Skousen Investor Cafe: We Are Headed off of a Fiscal Cliff — Milken Conference Report

By tcane

I spent this week in Beverly Hills attending the famous Milken Institute Global Conference, hosted by Michael Milken, and the watch word I heard repeatedly about the U.S. economy was “fiscal cliff.” The huge debt load the United States is facing on top of the trillions in unfunded liabilities is cause for alarm. A crisis is coming, and nobody is doing anything about it.

All kinds of big wigs were there: former President Bill Clinton, California Gov. Jerry Brown, alternative energy promoter T. Boone Pickins, doom-and-gloomer Nouriel Roubini, Walter Isaacson (author of the biography of Steve Jobs), Harvard historian Niall Ferguson, and hundreds of CEOs from around the world.

I thought Niall Ferguson, the Harvard historian, stole the show. When a Keynesian economist said that state capitalism (e.g. China) seems to work better than free-market capitalism (the United States), Ferguson jumped in and showed a dramatic chart that proved otherwise. Looking at government as a percentage of gross domestic product (GDP), the size of government in China is far below the United States! “China is moving away from state capitalism toward freer markets,” he said. “The United States is moving away from free markets toward state capitalism.” China is growing faster because they are adopting free markets.

A brilliant response!

Meanwhile, I also ran into Steve Forbes, who spoke on a panel about tax reform. He spoke out against the millionaires’ tax (The Buffett Rule) being proposed by President Obama and Jared Bernstein on the panel, arguing, “You don’t raise taxes on the successful, especially during a weak recovery.” Amen!

Afterwards, Steve asked about FreedomFest, and I told him about all of the great debates we have scheduled this year. (For details, go to “I can’t wait,” he said. Steve Forbes and Whole Foods CEO John Mackey are our official FreedomFest co-ambassadors.

I’ll have much more to report on the Milken conference in the June issue of Forecasts & Strategies.

Finally, I made my semi-annual appearance on PBS’s Nightly Business Report last Friday to talk about the economy, stock market, gold and my favorite stocks. I pointed out that the market rallied despite a tepid 2.2% increase in real U.S. gross domestic product (GDP) because Wall Street expects another bailout by the Fed. To see my four-minute interview, click here. Co-host Tom Hudson invites me to appear twice a year, and each time I recommend three stocks. My most recent picks were all profitable, gaining an average 21%, including dividends, substantially beating the market (up 13%) during the past six months.

However, the video clip will not include my prediction about the 2012 presidential election, even though I offered one. On the show, I said that economically savvy Mitt Romney would overcome the odds against beating an incumbent president and prevail in November (his chances are improving on If Romney wins, it would be a huge shot in the arm for Wall Street but bad for gold. But alas, it was cut from the broadcast at the last minute.

Be sure to read my feature “You Blew It!” I’ll plan to have a new one for you every week. The purpose is to point out a bad decision, a foolish action or an ill-fated statement by a public official, business leader or investment guru. I have used the phrase within my family for years and they once printed t-shirts for a reunion with those exact words on each one. They learned to take my constructive criticism with a sense of humor and I hope you do, too. My intent is not to ridicule anyone but to point out a mistake that could be corrected, much as advice from a trainer or a coach can turn a faltering athlete into a world champion.

You Blew It! Great Depression: Market Economy Gone Amuck?

“It’s a legend that the government and the Federal Reserve caused the Great Depression. It was a market economy gone amuck!”

— Paul Krugman, Bloomberg (May 2012)

In a hard-hitting debate between Congressman Ron Paul and economist Paul Krugman, Krugman made the startling claim that government or the Federal Reserve had nothing to do with the collapse of the American economy in the 1930s. “It was a market economy gone amuck.” (See the full 12-minute debate here)

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Krugman complained in the debate that Congressman Ron Paul was living in the past. Yet Krugman himself repeated the old canard that an unmanaged free-market economy suddenly collapsed on its own, resulting in the Great Depression.

You blew it, Professor Krugman.

Most of the studies since then have proven that government was not benign, but worked overtime to undermine the market economy in the early 1930s by raising taxes, imposing high tariff walls, and creating a highly leveraged, poorly managed banking system, causing a garden-variety recession to turn into a full-scale depression and banking collapse. It’s all explained in detail in Milton Friedman and Anna Schwartz’s highly acclaimed “Monetary History of the United States” (Princeton University Press, 1963), for which Friedman won the Nobel Prize in Economics in 1976. In one sentence, Friedman exploded once and for all the myth that the free market acted alone in causing the Great Depression, and that the Fed was somehow powerless to stop it: “From the cyclical peak in August 1929 to the cyclical trough in March 1933, the stock of money fell by over a third.”

Friedman concluded: “The Great Depression is in fact a tragic testimony to the importance of monetary forces.” The Fed sat back and allowed major banks like the Bank of the United States (in December 1930) to go bankrupt and failed as a lender of last resort.

Furthermore, Friedman said in “Capitalism and Freedom” (1962), “The fact is that the Great Depression, like most other periods of severe unemployment, was produced by government mismanagement rather than by any inherent instability in the private economy.” Friedman later added, “Far from the depression being a failure of the free-enterprise system, it was a tragic failure of government.”

To read the entire story, see chapters 13-15 of my book “The Making of Modern Economics.”

Yours for peace, prosperity, and liberty, AEIOU,

Mark Skousen, Ph.D.
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From the analyst who beat the market over 15 years...
Dr. Mark Skousen's Top 3 Income Investments for the Next 12 Months

Your email is 100% protected. Read our Privacy Policy.
You'll also receive Dr. Mark Skousen's weekly e-letter, Investor CAFE, at no cost, along with other associated financial content and special offers.

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