Steve in Greensboro

The Unsustainable Lie of Inflation

On Nov 09 02:25 PM Michael Clark wrote: "...Inflation is the rich stealing from the poor....Deflation is the poor getting even with the rich...."

On Nov 09 04:23 PM ThirtyNineWinks wrote: "You've got it backwards. Inflation robs from people with money, and helps people with debt..."

ThirtyNineWinks has it right. Mr. Clark has it exactly backwards. Speaking generally, the rich are generally creditors and the poor are debtors.

Monetary inflation make the dollar-denominated assets and liabilities both worth less. The positive net worth of the rich gets smaller and the negative net worth of the poor, while still negative gets smaller too. Deflation works the opposite way, helping the rich and hurting the poor.

Inflation helps the poor by reducing the value of their debt compared to their wages. The fact that it also reduces the debt of the biggest debtor on the planet, the U.S. government, makes it a certainty that there will be inflation, because the U.S. government controls the money supply and will guarantee inflation.

But in the end, inflation hurts everybody, because the primary unit of account (the USD) becomes corrupted and unreliable, making business decision-making, capital accumulation and resulting wage increases impossible.

The Fatal Flaw in Healthcare Reform

Thanks, Mr. Grannis, for pointing out one of the bigger flaws among the many in the Obama-Pelosi House bill.

But is it a flaw? I'm not sure. I think it is part of the overall plan to run private health insurers out of business.

Like you, I will go uninsured until I need real catastrophic coverage, and then sign up. But we won't sign up with the government's plan which will be a giant, dysfunctional, deadly HMO. Seattle had one of the first HMOs. Its real name was "Group Health", but everybody in Seattle called it "Group Death". We will sign up with one of the private insurers where we will be able to get good treatment.

Since the private insurers won't be able to recover their costs from me, they will go bankrupt and we will be forced into the Federal Group Death HMO.

Corporations Win Again - This Time It's Healthcare

I think Dennis "Cuckoo" Kucinich really needs to rally the Left wing of the Democrat party (redundant, I guess) to oppose Obama-Pelosi's health care bill.

If Democrats can't get pure single-payer done now with the huge majorities they have in both houses, they certainly won't be able to get in done after the 2010 midterms.

And don't worry about the impact on the economy of the huge tax increase required by socialized medicine. And don't worry either about the fact the Constitution does not allow the Federal government to take over health care.

You Lefties need to go for the gusto. Never let practical or legal considerations deter you.

U.S. Jobless Rate Hits 10.2% - Government Supporters Blame Rising Productivity

Thanks, Mr. Jackson, for the helpful note. You wrote: "...the malinvestments created by the previous credit expansion are still creating unemployment as the necessary readjustments are made. Secondly, Obama's policies are creating an enormous amount of uncertainty..."

The current recession is 100% government-caused. The previous credit expansion (Greenspan-Bernanke's response to the dot.com bubble) created the bubbles in equities and real estate which burst in 2007-2008. The recession is being prolonged and aggravated by Obama's "stimulus" packages (with multipliers less than 1) and the expectation of massive tax increases due to socialized healthcare, the expiration of the Bush tax cuts, carbon dioxide taxation, etc.

The next recession is being created now, by the current, even more massive credit expansion authored by Bernanke and Obama, which is creating bubbles in equities and commodities.

And Bernanke Didn't Think Unemployment Would Reach 10%

Don't worry, Mr. Slavo. All we need to do is more of what we have been doing: print more money and have another stimulus or two. Plus, let's raise taxes by socializing medicine, taxing carbon dioxide emissions, allowing the Bush tax cuts to expire in 2011, imposing a VAT, etc. Plus, let's impose massive tariffs like the G-20's "balanced trade" plan. Paul Krugman thinks these are all good ideas and he has a Nobel prize -- in economics!

Happy days are here again!

Crisis in Context: 'This Time is Different: Eight Centuries of Financial Folly,' by Carmen M. Reinhart and Kenneth S. Rogoff

"Eight centuries of financial folly", eh?

1) Government spending including stimulus: "...government debt is far more often the unifying problem across the wide range of financial crises we examine.”

2) Monetary inflation (money-printing): “A clear inflationary bias throughout history emerges.” Why? “Early on across the world the main device for defaulting on government obligations was that of debasing the content of the coinage."

The key elements of the Keynesianism (at least the vulgar version practiced currently in the U.S.) are government spending and monetary inflation. I agree with the authors that Keynesianism is folly.

Meanwhile, IMF director Dominique Strauss-Kahn says progress is being made on a possible financial sector tax, also known as the IMF tax, which would be an incentive to take less risks, but also create an insurance fund to be used in case of a future crisis.

How about this? Let's impose a tax on people who vote in favor of new taxes. This is very similar in concept to a state lottery which is also a tax on the stupid.

Meanwhile, IMF director Dominique Strauss-Kahn says progress is being made on a possible financial sector tax, also known as the IMF tax, which would be an incentive to take less risks, but also create an insurance fund to be used in case of a future crisis.

The Left's solution to everything is either more taxes or more government or both.

Obama's Plan A Failed, But Plan B Looks Promising

"(A)ny contracting party, in order to safeguard its external financial position and its balance of payments, may restrict the quantity or value of merchandise permitted to be imported."

Everybody understands this is a massive tariff, right? Is the Obama administration's goal to recreate the Great Depression by recreating all the of stupid policy moves of FDR and Hoover?

OK, let's run down the list.

1) Massive stimulus spending with zero effect. Obama did that. And so did FDR. Henry Morgenthau, Jr., FDR's Treasury Secy said "“We have tried spending money. We are spending more than we have ever spent before and it does not work.” Check.

2) Keep wages higher than market rates to guarantee massive, enduring unemployment. Obama raised the minimum wage and repeatedly extends unemployment benefits. Hoover and FDR tried to keep wages high too. According to UCLA professor Lee Ohanian, "...By keeping industrial wages too high, Hoover sharply depressed employment beyond where it otherwise would have been, and that act drove down the overall gross national product...His policy was the single most important event in precipitating the Great Depression." Check.

3) Raise taxes. Obama is threatening to impose huge new taxes including removing inflation indexing on the top marginal income rates, carbon taxes, VAT taxes, allowing the Bush tax cuts to expire in 2011, etc. FDR raised taxes too. Check.

4) Impose tariffs. Obama has imposed a new 35% tariff on tires imported from China. And now this nonsensical proposal. Smoot-Hawley anyone? Check.

Karl Marx was the expert on this stuff. He said "history repeats itself, first as tragedy, second time as farce". FDR was a tragedy.

Does Anyone Actually Believe in Market Efficiency?

Yes, I do believe in market efficiency, absent government interference. There was a bubble in equities and real estate which burst in 2007-2008. The bubble was created by the Greenspan Fed holding interest rates too low for too long. Money supply manipulation by the government creates market signals which confuse (and are intended to confuse) market participants. The blow-up in CDS is one of the many disastrous results caused by monetary inflation by the Greenspan Fed. And Bernanke is Greenspan only moreso.

Credit: Too Important to Be Left to Private Banks

It appears the author is proposing to incorporate the Fed into the U.S. government as a matter of law. But the Fed is a de facto agency of the U.S. government now. Bernanke is only following Obama’s and Geithner’s orders. (If he wasn’t, he would not have been reappointed by Obama.)

Bernanke is actively debasing the currency, because he is pursuing a monetary policy (ZIRP and QE) that he thinks will restore economic growth and employment. That this policy has the side effects of surreptitiously redistributing the dollar-denominated savings of the middle class and reducing the value of the U.S. government’s debts, is just collateral damage as far as he and his Leftist masters are concerned.

The 2007-2009 collapse was a bursting of bubbles in real estate and equity which bubbles were created by Greenspan keeping interest rates too low for too long in response to the 2002-2003 dot.com bubble collapse. Bernanke is repeating Greenspan’s mistake of too low interest rates for too long which is creating massive bubbles in commodities and equities which will collapse in their turn.

The solution is to make the Fed independent of the U.S. government and give it a charter to maintain a stable dollar, with reference to commodity prices and other currencies. Eliminate any reference in the Fed’s charter to economic growth or unemployment.

The Significance of the IMF-RBI Gold Sale

Thanks, Mr. Iacono for the note and particularly for the table on the sovereign gold holdings. I agree with your comment that "...there are many countries that have woefully small gold reserves and, for better or worse, these same countries are also loaded to the gills with U.S. dollar denominated assets..."

I suppose the low-gold-percentage countries (China, Japan, Taiwan, Russia and India) are carefully trying to replace some of their USD with something with a little more long term stability, but they can't do it too quickly or too publicly without destroying the value of their USD assets. But the table shows they have an awfully long way to go.

Barney Frank: Name Names

The irony of Barney Frank publishing a list of shame is pretty thick, since at the top of any such list would have to be his name.

FOMC Statement: English Translation

If Ben Bernanke is "the great and wonderful OZ", somebody should drop a house on Nancy Pelosi.

Job Loss Outlook Continues to Improve...Slowly

Thanks, Mr. Grannis. I suppose reading charts is a little like a Rorschach test, but it appears to me that 1) we are still losing a net 200k jobs per month and 2) the rate of improvement is slowing down rapidly.

I agree with your comment that "we are many months away from net job gains". It looks like we will be lucky to get back up to monthly net losses of 100k jobs within the next 2-3 years.