Posts Tagged ‘inflation’

GE is looking to cut the cost of solar panel installations in half by engineering a system that would make it possible to roofers and contractors to perform the installation as opposed to higher costed specialized labor. They want to get the total cost down to roughly $21,600 (from roughly $35,000).

Here’s how our Federal government can quickly solve energy problems as well as stimulate the economy in a real manner. We all know that Obama and Congress love spending money. Heck, throw W into the spending mix too, and you have the largest deficits and national debt in the history of the world! Unlike most spending our Federal government does, this spending would actually bring about some real value to America.

Our Government Just Prints More Money Anyway

Spend another $700 billion dollars to install the $21,600 systems on homes in America. Now, the first argument might be that we need to evaluate whether there is enough sun coming in to make this worthwhile. Well, good news, someone has already done that! There is plenty of sun hitting the majority of the United States to make this worthwhile.

The $700 billion investment would put solar systems on approximately 32,407,407 houses. Now, that’s not taking into consideration economies of scale. Manufacturing that many solar panels and performing that many installations would considerably drop the costs associated with the installations. We could easily see a 20-30% drop in total cost, but I’ll stick with the 32.4 million installations for easy math. That’s roughly 24.93% of the estimated 130 million houses in America. With these solar panel systems producing an average of 85% of the house’s energy needs, that means a drop in existing energy consumption by 21.19%

What would happen if our need for energy from existing sources dropped by 1/5??? Well, simple economics would shift the price of energy down. For global warming worriers, it would mean production of 1/5 of our energy now comes from solar. Of course, it wouldn’t really mean a drop in household energy cost by 20 percent. Production from other sources would decline to keep prices from plummeting by 20 percent, but there would be a substantial decline in the cost of energy for the end consumer. Even if it was a 10% decline, I’ll show you at the end just how substantial this could be!

True Trickle Down Economics

Now, let’s get into the worker value! Solar panel production would skyrocket. Solar panel producers would need to hire more employees, put more people to work, order more materials from their suppliers… It’s true trickle down economics. But that’s just the production side of things! There’s the installation side as well. Thousands of workers would be put to work making good, hard-working money! These workers would be driving, eating, buying clothes for their families, etc. True trickle down economics. Local economies around the US would greatly benefit from this massive rise in employment and their subsequent spending!

Now, let’s talk about the true economic savings as energy costs in the United States drop by 20% I’ve mentioned in Energy Based Inflation that rising energy costs have an impact on EVERYTHING. There’s no escaping the cost of energy in our current economy. Every company and every job requires energy. For some companies and some families, energy is a massive expense! For someone like me with a house but no kids, my electric bills are very low. Still, my house could produce enough energy for me and half of what the family that lives across the street from me needs!

But wait! There’s more!!!

Electric cars will become viable global warming worrier alternative energy vehicles. Currently, electric cars don’t really save much (if at all) in greenhouse gas emissions because of the fact that America gets so much energy from coal… This solar panel plan would make electric cars much cleaner than gasoline cars, since American would not be getting 21.19% of our energy from solar. Greenies rejoices!

So, what would the ROI be for our Federal government to print another $700 billion dollars? Well, we can start with the amount that Americans spend on electricity (Retail Electricity): $350,438,000,000. Yes, that’s $350 billion Americans spent on energy in 2009. Now, earlier I reasoned that while there is a 20% energy savings, our costs would only drop by maybe 10% because production from other sources would adjust to compensate for the sudden massive increase in energy production by solar. Even at just 10% that means Americans will be saving $35 billion (yes, BILLION with a B) in energy costs/year.

Collectively, we can go spend that money on other things, save it, invest it in retirement funds/stock market/kitchen remodel, etc. The savings for $35 billion dollars would significantly stimulate the economy because we aren’t just going to sit on that $35 billion. We’ll spend/invest it! We, the people will stimulate the economy from a legitimate and long-term value add from our Federal government. Much better than a couple of $600 “stimulus” checks we got from W! Or the great W/Obama bank/auto bailout.

American capitalism is dead.

I’m sensationalizing a bit with the first sentence, but the reality is that American capitalism is on life support. We’re propping up a facade of capitalism and millions of people are blaming “deregulation” (to slander the ideals of capitalism) on this long drawn out “recession”. I’m using a lot of “quotes” here because “deregulation” is a misnomer and the “recession” is really a depression masked by bogus inflation numbers and massive government deficit spending and a decline in the value of the US Dollar. That last sentence was a mouthful, so let’s start with these myths…

Deregulation is defined as the act of freeing from regulation, particularly government regulation. The idea that the federal government deregulated the banks is much like the idea that The Constitution clearly uses the words “separation of church and state”. Deregulation, in the sense that is being used to slander capitalism, was merely a change in the regulations by the government that created holes that thousands of bankers and millions of consumers took advantage of.

Nobody can take a loan out for 125% of the value of their home and honest think there is nothing wrong with that. Just like nobody can offer a loan at 125% of the value of a home and not think there is nothing wrong with that. Just like nobody in the Federal government can pickup a newspaper from 10 years ago about 125% loans and not think there is something wrong. If you can, you’re exactly why we are in the banking mess we are today.

 

Recession is defined as a decline in GDP, employment, and trading lasting a period of six months to a year. Earlier, I referred to bogus inflation numbers and massive government deficit spending and a decline in the value of the USD. First, the inflation numbers don’t require a rocket scientist (because supposed economists clearly aren’t capable of the math)  to figure out that they are false.

Simply take a look at what goes into calculating the Consumer Price Index (CPI). You will find few line items where the government is not heavily subsidizing/regulating that industry. Given that the federal government is more than $14 trillion in debt, it’s pretty clear that inflation numbers are considerably underestimated. If you didn’t follow that last part, I’ll help explain: if is costs you $3.15 for a gallon of milk at the grocery store but the federal government is providing subsidizes to milk producers to the tune of $0.50/gallon, the true cost of a gallon of milk for you is actually $3.65. I’ll admit that I haven’t done the research to find out the exact $/gallon of milk the subsidizes equate to, but you can get the point. Now, count this over the hundreds of entitlement programs the Federal government spends money on, and you have a real problem with the calculation of the CPI (inflation).

To further exacerbate the national debt issue, people don’t really consider the buildup of interest on the national debt as part of the total problem. This isn’t that unusual. A lot of people in business often forget about how borrowing money from a bank or investors requires payments that impact the actual bottom line of the company. Here’s a simple way to think about it: when the Federal government was over budget by $455 billion in 2008, the total increase in national debt was actually more than $1 trillion.

This all compounds!

When you include the devaluation of the USD abroad and the fact that we purchase so much product from overseas and that it takes 6+ months for that devaluation to ripple its way into our prices, you get rest assured that there are much higher prices coming to a store near you very soon…

 

Now, let’s get back to capitalism. At the beginning of this article, I needed to dismiss the myth of low inflation over the last decade so that we could really see that this “recession” is indeed a depression (I’m betting that decades from now, we will finally admit in our history textbooks that the numbers were wrong and that this is a depression).

Capitalism has been slandered by the myth of deregulation. Deregulation was a change in regulation that anyone sane and honorable would have realized had massive holes that were being taken advantage of. Nobody wanted to halt the good times, so our governments (which could have done something about it) did nothing for years! That’s NOT deregulation. It wasn’t an act of capitalism. Plenty of people warned for years about pending doom, and they were dismissed as pessimistic and bearish.

However, these aren’t the true measure of capitalism’s comatose state. The true measure is that we look to our politicians to “create jobs” and provide “bailouts”. What is capitalistic about bailouts? NOTHING! What is capitalistic about too big to fail? NOTHING! The funniest part about “too big to fail” is that the giant banks that were too big to fail were merged with existing banks, making those new banks too bigger to fail! Why weren’t the banks broken up into smaller pieces with the non-profitable sections written off and offset by “bailout” money? But I digress, and that’s for another sub-1000 word blog.

The Capitalist mindset in this economy would be this: What can I improve, change, or invent that would make a profit, provide jobs, and improve our economy. Instead, we are waiting for Obama to create more Federal jobs, and the “Republicans” are spewing forth their usual taxes rhetoric. Even Sarah Palin is talking about how can the federal government create jobs and stimulate the economy. What would best stimulate the economy would be a strong USD position, 10% reduction in all federal government spending and an increase in taxes. Of course, anyone will say I’m crazy and it wouldn’t work. Because it obviously didn’t work in the 90s when Clinton did it, right?

I can’t tell you how many times I’ve heard people complain about our “greedy” capitalist society. Quite often they are referring to Walmart, the oil industry, and companies who “ship jobs” overseas. There are others, but one of these poses a serious question for capitalism:

Walmart (and hundreds of other retailers) purchase the majority of their products from China. China is a communist country. Are selling and purchasing communist goods acts of capitalism?

Certainly, a cornerstone of capitalism is the free market, but what is it when that “free market” that a capitalist nation purchases from is a communist country? Some might argue that it qualifies as a mixed market economy, but that is a moot point for various reasons and is irrelevant to the question.

People who complain about the “greed” of capitalism will argue that profit driven capitalism is what drives corporations to purchase cheap products from communist countries like China. However, I argue that it is (1) our fear of inflation that drives companies to find cheaper markets like China and that (2) searching for these cheaper products in a communist country is not capitalism.

It’s not like we don’t know China is a communist country. It’s not like we don’t know that the Chinese government filters all money that we send to Chinese banks when our corporations buy products from their factories. We also know that we could, if we wanted to, manufacture these same products in America or another non-communist country. And we also know that our government has given China, a communist nation, favored nation status. With government intervention in support of a communist nation, how can anyone consider the actions of Walmart and other retailers who purchase from a communist country capitalist greed?

Today gives me yet another day to gloat about the idiotic college professor I had years ago at Strayer University (yes, avoid this college. It is a waste of time and money). The CEO of Dow Chemical borrowed a page straight out of my economic philosophy and is proving that energy based inflation is a reality, not some idea that deserves a B on my term paper. Dow is going to raise their prices immediately by up to 20%

If you’re asking “Who the hell is Dow? Isn’t that a stock exchange?” Check the back of half the cleaning supplies you have in your house and ask just about every company in America where they receive a good portion of their supplies from! They don’t just make scrubbing bubbles America!

Dow is just the start too. Energy based inflation starts here. Energy prices increase, putting pressure on businesses to either cut profits or slow down. Traditional economist, aka most college professors, will tell you that energy prices will come back down and everyone will be happy. However, in the real world this doesn’t and didn’t happen over the last 10 years. The result is that every company in America (except big energy, and miraculously Walmart) is being squeezed to the brink of no ability to make a profit or even be productive at any level.

There is a solution. It isn’t cheap, but it wouldn’t cost any more than the failed tax rebate of 2008. This solution would provide a long-term solution to the energy crisis in America and heavily stimulate the US economy while building the infrastructure needed.

Where have all those “tax rebates” gone? Hats off to anyone who spends it on anything other than energy.

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.

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.

Complex problems require simple solutions!

Many point to alternative energy sources as a way to combat rising energy prices. While this will help get us half way there, it won’t solve the problem quickly. To find the solution to the American energy crisis, we need to borrow a page from one of our Founding Father and the creator of what is considered today the Republican Party. Yes, a Republican!

Borrowing ideas from one of our greatest Founding Fathers, Alexander Hamilton, I’ve devised a long-term plan that would stimulate our economy in the short-term and end our reliance on any foreign energy resources. The best part is that just about any government in the world could implement a similar plan, giving us something else to fight about 😛

If you are feeling dangerous, you can read my idea on my new website WordsCause.com. And don’t forget to checkout the weekly WordsCause radio show hosted by yours truly and my great friend Dean this Saturday at 10AM!

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.

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.