Frank Hyneman Knight, teacher extraordinaire!

Frank Hyneman Knight, teacher extraordinaire!

Submitted by Old and Gray on Thu, 03/03/2016 - 10:38

Problems of here and now: Revisiting earlier economic thought.

Prompted by a faulty memory and a large economics library at hand, O&G pulled down two volumes hoping to find an answer to a bothersome problem. The two volumes were two editions of the same work, that of Frank Knight, stalwart of the University of Chicago, labeled so because his students attained notable success (witness Milton Friedman and George Stigler among a phalanx of others) and Chicago has become a magic name for what followed.

This new entry in the O&G blogsite may be accessed through this link: -

Free OIl

First it was a 25 basis point increase to the stagnant bank rate. Chaos ensued.
Second it was oil dropping below $30/barrel. Chaos ensued.
Third will be another 25 basis point increase to the bank rate AND FREE crude.

If you are a stock investor, now would be a terrific time to opt out.

. . .And, if you are a saver? . .

They are trying one of two things, maybe both. .

They either want to throw us into a depression deliberately or create one that we'll fall into - which I would call a deliberation in vain - since we're getting there by at least two avenues whether they want it or not on the basis of contagion creeping in on us from two sides - east and west.

Asia and Europe are suffering to the point they have no idea what to do. Asia wants to cheapen their currency so that the public will be unable to buy anything, which will then kill any remaining hopes of recovery; and Eurozone wants to rely on negative rates which will strip savers of their money. . . and with that threat, savings in deposit acocunts will dwindle among the rising prices. Ask yourself if you'd leave your cash while all you can do is speculate on how much will be lost in either inflation or deflation. Then, too, if people draw cash from banks and keepit on hand at home, what kind of temptation does that kindle in certian factions among us?

Betting dollars to dougnuts - well. . . maybe 80¢ to that once-10¢ doughnut at your supermarket. . . nobody will understand exactly what will happen to the bottom line and there will be panic. The exact response central banks were designed to prevent, will be created!

In either case, the authorities wouldn't be able to give product away. If the public could afford to buy it, no one could afford to put it to use. During the thirties, food was so cheap, that farmers could not recover expenses at harvest time. Rather than suffer the degradation of paying to grow food - if sold at the prices food processing plants were offering - (Campbell soups across the river from Philadelphia being the perfect example) - farmers will once again dump their tomatoes in the Delaware River or any reliable free flowing current.

We'll see that and other atrocities again. We also had Prohibition during which time whiskey flowed down the streets into sewers when casks were destroyed and bottles shattered. That may be the model for the fate awaiting over-produced oil.

Keep in mind that as goes Europe and Asia, so goes the US soon after. Economists can poo-poo the prediction all they want, it will follow. Where are the potentioal buyers in failing and falling global markets? We've already reported one exporter suffering 40% less income due to constricted markets globally. Protectionism will grow to uncontrolled proportions what with tariffs blossoming enough to discourage any thought of exports or imports. Over-populated-under-producing nations like the US will be unable to provide for their citizens: prices will sky rocket; and, as the unfortunates starve; their money and other assets will disintegrate - unable to protect anything as forces are mounted against them; and economists will be relagated to a state of complete irrelavance.

We're getting to the point now where some of the more alert among those economists are writing things like -

  • Negative Rates, Negative Reactions (Mark Cliffe on now);
  • Stock Markets, wisdom of the crowds, and corporate strategies (Thierry Foucault and Laurent Frésard, also current on voxeu).

Resurrecting papers like

  • The Stock Market and Investment: Is the market a Sideshow? (Morck, Shleifer, Vishny 1990)

And, Shiller's 1980 NBER working paper 456 -

  • Do Stock Prices Move Too Much to be Justified by Subseuent Changes in Dividends?

Also, ranking members of Congessinal commitees and sub-Committees call for the Government Accountability Office (GAO) to investigate the Fed's "regulatory capture" by banks meaning the belief may be circulating among our legislators that the Fed does the bidding of the powerful banks rather than regulate with independence for the sake of stability. This according to an exclusive report by Jonathan Spicer, from Reuters over the weekend. Menawhile Wall Street is releasing the suggestive (or instructive) consensus that the Fed will have at least two rate increases before the end of 2016.

So much for the Fed's independence! And, so much for banks openly dictating to the Fed what will be done come hell or high water.


It remains more than just a bad dream that the Fed is not aiming at cleaning up the banking mess. Point number one should be the inquiry, "What have they done to date that has effectively cleaned up anything?" A slim ray of sunshine for the briefest of instances was shrouded by clouds which immediately doused the light and we're back in darkness again. So much for that disappearing "transparency" under the Yellen-Fischer leadership.


Which leads us to the question: "What is this upcoming election all about? It seems they've been out on the hustings forever and not a suggestion of comprehension from one of them on the Republican side. Shouldn't we expect at least one to discuss issues closng in on us instead of making faces at each other and issuing obscene childish sounds? . . At least get down to business and raise questions! Act like leaders!" Where's the presidential timber????

Timber For Toothpicks...

During the French Revolution Era- farmers could not economically cultivate to harvest and sell product for a profit.
During the Great Depression Era- farmers dumped product in the rivers because they could not sell it. In Mexico that same era, you were forbidden to grow anything within the city limits so police threw prohibited produce into fields outside of town and told people not to go there at night with bushels and torches and harvest what grew there. It's an unwritten part of history that saved Mexico.

An article today chided Trump's economic plans claiming the National Debt would rise substantially. The figures that appeared in the content were-- very wrong. The Comments below the article suggest many of us know exactly what those figures are and point to a sitting body of deadbeat government intact right now. Those folks dump out into REALITY come January and I doubt they make it long. To have taken... while so many have had it taken away is tantamount to making a genocide.

What's ahead... WILL we have an Election Day? That is yet to be clear. WILL we have rebellion? That depends on your definition of it. While banks do indeed seem omnipotent, they are just machines run on corruption today by people without souls. A little known and rarely advertised fact is-- the massively growing consumer debt. Unlike any other time in history, that debt is associated with baloney legalese that cannot be enforced. In a nutshell, the debt is not secured not collectible en-masse. In 1905, 4 out of 5 families in urban areas with 25,000 or more populace were so heavily indebted to Loan Sharks that a blow-out occurred. The employers were in on the racket, the municipalities, the banks, the advertisers, the media and big business. Sound familiar? When the public grew incapable of treading water, it stopped trying but did not drown. The Loan Sharks did. A reminder that every bank is a borrower because they are fundamentally insolvent in secular stagnation. No go-- if it does not cash flow. Big banks can disappear in less than a week without pigeons putting potato skins in envelopes to pay on nosebleed debt without relief. While SOME think our government knows this and operates a coup... I doubt anyone there-- and that includes Larry Summers-- is capable of controlling this magnitude of default.

I cannot, will not speculate for the sake of savers. I recognized long ago that money everywhere and in every form will not survive this. I opted to re-invent my wheel. There is someone somewhere buying up shoe laces because they are dead stock in this stupidity era. You won't go far or comfortably when yours break and loafers tend to wear out faster. The point-- shoelaces will become a far more significant commodity than gold when shoes wear thin and need them. A quality paring knife trumps all the imported gadgets you have-- if electricity is premium. Jugs that hold water to purify... toilet paper... screwdriver and screw kits for glasses... underwear... these things will become way more viable as money falls apart. Frankly, the Chinese can devalue all they want now-- people are not reliant on them as much as corporations are. To have books chronicling how things were done "in the good ol' days" or fundamental instruction NOT in e-book format are pretty rare now. Knowing how to read them is too.

Oh the places we will go now. Some will go to Hell with or without hand baskets. Others are cream. Be creamy.