Tag Archives: Investment

The Japanization of the European Union, by Jesús Huerta de Soto

It’s worthwhile reading every single word of this very long article, especially if you have any interest in economics (some people do). From Jesús Huerta de Soto at mises.org:

[Opening lecture at the Twelfth Conference on Austrian Economics organized by the Juan de Mariana Institute and the Universidad Rey Juan Carlos, May 14–15, 2019.]


The topic of my lecture today is the Japanization of the European Union. I would like to start with an observation Hayek makes in his Pure Theory of Capital. (Incidentally, through Union Editorial, we have just published an impeccable Spanish edition, and I recommend it to all of you.) According to Hayek, the “best test of a good economist” is understanding the principle that “demand for commodities is not demand for labor.” This means that it is an error to think, as many do, that a mere increase in the demand for consumer goods gives rise to an increase in employment. Whoever holds this belief fails to understand the most basic principles of capital theory, which explain why it is not so: growth in the demand for consumer goods is always at the expense of saving and the demand for investment goods, and since most employment lies in the investment stages furthest from consumption, a simple increase in immediate consumption always occurs at the expense of employment devoted to investment and thus net employment.

I would add to this my own test of a good economist: the Professor Huerta de Soto test. According to my criteria, the best test to determine whether we are dealing with a good economist (and I do not mean to detract from Hayek’s test) is whether or not the person understands why it is a grave error to believe the injection and manipulation of money can bring about economic prosperity. In other words, the best test of a good economist according to Professor Huerta de Soto is understanding why the injection and manipulation of money are never the way toward sustainable economic prosperity.

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The Road To Serfdom… Via Credit Markets, by Peter Earle

Current monetary abominations like negative interest rates can only lead to disaster. From Peter Earle at The American Institute for Economic Research via zerohedge.com:

On the morning of Monday, September 15, 2008, at 6:55 a.m., I arrived at my turret on the trading floor of a Manhattan-based hedge fund and flipped on my Bloomberg terminal. As the head of trading, I was in the habit of looking at sovereign debt markets before checking our positions from the previous trading day. But on this morning, reviewing world bond markets took on a particular urgency. Lehman Brothers was filing for bankruptcy and the entire world was in the throes of the worst financial crisis in 75 years.

What I saw was that, all over the world, short-term debt markets – “bills,” in industry parlance – showed negative yields. In virtually every industrial nation, firms and individuals were seeking the safety of the printing press, effectively handing $100 to governments for the assurance of receiving $98 in four weeks.

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Economic Brake Lights, by John Mauldin

The economy is flashing multiple warning signs. From John Mauldin at mauldineconomics.com:

But, like Cinderella at the ball, you must heed one warning or everything will turn into pumpkins and mice: Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful. If he shows up some day in a particularly foolish mood, you are free to either ignore him or to take advantage of him, but it will be disastrous if you fall under his influence. Indeed, if you aren’t certain that you understand and can value your business far better than Mr. Market, you don’t belong in the game. As they say in poker, “If you’ve been in the game 30 minutes and you don’t know who the patsy is, you’re the patsy.”

Warren Buffett (b. 1930), 1987 Berkshire Hathaway Annual Report

Those who do not learn from history are doomed to repeat its mistakes.

—George Santayana (1863–1952), Spanish-American philosopher

Those who don’t study history are doomed to repeat it. Yet those who do study history are doomed to stand by helplessly while everyone else repeats it.

—Tom Toro (b. 1982), American cartoonist for The New Yorker

All good things come to an end, even economic growth cycles. The present one is getting long in the tooth. While it doesn’t have to end now, it will end eventually. Signs increasingly suggest we are approaching that point.

Whenever it happens, the next downturn will hit millions who still haven’t recovered from the last recession, millions more who did recover but forgot how bad it was, and millions more who reached adulthood during the boom. They saw it as children or teens but didn’t feel the full impact. Now, with their own jobs and families, they will.

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Is this Why US Industrial Companies Don’t Invest? by Wolf Richter

The problem with zero or near zero percent interest rates is that eventually the rate of return on investment tends to match the interest rate. Zero or a near zero rate of return does not promote investment. From Wolf Richter at wolfstreet.com:

Production lower than 2 years ago, with ugly capacity utilization.

Total industrial production in the US fell 1.0% in September compared to September 2015, according to the Fed’s Board of Governors today. The index, at 104.2, is now 2.3% off its all-time peak in November 2014, and also 1.3% below where it had been two years ago (105.6). So two years in a row of year-over-year declines.

The first time the industrial production index had reached this level was in March 2007!

Of the major market groups:

• Consumer goods production rose 0.8% year-over-year. Since the index is not adjusted for inflation, this uptick is likely due to inflation.
• Business equipment production fell 1.4%, as businesses are not eager to invest in productive activities. In a moment we’ll see why.
• Construction rose 1.3%. Hallelujah for the apartment and office construction boom in many big cities, such as New York City, Boston, Houston, or those in the Bay Area – even if this boom is now adding to already worrisome oversupply. But hey, that’s a problem for another day.
• Materials fell 2.2%, and that includes the beleaguered mining sector (including oil & gas), which plunged 9.4%.

Of the sub-groups, only a few of the big ones made it into positive territory.

Automotive products jumped 7.3% year-over-year. It’s big enough to move the needle: accounting for 3.2% of total industrial production, it propped up consumer goods production.

And this is interesting going forward: automakers are still cranking out vehicles as if the sales boom were still continuing. But new vehicle sales actually fell in September year-over-year and are nearly flat for the first nine months. Inventories are piling up on dealer lots. So automakers are dousing the market with costly incentives to move the iron. Something is going to give: either a miraculous jump in sales or a cut in production.

The energy component of consumer goods (power, home heating, etc.), which accounts for 3.4% of total industrial production, inched up 0.8% year-over-year.

“Misc. durable goods,” which accounts 2.1% of total IP, rose 1.8%. Information processing, a subcategory of Business equipment and 2.5% of total IP, rose 3.2%. Construction supplies, at 5.1% of total IP, rose 1.3%.

But production in most other categories fell year-over-year, such as home electronics (-5.8%), clothing (-8.2%), food and tobacco (-0.1%), paper products (-4.3%), “transit” (part of business equipment (-4.2%), Industrial and other (-1.8%), defense and space equipment (-0.6%), business supplies (-0.2%), and of course the declines in the materials and energy sectors.

To continue reading: Is this Why US Industrial Companies Don’t Invest?