Money that Used To Be Yours

In theory there is only one rational meaning for Inflation: an increase in the quantity of money, without a corresponding increase in the need for money, so that a fall in the objective exchange-value of money must occur. In other words, inflation of the money supply causes rising prices because more dollars equals a lower value of those extra dollars.

Inflation is the debasement, the devaluation, of money. Consider it this way: if our coins were made of gold, or our paper money could be redeemed for gold coins, the amount of money would be limited entirely by the amount of gold in reserve or circulation in the nation. If our nation then decided to make its coins out of 50% gold and base metal combined, every coin and every dollar would suddenly be worth half, and there would be twice as many coin equivalents available. (True story, incidentally.)

When this inflation of currency happens, the government demands an exchange without an exchange-value. You are required by law to turn in your gold coins for the shiny new ½ gold coins. If you had $100, you suddenly have $50 in purchasing power. That’s inflation. What happens? Prices go up, only because the exchange-value went down. Guess what happens when the Fed says, “Just start the presses and print all you can?

The rising prices are what we normally see. That’s a shame, because we want to blame the business cycle, or greed. It is greed, but greed at the government and bank level.

Printing money is a tax, and a very dangerous, greedy tax.

Milton Friedman called inflation, “taxation without legislation.”  He knew it was a scam.  Keynes knew this. “By a continuing process of inflation,” he said, “government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”

As you can see in the real hockey stick chart above, inflation is a significant part of the Obama legacy.  Obama was a Keynesian. Bush helped with the first two trillion, but the rest belongs to Obama.  Reality?  In seven years of the Obama administration, we were bilked for seventy-five cents of every dollar we had.  And we get taxed for all of it.

Paying Down the Debt

One thing we can say about Mr. Obama and his Congress, and Mr. Trump and his Congress — at least so far — is that they both know how to increase spending and raise the debt by trillions. It is insane and troubling to see that Mr. Obama doubled the debt from 10 to just shy of 20 trillion dollar in just eight years, and equally troubling that Mr. Trump has already reached $21.5 trillion.

There are some differences, of course.  Obama and Jr. Bush agreed on flooding the market with $2 trillion fake dollars and increasing taxes, while Trump lowered taxes and still maintained the climb.  No, neither of those are justifications.  It just goes to show there is one than one way to skin a nation.

How bad it, really?  How can we understand the amount, and what it means?  Over that entire time, our Gross Domestic Product largely equaled our debt.  That means we would need one complete “free” year of  production to pay our creditors.  Or, if you prefer, every man, woman, and child in the US owes a little more than $67,000 in arrears.  Currently, our taxes include about 8% interest payment (over $5,000 per person) every year on the existing debt.

Can we fix it?  Of course, and with no song or dance, Mr. Trump and his Federal Reserve officers have already begun.  It is hard to believe how ignored our current deflation is.  We never, ever see it in the news.  In fact, the Fed reduced the amount of currency substantially.  That is a big deal, especially when you consider that a whole lot of dollars were repatriated by big businesses that simply tied up cash overseas.  Taking them away improves the value of our money.  Our money.  Yours and mine.

That makes every dollar paid worth more, and every dollar spent worth more.  Unfortunately, it also raised our old debts because the number of dollars in debt don’t go down just because the dollar is stronger.

What remains is to stop spending so much on the stuff we throw away, the stuff we get from overseas, stuff we do not need, and the stuff we get nothing for in exchange.  If we do, we can pay down the debt, stop losing in trade imbalances, and buy more with each dollar.

I’m optimistic that we can recover.  It can happen.

 

New NAFTA, What Else

Clinton agreed to cooperate fully with the investigation. – ABC New, 2016
Kavanaugh said he would “cooperate” with the investigation. – ABC News, 2018

Did you know that three Republican Senators had their personal information “Doxxed” (released illegally) to the public during the Senate hearings on Judge Kavanaugh?  It was traced to the private server of the House of Representatives, but you didn’t read it on mainstream news.  It was only reported by The Daily Caller, The Daily Wire, Fox News, Washington Post, Free Beacon, Huffington Post, etc.  So far, it appears to lead to Maxine Waters office.  No news on ABC, NBC, CBS, PBS, CNN, etc.

Did you know that the third Kavanaugh accuser, Julie Swetnick, was charged in court with falsely accusing a former coworker of sexual misconduct?  She raised hell against a former coworker when she was fired, claiming to be groped.  When it was discovered utterly impossible and unsupported, the company sued her on the employee’s behalf.  You heard nothing if you stick with mainstream news.

It would be nice if our journalists told the truth now and then, even when they didn’t have to.  Sometimes, though, as with news of the enormously successful new trade deal with Mexico and Canada, they have to suck it up and post it.  Even if it is one of the most significant promises Mr. Trump made in Making America Great Again, they still had to report it this morning.  Even though he did it with a screaming Liberal.  They will now try real hard turn it into something bad, like the soaring economy, the employment story, the minority success stories, the small business surge, solid deregulation, the tax cuts, the improving China deal, the new and favorable trend in North Korea, etc.

You might even begin to think they hate Trump because he succeeds and does good things for America.

Inflation Final

This series has produced less interest than usual, so this post will end it.  The topic goes on and on, but let’s get to the end of the matter.

When money is printed and added to the currency in circulation, it quickly reaches a “real” value.  Even though we have no standard for our currency, the relative ease of obtaining it determines what it is worth.  The result of printing $7 trillion since 2008 is that the entire pool of US currency is worth $7 trillion less.

When banks and investors “lose” money, others “find” it.  None of it vanishes.  Rather, it goes to somewhere out of banking control.  Banks are not built of brick and mortar, they are built on currency.  When the currency supporting a bank falls down, bankers lose their business in the same way a homeowner loses his home when wind or waves wash it away.

Here’s how: when a home sells, money passes from a bank to a bank, usually with interest and over time.  When Mr. Builder gets the money from the bank, he pays his employees, pays for his materials, deliveries, specialists, subcontractors, etc. Most of that money goes from one account to another,  and from there to still others.  The banks never really let go of it.  It comes and goes, with small percentages nipped away with each transaction.

When the customer loses his home, he loses an asset, but the money for that asset is still completely in circulation.  When things work “the way they should,” the money continues flowing through the bank, the customer cries, the bank sells the home to someone else and life goes merrily along for all but the poor folks in default.

When the bubble breaks — whether dotcoms or mortgages — the money is effectively “withdrawn” from the bank in proportion to the loss of the asset and the wild speculative lending of the bank, but the money does not disappear.  It simply goes off on a different quest.  In fact, it has generally been used three or four times before anyone hears the “pop.”

This is the final question for the few who read this far: if assets don’t increase or decrease the money supply, why did the Federal Reserve print $7 trillion new dollars to “bail out” banks for about a trillion in consumers’ lost assets?

And how did they do it without any interest?

Think for yourselves.  It may be worth answering these questions directly if the interest ever increases.

If you are new to this series, it began with Inflation, then Inflation Bubble.  Both are accessible from the lefthand menu.

Inflation Bubble

Richard Prager pointed out that gold’s rise (http://davedelany.com/inflation) from $34 to $1,200 represents 6.7% annual inflation averaged over 55 years.  In terms of currency, however, that rate has almost doubled since the crash of 2008, with no sign of slowing down.

The so-called “bail out” is our first example.  The money lost when the banks crashed over insane housing practices was not “lost” at all.  It exchanged hands, all right, so where did the money come from, and where did it go?  The answer is, it came from the economy, and it went back into the economy.  Because the banks lost so much, though, it was “replaced” with newly printed linen currency.  The “beneficiaries” of the printed currency are the printers — the Federal Reserve.  Here’s how, in a very real fairy tale:

Mr. Builder built 100 houses in Builderville, selling them for $10,000 each.  The bank financed 100 families to buy those houses, with 20% cash down payment and 10% interest on thirty year mortgages.  A happy little community was born. As the wealth of the nation increased (GDP) by 2% per year, the houses also increased by 2% per year.  In year 3, all 100 $10,000 homes were worth their original amount, plus GDP increase: $10,612.08.

Builderville becomes all the rage.  Nice town.  Nice people.  Two of the families have to sell their homes, though.  Mr. and Mrs. Smith are leaving the community for a better job, and Mr. and Mrs. Brown leave the earth, dead.  The Smiths sell their house to a family from the big city.  They did well and have too much money for their own good, and pay $20,000!  The Brown’s children sell their parents’ home for $15,000 to a buyer who found a loose, wonderful, nothing down, low interest mortgage.  They saw on Zillow that the same house down the street just sold for $20,000!  He and the lender were aware of the “bargain.”

As the Builderville market climbs to $25k and even $30k, people begin taking second mortgages on their now expensive homes.  The Johnsons use $10k in home equity to replace the kitchen, add a deck, and take a nice cruise.  The Jacksons use their equity to add a third bedroom and second bath.  They also buy a new car on credit and a small business of their own.  The banks are happy to do it.  New debt, but “completely covered” by the resale value of their homes!

When the next houses also come up for sale, the prices keep rising.  And then, one day, house 41 goes up for sale for just $22k, and nobody wants it.  It’s a bit more rundown than the average.  It stays on the market and two bids come in for $11k and $12k, but nothing close to the new standard.  The owners need to move, so they finally accept am offer of $12,500.  Though disappointed, that’s not too bad for them.  They were original owners, so they actually made $2,500 from the sale.

The neighbors experience the same thing, however.  When the Johnsons and Jacksons both need to move, they still have the original mortgage, paid down to $6k, and the home equity mortgage, barely paid down to $9,800, but nobody will buy their houses for more than $13,000.  They owe $15,800, and have no way to come up with the extra money.  They must turn the keys over to the bank and declare bankruptcy.

The bank finally sells the Jackson home for $11,000, but after nearly a year on the market, the Johnson home windows are broken, and storm and rain damage take a severe toll.  When a DIY guy offers $5,000, the bank jumps.   Overall, Builderville homes are worth about $12k.  The new buyers who paid $25k, and the original owners who took home equity loans, are in a world of hurt.  Many of them walk away, and Builderville begins to crumble.  Nice neighbors move away.  The homes deteriorate rapidly.

The houses, let’s say, continue to be worth $12k — 20% more than their original price — but a small fortune was lost by the many of the owners and the bank.  Some of the houses must be demolished.

Where did the money come from, and where did it go?  It came from foolish, gullible, and/or naive home buyers but mostly it came from bank customers.  Through outrageous practices, it went to tradesmen, home improvement, lawn maintenance, airlines, beach and mountain resorts, car dealers.  It also went to foolish bankers who literally bankrupted their customers.

So, what happened?  What happened to “save” us from our banks?  There is a very, very interesting answer that might just make you sick.

Inflation

Most of us think “inflation” means “higher costs.”  We consider the rising price of milk and eggs, a new car, or a house, as inflation.  That common usage can accurately represent what we mean, the truth of inflation is built on something else.  We also pretend that inflation means interests rates.  Under President Carter, we often heard that “double digit inflation” produced loans at 20% interest or more.  Again, it can be used that way, but the truth of inflation is the increase in the “money supply.”  M1 is printed money.  M2 is printed and otherwise circulated money.  M3 includes long term investments that are out of circulation (long term bonds, for instance.)

How much money is there?  Right now, the total M3 money supply is just over $14 trillion, and very similar to M2.  (Virtually no money out of circulation, largely due to few bonds.) When the bubble burst at the end of George W’s administration, M3 was $7.4 trillion.  In the middle of 1998, it was $4.2 trillion.  In the middle of 1988, $2.9 trillion.  That trend continues back to 1963, when the US money supply was $365 billion.

Before that, our money was quite entirely stable, based on gold.  We can look at gold as another measure of inflation.  Assuming a somewhat “fixed” supply, gold had a value directly related to our currency, usually around $30 – $34 per ounce.  In 1963 we went off the gold standard.  Now it changes wildly, but at the moment of writing this, it costs $1,200 per ounce.

What does this mean?  If the value of money is arbitrary, what is it worth?  In the direct aftermath of the 2008 “bursting bubble” Bush and Obama agreed we had to “bail out” banks and other affected businesses.  Lost money, however, never disappeared.  Banks lost it, but it remained in different hands.

England uses a 4th term for money, called M4.  It represents other elements of monetizing transactions, secondary private sales with precious metals and gems, and unusual transaction speed and turnover, meaning the number of times money changes hands in a period of time. (We call that money velocity.)

It took all of this to understand that we had a total of $365,000,000,000 in 1963, and just over $14,000,000,000,000, or more than 38 times as much money today.

Stay tuned on what we can understand from all that, other than One 1963 dollar being worth 2.6 cents today.

Greatest Good

An intro to business class in 1977 presented the ideas of economics and production in “modern markets.”  The foundations of every scheme began with the notion that all policies must begin with the concept of “the greatest good for the greatest number.”

Jeremy Bentham, around 1820, first refered to society’s goal in this way.  He wrote, “The greatest happiness of the greatest number is the foundation of morals and legislation.”  Mill echoed the concept, now called “Utilitarianism.”  It has become a kind of “premise” for most pragmatic and socialist positions, but can it ever really work?  No.  Especially not with the “foundation of morals” part.  At best, the greatest good for the greatest number is a hollow ambition, ignoring each of its potential consequences.

“Greatest” is always the core of the problem.  Greatest is not an absolute, but a relative ambition, necessarily meaning “not the best.”  The idea of “greatest good for the greatest number” multiplies that relativity, leaving a theoretically acceptable “improvement” of 1% while benefiting only 51% of the whole.

Pragmatists may laugh and argue that that  would never be enough of a goal to implement such a plan, but it has been demonstrated in Bolshevik and Maoist revolutions, Cambodia’s killing fields, and America’s newly implemented health insurance plan.

America’s foundation took the opposite approach.  We built a great nation on the concept of “Great good and goodness for all who desire and work for them without restraint.”  The concept is readily applicable without killing, crushing, or repressing any percentage, without theft or denial, and with malice toward none.

Universal and Free Defined

What do the words “Universal” and “Free” mean in the context of health insurance and education?  Miriam-Webster calls Universal “including or covering all or a whole collectively or distributively without limit or exception.”  What a wonderful thing that would be!  When applied to health insurance or education, can it be possible? 

Universal is a great thing, meaning “for everybody.”  Universal education, however, means “for those who qualify.”  Universal health insurance means “with these qualifications and limits.”  The “universal” aspect is the insurance and education offered, the qualifications to obtain it, the high cost to every citizen, and the restrictions imposed on every applicant.  (“You may not take that class because your aptitude is not high enough,” and, “You may not have that operation because you are not suffering sufficiently.”)

Free, in the case of health insurance and education, only carries one sense, “not costing or charging anything to the recipient.” It clearly never hints at “without cost.”  It certainly does not include the aspect of civil freedom (not subject to the control or domination of others) or the idea of free will (given voluntarily or spontaneously) or freedom from restraint (not compelled or demanded.)

In fact, the restrictions, obligations, costs, confinement, control, and limits of “free” are the opposites of reality, or what we call Orwellian speech.  “Free” is incredibly expensive, inconvenient, tyrannical and imposing.

Free and Universal also mean “without recourse.”  Already, the ACA has required hospitals and clinics to fill in “physician’s assistants” for real doctors.  Is your healthcare better and cheaper now than it was before Obamacare?

When related to any compulsory system, only the government mandates and bureaucratic limitations are  “free” are “universal.”  As the quality plunges, the better question might be, “Why do the costs keep going up as we approach free?”

 

June Jobs Report

At least on its face, the June Jobs report shows continued growth and good news for American workers.  Nothing spectacular, but another sign of a much needed and long awaited recovery.

Democrats hate it.

The June JobsReport shows what is at stake from the brewing storm of rising health costs, spiraling trade uncertainty & an economy being hollowed out to enrich big corporations & the wealthiest 1 percent. Americans deserve better than the GOP’s raw deal.” – Nancy Pelosi tweet

What is at stake?  It appears minority House boss Nancy is blaming jobs on a poor economy, decreasing trade imbalance, and Reaganomics.

“With slow wage growth, rising health care premiums, and skyrocketing gas prices across the country, Donald Trump’s reckless policies are hurting millions of hardworking families” – DNC Chief Tom Perez

Unlike Nancy, Tom appears to think wage growth and gas prices should come first.  He also implies that jobs are caused by reckless policies.  We should insure everybody somehow, and then get them jobs.  God forbid we do it the other way around.

Neither mentioned unemployment directly.  To do so would sting quite badly if you’ve been an unemployed Democrat for the last ten years, finally getting a job with Trump in office.

So, really, why are wages still stagnant?  We have workers returning in droves.  That shows up in the slight increase in unemployment along with new jobs.  It means workers are still available . . . cheap.  It will take a bit longer to force labor competitiveness.

We had serious health care problems before Reagan, Clinton, the Bushes, and we are still suffering from the ACA, or “the Obama and Democrat solution.”  We now spend $10,000 per person on healthcare.  If it was its own “world economy,” our healthcare budget would be the 5th largest in the world.  Our government spends more than any other nation, and we, the people, spend even more privately to get essentially “basic” coverage. (In fact, every penny up to an average $8,000 deductible.)  That is more than a record. Come now, Nancy and Tom, do you really want to blame President Trump for that?

Of course they do, and they blame jobs, too!  What they are really saying, of course, is simply, “We hate that bastard.  Nothing good will ever come from him.  No matter how it looks, we will never participate, encourage, acknowledge or enjoy anything with him at the helm of the Ship of State.

Will this be offered as “good news” anywhere in the media?

What “good news”?

If you are a loyal Democrat, you’ll find yourself saying, “Yeah, what good is a *$%@ job!  It’s bad for the economy, for foreign policy, and it steals from me.  It won’t even pay for my insurance, and it costs too much!”  And you won’t even blink.

Capitalism as a Socialist Idea

While writing The Evils of Capitalism, I mentioned that Capitalism is a Socialist invention, “a pejorative coined by Socialists in the 19th Century.”  Nobody condemned me publicly.  That is progress.  On the other hand, identifying our economic system might benefit from comparisons, and eventually it seems that the truth of origins should always win out over the lies of corruption.

Capitalism only exists as an alteration or great perversion of economic liberty.  Never intended as a means of corporate abuse, government control, fascist leanings, or bank corruption of our financial systems, “Capitalism” has grown out of contempt and human perversion of economic liberty.

Liberty itself is the reason, law, and authority of liberty.  Freedom and free men alone can protect a free society.  Economic liberty is no different.  Only when operating within statutory and moral laws,  Adam Smith wrote extensively, do we have the freedom to pursue our interest in our own way, bringing our labor (energy, skill, and efforts) and our capital (goods and finance) into competition and cooperation with other men.  He noted, in fact, that any manipulation of the redistribution of goods to increase or decrease the natural progress of society is subversive to society.  Rulers, he said, become more corrupt the more they try to force such things.  Forcing and freedom are at odds, always.  “[P]reference or restraint, therefore, being thus completely taken away, the obvious and simple system of natural liberty establishes itself.”

According to Natural Liberty, the sovereign has only three duties: to protect society from violence and invasion; to protect, as far as possible, every member of the society from the injustice or oppression of every other member of it (this is called “the exact administration of justice”); and the creation and maintenance of public works and institutions by and for the whole population.  These works can never be for the interest of any individual, or small groups of individuals because favoritism, prejudice and bigotry are the very definition of any “preferential system.”  Corruption always increases in selective application.  As we see in contemporary America, corruption also increases favoritism, prejudice and bigotry.

So what, then, is this corruption called “Capitalism”?  It includes those things that Natural Liberty cannot accommodate.  It is the false and coercive, the preferential and restrictive, the artificial, compulsive, regulatory, oppressive, unfair, and inexact.  It includes artificial markets, wages, competition, and regulation.  And so we fight.

When a Communist or Socialist refers to Capitalism, they mean the flaws and perversions of corporatocracy, greed, fascist collusion and bank abuse.  When believers in Adam Smith and economic liberty refer to Capitalism, they mean abject rejection of those same things.  When greedy corporatists and selfish, fleecing perverts refer to Capitalism, they mean the same things, and they like it.