Liabridge's Economics Commentary

Money Supply and Iceland’s Banking Collapse in 2008

A couple of weeks ago I started expanding my money supply database by adding a few new countries. One of those countries was Iceland. I remember Baugur Group, an Icelandic investment company, marching onto the London high street some ten years ago taking over some major UK clothing retailers. I remember even more clearly however the spectacular collapse of the group in early 2009 following the collapse of the major Icelandic banks in September and October 2008, some of which helped finance the group. According to The Economist back then, Iceland’s banking…

The Best Way to Destroy The Capitalist System

“Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some… Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the…

Waiting for Economic Growth Is Wishful Thinking

I constantly come across reports claiming economic growth in Europe and the US is picking up. Many draw this conclusion from looking at changes in GDP. An increase in GDP is an increase in economic growth the thinking goes. But true economic growth is defined as “an increase in living standards”. Without getting into a long debate of whether GDP growth is an indicator of economic growth, it perhaps suffices to ask whether U.S. citizens today really are 16.3% better off than they were at the end of 2007. This…

Administrative Ruin

Any business with an undue proportion of admin staff relative to those producing goods or services will eventually run into financial hardship. Same holds for a country or any economy. Throw into the mix that those admin staff spend an ever increasing amount of their time interfering with those who produce and you’ve got a recipe for financial ruin.  

What is “Say’s Law”? And Why It’s So Important.

What is Say’s Law? And why is it so important in the field of economics? In order to put light on this I’ve included a few definitions and explanations below with links should you wish to study the subject in more detail.  According to Mises Wiki (my bold): Say’s Law or Say’s Law of Markets is a principle attributed to French businessman and economist Jean-Baptiste Say, stating that there can be no demand without supply.  He theorized that the activity of production opens a demand for the products produced. Thus the mere creation of one product…

The Attack on Thrift

Norges Bank, the central bank in Norway, today elected to keep the key policy rate unchanged at 1.5%. Keeping the policy rate low is in line with most central bank policies in the western world and Japan. Instead of encouraging good old fashioned bank savings which are funds banks can lend to entrepreneurs for investment purposes, such policies only serve to induce ever more debt accumulation and capital consumption. Thrift loses, spending beyond means wins. In the end, all lose.

What is “Malinvestment”?

Whether you are an investor, money manager, economist, CFO or something completely different, chances are that malinvestments, either done by yourself or on a grand scale by others, will negatively affect your life in some ways. Malinvestments by others are also something you can profit from or at least protect yourself from. Given the current huge economic problems in the U.S. and the EU, understanding the concept of malinvestment and some of its underlying causes is an absolute necessity. Below follows therefore information on this subject with links should you want to become…

Lessons Worth Remembering: Who Predicted the Bubble? Who Predicted the Crash?

Mark Thornton some 10 years back wrote an article titled “Who Predicted the Bubble? Who Predicted the Crash?” where he discusses who predicted the 2000/2001 bubble and crash. On pages 22 to 24 he writes the following which is worth noting given the current lofty price of the S&P 500 (even though it has fallen a bit during the last month) and the Fed’s expansion of the monetary base and keeping interest rates low: In general there were two categories of correct predictions. The first group was based on analysis of valuation. Using standard…

It’s The Money Supply, Stupid: 10-year Average Earnings- and Dividend Yields, S&P 500 (as of 21 Mar-14)

Posted by EcPoFi Despite this poor performance year to date, the S&P 500 index climbed to a new all-time high just a couple of weeks ago when it hit 1,878 on 7 March (based on daily data). Adjusted for CPI, the index is now higher than the peak from the last bull market which ended in 2007 and is now only lagging the record high from August 2000. The price return for the index was just short of 19% in real terms during the last twelve months with about 6%…