Best of the Week
Most Popular
1.US Dollar Crashes, Gold And Bitcoin Skyrocket As Economic Recovery Lie Is Exposed - Jeff_Berwick
2.Now Obama Warns Americans to ‘Be Prepared’ for Disaster… What Does He Know? - Jeff_Berwick
3.EU Referendum - Britain's Immigration / Migrant Crisis Explained - Nadeem_Walayat
4.EU Referendum - British People vs Establishment Elite, Vote LEAVE an Act of Defiance! - Nadeem_Walayat
5.Prominent Billionaire Investors Warn of Financial Crash, Quietly Position Themselves - MoneyMetals
6.Bankers Warn of BrExit Financial Armageddon if British People Vote for Freedom - Nadeem_Walayat
7.Bad U.S. Jobs Report Prompts Stocks Bear Market Rally Towards New All Time Highs! - Nadeem_Walayat
8.Gold And Silver – Friday May Have Marked A Pivotal Turnaround - Michael_Noonan
9.EU Referendum - British People vs Establishment Elite, the Illusion of Democracy and Freedom - Nadeem_Walayat
10.Felix Zulauf: Monetary Stimulation Creates Bubbles, Not Prosperity Nor Growth - GoldandLiberty
Free Silver
Last 7 days
Investors Map Post-Brexit Strategies Amid Global Market Upheaval - 26th June 16
Gold Price Weekly COT Update - 26th June 16
First the UK, then Scotland ... then Texas? - 26th June 16
Stocks Bear Market Resumes or Just More Noise - 26th June 16
Gold And Silver: Security, And BREXIT - 25th June 16
Dow, Euro & Brexit Recap - 25th June 16
Resistance Holding Gold Stocks after Brexit - 25th June 16
Venezuela vs. Ecuador (Chavismo vs. Chavismo Dollarized) - 25th June 16
Gold, Silver And PM Stocks Summer Doldrums Risk - 24th June 16
Here’s Why China “Economic Hard-Landing” Worries Are Overblown - 24th June 16
Jubilee Jolt: Markets Crash, Gold Skyrockets as Britain Takes Brexit - 24th June 16
BrExit Morning - New Dawn for Britain, Independence Day! - 24th June 16
LEAVE Wins EU Referendum - Sterling and FTSE Hit Hard, Pollsters, Bookies and Markets All WRONG! - 24th June 16
Trading BrExit - British Pound Plunges, FTSE Stock Futures Slump on LEAVE Shock Referendum Win - 24th June 16
EU Referendum Shock Results Putting BrExit LEAVE in the Lead Hitting Sterling Hard - 24th June 16
Final Opinion Poll Gives REMAIN 52% Lead, Bookmakers, Markets and Pollsters ALL Back REMAIN Win - 23rd June 16
Does BREXIT Matter? Outlook for Sterling - 23rd June 16
Keep Calm and Vote BrExit - Last Chance to Break Free of EU Superstate - 23rd June 16
Here’s the Foreign Policy Trump and Clinton Really Want - 23rd June 16
Details Behind Semiconductor Stocks Leadership - 23rd June 16
Trading BrExit - Stocks, Bonds, Sterling, Opinion Polls, Bookmaker Odds and My Forecast - 23rd June 16
BrExit Looks Set to Win EU Referendum, Final Opinion Polls Give LEAVE Lead Over REMAIN - 22nd June 16
Proof that the Gold Bears are Wrong - 22nd June 16
Here’s a Trillion-Dollar Investment Opportunity for Those Few with No Debt - 22nd June 16
BrExit to Save Europe from Climate Change Refugee Migration Apocalypse - 22nd June 16
Increase In U.S. Rig Count Will Not Cap Oil Prices - 22nd June 16
Are Copper and China Stocks Set to Rally? - 22nd June 16
SPX May Break Its Trendline - 22nd June 16
Believe it or Not: More Kids Live At Home Now than Since The Great Depression - 21st June 16
EU Referendum Latest Opinion Polls Show LEAVE Halting REMAINs Surge - 21st June 16
British Pound Outlook - BREXIT, Europe and You - Does your vote matter? - 21st June 16
Fascist Victory Behind the European Union - 21st June 16
EU Referendum Opinion Polls Analysis Shows Strong Momentum in REMAINs Favour - 21st June 16
Is It Time to Dump Gold and Buy Platinum? - 21st June 16
Could Central Bankers Be Gold and Silver's BIGGEST Allies? - 20th June 16
Words Still Mean Things – Brexit With Graham Mehl - 20th June 16
Baroness Warsi the Manchurian Candidate Quits LEAVE for REMAIN, Boris Johnson Next? - 20th June 16
FTSE Soars, Stock Markets Bounce on LEAVE Polls Surge, Bookmakers Widen BrExit Odds - 20th June 16
Brexit Would Trigger Devolution of Europe - 20th June 16
Stock Market Week Of Uncertainty - 20th June 16
Will Gold’s Bullish Price Chart Outperform Gold’s 5 Bearish Indicators? - 20th June 16
Bonds And Stocks At All-Time Highs: Are Markets Confused Or Broken? - 20th June 16
Silver Sleeping On the Job - 19th June 16
BrExit Odds Sink, REMAIN Polls Boost by Jo Cox Killing by Radical Right Extremist, Conspiracy? - 19th June 16
How Elliott Waves Tell You When to "Jump In" & When to "Jump Out" of Markets - 18th June 16
Stock Market Inflection Point During Bifurcation - 18th June 16
Gold And Silver – Insanity Is World “Norm.” Keep Stacking! - 18th June 16
Gold Stocks - Bull Markets that Follow Epic Bears - 18th June 16
The Fed Giveth and the Gold Bullion Banks Taketh Away… - 17th June 16
Brexit: "The Vote Heard Around the World" - 17th June 16
Gold Stocks Summer Breakout? - 17th June 16
Stock Investors Get Higher Returns and More Dividend Income - In Less Time With Less Risk - 17th June 16
How to Use the Gold-to-Silver Ratio? - 17th June 16
Inflation, Deflation & Associated Trading Prospects - 17th June 16
Overnight Markets Struggling to Stay Flat - 17th June 16
Gold Price Surges to Highest in Nearly Two Years On Central Bank and Brexit Haven Demand - 17th June 16
Stock Market Thinking Upside Down; Dow 18k Still Key - 17th June 16
Jo Cox MP Terror Attack Killing Claimed for "Britain First" - Witness Report - 17th June 16
Stock Market, Iron Ore, Bitcoin – Is Silver Next for Chinese Momentum Investors? - 16th June 16
EU Referendum Campaigning Suspended Following Shooting of MP Jo Cox, Suspect Named as Tommy Mair - 16th June 16
Why People are Migrating to the UK, Illegal Immigration, Housing Crisis Consequences - 16th June 16
Stocks Fluctuate Following Recent Decline - Bottom Or Just Pause Before Another Leg Down? - 16th June 16
The US Consumer-Driven Economy Has Hit a Brick Wall - 16th June 16
Bitcoin Price Going Parabolic Again, Now At $730 and Up 60%+ In Last Three Weeks - 16th June 16
China's Hard Landing Has Already Begun! - 16th June 16
Crude Oil Price - Oil Bears vs. Support Zone - 16th June 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Why 95% of Traders Fail

Generating Economic Optimism, Put On a Happy Face?

Economics / US Economy Sep 27, 2010 - 11:23 AM GMT

By: Douglas_French

Economics

Best Financial Markets Analysis ArticleSince two years of zero interest rates, $800 billion in fiscal stimulus, and the bailout of any business remotely viewed as systemically important haven't resuscitated the dead economy, now the tonic suggested is optimism. American business owners and consumers need to quit getting their daubers down and keep the sunny side up.


George Mason professor of economics Tyler Cowen believes concern over the collective mood is not just for psychologists anymore. Optimism and pessimism are "very relevant to the difficulties that policy makers face: a deficit of optimism has much to do with why the United States economy remains stalled today," writes Professor Cowen in the New York Times.

So the Fed can huff and puff and make itself triple its precrash self, "But if it could just convince Americans that it was committed to monetary expansion and economic growth, it would help the economy pick up speed," according to the George Mason professor.

Cowen goes on to explain that while the Fed is spewing liquidity, people and businesses just aren't holding up their end of the stimulus bargain. The common folk out in the real world have increased their demand for liquidity. They are spitting in the face of Fed bureaucrats and college professors who can't figure out why folks aren't taking advantage of the cheap money, flipping their calendars back to the bubble years, and buying bigger homes, bigger cars, and bigger flat screens.

Brother Bernanke is preaching the way to economic salvation, Cowen claims, but the congregation is unsure of the Fed chair's conviction. Cowen writes, "If no one believes the Fed's commitment to price inflation, spending and employment will not go up. The plan will fail, and people will view their skepticism as vindicated."

The Fed needs to boldly go where no central bank has gone since John Law's Banque Royale, according to top economists. Once more with feeling, the Fed must promise "a credible commitment to a more expansionary monetary policy."

But Professor Cowen has this all backwards. The Fed created this mess by slashing interest rates after 9/11 and the bursting of the dot-com stock bubble. The money flowed into all types of real estate. That money and credit created not only redundant brick and mortar malinvestments, but more jobs were created to build the unneeded subdivisions, shopping centers, and office buildings.

Employment at city halls all over America ballooned to handle vital services like checking plans and issuing permits. Retailers staffed up to handle the hordes of shoppers who used their homes as ATM machines. Dare we say, most everyone was overoptimistic. Not because they took a pill or watched Dr. Phil, but because they were spending the cheap and easy credit they thought would never end.

Now the bubble has burst, and those at the Fed and in academia believe rock-bottom interest rates should make entrepreneurs and consumers optimistic again. After all, they plugged low rates into their formulas and it worked — on paper. But it doesn't. Because the crisis, the downturn, is the cleansing of the malinvestments brought on by the previous blast of monetary expansion.

"Why should hardheaded businessmen, schooled in trying to maximize their profits, suddenly fall victim to such psychological swings?" asks Murray Rothbard in Man, Economy, and State with Power and Market. "In fact, the crisis brings bankruptcies regardless of the emotional state of particular entrepreneurs."

Rothbard quotes V. Lewis Bassie, who wrote in "Recent Developments in Short-Term Forecasting," Studies in Income and Wealth:

The whole psychological theory of the business cycle appears to be hardly more than an inversion of the real causal sequence. Expectations more nearly derive from objective conditions than produce them. The businessman both expands and expects that his expansion will be profitable because the conditions he sees justifies the expansion…. It is not the wave of optimism that makes times good. Good times are almost bound to bring a wave of optimism with them. On the other hand, when the decline comes, it comes not because anyone loses confidence, but because the basic economic forces are changing.

So this whole "put on a happy face" theory is hokum. And at least one market analyst, Robert Prechter, believes that optimism still reigns, at least in the investment world. Investors aren't down in the dumps, Prechter writes in his latest The Elliott Wave Theorist report. Mutual funds are nearly 97 percent invested and investor sentiment indexes are high.

Prechter dissects an article from Bloomberg entitled "Atlanta Awash in Empty Offices Struggles to Recover From Building Binge," listing more than a dozen negative facts about that market referenced in the article. Yet the opinions the reporter found to quote in the article were positive, such as "Owners of troubled properties … said they remain optimistic," and "[A] senior vice president … said in an e-mail, 'Our outlook is positive'."

A new office tower on Peachtree Street may be 98 percent empty, distressed sales may be nearly half the market, and in-migration has fallen 82 percent in Atlanta, but those in the real-estate business are keeping their rose-colored glasses on. As are Warren Buffett and GE's Jeff Immelt, who claim things are getting better and there is no chance for a double-dip.

As long as the Fed keeps printing and academia keeps rolling out new theories, the cleansing of the multiple booms created by Fed interventions will continue for years. Those operating in the here and now of the real world have figured out that they should be deleveraging and saving. That may be interpreted by policy makers as doom and gloom, but it's just good sense.

Douglas French is president of the Mises Institute and author of Early Speculative Bubbles & Increases in the Money Supply. He received his masters degree in economics from the University of Nevada, Las Vegas, under Murray Rothbard with Professor Hans-Hermann Hoppe serving on his thesis committee. See his tribute to Murray Rothbard. Send him mail. See Doug French's article archives. Comment on the blog.

© 2010 Copyright Douglas French - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife