Categories
economics

Another great protest coin

Another “hard times” token, this one in silver.

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“No pyramid can endure when the base collapses… So let it fall.” I continue to be impressed with the artwork and symbolism in these things, they are miniature works of art in their own right. I ordered some of the Amero silver coins tonight, what do you think?

 

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The eagle is a little ominous, but still striking. I also ordered some others as well. I really do like the messages in the others I’ve posted, I might start collecting protest coins…

Available from here.

Categories
economics

"End the Fed" and other rebel coins

The groups I belong to on Facebook (Libertarian party, Mises Institute, etc.) land me on some interesting ads lists. One caught my eye, it is a group minting silver coins that say “End the Fed” on the front and a chart showing the devaluation of the dollar on the obverse.They are 1 oz. silver coins and look quite good. I was struck at the quality of them and did a bit of googling. It turns out they aren’t the only “hard money” group out there printing their own coinage. Check out these hard times tokens.

coin.jpgTell me that isn’t some anger on those! Using puppet masters on the front and using the slogan “Real money doesn’t grow on weeds. Not one Federal Reserve Dollar” on the back pretty much sums up that group’s feelings. I can’t say I’m unsympathetic to the cause, and I’m mightily impressed with their coinage to boot.

One of the more stunning coins I came across was the “Amero” currency. I was unaware that there was an idea that would have had us adopting a single currency across all of North America. There were a lot of conspiracy theories out there, people going crazy over losing our sovereignty, etc. As far as i can tell, all that is dead now. Personally, I wouldn’t care if we did have a unified currency as long as it was made like these “concept” coins were, in copper, silver, and gold denominations. If we agreed on using hard currency like this, it wouldn’t matter where the money was from, or even what was printed on it. Plus, who wouldn’t love carrying these around in their pocket?

 

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Go ahead, tell me those aren’t beautiful coins, I dare you! I still think the days of us going to a hard currency are a ways off. I’m not sure if it is inevitable or not, part of me wonders how far the dollar will devalue before there is either a crash or revaluation, or both. I’d welcome hard currency, especially with such talented artists out there making the coins!

 

Categories
economics

Gold

I’ve been listening to some economics lectures made back in the 70’s by Murray Rothbard. Incidentally, iTunes U may be the most underrated aspect of the itunes revolution. There’s over 100,000 lectures from various colleges and universities up there, and they’re all free. You can hear some real heavyweights on there, and from some of the best schools out there.

Anyway, Rothbard was definitely of the “hard money” school of thought. Listening to his lecture on money and banking reminded me of the Monty Python skit that had people living public housing built entirely out of magic. Everything was fine until people stopped believing in it, then it would crumble around them. The fractional reserve banking system would implode overnight if everyone wanted their money tomorrow. Our currency has been, and continues to be, devalued by the government for political reasons. Fiat currency only has value as long as people trust it.

The other thing that has struck me about this lecture is the realization that for most of history, the government did not control money. Sure, they issued it, but the people traded in gold and silver and the value of the money was determined through market forces. It wasn’t until FDR confiscated gold bullion that government fiat money became the only game in town. So many people, and I was one myself, simply can’t grasp the concept of money operating outside of government control. It can be done, it had been for most of history.

Of course, right now, we do trust government money, and we are happy enough with our money in the bank. I can see why some people don’t though. And I think it’s plausible that that trust will erode over time if things continue the way they are now.

I have this sudden urge to buy gold and silver, even though it’s pretty expensive right now….

Categories
economics

Why short selling is important

My friend David essentially asked me how short selling could be seen as anything but a greedy gambler’s move. If you’re not familiar with the concept, the idea is pretty simple. We all know you can make money buying low and selling high. “Short” selling does exactly the same thing, but in the opposite order. A short sale starts when you sell something, and then you buy it later at a lower price. This works because the “sale” is really a promise to sell something at a later date. You get the money now, and deliver later.

In recent times, short selling has been demonized and blamed for companies failing. There have been more than a few attempts to outlaw certain forms of short selling. Contrary to popular belief, not all short sales are born of greed, and there is a good argument to allow any type of short selling.

The primary use of short sales in the financial world at large is to hedge against uncertainty and mitigate risk. The classic example is a wheat farmer. Most of us assume that a wheat farmer makes wheat, and then sells it for whatever he can get for it. Things might have worked that way once upon a time, but only a fool would do that on a regular basis these days. A much better way of doing business is to calculate your yield, make a guess at what it will sell for, and then take up a short position a little ways below that.

Why? So you can make plans. If it costs you $30 a bushel to plant and harvest the wheat, you could simply pray that it sells for more than that come harvest time. Of course, if the market dips right then, you’re screwed. A far more prudent thing to do would be to take out options to short wheat at $30 a bushel. That way, if wheat sells for more than $30, you will turn a profit and will lose the premium you paid for the options which is usually fairly low. On the other hand, if it sells for less, you can still sell your harvest for whatever you can get and the options will trigger to make up the difference. You can at least break even.

The same thing can be done for just about any commodity, not just for the producers, but also the consumers. If you are Kellogs or General Mills, locking in a price for wheat will allow you to make all the plans that businesses have to make without the worrying about the vagaries of the market. It can also be done with stocks for funds etc. In all cases, the idea is to mitigate risk at a small cost. Certainly a useful thing.

I think there is an even more important reason for short selling. It’s a little “deeper” and involves economic as opposed to financial reasoning. Marketplaces can be seen as information aggregators. Looking at a share price will tell you a lot about a company. Investors have built into the price both the current, and what they think the future earnings of that company will be. The time to buy a stock is when it’s future is bright and the market has not adjusted to it yet. That isn’t easy to spot, it takes lots of research and more than a little luck to do it consistently.

When not to buy a stock is just as important as when to buy it. People that are shorting the stock believe that the price will go down. That is valuable information. Just as a rising stock price usually means that investors think the company will do well, people that short a stock tell you that someone thinks it isn’t going to do well. Information both good and bad needs to be available to investors in order to make the best decisions.

Most of the companies that screamed bloody murder about short selling were essentially trying to shoot the messenger. They were worried about short sellers “artificially” lowering the value of the stock. In reality, short sellers allow prices to adjust more quickly. If investors overshoot on the way down, there will be money to be had going back up.

Sort selling isn’t really part of our every day life, so it can be a bit bewildering, but it is an important part of well functioning financial markets. The market will give you plenty of information if it is allowed to.

Categories
economics politics

This can’t be good

Via Bloomberg, the US government now pays more for credit than several other bonds. This means that investors see Berkshire Hathaway, Lowe’s, Proctor and Gamble, and Johnson and Johnson as safer bets fro getting their money back than the US government. Think abut that for a moment. The nation’s debt is starting to loom, and the latest vote has added an enormous burden to it over time. Or at least that’s how the financial world sees it. The US is in danger of losing it’s AAA bond rating from Moody’s. Treasuries may no longer be the go-to conservative investment.

I’m really hoping that this will cause some sort of fiscal restraint to enter into the political mindset before there’s a real problem. I’m not optimistic though. As long as politicians can promise benefits now and payments later, that is what they will do.

Categories
economics

If you’re living high on that cheap credit hog…

… don’t look for cure from the hair of the dog.

That’s one of the many gems in the best, and possibly funniest, econ video I’ve seen in a while. A former prof. of mine collaborated on “Fear the Boom and Bust.” It’s an amazing rap on two competing economic viewpoints. They are also the two that seem most appropriate to the current economic situation. I give “mad props” to them for bringing up concepts like how time and interest coordinate prices, C+I+G=Y, the circular flow of money, and even sticky wages. Some of my favorite moments actually occur before the song starts. “Freddie! Party at the Fed!” The “General Theory…” in place of Gideon’s Bible was a nice touch too. Watch it and learn:-)

Categories
economics politics

Political economy Pt.1

Back in the mid 70’s, Gordon Tullock and James Buchanan wrote “The Calculus of Consent.” Its subtitle is “The Logical Foundations of Constitutional Democracy.” This book, along with his previous writings, earned Buchanan the Nobel Prize in Economics for launching the study of political economy.

People have all sorts of ideas about how the political process works, and even more opinions about how it should work. Political economy is the study of how politics actually works. As it turns out, politicians aren’t all that different from people in any other job. On a day to day basis, they will do whatever allows them to keep their job and get them promoted. What these things are will vary depending on the type of government and the times they live in, but the general concept holds.

So why call the subject political economy? Why not just call it political science or just political studies? Another name for microeconomics is rational choice theory. By putting the label of “economy” on it, we emphasize the rationality of the actors as opposed to the ideology of them.

Political economy essentially tells us that when faced with a decision, politicians will tend to make the choice that benefits them the most. In this governmental system, politicians need votes, but it usually pays for them to target specific voting blocks. Political economy also has a lot to tell us about why bills tend to look the way they do. I’ll talk more about political coalitions and bill formations in a bit, the main idea I want to get across is that politics works the way it does because of rational choices given the incentives that they face. People’s frustrations over politicians stem much more from the system than from individual politicians. It isn’t a matter of avoiding evil ones and electing “good” ones, the system makes politicians what they are. In an ideal system, it wouldn’t matter much who was elected, but that’s not the system we have.

I think the next installment will be about voting blocks and the nature of power in the political process.

Categories
economics freedom politics

A speech I wish I could hear today

This was a speech given on national television, can you guess who it was? What are the odds that a speech like this would be made today?

“This idea that government was beholden to the people, that it had no other source of power is still the newest, most unique idea in all the long history of man’s relation to man. This is the issue of this election: Whether we believe in our capacity for self-government or whether we abandon the American Revolution and confess that a little intellectual elite in a far-distant capital can plan our lives for us better than we can plan them ourselves.

You and I are told we must choose between a left or right, but I suggest there is no such thing as a left or right. There is only an up or down. Up to man’s age-old dream — the maximum of individual freedom consistent with order — or down to the ant heap of totalitarianism. Regardless of their sincerity, their humanitarian motives, those who would sacrifice freedom for security have embarked on this downward path. Plutarch warned, “The real destroyer of the liberties of the people is he who spreads among them bounties, donations and benefits.”

The Founding Fathers knew a government can’t control the economy without controlling people. And they knew when a government sets out to do that, it must use force and coercion to achieve its purpose.”

It’s an excellent point and I think I’ll use it as a launching point for a couple of posts on political economy. That is, the rational choices people make in the world of politics. Those will follow in the next couple of weeks.

Categories
economics politics

Economics vs politics

I recently caught up with a friend of mine that I had originally met in Yemen. She’s the rare breed of person that really enjoys my econ writings and she’s encouraging me to keep at it. She’s also encouraging me to apply to the State department, but more on that later…

Here’s the thing, I haven’t been writing much recently, and it feels nice not being so negative all the time. I had originally thought that this particular administration was the root cause of all of my angst, but that really isn’t fair. I was just as upset with Dubya’s reign, and I’m sure that I will be as upset with anyone else that comes and would have been as upset with any previous administration. I have to keep reminding myself that administrations do what they do not for economic reasons, but for political ones. I also have to keep reminding myself that good economic policies won’t benefit any particular group (even if the population as a whole benefits) and so will never gain any political traction.

Politics is, and will always be, a trading of privileges and powers. If you spend any time at all wallowing in it and have a conscience you will get angry. The only politicians I could ever hope to support and be positive about are ones that advocate the lessening of government influence and it’s unlikely that anyone like that will be in the news any time soon.

So I will continue to write about economics, but I am going to try really hard not to get sucked into the political end of things. That’s not a promise, but I really am going to try…

Categories
economics

More insurance BS

I informed my insurance company of my new address. I didn’t expect any problems, I stayed inside the state after all. Well, today I got a letter informing me that I have moved outside of their coverage area. What is their coverage area? According to the letter they sent me, it is, “… (the state of) Virginia, excluding the city of Fairfax, the town of Vienna, and the area east of Route 123.” WTF? How arbitrary is that? I am being directed towards another blue cross organization to continue my coverage.

This is exactly the kind of nonsense that helps keep costs high. It’s bad enough that insurance companies can’t compete across stat lines, but inside a state? Really? What is the possible benefit to me of limiting me to certain companies? The answer of course is that there isn’t one. I’m sure that what is happening is that there are benefits that are mandated in this area that my previous company didn’t want to offer. Even though I am guaranteed coverage with the new company and I don’t need to undergo an exam, I am willing to bet that the new coverage will be more expensive than my previous one. Grrrrr…

Why is our insurance market like this? Better yet, why is the federal government trying to fix problems without addressing this one? Why don’t the feds actually use the commerce clause the way it was intended and make the market for insurance like any other market? The answer is money of course, insurance companies will fight that move tooth and nail. The current legislation is going to pad their pockets even more. Free us from this disjointed and idiotic system!!!!!