The Bear’s Lair: 1873 holds lessons for today

Bull Market Geműtlichkeit -- Bethel Henry Strousberg family 1870

Bull Market Gemütlichkeit — Bethel Henry Strousberg family 1870

Moving into a new year, we naturally look for interesting anniversaries, from which lessons can be drawn. In 2023, there are no centenaries, bicentenaries or tercentenaries of interest, while I have written extensively recently about the 1970s, in which 1973 of the “Arab Oil Crisis” is the crucial year. However, 2023 is also the 150th anniversary of the “Panic of 1873” about which much less has been written, in this column or elsewhere, and which has many lessons for us today. Continue reading

The Bear’s Lair: The coming regulatory meltdown

When you add constraints to a complex mathematical or engineering system, at first it does not change much. Then it begins to perform less well, but only gradually until suddenly, with the addition of an additional constraint that may itself be unimportant, the system collapses and either fails to produce a solution or produces one at a very much lower level of operating efficiency – mathematically, a “catastrophic” degradation. Continue reading

The Bear’s Lair: Central banks must play Grinch, not Santa Claus

The core imperative for the move to fiat money and then to permanent “stimulus” policies was the urge by central banks to play Santa Claus. By lowering interest rates, they raise asset prices and make everyone feel richer. This is dangerous; it produces asset bubbles, kills productivity and increases inequality, making everybody but the very lucky poorer in the long run. The need therefore is for an institutional framework that will force central bankers to play Grinch. Continue reading

The Bear’s Lair: The world needs a period of iconoclasm

Iconoclasm, whether in 8th century Byzantium or as the Reformation in 16th century Europe, was a response to a religious order that had become dogmatic, corrupt and detached from the real needs of its flock. It was more than mere reform, because it involved breaking the sacred objects of the establishment’s veneration. Economically, socially and institutionally, we have a quasi-religious “woke” establishment whose dogma has become detached from reality. Iconoclasm, not mere reform, is needed to combat it. Continue reading

The Bear’s Lair: Cash flow will be king in 2023

For the last decade, cash flow has seemed irrelevant. Interest rates have been close to zero and well below the inflation rate, so that loss-making companies and projects with cost or time overruns could easily raise additional capital. Now, with inflation at 7-8%, interest rates are still negative in real terms. However, whatever the level of inflation, a 5% interest rate has one important difference from a zero interest rate: it requires you to find 5% of the principal in cash each year or go out of business. Modern companies, especially in the tech sector, are not used to such disciplines. The result will be bankruptcies and scandals in 2023; Sam Bankman-Fried is just the first of a large crowd. Continue reading

The Bear’s Lair: It’s a long time since the Age of the Antonines

Genseric Sacking Rome

Imagine being a citizen of the Western Roman Empire early in the reign of the Emperor Honorius (ruled 395 to 423). You would know that the Emperor was not very good, and that the Empire was fighting off the barbarians only through the efforts of General Stilcho (c.359-408). Yet you would look back for better rule only to the Emperor Theodosius (ruled 379 to 395) and believe that with another Theodosius, all would be well. However, the Empire had by Honorius’ time been in severe decay for two centuries, since the death of Marcus Aurelius, the last of the Antonine Emperors in 180, and only the Sack of Rome and disintegration lay ahead. Like Honorius’ subjects, we too delude ourselves through looking back only to Ronald Reagan and Margaret Thatcher, not to our truly successful and creative earlier past. Continue reading

The Bear’s Lair: No to digital dollars, yes to new e-gold

Former Fed Governor Kevin Warsh has published an editorial in the Wall Street Journal expressing support for a digital dollar, lest the United States lose competitive ground to China. Since Warsh is a possible Fed chairman should Republicans gain the Presidency in 2024, his support for a digital dollar is truly alarming, given the civil liberties dangers involved. However, his economic argument is specious and his solution damaging; there is indeed a better way to go. Continue reading

The Bear’s Lair: Bernanke brought us Bankman-Fried

The collapse of Sam Bankman-Fried’s crypto-currency exchange FTX, resulting in the loss of at least $1 billion of customer money, will be used to demand more regulation of the crypto-currency business. Yet its growth, collapse and the murky web of corrupt connections surrounding it were a product of the decade of “funny money” that has allowed fraud to flourish, as it always does in such periods. The blame for the Bankman-Fried debacle, therefore, can be traced back to one source: the unjustifiable corruption of monetary policy by Fed chairman Ben Bernanke. Continue reading

The Bear’s Lair: The 2010s were worse than the 1970s

As we move through the 2020s, the 2010s, the decade between the financial crisis and the COVID outbreak, come into perspective. In terms of monetary, fiscal and regulatory policy in the United States and throughout the rich world, it was extreme, worse than the 1970s in its disregard for free-market first principles. The main difference in outcomes was that the 2010s saw no significant inflation. That has now changed, and the prognosis going forward may well be worse than the hardships of the early 1980s. Continue reading

The Bear’s Lair: Greta reveals her true colors

Greta Thunberg, the Swedish teenage climate change activist, was not invited to attend the 27th United Nations Climate Change Conference, and therefore denounced it, explaining that her true objective was not to battle climate change but to undermine the rotten racist Western capitalist system. Thereby she showed herself in her true colors, which are the deep red of the vast majority of the climate change movement. For them, the precise temperature of the planet in 2100 is of only moderate interest; by far their greater objective is to subject what remains of the free market to their own control, and thereby achieve a planned economy, Communist rather than socialist since it would control speech and leave no place for individual freedom. Continue reading