Source: Pixabay
Dear Diary,
Last Thursday, the Dow shot up 421 points, or 2.4%, following the Fed's announcement that it would be “patient” about normalizing interest rates.
It was the biggest single-day gain for the Dow in three years. And the 13th biggest single-day gain ever.
No one knows what was in this package – probably not even the Fed – but speculators thought it had a ribbon and bow on it. On Friday, they drove the Dow up another 27 points for good measure.
We have our doubts about Santa. Does he really exist? Or is it just a myth we tell children, mental defectives and stock market investors?
A stock is a share in a business. Why would a business be more valuable because the Fed tells the world it is in no hurry to stop torturing interest rates?
We knew that already. And it shouldn't improve the real worth of your business anyway.
Just the contrary: It will more likely depress the value of businesses. The more the central banks distort key price signals, the more your business is prone to make bad investment decisions.
Counterfeit money
And so we begin the last installment in our series on the macro picture.
Our view, as we've explained, is not the one taken by Janet Yellen, Paul Krugman or Larry Summers. Ours is the minority opinion.
No Nobel prizes have yet been awarded to us and no central bank follows our recommendations. (Although, the German central bank seems favorably inclined.)
That is not to say that our opinion comes out of nowhere. Not at all. It is based on hundreds of years of thinking by classical and Austrian School economists. It is also supported by experience and intuition.
At its foundation are core principles that have never been disproven. “You can't get something for nothing” is just one of them.
“A penny saved is a penny earned,” is another.
Most modern economists don't believe either of these two things – at least, not when applied to an entire economy.
Remember how we were careful to understand what money really was?
It must have something real behind it – real savings, real work, real resources – or it is not worth the paper it is printed on.
