Sunday, July 6, 2014

Immigration, Monetary Policy, and the Impoverishment of Americans

According to Karen Zeigler and Steve Camarota of the Center for Immigration Studies, all job growth since 2000 can be matched to immigration into the US.  In other words, Americans who were living in the US in 2000 have experienced negative job growth.  That is on top of declines in the real hourly wage, which is lower today than it was in 1964.  

A basic economic principle is that if you cut a price, demand will increase.  Wages have been cut, and demand has indeed increased, but because of immigration none of the gains--increased job opportunities-- has gone to the people whose wages have been cut.  

The expansion of the money supply has been accompanied by vast foreign holdings of dollars and US Treasury bonds.  China and Japan combined hold a value of US treasury bonds equal to the total US money supply.  Estimates of the amount of US currency held abroad varies from 65% to Edwin Feige's 35%  of the $1.2 trillion of US currency in circulation.  The entire US money supply is currently $2.8 trillion.

The large amount of overseas dollar holdings props up the dollar, keeping manufacturing jobs out of the US.  Thus, America's monetary policy is a source of stagnant job opportunities. It is also the source of stagnant real wages and income inequality. The reason is that wages lag inflation while monetary policy, the source of inflation, props up the stock market. 

The supposed income-inequality issue on which Obama and his dumbed-down followers harp is a direct function of the Keynesian money-printing orgy that has occurred since the Fed's founding.  The Fed’s increasing the money supply reduces interest rates, so the present value of future stock dividends is increased. 

A dividend dollar payable next year is worth more today with a lower interest rate because the alternative use of the dollar, putting it into a savings account, draws less interest.  If you put a dollar into a bank account that pays 1% interest, you have $1.01 (1.01 x $1) next year.  If you put a dollar into a bank account that pays 2% interest, you have $1.02  (1.02 x $1) next year. 

Conversely, the present value of a dollar at 1% interest payable in one year is $0.99 today (1/1.01 x $1) while the present value of a dollar at 2% interest payable in one year is $.98 today (1/1.02 x $1).  By reducing interest rates from 2% to 1% you increase the present value from $.98 to $.99.  The same occurs with stocks. 

That is why Keynesian and monetarist economists, virtually all economists in universities, are great friends of the super rich.  The advocacy of monetary expansion is tantamount to the advocacy of stock market gains at the expense of wages.  Both parties, Democrats and Republicans, have advocated increasing the money supply, stealing wealth from employees, and handing it to stockholders. I'll bet you didn't hear that on C-Span or CNN, but who owns C-Span and CNN?

Wages don't keep pace with inflation, though, which Keynes points out in the beginning of his book.

Thus, this is what stock market growth looks like despite stagnating real wages and declining job opportunities: 

People who've been invested in the stock market have done well thanks to the Fed, while people who hold cash or earn wages, the working class, have done miserably.  Yet, they keep voting for Democrats and Republicans because America is an idiocracy, and they are the idiots. 

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