Friday, August 27, 2010

The over/unders were 5. There were no bank failures announced this evening. The unders win. Apparently all the banks in this country are in peachy condition. I wish I could say the same about the rest of the economy.

Kids were knocking on my door this afternoon, begging for money. Summer break is over and the kids are back at school. Apparently the edict went out to raise money for various educational activities such as choir, band, science club, etc. The schools don’t have much of a budget left for extracurricular programs so they send the kids out begging. Their parents are also out begging, for jobs. One idea floated by Steve Forbes was to scrap the minimum wage as a means to create more jobs. I guess the idea is that the kids could get an education in flipping burgers and washing dishes as opposed to learning to play the clarinet or singing or learning more science. Of course, the kids would have to fight adults for those low paying jobs. Sub-minimum wages don’t provide enough income for discretionary spending, so the economy wouldn’t really grow but maybe Forbes could pay his landscapers less.

Money will seek the greatest returns. People who have money to invest have two basic options: invest in production or usury. When there were caps on usury, money found the greatest returns by investing in production. Investing in production carries risk; the business might fail or the business might be profitable. Honest capitalism is demanding. It requires constant innovation and a steady stream of new products. The horse and buggy are replaced by the car; the telegraph is replaced by the telephone; the abacus and the typewriter are replaced by the computer. Without innovation capitalism collapses, or at least begins a long process of deterioration. Direct investment in businesses, industry, and production requires effort.

August 20, 2010

The over/unders were 5. Eight banks failed today.

Banks suck. The KBW Bank Index (BKX) tracks the 24 leading banks. The index has taken a serious plunge, falling below the 50 and 200 day moving averages. The travails of the banks are a lesson in economics; specifically that supply side economics is a failure.

August 13, 2010

The over/unders were 5.

The Federal Reserve will not tighten the stimulus spigot for the time being. The Fed is not adding new stimulus to the economy; they are just recycling paper; taking the mortgage backed securities they acquired during the meltdown and using the proceeds to buy Treasuries. Now we know how the Fed is dumping those lousy mortgage backed securities; nobody would buy the garbage, so it’s a paper shuffle. Problem solved.