Wednesday, November 24, 2010

A Hammer Blow for Freedom

While the Federal Reserve is predicting the economy to continue in the doldrums for the next two years or longer, there was a bit of good news late today. Tom Delay (know as The Hammer) is facing 5 to 99 years for money laundering and another 2 to 20 years for conspiracy. Will the hammer come down on The Hammer? Does the State of Texas take treason as seriously as stealing a loaf of bread from the Stop & Rob?

The Fed is painting a pretty gloomy picture for the economy despite its plan to hand out a trillion dollars to the rich. Don't fall for the talking point that the Fed shouldn't be doing this because it benefits the rich, they really don't have any choice. The economy is on the edge of collapse and that is something to be avoided as long as possible. If you think anarchy would bring a new dawn with daisies and puppies for everybody you are mistaken. Take this little test: when you read a disaster novel do you picture yourself as the hero that leads the handful of survivors to safety or do you see yourself being tossed into the mass grave? Self confidence is great but the numbers aren't in your favor.

Make no mistake, trickle down economics doesn't work, in fact anybody who can do simple math can figure out that the opposite is true. However this isn't a quite the same thing. The money the Fed is passing out will not stimulate the economy the way doing real stimulus would but it will keep deflation at bay for a time and that is a good thing. A trillion dollars is 1/14 of the GDP so it has to have some positive effect especially if they can convince the investor class that inflation will result so that they decide to stop sitting on their money. Clearly it will affect the commodities market, so expect higher food and fuel prices. It's not the solution, it just buys time.

The problem is getting a enough people elected that are actual progressives. Not an easy task, but not impossible either. We went through the same exact thing a century ago. Unfortunately the rich pay people at think tanks to study history and refine the strategies for eliminating the middle class and democracy for once and for all. We have only a little time to educate and organize and we must not waste it.

Monday, November 22, 2010

Shaking the money tree Or The knowledge of Leprechauns

I’ve been getting a lot of email about printing money so I thought I would clear up a few things. You may remember this phrase from the Constitution under the powers of Congress, (Congress shall have the power)“To coin Money, regulate the Value thereof, and of foreign Coin”.  This does not mean as your libertarian friends claim that all money must be in gold coins. Congress wouldn’t really have a need to “regulate the value thereof” if that were true. The US has always issued script that amounted to issuing an IOU payable at a “regulated value”.

The founders didn’t like bankers issuing money or regulating the Value thereof so they kept that power to themselves. They had a good understanding of inflation and deflation and how bankers used this manipulation of the money supply to enrich themselves. That knowledge hasn’t kept bankers from doing just that as much as they could get away with ever since.

Currently our entire money supply is debt based on the fractional reserve system where the banks can in effect create 10 dollars in new Federal Reserve notes for every dollar on deposit or held as assets by its member banks. In theory our newly created money all has a tangible asset somewhere that in effect backs our currency. Of course much of our money is now based on those toxic assets you may have heard of.

The new QE2 or quantitative easing second edition, is supposedly backed by the debt instruments the Federal Reserve purchased two years ago. Never mind that those used to be called toxic assets and they already printed money to buy create them originally (before they were toxic) and again when the Fed bought them as worthless toxic assets.

There also seems to be some confusion about the stock market being a creator of money. It is not. When the market goes up it gives its so called “investors” an excuse to sucker money out of other people who think it will keep going up forever but not one dollar is created.

Where does money go when it disappears during deflation? Since it never really existed that isn’t a problem. When debt instruments default the money they created simply evaporates when it is taken off the balance sheet of the bank holding it. Of course now we have those toxic assets to consider again and much of the consumer debt is “securitized” so it exists entirely in the ether with no real accounting for its disappearance.

Inflation and deflation also used refer to prices and this makes it confusing as there isn’t really the direct link that you would suppose. Prices tend to go up and down with the money supply but it’s not the law or anything. A lack of money in circulation tends to drive down prices as business activity contracts and too much money in circulation tends to inflate prices but only if the money is actually spent. Here’s where the savings rate comes in to play as well as the willingness of banks to lend and big monopoly corporations to spend the cash in their money bins.

So we do have a lot of money in circulation yet we are standing on the edge of the deflation abyss because we really don’t have a first world economy anymore. With forty percent of corporate profits coming from “financial services” what you really have is that the feudal lords have contrived a way to “tax” the peasants without doing it out in the open. In the old days giving up a cow, a pig or a virgin child to the local baron was fairly straight forward.

The tea baggers think the government is taxing the crap out of them but much of what the government takes in comes right back to them again so it’s really a wash. It’s the corporate barons who steal their wealth by taking their cow so they have to buy milk on credit and before they know it they are landless serfs required to submit to austerity programs to maintain their feudal lord’s lifestyle. But hey, the dragon would get us without the nobility to protect us. Right?    PS to quote Allan Greenspan, “if you thought you understood that, you didn’t read it carefully enough”.