Turning Buyers Into Chumps

We offer very little financial commentary today…for the simple reason that here in Ireland there is little financial information available. The Irish Independent is either unaware of Wall Street, or indifferent to it. There is no mention of the Dow Jones index anywhere.

On the other hand, we do see this little item:

“Blackstone sinks on second trading day.” Poor Stephen Schwarzman is $600 million poorer today than he was yesterday, according to the paper. Remember, the whole deal was set up, supposedly, because he was getting ready for retirement and needed to cash out his position. Now what? Will he be able to retire as planned? Oh, don’t worry Steve – there’s still Social Security.

You have to admire this guy. He created a company that was supremely, almost sublimely, suited to this worldwide financial bubble environment. He made billions while the bubble was inflating. And then, he sold out! Not completely, but largely, at what must be close to the very top.

And even more remarkable, the sale was fraught with such heavy irony that it seemed like the whole structure of modern investment theory might be crushed by it. Here was a company that had made billions in private equity, now selling itself to investors on the basis of a track record it could no longer keep up, for it was no longer a private equity company.

Now, it is public. Logically, if public markets are as smart as the theorists say, Blackstone’s share price will already reflect its profitability. Which is a way of saying the obvious: The real profits were made when Schwarzman sold, not when the lumpeninvestor bought. Schwarzman is the real investor. The buyers are simply chumps.

Meanwhile, Zimbabwe also continues to provide real world, real time lessons on how markets really work. A Reuters report tells us that the Zimbabwean greenback was pegged to the U.S. model back in April at the rate of 15,000 to one. But now it is June and a single U.S. dollar bill will bring you a stack of 200,000 Zimbabwean dollars.

Do you see how it works, dear reader? The more the central bank of Zimbabwe puts out dollars, the more people don’t want them. This is the way everything works. Quality and quantity vary inversely. In the currency world, an increase in the quantity of money, leading inevitably to a decline in its quality – its purchasing power – is called inflation.

But oh – if only it were simpler! We now have a phenomenon that not even Mises foresaw. The U.S. dollar increases in quantity – depending on how you measure it – at a speed variously clocked at three to ten times faster than GDP growth. U.S. dollar-denominated derivative contracts now have a nominal value equal to 12 times the total output of the entire world. And so far, people are not exactly eager to get rid of U.S. dollars. At the top end, inflation in art, antiques, collectibles, Shanghai shares, luxury houses and so forth is proceeding at a rapid – though, still not Zimbabwean – pace. At the bottom, inflation in consumer prices is mixed…and middlin’.

It is surely a Crack-Up Boom we are living through. But things are so cracked and so booming, it is hard to know what will happen next – but we have our suspicions. Find out how you can get all of our best predictions, forecasts and insights for life – and at a never-to-be-seen again low price.

Bill Bonner
The Daily Reckoning
Waterford, Ireland
Tuesday, June 26, 2007

More news:


Chris Gaffney, reporting from the EverBank office in St. Louis…

“The Fed policy makers continue to be more sanguine on the outlook for housing and the economy. Fed Chairman Ben S. Bernanke said earlier this month that restrictions on the availability of mortgage credit will slow housing demand.”

For the rest of this story, see today’s issue of The Daily Pfennig


And more views:

*** It is summer here in Ireland. At least, that is what they allege. You wouldn’t know it from looking out the window. And you could put it to a jury of Americans and hope for a successful verdict. With apologies to Mark Twain, the coldest winters we ever pass are always our summers in Ireland. Judged by the weather, rather than the calendar, we could be in Nebraska in February. It is cloudy, with winds and rain blowing intermittently. People go by, bundled up and shivering.

But we are not here to complain about the weather.

No, lads and lassies, we’re here to complain – about the architecture!

Beginning today, The Daily Reckoning will offer a new free service for national governments – a National Hotline. George…Tony…Vladimir…just call us. We’ll give you some advice; we guarantee it will be worth every penny you pay for it. And worth a lot more than the advice you get from your billion-dollar consultant cronies.

What really matters to most people, most of the time? Beyond the elemental conditions for a happy life – personal safety, shelter, and food to eat – and the intangible features of personal relationships, what really matters is the quality and convenience of things. What does your food taste like? When you look out your window, what do you see? How hard is it to get hold of a phone or to get across town?

Some of these things come to you from the hard work and careful attention of earlier generations. It has taken the French, for example, hundreds of years to perfect their cheeses and their wines. It took thousands of years to arrive at the architectural wonders you see all over Paris. For it was the Greeks who developed many of the key elements – the capitals, the columns, the harmony of vertical and horizontal forms…as well as the decorative details around windows, roofs, ceilings and so forth. Those designs were passed along, forgotten, rediscovered, embellished, modernized and put to use in the buildings you see all over Paris.

But there’s a certain amount of luck involved, too. Paris was lucky that it was not destroyed during WWII. Because practically all the post-WWII architecture in Europe is hideous – including parts of Paris itself. The city had the good fortune to be built when people still had the classical forms for reference and enough good taste to appreciate them.

Poor Ireland was not so lucky. While the French were building Paris, Ireland squirmed under the hard heel of Britain and the rude thumb of her own backwardness. The result is a heritage of drab, featureless buildings – even the old ones.

Travel writers are always looking for ways to make Dublin sound attractive. They refer to its large houses as “magnificent” or “handsome” Georgian houses. Only the Georgian part is true. They were built during the reign of one of England’s Georges – but they will not appeal to Americans, for they are plain on the outside and gaudy inside – just the opposite of the American character. Outside, only the doorways give a nod to the old Greek masters. The windows have no shutters and no framing. Stuck into holes in the dirty brick fronts, the result is depressing in bad weather, which, in Ireland, is almost all year round.

What Ireland once had, that saved it, was a rural, vernacular architecture that was charming and picturesque. Houses were built of stone, whitewashed, and covered with a thatch roof. But then, in modern times, the thatch gave way to tin and slate, while the whitewashed stone yielded to gray concrete. Now, the countryside is as depressing as the cities. Which is why, we read in today’s Irish Independent, the people who see the most of Ireland – the “travelers” – commit suicide three times more often than the typical paddy.

Nevertheless, we offer the following advice not for humanitarian reasons, but simply out of our own instinct of survival. We come to Ireland often. We travel too. And so we urge the Irish to encourage a return to the pre-war, Irish vernacular. Heck, they are trying to give the old Gaelic tongue a new wag; why not put a new look on Irish countryside houses? Put on some thatch. Whitewash the houses. And, oh yes, pray for global warming. It will be good for tourism. And the suicide rate will go down.

As for the city: Paint the Georgians, and put shutters on them. Shutters improve almost any dwelling. If they had put colorful shutters in Auschwitz, it would have jollied up the place and who knows? Maybe the gaudy shutters would have induced the Nazis to plant flowers rather than gypsies. So, all you micks and paddies…plant flowers. If you get enough forsythia blooming, people won’t notice the buildings.

Message to the Government of Ireland: Our hotlines are open. Operators are standing by. Call now.


The Daily Reckoning PRESENTS: On Saturday, June 23, Hans F. Sennholz died at the age of 85. In October 2004, he was awarded the Gary G. Schlarbaum Prize for lifetime defense of liberty. This article is taken from Lew Rockwell’s introduction to Professor Sennholz. Read on…


Hans F. Sennholz is one of the handful of economists who dared defend free markets and sound money during the dark years before the Misesian revival, and to do so with eloquence, precision, and brilliance. From his post at Grove City College, and his lectures around the world, he has produced untold numbers of students who look to him as the formative influence in their lives. He has been a leading public voice for freedom in times when such voices have been exceedingly rare.

This much is well known about him. But there are other aspects to his life and career you may not know. Sennholz was the first student in the United States to write a dissertation and receive a PhD under the guidance of Ludwig von Mises. Mises had only recently completed Human Action. Imagine how having such an outstanding student, and a native German speaker no less, must have affected Mises’s life, how it must have encouraged him to know that his work could continue through outstanding thinkers such as this.

When Mises arrived in New York, determined to make a new life for himself after having first fled Austria and then sensing the need to leave Geneva too, he had no academic position waiting for him. He had no students and no prospects for students. But then came Sennholz. Here was living proof that ideas know no national boundaries, that even in the darkest hour there was hope for a new generation of economic scientists who cherished freedom, and were not fooled by the promise of government planning.

And think of the crucial time in which he entered the Austrian picture. Mises was by now carrying the school by himself. Most of his students had moved on to other things, whether Keynesian economics or social theory. For the Austrian School to survive in a profession now fully dominated by interventionists, it needed economists. The School desperately needed the new life that only new faces, names, books, and ideas provide.

When Sennholz began studying with Mises, it would still be another twelve years before Rothbard’s Man, Economy, and Statewould appear, and nearly a quarter century before Kirzner’s Competition and Entrepreneurship would be published. Sennholz provided exactly what was needed: that crucial bridge from the prewar School to the postwar School in America, where the Austrian School would now make its home.

His dissertation became the book How Can Europe Survive, published in 1955. It remains the best and most complete critique of European political union ever written. Sennholz demonstrated, some fifty years before others even cared, that political union under the interventionist-welfare state was only a prescription for chaos and bureaucrat rule. True union, he demonstrated, comes from free trade and decentralized states that do not attempt to plan their economies.

Europe today has a burgeoning movement of intellectuals who realize this same thing, and are working to curb the power of Brussels even as they attempt to preserve the free-trade zone. But we must remember that Sennholz anticipated this critique and agenda by nearly five decades. By taking a detailed look at all the programs for unification that were then being batted around, he saw precisely what was ahead for Europe: not prosperity and peace, but stagnation and conflict. So it is and will continue to be, so long as Sennholz’s final chapters, which present a blueprint for authentic unity, are not followed.

Sennholz followed up this treatise, which included an account of the Great Depression and the onset of war, with a long string of trenchant writings on monetary theory and history, on employment, on fiscal policy, and even on the moral basis of freedom. Truly he followed in Mises’s footsteps, and, like Mises, he refused to let the ideological hostility of his age and ours deter him from speaking truth to power, using every means at his disposal.

Let me provide one example of just how he carries the torch. During the 1980s, much like today, there were two camps on fiscal policy: the left, which wanted more spending and no tax cuts, and the supply-siders who wanted tax cuts plus spending increases. Sennholz became the voice for sanity: in Misesian terms, he called for tax cuts to be matched by spending cuts.

In doing so, he dismissed the magic fiscal dust called “dynamic scoring” as well as the socialist demand for bigger government, while warning against the dangers of inflationary finance. Here was a hero of fiscal conservatism! During the early eighties, too, he wrote an extended Austrian critique of supply side that anticipated all future trends of the decade.

At Margit von Mises’s request, Sennholz was the translator of Mises’s Notes and Recollections, which is the closest thing we have to an autobiography. It has been this book, above all else, that has shaped the way the generations that never had the chance to meet Mises have come to know the way an economist thinks about science and life amidst personal tragedy. Sennholz and his wife and partner Mary produced the first Mises Festschrift, presented to Mises on February 20, 1956, long before Mises’s fame in the United States would grow. Sennholz alone took the initiative to do Mises this honor.

Sennholz acquired Mises’s papers for Grove City College, where they have been guarded as the treasures they are. He made Grove City stand out among American colleges as one of the few places where economic sense was taught during the heyday of Keynesian orthodoxy.

Sennholz did not only work to promote the Misesian school. He has been the great benefactor to all economists and scholars by being the translator and promoter of the work of Mises’s teacher, Eugen von Boehm-Bawerk. This was an act of great intellectual piety, since the market was not exactly clamoring for hundred-year old books on interest-rate theory. And he did it all on the urging of Mises.

And though an outstanding theoretician, Sennholz placed a strong emphasis on the application of Austrian theory to the timing of business cycle, and to explaining the current state of affairs. This is, by itself, highly unusual in the economics profession. If you know anything about academic economists, you know that they are the last people you want to ask about the state of the economy. But Sennholz made it his job to explain the world around him, a trait which drew many to his thought.

The Mises Institute, for which he serves as an adjunct scholar, is grateful to Professor Sennholz for his early support of our work. He wrote a wonderful paper on Carl Menger, later published in a volume on the gold standard, in which he showed that Menger was not just a theorist, but an activist in the cause of sound money. That paper changed the way we viewed Menger. We came to see him more clearly for what he was: an old-world liberal concerned about the fate of his country in difficult times – much like Sennholz himself.

Finally, I must add that Sennholz has never been shy about insisting on the centrality of ethics in the study of economics. He has decried the welfare state as confiscatory and immoral. He has called inflation a form of theft. He has identified government intervention as coercion contrary to the true spirit of cooperation. He did this at a time when saying such things was taboo in the profession. Here again, he was keeping alive the spirit of Mises, and the spirit of truth.

Nobody can ever gauge the full impact of a great intellectual in the development of culture. His influence spreads like waves in a lake; by the time the waves hit the shore, few are in a position to remember the source. But this much I’m sure of. We are in Hans Sennholz’s debt far more than we know.


Lew Rockwell
for The Daily Reckoning
June 26, 2007

Editor’s Note: Llewellyn H. Rockwell, Jr. is president of the Ludwig von Mises Institute in Auburn, Alabama, editor of LewRockwell.com, and author of Speaking of Liberty. Send him mail by clicking here:


This article is taken from Lew Rockwell’s introduction to Professor Sennholz when he was awarded the 2004 Gary G. Schlarbaum Prize for lifetime defense of liberty.

The Daily Reckoning