How's that Inflation?

Although official numbers show the recession ended in 2009, 72% of consumers still feel like they're in a recession.

That's inflation folks. It fudges the numbers so you can tell everyone everything is fine, but even if they can't put their finger on it people know it just isn't true. Wages may be going up nominally but the price of goods is going up faster. Portions are getting smaller. Purchasing power is decreasing.  And wealth is systematically getting transferred to banks and political cronies.

Why? Because monetary inflation is caused by Uncle Sam deficit spending and printing money to "pay" for it. This money goes to government contractors and banks first, where they can spend it before the market prices adjust to accommodate the new money competing for the same amount of goods.  The price of goods increases and then wages gradually trail along behind.

But the banks and cronies have already gotten their share of the pie. They spent the money before prices went up; the workers are spending it after. It's traditional buy-low, sell-high and the banks are keeping the spread.

Why can they do that? Because the politicians continue to spend money we don't have by counterfeiting it out of thin air. They keep lying to us that this is making things better and helping the economy.

Somewhere deep inside 72% of people know something is not right. But we'll keep reelecting the same liars until enough of us can finally see through their tricks.

You Gotta Live

The "cost of living increase" was a brilliant scam to disguise the insidious effects of inflation.  The powers that be convinced the masses that each year they had to work harder and get bigger raises just to maintain their standard of living.
That flies in the face of common sense. Every year we come up with more efficient ways to build better products. Technology improves, allowing us to make more goods more quickly while consuming fewer resources and taking less working hours. According to the laws of supply and demand that means the consumer should enjoy more and cheaper goods.
That was the result during the agricultural revolution and the industrial revolution, where food and goods became cheaper and more plentiful. Why is that not the case today? Because the government intercepts these gains.  By printing more money to finance deficit spending, they create inflationary pressure causing prices to rise.
In some cases like the tech field, the downward pressure of innovation is able to overcome inflationary pressures, but in other areas that are more stagnant (notably oil and food) we see prices continue to rise.
This is not the "cost of living" it is the cost of inflation created by government debt and the working class bears the burden most of all. The sooner people realize there is no free lunch the sooner we can work to change this pattern and return the fruits of progress to the People.

Gift Cards and Federal Notes for the Holidays

With little fanfare in the US, another pair of countries have announced another move away from the dollar.  China and Japan will no longer use dollars to transact between the two countries.  This follows a similar agreement between China and Russia as well as talks developing with India and Brazil.  Smaller but still notable countries making noise along those lines also include Vietnam, Qatar and Iran.  So why should we care here in America?  To understand the problem, consider the sale of Holiday gift cards...

Gift cards (like rebates) work because the merchants that issue them expect a certain percentage to never be redeemed.  Thus, they can bring in cash and never worry about giving a portion of their customers anything in return.  To crunch the numbers, merchants have made $41 billion in "free money" by selling gift cards.

This is small potatoes though.  Uncle Sam has "sold" $4.45 TRILLION to foreign countries, in exchange for real goods and services, with the hope that they never redeem their gift certificates / Federal Reserve Notes.  Three of the biggest holders of those gift cards?  You guessed it: Brazil, China and Japan.

We're still pretty safe for the immediate future, but places that need dollars to do business are slowly becoming fewer.  Eventually places that *want* dollars will also diminish.  And when that happens, everyone who has dollars is going to come shopping at the US of A to redeem their coupons, competing with domestic demand and inflating prices through the roof.

Financing a $447 Billion Stimulus Injection

A recent article phrased the new stimulus plan as “injecting $447 billion into the economy,” which made me stop and think. Where exactly is this money coming from? I doubt the politicians in Washington are going to pay for it out of the vaults at Fort Knox (which would only cover about $278 billion or a little over half the bill anyway). That just leaves us with the three usual suspects; taxes, treasuries and the printing press.

Raiding private investment capital, ie: raising taxes, in order to “create jobs” is absurd. If the money was actually directed towards funding projects, it would simply mean diverting money from privately planned investment into politicians’ pet projects (a time-honored way of ensuring reelection). This plan will also use that money to extend unemployment checks, which is just as foolish. I would rather let someone buy a boat, thereby paying someone for building the boat, then tax the money away and hand it out as an unemployment check. However, this plan also includes tax cuts (without accompanying spending cuts), which leaves us with the other two options.

For the past few decades, we’ve gone to foreign investors to finance our government spending. The problem with this approach is two-fold. First, by competing for foreign investment dollars we crowd out private investment. In other words, businesses that are looking to finance expansion and real job creation are competing with the Federal government for the same scarce resource of investment capital. Secondly, those bonds incur interest payments down the road. That interest will have to be paid in the future from the same three sources (taxes, debt or inflation) which is the sort of kick-the-can politics that Washington D.C. loves.

That leaves the final source of funding; the printing press. The treasury prints the cash to cover the portion of the debt financed by the Federal Reserve. In simple terms, printing new money makes the money in savings and circulation worth less. Some people support this, since it makes our products cheaper for export. However, it makes everything we import (which is quite a lot these days) more expensive. It also hurts people living on fixed incomes and makes a joke out of long-term investment planning. In other words, it contributes to job-killing instability.

“Injecting” $447 billion really means deciding between taking domestic investment capital, competing for foreign investment capital, and pillaging our remaining savings. Instead of reactionary short-term fixes and more government controlled pork-barrel projects, we need to be thinking long-term. Stop spending taxes frivolously. Stop jerking the economic steering wheel by meddling with the currency. Return control (and money) to consumers and small businesses.  Let them drive the economy the way they’ve driven it since our national inception. They don’t need to be “stimulated” to make that work.