Posts Tagged ‘federal reserve’

The Federal Reserve and OBushma (the main difference between Bush and Obama is about half a trillion dollars in annual deficit spending) have taken us through ten years of US Dollar devaluation. It clearly doesn’t work. The manufacturing jobs are flowing back into the US. The economy isn’t producing massive tax surpluses that lead to the OBushma tax cuts.

There’s a real simple solution: impeach Bernanke from The Fed and take strong dollar monetary and fiscal policies. The policies over the last 10 years have not worked. There really is no need to even debate this.

All the bogus debates about tax cuts for the middle class vs low income vs millionaires is laughable. The tax brackets with or without the OBushma tax cuts screw the middle class the most. All one needs to do is take a look at the tax rates to see that the middle class didn’t really get much of a “break”. What really needs to happen with taxes is a complete overhaul of what is tax deductible (see my blog about making US Bonds 100% tax deductible).

Of course, I think everyone has forgotten about the Economists’ statement opposing the Bush tax cuts. Guess what? They were right! But who really wants to be the President with Steel cahones that tells everyone they have to pony up an additional 2% to the IRS next year!

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It seems like everyone and their mother received money from the Federal Reserve in 2008. My dogs didn’t get any from The Fed, but my cat certainly did! The dogs aren’t too happy about it.

All joking aside, the lending to Verizon, Harley-Davidson, and countless foreign banks really helped prevent a “financial meltdown” and “Some have recorded healthy profits for taxpayers”… Oh wait! I said all joking aside. First, I don’t see how returns to The Fed benefit taxpayers in any way. Second, I don’t see how getting paid back money with interest when the USD has been devalued so significantly over the last two years is actually making a profit.

If I lend someone $10 and they pay me back $12 in two years but $12 is really only worth the equivalent to $9.60, I really didn’t make a profit. That’s what The Fed did on the scale of $9 trillion.

The logic of all this “stimulus” and “bailout” is flawed. The idea is that companies, banks, etc are “too big to fail”. The biggest problem with this logic is that a company reorganizing its debt is not a failure. Sometimes this happens. I’m not talking about completely cooked books like Enron and companies like that. Bankruptcy protection allows a company to sit down with the folks it owes money to and say that instead of going through expensive collections processes and incurring massive attorney fees for our 3 year loan, we’ll pay it back in 5 years instead. That’s just one overly simplified example, but pretty much how it works.

There is no company that is “too big to fail”. Unless there is egregious cooking of the books, the company can always be salvaged and work out deals with its creditors to solve the financial issues. The Fed just printed money and handed it out to people. So what if the money was paid back! The value of the USD has decreased so rapidly over the last 2 years that the money paid back is worth far less in terms of tangible value than it was when it was lent out.

The result of the $9 trillion money printing job is this stalled out economy. Rather than forcing businessmen to grow come cojones and take responsibility for their businesses, Bernanke dished out trillions because he read in a textbook that the idea would work. I’m sure in his mind it has worked because the alternative was a “financial meltdown” (which is patently false). I’m sure Congress and Obama won’t do anything about his reckless action.

Obama is talking a talk that sounds great on the surface but can ultimately lead to a massive loss of jobs in America rather than creating jobs. Bernanke is helping to speed along this economically devastating Administrative policy with equally rash monetary policy. I understand where Obama is coming from. He wants to create jobs in America. The thinking by the Fed is that by the Fed devaluing the USD (US Dollar), American goods will become more affordable to China and other nations. Sounds great! On paper…

However, it is a clear indication that Obama and Bernanke don’t understand the United States’ position in the world economy. An import economy does create jobs, contrary to what the Obama Administration makes it sound like. Yes, manufacturing jobs have been lost in America. However, importing still creates jobs. A lot of jobs for that matter, and higher paying jobs! The major key to being a strong importing nation is having a strong currency. The stronger the USD, the greater the ability to import products from other countries.

The Federal Reserve, under Bernanke, has weakened the USD significantly over the least several years. The Obama administration is trying to create more manufacturing jobs in America on the backs of the import industry. Yes, import jobs will be lost as the USD continues to decline, but the result isn’t going to be layoffs, it’s going to be import businesses going bankrupt.

Now, this isn’t a too big to fail claim about the import industry. This is a claim that America doesn’t have the ability to produce all the same products that China does. What has taken decades to build in China is not going to happen overnight in America. Additionally, the typical Chinese worker makes a fraction of what an American worker would make for the same product. So, either American’s are going to have to take lower paying jobs or the cost of products are going to skyrocket!

Some argue that China is manipulating the RMB (Renminbi/Yuan) so that it’s export business continues to thrive at the detriment of America. There may be some validity to the claim the claim of currency manipulation, but it isn’t much unlike Bernanke’s QE and QE2, which are just fancy terms for devaluing the dollar. That is what Bernanke has done. He was devalued the USD. You can call it Quantitative Easing all you want, but a rose by any other name…

There is a large trade deficit between America and China, but it’s not across the board. For instance, where are Chinese airliners getting their planes? Where are they getting their MRI equipment? The advanced technology comes from America. A weaker dollar will lead to lower real profits by Boeing, GE, and other leading American businesses. Here’s the reality of a weaker dollar. So what if your widget sells for $500 when that $500 is only the equivalent to $300 from just 10 years ago!

A weak currency policy is a terrible monetary policy for America. An Administrative policy supporting exports is a good one when the focus is on exports that those other countries can’t make. Is the US really going to compete with the Chinese with making knock off MP3 players and cell phones that get thrown away every 2 years? Those will only be high paying jobs because the value of the USD will have declined to much to make America competitive with China that we’ll have gotten to the status of a 3rd world economy.

I’m being dramatic for a reason. The world economy has been centered on a strong America and strong USD for decades. The result of a devalued USD and trade restrictions with countries we’ve been importing from for decades is not what anyone in America is going to want. Enormous amounts of wealth has made its way to other nations like China, Mexico, and others. Those countries are seeing improvements in their quality of life. The US should continue to lead the world economy with a strong USD position and strong import position. The whole idea behind imports and exports is that countries export what they do/make best and import what other countries do/make best. The US still does and makes many products, services, and technology better than any other country.

The Solution: The Obama Administration should focus on leading technology industries (instead of rehashing dying industries in America) and creating greater tax incentives to grow those industries (just like Clinton did with the Internet)! Congress should act as well to impeach Bernanke. It is fully within the power of Congress to do so. Further, the Obama Administration can take action in the Treasury Department by not selling bonds to The Federal Reserve. These actions would send a sound message to the world economy that the United States is standing for a strong USD, strong US consumption, and leading the world economy out of this depression with swift action. These actions would take about 9 months to catapult the US economy and world economy out of this depression. The message to the rest of the world is that America wants to continue to *lead* the global economy rather than play a reactive role in the global economy.

Not long ago, I wrote a blog about the most idiotic economic political scam of the 2008 election year. Today, I read to stories about our economy that rank up there with the “gas tax vacation”.

The first story was about how the Fed has adjusted it’s estimates for 2008:

  • Economic growth of 0.3 – 1.2%, instead of 1.3 – 2%
  • Unemployment rate 5.5 – 5.7%, instead of 5.2 – 5.5%

Good thing they are still running those antiquated economic formulas to give us these otherwise worthless numbers. An added bonus is that the Fed also adjusted their inflation estimate upwards.

There really should be no surprise here folks. Bernanke just needs to start reading my blog to get better guidance on economic policy. I’ve written about energy-based inflation before. Of course, I even wrote about it years before that in a paper for an upper division economics course I was taking in college. The professor said it was an unrealistic theory.

Why I keep talking about this college professor is because that is what economists are learning in college (not all colleges, of course). Our economists are morons because they were trained to be morons!

Meanwhile, back in the world of ridiculous economic news for May 21, 2008… The other bit of economic news that really got me chuckling today was the news about the oil executives going before Congress again. How many times are we going to have to watch the same FAKE political interrogation? This is a political SCAM. The oil companies are pulling an Enron. Only, the goal is not to get California to sign a ridiculous long-term energy contract… The goal is to get the United States to open land restrictions in Alaska, the Rocky Mountains, and/or the Pacific Ocean so the oil companies can go drilling for oil. Enron is small potatoes compared to this scam.

I have my fair share of critical remarks for economists in general. I’ve mentioned before that my econ professor a few years ago gave me a B on a paper where I theorized that constantly increasing energy prices would leader to inflation that could not be controlled by the Federal Reserve. He, like many economists, is misguided. That’s part of the reason I disliked my economics degree program. It was mostly a bunch of bologna.

However, there is one other segment of the public policy industry that is even more… well, they are just idiots when it comes to economics. This group is known as politicians, particularly presidential candidates. In an article today, Reuters reported that McCain and Clinton both support a “gasoline tax holiday“. The idea would be to suspend the federal tax on gasoline over the summer.

Folks, it doesn’t get much more idiotic than this! This would drive the demand of the gasoline up, while nothing would happen to the supply. The net result is a continued rise in gas prices, putting more money into the pockets of Exxon and friends (to give them even greater profits). Then gas prices would shoot up almost 20 cents instantly after Summer.

Obama’s points should have just shot up at least 10-20% since he didn’t support this moronic policy!

 

Economists have fascinated me for decades, so much so that I actually when to school for a degree in economics. After years of bogus economic theory after bogus economic theory, I was still in the game. That’s until I predicted that a steady increase in the cost of energy would send the US Economy into an unprecedented type of economic turmoil. I called it Energy Based Inflation in my paper, and subsequently received my first B on a term paper in college.

I even came up with a solution to Energy Based Inflation. Yet, to date, I still see economists following the same failed economic concepts being taught while I was going to school.

Yahoo published an Associated Press article about recent slashing of jobs. The article indicated that a growing number of economists were starting to believe that we were in a recession.

Here is a bit of news to economists: We’ve been in a recession since at least 4th quarter of 2007. The collapse of the financial market is due to the fact that we financed the recession via our properties, equity, and homes. The Federal Reserve resisted the idea of being in a recession during 2007, and took no action to curb the debt spending taking place. By the 4th quarter, there was no longer any equity in our property and the market began collapsing.

At this point, there is very little that the Fed or the Whitehouse can do to turn this situation around quickly. Prices on homes have plunged so much that it has exacerbated the debt situation. Lowering interest rates won’t provide an immediate relief because the prices are too low. It will act more as a tourniquet against the virtual free fall of property value.

If we can fix our economic education system, we can fix the problem long-term. Until we stop teaching the antiquated and failed economic theory of the last 30 years, we’ll repeat the same mistakes.

Just last week, I has started publishing information about energy-based inflation. I had the idea and predicted it in a paper I wrote for an economics class almost 5 years ago. It was the first, and only, B graded paper I had ever written in an economics class. The professor gave it this low grade because he ultimately disagreed with me that energy could cause a ripple of inflation in the American economy.

This morning, I check my email to find further support for my theory of energy-based inflation. The Washington Post published an article about how Coal Can’t Fill the World’s Burning Appetite. To sum up their article, circumstances have shot the price of coal up by 50% or more over the last five month. While this short-term spurt in price may be able to be absorbed by businesses, don’t count on it. The price of coal is not going to be coming down any time soon. Same with oil.

What does this mean for America? Well, if you read the report from our government, guess where we get 49% of our energy from? If there is a sustained increase in the price of the resource that generates 49% of all of our energy, you can bet your house that prices are going to go up everywhere!

The bottom line is that energy is driving inflation in our economy, not interest rates. Watch what happens to all the rate cuts by the Federal Reserve this year. They will go to offset the energy costs. It will temporarily stabilize energy inflation, but it is not a permanent solution. Energy costs will rise, and the Fed will be powerless. Changes in the energy market are the only thing that will curb energy-based inflation. I’ll post my solution on Wordscause this evening.

I majored in economics because I thought it was a fascinating subject. Years ago (circa 2003) I was taking an economics class at Strayer University and handed in a paper explaining that our economy was seriously threatened by energy-based inflation. Up until this point in my education, I had received an A on every test and every paper, but this paper on energy-based inflation would the first B grade I received on any economic paper. The professor even mentioned that he was going to give me a C but that I had worded my argument so well that I deserved a B.

His argument was that energy prices generally remain stable and that companies will compensate for any prolonged increase in energy prices. Failing to see the long-term trend towards higher energy consumption was my professor’s largest mistake in the analysis of my paper. He also failed to understand the world demand on supplies of energy. So, alas, I get to say I told you so! 😀

I’ve written a brief explanation of energy-based inflation on Words Cause. The idea is pretty simple. Energy is required at every stage of a product or service, which means that a sustained and rapid increase in the price of energy would severely damage the US economy. Over the last several years, my theory has essentially proven itself to be
correct. Energy prices continue to rise, causing inflationary pressures that the Federal Reserve is powerless to affect.

I’ll digress for a moment to cover the trash talking that politicians like Ron Paul have been spewing forth about the Federal Reserve. Ron Paul has no understanding of monetary policy and is exactly the political reason that the Federal Reserve is in place. Monetary policy should not be governed by the winds of politics.

Meanwhile, back to energy-based inflation… The Federal Reserve can’t do anything about energy-based inflation. Contracting the money supply will only choke the economy (which is what we’ve seen over the last 2 years since Bernanke has been Fed Chairman). Increasing the money supply will quickly be absorbed by a rapid increase in the price of energy (resulting in ripple inflation). Watch what happens with the recent decrease in interest rates.

So what would be the solution? I’ll outline my solution later this week on Words Cause.

This morning, I was browsing through the headlines on Rueters.com. After reading about how Obama is all talk and no action and how Hillary is in the political fight of her life, I couldn’t help but read about the Tokyo marathon runner who solves the mystery of his chest pain: bleeding nipples and not a cardiovascular issue.

HUH?

Yes, bleeding nipples. This was a mystery? Apparently, he attributes it to chafing and not excessive titty twisters before the race.

What does this have to do with a better future? Well, one could argue that Brian Jones will certainly be a little perkier after his marathon, but the better future was part of a Rueter’s survey:

Growing confidence in the future and slightly warmer views of President George W. Bush and Congress put Americans in a better mood this month, according to a Reuters/Zogby poll released on Wednesday.

… Approval ratings for Bush climbed to 34 percent from 31 percent last month, and positive ratings for Congress inched up from 14 percent to a still-low 17 percent.

I’m feeling optimistic about the future. Bush signed a good stimulus package. More people are watching The Big Idea with Donny Deutsch. The Federal Reserve is finally waking up… Then another article catches my eye: LIBERAL INTOLERANCE:

The proportion of Americans reporting they feel less free to speak than they used to climbed from 13 percent in 1954 to 24 percent in 2005.

Guess they haven’t been reading many blogs lately. The first comment I received on my post about the ultra-boring two hour infomercial for Ford and Microsoft (aka Knight Rider) was the F-bomb. The only comment I received about the Bush Stimulus package being the next Big Idea was a tirade by a New Yorker that was longer than my post and didn’t address the point of my post.

Doesn’t seem like a lack of self expression is really present. I think the flaw with James L. Gibson’s study is how subjective it is to interpretation. For example:

The proportion who agree that “all people feel as free to say what they think as they used to” dropped from 56 percent to 43 percent.

Feeling “free to say what they think”? What exactly does that mean? Sounds like a personal problem.

Bernanke’s rookie year was a bit rough for the nation. His second year hasn’t had much success either. However, it appears that he is coming out of the textbook world of economics and into the real world. Yes, the world where living, breathing humans with names actually lose their jobs and houses rather than his previous world where there is a % increase in unemployment.

My favorite quote from Bernanke was the following:

To be useful, a fiscal stimulus package should be implemented quickly and structured so that its effects on aggregate spending are felt as much as possible within the next 12 months or so.

Clearly, this is in stark contrast to his molasses monetary policy, which consists of waiting. And waiting. And waiting some more. Essentially paralyzed by inflationary fears.

What is interesting about Bernanke’s leadership in the FED is that it puts much more control of the economy into the hands of the Federal government as opposed to our central bank. This is a scary notion. Political winds change, shift, dwindle in a relatively short period. The result is much more sporadic economic conditions and less economic stability. If not offset by consistent Federal Reserve Policy, the US Economy will be severely upset by fiscal policy.

Bernanke has recently indicated that the FED is looking to take aggressive action, indicating to many that a half point cut in interest rates should be expected at the end of this month. Provided that the FED does indeed shift from the monetary drip policy to at least a trickle as indicated, the US economy might be able to shed off some of the damage we can anticipate from the recent change in China’s labor law.