Wednesday, January 30, 2013

The Federal Reserve Doesn't Produce Anything!

Sorry, just had to rant:


stocktonseeker said...

Great vid. Finance Industry experts remind me of Sports writers w/ their phony reflected glory. So with production down and the Fed printing more money, when will we really hit hyperinflation? Any other signposts beyond today's news to look out for?

sth_txs said...

The problem is they do not teach any Austrian economics in business colleges or MBA programs. One of the reasons is that Austrian emphasize the positive actions of the individual as opposed to the state.

I have MBA friends that like to put down Mises and Rothbard, but can't explain to me why the market can not provide money and why I should be paid in a depreciating currency. I've also asked them why if the Fed can merely create 'assets' with digits in a computer to fund the federal government, then why should we even have an income tax.

Eric Mueller said...

Yep. Most people have no clue how finance works. All they see is "a lot of money" and assume somehow that the system works and they should be part of it, even if their role is little more involved than shouting at the TV while football is on.

Most of the world of finance doesn't seem to produce anything of value. All they're doing is repackaging already existing numbers into new derivatives and selling those off. And people who have no idea what productivity and value are seem to think this is good for all of us.

Son of Brock Landers said...

I didnt hear anyone point out that the GDP deflator was -.6% instead of +1.6% as expected. This made the drop look less than it truly was. The USSR is jealous at the depth of our lies.

C said...

Didn't government spending decrease, though? If GDP is C + I + G, couldn't the reduction in the G term, which isn't production anyways, account for the decrease?

Dave said...

dude, the Russell 2000 sold off over 1%.
The Dow and S&P may not have, but the small and mid caps may be leading the charge lower. This provides an excellent shorting opportunity imho, with stops set above the recent highs that were made. just my 2cents

Cogitans Iuvenis said...

Decreasing GDP isn't always bad, if it is the result of decrease gov't spending. The post WWII recession was a result of the gov't decreasing spending, but interestingly enough, even though total GDP decreased, private sector GDP actually grew during this period. Now, this dip isn't that. ButGDP less G should be the metric we use to measure economic health and growth.

John Henry said...


I see you getting your shorts in a knot .... your blood pressure is visibly high.

I doesn't look like you are 'enjoying the decline' in that video clip .... Or does controlled rage count as a pleasurable pass-time?

Ten Mile Island said...

Math is hard. Hard, like nuzzling the muzzle of a gun. Unrelenting and unyielding. So, best to turn your back, and attempt to shame those who hold the gun against your neck. Wouldn't it be better if the non-mathists were right? Wouldn't it be better for everyone if we achieved Social Justice? Don't we pretty much have to ignore the math to achieve the political goals we are striving for?

C + I + G.

Pretty unyielding.

But then, I went to a state school.

Will Brown said...

Query (because I really don't know); isn't GDP the Gross Domestic Product? If so, what influence does foreign based contribution to US stock markets have on market valuation that doesn't reflect in the formal GDP valuation? Or does it?

Cappy is ranting about decreased GDP with increased stock value; if the stock value includes input from non-domestic sources, wouldn't that be the expected result?

Ten Mile Island said...


GDP. GNP. NNP. Three initials bandied about talking about the components of the economic output of any nation.

C + I + G are the usual components of discussion surrounding our nation's gross domestic product, since when in balance Exports minus Imports would neither add or subtract from GDP (gross domestic product.) To simplify, Gross National Product or Net National Product are used, the distinction being the component of depreciation added to NNP.

Traditionally, imports and exports haven't had much influence on our nation's GNP or GDP. Of course, we've never had so much of our nation's debt held by foreigners before, nor so much debt.

To answer your question, foreign based contributions to US stock market valuations have nothing to do with the formal GDP valuations. If you own a house, and its value rises, there is no concommitant increase in GDP. Build another house, then there's an increase in GDP.

How do you measure value? If you measure it in dollars, then we should be excited about seeing new highs in stock valuations.

If you measure it in terms of how much gold would it take to buy the same amount of equities, I think you'll find it would take about as half as much today as it would have when President Obama was originally inaugurated.

Might do you some good to look into how economic bubbles are formed.

Enjoy the decline.

Will Brown said...

@ Ten Mile Island

So if I'm understanding the analogy correctly, all the US businesses moving some portion of their formerly domestic operations to other countries is the equivalent of torn down or new built houses vs GDP calculation, and the monies generated outside the US being spent bidding up valuations in the US stock market aren't and thus wouldn't appear in the GDP valuation figure (however much a product of the political hurdy gurdy that number might prove to be).

Which basically answers the question; the stock market should rise and fall independent of US national GDP precisely as much as foreign - I suppose "all" really - investors perceive that market (and the "investments" on offer) to be secure independent from US GDP factors. I'm guessing the lack of prominent mention of that not-so-minor point in the media is the precipitate cause of Cappy's spleenous vexation.

Thanks (and yours is a nicely punned Blogger handle too).

Paul Ho said...

Hello Captain. I just stumbled upon your blog. Listening to your rant let's me know I'm not going crazy. It is as if we are living inside that fable "Emperor with No Clothes".

This new normal is not good - productive, intelligent people are opting out of the system and the same fools in finance are still living off the dwindling fat.