Wednesday, June 14, 2017

The problem with unfettered lending

Definitions

For starters, we have to establish some definitions.  Historically, lending had to come from actual money; when it didn't bad things happened.  By that, I mean that lending came from money set aside for that lending.  So, when you wanted to buy a house, you went to a rich man and begged to borrow money, which he lent to you with interest.  That money was wholly and completely owned by the lender, and, once he signed it over to you, he no longer had it.  This is classical lending.

At some point, the rich men turned into bankers and started writing notes for money rather than hand out money itself.  This was quite a bit of an improvement, as you only had to carry around a paper note, the note was backed by real money and it was normally directed to someone making it harder to steal than physical money, commonly gold or silver at the time.

Anyway, bankers took deposits and made payments on behalf of their clients.  A draft drawn on one banker might be submitted to another banker as payment.  Then they would settle accounts later, reducing the amount of physical money that had to be transferred between banks.  At this time, bankers for bankers came to be, who dealt primarily with reconciling banks.

Anyway, a given bank would have a large amount of money it didn't expect to be redeemed.  Since it primarily passed around paper notes and it had become fashionable to not actually redeem the notes, the bankers decided they could write some notes beyond the amount they actually had on hand.  This allowed them to make more money than they could otherwise do.  This is called 'fractional reserve banking'.

How it works: consider a banker.  We'll call him Hank.  Hank has exactly 100 gold bars that has been given into his custody.  On a monthly basis, when he reconciles with other banks, he finds that he seldom has a turnover of more than one gold bar, meaning he's almost always either had to pay a single gold bar or gotten a single gold bar.

Doing some quick math, he decides that he can lend out up to half his gold reserves and still have a nice cushion in case everyone demands their money.  He's been lending at, say, 10%, meaning that for each gold bar that he has that someone has allowed him to lend on, he's making a tenth of a gold bar a year in simple interest.

Supposing he has two gold bars he can lend, as the people who have given him those have agreed to not redeem them in exchange for some interest payment from him, say 5%.  Off those two, he gets a tenth of a gold bar per year, his clients get a tenth, and he increases his lending ability by a tenth.  He has a further gold bar that is his, for another tenth a year.

Well, he figures that even those two gold bars are part of his 'reserve', so he can lend a further five gold bars without paying anyone interest.  On those, he gets another half a gold bar a year.  This means he is now getting eight tenths of a gold bar off an actual investment of just one gold bar of his and two of his clients.  He still only pays out one tenth of that to his clients, so he is now getting seven tenths of his own.  He's gone from a return on his personal investment of about 20% to 70%.  This is very good for him.

Initially, it's good for society as well, apparently, as those five extra gold bars in loans mean much more work available.  As we shall see, long term, it's not so good.  Initially, the loans are paid off, and all is well.  As we shall see, later on, the payments will start drying up as he has to chase ever worse loans to keep the lending flowing.

Fast forward many, many years, and now we have the modern era where money has no backing whatsoever.  Further, loans need not even come from actual monetary backing.  The fractional reserve above is about 66%, meaning that, for the outstanding loans, Hank has 66% actual gold to back it.  These days, apparently, the reserve percentage is something like 3 to 5%.  Hank's bank is actually not loaning out more money than he has, while the modern bank loans out as much as twenty times as much money as it has.  This is the era of 'quantitative easing'.

So, why is this bad?

We've only talked about the banker's side of things.  It's been great for Hank.  He's never made so much money.  His accumulation of money has allowed him to grow the business of loaning and thus make even more money.  In the modern era, bankers don't even have to have much money to start; they only have to qualify as a bank.

Anyway, we'll consider what happens in our fake economy.  We'll pick, say, 100 people, one of whom will be a banker.  Our economy will only discuss the purchasing of cars.  They get distributed income to make things easy, so each person gets, say, $100 per month.  Our banker starts with, say, $1000 and each car costs $1200.

Normally, each person would have to save at least twelve months to get a car.  With 100 people buying cars without banking, that means around 100 cars sold per year.  We like easy to work with numbers.

Since the cars move so well, the car companies keep around 20% extra capacity, or twenty cars, on hand as inventory.  A banker comes to a car dealership and offers to finance those twenty cars to people with good credit.  The terms are fifteen months' pay for a car, but you get it today.  The banker is financing the $1000 and getting back $1250.

What happens is that twenty people buy those cars immediately because they get to keep their savings and will have to pay back in the future.  This means that twenty cars are retired early or that they buy an extra car.  Either way, there are more cars than used to be necessary.

Over the next fifteen months, the banker will get the savings that would have been put towards the car . The banker simply wrote notes for the cars, at the 20 to 1 ratio, meaning that he's making 2500% return on his investment.  At the end, he goes from having $1000 to having $6000.

Since the car purchasing wiped out several months of normal car purchases, meaning that the only way more car purchases can be made is to make more loans, so the car dealerships ask if they can keep selling on loans, to maybe less reliable payers.  He agrees but requires 18 months repayment for those buyers.  For the remaining 11 months, the car sellers sell their normal yearly allotment of 100 cars, not building inventory, at the new terms.  We're going to wave hands a bit and say that, at the end of the year, the banker has gotten about nine new loans a month.  At the end of the year, he has received $70,200.  More importantly, each and every resident is now indebted to him and isn't saving anymore.  When all the loans are repaid, he will receive $79,200 in real money.  He ends up loaning for all sorts of different things so he can get more money.  He has to make more and more marginal loans to even be able to make loans.

What I'm getting at is that each loan that a person takes out leads to them not saving, not spending as much and buying earlier than they otherwise would.  As you can see, 119 cars were sold rather than the 100 that normally would be sold.  Car manufacturers will have to scramble to increase their production, initially by hiring more people, then by making less reliable cars.  This is a classical bubble in cars.

As this progresses, the banker comes to hold ever more a portion of the wealth of the society, as well as more and more of the earnings.  Eventually, he can control everything but the staples like food, energy and utilities.  Oddly, this means that, for the short term, productivity goes up as everyone works like lemmings to pay for everything, but this is observable in modern society, as we are all working longer hours just to stay even.

This explains everything

As I said above, we work more to stay ahead.  Productivity has soared in the last hundred years or so, but most people are still barely scraping by.  We also see the so-called 1% gain ever more control of the economy.  We see an increased spread in wealth distribution, where the rich control ever more of the economy.  All of this is predicted by our model and all of it is caused by fractional-reserve banking coupled with quantitative easing that allows banks to get money from the Federal Reserve Bank for low or no interest, allowing them to loan money they don't have.

What we have allowed is certain well-connected people to get money for which they have not worked and for which they have no claim, and it makes me so mad I can't see straight.  Fixing this is easy; simply get rid of the Federal Reserve.  That would, unfortunately, lead to a massive depression caused by massive deflation as a result of a contraction of the money supply and the need to clear all the malinvestments from the economy.

Malinvestments are things that were done that would not have been done if money hadn't been so free, things that don't necessarily make sense and might even be things nobody wants.  A malinvestment is more than just lost money; it's lost opportunity to produce.  Each and every person working on one of these pink elephants is not making tooling or fixing cars or whatever people really need and want, meaning that while they are off making things people don't want, they are competing for things people do want and generally driving up prices.

Clearing out those malinvestments will wipe out an awful lot of money from the system and make money scarce.  This will raise the prices of nearly everything, causing defaults on loans, which will make money even scarcer.  To protect yourself in such a situation, you need cash reserves, but it's a difficult call, because the bureau does not expect any politician will let such a situation develop, especially since it would hurt their buddies the bankers.  If you keep cash and hyperinflation sets in, you are going to be wiped out.

So, the only option really available is to acquire things of substance, as an inflationary regime will make them appreciate in value and a deflationary regime won't wipe out their value compared to other things.  Of particular worth is farmland, because people always have to eat.  Also useful, as has been pointed out before, is owning a small business with good people.

Of course, none of this is economic advice; these are all the musings of a few admittedly odd individuals.  You must do your own thinking when it comes to your own money.

Tuesday, June 13, 2017

What is really happening, scandal edition

Trump

Well, it's the name on everyones' lips.  There seems to be two major factions, one that is insistent that he is the antichrist incarnate and the other that insists that he is our savior.  Those two are engaged in a battle that is largely pointless to the rest of us.

I supported Trump over Hilary Clinton.  I thought Trump might actually be good.  I'm seeing little to actually disabuse me of that notion.  From an objective evaluation, what Trump has done is not that far out of the ordinary, even the things he does with which I do not agree.

Immigration

So, Trump's immigration order has resulted in a rather unprecedented response.  Courts have made blanket, nation-wide injunctions, which aren't particularly common, believe it or not.  People have been screaming about constitutionality and fairness and the American way.

While I agree that Trump has beliefs on immigration that are not in alignment with what I believe is the American way, I do need to point out that the immigration order, itself, doesn't really violate the American way.

As for constitutionality, that argument is actually rather weak.  I have yet to have anyone successfully defend this particular charge, as the order itself is not in any classical way discriminatory.

I will agree it's largely pointless, but that is nothing new to the United States federal government.  After all, we've been dealing with the enhanced security at airports and general loss of rights all over for no really good reason, and courts have even held that it's not up to them to determine if such a policy is actually effective as an elected person has a right to do that for which he was elected.

Personally, as always, I believe that once a person manages to set foot on American soil, they become an American citizen.  I hold a minority position.

We do have to balance the good with the bad, however, and that is what this post is about.

Regulation

While everyone is losing their shit over the network neutrality rules change, Trump has quietly been reducing regulation all over the federal government.  Instead of being noticed for his wholesale reduction in expensive regulation, everyone is going on about the loss of the network neutrality regulation that was, apparently, a triumph of the Obama administration.

That regulation was another attempt by the Obama administration to legislate from the Oval Office.  Obama was annoyed at how slowly Congress was addressing the issue and decided that, since Title II applied, it should be done that way.  This, of course, put an end to the efforts in Congress to address the issue.  The FTC, which used to deal with consumer complaints against ISPs, lost that power.

Further, the regulation didn't address those in the smallest markets, the ones most damaged by ISPs misbehaving.  Also, it didn't address the fundamental problem, which was the lack of real competition in the market.  This is, of course, caused by existing regulation that grants a monopoly to various cable companies.  It wasn't a bad deal for the cable companies, getting Title II regulation in exchange for retaining utility-level monopoly status.

So, in exchange for returning regulation of network neutrality to the Congress and the FTC, we've gotten a lot of other regulations removed.  On the whole, I find this positive.  I might point out that there is no consensus amongst the analysts at the bureau on this issue.

Comey

So, there are two readings to this.  There is the official, establishment reading, that Comey caught Trump trying to influence an investigation.  Then there is the reading I see, which is that nothing of any objective import happened, and a disgruntled Comey tried to hurt Trump.

Comey got fired by Trump.  Everybody in the administration works at the pleasure of the president unless their post is specifically protected by law and Comey's wasn't.  Further, there are a lot of questions as to how Comey went about it.  Comey testified he specifically leaked his document in order to cause a special prosecutor to be appointed, not merely to get the truth out.  Coupled with his testimony that he never liked Trump and was always suspicious of him, Comey's testimony is rather suspect.

Did Trump lean on anyone?  There doesn't appear to be any solid evidence he did.  Everything he said or did can be alternatively interpreted as him expressing a hope for the fate of his friend.  There is no situation where Trump said that if Comey didn't stop the investigation into Flynn, he was fired.

This leads me to my final point on this, which is that presidents are normally given a while to settle in.  In this case, the establishment hates Trump and is leaking every embarrassing thing they can.  They are doing anything they can to paint him in a bad light so they can be rid of him.  Everything he says or does must be read in the worst possible light in this holy war of theirs to defend their comfortable corruption.

What is really happening

So, Trump is a naive president, sent to Washington to raise hell.  One analyst refers to him as a 'pooball' thrown at Washington by the electorate.  Trump has the cojones to actually effect change.  He's not the effete Obama or the befuddled Bush.  Not only has he promised to take on sacred cows in the city, but he has actually attempted to deliver on that promise.

There are a lot of special interests in Washington quietly working out deals to the detriment of the rest of us in this country.  Those special interests are angry with Trump because he actually threatens them.  This is the first president since Ronald Reagan with the will and ability to fight the establishment.  That he is a loose cannon only makes it worse for them, because they can't predict and thus manage him.

So they've flung every accusation they can find at him, accusations that used to reliably ruin a politician, but, with Trump, has effected nothing.  The Donald is not teflon like Bill Clinton; the electorate simply does not care anymore.  They don't trust the news media a bit.  They don't trust their politicians in Washington.  They don't trust Trump.  Trump, however, is trying to do things that they agree with and therefore is the least evil there.

I do not know how history will view Donald Trump.  I do know I wouldn't change places with him for any amount of money.  He is a lonely man against whom the entire establishment of the country is arrayed and yet he soldiers on doing what he wants to do regardless.  It's that he is either completely tone deaf or that he is possessed of great courage in the face of adversity.  Instead of seeing this lonely fight for what it is, much of the media is trying desperately to convince us that he is the ultimate evil.

Trump's supporters

Ah, these people.  They aren't doing Trump any favors.  They really aren't hurting him, either.  I get several emails a day from Trump supporters asking for my money and wondering if I'm 'faithful' to Trump.

See, elected officials in this country are our servants.  They serve at our pleasure and should be loyal to us, not the other way around.  This is a bit Hilary Clinton got wrong; we don't want to be led around by the nose for our benefit.  We want to be free to forge our own destiny.  To that end, we elect people to go to government and take care of things so that we may be free.

So, no, I'm not loyal to Trump.  But I do think he's getting a raw deal.

Thursday, March 30, 2017

Some more thoughts on production

Much of the idiocy the great and good seem to spout stems from a misunderstanding of the nature of production.  There has always been a sense of the immutable value of money amongst those who would raise minimum wage or increase the progressive nature of taxation or engage in outright payments to level the income imbalance.

Money is not production

This is the first major problem with the idea that you can simply pay people money and make these sorts of problems go away.  The way to increase the wealth and quality of life for everyone is to improve production.  This is pretty obvious because there's only so many goods and services available, a concept known as 'scarcity' in economic circles, so the share a person can acquire is limited by the percentage of the total money supply in circulation he can acquire.

We can use our imaginary economy, complete with burritos, to explain.  With ten workers making one burrito each, the total production is ten burritos.  The time frame doesn't matter really, but we could say ten burritos per day.  Each worker gets paid ten dollars per day, and can purchase whatever he likes, but, since there are only burritos, he's pretty obviously going to buy burritos.  Since there are ten of them and each only needs one burrito and the burritos don't keep, they each buy one burrito per day.

Now, we can pay one guy more for some reason, but there's only ten burritos, so all that would really accomplish is that person pointlessly accumulating money unless one of the other guys fasts for a day, at which point he can have two burritos, but, as we already said, the burritos don't keep.

Now, if one man is determined to be disabled and therefore unable to pay for his quotidienne burrito, and the rest of the people decide to buy his burrito for him, we have a problem.  He's not making his burrito to be sold in the market, so we have ten people with only nine burritos.  The guy who got paid more above is going to get his burrito because he can bid more for it.  The man who was determined to be disabled will have to bid with everyone else, and one person will go hungry.

A solution to this, of course, is to pay someone extra to make an extra burrito, or to see if a machine can be invented that can make the extra burrito.  Either one would work, although the first leads to worsening work-life-balance and the second leads to encroaching automation.  However, everyone would now be fed.

A problem with this, of course, is that now the guy who made the machine can make another or someone else can make an extra burrito both of which lead to more money being paid to them.  Here our little economy breaks down because there's no point in their making any more money than it takes to buy their burritos, so we introduce the trinket, which trades at a rate of one burrito to ten trinkets.  Now, there's incentive to make more than the minimum to buy a burrito.

Suddenly, the guy above who got paid more for his lone burrito, perhaps it was better than the others, and the guys who can make more than one burrito in a day and the guy who can make the machine that can make a burrito, can all make more money and thus get more things.  So, there are, say, five guys involved in making burritos now and four making trinkets.  Each person gets enough money for a burrito, as the burrito production is now ten again, so there's no shortage of burritos and thus no tight market increasing prices.

However, there are only four guys making trinkets, which they sell to the five guys making burritos, so there is a shortage in trinkets, as the guy on what we will call welfare for convenience is not getting any trinkets.  Giving him more money for trinkets will fix this but reduce the available trinkets in the whole society.

Money is not value

As we've seen above, we have non-durable goods, the burritos, which spoil if you try to save them, and durable goods, the trinkets, which don't, in our economy.  We've also established that burritos are essential while trinkets are not.  We've also established that the people who are on state support don't like getting only the essentials.

It turns out, however, that, while you can save trinkets, you really can't save money.  The production does not increase, so you can buy trinkets later, but that would cause prices of trinkets to rise, causing others to save their money.  The number of trinkets produced cannot increase without improving production like we did with burritos, so the only way, obviously, to increase the trinkets every person can have is to increase the production of trinkets.

Some people, through shrewd trading, can amass vast quantities of trinkets, but this leads to social unrest as it is viewed as unfair.  After all, fairness is the reason we gave the guy who couldn't work some money for burritos and trinkets.

You can use some money to paper over economic issues so long as it keeps value, but you really can't save up production because when you spend the money you will be competing with other people for the production.

So socialist schemes are doomed

Since each person who does not work reduces production.  You can pay him all you like and you won't help the economy produce more unless someone else steps up and works more or someone increases production.

Taking money from the rich to give the poor does not help either as it causes the kinds of people who could increase production to not do so because they don't have an incentive.  Thus total production does not increase, and there simply aren't enough rich people to rob to pay the poor.

As an aside, regulations impeded innovation most of the time, so increased regulations result in reduced production.  For this reason, regulations have to be very carefully constructed to only affect the things that must be regulated.

Over time, recently, for reasons having to do with the banking system, the very rich have managed to increase the percent of production they can control, while the overall production has grown faster, so the average person has seen the amount of production they can control go up as well.  The average person is now better off than at any other time in history.

They are also working more.  The pace of modern life is faster.  There are a lot of reasons for this, but one of them is the above-mentioned fact that, in order to support all the various schemes of a heavy government, they have to work harder to make up for lost production.

A better idea

What to do about those in our imaginary economy that can't afford a burrito?  This is actually a real problem, shown up in the need for essentials in the world economy today.  If you cannot work, as we've already shown, then you reduce the available production by not working, then reduce it further by consuming.

A simple solution is to provide everyone with enough money to afford a burrito.  Give the money to everyone so that any money they make above that they can use to buy trinkets.  In order for this scheme to work, the money has to be given to everyone and there can be no means testing or restrictions on it.

The reason is that the above disabled man might be able to work some, but not enough to get his burrito.  Most systems will only pay disability if there's no way for the person to support himself, so he's restricted to not working at all in order to get disability.  In the proposed scheme, he can got work part-time for his trinkets, and the whole society is ahead because he has increased production for everyone.  He's now only a partial drag, not a complete drag.

A second, possibly more important reason is that those who innovate are not disincentivized to do so because they can make way more money if they do.  They are also not as likely to be angry about it because everyone gets it.  It seems odd that they would pay taxes, often many times more than the payment, and still get the payment, which they would likely simply apply to taxes anyway, but it is the principle of fairness that would make the system work.

China, as I understand it, takes this approach with healthcare.  Everyone is given an amount for healthcare they can spend, and when it's gone, it's gone.  This would allow price information and innovation into the health care industry.

Saturday, December 24, 2016

What's Really Happening, Trump Edition

Trump has been a source of division everywhere, including in the Bureau.  Many electrons have been spewed and much vitriol unleashed on this very subject, inside and out of the Bureau.  You've probably seen a lot of the stuff outside.

There is a saying that you should include someone who opposes you in your group of advisors to keep you honest.  The Bureau contains conservatives, liberals and libertarians, and yes, there's more than one of us.  Your author is an anarcho-capitalist who tends to caucus with minarchists and is generally more to the right than left.  However, the ranks include at least one progressive, and it is to this poor soul that many, many questions have been posed.  We will address some of them below.

Why did liberals protest the Trump presidency?

Actually, this is something your author does not at all understand.  No liberal has been able to explain it.  However, some interesting bits have come to light.

One, the author simply was not aware of how certain the Clintonistas were of victory.  Trump's victory did not surprise this author.  The polls seemed to be roughly 50/50 heading into the election if you looked at the electoral college.  So, the first issue is that the left was sure of victory, which made the loss that much more damaging to their souls.

Two, there is an astonishing amount of disinformation about Donald Trump that is taken as gospel by the left.  Trump, of course, is the source of some of that, as he does not think much before he says something.  Also, there's a lot of carefully disseminated disinformation about Hillary Clinton in that she worked hard to convince everyone who would listen that she would defend the downtrodden, fix race problems and raise up the income of the lower classes.  The facts of the case aren't part of this essay, so your author will let them slide for now, which requires a powerful act of will.

Three seems to be the assumption that the right that elected Trump will control Trump.  It seems that Democrats tend to stay bought by the constituency that elected them whereas Republicans tend rather to pursue ideological purity that suits them.  Donald Trump, of course, does neither, which we will get into below.

Exactly what the protesters hoped to accomplish is, of course, a mystery, as is why the left attempted to force recounts everywhere and tried to suborn electors.  Rather ironically, both attempts backfired and made Trump's margin of victory higher.  But, I digress.  It seems that the left felt so strongly that Trump would lead us all to ruin and Hillary, despite all evidence to the contrary, wouldn't, so did the things that liberal firebrands have done throughout history: they set out to 'raise awareness' as if anybody was unaware of this election, and to use whatever tricks they had to avoid the manifest disaster they saw coming.  What that disaster would be, exactly, none of them have been able to inform me, because there really isn't that much to hang Trump on that Hillary herself hasn't been doing.

Is Trump a conservative?

Not at all.  Trump used to be a Democrat.  Seriously.  There are a ton of pictures of him beaming and shaking hands with the Clinton family.  They came out during the Republican primary.  They didn't come out in the general election, of course, because that would have been Clinton saying 'hey, don't elect Trump because he used to be friends with me', which would be counter-productive at the least.

Is Trump evil?

No.  Trump is a blowhard.  Trump is brash.  Trump gets in snits and says and does things that are inadvisable.  However, there is plenty of actual evidence that Trump listens to calmer people, that Trump himself tries to be a nice guy and that Trump does what he can to be what he thinks a good person should be.  That may not be what you think a good person should be, but Trump is not, essentially, evil.

So, why the hate?

Well, there are a lot of reasons.  First, Hillary was a solid candidate for those who would be our masters.  She stands for the advancement of the globalists, the bankers, and federal government power.  While that sounds like a load of conspiracy claptrap, it's really not because you can actually go read the documents these people have written, some of which were in the DNC emails stolen by some hackers somewhere.  The fact that it wasn't a Russian government operation is also not part of the scope of this essay, but it really wasn't likely to have been.

So, along comes Trump.  Trump isn't a good candidate by any stretch of the imagination.  He infuriated whole demographics.  Were the Democrats to put up any candidate but Hillary, he would not have won.  However, his very inability to avoid stuffing his foot in his mouth was perceived as evidence that he was speaking truthfully from his heart, so he was perceived as genuine, and the American, and, indeed, the world, electorate is clearly tired of managed leaders who do nothing to help the people.

Also, everyone that seems to be a part of 'the system' hated Trump.  Each of these he took out, one by one.  When George Soros counseled against voting for Trump. your author started seriously considering voting for Trump.  That sort of thing won him a large number of votes simply because he had the right enemies and he did not back down from them.  Rather, he doubled down.

So, we have a candidate that has no record, has a history of making up his own mind on the fly and who hates the sorts of people who had been in power for decades.  Yeah, there's enough of a reason to whip up the populace against him.

Will he be a good president?

The bureau does not know.  Nobody does.  This is a source of a lot of concern for many analysts.  Confidence in Trump is rather more dependent on the opinion a given analyst has of Hillary than anything else, as, if you believe, as this author does, that she is the most corrupt politician to arrive to the scene in many decades, at least since Richard Nixon, then you believe that nearly anyone would be better than she.

Since nobody knows anything about Trump other than his public businessman persona, nobody knows whether he will be good or bad, but the chance remains he will be good.  There is evidence of this.

First, he's already made good on one of his promises and kept some jobs here.  He's working on keeping more.  His methods are cause for concern, but Trump is about the deal, not the mechanics of governance as Hillary.  For this reason, Trump surveys the information available and then makes the best decision he can see at the time.  This means he won't ever be predictable.  It also means he won't let political realities impinge on what he thinks is best.

We see this in his recent statements about the F-35 program.  The bureau has long been of the opinion that the F-35 is an utter waste of money, built for a war that will never happen and already obsolete.  The one thing it is is fabulously expensive, and provides a lot of money stuffed into the coffers of LockMart, which is often payback for favors during electioneering.

Trump wasn't paid for by LockMart.  That means he can look at the F-35 for what it is.  Survey the internet for a list of its failings; there are plenty.  Simply put, the Chinese airforce can see it, it is not particularly good at a gunfight and it is basically not field-repairable.  Also, its airframe is not durable so we will have to replace them much sooner than an equivalent aluminum-framed fighter.  Add it all up and you can understand why many analysts all over the internet have been calling for the cancellation of the F-35 program.  Trump sees this and, surprisingly, has made a rational choice.

Will he cancel the program?  Who knows.  Perhaps he will see the political expediency of retaining the program.  Perhaps he is simply trying to renegotiate the contract and bring down the cost of the program.  Perhaps he will do the thing that the Bureau has been calling for and create a new set of stop-gap fighters such as the F-18E/F and the F-15 SE, which would tide us over until such a time as supersonic drone warfare is a thing.

This author, for one, remains cautiously optimistic that the Donald will, indeed, make America great again.  We still wrap ourselves in our cynicism because we've felt this way before, in the early days of the Obama presidency, as well as the early days of the Bush presidency, but, perhaps, this time, it really is different.

Monday, September 12, 2016

Why We Can Never Repay the Federal Debt

I keep hearing many people talk of repaying the United States' federal debt.  This cannot happen.  Let me explain.

First, as has been discussed before, the United States Dollar is actually properly called the Federal Reserve Note.  What does this mean?  It is emitted by the Federal Reserve Bank of the United States and not by the Treasury.  It is backed by nothing and is pure fiat money.  There is no way to meaningfully redeem a Federal Reserve Note except by paying taxes.

The way a Federal Reserve Note gets born is interesting.  Ok, it's interesting to economics geeks, but might be passably diverting to the rest of you.  First, the Treasury Department issues a bond.  Then the Federal Reserve Bank buys some of those bonds.  To do this, it creates money by simply flipping a few electrons in a computer.  Then, once it receives the bond, it considers that an 'asset' and makes loans, swaps and so on using that to create money into the banking system, getting a nominal interest on everything it does.

Yes, for each dollar it creates to buy a federal bond, it creates a matching dollar to stuff into the banks.  If it were to see the debt paid down, the Federal Reserve Bank would see its assets shrink, and, were it not mendacious, it would be forced to recall its loans to banks to cover the loss of assets.  This is how the law is set up to work.  If the Federal Reserve Bank sees its assets go down, it must lower its loans by the same amount.

It wouldn't actually take much of a lowering of the federal debt, then, to cause a major problem in the economy, so accustomed is it to suckling at the teat of easy money.  Remember the hoary economist adage 'all activity is at the margin'?  If the debt goes down by 1% that means that the Federal Reserve Bank must reduce the money in the banks by 1% as well.  If the bank already has a reserve of, say, the minimum, which we'll call 3%, then suddenly its reserves will drop below the minimum and it will have to scramble to increase its reserves, which it can do by either increasing interest income or simply reducing its loans.  This would mean a greater recession and possibly a deflationary depression.

Yes, what I'm saying is that the bankers have gotten themselves into a position where not taking out loans would be ruinous.  This means they get to have a sustained income in interest for little to no risk, meaning they can maintain their lifestyles at everyone else's expense.  This is the essential fraud of the banking system.

There is no easy way to get rid of this monkey on our backs.  It will take either an economic disaster of biblical proportions or an amazing political will to effect change.  Until then, the bank will continue to skim off the top of the economy.

Why does it matter?  The activities of the fed cause inflation.  That is actually a stated goal they have.  That inflation is a hidden tax as it means that someone else is spending money to compete with the money you make in your job, and that money they are spending is reducing your purchasing power, meaning your life is worse.  From my viewpoint, it is much worse than that because the banks take no risk but receive profits as a result of their neat little scheme, so they actually provide no value.

In a classical economic system, a person that lends money he has to provide capital for industry provides value.  Such a person has accumulated the capital, presumably, through careful effort, and thus is likely to make good decisions about the dispensation of his capital.  This means such a person is, effectively, a controller.  This person decides what economic activity will happen, and, should such a person gain more and more capital in the process, such a person can be presumed to be good at such decisions.

If there's no requirement to use personal capital, such a person is merely getting money for no risk, meaning that person has no skin in the game and is lots more likely to waste money, so the economy's efficiency will suffer, leading to less of the things people want being available, thus increasing the cost of things people want.

So, in effect, the banks are stealing from us and hoping we never notice.

What is really happening

The day has come for another admittedly infrequent installment in this series.  Anyone who has read this blog (all six of you) knows that these vignettes contain speculation gleaned from the way news is published more than what is in the news itself.

For starters, we have Clinton's health.  As pointed out by one of our analysts (and yes, there's still more than one), Clinton could have simply told people she had pneumonia and been done with it, even if she only showed up for a few minutes on 9/11.  Few would care.  However, there are three interesting things about this story:

1) Hillary got pneumonia in the middle of summer.  Old people often do this.  This is proof of poor health all by itself, though.  It could just be she does not have enough left to cope with her schedule, but her schedule has been weak anyway.

2) Hillary is an inveterate liar.  That's not a salacious accusation, it's an observation based on what she's done in the past.  There's no reason to conclude she actually has pneumonia.  Certainly, we can surmise that pneumonia is not the totality of her health problems, meaning there's likely something else they're not telling us.

3) If #2 isn't correct and this is just pneumonia, then the Clinton campaign is really stupid.  It would have been lots better as said above to simply say she had it and curtail her schedule accordingly.  Once again, this shows poor judgement on the part of someone who wishes to attain what is, for better or worse, the highest office in the world.

Then we have Donald Trump.  He is pivoting towards the general election in lurches and appears to have the thing won, in my opinion, if he can just avoid angering anybody else.  Comparably, Clinton now has a major gaffe on her hands, although I doubt any of her core supporters really care that she called the supporters of her opponents, essentially, a stain on the character of America.  The ironic bit, of course, is that Clinton's career has been just such a stain as she continues to sell influence from every office she gains.

Then there's Wasserman-Schultz, who, in an apparent payment for helping defeat Sanders, has been given a job with the Clinton campaign.  This is a really stupid idea too, not that it bothers Clinton supporters.  Comparably, Trump won the Republican nomination despite being hated by the Republican leadership, which shows that the Republican party is far more democratic than the Democratic party.

Not that I support either; to a man, our analysts support Johnson/Weld.  One interesting bit is that the only 'gaffe' Johnson has committed so far, the 'Aleppo' gaffe, appears to have helped his poll numbers because more people are considering Johnson.

Believe it or not, none of the analysts in this venerable Bureau are actually Libertarians.  Only one of the analysts, your humble author, has ever been a member of the Libertarian party.  The other current analysts include a progressive and a conservative, on the principle that the more different angles available the more likely a correct assessment is made.

That being said, support in the bureau for Johnson/Weld remains strong because, oddly, the Libertarian ticket is more progressive than the Democrats and more conservative than the Republicans.  Libertarians have always been towards the anarcho-capitalist corner of the political map anyway, but Johnson/Weld, being moderate libertarians, are not as far in that direction as your author would like.  That being said, they present the best option for real change in this republic.

Thursday, June 2, 2016

The Hillary Bot

I track politics quite a bit, as an analyst for the bureau, ok, for the fun of it.  This means I am abreast of the latest about Hillary's email server.  As such, I can't seem to understand how her supporters still, well, support her.

The obligatory, these days, disclaimer must be said, and then mostly disbelieved, that I don't care that Hillary is a woman.  I only care that she is a bad candidate.  She's not very good.

It amuses me to no end that her campaign has reliably been forced to trot out the fact that she is incompetent as proof she is not a criminal.  What do I mean?

The most recent bit, trotted out by her campaign, is that she doesn't even know how to use a computer.  She used a Blackberry because she knows how.

Wow, where to start.  This woman would have us believe she's competent to run the free world but not competent to use a computer?  That she knows beyond a shadow of a doubt that her home server was secure but she doesn't know how to use a computer?  I can go on like this for a while.

A reasonably wise and competent leader would at least attend a class, break out one of the 'Idiots' books, or hire someone to personally teach her.  She's rich enough.  The fact that she hasn't even, minimally, done this suggests that she's just not that interested in being the best possible public servant she can be.

That isn't really a surprise; being a servant isn't part of her character.  She's an 'elite' in her mind.  She's better than the rest of us and we should be ecstatic, I tell you, ecstatic to let her be involved in running things because, well, there's something or other she has or does that makes it all better.

Except that it doesn't.  She wasn't particularly good as Secretary of State.  She was almost a non-entity as a senator.  As First Lady, her only policy effort failed, thank goodness, and has recently been held up by a federal court as a model of mendacity.

The only thing she shows any aptitude for is lying, although she's incompetent at that too.  Bill would lie and then stick with his story.  Hillary tells one lie, gets called out, shifts to a new lie, gets called out, then, sometimes, shifts back to the original lie hoping we've all forgotten.  Her lies are now too numerous to print.

The thing is that if she'd simply seized the narrative and said that she did use a personal email server, State was not aware of it, but it wasn't illegal and wasn't insecure, and, yes, classified information likely did pass through it but she was not aware of any, she'd now be looking at a slap on the wrist and it wouldn't likely affect her campaign as much.

It is the lies that affect her campaign.  It's not that she's dishonest; that was known because she is, after all, a lawyer and a politician.  It's the fact that her lies were all so transparently aimed at conning the American public into electing her, which, combined with the evidence she believes she's entitled to the office, paint a picture of someone who lacks the humility to properly serve the American people.

She, if elected, intends to get out in front of all of us and lead us to where we were going anyway, as she does not actually have an original idea.  The only things she intends to try to make happen that are against the public opinion are things that are very bad.  She is the caricature of the establishment candidate: led by the nose by special interests, only willing to stand up for ideas that are inconsequential except to harass populations considered evil by liberals, and completely certain of her personal superiority and therefore the right to make such decisions on our behalf.