Archive for the ‘Austrian Theory Applied’ Category

The Death of Demand? Part II

June 8, 2011 2 comments

Buy 'The Death of Demand' from!(see Part I)

To bring all this to a head:

Since the housing collapse and the “inflated-home-equity-ATM,” people are coming back to their senses… actually starting to save money again.

Demand didn’t “die.” (i realize the point of The Death of Demand is likely more subtle and probably has a lot of insight)

What’s happening is that *valuations are re-aligning* — or at least starting to — back towards what they *always should have been.* Not to mention, the hangover from all that debt.. people are realizing… “I’m in debt up to my eyeballs…..”

Now, there is less demand for fluff, less demand for short-term fixes and the latest fad or fashion. People are sobering up. The trick is now to find the value stream.

People must still live. Eat. Love. Produce. Interact. They still want to make their lives better. They just have a lot less ability to do it than they thought they did. Entrepreneurs and market participants must find the *real* value streams.. realign their activities to meet the new market demands.

What DID die is the artificial demand for non-sense, spending on which made economic numbers look all pretty and vibrant, but were the result of people having higher time preferences artificially the result of policies by conniving central bankers both here and abroad.

Steve Pavlina has a great article about prospering in the downturn that captures it succinctly that I highly recommend :

How to Make Lots of Money During a Recession 

“Consequently, businesses that provide genuine value can actually do better during a recession.”

Please note that Pavlina has some controversial ideas and I’m not an advocate for everything he spouts, but he has genuine insights that I find valuable.

See Part I


The Death of Demand? Part I

June 8, 2011 3 comments

Buy 'The Death of Demand' from!I was recently introduced to the title of the book “The Death of Demand” by Tom Osenton (I have yet to read it, and look forward to so doing).

Taking the title at face value, let me share some thoughts from an Austrian autodidact’s perspective .. bear with me on this, and it culminates in Part II:

The US Dollar is currently the world reserve currency. So What? So, this means the Federal Reserve can perpetrate to print profligately porcine piles of green pieces of paper without creating any real value … and trade said paper (or digital equivalent) for real goods and services around the world.

The impact on the American consumer is access to perpetually cheap credit (so long as the Fed keeps interest rates low … which they do by fiat as if the interest rate does not get created organically through market forces….)

Cheap credit for too long a time, coupled with Asian “weak” currency policy (making their exports to us artificially cheap) has led to a display of gluttony by the American consumer likely unparalleled since the city of Rome at the peak of its wealth-siphoning power.

But cheap credit and manipulated interest rates cannot facilitate long-term prosperity. The distortions in the allocation of capital created by these machinations plant the seeds of their own correction (a “bust”).

See Part II