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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China’s Bubble – This could get ugly real fast

Posted by Jason | Posted in Economics | Posted on 27-04-2010

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Keep an eye on this. Because China, like the US, doesn’t have a free market when it comes to interest rates, there is a good chance they will pop their real estate bubble, and when they do, it’s going to set off round two of the global financial crisis. Of course, that will set off the Fed to print even more money, which will fuel inflation even more.

Should I go buy my wheel barrow now?

Asian stock markets traded mostly lower Tuesday, with markets in China and Hong Kong weighed by fears Beijing may introduce further tightening measures aimed at curbing the property sector.

via China Down on Tightening Fears – WSJ.com.

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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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Time For The Middle Class To Eat The Cost of Government

Posted by Jason | Posted in Economics, Government | Posted on 19-02-2010

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When Democrats want welfare programs and Republicans want wars, ultimately the bill comes due. When asked how they are going to pay for them, they always default to their standard line, “We’re going to tax the rich.” Well, the rich are not that stupid to pay for other people’s free lunch. How do they avoid paying? Well, let’s look at how we are going to pay off the debt we have accumulated with all the government spending.

As the White House tried one more time Thursday to galvanize support from a recalcitrant Congress for a deficit commission to tackle the nation’s dangerously bloated debt, fears are growing that the United States will once again resort to printing money and ginning up inflation to resolve its debt problem.

While accelerating the printing presses could do irreversible damage to the dollar’s international reputation and the U.S. economy, history suggests that this is the way Washington will go to avoid the political pain of having to raise taxes and cut spending on popular programs such as Social Security, defense and Medicare.

Some notable economists argue that such a move would avert a debt crisis like the one confronting Greece and other European countries that have been unable to reduce spending because of strong public resistance.

Political leaders and the Federal Reserve, which is charged with printing and circulating U.S. dollars, strenuously deny that they have any intent to “inflate” out of the debt.

Nevertheless, a sign emerged this week that the prospect is increasingly becoming an issue in internal Fed deliberations.

The Fed’s most strident inflation fighter, Thomas Hoenig, president of the Fed’s Kansas City reserve bank, warned on Tuesday that “short-term political pressures” are prompting Congress to take a risky gamble by continuing to borrow at unsustainable rates rather than address the deficit problem and he expects political leaders to be “knocking at the Fed’s door” to demand that it print money to pay for the debt.

This path “inevitably leads to financial crisis,” Mr. Hoenig said, while the inflation it would spawn would threaten American living standards and destroy the independence and credibility of the Fed, whose most important job is to prevent inflation.

That’s right. How do you rob the middle class without most of them knowing you are taxing them to pay for government? You devalue the money they have. Think this isn’t a tax on the middle class? Well, prices will effect he poor as well, but they get inflation adjusted government benefits anyway. How about the rich? Well, the rich own assets, which go up with inflation. Rich people aren’t sitting around swimming through their devaluing dollars like Scrooge McDuck. They own real estate, businesses, etc. Real estate prices go up with inflation. Businesses will charge more for their products and services, so their value will go up with inflation. Now, how about the middle class? The middle class will be the ones paying this tax. Their pay will not adjust before prices increase, so their pay will be eroded and they will afford less goods and services.

Keynesians, the ruling economists of our government, believes that in a recession wages will not decrease enough to help with improving the economy. They believe this to be the case, because workers are unwilling to take less pay. I can tell you from real world experience this is not the case. Many workers have taken one or more pay cuts in our current recession to help their companies and to remain employed. The Keynesians though argue that because workers won’t take pay cuts, you must lower their pay without them knowing it. How do they do it? They devalue their pay with inflation. Just more of the government trying to manipulate the economy at our expense.

But despite some resistance and wariness at the Fed, a growing number of Wall Street gurus expect the U.S. to adopt at least an unofficial policy of growing or “inflating” out of the debt in light of Congress’ unwillingness to tackle budget deficits running at more than $1 trillion for the foreseeable future.

“Inflation was the largest factor behind debt reduction” after World War II, he said. “Growth was the second-largest factor,” with Congress making only a small contribution through modest budget restraint. The behind-the-scenes role of the Federal Reserve in accommodating faster growth and inflation through faster money creation was critical, he added

I guess this is supposed to be an example of us doing this in the past, so you should just say, “Oh, OK. If it worked then, then I guess we can do it now.” This is a horrible example though. One, we went into debt to fight the largest war the world has ever known. Currently our debt is largely frivolous spending, with more spending in the pipeline. Second, we had tremendous growth after the horrible policies of FDR were removed from the economy after the war. Imagine how fast you would be able to run, after throwing another person off your back. That is what happened to the economy. The rationing and price controls implemented during the new deal and the war, shackled the economy. When they were removed, the economy boomed. Do you see that happening now? Of course not, it will take much more inflation than it did after the war.

“The independence of the Fed is extraordinarily important. If the Congress or the administration were to begin to interfere with our monetary policy decisions, then the markets would say, wait a minute, there’s going to be more inflation because of political reasons, more inflation because the government wants the Fed to spend money in order to pay for the deficit.”

Independent my ass. The Fed was created by the congress, which means ultimately the congress can pressure them to do what they like. Watch Bernanke testify before congress, and see how often he mentions what congress tasked the Fed to do. The congress could easily change what they task them to do. There is no such thing as independence when one party has a gun.

But some analysts say the Fed undermined its own case last year by instituting programs that had the effect of helping to underwrite the Treasury’s debts.

The Fed printed money to purchase $200 billion of Treasury bonds last year in an effort to keep interest rates low and nurture an economic recovery. The rationale was that interest rates paid by consumers and businesses are linked to Treasury rates. But Fed officials ended the program in the fall, partly out of concern that it gave the appearance that the central bank was printing money to help underwrite the national debt.

Some respected economists have openly advocated an inflation strategy for reducing the debt. Kenneth Rogoff, a former chief economist at the International Monetary Fund, has suggested a 4 percent to 6 percent inflation target for the Fed to help deal with the debt.

via Induced inflation feared as way to cut debt – Washington Times.

How many people have are getting 4 to 6 percent raises every year just to keep their same purchasing power. Of course, what this number really is is disputable. The Fed uses the Core CPI with energy, food, and housing excluded. It just so happens those are the areas where most of your money goes.

“What? No, No, there’s no inflation here. Look! The CPI says so. Nothing here to see. Get back to work. You’ll need to get some extra hours in.”

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TEOTWAWKI survival tip….Save your nickles

Posted by Jason | Posted in Miscellaneous | Posted on 11-02-2010

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A while back I wrote a post on a book I was reading, Patriots: A novel of survival in the coming collapse. The book was awesome. You can read my post here. Recently, the author had a post on his site about saving nickles. Here is part of the post.

I’ve often mused about how fun it would be to have a time machine and travel back to the early 1960s, and go on a pre-inflation shopping spree. In that era, most used cars were less than $800, and a new-in-the box Colt .45 Automatic sold for $60. In particular, it would be great to go back and get a huge pile of rolls of then-circulating US silver dimes, quarters, and half dollars at face value. (With silver presently around $15.50 per ounce, the US 90% silver (1964 and earlier) coinage is selling wholesale at 11 times face value–that is $11,000 for a $1,000 face value bag.)

The disappearance of 90% silver coins from circulation in the US in the mid-1960s beautifully illustrated Gresham’s Law: “Bad Money Drives Out Good.” People quickly realized that the debased copper sandwich coins were bogus, so anyone with half a brain saved every pre-65 (90% silver) coin that they could find. (This resulted in a coin shortage from 1965 to 1967, while the mint frantically played catch up, producing millions of cupronickel “clad” coins. This production was so hurried that they even skipped putting mint marks on coins from 1965 to 1967.)

Alas, there are no time machines. But what if I were to tell you that there is a similar,albeit smaller-scale opportunity? Consider the lowly US five cent piece–the “nickel.”

Unlike US dimes and quarters, which stopped being made of 90% silver after 1964, the composition of a nickel has essentially been unchanged since the end of World War II. It is still a 5 gram coin that is an alloy of 75% copper and 25% nickel. (An aside: Some 1942 to 1945 five cent coins were made with 35% silver, because nickel was badly-needed for wartime industrial use. Those “War Nickels” have long since been culled from circulation, by collectors.)

According to www.Coinflation.com, the 1946-2008 Nickel (with a 5 cent face value) had a base metal value of $0.0677413 in 2008. That was 135.48% of its face value. (In recent months, with the recession, and a decline in industrial demand for copper, the base metal value of a nickel dropped below face value. But even at today’s commodities prices, you will start out at “break even” by amassing a stockpile of nickels.) I predict that as inflation resumes–most likely beginning in 2011–the base metal value of nickels will rise substantially.

via Survivalblog.com.

Then he posted a letter from one of his readers that had some tips on how to get your hands on a large amount of nickels.

Lessons learned

- Offer to take the nickels that they are sending back to the Fed. They save money in shipping and get paper money to put right back in circulation.

- Find a bank with a coin counter in the lobby. Those coins may be rolled up already and they will give you the nickels to save them shipping costs.

- When trying to cut a deal, be honest. When I went back to the first bank I told them why I was wanting nickels. We have been loyal customers of the bank and they have done right by us and were willing to work with me.

I found an interesting web site where you can buy $10,000 worth of nickels at face value and copper pennies at spot prices.

Thanks for all you do. Regards, – Cascinus, Jefferson City, Missouri.

via Letter Re: Stockpiling Nickels was Easier than I Had Thought – SurvivalBlog.com.

While I won’t be rushing out to buy nickels myself, it’s good info to know.  Personally, I’d be investing in some food storage and ammo first. Once you have those covered, nickles sound like a good idea.  It also doesn’t sound like a bad idea to just keep your nickels as you get them. Even better, I can probably tell my kids this, and they’ll gather all the nickles up for me. They’ll probably even con grandma and grandpap out of nickels….. Ah come on. We’ll take care of them when TEOTWAWKI hits.

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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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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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Ready for the second real estate collapse?

Posted by Jason | Posted in Economics | Posted on 25-01-2010

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It looks like the housing market is going to head into it’s second slump. What will the government try to do next? Hopefully nothing, but we know the idiots in Washington will feel they need and can do something.

Sales of previously owned U.S. homes fell at the fastest pace on record in December, though prices rose for the first time since the credit crisis began in August 2007, an industry trade group said on Monday.

The National Association of Realtors said existing home sales fell 16.7 percent to an annual rate of 5.45 million units in December, a sharper decline than the 5.90 million unit pace expected.

via Hot Air » Blog Archive » Gov’t pulling out of mortgage support as home resales plunge.

The problem is there is a good chance we are going to have major inflation, so trying to prop up housing again with low interest rates is only going to make inflation worse. Then again, if you have enough inflation, housing might eventually be valued at their earlier inflated prices at least in nominal dollars. Of course, everything else will be more expensive as well, and the economy will have to be clamped down on to bring inflation down, so we’ll be back at it again. Isn’t government intervention great? They are just so good at stabilizing the economy.

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The Federal Reserve Is Robbing You

Posted by Jason | Posted in Economics | Posted on 05-01-2010

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I was reading a blog on Shay’s rebellion and big government on a blog called Right Condition. You should check out the whole article, but here is a paragraph that highlights how the federal reserve is robbing the middle class.

Whether you look at the debasement of the Roman currency or the systematic destruction of the Byzantine gold coin the result is always the same. Debasement of a civilization’s currency leads to the civilization’s demise as the population is systematically robbed while the ruling class grows richer. This is precisely what is happening in America today! If you are not convinced, play around with the inflation calculator. You will find just as an example a 30% inflation rate since 1999. Similarly in 1999 the median income was 42k, while in 2009 the median income stands just north of 46k. So while prices on average went up 30%, median incomes barely went up 10%. This is a systematic plunder of American wealth.

Think about the average household basically being robbed of 20% of their purchasing power. I love how the government keeps coming out with these low inflation numbers, but every citizens knows inflation has been through the roof since 2000. Gas prices are up over 100%, which is down substantially from it’s high. A bag of potato chips that used to cost a dollar is now three or four dollars. Utility bills eat up a larger percentage of your income. Housing prices went through the roof, and even though they have come down, they are still way above their 2000 level. On top of that, the government and the Fed are trying to inflate their way out of the mortgage crisis. Still, the Democrats stand around complaining about the wealth gap. Well, here is your wealth gap. It is expanded by the Federal Reserve.

Is there a modern day Shay on the horizon?

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