To kick off the New Year you should go read this guy’s silliness. It is no wonder why he has been largely discredited and why he completely missed the housing bubble in 2005-06, he was the guy laughing at Peter Schiff when Schiff told him lending standards were nonexistent, guess who was right?
What I found amazing is that Mike Norman actually thinks that issuing treasuries is not borrowing money. Furthermore, he actually states the following, this blew my mind because it is utter nonsense:
Some would argue that the vote simply gave the government the right to “borrow” $290 billion more, so it did not really increase its spending power at all, only the amount it could take from others. This argument would be wrong.
Government spending, by definition, increases the amount of reserves in the banking system and those reserves are the funds used to buy Treasury securities. Therefore, it is correct to say that government spending itself provides the money to buy the debt.
How else can you explain how the national debt went from $900 billion to $12.4 trillion over the past 30 years with interest rates falling to historic lows or even zero? If the issuance of government debt were truly “borrowing” then rates would have climbed to astronomical levels.
If this made you say, what!? You are not alone. I know what he is saying and on the surface he is kind of right, but it is also the words of a true idiot. I will explain this in a very simple way for Mike to understand, if you issued your own debt and could control your interest rates, would you keep interest rates, the amount you pay, high or low? Clearly you would keep the amount you pay low, unless you like paying a lot more for what you borrow. Now, that is a very simplistic way of approaching the total issue and it is much more involved than that, but I fear if he reads this getting into details would probably confuse him.
Apparently Mr. Norman is one of these people who thinks you can issue unlimited debt or “increase the amount of bank reserves to buy treasury securities” and we never have to pay the piper. I find this fascinating that one can think that investors will never, ever, want their money back or that even though we have to pay interest on the amount of money we spend it is still not considered borrowing. I am not sure how that is not debt or borrowing nor am I sure how one can borrow their way to prosperity, but I find this disturbing among many economists in the US, including one Nobel Prize winning economist who writes for the NY Times a lot.
The last time I checked those who tried to borrow their way to prosperity, Dubai, Argentina, home owners, Eastern Europe and so on all ended up not doing so hot or defaulting. I am not suggesting the US will default on its debt, that would be crazy, we will simply inflate our way out as that is the game plan. Well, I guess I am early in giving out my 2010 Contrarian Award to Mr. Norman for going against all conventional wisdom and basic economic teachings when we examine debt and prosperity. Debt, for a lack of a better term, is good. I gotta stop, my head hurts.
Everyone is on bubble watch nowadays, me included, as central banks flood their respective countries with mountains of money. While the US has done a ton of printing of dollars it is often overlooked that the Chinese have also printed a ton of Yuan as well. While there are definite differences in the economies of the US and China, we could argue those difference all day long, the one thing we could all agree on is that China a lot of flaws in its system. I would counter by saying their flaws are probably pretty severe, but no worse than the US.
Regardless, I have been reading a lot about the bubble in China, especially in their real estate prices. I do not doubt that as property values have gone parabolic in the country, some areas make the peak price increases in the US look like pathetic in comparison, but is it the same bubble that the US had? The answer is, no one really knows for sure because the data is spotty at best. My guess is that the price bubble is probably worse than the US, but I am willing to bet that mortgage fraud, home equity loans, securitization and the host of other issues that basically collapsed the world economy are not the same, at all.
So, at the end of the day, we will see a price collapse in China which will lead banks to have losses on their books, but it will end there. It will likely be as bad as the early 1990’s in the US banking system compared to the 2008 collapse that the US had and it will more than likely not spread globally like the US credit collapse did. However, it is problematic for the world to have the second, it surely has beat out Japan by now, largest economy approach a huge bubble so early in its quest for world domination, especially when it is the manufacturing center of the world.
If the bubble pops, which it will, it will take capital to fix which means that money will not be loaned out to manufacturers. When that happens the cost of capital will increase driving up prices which means your trip to Walmart will not be as cheap as it once was, especially if Washington forces the Chinese to strengthen its Yuan as well. That will be a problem for us and the rest of the world as China led the world out of the recession, if you believe it is actually over that is, so if China contracts it will lead the world right back into a recession, or make the one we are in even worse.
It is just interesting that Americans always assume that everyone acts like they do and spend all of their money. The Chinese are fanatical savers and it is highly unlikely that they would leverage their home, i.e. home equity loans or lines of credit, to buy junk they simply do not need like Americans do. I remember when Lay’s potato chips were trying to make headway into China and one women interviewed said why would I spend that kind of money on that when the same money can buy me potatoes for a month? That is their mentality and they do not spend what we do not have and pay for it later like what we do, that is what I admire about their culture. This is why if or when the bubble pops it will be a major problem, but nothing like what we saw here or in Europe.
With that in mind I am not crazy about investing in China because I believe that the bubble will pop and it will slow their growth down dramatically. Depending how the government handles the issue it could be a nonevent or a huge problem with, believe it or not, political instability. Plus, so much money has flowed into China through BRIC’s it is kind of crazy to keep money there right now. I am way more interested in India and Russia than China and Brazil, but all emerging markets have me a bit nervous because when everyone agrees that is where you should be, well, you know, do the opposite. Regardless, I believe the bubble will pop, but before the China bubble pops the US equity bubble will pop first.
Mort Zuckerman was just on Power Lunch, clearly he was the smartest man on the show, but nevertheless his comments regarding the Audit the Fed Bill makes me wonder, is he retarded? He runs newspapers for a living so clearly, well you would think anyhow, he can read, but he obviously has never read the Audit the Fed Bill because he puts up the same paper defense as every other opponent to the bill does. He claims it will take away the ‘independence’ of the Fed and make it a political entity.
Is he serious? The Fed has lobbyists which mean it already is political and when we are talking about auditing what the Fed is taking in for collateral, how they are arriving at interest rate decisions and basically removing the veil of secrecy it is not taking away their independence. Especially since the audits are 6 MONTHS AFTER the fact. I am sorry, 6 months after a decision is made does not mean Congress will have any impact on any decision Uncle Ben makes, period end of story.
Mr. Zuckerman also claims it will weaken the dollar, excuse me? Clearly the man is retarded because the dollar only strengthened last year because we were going to blow up. We were only going to blow up because the Fed screwed up so badly, end of story Mr. Zuckerman. Uncle Ben is going to print the USD out of existence because that is his plan, read my other posts, I know what he is trying to do and believe me he has Obama’s blessing to do it. However, like everything else Uncle Ben has tried to do he will fail and kill the USD.
Finally, Mr. Zuckerman, I guess you did not have history in your remedial classes in school, so let me fill you in on a few events. We had a chaotic system before hand, mostly with bank failures, but even those ‘panics,’ as they were called, were few and far between, i.e. the panic of 1907. The Fed was supposed to end those problems with the banking system, right? Let me answer that for you, yes it was. Well, need I remind you of the little thing called the Great Depression? We had massive bank failures and the Depression itself was caused by the Fed, just like the problems we have now.
In fact, since the Fed was created we have had more serious problems at an ever increasing rate than at any other time in our history, period. If you knew anything, Mr. Zuckerman, you would know that was 100% true. I admit that we need a lender of last resort, but that can easily be accomplished by the Treasury department, but having a simple solution or, more to the point, a public, open solution, is not in the banks best interests. So, Mr. Zuckerman, you clearly are on the side of the elites, not the peoples which is ironic since you peddle your product to the masses. Do us all a favor, stay behind a desk and keep your uninformed opinions to your freaking self you moron.
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