Archive for the ‘unions’ Category

10 Points Americans Must Understand About the Economy

January 15, 2010 5 comments

1. The interest rate is a price – the price of credit like the price of any good.  In a free market the price would be set like the price of any good at the intersection of the supply of funds (our savings), and demand for funds (businesses’ and individuals’ investing wants).  Instead, we have an interest rate that is arbitrarily picked by a handful of economists from the Federal Reserve Banks.  To repeat, one committee centrally plans the cost of credit, of which interest rates on all debt are directly or indirectly based.

2. The Federal Reserve has the monopoly power to print or inflate the money supply, thus artificially lowering the cost of money (the aforementioned interest rate).  This means that they can (and always do) devalue the money in your pocket as every dollar printed decreases the value of all dollars to come before them.  Inflating the money supply may not lead to an increase in prices if an equal or greater amount of goods is produced, but the purchasing power of the dollar will still be reduced because without printing money, your dollars would have been able to buy more goods.  Alternatively, if more dollars are printed than goods are produced, prices will increase though not necessarily uniformly across all goods.  Inflation may not manifest itself in explicitly higher prices but merely impede prices from falling for certain goods as they would were the money supply to remain constant.

3. When you deposit money in a regular checking account, the bank doesn’t hold onto this money.  Banks only keep a small percentage of the money you deposit on hand in their reserves, lending the majority of the money you (or the Fed for that matter) deposit to others who lend it to still others and so on, in the process substantially increasing the money supply.  This is known as fractional reserve banking.  If everyone in America or even a decent percentage of Americans tried to take their money out of the bank on a given day, millions would be unable to access their cash.  Effectively, even with FDIC Insurance, all of the banks are insolvent as they do not hold anywhere near 100% of the money you deposit in their vaults, nor does the FDIC have the funds to cover all deposits.  The hypothetical that the Fed could potentially print up money for the FDIC to distribute is beyond the scope of this post.

4. The government’s debt is merely an insidious tax like inflation.  Government debt can only be paid down by taxing the people.  This tax can occur through direct confiscation by government, or indirectly when holders of our government’s debt demand a higher rate of interest, which in turn signals to markets that our economy is not generating sufficient revenues to pay down the debt, which leads to a perception of economic weakness and thus an increased cost of borrowing for everyone in the economy.  If the government prints money to pay down debt (which in and of itself should cause our debt holders to flood the markets with our debt and thus raise interest rates on everyone), this will represent a tax on the people as well.

5. Deflation, or a decrease in the money supply is the only antidote to inflation.  If the money supply is decreased, each dollar in your pocket becomes worth more.  The concomitant fall in prices will correct the artificial initial rise in prices from government printing of money.  In the process, since decreasing the money supply increases the cost of money, unsustainable enterprises with heavy debt loads will be put out of business, cleansing the economy by freeing up unproductive resources.  Where debtors benefit from an increase in the money supply because they can pay down their borrowings with cheaper dollars, creditors will benefit from a decrease in the money supply because they are paid back with more valuable dollars, which is one of the reasons why government prefers to inflate as it can lessen its own debt load and that of many of its constituents.

6. Deflation in prices while a symptom of deflation of the money supply is also the natural result of increases in productivity, as goods produced more cheaply in greater quantities (in the absence of money printing) will lead to falling prices which benefits consumers.  The so-called “paradox of thrift” that the MSM uses to vilify deflation in prices is wrongheaded, as people will spend on all sorts of products knowing that over time they will fall in price, as we have witnessed with numerous electronics over the years.  Even during a depression, when asset prices fall to certain levels there will always be buyers.  And if people are paying off their debt and/or saving in a time of falling prices in lieu of spending, this will be good for the economy because increasing the pool of real savings lowers the interest rate and allows businesses and individuals to borrow funds for investment at lower cost, legitimately stimulating the economy.

7. Despite the wishes of President Obama, all taxes are passed on to consumers as companies raise their prices to compensate for the increased cost of doing business.

8. Government cannot create wealth.  All it can do is take money from some people and redistribute it to others.  Every dollar the government uses must be taken from the private economy. Printing money to pay for things as we noted merely devalues your dollars, effectively taxing you.  Government financing through debt represents a claim on your wealth, a tax which as noted may be paid directly or indirectly.  Thus, while federal, state and local taxes may appear on a historical basis relatively low, the tax rate is deceptively masked by excluding government bilking through inflation and debt.  Government is a wealth killer, not a wealth creator.

9. The real estate problem in our economy centers on the fact that people owe more money on their mortgages than they are able to pay down.  The only fix to this problem is for people to either generate more income to service their mortgages, or default.  Any intervention to keep people in homes they can’t afford will merely perpetuate market imbalances, propping up the value of real estate and preventing qualified buyers from purchasing homes at fair prices.  There will be no true recovery in the mortgage-backed securities  market until the forces of supply and demand sort out this mess.

10. Our economic crisis at the most basic level occurred because too much money and credit were pumped into the economy, given that again the interest rate was set artificially low not by supply and demand in the market but by government fiat.  The recession signals that we must fix the distortions and malinvestments resulting from the centrally planned interest rate. The healthy path to recovery is to allow prices to fall (aided by debt repayment), liquidate failed enterprises (encouraging reallocation of land, labor and capital to more productive and profitable lines of business) and encourage saving to increase the pool of loanable funds for economic expansion. Any actions to the contrary (i.e. more or less all government policies being implemented or bandied about) will merely prolong the pain.

Note that this is by no means a comprehensive study of the above subjects, but rather a cursory look at essentials that the American public must grasp before we can ever expect to return to prosperity.

Daily Quips

November 20, 2009 Leave a comment

Today’s Daily Quips are brought to you by the labor unions: destroying American enterprises and beating people up since the Industrial Revolution.

From Breitbart With Love One of the heroes in this upside down world is Andrew Breitbart.  I had the privilege to meet him a year ago where he laid out his vision of a world in which conservatives could fight back through the media, be it in Hollywood or abroad.  His vision is starting to be realized, as the ACORN videos and their startling effect on the public have shown.  He is taking this ACORN story straight to the liberals, all the way up to Eric Holder, a man who seems to have been getting a lot of press coverage recently.  Keep fighting the good fight Mr. Breitbart!  

Those Loopy Louisianans In a story that reflects all too often the rule rather than the exception, we get the scoop from ABC News on how Mary Landrieu will be bought off for her healthcare vote.  First, one can’t help but notice how arcane yet deceptive the language is in the bill.  Clearly it is something written by lawyers, intentionally set out to deceive the public.  Second, this is how politics works.  In its simplest form this case represents bargaining, but in its most nefarious it represents legalized plunder.  Third, Glenn Beck did a great job of showing how the DC game works in exposing good ol’ John Murtha last night.  American politics makes a mockery of the public, but the public continues to feed at the trough of DC.

The Financial-Political Complex Mr. Corzine, another esteemed former Goldman politician looks to potentially be coming back into the financial fray as CEO of B of A.  And he thought governing New Jersey was hard.  Big Government picks up on Corzine’s ties to Big Labor, and questions how that might impact his decisions as CEO.  As we know, the big financial institutions have always done business with the criminal community-organizers, and I would expect nothing less if Corzine does in fact take the job.  

Gangreen Michelle Malkin, another hero in the effort to expose the sheer and utter corruption of this administration specifically and the lefties generally writes about a global warming scandal that has recently come to light.  People need to understand what the Green Movement is.  It has nothing whatsoever to do with improving the environment.  It is about a power grab, plain and simple.  There will be a massive wealth transfer to companies that play along with the government in pushing green technology, and to the financial services sector that will make billions in trading revenues from the “carbon market.”  The consumers will have to deal with the cruel tax of increases in energy prices, while politicians, energy-producers and bankers will have a field day.  I should note that GE is the face of all evil when it comes to this movement.  They are also ruining quality programming like The Office and 30 Rock with their green message.  Al Gore plugged global warming for a couple of minutes at the end of last night’s 30 Rock for example.  And can they please stop with the green NBC peacock logo and green tickers.  Shameless, shameless propaganda.

Yay for Unions!

November 6, 2008 Leave a comment

The same groups that ruined the American auto industry may start to wreck other parts of the economy now as well. Barack Obama and other leading democrats are supporting measures that would essentially force workers to become part of unions or risk major threats from their coworkers and union leaders, through the use of card checks. As this Heritage Foundation report notes:

Even when organizers do not illegally threaten workers, card checks expose workers to organizers’ psychological manipulations and give them only one side of the story. Card checks lead many workers to make impulse decisions and expose workers who wish time to consider their decision to harassment by union organizers. Cards signed in public simply do not represent workers’ free and considered choice.

The unions, though declining in political influence over the last few decades surely helped propel the Democrats’ political sweep during the most recent election, and with this legislation would have a chance to recruit thousands of workers and further empower the liberal machine. This is coming at a time when unionization is the last thing the country needs to compete. While unions served certain necessary functions in times when workers may have in some instances been unfairly treated by management, unions have long outlasted their necessity, causing all sorts of problems by seeking tons of unnecessary benefits that have bankrupt companies. Unions also can cause increased unemployment when wages are sought by unions above the market price for labor, as companies cut back to pay for the more expensive laborers. Further, they have hurt us as a nation competitively by causing businesses to look to states or other nations without unions. If the Democrats ever wanted to find a way to push more jobs overseas, this is the way to do it. How about that for economic stimulus.

Categories: card check, unions