Readers of this blog will be familiar with the Austrian School of Economics; the school of economic thought whose name derives from the fact that many of its early scholars came from Vienna. The school adheres to the individual as the basic unit of economic analysis, and it focuses on the market process.
The Austrian School is noted for some of the fundamental concepts that endure in mainstream economics today, and one of its prominent scholars, F.A. Hayek, received a Nobel Prize in economics. But does the school have anything to offer in terms of investment advice?
Enter the recent book Austrian School for Investors: Austrian Investing between Inflation and Deflation. Continuing with the theme here at Anthem Vault of being financially responsible by reading and continuing one’s education, I was delighted to read through this book, a volume that sits at the crossroads of my two main intellectual interests: Austrian economics and investments.
If you feel like recent economic developments concerning central bank quantitative easing, negative interest rates and government stimulus programs are leaving you confused as to how to invest your money, then this book is for you.
Who Am I?
This age old philosophical question also has implications for our privacy and our freedoms. While assaults on our personal information seem to occur on a daily basis, it raises disturbing questions about who is actually in charge of our identity. In other words, do we really have control over how our identity is shaped and accessed or are we simply just puppets for third-parties who are using us for their gain. Sadly, my gut tells me that it’s the latter.
What we’re talking about here is our personal intellectual property, the data DNA vapor trail that is minted to us in the form of a birth certificate and then a social security number.
At some point in our life trajectory, our identity falls prey to the control of the government and corporate entities. Our personal information then gets aggregated by third-parties to create a virtual representation of us. Suddenly, we as citizens begin losing control of the steering wheel.
A perfect example of this is the credit report that, through the use of questionable scoring tactics, provides a dashboard by which lenders make decisions about us. What’s included in these reports is often arbitrary. Case in point; cell phone payments, which most of us pay on time, are not included in most credit reports. That is until you become delinquent and then it does suddenly appear.
And have you ever tried to correct a credit report without having to pay for third-party help? Studies show that the vast majority of these reports have multiple – and at times, egregious -errors, all of which are stains on your online identity trail.
What continues to garner the most attention though are the unrelenting intrusions on our information privacy. Whether the result of security breaches, outside third-party snooping, identity theft or even ransomware attacks, assaults on our identity are occurring with increasing regularity. ” Keep reading…
The financial markets are increasingly acting like spoiled kids. On Thursday, March 10, the European Central Bank announced new measures aimed at boosting inflation and economic activity. Markets rallied initially, but quickly declined after hints of not getting further negative rate cuts. The fact markets are not even fazed by promises of more free money shows the situation is getting dire.
So what new monetary stimulus measures did the ECB announce? First, an additional 20 billion euros of bond purchases per month, bringing the total monthly purchases up to 80 billion from the current 60 billion. Further, the program is expected to extend into 2017, which should push the ECB balance sheet to over 3 trillion euros.
Remember the Fed tried rounds of QE that reached a similar $80 billion per month, with the same intention of lowering interest rates and trying to spur spending, credit, and growth. It was a grand experiment, which has subsequently been shown to have little benefit and may even have sown the seeds for future problems.
Second, the ECB will expand its quantitative easy program to include high-rated corporate bonds. Yes, the ECB will be purchasing company bonds; in other words, loaning money directly to private corporations with freshly printed money.
I have been reading a book of late called Reclaiming Conversation: The Power of Talk in the Digital Age. Frankly, it has prompted me to not only question my interactions with the world around me but also to make some changes.
Written by media scholar and M.I.T professor Sherry Turkle, the book examines how the all-consuming digital world in which we live has been an affront to face-to-face conversations, leading to a breakdown in relationships, creativity, and productivity. Having studied the role of digital technology’s impact on society for over thirty years, Turkle notes that the proliferation of texts, emails and social media chat and other forms of electronic communication have given us permission to dismiss much deeper forms of engagement; and the consequences ensuing from this, she says, are profound.
It’s for this reason that I was an early naysayer of email and other digital forms of communications back in the 80’s when the Internet was still in its initial ascendancy. Phone and face-to-face conversations had been pivotal in my life, and thus I saw no reason to migrate away from what had been working so well.
Fast forward to today, and I’m a huge advocate of digital communication. At the same time, I find myself conflicted by what I see as a lack of deep connection in human interactions these days. Much of this is undoubtedly attributed to the 24/7 access that our desktop and mobile devices afford to us on a daily basis. Symbolic of Linus’ ways in the Peanuts comic strip series, technology has become our security blanket.
In response to this trend, Turkle believes that we should reconnect with the importance of in-person encounters in our daily lives, versus turning away from it. Here, her book is replete with tons of suggestions on this front – from keeping one’s cell phone turned off and visibly out of sight during conversations with others, to invoking a device-free mandate for family dinners. ” Keep reading…
“If you watched Warren Buffett with a time clock, I would say that half of all the time he spends is just sitting on his ass and reading.”
Charlie Munger, V.P. of Berkshire Hathaway
Reading has long been a part of my DNA. That can largely be attributed to habits passed down by my parents; my father was a voracious reader, and my mother was a middle school reading specialist for twenty-five years. Whether physical copy or Kindle, it’s not surprising that my most prized possession is a good stack of books in which to immerse myself.
Like you, I am on an ongoing quest for financial freedom. It’s here that books are an essential ‘food group’ in my self-improvement and lifelong learning pursuits. Each day, I commit a minimum of two hours to autodidactic mode, poring over a great read.
This month’s theme here at Anthem Vault is Read Some Books. As we make the leap into March, consider making a pledge to #BeResponsible for your self-learning by grabbing a book and reading it today.
Given Anthem Vault’s focus on sound money as an essential element of financial freedom, I thought I’d personally recommend five books to help jump-start your reading pursuits.
Basic Economics: A Common Sense Guide to the Economy by Thomas Sowell
This book offers a comprehensive look at how the global economy really works, as well as timely prescriptions for advancing our world order. Be prepared for lots of reading with this telephone book-size tome.
The Real Crash: How to Save Yourself and Your Country by Peter Schiff
Lots of shocking predictions in this book, albeit some a bit far-fetched. But I found it quite informative, particularly its perspectives on the future of gold markets.
Total Money Makeover: A Proven Plan for Financial Fitness by Dave Ramsey
Seeking real-world suggestions for managing your financial affairs? Then this book is a must-read. And the money app EveryDollar that accompanies it is a gem. ” Keep reading…
The idea of negative interest rates has been given renewed attention with the Bank of Japan being the latest central bank to actually implement negative rates on some deposits. Recently, Bloomberg Business published a cute cartoon featuring Janet Yellen and bunnies to explain the theory of how negative interest rates are supposed to work. Unfortunately, this theory is fatally flawed and a more apt cartoon illustration would be Dr. Seuss’s The Cat in the Hat Comes Back.
We covered negative interest rates a year ago when European bonds started trading at yields below 0%; so for a crash course or refresher on what negative interest rates are and how they work, check out our previous article first.
Bloomberg’s cartoon starts with the fact central bankers want negative interest rates to incentivize spending and borrowing and to deter people from hoarding money. People are not dumb, and if they are charged money on their savings in a bank, they will take it out and stick it under a mattress rather than pay for it to sit in a bank.
Central banks, the theory goes, should instead focus on the big players: the banks. Since they have so much money and need to keep some of it in electronic form with the Federal Reserve, they won’t be able to ‘stick it under a mattress’. If central banks charge them on the margin (in other words, a portion of deposits, but not necessarily all of their deposits), then it should incentivize the big banks to hand out more loans.
More loans will spur businesses to invest, grow and hire more people. In addition, negative rates will drive down the value of the dollar, making exports cheaper, which will also fuel growth. Sounds like cute bunnies and sunshine right? Not quite.
The Reality: The Cat in the Hat Comes Back
The foundational flaw to this entire approach is the Keynesian idea of jump-starting the economy by trying to increase aggregate demand: borrowing and spending is the ultimate goal for central bankers. But sustainable spending can only come after savings, production and wealth creation.