Gasoline Prices Explained

Domestic gasoline demand is down. Domestic gasoline supplies are up. Uncertainty as always (as in forever) in the Mideast. Speculators as always a favorite politico scapegoat. Meanwhile gasoline prices continue to rise. Would it be that the price of oil is denominated in US dollars?

' "Gas Prices Explained," from the same group that produced "Quantitative Easing Explained" (which now has more than 5 million views on YouTube).' - Carpe Deim, 03/10/2012

The 1933 Implication: Citi, SunTrust, Ally and MetLife Bank Fail Fed‘s “Doomsday” Bank Stress Test

“The Fed tested the banks to see if they had enough reserves to handle an economic shock in which unemployment would increase to 13 percent, the Dow Jones industrial average would lose half its value and housing prices would fall an additional 21 percent.” (1)  



The above stress test was dubbed by the media as the “doomsday” stress test. Doomsday in that the parameters are highly unlikely, yet probable and if the parameters were all exactly in place, the economy would be in some stage of depression and hence “doomsday”. (2) (3) (4) 


　

The failure of Citi, SunTrust, Ally and MetLife Bank can surely be viewed in many ways regarding such a highly unlikely yet probable scenario. However, the implication and consequential perception of naming-names regarding “failure” was discussed by Milton Friedman and Anna Schwartz in the book The Great Contraction 1929-1933. One might consider the following:


The Banking Panic of 1933

“This time the availability of RFC [Reconstruction Finance Corporation] loans did not stem the rising tide of bank failures, partly because a provision of an act passed in July 1932 was interpreted as requiring publication of the names of banks to which the RFC had made loans in the preceding month, and such publication began in August. The inclusion of a bank’s name on the list was correctly interpreted as a sign of weakness, and hence frequently lead to runs on the bank. In consequence, banks were fearful of borrowing from the RFC. The damage was further increased in January 1933 when, pursuant to a House resolution, the RFC made public all loans extended before August 1932.” (5)


And the immediate results of naming names?

“The banks that failed the test were in rough shape: Citi fell 2.3% after-hours, SunTrust 3.7% and MetLife 2.9%. Ally is not publicly traded and still substantially owned by the U.S. Treasury.”(6)



Notes:
(1) Citi, Ally, SunTrust fail Fed stress tests

http://www.newsobserver.com/2012/03/13/1929121/citi-ally-suntrust-fail-fed-stress.html#storylink=cpy


(2) Citi, Ally, Suntrust, MetLife fail stress tests, Yahoo News, 03/13/2012

http://en-maktoob.news.yahoo.com/citi-ally-suntrust-metlife-fail-stress-tests-205652463.html

(3) Citi among banks that fail Fed stress test, Market Watch, The Wall Street Journal, 03/13/2012

http://www.marketwatch.com/story/citi-among-banks-that-fail-fed-stress-test-2012-03-13?reflink=djm_HAMWRSSCommentedH

(4) Citi, Ally, SunTrust fail Fed stress tests

http://www.newsobserver.com/2012/03/13/1929121/citi-ally-suntrust-fail-fed-stress.html#storylink=cpy


(5) The Great Contraction 1929-1933, Milton Friedman and Anna Schwartz, Princeton University Press, 2008 edition, page 52.

(6) Citi, Ally, SunTrust And MetLife Flunk Fed's Stress Test, Forbes, 03/13/2013.

http://www.forbes.com/sites/steveschaefer/2012/03/13/citi-among-four-banks-to-fail-feds-stress-test/







　

"Why Was the Fed Created?" with George Selgin

The video above is a 52 minute grand education provided by George Selgin, an economist that specializes in money and banking.

Politicos Through the Mechanism of Government: Busting Bubbles and Benumbing Freezes

John B. Taylor in his book Getting Off Track makes the most excellent point that politicos through the mechanism of government created financial policy in regards to home ownership and the finance thereof [1978 - 2007] along with another branch of government [the Fed] creating a cheap money bubble [2002-2004] that set the table for the ensuing financial shenanigans. If one sets the table for shenanigans one should not be surprised that shenanigans actually do occur. -Or- if one sets the table for financial shenanigans then do not be surprised when financial shenanigans actually occur. (1)

Keeping the above observation in mind, what happens when politicos through the mechanism of government create a regulation machine that increases regulation at an increasing rate [1930 - present]. That the regulation increasing at an increasing rate, and in its regulatory summation, becomes a veritable mountain of regulation. That the mountain of regulation becomes a mountain chain of regulation [2008 - present]. Has another table been set for shenanigans?

If the financial crisis was a bubble created by politicos through the mechanism of government, which was merely a central planning scheme, then is regulation merely another central planning scheme, created by politicos through the mechanism of government, to create a “freeze”?

Moreover, if the fermentation of the effervescent bubble creating the financial crisis was approximately time period 1978 -2007, what about the benumb chill of the freeze of regulation with time period 1930 to present? If the financial crisis fermented for 30 years, does the benumbing effect of regulation over 80 years create a regulatory crisis of even greater magnitude than the financial crisis?

Finally, the 30 years of fermentation of the financial crisis was brought to the busting bubble stage by the cheap money effect of the Fed. Does the benumbing effect of mountains of regulation become a total freeze stage (the antithesis of the busting bubble) through a sudden and encompassing hyper-regulatory effect e.g. regulatory policies of 2008 to present embodied by Dodd-Frank, Consumer Protection Agency, EPA, Department of Energy, etc., etc..

In both instances, politicos through the mechanism of government have exercised central planning schemes known as financial policy and regulatory policy. One must consider such central planning schemes by politicos with the following insight:

This way lies charlatanism and worse. To act on the belief that we possess the knowledge and the power which enable us to shape the processes of society entirely to our liking, knowledge which in fact we do not possess, is likely to make us do much harm.

But in the social field the erroneous belief that the exercise of some power would have beneficial consequences is likely to lead to a new power to coerce other men being conferred on some authority. Even if such power is not in itself bad, its exercise is likely to impede the functioning of those spontaneous ordering forces by which, without understanding them, man is in fact so largely assisted in the pursuit of his aims. - F.A. Hayek, from the essay The Knowledge of Pretense (2)


Notes:

(1) John B. Taylor, Getting Off Track, pages 3 and 4.

(2) F.A. Hayek, 12/11/1974, Nobel Prize Lecture, http://www.nobelprize.org/nobel_prizes/economics/laureates/1974/hayek-lecture.html