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  Quotations - Invest  
[Quote No.44898] Need Area: Money > Invest
"Understanding the [Economic] ‘Machine’ [through the metaphor of a car]: The economic system is a machine. The metaphor of a car is useful to understand how all the pieces fit together. Monetary policy [as determined in the United States by the US Federal Reserve] is akin to the brake and accelerator pads [which is why share investors say’ ‘Don’t fight the Fed’]. When the central bank raises the Federal Funds Rate it does so typically to suppress inflationary pressures. When the Fed increases the Federal Funds Rate (i.e. the short-term interest rate on which monetary policy pivots) this raises borrowing costs across the spectrum of credit products thus putting a brake on economic activity [by reducing aggregate demand as fewer people and businesses can afford credit]. Vice versa when the Fed lowers the Federal Funds Rate, typically to counteract a swelling in the number of underemployed, this decreases borrowing costs across the spectrum of credit products (especially loans made on a shorter-term basis) thus accelerating economic activity [by increasing aggregate demand as more people and businesses can afford credit]. Monetary policy is mainly about manipulating short-term interest rates though there are other factors. Fiscal policy is the gear stick. Economists often talk about aggregate supply and aggregate demand. The former is the total amount of final goods and services produced by an economy over a given time period. The latter is the total amount of final goods and services purchased by agents over a given time period. What we produce as a nation and the market prices at which goods and services are sold can be different; hence, the labels of aggregate supply and aggregate demand. When the economy is booming during an upswing aggregate demand can exceed aggregate supply leading to inflationary pressures. When the economy is depressed during a downturn aggregate supply can exceed aggregate demand leading to disinflationary or even deflationary pressures. [According to Keynesian economic theory] If the economy is suffering from a lack of aggregate demand the government sector can, through larger deficits (i.e. spending in excess of revenues), shift the economy up a gear (please note this can be achieved through lower taxes OR higher spending). In fact, as tax receipts and certain government outlays (e.g. unemployment benefits) both rise and fall in a countercyclical fashion, much of the federal government’s budget stance is beyond the control of policymakers and instead determined by the endogenous performance of the economy. This is known as automatic stabilizers. Things like unemployment benefits and other ‘automatic’ forms of spending can rise without any new government action during a downturn. As Michael Kalecki has famously noted, Government deficits (whether it be via lower taxes or increased spending) can also help sustain the revenues and profits of businesses enabling them to employ more people. You may have noticed the sharp rebound in corporate profits over the course of the post-financial crisis period. This was due, in large part, to government deficit spending; though as of 2012 it has failed to translate into a strong and sustainable recovery. I won’t dive into this in great detail, but the reason for this is rather simple as seen in the following equation derived from Kalecki’s work: Profits = Investment – Household Savings – Government Savings – Foreign Savings + Dividends. Continuing on with the metaphor, government regulation can be annoying (bureaucratic red tape) but when not overdone it is like the safety features built into modern cars (e.g. seatbelts, airbags, etc.) with the purpose to keep economic activities within acceptable boundaries, but without constraining the vehicle from moving. In some respects the government sector is like a ‘safety net’ there to correct and curb market failures (though admittedly, it can also exacerbate problems if misunderstood). Hyman Minsky has noted that capitalist economies are periodically prone to what he called ‘endogenous’ financial instability by which he meant that the ‘normal’ workings of the market system can generate financial excess. He advised on the need to update regulation in view of new developments and for policymakers and theorists alike to humbly acknowledge the possibility that what worked in the past may no longer do so. Minsky was overlooked. I believe that humans are inherently fallible and inherently irrational. Since economies are the summation of the decisions of these irrational actors it is not surprising that the economy has a tendency to veer in the direction of extremes at times. As Minksy famously noted, ‘stability breeds instability’ as economic agents becoming increasingly comfortable and complacent during the boom phase of the business cycle inevitably leading to excess and bust. Everything else in the car is the private sector. The nonfinancial business sector is the engine, the chassis, the wheels and the seats (what we might think of as the ‘core’ pieces of the car). Nonfinancial businesses are the biggest employers and make most of the products and services essential to increasing living standards. The household sector is the driver and any passengers in the car. As employers, employees, investors and consumers we determine the overall direction of the economic system. The financial sector provides the lubricants in the car (e.g. the oil, coolant, etc). The main role of finance is to facilitate the development of the productive capital assets of the economy and to provide the monetary and financial resources that allow us to undertake activities of our own liking (e.g. buy or build homes). The fuel in the car that motors the economic system is the drive to earn a living, make a profit and save for the future." - Cullen O. Roche
Quote from his work, ‘Understanding The Modern Monetary System’, published August 5, 2011. [http://ssrn.com/abstract=1905625 ]
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[Quote No.44910] Need Area: Money > Invest
"Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down." - Warren Buffett
Famous value-based share investor and one of the wealthiest men in the world.
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[Quote No.44911] Need Area: Money > Invest
"Only invest in relatively liquid assets or those assets that can be easily redeemed." - Jason Di Iulio
Assist Finance chief executive
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[Quote No.44912] Need Area: Money > Invest
"The Minsky Moment [when a stable economy suddenly becomes unstable]: Debt (leverage) can be a very good thing when used properly. For instance, if debt is used to purchase an income-producing asset, whether a new machine tool for a factory or a bridge to increase commerce, then debt can be net-productive. Hyman Minsky, one of the greatest economists of the last century, saw debt in three forms: hedge, speculative, and Ponzi. Roughly speaking, to Minsky, hedge financing occurred when the profits from purchased assets were used to pay back the loan, speculative finance occurred when profits from the asset simply maintained the debt service and the loan had to be rolled over, and Ponzi finance required the selling of the asset at an ever higher price in order to make a profit [often called 'The Greater Fool Theory' of irrational market exuberrance]. Minsky maintained that if hedge financing dominated, then the economy might well be an equilibrium-seeking, well-contained system. On the other hand, the greater the weight of speculative and Ponzi finance, the greater the likelihood that the economy would be what he called a deviation-amplifying system. Thus, Minsky's Financial Instability Hypothesis suggests that over periods of prolonged prosperity, capitalist economies tend to move from a financial structure dominated by (stable) hedge finance to a structure that increasingly emphasizes (unstable) speculative and Ponzi finance. Minsky proposed theories linking financial market fragility, in the normal life cycle of an economy, with speculative investment bubbles endogenous to financial markets. He claimed that in prosperous times, when corporate cash flow rises beyond what is needed to pay off debt, a speculative euphoria develops; and soon thereafter debts exceed what borrowers can pay off from their incoming revenues, which in turn produces a financial crisis. As the climax of such a speculative borrowing bubble nears, banks and other lenders tighten credit availability, even to companies that can afford loans, and the economy then contracts. 'A fundamental characteristic of our economy,' Minsky wrote in 1974, 'is that the financial system swings between robustness and fragility and these swings are an integral part of the process that generates business cycles.' But a business-cycle recession is a fundamentally different thing than the end of a Debt Supercycle, such as much of Europe is tangling with, Japan will soon face, and the US can only avoid with concerted action in the first part of the next year. A business-cycle recession can respond to monetary and fiscal policy in a more or less normal fashion; but if you are at the event horizon of a collapsing debt black hole, monetary and fiscal policy will no longer work the way they have in the past or in a manner that the models would predict... While deficit spending can help bridge a national economy through a recession, normal business growth must eventually take over if the country is to prosper. Keynesian theory prescribed deficit spending during times of business recessions and the accumulation of surpluses during good times, in order to be able to pay down debts that would inevitably accrue down the road. The problem is that the model developed by Keynesian theory begins to break down as we near the event horizon of a black hole of debt... Deficit spending can be a useful tool in countries with a central bank, such as the US. But at what point does borrowing from the future (and our children) constitute a failure to deal with our own lack of political will in regards to our spending and taxation policies? There is a difference, as I think Hyman Minsky would point out, between borrowing money for infrastructure spending that will benefit our children and borrowing money to spend on ourselves today, with no future benefit." - John Mauldin
Financial commentator. Quote from his article 'Economic Singularity' published Oct 15, 2012, in his newsletter, 'Thoughts From The Frontline'.
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[Quote No.44965] Need Area: Money > Invest
"Our Thoughts on [the Federal Reserve's monetary easing experiments with the third iteration of quantitative easing] QE3: On September 13 the Federal Reserve initiated QE3, a variation of the first two quantitative easings, involving the government buying back $40 billion per month of mortgage securities while maintaining the Fed's near-zero interest rate policy through mid-2015, nearly a full seven years after the financial market collapse of 2008. The goal of QE3 is to drive interest rates on 30-year mortgages lower (they reached an all-time record low of 3.36% in early October) while concurrently lifting housing prices (and inevitably the stock market), triggering a theoretical wealth effect that would potentially bolster consumer spending. While QEs 1 and 2 had no lasting impact, they did give a short-term boost to the stock market But because that effect was ephemeral, it's hard to comprehend why anyone would believe that QE3 will turn out better. QE3 is bold in its apparently unlimited duration, which may be intended more to demonstrate the Fed's determination rather than any actual conviction that it will work. Perhaps the oddest part of the ongoing QE scheme is that everyone can see in its fullness and boldness the attempted manipulation of Americans' behavior. (If people know they are being manipulated, do they behave exactly the same as if they don't know?) While anyone would be glad to have a cheaper mortgage as a result of QE3, would they really believe this would make their home worth more? It's more of a credit holiday, whereby the government offers you better terms than previously available. In addition to making explicit the implicit U.S. government guarantee of more and more of the U.S. residential mortgage market, the rousing stock market approval of this measure is seen as a free lunch. But of course it is not free. For one thing, buying mortgage securities with newly printed money has the same inflationary risk that QEs 1 and 2 posed. This probably explains why gold rose strongly in response to this announcement. Also, artificially low interest rates have a cost to the government. As we know from the recent U.S. housing price collapse, mortgage lenders can indeed lose money. The guarantor of the U.S. housing market has a huge contingent liability. Moreover, the U. S. housing market was clearly overbuilt (by five million homes, according to some estimates) as of 2007, yet cheap financing may attract temporary incremental demand which home-builders might interpret to be permanent and thus overbuild all over again. This highlights the deleterious second and third order effects of well-intended but ill-conceived government programs. It is clear that someday the Fed will decide that the economy has strengthened sufficiently to end and then potentially reverse QE and zero-rate policies. Any possible sale of trillions of dollars of securities owned by the Fed, at such time would most likely be at a substantial loss given that interest rates would likely have risen and bond prices have fallen. Also, when people with a 30 year, 3.5% mortgage seek to move at a time when new mortgages now cost 5% to 6% or more, buyers will pause, reducing demand and driving house prices lower. QE3 may deliver a dose of helium to housing prices, but eventually helium leaks out of balloons, and gravity pulls them to earth. What kind of policy is this: untested; inflationary; eroding free market signals; diverting more of the country's resources toward housing at the expense of priorities such as infrastructure, technology, or science and medical research; and inevitably only a temporary fix with no enduring benefit? Finally, we must question the morality of Fed programs that trick people (as if they were Pavlov's dogs) into behaviors that are adverse to their own long-term best interest. What kind of government entity cajoles savers to spend, when years of under-saving and overspending have left the consumer in terrible shape? What kind of entity tricks its citizens into paying higher and higher prices to buy stocks? What kind of entity drives the return on retirees' savings to zero for seven years (2008-2015 and counting) in order to rescue poorly managed banks? Not the kind that should play this large a role in the economy. Moral Hazard and Financial Risk: Recently, a financial columnist wrote: 'Four years after the fall of Lehman Brothers, and with-a presidential campaign in full swing, everyone can surely agree on one thing: we shouldn't risk another financial crisis.' While I'm sure he is well-intentioned in this sentiment, this highlights a flawed notion held by too many of our country's commentators and regulators. What does it even mean to risk or not risk a financial crisis? You don't intentionally risk financial crises; they just happen. In fact, there is no way to not 'risk them'. And they don't usually provide fair warning. Financial crises are awful: they affect the lives of individuals and families; they can damage the economy, weakening it to the point of tearing the social fabric they often take years to overcome. It would be great if we could outlaw them, but unfortunately we cannot. Ironically, attempts to limit short-term pain, such as those in the four years did counting since the collapse of 2008, almost certainly make a future crisis much more, not less, likely. The seeds for financial crises [i.e. share market crashes, etc] typically grow undetected from a variety of excessive behaviors and assumptions [i.e. share market booms, etc], to where they become almost inevitable. Financial crises are rooted in over leverage and excessive levels of valuation. If society wants to prevent crisis, it must take measures well in advance, before the storm clouds gather, before excesses build in the system and before unbridled optimism dominates investor and business thinking. Efforts to constrain incipient crises in order to avoid feeling their full wrath, such as propping up bankrupt institutions and bankrupt countries, merely result in stagnation and a protracted period of subdued economic activity. Proper regulation might make some difference, if it had the effect of limiting leverage and containing speculative bubbles; but so much of regulation is naïve, ill-considered, and poorly enforced, thereby rendering it ineffective. Anyone who believes that government control and intervention will prevent problems of all sorts is living in a fantasy world where what we wish will happen always does. Go back to 2007 where the world was seemingly in a perpetual period of prosperity with low volatility while stock markets were hitting record highs. Few sniffed the possibility of any crisis on the horizon. Virtually no one imagined the magnitude of the crisis that erupted only one year later. Financial crises, sadly, will be with us forever. The idea that we can avoid one at our will only suggests both a dangerous naivete regarding how the world works [with a clear business cycle] and also the likelihood that when a crisis does arise, years of built up excesses will ensure that it will be far worse than it would otherwise have been. An environment where financial crises are seen to be a regular part of the landscape [along with the business cycle] is one where people might actually take more precautions. People would maintain a margin of safety in all their decisions. investment and otherwise, regulations would be well thought out and diligently enforced, and the unscrupulous and the incompetent would quickly fail and disappear from the scene. Modern day attempts to abolish failure only serve to ensure it, as moral hazard - the likelihood that people's behavior changes in response to artificial supports or guarantees - surges. Attempts to prevent or wish away future crises only make them more likely. Only by allowing, even welcoming, episodic failure do we have a chance of reducing the likelihood and magnitude' of future financial crises." - Seth Klarman
Famously successful value share investor and founder of the Baupost portfolio fund. Quote from the 2012 Q3 Letter. [http://www.zerohedge.com/news/2012-10-28/fullness-and-boldness-qes-manipulation-americans-behavior ]
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[Quote No.44974] Need Area: Money > Invest
"I conceive that the great part of the miseries of mankind are brought upon them by false estimates they have made of the value of things. " - Benjamin Franklin

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[Quote No.45023] Need Area: Money > Invest
"It were not best that we should all think alike; it is the difference of opinion that makes horse races." - Mark Twain

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[Quote No.45065] Need Area: Money > Invest
"[Technical chart investors believe 'Go with the flow'...] Ride the horse in the direction it's going." - Werner Erhard

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[Quote No.45077] Need Area: Money > Invest
"[Skepticism is important because...] Men in general are quick to believe that which they wish to be true!" - Julius Caesar

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[Quote No.45081] Need Area: Money > Invest
"[Skepticism is important because...] Nothing is easier than self-deceit. For what each man wishes, that he also believes to be true!" - Demosthenes

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[Quote No.45126] Need Area: Money > Invest
"The boom, not the slump, is the right time for austerity [i.e saving for the inevitable 'rainy day']." - John Maynard Keynes
Economist whose theories about increasing government spending during recessions, etc., were the basis for the school of economics called Keynesianism, so favoured by governments since the Great Depression. [http://www.openculture.com/2012/06/john_maynard_keynes_explains_cure_to_high_unemployment_in_his_own_voice_1939.html ]
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[Quote No.45167] Need Area: Money > Invest
"Two vital marketplace signals are the profits that come with success and the losses that come with failure. When these two signals are not allowed to freely function, markets operate less efficiently." - Walter Edward Williams
(1936 - ), an American economist, commentator, and academic. He is the John M. Olin Distinguished Professor of Economics at George Mason University, as well as a syndicated columnist and author known for his libertarian views.
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[Quote No.45182] Need Area: Money > Invest
"What we call the [capitalist free] market is really a democratic process involving millions, and in some markets billions, of people making personal decisions that express their preferences. When you hear someone say that he doesn’t trust the market, and wants to replace it with government edicts, he’s really calling for a switch from a democratic process to a totalitarian one." - Walter Edward Williams
(1936 - ), an American economist, commentator, and academic. He is the John M. Olin Distinguished Professor of Economics at George Mason University, as well as a syndicated columnist and author known for his libertarian views.
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[Quote No.45207] Need Area: Money > Invest
"[As Austrian economics suggests and the following article explains artificially and unsustainably low interest rates are dangerous:] -- ZIRP and QE: Central Bankers’ Narcotics of Choice: Singer Robert Palmer was ‘addicted to love’. The world is now [in 2012] addicted to low interest rates. Central banks also display signs of acronym-o-mania, an addiction to acronyms: ZIRP (Zero Interest Rate Policy), QE (Quantitative Easing) etc. Following the global financial crisis [in 2008], policy interest rates in the USA, Europe, UK and Japan were reduced sharply. The US Federal Reserve has committed to holding rates around zero for the foreseeable future [stated as until 2015]. Faced with deep-seated economic problems, other central banks are following a similar strategy. Where interest rates are zero and cannot be lowered further, novel forms of monetary accommodation, quantitative easing are in vogue, to keep rates low. Low interest rates have become a panacea for economic problems. In part, this is driven by the unwillingness of governments to run budget deficits, reflecting increasing scrutiny of public finances [very high government debt-to-gdp ratios, for example above 90%, which according to Reinhart and Rogoff, is where the debt starts to lower future economic growth] and investor reluctance to finance such deficits, as highlighted by the ongoing European debt crisis. The US has undertaken 3 doses of QE to date. Based on the experience of Japan (which is up to QE 8 or 9), further doses may be administered. Federal Reserve may even undertake direct purchase of risky assets such as corporate debt or even stocks, following the precedent set by the Bank of Japan. But like all addictions, low interest rates are dangerous. They may be also ineffective in addressing the real economic issues. -- Unreal Economics… Financial markets have generally reacted positively to low rates, pushing up stock and financial asset prices [consistent with the Fed Model stock valuation methodology]. But low rates [due to low inflation] point to a worrying lack of growth. Low rates also highlight the increasing risk of deflation and a severe contraction in economic activity. Given that growth and inflation are the primary requirements for a relatively painless reduction in elevated debt levels globally, the enthusiasm among investors and citizens is curious. The clear hope is that low rates will revive the ‘animal spirits’ of the economy. But the ability of low rates to boost real economic activity is unclear. The cost of funds is only one factor in the complex drivers of demand. In the housing market, demand depends on many factors – the level of required deposit, existing home equity (price of house received less outstanding debt), the ability to sell a current property, income levels and employment security. Low rates do little, in themselves, to address these issues. In the absence of growing demand for their products, businesses are unlikely to borrow to invest in new capacity based purely on the low cost of debt. Low rates also decrease income of retirees with fixed interest investments, reducing demand. Savings from lower interest rates, such as mortgage rates, are simply being used to retire debt, rather than increase consumption. While the reduction in debt levels is necessary, lower rates will, of itself, do little to boost demand and economic activity. Research by the Federal Reserve indicates limited impact of ZIRP and QE on the real economy. Stimulus from low interest rates is also temporary, with demand likely to revert to normal levels once rates increase. -- Strange Days… Low interest rates distort economic activity, especially where real interest rates (nominal rates adjusted for inflation) are low or negative. Low cost of debt encourages substitution of labour with capital in the production process [increasing capital investment, which reduces employment in those industries in the long-term]. Given 60-70% of activity in developed economies is driven by consumption, this reduces aggregate demand as employment and income levels decrease. Low rates favour borrowing, encouraging substitution of debt for equity in financing structures, increasing financial risk [as leverage increases]. Where companies and nations are over extended, this decreases incentives to reduce debt. In fact, low interest rates are economically identical to a disguised reduction of the principal amount of the loan. The effect of low rates on savings behaviour is complex. Low rates can discourage savings, creating a disincentive for capital accumulation which would reduce overall debt levels. Lower earning on savings should encourage spending stimulating economic activity but may perversely encourage greater saving to provide for future needs reducing consumption and demand. Low rates also increase the funding gap for defined benefit pension funds. Low rates do not necessarily increase the supply of credit as risk aversion and higher returns on capital encourage banks to invest in government securities, eschewing loans. Low interest rates also provide an artificial subsidy to financial institutions, allowing them to borrow cheaply and then invest in higher yielding safe assets such as governments bonds. Low rates encourage mispricing of risk, creating asset bubbles. Low costs of borrowing encourage investors to seek investments with income, feeding recent demand for high dividend paying shares and low grade [high risk] debt. Driven by low rates, investors have increased investment in complex capital securities issued by banks and corporations, taking on additional risk, which they may not fully understand, to generate higher income. Low rates also feed asset price inflation. Minimal opportunity costs allow investors to hold assets that pay no income in the hope of price increases, evidenced in demand for commodities and alternative investments such as art works. Money tied up in non-productive investments driven by artificial low rates reduces the flow of capital and economic activity. Announcing QE3, Federal Reserve Chairman Ben Bernanke indicated that the plan was directed at boosting house and asset prices through purchases of mortgage backed securities. The comments were astonishing, failing to acknowledge the fact that a housing bubble caused by excessively low interest rates under his predecessor was a major contributor to the present economic problems. The suggestion was also startling in that it acknowledged that QE, of itself would not significantly increase economic activity directly. -- Externals… Whatever its effects on economic activity, ZIRP and QE have been effective in helping finance government borrowing and also weakening the currency. For example, the Federal Reserve has directly or indirectly been purchasers of around 60-70% of all US Treasury bond issuance. The Federal Reserve purchases Treasury bonds as part of their QE programs. Reserves within the banking system created by the Fed system allow financial institutions to purchase additional Treasury bonds. ZIRP and QE have helped weaken the dollar. Despite bouts of dollar buying on its safe haven status, the US dollar has significantly weakened over the last 2 years. On a trade weighted basis, the US dollar has lost around 20% against major currencies since 2009. The US dollar has lost around 30% against the Swiss Franc, 25% against the Canadian dollar, 35% against the Australian dollar and 20% against the Singapore dollar over the same period. The weaker US dollar allows the US to enhance its competitive position for exports – in effect, the devaluation is a de facto cut in costs. This is designed to drive economic growth. As the US dollar weakens it also improves America’s external position. US foreign investments and overseas income gain in value. But the major benefit is in relation to debt owned by foreigners. As most of its government debt is denominated in US dollars, devaluation reduces the value of its outstanding debt, making it easier for the US to service its debt. It forces existing investors to keep rolling over debt to avoid realising currency losses on their investments. It encourages existing investors to increase investment, to ‘double down’ to lower their average cost of US dollars and US government debt. As John Connally, US Treasury Secretary under President Nixon belligerently observed: ‘Our dollar, but your problem.’ Internationally, low interest rates distort currency values and encourage volatile, short term, cross-border capital flows [sometimes called ‘the carry-trade’] as investors seek higher returns. Low interest rates and quantitative easing has led to a significant shift of money into emerging countries. This has created destabilising asset bubbles and inflationary pressures. Higher commodity prices, driven by low rates, exacerbate inflation pressures requiring higher rates and reducing growth in emerging nations. As currency reserves are invested in US dollars and other developed currencies, emerging nations have suffered losses of their national savings as these reserve currencies fall in value. But a policy of seeking to lower the value of the US dollar or any currency risks retaliation. Countries may be forced to implement competitive QE programs or engineer competitive devaluations of their currency [a ‘currency war’] to protect trade and financial interests. It also risks imposition of restrictions on free movement of capital and goods and services, reducing the effectiveness of ZIRP and QE policies. -- Zombification… Experience in Japan with ZIRP and QE policies over an extended period [some 20 odd years] suggests that such policies damage the structure of the economy. The policies significantly distort the cost of capital and finance in an economy and impede adjustment. Low interest rates encourage ‘mal-investment’. Companies do not make necessary adjustments to strategy or business practices as the low funding costs enable them to continuing operating. Unproductive investments are not restructured or sold and additional low returning investments are made due to the artificially understated cost of capital. Ability to issue low cost debt allows governments to make unproductive investments or expenditures. Subsidised by low rates, banks may not write off bad loans, preferring instead to restructure the debt as low interest rates allow zombie companies to continue operations. Research studies by the IMF indicate that such policies increase the ultimate loan losses to banks. Low rates also encourage excessive risk taking by banks increasing risk and may ultimately resulting in additional cost to the government and taxpayer. Resolution of the banking problems ultimately absorbs significant government financial resources. It also restricts the supply of credit to the wider economy affecting economic activity. In effect, essential restructuring, removing the detritus of previous crises, is delayed. Misallocation of capital deepens the malaise and makes ultimate resolution more costly and difficult. -- Detoxification… One oft quoted definition of madness is repetition of a serious of actions and expecting a different outcome. The Japanese experience points to the limits of ZIRP and QE over a prolonged period of time. Yet central bankers and policy makers in developed countries believe that this is the correct medicine for current economic problems. They fail to recognize that if such policy were effective, Japan’s economic position should have returned to some semblance of normality by now. Central banks also convince themselves that ZIRP and QE policies are temporary. They believe that will be able to exit from a policy of low rates when appropriate. It is reminiscent of Ashly Lorenzana’s definition of addiction in her journal ‘Sex, Drugs & Being an Escort’: ‘When you can give up something any time, as long as it’s next Tuesday’. A sustained period of low rates, like the one the world is experiencing, makes it difficult to increase the cost of borrowing. Levels of debt encouraged by low rates would become rapidly unsustainable at higher rates. In effect, the policy compounds existing issues [for example too much private, business and public debt], making the problems ever more intractable. ZIRP and QE do not address the real issues but central banks and market participants believe that there is no alternative. Celebrity policy makers are relying on the advice of celebrity Russell Brand: ‘The priority of any addict is to anaesthetise the pain of living to ease the passage of day with some purchased relief.’ " - Satyajit Das
He is a former banker and author of 'Extreme Money' and 'Traders, Guns & Money'. This article was published on the economonitor website on November 13th, 2012. [http://www.economonitor.com/blog/2012/11/zirp-and-qe-central-bankers-narcotics-of-choice/?utm_source=contactology&utm_medium=email&utm_campaign=EconoMonitor%20Highlights%3A%20Base%20Jumping ] © 2012 Satyajit Das All Rights Reserved.
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[Quote No.45218] Need Area: Money > Invest
"This past week [November, 2012] the monthly release of the [US] Leading Economic Indicators showed that the leading-to-lagging indicator ratio dropped to 89.5 which matches the lowest level in more than 2 1/2 years. Historically when the leading-to-lagging ratio has fallen below 91 the economy was either in, or about to be in, a recession." - Lance Roberts
of StreetTalkLive, published Friday, November 23, 2012. [http://www.streettalklive.com/daily-x-change/1342-chart-of-the-day-lei-leading-to-lagging-ratio.html and http://www.hussman.net/wmc/wmc121126.htm ]
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[Quote No.45219] Need Area: Money > Invest
"Why you should ignore economic forecasts: Many gurus rely on economic forecasts when telling you where the market is going. However, these forecasts (much like the market predictions) are really nothing more than guesses. Jan Hatzius, the chief economist of Goldman Sachs, was pretty blunt when talking about the value of economic forecasts: 'Nobody has a clue. It's hugely difficult to forecast the business cycle. Understanding an organism as complex as the economy is very hard.' Keep in mind that the [US] government produces 45,000 economic indicators each year and private data providers produce about 4 million. The following examples demonstrate the point: -- The majority of economists didn't 'predict' the three most recent recessions (1990, 2001 and 2007) even after they had begun. -- In November 2007, economists in the Philadelphia Federal Reserve's Survey of Professional Forecasters called for growth of 2.4 percent for 2008, with only a 3 percent chance of a recession, and only a 1 in 500 chance of the GDP falling by more than 2 percent. GDP actually fell 3.3 percent. -- Since 1990, economists have forecasted only two of the 60 recessions that occurred around the world a year in advance. As Hatzius noted, the task facing economists is huge. First, it's hard to determine cause and effect from statistics alone. Second, the economy is always changing. Explanations for a particular business cycle may not provide any information about the next one. Third, the data they have to work with isn't very good. For example, the initial estimate of GDP growth in the fourth quarter of 2008 was -3.8 percent. It turned out to be almost -9 percent. Between 1965 and 2009, the average revision was 1.7 percent. As Nate Silver, author of 'The Signal and the Noise' put it: 'It's hard enough to know where the economy is going. But it's much, much harder if you don't know where it is to begin with.' Compounding the problem of predictions is that you not only have to get the direction right, but also anticipate any government or market responses. For example, if the economy starts to go into a recession, you have to forecast the actions governments and central banks will take to address the problem, as well as the effectiveness of those actions. And since the economies of the world have become more integrated, you have to also get the forecasts right for the rest of the world. The complexity of the problem is immense. Yet, investors expect precise forecasts, such as being told the economy will grow 2.4 percent in the next year. If they're instead told that the economist is 90 percent sure the economy will grow between 1 percent and 4 percent, they won't trust the prediction. Accuracy isn't important to investors. Confident talking heads is what they seek. Investors want a clear crystal ball. They want to believe that there's someone out there who can protect them from bad things. Unfortunately, no such person exists." - Larry Swedroe
a principal and director of research for the BAM Alliance. He has authored or co-authored 12 books, including his most recent, 'Think, Act, and Invest Like Warren Buffett'. This article was published on CBS MoneyWatch November 26, 2012. [http://www.cbsnews.com/8301-505123_162-57554058/why-you-should-ignore-economic-forecasts/ ]
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[Quote No.45254] Need Area: Money > Invest
"My salad days, when I was green in judgment." - William Shakespeare

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[Quote No.45279] Need Area: Money > Invest
"[Financial] Wisdom consists of the anticipation of consequences." - Norman Cousins

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[Quote No.45295] Need Area: Money > Invest
"There is no place in the modern working world [but especially in investing or trading] for the sloven, the indifferent, or the unskilled; no one can hope for any genuine success who fails to give himself the most thorough technical preparation, the most complete special education. Good intentions go for nothing, and industry is thrown away, if one cannot infuse a high degree of skill into his work. The man of medium skill depends upon fortunate conditions for success; he cannot command it, nor can he keep it." - Richard Wyckoff
He was a Wall Street legend. Not only did he make a fortune in investing in shares, bonds and commodities, but he also was the longtime editor and publisher of 'The Magazine of Wall Street'.
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[Quote No.45300] Need Area: Money > Invest
"[Wriston’s Law of Capital:] Capital will always go where it’s welcome and stay where it’s well treated. " - Walter Bigelow Wriston
(1919-2005), Chairman and CEO of Citibank from 1967 to 1984 and, in his heyday, arguably the most influential banker in the world. He was also an astute observer of markets and human behaviour more generally and once made the above observation about capital movements which has since become known as Wriston’s Law of Capital or just Wriston’s Law.
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[Quote No.45328] Need Area: Money > Invest
"It always seemed, and still seems, ridiculously simple to say that if one can acquire a diversified group of stocks at a price less than the applicable net current assets alone...the results should be quite satisfactory. They were so, in our experience, for more than 30 years. [What's a Net-Net? A net current asset value bargain - or net-net - is a stock selling for less than the value of its current assets - cash, receivables, and inventory - minus all liabilities. Basically, it's a stock selling for less than its liquidation value.] " - Ben Graham
He was a very successful share investor who is considered 'The Father of Value Investing'.
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[Quote No.45340] Need Area: Money > Invest
"Human beings are subject to wild swings in their levels of fear, risk tolerance and greed. That won’t change. I base my whole approach on buying when others are fearful and selling when others are greedy. The reason Shakespeare is so relevant still today is that his plays were all about human nature, and human nature never changes." - Mark Sellers
He runs a small hedge fund Sellers Capital LLC. Quoted on 19th June, 2005.
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[Quote No.45351] Need Area: Money > Invest
"Mimicking the herd invites regression to the mean." - Charlie Munger

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[Quote No.45360] Need Area: Money > Invest
"[Interest rates can be very low in periods of recession and deflation, where there is little or no inflation. For example the remarkably low interest rates in the US from 2008 during the Great Recession and the interest rates in the Great Depression:] In 1936... interest rates were one-eighth of one-eighth of one per cent. I did some research, and I found that the interest on one million dollars of ninety-day Treasuries was $37. People didn’t even bother to collect it. " - Paul Anthony Samuelson
(1915 – 2009), American economist, and the first American to win the Nobel Memorial Prize in Economic Sciences.
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[Quote No.45361] Need Area: Money > Invest
"...the failure to solve the ongoing problem of stagflation was the most important nail in the coffin of Keynesianism." - Paul Anthony Samuelson
(1915 – 2009), American economist, and the first American to win the Nobel Memorial Prize in Economic Sciences. [http://www.zerohedge.com/news/2012-12-16/samuelson-frank-knight-thought-keynes-was-devil-and-other-insights ]
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[Quote No.45365] Need Area: Money > Invest
"A system of capitalism presumes sound money, not fiat money manipulated by a central bank. Capitalism cherishes voluntary contracts and interest rates that are determined by savings, not credit creation by a central bank." - Ron Paul

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[Quote No.45397] Need Area: Money > Invest
"It is accepted wisdom that a stock market rally can never occur unless the banks are leading - they are the economic bellwether [especially in today's credit based economy. This explains central banks major monetary policy tool, to stimulate demand and employment or reduce demand and inflation, of interest rates and liquidity, and traders keeping such a close eye on the yield curve to foresee the future of the economy]." - Greg Peel
Financial journalist for FNArena [Financial News Arena] and one-time derivatives trader with Macquarie Bank. [http://www.fnarena.com/index2.cfm?type=dsp_newsitem&n=AFEFACAA-9340-ECE7-086627FE22CD5A46 ]
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[Quote No.45430] Need Area: Money > Invest
"It is an ironic habit of human beings to run faster when we have lost our way. " - Rollo May

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[Quote No.45450] Need Area: Money > Invest
"The main relevance of 'The Great Crash, 1929' to the great crisis of 2008 is surely here. In both cases, the government knew what it should do. Both times, it declined to do it. [In order to maintain political power it stooped to pervert free market capitalism to crony capitalism.] In the summer of 1929 a few stern words from on high, a rise in the discount rate, a tough investigation into the pyramid schemes of the day, and the house of cards on Wall Street would have tumbled before its fall destroyed the whole economy. In 2004, the FBI warned publicly of 'an epidemic of mortgage fraud.' But the government did nothing, and less than nothing, delivering instead low interest rates, deregulation and clear signals that laws would not be enforced. The signals were not subtle: on one occasion the director of the Office of Thrift Supervision came to a conference with copies of the Federal Register and a chainsaw. There followed every manner of scheme to fleece the unsuspecting ... This was fraud, perpetrated in the first instance by the government on the population, and by the [crony] rich on the poor. The government that permits this to happen is complicit in a vast crime... There will have to be full-scale investigation and cleaning up of the residue of that, before you can have, I think, a return of confidence [and trust about prosocial incentives, rewards and punishments] in the financial sector. And that’s a process which needs to get underway." - James K. Galbraith
Economist. He wrote this in the introduction to his father, John Kenneth Galbraith’s, definitive study of the Great Depression, 'The Great Crash, 1929'. [http://www.zerohedge.com/contributed/2012-12-22/lie-prosecuting-bank-fraud-will-destabilize-economy-what-really-destroying-ec ]
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[Quote No.45462] Need Area: Money > Invest
"[When hearing anyone talk about any situation, especially the share market, it is useful to know what is in their self-interest as this will be the perspective they bring to the discussion, as the following example shows.] Two-Word Investment Outlooks: ‘Opportunity abounds’ - long-only equity guy; ‘Stockpicker's market’ - asset management firm; ‘Risks remain’ - guy who runs a Black Swan [catastrophe] fund; ‘Expect volatility’ - trader; ‘Staying constructive’ - sell-side analyst; ‘On track’ financial advisor; ‘Dislocations exist’ - hedge fund manager; ‘Buy, Sell’ - stockbroker; ‘Yes, however...’ - economist; ‘Headwinds persist’ - Chief Strategist; ‘Que sera’ - passive indexer; ‘Caution warranted’ - balanced fund manager; ‘What's moving?’ - financial TV anchor; ‘Buy commodities’ - Jim Rogers [noted commodity investor]; ‘Clouds darken’ - newsletter writer; ‘It's complicated’ - blogger." - Joshua M. Brown
A New York City-based investment advisor for high net worth individuals, charitable foundations, retirement plans and corporations. Quoted on his blog, The Reformed Broker, January 2nd, 2013. [http://www.thereformedbroker.com/2013/01/02/two-word-investment-outlooks/ ]
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[Quote No.45590] Need Area: Money > Invest
"A speculator is a man who observes the future, and acts before it occurs." - Bernard M Baruch

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[Quote No.45591] Need Area: Money > Invest
"What the wise investor does in the beginning, the fool does in the end. [ie. the wise investor buys low but the fool waits till he can only buy it high; the wise investor sells high but the fool waits as the price falls till he can only sell it low; etc.]" - Investment Saying

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[Quote No.45593] Need Area: Money > Invest
"Luck enters into every contingency. You are a fool if you forget it - and a greater fool if you count upon it." - Phyllis Bottome
British writer
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[Quote No.45602] Need Area: Money > Invest
"There will always be bull markets followed by bear markets followed by bull markets." - John Templeton

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[Quote No.45605] Need Area: Money > Invest
"There is no security on this earth, there is only opportunity." - Douglas MacArthur
(1880 - 1964) American General
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[Quote No.45621] Need Area: Money > Invest
"I operate under the assumption that the mass media will never be accurate. ...It operates with the objective to simplify and exaggerate, which is exactly what Walt Disney told his cartoonists." - Dr. Michael Crichton
(1942-2008) American author, producer, director, and screenwriter. Quoted on 28th January, 2005.
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[Quote No.45645] Need Area: Money > Invest
"Masses [crowds] are always breeding grounds of psychic epidemics [especially delusion, desire and fear]." - Carl Jung

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[Quote No.45694] Need Area: Money > Invest
"Most of the post-WWII recessions were caused by the Fed tightening monetary policy [raising short-term interest rates and thereby creating an inverted yield curve] to slow inflation [by slowing credit creation and therefore demand]. I think this is the most likely cause of the next recession. Usually, when inflation starts to become a concern, the Fed tries to engineer a 'soft landing', and frequently the result is a recession." - Bill McBride
Full-time blogger at Calculated Risk and former technology executive. [http://www.businessinsider.com/the-most-likely-cause-of-the-next-recession-is-fed-tightening-2013-1 ]
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[Quote No.45695] Need Area: Money > Invest
"If it’s in the press, it’s in the price." - Investment market saying

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[Quote No.45696] Need Area: Money > Invest
"When all [investment] experts and forecasts agree [and it is in the press then it is in the price and] – something else is going to happen." - Bob Farrell

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[Quote No.45700] Need Area: Money > Invest
"The second you get cocky and think you are good, the market has a unique way of humbling you." - Joe Fahmy
Chief Investment Strategist of Zenith Asset Management, LLC [www.zenithasset.com].
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[Quote No.45705] Need Area: Money > Invest
"It would be wise to lean against the market's initial dramatic reaction to this data [released 1st September, 2010]. The ISM orders/inventories ratio is a decent leading [economic] indicator [of future ISM numbers and therefore manufacturing and the economy] and it sank to 1.033x from 1.065 in July. 1.278x in June and 1.441x in May. The hidden nugget in today's report is that this ratio has declined to levels not seen since February 2009. And the last time it fell this fast to this type of level was in the September to December 2007 period (1.03x from 1.30x) [just before the catastrophic 2008 start of the bear share market and Great Recession, second only to the Great Depression] when once again, there was tremendous confusion and intense debate over whether it was a recession/soft patch in the economy and the bear market/corrective phase in equities. Suffice it to say that in the past 30 years, with eleven observations, ISM dropped to 47 [where below 50 is in contraction] in the three months after such a decline in the orders/inventory ratio to such a low level as is the case today. That is the average, the median, and the mode. The highest ISM reading three months hence was 51.9, so if past is prescient, today's data was likely a huge headfake [but also a call to action by the Federal Reserve central bank to continue to spur the nascent share market and economic recovery]." - David Rosenberg
Gluskin Sheff's chief economist and investment strategist. Quoted 1st September, 2010. [http://www.zerohedge.com/article/rosenberg-explains-why-yesterdays-ism-was-likely-wrong-be-revised ]
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[Quote No.45706] Need Area: Money > Invest
"In economics, the majority is always wrong [so it pays to be sensibly contrarian - being fearful when others are greedy and greedy when others are fearful]. " - John Kenneth Galbraith
Well-known American economist
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[Quote No.45711] Need Area: Money > Invest
"Any study of economics without understanding at least the current philosophy about and structure of power, by individual citizens, governments, bureaucrats and academics is doomed to prognostic irrelevance. The two must be considered forever joined at the hip and therefore why 'economics' was always in the past and should always be considered and spoken about as the 'political economy' rather than economics alone. Therefore for repeatable successful investment, the best prepared investor must continually try to understand the current and likely future directions of economics - living standards, etc [ - economist Peter J. Boettke's 'three p's and three i's.', namely how property rights generate the incentives, prices generate the information, and the profit/loss system generates the innovation] - and politics - how those with varying degrees of power try to control their own and others lives and private property and public assets." - Ben O'Grady
Founder and Chief Executive Officer of the website www.imagi-natives.com
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[Quote No.45723] Need Area: Money > Invest
"[Whether GDP was positive or negative is an important economic figure, especially as it is used to figure the start and end of recessions.] To compute 'Real GDP [Gross Domestic Product]' one has to adjust [subtract if there is inflation] nominal GDP by a measure of inflation. Different measures of inflation provide different answers. [Often this is one of the points that people argue about, especially as how inflation is calculated and therefore the inflation figure, has changed dramatically since 1980 and also there are many different 'inflation' measures. In the United States of America, the Bureau of Economic Analysis (BEA) uses its own GDP deflator for this purpose, which is somewhat different from the BEA's deflator for Personal Consumption Expenditures and quite a bit different from the better-known Bureau of Labor Statistics' inflation gauge, the Consumer Price Index. Remember because you are subtracting inflation from the 'nominal' GDP figure, the lower the deflator [inflation figure], the higher the 'real' GDP: The BEA, this January, 2013, puts the latest compounded annual percentage change in the GDP deflator (i.e., the inflation rate) at 0.60%. Interestingly enough, the Briefing.com consensus forecast was for the deflator to come in at 1.6%. Had the deflator indeed come in at the Briefing.com consensus of 1.6%, Real GDP would have been a percent lower at -1.13%. Had the deflator indeed remained unchanged from the previous quarter, today's Q4 real GDP would be two percent lower at -2.21%, rather than -0.1%.]" - Mike Shedlock
He is a registered investment advisor representative for Sitka Pacific Capital Management. [http://globaleconomicanalysis.blogspot.com/2013/01/ten-reasons-for-declining-gdp-growth.html#rtl4DboQl2mx07bF.99 ]
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[Quote No.45725] Need Area: Money > Invest
"...politics lags behind economics, which in turn lags behind [share] market developments." - Jean Pisani-Ferry
Director of Bruegel, the Brussels-based economic-policy think tank, and Professor of Economics at Université Paris-Dauphine. [http://www.project-syndicate.org/commentary/the-euro-crisis-and-european-reform-by-jean-pisani-ferry#16ETEYSXvJePXeKu.99 ]
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[Quote No.45726] Need Area: Money > Invest
"The old saying holds. Owe your banker £1000 and you are at his mercy; owe him £1 million and the position is reversed. " - John Maynard Keynes
(1883 - 1946), 1st Baron Keynes of Tilton, British economist.
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[Quote No.45727] Need Area: Money > Invest
"The year-over-year change in real GDP was 1.5 percent. There has never been a time since measurement commenced in 1948 when the annual pace of real GDP has fallen that low without the [US] economy ultimately slipping into recession. Sub-2.0 percent readings are historically the warning signal." - Rich Yamarone
[http://www.zerohedge.com/news/2013-01-31/art-cashins-65-year-old-reason-we-are-heading-recession ]
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[Quote No.45729] Need Area: Money > Invest
"'Rent seeking' is one of the most important insights in the last fifty years of economics and, unfortunately, one of the most inappropriately labeled [as 'privilege-seeking' is more clearly descriptive]. Gordon Tullock originated the idea in 1967, and Anne Krueger introduced the label in 1974. The idea is simple but powerful. People [i.e. special interest groups] are said to seek rents [special privileges, unequal benefits] when they try [through 'incentives', media pressure and direct lobbying by lobbyists, groups and individuals] to obtain benefits for themselves through the political arena [where politicians compete for votes and financial support rather than just in the free market where businesses compete to best meet the needs and desires of the consumers of their products and services]! They typically do so by getting [governments and politicians for their self-interest to use their power to intervene in the choices that individual consumers make in the free market through laws and regulations, always described as 'for the public good', for example by a targeted tax,] a subsidy for a good they produce or for being in a particular class of people, by getting a tariff on a good they produce, or by getting a special regulation that hampers their competitors. Elderly people, for example, often seek higher Social Security payments; steel producers often seek restrictions on imports of steel; and licensed electricians and doctors often lobby to keep regulations in place that restrict competition from unlicensed electricians or doctors... [Often people argue that they need to circumvent the free market because businesses are for their self-interested profit and that politicians aren't, which is often true as politicians are more into the business of their self-interested power to create the world they and their supporters want and keep their political job and increase their power, position and reimbursement rather than just money. Any economic forecasting to have any chance of being accurate must take into account the way this form of political intervention to gain and maintain power and to be seen to be helping their supporters can effect the economy. In summary then] economists mean by 'rent seeking' ...lobbying of government to give them special privileges. A much better term is 'privilege seeking' [which is the beginning of enabling greater political totalitarianism at the expense of individual freedom, for example as 'crony capitalism' rather than free market capitalism. 'Rent-seeking' - 'privilege-seeking' - that enables greater political totalitarianism is a danger to effective political democracy and the legal principle of equality before the law]!" - David R. Henderson
Editor of the Concise Encyclopedia of Economics. He is a research fellow with Stanford University’s Hoover Institution and an associate professor of economics at the Naval Postgraduate School in Monterey, California. He was formerly a senior economist with President Ronald Reagan’s Council of Economic Advisers.
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[Quote No.45739] Need Area: Money > Invest
"I recognize that markets have only two states - range or trend - and that no strategy can be successful in both." - Boris Schlossberg
Forex trader with BKForex.com
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