In order for the Federal Government to go on the Gold Standard in 1933, executive order 6102 was issued by President Franklin Roosevelt. The order criminalized the possession of monetary gold by any individual, partnership or corporation. There is nothing in the constitution that allows for such an order and it was challenged in court. Its enforceability was always in question but many Americans blindly submitted. The privately owned Federal Reserve Bank paid $20.67 per ounce for the gold they received. Later the exchange rate was set at $35 per ounce for international transactions where it stayed until 1971.
None of what I just said should make anybody feel comfortable. What I just described is not capitalism in any way, shape or form. There is no free market at work here. There never was in relation to the gold standard. When government regulates the prices of anything, including gold, you now have a centralized (communist style) economy.
It was always doubted that the US government ever maintained the ratio of dollars to gold that it said it would maintain. This became obvious by 1971 when the French started demanding payment in gold for their dollar reserves and President Nixon decided to end the phoney gold standard that never really existed. Since it was illegal for American Citizens to own gold, trading in their dollars for gold was out of the question. The Gold Standard was an illusion.
Gold can not be converted into units of labor, food, energy or building materials. Any society that has ever used a precious metal standard has had currency problems, including Rome. There was a huge monetary crisis in Europe from 1750 to 1850 concerning money backed by precious metals. In a time of real crises when barbarians are at your front gate, the only thing of value is fortifications, weapons, armor, manpower, food, water. Gold and Silver mean nothing.
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Lets consider the two ways that fiat currency obtains value. One way is that the government sets its value and forces you to accept it. The other way…. is that an artificial “need” is created. Lets use cow-manure (shit) as an example and see how it can be transformed into something precious and highly coveted.
1-You need to fertilize a field and need 50 lbs of manure.
2-Your cow can only produce 1 lbs a day, so you go to your neighbor and borrow 50 lbs of cow-manure.
3-Your neighbor gives you the 50 lbs of cow-shit but tells you that you must pay him back with 100 lbs at the end of the month (interest).
4-Your cow has only produced only 30 lbs of manure by the end of the month. You need an additional 70 lbs to pay back your debt.
5- You go back to your neighbor and ask to borrow another 70 lbs of manure .
6-You pay your neighbor back with the 30 lbs of cow-shit you actually have, plus the additional 70 lbs he lent you.
7-You have paid back the debt of 100 lbs of cow-shit owed… but you had to borrow an additional 70 lbs of cow-shit to do it.
8- For the 70 lbs of manure you borrowed from your neighbor, you must now pay back 140 lbs next month.
9- Your cow still only produces 30 lbs per month, so you will have to borrow 110 lbs of manure at the end of next month to pay back your debt.
10-You will never have enough manure to pay back all your debt. Cow-shit is now the most valuable thing in your life and you can never have enough of it. You will spend the rest of your life working for shit.
I just created a virtual monetary system based on Cow-Shit. Not really… This system is really based on debt and you can substitute anything in the place of manure including gold or paper. The key to making this system work, is to set a rate of interest that exceeds that which can actually be paid back. Hence you put the debtor on a “rat wheel” where they are running forever and never actually catch up (pay their debt). Now lets take this example further and say we attach the rat-wheel to a “mill” so that the running actually produces something of value like flour for bread. You now have “productivity”. The goal of this system was never really to collect the debt. The goal of the system is to keep people working to pay off something that can never be paid off. Keeping the rat-wheel turning is “Productivity” and that is the end goal.
It is of no relevance if you use gold, cow shit, or paper as your currency. The part that makes it work is debt. You always owe more then you have due to compounding interest. With individuals and corporations there is a limit to how much they can borrow because they must put up real assets as collateral. That is not the case with the Federal Government. The Federal Government can borrow and keep borrowing without limit except for a debt ceiling limitation or a balanced budget amendment. There is no possible way for the Federal Government to ever pay back the debt to the privately owned Federal Reserve Bank, even if they raised taxes and cut all expenses, because the compounding interest on 14.5 trillion already owed is such a ridiculously high number. Once Debt is created, at no point in time is there ever enough currency in existence to pay off all principal and accumulated interest one it. Paying off all the debt is a mathematical impossibility because the money does not and can not exist.
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The only way to fix this problem is the to change the computation for interest. Interest is what keeps the debt growing.
Instead of Int= debt x rate x term. They need to change it so that Int= (debt x rate x term) – Deflation Variable.
This would start to decrease the debt at a faster rate, but there is still a problem… as soon as the free market realizes that their is now more available money in circulation, due to decreased debt obligations, business will respond by raising prices to acquire some of that money. The system has a built in fix. If new borrowers do not come in to borrow more money because borrowing money is too expensive (high interest rates), individuals and corporations will find themselves near default. Some will have to go out of business in order for others to survive. This is the painful truth that no one is willing to come to terms with.
In order to fix the system, you have accept deflation, recession, defaults and bankruptcies as part of the system. This is the fail-safe that was designed into the system to prevent inflation. The Deflation Variable I suggested above may ease the level of default. This Deflation Variable would work along with a prolonged recession to bring debt back under control. No amount of tax increase or cost cutting can fix the problem because that is not how the system was designed to work. The system was designed to trap debtors into a life time of paying off an ever growing debt. The Federal Government has fallen into their own trap.
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The Federal Reserve Banking System was designed to work as a Ponzi Scheme. When individuals, corporations and Government borrow money, they “new” create money. The bank rules allow local banks to create new money as long as it is backed by collateral. The new money is created electronically and is accompanied by a greater debt. Debtors depend on other borrowers to come in after them to create more money and do business with them so they can pay their debt off. The system was never designed so that one entity could dominate it in the way the Federal Government has. The reason the Federal Government is in default and will always be in default is because it has grown out of proportion to the other participants in the system. Cutting costs, raising taxes or raising the debt ceiling is just addressing the symptom temporarily. Smaller government has to be part of any real solution in addition to a change in how interest is compounded.
I don’t think the Government should have the ability to create money at all. I think money is best created in the private sector. It is a more “capitalist” way to create money.
-You mine gold and mortgage it to the bank, you get new money created for your gold collateral
-You mortgage your house, you get new money created for your house collateral.
It does not matter what the collateral is… only real assets should create money. When you give back the money to the bank, you take back ownership (title) of your collateral and the money created is removed from the system. That is because the money is only a receipt for assets being held by the bank. The system makes perfect sense.
Government should only be getting operating money through taxes and perhaps by borrowing “existing” money from the public. Government should not be creating new money for its own use… because government should not have anything of collateral to put up. All government assets belong to the citizens, not government. The problem here is not with the banking system, but with government abuse of banking.
(Note: Permission to reprint and link with credit to Bill Tsafa is hereby granted)
Wednesday, July 27, 2011
Thursday, April 21, 2011
Govenment Printing Money
Money is created at the local level. You want to buy a house, the banker electronically creates a debt for you and the title of the house passes from one person to another. The seller gets electronic credits in his account and those credits are moved around within the banking system as he buys things. No money really changes hands.
The fictional electronic money created is backed by the house or other asset mortgaged… so it is actually backed by something more valuable then gold or silver.The money that needs to be paid back exceeds the money borrowed… that total sum does not exist yet… it has to be created by other people borrowing… hence the control on inflation.
In this system you can exchange paper money for shit and it will still work. You borrow 10 lbs of shit today to fertilize your garden… but you have to pay me back tomorrow with 50 lbs of shit. You might be able to manufacture 10 lbs of shit on your own over night to pay me back… but you will have to scramble to get 50 lbs of shit. Hence, shit now becomes valuable because you need it to pay me back tomorrow and can not easily acquire it. That is how money works in the Federal Reserve System.
The system is ingenious…. The only problem here is that the government can borrow any amount of money it wants with no real collateral. They just print up a Treasury Bill and sell it to the Federal Reserve for cash. Then they have to pay that back plus interests… of course same rule applies… the principal plus interest does not exists yet… so they have to borrow more in order to pay it back. It is a national Ponzi Scheme.
The key difference between the US government an the rest of us is… we have to put up collateral for money we borrow. How much we can borrow is limited by real assets that we own. The Federal Government does not have to put up assets. They can borrow without limit and run the deficit up to infinity. The value of our cash is devalued in proportion, a concept we call inflation.
The system can work if the government borrowed slowly. A reasonable rate of borrowing would be one where they increased the debt at a rate more or less equal to the rate of the population growth or the rate of economic growth. When they double the debt in a matter of two years it does nothing except dilute the currency in a manor that is extremely obvious to everyone who is in business.
My goal as an individual businessman is to increase my prices faster then the government is increasing debt/printing money. The error of the government is that when they increase the debt/money supply so fast… people catch on and respond accordingly by raising prices as fast as they can.
The fictional electronic money created is backed by the house or other asset mortgaged… so it is actually backed by something more valuable then gold or silver.The money that needs to be paid back exceeds the money borrowed… that total sum does not exist yet… it has to be created by other people borrowing… hence the control on inflation.
In this system you can exchange paper money for shit and it will still work. You borrow 10 lbs of shit today to fertilize your garden… but you have to pay me back tomorrow with 50 lbs of shit. You might be able to manufacture 10 lbs of shit on your own over night to pay me back… but you will have to scramble to get 50 lbs of shit. Hence, shit now becomes valuable because you need it to pay me back tomorrow and can not easily acquire it. That is how money works in the Federal Reserve System.
The system is ingenious…. The only problem here is that the government can borrow any amount of money it wants with no real collateral. They just print up a Treasury Bill and sell it to the Federal Reserve for cash. Then they have to pay that back plus interests… of course same rule applies… the principal plus interest does not exists yet… so they have to borrow more in order to pay it back. It is a national Ponzi Scheme.
The key difference between the US government an the rest of us is… we have to put up collateral for money we borrow. How much we can borrow is limited by real assets that we own. The Federal Government does not have to put up assets. They can borrow without limit and run the deficit up to infinity. The value of our cash is devalued in proportion, a concept we call inflation.
The system can work if the government borrowed slowly. A reasonable rate of borrowing would be one where they increased the debt at a rate more or less equal to the rate of the population growth or the rate of economic growth. When they double the debt in a matter of two years it does nothing except dilute the currency in a manor that is extremely obvious to everyone who is in business.
My goal as an individual businessman is to increase my prices faster then the government is increasing debt/printing money. The error of the government is that when they increase the debt/money supply so fast… people catch on and respond accordingly by raising prices as fast as they can.
Tuesday, February 8, 2011
Foreign Trade – Good or Bad ?
Foreign trade is a very perplexing subject to me despite my background in accounting and business. I have spent at least two decades trying to figure out who is the winner and who is the looser. The answer to that would seem to be a simple matter of knowing if you are gaining or loosing from foreign trade, but difficulty lies in figuring what constitutes a gain or loss. The foreign trade balance is the most tangled web I have encountered in my entire professional career. I suspect it is that way for a reason. If your trading partner knew that they were consistently getting the short end of the deal it is unlikely that they would want to continue doing business with you. It makes sense to present the information to your partner in such a way so that they think that the are benefiting from the trade even if they are not.
The numbers show that as a nation the United States imports more then it exports by a wide margin. The immediate impulse is to say that this is bad because we pay more money then we receive… so this must be bad. Lets take money out of the equation for a second since money is simply a substitute for the value of goods. If this was a barter system in which goods are directly traded for other goods, and we were importing more goods then exporting… wouldn’t the difference be called a profit? Isn’t it a good thing to receive more things of value then to give them away? This trade becomes even more favorable if we are paying for those goods with our own paper currency… which we print out of thin air.
Lets look at the trade balance from another prospective. Lets consider living standards. Lets compare the living standards of the average person in the United States verse the average person living in China. China has had a high GDP rate for a very long time but that has not translated in high living standards for the average person. The problem with GDP is that it only measure the total amount of money moving around within an economy, it does not measure profits. I have spoken to a number of people who visit China on a regular basis, they tell me that it is a miserable place by our standards and that they would not want to live there.
The difficulty of seeing clearly if we are gaining or loosing on foreign trade is further compounded by the reality that American companies engaged in foreign import and export have both incentive and easy opportunity to manipulate their transactions to result in the lowest tax liability due to the US government. Indeed working around the IRS is a great motivational reason why a company would want to engage in foreign trade in itself.
It is hard to deny the fact that America was built on cheap labor. The first cheap laborers was indentured servants being who were either criminals or debtors. The next form of cheap labor was slave labor. Fortunately that institute was abolished. When slavery was abolished it was replaced by what many consider “cheaper” immigrant labor. Immigrant labor did not require the large upfront investment of purchasing salves or having to look after them through sickness and old age. Then at some point it was realized that it might be cheaper to export the work rather then import the laborers. The point here is that cheap labor has always been a part of the American economy through both good times and bad times.
Over the last three centuries many in the middle class have pointed to that cheap labor and pronounced it as the cause of their hardship, but I believe that if one investigates deeply into that subject, they may discover an entirely different perspective. When we look at this from the perspective of third world countries, where they have no source of “cheaper labor”, we find that they are stuck at a level where they can only maintain themselves at a very basic level of food and shelter.
I once heard that if you are in a Poker game and do not know who the sucker is, the chances are that you are the sucker. For anyone who does not know this, it is common for poker players to secretly team up and coordinate to take advantage of a player. I think something like this might be going on with the foreign trade situation between the United States, its Allies, and China. The Chinese typically work sunrise to sunset, seven days a week in very harsh conditions to provide Americans with consumer goods that make our life more enjoyable. We give them paper money and promises to pay in return. Who is the sucker?
The numbers show that as a nation the United States imports more then it exports by a wide margin. The immediate impulse is to say that this is bad because we pay more money then we receive… so this must be bad. Lets take money out of the equation for a second since money is simply a substitute for the value of goods. If this was a barter system in which goods are directly traded for other goods, and we were importing more goods then exporting… wouldn’t the difference be called a profit? Isn’t it a good thing to receive more things of value then to give them away? This trade becomes even more favorable if we are paying for those goods with our own paper currency… which we print out of thin air.
Lets look at the trade balance from another prospective. Lets consider living standards. Lets compare the living standards of the average person in the United States verse the average person living in China. China has had a high GDP rate for a very long time but that has not translated in high living standards for the average person. The problem with GDP is that it only measure the total amount of money moving around within an economy, it does not measure profits. I have spoken to a number of people who visit China on a regular basis, they tell me that it is a miserable place by our standards and that they would not want to live there.
The difficulty of seeing clearly if we are gaining or loosing on foreign trade is further compounded by the reality that American companies engaged in foreign import and export have both incentive and easy opportunity to manipulate their transactions to result in the lowest tax liability due to the US government. Indeed working around the IRS is a great motivational reason why a company would want to engage in foreign trade in itself.
It is hard to deny the fact that America was built on cheap labor. The first cheap laborers was indentured servants being who were either criminals or debtors. The next form of cheap labor was slave labor. Fortunately that institute was abolished. When slavery was abolished it was replaced by what many consider “cheaper” immigrant labor. Immigrant labor did not require the large upfront investment of purchasing salves or having to look after them through sickness and old age. Then at some point it was realized that it might be cheaper to export the work rather then import the laborers. The point here is that cheap labor has always been a part of the American economy through both good times and bad times.
Over the last three centuries many in the middle class have pointed to that cheap labor and pronounced it as the cause of their hardship, but I believe that if one investigates deeply into that subject, they may discover an entirely different perspective. When we look at this from the perspective of third world countries, where they have no source of “cheaper labor”, we find that they are stuck at a level where they can only maintain themselves at a very basic level of food and shelter.
I once heard that if you are in a Poker game and do not know who the sucker is, the chances are that you are the sucker. For anyone who does not know this, it is common for poker players to secretly team up and coordinate to take advantage of a player. I think something like this might be going on with the foreign trade situation between the United States, its Allies, and China. The Chinese typically work sunrise to sunset, seven days a week in very harsh conditions to provide Americans with consumer goods that make our life more enjoyable. We give them paper money and promises to pay in return. Who is the sucker?
Social Security
The Social Security system is just as unconstitutional as government run health care. No where in the Constitution of the United States does it give authority to the Federal Government to run a retirement program. I believe the existence of the social security system has created a nation of people dependent on big government. The people who have some financially savvy would do far better to invest their money directly. The people who are financially ignorant are fooled into the false comfort that the “government” will take care of them in their old age. Ask any retired person and they will tell you that the payouts from social security are inadequate to live on.
Once a country goes down the socialist path it is very hard to come back because people get use to “entitlements”. The socialist cancer of government run retirement has spread to socialist government run health care and will continue to spread until it is cut off at the root. The root of socialism is the taxes that fund it. The people of this country are very over taxed and the money is spent on socialist programs that it has no business being involved it. The responsibility of the federal government is very simple; defense from foreign enemies, regulate free trade between the states and regulate a stable currency… that is it.
People broadly talk about repealing the government run health care bill and acknowledge how corrosive it is… but do not realize that the idea was born from the failing Social Security System that came before it. Few politicians, even strict constitutional ones, are willing to attack the social security system. They can not, because it has corrupted all of America and made it dependent on it. Entitlements and Dependency is the bait and trap of socialism. If we continue down this path we will soon end up like France, a broken socialist nation, with no hope of every prospering.
So what is to be done with Social Security at this point. Sadly we can not just cut it off, because generations of American have now become dependent on it. For any politician to propose tearing down the social security system it is political suicide. The answer is to turn the system over to the states. Give that responsibility back to the states who are closer to the people and are better suited to assess their needs. The Federal Government should turn over the system to the states without any mandates of how it should be administered. Within time the smarter states will realize what a hopeless endeavor government run retirement is and will phase it out all together.
Once a country goes down the socialist path it is very hard to come back because people get use to “entitlements”. The socialist cancer of government run retirement has spread to socialist government run health care and will continue to spread until it is cut off at the root. The root of socialism is the taxes that fund it. The people of this country are very over taxed and the money is spent on socialist programs that it has no business being involved it. The responsibility of the federal government is very simple; defense from foreign enemies, regulate free trade between the states and regulate a stable currency… that is it.
People broadly talk about repealing the government run health care bill and acknowledge how corrosive it is… but do not realize that the idea was born from the failing Social Security System that came before it. Few politicians, even strict constitutional ones, are willing to attack the social security system. They can not, because it has corrupted all of America and made it dependent on it. Entitlements and Dependency is the bait and trap of socialism. If we continue down this path we will soon end up like France, a broken socialist nation, with no hope of every prospering.
So what is to be done with Social Security at this point. Sadly we can not just cut it off, because generations of American have now become dependent on it. For any politician to propose tearing down the social security system it is political suicide. The answer is to turn the system over to the states. Give that responsibility back to the states who are closer to the people and are better suited to assess their needs. The Federal Government should turn over the system to the states without any mandates of how it should be administered. Within time the smarter states will realize what a hopeless endeavor government run retirement is and will phase it out all together.
The Impossibility of Economic Utopia
People can not seem to understand why it is absolutely impossible to have an Economic Utopia. A Economic Utopia is a state where you have 100% employment and everybody makes enough money to buy everything they want. This is an absolute impossibility due to human nature.
What is Human Nature within the context of business? It is a struggle between greed and laziness. On the one hand people want to do as little work as possible… and on the other hand people want as much luxury as possible. When the possibly of excelling above their peers is not available through the force of greed, such as in a socialist system, people will fall back to laziness and work as little as possible. As people work less and less, first luxury items will become scarce and then basic needs like food and shelter will no longer be produced. Hence Utopia is an impossibility in a Socialist system.
A capitalist system is also driven by the same human characteristics of greed and laziness, but the system favors greed. So why is economic utopia still an impossibility in capitalism??? Because even at the highest levels of greed there is still an element of laziness. The average businessman will not set up a business model to satisfy 100% of a given population. The Average businessman is content to target 60% or less of a given population; 60% if he targets the middle class, 20% if he targets the high end market and 20% in the low end market.
I will give a personal example from my experience to clarify what I mean. I owned a food service establishment that targeted the middle class and of course was accessible to the upper class… but the prices were prohibitive to the lower classes. Here is a simple calculation I made for a restaurant with 100 seats. I could sell a cheese burger deluxe for $7.50 and expect to sell it to 80 people… or I could sell it for $6.00 and sell it to 100 people. Either way I would gross $600, (7.50×80) vs (6×100). The difference is that when selling it for $7.50, I only have to serve 80 people… less work, same money. So I will choose to only target 80% of the population every time.
Now here is where it gets interesting… and the part that a lot of people don’t get. If somehow money became available through some artificial means like welfare and 100 people started showing up at my door because they could now all afford my prices… I would increase my prices to $9.40 so that only 80% could afford the prices even at a level where I am grossing $750, (7.50×100) vs (9.40×80). So I am back to working at only 80% of capacity. At 80% capacity, the customers that I do get will get better service since the place is running under capacity. While this may seem like a flaw in the system, it can actually serve as incentive. In a system that naturally favors less then 100% capacity, there is an competitive incentive for people to work hard to stay in that top 80% (middle class). The only incentive that people would have to not work hard to get into the middle class is if their is a fail-safe underneath them like wealth-fare.
This is a market force that completely escapes those who wish to create some fantasy world where everyone can have everything they want. It is a complete waste of time to try to put economic gimmicks into place to satisfy 100% of the population.
What is Human Nature within the context of business? It is a struggle between greed and laziness. On the one hand people want to do as little work as possible… and on the other hand people want as much luxury as possible. When the possibly of excelling above their peers is not available through the force of greed, such as in a socialist system, people will fall back to laziness and work as little as possible. As people work less and less, first luxury items will become scarce and then basic needs like food and shelter will no longer be produced. Hence Utopia is an impossibility in a Socialist system.
A capitalist system is also driven by the same human characteristics of greed and laziness, but the system favors greed. So why is economic utopia still an impossibility in capitalism??? Because even at the highest levels of greed there is still an element of laziness. The average businessman will not set up a business model to satisfy 100% of a given population. The Average businessman is content to target 60% or less of a given population; 60% if he targets the middle class, 20% if he targets the high end market and 20% in the low end market.
I will give a personal example from my experience to clarify what I mean. I owned a food service establishment that targeted the middle class and of course was accessible to the upper class… but the prices were prohibitive to the lower classes. Here is a simple calculation I made for a restaurant with 100 seats. I could sell a cheese burger deluxe for $7.50 and expect to sell it to 80 people… or I could sell it for $6.00 and sell it to 100 people. Either way I would gross $600, (7.50×80) vs (6×100). The difference is that when selling it for $7.50, I only have to serve 80 people… less work, same money. So I will choose to only target 80% of the population every time.
Now here is where it gets interesting… and the part that a lot of people don’t get. If somehow money became available through some artificial means like welfare and 100 people started showing up at my door because they could now all afford my prices… I would increase my prices to $9.40 so that only 80% could afford the prices even at a level where I am grossing $750, (7.50×100) vs (9.40×80). So I am back to working at only 80% of capacity. At 80% capacity, the customers that I do get will get better service since the place is running under capacity. While this may seem like a flaw in the system, it can actually serve as incentive. In a system that naturally favors less then 100% capacity, there is an competitive incentive for people to work hard to stay in that top 80% (middle class). The only incentive that people would have to not work hard to get into the middle class is if their is a fail-safe underneath them like wealth-fare.
This is a market force that completely escapes those who wish to create some fantasy world where everyone can have everything they want. It is a complete waste of time to try to put economic gimmicks into place to satisfy 100% of the population.
Bank Foreclosures
There has been a lot of discussion of Government interfering with the foreclosure process. As always, in any developed country when government tries to help one group, it necessitates hurting another group. Government interference is a zero sum gain almost all the time. It is my opinion that since government will do harm to some party regardless of what action it takes or does not take… government should interfere as little as possible. At least in that case people can blame each other or themselves. When government interferes, it is entirely governments fault. In the case of government interference, the harm that government will inevitably do to one group or another is funded by taxpayer money which adds to the damage.
I see little benefit coming out of government interference with a private loan contracts between willing parties. There are two major problems politicians face if they interfere with the foreclosure process of banks.
-First, if lenders don’t believe they can collect their collateral on default, they won’t lend any more in the future… That is obvious, no one would.
-Second, if borrowers believe that they don’t risk foreclosure… they will stop making any effort to pay back loans. Families are always forced to prioritize their budget. If they don’t risk foreclosure… paying the bank back goes down on the priority list.
It has long been my opinion that individuals should never, ever borrow from banks for personal items like houses or cars. They would do better to discipline themselves for a period of five to ten years and buy a house they can afford… not a mansion they can not afford. I have witnessed too many people fall into the trap of buying a house far more expensive then they should, just because they were able to secure a loan for such a house. This does nothing but enslave them to a life time of labor. Over a period of 30 years they pay back three times the value of the house… and at the end of that 30 year period the house will be in ruins.
The easily credit has also pushed real estate far beyond its natural value over the last 30 years. A house should not be worth more then the value of the land, material and labor less erosion. The value of a house should go down with its age, not up. The only thing that should appreciate is the land that it sits on. This natural process of house devaluation has been reversed due to easy credit, which allows people to bid up the price of real estate with money they DO NOT HAVE. However, this is a private matter that is being corrected by the recession. The recession is not the the problem, it is the fix.
I see little benefit coming out of government interference with a private loan contracts between willing parties. There are two major problems politicians face if they interfere with the foreclosure process of banks.
-First, if lenders don’t believe they can collect their collateral on default, they won’t lend any more in the future… That is obvious, no one would.
-Second, if borrowers believe that they don’t risk foreclosure… they will stop making any effort to pay back loans. Families are always forced to prioritize their budget. If they don’t risk foreclosure… paying the bank back goes down on the priority list.
It has long been my opinion that individuals should never, ever borrow from banks for personal items like houses or cars. They would do better to discipline themselves for a period of five to ten years and buy a house they can afford… not a mansion they can not afford. I have witnessed too many people fall into the trap of buying a house far more expensive then they should, just because they were able to secure a loan for such a house. This does nothing but enslave them to a life time of labor. Over a period of 30 years they pay back three times the value of the house… and at the end of that 30 year period the house will be in ruins.
The easily credit has also pushed real estate far beyond its natural value over the last 30 years. A house should not be worth more then the value of the land, material and labor less erosion. The value of a house should go down with its age, not up. The only thing that should appreciate is the land that it sits on. This natural process of house devaluation has been reversed due to easy credit, which allows people to bid up the price of real estate with money they DO NOT HAVE. However, this is a private matter that is being corrected by the recession. The recession is not the the problem, it is the fix.
Tax Cut Extension
“I am glad the rich will get their tax cut extension… because I plan on becoming a billionaire, and I don’t want to be taxed unfairly in the future.”
The statement I made above is something that I think about 50% of the population does not grasp. That would be the 50% who favor raising taxes for the top 2%. Unfortunately, not seeing yourself as a potential billionaire means that you will not make efforts to get above your current financial level. It is a matter of striving to better yourself, setting financial goals and planning a way to get there. It has been my observation that average person who favors taxing the rich heavily does not see themselves as ever getting to that level. While the average person who is against taxing the rich heavily, can identify themselves with the rich in one way or another and see themselves as potentially getting there. This is an important difference in mindset. In a free market economy, prosperity is a self-fulfilling prophecy. Do you believe in yourself? Do you believe that your efforts today will lead to your prosperity in the future? Perhaps this makes you question if you are planning hard enough to get rich. Very few will every actually attain billionaire status, but the effort to become one will comfortably get you into the millionaire club.
As for Obama… what he should have done was raise the high-bar from $250,000 to 1 million per year for the highest tier. A lot of households make 250,000 to 500,00 even if they don’t report it. Look at every small retail store in your neighborhood. There is a good chance they are above the 250,000 income level. They have a lot of flexibility in reporting their moderate income, and certainly identify themselves as people who plan to be very rich some day. A lot of homeowners have more then 250,000 in capital gains locked into their homes that they bought 20 years ago, so that higher tax on income over 250,000 does not sit well with them (regardless of homeowner and capital gains tax limitations). Obama does not realize that the goal of the middle class is to become part of the upper class… not stay middle class. Obama is fighting against the middle class in this sense.
Obama would have been more successful if he attempted to change the tax tiers. He should have changed the highest tax tier so that instead of starting at 250,000, it started at 1 million or even 2 million. This might have brought over just enough support to his plan to pass. This should have been done before the 2010 election. After the election it was too late for even this to work. Obama took an “all or nothing” chance… and lost.
The statement I made above is something that I think about 50% of the population does not grasp. That would be the 50% who favor raising taxes for the top 2%. Unfortunately, not seeing yourself as a potential billionaire means that you will not make efforts to get above your current financial level. It is a matter of striving to better yourself, setting financial goals and planning a way to get there. It has been my observation that average person who favors taxing the rich heavily does not see themselves as ever getting to that level. While the average person who is against taxing the rich heavily, can identify themselves with the rich in one way or another and see themselves as potentially getting there. This is an important difference in mindset. In a free market economy, prosperity is a self-fulfilling prophecy. Do you believe in yourself? Do you believe that your efforts today will lead to your prosperity in the future? Perhaps this makes you question if you are planning hard enough to get rich. Very few will every actually attain billionaire status, but the effort to become one will comfortably get you into the millionaire club.
As for Obama… what he should have done was raise the high-bar from $250,000 to 1 million per year for the highest tier. A lot of households make 250,000 to 500,00 even if they don’t report it. Look at every small retail store in your neighborhood. There is a good chance they are above the 250,000 income level. They have a lot of flexibility in reporting their moderate income, and certainly identify themselves as people who plan to be very rich some day. A lot of homeowners have more then 250,000 in capital gains locked into their homes that they bought 20 years ago, so that higher tax on income over 250,000 does not sit well with them (regardless of homeowner and capital gains tax limitations). Obama does not realize that the goal of the middle class is to become part of the upper class… not stay middle class. Obama is fighting against the middle class in this sense.
Obama would have been more successful if he attempted to change the tax tiers. He should have changed the highest tax tier so that instead of starting at 250,000, it started at 1 million or even 2 million. This might have brought over just enough support to his plan to pass. This should have been done before the 2010 election. After the election it was too late for even this to work. Obama took an “all or nothing” chance… and lost.
High Taxes Breed Tax Cheating… and Trade Deficits
Warning! The Truth is sometimes disturbing!
Let us consider the Foreign Trade Deficit. Officially the statistics show that the US economy has been falling behind in International Trade for decades. I can assure you that companies make a profit on almost every single trade made, otherwise they would close the doors. Furthermore, it is not logical that the any Country would be able to maintain a trade imbalance for so many decades. Any thinking person would conclude that there must be more to the trade deficit then appears on the surface.
Here is a question to ponder. Do you seriously think that the owners of any company are going to submit to the ridiculously high taxes that the US Government demands? Does anyone expect business owners who take the risk of investing capital into a business to just hand one third of their profits over to someone else who took no such risk? It is really counter intuitive. Companies have an incentive to under-report profits, hence the illusion of a trade deficit. It is my observation… that the high taxes in this country have turned ordinary businessmen and women into criminals. This has been a very common trend throughout all of history. The higher taxes and tribute are, the more effort people will put into beating the tax system rather then being productive.
The fact is that at once you get above the point were you are working for a salary, taxes are voluntary. Business-owners objectively consider how much they have to pay in taxes and how much it costs to beat he system. As long as it costs less to beat the tax system, ordinary people will take that option. The way it works is simple. Hypothetically, if I buy a product from China (or any other country) that costs $1, I will have my buying-agent in China record the cost as $8 on the invoice and I will send $8 in payment to the agent in China. I then sell it for $10 in the US and show a profit of $2 to the IRS. Meanwhile my agent in China wires $6 to my bank account in Panama or some other country and keeps $1 for himself for his assistance. The fact is that there is more US dollars outside the US then inside the US. Taxes are way to high when ordinary businesspeople will go to such great lengths to avoid them.
The underlying misconception has been that American Companies prefer to import rather then buy domestically. This is false. Purchases made domestically fall under US jurisdiction and records can be easily obtained by seopena. This is not the case with international transaction going through foreign banks who have every incentive to protect their account holders and none to help US government agencies… and are not legally obliged to do so.
The average businessman today is more concerned about his potential tax liability then he is about his competition. That is contrary to free market ideology where government is not suppose to interfere. Taxes are way to high when peoples actions are influenced by the tax consequences to the extent of Trillion Dollar Trade Deficits.
Take a look at the Form 1040 from 1913: http://www.irs.gov/p…rs-utl/1913.pdf
The first tax tier was….1% (20k to 50K)
The second……………..2% (50k to 75K)
The third………………..3% (75k to 100k)
The fourth………………4% (100k to 250K)
The fifth………………….5% (250k to 500k)
The sixth and final ……6% (500k plus)
The average income in 1913 was only 15k. The median was about 3k. The vast majority of people were exempt. Do you know how rich you were in 1913 to be making 500k a year? These are tax rates at which the the govt would have the people’s support and cooperation. This is how they got the 16th Amendment passed, legalizing the Federal Income Tax. The American people would have never had allowed an Income Tax Amendment to the Constitution if they knew how far the congress would have gone with it. The people have responded in kind by working around it. If the government would reduce taxes to 1913 rates, they would find that people would be more willing to pay a fair share.
Let us consider the Foreign Trade Deficit. Officially the statistics show that the US economy has been falling behind in International Trade for decades. I can assure you that companies make a profit on almost every single trade made, otherwise they would close the doors. Furthermore, it is not logical that the any Country would be able to maintain a trade imbalance for so many decades. Any thinking person would conclude that there must be more to the trade deficit then appears on the surface.
Here is a question to ponder. Do you seriously think that the owners of any company are going to submit to the ridiculously high taxes that the US Government demands? Does anyone expect business owners who take the risk of investing capital into a business to just hand one third of their profits over to someone else who took no such risk? It is really counter intuitive. Companies have an incentive to under-report profits, hence the illusion of a trade deficit. It is my observation… that the high taxes in this country have turned ordinary businessmen and women into criminals. This has been a very common trend throughout all of history. The higher taxes and tribute are, the more effort people will put into beating the tax system rather then being productive.
The fact is that at once you get above the point were you are working for a salary, taxes are voluntary. Business-owners objectively consider how much they have to pay in taxes and how much it costs to beat he system. As long as it costs less to beat the tax system, ordinary people will take that option. The way it works is simple. Hypothetically, if I buy a product from China (or any other country) that costs $1, I will have my buying-agent in China record the cost as $8 on the invoice and I will send $8 in payment to the agent in China. I then sell it for $10 in the US and show a profit of $2 to the IRS. Meanwhile my agent in China wires $6 to my bank account in Panama or some other country and keeps $1 for himself for his assistance. The fact is that there is more US dollars outside the US then inside the US. Taxes are way to high when ordinary businesspeople will go to such great lengths to avoid them.
The underlying misconception has been that American Companies prefer to import rather then buy domestically. This is false. Purchases made domestically fall under US jurisdiction and records can be easily obtained by seopena. This is not the case with international transaction going through foreign banks who have every incentive to protect their account holders and none to help US government agencies… and are not legally obliged to do so.
The average businessman today is more concerned about his potential tax liability then he is about his competition. That is contrary to free market ideology where government is not suppose to interfere. Taxes are way to high when peoples actions are influenced by the tax consequences to the extent of Trillion Dollar Trade Deficits.
Take a look at the Form 1040 from 1913: http://www.irs.gov/p…rs-utl/1913.pdf
The first tax tier was….1% (20k to 50K)
The second……………..2% (50k to 75K)
The third………………..3% (75k to 100k)
The fourth………………4% (100k to 250K)
The fifth………………….5% (250k to 500k)
The sixth and final ……6% (500k plus)
The average income in 1913 was only 15k. The median was about 3k. The vast majority of people were exempt. Do you know how rich you were in 1913 to be making 500k a year? These are tax rates at which the the govt would have the people’s support and cooperation. This is how they got the 16th Amendment passed, legalizing the Federal Income Tax. The American people would have never had allowed an Income Tax Amendment to the Constitution if they knew how far the congress would have gone with it. The people have responded in kind by working around it. If the government would reduce taxes to 1913 rates, they would find that people would be more willing to pay a fair share.
Gold Standard – Myths and Facts
Historically… gold as a currency has had all the problems of Fiat Money. Aside from the fact that it has no intrinsic value… more of it can be mined and is continually mined. The organizations mining it have an advantage and have historically manipulated the supply to their advantage. The US government at one point confiscated all the gold (a crime). It made itself the sole legal purchaser of gold in the US. That only shifted and further centralized control of gold rather then disperse it. Few people know, that when the US govt went on the Gold Standard, YOU the individual, where no longer allowed to own it. Executive Order 6102 required U.S. citizens to deliver by May 1, 1933 all their gold coin, gold bullion, and gold certificates to the Federal Reserve. An exception of $100 in gold coins was allowed. This does not seem fair or constitutional to me.
Gold historically has been subject to scams such as mixing it with other metals. The only system that is not corruptible is a barter system where you trade actual commodities. Problem there is that the barter system is too slow and cumbersome for anything above a “village level” economy.
The current Fiat system is supposed to be backed by real assets as each dollar is born into existence via debt, which is backed by collateral on real assets.The only flaw in this system is that the government can create/borrow money without putting up real collateral, thus debasing the currency. This is no different then when Rome use to mix other metals into its gold resulting in inflation and instability back then too.
The solution is simply for government to end their print and spend policies. This is the same advice they would give to any third-world nation. The cost of this is that money will always seem in short supply. Both government and individuals will have to make hard choices on how to spend the little money they have. In the short run we will be giving up aggressive boom cycles in favor of long term stability.
Gold historically has been subject to scams such as mixing it with other metals. The only system that is not corruptible is a barter system where you trade actual commodities. Problem there is that the barter system is too slow and cumbersome for anything above a “village level” economy.
The current Fiat system is supposed to be backed by real assets as each dollar is born into existence via debt, which is backed by collateral on real assets.The only flaw in this system is that the government can create/borrow money without putting up real collateral, thus debasing the currency. This is no different then when Rome use to mix other metals into its gold resulting in inflation and instability back then too.
The solution is simply for government to end their print and spend policies. This is the same advice they would give to any third-world nation. The cost of this is that money will always seem in short supply. Both government and individuals will have to make hard choices on how to spend the little money they have. In the short run we will be giving up aggressive boom cycles in favor of long term stability.
How Modern Banking Works
This post is meant to be educational so that everybody knows how our monetary system works. Knowing how the system works is the first step to identifying the problems and considering solutions.
How modern Fractional Banking works:
line 1 Bank Starting Capital………………….1,200
line 2 Reserve for Bank working capital……………………………………. ..200
line 3 Private Loans……….1000…….1000……..1000…….. ..1000
line 4 Int + Prin……………..2000……..2000……2000… ….2000
Total Principal + Interest on Line 4= $8,000
Line 1 Starting capital is only $1,200
Line 2 The bank keeps only 200 in reserve.
Line 3 The bank has lent out $4,000 on $1,000 and expects to get paid back $8,000.
The money to be payed back, the total of Interest + principal on line 4 ($8,000), does not exist because on line 1 they only started out with $1,200.
More money must be created (printed) to pay back the Int + Prin… or the borrowers will default. The system depends on more borrowers coming in after and create more money through debt borrowing. Yes, Factional Banking is a legalized Ponzi scheme, but there is nothing better that would scale to a growing economy that has been thought of yet.
The system is designed so that all new money must be borrowed into existence. More money must be constantly created or else the borrowers will default because at any given time there is not enough money in existence for ALL borrowers to pay back their debt. The Church understood this and tried to ban the practice of Fractional Banking. Andrew Jackson, the 7th US president, knew this too and fought hard to destroy the Second Federal bank. The charter of the First was allowed to expire. The point is that there are costs and benefits to this system that have been known for a long time.
The system is good because it allows for the money supply to scale to a growing economy. The system requires that all borrowings are backed by collateral. So if allowed to work properly, it is a very good system with a built in control on inflation. The money created at the local level IS backed by something. It is backed by real assets which have an intrinsic value much greater then gold. Gold is not good for much except art. If economy grows too fast… it will result in a situation where there are not enough new loans coming in.. when there are not enough new borrowers coming in to borrow more money (create new money), some people will default (recession). This is the built in control on inflation.
The only problem with this system is the Government. The government has given itself the ability to borrow as much money as it wants without putting up real assets as collateral. The Treasury just prints up paper bonds and sells them to the Fed Reserve for new cash. The govt basically gives itself an IOU for new money. This is proof that anything that government touches… turns to sh1t.
It is false to say that our money is not backed by anything, it is infact backed by real assets that borrowers use as collateral. The only problem in this system is the Government borrowing which is not backed by anything of value other then its “power” to tax and confiscate property almost at will.
As the govt borrows more and more, its debt becomes a bigger percentage of ALL the Outstanding debt. As that Government percentage goes higher, it means that a greater percentage of our money is NOT backed by real assets.
There is only one possible solution to this problem at this point. The national debt can never be paid back, since in this system the money to pay it all back never exists at any point in time. The amount not actually owed to anyone can be written off. That should be balanced by proportionally decreasing the private debt and the money supply. The effect of this is “Deflation”. The problem of this is only psychological as people will have to get use to the idea of taking a pay cut every year. That however would be offset by lowered living expenses.
How modern Fractional Banking works:
line 1 Bank Starting Capital………………….1,200
line 2 Reserve for Bank working capital……………………………………. ..200
line 3 Private Loans……….1000…….1000……..1000…….. ..1000
line 4 Int + Prin……………..2000……..2000……2000… ….2000
Total Principal + Interest on Line 4= $8,000
Line 1 Starting capital is only $1,200
Line 2 The bank keeps only 200 in reserve.
Line 3 The bank has lent out $4,000 on $1,000 and expects to get paid back $8,000.
The money to be payed back, the total of Interest + principal on line 4 ($8,000), does not exist because on line 1 they only started out with $1,200.
More money must be created (printed) to pay back the Int + Prin… or the borrowers will default. The system depends on more borrowers coming in after and create more money through debt borrowing. Yes, Factional Banking is a legalized Ponzi scheme, but there is nothing better that would scale to a growing economy that has been thought of yet.
The system is designed so that all new money must be borrowed into existence. More money must be constantly created or else the borrowers will default because at any given time there is not enough money in existence for ALL borrowers to pay back their debt. The Church understood this and tried to ban the practice of Fractional Banking. Andrew Jackson, the 7th US president, knew this too and fought hard to destroy the Second Federal bank. The charter of the First was allowed to expire. The point is that there are costs and benefits to this system that have been known for a long time.
The system is good because it allows for the money supply to scale to a growing economy. The system requires that all borrowings are backed by collateral. So if allowed to work properly, it is a very good system with a built in control on inflation. The money created at the local level IS backed by something. It is backed by real assets which have an intrinsic value much greater then gold. Gold is not good for much except art. If economy grows too fast… it will result in a situation where there are not enough new loans coming in.. when there are not enough new borrowers coming in to borrow more money (create new money), some people will default (recession). This is the built in control on inflation.
The only problem with this system is the Government. The government has given itself the ability to borrow as much money as it wants without putting up real assets as collateral. The Treasury just prints up paper bonds and sells them to the Fed Reserve for new cash. The govt basically gives itself an IOU for new money. This is proof that anything that government touches… turns to sh1t.
It is false to say that our money is not backed by anything, it is infact backed by real assets that borrowers use as collateral. The only problem in this system is the Government borrowing which is not backed by anything of value other then its “power” to tax and confiscate property almost at will.
As the govt borrows more and more, its debt becomes a bigger percentage of ALL the Outstanding debt. As that Government percentage goes higher, it means that a greater percentage of our money is NOT backed by real assets.
There is only one possible solution to this problem at this point. The national debt can never be paid back, since in this system the money to pay it all back never exists at any point in time. The amount not actually owed to anyone can be written off. That should be balanced by proportionally decreasing the private debt and the money supply. The effect of this is “Deflation”. The problem of this is only psychological as people will have to get use to the idea of taking a pay cut every year. That however would be offset by lowered living expenses.
Wednesday, November 3, 2010
More Money Printing on the Way
People just don't want to understand that the Recession is the Fix rather then the problem. It is the only thing that makes people respect the dollar.
The National Debt represents newly printed money. The Treasury prints up Bonds and sells it to the Fed to give the appearance of some sort of book balancing. Only a small amount of the the debt is money actually owed to anyone. There is no one on this planet that has 40 trillion dollars to lend to the US govt. It is a ridicules number that borders on not being a real number at all.
1 million second = 6 days (no problem)
1 billion seconds = 30 years (easy to imagine, hard to remember)
1 trillion seconds = 30,000 years (what the EFF' is that???)
Printing money to get the economy moving only creates a much bigger problem of instability. European countries printed money for years and were very unstable economically because of this. That is why they moved to the Euro which was much harder to just print more of without getting a lot of counties to approve.
I think the answer to the monetary disaster in the US is to replace the Federal Reserve Board of Governors with the State Governors. If 2/3's of them agree to increase the money supply through more debt or change interest rates, then ok. We need a check and balance over money printing. That check and balance should go back to the states.
The National Debt represents newly printed money. The Treasury prints up Bonds and sells it to the Fed to give the appearance of some sort of book balancing. Only a small amount of the the debt is money actually owed to anyone. There is no one on this planet that has 40 trillion dollars to lend to the US govt. It is a ridicules number that borders on not being a real number at all.
1 million second = 6 days (no problem)
1 billion seconds = 30 years (easy to imagine, hard to remember)
1 trillion seconds = 30,000 years (what the EFF' is that???)
Printing money to get the economy moving only creates a much bigger problem of instability. European countries printed money for years and were very unstable economically because of this. That is why they moved to the Euro which was much harder to just print more of without getting a lot of counties to approve.
I think the answer to the monetary disaster in the US is to replace the Federal Reserve Board of Governors with the State Governors. If 2/3's of them agree to increase the money supply through more debt or change interest rates, then ok. We need a check and balance over money printing. That check and balance should go back to the states.
Tuesday, October 27, 2009
The Right to Bare Arms...
I will soon explain how this is relevant to Recession Economics.
Obama has done something very good for me. His presence in the White House made me realize that I must do everything I can to assert my 2nd amendment right. The threat that he and his party represent has really motivated me to take some drastic initiatives that I have been putting off of a long time.
The first step was to legally purchase guns and ammunition before any legislature is enacted by the Democrats to infringe on the 2nd amendment. Upon purchasing guns and ammunition I realized that I now needed a place to store and shoot these weapons. In the last few months this has moved me to buy a considerable piece of property and begin construction. This is the point at which I am thankful that we are in a recession. The property is costing me half of what it would have two years ago. It is also relevant that gun and ammunition sales have been booming since Obama took office as people try to head off an future restrictions. This is probably the reason why they have not attempted to enact gun control legislation. They are afraid of cutting off their only good leg.
Sure enough, we can expect that before the next election they will make an attempt to pass gun control legislation. If for no other reason then to spite the other side. A republican Filibuster is our only hope. House Speaker Nancy Pelosi says she only wants to have guns registered. We know from experience in Britain and Australia that this is the first step to confiscation. The governments there first took an accounting of who had guns and later moved to confiscate them. The right to bare arms is no different then the right to free speech. Once you start picking away at the Bill of Rights there is no end. The Bill of Rights does not set apart the 2nd amendment from the other amendments in any way and give it a lesser value. All those rights are the peoples rights.
We can see evidence of this in Britain which is further along down this path... and it is the same path. First they banned handgun ownership... Then they banned long-gun ownership... Then they banned swords... Then they try to ban pointed kitchen knives... Now they plan on banning the PINT. Yes, the drinking glass because apparently people have been using this to assault one another. The point is obvious, if people want to hurt each other they will use stick and stones if they have to. Will democrats ban sticks and stones too?
Someone anonymously said:
"I think the root cause of the problem here is hands. Anything that can be held in one's hand can be a weapon.
Outlaw hands. Problem solved."
I guess the Democrats have their work cut out for them.
Obama has done something very good for me. His presence in the White House made me realize that I must do everything I can to assert my 2nd amendment right. The threat that he and his party represent has really motivated me to take some drastic initiatives that I have been putting off of a long time.
The first step was to legally purchase guns and ammunition before any legislature is enacted by the Democrats to infringe on the 2nd amendment. Upon purchasing guns and ammunition I realized that I now needed a place to store and shoot these weapons. In the last few months this has moved me to buy a considerable piece of property and begin construction. This is the point at which I am thankful that we are in a recession. The property is costing me half of what it would have two years ago. It is also relevant that gun and ammunition sales have been booming since Obama took office as people try to head off an future restrictions. This is probably the reason why they have not attempted to enact gun control legislation. They are afraid of cutting off their only good leg.
Sure enough, we can expect that before the next election they will make an attempt to pass gun control legislation. If for no other reason then to spite the other side. A republican Filibuster is our only hope. House Speaker Nancy Pelosi says she only wants to have guns registered. We know from experience in Britain and Australia that this is the first step to confiscation. The governments there first took an accounting of who had guns and later moved to confiscate them. The right to bare arms is no different then the right to free speech. Once you start picking away at the Bill of Rights there is no end. The Bill of Rights does not set apart the 2nd amendment from the other amendments in any way and give it a lesser value. All those rights are the peoples rights.
We can see evidence of this in Britain which is further along down this path... and it is the same path. First they banned handgun ownership... Then they banned long-gun ownership... Then they banned swords... Then they try to ban pointed kitchen knives... Now they plan on banning the PINT. Yes, the drinking glass because apparently people have been using this to assault one another. The point is obvious, if people want to hurt each other they will use stick and stones if they have to. Will democrats ban sticks and stones too?
Someone anonymously said:
"I think the root cause of the problem here is hands. Anything that can be held in one's hand can be a weapon.
Outlaw hands. Problem solved."
I guess the Democrats have their work cut out for them.
Wednesday, September 16, 2009
I can't wait until everyone's unemplyment benefits run out!
The most ridicules thing about recessions is how hard it is to hire people. You would think it would be easy with so many people out of work. Why would they come work for me when unemployment is giving them $400 a week to stay home and go to the beach all summer. My own girlfriend is out of work and has no intention of looking for a job until her unemployment runs out.
It is possible to persuade people to work if you offer a premium salary. The people who would normally get $10 /hr, now want $17/hr to work.
As soon as unemployment benefits run out, which we should start to see around December 2009, people will start going back to work for $10 and hour. The increase in labor productivity will sustain the recovery. I just hope that the government does not interfere and extend unemployment benefits. The longer unemployment runs, the longer it will take to get the economy back on track.
BTW, my opinion of the recovery so far is that it has only been fueled by inflationary money printing. Not that I would have done anything different. The world wide effect of the engineered recession has caused other governments to print even more money then the the US. Economics is relative, you only have to do better then everyone else.
You all know the story of the two brothers and the tiger right... A tiger is chasing two brothers and one stops to put on a pair of sneakers. The other brother asks, "Do you really think the sneakers are going to help you outrun the tiger?". His brother answers, " I don't need to outrun the tiger. I only need to outrun YOU".
It is possible to persuade people to work if you offer a premium salary. The people who would normally get $10 /hr, now want $17/hr to work.
As soon as unemployment benefits run out, which we should start to see around December 2009, people will start going back to work for $10 and hour. The increase in labor productivity will sustain the recovery. I just hope that the government does not interfere and extend unemployment benefits. The longer unemployment runs, the longer it will take to get the economy back on track.
BTW, my opinion of the recovery so far is that it has only been fueled by inflationary money printing. Not that I would have done anything different. The world wide effect of the engineered recession has caused other governments to print even more money then the the US. Economics is relative, you only have to do better then everyone else.
You all know the story of the two brothers and the tiger right... A tiger is chasing two brothers and one stops to put on a pair of sneakers. The other brother asks, "Do you really think the sneakers are going to help you outrun the tiger?". His brother answers, " I don't need to outrun the tiger. I only need to outrun YOU".
Thursday, May 28, 2009
Oil Prices and Euro Up
Looking that the price of oil today at $65 per barrel and the Euro at 1.39, I am seeing a clear indication that the dollar is weakening. The only cause for this would be a flood of US dollars over the last few months added to circulation. This is a clear sign to me that the current Obama administration is following in the same steps of his predecessors Bush Jr and Clinton. We can expect a similar pattern of a booming economy by the next election and recession two to three years after that. The Dollar will continue to be the means by which we tighten and loosen the economy.
Monday, March 16, 2009
Immigration Economics
This county was built on cheap labor. For that matter, every great civilization was built on cheap labor. For this country is was a struggle between slave labor and cheap immigrant labor. Immigrant labor won out but at the same time we realized at some point that there is a limit to how many people we want flooding into this country. The alternative was to export the work. A brilliant solution. The problem now is what about those jobs which can not be exported due to the fact that they are local based. The solution for that has been to turn a blind eye to deportation laws as the immigrants come in.
This is all well and good. Quiet honestly any citizen that finds himself competing with immigrant labor needs to go back to school or learn some technical skills. High school dropouts will not find sympathy with me. The problem starts when we start talking about legalizing the immigrants here. The problem with this is that while the immigrants are illegal they are not going to schools and competing for high paying jobs. Once you legalize them they will not be satisfied cleaning bathrooms for $3.50 per hour. They will want the jobs that pay $15 per hour. There presence in that market will bring down the market wage of those jobs to $10 per hour.
I feel that the best answer here is status quo. Keep exporting the low wage paying jobs so that people in those foreign countries can stay home and work. Keep the illegals that are here illegal so that they are not eligible for benefits and can not compete for higher level jobs.
As the low skill jobs are exported, perhaps the illegals that are here will go back home. Perhaps the highschool dropouts that we have here will emigrate to other countries for low wage paying work.
This is all well and good. Quiet honestly any citizen that finds himself competing with immigrant labor needs to go back to school or learn some technical skills. High school dropouts will not find sympathy with me. The problem starts when we start talking about legalizing the immigrants here. The problem with this is that while the immigrants are illegal they are not going to schools and competing for high paying jobs. Once you legalize them they will not be satisfied cleaning bathrooms for $3.50 per hour. They will want the jobs that pay $15 per hour. There presence in that market will bring down the market wage of those jobs to $10 per hour.
I feel that the best answer here is status quo. Keep exporting the low wage paying jobs so that people in those foreign countries can stay home and work. Keep the illegals that are here illegal so that they are not eligible for benefits and can not compete for higher level jobs.
As the low skill jobs are exported, perhaps the illegals that are here will go back home. Perhaps the highschool dropouts that we have here will emigrate to other countries for low wage paying work.
War through Recession.
Lets face it. The primary reason why the the United States has emerged as a supper power is because it was the victor in WWI and WWII. The primary reason why it benefited so much is because it fought the wars on distant shores. Fighting wars on other peoples land is key to not destroying your own land. That much is hard to argue with.
I have long viewed the Korean War, the Vietnam war and the Russian war in Afghanistan as part of the same conflict that started in Berlin at the end of WWII. Both the US and USSR made the wise assessment that rather then risk direct conflict is would be better to wear each other down by financing anyone that was willing to fight on their behalf. The Russians and Chinese financed Koreans. When the Korean conflict came to a stalemate, it moved to Vietnam. When Vietnam conflict came to a stalemate, it moved to Afghanistan where USSR was finally worn down. Worn down but not destroyed.
With that in mind when you see conflicts around the world today you have to ask yourself who is working on behalf of which power. The main players in the world today are the US, Russia and China. The European Union is a junior player too and nothing more then a front for a German/French alliance. The Germans have used cunning to try to move back up the ladder. They can't raise their own armies because of the US presence in their land so they are trying to manipulate other European members to do their bidding by financing them. I see the Iraq war as a play to drive a wedge between France/Germany and the other European Union members. The US was successfully able to buy off the other EU members and drive a "wedge" in the Union. This wedge prevented the EU form agreeing to a constitution. The introduction of England into the EU and attempts to get Turkey in too have have acted as destabilizing forces in the EU in favor of closer ties to the US.
So we have four powers all struggling for power. The US, Russia, China, and the EU. For the moment as Russia flexes its muscles the EU has largely returned its support to the US. Russia and China seem independent of each other.
It is a safe bet to say that any conflicts around the world that involve smaller nations, directly tie back to this conflict between the main powers. We say we are fighting terrorists in Iraq and Afghanistan, but what do you suppose would happen if all the terrorists in these two countries were killed? Russia and China would finance a new bread of terrorists somewhere else. This is not unlike the financing and support that the US is giving to some of the ex-USSR breakaway states. These are our people working against the Russians. Same goes with India, Pakistan and Tibet on China's boarder. These are our potential terrorist to China.
So what do we do now. Do we still need troops in Afghanistan and Iraq through a recession. Well that is sort of like asking do we still need police in LA and NYC though a recession. So what if you live in the suburbs? If you don't fight those gangs in the inner cities, eventually they will get to your suburbs. There are people paid world wide to make trouble for the US. These people have a job to do and will do it. The question is if they will do it in some far away place or if they will do it inside the US borders. I believe that the US is practicing a very wise policy of keeping as many conflicts as possible outside of its boarders.
What about all the US soldiers that are dieing? What about all the cops that are dying every month in NYC, Detroit, LA. Its a dirty job but someone has to do it. These are the people best trained and equipped to do the job.
Where does this fit into Recession Economics. You just have to suck it up and pay the bill. Unless you support cutting back on cops and firemen, it makes no sense to be cutting back on worldwide security either.
I have long viewed the Korean War, the Vietnam war and the Russian war in Afghanistan as part of the same conflict that started in Berlin at the end of WWII. Both the US and USSR made the wise assessment that rather then risk direct conflict is would be better to wear each other down by financing anyone that was willing to fight on their behalf. The Russians and Chinese financed Koreans. When the Korean conflict came to a stalemate, it moved to Vietnam. When Vietnam conflict came to a stalemate, it moved to Afghanistan where USSR was finally worn down. Worn down but not destroyed.
With that in mind when you see conflicts around the world today you have to ask yourself who is working on behalf of which power. The main players in the world today are the US, Russia and China. The European Union is a junior player too and nothing more then a front for a German/French alliance. The Germans have used cunning to try to move back up the ladder. They can't raise their own armies because of the US presence in their land so they are trying to manipulate other European members to do their bidding by financing them. I see the Iraq war as a play to drive a wedge between France/Germany and the other European Union members. The US was successfully able to buy off the other EU members and drive a "wedge" in the Union. This wedge prevented the EU form agreeing to a constitution. The introduction of England into the EU and attempts to get Turkey in too have have acted as destabilizing forces in the EU in favor of closer ties to the US.
So we have four powers all struggling for power. The US, Russia, China, and the EU. For the moment as Russia flexes its muscles the EU has largely returned its support to the US. Russia and China seem independent of each other.
It is a safe bet to say that any conflicts around the world that involve smaller nations, directly tie back to this conflict between the main powers. We say we are fighting terrorists in Iraq and Afghanistan, but what do you suppose would happen if all the terrorists in these two countries were killed? Russia and China would finance a new bread of terrorists somewhere else. This is not unlike the financing and support that the US is giving to some of the ex-USSR breakaway states. These are our people working against the Russians. Same goes with India, Pakistan and Tibet on China's boarder. These are our potential terrorist to China.
So what do we do now. Do we still need troops in Afghanistan and Iraq through a recession. Well that is sort of like asking do we still need police in LA and NYC though a recession. So what if you live in the suburbs? If you don't fight those gangs in the inner cities, eventually they will get to your suburbs. There are people paid world wide to make trouble for the US. These people have a job to do and will do it. The question is if they will do it in some far away place or if they will do it inside the US borders. I believe that the US is practicing a very wise policy of keeping as many conflicts as possible outside of its boarders.
What about all the US soldiers that are dieing? What about all the cops that are dying every month in NYC, Detroit, LA. Its a dirty job but someone has to do it. These are the people best trained and equipped to do the job.
Where does this fit into Recession Economics. You just have to suck it up and pay the bill. Unless you support cutting back on cops and firemen, it makes no sense to be cutting back on worldwide security either.
What trade deficit ?
Does anybody really believe that the United States would champion an open trade policy if it was not to our favor?
I think the obvious answer to this question is NO. Starting from that basis it should be easy to see where all the pieces fit. It is so easy to manipulate the trade deficit numbers that it almost makes no real sense. The only thing that it is good for is as a marker from year to year. Even at that it is only so good as a marker so long as currency exchange rates, markups and technology stay the same. Change any of these factors and the numbers don't mean anything. The United States has supposedly been running a trade deficit from 1976. Does it make any sense that something so bad could be going on for 33 years through ups and downs in the economy? Who are the countries with the positive trade deficits all these years and why have they not supplanted the US as a superpower?
Now that I have you thinking, lets consider how the trade deficit is compiled. Let us consider how these imports are valued. Generally they are valued at cost. Not their fair value and definitely not at what it would cost to build these goods domestically. If you valued these goods at what it would cost to build them domestically I believe that you would find the trade deficit in the favor of the United States. Also consider the types of goods we import vs those we export. We seem to import more finished goods and export more raw goods and pop culture. Put another way, let us forget that we are trading these goods for money and let us pretend we are using a barter system. We are bringing in cars, electronics, steel, oil, cloths and we are trading out beef, wheat, corn, manure, Elvis and Madona. When you simplify this down to a bartering system I think the US is making out very well in the trade. It so happens that the accounting system we use in man made and imperfect. It was never designed to deal with such large scale variations in currency, markup and technology. So why not correct the system to account for this? Why would we want the rest of world to know that they are loosing out by trading with us.
I think the obvious answer to this question is NO. Starting from that basis it should be easy to see where all the pieces fit. It is so easy to manipulate the trade deficit numbers that it almost makes no real sense. The only thing that it is good for is as a marker from year to year. Even at that it is only so good as a marker so long as currency exchange rates, markups and technology stay the same. Change any of these factors and the numbers don't mean anything. The United States has supposedly been running a trade deficit from 1976. Does it make any sense that something so bad could be going on for 33 years through ups and downs in the economy? Who are the countries with the positive trade deficits all these years and why have they not supplanted the US as a superpower?
Now that I have you thinking, lets consider how the trade deficit is compiled. Let us consider how these imports are valued. Generally they are valued at cost. Not their fair value and definitely not at what it would cost to build these goods domestically. If you valued these goods at what it would cost to build them domestically I believe that you would find the trade deficit in the favor of the United States. Also consider the types of goods we import vs those we export. We seem to import more finished goods and export more raw goods and pop culture. Put another way, let us forget that we are trading these goods for money and let us pretend we are using a barter system. We are bringing in cars, electronics, steel, oil, cloths and we are trading out beef, wheat, corn, manure, Elvis and Madona. When you simplify this down to a bartering system I think the US is making out very well in the trade. It so happens that the accounting system we use in man made and imperfect. It was never designed to deal with such large scale variations in currency, markup and technology. So why not correct the system to account for this? Why would we want the rest of world to know that they are loosing out by trading with us.
Friday, March 13, 2009
Do you Believe in the Recession?
Question:Is the recession real? Is it real enough for you?
Answer: Have you changed your spending habits? Do you you respect the dollar yet?
If you have not read my first post "Thank God for the Recession", nothing else in this blog will make sense to you. The premise described there is the government loves to cheat economics by printing money. This fuels economic booms. This also causes inflation that must at some point be corrected by taking money out of the economy. The removal of this money causes recessions. It increases the value of the dollar and restores long term confidence in the Dollar.
We have heard of people speak in the past of the Fed engineering a "soft landing". The concept of a soft landing is that the Fed slows down the economy by tightening the money supply just enough to cause strengthen the dollar without the drama of corporate bankruptcies and layoffs. Its a fantasy.
The "soft landing" can simply not work because it does not scare anyone. The problem with economic booms is that people loose respect for the dollar and spend it like its just the paper that it really is. People only respect what they fear. For people to respect the dollar they must fear that their supply of dollars will be cut off. You can not have this shift in psychology unless you have companies laying off people by the thousands and corporations going bankrupt. Anything less then this and everyone will assume that this is just a minor bump in the road... a correction to shake out weakness in the market. In order for a recession to work and increase the dollar's value significantly, people must be CONVINCED that they are in a real recession. A recession is not convincing unless people believe that it has the potential to become outright depression. Only then will they tighten their belts and save their pennies. I still see people leaving pennies behind at the cash registers. Perhaps this recession in not yet convincing enough.
Answer: Have you changed your spending habits? Do you you respect the dollar yet?
If you have not read my first post "Thank God for the Recession", nothing else in this blog will make sense to you. The premise described there is the government loves to cheat economics by printing money. This fuels economic booms. This also causes inflation that must at some point be corrected by taking money out of the economy. The removal of this money causes recessions. It increases the value of the dollar and restores long term confidence in the Dollar.
We have heard of people speak in the past of the Fed engineering a "soft landing". The concept of a soft landing is that the Fed slows down the economy by tightening the money supply just enough to cause strengthen the dollar without the drama of corporate bankruptcies and layoffs. Its a fantasy.
The "soft landing" can simply not work because it does not scare anyone. The problem with economic booms is that people loose respect for the dollar and spend it like its just the paper that it really is. People only respect what they fear. For people to respect the dollar they must fear that their supply of dollars will be cut off. You can not have this shift in psychology unless you have companies laying off people by the thousands and corporations going bankrupt. Anything less then this and everyone will assume that this is just a minor bump in the road... a correction to shake out weakness in the market. In order for a recession to work and increase the dollar's value significantly, people must be CONVINCED that they are in a real recession. A recession is not convincing unless people believe that it has the potential to become outright depression. Only then will they tighten their belts and save their pennies. I still see people leaving pennies behind at the cash registers. Perhaps this recession in not yet convincing enough.
Thursday, March 12, 2009
Going Green, Cutting Taxes, Growing the Economy
We can do it all.
YES WE CAN.
It's time for a solutions. How can we get this economy moving forward again. The first thing is that President Obama needs to stop threatening those who have the ability to create jobs with more taxes. I have already discussed in a prior post how his proposed tax increases on rich people will yield less tax revenue because they will simply not participate in the economy; or structure their transactions is such a way that they are not taxable or not visible.
Step one for Obama is to gain the support of the rich with a tax friendly policy. Try asking them what they would like to contribute. He will probably get more tax revenues with that approach.
Step two for Obama is to look at how Bush Jr got out of the last recession. From what I recall he offered immediate deductions for capital purchases. It worked.
Step three for Obama is to take Bush Jr's plan green. Offer a full deduction in the first year for any environmentally friendly equipment purchased by businesses. In the case of vehicles, 100% deduction in the first year for 100% alternate fuel trucks, buses and cars. Hybrid vehicles will be deducted over two years.
This policy can be extended to individuals as well to motivate them to dump their cars for new alternate fuel ones. It does not even matter if 100% alternate fuel vehicles don't exist yet. Manufacturers will scramble to make them. That effort will move the economy alone. If they can't figure it out, their loss.
Home owners should get full tax deductions for installing solar panels and wind-turbines to power water heaters, lights and battery reserves. Led Bulbs bulbs should also be deductible.
Such a tax policy would have the effect of seriously effecting our energy policy and stimulating the economy at the same time. It would also win over the rich people that President Obama has been alienating and get them to participate in this economy.
What I am suggesting here is tax deductions for Green equipment and vehicles yet to be designed. This is moving ahead of the curve. I am less interested in giving deductions for the hybrids that we have have now, but more interested in offering deductions for the 100% alternate fuel machines that can be produced six months from now and then twelve months from then. Money can be paid in advance and deductions paid in the year paid. Employers will start hiring to fill the backlog of orders created.
The 900 billion stimulus is a one time shot in arm. It is not going to generate new jobs. Whoever can get their hands on that money is going to hoard it. My plan is designed to make real changes and create productive jobs that will mean something. Paying one crew to dig a ditch and then another crew to fill that ditch, creates jobs but is not sustainable nor productive growth.
YES WE CAN.
It's time for a solutions. How can we get this economy moving forward again. The first thing is that President Obama needs to stop threatening those who have the ability to create jobs with more taxes. I have already discussed in a prior post how his proposed tax increases on rich people will yield less tax revenue because they will simply not participate in the economy; or structure their transactions is such a way that they are not taxable or not visible.
Step one for Obama is to gain the support of the rich with a tax friendly policy. Try asking them what they would like to contribute. He will probably get more tax revenues with that approach.
Step two for Obama is to look at how Bush Jr got out of the last recession. From what I recall he offered immediate deductions for capital purchases. It worked.
Step three for Obama is to take Bush Jr's plan green. Offer a full deduction in the first year for any environmentally friendly equipment purchased by businesses. In the case of vehicles, 100% deduction in the first year for 100% alternate fuel trucks, buses and cars. Hybrid vehicles will be deducted over two years.
This policy can be extended to individuals as well to motivate them to dump their cars for new alternate fuel ones. It does not even matter if 100% alternate fuel vehicles don't exist yet. Manufacturers will scramble to make them. That effort will move the economy alone. If they can't figure it out, their loss.
Home owners should get full tax deductions for installing solar panels and wind-turbines to power water heaters, lights and battery reserves. Led Bulbs bulbs should also be deductible.
Such a tax policy would have the effect of seriously effecting our energy policy and stimulating the economy at the same time. It would also win over the rich people that President Obama has been alienating and get them to participate in this economy.
What I am suggesting here is tax deductions for Green equipment and vehicles yet to be designed. This is moving ahead of the curve. I am less interested in giving deductions for the hybrids that we have have now, but more interested in offering deductions for the 100% alternate fuel machines that can be produced six months from now and then twelve months from then. Money can be paid in advance and deductions paid in the year paid. Employers will start hiring to fill the backlog of orders created.
The 900 billion stimulus is a one time shot in arm. It is not going to generate new jobs. Whoever can get their hands on that money is going to hoard it. My plan is designed to make real changes and create productive jobs that will mean something. Paying one crew to dig a ditch and then another crew to fill that ditch, creates jobs but is not sustainable nor productive growth.
Bernanke - Fed Boss
Inflation Watchdog
That is what being Chairman of Fed is all about. Keeping the dollar stable. The fact is that national debt means nothing when you can print your own money. The US government can pay for anything anytime it wants without answering to anyone. When it has its own currency it can do that. Its just paper. The one problem that the government does have is that the more it prints, the less valuable it becomes as people catch on. Believe me people do catch on. Not only that, but they anticipate it and try to raise prices ahead of inflation. Everyone knows that prices are always going up... except in a recession of course. Recessions are inflation busters.
The Fed has one job, to control inflation. It has a lot of means at its disposal. The most public being adjusting interest rates. That is just so easy to understand that everyone focuses on it. The fed states the Fed Funds Rate clearly. Just as public but less easy to track are they buying and selling of treasury bills. What is less publicized is how much money the Fed makes available to the govt and to banks to loan out. Does it even matter as long as the dollars value is stable. I think not. If the govt can print money to pay its debts without devaluing my saving, that is truly wonderful. It is an economic miracle of modern economics. When the dollars starts to fall, the Fed has a job to do... protect the value of my cash savings.
As watchdog the Fed is usually at odds with the president and congress who would prefer a very loose money supply. The patten I believe I am seeing is that Fed Chairmen are very tightassed in their fist few years until they get comfortable with the people in Washington.
Greenspan was so tightassed that he cost George Bust Sr his reelection when he tightened the purse strings in his reelection year. Greenspan was far more relaxed with Bill Clinton and very Relaxed with George Bush Jr. No doubt Greenspan was able to justify a very loose policies while we had two wars going on. That is the purpose of having paper money not backed by anything. You can finance your own wars.
Bernake came in at the end of the Bush Jr years and not doubt felt subordinate to him. However with a new president in town Bernake must now feel like a free man. Free to be the Great Inflation Watchdog we has always wanted to be. I feel sorry for Obama in this respect. I don't think he will get much sympathy from Bernake who who most likely wants to play the role of the Great Inflation Buster.
That is what being Chairman of Fed is all about. Keeping the dollar stable. The fact is that national debt means nothing when you can print your own money. The US government can pay for anything anytime it wants without answering to anyone. When it has its own currency it can do that. Its just paper. The one problem that the government does have is that the more it prints, the less valuable it becomes as people catch on. Believe me people do catch on. Not only that, but they anticipate it and try to raise prices ahead of inflation. Everyone knows that prices are always going up... except in a recession of course. Recessions are inflation busters.
The Fed has one job, to control inflation. It has a lot of means at its disposal. The most public being adjusting interest rates. That is just so easy to understand that everyone focuses on it. The fed states the Fed Funds Rate clearly. Just as public but less easy to track are they buying and selling of treasury bills. What is less publicized is how much money the Fed makes available to the govt and to banks to loan out. Does it even matter as long as the dollars value is stable. I think not. If the govt can print money to pay its debts without devaluing my saving, that is truly wonderful. It is an economic miracle of modern economics. When the dollars starts to fall, the Fed has a job to do... protect the value of my cash savings.
As watchdog the Fed is usually at odds with the president and congress who would prefer a very loose money supply. The patten I believe I am seeing is that Fed Chairmen are very tightassed in their fist few years until they get comfortable with the people in Washington.
Greenspan was so tightassed that he cost George Bust Sr his reelection when he tightened the purse strings in his reelection year. Greenspan was far more relaxed with Bill Clinton and very Relaxed with George Bush Jr. No doubt Greenspan was able to justify a very loose policies while we had two wars going on. That is the purpose of having paper money not backed by anything. You can finance your own wars.
Bernake came in at the end of the Bush Jr years and not doubt felt subordinate to him. However with a new president in town Bernake must now feel like a free man. Free to be the Great Inflation Watchdog we has always wanted to be. I feel sorry for Obama in this respect. I don't think he will get much sympathy from Bernake who who most likely wants to play the role of the Great Inflation Buster.
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