Here are my predictions in writing.
Here are my predictions in writing.
Today marks the 100th anniversary of the The Federal Reserve, which is neither federal, nor a reserve! The Fed was in the news this week because outgoing chairman Ben Bernanke announced the beginning of the end for quantitative easing. I discuss these issues and more on this week’s show:
Here are some of the articles and other references that came up on the show:
Here are a couple of articles that answer Eric’s points….
The Gold Standard and the Great Depression
Here is the interview Bob recommended….
A caller recommended the video “Money Masters” and I think this is the one he was talking about…looks great!
My seven-year-old was doing a class project on Lewis & Clark. One of the questions each student had to answer about his or her historical subject was how much a gallon of milk cost during their lifetime. It was hard to find a chart of historical price levels, probably because it’s so crazy looking. I finally found one at a teacher’s resource website. The price level is almost flat throughout the 19th century. Price levels actually go down a little while employment levels go up. After 1900 things change. The Fed is created in the early 20th century and, more important, the gold window is closed by Nixon in 1971. The impact is stunning. The steep curve you see is the Fed / govt / banking cartel stealing the people’s money. Here’s what it looks like & to hear some great dialogue on the subject, here is the podcast of today’s show.
Monica Perez Show July 28, 2013, Hour 1
Monica Perez Show July 28, 2013, Hour 2
I gave up awhile ago on the notion that Democrats vs. Republicans was a battle between social democracy on one side and free market capitalism on the other. Having witnessed the great compromise in which both parties have come together in a Liberal-Fascist Center, I realize that yes, there is a battle between the two parties, but it is one over turf rather than ideology. It reminds me more of the Genoveses vs. the Gambinos than a representative government.
This total acceptance that the politicians are like mobsters and us voters are schlubs there for the shakedown makes it almost impossible for me to even listen to politicians’ BS stump speeches anymore, but I couldn’t resist tuning in to the latest Joe Biden Show. I played the audio Saturday night, but here you can see the fire in his eyes (must have taken a lot of practicing in the mirror to get “resentment” just right.)
Can you believe this guy? He’s telling middle class Ohoians he understands them by telling them he wants them to buy a house and go to college. Sorry, Uncle Joe, they fell for that one already! Now their houses are underwater and their grown kids are back at home. The American Dream is NOT a mortgage and a school loan!
The real Joe Biden said this recently at a Democratic fundraiser where he was sucking up to former Chicago Mayor Richard Daley: ”I never had an interest in being a mayor ’cause that’s a real job. You have to produce. That’s why I was able to be a senator for 36 years.” It’s funny ’cause it’s true! Biden was elected senator at the age of 29 and never looked back!
Concerned citizens marched on the JPMorgan shareholder meeting last week to express their outrage over the risks the bank takes and the losses it bestowed upon its shareholders. The only reason the citizens have any right to protest the actions of banks is that the government bails them out. These people should be protesting at the White House, the Congress & the Fed. The government is the one that uses force to steal our money to bail out private companies. The banks, like all economic actors, finds the highest reward, lowest risk (to them!) way to make money–perverse government incentives create moral hazards resulting in economic behavior that doesn’t reflect the true cost of the action. Stop government intervention and the system would be much more stable! (My blogpost on the subject touches on this as well as hour two of my May 19 show, which you can find at wsbradio.com).
In any case, I sincerely doubt these people are thinking that hard about things. Here’s hidden audio I came upon last year that demonstrates a high level SEIU organizer plotting a protest outside JPMorgan’s shareholder meeting to create a “Madison Moment” like the one Tea Party-types orchestrated in Wisconsin for reform of government employee benefits. In my opinion, this SEIU plan morphed into Occupy Wall Street, but I guess they couldn’t resist hassling JP Morgan since the occasion arose.
The Presidential Campaign has begun! I don’t feel like it’s two ideological parties fighting for what they think is right, I feel like it’s two mob families going to the mattresses! Also, what’s all this about too-big-to-fail, too-big-to-bail or too-big-to-manage? Government regulations CREATE crazily over-sized corporations, especially banks! They should cut it out! Oh, and can someone commit treason against a party? If so, Boehner’s done it to the Republicans! He’s stalling Congress’s contempt citation against Eric Holder for not responding to inquiries into Operation Fast & Furious. This thing stinks! All that and more on the Monica Perez Show tomorrow night at 9!
Tune in to 750AM, 95.5FM (in Atlanta) or right here online! And don’t forget to call! 404-872-0750 or 800-WSB TALK.
Here’s a video preview of this week’s show (Saturday, May 19, 2012)!
Does social power mismanage banking-practice in this-or-that special instance–then let the State, which never has shown itself able to keep its own finances from sinking promptly into the slough of misfeasance, wastefulness and corruption, intervene to “supervise” or “regulate” the whole body of banking-practice, or even take it over entire.-Albert Jay Nock, 1935
Nothing irritates me more than a government-created problem that prompts cries for more government action. A great example of this is the horrible crises, fiscal and monetary, caused in Europe by socialism and central banking, respectively. George Soros and so many others respond to the European Debt Crisis with cries for greater political union and more central government control in Europe. Historical examples of government growth in the wake of government injustice include the response to bans on unionization with laws unfairly favoring unions, or the response to government-mandated segregation with laws that infringe on private property rights under the false guise of pursuing racial justice. (Want racial justice? End the Drug War.)
The latest example of this maddening phenomenon is, generally speaking, the constant demand for more regulation of the financial sector, and specifically, calls for more regulation of trading in the wake of JP Morgan’s recent losses. The fact is, like coal mining, oil drilling and nuclear power, the financial sector is one of the most highly regulated industries in the history of humanity, yet calamities that bring us to the brink of physical, financial and planetary destruction seem to be occurring in these fields at an accelerating pace.
The show this week was great! Thanks to callers and listeners alike. Who knew the European Debt Crisis could be so much fun? To tell you the truth, the truth is so horrible that ya gotta laugh at it or you’d cry! Central economic control and the socialist state are as much a failure in Europe as they were in Russia and North Korea, and as I’m sure we will find, in China, yet Europeans continue to double down by betting again on socialism (in France) and communism (in Greece) in the elections of last week. What are they crazy? (Actually, maybe they are: check out my video preview of the show and the article I reference in that post: 40% of Europeans are reported to suffer mental illness!)
European Debt Crisis
If you haven’t been following the European Debt Crisis, the upshot is that the PIIGS (Portugal, Italy, Ireland, Greece & Spain) are already effectively bankrupt and other countries, including France, are not far behind. Despite this, France replaced it’s “conservative” President Nicolas Sarkozy with a socialist, Francois Hollande, as Hollande promised to spare the French people austerity and still somehow spare them bankruptcy. I don’t even think Hollande believes this is possible, but he will raise taxes in a last ditch effort to placate the masses that he’s doing everything he can to get them their free lunch.
Austerity vs. Liberalization
Frankly, although I am the most fiscally conservative person you could imagine (I think government expenditure should be $0!) I don’t think the austerity they are talking about in Europe would work anyway.
Below is the youtube video of Ron Paul guest hosting on CNBC’s Sqawk Box earlier this week. The whole thing was great watching and worth the time. At one point, Dr. Paul is debating with a guest, Yale Professor Stephen Roach (beginning at 10:27). Dr. Paul claims that the dollar has lost 97% of its value since the Federal Reserve was established in 1913 and Professor Roach says that it is untrue and irresponsible of Dr. Paul to claim such a thing. Dr. Paul’s example was the price of gold, which Professor Roach says is irrelevant. I decided to give Dr. Paul a little back-up. Check out this chart of general U.S. price levels from 1800 to 1999 and see for yourself.
A friend recently asked me to recommend a book that explains the Fed. In my efforts to find the best book to introduce the topic, I came upon this documentary. Although it must be several decades old, it clearly and thoroughly lays out the basics of money and the Fed and can serve as an accessible starting point from which to go on to read one of the many books on the subject, some of which I recommend below.
I just read a great article by one of my favorite Austrian economists, Jesus Huerta de Soto, explaining an aspect of the financial crisis that I never heard anyone point out. The government cannot be trusted with the money, the law or, apparently, accounting standards! I found the following article at Professor Huerta de Soto’s page “articles in English” on his website jesushuertadesoto.com. Here is the full text:
FINANCIAL CRISIS: THE FAILURE OF ACCOUNTING REFORM
Jesús Huerta de Soto
Professor of Political Economy, Universidad Rey Juan Carlos
The years of “irrational exuberance” which have characterized the current economic
cycle have culminated in a profound crisis in both the banking system and financial
markets, a crisis which threatens to trigger an acute, global economic recession. A
central feature of the recent period of artificial expansion was a gradual corruption, on
the American continent as well as in Europe, of the traditional principles of accounting
as practiced globally for centuries. To be specific, acceptance of the International
Accounting Standards (IAS) and their incorporation into law in different countries (in
Spain via the new General Accounting Plan, in effect as of January 1, 2008) have meant
the abandonment of the traditional principle of prudence and its replacement by the
principle of fair value in the assessment of the value of balance sheet assets, particularly
financial assets. In this abandonment of the traditional principle of prudence, a highly
influential role has been played by stock brokers, analysts, investment banks (which,
fortunately, are now on their way to extinction), and in general, all parties interested in
“inflating” book values in order to bring them closer to supposedly more “objective”
stock-market values, which in the past rose continually in an economic process of
financial euphoria. In fact, during the years of the “speculative bubble,” this process
was characterized by a feedback loop: rising stock-market values were immediately
entered into the books, and then such accounting entries were sought as justification for
further artificial increases in the prices of assets listed on the stock market.
In this wild race to abandon traditional accounting principles and replace them with
others more “in line with the times,” it became common to evaluate companies based on
unorthodox suppositions and purely subjective criteria which in the new standards
replace the only truly objective criterion (that of historical cost). Now, the collapse of
financial markets and economic agents’ widespread loss of faith in banks and their
accounting practices have revealed the serious error involved in yielding to the IAS and
their abandonment of traditional accounting principles based on prudence, the error of
indulging in the vices of “creative,” fair-value accounting.
It is in this context that we must view the recent measures taken in the United States and
the European Union to “soften” the impact of fair-value accounting for financial
institutions. This is a step in the right direction, but it falls short and is taken for the
wrong reasons. Indeed, those in charge at financial institutions are attempting to “shut
the barn door when the horse is bolting”; that is, when the dramatic fall in the value of
“toxic” or “illiquid” assets has endangered the solvency of their institutions. However,
these people were delighted with the new IAS during the preceding years of “irrational
exuberance,” in which increasing and excessive values in the stock and financial
markets graced their balance sheets with staggering figures corresponding to their own
profits and net worth, figures which in turn encouraged them to run risks with
practically no thought of danger. Hence, we see that the IAS act in a pro-cyclic manner
by heightening volatility and erroneously biasing business management: in times of
prosperity, they create a false “wealth effect” which prompts people to take
disproportionate risks; when, from one day to the next, the errors committed come to
light, the loss in the value of assets immediately decapitalizes companies, which are
obliged to sell assets and attempt to recapitalize at the worst moment, i.e. when assets
are worth the least and financial markets dry up. Clearly, accounting principles which,
like those of the IAS, have proven so disturbing must be abandoned as soon as possible,
and all of the accounting reforms recently enacted, specifically the Spanish one, which
came into effect January 1, must be reversed. This is so not only because these reforms
mean a dead end in a period of financial crisis and recession, but especially because it is
vital that in periods of prosperity we stick to the principle of prudence in valuation, a
principle which has shaped all accounting systems from the time of Luca Pacioli at the
beginning of the fifteenth century to the adoption of the false idol of the IAS.
In short, the greatest error of the accounting reform recently introduced worldwide is
that it scraps centuries of accounting experience and business management when it
replaces the prudence principle, as the highest ranking among all traditional accounting
principles, with the “fair value” principle, which is simply the introduction of the
volatile market value for an entire set of assets, particularly financial assets.
This Copernican turn is extremely harmful and threatens the very foundations of the
market economy for several reasons. First, to violate the traditional principle of
prudence and require that accounting entries reflect market values is to provoke,
depending upon the conditions of the economic cycle, an inflation of book values with
surpluses which have not materialized and which, in many cases, may never materialize.
The artificial “wealth effect” this can produce, especially during the boom phase of each
economic cycle, leads to the allocation of paper (or merely temporary) profits, the
acceptance of disproportionate risks, and in short, the commission of systematic
entrepreneurial errors and the consumption of the nation’s capital, to the detriment of its
healthy productive structure and its capacity for long-term growth.
Second, we must emphasize that the purpose of accounting is not to reflect supposed
“real” values (which in any case are subjective and which are determined and vary daily
in the corresponding markets) under the pretext of attaining a (poorly understood)
“accounting transparency.” Instead, the purpose of accounting is to permit the prudent
management of each company and to prevent capital consumption, by applying strict
standards of accounting conservatism (based on the prudence principle and the
recording of either historical cost or market value, whichever is less), standards which
ensure at all times that distributable profits come from a safe surplus which can be
distributed without in any way endangering the future viability and capitalization of the
Third, we must bear in mind that market value is not an objective value: in the market
there are no equilibrium prices a third party can objectively determine. Quite the
opposite is true; market values arise from subjective assessments and fluctuate sharply,
and hence their use in accounting eliminates much of the clarity, certainty, and
information balance sheets contained in the past. Today, balance sheets have become
largely unintelligible and useless to economic agents. Furthermore, the volatility
inherent in market values, particularly over the economic cycle, robs accounting based
on the “new principles” of much of its potential as a guide for action for company
managers and leads them to systematically commit major errors in management.
Moreover, if this state of affairs is serious for a financial institution, it is much more so
for any of the small and medium-sized enterprises which make up 90 percent of the
Fourth, we must remember that the abolished accounting standards already stipulated
that in the additional notes of the annual report, stockholders be informed as of a certain
date of the market value of the largest assets, but this in no way affected the stability nor
the traditional principles of prudence demanded by any accounting assessment of the
different entries in the balance sheet. Furthermore, the accounting standards abolished
were prudent and anti-cyclic, and they allowed for provisions to cover all sorts of
contingencies, provisions sadly missing now.
Just as “war is too important to be left to the generals,” accounting is too vital for the
economy and everyone’s finances to have been left to the experts, whether they be
visionary professors, auditors eager to strengthen their position, analysts, (ex)
investment bankers, or any of the manifold international committees. All have been as
arrogant in the defense of their false science as they have been ignorant of their role as
mere sorcerer’s apprentices playing with a fire that has been on the verge of provoking
the most severe financial crisis to ravage the world since 1929.
Madrid, December 8, 2008
They don’t know it, but Occupy Wall Street craves more capitalism, not less. Listen to my views on the subject in this podcast:
Monica Perez OWS
And if you really want to have some fun, watch this video (there’s a clip from this in the podcast above, but here’s the full rant).