Tuesday, July 15, 2014
More Strange Perceptions on the Real State of the US Economy--January ,2009
More Strange Perceptions on the Real State of the US Economy--January ,2009 The US Economy and the Financial Markets Are Not Necessarily Linked in Any Pattern of Cause or Effect Lex Loeb Contributor Network . Zimbabwe's hyper inflation is so out of control now they are about to issue a 3 trillion dollar note or a 300 trillion dollar note worth about $300 US dollars , at least during part of the day that it is issued. Amazing that it really does not matter how many trillion dollars the Zimbabwean Government prints on it's national currency notes, they will be worth much less money seconds after they are printed. The Funny fact about this is I was reading one of Nobel prize laureate economist Paul Krugman's piece about Inflation not being a monetary phenomenon! If it is not a monetary phenomenon than what explains what is happening in Zimbabwe? Back a few years ago all the people who are now tolling the bell for the next FDR and hope President Obama turns into FDR and Abraham Lincoln were pumping out the articles on the dire need for alternative energy development because of peak oil. There is no way I am going to forget having to read that nonsense as if it were some sort of scientific fact as I certainly realized that some part of $140 a barrel crude oil price had to be something other than scarcity and inflation. Many people were not fooled by the illusion that higher oil prices seemed inflationary. My analysis was some part had to be inflationary and some part of the price rise had to do with relative scarcity but I really had no idea how what percentage of the price increases. There were clues like the published US inflation rate data that certainly did not match the climb in oil prices. When the government inflation numbers started becoming suspect and oil started looking like it could go up to over $200 a barrel according to many hopeful talking heads on television, It really was the sign of froth forming on the cresting market wave. A lot of prices were heading higher in large part because of petroleum being one of the primary energy feed stocks in our industrial real world. Klugman's idea that somehow monetarism had been disproved as the cause of inflation is hardly the case. Other media big mouths like Fox News' O'reiley were blaming America's big oil companies for rigging the prices and acting in some kind of conspiracy which was absurd since none is big enough to set world prices for oil and none belongs to the actual OPEC cartel. Oil prices set by world markets makes it absurd for a company like Exxon to sell it's product at a lower than world price just because some one with nationalist sentiments on television thinks the company should be subsiding lower prices to consumers. If Exxon did that it would not bother to import the oil from overseas to make up the difference in Local US supply but keep it overseas to get a higher price. That would actually lead to potentially higher prices here than the world market price . Another thing overlooked in the price of oil is that the US dollar had been declining in value relative to other world currencies at the time which affected the price foreigners were willing to sell it for in US dollars. The currency market was just an overlay and not entirely cause nor effect for the higher price . It definitely was a contributing factor, Oil had become a form of money in its its own right a self depreciating currency. The same thing was happening in the world's local real estate markets. Home prices in the US and Spain had become a form of currency too and ultimately self depreciating currencies just as oil was. Alternative non paper money currencies are essentially the same sort of commodity monetary unit that gold is supposed to be. Rather than a printing press for paper dollars causing their devaluation as currencies it is excess production that causes commodity inflation. Monetary inflation is a completely separate reality and is clearly seen in Zimbabwe in their hyper inflation. If we went and stamped one hundred trillion dollars on each one once bar of 24 karat gold that would be monetary inflation. mining and refining more gold bars and selling them at the market spot price is gold inflation or gold deflation is not a monetary phenomenon. hyperinflation would not be as easy to achieve by mining a lot more gold. Gresham's law is alive and well with bad money driving out good and all sorts of currencies being debased including the editorial value of the New York Times Financial opinions (as a form of currency). It is pretty amazing to watch things getting debased. Gresham's law originally applied to gold coins constantly being debased with base metal. Now news and information is at risk. Here is part of the problem. We hear about deflation entering the economy and yet the prices in grocery stores are still at inflationary levels. Home prices may or may not be falling, Every thing needs to be measured in wages not in unemployment benefits as unemployment is rising but, in the USA, still not to the level where it hovers in more socialist Europe. All the garbage pumped out about the dire economy and the failing banks that need saving is hardly addressing the bad money continuing to drive out the good. Government money printing solutions to prop up price levels is not recognizing the fact that housing in the USA had become the monetary currency. Those commercials on televsion showing a hundred thousand dollars worth of gold coins sitting on a table as an alternative to all other investments is really the same thing as people holding homes as investments. Crappy houses selling at high prices in low value locations nationwide is what had been the so called housing bubble . The interesting thing about calling it a bubble is those people making the biggest fuss about it having been a bubble now are demanding giant paper dollar printing runs as if that is not an even worse debasement. We are now replacing one Bad money system with a worse money system so Gresham's law is expanded to say that one a bad economy drives out a good one. What would you rather have a house worth a house or a table top covered in gold worth that much gold or twice as many paper dollars as either the house or the gold is worth? The New York Times editorials are telling us the only solution is big government to control most every aspect of our lives! That is really bad economic money driving out good. How is it that the government that relies on taxation to grow will grow when it wants to do what California did to go completely bankrupt? The expansion of government as the solution to all economic problems is a farce starting with the idea that the government needs to prevent foreclosures and maintain prices for homes that workers can't afford to buy! There is already rent control but this is psychological mind control where the government sets price levels to protect greedy borrowers from their own mistakes. It is better to have good money buying good value than to have good money buying bailout fluff. If you go to the country fair and buy cotton candy you can ask for it with no air in it. Why bother when you can go to a store and buy a bag of sack of sugar for a lot less and by the pound? Capitalists would rather buy the raw sugar and sell the cotton candy at the highest possible profit margin but government is coming in to buy the cotton candy to project children from the vice of getting ripped off . How much money is the government going to have to print to buy up all the cotton candy in the world to prevent the cotton candy melt down? Who are the idiots on capital hill? If free cotton candy for all is the national goal than that might not cost too much in new taxes if we cut some other program to pay for the wholesale sugar. This is why Gresham's law is at work in the currency of the financial news and opinion of the New York Times Editorials. Their big solutions to all our problems is to suspend all market forces and have the government be able to tax it . It did not work in China which is why the Maoists in China are now allowing capitalism to thrive in China. It gives them something to tax in a big expanding way. The US housing market went the way of bad money chasing out good because of good old fashioned greed. For some reason those of us who did not buy homes in the big boom are supposed to feel sorry for those who did, borrowed too much money and went bust doing so. A funny thing was going on during the boom time that seems to be forgotten by all the well meaning politicians. Those nice people now loosing money having borrowed too much money to buy homes had the nasty habit of buying them for $200,000 and selling them a few months later for $400,000. Didn't anyone else notice how the real estate agents had purchased everything in sight on credit to resell the properties at a higher price? The banks all knew this was happening and were ever so happy to loan money to facilitate the process. People who had their own homes for sale were offered half the price real estate agents eventually wanted to sell the same properties for after putting a granite counter top in the kitchen. This was definitely the case of bad money driving good money out. The housing market was being debased by easy credit. bailing it out as if to protect against deflation is not what all of us see happening in the aftermath of the bubble. Some of us also remember that a lot of congressmen in Washington were wiped out financially after the dot-com bubble bursting. Remember that? So these are the big experts with the new solution and the change for the better? It seems like the real estate bubble bail out is the welcome mat to drive what ever good money is left in the system out of it. Why? It seems like someone wants to destabilize capitalism either temporarily or permanently to give themselves political power. The same people in Washington, DC who are against private property rights are exactly the same ones for the new green economy. There are people who want to choose what you eat , where live, how you live and what resources you can use. They love the idea of rationing everything. You get to stand in line and they get to decide if your wait was worth it. Waiting in line for milk and meat in the old soviet union did more to make most cowards mad as hell at their government bureaucrats. Most Russians are still content to live under a government that lies to them but they are not happy to wait in line for 2 days for a piece of frozen meat only to find out that supplies have run out before their turn in line to buy it. The wonderful thing about capitalism is we have less lines to wait in to get basic commodities. The markets worked fabulously when gasoline prices rocked higher into 2007 because no one had to wait in line. The markets automatically rationed the gasoline by raising the price with no vouchers and no Carter administration full time employees to make the program work. It still was not the best situation but not every one understood what was happening. Most people are still unaware that the wars in Afghanistan and Iraq caused the price of Diesel to skyrocket more than any other factors at the time. The US military consumes massive quantities of all Pietro fuels. The complaints about China and India causing the relative scarcity probably were not the tipping point as much as the Pentagon was. Truckers were right to be angry that unrefined petroleum cost more per gallon than gasoline. There is one other explanation which is that diesel could be seen as worth more because it contains a variety of potential fuel by products including gasoline. Gasoline distilled from diesel leaves other diesel products as the remainder but it also does consume energy from the original diesel fuel stocks. Another consumer unknown fact is that war times are boom times because they cause a lot of basic commodities to inflate in price. After every war there is a definite post war recession recorded just about every single time. The big mouths at the New York Times financial editorial board don't make mention of this phenomenon very often especially now when it should be a top information priority. The Keynesian effects of waging a war in creating a boom economy is also ignored although prominent anti Vietnam war congressmen like Charles Wrangell are now again calling for the need for mandatory military conscription and a draft. Bad money drives out good, Bad politicians drive out good. Bad news drives out good news. Bad editorial financial news currency drives out good too. When the Obama administration chooses avowed socialist to head environmental protection it a sign that environmentalism may really be socialism in disguise. So we have bad religion driving out good too with mother earth and animalism growing over monotheism to crowd it out. Bad Gods drive the Good Gods out. The US housing market retains at base the value of homes that actual workers and investors can afford at prices they can afford. The market went crazy when interest rates fell and turned into bad money and drove good money out. Now that the solution is bad money that is even worse and the bad currency of more government control to prevent free will and promotion of artificial scarcity with programs that are designed to prop up home prices and make gasoline excessively expensive so that alternative fuels are substituted , we are going to get an all new kind of bubble . A Stupidity bubble. That is worse than a housing bubble because those programs create a state of their own reality and promise costs that can only be afforded by a select few who have political capital. This is why every communist nation had special stores for higher rank communist party members to shop in where they could buy quality and import goods that were closed to the comrades. It is why in Havana, The top elite socialist live in western style condo buildings with air conditioning, have access to western style super markets, while the rest of the population eats beans and rice and suffers living in collapsing non air conditioned sweltering colonial buildings. This is why Al gore plans to keep up his imperial life style with private planes and mining zink on his giant estates and have his Cronies krugmans with tenure living well while they dictate your lifestyle to you. The question is if freedom loving Americans will actually take the bait and go for socialized medicine and socialize housing etc and get a lot less for more or if they will resort to arming themselves with cotton candy and fighting back? The only thing you have to fear is fear it self for damn good reasons when the answers to all our problems are bad ideas driving good ones out because of ideas being money as a sort of currency. .