Monday, June 04, 2012
Friday's unemployment numbers (so far as we can believe anything from the BLS) prove that the economy is spiraling deeper into recession. Remember they don't even count anyone who has stopped looking for work, has been unemployed for 4 weeks, or has never had a job. Near zero interest rates are killing our retirees. Instead of living on the safe sure yield of savings or bonds, they are forced into re-investing into crap like Facebook that saw half of their wealth wiped out in a week. Thanks to Ritholtz's The Big Picture, the world's most popular financial blog we listen in on a discussion between two of the only credible people at CNBS... The solution is to take interest rates back to Volcker levels in the '80s. It will be painful, but it will amputate the rot instead of adding one more maggot to the wound - in the hope it will eat the dead tissue. Those academics who want a deaper study of the Volcker gambit can read this. Yes, yes, and yes, I know Volcker was fighting 'inflation' not the deflation we are experiencing today, but today's deflation will end in a violent hyper-inflation, like that experienced in Weimar Germany. I remember Hemingway writing about his travels through Germany at that time. The people were docile and his francs and american dollars, earned from a month's writing, could see him and his family esconced in an Austrian alpine lodge with food and all the extras for the whole of the ski season. Of course, the great debate is whether we are seeing inflation or deflation. John Mauldin is one fella who explains how both can exist before inflation ultimately dominates. Mauldin's Reports are gold to those who follow him on his world dialogue about investing and finance. His newsletter is free. Austerity is the death of a thousand cuts that will embed the psyche of generations. This baby boom (my) generation is the one that needs to feel the pain. Instead retirees are postponing the end to their work and are crowding out their own children and grandchildren. So the question remains: How much pain? How high should interest rates go? To find the answer we can listen to the The McAlvany Report where they interviewed former Federal Reserve board member John Taylor. Taylor recently wrote an op-ed piece in the WSJ, Mr. Taylor, a professor of economics at Stanford and a senior fellow at the Hoover Institution, is the author of "Getting Off Track: How Government Actions and Interventions Caused, Prolonged and Worsened the Financial Crisis" (Hoover Press, 2009). Creator of "The Taylor Rule" and "The Taylor Principle", he would see interest rates tied to the rate of inflation... a rate of inflation truly presented. You can listen to the interview here. Or listen below.
Posted by Takwira at 8:43 AM