Sunday, September 26, 2010

Money-Printing Inflationists Get More Media Play, but Nassim Taleb Gets It Right

The L. A. Times purports to make a virtue out of a bad thing, repeating the big lie that "deflation" will cause people to starve themselves to death, fail to buy diapers for their babies, not send their children to college, because they expect that, perhaps, the prices of these goods and services will fall at the rate of perhaps 1% a year as in Japan. Here is a representative sample of the article titled Trashing the dollar to save the economy from today:

If prices of many imports at your local Wal-Mart or Target rise even slightly, or at least don't fall, it could be that much harder for a deflationary spiral to take hold.

We all like paying less, but the Fed is afraid that, amid tepid demand, many consumers will begin to believe that prices can only go down if they wait to buy. That could push the economy back into recession, or worse.

So the theme that the public is supposed to buy is that we all need to buy, buy, buy before prices rise.

And presumably the tooth fairy (aka the Fed) will recharge our credit cards when we buy, buy, buy what we can't collectively afford.

The mainstream generally ignores that it takes productive work and then productively-utilized savings to create true economic growth.

Nassim Taleb gets it right, as usual. Bloomberg reports in Obama Stimulus Made Economic Crisis Worse, 'Black Swan' Author Taleb Says:

U.S. President Barack Obama and his administration weakened the country’s economy by seeking to foster growth instead of paying down the federal debt, said Nassim Nicholas Taleb, author of “The Black Swan.”

“Obama did exactly the opposite of what should have been done,” Taleb said yesterday in Montreal in a speech as part of Canada’s Salon Speakers series. “He surrounded himself with people who exacerbated the problem. You have a person who has cancer and instead of removing the cancer, you give him tranquilizers. When you give tranquilizers to a cancer patient, they feel better but the cancer gets worse.”

Today, Taleb said, “total debt is higher than it was in 2008 and unemployment is worse.”

That last sentence is quite the understatement.

Taleb, no right-winger, "gets it". A free people will produce growth as their available resources and inclinations allow. If people don't want to "grow" and instead want to consolidate their situations, there's nothing wrong with that. Instead we have central planning run amok, and without the Bush/Paulson excuse of a crisis.

The surge in the stock market this month must be related both to easy money and to optimism in some quarters that Obama-ism will be officially neutered after the elections. One gets the impression that just as the Republican Congress devolved into a parody of itself in 2006, a similar thing has been happening in Washington recently. Stephen Colbert? Puh-lease!

From a markets standpoint, the low expectations that people have for either political party admits for upside surprises should one party or the other outperform these low expectations. Or perhaps the economy will turn up of its own accord.

In the meanwhile, what we know is that the President, the Fed and Congress are united in desiring a weak dollar. Unfortunately, more than half the world also wants their own currencies to be weak.

While gold looks technically extended, only now is it getting mention from within the business press that it, and only it, is the one "currency" that can only be diluted ("printed") at the rate of mine production as a % of accumulated supplies that have taken centuries to be mined and saved. It remains the view here that stocks remain in a meandering phase within a structural bear market and only appear cheap in relation to zero interest rates, and that gold remains at least a good ways from the end of its structural bull. It is Treasuries that continue to go Japanese, until one day they may quickly go Grecian and destroy wealthy as rapidly as the NASDAQ did after its implosion. Of course, it is Japan that may in one way or another go Grecian with rapidly rising rates, but since it does not have debt to foreigners, it is plausible that it will find an intra-Japanese solution to its own debt bubble.

America needs to suck it up and cope, as Charles Munger might say. Unfortunately statism has been on the march, with promises that if we just print more money and keep bailing out the banks that lent not wisely but too well, benefits will trickle out to the real economy. If the Taleb view of facing reality and dealing with it actually gains significant traction, the world will get very turbulent for a while and end up a much better place.

Copyright (C) Long Lake LLC 2010

No comments:

Post a Comment