Thoughts Aloud

Archive for the ‘Economics’ Category

I just stumbled across an incredibly lucid post, by the ‘Administrator’ of a blog I had never heard of called, “The Burning Platform,” which I look forward to perusing further. It is simply entitled, “Available,” and I would implore anyone with the slightest interest in (and ability to handle) the stark truth, regarding the condition and future of our economy, to read it. Although lengthy and chock full of facts, figures, and charts, it is easy reading, and anything but boring. The author (I couldn’t find his name) uses some quotes that are keepers, starting the article with:

“Facts do not cease to exist because they are ignored.” – Aldous Huxley

He then proceeds to offer them in abundance, during his sobering analysis. Along the way, he injects another keeper:

The mainstream corporate media that is dominated by six mega-corporations (Time Warner, Disney, Murdoch’s News Corporation, Comcast, Viacom, and Bertelsmann), has one purpose as described by the master of propaganda – Edward Bernays:

“The conscious and intelligent manipulation of the organized habits and opinions of the masses is an important element in democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government which is the true ruling power of our country. …We are governed, our minds are molded, our tastes formed, our ideas suggested, largely by men we have never heard of. This is a logical result of the way in which our democratic society is organized. Vast numbers of human beings must cooperate in this manner if they are to live together as a smoothly functioning society. …In almost every act of our daily lives, whether in the sphere of politics or business, in our social conduct or our ethical thinking, we are dominated by the relatively small number of persons…who understand the mental processes and social patterns of the masses. It is they who pull the wires which control the public mind.”

More hard cold facts and cogent analysis follow, leading to his closing quote, by one of my favorite sages:

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I haven't thought this through nearly enough, as it only just popped into my head while reading a comment to a post about reforming the Federal Income Tax, so I decided to blog it so we can kick the idea around a bit. It just might be an elegant solution to funding a properly limited Federal government. A basic truth is that taxes are often more about control than revenue. To encourage behavior, governments subsidize it; to discourage something, they tax it. Punitively taxing income and savings is counterproductive to a free market economy; if anything we should be taxing consumption. This is why I have long been an advocate of the Fair Tax; but even that is convoluted and messy in its implementation.

I would like to do away with the IRS, or at least its interface with individual citizens in any way. How much income we have, how we earn it, and how we choose to spend it, is none of the Federal government's business. What if we were to fund it entirely with excise taxes instead of income taxes? What if banks and all other financial institutions that provided banking services, were charged a small excise fee as a percentage of every transaction on the debit side of their ledger, and permit them to pass that cost on to their customers as a transaction fee? That way, depositing earnings and other income from whatever source would not be taxed. Only the act of withdrawing funds, one way or another, to spend them for whatever purpose, would be effectively taxed. No exceptions or deductions would be necessary or desired.

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The United States of America has long been considered a Capitalist nation. That is to say, the primary nature of our national economy is (or was) based (to some degree) on Capitalism. OK – fine. But, in saying this, what are we actually saying (or implying)? To begin with, what is Capitalism?

The generalized classic definition, this one taken from Dictionary.com, says:

cap·i·tal·ism
an economic system in which investment in and ownership of the means of production, distribution, and exchange of wealth is made and maintained chiefly by private individuals or corporations, especially as contrasted to cooperatively or state-owned means of wealth.

We are also told that Capitalism means Free Markets and/or Free Enterprise and/or laissez-faire (which is a fancy way to say “free from government regulation or interference”). Whatever terminology you prefer, the operative words to remember are private and free. By implication, a Capitalist system can only flourish within a system of government that accommodates private property and freedom of individual action.

There is another, slightly different point of view, taken from CAPITALISM.org (which I prefer) and which says:

What is Capitalism?

a social system based on the principle of individual rights. Politically, it is the system of laissez-faire (freedom). Legally it is a system of objective laws (rule of law as opposed to rule of man). Economically, when such freedom is applied to the sphere of production its’ result is the free-market.

Historically, Capitalism has created more wealth for more people than any other economic system in human history. Indeed, it made the USA what it once was – and did so in a fraction of the time historically required for a nation/state to achieve greatness. Yet, despite all its positive attributes and demonstrated success, many people have been taught to hate the very notion of Capitalism. Why is that? The reasons are many and varied. Let us discuss just a few of the more significant:

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Here is an excellent interview of G. Edward Griffin, the author of “The Creature From Jekyll Island,” which is well worth the time to watch:

He makes several very cogent observations which are worthy of discussion.

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This should be interesting. I have myself done a fair amount of research into the background of Obama's acknowledged mentor, Frank Marshall Davis, who he refers to just as “Frank” or “Pops” in his ghost-written autobiography, “Dreams From My Father.” Because he was a prolific author himself, I had already learned that he was a radical, unAmerican, subversive, card-carrying member of the Communist Party – a bi-sexual pedophile, a pornographer (including the now ubiquitous photos of Obama's naked mother), and all around miscreant.

After watching him address the National Press Club in the video below, which shows Dr. Paul Kengor to be a very mild-mannered college professor – not a partisan bomb thrower – I have just preordered his apparently well-researched biography, “The Communist.” It should automatically pop into my iPad's Kindle app this coming Tuesday, at which time my bank account will be debited only $12.99, tax-free. Isn't modern technology just amazing, and incredibly cheap? $13 is the equivalent of about 35¢ when I first started buying books, and my iPad would have cost less than $10 in real money back in the early '60s.

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In a discussion below, there was a question regarding whether we should go back on the gold standard. We more or less already are on a gold standard, when it comes to international trade. First, let’s get some of our terms defined, to avoid sloppy thinking and miscommunication. Money, currency, note, dollar, $, ¢, wealth, and capital, are all distinctly different terms for very different concepts, yet people often conflate many of them in their minds and discourse.

• Money is a tangible, durable, commodity, used as a medium of exchange between traders, and/or a storehouse for wealth. It must have intrinsic value itself (desirable and useful for other purposes) to be real money, or a value for value exchange could not be completed. Any commodity could be used for money, and all manner of desirable things have been so employed over the ages. It just happens that gold and silver have always been popular, because of their utility, durability, and scarcity, which maintains a consistent high value on a small quantity of either.
• Currency is a token representing the concept of money, which is employed as a convenient interim medium of exchange, when completing the trade with actual money, is inconvenient or impossible. It has no intrinsic value itself; it is merely a slip of paper, ledger entry, or digital representation of the concept of money. Accepting currency in exchange for something of value, represents an unfinished exchange. Not until this interim currency is traded again, at some future time for something tangible, is the value for value exchange completed. A prudent seller only ever accepts as currency, tokens he is reasonably sure will be readily accepted by traders in the future, in exchange for something he deems of equal value, to complete the trade.
• Note is a legal term for an instrument of debt, such as a promissory note or an IOU. It is a promise to deliver a value at some (often indeterminate) future date. It can be used as currency, only to the extent that one is convinced that future traders will accept it in turn, in exchange for something of actual value. It is far riskier as currency, than is a ‘deposit certificate,’ guaranteeing immediate conversion to real money, to the bearer on demand, at the depository (bank).
• Dollar is a term for a unit of measurement, akin to cup, quart, gallon, etc. It is entirely correct to speak of a dollar of beans or a dollar of nails. When offered a number of dollars [or quarts] in exchange for a value, the proper response ought to be, “A dollar [or quart] of what?” In America, the quantity of wealth assigned to this measurement is established by Congress, in relation to gold or silver money. Originally, one U.S. Dollar was established as the equivalent of one ounce of silver or 1/20th of an ounce of gold. Thus, a dollar of donuts, is the quantity of donuts a baker would be willing to trade, for one ounce of silver money; but it would be entirely legitimate to offer to trade a dollar of rice for them.
• $ & ¢ are symbols that once represented a finite quantity of money; but they have devolved to now represent highly fluctuating quantities of fiat currency. $ represents one unit of Federal Reserve currency in circulation, and ¢ represents 1/100 of said unit. Due to the frequent devaluing of this currency, by the deliberate inflation of its quantity in circulation, any relationship these symbols have to current values or prices is highly transitory, and not to be depended on for future planning.
• Wealth is tangible evidence of past production and/or labor expended, beyond that necessary for immediate survival. Property and money are forms of wealth; currency is not. Debt-based currency is at best, a precarious claim on future wealth.
• Capital is previously produced wealth, available to be employed in the production of more wealth.

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In many articles in this blog, we rightly bemoan the fact that we have far too many people in our society who take much while offering little or nothing in return. From most perspectives, this is an appropriate complaint because our liberty, to a very great extent, is little more than an extension of our free-market economy. As we drift toward the bottomless pit called “socialism”, this becomes ever more apparent because a top-down planned economy offers freedom only to the planners.

This is important because a free-market economy depends on a free exchange between two willing participants. Such a free-market economy cannot survive in an environment where some of the participants simply take with little or nothing offered in exchange. The obvious reason such an economy cannot survive is that the makers must cease to pump goods and services into the market if they do not receive the exchange of corresponding values that incents / allows them to continue or even increase their production.

So far, so good. But… to what point? Possibly to this point: what if we have reached that point where the combination of science and technology have raised human productivity to a level where we actually need more consumers than producers (that is, more takers than makers)?

(Dear readers, please forgive me if I seem to be supporting a point of view that the Obamanation recently used to try to justify his job-killing policies (ATMs replacing bank tellers) – I assure you I am not intentionally headed for the same conclusion – that being that anti-poverty programs becoming our largest “growth industry” is acceptable.)

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This man is no fool. Please get out of paper. NOW! ◄Dave►

This is insanity. The global economy is about to crash into a deep depression over all the phony liquidity held by financial institutions, and gold is dropping? There must be a lot of traders selling their gold to make margin calls. This is a golden opportunity for anyone who is still holding paper assets of any sort, to cash out of them and buy physical gold or silver. Take the hit on your 401Ks even, get out of paper – NOW! ◄Dave► 

I enjoyed reading an “Exclusive Interview With Diapason’s Sean Corrigan” about the world economy, which I highly recommend for the insights provided. Then, near the end, his answer to the following question was so profound that I wanted to memorialize it here for future reference:

We here at Zero Hedge are labelled as fringe lunatics who thrive on bad news. We only take issue with this to the extent that the label allows “others” to dismiss us out of hand, while not debating us on the merits of our ideas and opinions. Central to our platform is the debunking of generally accepted conclusions of mainstream Wall Street Economist and Strategists. We do so, not only because it is sometimes fun, but because we want to encourage our readers and ourselves to think beyond what we are all being spoon fed. We are interested in what advice you would give a 25 year old graduating from University about the future. How should they think about money, how should they be investing, and what do you think their future will look like (10 year time horizon) in a developed nation? Would you give different advice to a 25 year old in an emerging nation?

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Whenever a politician mouths the phrase, “reduce the deficit,” he is being condescending, lying, or both; because he knows the difference and is counting on us to conflate the terms debt and deficit. Read the rest of this entry »

For anyone who has not yet converted their excess cash into real money, this would be a fine day to do so. I cut up all my credit cards thirty years ago; but if I had any, I wouldn’t hesitate to go max them out in the coin store today. ◄Dave►

Mike Henning made an blog entry on FreedomTorch, which is elegant in its simplicity:

• U.S. Tax revenue: $2,170,000,000,000
• Fed budget: $3,820,000,000,000
• New debt: $ 1,650,000,000,000
• National debt: $14,271,000,000,000
• Recent budget cut: $ 38,500,000,000

Now let’s remove 8 zeros and pretend it’s a household budget.

• Annual family income: $21,700
• Money the family spent: $38,200
• New debt on the credit card: $16,500
• Outstanding balance on the credit card: $142,710
• Total budget cuts: $385

This is clownish tomfoolery. Should we laugh, or cry? Shoot ourselves, or shoot them? If you have the slightest inclination to vote for an incumbent next year, you are part of the problem in this circus. ◄Dave►

80 Points in 24 Hrs!

I used to pity Canadian conservatives their plight, stuck living under the rule of a Progressive majority. It just occurred to me that we have now allowed the bastards to overwhelm us too, and the Canadians have it better than we do. More importantly, their prognosis for the future far exceeds ours. They are energy independent, better educated, and are starting to scale back on failed social programs. We have a long hard row to hoe, before we have experienced enough pain to catch up to their reality. Here is another view from the outside looking in, found in a WTP comment section of six-month-old article I stumbled across. Somebody should send it to the RNC:

Cameron D. MacKay
February 16, 2011 | 9:18 pm

Paul: Thank you for the courtesy of responding to my comments. Allow me to express a few of my frustrations with what appears to be the Republican’s temerity to confront fundamental issues which are eroding America (and hence detrimentally affecting my country)

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In Troy’s last post, he speaks of debt money and real money. I remember well just a few years ago, when I realized the value of my retirement savings were being eroded by inflation, faster than they were growing from meager returns. I decided to cash out and put them into gold at ~$600 an oz. My objective was not as an investment for a profit; but just to retain the value of what I already had. I also remember patting myself on the back for my foresight, when it slowly topped $700 per oz. Many thought me recklessly foolish… ◄Dave►

Wow! Welcome back, Sarah. “Fight like a girl,” indeed! It looks like the Primary season could get interesting again. Palin vs. Trump… and some also-ran’s… ◄Dave►

That is a sobering thought, isn’t it? Reading Jerome Corsi’s latest article entitled, “True U.S. debt exceeds world GDP by $14 trillion,” led me to economist Walter (John) Williams Shadowstats website, where I noticed a “Hyperinflation Special Report for 2011″ was available. It contained the following bullet points:

• United States Nears Hyperinflationary Great Depression
• Federal Reserve and Government Have Exploded the U.S. Fiscal Crisis, Shattered Global Confidence in the U.S. Dollar but Not Resolved Ongoing Economic and Systemic-Solvency Crises
• High Risk of Ultimate Dollar Disaster Beginning to Unfold in Months Ahead, 2014 Remains the Outside Timing for Same
• Contracting Money Supply Can Be Inflationary When Real Economy Contracts Even Faster
• Major Economic Series Suggest Formal Depression in Place

Unfortunately, the report itself is currently only available to paid subscribers of his newsletter. Last year’s 2010 report is accessible, however, and it is some fascinating reading. One paragraph was sobering indeed:

The government’s finances not only are out of control, but the actual deficit is not containable. Put into perspective, if the government were to raise taxes so as to seize 100% of all wages, salaries and corporate profits, it still would be showing an annual deficit using GAAP accounting on a consistent basis. In like manner, given current revenues, if it stopped spending every penny (including defense and homeland security) other than for Social Security and Medicare obligations, the government still would be showing an annual deficit. Further, the U.S. has no potential way to grow out of this shortfall.

Unfortunately, Williams backs up those assertions with compelling facts, figures, and graphs. He expects the triggering event will be foreign dumping of dollars and dollar valued assets, when foreign investors eventually get nervous about our insolvency, and notes this could happen at any time. I would love to read the updated 2011 version, but the bullet points above show that he now predicts it must happen by 2014 at the latest.

Take the time to read it; he offers some sobering thoughts on what the aftermath will look like… and plan accordingly. For instance, thinking about survival in the chaos that will follow, I think I will exchange a fair amount of my gold for silver coins, so I will have smaller denominations for barter. I won’t want any rapidly depreciating greenbacks, and how many sellers will be able to make silver change for an ounce of gold? ◄Dave►

Regardless what anyone thinks of Sarah Palin, it is beyond question that the oil and gas industry is in her wheelhouse. For those not on Facebook, here is her latest missive in it’s entirety:

The $4-Per-Gallon President
by Sarah Palin on Tuesday, March 15, 2011 at 4:27pm

Is it really any surprise that oil and gas prices are surging toward the record highs we saw in 2008 just prior to the economic collapse? Despite the President’s strange assertions in his press conference last week, his Administration is not a passive observer to the trends that have inflated oil prices to dangerous levels. His war on domestic oil and gas exploration and production has caused us pain at the pump, endangered our already sluggish economic recovery, and threatened our national security.

The evidence of the President’s anti-drilling mentality and his culpability in the high gas prices hurting Americans is there for all to see. The following is not even an exhaustive list:

Exhibit A: His drilling moratorium. Guided by politics and pure emotion following the Gulf spill instead of peer-reviewed science or defensible law, the President used the power of his executive order to impose a deepwater drilling moratorium. The Administration even ignored a court order halting his moratorium. And what is the net result of the President’s (in)actions? A large drilling company was forced to declare bankruptcy, the economy of the region has been hobbled, and at least 7 rigs moved out of the Gulf area to other parts of the world while many others remain idle. Is it any surprise that oil production in the Gulf of Mexico is expected to fall by 240,000 bbl/d in 2011 alone?

But that’s just the Gulf. There’s also the question of a moratorium on the development of Alaska’s Outer Continental Shelf. It seems the Obama Administration can’t agree with itself on whether it imposed a moratorium there or not. The White House claims that they didn’t, but their own Department of the Interior let slip that they did. To clear up this mess, Gov. Parnell decided to sue the DOI to get a solid answer because such a federal OCS drilling moratorium would violate federal law.

Exhibit B: His 2012 budget. The President used his 2012 budget to propose the elimination of several vital oil and natural gas production tax incentives. Eliminating these incentives will discourage energy companies from completing exploratory projects, resulting in higher energy costs for all Americans – and not just at the pump. According to one study mentioned in a recent Wall Street Journal op-ed, eliminating the deduction for drilling costs “could increase natural gas prices by 50 cents per thousand cubic feet,” which would translate to “an increased cost to consumers of $11.5 billion per year in the form of higher natural gas prices.”

Exhibit C: His anti-drilling regulatory policies. The U.S. Geological Survey found that the area north of the Arctic Circle has an estimated 90 billion barrels of technically recoverable oil and 1,670 trillion cubic feet of technically recoverable natural gas, one third of which is in Alaskan territory. That’s our next Prudhoe Bay right there. According to one industry study, allowing Royal Dutch Shell to tap these reserves in Alaska’s Chukchi and Beaufort seas would create an annual average of 54,700 jobs nationwide with a $145 billion total payroll and generate an additional $193 billion a year in total revenues to local, state, and federal governments for 50 years. This would be great news if only the federal government would allow Shell to drill there. But it won’t. It’s been five years since Shell purchased the lease to develop these fields, but it’s been mired in a regulatory funk courtesy of the Obama Administration. After investing $3.5 billion in exploration programs (a significant portion of which went to ensuring responsible spill response and prevention), Shell announced last month that it has given up hope of obtaining the required permits to conduct exploratory drilling this year. That means no jobs and no billions in oil revenue from the Arctic anytime soon thanks to this Administration. Let’s stop and think about this for a moment. Right now Beltway politicos are quibbling over cutting $61 billion from our dangerously bloated $3.7 trillion budget. Allowing drilling in the Chukchi and Beaufort seas will enrich federal coffers by $167 billion a year without raising our taxes. If we let Harry Reid keep his “cowboy poetry,” would the White House consider letting us drill?

Taken altogether, it’s hard to deny that the Obama Administration is anti-drilling. The President may try to suggest that the rise in oil prices has nothing to do with him, but the American people won’t be fooled. Before we saw any protests in the Middle East, increased global demand led to a significant rise in oil prices; but the White House stood idly by watching the prices go up and allowing America to remain increasingly dependent on imports from foreign regimes in dangerously unstable parts of the world.

This was no accident. Through a process of what candidate Obama once called “gradual adjustment,” American consumers have seen prices at the pump rise 67 percent since he took office. Let’s not forget that in September 2008, candidate Obama’s Energy Secretary in-waiting said: “Somehow we have to figure out how to boost the price of gasoline to the levels in Europe.” That’s one campaign promise they’re working hard to fulfill! Last week, the British Telegraph reported that the price of petrol in the UK hit £6 a gallon – which comes to about $9.70. If you think $4 a gallon is bad now, just wait till the next crisis causes oil prices to “necessarily” skyrocket. Meanwhile, the vast undeveloped reserves that could help to keep prices at the pump affordable remain locked up because of President Obama’s deliberate unwillingness to drill here and drill now.

Hitting the American people with higher gas prices like this is essentially a hidden tax and a transfer of wealth to foreign regimes who are providing us the energy we refuse to provide for ourselves. Like inflation, higher energy prices are a hidden tax on Americans who are struggling to make ends meet. And these high gas prices will be felt in the form of higher food prices due to higher transportation costs. Energy is connected to everything in our economy. Access to affordable and secure energy is key to economic growth, which in turn is key to job growth. Energy is the building block of our economy. The President is purposely weakening that building block and weakening our country.

2012 can’t come soon enough.

- Sarah Palin

Very well articulated straight talk, by a PC-free lady with the chops to say it. In many ways, I hope Sarah finds that Constitutionalist she could enthusiastically support for the 2012 Primary, so she can remain the influential, uncorrupted, and unabashed commentator, who can hold accountable all politicians, regardless of Party affiliation, far beyond the next election. ◄Dave►