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  • Why Financial Repression Will Fail [View article]
    The article cites the pre-1980 calculation method used for CPI which is about 9% currently. This number (9%) is comparable to CPI inflation during the stagflation in the U.S. in the 1970s.

    To understand exactly how the calculation of CPI has been changed over time and why the pre-1980 calculation is relevant in this case, read John Williams' Public Comment on Inflation Measurement (last updated May 15, 2012):

    Additionally, CPI does not include food and energy.
    Nov 27, 2012. 12:20 AM | 2 Likes Like |Link to Comment
  • Why Financial Repression Will Fail [View article]
    The article "Why Financial Repression Will Fail" makes 3 general points:

    1. Economic data indicate that the U.S. economy is in stagflation.
    2. The causes of U.S. stagflation can be traced to policy decisions stemming from the financial crisis, e.g., QE.
    3. In historical examples, stagflation has harmed the middle class, thus the U.S. middle class will be reduced.

    The article employs the phrase "the producers of society," which might be misconstrued. In context, the phrase "the producers of society," refers specifically to small business owners. The argument made is simply that there is a link between (a) savings, (b) small business formation and (c) jobs. ZIRP and QE erode that link.

    There are some who argue that "the producers of society" are not entrepreneurs or inventors who start business and who create new products, services, jobs, and economic growth, i.e., the middle class.

    Karl Marx argued that the 'the producers of society' are the exactly and only workers, i.e., employees who are hired by business owners. In Marx' view, business owners exploit workers because private ownership of "the means of production" denies workers the benefits of ownership.

    Of course, in a market economy, workers can save and invest, thereby participating in business ownership (or they may benefit from stock options or RSUs or through profit sharing or bonus compensation); or they can work and save and start their own businesses, i.e., they can become business owners and join the middle class. That ZIRP and QE cut off the path of upward mobility is precisely what is argued in the article.

    The Marxist solution is to eliminate the capitalist class (the middle class) entirely, which opens the way for the political rise of the proletariat (the working class). Once the proletariat is in control, e.g., through a politburo of the worker's party, private business ownership can be abolished. The government can then manage all production and distribute "the resources of society" in a socially just or "fair" way.

    As an aside, there are various practical and other problems with Marxism, such as the inherent inefficiency of government, the limitations of central economic planning and the implications of absolute ownership of all property by the state, e.g., the tenancy toward government corruption and the inevitable rise of black markets and related organized crime.

    Another view is that ‘the producers of society’ are those who provide "capital" to businesses. Historically, "capital" referred to a genuine economic surplus, i.e., savings. However, the term today refers primarily to credit. Credit uses leverage to create new, additional money in the financial system. The money created through credit comes with a corresponding debt and interest obligation. As long as businesses, and the economy, can grow faster than debt accumulates, the system works well.

    As an aside, if it is claimed in the modern context that "the producers of society" are those who provide credit, e.g., bankers, it follows that wealth must be "produced" ex nihilo, for example, from a printing press.
    Nov 26, 2012. 07:54 AM | Likes Like |Link to Comment
  • Why Financial Repression Will Fail [View article]
    "From each according to his ability, to each according to his need" was a slogan of Karl Marx. In Marx' view, this material form of social justice would be made possible by the abundant goods and services produced in a developed communist society.

    Marx believed that with the full development of scientific socialism, productive forces, free of capitalist control, would satisfy the needs of all.

    In the Marxist view, private property and private capital in the hands of the bourgeoisie is an obstacle to the socially just or fair production and distribution of goods and services.

    In the absence of a revolution, the bourgeoisie can be eliminated through inflation and taxation which allows the proletariat to peacefully seize political control, i.e., former members of the bourgeoisie become members of the proletariat (a one party system). Lenin wrote, for example, that “The way to crush the bourgeoisie is to grind them between the millstones of taxation and inflation.”
    Nov 20, 2012. 07:08 AM | 4 Likes Like |Link to Comment
  • Why Financial Repression Will Fail [View article]
    "Economic progress is the work of the savers, who accumulate capital, and of the entrepreneurs, who turn capital to new uses." - Ludwig von Mises

    "If it were really possible to substitute credit expansion (cheap money) for the accumulation of capital goods by saving, there would not be any poverty in the world." - Ludwig von Mises
    Nov 16, 2012. 09:53 PM | 4 Likes Like |Link to Comment
  • Why Financial Repression Will Fail [View article]
    The definition of capital is a surplus derived from production, i.e., savings. Saving facilitates capital formation. Spending is the opposite of saving. Credit is not genuine capital. Borrowing creates new currency in the economy, but it also creates corresponding debt and interest obligations.
    Nov 16, 2012. 01:30 PM | 3 Likes Like |Link to Comment
  • Why Financial Repression Will Fail [View article]
    The claim that "a mix of [government] leadership and private initiative ... works" is exactly the definition of fascism.

    There is no such thing as "public capital." The government cannot replace the function of capital formation in the private sector by "investing" public funds because it must first take each dollar from someone before it can give it to someone else. In other words, there has to already be capital for the government to take.

    The government does not create wealth. The private sector creates wealth. So called government "investment" merely redistributes wealth minus the overhead of government bureaucracy. For the government to "create jobs" it must first take money from someone who therefore cannot create a job. Government involvement therefore results in a net loss of jobs for the economy.

    It is impossible for bureaucrats to make better decisions about people's money than millions of individual savers, investors entrepreneurs and business owners. Every historical example of central economic planning is an example of stagnation and of failure.
    Nov 16, 2012. 10:57 AM | 10 Likes Like |Link to Comment
  • Why Financial Repression Will Fail [View article]
    Inflation encourages people to shed cash before it loses value, i.e., to spend. Spending, however, is the opposite of savings, thus, while it may stimulate economic activity (which may be a policy goal), spending is the antithesis of capital formation.

    Genuine capital is a surplus derived from production, not currency created ex nihilo by a central bank, which merely redistributes purchasing power, or bank credit, which creates more debt in the economy.

    Inflation forces cash, e.g., savings, into risk assets, which is a formula for disaster because it puts savings at risk while at the same time pushing up asset prices (which may be a policy goal) or pushing down bond yields (which may also be a policy goal), independent of underlying economic reality. Increasing market liquidity in this way is unsustainable (it's only good until savings are consumed) and ultimately destabilizing. It also puts savers, e.g., retirees, who have a low tolerance for risk, in a terrible position, which is immoral.
    Nov 16, 2012. 10:43 AM | 6 Likes Like |Link to Comment
  • Why Financial Repression Will Fail [View article]
    Nov 16, 2012. 10:13 AM | Likes Like |Link to Comment
  • Why Financial Repression Will Fail [View article]
    The article "Why Financial Repression Will Fail" challenges the idea of liquidating U.S. government debt through financial repression, e.g., holding interest rates at 0%, printing money, forcing funds into Treasury bonds, etc.

    De facto financial repression has already trapped the U.S. economy in stagflation. By preventing capital formation, i.e., savings, destroying existing capital (through inflation), and depriving savers, pensioners and investors of interest income, financial repression prevents new small businesses from forming and exacerbates unemployment.

    Since financial repression causes economic stagnation and increases the burden on government social welfare programs it will fail to eliminate government debt.

    Under financial repression, tax revenues are likely to remain flat or to decline, thus financial repression will lead to tax increases and austerity measures as the government debt situation worsens and as the U.S. government finds itself in a more desperate position later, i.e., like countries in the European periphery.

    In theory, financial repression might work together with tax increases, budget cuts and austerity measures but, in that case, the U.S. economy would contract significantly. In other words, financial repression simply won’t work in practice.

    What financial repression will do is severely harm or wipe out the middle class. Since banks stand to profit from it, financial repression will increase income disparity, e.g., the Gini Coefficient, and concentration of wealth. As a result, financial repression will not only fail but is an utterly destructive and politically destabilizing approach.
    Nov 16, 2012. 10:09 AM | 8 Likes Like |Link to Comment
  • Why Financial Repression Will Fail [View article]
    Liquidity in the financial system is also referred to as "capital" but cash concentrated in banks, e.g., in reserves at the fed, cannot replace genuine capital (savings) distributed throughout the economy.
    Nov 16, 2012. 09:45 AM | 5 Likes Like |Link to Comment
  • Steve Forbes: How To Bring Back America [View article]
    Ronald Reagan Tribute -- Bel Air Presbyterian Church
    Jul 12, 2012. 06:22 PM | 1 Like Like |Link to Comment
  • Steve Forbes: How To Bring Back America [View article]
    Since departing from the gold standard, the Federal Reserve has undermined stability by greatly increasing economic volatility.

    Since 1971, the Federal Reserve enabled the creation of vastly greater leverage, which ultimately led to systemic risk and, therefore, to the "too big to fail" doctrine that has virtually bankrupted Western governments.

    The Federal Reserve's expansionary policies, e.g., chronic low interest rates, have ensured that each successive economic bubble has been larger than the previous one: the dot-com bubble, the housing bubble and the U.S. Treasury / sovereign debt bubble.
    Jul 8, 2012. 02:14 PM | Likes Like |Link to Comment
  • Steve Forbes: How To Bring Back America [View article]
    The Federal Reserve's track record is worse than the financial panics that occurred prior to 1913.

    The Federal Reserve's policies and overall U.S. dollar monetary expansion have greatly magnified economic volatility and are partly responsible for the "too big to fail" situation in the financial system today. Specifically, the problem is excessive leverage both on and off of bank balance sheets, e.g., MBS and OTC derivatives. Excessive leverage has allowed the financial sector to expand in an unsustainable way and has destabilized the global financial system.

    The bubbles created on the Federal Reserve's watch, e.g., the dot-com bubble and the housing bubble were larger than the bubbles that preceded them. The "roaring 20s" that preceded the crash of 1929 were also partly a byproduct of the Federal Reserve's policies. The dot-com bubble was followed by the housing bubble and the housing bubble appears to now be followed by a U.S. sovereign debt/Treasury bubble.

    Mr. Forbes is in favor of central banks as lenders of last resort but, arguably, he does not go far enough. The problems that central banks exist in order to solve are substantially of their own creation.
    Jul 7, 2012. 09:24 PM | 3 Likes Like |Link to Comment
  • Steve Forbes: How To Bring Back America [View article]
    Print magazines and newspapers have been negatively impacted by the Internet. has 30 million unique visitors per month. Seeking Alpha reported having 5 million.
    Jul 7, 2012. 09:08 PM | Likes Like |Link to Comment
  • Steve Forbes: How To Bring Back America [View article]
    China has a hybrid capitalist/communist system, i.e., state controlled capitalism with limited private property rights. Until they began to introduce capitalism, China was a relatively backward country.

    The assertion that the U.S. should look to China's example suggests that the U.S. might one day compete with China's prison factories through the fast growing prison labor industry.
    Jul 7, 2012. 08:49 PM | 4 Likes Like |Link to Comment