The Dog has been away for awhile...busy with life economics........

The economic watchdog would like to present some thoughts on the global market front.

1. There is not much downside risk to the market as the Federal Reserve can not take away the punch bowl. They can only slow the party down slightly.

2. Unless there is some major event like WW3 market downside risk should be no more than 10 to 25% tops in a worst case human overreaction scenario.

3. Syria is not a big deal........ unless Russia and/or China get involved in a negative externalities kind of way.

Tell us what you think................

Bullish on the market?

The dog is getting visions of charging bulls in the market. Might the Dow break 13000 by April 2012?

Tell us what you think...................

What economic system do you propose? (To the "Occupy Wall Street" protesters).

In recent times we have seen some amazing things taking place before our very eyes. We have seen Middle East and North African protesters overturn their current occupying government(s). The economic watchdog proposes a question. Which economic system provides the best economic benefits to the most people? This is a question that all protesters should consider. Why?

Because, once an old system is overturned a new one must be put in place. This occurs all throughout human history. For example, economic systems usually follow this basic (crude) cyclic system of transition. First, thought is formulated into a philosophy of how one interprets the world around them. Then, the philosophy starts to catch on and spread as more people follow the ideas. As more people follow, eventually, Institutions are constructed as the cornerstones of those beliefs. The Institutions then create the working rules (rules of the game) for the society to function. However, there are many flaws in every system that is created by man. One of the largest and most important flaws is that humans are not always logical or rational.

To give recognition to Jeremy Bentham.........humans tend to pursue pleasure and avoid pain. As they do this, the people for a myriad of reasons (usually an oppressed class within the current system) destroy the current system in favor of one that supports the currently oppressed. This is known to be true all throughout all of known human history. However, as the new system is created this just starts the cycle all over again. The new system defines new "winners" and "losers" (people who benefit and those that do not). Human emotions such as greed occur in every system. These behavioral emotions skew the majority of economic benefits towards the elite class (top 5% or so). This always occurs, as these elites almost develop a sense of entitlement as the ruling class. Once a group (top 5% or so) obtains these economic benefits they often will not let them go easily. Even if the majority of people in the system oppose their rule.

Another major flaw is that all systems are subject to a very important economic law. Resources are scarce. It takes a resource to power an economy. Just as a person needs to consume food for subsistence. An economy (Pre-Agriculture, Agriculture (crop rotation, horse and plow, etc.), Industrial, Financial, etc...) must consume a power source in order to survive. An economy can shrink or expand just like a human that eats too much or too little. If an economy runs out of a primary resource and cannot find an equivalent resource it can prove to be disastrous for those that exist within the system.

The challenge is to create a long term sustainable growth economy. How do you create and regulate such an economy? Whom would be the regulators of such a system? Many have tried to envision such a utopia with no real coherent way of achieving such a system (In fact, the most stable system (that lasted the longest) was created by religion). However, that time period was also known as The Dark Ages. The best attempt I have read to date is Karl Marx's Das Kapital. However, he like many others, leave no plan of how this utopia is created. My view, is that first and foremost you need unlimited resources. How is this achieved? I have no idea. But, I am sure that a prize awaits anyone who can solve this main problem.

To the current 99% which system or new type of system do you propose?

Some system construction understanding can be found in these books (Warning these are not lite reading):

Karl Marx's: Das Kapital (system cycles, Socialism, Communism, Capitalism, etc.)
Karl Marx's:The Communist Manifesto (The economic clauses/principals)
W.F Bruck: Social and Economic History of Germany 1888 to 1939
(specifically on page 207 the National-Socialist official economic clauses such as 1: Abolition of unearned income : Overthrow of the slavery of interest. 2: We claim the Socialisation of all trade organizations , hitherto established in the form of companies. 3: We claim the share of profits in large scale enterprise. 4: The immediate communalisation of big departmental stores. 5: We claim a reform of the land adapted to our national needs, creation of a law for expropriation of the land for common purposes. Abolition of the investments in land and prevention of any speculation in land. 6: We claim the replacement of the Roman Law, which serves the materialist order of the World by German common law. 7: Points out: "Common weal before private interest" etc.)
Adolf Hitler's: Mein Kampf (National-Socialist philosophy and economic clauses)
Mao Zedong: Severeal works/writings(Economic and political philosophy)
Stuart R. Schram: The Thought of Mao Tse-Tung(Economic And political philosophy)
Adam Smith: The Wealth of nations(Capitalism)
F.L. Ganshof, Philip Grierson: Feudalism(Feudalism)
Any Academic Works on Monetarism
Any Academic Works on Transitional Economics
Any Academic Works on philosophy or ideology (Gandhi, Theodor Herzl, Plato, etc.)
Any Academic Works on History
F.A. Hayek: The Road to Surfdom
William Minto: Logic: Inductive and Deductive(Understanding Behavioral Biases)
James Angresano: Comparative Economics(History of known Economic Systems)

As you can see there is a lot of reading.........happy reading all.

Down but not out.........................

Ok. It has been a very long time since the last post. The dog has had a very busy year outside of economics. Well, let us get on with the news. It appears that the economy could see a slowdown in the near future. Europe is still having problems. Japan industrials are slowing. Greece, Spain, Portugal, and other Euro peripherals are having issues with their debt. The U.S. is politicking over debt issues so far to no avail. So on to a couple of questions to ponder..........is Keynesian theory dead? Or was the stimulus just not big enough? Could the Austrian School be right about debt and credit? You decide. In the mean time enjoy these two epic videos on the fight of the century..............Keynes vs Hayek:

Video 1

Keynes vs. Hayek "Boom and Bust"

http://www.youtube.com/watch?v=d0nERTFo-Sk

Video 2

Keynes vs Hayek "Round 2"

http://www.youtube.com/watch?v=GTQnarzmTOc&feature=relmfu

Tell us what you think................................

Special Update...........

There have been some interesting developments going on in the economic arena. Greece keeps the Euro-zone and the world in a constant state of speculation of weather the nation will default or achieve the financing to continue. Best of all, was an interesting working paper filed over at the BIS website. The report (Working Papers No. 300) that the dog wants to point you in the direction of is entitled "The future of public debt: prospects and implications" and is written by Stephen Cecchetti, Madhusudan Mohanty and Fabrizio Zampo. In short, the report claims that the debt in advanced nations is unsustainable and that drastic changes are necessary for monetary stability.

Here is the link from the BIS website: http://www.bis.org/publ/work300.htm

Tell us what you think........................

Special update........

Well, here at the dog we wish to point you in the direction of the Euro-Zone. In our humble opinion, it may be a good thing for the U.S. if the Euro loses some value against the dollar. With the Euro monetary union in doubt because of fiscal issues within member nations it could push investment towards the U.S. Will the euro survive? Time will tell.


Tell us what you think....................

What was a major part of the housing bubble???

In an article in Bloomberg, Federal Reserve Chairman Ben Bernanke said that low interest rates did not cause the housing bubble. Here at the dog we already knew this information (Examine our early 2009 posts). In our humble opinion, what was a major factor in the housing bubble was amending the SEC's "Net Capital Rule" in 2004 (Which basically lowered capital requirements). This rule is as old as the SEC and a major reason for its existence (The rule is part of the 1934 SEC Act). Back before the "Great Depression" there was a booming economy. During this time period (The roaring 20's), "Margin Financing" was used to help fuel the boom. Margin financing today is called "Leverage" or borrowing money. Guess what happens when you borrow too much??? (More than you can afford). The Net Capital Rule (1934) was there to keep safe capital levels in relation to debt. Currently, the government or more specifically the Financial Industry Regulatory Authority (FINRA) is attempting to raise capital requirements which in our opinion is an essential part for a potentially stable future. Click on the following link which is the new proposal for your review. (SEC Link Here)

Tell us what you think.................................