Geez. I have Ivy League degrees in Mathematics and Economics and I was never so arrogant. I did almost complete a degree in Art History too actually, but a job on the Street intervened! Perhaps you should show some respect for the market and for financial history, otherwise the only money you will make with your grasp of economic theory alone is a professor's salary at a university. Your spouting of standard textbook economic models and theory is strident but uninspiring and irrelevant. I too used to resolve Hessians and pour over the Solow growth models, but there is a time and place for all of that, and I am sorry to say that it isn't in the day to day cut and thrust of the capital markets, of which I am proud to say I am a student. PS : I'll pardon you if you like Von Mises, Friedrich Hayek or Von Neumann!
The "hedonist" adjustments is one of Jim Roger's favourite brickbats these days. I've heard him raise his hackles on that topic quite a few times this year! The link between real estate and capital misallocation (ie credit fueled bubbles) you pointed out is one that is well understood within the Austrian liquidity cycle. Japan provided a textbook example of that in 1985-1989. I watch the NYT real estate section every weekend and have noticed that houses have been closing 5% below the ask for the past few weeks. I would definitely agree that the housing bubble has been pricked. Whether we get a hard landing or soft is the real question.
Citizennobody, Why don't you just make it simple and explain the difference between the Fed Discount rate and the Fed Funds Rate target. These OMO (Open Market Operations) symbols and other verbiage make it too complex for normal people to understand. Here is the answer, in case anyone was curious...The "Trend" is the most powerful force in the Universe. Think about it....That's all you need to know to get your Ph.D in the markets. Good luck...Neal.
Mises...I like him but not his disciples. They have done the same thing to Keynes. Took a great idea and bastardized it to the point that even the originator doesn't understand. BTW, are you going to the Mises conference in Auburn, Al? Hayek is OK too... Ricardo and J.S. Mills get some points too... I really like Thorstein Veblen and Institutionalist camp.... BUT, I love Joan Robinson...., just kidding.
Currency values are relative and continuously in dynamic flux. There is no 'standard' ; any given currency can change at any moment relative to any other given currency. If a general process of trade-focussed competitive devaluations gathjers steam, the relative values of fiat currencies may change little, but the entire currencies collective will fall reative to the commoditied collective (universal price-'inflation'). Gold does not have to be designated the 'standard' to appreciate - it will rise simply because the commodities-purchasing power of fiat currencies is in general decline. Helmut - take a triilion marks and get a loaf of bread!
"Did I not say in my other posts that lowering the Discount Rate was simply for announcement effect??? Does that statement not imply that the Fed can do other things to affect the economy and they are letting us know our sentiment. Have you done an analysis of Fed OMO and the Msupply, exchange rates, the yield curve? BTW, I think I missed that day in class where it said that all effects from Fed action happens instantaneously instead of over several quarters. I think the fact that this was a soft landing is proof of success by the Fed." No, I don't claim to follow what academia tells us about the markets and the economy. That's not to say the models talked about in econ classes are completely unfounded. They aren't. But they aren't written in stone either. I missed that class too where they tell us FED action helps the economy instanteously. The textbooks always say, "FED action takes time". 6 to 9 months for rate cuts to take effect. 9 months to a year. Maybe a year or longer. But 3 years!! How many textbooks tell you that. That's not in the book. To be exact, we are 34 months into a FED easing cycle. FED rate cuts so far have NOT lead to a sustained economic recovery. Admit it. This doesn't fit into the standard models. The last time FED rates didn't work for this long after a recession was pre WWII. Yes, back in the 1930's. When was the last time we had net job losses this long after a recovery started? Again, pre WW II. Your econ models get thrown out of whack in a post bubble economy (i.e. the depression, Japan in the 90's, and the last few years in the US). The models tell you one thing. Reality tells you another. Post bubble recoveries behave differently than standard recoveries. This was a "soft recovery" simply because the FED kept the printing presses working overtime. Greenspan kept the housing bubble and consumer bubble intact and thus minimized the fallout from our post bubble economy. Where is a sustained and vigorous recovery going to come from? Where is pent up consumer demand going to come from? The sad fact is, most households in the US would have stopped spending along time ago if it wasn't for credit cards and home equity loans to tap. Massive consumer balance sheet repair is in order. Look at a chart of the personal savings rate in this country over the past 50 years. It use to stay in a fairly tight range of 7.5-10% a year. Even going higher than 10% a year during past recessions. Yet now it barely in the 2-3% range. We will go into a much deeper recession if people ever got their finances in order.
There is no ONE model to get thrown out of whack... Last I remember there are economists on both sides of the river all with different crazy arse ideas.
What is really the funniest thing about the efficient market hypothesis is that the assumption is that every single investing decision is extremely rational. Refer to all the arguments in this thread and take a guess as to how many investing decisions are 100% rational!!
I was trying to give the austrian argument without saying 'austrian', so we didn't get into a 'Chicago Rulez, Austria Droolz' sort of debate. I, personally, think we get a hard landing. A housing bubble is one thing, but a housing bubble + currency probs + other systemic risks (fundamental to the pro-gold argument) points to some wild ups and downs. Regards, Laz