Here is something I wrote for the local paper last night. I don't know if they will publish it.
Disagreeable Truths.
Our short-sighted Congress has allowed the problems with America's economics to grow so large that it is beyond the ability of the government to fix it without causing unacceptable pain. The bailouts and so called "quantitative easing" haven't fixed it. All that did was give the responsible villains a get-out-of-jail card and allowed them to keep their ill-gotten gains. Middle class and working Americans got nothing useful from it but saw their savings and house values tank. Many lost their jobs. Now talk has started about yet another quantitative easing. It is similar to telling someone who has maxed out all their credit cards that the answer is to take out another one.
Quantitative easing and zero interest rate don't work. Japan went through much the same thing as us in 1990 - 1992, with rising stock and real estate values, until the bubble burst. Government efforts like lowering of interest rates, monetary easing, capital injections, and fiscal stimulus has brought the gross debt-to-GDP ratio to 190% without kick starting the economy. More and more government revenue has to go in paying interest. They can only pay the interest by borrowing. Sound familiar?
Our Keynesian economists are banking on growing the economy to pay down this debt. They are clueless. These are the same people that told us there was nothing to worry about before the crash. These are the same people that said America should get out of manufacturing because the future was in services. Flipping hamburgers maybe.
We are borrowing 42% of what the government spends. That is about equal to our total discretionary spending. Actually we can't even borrow the full amount; some of the money is just printed. China is paying for our wars. One of these days we will have to pay them back.
Some government spending, on things like infrastructure would be helpful and good. The problem is that Pournelle's Iron Law of Bureaucracy (that states in time those running the department will work for the bureaucracy rather than its original purpose) has had time to operate, so the government agencies responsible for this have become inept. There is no known cure short of starting over.
What should be done is a mixture of government cuts and increased revenues. Of course our present Congress will not do this. Warren Buffet said. “I could end the deficit in 5 minutes. You just pass a law that says that anytime there is a deficit of more than 3% of GDP all sitting members of congress are ineligible for reelection.”
He also pointed out in a recent piece in the NY Times:-
"Since 1992, the I.R.S. has compiled data from the returns of the 400 Americans reporting the largest income. In 1992, the top 400 had aggregate taxable income of $16.9 billion and paid federal taxes of 29.2 percent on that sum. In 2008, the aggregate income of the highest 400 had soared to $90.9 billion — a staggering $227.4 million on average — but the rate paid had fallen to 21.5 percent.
But for those making more than $1 million — there were 236,883 such households in 2009 — I would raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains. And for those who make $10 million or more — there were 8,274 in 2009 — I would suggest an additional increase in rate."
The deficit is so large it will take major cuts to make much impression on it. For starters, we could end our various unnecessary wars, including the war on drugs. Why do we need 820 bases in 135 countries? Can we afford >$600 billion a year on “defense”? The best defense is a strong economy. If the entitlements like medical, government pensions and social security keep increasing at the present rate they will consume the whole budget. Our medical costs are at least double other western countries and the results no better according to the statistics. Our “No Child Gets Ahead” educational system is broken and again Pournelle’s Iron Law has done its work. There are alternatives that work, like the free Khan’s Academy. (www.khanacademy.org)
The real unemployment rate is around 20% the official figure of ~9% is contrived and false. It is likely that the real unemployment rate will not drop below 10% and will indeed rise in the future as automation is used more. China Business News reported on Monday that Foxconn Technology Group (the largest Chinese manufacturer of electronics) plans to use 1 million robots to replace simple working employees over a three-year span. So even where there is cheap labor, it is cheaper to make things automatically. We could do that here and save some jobs at least. The government should plan on supporting an increasing number of permanently unemployed.
We could do things that are already known to work, like build LFTR (fail safe, efficient, little radwaste, liquid thorium reactors) nuclear plants to reduce our dependence on foreign oil. We have lots of natural gas and could use that to power vehicles. There are some black swans flying around, like the EEStor ultra capacitor or Andrea Rossi’s E-Cat cold fusion reactor (1MW test scheduled for October, but the media are not interested enough to report it,) one of which may land. We could do with some help.
What makes the problem so difficult to solve is the reverse of Buffet’s suggestion. Any political party trying to do the right thing will suffer in the next election.
As Alexander Fraser Tytler said. “A democracy cannot exist as a permanent form of government. It can only exist until the majority discovers it can vote itself largess out of the public treasury. After that, the majority always votes for the candidate promising the most benefits with the result the democracy collapses because of the loose fiscal policy ensuing, always to be followed by a dictatorship, then a monarchy.”
[/img]
Disagreeable Truths
The FED uses quantitative easing to create inflation of the US dollar. That inflation is good in a recession or depression to change the psychology of the people holding vast amounts of dollars when the real value of property and goods is going down in relation to the dollar.The bailouts and so called "quantitative easing" haven't fixed it. All that did was give the responsible villains a get-out-of-jail card and allowed them to keep their ill-gotten gains. Middle class and working Americans got nothing useful from it but saw their savings and house values tank.
US companies hold over 2 trillion dollars in cash stored in US bonds, the US rich have more trillions in savings, and China has 1.2 trillion dollars in US bonds.
When the FED inflates the value of the dollar through "quantitative easing", it tells all of the holders of wealth that I have listed above that their money is becoming less valuable ...so don't DARE bet on a depression(massive depreciation of the dollar) to make their huge piles of dollars worth more. Dollar deprciation makes the rich able to buy a lot more per each and every dollar in their huge dollar piles.
US companies, the US very rich, and China want to see the US enter into a depression because the value of all tangible assets will fall relative to their stockpile of dollars. This will make them even richer.
The FED says to the holders of wealth get rid of your dollars and invest these vast piles of money in new plants and other tangibles here in the US to create new American jobs and make more American tax payers.
Politicians who are the minions of the holders of large piles of dollars are doing their best to see the US dollar depreciate as much as possible. Yes, the tea baggers. The value of your house is going down, so is your 401K, and anything else you own.
Consider this message from a quintessential tea bagger:
DUBUQUE, Iowa — Gov. Rick Perry did not back down on Tuesday, but he did not repeat his suggestion that the monetary policies of the Federal Reserve were potentially “treasonous” and could warrant “ugly” treatment should the Fed chairman, Ben S. Bernanke, ever pay a visit to Texas.
“Printing more money to play politics at this particular time in American history is almost treacherous — or treasonous in my opinion,” Mr. Perry said Monday, taking a voter’s question about the Fed and criticizing the possibility of the central bank’s taking further steps between now and the election to keep interest rates low.
He added, “I don’t know what y’all would do to him in Iowa, but we would treat him pretty ugly down in Texas.”
Axil,
As Congress is very unlikely to reduce government spending enough, nor increase taxes, the only way out of the massive debt is by massive inflation.
Probably the easiest way to follow that is look at the price of gold.
Here is a graph of purchasing power of the dollar. There would have to be a lot of deflation to bring it back to a reasonable level. So this is nothing new. I stick with the argument that QE has not helped the average American.
As Congress is very unlikely to reduce government spending enough, nor increase taxes, the only way out of the massive debt is by massive inflation.
Probably the easiest way to follow that is look at the price of gold.
Here is a graph of purchasing power of the dollar. There would have to be a lot of deflation to bring it back to a reasonable level. So this is nothing new. I stick with the argument that QE has not helped the average American.
Roubini is one of the best out there.
As Congress is very unlikely to reduce government spending enough, nor increase taxes, the only way out of the massive debt is by massive inflation.
Is Capitalism Doomed?
Karl Marx was right that globalization, financial intermediation, and income redistribution could lead capitalism to self-destruct.
By Nouriel Roubini
http://www.slate.com/id/2301691/
As Roubini states: I believe the tea bagger solutions will lead to unending stagnation, depression, currency and trade wars, capital controls, financial crisis, sovereign insolvencies, and massive social and political instability.The right balance today requires creating jobs partly through additional fiscal stimulus aimed at productive infrastructure investment. It also requires more progressive taxation; more short-term fiscal stimulus with medium- and long-term fiscal discipline; lender-of-last-resort support by monetary authorities to prevent ruinous runs on banks; reduction of the debt burden for insolvent households and other distressed economic agents; and stricter supervision and regulation of a financial system run amok; breaking up too-big-to-fail banks and oligopolistic trusts.
Over time, advanced economies will need to invest in human capital, skills, and social safety nets to increase productivity and enable workers to compete, be flexible, and thrive in a globalized economy. The alternative is—like in the 1930s—unending stagnation, depression, currency and trade wars, capital controls, financial crisis, sovereign insolvencies, and massive social and political instability.
We are not technically "spendthrift" now. A "spendthrift" wastefully spends the resources gathered by his thrifty forebearers.parallel wrote: So what do you think is going to happen? Obviously we can't keep on with our spendthrift ways indefinitely.
Since the US Gov. has no resourses saved, they (we) cannot spend it. We are not spendthrifts. We stopped being spendthrifts decades ago. Now we are just wastrel debtors. Oh whell!
maybe the capitalism you dream of is as much a utopia as communism? One will always lead to corporatism, the other to dictatorship?KitemanSA wrote:I had hoped that everyone on this board has the mental apacity to distinguish between "capitalism" and "corporatism". But then I see topics like this and I wonder.
The difference is that communism, at its base, must always rely on theft. Capitalism, on the other hand, relies on people cooperating with each other. The excesses of Capitalism can be regulated (in the true sense of the word) to avoid Corporatism, Monopolies, and other pitfalls. The pitfalls of communism, otoh, are built-in by definition.maybe the capitalism you dream of is as much a utopia as communism? One will always lead to corporatism, the other to dictatorship?
Perrin Ehlinger
You didn't answer the question.
What do you think is going to happen?
The market was down about 5% again today over most sectors; The Eurozone is on the verge of a Leamen style “to big to fail” collapse. The Philadelphia Federal Reserve Bank’s index of economic activity in the mid-Atlantic region plummeted to a negative 30.7 this month, down from a positive 3.2 in July and the lowest since a negative 30.8 reading in March 2009 -- in the depths of the last recession.
The index measures various aspects of business activity in the region, including new orders received by companies, shipments of goods and employment trends.
Economists were stunned -– and that rippled into the stock market, already unnerved by fresh concerns that Europe’s debt crisis could trigger a new banking meltdown. The Dow industrials were down 471 points, or 4.1%, to 10,938 at about noon PDT, with an hour of trading to go. This includes a 100 point drop in 3 seconds as automatic trading programs made their move.
This means that the economy in the mid-Atlantic region is rapidly contracting with shrinking manufacturing and acceleration in unemployment.
The big money guys are moving their money piles into gold and US bonds as they look to honker down to weather the oncoming storm. As a result, gold hit a new high and US bond yields hit a new low.
Mutual funds saw massive and unparalleled outflows as most of their investors rushed for the doors.
The tea beggars will continue to fight the deficit no matter if that Hoover aged thinking caused the great depression of the 30's
The sky is falling and it seems strange to me to worry about a deficit problem 30 years down the line when you are unemployed or soon will be. For those on fixed incomes, their savings are generating no returns and their principles are shrinking.
The tea bagger “kill the beast” strategy is working better than their wildest hopes and many of those tea beggars will soon be standing in depression style soup lines that they vehemently reject as a tenet of their libertarian self reliant ideals.
Here is a little known survival tip for the well-fed tea baggers in our number. During the hard times that loom ahead, to avoid the soup lines that they disdain so much and helped cause, dog food is not harmful for human consumption.
President Herbert Clark Hoover, the father of the Great Depression...The patron saint of the tea beggars...his epitaph: “He fought the deficit as best he could.”
Axil,
What you don't seem to have grasped is that the Japanese tried all those things you want twenty years ago and they didn't work The only thing they did was add to the deficit until the government now has trouble paying the interest. And that was with a very uniform and compliant population.
Not only have there been no cuts in government expenditure, but the cuts talked about so far are just a reduction in future growth rates for the government.The tea bagger “kill the beast” strategy is working better than their wildest hopes
What you don't seem to have grasped is that the Japanese tried all those things you want twenty years ago and they didn't work The only thing they did was add to the deficit until the government now has trouble paying the interest. And that was with a very uniform and compliant population.
And how much, in 1913, would an IPod have cost?parallel wrote:Axil,
As Congress is very unlikely to reduce government spending enough, nor increase taxes, the only way out of the massive debt is by massive inflation.
Probably the easiest way to follow that is look at the price of gold.
Here is a graph of purchasing power of the dollar.
(Stupid question, of course - there wasn't anything equivalent. But go with me here.)
Let's see... nearest practical equivalent, a phonograph? The Victor model XXV was about $60. Based on your chart - I'd divide that $60 by .046 - and get an approximate oranges to oranges price of about $1300.
But let's run things the other way. A 64 GB IPod runs (at the Apple Store) about $400. Multiply that by .046 - and you end up with it supposedly costing $18.60 in yesterday's dollars.
Hmm. Thanks for posting that. Like they say "The good old days? They were terrible!"
When opinion and reality conflict - guess which one is going to win in the long run.
Please draw a lesson from history...try
Recession of 1937–1938
One of Reagan's favorite sayings: “Those who fail to learn from history are doomed to repeat it”
Recession of 1937–1938
http://en.wikipedia.org/wiki/Recession_ ... %80%931938By the spring of 1937, production, profits, and wages had regained their 1929 levels. Unemployment remained high, but it was considerably lower than the 25% rate seen in 1933. In June 1937, some of Roosevelt's advisors urged spending cuts to balance the budget. WPA rolls were drastically cut and PWA projects were slowed to a standstill. The American economy took a sharp downturn in mid-1937, lasting for 13 months through most of 1938. Industrial production declined almost 30 per cent and production of durable goods fell even faster.
Unemployment jumped from 14.3% in 1937 to 19.0% in 1938, rising from 5 million to more than 12 million in early 1938. Manufacturing output fell by 37% from the 1937 peak and was back to 1934 levels. Producers reduced their expenditures on durable goods, and inventories declined, but personal income was only 15% lower than it had been at the peak in 1937. In most sectors, hourly earnings continued to rise throughout the recession, which partly compensated for the reduction in the number of hours worked. As unemployment rose, consumers' expenditures declined, leading to further cutbacks in production.
One of Reagan's favorite sayings: “Those who fail to learn from history are doomed to repeat it”
The experiences in Japan are an object lesson of what not to do in the face of a economic downturn.parallel wrote:Axil,Not only have there been no cuts in government expenditure, but the cuts talked about so far are just a reduction in future growth rates for the government.The tea bagger “kill the beast” strategy is working better than their wildest hopes
What you don't seem to have grasped is that the Japanese tried all those things you want twenty years ago and they didn't work The only thing they did was add to the deficit until the government now has trouble paying the interest. And that was with a very uniform and compliant population.
In a nutshell, the problem with Japan is to much government interference in business.
In America's Great Depression, Rothbard (2000) wrote, "there is one thing the government can do positively during a depression, however: it can drastically lower its relative role in the economy”.
Japan's development model over the past 50 years has emphasized intrusive government intervention and planning in the economy. During its recession, government interventions have manifested themselves as fiscal stimulus packages involving large amounts of public works, increases in the monetary base, interest-rate cuts, bailouts and nationalization of some banks, direct government lending to businesses, and increases in government spending despite some tax cuts. These interventions have tried to maintain the existing structure of production preventing the necessary market processes from working to correct the artificial boom's malinvestments.
Like in the US today, the initial boom was created by a central bank-induced monetary expansion. Because of repeated interventions, the economy has not recovered. The greatest malinvestments took place in capital-intensive industries in the earlier stages of production. For Japan's economy to recover the government must stop intervening in the economy and allow the market process to realign the structure of production to match consumer preferences.
The approach that is currently under consideration in the US should be changed to avoid the problems experienced in Japan and refocus on solutions that impact the market-customer relationship in a minimal way.
What Milton Freemen wants to do is eliminate all tax deductions to remove government influence over the private sector.
There are 3100 such deductions given to special interests. Through these deductions and loop-holes government distorts free enterprise.
The removal of these loop-holes will also remove much of the IRS from our lives and businesses
At the behest of the K-street lobbyists, the tea baggers define this tax exemptions removal as increasing taxes and has blocked it from consideration in the last go around with Obama.
But this is not a tax increase if loop-hole removal is revenue neutral, that is, if the money gained is given back to the tax payer and to business at a rate of 20% labor cost support for any employment increase at any US business that hires a person to increase the head count at that bisiness.
Let us explicitly incentivize US companies to hire Americans, not Chinese and Indians.
In the on-rushing era of hard times ahead, the US Citizen has the right to demand from their government a minimal level of protection of their jobs and their property in the face of the disruptive forces of globalism. The only disturbance of the marketplace is as follows: when an American company hires a foreign worker, that company is placed at a competitive disadvantage vis'-à-vis' the company that uses American labor.
Unlike the WPA and PWA of the last depression which provided worker support outside of the marketplace, a company is not forced to hire, but if it does, that company gets direct employment support.
In this way, the government does not pick winners and losers; it does not get between the company and its customers thereby allowing the market to work in an optimism way.