Economic Theory and Too Big to Fail Corporations

By: Michal_Matovcik

Some thoughts for friday. Week before the GM is stamped finally “Too Big To Fail”

• Japan’s Economy Shrank 15.2% last quarter. Therefore, the U.S. follows japanese 20 year monetary  plan precisely..
  
• history shows us that the sectors that led the downturn are never the ones to emerge as leaders in the next sustainable bull market. Do I need to ask which sectors jumped the most? Jumped also after massive stock dillution?
• there is no such thing as a shortage of demand. In fact, individuals’ demand is unlimited. What is scarce is not demand but rather individuals’ ability to fund the demand. For instance, an individual might have a demand for a Mercedes 600, but only have the funding for a bicycle. In order to be able to fund a Mercedes, our individual must produce enough goods to enable him to secure the car. A dramatic lowering of interest rates and massive government spending cannot improve the bottom line of the economy (the individual’s ability to produce more and better-quality goods). Such policies can only redistribute real wealth from wealth producers to wealth consumers. Frank Shostak
• without the expansion of the pool of real savings it is not possible to make banks expand credit. The only credit that they can expand is “out of thin air.” This type of credit can only further weaken the bottom line of the economy.
• there is need to emphasize the truism that a government can spend or invest only what it takes away from its citizens and that its additional spending and investment curtails the citizens’ spending and investment to the full extent of its quantity. Mises
• government is not a wealth generator — it is a wealth consumer. The government is completely dependent on the wealth of the private sector. Hence the more government spends, the less is left for wealth generators and the weaker the economy gets.
• keep in mind that deflation is nothing more than money regaining previously lost value and the re-aligning of the economic fundamentals into lines of sustainable production. What Bernanke and company are saying is that they are going to do everything they can to prevent economic recover — all in the name of putting the economy back on the road to recovery. This is not economics, folks. It is madness. William Anderson
• if we look at normal recessions, where the country is not at war, is on the gold standard, and where Keynesian policy is not dominant, we find a much different story. For example, the recessions of 1953–1954, 1957–1958, and 1960–1961 were short in duration, shallow in depth, and followed by robust growth. In terms of real GDP, economic growth briefly turned negative by one percent in the first and third recessions and by 2.5% in the second recession, which was the briefest of the three. If we look at the three recessions in terms of real PPR (per producer) we find that the first recession did not produce an annual decrease, but an increase of 2.7% in 1954, and more than a 5% increase in 1955. The second recession shows an annual drop of 2% in 1958 and a 6% increase in 1959. The final recession shows an annual drop of 2% in 1960, an increase of 2% in 1961, and an increase of 4.5% in the year following the recession.

And now one recipe from the Austrian school by Mike Thornton, you don’t have to like it, but it’s the only rational way out of digging deeper in hole.
1.    Allow liquidation of bankrupt firms and debt (no bailouts)
2.    Allow prices to fall (no monetary inflation)
3.    Do not prop up employment (no stimulus)
4.    Give no assurances against failure (no nationalizations of GSEs or expanding FDIC coverage)
5.    Do not subsidize unemployment (no extending of unemployment insurance)
6.    Do not discourage “hoarding,” i.e., saving

Then we can wait for the true recovery. True. Stop living in fairytale. Otherwise the downturn will last very long and inflation will rob you during your sleep everyday.

Good luck traders,

by Michal Matovcik
www.absolutideas.com

I will not tell you where you can make a living, I could, but everyone has to find his own way to become wealthy. When you find it, you will be a lot happier, because you made it, not me, you will find the way how to be independent financially and I will feed your brain with all kinds of brain meal.  The basic motivation must be hunger for knowledge and other things will come up. After a week? Forget about it, there are other websites which claim they can make wise and wealthy investor in a short time. My basic intention to start absolutideas were my dear friends, who suffered big losses during the crisis years 2007-2008. I saw it coming, I also wrote about it but sometimes it is very hard to be honest and take responsible actions, although it only means to protect all the family wealth and no interesting yields for some time. Want to gain some stock market, forex markets, commodities insights? You will have the opportunity here. So don’t waste your expensive time in “about us” …

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