Liabridge's Economics Commentary

A Key Aspect Of A Stock Market Bust

Stock market prices are largely driven by money supply developments and investors’ willingness to invest in stocks. The      former determines earnings growth rates and affects interest rates, which again influences valuation multiples (e.g. P/E ratios). The latter determines prices arguably in a more direct fashion as an increased willingness to buy (sell) can push prices up (down) even absent any (expected) changes in fundamentals. Such psychological forces tend to dominate at market extremes as evidenced by exceedingly high or low valuations at market peaks and troughs. During the bull market,…

Economic Policies Gone Wrong

“But the problem [with monetary policy] is not so much what we can do, but what we ought to do in the short run, and on this point a most harmful doctrine has gained ground in the last few years which can only be explained by a complete neglect – or complete lack of understanding – of the real forces at work. A policy has been advocated which at any moment aims at the maximum short-run effect of monetary policy, completely disregarding the fact that what is best in the…

The Economic Significance of Saving

This article first appeared in The Crank Report, Issue #7 (29 June 2015). In the previous issue of The Crank Report, an attempt was made to reintroduce the very old notion of “forced saving” (The Crank Report, Issue #6, 3 June 2015). In this section, we’ll take a closer look at “good old-fashioned” saving and why saving is as timeless as the most novel Shakespearean ideas. Saving is defined as a surplus of production over consumption; it is the difference between what we earn and what we spend. It is the portion…

The Economic Meaning and Consequences of Debt

This article first appeared in The Crank Report, Issue #5 (5 May 2015). Debt, debt, yet more debt. Politics, mainstream economics and other popular arenas dominated by feelings and collective notions of what should be right or wrong for all suffer from one major flaw: the inability and inherent reluctance to think critically and learn from fundamentally sound theory and history. For decades, western economies, the economic powerhouses of the world, have wrecked their economies with faulty economic doctrines making but one thing possible: an ever growing mountain of money….

The Crank Report, Issue #1 (29 March 2015)

In this weeks issue: But who’s issuing the newly created money? Bank Capital: Déjà vu September 2008 The Austrian True Money Supply Weekly – 19 years of inflationary policies The U.S. Stock Market – Catch me if you can When the Monetary Crank Gets His Will – Take-off for Eurozone Monetary Base and Money Supply U.S. Economy: Say No to Thrift!   Download the pdf version.

Natural Economic Growth and The Role of Savings

Natural economic growth, or a rise in living standards, which we might also refer to as sustainable economic growth, comes about as a result of production, saving and investment. Savings can only accumulate if less is consumed (spent) than is produced (earned). Real saving therefore cannot be generated through inflating the money supply as both assets and liabilities increase simultaneously when it does. Taking up a loan and depositing it in a savings account therefore does not qualify as real saving.  The higher savings are in relation to consumption, which…

Welcome to A Very Dislocated 2015

The economy is pushed forward through people working, investing, spending and saving. For an economy to progress saving is key as without it there would be no spare resources set aside that can be channeled towards investments. And without investments, there can be no economic progress. There are however economic pundits who claim that a “shortage” of money is the real economic problem to be solved, and not a lack of saving. There can be few doubts that the Federal Reserve belongs in that particular camp championing easy money. Following…

The Short Version of the “Austrian” True Money Supply (TMS), as of 17 November 2014

This report is published weekly on EcPoFi. The short version of the Austrian True Money Supply for the U.S. increased 0.26% on last week for the week ending 17 November 2014. At $10.4593 trillion, a new high for the third consecutive week, the money supply is now up $576.0 billion, or 5.83%, year to date. The money supply has now increased $5.0370 trillion, or 92.89%, since Lehman Brothers filed for bankruptcy on 15 September 2008. The 1-year growth rate in the money supply of 7.29% for the week was unchanged from last week….

A Leading Economic Indicator and The Stock Market – Disconnection Taken To New Highs

Can it really be the case that the stock market is independent of economic developments? I admit, I’m starting to sound a bit like a broken record, but better safe than sorry. The truth is yes, the stock market can act independently for a while as low interest rates and an ever increasing money supply channels return-starved funds to the stock market casino away from the more risk averse options.    But the reality of the real economy hits Wall Street with a big hammer from time to time, knocking…

Paying Lip Service to “Too Big To Fail”

As bank assets continue to hit new highs on a quarterly basis, fueled by money supply growth and the various QE programs, the number of banks continues to slide. Compared to Q2 2008, there are today (as of Q3 2014) 1,501, or 21.0%, fewer banks operating in the U.S. During the same period, total assets for all banks operating in the U.S. surged by some $3.8 trillion to $14.8 trillion, an increase of 34.7%. As a result, total assets for each bank has increased 70.6% on average during the Q2…