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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era

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To: porcupine --''''> who wrote (831)	9/29/1998 7:11:00 PM
From: Freedom Fighter	Read Replies (3) of 1722

>>The Austrian school has a similar tone of narrowly fixed focus. You will recall that in a recent Barron's interview conducted by Gene Epstein (8/24/98, p. 34), Milton Friedman wrote, "[In the 1930's, ... you had the Austrians ... saying you just had to let the bottom drop out of the world. You've just got to let it cure itself. You can't do anything about it. You'll only make it worse. You have Rothbard saying it was a great mistake not to let the whole banking system collapse. [3500 banks in the U.S. did fail, before Roosevelt was elected and intervened in the growing disaster. -- RR] I think by encouraging that kind of do-nothing policy both in Britain and the United States they did harm."<< I am not so sure the Austrians weren't right about that. If you look at how long it took us to get out of that depression and compare it to prior depressions (we did have big prior ones), it took way way longer to recover in the 30's. If you then look at the credit levels at the start of the depression in relation to the GDP and the credit levels at the start of the prosperity you will see that all of the excess credit was wiped from the system before sustained growth resumed. If you ask me that means they were right. We could have started the recovery 10 years sooner if we let the system correct itself instead of trying to prop it up for 10 years or so. It is historical nonsense that we did nothing early on until FDR came along. (albeit universally believed) Hoover despite his reputation was very active in trying to prop up the excesses. It is documented. I suspect that giving Roosevelt credit for getting us out of the depression was one part political revisionist history and one part lack of understanding of the facts. The credit facts vs. GDP are not refutable though. I have them in a chart. I will also say that Friedman's solution for Japan was laughed out of the discussion by a few leading economists in Europe. I think they were from the Bank for International Settlments and the Bundesbank. His solution, it was thought, would destroy the Yen. That is usually the problem with inflationist policies. They create other excesses or destroy the currency. Just look at what the inflationist policies Greenspan used in the early 90's to save the banking system have done! The financial system has been on the brink 3 times in the last 12 months. This is from the mouth of the head of the BIS. We are now actively forced to arrange bailouts for hedge funds. One wildman fund almost took out the world because of easy money credit excesses! That's what I was talking about when I said pre-conceived notions. The Keynsians and Friedmanites and various combinations and variations of the above are what is taught in school. The Austrians have several concepts that adequately refute some of both of those schools. That's why I would encourage you to read Human Action. You can't possibly have the perspective without reading their theories on the credit cycle, international finance, etc... They are simply not taught in 95% of the schools and you can't get it from the articles I post on occasion. Those are written for laypeople. I am not trying to convert you as I am sure you are not me. I'm just encouraging you to read a totally differnt perspective than you could possible get from the WSJ, The Times, CNBC, Wall St. etc..They are all inflationists and interventionists of various forms.

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