Economy

Crony Capitalism, Explained

Mark Noonan44 Comments

From the Las Vegas Review-Journal:

A tiny amendment buried in the federal transportation bill to be signed today by President Barack Obama will put operators of roll-your-own cigarette operations in Las Vegas and nationwide out of business at midnight…

I had only heard of these types of operations about two months ago – a friend of mine pointed out that you can get a carton of cigarettes a lot cheaper at these places where you buy loose tobacco and cigarette papers and then “rent” the rolling machine to turn out the finished cigarettes.  As a smoker, I was thinking about trying it out.  Now I won’t be able to – something slipped in to a bill (and what does a highway bill have to do with tobacco) has killed it off.  Businesses will be shut down, people lose their jobs…why?  Well the linked article notes that Senator Max Baucus (D-MT) got the item inserted in to the bill and that Senator Baucus is a major recipient of tobacco-industry donations.

But don’t any of you out there get all “darn Democrats” about this – while Democrats do this sort of skullduggery more often than GOPers, Republicans do engage in it.  What Baucus did was a two-fold item in favor of both Big Government and Big Corporation.  Part of the reason for the cheaper price is that loose tobacco is taxed at a lower rate than tobacco in cigarettes.  The other part of the reason is that the major cigarette makers were starting to feel a pinch from the competition (and that, of course also jeopardizes the government revenues from the ill-famed tobacco lawsuit settlement).  Essentially, Big Government and Big Corporation go together and legislated out of existence the people and their small businesses because Big Government needs revenues and Big Corporation doesn’t like competition.

And this is what is wrong with America:  it is no longer governed in any way, shape or form in the interests of the people.  It is actions just like this which ensured that instead of having 50 different car makers, we only had three miserably incompetent car makers, two of which needed a taxpayer bailout.  It is actions like this which ensure that only a few behemoth banks run our financial system (and run it in to the ground, and then demand taxpayer bailouts).  It is actions like this which shut down things like the Keystone pipeline but shovel taxpayer money at Solyndra.  This is why our economy doesn’t grow; why our factories are in China, our mines are in Chile and our farms are in Mexico…because Big Government and Big Corporation like it that way; it works out best for them…they see it as maximizing government revenues and Big Corporation profits.

The reason our economy doesn’t work is because of nonsense like this – the people are hamstrung and essentially forbidden to do anything which might lessen government revenues or harm the profits of the corporations which currently rule the market (and donate to the office holders – Baucus has been in the Senate since 1978; and he’s just dancing to his master’s tune).  Do we want jobs in this country?  Do we want to restore the middle class?  Do we want an America which makes, mines and grows most of its own things?  Then we need an America where the government is prohibited from legislating out of existence legal businesses and where corporations can’t buy legislation to restrict competition.  An end to Crony Capitalism is necessary for the revival of America – and that means an end to Big Government, as well.

Four More Years of This Economy?

Mark Noonan107 Comments

So, what is in the news today?

The unemployment rate for white men and women was unchanged at 7.4 percent, while 184,000 more black American’s went without a job in June, for an unemployment rate of 14.4 percent.

Plunging new orders suggest global recession has arrived.

More workers joined the federal government’s disability program in June than got new jobs, according to two new government reports, a clear indicator of how bleak the nation’s jobs picture is after three full years of economic recovery.

Is this what you want?  Seriously?  Liberals, tell us:  will four more years of Obama make this all better?  How?  What will Obama start to do on January 20th, 2013 which will turn this all around?

Will he spend even more money?

Provide even more subsidies for favored “green” companies?

What will he do to make it all better?

If you haven’t got a rock-solid answer and a means of demonstrating how that rock-solid answer will turn this around, then a vote for Obama is a mere vote of hatred…a vote you will give him not because you really think him wise or strong but simply because you hate Republicans so much that you’d rather suffer Obama than have a Republican in office.

UPDATE:  On the other hand, every State which elected a Republican governor in 2010 has seen its unemployment rate drop.   So, California, New York and Illinois, are you regretting your choice?

Doomed to an Economic Depression?

Mark Noonan33 Comments

Lots of bad news out there, today – US unemployment rate rose to 8.2%, Eurozone unemployment rose to 11% (ours is probably right there, too, but the Eurocrats haven’t, it seems,  figured out how to fudge numbers as well as Obama’s Bureau of Labor Statistics has), a host of bad news out of China indicates a possible “hard landing” for that economy, which will take Australia and Canada (major commodity suppliers to China) down with it, what amounts to a bank run in Greece and the start of one in Spain…and, yesterday, I read an article which I hope was a bald-faced lie because it says the derivatives market (something I don’t fully understand but from what I can gather it is nothing but a bunch of ponzi scheme garbage) is leveraged to 10 times global GDP…and there’s simply nothing to back all that garbage up.  So, are we doomed to a Depression?

The answer is “yes” and, also, “it started in 2008”.  For you liberals out there, this will provide you a bit of comfort:  Obama is not at fault for it.  On the downside, though, just about everything he has done has ensured that it not only won’t get fixed, but will actually get worse.  He hasn’t been alone in this, of course – Ben Bernanke at the Federal Reserve (as well as other central bankers around the world) has piled on the harm with all his money printing.  The problems of the global economy are as follows:

The world uses fake money – money just printed up by central banks and backed by nothing.  Fake money allows insolvent banks and governments to keep themselves afloat but it works out to the systematic stealing of the money of wealth-creators.  If you work hard today and earn a dollar what will happen is a 100th of a penny of it will be stolen tomorrow…that 100th of a penny isn’t so bad, but after 10 years it works out to quite a lot of the dollar you earned.  Fake money essentially allows failure to be masked – what is economically counter-productive can be kept going because you can keep passing fake money through it.  That you are all the while eroding the entire economy does not show up for a while, but show up it will.

We allow governments to pile up debt.  Government debt is not an “investment”.  An investment is when you take some of your own money and provide it to someone else who has worked out a plan to generate more wealth than was put in to it.  So, I have $100,000.00 and I see some guy in a garage with what I think will be a great product and I give the $100,000.00 to him to start up manufacturing – next year, the guy in a garage is a guy in a factory and he pays me back $125,000.00 while he, himself, is worth $250,000.00.  Government spending can provide some useful things, of course, but even when it does it isn’t like that.  A road facilitates commerce but it doesn’t actually return money on the money spent.  If the government spends a billion dollars building a new road its not like the government will get 1.5 billion dollars back on it next year.  True, the economic activity stimulated by the good road will result in a broader tax base but its still not an “I loan you money for your wealth-producing enterprise and I get paid back with interest while your wealth-producing enterprise just goes on and on making more and more wealth”.  So, even in the best of circumstances (a needed road), government spending is not an investment; even less so is government spending an investment when it goes in to things like high paid bureaucrats, subsidies to favored groups, welfare, etc, etc, etc.  It still might be something desired overall but it isn’t an investment.

Even worse, though, when the government spending is not out of current revenues but is borrowed against future revenues.  When we spend tomorrow’s money today on government we are not only not investing but we are de-investing…because every cent borrowed by the government is a cent which can’t be borrowed by persons and enterprises in the private economy who would use that borrowing to create new or expanded sources of wealth creation.  Whatever benefit you might get from such borrowing will be short lived, at best, and may actually harm the economy because the money borrowed by government is all too often to be wasted by the sundry sorts of graft common to government.

What started in 2008 and continues to this day – masked by a gigantic amount of fake money and government debt – is the logical and easily predicted outcome of a system which has at its bottom fake money and government debt.  I’m only astounded that it has kept going as long as it has.  Shows the power of people to blind themselves to reality – and our short-sightedness.  We listen with amusement to tales of what prices used to be…never thinking for a moment that, hey, the reason prices used to be lower is that our money was worth more and what the heck happened to our money?  It is when we create wealth that we get prosperous – when, that is, we make, mine and grow things.  Nothing else does it.  10,000 law degrees, 100 government departments and bureaus and the next 50 social media sites – not a single bit of wealth being created.  The next time a farmer plants a corn crop?  Wealth created.  The next time a miner digs in the earth?  Wealth created.  The next time someone makes a pair of pliers?  Wealth created.

In order for this wealth creation to happen we mush have three things:

1.  Investment money for wealth-creators to start up or expand their wealth creating enterprises.

2.  Reliable money which holds its value over time so that investors can safely invest for long term wealth creation (fake money, on the other hand, moves investors to protect their wealth by looking for the highest rate of short term gain).

3.  A tax and regulatory system which encourages money to flow in to wealth creating enterprises while laying the burden of proof for new regulations upon those who would impose them (not, as now, simply imposing them and then asking the victims to prove they aren’t necessary).

Investment money will primarily come from paying down government debt.  We’ve got $15 trillion of potential investment money sitting in the form of US government bonds.  Entirely wasted there – we need to balance our budget as swiftly as possible so that each year more and more of the $15 trillion becomes available to the private economy.

Reliable money would best come from returning to the gold standard but people have been so relentlessly propagandized against such currency that it would be a hard sell.  Our best option, for now, is to require Congressional action for increasing the supply of money – whatever we do, don’t leave in the hands of central bankers to go “cntrl-p” whenever their Bankster buddies are in trouble.

As you can easily see, neither of those things can be fixed as long as liberals have any say in the matter, let alone any real efforts to tackle tax and regulatory reform.  Essentially, fixing the problem requires a clean sweep of our liberal Democrats – though even if we did that we’d have no end of trouble from the RINOs.  What needs to be done to fix things, after all, is the gutting of a politico-economic which the current beneficiaries don’t want to let go.  A long, hard war is required – but we take each battle as it comes.  The first one comes on November 6th – then we can start actually fixing our economy and emerging from the Depression.

 

The Bankrupt States of America

Mark Noonan53 Comments

From USA Today:

…The big difference between the official deficit and standard accounting: Congress exempts itself from including the cost of promised retirement benefits. Yet companies, states and local governments must include retirement commitments in financial statements, as required by federal law and private boards that set accounting rules.

The deficit was $5 trillion last year under those rules. The official number was $1.3 trillion. Liabilities for Social Security, Medicare and other retirement programs rose by $3.7 trillion in 2011, according to government actuaries, but the amount was not registered on the government’s books… (emphasis added)

The report goes on to note, among other things, that for Social Security to be solvent we’d need to have $22.2 trillion set aside and earning interest.  Clearly, that is an impossible sum – we don’t have it and we can’t get it, ever.  And that is just Social Security – it doesn’t count the cost of Medicare, Medicaid, the upcoming ObamaCare bill, other entitlements and, of course, all the other bloated, wasteful spending which is built in to our government.  And it entirely leaves aside the amount of debt our State and local governments have accrued.  The bottom line:  the United States is bankrupt.

For now, we’re able to play around with this – pretend, that is, that we’re not bankrupt and that money will be there for everything.  But the reality is there – Paul Ryan is right:  we’re heading for the most predictable financial disaster in human history.  Unless we take charge of our nation and reform our taxing, spending and regulations, we’re doomed to an economic wipe out which will make the Great Depression seem like small potatoes.  If you want to see where we’re heading, look at Greece…and land of riots, bank runs and a government which can’t even pony up for the prescription drugs they promised the people of Greece; and I don’t mean “having trouble paying”…the Greek government simply stopped paying for the drugs.  They are out of money.

We’re probably three to five years away from that point…maybe as many as 7 years if we really go flat out with money-printing and financial gimmicks (which would also be disastrous in terms of rapid inflation and other dislocations).  But unless we fundamentally change how things are done, we’re doomed sooner or later (and I think sooner – the latest data from Europe and China indicates they are in recession and I bet we’ve been in recession for a couple months now, but the data are being fudged…they were being fudged in Europe and, especially, China, too…but you can’t “hide the decline” forever).  This is why November 6th is so crucial – a re-elected Obama, even if he’s set with a fully GOP Congress, simply will not make any move to disturb business as usual.  Even if he’s not able to increase spending the fact that we won’t have a filibuster-proof majority in the Senate will prevent any budget from being passed…and we’ll be saddled with year after year of “continuing resolutions” which lock in place the bonanza of extra spending Reid and Pelosi piled on in 2009.  Obama must go if America is to avoid catastrophe.

Romney, on the other hand, is enough of a business man to know we can’t go on like this – and while he might want to compromise more with the left than we’d like, an increasingly conservative/libertarian Congress will ensure that a lot of really good policies are enacted.  Additionally, the force of circumstances will push Romney and the Congress towards the radical solutions needed.  It won’t do anyone any good getting a good write-up about bi-partisanship in the Washington Post if failure to act responsibly leads to35% unemployment in 2014.  With their backs against the wall, a GOP government has a good chance of doing something worthwhile.

This is serious, good people – we’re in quite a fix and like Obama’s old preacher used to say, “America’s chickens are coming home to roost”.  We’ve spent too much for too long while harrying wealth creators with a regressive tax and regulatory system.  It is change it, or die.

 

What is Fairness?

Retired Spook117 Comments

Arthur Brooks new book, The Road to Freedom, is causing quite a stir, and hearing an interview of Brooks this week reminded me of an essay last fall that was inspired by Brooks previous book.  The essay dwelled on the philosophical difference in the way the concept of fairness is viewed by Conservatives and Liberals.

There are basically two ways to define “fairness” in an economic sense where there is mal-distribution of income. One is “redistributive fairness” which President Obama and other liberals in and out of congress favor. The idea is through taxes or financial favoritism to take from wealthier Americans and give to less wealthy Americans and thereby to even out, to some degree, the income people have regardless of whether they have earned it.

The other definition is “meritocracy fairness” which holds that people should receive monetary compensation based on hard work, ingenuity, and innovation – i.e. the money that people make should come as a result of merit.

In his 2010 book, The Battle: The Fight Between Free Enterprise and Big Government Will Shape America’s Future, Arthur Brooks states that inequality is “fair” if it is based on merit and equality would be “unfair” if what someone has earned on merit is redistributed to others who have not earned it. There should be penalties, not rewards, for corruption, stupidity, laziness, and incompetence. Where does the public come down in this? According to a comprehensive survey, 89% of Americans believe in “meritocracy fairness” and only 11% opt for “redistributive fairness.” People in the past, our ancestors, came to the United States for economic opportunity, not for redistribution of wealth.

Those numbers, to me, are staggering, and just completely belie the notion by nearly every Liberal who has ever posted here that they are in the mainstream of American political thought, and it’s Conservatives who represent the kook fringe.  It’s generally accepted that Liberals account for about 20% of the U.S. population, so almost half of those who self-identify as Liberals don’t even agree with redistributive fairness.

I think almost everyone who is paying the slightest bit of attention to this election cycle agrees that it’s one of the most important elections in generations, perhaps, as some contend, the most important since 1860.  November 6th will, I believe, be a referendum on how we as a people view not only the concept of fairness but the overall role, size and scope of government.  We are at a fork in the road, and this election will, I also believe, determine whether we take the road to serfdom or the road to freedom.

Inflation and Gas Prices

Retired Spook27 Comments

Back when the banks and insurance companies were being bailed out in late 2008 and early 2009, and the nearly trillion dollar stimulus was passed, there was a lot of speculation that it wouldn’t take long for inflation to rear its ugly head.  The unprecedented increase in the monetary base by the Fed foretold, in many people’s minds, the main ingredient for inflation as soon as the velocity of money picked up.  So far those fears don’t seem to have been realized, although prominent individuals are still warning that massive inflation is just around the corner.

I’ve been kicking around the possibility of a blog discussion about inflation, how our fractional reserve banking system is predicated on around 2% annual inflation (non-technological goods double in price every 36 years) and just needed some impetus to kick it off.  Then yesterday I heard something that was so incredulous I had to check it out. The guy who does our local AM drive-time talk show was discussing the recent spike in gas prices that has most local stations over $4/gal. for the first time since the summer of 2008. He made the statement that, back in the 60’s and early 70’s, a quarter would buy a gallon of gas in most parts of the country — and a quarter will still buy a gallon of gas in most parts of the country today.  I checked it out, and it’s true.

So, in terms of hard assets, the price of gasoline really hasn’t gone up at all in over 50 years.  That got me to thinking, just how much of our perceived prosperity and increase in standard of living over the course of that 50 years is due to technological innovation resulting in greater economies of scale and increased productivity, and how much is simply due to inflation?  And finally, at what point does inflation become really worrisome for the average American?

The Stock Market and the Economy

Retired Spook40 Comments

A couple days ago in the Energy Open Thread, our resident progressive clown equated the stock market doubling during Obama’s term (as opposed to “tanking” at the end of Bush’s second term) to be a dynamic he wanted to see more of in a second Obama term.  I have no idea how many regulars here follow the markets closely, but I do, so I got a chuckle out of Bozo’s uninformed comment.  It also got me to thinking that the damage Obama’s and the Fed’s monetary and fiscal policies have inflicted on the average American had the makings of an interesting discussion.

In the course of my research, I ran across an op-ed from a little over a year ago that spells out in layman’s terms precisely what’s happened.

Does the United States still have a stock market?  Not really. In a real market, when there are more sellers than buyers, prices decline. And vice versa of course. That is called “price discovery”; or used to be. Since January of 2010 investors have withdrawn a net total of 81 billion dollars from U.S. stocks and funds, this week marking the 33rd consecutive week of outflows, while stock prices have staged a missile launch upward that started in mid-July.   Floyd Norris of the New York Times confirms that outflows have remained at record high levels over the last four years.  (as a side note, that outflow trajectory continued through most of 2011 as well) Some of the funds withdrawn resulted from industry insider selling, and much of that was re-invested in commodities and emerging markets. But a substantial amount, according to Charles Biderman, CEO of Trimtabs, was withdrawn by middle-class Americans to pay monthly bills.

In an unprecedented interview on CNBC, Biderman stated that the Federal Reserve is no longer denying the fact that it has been rigging U.S. markets nor is the Fed making any effort to hide it. An unrelenting and counter-intuitive rally has ensued, with stock prices gapping up at 4:00 AM night after night and never looking back. Even before the Fed initiated its POMO (Permanent Open Market Operations) injections of outright treasury buys in a program euphemistically titled “Quantitative Easing 2” (a.k.a printing money out of thin air) the Fed’s daily zero percent loans of taxpayer money to Goldman Sachs and J.P. Morgan were used almost exclusively to buy stocks – and then sell them again within minutes or even seconds. Investment banks use high frequency trading computers (HFTs) programmed to essentially steal money, one penny at a time, from any retail investor foolish enough to believe he could make money by trading or investing in stocks. Their computers, operating at speeds no human with a laptop could match, front-run orders, ensuring a profit on every trade. Wall Street investment banks have the right, unlike everyone else, to trade in increments of 1/1000 of a penny, allowing them to deny order fills by keeping the price 1/1000 of a penny below the bid. It is one of many questionable and even illegal practices engaged in by what the internet bears cartoons refer to as the “the Goldman Sack” and “the JP Morgue”.  The web cartoons have gone viral, as they say, and served to educate the uninitiated in the grand-theft-stock-market game being run by the Fed and the Wall Street gangs.

The writer concludes with this:

Where will the U.S. economy be when QE2 ends?   It will be where it is now, as the Fed’s money printing, while raising the costs of essential food and energy, has had no notable effect on job numbers or salaries. What it does do, with every uptick in the Dow Jones Industrial Average, is increase the wealth of those who are already wealthy.

To get a mental picture of just what this current crew in power has done to our monetary base, one really has to see it in chart form.  In July, 2009, Richard Anderson, Vice President of the St. Louis Fed, had this to say about the mercurial rise in the monetary base (which has continued almost uninterrupted since):

Monetary Policy Implications of Nontraditional Programs

In several speeches, Fed Chairman Ben Bernanke has emphasized that nontraditional policy focuses on reducing stress in specific financial markets, that is, on credit easing. The focus is apparent in the types of securities purchased, including commercial paper, mortgage-backed securities and privately issued asset-backed securities.

Be this as it may, the programs nonetheless have greatly increased the monetary base—and portend, if not promptly reversed when economic activity revises, higher future inflation. When will confidence return to the economy, such that banks feel able to accurately assess the riskiness of loans and borrowers feel confident in their ability to repay? When confidence returns, will financial markets be roiled as the Fed reduces its assets and the monetary base? Finally, the Fed now has an additional policy instrument not previously available: the payment of interest on deposits at the Fed.5 Can it be used to forestall undesired increases in bank lending?

Recent increases in the monetary base are far greater than any previously in American history (even adjusted for the size of the economy), surely a “noble experiment” in policymaking. Will these policies be successful without accelerating inflation? The epitaph to this curious case of monetary base expansion is yet to be written.

The one truly amazing aspect of everything that’s happened in the last 3 years is that they’ve been able to keep the ball in the air as long as they have.  How much longer?  A functional crystal ball would come in real handy about now.

Poll: Obamacare Hurts Obama

Matt Margolis191 Comments

In a presidential election it is all about the swing states, and, if you are an incumbent, a record of accomplishment to run on.

Unfortunately for Obama, swing states don’t view his one big policy “accomplishment” favorably

The health care overhaul that President Obama intended to be the signature achievement of his first term instead has become a significant problem in his bid for a second one, uniting Republicans in opposition and eroding his standing among independents.

In a USA TODAY/Gallup Poll of the nation’s dozen top battleground states, a clear majority of registered voters call the bill’s passage “a bad thing” and support its repeal if a Republican wins the White House in November. Two years after he signed the Patient Protection and Affordable Care Act— and as the Supreme Court prepares to hear arguments about its constitutionality next month — the president has failed to convince most Americans that it was the right thing to do.

So, what does he run on? A failed stimulus? High unemployment? High gas prices? Seriously, this guy promised to fix the economy in three years, and he has made it worse. He can’t even run on ObamaCare. How does he run at all when he has to run from his own record?

Obama’s Re-election Strategy

Retired Spook246 Comments

Is Obama trying to lose the election?  The current disconnect with reality and desire to pander to every far left cause has me wondering if Obama is trying to lose, is he just this clueless, or, as Rush noted recently, is he simply confident that he has bought enough votes to assure his re-election?

The keystone pipeline was a no brainer, and could have boosted consumer confidence to a new level resulting in higher approval numbers for Obama, not to mention bringing unemployment down, creating good paying jobs, and stimulating the local economy of many towns along the way, but Obama chooses to pander instead to environmental extremists.

The recent constitutional over reach with respect to religious liberties was another bone-headed move and not very well thought out, although it appears the move may be the first broadside in an effort to shift the political conversation away from abortion to “the GOP wants to ban contraception”.  I guess we’ll find out in a few months if that’s a viable strategy.

The fact that Obama is talking out of both sides of his mouth with respect to the individual mandate in Obamacare, on one hand calling it a tax, and on the other calling it a fine, depending on the audience, was largely overlooked by the MSM. But then his budget director got caught on camera saying this.  So either the OMB Director committed perjury before Congress or the Solicitor General will be perjuring himself before the Supreme Court.  Either way, it should be interesting.

Obama’s allegiance to AG Holder and turning a blind eye to Fast and Furious, would be a huge controversy were it not for complicity of the MSM. To date, no one has been fired, much less prosecuted.

The recent call for significant nuclear disarmament at a time when the threat level is at a post-Cold War high, and the continued indifference to the action in Egypt, Syria, etc., may pander to the far Left, but the majority of Americans have to see these actions as detrimental to America’s future.

Obama proves once again that he is not a serious president by submitting a budget with a deficit that adds another 1.3 trillion of debt, when it was just 4 years ago while campaigning he called Bush unpatriotic for much smaller deficits. When the GOP finally lands on a nominee, the conversation will be about Obama, and not only can he not defend his record, his own words will be used against him to a point that everyone will finally realize that he is not a serious president.

America is slipping into a malaise of mediocrity under his guidance and if he is reelected, we may have federal school officials checking our kids’ lunch boxes for the proper nutrition ……… Oh wait.

This president has abdicated leadership and is the most partisan president this country has ever had. The only things Obama has improved in the last three years are his bank account and golf game.

Thanks to Cluster for most of the content for this post.//RS