Posts Tagged ‘economics’

Making Work for ATT

December 29, 2010

At work, we had a phone line through ATT that we didn’t use anymore. We also had a DSL line that we use for our phone system tied to that account. We wanted to cancel the phone line, but keep the DSL line. Sounds pretty simple, right?

Let’s just say it ended up being a lesson in the power of the International Communications Workers Union. When we canceled the phone line, they told us we would have a new account number. Nobody thought anything of it.

Then, the next morning, our phones were dead. I checked the DSL modem, to see if it was that or the phone system itself. The lights on the modem were all dead. Definitely a DSL problem. After calling ATT, we figured out that our new account number meant we had a completely new account. They couldn’t just cancel the phone line and keep the DSL line active. Perhaps this was a quirk in ATT’s system.

They told us that they would be able to turn it on for us in a few hours.   Then we got a call back from another rep saying that since we were in California, they couldn’t just turn it back on.  They had to send someone out to install the line.

We told them that we already had the modem, everything was hooked up, and we just needed the line switched. The answer was no. We had to have someone come out. So we scheduled it between 8 am and noon in a few days.

This was during a time when our office was closed for the Holidays, but I had some work to do so I came in with our IT guy. That morning at 9:30, we got an automated call from ATT saying that our line was now ready to use and we needed to register our account.   So now I came in to wait for an install that wasn’t even going to happen? They also were kind enough to tell us if we were having trouble, they could send someone out for $150.

I was mad, so I got on chat support with ATT. We got the modem activated and were up and running. I asked them why they told us someone had to come out. They said that on their records, no one was ever scheduled. I was dumbfounded.

After all this, an ATT truck pulls up in front of our office. The guy sits there for a minute, then comes in and asks “So you’re all up and running?”

We said that we set it up ourselves. We suspected that there had to be some sort of subcontractor or union agreement behind his visit, so we asked him if he was part of a union. That’s when he told us he was part of the ICW. We asked what he was going to do, and he said “say hi and leave.”

This was one of my first direct experiences with a union “make work” program. There was no need for him to come to our office at all, but the State of California requires him to do so. The union lobbied for these regulations not to ensure that our connection was up and running, but to make sure this person had a job.

Makes you realize why we’re so uncompetitive here in CA and in the US in general…

Hayek and Bailouts

October 5, 2010

I’m in the middle of reading The Road to Serfdom, by FA Hayek.  I’m on a part right now that talks about the role of government and the free market.

People now think that free market supporters want no regulation and financial anarchy.  This is especially true with the criticism of the Tea Party.

However, Hayek claims that laws are necessary and that there are two main points:

1.  The rules have to be predictable and known in advance.

2.  The rules have to be set with no regard of who they will benefit.  A law created to benefit a particular group will create imbalances.

Unfortunately, we actually have not violated rule #1 in our economic system today.  The rules are very predictable, that our government will bail out big corporations at the expense of the individual family.  This is predictable in all the wrong ways.

We have violated rule #2 and you would be hard pressed to find any legislation that does not seek to help one particular group.  The healthcare laws are supposed to help the uninsured.  The financial overhaul is supposed to benefit the consumer.  While the laws are well meaning, we know that they will not work because business will exploit the laws that they lobbied for in their favor.

As I read more of The Road to Serfdom, I’ll keep posting my thoughts.  It is not a very easy read (Hayek’s sentences last forever!) but the ideas that he was expressing in the 1940’s are as true today as they have ever been.

Step One in Screwing the Taxpayers

February 26, 2009

When President Bush was pushing for his massive bank bailout plan, the concept was for the government to take a stake in the failing banks and eventually make money for taxpayers.  I was not in favor of the bailout  because I knew that in the end, the taxpayers would get nothing.

The new scheme for Citi to get more government funding is step one in this process of screwing over the taxpayers.

When the government gave Citi $45 billion of taxpayer dollars in the TARP package, it got warrants for preferred shares.  These could be converted to common stock, which could then be sold by the government, hopefully at a profit.

Now, Citi is in need of more money, and their plan is to have the government to convert their preferred shares of common stock, at or close to the current share price of $2.50.  This will give Citi about $45 billion in cash and the government would become the shareholder of 40% of the company.

When the TARP was enacted, Citi’s share price was just below $20, so in order for the taxpayers to make money, we would have to convert the shares above that price.  By converting them at $2.50, we are taking a 88% loss! 

Serving the best interest of Citi is NOT the protection taxpayers were supposed to receive in the TARP program!

Also, the bigger side effect of the government becoming a 40% shareholder in Citi is that we will not be able to let it fail or nationalize it.  If either of those occur, shareholders (taxpayers) are wiped out.  We will have to keep pumping more money into the failed bank, keeping it on life support.

The bank bailout was a horrible program and idea from the start.  We were sold the fact that the taxpayers would be protected by taking a stake in the failing banks, and then selling the stake for a profit down the road.  This new plan by Citi is a direct contradiction of these protections, and is the first step of screwing over the taxpayers.  This turns the plan into a huge transfer of wealth and a direct giveaway to banks.  We will never see a penny of returns on the $700 billion we “invested” in the failing banking industry.

Obama’s Victory is America’s Loss

February 16, 2009

So, President Obama got his first “political victory” last week with the passage of his $700 billion stimulus package.  His win is now a loss for every taxpayer in America.

Is this what Obama’s “Hope” and “Change” has already come down to?  Political victories? What happened to reaching across the aisle and all the change he was supposed to bring?  So far, Obama’s policies and tactics look a lot like those of the last administration.

I understand the urge to help.  We all have our ideas on how to get this country going again.  I just don’t see how throwing a huge amount of money like a blanket on the nation is going to help anything.  How is building roads or filling potholes going to create lasting jobs?  This is just a huge patch job on a horribly broken system.

Also, this plan was so hastily put together that massive amounts of wasteful government spending has been packed into it.  How did the government come up with all the dollar amounts?  Was it calculated using all available data, or was it pulled out of some Senator’s butt? And how does $50 million towards the arts, $1 billion for ACORN, and tax breaks for golf carts and motorcycles help the economy?  It’s just “pork” under a new name.

And please don’t try to tell me about all the pork the trimmed from this stimulus package.  It was $850 billion and reduced to just over $700 billion.  We’re still talking about hundreds of billions of dollars!  If they really want to cut it, they should have cut it by about $800 billion.  This was all just eye-wash, making us think that our government is looking out for how they spend our money.

Instead of spending so much taxpayer money, Obama should be letting us keep more of our hard-earned money.  His “Make Work Pay” tax cut is downright laughable.  Thirteen bucks a week!  Hooray, now I can afford to pay off my mortgage and go out and buy a new car and plasma TV.

The Federal Government gets about $2.1 trillion each year in income tax receipts.  Instead of spending $700 billion, how about we cut all of our taxes by 33 percent?  Wouldn’t that benefit each and every one of us and stimulate our economy more than just handing out money to pet projects?

I know Obama is trying to help, but his “victory” is really a huge loss for America.  He had a chance to really help our economy, but instead is resorting to the printing presses just like the Bush Administration.  Government intervention and spending is what got us into the hole we’re in now, and more of it is not going to get us out.

Uh-Oh… China Doesn’t Want Dollars

January 7, 2009

Man, Peter Schiff is a prophet.  He knew our economy was a debt filled bubble and called this recession perfectly.  Now, his prediction that China would stop funding our spending and buying our debt is coming true!

This report comes on the heels of Obama deciding to tell the whole world that we’ll be “running a trillion dollar deficit for yeasr to come!”

Tell me, Mr. President, how are we going to fund these massive spending projects if no one wants to buy our debt?  We are a debtor nation and we fuel our economy by borrowing from other countries, mainly China.  In order to borrow money, someone has to be willing to lend.  What happens when they cut us off?

This is happening in our economy right now.  No one wants to lend money.  Our banks are too busy taking care of themselves.  Well, China is doing the same thing, spending their money at home, rather than lending it to us.

We need to wake up!  We can’t keep borrowing money forever and we can’t keep growing our Federal Government.  If there was ever a time for less spending by the Feds, this is it.  Instead, they are spending at an alarming rate.

We must focus on developing industries that can export goods to China and other countries.  We need new players in old industries that can compete in a global market.  Maybe the Big Three failing would allow for new car companies to take their place that can create a car the whole world wants.

The point is that we can’t keep this economy that only spends and doesn’t produce.  We need to throw it out and start over or at least get it headed in the right direction.  Right now, almost all of our leaders are calling for more spending and more debt.  Well, if no one wants to lend us money, what happens?  All the fundamentals are wrong, and we need real answers to our economic problems, not more and more of the same.

Obama to the World: Our Dollars are Worthless

January 6, 2009

Someone needs to tell Barack not to tell the world that we are going to be running “trillion dollar deficits for years to come” like he did today.

What kind of message is that sending to the rest of the world?  What kind of message is that sending to American businesses and the rest of the population?

First, how are we going to finance all this spending?  Are we going to keep borrowing money from China and Japan?  What happens when China finally wakes up and realizes that they are getting paid back in dollars that are worth less and less?  The fact that Obama is announcing to the world that we are going to be fiscally irresponsible and are going to keep printing money is going to accelerate the East’s rejection of our dollars.

Second, why would any business spend to hire new employees, give raises and bonuses, or buy new equipment when their leader is telling them that recovery is years away?  Everyone is waiting for government’s next move, hoping it’s the cure all.  News Flash – the government actions are making things worse!  The sooner Obama and the Feds get out of the way and let the markets correct themselves the better.  If we do get out of this by printing money, we will only be setting ourselves up for complete and total collapse a few years down the line.

My industry is tied to real estate development, whether it’s apartments or commercial centers.  Right now, no one wants to lend money because there is too much uncertainty, and because the commercial real estate developers want their own bailout.  There are projects ready to go, that need to start so they are built when the economy recovers, but no one wants to lend money to get them going.  The shoot from the hip fiscal policy of the Federal government is only making the lenders more fearful and more reluctant to lend.

And finally, why is so much of the blame being placed on the reluctant American Consumer?  Do you think something is wrong when two-thirds of our economy is based on consumer spending?  We don’t make anything, we import everything, and buy things we don’t need on credit.  Sounds like an awesome system.  The American consumer is tapped out and is unwilling to go deeper into debt when they are fearful they are going to lose their job.  Obama blabbing about running trillion dollar debts for years is not helping restore confidence.

We need real leadership right now and a government that is willing to make a stand and stick to it.  If they are going to bailout companies, then they need a real plan.  They can’t have one plan then another and then change that one half way through.  That approach has just made things more messed up.  Unfortunately, Obama and his team seem more than willing to throw money around without a clear plan as well.  We can’t keep running these deficits forever and we shouldn’t announce it to the world.  We need to restore faith in our currency and our economic system, and Obama’s comments are leading more fear and an even longer recession.

Pulitzer Prize From a Cracker Jack Box

January 5, 2009

Today, the Pulitzer Prize winning writer, Paul Krugman, wrote an Op-Ed piece in the New York Times.

His main points:

1.  We thought we could prevent depressions by providing banks liquidity, but we can’t.

He’s just writing this now?  Geez, Ron Paul and Peter Schiff should have Pulitzer Prizes too!  If a layman like myself could tell that people were getting into way too much debt and that money was way too easy to come by, why couldn’t our leading economic minds?  Why couldn’t Krugman see this coming?  Oh, that’s right, because he thought we could avoid recessions, let alone depressions, by lowering interest rates.  What a joke!

2.  The only way out is to act “swiftly and boldly,” which means government needs to spend, spend, spend.

Has he been in a cave for the last 4 months?  I’m glad he notices how much good the trillions of printed dollars have done to firm up our economy!  If the banks aren’t lending now, why will they after we pump another trillion into our economy?  Please stop writing such nonsense!

3.  He’s worried because there is posturing in Washington that will prevent Obama’s massive stimulus plan.

Good!  There needs to be at least some sort of reason on Capitol Hill.  Is Krugman trying to make a play for a job on Obama’s staff?  Does he want to run the Fed now?  Why else is he being such a big government cheerleader?  Stick to your day job Paul!  Stay out of subjects you obviously don’t understand!

4.  His nightmare scenario involves “delflation that is already setting in.”

Wow, he really has drank the Kool-Aid.  This “deflation” everyone is clammoring about is 100% driven by food and energy costs dropping.  Core prices remained flat.  If you really think that inflation is a good thing, please go and educate yourself immediately!  Right now, I love getting a tank of gas for $25.  I know it won’t last, but it’s way better than getting 5 gallons for the same price.

When you are printing trillions of dollars, you are “inflating.”  Inflation is the expansion of the money supply, not rising prices.  That is a result of more dollars in circulation.  Deflation is the opposite, it is the contraction of the money supply.  That is not happening right now.  The drop in commodities (mainly oil) is being caused by the massive unwinding of leveraged investment positions, not “deflation”.  Please get your facts straight before spreading Federal Reserve propaganda, Paul.

To me, the main problem right now is a lack of confidence in the system.  Banks don’t want to lend money because they just got burned for billions of dollars.  Consumers don’t want to spend because they are already in debt up to their eyeballs and they are uncertain about their jobs or their sources of income.  Some businesses are reluctant to spend their own money because they are waiting for their own federal bailout (like the commercial real estate developers).

We need to restore faith in our economy and the way to do that is for the government to stop making panicked moves printing billions of dollars and throwing them around.  We need a sound money supply so everyone can get their footing and start to put themselves back together.  Right now, no one knows what is going to happen next, so they are all waiting it out.  If Bernanke would come out tomorrow and say “that’s it, no more money, no more bailouts” we’d probably take a huge dive tomorrow, but would be on our road to recovery.  Instead, we’re still falling deeper and deeper into the abyss.

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.

Creature from Jekyll Island

October 29, 2008

A link to this lecture was posted on the Campaign for Liberty website, and I had to post it here as well.  It is a lecture by Dr. Edward Griffin from 1998.  He is the author of a book called The Creature From Jekyll Island, which is about the beginning and goals of the Federal Reserve of the United States.

It was really enlightening to me.  I had heard of the way the Federal Reserve was created and how it was conceived by the banks for the banks, but this really put the Federal Reserve and our fiat money system into place.  You will be enlightened as well.

Our economic system is one built on fake money and a cartel agreement between the big Wall Street banks and the Federal Government.   Even though this lecture is ten years old, it probably is more relevant now than ever before.  The part about bailouts is EXACTLY what happened with the huge $700 billion bailout of Wall Street.

Please take the time to listen to this.  I know, it’s 71 minutes long, but you can download it to iTunes.  Listen to it at work or on your way home.  It will open your eyes to the world we live in.

Rate Cuts… AGAIN?

October 29, 2008

Well, the Dow and the markets had a nice up day today.  However, the buying came on the expectation of a big rate cut coming from the Federal Reserve, perhaps to an all time low under 1%.  This is like fighting fire with fire.

As I’ve stated in previous posts, the 1% rate will encourage BORROWING, but will not encourage LENDING.  We need lenders to regain confidence in the people or entities they are lending to.  You can have borrowers lined up around the block, but if you aren’t getting a sufficient interest rate for the risk you are taking, you aren’t going to lend the money.

What we really need right now is for the market to set interest rates higher.  Once again, the Federal Reserve is artificially setting interest rates way too low.  If lenders could get 10% on their money, I bet a whole lot more of them would be making loans.  Right now though, prime is 4.5%.  That is not enough of a return for a lender to make a loan.

We keep hearing about how the free market and capitalism has failed.  We haven’t had capitalism and a free market since 1913 when the Federal Reserve was created.  What has failed is the inflationary policies of the Fed.  Their constant intervention and recent philosophy of low rates as a “cure all” is going to destroy this country’s economy.

Also, I read today that the Federal Government is strongly urging banks to lend money.  Banks have been injected with capital from the Federal Reserve, but instead of lending, the banks are using this money to help their balance sheets.

We need healthy financial institutions.  We do not need ones that are not healthy lending money because the government says so.  Again, the government is intervening, trying to fix things for tomorrow, while not thinking about next week.

This is the hazard of the government indiscriminately throwing money around to any financial institution.  They gave money to the good and the bad, and now they want them to start lending this money.  Rather than taking equity stakes, the government needed to let the bad banks get weeded out before they starting handing out funds.  Then, only the ones with strong balance sheets, that were well managed, and had sufficient funds would have survived.  They could have given the funds to these companies, and they would have been able to lend, rather than padding their balance sheets.

The actions of the Federal Reserve and Treasury Department have been a complete, unorganized failure.  Nothing they have done has worked, and rather than recognizing their failures and changing course, they have decided to start intervening more and throwing even more money at the problem.   At a time when we need leadership from the leaders of our economy, we have a reactionary policy that just compounds the problems, rather than fixing them.