Posts Tagged ‘finance’

Eurozone Downgrades Looming – Markets Brace for Panics

Sunday, December 18th, 2011

This Time, Europe...

Santa Claus may be visiting Paris this Christmas, but it looks as though he’ll be dropping a lump of coal in President Sarkozy’s stocking, as reports are now widely circulating that Standard & Poors may issue a credit downgrade for the government of France in time for Christmas.  In truth, this is no laughing matter, and it certainly portends ill tidings for the season, as the financial markets, already in turmoil over sovereign debt issues, and the imminent collapse of the Euro are on the verge of panic.  Much like the downgrade that was issued for US government credit-worthiness, this seems to be bound to the failure to create a workable solution to the budgetary woes and general unsoundness of the fiscal policy of Eurozone member states.

In a report in the American Thinker on Friday, the details of the failure to attain a workable agreement for consolidation of fiscal policy among member states is outlined.  According to that report, the rating agency Fitch is now considering downgrading Germany and other Eurozone members as they look at the increasing probability that no fiscal order will be brought into this situation.

This sets the stage for a new phase of the Eurozone crisis, where we may see the beginning of one-wide collapse.  As I have reported in recent weeks, the looming catastrophe will have been due to two primary causes, and they are nearly impossible to overcome at this late date:  The nations of Europe that created the single currency overstated the value of some of the previous currencies to an outrageous extent, meaning that the Euro was destined from the outset for failure. At the same time, there was no consolidation or enforcement of a unified fiscal policy for member states, so that those countries with already high debt ratios and generous welfare state benefits as well as remorselessly unconscionable retirement programs for government employees virtually guaranteed that there would be a collapse in some form.  As with all such situations, government officials always seek one more postponement of the inevitable, but such a piper will not go unpaid.

What makes any and all of this relevant to we Americans is that our government and our Federal Reserve have tied us to the Euro to an extent that threatens to take us down with them.  If the Euro goes, we will face some sort of financial calamity, and because some Euro derivatives have now been backed by FDIC, it places the American taxpayer on the hook should this all go belly-up.  Add to this the trillions of dollars already loaned under the auspices of TARP and other bail-out programs administered by the Fed, and what you have is a scenario by which we are dragged down, cannibalized on behalf of our friends in Europe.

Our other increasing similarity to debt-ridden Europe is our debt-to-GDP ratio, all in the furtherance of the growing welfare state.  During Barack Obama’s thirty-five months in office, we have added to our cumulative National Debt by something in the neighborhood of $4.5 trillion.   For the first time in our nation’s history, debt now exceeds GDP.  At this rate, we will soon exceed the likes of Italy, that has now a debt of more than 120% of GDP.  At this point, the Obama administration in concert with the Federal Reserve is fighting the same sort of delaying tactic that the Eurozone is now employing: Prop everything up through just one more election.  This is ever the tactic of politicians, who seek to maintain power in the face of calamities they have created.  None of these heads of state are telling their people the truth, or preparing them for hardships that now loom in a very uncertain future. In part, they will offer that they do not wish to create undue panic, but in truth, they do not want to face their electorates’ anger.

Governments ought to have some responsibility to tell their people the truth, even when that truth is terrible and threatening.  The actions of the Eurozone leaders are despicable to me for precisely this reason, because they are telling their people that it will be worked out, somehow, but by now, I think most people have begun to catch on, both in Europe and here at home. What politicians fear most is having to tell their electorate “no,” or worse, “no more.” Politicians rightly understand that through their relentless building of massive welfare states, they have created monsters that will soon threaten their creators.  There’s a history of reprisals in Europe, and one can only hope it doesn’t come to that.

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All Is Not Paradise In Occu-Pest Land

Monday, October 24th, 2011

Drumming Up Discontent?

The New York Post is reporting that all is not happy at Occu-Pest Central down at Zuccotti Park, in New York.  It seems the Occupy Finance Committee (don’t you love their use of “committee” just like full-fledged communists) has a war-chest of some $500K and Occu-Pests want some of that wealth spread around to compensate them for losses of equipment, particularly drums,  due to vandalism.  Every protest movement needs a finance scandal, and now the Occu-Pests have one, complete with angry drummers. It was only a matter of time, but the stunning part is how naive these people really are about the ways of the world and the facts of the ideology they claim to hold as their ideal.

One angry Occu-Pest told the New York Post:

“F–k Finance. I hope Mayor Bloomberg gets an injunction and demands to see the movement’s books. We need to know how much money we really have and where it’s going,” said a frustrated Bryan Smith, 45, who joined OWS in Lower Manhattan nearly three weeks ago from Los Angeles, where he works in TV production.
Of all the complaints cited in the New York Post article, none provided me more entertainment than this:

“The other day, I took in $2,000. I kept $650 for my group, and gave the rest to Finance. Then I went to them with a request — so many people need things, and they should not be going without basic comfort items — and I was told to fill out paperwork. Paperwork! Are they the government now?” Smith fumed, even as he cajoled the passing crowd for more cash.

This sad spectacle of a Marxist demanding money, and then angry about bureaucracy is absolutely revelatory of how disconnected these people are from history and reality. Note to Mr.  Bryan Smith:

You are agitating for a change in form of government and an elimination of the private sector, and you want less bureaucracy?  Who do you think is going to be running your life if you have your way?  My bet is that you won’t be beating a drum for a living at a protest rally. Really, grow up and face the reality:  That demand for paperwork is what you’re ultimately demanding from the universe at large in this entire enterprise.  Don’t be unhappy now that you’re getting your first taste of it.  Wait until your Finance Committee is answering to a Central Committee that in turn answers to some sort of Politburo.  That’s where your wishes are taking you, pal. Don’t shrink in revulsion from the sight of the monster you’ve helped to create. Revel in it. This is the future, the hope, and the change for which you’ve been protesting.

On Money and Politics

Monday, October 17th, 2011

Is Money the Problem?

There are many people who decry the influence of money in politics, but to be honest, I think most of them are confused about the causes and effects involved.  People will immediately assume that cash waved in a politician’s face will readily buy influence, and sadly, in all too many cases, they’re correct.  The question then becomes one of cause and effect, however, and I think this is where most people become confused.  Did the money corrupt the politician, or did he corrupt the money?  It remains my proposal to all who will listen that it is naive to believe that so long as government is involved in every facet of our daily lives, that you will ever substantially reduce corruption.  Every official has some financial interests, and it’s in this atmosphere that some propose that money must be gotten out of politics?  No, there’s no rational way to do so without destroying liberty, and besides, it doesn’t offer any hope of solving the actual cause of the problem.

There’s an old and important rule of economics that says simply:  One cannot purchase at any price that which is not for sale. The root of the corruption we see in politics lies not with those interests throwing about cash, but with the politicians who in one way or another accept money and benefits from them.  If you want to make a substantial change in the way politicians in Washington or anywhere else behave, you must address the corruption at its fundamental root:  The politician who is for sale.  If it were mine to do, and if there were even the slightest hope of enacting it, I would propose a new constitutional amendment stating simply:

Corruption among elected or appointed public officials constituting the better part of the potential evils of government, any official of government who uses their office and official authority for private gain, or gain of any sort beyond his salaries and benefits shall be eligible for trial as for charge of treason, with the same penalties to be applied.

The first time a public official faces such a charge, it will have a profound effect.  It’s easy for them to pretend they’re putting tough new limits and reforms in place, but the truth is that their regulations tend to punish them the most lightly of all, reserving the worst punishments for others.  I’ve always thought that the willing recipient of a bribe is far worse than the person who offered it.  As I said, it’s impossible to purchase influence if it isn’t for sale.

Of course, the problem extends beyond politicians.  In many cases, Congressional staff members are involved in the key details of writing legislation that ultimately profits a particular business or group, or class of citizens, and all too frequently, themselves.  The same goes for the extensive bureaucracy and the regulations they craft.  Too often, regulations are authored in order to benefit somebody in particular, but the only way to limit this effectively is to restrict that which government may regulate.  What we need to combat all of this is a separation of economics and State at least as thorough as that which we have erected between Church and State. The simple fact is that so long as government has its fingers in every pie, there will be reason to expect that those who own the pies will seek to minimize their losses.

I believe disclosure is critical.  Campaigns and causes should be required to list their contributors and donors from largest to smallest.  The truth is, I don’t care if you’re a billionaire and wish to spend a pile of money on a single candidate.  I would merely require that your contributions be listed and published prominently by any campaign to which you contribute.  I find it’s better and more honest to get it in the open.  How many of you would like to know exactly how much in indirect contributions Soros made to Barack Obama through intermediaries like MoveOn and other entities?  In this way, disclosure provides the key.  They’re going to find a way to do it so long as politicians have the monumental power you’ve permitted them to arrogate to themselves, so it is better that at the very least, we know in detail who is funding whom.

The other problem is that it’s usually not bribery per se, but more frequently a form of extortion.  It works like this:  Legislator Doe introduces a bill that would, on its face, harm the interests of a particular entity, knowing that this entity will then come in with a deal.  It’s a bit of a protection racket, and it’s not even hidden.  They do this sort of thing on a continual basis, because in terms of the number of laws enacted each year, there’s simply too much opportunity, and most of the laws aren’t written to prevent this sort of corruption.  That may be the real “trick” in all of this:  Too often, since they make the laws, they decide what does and does not constitute a violation of law on their part.  Prodding Congress to police itself is not going to be easy, if it can be done at all.  This is why various campaign finance reform initiatives, including McCain-Feingold are destined for failure.

I believe in free speech.  I believe that money spent in politics constitutes free speech.  Free speech does not apply to any other sort of entity than individual people.  The  sorry game that has cost the American people dearly is augmented by rules that limit what Americans can contribute in one form, while giving preference to a relative few Americans in another.  Newspapers, radio and television stations or networks function as advocates perpetually.  Is there a spending limit on how much positive coverage the New York Times can give to President Obama?  No, of course not, and there should not be.  Individual citizens are having this same right denied them by the FEC(Federal Elections Commission) on the shoddy basis that they’re not protected as “the press” under the First Amendment.

For instance, if you run a blog, you could be considered to have contributed to a campaign merely by linking to its website.  The value of the alleged contribution increases on the basis of how much traffic your blog sees.  The same thing is true of commentary on some TV stations, although other outlets have exemptions under the law.  This is clearly intended to stifle free speech, and yet TV funny-man(?) Stephen Colbert  wanted to lampoon the Citizens United decision of the Supreme Court, and among the other things he wanted to do was to set up a PAC(Political Action Committee.)  Imagine his surprise when he found the maze of laws that would obstruct him. Colbert found himself facing the very obstacles he insists other must face, and he didn’t like it very much.

Let’s be honest about something else, while we’re at it.  Your money is yours.  If you want to spend all you have in support of a cause or a candidate, by what authority does anybody lay a claim to restrict you?  More, what authority does government have in defining what is “the press,” or more frequently, what is not?  The problem with all of this regulation of speech is that there is no fixed bright line, and depending upon who is pulling the strings at a given moment, the rules will be shifted and twisted to suit the cronies of whomever holds power.  Free speech isn’t really free when some people are forced to comply with regulations while others are exempted from those same regulations on the basis of some arbitrary law or rule.

The truth is simply that money doesn’t corrupt politics.  People do.  If you want reform, the only way you’re going to have it is to move toward a free speech paradigm in which all are unshackled in their speech, but that full disclosure of contributors and donors is known, ranked from largest to smallest, so that all discerning citizens can choose accordingly when they head to the polls.   We need also to get government out of the business of business. Too frequently, it is the involvement of government that makes it possible  for corporate  interests to buy influence.  If government officials weren’t offering influence, for what purpose would corporations lobby them?  To reform this system, we’re going to need honest people in Congress willing to live under a much more strict regimen, and part of this will include sending the professional staff home.  Too many of them have far too much influence on legislation, and until we start sending them home with the politicians for whom they work, we’re not going to get very far.  Money is a problem in politics only inasmuch as people are open to corruption.  That’s the root of our trouble, and it’s the most difficult problem to fix.

Stealing America Blind – How to Steal Money by Printing It (or: Sarah Palin Warned Us)

Friday, June 24th, 2011

You may remember candidate Obama telling Joe the Plumber that he wanted to spread the wealth around. President Obama, in concert with the Democrats and Ben Bernanke have been quite busy.

To understand what’s been done, and how, we need to first understand a bit about how money is created. In a simplified model, the Federal Reserve loans money into existence. The Federal Reserve loans the US Government money and the bonds thereby created are sold on the open market to buyers. These bonds are traded globally, and this is why and how the Japanese and more recently, the Chinese, have come to hold so much US debt. Of course, you can buy bonds too. So can banks. It’s seen as an investment, but with interest rates maintained artificially low, the desirability of the bonds on the market slips dramatically.

We no longer base our money on an objective store of value. Many people reference the end of the Bretton Woods agreement under Nixon, but the truth is that we really came off any reliable, meaningful gold standard under Franklin Roosevelt. Roosevelt arbitrarily set the value of the dollar vs. gold by picking random numbers from within a range, pulling numbers out of a hat, drawing cards, or whatever else he dreamed up at the time. (See: “The Roosevelt Myth” by John T. Flynn)

The Bretton Woods agreement merely formalized the process in 1946, but it continued the basic FDR policy: You, as a person subject to the jurisdiction of the United States, could not redeem your dollars for gold. A foreign bank or government could. By1971, your treasury was emptied and Nixon was forced to announce that we could no longer even redeem dollars held by foreigners with gold. For the period between 1933 and 1971, we functioned on a fake gold standard that was propped up by functioning like a gold standard internationally, but domestically, as pure fiat currency. In short, here at home, what we had was monopoly money, but it looked and spent normally because in the international markets and exchanges, where somebody would quickly notice and complain, the money was backed by gold, until the gold ran out. Most of the gold formerly held by the United States was long gone, to pay foreigners when they presented dollars obtained in trade for redemption. It is literally gone. Only a relative token of that gold survives.

So what gives your money value, if not gold? The answer is simple: It is the confidence of the bond-holders in the debtor’s promise to pay. Imagine you purchase a home. If you were borrowing the money, you would of necessity need to find a bank willing to lend it to you. If they saw you had no job, no business, and no assets, you were a poor credit risk, and you’d not get the mortgage. Mortgage companies trade mortgages, just like bond-traders trade bonds. Debts are basically investments based on the value of the interest due. The investor is betting that inflation will not surpass his earned interest on the mortgage, and therefore, will profit slightly as the mortgage is paid in full. Mortgages with higher interest rates can be better investments, but traditionally, they implied more risk because people tend to get mortgage rates based at least in part on their credit-worthiness.

The value of the US dollar is determined in much the same way. The currency is backed in part by the assets of the people who owe money, and in part by the confidence bond markets have in the probability that as the bonds mature, they will be paid in full, with the expected interest.

Now that we know all of this, and with my apologies to all who already did, let’s get on to the meat of this. Barack Obama, the Congress, and the Federal Reserve have been stealing you blind. Over the last three years, the Fed has lent more money into existence than in all the time since WWII. The Federal Government has been the borrower of record, with the total debt incurred by the Congress and President Obama in that period exceeding four-and-a-half trillion dollars. That’s $4,500,000,000,000.00. It’s a lot of cash. The problem is, the economy in no way produced nearly that amount of additional wealth in that period. The effect is simple: Each and every dollar, the new ones and all the ones that existed beforehand, fell in value. This is engineered inflation, or what the Federal Reserve has taken to calling “Quantitative Easing,” which is a fancy way of saying that they’re digitizing or printing more monopoly-money dollars that will go into circulation with the rest of the dollars, and thereby devalue them all.

Last November, Governor Sarah Palin warned about this practice, telling all who would listen that this would drive inflation, and that it would cause food and energy prices to rise dramatically, and thus stifle the economic recovery until it would be stillborn. We are now reaping that harvest, just as she suggested, and while President Obama releases three days worth of oil from the Strategic Petroleum Reserves to try to hide it, the fact is that the economy is in free-fall. Obama and his crowd planned all of this, because they wanted to commit the largest theft in history. Barack Obama is, himself, an economic buffoon. The man doesn’t know a demand curve from an equilibrium price. His advisors, all of them, are following a script laid out for them by a man who knows how to destroy currency and steal the wealth of nations. He is considered an ‘economic terrorist’ in much of the Pacific rim. I speak of none other than George Soros.

Now, we could delve into the why and how, but it’s much more important, I think, to show you a simplified illustration of how this is being done. I’ve created a few charts here to help illustrate how this works. I’ve simplified it so as to promote understanding, but I am going to explain what you’re looking at, and when you’re done, you can draw your own rational conclusions.

In the first chart, we are starting at day zero. On this day, a dollar is worth a dollar. There are a total of 400 in circulation, and they are distributed as shown. I assume that on day zero, a gallon of gasoline costs $2, and a loaf of ordinary bread costs $1. This is the baseline. You may wonder who is Person 1 , Person 2, Person 3, and Person 4. For the sake of argument, however, we’ll get back to that. Also notice the purchasing power. Notice how many loaves and gallons each person can buy. Take a look at day zero(You can click the image for a slightly larger version:)

Now remembering that there are $400 in total, let’s imagine the Government borrows another $200 from the Federal Reserve, and the Fed must borrow it by issuing bonds. Now there’s a total of $600 in the economy. The Government takes the newly printed/digitized dollars and distributes them, $50 each, to all four persons. There is no new value in the economy. The money’s value has dropped by 50%. Expressed another way, the money is now worth only 2/3s of what it was worth on day zero. Let’s call this day one, and take a look:

As you look at the chart above, you immediately notice that the distribution of wealth has changed. Person 1 and Person 2 have both picked up their share of the wealth. Person 3 has lost a little, and Person 4 has gotten clobbered. Notice that we didn’t ‘tax’ a soul. We merely printed more money into existence, and distributed it differently. Now notice what has happened to the purchasing power of our four persons. Also note that the cost of the gallon and the loaf has risen accordingly. We’re not finished, however. We’re going to come back around and do it again:

Now look at the results. We’ll call this day two, or if your prefer, we can use Federal Reserve Chairman Bernanke’s term, “Quantitative Easing 2.” Notice what has happened. We’ve shifted a good deal of wealth to Person 1, a little bit to Person 2, stolen just a bit from Person 3, and taken Person 4 to the cleaners.

Notice that the price of a loaf and a gallon have doubled. This is because you now have twice as much money in circulation, and no additional material value. Here’s what you need to know, however. Person 1 can be a welfare or other entitlement recipient, or a foreign citizen in a foreign land to whom we’ve gifted money. Person 2 can be a low-skilled, low-wage worker, just below the median income for a family. He’s struggling, and barely getting by. Person 3 is solidly middle class. He either works in a higher-skilled field, or is even self-employed, like Joe the Plumber. He probably barely notices the effect, at first. Person 4 is everybody above that. This is the person that creates almost all the jobs in a free market economy. How do you now expect him to do that?

As Tammy Bruce reminds us, Sarah Palin warned us that this would be the result. Those of us who actually know anything about economics(as opposed to the LameStreamMedia) knew that she was right when she said it. Time has born her thesis. Where was Mitt Romney? He said it was ‘necessary.’ Where were the rest of the Republicans? They were all joining Paul Krugman and Barack Obama in laughing up their sleeves at Mrs. Palin. Most importantly, however, where were you, and what did you believe? Or were you making Thanksgiving plans while they carried out another round of theft?

This is the policy of “spreading the wealth around” that Barack Hussein Obama promised. He’s delivered, but he’s not finished quite yet. Now that he’s thoroughly clobbered the wealth creators by devaluing the dollar, he’s next going to take the rest via taxes, if the Republicans fail to stop him and his cronies in the Senate. If they do, it won’t matter, because he’ll soon announce, through his stooge, Ben Bernanke, perhaps yet another round of Quantitative Easing. They’ll call it “QE3,” and all you will need to know is that another round of theft is underway. It may have worked too well already. Remember when Rush Limbaugh was criticized for saying he hoped Obama would fail? This is what he hoped would fail. It hasn’t. Your wealth and your life are under assault. There is only one answer to this, and it is to send Barack Obama back to Chicago, with the rest of the thugs, and I know just the lady to do it!