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K Smith

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  • What's (Still) Wrong With Small Businesses? [View article]
    I have several acquaintances who are small business owners. All of them have cut expenses to the bone. One I spoke with yesterday says business is flat, she is just making enough to pay the bills, and she hasn't taken a salary in 2 years.

    It is a pretty safe guess that many others are doing the same thing - expending effort for no gain.

    Small business owners only hang on for so long before they throw in the towel. As more and more continue to do so, look for even more job losses.
    Aug 10, 2010. 12:28 PM | 8 Likes Like |Link to Comment
  • Unemployment Duration Far Surpasses Levels Seen in Early 1980s [View article]
    Because of our political process, full employment would cost significantly more than is readily apparent.

    There is a best selling book called ”Nickled and Dimed” in which the author chronicles her experiences working at jobs at the lowest rungs of the economic ladder. Amazon is correct when it says the book was "acclaimed as an instant classic upon publication" and has "become an essential part of the nation’s political discourse." This book is very highly regarded in public policy circles and has had a great deal of influence over those who would be responsible for establishing salaries paid under a full employment program.

    The established wage would be what is called “living wage” plus benefits, and would vary based on location. Living wage data is compiled by county and state and is based on local living expenses. Unemployment is more highly concentrated in the inner city in large metropolitan areas. If implemented today, this is what the salaries would be for a full employment program for these cities.

    Los Angeles $ 70,865

    San Francisco $ 68,016

    Boston $ 66,248

    Washington DC $ 63,980

    New York City $ 63,024

    These numbers are not far off from the average federal worker salary of $70,000. Since salaries are based on local expenses, and with commodities prices inching upward, it is not out of the realm of possibility that this salary number is a realistic average number.

    A full employment program would require huge amounts of money. The US Bureau of Labor Statistics reported 15.3 million unemployed people for April 2010. This means $1.1 trillion just to pay the salaries.

    15,300,000 people x $70,000 ave fed salary = $ 1,071,000,000,000

    Our total federal budget for 2010 is $3.55 trillion, meaning full employment would increase our federal budget, already gargantuan, by 30%. This amount does not account for payroll taxes, benefits, real estate costs, and the untold administrative costs that would be required to run a huge new federal bureaucracy. So the actual costs would be significantly higher.

    The mind boggles.
    Aug 7, 2010. 02:47 AM | Likes Like |Link to Comment
  • Book Review: The Future of Finance [View article]
    This is not a shot across the bow of mainstream conventional finance. This is a thinly disguised set-up for a worldwide mutual fund and pension grab.

    Our home values have been looted. Our currency has been debased. The market value of the dollar denominated financial instruments we own has tanked. If the ideas being promoted here are adopted, whatever value we have left in any mutual fund or pension fund will be erased, too.

    The financial collapse did not occur because financial sectors have outgrown their usefulness, or because of our reliance on outdated economic ideas, or because of now-discredited theories of efficient markets. The financial collapse occurred because the system is set up to generate financial collapses. As long as we have the system we have - a central bank and fiat currency - financial collapses will continue to occur.

    If I have Vista and my laptop keeps crashing and I put a Mac sticker on the back, I'll still have Vista, the worst operating system ever. I can think in new ways about Vista and establish new paradigms about hitting the keys in a certain way and use geeky terms like "karnaugh mapping" and "synchronous dynamic ram." It will still work the way Vista is designed to work, no matter what I think or what I do or the words I use.

    A Mac sticker will never fix Vista. In the same way, thinking about our economic system in a new way won't fix it. Getting pension funds to act in a new ways won't fix it. The system is set up to create booms and busts, and move wealth from the pockets of the wage earner onto the books of the financial houses.

    Microsoft didn't set out to create a system that crashes. The tragedy is the financial houses purposely set out to create a system that loots our wealth. An even bigger tragedy is the ideas being espoused here will accelerate the rate at which our wealth is being looted.

    The authors act as if everybody was left scratching their heads about what happened with our financial system. They act as if nobody was able to predict what would happen because no theory existed that was able to explain our economic system, as if economic systems are some esoteric thing that need theories to explain them. Many predicted the meltdown. Many saw the housing bubble and warned what would happen.

    Systems behave the way they are designed behave. Changing what we do or how we think about them does not change how they behave.

    Mr. Woolley and his colleagues may be able to convince the heads of UK funds that this idea has merit. But these ideas will not play in Peoria - or anywhere in else in America. The power of the internet is too pervasive. The American people will not stand by and watch their pension money looted.

    To paraphrase Paul Simon, "Who do they think they're foolin?"
    Jul 31, 2010. 08:03 PM | 4 Likes Like |Link to Comment
  • 8 More Reasons Why a Double Dip Is Coming [View article]
    More reasons for a double dip/continued slide -

    * Residential foreclosures - up
    * Growing commercial real estate defaults
    * Declining state and local tax revenues
    * Growing state and local public employee furloughs and layoffs
    * Rising commodity prices
    * More retail consolidations and closures
    * Rising personal and business bankruptcies
    * Slow death of the private health insurance industry
    * Highest jobless rate ever for recent college grads
    * Highest average student loan debt ever for recent college grads
    * Continued private sector debt reduction
    * Coming tax increases
    * Shrinking household formation as extended families consolidate housing

    No matter how many times you parade him around, the emperor still has no clothes.
    Jul 29, 2010. 09:36 PM | 5 Likes Like |Link to Comment
  • Falling Home Sales: Are There Just Too Many Houses Out There? [View article]
    The housing picture is even worse that it looks.

    The federal government now guarantees 95% of all new mortgages. In the first quarter of 2010, nearly half of all new mortgages
    were no/low money down.

    The continued anemic recovery, continued high default rates, and huge government guarantees mean another looming government bailout. But instead of bailing out AIG, our government will just be bailing out itself.

    Either way, it's bad news for both the taxpayer and the economy.
    Jul 27, 2010. 12:10 AM | Likes Like |Link to Comment
  • Why This Summer, The Odds Favor a Declining Market [View article]
    State bailouts have already begun.

    A provision in the stimulus plan allows states to float debt backed by the federal government - no Congressional approval required. The state of Illinois has already begun doing this.

    The market for these bonds is being made by - wait for it - Citibank.

    The more things change, the more they stay the same.
    Jul 19, 2010. 02:53 PM | 6 Likes Like |Link to Comment
  • Book Review: Complicit [View article]
    Few expected bailouts? The system we operate under is a set-it-and-forget-it bailout machine.

    Our financial system is set up to incentivize debt. When consumer confidence is high, the Fed floods the system with money, creating a debt fueled bubble. The money flooding the system chases returns in the sector du jour, the most recent one being residential real estate.

    The financial houses make money on the front end of the booms providing financing for the sector du jour. When the bubbles burst - as they all must - the financial houses get bailed out on the backs of the taxpayers.

    The system is set up to enrich the financial houses on both the front end and the back end of the booms. It automatically moves wealth from the pockets of those who create wealth thru work - the wage earner - and into the pockets of those in the financial houses.

    Those in charge of pulling the financial strings no longer have to go hat in hand to Congress to get bailout funds approved, as our former Treasury Secretary Mr. Paulson had to do in the fall of 2008. The "financial reform" legislation passed this week allows them to do so on their own authority.

    And they will be able to add cash to the balance sheets of entities other than banks. Any firm they choose to define as critical to the financial system will be eligible for bailout money.

    Screwing the taxpayer is now even more automated - and has been expanded to funnel money into any line of business.
    Jul 17, 2010. 01:23 AM | 7 Likes Like |Link to Comment
  • Mismeasuring GDP [View article]
    "Joy thru statistics?"

    I always thought it was "Better living thru chemicals."
    Jul 17, 2010. 01:08 AM | 1 Like Like |Link to Comment
  • Unemployment: Our Beef With Art Laffer's WSJ Editorial [View article]
    Symmetry Capital Mgmt,
    You suggest before drawing any conclusions about what happened after my currency was hijacked, "you have to look around and ask yourself what the real, long term effects of said hijacking have been."

    I have. What I see ain't pretty.

    * Only 1 of every 2 working age Americans has a job.

    * A record number of Americans - over 40 million - now receive food stamps.

    * Adjusted for inflation, men's income since 1973 has declined.

    * The underclass - impoverished and deprived people who are dependent on government for their every need - is growing.

    * The housing market is in free fall. At current sales rates, it will take 9 years to sell off current listed inventory. This isthe result of the debt bubble created by the Fed, which you describe as necessary to meet "the demand for money." Just because somebody wants something doesn't mean it is a good idea to give it to them.

    * 70% of bank owned foreclosures aren't even on the market yet. Banks are holding them off the market to slow the descent of prices.

    * 40% of seriously delinquent homeowners have given up even trying tocure their defaults - they have sent their keys to their lenders.

    * Foreclosures are at a record high. Their numbers have not yet peaked.

    * In some markets up to 40% of all sales are foreclosures.

    * Conditions are ripe for a Japanese style lost decade - a prolonged period of anemic economic activity. This means millions of Americans may face growing malaise, misery, and impoverishment - for them the America dream will become the American nightmare.

    * The US dollar, which you describe as desirable in international black and grey markets, is becoming less and less desirable among central banks. Allocation of US dollars at central banks is in decline.

    * Just last week, America's debt topped $166 billion in a single day - more than the entire US deficit in 2007.

    * What little is left in wage earner pensions is being looted by government. The debt bubble is in the process of being moved from bank balance sheets onto the books of public pension funds. Legislation has been written to move it to private pension funds.

    * Your wish for 10% yields on LT Treasuries may come sooner than you think. China has been buying fewer treasuries every month since May.

    I find it interesting that you say we need to "stop thinking of 'deficit' as a four letter word, unless our intent is to return to a more Dickensian time."

    If Dickens drove thru many suburban neighborhoods in my community today he would be right at home. Many of them resemble war zones.

    More homes are vacant than are occupied. The vacant ones are gutted and covered with graffiti. People dump garbage on the unbuilt lots to save money on garbage fees. Crime in these areas is at an all time high.

    The system we operate under - you call it meeting the demand for money, I call it devaluing the currency and incentivizing debt - has created the reality I see. The financial houses make money on the front end of Fed created debt bubbles. When the bubbles burst, as they all must, the financial houses get bailed out on the backs of the taxpayers.

    The system is set up to enrich the financial houses on both the front end and the back end of the booms, and to screw the taxpayer. It is a set-it-and-forget-it system that moves wealth from the pockets of those who create wealth thru work - the wage earner - into the pockets of those in the financial houses.

    As firms are identified as in need of being bailed out, those now in charge of pulling the financial strings won't even have to go hat in hand to Congress to get bailout funds approved, as our former Treasury Secretary Mr. Paulson had to do in the fall of 2008.

    Legislation that passed this week allows them to do this automatically. Any firm they choose to define as critical to the financial system will be eligible for bailout money. Screwing the taxpayer is now on automatic pilot - and has been expanded to funnel money into any line of business.

    You suggest that Fed action of running deficits by expanding its balance sheet is now accepted as "normal conditions." This may be true in your reality, but not in mine. More and more Americans are becoming educated on how the Fed operates, and they do not like what they see.

    For the first time its history the Fed has hired a PR firm to burnish its image. A few months ago a poll of likely voters revealed public sentiment favors a presidential candidate who endorses ending the Fed.

    You say our military power is linked to the reliability of our money. There is so much economic turmoil related to what is being done to our money that unless Congress acts in the next few days, our military will run out of money at the end of this month. This means that our young people in harm's way, and those who support them, won't get paid. This situation is a reflection of the declining reliability of our money.

    Blaming war on a low money supply is disingenuous. War is waged for many reasons, the most prevalent ones being access to commodities, consolidation of power, and ideology.

    Lenders do not hate devaluations - they love them. They are an opportunity to recast loans and extract even more wealth from the wage earning citizens of the nation whose currency has been devalued.

    Embedding the expectation of declining purchasing power over time may be benign in your view, but it is not benign in mine. I do not judge the success of my monetary system on the basis of living standards. Doing this leads to acceptance of declining living standards over time. I judge the success of my monetary system based on the ability of my currency to hold its value.

    You suggest that if our government were screwing up the management of its money production, people would have done something about it by now. The fact that you and I are having this conversation on this forum is evidence that people are in the process of doing something.

    A wise man once said, "See to it that no one takes you captive through hollow and deceptive philosophy." Growing numbers of captives recognize their captivity and are taking action to break free.

    Don't let your limited assessment of reality blind you to the reality of the growing public disenchantment with our current system.


    Jul 16, 2010. 07:06 PM | 1 Like Like |Link to Comment
  • Blame Yourself for the Recession [View article]
    The solutions suggested here are the equivalent of rearranging the deck chairs on the Titanic.

    Our economic system is set up to incentivize debt. When consumer confidence is high, the Fed floods the system with money, creating a debt fueled bubble. The money flooding the system chases returns in the sector du jour, the most recent one being residential real estate.

    The financial houses make money on the front end of the booms providing financing for the sector du jour. When the bubbles burst - as they all must - the financial houses get bailed out on the backs of the taxpayers.

    The system is set up to enrich the financial houses on both the front end and the back end of the booms. It is set up to screw the taxpayer.

    It is set up to move wealth from the pockets of those who create wealth thru work - the wage earner - and into the pockets of those in the financial houses.

    When the next bubble bursts those in charge of pulling the financial strings won't even have to go hat in hand to Congress to get bailout funds approved, as our former Treasury Secretary Mr. Paulson had to do in the fall of 2008. The "financial reform" legislation passed this week allows them to do this automatically.

    And when the next bubble bursts they will be able to give money to entities other than banks. Anything they choose to define as critical to the financial system will be eligible for bailout money.

    Screwing the taxpayer is now on automatic pilot - and has been expanded to funnel money into any line of business.

    Unless we end the debt-incentivizing system that we all live under, and limit the power of those who govern us to screw us, we will continue to experience more of the same.
    Jul 16, 2010. 02:40 PM | 5 Likes Like |Link to Comment
  • Depression or Recession? [View article]
    Something that Samuelson missed is accounting for those who understand that the key to our recovery is private sector job growth. Those who do are more likely to be in what he calls the "protected" category. They know that when businesses anticipate flat or declining revenues and rising expenses, they do not add to expenses by hiring new staff.

    They are more likely to know we live in an environment of great economic uncertainty that has been and is being exacerbated by government policy. They are more likely to understand that businesses fear declining revenues related to the expiration of the Bush tax cuts, as well as rising expenses related to the new health care law.

    They are more likely to understand that government plans to loot 401Ks and SEPs. The government has already hit state pension funds, convincing trustees of these plans to "invest" in bank debt. They are more likely to be aware that transferring debt to private pensions - moving the debt bubble from bank and Fed balance sheets to private pensions - is not far behind.

    The "protected" class has a better understanding of the reality that we all face. I think this accounts for a big part of why they are less optimistic.
    Jul 15, 2010. 09:25 PM | Likes Like |Link to Comment
  • Unemployment: Our Beef With Art Laffer's WSJ Editorial [View article]
    Symmetry Capital Mgmt,
    Confusing the value of a good or service with the medium used to exchange the good or service is not a semantic quibble. Understanding this important distinction is essential to understanding the nature of wealth - how it is created, transferred and accumulated.

    It is a fact that government doesn't produce anything. It moves things from one pocket to another by wielding power. It derives its power from the consent of the governed. If the governed do not consent to what the government is doing, things change. There are more of those who are governed than there are those who govern.

    I am not advocating armed revolt. I am just saying that we are in for an interesting display of the consent of the governed in November.

    I did not mean to imply that government is bad. Limited government is necessary for the functioning of a free society. But bigger is not better. The bigger government is, the badder it is. At best, it is a huge drag on the economy. At worst, it becomes an instrument of control and power for special interests.

    The value of what you call intangible assets is highly subjective. In the caveman days I worked for a savings and loan that had intangible assets booked in the many millions of dollars. In the real world it wasn't worth squat.

    The credit rating of the US Treasury is not a resource. It is someone else's assessment of risk. Recent history reveals that such assessments are often wildly off base. No banker would ever accept my credit rating as an asset on my personal financial statement.

    If I see a $20 bill lying on the sidewalk, I look for those in close proximity and ask if they are missing any money. Anytime I see any cash at all - on the sidewalk or in my wallet - I think about how my currency has been hijacked, how it has lost 86% of its value in my lifetime. I wonder how much more it will be devalued by the time my grandchildren earn their first dollar.

    I find it interesting that you refer to a reliable medium of exchange. The reliability of a medium of exchange is not determined by government. It is determined by the extent to which it is accepted by those in the community in which it circulates.

    In prison societies, cans of tuna, cigarettes, and Oreo cookies have been used as mediums of exchange. I wonder if menthols are worth more? Hmmm...

    The idea that our dollar is reliable is an illusion. Our dollar is not reliable. A currency that loses 86% of its value in a lifetime is not reliable.

    Money is not "produced" by government. Money is printed by government.

    I find it interesting that you bring up the fact that we are no longer on the gold standard. I wonder why we aren't? Could it because being on the gold standard imposes fiscal discipline, and prevents government from devaluing the currency, allowing the wage earner to keep the value of what he or she earns? Could it be because fiat currency makes it easy for government to defraud its creditors by repaying its debts with devalued currency? Could it be because bankers love lending to nations with fiat currency, because in theory they can never go broke? Hmmm...

    I also find it interesting that you bring up the topic of paying of taxes in dollars. Our legal tender laws require us to accept dollars in settlement, or we go to jail. I wonder why our government must threaten us with jail to get us to use dollars? Could it be because they plan to extract our wealth by devaluing the currency, and they are concerned we will reject dollars and use another medium of exchange that is more reliable, that holds its value? Hmmm...

    You raise many interesting questions.
    Jul 14, 2010. 03:52 PM | 2 Likes Like |Link to Comment
  • Maiden Lane and the Fed's Credibility [View article]
    countrybanker,
    You and I both know that state and local pensions are broke. But their books show they have assets, without the offset of the unfunded liabilities. Their books are like Enron's were, and like zombie bank books are now.

    So we will be screwed from both ends. What is left of our pensions will be looted, and anything else we earn will be confiscated thru higher taxes.

    Methinks we will all be witnesses to the unprecedented growth of the underground economy.
    Jul 14, 2010. 12:54 PM | 3 Likes Like |Link to Comment
  • Maiden Lane and the Fed's Credibility [View article]
    The worst Effing hasn't happened yet.

    Groundwork is being laid and vocabulary is being created to move the debt bubble off government books and onto public and private pensions.

    Trustees of California and New Jersey public pension plans have already been convinced to "invest in" junky government debt.

    Legislation has been written to force holders of SEPs and 401Ks to buy this debt. We can stop this from happening if we put up a big enough stink.


    Jul 14, 2010. 09:39 AM | 6 Likes Like |Link to Comment
  • Unemployment: Our Beef With Art Laffer's WSJ Editorial [View article]
    The government does not "create" resources. It increases the number of dollars in circulation.

    The act of increasing the number of dollars in circulation does not add resources to the economy. The resources in the economy stay the same. There are just more dollars chasing the same resources.

    The Fed stopped publishing M3, the best indicator of the extent of the money supply, in 2006. Ya think they're trying to hide something? Hmmm...

    Dollars are not resources - they are a medium of exchange. Our legal tender laws require that consumers and businesses must accept dollars as payment. They would use dollars whether the government added to the number in circulation or not.

    When I pay down debt, I first must sell a good or perform a service. I am exchanging the value of my good or service for debt reduction. The paper dollar is the means by which the transaction takes place. The paper dollar has no value. It is not a resource. It is a medium of exchange.

    You are confusing the value of a good or service with the medium used to exchange the good or service for something else.

    If dollars were backed by gold they would be resources. Dollars have no value in and of themselves. They are just pieces of paper.

    The full faith and credit of the US government to which you refer is not based on resources - it is based on government's ability to tax its citizens to repay its outstanding debt. Many believe we are approaching the point at which the size of our debt has outstripped our ability to repay.

    Government does not have resources.

    It has power.

    It has the power to tax, spend, issue debt, and inflate our currency. It has the power to take from one citizen and give to another. Under current practice, it has the power to take from citizens and give to non-citizens...but I digress.

    I know people who used silver coins to pay for goods and services during a period of high inflation about 30 years ago. When we begin to see this happening in our time we will all come the realization of what dollars really are - and what they aren't.

    Dollars are not resources.

    They are pieces of paper.
    Jul 14, 2010. 09:05 AM | 11 Likes Like |Link to Comment
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