We're going back to pretending we know what is happening. Some of the opinions in these articles are very well researched while most are just hunches. The subject of this post is the latter.
At the moment, silver has been over sold. That means that the price is lower than it ought to be due to more people than normal having sold. Why this happens in May is not really a mystery; people have to pay taxes in April so easily negotiable investments go down in May. Thus it has always been.
About the market in general, though, there is much more to say. At the moment, a silver shortage is under way, according to all sorts of semi-reputable rumor. From sources with the same level of reliability, we're hearing that the amount of refined silver available to the market is perhaps one tenth that of gold. This means there is ten times as many gold as there is silver available to sell right now.
Gold, by and large, is used little in industry, most of it being used for jewelry and other decorative purposes, and the balance used for investment. This means most of the gold mined is converted to the sorts of things people hang on to. The things made out of gold are, also, easily convertible to pure (investment grade) gold.
Silver, on the other hand, is primarily an industrial metal. Most of the silver mined is used for industrial purposes, in electronics, in health care, and in a myriad other applications. Most of the silver so used is not easily recovered, and, while the recycling of electronics is on the rise, a significant amount of silver has already been disposed of in landfills.
The much smaller percentage of silver that ends up as investment grade also is used more as a conduit for other financial purposes, rather than as a store of value. This means that silver swings wildly, one of the reasons people tend to hold gold instead. Given that it takes far less money to drive the silver market by purchasing a large order, it is easier for a hedge fund investor, for instance, to park money in silver while moving it somewhere else, making a nice profit in the process. I won't discuss how this is done right now, because I barely understand it myself, but it does happen.
All this means that gold ends up being the preferred money store. To a certain extent, this is so because it is so. In other words, while silver certainly appears to be considerably more scarce relative to gold at the moment, people still believe gold to be valued because it is scarce, which is only partly true.
It is scarce, but it is largely scarce because investors buy and hold it. This is the same situation the dollar is in, that it is held in massive amounts by foreign interests, keeping its value up. Since many investors, both public and private, buy and hold gold as a hedge against inflation, it works as a hedge against inflation. The price is kept high because people are buying and not selling.
Silver, on the other hand, has both upside and downside potential. It is known as the cheaper money metal, meaning that young and less wealthy buy it because they get more for their money, so there has always been a market for it. Also, it has been no secret that it appears more scarce than gold, so speculators have also been buying it as a long-running speculation. This author, for instance, bought silver at $7 an ounce some five years ago, with the current price around $35 or so, last I checked.
The potential upside could be a flip in the relationship of gold and silver, which happened in medieval times, when new silver mines led to silver being far less scarce and therefore worth less. Were this to happen, the amount of fiat money that could be made would be very impressive, indeed.
However, if you believe, as the Bureau unanimously does, that inflation must happen in the future, silver may be a better hedge, as it may go up against gold and oil, as well as food and property, things that you will need. Were this to happen, it would present both a profit opportunity and a hedge.
As usual, this article is not intended as investment advice. You are urged to do your own research, as it is your money you are investing, and we won't help you if you lose it.
Friday, May 20, 2011
Wednesday, April 20, 2011
Why We Can't Soak The Rich
There is a lot of talk amongst liberals right now about raising taxes on the rich. What makes me so very angry I can hardly see straight is the fact that they intend to soak those with high income, not those who are rich, because, of course, many of them are actually rich and do their level best to dodge taxes.
The saying is, of course, that these people are often multimillionaires who want to help the poor with someone else's money. Since they, by and large, avoid paying taxes on their actual assets, they shift the burden of payments onto the average person. In order to seem like they are paying their fair share, they raise taxes on the highest incomes, pretending that those taxes actually apply to them, when, in reality, they pay capital gains on their income without having to pay social security and the rest.
See, a person who is 'rich' has a lot of assets, and these assets, such as a paid-for mansion or paid-for cars, can be said to depreciate, hiding any income the 'rich' may have, which neen't be much. Other assets they have, generally investment vehicles, provide them with income in the form of capital gains and dividends. This income is not the same as payroll. Income from dividends, interest payments and the like end up being taxed as self-employed income, but capital gains do not. Capital gains is subject to a flat tax without any social security, medicare or medicaid tax. This is why CEOs happily take stock options in lieu of a salary. The difference between the strike price and the sales price is capital gains, not income.
A person who is rich also pays people to protect his money, and one of the entities he tries very hard to dodge is the tax man. If you look at the complexity of the tax code, you'll find an awful lot of it has to do with hiding income so that those who are rich can lose enough money to avoid taxes.
So, anyway, raising the highest tax rates will merely cause more 'creative compensation' schemes, like the above-mentioned stock options, to reduce the total tax burden on the income. It won't necessarily increase revenue from taxes.
Raising taxes is really not all that bright of any idea, anyway. The fact is that the government is seriously in debt. It needs to learn to live within its means, not continue to grow. Given the amount of money it needs to save this year to achieve solvency, some $1.6 trillion, raising taxes simply isn't going to cut it, without raising them to ruinous levels. At some point, someone is going to have to step up to the plate with a plan that cuts spending by at least $1 trillion this year and commits to significant cuts next year, at least another half trillion. With a modest raise in taxes, that would equate to a mild surplus in year three.
Or, we could just enact my particular vision, ditch the income tax, return to the excise and tariffs of yore, perhaps with a corporate income tax, and hack around $1.8 trillion or so off the budget. The immediate increase in available income would reduce the rate of foreclosures and increase discretionary spending by the American consumer, leading to economic recovery.
As for the loss of jobs from cutting government so much, the fact is that dollars spent by consumers have higher velocity than dollars spent by the government, so every dollar spent by a consumer will go through more hands, meaning more jobs. The money doesn't go away; it gets spent one way or another. If the consumer simply puts the money in the bank, he drives down the rate of interest at that bank, leading to increased borrowing, which will lead to increased spending by someone else.
This idea that liberals have that the government is somehow superior at spending is laughable, and leads to the government spending on things nobody wants or needs, like three simultaneous wars, or, indeed, the ability to prosecute three simultaneous wars. With a careful and prudent hand, it is possible to eliminate vast stretches of bureaucracy and help those trapped in government jobs to lead wonderful, productive lives enriching the human experience with real production.
The saying is, of course, that these people are often multimillionaires who want to help the poor with someone else's money. Since they, by and large, avoid paying taxes on their actual assets, they shift the burden of payments onto the average person. In order to seem like they are paying their fair share, they raise taxes on the highest incomes, pretending that those taxes actually apply to them, when, in reality, they pay capital gains on their income without having to pay social security and the rest.
See, a person who is 'rich' has a lot of assets, and these assets, such as a paid-for mansion or paid-for cars, can be said to depreciate, hiding any income the 'rich' may have, which neen't be much. Other assets they have, generally investment vehicles, provide them with income in the form of capital gains and dividends. This income is not the same as payroll. Income from dividends, interest payments and the like end up being taxed as self-employed income, but capital gains do not. Capital gains is subject to a flat tax without any social security, medicare or medicaid tax. This is why CEOs happily take stock options in lieu of a salary. The difference between the strike price and the sales price is capital gains, not income.
A person who is rich also pays people to protect his money, and one of the entities he tries very hard to dodge is the tax man. If you look at the complexity of the tax code, you'll find an awful lot of it has to do with hiding income so that those who are rich can lose enough money to avoid taxes.
So, anyway, raising the highest tax rates will merely cause more 'creative compensation' schemes, like the above-mentioned stock options, to reduce the total tax burden on the income. It won't necessarily increase revenue from taxes.
Raising taxes is really not all that bright of any idea, anyway. The fact is that the government is seriously in debt. It needs to learn to live within its means, not continue to grow. Given the amount of money it needs to save this year to achieve solvency, some $1.6 trillion, raising taxes simply isn't going to cut it, without raising them to ruinous levels. At some point, someone is going to have to step up to the plate with a plan that cuts spending by at least $1 trillion this year and commits to significant cuts next year, at least another half trillion. With a modest raise in taxes, that would equate to a mild surplus in year three.
Or, we could just enact my particular vision, ditch the income tax, return to the excise and tariffs of yore, perhaps with a corporate income tax, and hack around $1.8 trillion or so off the budget. The immediate increase in available income would reduce the rate of foreclosures and increase discretionary spending by the American consumer, leading to economic recovery.
As for the loss of jobs from cutting government so much, the fact is that dollars spent by consumers have higher velocity than dollars spent by the government, so every dollar spent by a consumer will go through more hands, meaning more jobs. The money doesn't go away; it gets spent one way or another. If the consumer simply puts the money in the bank, he drives down the rate of interest at that bank, leading to increased borrowing, which will lead to increased spending by someone else.
This idea that liberals have that the government is somehow superior at spending is laughable, and leads to the government spending on things nobody wants or needs, like three simultaneous wars, or, indeed, the ability to prosecute three simultaneous wars. With a careful and prudent hand, it is possible to eliminate vast stretches of bureaucracy and help those trapped in government jobs to lead wonderful, productive lives enriching the human experience with real production.
Thursday, April 14, 2011
So, Global Warming...
Or Anthropogenic Climate Change or killing baby seals or whatever. Can there be a more disproven hypothesis? Does it even matter? What is it about people that causes them to give up a good thing?
Bad enough that the high priests of this religion jet around the world, playing with the world leaders, movers and shakers, in other words, those who never get round to the local pub. At the local pub, they're losing the argument. Even ardent greenies of my acquaintance are not as interested in CO2 anymore.
Bad enough they insist that the rest of us suffer deprivation and even death, and certainly, unhappiness, while they jet around the world eating caviar, going from airport to hotel suite (larger than my house) in a fleet of SUV limos, which is all ok to them because they're saving the world from us, while I work on my cars trying to keep them running just one more year, when, hopefully, they'll finally be paid off.
But, the absolute worst bit is that it is all so completely unnecessary. The world hasn't been warming for three years. The sea levels are not rising. The latest data shows ice caps are not melting at an alarming rate (the rate hasn't been established, but that it is not alarming has). Evidence strongly suggests that temperature on earth correlates with solar activity, and, if so, it's going to cool for quite some time.
So, seriously, eat, drink and be merry, and try to vote the puffins out of office.
Bad enough that the high priests of this religion jet around the world, playing with the world leaders, movers and shakers, in other words, those who never get round to the local pub. At the local pub, they're losing the argument. Even ardent greenies of my acquaintance are not as interested in CO2 anymore.
Bad enough they insist that the rest of us suffer deprivation and even death, and certainly, unhappiness, while they jet around the world eating caviar, going from airport to hotel suite (larger than my house) in a fleet of SUV limos, which is all ok to them because they're saving the world from us, while I work on my cars trying to keep them running just one more year, when, hopefully, they'll finally be paid off.
But, the absolute worst bit is that it is all so completely unnecessary. The world hasn't been warming for three years. The sea levels are not rising. The latest data shows ice caps are not melting at an alarming rate (the rate hasn't been established, but that it is not alarming has). Evidence strongly suggests that temperature on earth correlates with solar activity, and, if so, it's going to cool for quite some time.
So, seriously, eat, drink and be merry, and try to vote the puffins out of office.
Tuesday, January 4, 2011
What is really going on?
The question mark indicates the sad truth, that there is now officially so much chaos in the system that nobody has any clue what is going on. At this point, the traditional indulgence in the conspiracy theory is not even a possibility because nobody could be steering this ship of state at this point.
However, the light of hope shines brightest at this point, as the forces of control fail in the face of chaos. I've heard the conspiracy theory that some dark and foreboding committee of one hundred jewish followers of the articles of zion received from the last templar under direction of the marovingian or whatever (not gonna look it up, if you want to, you can correct me in a comment that I will probably ignore), that such a group wants chaos because out of chaos it can form the kind of order it hopes to form. However, this just won't work.
In chaos, by definition, things are unpredictable. Were things at all predictable, the situation would be merely complex, not chaotic. If it were easily predictable, it would be referred to as ordered. Anyway, what we have here in the US and most of the world, is chaos.
We have chaos in the weather, with potentially serious shifts in weather patterns, leading to thousands of victims. We have chaos in world politics, with things like wikileaks, moslem extremists and tea partiers to contend with. We have idiots running countries that may or may not have nuclear weapons, some of which are verging on being officially failed states. We have the west, having run this globe for a seriously long time, verging on bankruptcy and ruin, with a ruling class that is utterly clueless.
Out of this chaos comes some encouraging news. For instance, when the Democrats compromised with the Republicans over the taxes and the continuing spending bills, the tea party threw a hissy fit and newly chastised Republicans rescinded the compromise. Obama, ever the skillful negotiator, turned turtle and let them.
The only thing the politician is really afraid of is public opinion. Such a sudden change in behavior is impressive because it arises from a sudden change in opinion. The tea party isn't that old. It has grown out of a growing dissatisfaction with governance in general, and has evolved into a much better educated electorate that is not willing to tolerate back room deals and tons of waste. This electorate is starting to make noises about things that were considered fringe only a few years ago, such as auditing the Federal Reserve Bank.
Even more interestingly, much of the rest of the world is now making noises about a gold standard, of all things. Ten years ago, gold was considered a barbaric relic of earlier times, now selling for six times the value it used to sell for at its lowest price. People are noticing.
The hedonic adjustments the bureau of statistics makes to their inflation statistics are being ignored. Everyone can see their energy, food and fuel prices rise. Even if the price of consumer goods continues to go down, most of the population of this country spends most of their money on energy, food and fuel. As has been noticed before on this blog, activity is at the margin and any increase of a major cost can lead to a reduction in other expenditures, which can add up to a major reduction in economic activity. This largely explains what is happening now.
There may be economic recovery, but it is jaded. It is not broad-based, and it is not strong. The problem with any sort of recovery that would re-establish the roaring nineties is that the average consumer has been shocked hard and will not likely engage in such ruinous economic activity again, meaning that we should see debt ratios continue to drop. This is positive for the country in the long term, but in the short term can lead to a decade or more of deflation, which, if the government works at it, can be turned into proper stagflation, a la Japan's lost decade.
So, to avoid that eventuality, we have to see the electorate make their elected officials do the wise thing and not fight deflation, as deflation is a natural remedy for all sorts of monetary evil, and, in the long run, will lead to a much leaner, much more efficient, and much stronger economy.
However, the light of hope shines brightest at this point, as the forces of control fail in the face of chaos. I've heard the conspiracy theory that some dark and foreboding committee of one hundred jewish followers of the articles of zion received from the last templar under direction of the marovingian or whatever (not gonna look it up, if you want to, you can correct me in a comment that I will probably ignore), that such a group wants chaos because out of chaos it can form the kind of order it hopes to form. However, this just won't work.
In chaos, by definition, things are unpredictable. Were things at all predictable, the situation would be merely complex, not chaotic. If it were easily predictable, it would be referred to as ordered. Anyway, what we have here in the US and most of the world, is chaos.
We have chaos in the weather, with potentially serious shifts in weather patterns, leading to thousands of victims. We have chaos in world politics, with things like wikileaks, moslem extremists and tea partiers to contend with. We have idiots running countries that may or may not have nuclear weapons, some of which are verging on being officially failed states. We have the west, having run this globe for a seriously long time, verging on bankruptcy and ruin, with a ruling class that is utterly clueless.
Out of this chaos comes some encouraging news. For instance, when the Democrats compromised with the Republicans over the taxes and the continuing spending bills, the tea party threw a hissy fit and newly chastised Republicans rescinded the compromise. Obama, ever the skillful negotiator, turned turtle and let them.
The only thing the politician is really afraid of is public opinion. Such a sudden change in behavior is impressive because it arises from a sudden change in opinion. The tea party isn't that old. It has grown out of a growing dissatisfaction with governance in general, and has evolved into a much better educated electorate that is not willing to tolerate back room deals and tons of waste. This electorate is starting to make noises about things that were considered fringe only a few years ago, such as auditing the Federal Reserve Bank.
Even more interestingly, much of the rest of the world is now making noises about a gold standard, of all things. Ten years ago, gold was considered a barbaric relic of earlier times, now selling for six times the value it used to sell for at its lowest price. People are noticing.
The hedonic adjustments the bureau of statistics makes to their inflation statistics are being ignored. Everyone can see their energy, food and fuel prices rise. Even if the price of consumer goods continues to go down, most of the population of this country spends most of their money on energy, food and fuel. As has been noticed before on this blog, activity is at the margin and any increase of a major cost can lead to a reduction in other expenditures, which can add up to a major reduction in economic activity. This largely explains what is happening now.
There may be economic recovery, but it is jaded. It is not broad-based, and it is not strong. The problem with any sort of recovery that would re-establish the roaring nineties is that the average consumer has been shocked hard and will not likely engage in such ruinous economic activity again, meaning that we should see debt ratios continue to drop. This is positive for the country in the long term, but in the short term can lead to a decade or more of deflation, which, if the government works at it, can be turned into proper stagflation, a la Japan's lost decade.
So, to avoid that eventuality, we have to see the electorate make their elected officials do the wise thing and not fight deflation, as deflation is a natural remedy for all sorts of monetary evil, and, in the long run, will lead to a much leaner, much more efficient, and much stronger economy.
Monday, November 1, 2010
What Is Really Going On
This is really about the most popular feature we put on here at the bureau, with readership increasing from the normal two or three up into the mid ten. As per usual, it is just an attempt by the analysts at the bureau to guess what is going on by reading between the lines.
We have some guiding principles, starting off with the fact that nearly everyone is telling some sort of untruth or half truth. This is based on the assumption that a few of the actors are mendacious, a few of them lazy, and an awful lot of them are credulous morons. One of the most important facets of a good lie is that the intended audience sincerely wishes to believe it to be true.
For instance, the ongoing smearing of Iran comes to mind. Certainly, Iran is playing at being a foil to the US, and certainly, Iran has made its lack of love for Israel clear, but certainly, it has done very little to act on either of those impulses.
We can start with the enrichment of fissile material, which many argue is indicative of its intent to wipe Israel off the map. The bureau does not concur with this analysis. Iran is engaging in the exact same thing Pakistan engaged in, that North Korea dabbles at, and that is acquiring a deterrent to a very viable threat.
The US provided Iran with notice when they attacked Iraq that the US will not brook those who stand up to the US for long. So, in order to remain independent, Iran must defend itself, meaning it must acquire powerful weapons.
The US, however, continues its hamfisted interventions and halloweenish saber rattling, alternatively trying to kill its way into hearts and minds and trying to threaten and bully its way into compliance. These policies have nearly ruined the state of Pakistan, leading to a schism in that government that threatens world security because they do have nuclear bombs.
As a short aside, one of the commonly used heuristics to determine the motivations of the various actors in this, the big game, is the basic assumption that we, as humans, are very much alike. We may approach acquiring our needs in different ways, but we have the same basic needs. As a result, the habit the US has acquired of killing and torturing innocent people in the name of suppressing terror seems to have been remarkably effective as a recruiting tool for those very people that we are trying to suppress.
How does it work? Well, it starts with a serious disdain for our fellow man, such as shown by military contractors killing locals for sport. It morphs into policies of spiriting people off for 'rendition', which turns out to be a horrifically bad idea. It ends when the whole world can see the utter lack of moral fortitude present in our policies, which clearly place the preservation of our precious skins above the wholesale slaughter of their young men.
It turns out that arguments in favor of torture are utterly silly and seem seated in a wish to believe torture effective. Too many Bond movies may be responsible, where the hero threatens some despicable half wit and thus gains the knowledge necessary to win the day. In reality, tortured people tend to tell you what you want to know.
That is an important fact that must be emphasized: tortured people tell you what you want to know, not necessarily what is true. When tortured, some young terrorist is just as likely to invent very intricate stories of conspiracies to do grievous harm as he is to tell the truth, that he hung out with some disreputable incompetents and had nothing at all going on.
In other words, we told him he was a big shot, we tortured him using fearsome methods into believing he was a big shot, and he may even pass a lie detector test with his confessions, but they are still likely to be false.
Ask a true interrogator what the most effective way to get intelligence is, and he will say to wine and dine the target, to become close friends, to spend time, and then to simply record and correlate. Once the target has been arrested and spirited away, the target is useless for further intelligence gathering. If the target is carefully groomed, the target can continue to provide useful intelligence for a very long time.
In closing, to warp back onto Iran and Pakistan, imagine being in their shoes. I know it is hard, since Americans seem completely serene in their moral superiority, but our government took young men from nearby countries and tortured them. Most of these young men had actually done nothing wrong.
Our government has killed over a hundred thousand people so far in the global war on terror. If you figure an average family size of five or so, that's four hundred thousand potentially very pissed off people. Given the population size of the average middle eastern country, that's a significant number, and it's not even considering the extended family.
To win a hearts and minds victory, the occupying force has to be utterly fair and has to be seen sacrificing itself to promote the local security. We have not been fair at all, and our troops ride around in armored trucks and shoot at anyone who gets too close. Now wonder they hate us...
We have some guiding principles, starting off with the fact that nearly everyone is telling some sort of untruth or half truth. This is based on the assumption that a few of the actors are mendacious, a few of them lazy, and an awful lot of them are credulous morons. One of the most important facets of a good lie is that the intended audience sincerely wishes to believe it to be true.
For instance, the ongoing smearing of Iran comes to mind. Certainly, Iran is playing at being a foil to the US, and certainly, Iran has made its lack of love for Israel clear, but certainly, it has done very little to act on either of those impulses.
We can start with the enrichment of fissile material, which many argue is indicative of its intent to wipe Israel off the map. The bureau does not concur with this analysis. Iran is engaging in the exact same thing Pakistan engaged in, that North Korea dabbles at, and that is acquiring a deterrent to a very viable threat.
The US provided Iran with notice when they attacked Iraq that the US will not brook those who stand up to the US for long. So, in order to remain independent, Iran must defend itself, meaning it must acquire powerful weapons.
The US, however, continues its hamfisted interventions and halloweenish saber rattling, alternatively trying to kill its way into hearts and minds and trying to threaten and bully its way into compliance. These policies have nearly ruined the state of Pakistan, leading to a schism in that government that threatens world security because they do have nuclear bombs.
As a short aside, one of the commonly used heuristics to determine the motivations of the various actors in this, the big game, is the basic assumption that we, as humans, are very much alike. We may approach acquiring our needs in different ways, but we have the same basic needs. As a result, the habit the US has acquired of killing and torturing innocent people in the name of suppressing terror seems to have been remarkably effective as a recruiting tool for those very people that we are trying to suppress.
How does it work? Well, it starts with a serious disdain for our fellow man, such as shown by military contractors killing locals for sport. It morphs into policies of spiriting people off for 'rendition', which turns out to be a horrifically bad idea. It ends when the whole world can see the utter lack of moral fortitude present in our policies, which clearly place the preservation of our precious skins above the wholesale slaughter of their young men.
It turns out that arguments in favor of torture are utterly silly and seem seated in a wish to believe torture effective. Too many Bond movies may be responsible, where the hero threatens some despicable half wit and thus gains the knowledge necessary to win the day. In reality, tortured people tend to tell you what you want to know.
That is an important fact that must be emphasized: tortured people tell you what you want to know, not necessarily what is true. When tortured, some young terrorist is just as likely to invent very intricate stories of conspiracies to do grievous harm as he is to tell the truth, that he hung out with some disreputable incompetents and had nothing at all going on.
In other words, we told him he was a big shot, we tortured him using fearsome methods into believing he was a big shot, and he may even pass a lie detector test with his confessions, but they are still likely to be false.
Ask a true interrogator what the most effective way to get intelligence is, and he will say to wine and dine the target, to become close friends, to spend time, and then to simply record and correlate. Once the target has been arrested and spirited away, the target is useless for further intelligence gathering. If the target is carefully groomed, the target can continue to provide useful intelligence for a very long time.
In closing, to warp back onto Iran and Pakistan, imagine being in their shoes. I know it is hard, since Americans seem completely serene in their moral superiority, but our government took young men from nearby countries and tortured them. Most of these young men had actually done nothing wrong.
Our government has killed over a hundred thousand people so far in the global war on terror. If you figure an average family size of five or so, that's four hundred thousand potentially very pissed off people. Given the population size of the average middle eastern country, that's a significant number, and it's not even considering the extended family.
To win a hearts and minds victory, the occupying force has to be utterly fair and has to be seen sacrificing itself to promote the local security. We have not been fair at all, and our troops ride around in armored trucks and shoot at anyone who gets too close. Now wonder they hate us...
Friday, October 29, 2010
Yikes!
To those of you who still read this blog, the amount of mild sensationalism has become commonplace. However, now we must consider the probability of far greater sensationalism coming down the pike.
There is a growing feeling amongst the population that the fed controls the economy, and, believe it or not, investors are seriously worried the fed will not inflate adequately.
When it seemed that this was a possibility, when Bernanke seemed to be indicating he would not aggressively pursue quantitative easing and swaps, the stock market went down. When a new rumor came out that he would keep the amount of cash flowing into the economy at the same level, stocks recovered.
Odd as it may seem to anyone schooled in economic theory, this seems to be the accepted wisdom of the day. Inflation in money inevitably leads to inflation in price, and we are seeing that right now. Food prices seem to have jumped about 20% of late. Due to a lot of factors, it is not unreasonable to expect that food prices will probably jump more, but that is not part of this diatribe.
So, the accepted wisdom is that we're seeing inflation in food prices, mild inflation in raw materials but deflation in assets. To 'fix' this, Bernanke is expected to engage in greater monetary inflation, which will lead to more of exactly what we're seeing.
It's pretty simple, really: if the price of subsistence rises, the cost as a percentage of income rises, leading to a reduction in disposable income, leading to a reduction in the purchase of capital goods, leading to a reduction in the price of those capital goods, otherwise known as price deflation. It's like trying to get a bigger ham by blowing air up a pig's butt. All you get is pig all over the place.
It's simple, really. A given family makes, say, $5000 a month. They pay, say, $1000 in food. This is not unrealistic. An increase in food cost of just 20% is another $200. Now they pay $1200. As I have pointed out before, all activity is at the margin, and, in this case, their margin is $200 narrower. So, instead of spending $1200 on a new TV, which they would have paid for on their credit card, $200 a month every month for six months, they have to make do with the old TV. There is a reduction in the purchase of capital goods.
This relates to the housing market, as well. As the cost of subsistence rises, the amount of money available to pay for mortgages goes down. This is one of the pernicious effects of inflation, that people who were previously stable financially suddenly find their margins thin to nothing and thus must sell capital goods to free up cash flow.
If you can't sell your house because, for instance, it is upside down in one of the worst housing bear markets in history, you either cut other spending or you walk away from it. Neither is good.
So, in the exact case where people will see their disposable income go down and thus reduce capital spending, the stock market goes up. Oh, well.
There is a growing feeling amongst the population that the fed controls the economy, and, believe it or not, investors are seriously worried the fed will not inflate adequately.
When it seemed that this was a possibility, when Bernanke seemed to be indicating he would not aggressively pursue quantitative easing and swaps, the stock market went down. When a new rumor came out that he would keep the amount of cash flowing into the economy at the same level, stocks recovered.
Odd as it may seem to anyone schooled in economic theory, this seems to be the accepted wisdom of the day. Inflation in money inevitably leads to inflation in price, and we are seeing that right now. Food prices seem to have jumped about 20% of late. Due to a lot of factors, it is not unreasonable to expect that food prices will probably jump more, but that is not part of this diatribe.
So, the accepted wisdom is that we're seeing inflation in food prices, mild inflation in raw materials but deflation in assets. To 'fix' this, Bernanke is expected to engage in greater monetary inflation, which will lead to more of exactly what we're seeing.
It's pretty simple, really: if the price of subsistence rises, the cost as a percentage of income rises, leading to a reduction in disposable income, leading to a reduction in the purchase of capital goods, leading to a reduction in the price of those capital goods, otherwise known as price deflation. It's like trying to get a bigger ham by blowing air up a pig's butt. All you get is pig all over the place.
It's simple, really. A given family makes, say, $5000 a month. They pay, say, $1000 in food. This is not unrealistic. An increase in food cost of just 20% is another $200. Now they pay $1200. As I have pointed out before, all activity is at the margin, and, in this case, their margin is $200 narrower. So, instead of spending $1200 on a new TV, which they would have paid for on their credit card, $200 a month every month for six months, they have to make do with the old TV. There is a reduction in the purchase of capital goods.
This relates to the housing market, as well. As the cost of subsistence rises, the amount of money available to pay for mortgages goes down. This is one of the pernicious effects of inflation, that people who were previously stable financially suddenly find their margins thin to nothing and thus must sell capital goods to free up cash flow.
If you can't sell your house because, for instance, it is upside down in one of the worst housing bear markets in history, you either cut other spending or you walk away from it. Neither is good.
So, in the exact case where people will see their disposable income go down and thus reduce capital spending, the stock market goes up. Oh, well.
Sunday, October 10, 2010
Aliens Among Us
This is actually a twofer installment, as there are two common uses of the word aliens, one meaning those not of this country, and the other meaning those not of this world.
Recently, a Vatican scientist and an Air Force (USAF, retired) officer both predicted the arrival of aliens (pointy eared green variety) some time this coming decade. The Bureau has decided they are potty and probably unreliable, and that the sudden increase of serious discussion of space aliens is a part of the grander cyclical nature of idiocy that has gripped man as surely as death and taxes.
The other type of alien is becoming an endangered species. As the economy here continues to sputter and plotz, many of the illegals are going back home and fewer are coming over. One thing is certain, though, and that is that Republicans will take credit, calling it a result of their increased enforcement...
Recently, a Vatican scientist and an Air Force (USAF, retired) officer both predicted the arrival of aliens (pointy eared green variety) some time this coming decade. The Bureau has decided they are potty and probably unreliable, and that the sudden increase of serious discussion of space aliens is a part of the grander cyclical nature of idiocy that has gripped man as surely as death and taxes.
The other type of alien is becoming an endangered species. As the economy here continues to sputter and plotz, many of the illegals are going back home and fewer are coming over. One thing is certain, though, and that is that Republicans will take credit, calling it a result of their increased enforcement...
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