Geithner Wants Americans To Pay More At The Store

Posted by Jason | Posted in Economics, Foreign Policy | Posted on 07-10-2010

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Timothy is apparently asking China to make it even harder on Americans. He’s calling on China to increase the value of the Yaun, which would make Chinese products more expensive for Americans. Doesn’t he realize this is what has helped Americans live the standard of living they currently do. With the Fed destroying the value of the dollar, if China increases the value of their currency, working class and poor Americans will be in for a shock when they hit the local Walmart.

WASHINGTON—The U.S. and China stepped up their confrontation over the valuation of Beijing’s currency, prompted by fears that competing foreign-exchange policies could hamper the global economic recovery.

First, let’s quit worrying about the so called global recovery and instead worry about what’s right for the American public. If China wants to devalue their currency, it only helps Americans. Who is Geithner really worrying about?

In a surprisingly blunt speech, U.S. Treasury Secretary Timothy Geithner took China to task for maintaining what the U.S. considers a deliberately undervalued exchange rate aimed at helping China’s export industries.

By undervaluing their exchange, Americans can get products for less than they would otherwise. With the savings, Americans can acquire even more products that they would have otherwise been unable to afford had China not undervalued their exchange rate. If anyone should be complaining about this, it should be the Chinese workers as their buying power is being eaten away.

“When large economies with undervalued exchange rates act to keep the currency from appreciating, that encourages other countries to do the same,” said Mr. Geithner, using language that referred directly to China, in an address at the Brookings Institution, a Washington think tank. “This sets off a dangerous dynamic” as nations compete to keep their currencies undervalued.

It encourages other countries to do the same because their leaders are as intelligent as a bunch of monkeys. It sounds more like the old monkey see monkey do than it sounds like intelligent economic policy. Geithner is basically saying “Look China is taxing their citizens wealth away with inflation. We better do the same thing.” Of course, the Fed does plenty of this already.

In Brussels, before Mr. Geithner spoke, Chinese Premier Wen Jiabao asked European Union business and political leaders to tone down their attacks on Beijing. “If the yuan is not stable, it will bring disaster to China and the world,” he said. “If we increase the yuan by 20% or 40%, as some people are calling for, many of our factories will shut down and society will be in turmoil.”

What this basically means is if China did as the other idiotic leaders called on them to do, prices of Chinese goods would go up by 20% to 40%. How’s that inflation sound to you? Because Americans would buy less of their goods, Chinese workers would also be harmed with layoffs.

The broadsides came as leaders prepare to gather in Washington for meetings at the International Monetary Fund, followed by two sessions of the Group of 20 industrialized and developing nations. The increasingly exasperated rhetoric suggests participants are losing patience with a multilateral approach to currency issues.

Indeed, Mr. Geithner warned China that the U.S. support for a bigger role for Beijing in the IMF depends on Beijing showing “more progress” in pursuing “market-oriented exchange-rate policies.” Fred Bergsten, director of the Peterson Institute for International Economics said that U.S. was saying to Beijing, “We’ll only support your game if you play by the rules.”

Geithner playing the ugly American. Go figure. Unfortunately, China holds all the cards and they know it. Wait it gets better.

To the U.S., China is pursuing a mercantilist strategy that favors its industries at the expense of competitors in the U.S., Europe and Asia. China sees itself as pursuing its national interest and a strategy that has turned the country from an impoverished also-ran into a powerhouse.

You got that. China is mercantilist, but the US is what? We put tariffs on steel why? We put tariffs on sugar why? We subsidize our farmers why? You get the point.

Mr. Geithner hasn’t named a target for Chinese currency appreciation that the U.S. would find satisfactory. But he has often spoken favorably of the 20% rise in the yuan from 2006 to 2008.

Now could you imagine having a 20% rise in the dollar? Aren’t we always told deflation is so horrible. A little inflation is good, but you never want deflation. Well what the hell do they think a 20% rise in the yaun valuation will bring for the Chinese?

No worries though. Geithner has a solution. Cartels.

In his speech, Mr. Geithner suggested countries with undervalued currencies could cooperate on kind of joint currency appreciation. In that way, China need not worry that Asian competitors such as Malaysia and Vietnam will gain an edge if the yuan rises in value.

U.S., China Deepen Spat Over Yuan – WSJ.com.

I thought Cartels were bad. Oh, I forgot. Many things that are bad for individuals and private business are righteous when the government does them.

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Looks like the WSJ is trying to talk people out of gold

Posted by Jason | Posted in Miscellaneous | Posted on 28-05-2010

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Obviously, since the meltdown of the past few  years, gold has been in a huge bear market. I have questioned on this blog before if it’s the next bubble. I do think there is a chance it is, but I don’t doubt it’s long term up trend. The problem with critics of gold though is they are talking about gold as if you are buying a stock and hoping to crank out 20% returns per year. Here is a recent article from the Wall Street Journal along these lines.

This is a very sad day for me.

In Part One of this series, when I argued that gold might be about to go vertical, I made a whole bunch of new friends among the gold bugs.

And now I’m going to lose them all.

That’s because even though I think gold might be about to take off, I don’t recommend you rush out and put all your money into gold bars or exchange-traded funds that hold bullion.

And this is for one simple reason: At some levels, gold, as an investment, is absolutely ridiculous.

Of course you shouldn’t rush off and put all your money in gold bars. You shouldn’t do this with stocks either, but for some reason, I don’t think the author would be so anti-stock as he is about gold.

Warren Buffett put it well. “Gold gets dug out of the ground in Africa, or someplace,” he said. “Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”

No utility? Have you seen wrap videos. OK, I’m just kidding. Anyways, who says it has no utility? Gold is used plenty.

Many things can be classified as having no utility. The Mona Lisa has no more utility than a gold sculpture. Utility can be very subjective, but one thing we know for sure. People have always demanded gold, and it’s not going to change any time soon.

And that’s not the half of it.

Gold is volatile. It’s hard to value. It generates no income.

Unlike our very stable stock market, that just went below it’s year 2000 levels again!

Yes, it’s a “hard asset,” but so are lots of other things—like land, bags of rice, even bottled water.

Yes, and people invest in all those. What’s the point?

It’s a currency “substitute,” but it’s useless. In prison, at least, they use cigarettes: If all else fails, they can smoke them. Imagine a bunch of health nuts in a nonsmoking “facility” still trying to settle their debts with cigarettes. That’s gold. It doesn’t make sense.

Is this guy serious? It’s a currency substitute for a reason. It can’t be replicated by turning on a printing press. Also, is any fiat currency useful? It’s only useful for robbing people without them knowing it.

As for being a “store of value,” anyone who bought gold in the late 1970s and held on lost nearly all their purchasing power over the next 20 years.

Now this is just silly. People bought it during double digit inflation to protect their value. The government, in order to correct it’s horrible policies, decided to raise the interest rate and bring the inflation down. That drove the price down. People didn’t have to worry as much about their currency being devalued, so demand for gold went down. Of course the guy goes back to the 70s and then only goes 20 years. He didn’t want to get into the years where gold has sky rocked. That would mess up his narrative.

I get worried when I see people plunging heavily into gold at $1,200 an ounce. What if the price goes back to where it was just a few years ago, at $500 or $600 an ounce? Will you buy more? Sell?

My concerns about gold go even further than that.

Let’s step inside the gold market for a moment.

Everyone knows the price has risen about fivefold in the past decade. But this is not due to some mystical truth or magical act of levitation. It is simply because there have been more buyers than sellers.

Ah, he understands supply and demand and it’s effect on prices.

Banal, but true—and sometimes worth repeating.

If the price rises you’d think there must be a shortage. But data provided by the World Gold Council, an industry body, tell a remarkable story.

Over that period the world has produced—or, more accurately, recovered—far more gold than anyone actually wanted to use. Since 2002, for example, total demand for gold from goldsmiths and jewelers, and dentists, and general industry, has come to about 22,500 tonnes.

But during the same period, more than 29,000 tonnes has come on to the market.

The surplus alone is enough to produce about 220 million one-ounce gold American Buffalo coins. That’s in eight years.

Again, he’s going back to utility as if the gold has to be used to make something. He didn’t include currency in there. People are demanding it as a protection against monetary policies that governments are using to monetize their debts, stimulate their economies, etc.

Most of the new supply has come from mine production. Some, though a dwindling amount, has come from central banks. And a growing amount has come from recycling—old jewelry and the like being melted down for scrap. (This is a perennial issue with gold. I never understand why the fans think gold’s incredible durability—it doesn’t waste or corrode—is bullish for the market. It’s bearish.) So if supply has consistently exceeded user demand, how come the price of gold has still been rising?

In a word, hoarding.

Gold investors, or hoarders, have made up all the difference. They are the only reason total “demand” has exceeded supply.

Hoarding? Is that what people do with their savings account? Is that what you kids do with baseball cards? People hoard scarce items, because they go up in value. Hoarding is a good thing.

Lots of people have been buying gold in the hope it would rise. But the only way it can rise is if still more people buy it, hoping it will rise still further. And so on.

I’d have to disagree. I think looking at how unstable governments are, seeing the US dollar losing its reserve currency status, and watching a central bank print money like they’re manufacturing monopoly game boards is driving people to buy gold to protect the value of their current wealth.

What do we call an investment scheme where current members’ returns depend entirely on new money brought in by new members?

A Ponzi scheme.

OK, this guy is seriously crossing straight over to the nutball side of an argument. This is no different than stocks. It doesn’t matter how much money a company makes, if there is no new money brought in by “new members”, then the value of the stock will decline.  I can’t believe this guy writes for the Wall Street Journal.

Yes, as I wrote earlier, gold may well be the next big bubble. And that may mean there is big money to be made in speculation.

But I don’t trust it as an investment.

How can you square this golden circle? I’ll tell you in Part Three.

via ROI: Why I Don’t Trust Gold – WSJ.com.

As I’ve said, this author is making statements about gold as if everyone is wanting to buy it strictly for investment. Intelligent investors are investing to protect their wealth. Speculators who invest because Glenn Beck tells them to or because they think they are going to hit the jack pot because of some commercial aren’t going to properly invest no matter what some person in the Wall Street Journal says.

As far as if Gold is going to plummet. Gold is only going down when the dollar strengthens, and I’m not sure if the author has seen the news lately. There is no sign of that to come.

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Hey Look Over There! The Illegals Have Your Stuff.

Posted by Jason | Posted in Government | Posted on 03-05-2010

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Over the past week, I’ve seen many postings, blogs and pundits arguing back and forth about the Arizona immigration law. While I personally do not know how constitutional the law is, I have intentionally stayed out of the debate. The debate always seems to consist of roughly three arguments about why illegal immigrants are so bad. I would argue none of them should be laid at the feet of the immigrants, and instead should be directed toward the real culprit, the federal government.

The first argument is that immigrants are coming over the boarder and driving up our taxes because they are receiving welfare, medical care and education at the tax payers’ expense. What is the difference between the immigrant and the American citizens in our society who refuse to produce? Are they some how morally different? The problem is the entitlements in the first place. If you did not have entitlements and laws that allow entitlements to illegal immigrants, you would not have to worry about them driving up taxes. Again, I would ask though why is it OK for an American citizen to drive up your taxes by receiving unearned rewards, but for some reason the immigrant is different? Both are human beings, and both should not be able to receive unearned rewards by the force of government. We already know, the government robs Peter to pay Paul. Now would you blame Paul? Would you despise Paul? Would you put all your energy and your anger into fighting Paul? Would ridding ourselves of Paul fix the problem? No it would not. You must direct everything at the robber, and that robber is the government.

Second, I constantly hear that illegal immigrants drive down our wages and steal American jobs. So first, I must ask which is it? Do they want to come in and collect entitlements, or are they coming in and stealing our jobs? I guess it’s possible they are stealing our jobs and still collecting because their wages are so low. Why are their wages low? Their wages are low because of their illegal status. They are driven underground, and they are easily taken advantage of. They cannot take their employer to court for redress. They cannot do anything that might upset an employer to the point where the employer just turns him into the authorities.

The second problem here is the cost of an American worker compared to the immigrant worker. Because the government has purposely devalued our currency, the American worker must earn more wages than he did in the past in order to maintain his standard of living. For example, if your wages did not rise by 30% over the past decade, you are not able to afford what you were able to afford just 10 years ago. Add to that the cost of necessities such as food, gas and housing has been the most inflated, and it forces Americans to demand more and more wages. On the other hand, immigrants many times are sending their money home. Their government is even more corrupt than ours, and the dollar has maintained it’s strength versus the peso. Because of this, they do not need to demand more an more wages. Add this to their already suppressed wages because of their illegal status, and you got a double whammy against the American worker.

So do you blame the immigrant worker who is just making decisions that will best benefit his or her family? No, you should blame the group of people who eat away at the purchasing power of the American worker, the Federal Reserve. You should blame the federal government for idiotic immigration policies. Allow immigrants to come in and work, and they will not have to hide in the shadows. Then they would not be at a disadvantage when it comes to bargaining for their wages. Also, all the costs associated with American workers, such as FICA, unemployment insurance, disability, OSHA, etc would all apply to the immigrant as well since they would be out from the shadows.

Lastly, I hear about the criminal element. The immigrants are bringing the drug war to our borders. While I am no expert on the intricacies of the drug war, I will say that the drug war is also the result of our government. Because the federal government has made it illegal for adults to do as they please, it has created an underground market where the only recourse for failed business transactions is violence. If government ended the drug war, people who are in the illicit drug business would also be out from the shadows. The excessive profits would attract real business men, who would drive out the thuggish element. They would drive them out by lowering prices, creating and enforcing contracts, and delivering services without the threat of violence on the consumer. While I believe drugs to be horrible, I do not believe it is my place to decide their morality, and I do not believe people should be thrown in jail for disagreeing with me. I do know that when you criminalize anything that should be the free choice of free people, you end up with crime. I know. It’s shocker. The problem is you end up with way worse crime than the new crimes you just created. Instead of just having illegal drug use, you get murder, rape, gang violence, etc. So, when we blame immigrants for violence on the borders, I think we need to think about who really creates this environment. It’s the federal government, and we should demand that they end the drug war. Ending it does not make drug use all the sudden moral, if it is even immoral. It just rids us of all the violence that comes from pushing it underground.

People need to start realizing what the feds are doing. While people scream about the federal government not doing anything about illegal immigration, why would they? Immigrants are the perfect scapegoat for them. Always, and I mean each and every time you find yourself blaming someone other than the federal government for societal ills, quickly turn and look what the government is doing. The chances are they are creating the problem and using it to take your money and your liberty. It’s like the robber saying, “Hey, look Paul has all your stuff.” You respond, “Son of a bitch. Thank you Mr. Robbert. Can you get my stuff back from Paul?” Gladly agreeing, the robber says, “Sure. Sure I can. I’ll just need you to do a few things for me first.” Quickly all your anger is directed over at Paul and the robber gets away with theft, while having you thanking him for his help. This is what the government does to all groups. It divides us. Then it tells each group that the other group is the cause of their problems. Those groups fall for it, and the government rakes in the money and takes more and more of our freedom. Do not fall for it. Do not blame the immigrant. Blame the robber, because he’s getting away with your money and your liberty.

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New $100 Bill to Make Sure There Is Only One Fake In Town

Posted by Jason | Posted in Economics | Posted on 22-04-2010

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The U.S. government wants you to accept its new Benjamins: its new $100 notes. It hopes that counterfeiters are less pleased.

The Treasury Department unveiled what it calls “the next generation one hundred,” a redesigned $100 bank note to stay ahead of counterfeiters. The new $100 notes will be available on Feb.10, 2011.

By now, the government has become intimately familiar with the process of rolling out new money.

via U.S. Unveils New $100 Bill – WSJ.com.

We know they have become intimately familiar with the process of rolling out new money. We are reminded at the gas station and the grocery store almost daily.

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Obama to Demagogue His Masters

Posted by Jason | Posted in Government | Posted on 22-04-2010

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In order to make it seem like the government and the banking sector aren’t one in the same, President Obama is rolling out his teleprompter to deliver a speech blasting Wall Street for acting like a bunch of ignorant drunks. Who cares that the Fed was supplying the booze.

From the Wall Street Journal

President Barack Obama will return to Manhattan’s Cooper Union on Thursday, two years after a campaign speech that laid out his vision for Wall Street, to castigate a financial industry that he will say has too often forgotten the ordinary Americans who have suffered from its reckless irresponsibility.

OK, I know what you’re thinking. Here is the leader of our government blasting Wall Street for forgetting “ordinary Americans  who have suffered from its reckless irresponsibility”. This is the same government who forgot about the ordinary Americans almost a century ago. This is the same government who tried manipulated the real estate market by promoting “everyone should own a home”, which led to millions of American losing their homes and millions of others left to pick up the pieces. This is the same government who’s robbed the middle class by devaluing the currency over 30% just in the past decade. This is the same government who’s created an unsustainable empire that’s led to wars, terrorism and the hatred of America. Oh, and this is the same government who is enslaving us and our children to foreign debt holders who will have us working as slaves to pay them back. Oh please, President Obama, tell me how the evil Wall Street banks forgot about ordinary Americans.

The speech comes at a pivotal moment in Senate negotiations over a sweeping measure to re-regulate the financial industry. After trading barbed accusations, senators from both parties now say they are near a deal that would preserve the framework of Mr. Obama’s plan. By appearing just two miles from Wall Street, Mr. Obama hopes to raise the political pressure and seal the deal.

“A free market was never meant to be a free license to take whatever you can get, however you can get it,” Mr. Obama will say, according to speech excerpts released Wednesday night. “That is what happened too often in the years leading up to the crisis. Some on Wall Street forgot that behind every dollar traded or leveraged, there is family looking to buy a house, pay for an education, open a business, or save for retirement. What happens here has real consequences across our country.”

What an ignorant a-hole. Behind every dollar is nothing. That is the problem. Our government has become our modern day money changers. Unfortunately, while the people can be fooled, the free market can’t. It will blow your house of cards down eventually, which is what happen. Wall Street and the mortgage industry is not a free market. Obama is either ignorant or flat out lying. These are two of the most regulated industries we have. In a free market, you wouldn’t use monopoly money backed up by nothing. In a free market, you wouldn’t have government pushing people to buy homes with taxes credits and incentives. In a free market, you wouldn’t have bailouts and the FDIC basically telling the banks to do what they want because they’ll print more money if needed.

As he has done several times in the year-long debate, the president will implore industry executives to call back the lobbyists engaged in “furious efforts” to thwart or water down his legislation.

“I am sure that many of those lobbyists work for some of you,” he will say, according to the excerpts. “But I am here today because I want to urge you to join us, instead of fighting us in this effort. I am here because I believe that these reforms are, in the end, not only in the best interest of our country, but in the best interest of our financial sector.”

Sure sounds like something a mafia thug would say. Lobbyist are sent to argue the side of their client. When you have people with guns that say they are going to start shooting, of course you are going to have people sending representatives to argue why their clients shouldn’t be shot. Maybe if we had a free market, where the government wasn’t pointing guns, we wouldn’t need lobbyists.

The legislation would grant the federal government the power to seize teetering financial giants and dismantle them the same way the Federal Deposit Insurance Corporation now can seize failing banks. It would create a new financial consumer regulator, would boost the strength and budget of the securities and exchange commission and would impose new transparency rules on the trading of derivatives, the complex financial instruments that helped bankrupt Lehman Brothers and nearly wipe out American International Group and Merrill Lynch.

More moral hazard. Just what we need. How about we let them fail, and let everyone know that we will let them fail. When everyone knows the government is going to step in no matter what happens, they will rightly assume that they can take idiotic risks that they otherwise wouldn’t. People bet on CDOs and housing because they knew the government would not let housing collapse, in particular Fannie and Freddie.

Mr. Obama will treat his return to Cooper Union as something of a triumphal homecoming, with a touch of “I told you so” in the speech. Two years ago, he called on Congress to give the Federal Reserve more supervisory power over the biggest financial institutions and to demand tougher new capital and liquidity requirements. Pending legislation largely follows that demand. Congress appears ready to meet his request, now two years old, for a new financial consumer regulator. His calls for stronger, international accounting standards and financial stability requirements have been taken up by the Group of 20 nations, although talks are proceeding haltingly.

This is just hilarious. “he called on Congress to give the Federal Reserve more supervisory power” is Obama’s “I told you so”? The Federal Reserve is the reason we had this mess. This is like saying we should give Madoff more power to regulate the purse snatchers of the world.

His 2008 suggestion of streamlining the hodgepodge of “overlapping and competing regulatory agencies” has been abandoned. But he will dwell more on the warnings he issued in that first Cooper Union address.

“I take no satisfaction in noting that my comments have largely been borne out by the events that followed,” he plans to say. “But I repeat what I said then because it is essential that we learn the lessons of this crisis, so we don’t doom ourselves to repeat it. And make no mistake, that is exactly what will happen if we allow this moment to pass – an outcome that is unacceptable to me and to the American people.”

“One of the most significant contributors to this recession was a financial crisis as dire as any we’ve known in generations,” Mr. Obama will say in a highly-anticipated speech at the Coopers Union, a college in New York.

He will tell the expected crowd of 700 that America must learn from the mistakes of the economic crises and enact legislation to help prevent it from happening again.

Yes, we live with a broken record government. We always need more legislation to help prevent something from happening again. Over and over we are told they must act to protect us. Only they aren’t protecting us. They are stacking the deck more in their favor. If you want real reform, ask them to quit protecting us.

Obama’s push for financial reform has intensified in recent weeks and he has lashed out at Republicans for meeting with Wall Street lobbyists. In his speech he is expected to say that legislative proposals in Congress would help restructure the rules that allowed Wall Street to take risky bets that Americans ended up paying for.

Republicans have to be completely tone def. What morons would meet with Wall Street lobbyists after everything that just happened? Oh well, I’m hoping for a third party anyway.

He will state that he won’t accept compromises that would weaken the bill, particularly in the area of derivatives, complex financial instruments that played a role in the economic crisis.

He will also say that financial reforms must set limits on the size of risks that banks can take, and include provisions that would make it easier for a failing institution to unwind before taxpayers would be affected. He will also say he believes in a free market. “But a free market was never meant to be a free license to take whatever you can get, however you can get it,” he said. He will add, “That is what happened too often in the years leading up to the crisis.”

-By Jared A. Favole

via Obama to Castigate Wall Street – WSJ.com.

Hahahaahahah, Obama will also say he believes in the free market? This sounds like the plantation owner telling his slaves how much he believes in freedom. What a damn joke. I can see it now. “I believe in the free market. Now let me tell you all the regulations, loop holes, incentives, kick backs, and advantages I’m going to hand out. Also, we’re going to print more fake money that we will filter through these same evil banks. This free market stuff rules!”

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A Fable To Expose The Fed

Posted by Jason | Posted in Economics | Posted on 11-03-2010

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Here’s a great fable from the Conservative Business Network.

My mother and father would hark back to the days when a loaf of bread was only 8 cents. “Mom”, I would say, “things just cost more.”

Could I have been more wrong?

Things don’t cost more, it is a hidden tax!

How Inflation is Created

Contrary to common thought, inflation is not the normal order of things. It will all become very clear when you read this short analogy.

There are 10 people in a community.

1. Abe makes tractors

2. Bill makes gas

3. Charlie builds houses

4. Darin is a developer

5. Edward makes tractor parts

6. Frank is a produce farmer

7. George raises cattle

8. Hank is a tractor mechanic

9. Ian owns and drives a delivery van

10. Jasper is a laborer

These hardworking folks soon learned a simple barter system would not work. When Charlie built a house for Hank, he wanted to be paid, but did not need tractor parts.

They needed something else of value to trade. Everyone knew this was a problem for them too. So they all got together and created an advanced barter system called money.They created the “DayCredit” or as it became known the DC.

A DayCredit was equal to exactly (1) 12 hour day of work. Since it takes Charlie 3600 hours to build a house, the house is worth 300 DC’s. That means Hank is going to have to labor as a mechanic for 300 days to pay for the house.

With DC currency, it does not matter for whom Hank works, as long as they pay him in equivalent DC currency. Charlie knows that the money he receives can be used to buy goods or services from anyone else in their group.

So far; so good.

One day, the Fedrev family moves into town. The whole town is excited and welcome the Fedrev’s with open arms. They explain to them how their barter system works and the Fedrevs agree to accept and use the DC currency.

Up until this point, everyone printed their own currency based on integrity and full guarantee of their 12 hr work day per DC.

Fedrev was a printer and supplied printing services. Then one day they offered to be the sole printer of the DC currency. A reasonable idea but unfortunately Fedrev was lazy and dishonest.

Fedrev wanted to have the nicest house in the community but did not have enough DCs to purchase the house from Charlie. So they very quietly printed a little extra money and gave it to themselves as a 10% interest bonus. They then used that money to buy the most expensive house Charlie could build.

Everyone knew there were more DCs in the system than there were labor hours to back them up. So when Frank went to buy a tractor, Edward would no longer accept 1 DC per 12 hr day. Edward now wanted 1.1 DCs for each labor day he needed to build a tractor.

Jasper the laborer could no longer afford to buy produce because Frank had to raise his prices to cover the cost of the tractor. So he demanded a cost of living adjustment from George the Cattle farmer.

Upon learning that George’s beef prices went up by 10% Bill raised his gas prices to cover his family expenses.

And so on.

Sadly, due to dishonest money policy, 10% of the value of the money simply disappeared. A day's work is still a days work, but for this community, a day’s work is only worth 91% of what it used to be.

For those that could raise their prices, it was a wash.

But for those who could not raise their prices, their money now buys less. A day of delivery for Ian is no longer worth a 12 hours of Bill’s gas production.

Rising prices are absolute proof that too much money is being pumped into the system!

I get inflation, but how is this a hidden tax?

Great Question.

Who benefited in the community of 10?

Read the rest at Conservative Business Network.

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“Low Rates Still Needed”, So Says Our Central Planner

Posted by Jason | Posted in Economics | Posted on 25-02-2010

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Will Bernanke be raising rates anytime soon? Sure doesn’t look like it.

After taking several small steps recently to take the financial system off life support, Federal Reserve Chairman Ben Bernanke made clear Wednesday that he wasn’t close to the more momentous act of raising interest rates, thus tightening credit.

In his semi-annual testimony to Congress on the economy and monetary policy, Mr. Bernanke said that short-term interest rates, now near zero, were likely to remain there for at least several more months.

He highlighted worries about what he called the “nascent recovery”—marked by high unemployment, wobbly real-estate markets, weak lending and large budget deficits. Mr. Bernanke said slack in the economy meant the benchmark federal-funds rate would remain near zero for an “extended period.”

Fed chairman Ben Bernanke will update Congress on monetary policy this morning. The question-and-answer session might prove illuminating, Kelly Evans reports on the News Hub.

via Bernanke: Low Rates Still Needed – WSJ.com.

OK, so if Americans tossed aside the assumptions that are programmed into them by the media and schools, they would ask, “How does Bernanke know when the rates need raised?” Well, the truth is he doesn’t.

Just think about this whole concept of central planning when it comes to interest rates. Interest rates are just the cost of money. It should be set by supply and demand just like the cost of any other product or service. So, what would have happened if Bernanke didn’t crank interest rates down to zero to fix the bubble the Fed just created and popped? Well, rates were high because the Fed raised them before the bubble burst, which ultimately popped the bubble. Now, let’s say the Fed disappeared off the face of the earth at that moment and the free market took over. Interest rates would have been high at the moment just like it was. When the interest rates are high people save instead of spend. If for instance you are looking to invest in a building and your return is 7% but interest rates are 6%, are you going to spend that money or save it? You are better off saving it than taking the risk for an additional 1% return.

Now, with an increase in savings and a decrease in borrowing, what would happen? What happens anytime supply (money in this case) increases and demand (borrowing in this case) decreases? The price (interest rates in this case) declines. As it declines, all the sudden that investment in a new building makes more sense, and at that point you will have real investment based on real economic conditions. The interest rate will actually mean something, and you will know that currently based on the interest rate there is ample supply of money in savings to be lent out to fund this project. The funding will not dry up at the whim of the Fed half way through the project.

Now the opposite is true as well. If too many people start borrowing instead of saving, the interest rate will increase. With less savings, supply (money) decreases. When supply decreases and demand increases or remains the same, what happens? Prices (interest rates) go up.

The market can handle money and interest rates based on real conditions. Instead, much like the Soviet economy, we have a central planner who has no clue what the real conditions are. Think about it. When the economy tanked, people should have stopped borrowing/spending and began saving. That would have lowered interest rates and got investments back on track after savings was back up to a sustainable level. Instead, the Fed dropped interest rates to the floor (actually negative real interest rates), which discourages savings. Is it any wonder our economy seems to have booms and busts? Businesses decide to invest assuming that there is ample supply of money. The problem is there was no real savings, because the Fed’s zero percent interest rates discouraged savings. Then some point in their project, the Fed decides they want to raise interest rates, and funding for that project dries up. This is not based on real market conditions, but because the Fed said so. Now this business lost it’s investment, which can ultimately lead to bankruptcy, laying off employees, etc.

Hopefully this makes sense. I’m not an economist, but sometimes I play one on this blog and not a very good one.

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Fed to Outline His Wizardry

Posted by Jason | Posted in Economics | Posted on 08-02-2010

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The Wall Street Journal has an article talking about how Ben Bernanke is going to layout his master plan on how to prevent inflation after printing trillions of dollars while at the same time not collapsing the economy. Sounds like a tight rope walk on an icy rope to me.

Federal Reserve Chairman Ben Bernanke will begin this week to lay out a blueprint for a credit tightening, to be followed once the Fed decides the economy has recovered sufficiently.

The centerpiece will be a new tool Congress gave the central bank in October 2008: an interest rate the Fed pays banks on money they leave on reserve at the central bank. Known as “interest on excess reserves,” this rate is now 0.25%.

The Fed is still at least several months away from raising interest rates or beginning to drain the flood of money it poured into the financial system in 2008 and 2009. But looking ahead to when the economy is strong enough to warrant tightening credit, officials have been discussing for months which financial levers to pull, when to start and how best to communicate their intent.

When the Fed is ready to tap the brakes, it plans to raise the rate paid on excess reserves, according to Fed officials in interviews and recent speeches. The higher rate would entice banks to tie up money they otherwise might lend to customers or other banks. The Fed expects such a maneuver to pull up other key short-term rates, including the federal-funds rate at which banks lend to each other overnight—long the main tool for steering the economy.

In response to the worst financial crisis in decades, the Fed took extraordinary action to prevent an even deeper recession— pushing short-term interest rates to zero and printing trillions of dollars to lower long-term rates. Extricating itself from these actions will require both skill and luck: If the Fed moves too fast, it could provoke a new economic downturn; if it waits too long, it could unleash inflation, and if it moves clumsily it could unsettle markets in ways that disrupt the nascent economic recovery. Mr. Bernanke and his colleagues are attempting to explain—both to markets and the public—that the Fed has an exit strategy in the works in order to bolster confidence in its ability to steer the economy.

Couple questions, because I am not an economist. First, where does the money come from to pay this “interest on excess reserves”? I guess they just print it. So the answer to preventing inflation is to print money and pay banks with newly printed money to hold their reserves with the Fed. If what I understand of inflation is correct, it’s the printing of new money that is inflation, and higher prices is just a symptom of inflation. It sounds to me like all this does is create more inflation. Again, I’m not an economist, so I could be completely wrong on this. It sounds to me like someone taking ibuprofen when they have strep throat. You may have minimized the symptoms, but you still have strep throat that needs to be dealt with. (I had strep a month ago, so this was the best example I could think of.)

Second question is is it me or are the conspiracy of bankers controlling the world sounding more and more realistic. They screw up the whole country, and what is their punishment? They get bailouts dollar for dollar with no losses on their bad bets. Then they get paids to keep their share of newly printed money at the Fed. They get paid when they lend it out at 10 to 1, and if they screw up, guess who’s back to bailing them out.

Third question is more rhetorical. Based on the last paragraph, does anyone have “confidence in it’s ability to steer the economy”? This is the same Fed that steered the economy into its current crisis. They created a huge bubble because of their low interest rates, which they are now trying to cure with even lower interest rates. Now they tell us they have a master plan to get us out of printing trillions of dollars without massive inflation.

The nature of its exit from today’s unusually low interest rates will affect everything from mortgage rates and what companies pay on short-term borrowings to the rates savers earn. The timing and sequence of the steps are the subject of intense speculation in financial markets.

You have to just love the government. They blame the speculators when things aren’t going the way they claim they are supposed to go, and then they create all these areas of speculation. If the government would just let the free market work, speculators wouldn’t be sitting around trying to figure out what the government is going to do. I’m sure there are some out there who would pay good money to know before hand what they are going to do. Nah, that would never happen with our “trusted” officials.

Officials are warning investors and banks to prepare for surprises.

In January, Fed Vice Chairman Donald Kohn said: “Interest rates are difficult to forecast in the most settled or normal times, and their path is especially uncertain in the current circumstances.”

The Fed is contemplating other innovative steps to manage some of the money it has pumped in, steps that officials say could come either slightly before or alongside a boost in the rate on reserves.

One is to encourage banks to tie up money at the Fed for a set period—preventing them from lending it—in what are called “term deposits.” Another is to lock up funds, and thus constrain the supply of credit in short-term lending markets, by borrowing against the Fed’s large portfolio of securities holdings, in trades known as “reverse repos.” When the Fed borrows from the markets, it effectively takes money out of circulation and replaces it with securities from its holdings.

via Fed to Outline Future Tightening Steps – WSJ.com.

Oh boy. The Fed is coming up with new tools. What’s the old saying, “when the only tool you have is a hammer, everything looks like a nail”. Sounds to me like they just got different hammers, and they are going to pound the same nail. The problem is we are the ones holding the nails, and I have a feeling we’re going to get our fingers smashed.

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Rep. Marcy Kaptur exposes Tim Geithner

Posted by Jason | Posted in Government, Video | Posted on 29-01-2010

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I love this video I found on The Daily Paul. It reminds me of a court room drama, where the cross examiner just destroys the witness.

Of course, we are supposed to just trust Geithner. He loves the common folk and is only looking our for their interest. The fact that Goldman Sachs made their biggest profit ever was just a side issue. It was just a symptom of his love for the people.

Rep. Marcy Kaptur Smashes Geithner | Ron Paul 2012 | Campaign for Liberty at the Daily Paul.

http://www.youtube.com/watch?v=JtwVRM0OG58

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Meltdown by Thomas E. Woods Jr – The best explanation of our current financial crisis

Posted by Jason | Posted in Economics, Video | Posted on 28-01-2010

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This is from a lecture Tom Woods gave about his book, Meltdown. Tom is an awesome presenter and makes boring topics entertaining. By the end of the lecture, you will understand exactly who caused the mortgage meltdown, the financial crisis and our current recession.

This is a Youtube playlist, so the next part will automatically start. It’s a little over an hour for the full lecture.

httpvp://www.youtube.com/view_play_list?p=CB9B817C147AEC7B

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