not whether the Fed is creating new money. All agree on this point, including the Fed. The debate is whether that money will lead to substantially higher prices. Some argue it is doing exactly that today -- after all, look at gasoline prices.


For those that are interested in this subject I recommend you read the entire article, “Is the Fed Monetizing the Debt” in the archives. All other articles posted her can be viewed in full in the archives, and archive articles sections.

 

-PN


To be continued next week...