Ludwig von Mises--why you should know him

The great Austrian School Economist, Ludwig von Mises wrote, "There is no means of avoiding the final collapse of a boom brought about by credit expansion. The question is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."

In other words, Mises, unlike the followers of economist John Maynard Keynes, is of the opinion that governments (and central banks) should stop trying to interfere with market forces. Government intervention via fiscal and monetary policy cannot "control" markets, and cannot prevent booms or busts--they occur naturally, and hence, should be allowed to run their course. All intervention will do is compound and exacerbate said credit expansions and subsequent busts. In other words, they not only create bubbles--they make them bigger, and when they pop, they create bigger busts.

Obama, as bright and insightful as he is, is naturally bending to human nature--the consensus is to solve this huge private, corporation, and institutional debt crisis by replacing it with much larger government debt. In other words, we are compounding a billion dollar debt problem into a trillion dollar debt problem.

While stimulative short-term (public and private works, for instance), it is detrimental long-term, as our generation and future generations are saddled with huge debts and high taxation. Despite cosmetic rhetoric, we are merely deferring out debts into the future, letting them compound at an alarming rate.

The resulting inflation reduces that debt amount into the future, but inflation also punishes savers and investors. Eventually, investors will demand higher rates of return. The combination of capital flooding the markets, and said capital chasing fewer resources (commodities, crops, oil, basic metals, and precious metals), will also cause interest rates to rise.

Inflation is the furthest worry of policymakers and the general public right now, but it will eventually rear its ugly head.

In the immortal words of the recently mortal Milton Friedman: "Inflation is taxation without legislation."

When will markets recover?

I had a steak dinner with a former colleague I hadn't seen in years. He is doing well and it was nice to see him with his daughter, an adorable 4 year old. His methods of raising her resonated with me--he showered her with love, but when she got out of line, he wouldn't respond until she apologized and they exchanged hugs. No entitlement there...

Speaking of entitlement, does the honest, hard-working American worker deserve to foot the bill for government-subsidized bailouts of bad loans, badly-run financial institutions, and poor fiscal policies encouraging rampant speculative bubbles and busts?

Is there something more insidiuous at play? Many conspiracy theorists claim there is in the form of a Working Group formed by Ronald Reagan back in 1988, originally created to prevent a stock market collapse. Coined as PPT by a Washington Post reporter, this insider group of the nation's most influential financial leaders has long been rumored to be manipulating financial markets--for the benefit of market participants. But is it beneficial to the greater good--or just an elite few? Are they lining the pockets of their friends at the major banks? I won't go into it--it's easily Google-able, but what is surprising is that officials, including past Fed Chairmen, admit publicly it is their charter to do whatever is necessary to avert a financial collapse. Yet, when pressed specifically to address recent illogical market movements, they experience a sudden amnesia on what exactly it is they do to prevent said collapses. The normal defense is the market experiences corrections, but the frequency of these patterns is suggestive of market intervention.

Are these actions more harmful than helpful? Some very astute financier friends of mine have made me aware of these interventions, and their inclination is that these interventions are not only possibly illegal and immoral, they are also counterproductive--only delaying and exaggerating the market downturns. Financial manipulation is not only unethical, but it also doesn't work long-term. The Hunt brothers found out the hard way in their attempt to corner the silver market in the 70's. Let's hope this recent alleged intervention by the SEC, CFTC, Treasury Department, and more importantly, the Fed, doesn't turn this market "correction" into a rout. The last thing we need is a loss of confidence in the markets--and that the average Joe doesn't have a chance. Maybe that's why casinos are gaining in popularity.

I hope everyone had a happy Father's Day.