Skip to main content

Inanities in a crisis

You aren't smarter than the market. It really is that simple.

The media is filled with plain silly inanities these days as everyone is focused on the crisis du jour on wall street. Here is one that grabbed my eye:

"The Depression itself was a dynamic sequence. It wouldn't have happened if the Fed hadn't insanely tightened credit in response to the stock market crash, rather than the correct policy of easing interest rates."

First, that monetary policy lead to the depression is a highly controversial explanation favored by money-supply ideologues. But the Fed did not have a policy of "tightened credit". They simply couldn't expand the money supply by printing dollars because, at the time, each dollar had to be backed by gold bars at Fort Knox.

Where the government did act to make the problem worse was cutting federal spending in response to reductions in tax revenue. Essentially the folks in charge ran government like a business, cutting expenses in response to reduced revenues, instead of using their almost unlimited borrowing power to stimulate the economy by keeping right on spending.

Finally, this ignores the central cause of the depression. People couldn't afford to buy the products they were producing. When the market crashed, as every speculative bubble will, businesses had enormous inventories of unsold goods. Think about what would happen today if every industry had the same oversupply that the housing market has. The housing market is in a depression now. That was the state of everything going into the great depression.

Of course blaming the great depression on low wages, cuts in government spending and market speculation are not messages that are very welcome in today's business environment. So we hear inanities about monetary policy that just coincidentally seem to justify the government stepping in to bail out the speculators when bubbles pop.

But that is just one example of what is turning into a propaganda fiesta with the media whacking pinata's and spewing out some businesses message. A recent NYT story described falling real estate prices and sales as "necessary" in order for the market to clear out the inventory of homes. Now you might ask how falling sales will help clear out the excess inventory. The answer is that it obviously doesn't. In fact, falling prices combined with falling sales indicates the opposite, the problem is getting worse and we are a long way from the bottom. Even with lower prices, the number of customers for homes continues to decline and the supply of homes available continues to grow. Of course that is not a good message if you are trying to get people to open their wallets and buy an overpriced house. Thus, whack! and the real estate industry's message comes flying out of the media's pinata.


Popular posts from this blog

Self-Directed Real Estate IRA's the New Scam?

You aren't smarter than the market. It really is that simple. You know the marketing folks have been out talking when the New York Times does a fluff story on some new way to make more money with your investments. So watch out for the new scam promoted by the same media advisers who told you a few years ago to buy the most expensive house a lender would finance. Paul Sullivan story is about people'e successful investment of their retirement money in real estate using a self-directed IRA. He provides us with several "success stories".  Of course they are all recent converters to this idea and, not surprising, all but one of the people whose story Sullivan tells are also in real estate sales. The problem isn't really Paul Sullivan. Its that there is no one who makes money by digging out the horror stories from people who invested their retirement funds in real estate at the height of the housing bubble. There aren't any public relations firms devoted to de

How Safe is Gold?

As often happens when the markets are bouncing up and down, some people are turning to the "safe haven" of gold. But how safe is gold? Gold has several attributes that make it attractive: 1) Gold is durable. In fact, some of the gold you buy today was probably mined by the Inca's thousands of years ago. 2) Gold is universal. With very few exceptions, gold always has value. This is true historically. And no matter where you go today you can likely trade gold for other goods either directly or by converting it into the local currency. 3) Gold is portable. While heavy, gold packs a lot of value in a small package. 4) Gold is beautiful. You can store it as jewelry or other decorative art. So if you are looking for an investment that will last a 1000's of years and still hold value, gold is a great commodity. Or if you are looking for something that will be likely to survive a complete societal breakdown like a war. However, when you start to look at likely fin

The T-Party Movement and Running Government Like a Business

There is a media narrative out there about the T-party that it is made up of people who are angry because they lost their jobs or fear losing their jobs. The actual demographics of T-party supporters don't really reflect this at all. Instead, the typical T-party adherent is male, moderately well to do and in his 40's. Of course, not all fit that demographic. But far from being "trailer trash" as some people imagine, the T-party folks have been relatively successful. So why are they angry? Because they fear life is getting worse, rather than better. And they, as individuals, react psychologically to their fears by getting angry, as opposed to other extreme of going to bed and pulling the covers over their head. But to focus on the causes of their anger, which are mostly personal psychology, is to ignore the causes of their fear. Of course, we can't expect politicians or the media to address those causes. Success in politics requires validating that fear and ang