Month: October 2010

Economists use the concept “invisible hand” to refer to the marketplace’s tendency self-regulate itself by correcting inefficiencies and move towards equilibrium.

With a revolution in transparency fueled by technology, I think governments will be increasingly forced to be more accountable and become fiscally responsible. Currently, it’s the wild west in some regions/nations because, I suspect, the importance of running a balanced budget isn’t widely understood. Future generations will look back and think “What were they thinking?”

I love this revolution towards an increasingly intelligent population because investors will reap economic benefits from exploiting inefficiencies. For example, George Soros made $1 billion by exploiting The Bank of England’s attempt at manipulating its interest rates.

The late Milton Friedman used the analogy, “You can’t make an omelette without breaking eggs,” because, to date, capitalism maximized human potential and the well-being more than any other system.

I believe that governments that markedly intervene or have corruption issues (eg. Russia) will not be tolerated by investors and will be punished in the long-term.

It’s up to private individuals to prosper and succeed.  Thousands of years ago, it was up to private individuals as hunter-gatherers to work hard, and eat what they killed. The sense of entitlement some people feel in a society with so much potential is unwarranted.

It’s shocking that otherwise seemingly intelligent, logical people would think socialism is a fair solution when it has a terrible track record. Read Age of Turbulence by Alan Greenspan for multiple examples.

I sometimes like to think about creative solutions to the world “currency wars.” This is an issue where countries often act as self-interested actors to, on a high level, manage money supply, manage employment, and maximize net domestic investments. For example, to promote their desire to maximize their net exports, countries like China wanted to keep an artificially weak currency for a long time.

The solutions to this issue are speculative because this is an issue involving many parties with different interests.

The following are some speculative ideas that could promote fairness in the currency war:

1) The International Monetary Fund creates stringent special drawing rights backed by agreed upon assets. More commodities may be added to this mix.

2) New State/province-owned and nationwide currency where they refuse outside currencies without CLEAR, transparent reporting, guaranteed by an international body

3) Currencies backed by economies with significant debt will become significantly devalued because the demand for the currency decreases as their central bank increases their money supply.

The US debt problem is beyond repair unless one of the following happens:

1. The US repays 100% of its debt (almost impossible due to the sheer size and social consequences)
2. The US defaults on its debt obligations (more like than #1, but highly unlikely since its contrary to the mandate of the government to pay its stakeholders -)
3. So, what I believe the US government is actually doing is the following:

a) STEP ONE: rapidly increase money supply (ie. termed “quantitative easing,” which I speculate is a euphemism designed to confuse the public) to pay for its debt obligations. The US does this by selling a great deal of cheap bonds at record low interests or having the federal reserve print money.

b) STEP TWO: This increase in money supply with devalue the dollar, which will lead to rapid inflation and

c) STEP THREE: Raise interest rates, which will have multiple positive affects including the following:

i) It will reduce the level of borrowing by consumers so it will reduce inflation by turning more people into savers

ii) The US government can now use all the money it issued at low interest rates to make money in the higher interest rate environment