A few weeks ago Cindy Johansen forwarded an e-mail in which New York's Governor David A. Paterson (D-NY) calls for a spending cap to stem the out of control growth of New York's finances. For a New York Democrat, that is darn good. I e-mailed back Cindy that I would be surprised if New York's Progressive GOP came up with someone better than Paterson.
In the e-mail, Paterson wrote:
"Last week, I proposed an Executive Budget for 2010-2011 that includes a spending cap to control state spending. Tied to that cap is a property tax circuit breaker that would provide property tax refunds to New York's working families. The spending cap will impose long-term fiscal discipline by forcing state government to live within its means. The cap puts New York State on a path to economic recovery that will lead to future budget surpluses -- which will then be returned to taxpayers through property tax relief."
I went to my dentist in Manhattan today but when I returned home I stopped in the Boiceville supermarket and saw headlines in the Post and the Daily News about Paterson's "beleaguered" administration. Apparently, rumors have emanated from misinformation about a forthcoming New York Times article.
According to the liberal blog Huffington Post, Lawrence Schwartz, Paterson's chief of staff, wrote a letter to the Times. The Huffington Post observes that misinformation about a Times article was circulating with the Times's knowledge but the Times did nothing to correct the rumors and the article will do nothing to correct the rumors when it is released.
Perhaps Paterson should consider running as a Republican. He is probably more conservative than most of GOP front runners, with the exception of Rudy.
Wednesday, February 10, 2010
Monday, February 8, 2010
No Such Thing as a Safe Currency, Save One
Jon Nadler of Kitco quotes Bloomberg's Ben Levisohn:
“For all the concern over the $1.6 trillion US budget deficit and record debt load, the dollar is as valuable now as 35 years ago. Measured against a basket of currencies from the G-10 nations proportioned against each other, the greenback is up about 3 percent since 1975, according to the Bloomberg Correlation-Weighted Currency Index. That was four years after the Bretton Woods agreement set up in 1944 to link currencies to gold, collapsed.”
At the same time, Nadler bears bad news about the darn euro, quoting The Sydney Morning Herald, which notes that even prostitutes in Greece are threatening strikes because of loss of welfare benefits:
"The stakes are high, not just for Greece but for the entire euro zone, where efforts to forge a common economic identity are threatened. Last week, the panic spread to Portugal and Spain, and the cost of insuring their debt against a default soared to record levels as investors bet that, like Greece, governments in those countries won't be able to rein in bloated budgets."
Nadler points out that the continent's financial problems are linked to Democratic Party-style social welfare programs that have decimated its economic growth. Again quoting the Sydney Morning Herald:
"on a continent where the culture and legitimacy of the mother state are so deeply ingrained - and now in some cases unaffordable - a question remains: can the European Commission say 'no more' to prodigal nations like Greece and, to a lesser extent, Spain and Portugal? And how will the countries themselves confront the political fallout of economic distress?"
Given the failure of Democratic Party-style economics in Europe, it is amazing that anyone reads the European-style New York Times anymore, or that Americans have elected an administration that is committed to instituting Europe's failed tribalist philosophy here in the more civilized, individualist United States.
Also of importance are the implications of the dollar's strength. I just blogged about the effects on employment of a strong dollar and how the US government and the Fed have orchestrated the exit of high wage jobs via monetary policy. No currency is safe because the others will inflate as much as we do. What is amazing about this process of dollar repatriation given risk in Europe, which, quoting Nadler, I predicted a month ago using my coin flip method of investing, is that massive deficits and expansion of the monetary base, have been accompanied by increasing DEMAND for the dollar. When the supply of dollars goes up, cheapening them, demand also goes up? Is this a curious application of Say's Law, that supply creates its own demand?
I think not. There is a chasm between Wall Street's short term thinking and longer term reality. Keynes said that in the long term we're all dead, but Keynes is dead and we won't have to wait that long, hopefully (from a death standpoint).
If, given the high inflation rates of the past 40 years the dollar has held its own against other currencies, there is no such thing as a safe currency, save one. Spell it G-O-L-D. That does not mean that gold is going up next week or next month. But the world is on a welfare addiction habit, and the welfare addiction is destroying the source of the "good faith" of the US government. By raising spending, providing stimulus handouts and increasing the money supply, the US government is telling America's hard working employees: "You are fools. Look at the looters at Goldman Sachs." By taxing incomes, the US government is telling you: "Do not work, live off government." By subsidizing the welfare mothers on Wall Street, the US government is telling any entrepreneur: "Why waste your time? Get a value-destroying job in New York City."
If you trust the current pattern of events, trust the current strength of the dollar. Otherwise, think about alternatives. Stocks are fine, but inflation confuses investment, credit is overextended, lending is on hold and the US economy is a mess, starting with over-investment in real estate. This will result in downward adjustments in consumers' wealth and reductions in access to credit.
How will those problems be cured? Ben Bernanke has already done it. Expand the amount of money. But entrepreneurship has been hammered through decades of high tax rates, regulation and harassment of small business. My local pharmacist says he spends half his day filling out government forms. The same in other businesses. So stocks are not exciting. Too much regulation; too much mismanagement; too much malinvestment that needs to be cleaned up.
That leaves commodities. But in the short run, they will be subject to ongoing attacks from the central banks. But are you willing to trust the federal government and the dollar over the long haul?
“For all the concern over the $1.6 trillion US budget deficit and record debt load, the dollar is as valuable now as 35 years ago. Measured against a basket of currencies from the G-10 nations proportioned against each other, the greenback is up about 3 percent since 1975, according to the Bloomberg Correlation-Weighted Currency Index. That was four years after the Bretton Woods agreement set up in 1944 to link currencies to gold, collapsed.”
At the same time, Nadler bears bad news about the darn euro, quoting The Sydney Morning Herald, which notes that even prostitutes in Greece are threatening strikes because of loss of welfare benefits:
"The stakes are high, not just for Greece but for the entire euro zone, where efforts to forge a common economic identity are threatened. Last week, the panic spread to Portugal and Spain, and the cost of insuring their debt against a default soared to record levels as investors bet that, like Greece, governments in those countries won't be able to rein in bloated budgets."
Nadler points out that the continent's financial problems are linked to Democratic Party-style social welfare programs that have decimated its economic growth. Again quoting the Sydney Morning Herald:
"on a continent where the culture and legitimacy of the mother state are so deeply ingrained - and now in some cases unaffordable - a question remains: can the European Commission say 'no more' to prodigal nations like Greece and, to a lesser extent, Spain and Portugal? And how will the countries themselves confront the political fallout of economic distress?"
Given the failure of Democratic Party-style economics in Europe, it is amazing that anyone reads the European-style New York Times anymore, or that Americans have elected an administration that is committed to instituting Europe's failed tribalist philosophy here in the more civilized, individualist United States.
Also of importance are the implications of the dollar's strength. I just blogged about the effects on employment of a strong dollar and how the US government and the Fed have orchestrated the exit of high wage jobs via monetary policy. No currency is safe because the others will inflate as much as we do. What is amazing about this process of dollar repatriation given risk in Europe, which, quoting Nadler, I predicted a month ago using my coin flip method of investing, is that massive deficits and expansion of the monetary base, have been accompanied by increasing DEMAND for the dollar. When the supply of dollars goes up, cheapening them, demand also goes up? Is this a curious application of Say's Law, that supply creates its own demand?
I think not. There is a chasm between Wall Street's short term thinking and longer term reality. Keynes said that in the long term we're all dead, but Keynes is dead and we won't have to wait that long, hopefully (from a death standpoint).
If, given the high inflation rates of the past 40 years the dollar has held its own against other currencies, there is no such thing as a safe currency, save one. Spell it G-O-L-D. That does not mean that gold is going up next week or next month. But the world is on a welfare addiction habit, and the welfare addiction is destroying the source of the "good faith" of the US government. By raising spending, providing stimulus handouts and increasing the money supply, the US government is telling America's hard working employees: "You are fools. Look at the looters at Goldman Sachs." By taxing incomes, the US government is telling you: "Do not work, live off government." By subsidizing the welfare mothers on Wall Street, the US government is telling any entrepreneur: "Why waste your time? Get a value-destroying job in New York City."
If you trust the current pattern of events, trust the current strength of the dollar. Otherwise, think about alternatives. Stocks are fine, but inflation confuses investment, credit is overextended, lending is on hold and the US economy is a mess, starting with over-investment in real estate. This will result in downward adjustments in consumers' wealth and reductions in access to credit.
How will those problems be cured? Ben Bernanke has already done it. Expand the amount of money. But entrepreneurship has been hammered through decades of high tax rates, regulation and harassment of small business. My local pharmacist says he spends half his day filling out government forms. The same in other businesses. So stocks are not exciting. Too much regulation; too much mismanagement; too much malinvestment that needs to be cleaned up.
That leaves commodities. But in the short run, they will be subject to ongoing attacks from the central banks. But are you willing to trust the federal government and the dollar over the long haul?
Connecticut Democrats Pollute and Now Kill
The Hartford Courant's Dan Harr states in the above video that the Connecticut plant that exploded, killed five and harmed at least 14 other people today was funded with one billion dollars in financing from Goldman Sachs last year. As well, its development depended on political relationships involving Connecticut's Democratic Party leadership. The plant is, in fact, a government financed boondoggle. Connecticut taxpayers were already on the hook for $340 million over 15 years to ensure payments to Goldman Sachs's creditors or derivatives holders. One sees links among government, investment banking and criminally-linked construction firms in this tragedy.
Dan Riehl of Riehl World View (h/t Larwyn) notes that three Democratic politicians, Vice President Biden, Congressman Jim Himes and Senator Christopher Dodd, were introduced by Craig Miller, an employee of the firm that is building the plant as a government-linked contractor, O&G Industries, at another of its sites funded through stimulus money. According to Rob Varnon, staff writer for NewsTimes.com, the developer, Phil Armetta, "was indicted by a federal grand jury alongside other owners of trash hauling businesses as part of the same federal investigation." I suppose his assistants were named Paulie Gaultieri and Silvio Dante.
Varnon adds:
"the plant was controversial from conception mainly on environmental grounds, though some questioned the involvement of the primary developer, Philip Armetta, a politically connected businessman." Varnon adds about the plant:
"environmentalists were concerned about spills of fuel or other discharge, especially into the Connecticut River.
"One group gathered 600 names opposing the plant in 2002 because of concerns about the impact on wetlands in the area and whether it would limit access to nature trails running through the Maromas area."
Sunday, February 7, 2010
How National Debt Drives Out Jobs
Many Americans are concerned about the loss of good jobs. In the manufacturing sector, especially, jobs have disappeared in favor of lower wage retail jobs. The reason is in the expansion of government indebtedness and increasing tax burdens.
In a free market money system such as existed under the gold standard and theoretically ought to exist today under the free floating currency system, if a nation imports an increasing amount, its currency ought to fall in value. Thus, if US plants close and move operations to Asia, then demand for the dollar declines and demand for the yuan or the yen increases. As the demand for the foreign currency increases, the foreign currency becomes more valuable and the dollar becomes less valuable. As the dollar becomes less valuable, it buys less foreign merchandise. Moving overseas becomes less attractive because goods sold in the foreign currency become more costly. So firms stop moving overseas and some return here.
That has not happened in the current Federal Reserve Bank/US treasury regime since the Reagan years. Rather, increasing trade and current account imbalances have not lead to a lower dollar. Rather, the yuan and other currencies have been stable against the dollar, resulting in increasing demand for merchandise manufactured overseas. As a result jobs have moved overseas. This is a process manufactured by the federal government and the Federal Reserve Bank in tandem with foreign central banks.
That is, there has been de facto pegging of foreign currencies against the dollar. This is done through purchases of the national debt. As the national debt is sold, foreign buyers including the Japanese, Chinese, Saudis and Europeans, purchase it, in so doing purchasing dollars with foreign currency in order to buy the debt. This keeps the dollar stronger. If foreign holdings of foreign debt were to be sold, the dollar would collapse. Or, if as seems to be happening now, foreign governments stop purchasing escalating quantities of debt, the dollar will weaken.
Because the dollar has been propped up, US jobs have moved out of the country to a greater extent than they would have were the dollar not propped up. The effect might be large. No one knows the damage that the de facto pegging has done to higher end US jobs.
Added to the mix is the Federal Reserve Bank's persistent monetary expansion. Despite the ongoing purchase of the national debt by foreign dollar supporters, the Federal Reserve Bank also has been purchasing national debt. Inflation since 1980 has been close to 4%, which in earlier decades would have seemed very high but has resulted in the curious belief in recent years that 4% inflation = 0% inflation. The Republicans have not helped in this regard, mistakenly claiming that the monetarist policies of Paul Volcker were due to a choice made by Ronald Reagan. That is not exactly right, because Jimmy Carter appointed Volcker and Reagan was elected because the public was angry about economic declines brought about by Volcker's monetary policies that ultimately stopped hyper-inflation. It is true that the Reagan administration permitted Volcker to continue these policies for two more years without forcing the Keynesian notion of "supply side economics" advocated by the Republican establishment in those years.
Inflation increases the degree to which foreign governments subsidize the US economy. This in turn facilitates consumption, which stimulates demand for retail sales and new homes. It does not stimulate sustainable business growth, though. Ultimately these policies will fail. In the long run, much of America will find itself unemployed, and it will take decades to rebuild a free economy, if all Americans haven't been brainwashed by the ideologically socialist school system by then.
In 1970, the real hourly wage in the United States was roughly the same as it is today. This is a dismal performance, for before the establishment of the Federal Reserve Bank and for five or six decades afterward real wages in the US increased 2 percent per year. This was especially true during the period when there was (a) no Federal Reserve or National Bank and (b) there was the highest amount of innovation in history, between 1836 and 1913. In contrast, the real wage became stagnant at the very time that President Richard M. Nixon (R) abolished all constraints on inflation and encouraged the Fed to inflate in order to boost the stock market and ensure his reelection. The boost-the-stock-market measure of the economy that began in the 1920s was perpetuated during the longest period of real wage stagnation in history, from 1970 through today.
Despite the stagnant real hourly wage, low population density regions such as the Hudson Valley and Catskills have seen massive construction of retail operations that in 1970 were primarily seen in dense suburban areas. That is, less profitable retail operations have been made profitable by two forces. The first, increasing efficiency due to Wal Mart's, McDonald's and other firms' innovation, is very much in the tradition of laissez faire capitalism. The second, low interest rates due to the Federal Reserve Bank's inflationary policies is more in the tradition of the Soviet Union's central planning agency, Gosplan. The results of the second force will be the same as in the Soviet Union.
That is, economic growth has not proceeded because of sustainable demand but because of monetary expansion. Thus, much of the American economy now depends on an unsustainable economic bubble. The bubble has been due not only to the Federal Reserve Bank but also due to foreign governments, who have bought into the curious idea that they benefit from having their workers work at very low wages in order to subsidize US consumption.
Income taxation re-enforces the lack of economic growth. Innovation depends on entrepreneurship, but entrepreneurship depends on the accumulation of capital. In the 19th century, entrepreneurs from low-income backgrounds like John D. Rockefeller could start from nothing and save a year's pay in three years, as Rockefeller did. He used that seed money to purchase a store, and then sold the store to purchase an oil refinery. In the 21st century, half or more of a middle class person's income goes to tax--sales tax, property tax, income tax, state tax, gasoline tax, etc., etc. As a result, the savings rate has been diverted to greedy teachers and bureaucrats who do not create value. Few "progressives" have ever compared the performance of Rockefeller and the American education establishment. Since 1970, literacy, numeracy and other measures have declined as ever more money is thrown at government schools. Between 1865 and 1913, the per barrel price of oil fell dramatically as Rockefeller and his organization innovated relentlessly, vastly improving the American standard of living. It is the education establishment that is greedy. They destroy and do not produce. Rockefeller by comparison was an altruistic saint.
The misallocation of resources and people is vast. It is ironic that the Democratic Party, which is responsible for framing these policies under Franklin D. Roosevelt, is the same party that claims that there is no environmental "sustainability" due to the suburbs or that over-expansion of suburban malls harms the environment. This is the fruit of socialistic planning by the Federal Reserve Bank and the central government. A capitalist economy would have done a much better job of allocating resources between current and future generations. Americans today would be much better off and would have bright prospects, but would not have as wide an array of retail merchandise or jumbo homes.
In a free market money system such as existed under the gold standard and theoretically ought to exist today under the free floating currency system, if a nation imports an increasing amount, its currency ought to fall in value. Thus, if US plants close and move operations to Asia, then demand for the dollar declines and demand for the yuan or the yen increases. As the demand for the foreign currency increases, the foreign currency becomes more valuable and the dollar becomes less valuable. As the dollar becomes less valuable, it buys less foreign merchandise. Moving overseas becomes less attractive because goods sold in the foreign currency become more costly. So firms stop moving overseas and some return here.
That has not happened in the current Federal Reserve Bank/US treasury regime since the Reagan years. Rather, increasing trade and current account imbalances have not lead to a lower dollar. Rather, the yuan and other currencies have been stable against the dollar, resulting in increasing demand for merchandise manufactured overseas. As a result jobs have moved overseas. This is a process manufactured by the federal government and the Federal Reserve Bank in tandem with foreign central banks.
That is, there has been de facto pegging of foreign currencies against the dollar. This is done through purchases of the national debt. As the national debt is sold, foreign buyers including the Japanese, Chinese, Saudis and Europeans, purchase it, in so doing purchasing dollars with foreign currency in order to buy the debt. This keeps the dollar stronger. If foreign holdings of foreign debt were to be sold, the dollar would collapse. Or, if as seems to be happening now, foreign governments stop purchasing escalating quantities of debt, the dollar will weaken.
Because the dollar has been propped up, US jobs have moved out of the country to a greater extent than they would have were the dollar not propped up. The effect might be large. No one knows the damage that the de facto pegging has done to higher end US jobs.
Added to the mix is the Federal Reserve Bank's persistent monetary expansion. Despite the ongoing purchase of the national debt by foreign dollar supporters, the Federal Reserve Bank also has been purchasing national debt. Inflation since 1980 has been close to 4%, which in earlier decades would have seemed very high but has resulted in the curious belief in recent years that 4% inflation = 0% inflation. The Republicans have not helped in this regard, mistakenly claiming that the monetarist policies of Paul Volcker were due to a choice made by Ronald Reagan. That is not exactly right, because Jimmy Carter appointed Volcker and Reagan was elected because the public was angry about economic declines brought about by Volcker's monetary policies that ultimately stopped hyper-inflation. It is true that the Reagan administration permitted Volcker to continue these policies for two more years without forcing the Keynesian notion of "supply side economics" advocated by the Republican establishment in those years.
Inflation increases the degree to which foreign governments subsidize the US economy. This in turn facilitates consumption, which stimulates demand for retail sales and new homes. It does not stimulate sustainable business growth, though. Ultimately these policies will fail. In the long run, much of America will find itself unemployed, and it will take decades to rebuild a free economy, if all Americans haven't been brainwashed by the ideologically socialist school system by then.
In 1970, the real hourly wage in the United States was roughly the same as it is today. This is a dismal performance, for before the establishment of the Federal Reserve Bank and for five or six decades afterward real wages in the US increased 2 percent per year. This was especially true during the period when there was (a) no Federal Reserve or National Bank and (b) there was the highest amount of innovation in history, between 1836 and 1913. In contrast, the real wage became stagnant at the very time that President Richard M. Nixon (R) abolished all constraints on inflation and encouraged the Fed to inflate in order to boost the stock market and ensure his reelection. The boost-the-stock-market measure of the economy that began in the 1920s was perpetuated during the longest period of real wage stagnation in history, from 1970 through today.
Despite the stagnant real hourly wage, low population density regions such as the Hudson Valley and Catskills have seen massive construction of retail operations that in 1970 were primarily seen in dense suburban areas. That is, less profitable retail operations have been made profitable by two forces. The first, increasing efficiency due to Wal Mart's, McDonald's and other firms' innovation, is very much in the tradition of laissez faire capitalism. The second, low interest rates due to the Federal Reserve Bank's inflationary policies is more in the tradition of the Soviet Union's central planning agency, Gosplan. The results of the second force will be the same as in the Soviet Union.
That is, economic growth has not proceeded because of sustainable demand but because of monetary expansion. Thus, much of the American economy now depends on an unsustainable economic bubble. The bubble has been due not only to the Federal Reserve Bank but also due to foreign governments, who have bought into the curious idea that they benefit from having their workers work at very low wages in order to subsidize US consumption.
Income taxation re-enforces the lack of economic growth. Innovation depends on entrepreneurship, but entrepreneurship depends on the accumulation of capital. In the 19th century, entrepreneurs from low-income backgrounds like John D. Rockefeller could start from nothing and save a year's pay in three years, as Rockefeller did. He used that seed money to purchase a store, and then sold the store to purchase an oil refinery. In the 21st century, half or more of a middle class person's income goes to tax--sales tax, property tax, income tax, state tax, gasoline tax, etc., etc. As a result, the savings rate has been diverted to greedy teachers and bureaucrats who do not create value. Few "progressives" have ever compared the performance of Rockefeller and the American education establishment. Since 1970, literacy, numeracy and other measures have declined as ever more money is thrown at government schools. Between 1865 and 1913, the per barrel price of oil fell dramatically as Rockefeller and his organization innovated relentlessly, vastly improving the American standard of living. It is the education establishment that is greedy. They destroy and do not produce. Rockefeller by comparison was an altruistic saint.
The misallocation of resources and people is vast. It is ironic that the Democratic Party, which is responsible for framing these policies under Franklin D. Roosevelt, is the same party that claims that there is no environmental "sustainability" due to the suburbs or that over-expansion of suburban malls harms the environment. This is the fruit of socialistic planning by the Federal Reserve Bank and the central government. A capitalist economy would have done a much better job of allocating resources between current and future generations. Americans today would be much better off and would have bright prospects, but would not have as wide an array of retail merchandise or jumbo homes.
Subscribe to:
Comments (Atom)
