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Market Oracle FREE Newsletter

Category: Economic Theory

The analysis published under this category are as follows.

Economics

Sunday, June 16, 2019

Why Hedge Fund Manager Ray Dalio Is Wrong on Capitalism / Economics / Economic Theory

By: John_Mauldin

Ray Dalio is the thoughtful, somewhat controversial founder of the world’s largest hedge fund, Bridgewater Associates, which he started in 1975.

While much of his writing is private, I (and many others) peruse every word we can of his and the Bridgewater team’s thinking. I find it to be some of the most interesting market commentary I read.

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Interest-Rates

Thursday, May 30, 2019

This Is Why US Monetary Policy Is So Ineffective / Interest-Rates / Economic Theory

By: John_Mauldin

Back in the 1980s and 1990s, many people thought excessive government spending and the resulting debt would bring inflation or even hyperinflation.

We wanted a hawkish Federal Reserve or, better yet, a gold standard to prevent it. Reality turned out differently.

Federal debt rose steadily, inflation didn’t. Here’s a chart of the on-budget public debt since 1970:

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Economics

Thursday, May 23, 2019

Capitalism Works, Ravenous Capitalism Doesn’t / Economics / Economic Theory

By: Raymond_Matison

For more than a century, capitalism has proven to be successful in expanding the efficient manufacture of goods and agricultural products, increasing jobs and incomes, promoting technological innovation, decreasing poverty and improving the general welfare of humans globally.  By contrast, socialism and communism with its centrally planned economy and collectivism historically have produced misery, war, need and poverty through oppressive totalitarian governments.

Super hedge fund manager Ray Dalio, the president of Bridgewater Associates, the very successful and largest hedge fund in America recently released a thoughtful and timely report stating that “capitalism is broken” - pointing to, among other things, the gross income disparity between high and low earners. Ray Dalio’s judgment of broken capitalism relates to his observation that the vast majority of wages going to the top 5% wage earners does not benefit the overall economy, destabilizes society and is destructive to capitalism.  The fact that a true-blue capitalist wrote the article should alert industrialists, globalists, bankers and all capitalists that perhaps “capitalism with American characteristics” has veered off its previously successful course.  Capitalism does work; but ravenous capitalism is indeed self-destructive.  The bounty of capitalism must be shared not only with its owners or investors, but also with its other “significant partners” – the nation’s workers.

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Interest-Rates

Wednesday, May 08, 2019

How Fed Interest Rate Cycles Exponentially Reduce Long Term Wealth Creation / Interest-Rates / Economic Theory

By: Dan_Amerman

The most historically reliable way to create long term wealth is the reinvestment of cash flows over time, as earnings are earned on earnings, which are earned on earnings.

Compound interest is the best known example, but the same principle of compounding cash flows is also the most powerful and stable source of wealth with the stocks and real estate over the long term as well.

Reinvested (and increasing) dividends are a more important and stable source of stock market wealth than price gains.  Reinvested (and increasing) net cash flows are the most stable and important source of wealth with real estate and REIT investments as well.

However, what was taken for granted for many decades - is no longer available. As a result of Federal Reserve policies, only a small fraction of the historically average power of this wealth building engine still remains. In this analysis we will examine the mathematical implications of publicly stated Fed intentions if there is another recession, and look at the extraordinary implications for investors.

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Economics

Friday, May 03, 2019

Universal Basic Income Would Be a Social and Economic Disaster / Economics / Economic Theory

By: Jared_Dillian

I am never going to retire. Oh sure, I say that now, but what about when I am 80? No. I will never stop working.

Every morning, I get out of bed when the alarm goes off, take a shower, put on dress clothes (a suit, usually), and drive 35 minutes to work in an office that I rent in an office building.

I write newsletters. I can just as easily do that on the couch, in a pair of gym shorts, with a cup of coffee. Why spend over an hour a day commuting and dealing with all the brain damage of putting on a suit and going to work?

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Economics

Friday, April 12, 2019

America Has a Monopoly Problem / Economics / Economic Theory

By: John_Mauldin

Without realizing it, we’ve become a nation of monopolies. A large and growing part of our economy is “owned” by a handful of companies that face little competition.

They have no incentive to deliver better products or to get more efficient. They simply rake in cash from people who have no choice but to hand it over.

This would be impossible if we had true capitalism.

Even if we admit some businesses are natural monopolies, most aren’t. Most of them found some non-capitalistic flaw to exploit.
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Economics

Wednesday, March 27, 2019

The Fed Broke This Economic Cycle—and It’s a Game Changer for Investors / Economics / Economic Theory

By: John_Mauldin

Here’s a quote from my friend Peter Boockvar that has drawn an enormous amount of interest:“We no longer have business cycles, we have credit cycles.”

Let’s cut that small but meaty sound bite into pieces. What do we mean by “business cycle,” exactly? Well, it looks something like this.

A growing economy peaks, contracts to a trough (what we call “recession”), recovers to enter prosperity, and hits a higher peak. Then the process repeats.

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Politics

Tuesday, February 19, 2019

Here’s Why The Left’s New Economic Policies Are Just Stupid / Politics / Economic Theory

By: Jared_Dillian

Somewhere in the last 30–40 years, we have become economically illiterate.

Elizabeth Warren wants wealth taxes that would impose asset forfeitures of 2–3% on households with more than $50 million in assets.

There are practical and legal problems with their implementation. But she wants to implement them anyway.

Alexandria Ocasio-Cortez wants a 70% income tax rate on incomes over $10 million. This would be the highest income tax rate in the OECD. And yet, it would affect only 16,000 households and only return marginal rates to historical levels, anyway.
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Economics

Thursday, February 14, 2019

Capitalism Isn’t Bad, It’s Just Broken / Economics / Economic Theory

By: John_Mauldin

The Soviet Union’s collapse ended the socialism vs. capitalism argument.

Semi-free markets spread through Eastern Europe. Collectivist economies everywhere began turning free. Capitalism seemingly won.

Even communist China adopted a form of free market capitalism. Although, as they say, it has “Chinese characteristics.”

With all its faults and problems, capitalism generated the greatest accumulation of wealth in human history. It has freed millions of people from abject poverty.

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Economics

Wednesday, July 11, 2018

Yield Curve Inversion a Remarkably Accurate Warning Indicator For Economic & Market Peril / Economics / Economic Theory

By: Dan_Amerman

Would you have appreciated a single number that could have given you a clear and unmistakable warning before the tech stock bubble collapsed? How about an unequivocal mathematical warning in 2006 that major financial trouble was on the way, well before the problems of 2007 and 2008?

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Economics

Sunday, June 17, 2018

The Corruption of Capitalism / Economics / Economic Theory

By: Harry_Dent

I call it “killing the golden goose.”

David Stockman, a speaker at this year’s Irrational Economic Summit, calls it “the corruption of capitalism.”

Andrew O’Hehir, a contributor for Salon, recently interviewed Yanis Varoufakis about the story behind Greece’s financial crash. He was the prime minister during the height of the Greek crisis, elected in early 2015 in response to the Greece debt default crisis.

And in July of 2015, Varoufakis resigned after the ECB (European Central Bank) and IMF (International Monetary Fund) forced a bailout package that went against what he and his SYRIZA party had promised the Greek people.

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Economics

Wednesday, June 06, 2018

Who Finances America's Borrowing? Recession Indicator for Independent Thinkers Part 2 / Economics / Economic Theory

By: F_F_Wiley

Have you ever lacked for information about America’s various debt burdens? Twenty-odd years ago, if you paid any attention to debt, you might have relied on original source data to stay current. But the times they are-a-changing, aren’t they? In today’s high-tech, data-rich world, anyone who follows financial news should know roughly where we stand with our borrowings. Whether you’re a mainstream media addict or a blog junkie, your daily dose includes more commentary than ever before on which types of borrowers are increasing their leverage and by how much.

For example, don’t bother to sit down and ready yourself before reading the following observations about debt ratios, they should come as no big surprise (but note that we’re comparing debt to the highest prior GDP reading, or peak GDP):

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Economics

Monday, May 21, 2018

5 Effects Of Currency Fluctuations On The Economy / Economics / Economic Theory

By: Submissions

Currency fluctuations are some of the most analyzed aspects of any economy. Slight changes in the value of a currency can send reverberations across the economy. In fact, some currency fluctuations levels can have drastic effects on the health of an economy. Markets like forex and other trading sectors are heavily reliant on how strong or weak a particular currency is. The strength of a currency can also determine how a particular country handles international trade. Indeed, five of the strongest currencies in the world are so influential in the world that many aspects of the global economy are almost tied to them. There are several effects of fluctuations of currencies. Below are some of the most important.

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Economics

Monday, February 05, 2018

The Meaning of Economic Philosophy / Economics / Economic Theory

By: Submissions

Dr. Gero Jenner writes:In ‘The Open Society and its Enemies’, Karl Popper strongly defended the position that major interventions in the economy, especially when ideologically motivated, are usually disastrous and should therefore be avoided. Popper wrote his famous work towards the end of the thirties. On the one hand, he saw the devastating effects of textbook-based economies, where the working masses were tied into an economic strait-jacket by a Politburo, on the other hand, Popper was well aware of the dangers of that kind of capitalism, which tended to place the interests of a few monopolists above those of the general population. Against such aberrations, Popper propagated what he called ’social engineering‘, namely, a model of small steps, where every previous economic intervention is painstakingly scrutinized in view of its effects before any further action is embarked upon. Popper seemed to regard the economy in the same way as a highly complex machinery which a layman cannot tackle without causing the greatest damage.

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Economics

Tuesday, November 28, 2017

Why a Corporate Tax Cut Won’t Boost Economic Growth / Economics / Economic Theory

By: John_Mauldin

BY PATRICK WATSON : The House and Senate are considering tax legislation that will add $1.5 trillion to annual deficits over the next 10 years, according to their own numbers.

This is okay, we're told, because the tax cuts will stoke economic growth, delivering added tax revenue that offsets the rate reductions.

Note the bigger point here.

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Economics

Thursday, September 28, 2017

The Koyaanisqatsi Economy / Economics / Economic Theory

By: Raul_I_Meijer

The film Koyaanisqatsi was released in 1982. The title means ‘life out of balance’ in the language of the Hopi, a Native American tribe who live(d) mainly in what is now north-east Arizona. It is directed by Godfrey Reggio with music by Philip Glass and cinematography by Ron Fricke. There are no actors, and no dialogue. Philip Glass’s music underlies a series of film fragments that contrast the beauty of American nature with the noise and pollution mankind has added to it. Wikipedia:

The film consists primarily of slow motion and time-lapse footage of cities and many natural landscapes across the United States. The visual tone poem contains neither dialogue nor a vocalized narration: its tone is set by the juxtaposition of images and music. Reggio explained the lack of dialogue by stating “it’s not for lack of love of the language that these films have no words. It’s because, from my point of view, our language is in a state of vast humiliation. It no longer describes the world in which we live.”

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Stock-Markets

Monday, July 17, 2017

Too Much Capital / Stock-Markets / Economic Theory

By: Submissions

Henri Schneider writes: Truisms and banalities: Investors must be able to assess the productivity of their capital. This is done by comparing returns to interest rates. But what, if all interest rates are rigged? What if they are artificially lower than they should be? Then, not only too much capital is invested, but it is invested in the wrong places. Even more pressing: what if there is simply too much capital in the financial system?

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Economics

Monday, July 17, 2017

Why Jobs Growth No Longer Induces Wage Growth in America / Economics / Economic Theory

By: Dan_Steinbock

Or The Eclipse of the Phillips Curve in America
While the Fed’s continued tightening may suppress growth in emerging economies, US labor market may not be as strong as recent reports suggest.

US experienced strong job growth in June, when the economy created 222,000 net new jobs, which exceeded analyst expectations. At the Federal Reserve, the jobs report boosted confidence US economy is on the track for new rate hikes in the fall.
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Economics

Thursday, February 09, 2017

Retroeconomics – Global Challenge for Economic Development / Economics / Economic Theory

By: Submissions

Vladimer Papava writes: In many and mostly poor countries, their economies have been using obsolete technologies.  As a result, all of these countries do not have a real chance to be successful in any long-term economic growth.  The usage of obsolete technologies by any company can create the illusion that this or that business is prosperous.  At the level of international competition, however, it is obvious that these types of companies do not have any chance for success.

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Economics

Monday, February 06, 2017

Why the Fed Gets Economics Wrong / Economics / Economic Theory

By: John_Mauldin

Economics (in general) is populated at its core by a lot of bad ideas. And these bad ideas have come to be accepted as the correct interpretation of how the economy functions and thus have become the basis for economic policy. This news shouldn’t come as a shock since I’ve written about this many times over the years in Thoughts from the Frontline.

Economics is an enormously useful tool for those of us who are trying to understand business and investments and government policy. But to paraphrase Dirty Harry, “An economist has to know his limitations.”

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