Archive for November, 2008

End the Fed Rally

November 26, 2008

This past weekend, there were a series of End the Federal Reserve Rallies across the United States.  I didn’t get a chance to make it, and the US media did not give it any coverage at all.  However, since this is the internet age, videos from the events can be seen on Youtube.  Maybe the mainstream media won’t cover it, but we can spread the word through the net.

Ron Paul made an appearance at the Houston rally.  Here’s the link to Part 1 of his speech.  Here’s Part 2, Part 3, and Part 4.

While it might take years to even bring the “End the Fed” movement to the mainstream, the more people that know the better.  Help spread the word and help bring back a sound monetary policy to the United States.

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Another Treasury Department Patch Job

November 25, 2008

This one will cost us $800 billion to buy troubled assets from banks to free up consumer lending.  Wasn’t this what the original TARP was supposed to do? 

Let me get this straight, Congress first rejected and then approved $750 billion to buy troubled assets and toxic paper, but the Treasury went their own way and just gave money to big banks, whether they wanted it or not.  Now they are coming back with a new $800 billion bailout to do what the first one was supposed to do, except this time it’s bigger and doesn’t need any Congressional approval.

This is just another hack job by the two guys who are supposed to be running our economy.  Instead, they are ruining it.  They both admitted that they have no idea what they’re doing and just keep going with the flow, printing money left and right, changing their minds, and not even having a plan to stick with.

People right now are not borrowing because they can not meet their existing debt service or they want to save money.  Pumping hundreds of billions of dollars into the system might encourage some companies to lend money, but who is going to borrow money right now?  Also, why would these institutions lend when they have no confidence in the borrower?  Forced lending and borrowing by the government is just going to lead to more malinvestment and an even longer recession.

Our economy is driven by spending and racking up huge debts, by everyone from the government to big busness to individual families.  Rather than pumping more money into the system and encouraging more debt, we should be seizing this opportunity as a nation to return to a culture of thrift, savings, and production.  The system as we know it is broken, and now is the perfect time to fix it.

More Deflation Propaganda

November 24, 2008

Here’s a link to a video I received in an email from TheStreet.com.

This is a perfect example of how misinformation spreads throughout the public.  People will take what is said in videos like these and accept it as the truth because “TheStreet.com (or other media outlet) said so.”

Basically, all it says is “deflation is bad because it occured during the Great Depression.”

Notice though, that deflation is reported in falling consumer prices, or the CPI.  This number includes the costs of food and energy, which are falling right now.  Normally, when the Government reports inflation, they use core inflation, which excludes food and energy prices.

This is very convenient, isn’t it?  They pick and choose what numbers they want to report.  The government always tries to show inflation as low as possible, and now is showing big, bad deflation as high as they can.

Why does the government do this?  Because they need inflation to operate.  Inflation broken down to the simplest term is “adding to the overall supply of money.”  Rather than taxing the population, they just print the money they need instead.  This is why inflation is sometimes referred to as the “hidden tax.”

As you add more money to the overall supply, each dollar is worth less, which means our dollars buy less goods.  They need to report inflation as low as possible so we don’t realize how much the purchasing power of our dollar is declining.  Also, many foreign governments hold billions of dollars in reserve.  The last thing they want to hear is that their holdings are declining in value.

The only entity that does not benefit from the deflation we are experiencing is the government.  That is why we are conditioned to think it is bad.  Under normal circumstances, they need inflation to fund their programs.  Currently, we are in a special situation, where the government is just printing trillions of dollars right and left.  We might have short term deflation due to the decline in food and energy prices, but we are going to have massive inflation because of the massive amounts of new dollars entering our system.

The lesson of this video is that we always can’t take things for face value.  We need to learn about our financial system and what the numbers and stats the government and financial institutions use mean.  If we really understood, we would see through the lies and propaganda, and see how the actions of our government are going to destroy our standard of living.  As Henry Ford said,

“It is well enough that the people of this nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution tomorrow morning.”

Bernanke Admits He’s an Idiot

November 23, 2008

From Bloomberg.com:

Bernanke Tells New York Times He Underestimated Housing Meltdown

by Daniel Whitten

Nov. 23 (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke said he underestimated the impact subprime mortgages would have on the economy, according to an interview to appear in the New Yorker magazine’s Dec. 1 edition.

“I and others were mistaken early on in saying that the subprime crisis would be contained,” Bernanke said. “The causal relationship between the housing problem and the broad financial system was very complex and difficult to predict.”

Widespread failures of U.S. subprime mortgages, home loans to borrowers with poor credit records, started in 2007, touching off a financial crisis that has spread to other sectors of the world economy.

The article, entitled “Anatomy of a Meltdown,” said Bernanke and Treasury Secretary Henry Paulson tried what Bernanke and his Fed colleagues called a “finger-in-the-dike” strategy to keep the financial sector operating long enough so that it could repair itself. As recently as this Sept. 1, the article said, Bernanke thought that strategy would work.

Can someone tell me how Helicopter Ben Bernanke was qualified to be in charge of the money supply of the United States?  Obviously, his college professor background made him a great choice because of all the real world experience he had.

He knew exactly what was going on with the housing bubble and all of the mortgage backed securities and he chose to let it happen.  His interests are aligned with big banks and the government, not the economy of the United States.

What a joke!  How do we get rid of this idiot?

So Much for Change: Obama Names Next Treasury Secretary

November 23, 2008

Tomorrow, President-elect Barack Obama will announc his choice for the next Treasury Secretary of the United States.  His name is Timothy Geithner and he’s the New York Federal Reserve Bank President.

The financial cartel in Washington will continue.  Now you have two members of the Federal Reserve in Ben Bernanke and Geithner running the finances of our country.

So much for CHANGE.  If Obama really wanted “change,” he would have gone with someone who is
an economist or accountant by trade, not a banker who works for the
Federal Reserve and served in the Clinton White House.  That’s just
four more years of the same failed policies of the past 16 years.

Think about what a Treasurer normally does in any other organization.  Their job is to keep track of the expenditures and income of the organization.  You would think the Treasurer of the United States would be some sort of straight-shooting accountant, right?

Instead, we get a crooked banker, who is responsible for getting us into the same financial crisis he is being brought in to try and tackle.  The Fed’s actions brought on years easy credit and malinvestment that brought our entire financial system to a grinding halt.  Geithner will just continue the inflationary monetary policy that benefits the banks and government, while it screws the average person.

Until we get a Treasury and a Federal Reserve that supports a sound monetary policy and has a plan and sticks to it, we will continue to keep trying to fight a fire with gasoline.  Haven’t they learned that they can not inflate their way out of this mess?  That’s how we got to this point in the first place.  They might be able to get the house of cards stablized for the time being, but it will be built higher than ever before.

Sooner or later, we’re going to have to rebuild our economy from the ground up with a solid foundation of savings and production.  I thought that Obama would be able to bring in sweeping reforms on the tails of his “change” campaign message.  I guess I was wrong.

An Excellent Essay on Inflation and Deflation

November 19, 2008

Today, the big headline was that consumer prices dropped by the largest amount in 61 years.  I’m not sure what measurement they were comparing but that is a pretty significant event.  The funny thing though, is that when we talk inflation, the headlines are always for “core” inflation which subtracts food and energy.  However, these deflation headlines used the CPI number, which includes food and energy.  So it’s definitely selecting the statistic that better suits your argument.

This made me ask myself, “What is so bad about deflation anyway?”  Why is it bad that the price we pay for something goes down?  This lead me to a search on google and I came across this very informative essay entitled “Why So Much Concern About Price Deflation” by Richard E. Wagner, Ph.D, who is Holbert Harris Professor of Economics at George Mason University.  This was written in 2002 during out last economic downturn.

“We recently have been hearing a lot about the threat of deflation, doubtlessly inspired by recent falls in indexes of consumer and producer prices. The Great Depression of the 1930s comes to mind when people speak of deflation. No one wants another Great Depression. Nearly everyone would prefer the double-digit inflation of twenty years ago. This preference is reasonable, but it does not follow that deflation is bad. Whether deflation is bad or good depends on why prices fall.

The Great Depression of the 1930s is the prime example of the bad kind of deflation. The Federal Reserve allowed the supply of money to shrink by thirty-five percent between 1930 and 1933. This gigantic destruction in the supply of money sabotaged markets throughout the land. Consumers could not afford to buy products, businesses could not sell their output, and workers could not find jobs. All of this happened because the Federal Reserve failed in its fundamental task of keeping the stock of money intact. This kind of demand-side deflation is clearly an economic scourge of major proportions.

Deflation can also result for supply-side reasons. This type of deflation is a radically different type of animal, and is a good one to have around. It is the kind of deflation that occurred in our economy after the Civil War and existed pretty much continually until the creation of the Federal Reserve in 1913. As productivity increased, consumer prices fell. Workers did not receive the continual wage increases that they have received during our recent inflationary times. Their well-being increased nonetheless. Steady wages with falling prices is a fine recipe for progress. This is, moreover, a recipe that works to the advantage of retired people on fixed incomes. With moderate deflation, a fixed sum for retirement goes ever farther because deflation allows retirees to share in the gains from rising productivity.

There is all the reason in the world to avoid a demand-side deflation. There is no reason at all, however, to oppose a supply-side deflation. No reason, at least, for ordinary citizens to oppose a supply-side deflation. It may be different for politicians and government officials. They are in a different situation with respect to deflation than are ordinary citizens. Inflation allows for increases in government budgets that would never be possible under deflation. Sustained inflation entered the American economy only with the creation of the Federal Reserve in 1913. Until then, the federal government claimed less than ten percent of the output of the American economy. It was only after steady inflation became a way of life that government’s share in the economy grew and now approaches fifty percent.

There are many reasons why inflation promotes growth in government. One of them is that inflation increases the share of total income that is collected through ordinary taxes. A ten percent increase in income increases collections of income tax on the order of twelve percent. This ability of tax rates to rise with inflation is referred to as “bracket creep.” Inflation pushes people into higher rate brackets, where they pay larger shares of their income in taxes.

Besides bracket creep, inflation is also a type of tax in its own right. The inflation tax is a form of public counterfeiting that goes by the technical name “seigniorage.” Seigniorage is the difference between the value of the money the government creates and the cost of creating that money. It is the government’s profit from creating money, and it is of the same character as the profit that a private counterfeiter makes. It costs almost nothing for the government to print another $100 bill, but this new bill is as valuable as all other $100 bills.

To be sure, the collection of this seigniorage tax works differently in different nations. In some nations, the Treasury and the central bank are joined. In those places, the government can finance its activities directly by creating money. It is different in America because the Treasury and the central bank are distinct. The government can still finance its activities by creating money, only this happens indirectly in two stages. In the first stage the government runs a deficit; in the second stage the Federal Reserve buys government bonds. The end result is indistinguishable from the Treasury directly creating money to finance its activities.

Supply-side deflation would put an end to the government’s ability to finance its activities through monetary expansion as well as through bracket creep. It would also eliminate the need for all of the various forms of indexing that have arisen to deal with inflation. The only losers from deflation would be those who live off the tax revenues that inflation generates.”

From reading this, I think we are experiencing a combination of the two types of deflation.  We have demand side deflation problems with the current credit crisis and the lack of lending.  However, I really do not believe that goods are so unaffordable that it is dragging prices down.  It is more a lack of confidence and uncertainty that is driving the lack of consumer spending.

We currently have more supply side deflation, where people are cutting back and there is an over-abundance of goods and an unwinding in the commodities bubble.  In order to move goods and equalize supply and demand, prices are dropping.

We have just been convinced to think deflation is a bad thing associated with the Great Depression.  However, currently, deflation in consumer prices is great.  We need lower prices for gas, food and our overall living expenses.  As you read above, the main benefactor of inflation is the government, who has us convinced deflation is bad.  They also experience no benefits from deflation.

So, This is What the SEC Does

November 18, 2008

Today, the SEC announced it was bringing insider trading charges against Mark Cuban.  He sold a large position in Mamma.com (some lousy search engine) with some insider info and saved himself about $750,000 in losses.  The big part of this dispute is that the SEC says he pledged to keep the information confidential and therefore could not act on it.  Cuban says he never said anything about confidentiality, and therefore could trade with the knowledge he had.

Not that it really matters, but the information was that the company was going to do a PIPE the next day.  A PIPE is “Private Investment in Public Entity” which means they sell a number of shares to private investors to raise money.  The disadvantage is that it dilutes the amount of shares outstanding, which in turn makes each share worth less.  So, Cuban sold his shares before the announcement of the PIPE and the subsequent decline.  He sold only a portion of his position and saved himself $750,000 by selling early.

This was all done back in 2004 too!  They spent 4 years researching this?  You have to be kidding me!  What a waste of taxpayer dollars and government resources.

While the entire financial system is crumbling and hundreds of billions of dollars in shareholder equity has been lost and we’re printing trillions of dollars as well, the SEC is investigating a deal by Mark Cuban that equated to less that ONE MILLION dollars?

This is our government in a nutshell.  Instead of going after the CEOs of the financial institutions that wrecked our economy, they go after Mark Cuban for $750,000.  The decisions by the heads of subprime lenders and Wall Street firms that securitized and sold these assets have cost us all billions of dollars.  How can there not be any investigations into these firms?  What a joke!

What about AIG?  They got bailed out to the tune of $85 billion and then sent employees on a luxury retreat that cost over $400,000!  That’s our money!  Cuban’s trade, while it was unethical if not illegal, was his own money and mainly benefitted himself.  AIG was using taxpayer money to pamper themselves.  Where are the fines for this?  Why isn’t anyone in jail yet?

The SEC needs to look at the CEOs and officers of Goldman, Merrill and any other big Wall Street firm.  I can bet that they had “planned” sales that happened to occur right before a drop in stock price.  Just because it’s “planned” doesn’t mean they were not setting up these sales with inside knowledge.

We should all be outraged that during this time of crisis, the SEC is busy investigating Mark Cuban for three quarters of million dollars.  The top 100 employees at any of these investment banks were getting bonuses many times the money Cuban saved himself.  These bonuses were created by financial instruments like mortgage backed securities, that the SEC was supposed to regulate.  Now look who is footing the bill – the average Joe.

If they really want to crack down, they should go back and put every exectutive of an investment bank or subprime lender or AIG in jail right now.  Christopher Cox, the head of the SEC should be forced to resign as well.  He just let all this happen and then has the gall to go after Cuban.  His lack of leadership is criminal in itself.

Of all the “change” Obama wants, the first one he should make is to get the SEC to actually do it’s job and not try to make martyrs out of celebrities.

The Auto Industry – What are the Problems?

November 17, 2008

I’ve read many articles over the past few days regarding the impending auto industry bailout, and I have not read one that really discusses the problems with the industry itself.  Obviously, something is inherently wrong when the Big Three are always teetering on the brink of bankruptcy.

Of course, there are macroeconomic issues that are effecting everybody.  These are issues that are basically out of our control, which include the credit crisis, foreclosures, and the entire recessionary environment.  Everyone is facing tough times.  Why shouldn’t every small business get a sizeable bailout then as well?  Macro issues are not the reason for the constant struggles of the auto industry.

I’m tired of hearing politicians talk only about bailouts.  What about some of the regulations that are crippling the automakers?  Or the years of laws that were basically handouts to the Big Three?  We need to find the real problems, not just put $25 billion bandaids on them.

If we are going to bailout the Big Three, we need to have a pre-arranged bankruptcy deal with the government.  Let the Fed pay for all the outstanding debt these companies have.  During this time, Congress should look at every piece of legislation that has to do with the auto industry.  The UAW will have to make concessions as well.  Let the automakers shift some of the production to Mexico so they can actually make a profit, while the higher paying assembly jobs stay here in the US.  Make the UAW have to pay for health insurance like most workers do and make them fund their own retirement accounts.

While this will still cost the taxpayers money, it will help the Big Three emerge from bankruptcy on the same footing as the Asian and European automakers that assemble cars here in the US.  With less costs and more freedom to allocate production where it will be the most profitable and most efficient, they can focus more on innovation and research and development.

A bailout will just prolong the problems the Big Three are facing and nothing guarantees that this will help at all.  If they need $25 billion to get through December, will they need $25 billion more to get through January?  What if new car sales don’t pick up for a year?  We have no idea if this money will help at all.

Choice for UAW – Cuts or Unemployment?

November 15, 2008

Today, the head of the United Auto Workers (UAW), held a press conference where he said that the union would not make any more concessions to the Big Three automakers.

You can read an article from the AP here.  In summary, he said that the Big Three need to be bailed out because if one goes bankrupt, they will all go bankrupt.  He also said that it’s the overall economy that is hurting the Big Three and that his union has made a lot of concessions already and should be applauded.  According to him, labor costs make up only 8-10 percent per vehicle.

This article makes it sound like the UAW has nothing to do with the struggles of the Detroit automakers.

Before we make that assumption, read this article from January 2007 in Fortune magazine.

Just look at the per car costs between the UAW plants and the Japanese automaker plants in the US:

Healthcare per car:

UAW:  $1,635      Japanese:  $215

Work rules, line relief and holiday pay (Union rules)

UAW:  $630        Japanese:  $0

Paying UAW workers when plants are closed:

UAW:  $350       Japanese:  $0

That is an almost $2500 difference per car!  This doesn’t even include the employee pay.

Think about those costs above when you look at each manufacturer’s per car profit.  Nissan makes about $1800 per car, Toyota and Honda make about $1400 per car.  Ford loses $1400 per car, Chrysler, loses $1100 per car, and GM loses about $333 a car.

Even the “profitable” companies don’t make that much per car.  The margins are pretty slim.  You can see that the Union costs are basically the difference between profitability and losing money.

While it is not just the UAW that is causing many of the problems with the Big Three, it is easy to look to their compensation as a big reason.  It does not help their cause when their head comes out and starts grandstanding and looking for public sympathy.  It’s a tough time for everyone, and him saying “no more concessions” makes them look greedy and better than the average American worker.

Oh, and one more point about the Union rules.  Does this look like a system that benefits all parties involved?  Read this from the Fortune article:

“If an assembly plant with 3,000 workers has no dealer orders, it has two options. One is to close the plant for a week and not build any cars. Then the company still has to give the idled workers 95 percent of their take-home pay plus all benefits for not working. So a one-week shutdown costs $7.7 million or $1,545 for each vehicle it didn’t make.

If the company decides to go ahead and run the plant for a week without any dealer orders, it will have distressed merchandise on its hands. Then it has to sell the vehicles to daily rental companies like Hertz or Avis at discounts of $3,000 to $5,000 per vehicle, which creates a flood of used cars in three to six months and damages resale value. Or it can put the vehicles into storage and pay dealers up to $1,250 apiece to take them off its hands.”

Sorry Bishops, This is Not a Theocracy

November 12, 2008

The government of the United States, or individual states are not theocracies and should not be ruled by the religious beliefs of a group of people.  The intention of our governments was to allow for individual freedom and to not be involved in our every day lives.

Someone needs to tell this to the Bishops of the Catholic Church in the United States.

I do not understand the need of people to have to outlaw things they do not believe in.  There has been a huge debate over abortion for the last 40 years.  Now, there is an equal debate over gay marriage.  These are decisions that you and your church might condemn.  However, this does not mean that the government needs to be involved in them.

Why can’t these decisions be left to the individuals, their families and their church and beliefs.  If you do not believe in abortion, you will not have one.  This does not mean that there has to be a law against it.  If your church does not believe in gay marriage, or inter-faith marriage for that matter, then they do not have to allow them in their church.  Again, a law against it is unnecessary and will not change your beliefs.

I read that the Bishops are saying that allowing abortions infringes on the right of religious freedom of all Catholics.  I do not understand that statement at all.  They have the freedom not to believe in or practice abortion.  That is the essence of religious freedom!  By creating a law, based on your moral view, to outlaw abortion is the exact opposite of freedom.  What if that person is an atheist?  Why should your moral law affect that person?  Their freedoms are being infringed.

For the record, I do not believe in abortion, but my belief that government should just stay out of the issue is stronger.  Also, I don’t care if gays want to get married.  That should be their right.

We need to stop relying on the government to enforce moral or religious laws over the entire population.  A small majority passed Prop 8 here, and I don’t understand why that slight majority should impose their religious views on the rest of the population.  Leave these issues to the individuals and churches, and get government out of it.