Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Gold & Silver Begin New Advancing Cycle Phase - 6th May 21
Vaccine Economic Boom and Bust - 6th May 21
USDX, Gold Miners: The Lion and the Jackals - 6th May 21
What If You Turn Off Your PC During Windows Update? Stuck on Automatic Repair Nightmare! - 6th May 21
4 Insurance Policies You Should Consider Buying - 6th May 21
Fed Taper Smoke and Mirrors - 5th May 21
Global Economic Recovery 2021 and the Dark Legacies of Smoot-Hawley - 5th May 21
Utility Stocks Continue To Rally – Sending A Warning Signal Yet? - 5th May 21
ROIMAX Trading Platform Review - 5th May 21
Gas and Electricity Price Trends so far in 2021 for the United Kingdom - 5th May 21
Crypto Bubble Mania Free Money GPU Mining With NiceHash Continues... - 4th May 21
Stock Market SPX Short-term Correction - 4th May 21
Gold & Silver Wait Their Turn to Ride the Inflationary Wave - 4th May 21
Gold Can’t Wait to Fall – Even Without USDX’s Help - 4th May 21
Stock Market Investor Psychology: Here are 2 Rare Traits Now on Display - 4th May 21
Sheffield Peoples Referendum May 6th Local Elections 2021 - Vote for Committee Decision's or Dictatorship - 4th May 21
AlphaLive Brings Out Latest Trading App for Android - 4th May 21
India Covid-19 Apocalypse Heralds Catastrophe for Pakistan & Bangladesh, Covid in Italy August 2019! - 3rd May 21
Why Ryzen PBO Overclock is Better than ALL Core Under Volting - 5950x, 5900x, 5800x, 5600x Despite Benchmarks - 3rd May 21
MMT: Medieval Monetary Theory - 3rd May 21
Magical Flowering Budgies Bird of Paradise Indoor Grape Vine Flying Fun in VR 3D 180 UK - 3rd May 21
Last Chance to GET FREE Money Crypto Mining with Your Desktop PC - 2nd May 21
Will Powell Lull Gold Bulls to Sweet Sleep? - 2nd May 21
Stock Market Enough Consolidation Already! - 2nd May 21
Inflation or Deflation? (Not a silly question…) - 2nd May 21
What Are The Requirements For Applying For A Payday Loan Online? - 2nd May 21
How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part1 - 1st May 21
INDIA COVID APOCALYPSE - 1st May 21
Are Technicals Pointing to New Gold Price Rally? - 1st May 21
US Dollar Index: Subtle Changes, Remarkable Outcomes - 1st May 21
Stock Market Correction Time Window - 30th Apr 21
Stock Market "Fastest Jump Since 2007": How Leveraged Investors are Courting "Doom" - 30th Apr 21
Three Reasons Why Waiting for "Cheaper Silver" Doesn't Make Cents - 30th Apr 21
Want To Invest In US Real Estate Market But Don’t Have The Down Payment? - 30th Apr 21
King Zuckerberg Tech Companies to Set up their own Governments! - 29th Apr 21
Silver Price Enters Acceleration Phase - 29th Apr 21
Financial Stocks Sector Appears Ready To Run Higher - 29th Apr 21
Stock Market Leverage Reaches New All-Time Highs As The Excess Phase Rally Continues - 29th Apr 21
Get Ready for the Fourth U.S. Central Bank - 29th Apr 21
Gold Mining Stock: Were Upswings Just an Exhausting Sprint? - 29th Apr 21
AI Tech Stocks Lead the Bull Market Charge - 28th Apr 21
AMD Ryzen Overclocking Guide - 5900x, 5950x, 5600x PPT, TDC, EDC, How to Best Settings Beyond PBO - 28th Apr 21
Stocks Bear Market / Crash Indicator - 28th Apr 21
No Upsetting the Apple Cart in Stocks or Gold - 28th Apr 21
Is The Covaids Insanity Actually Getting Worse? - 28th Apr 21
Dogecoin to the Moon! The Signs are Everywhere, but few will Heed them - 28th Apr 21
SPX Indicators Flashing Stock Market Caution - 28th Apr 21
Gold Prices – Don’t Get Too Excited - 28th Apr 21
6 Challenges Contract Managers Face When Handling Contractual Agreements - 28th Apr 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Invisible Hand of Capitalism

Economics / Economic Theory Apr 11, 2020 - 05:04 PM GMT

By: Jared_Dillian

Economics

The Fed is more or less doing modern monentary theory (MMT) as we speak.

But rather than giving printed dollars to the Treasury, it’s using the bond market as a conduit. Trillions in bond issuance, financed by trillions of dollars of printed money.

Don’t get me started on the pathetic levels of assistance we are offering American citizens in favor of financially irresponsible corporations.

What we are practicing here is not capitalism. In order for capitalism to work, we must allow corporations to fail. The bankruptcy process works just fine. Sure, shareholders and creditors would experience losses, and this would teach them to be more careful next time.


It is the down part of the cycle that is most instructive. Yet we never get to experience it.

The problem is bigger than just Trump, though. In times like this, there is huge societal momentum to do something. Thomas Massie, the one congressman who more or less favored doing nothing, was tarred and feathered. The word laissez-faire hasn’t been uttered in years.

Tough time to be a libertarian or a hard assets investor, though that may be changing soon.

The Great Experiment

MMT critics have said all along that if the Fed financed government expenditures, we’d end up with Zimbabwe-style hyperinflation. I guess we’re going to find out!

Gold’s performance has been underwhelming so far, though that may be starting to change.

I’ve had to remind many people over that past few weeks that gold typically outperforms after a crisis, not during.

In any case, if gold is going to work, now is the time. We’re looking at:

  • Unlimited quantitative easing (QE)
  • Negative interest rates (this is coming)
  • Unlimited deficits
  • Direct monetization
  • Plus, general COVID-19 pandemonium

I haven’t seen any takes on why gold would go down in this environment, except from the Elliott Wave guys. They think we are headed into a deflationary black hole and that gold is going to zero.

Meanwhile, the hyperinflation experienced in Weimar Germany, Venezuela, and Zimbabwe would tell us that we are not headed into a deflationary black hole.

One last point about gold. If you run correlations on gold with various stuff, it turns out that it has the highest correlation to budget deficits. Run the numbers yourself and see.

In recent history, gold skyrocketed to $1,900/ounce with the post-global financial crisis Obama deficits. And it tanked once the fiscally responsible Tea Party Republicans formed an effective opposition.

Of course, the Republicans aren’t fiscally responsible anymore.

The Silver Lining

Socialism is creeping back into the national conversation, so I thought I would comment on how well things are going. Really, they are.

IKEA is making masks. Hundreds of companies are making masks.

Trump is not directing this activity. There is no mask czar. There is no central planning. This is all happening spontaneously. Some might call this spontaneous order.

It is the invisible hand of capitalism. Each of us working for his own gain, benefiting us all.

If Trump really wanted to screw this up, he would appoint a mask czar, and attempt to dictate the activities of millions of people. But central planning doesn’t work. It doesn’t work in good times, and it doesn’t work in bad times. And emergencies are not a justification for it.

The doctors will get the supplies they need, in time, and in the right place. The invisible hand will ensure it happens.

Trump’s only job here is to provide inspiration. You can judge for yourself whether he is effective at that.

So while I am a natural-born pessimist, I do not believe that the worst-case scenario will be realized. In fact, I think that it is very, very hard to be short human ingenuity.

For some reason, most people are utterly convinced that our efforts to “flatten the curve” of coronavirus infections will fail. And for sure, there are parts of the country where people are taking the coronavirus less seriously.

But the track record of those who have bet against this country is very, very poor. I am old enough to have a pretty long memory of big failures in markets and governance.

I take to heart the old Winston Churchill quote, which he may or may not have actually said: “Americans can be relied upon to do the right thing after exhausting all other possibilities.”

Get Contrarian Investment Ideas from a Wall Street Veteran

Jared Dillian writes The 10th Mana free weekly newsletter for contrarian investorsEvery Thursday, he delivers a torpedo of incisive commentary that crushes consensus thinking and exposes the true workings of “Mr. Market.”  Subscribe now!

By Jared Dillian

© 2020 Copyright Jared Dillian - 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.


© 2005-2019 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