Doug French

Doug French

Douglas French is former president of the Mises Institute, author of Early Speculative Bubbles & Increases in the Money Supply, and author of Walk Away: The Rise and Fall of the Home-Ownership Myth. He received his master's degree in economics from UNLV, studying under both Professor Murray Rothbard and Professor Hans-Hermann Hoppe.

Articles by Doug French

Government Employee Pensions Are Underfunded. Taxpayers Will Make Up the Difference

People aren’t messing with their 401(k)s enough, according to the The Wall Street Journal. It used to be “Set it and forget it.” Now, according to the Wall Street Journal’s Jon Sindreu, if you forget it, you might miss it.
Inspired by a BlackRock thought experiment which included perfect knowledge, Sindreu looked backward between 2020 and the present at a person making yearly changes (moving funds to the previous year’s strongest sector) which would have generated a compound annual return of 55 percent, nearly four times more than buying and holding the Standard and Poor’s 500 (or setting and forgetting). For the period of 2016 through 2019, the gain would have been 30 percent, twice the index.
Basing a new strategy on back-of-the-envelope testing back just seven years seems dubious. It

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Time Is Running Out for Construction Loans

Back when I was a construction lender, I thought the perfect construction loan would pay off after one day, just long enough to collect the loan fee. After all, time is your enemy in construction lending. Any of a myriad of unknowns can keep construction from being completed: the market may evaporate for what is being built, interest rates may rise to make a loan uneconomic, construction costs could increase to require a loan modification or more borrower equity (good luck), just to name a few.
Time is risk. As Gerald O’Driscoll and Mario Rizzo wrote in their book The Economics of Time and Ignorance, “As long as we remain in a world of real time, unexpected change is inevitable, and ignorance is ineradicable.”
In good times senior bank management would regret construction loan payoffs. In

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30-Year Mortgages Are Still a Sweet Deal—For People who Already Have Them

The thirty-year mortgage, of all things, came under attack in a piece by Ben Casselman in the New York Times. The three-decade fixed rate loan is, of course, a creation of the government and adds constant fuel to the US housing market. The title of Casselman’s piece calls the most popular debt instrument for home purchases “weird,” “cushy,” and “old.” He blames low interest rate thirty-year fixed loans for the broken housing market.
Casselman points out that nearly 95 percent of US mortgages have fixed interest rates, and of those, more than three-quarters are for thirty-year terms. Once upon a time, homebuyers could only borrow half the purchase price for a home and that loan would be due in three years. The Federal Housing Association changed all of that in the 1930s.
Casselman writes,

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Is ExxonMobil’s Acquisition of Pioneer Natural Resources a “Threat to Democracy”?

We hear plenty about threats to American democracy: Donald Trump’s a threat, the Republican party is a threat, and any number of other people or political parties are threats. Now it’s ExxonMobil’s purchase of Pioneer Natural Resources.
Jeff D. Colgan, a professor of political science and the director of the Climate Solutions Lab at Brown University, wrote in an easily missed piece entitled “Exxon Mobil’s Pioneer Acquisition Is a Direct Threat to Democracy” for the New York Times, “The democratic argument against the proposed deal is simple. In politics, concentrated interests, like rich corporations, have powerful advantages over diffuse interests, like voters, that can distort outcomes and thwart progress.”
Dr. Colgan’s argument is, of course, all about climate legislation. A bigger

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Turkey Is Sustaining Major Inflation. Something Has to Give

Bloomberg reports that price inflation in Turkey was more than 60 percent in September. The 61.5 percent reading was released by the Turkish government’s statistical office. Being on the ground in Turkey for Hans-Hermann and Gülçin Hoppe’s Property and Freedom Society meeting, I can say the vibe was not hyperinflationary. The shelves are not empty and the port city of Bodrum is booming. Professor Hoppe told the crowd Bodrum has grown from a population of fifty thousand to a million for the whole peninsula. No matter the destruction to the Turkish lira, money keeps pouring into peninsula real estate, watercraft, and businesses.
“According to statistics by the Turkish Statistical Institute, the average property price in Bodrum in 2021 was around $490 per square foot,” wrote Spencer Elliott

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Bank CEOs Have Their Heads in the Clouds

Bank CEOs always have their heads in the clouds. First, pessimists never earn a seat in the corner office. Plus, it takes a good-sized ego to climb to the top of a bank bureaucracy. A person running a bank believes they can sail the ship through any stormy economic weather.
Take John Allison. He’s the chairman of a bank holding company, Home BancShares. He told the Wall Street Journal about a time when the regulator of Home BancShares, the Federal Reserve, was badgering him to slow down on real-estate lending in 2019. “They’re telling us the construction lending space is going to blow up . . . and the world is coming to an end,” Allison recalled. “And I said, ‘You know what? I don’t see it.’”
A CEO I worked for was pithier when the regulators sang the same tune about his bank’s growth.

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Is the US Banking System a House of Cards Waiting to Topple?

It’s the deposits. Bankers never used to worry about the money customers left in their banks. When deposited, the money was lent out while depositors could come and get their money anytime if it was a demand deposit. Thus, the depositor and the borrower had the use of the same money at the same time. Murray Rothbard called it fraud.
Now it’s 2023 and Scott Hildenbrand, the chief balance sheet strategist at Piper Sandler, tells Joe Weisenthal and Tracy Alloway on Bloomberg’s Odd Lots podcast,
And so if you had told me, Joe, or Tracy five years ago, you had me on here and you said, “There’s a bank and all they’re going to do is buy treasuries and all of their deposits are in checking accounts. And by the way, they’re going to fail,” I would’ve laughed at both of you. I wouldn’t have come

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The Taxpayers Bailed Out Yellow Trucking. It Went Bankrupt Anyway.

After ninety-nine years in business, Yellow, one of the nation’s biggest trucking companies, shut down. The company has more than twelve thousand trucks and employed thirty thousand, with twenty-two thousand of those jobs held by Teamsters.
If you are a taxpayer, you know all this, your government being a 29.6 percent shareholder of Yellow and all. The Trump administration’s Coronavirus, Aid, Relief, and Economic Security (CARES) Act dished out $500 billion to businesses, states and municipalities as a result of the coronavirus. Yellow Corporation received $700 million of the $735.9 million set aside for national security loans.
The loan had two tranches, tranche A was $300 million to cover union healthcare and pension liabilities, plus lease and interest payments. Tranche B was for

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Can Fractional Reserve Banking Survive the Twenty-First Century?

Caitlin Long tweeted over the July 4 weekend, “BIG NEWS for #fintech! A sixth US state—Idaho—is willing to charter uninsured, non-lending, 100% reserve banks that are eligible for Fed master accounts (the other states are CT, ME, NE, VT & WY). This trend could turn the ‘bank-as-a-service’ (#BaaS) model on its head!!!!!”
As Long explained to Ash Bennington on Real Vision, bankers are
playing this three-card monte game of, well, I’ll tell everybody that they can have their deposits back on demand. But I only keep seven cents of the deposits in cash. So, if more than 7 percent of the demand deposits get withdrawn in a short period of time, I’m in trouble. And that’s exactly what happened to all the banks that failed.
Responding to Long’s comments, Bennington made the point that today’s bank

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The Backstops for Banks Are Full of Holes

The Federal Home Loan Bank (FHLB) is the latest "weapon" in the government’s so-called arsenal to keep the banking system afloat. But the system needs much more than just "liquidity." It needs sound money and sound banking practices.

Original Article: "The Backstops for Banks Are Full of Holes"

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The Backstops for Banks Are Full of Holes

First Republic, Signature Bank, and Silicon Valley Bank have all failed, and that’s not the only thing they have in common. Western Alliance Bank’s Ken Vecchione was jealous of these three large regional banks. The chief executive admitted to the New York Times, “We were, I have to admit, a bit envious of them.”
Obviously Vecchione was and likely still is oblivious to problems at his bank and others. He doesn’t understand the fragility of fractional reserve banking. “We certainly didn’t see this coming,” Mr. Vecchione told the Times. Murray Rothbard saw it coming decades ago, writing, “Banks are ‘inherently bankrupt’ because they issue far more warehouse receipts to cash (nowadays in the form of ‘deposits’ redeemable in cash on demand) than they have cash available. Hence, they are always

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Housing Prices Are Falling As Reality Sinks In

The local paper’s headline posed the question, “Do renters have the upper hand in Las Vegas right now?” “[The apartment project] offered us two weeks of no rent to get us moved in on the timeline we wanted,” said a renter who was also given passes to the Life Is Beautiful music festival as part of the deal. “They also throw resident events every month providing food and entertainment,” she added.
Las Vegas Review-Journal business reporter Patrick Blennerhassett reports deals like this are not uncommon. Websites for Las Vegas apartment projects indicate apartment owners “are doling out a multitude of perks.” Besides the perks, rents decreased 2.2 percent in this year’s first quarter.
“Rents are definitely falling,” said Shawn McCoy, director of the Lied Center for Real Estate and an

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After the Debt Ceiling Deal: Look for Liquidity Problems in the Markets

Everything seems to be lining up perfectly for individual investors with Joe Biden and Kevin McCarthy making a debt ceiling deal. In fact, a sentiment poll reflects an ebullient investor class. According to an Investors Intelligence article titled "Assume the Positioning" (reprinted in Almost Daily Grant’s, June 1, 2023), “Just 23.3 percent of respondents are bearish on stocks, the lowest since January 2022, [when] the market scaled the summit of the everything bubble.”
But that same debt ceiling fix will unleash a torrent of US Treasury issuance that will overwhelm the markets leaving stock investors in its wake. Cem Karsan of Kai Volatility Advisors told Maggie Lake on Real Vision, “By most estimations . . . we’re going to have to issue $1.4 trillion in debt before the end of the year.

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It’s Raining Entrepreneurship at a Taylor Swift Concert

The flowers of entrepreneurship bloom in the strangest places. Kirznerian entrepreneurs attending the rain-soaked Taylor Swift concert at Gillette Stadium in Foxborough, Massachusetts, determined there would be a market for the rain which had fallen near the pop diva.
The New York Post reported, “Some entrepreneurial fans are capitalizing on and trying to flog [rain] online for $250.” This $250 price is the ten dollar bill analogy Israel Kirzner stressed, as described by Murray Rothbard, when relating how the entrepreneur is a person who, “upon seeing a $10 bill in front of his nose, is alert to the existence of the money and leaps to grab it. The alert man will grab the $10 note rapidly; the less alert man will take longer to see his opportunity and to take advantage of it.”
To that

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The Five Stages of Bank Failure Grief

We are familiar with the five stages of grief. However, it is not a stretch to apply those stages to what is happening to the banking system. Right now, we are in the second stage: anger.

Original Article: "The Five Stages of Bank Failure Grief"

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The Bankruptcy Caravan Is Now Arriving: Time to Pay for the Easy Money

The character Mike Campbell in Ernest Hemingway’s 1926 novel The Sun Also Rises was asked about his money troubles and responded with a vivid description embracing self-contradiction: “‘How did you go bankrupt?’ Bill asked. ‘Two ways,’ Mike said. ‘Gradually and then suddenly.’”
Ground-hugging interest rates for more than a decade kept the inefficient and the incompetent in business. Now, the jig is up, with a Mother’s Day weekend corporate massacre that saw the bankruptcies of seven corporations, each with liabilities of nine figures or more—in four cases, with more than a billion dollars in liabilities each.
This cluster of large bankruptcies happening in less than forty-eight hours is the most since 2008. Libby Cherry writes for Bloomberg (reprinted on Time): “Firms across every sector

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Finance Discovers Sting: “How Fragile We Are”

Despite the soothing hot air from the White House and Fed officials, the financial system is becoming increasingly fragile and unstable. Maybe all of that intervention the past decade was not wise.

Original Article: "Finance Discovers Sting: "How Fragile We Are""

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The Five Stages of Bank Failure Grief

The talking heads on financial TV ask everyday where we are in the banking crisis. Is it over yet? After scooping up First Republic, JP Morgan’s Jamie Dimon said, “This part of the crisis is over.” After he said that, however, the shares of regional banks such as PacWest, Zions, and Western Alliance were cut in half. The market doesn’t believe Mr. Dimon.
Elisabeth Kübler-Ross described five stages of grief: denial, anger, bargaining, depression, and acceptance. ‎On Twitter, describing the typical timeline for a banking crisis, Real Vision’s Raoul Pal posted:
It’s one bad apple,
Well maybe it’s just a few
“Banks remain strong”
It’s the evil short sellers (we are considering a ban)
Ok, now we are banning shorts
Oh, seems that didn’t work
Cut rates
That didn’t work
Panic
Change . . .

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Finance Discovers Sting: “How Fragile We Are”

An ongoing debate concerns the plunge in the four-week Treasury note yield in relation to the three-month Treasury yield. At least one tweeter claims it’s all about the coming debt ceiling showdown with the difference in rates (3.145 percent versus 5.070 percent) reflecting the risk of having liquidity tied up within three months as the debt ceiling exercise is run through DC sausage making.
On the other side is Eurodollar University’s Jeffrey Snider who tweeted in response, “The behavior of bills today, esp. 4w[eek], was way too like April 2008 not debt ceiling. Just massive demand for these things to the point that it’s 2008-style below other money alternatives. This ain’t debt ceiling rather pure collateral run.”
Snider tweeting again:
Let’s put this to rest right now: bills and debt

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Paying the Piper: Time to Clean Up the Latest Malinvestments

The Austrian business cycle theory teaches us that low interest rates manipulated by the central bank lead to malinvestments, which are cleared when the central bank lets rates rise, reflecting a truer cost of capital. A real-time example is happening in the United States commercial office real estate market. Combine that with the government’s covid lockdowns, which forced employees to work from home. Now, employees never want to change out of their pajamas while on the clock. Notwithstanding Jamie Dimon’s call for JPMorgan Chase & Co. employees to return to the office five days a week, most employers have acquiesced to their employees, and the need for office space has diminished.
In downtown Louisville, Kentucky, the twenty-nine-story Fifth Third Bank building, which is only half

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Peak EV: Electric Vehicles Will Fade as Their True Costs Become Clear

The government wants to make gas cars a lot more expensive. But electric vehicles are so expensive in the longer term that gas cars still look like a better deal.

Original Article: "Peak EV: Electric Vehicles Will Fade as Their True Costs Become Clear"
This Audio Mises Wire is generously sponsored by Christopher Condon.

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From Discipline to No Discipline: The Sorry Evolution of Modern Banking

Every decade or so bank failures and the subsequent bailout response via central bank intervention appear. The latest jangling of depositor nerves involved US regional banks and a certain Swiss bank of great systemic importance. As James Grant writes in his book Bagehot: The Life and Times of the Greatest Victorian, “In economics, the most ostensibly rigorous of the social sciences, progress–and error, too–are cyclical; we keep stepping on the same rakes.” Sounding Rothbardian, Grant writes, “In banking, though, accidents came in clusters. Bank runs, unlike train wrecks, were contagious.” Nothing has changed.
Walter Bagehot famously urged the Bank of England—or “the Old Lady,” as the world’s first central bank is referred to in Grant’s elegant telling of Bagehot’s life and the economic

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Peak EV: Electric Vehicles Will Fade as Their True Costs Become Clear

“On Wednesday, the Environmental Protection Agency plans to announce tough new tailpipe emission standards designed to effectively force the auto industry to phase out the sale of gas-powered cars,” reports The Verge, with the provocative headline “The End Is Nigh for Gas-Powered Cars.”
Environmental, social, and corporate governance (ESG) is the newest religion, and we all know who the practitioners are. Electric vehicle (EV) owners sing “Hallelujah” when they pull out of their garages. The investor-class ESG evangelists believe the new belief is in its beginnings. Whatever the Biden EPA does, investor Harris Kupperman thinks it’s likely just the Church of What’s Happening Now.
Kupperman, referred to as Kuppy by Real Vision’s Maggie Lake, told her, “Well, I think we’re nearing peak ESG,

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Is the Silicon Valley Bank’s Failure Another “Canary in the Coal Mine”?

If you watched the Fed Chair Jerome Powell testify before the senate and the House, you heard over and over that banks are well capitalized. The non-sequitur should inspire the Shakespearean quote “Methinks you protest too much.” The very next day after the hearings, shares of SVB Financial Group, parent of Silicon Valley Bank, fell 60 percent (and another 30 percent in afterhours trading at this writing) after a Wall Street Journal article revealed, the bank “had sold large portions of its securities portfolio and would raise fresh capital, highlighting a broader problem for U.S. lenders who have seen rising interest rates hammer the values of their bond holdings.”
In What Has Government Done to Our Money? Murray Rothbard reminded us:
The bank creates new money out of thin air, and does

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Ready for Retirement? Fewer and Fewer Americans Are Saving for that Time

Thus, the nearly half the adults in America who haven’t saved remain childlike and live in barbarism.
For those who are saving, volatile markets point to a less-than-cozy retirement for the majority. Last year’s beat down of the average 401(k) plan was 20 percent, which didn’t help. But retirement participants are keeping the sunny-side up, believing “they’ll move closer to their retirement goal by ending 2023 with more in retirement savings than at the end of 2022.” We can only wonder what makes folks believe that.
Most retirement savings are invested in index funds which track the S&P 500 and, “particularly for older savers, in actively managed equity funds heavily weighted in the benchmark index’s top stocks,” writes Woolley.
Shares of giant tech companies, fueled by zero-percent

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Edward Chancellor’s Much-Needed (But Not Heeded) Wisdom on Interest Rates

The subject of time and money has hit a boiling point. Just look at Sri Lanka and Iran, where food riots have turned deadly, or, shall we say, currency riots have. People can’t buy food, and “protesters angry at the soaring prices of everyday commodities including food, have burned down homes belonging to 38 politicians as the crisis-hit country plunged further into chaos, with the government ordering troops to ‘shoot on sight,’” reports invesbrain.com.

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The Turkish Way

The Wall Street Journal reported on September 22 that Turkey’s central bank cut that country’s benchmark interest rate to 12 percent from 13 percent, pushing the Turkish lira lower as much as 0.4 percent against the dollar to a new record low after the decision. One US dollar recently bought 18.3866 lira.

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Economic Winter Has Arrived

The average card-carrying Austrian would say that the Federal Reserve is creating money by the bale, with evidence being Consumer Price Index prints of 8.6 percent per the Bureau of Labor Statistics or over 15 percent per John Williams’s shadowstats.com computation based on the way the government calculated CPI back in 1980.

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When Higher Prices Are Not Inflation

Audio Mises Wire

Monetary inflation results in a general rise in prices, often called "price inflation." But rising prices are not always "inflation." In any case, more government regs and subsidies won’t help.

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When Higher Prices Are Not Inflation

Back to 2020, the federal government’s covid-mandated shutdown of meat production plants hobbled the nation’s meat production capabilities, leaving farmers with nowhere to send their beef. This resulted in them having to cull cattle and other livestock. The uncertainty caused farmers to scale back their production at the time, which Arun Sundaram told CNBC “can affect production more than a year, year and a half down the road.”

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The Truth about Tulipmania

When the economics profession turns its attention to financial panics and crashes, the first episode mentioned is tulipmania. In fact, tulipmania has become a metaphor in the economics field. Should one look up tulipmania in The New Palgrave: A Dictionary of Economics, a discussion of the seventeenth century Dutch speculative mania will not be found.

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Housing Hubris: Can Home Prices Spiral upward Forever?

For the Wall Street sequel, the subtitle was Money Never Sleeps. But the Oliver Stone reprisal of Gordon Gecko was the stuff of 2010. In America, a decade plus ago, money slept. Now, it truly doesn’t, with cryptocurrency prices gyrating 24/7/365. This frantic activity has spread to other asset markets.

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Thanks to Bailouts, Wall Street Banks Are More Fragile than Ever

The financial covid crash of 2020 came and went in a month as the US government threw every monetary and fiscal trick it had at the government-imposed flash panic. We’ll never know which malivestments would have been cleansed. We live on with goods and labor shortages and with higher prices we’re assured by experts are transient.

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Price Discovery is Alive and Well in Crypto

“If the market continues to see wild swings based on Elon Musk tweets, it’s going to be a big setback for this asset class,” Matt Maley, chief market strategist for Miller Tabak + Co. told Bloomberg. “The fact that it sees such wild swings to the tweets from one person takes away the legitimacy of the asset class.”

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Stagflation Cometh

A gentleman who does work for us sent me a text recently saying the price of his supplies has increased 20 percent, so he wants to increase his monthly fee 10 percent. It was a nice way to ask, and I said sure, especially given that he’s willing to take a haircut on his labor to make the increase more palatable.

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The Upside of Lockdowns: More Saving

Rothbard: “At the outset of every step forward on the road to a more plentiful existence is saving….Without saving and capital accumulation there could not be any striving toward nonmaterial ends.”

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The Upside of Lockdowns: More Saving

Something good is coming out of the covid lockdowns. Economist David Rosenberg released a special report via the eponymous Rosenberg Research, concluding “the pre-COVID-19 ‘norm’ of a 7% personal savings rate will morph into a post-COVID-19 norm of 10%.

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Central Banks Put Wind at Bitcoin’s Back

“Russia, Russia, Russia,” the current president used to sarcastically chastise opponents for wondering about 2016 election tinkering from Putin’s principality. Recent MAGA rallies featured “Covid, covid, covid,” with President Trump complaining that the press could think of nothing else.

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Monetary and Fiscal Sorcery Make Home Price Magic

Make the money cheap enough and government intrusive enough, and incongruous headlines appear side by side. For instance, from the Las Vegas Review-Journal comes this head-scratcher: “Las Vegas Housing Market ‘on Fire’ as Economy Limps Along.”

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How the CARES Act Is Still Kicking the Can

During Real Vision’s Daily Briefing of August 13, Ed Harrison asked rhetorically, “How is it possible for you to have a bull market, a new leg up in the business cycle when bank stocks, the traditional value cyclical trade are 30% off their highs? That’s not a signal of bull, it’s a signal of secular stagnation.”

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Stocks Always Go up. Until They Don’t.

Economist Irving Fisher famously said just before the 1929 stock market crash, “Stock prices have reached what looks like a permanently high plateau.” Whoops. Fisher wasn’t just any old economist. Joseph Schumpeter called him "the greatest economist the United States has ever produced." Milton Friedman and James Tobin agreed.

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As the Fed Pumps, the Stock Market Is Increasingly the Only Game in Town

While the economic storm caused by COVID-19 has seemed to wane (temporarily?), the stock market can’t seem to go but one direction—up. Graham and Dodd’s meaty 700-page Security Analysis has soared to number 7695 on the Amazon best-seller list. According to Warren Buffett, the book is A road map for investing that I have now been following for 57 years.

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Some Insightful Entrepreneurs Planned for a Pandemic

Listen to the Audio ​Mises Wire version of this article. Does a pandemic trump entrepreneurial foresight? Many in business will say yes, “nobody saw this coming.” Lack of customer demand and government lockdowns are “no fault of their own.”
But Penny Chutima, co-owner of the Lotus of Siam restaurant, did see it coming. Chutima and her mother, Saipin, have operated the off-Strip Las Vegas staple for years.

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Builders in Denial

The year 2006 seems like a lifetime ago. The housing boom seemed to be going full throttle, but danger lurked. I wrote on LewRockwell.com in March of that year, concerning a Las Vegas real estate seminar, that “nary a discouraging word was spoken.”

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Shhhh: Repo Operation in Process

In a bit of holiday news no one will care about, the Treasury announced it would return to selling twenty-year treasury bonds to aid in funding the nation’s trillion-dollar deficit. It was 1986 when the Treasury last issued twenty-year paper. Of course the question is: who or what will be the buyers?

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