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Jim Cook



Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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The Best of Jim Cook Archive

Best of Aubie Baltin
August 6, 2009
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When CFOs find themselves in the midst of a Recession and in a massive downturn quarter with the talk of Depression and Deflation in the air, what else would you expect but for companies to write off everything including the kitchen sink. They lay off as many workers as they can and write down all their excess inventory and then go hat in hand to the Government and demand if not a complete bailout, at least some serious concessions. Successful or not, they not only cut their Income Tax liability but if they create enough losses, they are also able to recapture past years’ taxes. The result of all this is that the following quarterly earnings reports must by definition be better than the last quarter. The Wall Street, analysts who completely missed the last two quarters, do as they always do and project the past into the future. Naturally, they go from too optimistic to too pessimistic, so most companies’ earnings naturally beat the Street’s expectations. Do beating street estimates now replace real cash flow and real earnings in determining a stock’s value?

Nothing has changed! All the Government’s initiatives and spending policies are DOOMED TO FAILURE. WE CANNOT BORROW, PRINT AND SPEND OUR WAY INTO PROSPERITY. MARXISM, SOCIALISM, KEYNESIANISM or whatever you want to call it has NEVER worked and what’s worse, has always ended up in a disaster. AH YES, I forgot -This Time It Will Be Different!

The last time our country was under so much Governmental Control was during FDR's reign. Now I know that he is still considered the Savior of Capitalism and one of our country’s greatest heroes, but between Hoover and FDR, who carried on Hoover’s policies to the extreme, they turned what should have been no more than a 2-3year Recession into a 17 year Depression which took WWII to get us out of.

Lessons of History
According to the "The Economist" a Keynesian magazine, while there are some similarities between now and the 1930's, the world should be able to avoid a 1930's Depression due to some big differences. Specifically, in the 1930's, countries were on the Gold Standard, which restricted their ability to ease monetary policy as economies went into Recession after the Wall Street crash of 1929. Rather than allowing taxes to fall as incomes declined, America raised taxes beginning in 1932 and eventually FDR raised the top marginal tax bracket to 93% to balance the budget .The claim is now that governments have a better understanding of macroeconomics (really? They certainly fooled me) we too are raising taxes dramatically and with public spending taking up a much larger share of GDP, their ability to stabilize demand is greater (a detriment, not an advantage). The third difference between today and the 1930's is that there were no organizations such as the G7-8-20 or the IMF to oversee the world economy. (Check their track record and see if we are prepared to follow their prescriptions.) These are the thoughts of most of our economic leaders.

Each one of us must challenge these thoughts, for these are only fantasies, not facts, and these fantasies are not based on truth, but rather illusion and PC history. The first claim is that easing monetary policy can reverse a deflationary spiral. Deflation is caused by excess capacity leading to lower prices, leading to falling profits, leading to reductions in employment output and wages. When excess capacity is financed by debt, the need to generate cash flow will lead to predatory actions resulting in a much faster collapse in prices. When the risk of losing jobs is high and prices are falling, people rich or poor are unwilling to borrow to buy even at low interest. With excess capacity and small or negative returns on marginal investments, there is no incentive to invest and further add to capacity. THE ONLY SURE WAY TO END A RECESSION QUICKLY IS TO ALLOW THE RECESSION TO RUN ITS COURSE. THIS GETS RID OF EXCESS CAPACITY AND FREES UP RESOURCES TO FUEL THE NEXT BOOM
Another way (that has always made matters worse) is for the government to ease monetary policy by monetizing its debt and printing money. This is now happening all over the world. Throughout history, whenever a country has wantonly printed money, it has always lead to hyper-inflation and the collapse of the economic system .It will be no different this time. THE NATURAL LAWS OF ECONOMICS NEVER CHANGE. They are Laws not just suggestions. The printing of money destroys the value of money eventually resulting in a loss of confidence in Fiat money and a return to a semi-barter system which further contracts the economy. During the depression of the 1930's, money was sound, the US owned most of the world’s GOLD (80%) however, that is certainly not the case today. The second claim of having a much better understanding of macroeconomics is also not true. A steady 75 year Socialist Marxist takeover of our education system has left us with virtually no Free Market Capitalist Economists in any positions of influence. So much so that we never even get any alternative capitalist suggestions from Republicans. With public spending taking up an ever larger share of GDP, their ability to stabilize demand is not greater as almost every state is teetering on the verge of bankruptcy. My previous articles have analyzed the "lies" of current macroeconomic theory and I will concentrate my discussion on how a large government sector affects the response to a deflationary contraction.
The essential question is which government is best able to act to stabilize demand: A government with a large share of the economy, which is running a financial deficit and has a huge overhanging debt load or a government with a small share of the economy which has a balanced budget and minimal debt? The first case describes most of the governments in the world today. The second case describes many of the governments in the late 1920's. We know from experience that anything that the government undertakes takes 3 to 6 times as long and costs as much as 10 times more than if handled by the private sector. Look at our stimulus package. Only 10% of the money has been spent to date with no noticeable benefit and yet what are we doing? Starting to talk about a new and larger stimulus package.
Today’s economists have their heads stuck in the clouds of model building that have been proven never to have worked. But they and their ideologies are not capable of descending from their ivory towers to come up with real solutions for a real world.