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Apologia of the speculator

Il prezzo della benzina aumenta. Colpa degli speculatori. Il prezzo del petrolio sale alle stelle. Sono stati gli speculatori al rialzo. La Grecia rischia la bancarotta e l’euro precipita. Chi è stato? Sempre loro, gli speculatori.

Dalla notte dei tempi i nostri buoni governanti hanno sempre cercato di portare il massimo benessere ai loro popoli e senza dubbio vi sarebbero riusciti se l’avidità di pochi uomini non li avesse ostacolati in questa missione civilizzatrice.

Meschini individui che non producono nulla per la società, utilizzando il vil denaro non già per il benessere collettivo ma per arricchirsi, spingendo i prezzi ora alle stelle, hours on the ground, realizing gains Pharaonic, destroying whole countries, destroying the world.

is what are the speculators: the destroyers of the world!

Good. What I wrote are of course plenty of stupid things and now I will explain why.

From time immemorial we can sell our goods at the highest price you can buy at bargain prices and what we need. However, there is a conflict of interest for a long time in the history of economic thought, it seemed unsolvable. It was thought that the goods had some objective value and that fair trade goods were of equal value. If so how does the merchant to sell la merce a prezzi diversi e realizzare un profitto? Ma è ovvio! Comprandola a meno del suo valore e rivendendola a prezzo maggiorato con quel meccanismo denunciato da Marx nel Capitale: D-M-D’ (1).

Ovviamente era la premessa ad essere sbagliata: lo scambio avviene non perché il valore delle merci sia uguale ma perché soggettivamente ognuno valuta ciò che riceve più di quanto dà in cambio. Qual è allora il ruolo del prezzo di mercato?

Come suggeriva Friedrich Hayek il ruolo dei prezzi è quello di diffondere le informazioni, che per loro natura sono frammentarie e disperse, e coordinare le azioni individuali. Ad esempio se viene scoperto un nuovo ed efficiente impiego dello stagno in una linea produttiva, l’aumento della domanda, a parità di altre condizioni, ne farà incrementare il prezzo. Come risultato alcuni utilizzi imprenditoriali del metallo non saranno più profittevoli (sono aumentati i costi) e verranno abbandonati.

Non importa quale sia il motivo per cui la domanda di stagno è aumentata, ciò che conta è che il suo prezzo ha segnalato al resto dei mercati (non solo quindi a quello dello stagno) che la disponibilità di quel metallo è diminuita. Le persone che conoscono la causa di ciò che è accaduto sono solo poche decine ma l’aumento del prezzo dello stagno spingerà il resto degli individui a farne un uso più parsimonioso. In pratica, secondo Hayek, the system of market prices tend to move the economy in the right direction .

In a free market we are all speculators. When we buy at the supermarket parmesan on offer although we have no immediate need, when we travel several kilometers to make a full tank of petrol, when we put aside money to pay for college for our children.

In fact, the speculator is one who is made of the views on the future uncertain (eg the commodity price will be higher than today) and it works today for a gain if his predictions will prove correct. In this sense, every player is a speculator because, as he wrote Mises, human action is always directed towards the future is inherently unknown and therefore uncertain. Any kind of investment is thus a form of speculation.

We are all speculators, but then there are those who, to paraphrase Orwell, are more speculative than others. When it comes to financial speculation, in fact, do not you point your finger at the housewife who buys potatoes on offer, but against the businessman move enormous amounts of money on the stock exchange and that, according to common opinion, is the primary cause of financial crises .

These speculators coordinate the market over time (and is to be praised) or are just gamblers?

Eh sì perché se è vero che la speculazione può spingere l’economia nella giusta direzione, tuttavia abbiamo esperienze continue di bolle finanziarie che si gonfiano e scoppiano l’una dopo l’altra, arricchendo sempre i soliti noti che paiono quasi comandarle con la bacchetta magica.

Che cosa succede? Uno speculatore può sbagliare la sua previsione, ci mancherebbe, ma quando si gonfia una bolla sono in tantissimi a “sbagliare” e nel farlo spingono l’economia nella direzione sbagliata .

Ciò che accade è che i prezzi degli asset finanziari non sono affatto dei prezzi di mercato .

In un mondo dove la moneta è such a decree, in which central banks can create from nothing trillion dollars or euro, in which banks can multiply the fractional credit mechanism and in which in most cases, states and banks do not pay the consequences of their choices wrong but they are always saved (they are too big to fail), financial markets have become a giant casino where the dealer provides billions to win friends and pay bills is salty to all others, even those in the casinos there have never been .

When a speculator knows that if he wins and if he's right is wrong here is that others will pay an incentive to make riskier bets and creating situations highly unstable and uncertain but that can lead to higher earnings. It is therefore more useful to try to unbalancing markets by creating differences in price at a table that does not focus on the real ones.

The biggest speculators in this market are sick ... .. Member! Politicians from all sides and training policy that only looks at short-term (at their re-election) are the first to exploit the fact of not having to pay the consequences of their actions. Thus we have mayors and regional presidents who play with derivatives and governments lavish pensions, contracts and salaries into debt and their citizens.

When today is said to be a war between states (good) and Financial Markets (cattivi) non credete a questa bugia. E’ in corso una gigantesca guerra tra bande di criminali su chi debba poter utilizzare le scialuppe di salvataggio a bordo del Titanic mentre la nave affonda e tutti gli altri passeggeri attendono l’arrivo del Carpathian al suono dei violini.

(1) Secondo Marx il capitalista utilizza il denaro D per acquistare la merce M e rivenderla al prezzo D’ che è maggiore di D, realizzando quindi un profitto.

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All against Ron Paul

Fino a qualche anno fa, se escludiamo qualche accademico dimenticato che negli Stati Uniti seguiva gli insegnamenti economici di Mises e Rothbard, nessuno avrebbe mai neanche osato indicare la politica monetaria Federal Reserve as the cause of business cycles or even to question the goodness of the decisions of Alan Greenspan.

In fact, at the political level there was someone in the United States. He was a Republican congressman from Texas and have for years challenged the Master apparizionial during its Congress in 2003 predicted with remarkable clarity what would happen to the property market in the following years and brought to the forefront the issue during the campaign money Presidential 2008.

In Italy there is almost never mentioned Ron Paul, at least until last week, where the Sole24ore briefly mentioned in a article Alessandro Merli and site Libertiamo.it Seminerio Mario has dedicated an article .

Finally, Ron Paul has the space it deserves? Of course not, the problem is another.

These days, the Financial Committee of the Congress approved the bill Hr.1207 presented just by Ron Paul, which aims to improve the transparency of monetary policy actions of the Fed

Now the financial newspapers were quick to comment on the report, raising gli scudi in difesa della banca centrale americana e prospettando scenari apocalittici che si verificherebbero se il disegno di legge venisse approvato. I giornali di casa nostra si sono subito adeguati.

Non che ci fossero dubbi riguardo l’articolo del Sole24ore, che liquida il tutto in poche righe

«Dell'ostilità della politica sono conferma i progetti dell'influente senatore democratico Chris Dodd per ridimensionare i poteri della Fed, nonostante il parere opposto dell'amministrazione, e l'attacco frontale del populista republicano Ron Paul in Congresso, che vorrebbe addirittura tenere sotto controllo le decisioni rate "

In a period of two rows Merli can write two falsehoods.

first define Ron Paul as "populist," you do not know on what basis, but the intentions are obvious smear, and then states that the purpose of the deputy of Texas would be "put under control the rate decisions."

Anyone familiar with Ron Paul knows that there is no truth in what he wrote but how many Merli, in Italy, have never heard of it?

Surely they know those Libertiamo.it Seminerio and especially Mario, who was a columnist for the Free Market and has collaborated with the Istituto Bruno Leoni.

The cavalry is coming in defense of the main defender of free market, the real one, in the U.S.? No.

Seminerio, in fact, brings the thought of Alan Blinder, an economist who worked at the Federal Reserve, which highlights the dangers inherent in the bill 1207.

"The amendment appears harmless, says Blinder: ultimately, because la Fed dovrebbe essere immune da revisione esterna della propria attività? Giusto, ma il punto è che la Fed non è priva di tali controlli e verifich e. Per dirla con Blinder, il presidente della Fed “non viaggia in jet privato né pasteggia a caviale”, oltre a doversi sottoporre ad audizioni parlamentari periodiche; i libri contabili della Fed sono già sottoposti a verifica da parte del GAO, che entra anche nella valutazione di importanti aspetti di operatività della Fed, come l’operazione AIG ed i salvataggi bancari, per fare un esempio di stretta attualità »

Il primo point raised by Blinder is this: the Fed is already controlled so why increase the checks? The second one refers to the possible "unintended consequences" of the measure

" In all likelihood, next year the Fed will begin the process of exit from the ultra-expansionary monetary policy . E 'entirely predictable that this will happen when someone in Congress does not hurt either, or maybe it will be furious. We would be happy to review the Fed's monetary policy by the GAO, that members of Congress would use to intimidate, perhaps even threaten members of the body of the Fed that sets interest rates? We would like to see members of the FOMC called to testify before Congress to explain why "are killing jobs"? "

Let's address the two points in order.

The Fed is already controlled?

The text of the bill 1207 can be found at this link .

The key point is the first:

(a) In General-Subsection (b) of section 714 of title 31, United States Code , is Amended by striking all after 'Shall an audit agency 'and inserting a period .

If we look at the way the code in question, the paragraph is as follows:

(b) Under Regulations of the Comptroller General, the Comptroller General shall audit an agency, but may carry out an onsite examination of an open insured bank or bank holding company only if the appropriate agency has consented in writing. Audits of the Federal Reserve Board and Federal reserve banks may not include —

(1) transactions for or with a foreign central bank, government of a foreign country, or nonprivate international financing organization;

(2) deliberations, decisions, or actions on monetary policy matters, including discount window operations, reserves of member banks, securities credit, interest on deposits, and open market operations;

(3) transactions made under the direction of the Federal Open Market Committee; or

(4) a part of a discussion or communication among or between members of the Board of Governors and officers and employees of the Federal Reserve System related to clauses (1)–(3) of this subsection.

Dopo la trasformazione diventerebbe così:

(b) Under regulations of the Comptroller General, the Comptroller General shall audit an agency.

are then removed all the exceptions that prevent the Comptroller General to be in possession of all the truly relevant information. The American taxpayer has a right to know where are all brand new dollars that have been created to save the banking system? Knowing which banks took the money from the Federal Reserve, as they have taken, such arrangements have been made with other central banks, how much gold is in the coffers, etc..

Right now you can know all these things? Seeing is believing.

Blinder Remember what he said?

" the books of the Fed are already audited by the GAO, which also enters in the evaluation of important aspects of operation of the Fed, like the AIG transaction, and bank bailouts, to a example of topical "

Sure, sure, sure!

We come to the second question.

Hr 1207 will allow the Congress to control interest rates?

The question raised by Blinder

" We would be happy to review the Fed's monetary policy by the GAO, that members of Congress would use to intimidate, threaten perhaps , members of the body of the Fed that sets interest rates? "

is purely rhetorical. In the bill there is no fact reference to monetary policy decisions, which remain the responsibility of the board of directors of the Fed!

It 's just one bogey agitated in front of the player, saying: "Leave it to us or force us to inflation and we can not defend the purchasing power of your money"

course, is pure propaganda. In fact, the bill does not affect in any way the independence of the Federal Reserve, but rather undermines the privacy .

What Blinder wants is that the technocrats of the Fed could conduct their experiments cash away from prying eyes. We demand the technocrat: how can the common man to know what is the level of interest rates that maximizes economic growth and employment?

The answer is that not only the common man can not know this "optimal level" but not the technocrat to the Fed!

The interest rate, in fact, should be a market price like everyone else or else the economy is bound to suffer from cycles of expansion and depression, as described by Mises and Hayek.

Why, rather, almost all so-called "defenders of free markets" are in favor of privatization and liberalization in all areas except for the currency and the credit market?

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Predictable and inevitable

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Economists study the history!

In a piece published by the Sun 24 hours Bradford De Long accused substantially macroeconomists do not know the history of economics modern, which is dotted with bubbles followed by recessions.

" If you ask a historian of modern economy like myself because the world is currently in the grip of a financial crisis and a severe economic downturn, I would say that this is only the latest episode in order time in a long string of bubbles, crack, crises and recessions dating back at least similar to the bubble of the early twenties of the nineteenth century due to the construction of canals, in 1825-1826 the failure of Pole, Thornton & Co, and the subsequent first recession in industrial Britain. We have witnessed the same phenomenon at other times in history, nel 1870, nel 1890, nel 1929, e nel 2000 . »

De Long va avanti e sottolinea che

« Per qualche motivo, i prezzi degli asset vanno fuori controllo e salgono a livelli insostenibili. Talvolta ciò è da imputare agli scadenti controlli interni alle società che remunerano in maniera spropositata i propri dipendenti per correre dei rischi. Altre volte causa di tutto sono le garanzie governative. Infine, altre volte ancora ogni cosa è semplicemente da ricondurre a una lunga serie di avvenimenti propizi che lascia che il mercato cada in preda a un ottimismo per nulla realistico.
Poi, però, arriva il tracollo, e when it does collapse, consequently, the retention of risk: everyone knows that occur in huge losses of financial assets that are not aware, but nobody has the faintest idea where they are. The collapse follows a real escape for salvation, followed in turn by a sharp drop in the velocity of circulation of money, as and that investors accumulate cash. And this fall in the velocity of circulation of money will cause a recession "

poor controls, excessive remuneration, government guarantees, auspicious events that make the market fall into prey to unrealistic optimism ... investors hoard money and cause a recession. Is not something missing in this story?

In the rest of the article's criticism of De Long hits the mainstream macroeconomists and is acceptable, all things considered, I would like to exploit the appeal of De Long to

" listen and learn from the Dick Sylla history of the bank bailout of Alexander Hamilton in 1825, from Charlie Calomiris the story of Overend, Gurney crisis, by Michael Bordo history of the first bankruptcy of Baring Brothers, and Barry Eichengreen, Christy Romer, Ben Bernanke and the history of the Great Depression "

Let, however, to hear the story from a different point of view, it can find a common factor in all these sequences of boom and bust.

Panic of 1819

to this crisis, the first in the United States due to the phenomenon of the economic cycle, our historic reference is Murray Rothbard with his book "The panic of 1819 .

The panic of 1819 was the first major U.S. economic crisis. For the first in American history there was a crisis of national scope that could not be simply and directly attributed to specific locations such as famine or restrictions or embargoes.

Rothbard tells us that this crisis arose as a result of measures taken during the war of 1812, when the U.S. government is indebted largely to finance the conflict. This high demand of funds was met by the banking system that took the opportunity to issue new banknotes which, however, were not backed by any gold deposit. When the owners asked to convert their notes pieces of paper into hard cash which provoked a banking crisis and the government to allow banks to suspend payment (or to be able to refuse to convert banknotes into gold).

Freed from the constraint of maintaining a gold reserve, the banks were able to expand even further their emissions of paper money, creating a credit boom. When the situation seemed to fall in 1816-1817, Congress authorized the creation of a national bank (the Second Bank of United States) that was tasked with creating notes backed by gold reserves and provide the country with a sound currency . In reality, this National Bank, predecessor della Fed, non fece altro che unirsi al coro inflazionista.

Dove finirono tutti questi soldi? Nel mercato immobiliare e ….. nel Mercato Azionario di Wall Street, che nasceva ufficialmente proprio nel 1817, nel bel mezzo della bolla speculativa!

Dopo il boom seguì la recessione, non ci fu nessun New Deal, nessuna Grande Depressione, il governo non fece nulla e nel 1821, liquidati i cattivi investimenti, l’economia ripartì.

Il fallimento di Pole, Thornton & Co - 1825

Ci spostiamo ora in Inghilterra dove durante le guerre napoleoniche, per finanziare le enormi spese del conflitto, era stato abbandonato il gold standard e la Bank of England aveva potuto inflazionare a suo piacimento la moneta, tra il 1797 ed il 1821. Il ritorno al gold standard fu drastico perché l’intenzione era quella di ritornare al livello di parità tra sterlina ed oro che esisteva prima della guerra ma nel 1823 l’economia sembrava essersi rimessa in sesto. A questo punto, racconta Rothbard in “ History of Economic Thought: Classical Economics ”:

« L’espansione creditizia attuata dalla Bank of England fece da apripista in questo nuovo boom inflazionario, aumentando il totale di crediti concessi da 17,5 milioni di August £ 1,823,000,000 to 25.1000000 pounds two years later, a huge increase of 43% or 21.7% annually. Most of monetary and credit boom came to light through investment in highly speculative shares of mining companies in Latin America. [..] By the end of 1824, the international exchange rates became unfavorable gold began to flow abroad within the next year, the British began to demand gold from their banks are making more. [..] This was followed by bank runs and panic. [..] Pole, Thornton & Co. went under, despite the attempt to rescue the last minute attempt by the Bank of England '.

Other inflationary boom, another recession.

The Panic of 1837

Now back to the United States, where the Second Bank of the United States was not to have learned their lesson because, as Rothbard says in "History of Money and banking in the United States "

'price inflation began in the early '30s when wholesale prices reached a level of 82 in July 1830, to go up by 20.7% in three years and reach a level of 99 in the fall of 1833. The reason for this growth is simple: the money supply grew by $ 109 million in 1830 to 159 million in 1833, an increase of 45.9% or 15.3% per annum. [..] No doubt, the monetary expansion was led by the Second Bank of the United States which increased its currency and deposits from 29 million to $ 42.1 million, an increase of 45.2 percent. "

In recent years, meanwhile, consumes the fight between President Jackson and the banker Nicholas Biddle, resulting in a progressive emptying of the privileges of the Second Bank until his disappearance a few years later. The prices, which in the meantime had declined after 1834 they returned to climb:

"wholesale prices rose from a level of 84 in April of 1834 to 131 in February 1837, a significant increase of 52% in less three years. "

This was perhaps because the banks, freed from the" brake "of the Second Bank of the United States, began to create credit money beyond all limits, as the story" official "? Rothbard writes that:

"There is no doubt that inflation prices was due to the remarkable monetary inflation of those years. In fact, the total money supply rose by $ 150 million at the beginning of 1833 up to 267 million in early 1837, a spectacular increase of 84% or 21% per year '

But this did not happen because banks created additional credit on existing money: in fact their reserve ratio never got below 16%, which is the level they had maintained during the existence of the Second Bank. What happened is that:

'A partire dal 1833, il totale di denaro contante (moneta metallica) nel paese si incrementò da 31 milioni di dollari a 73 milioni all’inizio del 1837, per una crescita del 141,9% o del 35,5% annuo. Quindi, anche se una crescente sfiducia nei confronti delle banche indusse il pubblico a ritirare parte del denaro dai loro conti, [..] le banche furono comunque in grado di aumentare le loro note ed i loro depositi allo stesso tasso in cui il denaro affluiva nelle loro casse».

.Le cause di questo afflusso di metallo furono «per prima cosa un largo flusso in ingresso di argento dal Messico ed inoltre un netto taglio delle usuali esportazioni di argento in Oriente».

Come spiega Rothbard:

«La vera causa [del flusso di argento negli Stati Uniti] fu l’inflazione monetaria in Messico causata dal regime di Santa Anna, che finanziò il suo deficit coniando monete di rame svilite. Poiché queste ultime erano molto sopravvalutate e le monete d’oro e d’argento, al contrario, erano sottovalutate (a causa del cambio fisso che non era stato cambiato), queste ultime sparirono velocemente via dal Messico fino a sparire. L’argento, ovviamente, e non l’oro, stava finendo negli Stati Uniti durante this period. When the Mexican government was forced in 1837 to change the exchange rate at an appropriate level, the flow of Mexican silver in entering the United States ceased '.

When the collapse came in 1837, William Leggett remarked

Anyone who has observed in an objective manner the course of events of the last three years could have predicted the state of affairs that has occurred now ... would have seen that banks .. tried with all their efforts, emulating each other, to force their own notes in circulation, and showering the earth with their monetary surrogates. He saw they tried in every act of seduction to convince people to accept their supposed aid, so that in this way have gradually aroused a thirst for speculation [..] that has evolved into a fever and the people as prey to an epidemic or a fad of the moment, he embarked on all sorts of desperate adventure. They dug canals business requires no means of transport, opened roads where no traveler wanted to go, built towns where nobody wanted to live "

De Long So, what we learn from the history of speculative bubbles? What is the factor that unites them all?