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| Last Updated: Oct 16th, 2008 - 12:13:55 |
Newsletters
:
2008 Newsletters
:
12 September 2008
Thought for the Day
The usefulness of any theory is demonstrated by its predictive value. In Physics we conduct careful measurements during our experiments and develop a theory complete with graphs and equations to explain what we observe. If we are right then we can plug certain values into our equations and the answers should tell us what will happen in the REAL world. If we get our answers wrong we adjust our theory or develop a new one and keep going until our theory produces correct results. This is called creating a model of the REAL world. If we put our equations into a computer then it is called a computer model. No mystery there.
Economists do not work this way! Their predictions produced by their computer models are completely wrong but they just keep on doing the same thing. Is this a sign of craziness – or what?
*** *** ***
In our newsletter on the 16th of November 2007 I had this to say:
“The evidence is now overwhelmingly against the Labour government and their ideas of more bureaucracy (we now have one health bureaucrat per hospital bed) and central planning of the economy. Not to mention taxes!”
“Things will get worse next year as Labour's policies work through the system!”
*** *** ***
In December 2007 the Reserve Bank had this to say:
“Overall, we project GDP growth to ease from the current annual average rate of about 3 percent to a sub-trend rate of 2.5 percent for most of the remainder of the projection (about two years).”
*** *** ***
NOW in September 2008 the Reserve Bank had this to say:
“Reflecting fairly broad-based weakness across most sectors of the economy, GDP contracted in the March quarter of this year. Partial activity indicators and forward-looking measures suggest this was repeated in the June and September quarters. Economic activity is expected to fall by a total of 0.8 percent over the first three quarters of 2008.”
*** *** ***
Last December the Reserve Bank predicts growth of 2.5% and the very next month (January this year) the country drops into a recession which is still going strong 9 months later. (Even when the money supply is increasing at around 8% during this time!)
So much for the usefulness of the Reserve Bank models of the economy. Immediately prior to the biggest bust in ages the Reserve Bank predicted a steady 2.5% growth rate. Since that moment we have been shrinking at about 1% per annum - a disastrous difference.
It is quite clear that the economic modeling systems that our leading economists use to guide the economy through troubled times are hopelessly astray. The interesting thing is that this has happened before and will happen again and they will continue to make their predictions and prognostications about the economy with the utmost gravitas and be hopelessly wrong – just when it is most important to be right.
The concept of the steady state Keynesian model is great - if you don't relate to the REAL world. I have a theory which explains where they are going wrong but it will take a bit of space and time to set it out in full. So I will leave that for another time.
However theory doesn’t matter much. It is very obvious that the current theory believed by the majority of economists is hopelessly wrong. How else could their predictions be so far astray? Are they proposing to fix their model? Or perhaps recast their theory? Not on your Nellie. They will carry on making the same predictions as before - NOT USEFUL ONES.
Sep 11, 2008, 16:47
Newsletters
:
2008 Newsletters
:
12 September 2008
U.S. Unveils Takeover of Two Mortgage Giants
For those of you who still think that SOEs are a good thing I suggest that you have a good look at two big Government Sponsored Enterprises (GSEs) in the United States of America.
A combination of political expediency and moral hazard will always subvert governments ambitions into the private sector. Witness Air New Zealand where the Labour government fiddled while Qantas and Singapore Air tried to buy into Air New Zealand and then when political maneuvering killed Ansett Labour came to the rescue with nearly one billion dollars of OUR money.
Well the two GSEs in the USA are Fannie Mae and Freddie Mac and the money men are now working with the politicians to fix the problem they created all those years ago.
Pity the poor tax-payer.
Sep 12, 2008, 13:17
Newsletters
:
2008 Newsletters
:
12 September 2008
Don't Bail Them Out
Our world system seems to be broken - and nobody realizes it yet.
Politicians get elected by promising whatever the citizens want. They pay for it with paper money that is easily borrowed. The Bankers make lots of extra money lending out all this new cheap money again and again. And all the economists make a good living proving that all this will work.
And so it does. For a while. But the distortions build up and the Central Bankers have to work harder and harder to keep everything afloat. Hank Paulson, the Treasury Secretary (and ex boss of Goldman Sachs) and Ben Bernanke the Federal Reserve Bank Chairman of the USA are working overtime to ensure that the USA does not suffer a depression. Unfortunately their efforts will only ensure that the broken system will stagger along for much longer than necessary.
In New Zealand our Central Banker, Alan Bollard, has surprised everyone by dropping interest rates by half a percent. All the economists expected a drop of a quarter of a percent. He has figured out that we are in a recession and that it is looking to get much worse. The pundits are predicting that he will drop the interest rate another half a percent next month.
Suddenly we are panicking and immediately before the election. Will his moves help Helen and Michael?
While we await the answer, have a read of this article which starts:
"It was the singular achievement of Murray Rothbard's America's Great Depression to have demonstrated that the Great Depression was a crisis manufactured and prolonged by the attempts to stop an inevitable downturn. The policy response — creating more money, propping up prices, ginning up employment, and a host of other devices — took a stock-market price collapse and a banking liquidation and spread the mess throughout every sector of the economy. What might have lasted a year to 18 months instead lasted 16 years."
[ Visit Website ]
Sep 12, 2008, 11:20
Newsletters
:
2008 Newsletters
:
12 September 2008
Suffering a Seizure
The Economist's view as America’s government takes control of Freddie Mac and Fannie Mae.
Sep 9, 2008, 16:11
Newsletters
:
2008 Newsletters
:
12 September 2008
Thinking Like “Fat Tony”
Is the world just as described by conventional economists? If so, why are they so bad at predicting what will happen in the next few months - let alone years?
Are bankers in the business for any reason other than to make as much money as possible?
Why do politicians put up with so much stick from the public and the press? Why do they work so hard to be in charge? Can it be because they want to do good to you? If so, why not join a church? Could it possibly be because they enjoy power?
We are now enjoying life on this planet as run by politicians, bankers and economists.
Is it REAL?
[ Visit Website ]
Sep 9, 2008, 10:55
Newsletters
:
2008 Newsletters
:
12 September 2008
The Disconnect Between Supply and Demand in Gold & Silver Markets
The supply of silver coins and bars is getting tighter and tighter. This article proposes an interesting theory as to why gold and particularly silver demand rises at the same time as their prices sink dramatically.
Can all this possibly be true?
[ Visit Website ]
Sep 8, 2008, 19:06
Newsletters
:
2008 Newsletters
:
12 September 2008
Huge Rise In The Price Of Food In Britain
In this morning's paper we had the story about the price of so many food items going up by 10% and more. So many thing have gone up by so much that inflation must be sky-rocketing away. But no! The official figures show that the CPI is 4% or maybe 5%. Does anyone believe the official figures anymore?
The same thing is happening in Britain. Excess printed paper money is finding its way into the lower reaches of the economy and inflation is working its merry magic and making us all feel poor.
All countries are inflating their currencies by 10% or more and they are all suffering from rising prices for everything.
Our government held an inquiry into the cause of inflation last year. I wonder if they have the answer yet????
Sep 8, 2008, 11:58
Newsletters
:
2008 Newsletters
:
12 September 2008
Quote for the Week
It’s not for nothing that Thomas Jefferson said, “I believe that banking institutions are more dangerous to our liberties than standing armies.”
Jun 12, 2008, 12:59
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