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  Quotations - Invest  
[Quote No.42630] Need Area: Money > Invest
"[Keynesian economics is infamous for policies that over-stimulate economies with too much government fiscal deficit spending and too low interest rates. According to Austrian economics this creates malinvestment as the price signals, especially of the cost of (borrowed) money, foolishly encourages business-people and the general public to over-invest and over-spend on consumption. This creates a 'Boom-Bust' bubble which inevitably bursts and vast amounts of wealth is destroyed, ruining many people's lives. Here is an article in 2002 calling for more Keynesian stimulus and deliberately creating a housing bubble. This in fact occurred - until the worst financial crisis since the great depression - the sub-prime housing debacle - ended this economic incompetence in 2007-9. Hopefully intelligent economists will finally learn from history and give up the statist (i.e. socialist, big government intervention and wealth redistribution policies) apologetics and enabling behavior of Keynesian and Monetarist economics for the more rational and stable Austrian economic theories. Here is the quote from that article, should anyone need proof of the foolish Keynesian policy advocacy:] The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed[eral Reserve] raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of PIMCO put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble [internet bubble of 1998-2000]. Judging by Mr. Greenspan's remarkably cheerful recent testimony, he still thinks he can pull that off. " - Paul Krugman
American Keynesian economist. Quote from his opinion piece called, 'Dubya's Double Dip?', published in 'The New York Times', August 02, 2002. [http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip.html ]
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[Quote No.43041] Need Area: Money > Invest
"[In investing methods, among other things] There are no whole truths; all truths are half-truths. It is trying to treat them as whole truths that plays the devil. [The time-tested rules of successful investing help but knowing when and how to apply them and when to break them and how, means the difference between ordinary performance, even failure, and extraordinary success.]" - Alfred North Whitehead
(1861 – 1947), English mathematician and philosopher.
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[Quote No.43070] Need Area: Money > Invest
"Money is cold, so you need to be cool [in the sense of being dispassionately rational], too, when you deal with it. [This is especially true in investing as becoming too emotional - either ecstatic or despondent - is a recipe for making disastrous decisions.]" - Sivaya Subramuniyaswami
(1927–2001), also known as Gurudeva Satguru Sivaya Subramuniyaswami by his followers, was born in Oakland, California, on January 5, 1927, and adopted 'Saivism' as a young man. He traveled to India and Sri Lanka where he received initiation from Yogaswami of Jaffna in 1949. In the 1970s he established a Hindu monastery in Kauai, Hawaii and founded the magazine 'Hinduism Today'. He was one of Saivism's Gurus, the founder and leader of the Saiva Siddhanta Church. Subramuniyaswami was lauded by Klaus Klostermaier as 'the single-most advocate of Hinduism outside India'. [http://www.hinduismtoday.com/modules/smartsection/item.php?itemid=3872 ]
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[Quote No.43159] Need Area: Money > Invest
"What is the Austrian business cycle? In a nutshell (and oversimplified), it's the expansion of credit by the banks, not supported by real saving, which in turn drives down interest rate (i.e. the cost of money) below the free market level. This distortion causes business to invest in projects (mostly producers' goods) which would never come into existence without the low interest rate environment. 'The inflationary boom thus leads to the distortions of the pricing and production system' [as the Austrian economist and historian, Murray Rothbard, said in his brief but good pamphlet, 'Economic Depressions: Their Cause and Cure']. In other words, the cheap credit will lead to an unsustainable boom, which eventually will lead to a bust. For further and more elaborated reading on the Austrian business cycle and the banking system I recommend reading 'The Mystery of Banking' by Murray Rothbard and 'Money, Bank Credit, and Economic Cycles' by Jesus Huerta de Soto." - Erez Davidi
[http://www.amazon.com/Economic-Depressions-Their-Cause-ebook/dp/B005CR8E7C ]
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[Quote No.43160] Need Area: Money > Invest
"The Austrian Theory of the Business Cycle: Grounded in the economic theory set out in Carl Menger's 'Principles of Economics' and built on the vision of a capital-using production process developed in Eugen von Böhm-Bawerk's 'Capital and Interest', the Austrian theory of the business cycle remains sufficiently distinct to justify its national identification. But even in its earliest rendition in Ludwig von Mises' 'Theory of Money and Credit' and in subsequent exposition and extension in [Nobe prize winning economist] F. A. Hayek's 'Prices and Production', the theory incorporated important elements from Swedish and British economics. Knut Wicksell's 'Interest and Prices', which showed how prices respond to a discrepancy between the bank rate and the real rate of interest, provided the basis for the Austrian account of the misallocation of capital during the boom. The market process that eventually reveals the intertemporal misallocation and turns boom into bust resembles an analogous process described by the British Currency School, in which international misallocations induced by credit expansion are subsequently eliminated by changes in the terms of trade and hence in specie flow. The Austrian theory of the business cycle emerges straightforwardly from a simple comparison of a savings-induced boom, which is sustainable, with a credit-induced boom, which is not. An increase in saving by households and a credit expansion orchestrated by the central bank [and encouraged by statist governments interfering in free markets for political gain] set into motion market processes whose initial allocational effects on the economy's capital structure are similar but whose ultimate consequences are sharply different [with the latter being unsustainable, creating first a boom and then an equivalent bust, recession or depression as the central bank and government induced misallocation and malinvestment is necessarily unwound]... Mainstream theory distinguishes between broadly conceived structural unemployment (a mismatch of job openings and job applicants) and cyclical unemployment (a decrease in job openings). In the Austrian view, cyclical unemployment is, at least initially, a particular kind of structural unemployment: the credit-induced restructuring of capital has created too many jobs in the early stages of production. A relatively high level of unemployment ushered in by the bust involves workers whose subsequent employment prospects depend on reversing the credit-induced capital restructuring. The Austrian theory allows for the possibility that while malinvested capital is being liquidated and reabsorbed elsewhere in the economy's intertemporal capital structure, unemployment can increase dramatically as reduced incomes and reduced spending feed upon one another. The self-aggravating contraction of economic activity was designated as a 'secondary deflation' by the Austrians to distinguish it from the structural maladjustment that, in their view, is the primary problem. By contrast, mainstream theories, which ignore the intertemporal capital structure, deal exclusively with the downward spiral. Questions of policy and institutional reform are answered differently by Austrian and mainstream economists because of the difference in focus as between intertemporal distortions and downward spirals. The Austrians, who see the intertemporal distortions as the more fundamental problem, recommend monetary reform aimed at avoiding credit-induced booms. Hard money and decentralized banking are key elements of the Austrian reform agenda. Mainstream macroeconomists take structural problems (intertemporal or otherwise) to be completely separate from the general problem of demand deficiency and the periodic problem of downward spirals of demand and income. Their policy prescriptions, which include fiscal and monetary stimulants aimed at maintaining economic expansion, are seen by the Austrians as the primary source of intertemporal distortions of the capital structure." - Roger W. Garrison
[http://www.auburn.edu/~garriro/a1abc.htm ]
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[Quote No.43161] Need Area: Money > Invest
"...banks would never be able to expand credit in concert [and therefore cause 'business cycles' - booms that necessitate busts to remove the induced misallocation of funds and malinvestment] were it not for the [politically motivated and economically misguided] intervention and encouragement of [statist] government." - Murray N. Rothbard
(1926 – 1995), Austrian School economist, economic historian, and libertarian political philosopher. Quote from his pamphlet, ‘Economic Depressions: Causes & Cures’, published March 5th 1969 by Constitutional Alliance, Inc.) [http://library.mises.org/books/Murray%20N%20Rothbard/Economic%20Depressions%20Their%20Cause%20and%20Cure.pdf ]
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[Quote No.43163] Need Area: Money > Invest
"Austrian Business Cycle Theory: A Brief Explanation --- The media’s favorite phony solution to the economic downturn is for the Fed to drop interest rates lower and lower until the economy registers an upturn. What is wrong with this approach? Printing money—which is what reducing interest rates below the market rate amounts to—is an artificial means of recovering from the very real effects of an artificial boom. This point, however, is completely lost on most commentators, because they haven’t the slightest understanding of the Austrian theory of the business cycle. This article gives a brief overview of the theory, which provides an explanation of the recurrent periods of prosperity and recession that seem to plague capitalist societies. As Salerno (Joseph T. Salerno, ‘Austrian Economics Newsletter, Fall 1996) has argued, the Austrian business cycle theory is in many ways the quintessence of Austrian economics, as it integrates so many ideas that are unique to that school of thought, such as capital structure, monetary theory, economic calculation, and entrepreneurship. As such, it would be impossible to adequately explain so rich a theory in a short note. (See Murray Rothbard’s ‘America's Great Depression’, 1983, for greater details.) However, an attempt will be made here to indicate how those relevant ideas come together in a unified framework. Man is confronted with a world of physical scarcity. That is, not all of our wants and needs, which are practically limitless, can be met. Outside of the Garden of Eden, we must produce in order to consume, and this means that we must combine our labor with whatever nature-given resources are available to us. As inherently rational beings, men have come to recognize many ways of solving this problem, such as peaceful cooperation under the division of labor leading to enhanced productivity, and private property rights permitting economic calculation so that different courses of action can be meaningfully compared. (This is not to say that man has perfect foresight and always correctly anticipates the outcome, good or bad, of his actions; only that man acts purposefully—and so always judges ex ante [before the fact] a course of action to lead to a preferred state of affairs—and is capable of distinguishing success from failure and acting accordingly.) However, it would help to consider the course of economic development from a simplified example, that of an isolated ‘Robinson Crusoe’ situation. The circumstance faced here is that one must somehow combine one’s labor with available resources to produce goods for consumption (e.g., food, shelter, etc.). For example, I can pick berries by hand, and this will produce a certain level of consumption. However, if I wish to have a greater level of consumption, I must create some means of increasing my berry collecting — for example, by building a rod to knock berries from bushes and a net to collect them as they fall to the ground. Unless these means are nature-given, however, I must build them myself, and this will take time — time during which I cannot pick and consume berries with my old method. Thus, during the time I am making my new, presumably more efficient, method, I must have some way of sustaining myself. This can only come about if I have saved (i.e., abstained from consuming) a sufficient amount of berries in the past, so that I may work on other approaches now. (For more on this process, see Murray Rothbard’s brilliant economics book, ‘Man, Economy, and State’, 1993, ch. 1.) Let us be clear about what is happening here: One is not simply switching from consumption to production; rather, one is switching from one form of production to another. One cannot consume something until it has been produced, so all production processes involve foregoing consumption. The question, though, is what must be done to switch to a supposedly more effective means of production. Obviously, if the rod-and-net system, presumably more productive, had required the same amount of time to construct as the hand-picking method, I would have engaged in this approach to begin with. Since acquiring the increased productivity comes with a cost — namely, time spent away from using the old method to facilitate production and, thus, consumption — there must be some means of paying that cost. Of course, not all lengthier production processes are more productive. But at any given time, man always chooses those production processes that can produce a ‘GIVEN’ amount of output for consumption in the shortest amount of time. A process that takes longer to arrive at the final stage of output will only be adopted if it is correspondingly more productive. In the Austrian conception, greater savings permit the creation of more ‘roundabout’ production processes — that is, production processes increasingly far-removed from the finished product. This is the role of savings, and we can ask what determines a particular level of savings. Time preference is the extent to which people value current consumption over future consumption. The key point of the Austrian business cycle theory is that interventions in the monetary system — and there is some debate over what form those interventions must take to set in motion the boom-bust process — create a mismatch between consumer time preferences and entrepreneurial judgments regarding those time preferences. Let us return to the Crusoe example above, and consider attempts to construct more productive means of berry extraction. What constrains me in this endeavor is my level of time preference. If I so enjoy current consumption that the thought of increased future consumption cannot sway me from foregoing sufficient berry-eating now, my rod-and-net system will not be built. In the context of fractional reserve banking, printing up berry-tickets cannot change this fact. As a numerical example, consider the case where hand-picking yields twelve berries a day, and I am simply unwilling to go without less than ten berries per day. Suppose further that my time preference falls so that I am willing to save two berries a day for seven days (leaving aside issues such as perishability, which obviously do not apply to a monetary economy). I will then have a reserve of fourteen berries. Assume I work one-fourth of a day on my new method of berry production and spend the remaining three-fourths of the day on producing berries with the old technique. The old method will give me nine berries a day, and I can use one berry from my savings to meet my current consumption needs. If I can finish the rod-and-net system in fourteen days (the extent of my reserve), then everything is fine, and I can go on to enjoy the fruits of my labor (no pun intended). If I misjudge however, and the process takes longer than fourteen days, I must temporarily suspend production (or at least delay it) to fund my current consumption, as, by assumption, I value a certain level of current consumption over increased future consumption (the essence of time preference). The point is, sufficient property must exist for me to lengthen the structure of production, and this property can only come from (past) savings. If my time preference does not enable sufficient property to become available for creating this production process, my efforts will end in failure. Lest it be thought this example is artificial, consider the situation where my needs are nine berries a day. It would appear that I can still work one-fourth of a day on the new technique without having a previous cache of savings, since the remaining three-fourths day of labor with the old method will meet those needs. Two things should be noted, however. First, my time preference must first fall from a daily consumption of twelve berries to nine berries. Second, and this is the key point, had I saved previously, then I could spend that much more time on building the new method, thus bringing it into increased production of berries that much sooner. Savings remain key to this process of capital construction, and savings are driven by time preference. Indeed, time preference manifests itself in savings. This same process of using savings to fund current production for future consumption goes on in more complex economies. (Of course, with the introduction of more than one individual, recognition of increased productivity under the division of labor becomes possible, thus raising man above the subsistence level and making possible a pool of savings.) At any given time, the individuals in society are engaged in production to meet some ‘level’ of consumption needs. In order for more lengthy — and, hence, if they are to be maintained, more productive — processes to be entered into, it is necessary that some individuals have refrained from consumption in the past so that other individuals may be sustained and facilitated in assembling this new structure, during which they cannot produce — and thus, not consume — consumption goods with the methods of the old structure. The thrust of the Austrian theory of the business cycle is that credit inflation distorts this process, by making it ‘APPEAR’ that more means exist for current production than are actually sustainable (at least in some renditions; see Jörg Guido Hülsmann, ‘Knowledge, Judgment, and the Use of Property,’ 1997, ‘Review of Austrian Economics’, 10, 1. for a ‘non-standard’ exposition of ABCT - Austrian Business Cycle Theory). Since this is in fact an illusion (printing claims to property [‘inflation’] is not the same thing as actually having property; see Hans-Hermann Hoppe, ‘How is Fiat Money Possible? - or, The Devolution of Money and Credit,’ 1994, ‘Review of Austrian Economics’, 7, 2.), the endeavors of entrepreneurs to create a structure of production not reflecting actual consumer time preferences (as manifested in available savings for the purchase of producer goods) must end in failure. Any kind of economy above the most primitive does not, of course, engage in barter, but rather uses money as a medium of exchange to overcome the problem of the absence of a double coincidence of wants. It must be stressed, though, that apart from this unique role, money is itself a good, the most marketable good. To be sure, money is valuable to the extent that others are willing to accept it in exchange. However, money itself must first have originated as a directly serviceable good before it could become an indirectly serviceable good (i.e., money). This is the thrust of Mises's regression theorem (Ludwig von Mises, ‘The Theory of Money and Credit’, 1981, Liberty Fund; Murray N. Rothbard, ‘Man, Economy, and State’, 1993, Ludwig von Mises Institute, ch. 4). Like any other exchange, one may find after the fact that it was not to one's liking; for example, one may find that the money good is no longer accepted by ‘society.’ There is nothing unique about money in these respects. What is unique about money is its use in economic calculation. Since all exchanges are, ultimately, exchanges involving property [and therefore the need for private property rights], a common unit for comparing such exchanges is indispensable. In particular, the amount of money as savings represents a ‘measure’ of the amount of property available for production processes. (Indeed, to even maintain a given structure of production requires some abstinence from consumption, so that production dedicated to maintenance instead of consumption may be undertaken.) Holding cash (in your wallet, in a tin can in the backyard, etc.) is not a form of saving. Cash balances can increase without time preferences decreasing, as they do when one saves. (In fact, one saves because one's time preference falls [i.e. happier to delay spending – happier to save and delay gratification].) One can increase one's cash balances by decreasing one's spending on consumer AND producer goods. To save is to DECREASE one's spending on consumer goods and INCREASE one's spending on producer goods. The fact that saving usually involves an intermediary (i.e., a bank) to permit someone else to spend on producer goods does not change this fact. Money is inherently a present good; holding it ‘buys’ alleviation from a currently felt uneasiness about an uncertain future. (See Hans-Hermann Hoppe, ‘How is Fiat Money Possible? - or, The Devolution of Money and Credit,’ 1994, ‘Review of Austrian Economics’, 7, 2. and Hans-Hermann Hoppe, Jörg Guido Hülsmann, and Walter Block, 1998, ‘Against Fiduciary Media,’ ‘Quarterly Journal of Austrian Economics’, 1, 1. for a discussion of the nature of money.) Lending out demand deposits, or claims to current goods, cannot facilitate the purchase of producer goods (for the creation of future goods at the expense of current goods), apart from the juridical issues involved. The crucial thing about money is that it permits economic calculation, the comparison of anticipated revenues from an action with potential costs in a common unit. That is, one acquires property based on a judgment of the future by exchanging other property, and this is impossible — or, rather, meaningless — to do without a common unit for comparing alternatives. Money IS property, and under a monetary system which makes it appear that more property exists for production than actually exists, failure is inevitable. One need not focus on whether entrepreneurs correctly ‘read’ interest rates or not. Entrepreneurs make judgments about the future and, of course, can always potentially be in error; success cannot be known now. However, judgments will be in error when one is confronted with the illusion of a greater pool of savings than actual consumer time preferences would justify. This is precisely the situation established by the banking system — as intermediaries between savers and producers, or ‘investors’ — as currently exists in the Western world. The system ensures error, though of course it does not preclude success; thus, the existence of genuine economic growth alongside malinvestments. This analysis is not a moralistic insistence that an economy be ultimately founded on something ‘real.’ It is a recognition that mere subjective wants cannot will more property into existence than actually exists. Should a monetary system give the illusion that the time preferences of consumers, as providers of property for production purposes, is smaller than it actually is, then the structure of production thus assembled in such a system is INHERENTLY in error. Whatever plans appear to be feasible during the early phase of a boom will, of necessity, eventually be revealed to be in error due to a lack of sufficient property. This is the crux of the Austrian business cycle theory." - Dan Mahoney
Ph,D., mathematics, works for Mirant-Americas. Article published in 'Mises Daily', Monday, May 07, 2001. [http://mises.org/daily/672 ]
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[Quote No.43164] Need Area: Money > Invest
"[The Austrian School of economics has an interesting understanding of how economies work that is different from the mainstreams of Keynesianism or monetarism and is therefore well worth exploring also.] The economists aligned with the Austrian School are sometimes colloquially called 'the Austrians' even though few hold Austrian citizenship, and not all economists from Austria subscribe to the ideas of the Austrian School. [A number of highly respected and successful investors are Austrian economists including Jim Rogers and Marc Faber. An incomplete list of some other well-known Austrian economists can be found at the free encyclopedia site, wikipedia - http://en.wikipedia.org/wiki/List_of_Austrian_School_economists ]" - Wikipedia.org

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[Quote No.43165] Need Area: Money > Invest
"Austrian business cycle theory: --- The Austrian business cycle theory (or ABCT) attempts to explain business cycles through a set of ideas held by the Austrian School of economics. The theory views business cycles as the inevitable consequence of excessive growth in bank credit, exacerbated by inherently damaging and ineffective central bank policies, which cause interest rates to remain too low for too long, resulting in excessive credit creation, speculative economic bubbles and lowered savings. The creator of the Austrian business cycle theory was Austrian School economist and Nobel laureate Friedrich Hayek. Hayek won a Nobel Prize in economics in 1974 (shared with Gunnar Myrdal) in part for his work on this theory. Proponents believe that a sustained period of low interest rates and excessive credit creation results in a volatile and unstable imbalance between saving and investment. According to the theory, the business cycle unfolds in the following way: Low interest rates tend to stimulate borrowing from the banking system. This expansion of credit causes an expansion of the supply of money, through the money creation process in a fractional reserve banking system. It is argued that this leads to an unsustainable credit-sourced boom during which the artificially stimulated borrowing seeks out diminishing investment opportunities. Proponents hold that a credit-sourced boom results in widespread malinvestments. In the theory, a correction or ‘credit crunch’ – commonly called a ‘recession’ or ‘bust’ – occurs when exponential credit creation cannot be sustained. Then the money supply suddenly and sharply contracts when markets finally ‘clear’, causing resources to be reallocated back towards more efficient uses. The Austrian explanation of the business cycle differs significantly from the mainstream understanding of business cycles and is generally rejected by mainstream economists. In contrast to most mainstream theories on business cycles, Austrians focus on the credit cycle as the primary cause of most business cycles. Economists Milton Friedman [an economist who rejected Keynesian macroeconomics for his own economic theory called monetarism], Gordon Tullock [an economist known for his work on public choice theory], Bryan Caplan [ironically a self-described economist of the Austrian School, but one particularly interested in public choice theory], and Paul Krugman [a Nobel laureate in economics with acknowledged Keynesian sympathies] have written about why they regard the theory as incorrect. According to Austrian economist [and highly regarded anarcho-capitalist libertarian] Murray Rothbard, the Austrian business cycle theory attempts to answer the following questions about things which Austrians believe appear over the course of a business cycle. --1-- Why is there a sudden general cluster of business errors? --2-- Why do capital goods industries and asset market prices fluctuate more widely than do the consumer goods industries and consumer prices? --3-- Why is there a general increase in the quantity of money in the economy during every boom, and why is there generally, though not universally, a fall in the money supply during the depression (or a sharp contraction in the growth of credit in a recession)? --- Assertions: --- According to the theory, the boom-bust cycle of malinvestment is generated by excessive and unsustainable credit expansion to businesses and individual borrowers by the banks. This credit creation makes it appear as if the supply of ‘saved funds’ ready for investment has increased, for the effect is the same: the supply of funds for investment purposes increases, and the interest rate is lowered. Borrowers, in short, are misled by the bank inflation into believing that the supply of saved funds (the pool of ‘deferred’ funds ready to be invested) is greater than it really is. When the pool of ‘saved funds’ increases, entrepreneurs invest in ‘longer process of production,’ i.e., the capital structure is lengthened, especially in the ‘higher orders’, most remote from the consumer. Borrowers take their newly acquired funds and bid up the prices of capital and other producers' goods, which, in the theory, stimulates a shift of investment from consumer goods to capital goods industries. Austrian economists further contend that such a shift is unsustainable and must reverse itself in due course. Proponents of the theory conclude that the longer the unsustainable shift in capital goods industries continues, the more violent and disruptive the necessary re-adjustment process. While agreeing with economist Tyler Cowen, Bryan Caplan has stated that he also denies ‘that the artificially stimulated investments have any tendency to become malinvestments.’ The preference by entrepreneurs for longer term investments can be shown graphically by using any discounted cash flow model. Lower interest rates increase the relative value of cash flows that come in the future. When modelling an investment opportunity, if interest rates are artificially low, entrepreneurs are led to believe the income they will receive in the future is sufficient to cover their near term investment costs. Therefore, investments that would not make sense with a 10% cost of funds become feasible with a prevailing interest rate of 5%. The proportion of consumption to saving or investment is determined by people's time preferences, which is the degree to which they prefer present to future satisfactions. Thus, the pure interest rate is determined by the time preferences of the individuals in society, and the final market rates of interest reflect the pure interest rate plus or minus the entrepreneurial risk and purchasing power components. Many entrepreneurs can make the same mistake at the same time (i.e. many believe investment funds are really available for long term projects when in fact the pool of available funds has come from credit creation - not real savings out of the existing money supply) because the debasement of the means of exchange is universal. As they are all competing for the same pool of capital and market share, some entrepreneurs begin to borrow simply to avoid being ‘overrun’ by other entrepreneurs who may take advantage of the lower interest rates to invest in more up-to-date capital infrastructure. A tendency towards over-investment and speculative borrowing in this ‘artificial’ low interest rate environment is therefore almost inevitable. This new money then percolates downward from the business borrowers to the factors of production: to the landowners and capital owners who sold assets to the newly indebted entrepreneurs, and then to the other factors of production in wages, rent, and interest. Austrians conclude that, since time preferences have not changed, people will rush to reestablish the old proportions [of consuming to saving], and demand will shift back from the higher [producer goods] to the lower orders [consumer goods]. In other words, depositors will tend to remove cash from the banking system and spend it (not save it), banks will then ask their borrowers for payment and interest rates and credit conditions will deteriorate. Austrians argue that capital goods industries will find that their investments have been in error; that what they thought profitable really fails for lack of demand by their entrepreneurial customers. Higher orders of production [producer – capital goods rather than consumer – retail goods] will have turned out to be wasteful, and the malinvestment must be liquidated. In other words, the particular TYPES of investments made during the monetary boom were inappropriate and ‘wrong’ from the perspective of the long-term financial sustainability of the market because the price signals stimulating the investment were distorted by fractional reserve banking's recursive lending ‘ballooning’ the pricing structure in various capital markets. This concept is dependent on the notion of the ‘heterogeneity of capital’, where Austrians emphasize that the mere macroeconomic ‘total’ of investment does not adequately capture whether this investment is genuinely sustainable or productive, due to the inability of the raw numbers to reveal the particular investment activities being undertaken and the inherent inability of the numbers to reveal whether these particular investment activities were appropriate and economically sustainable given people's real preferences. Austrians argue that a boom taking place under these circumstances is actually a period of wasteful malinvestment, a ‘false boom’ where the particular kinds of investments undertaken during the period of fiat money expansion are revealed to lead nowhere but to insolvency and unsustainability. It is the time when errors are made, when speculative borrowing has driven up prices for assets and capital to unsustainable levels, due to low interest rates ‘artificially’ increasing the money supply and triggering an unsustainable injection of fiat money ‘funds’ available for investment into the system, thereby tampering with the complex pricing mechanism of the free market. ‘Real’ savings would have required higher interest rates to encourage depositors to save their money in term deposits to invest in longer term projects under a stable money supply. According to [Ludwig von] Mises's work, the artificial stimulus caused by bank-created credit causes a generalized speculative investment bubble, not justified by the long-term structure of the market. Mises further argues that a ‘crisis’ (or ‘credit crunch’) arrives when the consumers come to reestablish their desired allocation of saving and consumption at prevailing interest rates. Mises conjectured that the ‘recession’ or ‘depression’ is actually the process by which the economy adjusts to the wastes and errors of the monetary boom, and reestablishes efficient service of sustainable consumer desires. Austrians argue that continually expanding bank credit can keep the borrowers one step ahead of consumer retribution (with the help of successively lower interest rates from the central bank). In the theory, this postpones the ‘day of reckoning’ and defers the collapse of unsustainably inflated asset prices. It can also be temporarily put off by exogenous events such as the ‘cheap’ or free acquisition of marketable resources by market participants and the banks funding the borrowing (such as the acquisition of land from local governments, or in extreme cases, the acquisition of foreign land through the waging of war). Austrians argue that the monetary boom ends when bank credit expansion finally stops - when no further investments can be found which provide adequate returns for speculative borrowers at prevailing interest rates. They further argue that the longer the ‘false’ monetary boom goes on, the bigger and more speculative the borrowing, the more wasteful the errors committed and the longer and more severe will be the necessary bankruptcies, foreclosures, and depression readjustment [including unemployment]. Austrians do not claim that fiscal restraint or ‘austerity’ will bring about economic growth. Rather, they argue that all attempts by central governments to prop up asset prices, bail out insolvent banks, or ‘stimulate’ the economy with deficit spending will only make the misallocations and malinvestments worse, prolonging the depression and adjustment necessary to return to stable growth [for example Japan’s wasted two decades after their 1980 crack-up boom then bust, which was never allowed to truly correct due to government stimulus, money printing and refusal to write down over-valued collateral within the banks]. Austrians argue the policy error rests in the government's (and central bank's) weakness or negligence in allowing the ‘false’ unsustainable credit-fueled boom to begin in the first place, not in having it end with fiscal and monetary ‘austerity’. Debt liquidation is therefore the only solution to a debt-fueled problem. According to Ludwig von Mises: ‘There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of the voluntary abandonment of further credit expansion [i.e. Keynesian stimulus or Friedmanite monetarism], or later as a final and total catastrophe of the currency system involved.’ --- Austrian interpretations: --- Roger Garrison argues that a false boom caused by artificially low interest rates would cause a boom in consumption goods as well as investment goods (with a decrease in ‘middle goods’). --- The role of central banks: --- Austrians generally argue that inherently damaging and ineffective central bank policies, including unsustainable expansion of bank credit through fractional reserve banking, are the predominant cause of most business cycles, as they tend to set artificial interest rates too low for too long, resulting in excessive credit creation, speculative ‘bubbles’, and artificially low savings [especially if the private banks, central bank and government are able to make up the domestic savings shortfall by borrowing from overseas, increasing net foreign debt]. Under fiat monetary systems, a central bank creates new money when it lends to member banks, and this money is multiplied many times over through the money creation process of the private banks. This new bank-created money enters the loan market and provides a lower rate of interest than that which would prevail if the money supply were stable. However, Murray Rothbard paid particular attention to the role of central banks in creating an environment of loose credit prior to the onset of the Great Depression, and the subsequent ineffectiveness of central bank policies, which simply delayed necessary price adjustments and prolonged market dysfunction. Rothbard begins with the premise that in a market with no centralized monetary authority, there would be no simultaneous cluster of malinvestments or entrepreneurial errors, since astute entrepreneurs would not all make errors at the same time and would quickly take advantage of any temporary, isolated mispricing. In addition, in an open, non-centralized (uninsured) [i.e. central banks normally do repo’s to provide liquidity in difficult times, which increases ‘moral hazard’ because banks more willing to do risky loans with that backstop] capital market, astute bankers would shy away from speculative lending and uninsured depositors would carefully monitor the balance sheets of risky financial institutions, tempering any speculative excesses that arose sporadically in the finance markets. In Rothbard's view, the cycle of generalized malinvestment is greatly exacerbated by centralized monetary intervention in the money markets by the central bank. Such propositions from Rothbard prompted criticism from Bryan Caplan, who questions ‘Why does Rothbard think businessmen are so incompetent at forecasting government policy? He credits them with entrepreneurial foresight about all market-generated conditions, but curiously finds them unable to forecast government policy, or even to avoid falling prey to simple accounting illusions generated by inflation and deflation... Particularly in interventionist economies, it would seem that natural selection would weed out businesspeople with such a gigantic blind spot.’ Rothbard argues that an over-encouragement to borrow and lend is initiated by the mispricing of credit via the central bank's centralized control over interest rates and its need to protect banks from periodic bank runs (which Austrians believe then causes interest rates to be set too low for too long when compared to the rates that would prevail in a genuine non-central bank dominated free market). --- History: --- A similar theory first appeared in the last few pages of Mises's ‘The Theory of Money and Credit’ (1912). This early development of Austrian business cycle theory was a direct manifestation of Mises's rejection of the concept of neutral money and emerged as an almost incidental by-product of his exploration of the theory of banking. David Laidler has observed in a chapter on the theory that the origins lie in the ideas of Knut Wicksell. Nobel laureate Hayek's presentation of the theory in the 1930s was criticized by many economists, including John Maynard Keynes, Piero Sraffa, and Nicholas Kaldor. In 1932, Piero Sraffa argued that Hayek's theory did not explain why ‘forced savings’ induced by inflation would generate investments in capital that were inherently less sustainable than those induced by voluntary savings. Sraffa also argued that Hayek's theory failed to define a single ‘natural’ rate of interest that might prevent a period of growth from leading to a crisis. Others who responded critically to Hayek's work on the business cycle included John Hicks, Frank Knight, and Gunnar Myrdal. Hayek reformulated his theory in response to those objections. Austrian economist Roger Garrison explains the origins of the theory: ‘Grounded in the economic theory set out in Carl Menger's ‘Principles of Economics’ and built on the vision of a capital-using production process developed in Eugen von Böhm-Bawerk's ‘Capital and Interest’, the Austrian theory of the business cycle remains sufficiently distinct to justify its national identification. But even in its earliest rendition in Mises's ‘Theory of Money and Credit’ and in subsequent exposition and extension in F. A. Hayek's ‘Prices and Production’, the theory incorporated important elements from Swedish and British economics. Knut Wicksell's ‘Interest and Prices’, which showed how prices respond to a discrepancy between the bank rate and the real rate of interest, provided the basis for the Austrian account of the misallocation of capital during the boom. The market process that eventually reveals the intertemporal misallocation and turns boom into bust resembles an analogous process described by the British Currency School, in which international misallocations induced by credit expansion are subsequently eliminated by changes in the terms of trade and hence in specie [money in coin] flow.’ A popularized version of the theory is presented in Murray Rothbard's pamphlet ‘Economic Depressions: Their Cause and Cure’, which endeavors to explain the business cycle by focusing on excessive bank-sourced credit expansion and centralized government intervention (through the actions of a central bank). Rothbard went into much greater detail in his book ‘What Has Government Done to Our Money?’. Ludwig von Mises and Friedrich Hayek were two of the few economists who gave warning of a major economic crisis before the great crash of 1929. In February 1929, Hayek warned that a coming financial crisis was an unavoidable consequence of reckless monetary expansion. Austrian School economist Peter J. Boettke argues that the Fed is making a mistake by not letting consumer prices fall. According to him, Fed's policy of reducing interest rates to below-market-level when there was a chance of deflation in the early 2000s together with government policy of subsidizing homeownership resulted in unwanted asset inflation. Financial institutions leveraged up to increase their returns in the environment of below market interest rates. Boettke further argues that government regulation through credit rating agencies enabled financial institutions to act irresponsibly and invest in securities that would perform only if the prices in the housing market continued to rise. However, once the interest rates went back up to the market level prices in the housing market began to fall and soon afterwards financial crisis ensued. Boettke attributes failure to policy makers who assumed that they had the necessary knowledge to make positive interventions in the economy. The Austrian School view is that government attempts to influence markets prolong the process of needed adjustment and reallocation of resources to more productive uses. In this view bailouts serve only to distribute wealth to the well-connected, while long-term costs are borne out by the majority of the ill-informed public. Economist Steve H. Hanke identifies the 2007-2010 Global Financial Crises as the direct outcome of the Federal Reserve Bank's interest rate policies as is predicted by the Austrian business cycle theory. Some analysts such as Jerry Tempelman have also argued that the predictive and explanatory power of ABCT in relation to the Global Financial Crisis has reaffirmed its status and perhaps cast into question the utility of mainstream theories and critiques. --- Empirical research: --- Empirical research by economists regarding the accuracy of the Austrian business cycle theory has generated disparate conclusions, though most research within mainstream economics regarding the theory concludes that the theory is inconsistent with empirical evidence. In 1969, Milton Friedman argued that the theory is not consistent with empirical evidence. He analyzed the issue using newer data in 1993, and reached the same conclusion. In 2001, Austrian economist James P. Keeler argued that the theory is consistent with empirical evidence. In 2006, Austrian economist Robert Mulligan argued that the theory is consistent with empirical evidence. According to most economic historians, economies have experienced less severe boom-bust cycles after World War II, because governments have addressed the problem of economic recessions. They argue that this has especially been true since the 1980s because central banks were granted more independence and started using monetary policy to stabilize the business cycle, an event known as The Great Moderation. --- Influence: --- The Austrian explanation of the business cycle varies significantly from the current mainstream understanding of business cycles, and is generally rejected by mainstream economists. According to Nicholas Kaldor, Hayek's work on the Austrian business cycle theory had at first ‘fascinated the academic world of economists,’ but attempts to fill in the gaps in theory led to the gaps appearing ‘larger, instead of smaller,’ until ultimately ‘one was driven to the conclusion that the basic hypothesis of the theory, that scarcity of capital causes crises, must be wrong.’ After 1941, Hayek abandoned his research in macroeconomics altogether, focusing instead on issues of the economics of information, political philosophy, and the theory of law. Lionel Robbins, who had embraced the Austrian theory of the business cycle in ‘The Great Depression’ (1934), later regretted having written that book and accepted many of the Keynesian counterarguments. The late-2000s financial crisis has resulted in a revival of interest in the Austrian business cycle theory, but has also resulted in a revival of interest of theories more critical of Austrian theory, such as those promoted by Keynesian economics. According to Austrian School supporters, over 25 Austrian School economists are publicly on record as having accurately predicted a housing bubble prior to new home prices reaching their peak in March 2007. Austrian economics received media attention after Congressman and Presidential candidate Ron Paul, was praised by MSNBC's Joe Scarborough for predicting the housing bubble and financial crisis and Paul subsequently appeared on Scarborough's 'Morning Joe' show and credited his understanding of Austrian economics for predicting the financial crisis. --- Similar theories: --- The Austrian theory is considered one of the precursors to the modern credit cycle theory, which is emphasized by Post-Keynesian economists, economists at the Bank for International Settlements, and by a few mainstream academics such as Hyman Minsky and Charles P. Kindleberger. These two emphasize asymmetric information and agency problems. Henry George, another precursor, emphasized the negative impact of speculative increases in the value of land, which places a heavy burden of mortgage payments on consumers and companies. A different theory of credit cycles is the debt-deflation theory of Irving Fisher, which is today placed in the Post-Keynesian tradition. The difference between these may be stated as debt-deflation being a DEMAND-side theory, which emphasizes the period AFTER the peak – the end of a credit bubble and contraction of debt causing a fall in aggregate demand – while the Austrian theory is a SUPPLY-side theory, which emphasizes the period BEFORE the peak – the growth of debt during the growth phase causing malinvestment. The theories may thus be seen as complementary, addressing different aspects of the issue, and are so-considered by some economists. In 2003 Barry Eichengreen laid out modern credit boom theory as a cycle in which loans increase as the economy expands, particularly where regulation is weak, and through these loans money supply increases. Inflation remains low, however, because of either a pegged exchange rate or a supply shock, and thus the central bank does not tighten credit and money. Increasingly speculative loans are made as diminishing returns lead to reduced yields. Eventually inflation begins or the economy slows, and when asset prices decline, a bubble is pricked which encourages a macroeconomic bust. In 2006 William White argued that ‘financial liberalization has increased the likelihood of boom-bust cycles of the Austrian sort’. While White conceded that the status quo policy had been successful in reducing the impacts of busts, he commented that the view on inflation should perhaps be longer term and that the excesses of the time seemed dangerous. In addition, White believes that the Austrian explanation of the business cycle might be relevant once again in an environment of excessively low interest rates. According to the theory, a sustained period of low interest rates and excessive credit creation results in a volatile and unstable imbalance between saving and investment. --- Related policy proposals: --- Many proponents of the Austrian School business cycle theory advocate free banking or an elimination of fractional-reserve banking with a 100% reserve requirement with a free-banking system based on a commodity-money standard. If the central bank-fiat money system is maintained, they suggest heavy regulation of the banking system, enforcing a policy of full reserves on all deposit-taking institutions, or at least higher reserve requirements on all banks. Proponents of the theory generally oppose deregulation of the financial system without the prior abolition of central banks and the removal of deposit insurance. --- Criticisms: --- According to most mainstream economists, the Austrian business cycle theory is incorrect. Some mainstream economists argue that the Austrian business cycle theory requires bankers and investors to exhibit a kind of irrationality, because their theory requires bankers to be regularly fooled into making unprofitable investments by temporarily low interest rates. In response, historian Thomas Woods argues that few bankers and investors are familiar enough with the Austrian business cycle theory to consistently make sound investment decisions. Austrian economists Anthony Carilli and Gregory Dempster argue that a banker or firm loses market share if it does not borrow or loan at a magnitude consistent with current interest rates, regardless of whether rates are below their natural levels. Thus businesses are forced to operate as though rates were set appropriately, because the consequence of a single entity deviating would be a loss of business. Austrian economist Robert Murphy argues that it is difficult for bankers and investors to make sound business choices because they cannot know what the interest rate would be if it were set by the market. Austrian economist Sean Rosenthal argues that widespread knowledge of the Austrian business cycle theory increases the amount of malinvestment during periods of artificially low interest rates. Economist Paul Krugman has argued that the theory cannot explain changes in unemployment over the business cycle. Austrian business cycle theory postulates that business cycles are caused by the misallocation of resources from consumption to investment during ‘booms’, and out of investment during ‘busts’. Krugman argues that because total spending is equal to total income in an economy, the theory implies that the reallocation of resources during ‘busts’ would increase employment in consumption industries, whereas in reality, spending declines in all sectors of an economy during recessions. He also argues that according to the theory the initial ‘booms’ would also cause resource reallocation, which implies an increase in unemployment during booms as well. In response, Austrian economist David Gordon argues that Krugman's argument is dependent on a misrepresentation of the theory. He furthermore argues that prices on consumption goods may go up as a result of the investment bust, which could mean that the amount spent on consumption could increase even though the quantity of goods consumed has not. Many Austrians also argue that capital allocated to investment goods cannot be quickly augmented to create consumption goods. Economist Jeffery Hummel is critical of Hayek's explanation of labor asymmetry in booms and busts. He argues that Hayek makes peculiar assumptions about demand curves for labor in his explanation of how a decrease in investment spending creates unemployment. He also argues that the labor asymmetry can be explained in terms of a change in real wages, but this explanation fails to explain the business cycle in terms of resource allocation. Hummel also argues that the Austrian explanation of the business cycle fails on empirical grounds. In particular, he notes that investment spending remained positive in all recessions where there are data, except for the Great Depression. He argues that this casts doubt on the notion that recessions are caused by a reallocation of resources from industrial production to consumption, since he argues that the Austrian business cycle theory implies that net investment should be below zero during recessions. In response, Austrian economist Walter Block argues that the misallocation during booms does not preclude the possibility of demand increasing overall. Critics have also argued that, as the Austrian business cycle theory points to the actions of fractional-reserve banks and central banks to explain the business cycles, it fails to explain the severity of business cycles before the establishment of the Federal Reserve in 1913. Supporters of the Austrian business cycle theory respond that the theory applies to the expansion of the money supply, not necessarily an expansion done by a central bank. Historian Thomas Woods argues that the crashes were caused by various privately-owned banks with state charters that issued paper money, supposedly convertible to gold, in amounts greatly exceeding their gold reserves. In 1969, economist Milton Friedman, after examining the history of business cycles in the U.S., concluded that ‘The Hayek-Mises explanation of the business cycle is contradicted by the evidence. It is, I believe, false.’ He analyzed the issue using newer data in 1993, and again reached the same conclusion. Austrian economist Jesus Huerta de Soto argued that Friedman's conclusions are based on misleading data (such as GDP). Austrian economist Roger Garrison argued that Friedman misinterpreted economic aggregates and how they related to the business cycles he reviewed." - Wikipedia.org
Retrieved 29th June, 2012. [http://en.wikipedia.org/wiki/Austrian_business_cycle_theory ]
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[Quote No.43167] Need Area: Money > Invest
"[Can Keynesian economic stimulus as in fiscal deficit (debt) spending to increase aggregate demand and monetary policy that lowers interest rates (including quantitative easing) help a (public-sovereign and private-business and personal) debt crisis? Or in other words...] Can a debt crisis be cured with more debt? Yes, if initial debt levels are reasonable and central banks are able to rejuvenate the delicate dance between debtor and creditor. But when debt as a percentage of GDP [the economists, Reinhart and Rogoff in 'This Time Is Different', consider this to be at about 90% debt to GDP], or debt service as a percentage of household income [as a rule of thumb around 20%], becomes imbalanced then the well-oiled capitalistic engine may sputter and in some cases freeze up. That’s when a debt crisis can’t be cured with more debt." - Bill Gross
Legendary bond investor from PIMCO. Quote from his July, 2012, 'Investment Outlook'.
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[Quote No.43217] Need Area: Money > Invest
"[Here is a quote, about a well-to-do North Germany family whose fortunes are in decline, in the 1901 novel 'Buddenbrooks', which closely aligns with the idea of what economic coincident indicators would suggest, rather than leading economic indicators, at the top of an economic and share market boom, just before a bust and recession:] I know that the outwards, visible and tangible signs and symbols of happiness and achievement often only appear when in reality everything is already starting to go downhill again. The outer signs take time to arrive – like the light of a star which shines most brightly when it is on the way to being extinguished, or maybe has already gone out." - Thomas Mann
(1875 – 1955), German novelist, short story writer, social critic, philanthropist, essayist, and 1929 Nobel Prize laureate, known for his series of highly symbolic and ironic epic novels and novellas, noted for their insight into the psychology of the artist and the intellectual. Quote from his 1901 novel 'Buddenbrooks'.
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[Quote No.43218] Need Area: Money > Invest
"It's not unusual to think of a market bust and recession as a 'hang-over' from an economy that has over-indulged in the 'intoxicant' of debt. If that is true then the interest rate is like a the 'minimum drinking age'. Set the interest rate too low and there is bound to be trouble ahead." - Seymour@imagi-natives.com

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[Quote No.43260] Need Area: Money > Invest
"[When discussing and forecasting the effects of any single economic policy proposal, for example increasing or decreasing taxes, in a vast and complex system, it’s always hard to know what is really likely to happen. Indeed, so much is happening at any given time in a modern economy — central-bank policy, trade policy, military spending, technological innovation, war or peace, and more — it’s impossible to draw hard and fast conclusions from past examples, which due to the complexity of the economy are never the same, as to what will happen from the single proposal when combined into the future mix; but by taking any proposal in isolation and using, for example, generally accepted conceptual understandings like 'supply and demand' effects on prices, etc and 'marginal utility', tendencies for certain effects, all else being equal, can be logically derived. We should remember the wise words of the Austrian School of economics, when discussing the role of historical data in economics:] The champions of logically incompatible theories claim the same events as the proof that their point of view has been tested by experience. The truth is that the experience of a complex phenomenon — and there is no other experience in the realm of human action — can always be interpreted on the ground of various antithetic [directly opposed or contrasted] theories... History cannot teach us any general rule, principle, or law." - Ludwig von Mises
Austrian School economist. Quote from his classic treatise, 'Human Action', in 1949.
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[Quote No.43261] Need Area: Money > Invest
"A price increase [in the price of a product, service or the cost of borrowing money] is a message about scarcity. [Government dictated] Price controls are like shooting the messenger. [It is a type of government conceived and controlled economic 'fraud' where the power of free markets to inform participants of the real demand and supply dynamics and therefore regulate asset allocation to its best, safest use for the common good are deliberately masked for socio-economic and political reasons, encouraging participants to make decisions on 'incorrect' information, effectively restricting citizens' and businesses' freedom through mis-informed choice. It is a policy method employed by socio-economic political philosophies, historically 'state capitalism', socialism, communism and fascism, that believe in state power and national rights rather than individual freedom and human rights. Throughout history it has preceeded most share market busts and recessions as explained by the Austrian School of economics as due to the manipulated price signals encouraging and enabling malinvestment that then must be liquidated when the error about the real demand supply dynamics are revealed over time.]" - Alexander Tabarrok
Economist. Quote from the May 5, 2008 issue of 'Forbes' magazine.
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[Quote No.43294] Need Area: Money > Invest
"Those who'll play with cats must expect to be scratched." - Miguel De Cervantes

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[Quote No.43552] Need Area: Money > Invest
"[Current Account:] In economics, the current account is one of the two primary components of the balance of payments, the other being capital account. It is the sum of the balance of trade (net earnings on exports minus payments for imports), factor income (earnings on foreign investments minus payments made to foreign investors) and cash transfers. The current account balance is one of two major measures of the nature of a country's foreign trade (the other being the net capital outflow). A current account surplus increases a country's net foreign assets by the corresponding amount, and a current account deficit does the reverse. Both government and private payments are included in the calculation. It is called the current account because goods and services are generally consumed in the current period. The balance of trade is the difference between a nation's exports of goods and services and its imports of goods and services, if all financial transfers, investments and other components are ignored. A nation is said to have a trade deficit if it is importing more than it exports. Positive net sales abroad generally contributes to a current account surplus; negative net sales abroad generally contributes to a current account deficit. Because exports generate positive net sales, and because the trade balance is typically the largest component of the current account, a current account surplus is usually associated with positive net exports. This however is not always the case with secluded economies such as that of Australia featuring an income deficit larger than its trade surplus. [It is time to worry if the balance of trade is already negative and the current-account is also negative, because the country, for example Japan, would then need to depend on foreign capital to make up the deficit and that could be a problem if sovereign bond interest rates are too low for example Japan in 2012 with 0% interest rates. Then foreign investors would demand higher interest rates and this would drive down existing bond prices held, by for example banks and insurance companies, as collateral for loans at the same time the government would have to pay more to borrow possibly creating a fiscal deficit needing taxes to rise and all the flow on effects to the economy and GDP, with the potential to trigger recession and increases in unemployment, etc, etc!]" - Wikipedia.org

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[Quote No.43680] Need Area: Money > Invest
"The impression was gaining ground with me that it was a good thing to let the money be my slave [through investment] and not make myself a slave to money." - John D. Rockefeller
(1839 - 1937), oil magnate, industrialist, philanthropist, and at one time the richest man in the world with a wealth equivalent to five times that of Microsoft's Bill Gates.
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[Quote No.43747] Need Area: Money > Invest
"A 'Perfect Financial Storm' [i.e. a share market crash or 'bust' and nasty recession] will occur when (1) investors have bets based upon very similar forecasts, (2) their bet is a ‘big’ one, for example, a bet on the price of their principal asset (their house), and (3) both investors and their banks are maximally leveraged....Paraphrasing the work of Duncan Wooldridge at UBS, the credit cycle begins with several years of growth in debt-to-income ratios, usually fuelled by easy access to cheap credit. The readily available credit leads to a growing misallocation of capital [or 'malinvestment' as Austrian economists call it], causing an increase in non-performing assets. This is the second stage of the credit cycle...The third stage is the critical point where loan-to-deposit ratios in banks reach an unsustainable level. As a result, liquidity and funding problems become more prevalent and non-performing loans grow dramatically." - Niels C. Jensen
Absolute Return Partners LLP. Quote from 'The Absolute Return Letter', July 2012. [http://www.arpllp.com/core_files/The_Absolute_Return_Letter_0712.pdf ]
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[Quote No.43748] Need Area: Money > Invest
"Frequently, in the early stages of [economic] recessions or during growth soft-patches, there is not a clear consensus among [share market and economic] forecasters as to whether or not a recession is actually occurring. [The issue is that economists on opposite sides of the argument weight different metrics differently.] Our rule of thumb [the 'rule of 10%' used at Deutsche Bank] is as follows: In the past, when [U.S. weekly initial] jobless claims backed up by 10% or more from the prior quarter’s average, in all but one instance (Q1 1967), the economy was on the brink of recession. Thus, the rule has proven to be fairly reliable over the past several decades [in predicting the start of an economic recession. It is important to note this coincident economic indicator has been useful to indicate what will later be identified as the start of economic recessions - the share market will usually already be falling as it is a leading, rather than a coincident, economic indicator although it predicts more recessions, when it falls by 20 or more percent, than occur. Therefore this U.S. weekly initial jobless claims change indicator can be used to confirm the leading economic indicators - including share market - falls, that suggest an imminent recession.]" - Carl Riccadonna
Deutsche Bank economist. Quote from an article entitled, 'Deutsche Bank's 'Rule Of 10%' Gives New Perspective On The High Jobless Claims Number', published on the Business Insider website, 14th July, 2012. [http://www.businessinsider.com/deutsche-bank-rule-of-10-predicts-recessions-2012-7 ]
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[Quote No.43749] Need Area: Money > Invest
"Do plummeting oil prices indicate a coming global recession? ANALYSIS: Are lower oil prices good news? Not really, if it means the world is sinking into recession. We know from recent experience and common sense that high oil prices are a drag on oil importing economies, because more money spent on the same amount of oil leaves less to spend on discretionary goods and services. In addition, oil money sent to oil exporting countries is likely to be spent within those economies, rather than being reinvested in the oil importing country. A rough calculation indicates that the combination of European Union countries, the United States and Japan spent a little over $1 trillion dollars in oil imports in 2011, roughly the same amount as in 2008. Governments have been running up huge deficits and have been keeping interest rates very low to cover up this damage, but it is hard to make this strategy work. The deficit soon becomes unmanageable, as several European countries have recently discovered. The U.S. government is facing automatic spending cuts as of Jan. 2, 2013, because of its continuing deficits. Furthermore, lower interest rates aren’t entirely beneficial. With low interest rates, pension funds need much larger employer contributions if they are to make good on their promises. Retirees who depend on interest income to supplement Social Security find themselves with less income. The lower interest rates don’t necessarily stimulate the economy, either, if buyers don’t have sufficient discretionary income. Here are a few reasons why low oil prices may be a signal that the world is headed for deep recession. ---Oil supply not rising enough--- The big issue is that oil supply is not rising enough -- and hasn’t been for a long time. When oil supply doesn’t rise fast enough, two opposite effects can take place: 1) Prices will go higher. This can be seen in the upward trend in prices in the last eight years. 2) Prices can drop quite sharply, as they did in late 2008. This happens when parts of the world are entering recession, and their demand decreases. This second effect may be happening this time around. The downturn we are seeing in prices may have farther to go as the recession plays out. ---Problem area: Oil consumption declining--- There is a close correlation between oil growth, energy growth, and gross domestic product (GDP) growth. In recent years, a growth (or drop) in energy use seems to proceed a growth (or drop) in a country’s GDP. Recently, oil consumption has been declining sharply, which could signal further economic contraction. Furthermore, data from the Joint Organizations Data Initiative (JODI) shows that oil demand in Portugal, Italy, Greece and Spain is down even more -- about 10 percent in one year. This would suggest that these countries are sliding deeply into recession. ---US consumption also shrinking--- U.S. oil consumption is also shrinking -- down 3.2 percent the first four months of 2012 compared to the same period in 2011. This looks like a repeat of the pattern that took place in 2005 to 2009. Oil consumption was stable through 2007, then dropped in early 2008 by an amount not too different from the decrease in oil consumption from 2011 to 2012. The bigger step-down in oil consumption came in 2009, after oil prices dropped, and the follow-on effects (reduced credit availability, layoffs) had started. Now oil consumption has been relatively stable in 2009 to 2011, but there has been a step down in consumption in 2012, similar to 2008. ---Not all oil is economic--- Oil prices make a difference in a company’s willingness to drill new wells. For example, oil sands production in Canada is believed not to be economic if prices slip below $80 barrel. In most cases, existing production will continue, but new production will stop. There are quite a few other types of oil extraction elsewhere (for example, arctic extraction, new very small fields, very deep oil wells) that may not be economic at lower prices. Saudi Arabia makes frequent statements about adjusting its production to keep prices down. But a closer look at Saudi Arabia’s production pattern over the past few years shows Saudi production has been highest when oil prices are highest. Production drops as prices drop. As oil prices drop this time around, we can expect Saudi Arabia and others to find excuses to save production until prices move higher. Countries exporting oil depend on the revenue, plus taxes on this revenue, to help support their budgets. As oil prices drop, governments find themselves with less money to fund public welfare programs. This dynamic can cause lower oil prices to lead to political instability in some oil exporting nations. Thus, any drop in oil prices tends to be self-correcting. But that doesn’t happen until oil production drops, prices of other commodities drop, and many workers are laid off. We saw in 2008-2009 that this kind of recession can be very disruptive. ---What’s ahead?--- We can’t know for certain, but the big issue is chain reactions in an interconnected international economy. A country that appears to be near default is likely to face higher interest rates, making its cost of borrowing higher. The higher interest costs, by themselves, push the country closer to default. One of the issues with high oil prices is that the higher prices, especially among oil importers, give rise to a kind of systemic risk that affects many kinds of businesses simultaneously. High oil prices tend to do several things at once: lower the real growth rate, make it more difficult to repay loans, and increase the unemployment rate. All of these issues make it more difficult for governments to function, because governments play a back-up role. If workers are laid off from work, governments are expected to compensate laid-off workers at the same time they are collecting less in taxes and bailing out distressed banks. This type of systemic risk leads to the possibility of multiple government failures. ---Promises of future oil growth--- We keep reading articles claiming that world oil production will grow by some large amount by some future date. One of the latest of these is by Harvard Kennedy School researcher (and former oil company executive) Leonardo Maugeri, called ‘Oil: The Next Revolution’. According to the report, ‘Oil production capacity is surging in the United States and several other countries at such a fast pace that global oil output capacity is likely to grow by nearly 20 percent by 2020, which could prompt a plunge or even a collapse in oil prices.’ Even if the forecast were true (which I am doubtful), the problem is that this is simply too late. We have been having oil-supply problems for some time - since the 1970s. The rate of oil supply growth keeps ratcheting downward, and the world keeps trying to adapt, with recessions to show for its efforts. Some believe 10 of the 11 most recent recessions were associated with oil price spikes. We don’t have time to wait until 2020 to see whether the supposed additional capacity (and production) will actually materialize. We have a problem right now. The downturn in oil prices and the reduction in demand in the U.S. and parts of Europe is looking more and more like it may give rise to yet another recession. Based on our experience in 2008-2009, and our difficulties since then, this recession may be severe." - Gail Tverberg
An actuary who since 2007 has devoted herself full-time to issues related to oil shortages, and other shortages, and their impact on the economy. She discusses her findings on her blog, ‘Our Finite World’. This article appeared in ‘The Oil Drum’, an online site featuring news and opinion about the petroleum industry and the ‘Alaska Dispatch’, July 10, 2012. [http://www.alaskadispatch.com/article/do-plummeting-oil-prices-indicate-coming-global-recession ]
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[Quote No.43756] Need Area: Money > Invest
"The International Monetary Fund (IMF) considers a global recession as a period where gross domestic product (GDP) growth is at 3% or less. In addition to that, the IMF looks at declines in real per-capita world GDP along with several global macroeconomic factors before confirming a global recession." - International Monetary Fund (IMF)
[http://globaleconomicanalysis.blogspot.com.au/2012/07/germany-in-recession-private-sector.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+MishsGlobalEconomicTrendAnalysis+(Mish's+Global+Economic+Trend+Analysis) ]
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[Quote No.43777] Need Area: Money > Invest
"Macroeconomics was born as a distinct field in the 1940s as a part of the intellectual response to the Great Depression." - Robert Lucas
winner of the 1995 Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel (which is commonly called the 'Nobel Prize in Economics'), in his Presidential Address to the American Economic Association (2003).
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[Quote No.43778] Need Area: Money > Invest
"[The influence of central bank monetary policy has a direct effect on the share market in particular:] The objective of credit expansion [refer the behavior of central banks] is to favour the interests of some groups of the population at the expense of others. ... The idea ... is to channel the additional credit in such a way as to concentrate the alleged blessings of credit expansion upon certain groups [especially borrowers including the government] and to withhold them from other groups [especially savers and those on fixed incomes]. The credits should not go to the stock exchange, it is argued, and should not make stock prices soar. They should rather benefit the 'legitimate productive activity' of the processing industries, of mining, of 'legitimate commerce,' and, first of all, of farming. However, all such schemes are vain. Discrimination in lending is no substitute for checks placed on credit expansion [and too low interest rates], the only means that could really prevent a rise in stock exchange quotations and an expansion of investment in fixed capital. The mode in which the additional amount of credit finds its way into the loan market [money supply and velocity of money] is only of secondary importance. What matters is that there is an inflow of newly created credit. If the banks grant more credits to the farmers, the farmers are in a position to repay loans received from other sources and to pay cash for their purchases. If they grant more credits to business as circulating capital, they free funds which were previously tied up for this use. In any case they create an abundance of disposable money for which its owners try to find the most profitable investment. Very promptly these funds find outlets in the stock exchange or in fixed investment. The notion that it is possible to pursue a credit expansion without making stock prices rise and fixed investment expand is absurd." - Ludwig von Mises
Austrian economist. Quote from his highly regarded book, 'Human Action: A Treatise on Economics', published 1949.
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[Quote No.43781] Need Area: Money > Invest
"Markets are so rigged by policymakers that I have no meaningful insights to offer. It’s starting to feel like the financial markets are all rigging and no ship. I am simply stunned that our policymakers seem so one-dimensional, so short-termist, and so utterly bereft of courage or ideas. It now seems obvious that in response to the financial crisis that has been with us for five years and counting, we are being told to double up on these same policy decisions [that have failed]. The crisis was caused [as the Austrian School of economics has always explained] by central bankers mispricing the cost of capital, which forced a misallocation of capital, driven by debt/leverage, which was ultimately exposed as a hideous asset bubble which then collapsed, destroying the lives and livelihoods of tens of millions of relatively innocent people." - Bob Janjuah
Nomura International’s Investment Strategist, quoted in February 2012. [http://www.leithner.com.au/newsletter/jul12_newsletter.pdf ]
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[Quote No.43782] Need Area: Money > Invest
"[Politicians, central bankers and economists like to tell the citizens of their countries that they understand the economy well enough to tweek it. This is the hubris of fools as the following quote clearly shows:] Steve Peck and I simulated the Federal Reserve-MIT-PENN econometric model of the US economy that had over 170 nonlinear equations. Our simulation experiments showed that the model had very strange properties that were unknown to the model builders. From these results we concluded that the model was not safe for use in analysing serious economic problems [including simulating the effects of potential changes in fiscal - taxing and spending - and monetary policy]... I do not know of a complicated model in any area of science that performs well in explanation and prediction [including meteorological and climate change models], and have challenged many audiences to give me examples. So far, I have not heard about a single one. Certainly the large scale econometric models and complicated VARs [Value at Risk or 'very awful regressions'] have not been very successful in explanation and prediction." - Arnold Zellner
He is from the University of Chicago and is considered one of the giants in the development of econometric analysis. This is from his article in the 'International Journal of Forecasting' (vol. 14, no. 3, 1 September 1998). [http://www.leithner.com.au/newsletter/jul12_newsletter.pdf ]
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[Quote No.43783] Need Area: Money > Invest
"[Keynesian economic stimulus is an idea that has been proven as wrong-headed:] On 19 October 2001, 'The Wall Street Journal' concluded that 'it’s pretty much impossible to find an introductory macroeconomics textbook that recommends ... fiscal stimulus [although government bureaucrats and politicians still do due to their very poor understanding of economics and their desire for the population to believe in their power]. If [John Maynard] Keynes appeared in any of the heavy-duty academic centres around the world, he would find his idea referred to as a ‘classic fallacy.’ Most economists have moved on to other models'. Christina Romer, who chairs President Obama’s Council of Economic Advisors, has devoted much of her academic career to the analysis of policy responses to post-war recessions. She has found little evidence that fiscal stimulus has helped to end them (a readable review of her research appeared in 'The New York Times' on 2 December 2008). John Cochrane, a professor at the University of Chicago Business School, concluded on his blog (3 February 2009): 'I’ve been looking through graduate course outlines and textbooks, and I can find nowhere in the last 50 years that anybody in economics has said that [deficit spending as a] fiscal stimulus is a good idea. What are we doing giving [such] advice ... [when] there’s nothing [in what] ... we teach our graduate students that says fiscal stimulus works?" - Chris Leithner
[http://www.leithner.com.au/newsletter/jul12_newsletter.pdf ]
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[Quote No.43785] Need Area: Money > Invest
"That [most] men [and women] do not learn very much from the lessons of [economic] history is the most important of all the lessons of [economic] history." - Aldous Huxley

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[Quote No.43788] Need Area: Money > Invest
"When I started as an economics writer in the mid-1970s, the Keynesian ideas that had guided macro-economic policy through the postwar Golden Age were judged a failure and economics was in crisis... The end of the Golden Age and the loss of faith in Keynesianism were brought about by the advent of 'stagflation' - high inflation despite a stagnant economy. Keynesian theory said you could have high unemployment or high inflation but not at the same time. It could fix one or the other but not both together." - Ross Gittins
Ross Gittins is economics editor of the Australian newspaper, 'The Sydney Morning Herald' and an economic columnist for 'The Age'. He has been a press fellow at Wolfson College, Cambridge, and a journalist-in-residence at the department of economics of the University of Melbourne. His books include 'Gittins' Guide to Economics' and 'Gittinomics'. This is a quote from his website Saturday, November 13, 2010. [http://www.rossgittins.com/2010/11/how-economists-forgot-much-of-what-they.html ]
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[Quote No.43789] Need Area: Money > Invest
"[The following is the average politicians', bureaucrats', economists' and citizens' understanding of Keynesian economics in a recession:] 'Learning nothing from the Depression' - It's remarkable that the politicians of Europe and America are making things much worse for themselves and their people because they've unlearnt the economic lessons of the past 70 years. Economists spent many years studying what policymakers did wrong in the Great Depression of the 1930s, making it much worse than it needed to be. One well-understood lesson was not to try to get the government budget back into balance too quickly. This is counter-intuitive to many people. The government's tax revenues have collapsed, its spending has increased, it has a yawning budget deficit and government debt is piling up. Surely it's obviously right to get spending and your income back into line as quickly as you can. Not if you're a national government. Why not? Because governments are so big that what they do affects the rest of the economy. Remember, governments can borrow more for longer than the richest individual or corporation, since they represent the whole community and have the power to pay their bills by levying taxes. Economic downturns, recessions or depressions almost always manifest themselves in consumers and businesses cutting their spending. The more they cut, the more people lose their jobs and their businesses and the greater the decline in spending. In such circumstances, [according to Keynesian economists] it's not possible for the private sector to lift itself up by its bootstraps. Clearly, the government needs to do something that helps the private sector get back on its feet. One thing the central bank can do [as monetary policy] is cut interest rates to encourage borrowing and spending. In normal times this is usually effective, but in really bad times a lot of people are too uncertain about the future to want to borrow and expand, no matter how low rates are [and banks may not want to lend to them as their collateral may be poor as well as their job prospects being poor in a slowing economy. Also the banks themselves may have liquidity issues as they are holding assets as collateral for loans which may be falling in value, making it hard for them to meet their capital asset requirements in order to remain solvent and continue borrowing at the short end to lend long]. And if interest rates are already very low - as they are in the advanced economies at present - you can't cut them below zero [- what is often called 'pushing on a string' liquidity trap]. The next tool available to help the private sector is 'fiscal policy' - the budget [i.e. government taxing and borrowing to spend]. The first way to help is do nothing: when fewer people paying tax and more people on the dole cause the budget deficit to blow out, don't do anything to counter it. This process happens automatically when the private sector turns down, and the fact that some people are paying out less money [in taxes] to the government while others are getting more money from it [government 'transfers' - ie welfare, social security, dole payments, etc] means the government is helping to cushion the private sector's fall, stopping it from falling further. Thus economists say budgets contain 'automatic stabilisers'. If you try to counter the effect of these stabilisers by cutting spending or increasing taxes, you'll push the private sector down further and, because of that, probably won't succeed in getting the budget closer to balance in any case. The second way to help is more active: stimulate the private sector by cutting taxes or increasing spending. If you were to do this when the economy was strong, you'd just worsen inflation. But if you do it when the economy is flat on its back, it will probably be effective, particularly if you increase spending rather than cutting taxes (which would allow some people to save their tax cuts). [Remember GDP = private consumption + business investment + (government spending) + (exports − imports) -- without considering if the government spending comes from taxes or selling debt as sovereign bonds or even simply printing money or what is now euphemistically called 'quantitative easing'. This is like saying if a household doesn't earn enough money it can just borrow more on its credit card and so its 'income' is still high until the credit company says no more, which for governments, according to Reinhart and Rogoff, becomes tougher at debt to GDP of about 90 percent as the yearly budget cost of interest slows down the country's rate of GDP growth progressively until interest and debt is growing faster than the economy can and every year the debt to GDP gets bigger until the country has to default either literally or by printing money and creating massive inflation]. Once you get the economy growing again, tax collections will improve and people will go off the dole, thus causing the deficit to reduce. This is the automatic stabilisers working the other way. Keep it up and the budget balance will turn to surplus, which you can then use to repay government debt. See the point? Exercise enough discipline and patience and eventually the budget problem will fix itself [if debt to GDP doesn't get too high and therefore the interest rate for the risk gets beyond the growth rate of the country necessitating its default lest it simply gets more and more behind in its debt]. All this had been well understood by economists and politicians for many years. It was how governments responded to the global financial crisis in 2008. But governments in Britain and the euro zone, and the US Congress, are now doing pretty much the opposite. Their economies are still quite weak but they want to increase taxes or - more commonly - slash government spending to get their big budget deficits down in a hurry. In consequence of this policy of 'austerity', the European economies are heading back into recession and their deficits getting worse. Why are they doing something so counter-productive? Because their stock of government debt is so unsustainably high [many well over 90% of GDP, some at 150%]. Whereas sensible policy involves running surpluses and reducing debt during the good years, they kept running deficits and piling it up in the noughties. When the global financial crisis struck in 2008, many had to borrow heavily to rescue their banks and then borrow even more to kick-start their economies. Their debt is now so high the financial markets have started wondering whether they'll be able to repay it. But the flighty financial markets are an unreliable guide to good policy: though they seemed to approve when governments announced their austerity programs, they started disapproving when they saw those programs were causing economies to weaken. Of course, when a country's sovereign debt gets so high that markets will soon refuse to lend more to it at any price, it has no choice but austerity. You can renege on your debts, but you can't run a [government fiscal - spending] deficit if no one will finance it. Even if some international institution bails you out, it will punish you for your profligacy by insisting on austerity. Will this make things worse long before it makes them better? Inevitably. That's the case of Greece. But most of the European countries aren't in those dire straits, so why are they slashing spending? What they should be doing is promising and laying plans to reduce their spending down the track, as their economies recover and can take it in their stride. Why don't they? Because, after decades of fiscal indiscipline, they don't have much credibility when making promises to be good tomorrow. But that doesn't change economic reality: cut when the economy's weak and you make it weaker. The answer is to find ways of making their promises more credible. As for the Americans, they too have years of fiscal indiscipline and a way-too-high level of debt. But though it suits President Obama's critics to claim the US has a 'debt crisis', it doesn't. The world is still so anxious to lend to the US government that the yield (effective interest rate) on its long-term debt is down to 2 per cent. It has plenty of time to get its budgetary house in order but, at present, a hostile Congress has the budget set up to crunch the US economy next year [2013]. These guys have learnt nothing." - Ross Gittins
The Sydney Morning Herald's Economics Editor. Article quote from 'Sydney Morning Herald', February 11, 2012 [http://www.smh.com.au/business/learning-nothing-from-the-depression-20120210-1siex.html#ixzz1m8ULt542 ]
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[Quote No.43823] Need Area: Money > Invest
"[There are limits to Keynesian fiscal and monetary - central bank - intervention by governments to manage a severe recession:] The enthusiasm of investors about central-bank interventions has reached a pitch that is already well-reflected in market prices, and a level of confidence that with little doubt, investors will ultimately regret. In the face of this enthusiasm, one almost wonders why nations across the world and throughout recorded history have ever had to deal with economic recessions or fluctuations in the financial markets. The current, widely-embraced message is that there is no such thing as an economic problem, and no such thing as risk. Bernanke, Draghi and other central bankers have finally figured it out, and now, as a result, economic recessions and market downturns never have to happen again. They just won’t allow it, printing more money will solve everything, and that’s all that any of us need to understand. And if it doesn’t solve everything, they can just keep doing more until it works, because there is no consequence to doing so, and all historical evidence to the contrary can finally, thankfully, be ignored. How could anyone ever have believed, at any point in history, that economics was any more complicated than that? Unfortunately, the full force of economic history suggests a different narrative. Up to a certain point, which seems to be about 100-120% debt-to-GDP, countries can pull themselves from the brink of sovereign crisis through a combination of austerity (spending reductions), restructuring (putting insolvent financial institutions into receivership and altering the terms of unworkable private and public debt), and monetization (relief of government debt through the permanent creation of currency). Austerity generally reduces economic growth (and corporate profits) in a way that delivers less debt reduction benefit than expected, restructuring is often stimulative to growth because good new capital no longer has to subsidize old misallocations, but is politically contentious, and monetization of bad debt produces clear but often quite delayed inflationary pressures. None of these choices is simple. Moreover, once countries have created massive deficits and debt burdens beyond about 120% of GDP – typically not to accumulate productive assets and investments that service that debt, but instead to fund consumption, bail out insolvency, and compensate labor without output – austerity produces further economic depression, restructuring becomes disorderly and produces further economic depression, and attempts at monetization tend to be hyperinflationary. Europe is fast approaching the point at which every solution will be disruptive, and remains urgently in need of debt restructuring, particularly across its banking system. It is a pleasant but time-consuming fantasy to believe that governments that are already approaching their own insolvency thresholds can effectively bail out a banking system that has already surpassed them. To expect the ECB [European Central Bank] to simply print money to solve the sovereign debt problems of Spain, Italy and other members is also dangerous. This hope prevents these nations from taking receivership of insolvent institutions now, and allows them to continue to operate in a way that threatens much more disorderly outcomes later..." - John P. Hussman, Ph.D.
Weekly Market Comment from Hussman Funds, July 30, 2012. [http://www.hussmanfunds.com/wmc/wmc120730.htm ]
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[Quote No.43825] Need Area: Money > Invest
"...the investment process is only half the battle. The other weighty component is struggling with yourself, and immunizing yourself from the psychological effects of the swings of markets, career risk, the pressure of benchmarks, competition, and the loneliness of the long distance runner." - Barton Biggs
(1932 – 2012), highly regarded money manager whose attention to emerging markets marked him as one of the world's first and foremost global investment strategists, a position he held - after inventing it in 1985 — at Morgan Stanley, where he worked as a partner for over 30 years. Following his retirement in 2003, he founded Traxis Partners, a multi-billion dollar hedge fund, based in Greenwich, Connecticut. He is best known for accurately predicting the dot-com bubble in the late 1990s.
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[Quote No.43826] Need Area: Money > Invest
"Mr. Market is a manic depressive with huge mood swings, and you should bet against him, not with him, particularly when he is raving." - Barton Biggs

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[Quote No.43827] Need Area: Money > Invest
"Fifty some years ago, Sir Alec Cairncross doodled it best: A trend is a trend is a trend, But the question is, will it bend? Will it alter its course, Through some unforeseen force, And come to a premature end?" - Barton Biggs

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[Quote No.43828] Need Area: Money > Invest
"At the extreme moments of fear and greed, the power of the daily price momentum and the mood and passions of ‘the crowd’ are tremendously important psychological influences on you. It takes a strong, self-confident, emotionally mature person to stand firm against disdain, mockery, and repudiation when the market itself seems to be absolutely confirming that you are both mad and wrong." - Barton Biggs

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[Quote No.43830] Need Area: Money > Invest
"When we broke the link between money and gold, this removed all constraints on credit creation. This explosion of credit created the world we live in, but it now seems that credit cannot expand any further because the private sector is incapable of repaying the debt it has already, and if credit begins to contract, there's a very real danger that we will collapse into a new Great Depression." - Richard Duncan

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[Quote No.43834] Need Area: Money > Invest
"In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them. There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen. Yet this difference is tremendous; for it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa. Whence it follows that the bad economist [and the politician that follows his or her advice] pursues a small present good that will be followed by a great evil to come, while the good economist [and the politician that follows his or her advice] pursues a great good to come, at the risk of a small present evil." - Frédéric Bastiat
From his essay in 1850, 'That Which Is Seen and That Which Is Unseen'.
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[Quote No.43860] Need Area: Money > Invest
"To achieve anything in this game, you must be prepared to dabbled on the boundary of disaster!" - Stirling Moss
Racing car driver
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[Quote No.43909] Need Area: Money > Invest
"The [expansion-contraction/recession] boom-bust cycle as explained by [Austrian School economists] Ludwig von Mises and F.A. Hayek is set off by central bank manipulation of the interest rates in an effort to stimulate the economy and artificially lengthen the time horizon of the production structure in an unsustainable way. The bust hits when that boom illusion is punctured by reality. Economist Roger Garrison adds an interesting practical twist. He says that in the boom, the freshly faked money tends to gravitate toward prevailing investor fashions. Real estate is an example in our times. But it could be oil, education, bonds or whatever. Social media and Internet commerce seem like likely candidates for overvaluation simply because they were so consistently undervalued after the last dot-com bust and because they have such a bright future. The boom-to-bust cycle is not generated by human psychology alone or the inherently frenzied nature of capital markets. It is set off by the manipulation of money and credit. It's the central bank that sets it all in motion and ends up discrediting the achievements of the market economy. The central bank ends up subsidizing good things like housing and technology in a way that can't last, giving us too much of a good thing too soon. If a bubble in this section explodes in the coming months or weeks, the ignorant among us will trash the venues themselves as silly and pointless. Serious minds will see that this sector is taking a beating precisely for its virtues. This process is the central bank's way of undermining the signaling system of the market economy, distorting the investment structure and bringing unneeded confusion and frenzy to the development of the market process. The credit creation process is the poison that ruins what would otherwise be a wonderful meal. If that bust comes, we might start seeing some great innovations shut down temporarily and forced to delay progress until after liquidation, provided this is permitted to come. Only something as powerful and essentially evil as a central bank could discredit the greatest technological revolution since the 18th century. Regardless, there is no turning back. The privatization of the Internet in 1995 signaled a new epoch in human history, one that has universalized communication and commercial relationships in ways that wereas previously unimaginable. It will take more than stupid central bank policies to reverse this great leap in history." - Jeffrey Tucker
editor-in-chief of lfb.org. Quote from 'Laissez Faire Today' enewsletter, August 2, 2012.
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[Quote No.43930] Need Area: Money > Invest
"The [US] 'Founding Fathers' regarded political control of monetary institutions with an abhorrence born of bitter experience, and they seriously considered writing a sharp limitation on such governmental activity into the Constitution itself. Yet they did not, and by 'speaking in silences' gave the government they founded the near-absolute authority over currency and coinage that has always been considered the necessary consequence of national sovereignty." - Gerald T. Dunne
'Monetary Decisions of the Supreme Court', 1961.
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[Quote No.43960] Need Area: Money > Invest
"...a few years ago, I was lucky enough to hear a talk by the 'armchair economist' Professor Steven Landsburg. In it he remarked that most of economics could be summarized in just two sentences: 'Resources are scarce' [supply and demand] and 'People respond to incentives' [encourage and discourage]. These two apparently simple and obvious observations are in fact profound insights into the nature of human beings, the world they inhabit, and the social life they lead. As Landsburg said, exploring them and their implications leads to an enormous body of thought and insights, often surprising." - Stephen Davies
Academic director at the Institute of Economic Affairs in London. Quote from his article, 'Always Think of Incentives', published in 'The Freeman', October 2006, Volume 56, Issue 8.
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[Quote No.43984] Need Area: Money > Invest
"Fortune is not on the side of the faint-hearted." - Sophocles

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[Quote No.43988] Need Area: Money > Invest
"Ex scientia pecuniae libertas [Latin for 'Out of knowledge of money comes freedom']." - Financial Saying

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[Quote No.43995] Need Area: Money > Invest
"We see people [investment markets] and things not as they are, but as we are. " - Anthony de Mello
(1931 - 1987), Jesuit Priest
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[Quote No.44014] Need Area: Money > Invest
"Perception is everything in the markets." - Ryan Puplava
Certified Market Technician. Quote from his article, 'Sector Rotation: Are You Ready for This?', published 9th August, 2012. [http://www.financialsense.com/contributors/ryan-puplava/sector-rotation-are-you-ready-for-this ]
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[Quote No.44024] Need Area: Money > Invest
"The normal fundamental factors in play regarding currencies [and their relative strength or weakness] are interest rate differentials, balance-of-trade flows, and concern over budget deficits. [Some other important factors to consider are quantitative easing - i.e. money printing, inflation and therefore likely central bank interest rate policy and currency intervention, as well as 'risk on' - i.e. commodity currencies like the Canadian and Australian dollar strength - or risk off - i.e. sovereign strength currencies like the US Dollar and the Japanese Yen strength.]" - Mike 'Mish' Shedlock
He write at http://globaleconomicanalysis.blogspot.com [http://globaleconomicanalysis.blogspot.com.au/2012/08/reader-question-why-is-euro-so-strong.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+MishsGlobalEconomicTrendAnalysis+(Mish's+Global+Economic+Trend+Analysis) ]
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[Quote No.44027] Need Area: Money > Invest
"[Beware...Human Nature abhors a vacuum, that is any explanation is better than none, even if it is unjustified by the facts, so always approach all explanations, facts and predictions with skepticism until confirmed by your own research:] To trace something unknown back to something known is alleviating, soothing, gratifying and gives moreover a feeling of power. Danger, disquiet, anxiety attend the unknown – the first instinct is to eliminate these distressing states. First principle: any explanation is better than none... The cause-creating drive is thus conditioned and excited by the feeling of fear... " - Friedrich Nietzsche

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[Quote No.44028] Need Area: Money > Invest
"[Consistent with Austrian School economic and business cycle theory:] ...When the cost of capital [interest rate] is artificially repressed, economic entities tend to overuse capital as an input.  Perhaps that has not happened in China in the past decade, but if it hasn’t, China would represent a truly unique case in history. Recognition of Losses: We need to be worried about debt, in Europe and the US of course, but we need also to be worried about debt in China.  The deleveraging process in any country always results in much slower growth than during the period in which debt was rising quickly, and what matters is overall deleveraging, not just government debt.  At some point we will see deleveraging in China, and this must affect growth.  Misallocated investment funded by debt means that losses have occurred and one way or another they will eventually be recognized.  The recognition of the losses can be postponed for a time, by the simple expedient of not recognizing non-performing loans, but at some point, and usually at the worst possible time, they will be recognized." - Michael Pettis
at China Financial Markets as quoted in http://globaleconomicanalysis.blogspot.com.au/2012/08/pettis-on-debt-currency-wars-commodity.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+MishsGlobalEconomicTrendAnalysis+(Mish's+Global+Economic+Trend+Analysis)
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[Quote No.44032] Need Area: Money > Invest
"GDP growth [nominal rather than real inflation-adjusted Gross Domestic Profit growth] alone is a [politically-motivated media] fraud. The gross number [alone] just doesn't tell you anything worth knowing. It doesn't really matter how fast an economy is growing. What counts is how fast it is growing per person... and whether that 'growth' is real or phony. [Never forget, a country's economic] Growth is not the same as [each individual's] prosperity...[for a country's nominal GDP can grow but still be slower than its population, participation and productivity growth, so each person's per capita wealth and purchasing power decreases or the growth can be temporary asset growth fed by unsustainable demand and supply from mispriced and therefore misallocated credit that eventually corrects.]" - Bill Bonner
Quote from his book, 'Whiskey and Gunpowder' in 2010.
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[Quote No.44034] Need Area: Money > Invest
"[The price of the commodity corn is critical for food production, just as oil is a vital component in the cost of most products due to power and transportation costs.] Corn is the single most important commodity for retail food. Corn is either directly or indirectly in about three-quarters of all food consumers buy. [For example, corn syrup is used as a sweetener in many products and corn-feed decreases the time to fatten cattle and increases yield from dairy cattle.]" - Richard Volpe
an economist for the USDA told the Los Angeles Times. Published 13th August, 2012. [http://lfb.org/today/the-amazing-ethanol-scam/ ]
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[Quote No.44035] Need Area: Money > Invest
"One of the obvious side effects of the ethanol craze is that the price of [the commodity] corn has risen 73% in the past year - but that isn't the only food whose price is on the rise... And because animal feed with corn in it is more expensive, that cost trickles down to chicken, beef, eggs, cheese and - making soda-chugging Americans cringe - high fructose corn syrup." - Kate Incontrera
'The Daily Reckoning', July 16, 2007.
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