I swear, whenever the markets are facing crisis, the mainstream chatterboxes on financial TV and radio finally see it as appropriate to listen to what the “contrarians” have to say. (Contrarian – as in someone who sees fit to think something other than the acceptable Bubblevision customs.) So, while the Bubbleheads obsess on the current market crises, they start inviting — even more so than normal — non-orthodox financial and economic types onto their shows. Bloomberg is becoming a virtual Bear Country in the last week or two.
A couple of weeks ago, Bloomberg radio invited one of my favorite Wall Street analysts, Richard Bove, to come on and talk about the current crisis for about an hour. For those not familiar, Bove is a financial institutions analyst at Punk, Ziegel & Company. Basically, Bove’s theme was that the Federal Reserve is selling out America to protect bad business practices. The interview got interesting when Bove was asked by interviewer Tom Keene, “Bohm-Bawerk? Now what did he know, along with Hayek, Menger, Mises, and Rothbard, that the others don’t know?” Bove went on to explain the core concepts of Austrian Economics, talked about the school’s great economists, and described the problems we witness in the markets today from a purely Austrian perspective. He was very pointed in his discussion of the trade cycle, and he noted the problem of malinvestment and necessary liquidation before there can be a restoration of demand and growth in the economy. He talked about the problem with the growth of debt securities and the overall, systemic debt problem, and he also touched on one thing that I think is very important to note, coming from a Wall Street analyst: the complete lack of lending and underwriting standards, and the creation of complex financial structures that are being underwritten by those who know _nothing_ about the underlying borrowers and their credit history, ability to pay, etc.
I think this is a link to download a podcast of the Bove interview, though the podcast may not be the complete interview. (“Bove Says Fed `Interfering,’ Expects Challenges for Banks”)
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Richard Bove is wrong. He is completely correct in analysis, but wrong in terms of a practical solution. The US economy is a farce built on easy credit – to stop inflating is death. If the Fed held the money supply stable you’ll need a gun more than gold or anything; excluding a ticket to live somewhere else. Socialists would also blame capitalism and completely takeover the US government. It only gets worse after that.
Here is the URL to the podcast (*.mp3)
Bove Says Fed `Interfering,’ Expects Challenges for Banks
http://tinyurl.com/37xb7z
This is the podcast that mentions the Austrian Economists
Well Siggyboss, I don’t think inflation would stop overnight. The best way to go about it would be to repeal the legal tender laws. In ’92 it more or less stopped for a few years.
Anyways, is the housing market really that big of a problem? Yeah, inflation is bad and causes bubbles, but does it really look like this housing collapse is going to cause that big of a problem? It seems to be a less destructive bubble than we’ve had in the past. As long as the Fed doesn’t inflate more than other world currencies, like the Euro, will it really be that much of a problem?
G,
Deflation is occurring because the Fed is inflating at a ‘slower’ rate. The US dollar is actually gaining purchasing power! Housing prices on a national average have decreased for the first time since the Great Depression. Housing involves construction, manufactures that build its parts, energy products used in doing so, financing, etc. In addition, loans are no longer widely available to the consumer for homes, cars, businesses, etc.
This is a big problem that will spread to every part of the economy. Similar to the Great Depression, the Fed drastically tightened credit to control inflation it created. Yet, this Fed will likely inflate beyond what even Greenspan dreamed of to avert that disaster. Expect even higher prices three years from now for commodities and precious metals – in the meantime they will all drop as money gains purchasing power.
I’m a regular tom keene listener, i think its a rather insightful and intelligent interview platform. This is certainly NOT the first time that Austrian economics has been mentioned, rather, i actually feel that over the last years, Austrian economics is becoming more and more prominent on these mainstream financial information outlets.
On topic: I really think that the question really is about what the role of the FED really is. Is it to bail out bad investors and create a moral hazard in doing so? no, i agree that we need to have fallout in order for the financial markets to correct themselves.
siggyboss,
I have no idea what you are talking about.
Gold is indicating that we are having neither inflation nor deflation. Whether you look at the spot price or a 10 year average.
Returning to a gold rule for the currency would not lead to disaster and your vision of doom and gloom is really off base. A return to gold and a stable currency would simply increase the current prosperity and growth and actually lower interest rates.
You also seem to have a misconception that when the FED increases interest rates it actually tightens the money supply. That is simply not true. Any change to the money supply by the FED is sterilized away so their interest rate policies have virtually no monetary impact.
But the FED raising interest rates does effect business and had we not had the tax cuts the economy would currently be in the tank.
We need more than words in our analysis; we also need understanding.
DickF,
Housing is going down. That’s deflation already in a major part of the US economy. It will eventually spread to every asset including gold if the Fed doesn’t inflate. The US dollar is gaining purchasing power; exchange rates will depend on what other central banks do.
As for gold as a currency, I never even addressed it or what it would cause. Please read what I typed carefully.
You’re wrong regarding interest rates. The Fed purchases/sells treasuries to set the FedFunds rate. The money used to do so is created via new bank reserves. That’s the essence of monetary policy for central banks.
It’s not the end of the world, but a recession with additional inflation to avert disaster. I’m just amazed how close this Fed is willing to walk the line. The current socialist system can’t handle stable money without massive dislocation.
I sadly agree with everything Siggyboss says.
This is why I want Ron Paul to do well but not to win… a bust will come soon enough – lets let the Fed take their well deserved blame.
Sounds like you are a Frank Shostak reader. The only thing I disagree with is your claim that gold will go down if the Fed stops inflating.
Look up The Long Wave Analyst
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