Economic Ideaologies & Practises

I have just read Vic I and i must say that i am pretty much impressed by his approach and outlook at how the economy links up as a whole. I must say that i am not an economic expert and am just trying to induce some views from the better informed parties.


While i'm still trying to figure his anti Keynesian ideologies, his approach at forecasting economic moods by merely looking at Fed's approach towards the economy is somewhat adventourous. Isn't it funny that all the investment greats like Victor Sperandeo, Victor Niederhoffer, John Templeton and Monroe Trout were adherents to Austrian economics?

But it was clear that his views abt how Fed can control the economy through 'efficient' manipulation of money supply can turn the tides and events. By signing a mere 50M contract the Fed could inflate money supply by 500M. His writings and views were all valid as the current events and credit crunch came into play and we see how fed unfolded their market saving plans.

"The wavelike movement affecting the economic system, the recurrence of period of boom which are followed by periods of depession, is the unavoidable outcome of the attempts, repeated again and again, to lower the gross market rate of interest by means of credit expansion. There is no means of avoiding the final collaspe of a boom expansion brought by any credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final catastrophe of the currency system involved.", Ludwig von Mises

So is Bernake's policy moving towards a final catastrophe? Maybe he is trying to defunct this theory? Or am i intepreting it all wrong?


Continued further on Fed's policies, Mr Sperandeo suggested that the idea of a free market is total BS, and that the Gov induces cyclical fluctuations my manipulating the monay and credi markets and thus by monitoring the actions of govt policys and policy makers alike, we could further tilt the game to our favor.

"When Fed policies and govt fiscal policies fly in the face of basic economic priciples, draw conclusions based on the fundamental economic principlpes involved, and you'll be right. The problem from there is one of timing - timing how long it will take the markets to recognize and react to the effects of faulty govt policy. And thats where the knowledge of Dow Theory, Technical Methods, and all of the essentials come into play", Victor Sperandeo.

Lets further discuss, in conjuction to the current approach the Fed takes on its monetary policy, how will be able forecasts the probable turn of events in the neear future? Has oil been overdone? Has USD finally seen value? Basing our facts on some simple economic principles and the world bank policies.

regards
jest

wow great post, had to read it twice!

you said you just read "Vic", got a link?

as for this question about bernanke steering us toward catastrophe.... the quote from ludwig that you included basically says that the economy is like a wave with ups and downs, and any attempt to straighten that wave will end in disaster. its a great theory, but id like to see the proof.

our understanding of economics is evolving, and from a theoretical standpoint, i see no reason we shouldnt attempt to dampen the wave pattern. these dampening attempts are a fairly new phenomenon, who is to say it wont work? in fact we have had a few successes in recent history, look at the dot com crash. did anyone go hungry during that time? greenspan smoothed the transition from dot com crash to housing boom fairly nice if you ask me. and i think bernanke will have success transitioning us from housing crash to whatever is next.

Hi Merlin,


You are right abt Greenspan's approach but you might wanna think abt the cost and effects of it.

Qouted from Trader Vic,

"When Fed pump so much money into the credit markets that the interest rates remain unchanged or even drop in the face of massive government borrowing, it simply masks or waters down what us actually occuring - the artificial lowering of the market rate of interest, the distortion of economic calculation and the misallocation of resource.

An historical example ot this process began in 1969. The Fed reduced the rate of growth of the money supply, interest rates shot up, and the country went spiralling into a recession. Credit demand faded, and interest rates began to decrease. Because tac revenues diminished and government spending increased, the budget figures moved from a surplus in 1969 to a deficit of $2.8billion in 1970 to $23.4billion in 1972!

The discount rate steadily moved downward from 6% in 1970 to 4.5% in 1971. Then the credit expansion began to have its expected impact. Business activity increased. Employment was stimulated. Company earnings began to improve. As a result, Federal tax revenues increased, and the deficit plummeted to $4.7billion by 1974.

Consumer prices were also affected - they soared! The CPI moved a full 10 points from 35.6 in 1969 to 46.6 in 1974 - over a 28% increase in just 5 years!

Faced with rising consumer prices, Fed once again put on the brakes and once again, recession struck. From 1974 to 1976 the discount rate dropped from 8% to 5.25% while the deficit soared from $4.7billion to $66.4billion. And the cycle continues today...", Victor Sperandeo.

As we could see, Ben has infact been doing the exact same thing as his previous predecessors. Sweeping the dirt under the rug and it gets bigger and fatter after each cycle. My point is, at which point will we start to face up and realise the fact that the deficit has to be reduced(refer to my signature...and as the cycle gets more frequent in nature, the probability of the current practise to fall like a deck of cards grows. And chances are the effects might be worse as time goes by.


Well we proly need no proof in it because i think the writer has placed his views in proper perspective, imo.

"The wavelike movement affecting the economic system, the recurrence of period of boom which are followed by periods of depession, is the unavoidable outcome of the attempts, repeated again and again, to lower the gross market rate of interest by means of credit expansion. There is no means of avoiding the final collaspe of a boom expansion brought by any credit expansion.

I think he's stating that we will never be able to avoid this boom and bust cycle.

The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final catastrophe of the currency system involved.", Ludwig von Mises

So since we can't avoid it we are left with two possible options,
1. Cut money supply and induce a recession.
2. Pump money and further steer towards devaluation. (Missisipi Scheme?)


http://www.amazon.com/Trader-Vic-Met...3336173&sr=8-1

regards
jest

He's an interesting guy & I wish I had found about him years ago - breeze down through his bio on Wikipedia and you'll get almost all you really need to know about tech trading:
http://en.wikipedia.org/wiki/Victor_Sperandeo

As for the Fed - I look at it sort of the way Churchill did democracy - as the worst system in the world, except for all the others Objectivism as a philosophical basis is good from a trading point of view, as it is essentially rather simple and provides clear-cut rules, but it is pretty inept when you actually need to figure out how to run an economy for the benefit of 300 million people (in fact all pure ideologies are), most of whom are not particularly motivated by the desire to get rich.

Nothing new but some might find this article interesting..

WASHINGTON (MarketWatch) -- In the wake of the financial market turmoil that arose over the summer and even now threatens to push the U.S. into recession, there has been a remarkable lack of finger-pointing so far over the cause of the crisis.


But one observer, Tom Schlesinger, the founder and executive director of the Financial Markets Center, a think tank that has followed the Federal Reserve closely for the past decade, believes the blame for the crisis falls squarely on the Fed and accuses the central bank of "regulatory foot-dragging" that has harmed the public.

http://www.marketwatch.com/news/stor...2E182F13FE6%7D

thanks for the link, ah yes i have heard of this book. i never got around to reading it, just orderd

i just read your response and i think i was mistake when making my argument earlier. i now see that mises is is attributing the wave affect to the the gov attempting to "lower the gross market rate of interest by means of credit expansion." although im not entirely sure what that means.

Great! Looking forward to hear your comments on Mr Sperandeo's view on economic fundamentals.


Halifax, i don't really get what you mean, hehe

As for the Fed - I look at it sort of the way Churchill did democracy - as the worst system in the world, except for all the others

Who are the others?

Objectivism as a philosophical basis is good from a trading point of view, as it is essentially rather simple and provides clear-cut rules, but it is pretty inept when you actually need to figure out how to run an economy for the benefit of 300 million people (in fact all pure ideologies are), most of whom are not particularly motivated by the desire to get rich.

Okay you lost me on that part. hehe.

We know that the best traders/investors whom has fully understood the roots of this cycle (not economics) in its purest form usually can make a good living out of it. I believe to see the flaws of the Fed's approach, the educated have approached the market by taking a route opposing the widely accepted keynesian approach. This does not mean that Austrian Economics works or that are way better, but by accepting their approach, guys like Templeton and Sperandeo has managed to look 'outside the box' and exploit the flaws of the current economic practise...

and im not even sure im right...

As we go forward, i'd like to qoute what Merlin have said and pose another question.


As economic evolve, are the problems/situations that we faced in the past fully resolved? Or these things are problems that we paste a temporary solution on? Are we just simply plastering the leaks? Or have we faced a total revolution to it? Instead of putting a finger in the hole should we be revolutionalising our approach and build a stronger base instead.

regards
jest