GayPatriot

The Internet home for American gay conservatives.

You’re not spending enough!

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In saner times of yore, people who spent their entire income were put down as spendthrifts, and people who didn’t were praised as savers.

It was well understood that savers financed the world’s productive capital and so helped to create the Industrial Revolution. The IR used capital to boost the productivity of labor, so that human beings could enjoy good stuff like higher living standards, longer lives, middle-class education and retirement, an end to infant mortality and child labor, etc.

In today’s crazy times, language is turned on its head (to keep the craziness going as long as possible). Savers are now called hoarders, people who hoard money.

Earlier this month, the Federal Reserve Bank of St. Louis published an analysis of our moribund economy, called What Does Money Velocity Tell Us about Low Inflation in the U.S.? The key sentences:

…the unprecedented monetary base increase driven by the Fed’s large money injections through its large-scale asset purchase programs [ed: Quantitative Easing, or “QE”] has failed to cause at least a one-for-one proportional increase in nominal GDP… [ed: though it has certainly boosted the financial markets for “the one percent”]

During the first and second quarters of 2014, the velocity of the monetary base2 was at 4.4, its slowest pace on record. This means that every dollar in the monetary base was spent only 4.4 times in the economy during the past year, down from 17.2 just prior to the recession…the sharp decline in velocity…has offset the sharp increase in money supply, leading to the almost no change in nominal GDP…

The answer lies in the private sector’s dramatic increase in their willingness to hoard money instead of spend it. Such an unprecedented increase…has slowed down the velocity of money…

(Emphasis added.) Get it? If only people would spend all their money, again and again – rather than hoarding it because they need it for bills, or worry about the future – THEN the economy would grow. THEN the Dear Obama-Yellen’s plans would work.

In reality, the economy is restrained by excessive debt and even more, by lack of freedom. As government gets bigger and consumes (or takes over) more of the economy, the private sector shrinks. As government plans, regulates and intervenes more heavily, the private sector gets sicker, lazier and more fearful. Just as Big Government creates more problems than it ever solves, the opposite – Freedom – ultimately solves more problems than it creates.

But that’s not what Establishment economists, politicians, bureaucrats and media want people to know. They’d rather blame, in this example, people who “hoard”. Look for the scapegoating of so-called hoarders to become a drumbeat, as the economy continues to languish into the 2016 election.

If we hit a new financial crisis, they’ll also be sure to scapegoat mysterious “speculators”, as President Nixon did in the 1971 crisis. But they’ll never put the blame where it belongs: on 8+ decades of money-printing and Big Government.

Thought for the day

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We live in a world where the central bank (Fed) *rigs interest rates low, in order to rig debt levels and asset prices high* as they can possibly go.

I know it’s abstract and I comment on it ad nauseum, but I’m not sure it can be over-stressed. It has lots of bad effects.

  • You think homes are unaffordable, compared to (say) 20-40 years ago? Guess why home prices aren’t a good deal lower. (There are many reasons – but try guessing the biggest.)
  • Feel hopeless about your ever retiring? Take a guess why retirement income is hard to come by.
  • Feel like you struggle to make ends meet every month, while wealthy people (having lots of financial assets) keep doing better and better? One more guess why.
  • Feel like new, good jobs are impossible to come by? The Obama administration (including Obamacare) is a big drag, there. But the Fed doesn’t exactly help.
  • Feel like the stock market is a crazy bubble again? Feel like we learned nothing from the 2008 crisis, and our economy is still much too ‘financialized’ and debt-ridden? Again, many causes – but one guess as to the top cause…

Interest rates are the most important price in the economy. They should be set by the People in free markets. I see no reason to have a Politburo which plans them – and plans them badly, in ways that injure society.

And suddenly, HFT

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I never knew that Casey Kasem was the voice of Shaggy. But I digress.

CBS recently did a good piece on High Frequency Trading (HFT), a means by which well-connected computers churn the stock markets and skim the cream. 15 minutes, here it is:

But a few things are odd about HFT as a story, or at least noteworthy.

First: the curious absence of government involvement. HFT has been going on for years (Zero Hedge started blogging it in 2009). Where have the vaunted government regulators been, all this time? Answer: Nowhere (until right now, as we’ll discuss in a minute).

The CBS piece praises Brad Katsuyama, a trader who figured out years ago how HFT works and founded a new exchange, IEX, to try to defeat HFT. That’s a great example of private enterprise being ahead of the regulators.

In fact, private enterprise has run circles around the regulators; first by creating HFT, then by being years ahead of government in working to defeat HFT. Could it be that government regulation isn’t effective? (cough)

The mainstream media’s absence from the HFT story until now (2014) is also striking. And that brings us to the second oddity: the timing of the CBS story. As if by magic, within days of its airing, we have also had announcements that the FBI will finally probe HFT. And that Goldman-Sachs will back IEX, the new HFT-free exchange. (Update: And the pr0n-watching SEC finally, also, investigating.)

I’m old enough to recognize a co-ordinated campaign. Granting that HFT is a real story, I still must speculate that the reason why HFT is suddenly on our collective lips, under investigation, etc., is because somebody powerful finds it convenient, at this time. (Where in the previous five years, they didn’t find it convenient.)

Who is that somebody? I don’t know. I did just note that Goldman-Sachs is rolling with the punches, at least. Over at Zero Hedge, they speculate that HFT is now being set up as the scapegoat for a coming stock market bubble-crash. The Federal Reserve is (by its QE, ZIRP and many other policies) the biggest market-rigger of all. The Fed has engineered the stock market bubble of the last five years. And, when that bubble bursts eventually, the Fed will want us all to blame something or someone else.

UPDATE: On CNBC, Katsuyama and a (truly obnoxious) pro-HFT guy get down-n-dirty. Good times.

This is who leads us

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Janet Yellen, who is President Obama’s new chair of the Federal Reserve Bank (Politburo that plans our economy), and who is thus the most powerful woman in the world, gave a speech yesterday where she bemoaned the fact that inflation isn’t high enough (in her view).

To humanize her speech, she told about three people who are long-term unemployed. If only there were enough inflation for these poor people to find jobs. It’s Yellen’s noble job to manipulate the economy until they can. But guess what? Two of the three have criminal records. Might that have anything to do with their unemployment?

One was Dorine Poole, who lost her job processing medical insurance claims when the recession hit.

“When employers started hiring again, two years of unemployment became a disqualification,” Yellen said in her speech yesterday to a community development conference in Chicago. “Even those needing her skills and employment preferred less-qualified workers without a long spell of unemployment.”

Poole was convicted of felony theft 20 years ago after she fell in with a “bad circle,” she said in a telephone interview…

Jermaine Brownlee, a skilled construction worker and apprentice plumber, “saw his wages drop sharply as he scrambled for odd jobs and temporary work,” Yellen said.

Brownlee said in a telephone interview that he was convicted of possession of heroin last year and currently is on parole.

OK, so was Yellen just caught by surprise? Did her speechwriter goof? Nope:

Yellen met personally with both people and knew about their records before the speech.

So basically, the most important person in our economy is determined to create inflation until she sees even the least employable people of all – namely, convicted criminals – in demand as employees. “Fasten your seatbelts; it’s going to be a bumpy night.”

CAVEAT: Lest the excitable accuse me of being a doomsday theorist (gasp!), I shall duly warn that in no way am I predicting instant hyperinflation as of tomorrow morning. In fact, for now, Yellen has officially adopted a less-inflationary stance as she “tapers” the Fed’s recent inflation-creating efforts. I have said “for now” and “officially”, because I think it’s Kabuki theater. As the Taper progresses over the next several months, it will cause markets to drop – whereupon Yellen will revert to full inflation-creating mode (gladly, under political cover). The point here, about her speech, is that it tips her hand.

A conversation I keep having with people

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Other: How ’bout that economy?
Jeff: The U.S. dollar’s days are numbered. I don’t know when, but sometime in the next five years (and maybe even beginning as soon as this year), the dollar will be kicked out as the key world currency.
Other: That’s crazy. We’re Number One. Other countries need us to trade with.
Jeff: Not necessarily. In fact, it would be good for other countries to keep more goods for their own people, rather than sending them to us just for our crappy paper dollars.
Other: But dollars are how you, like, buy stuff. Countries will always need dollars.
Jeff: Why? They can set up payment and trade systems in their own currencies, without us. And stupid Obama is helping to push Russia, China and India together as we speak. That’s half the world.
Other: But Germany and Japan will stick with the U.S.
Jeff: Really? Why? Japan is a sinking ship. Germany isn’t, but Germany traditionally does business with Russia and China. They could wake up and re-align at any time.
Other: That’s crazy. Germany has been pro-U.S. for 70 years. They’ll never change.
Jeff: Hmm, why are you so sure?
Other: How ’bout them Niners? It’s been raining cats and dogs.

Now consider this news item: Bundesbank, PBOC in Pact to Turn Frankfurt Into Renminbi Hub.

Germany’s Bundesbank and the People’€™s Bank of China agreed to cooperate in the clearing and settling of payments in [China’s] renminbi…

The central banks signed a memorandum of understanding in Berlin today…

“Frankfurt is one of Europe’s foremost financial centers and home to two central banks, making it a particularly suitable location,” said Joachim Nagel, a member of the Bundesbank’s executive board. “Renminbi clearing will strengthen the close economic and financial ties between Germany and the People’s Republic of China.”…

In a sign of closer economic ties between the two countries, China plans to open a fourth consulate in Germany…About 800 Chinese companies have bases in North Rhine-Westphalia, Germany’s industrial heartland…

German companies including Siemens AG, the country’s biggest engineering company, and Volkswagen AG are embracing the renminbi internally as a third currency for cross-border trade settlements…

This isn’t new; it’s a trend. China has been inking pacts with country after country in the last five years, so they can stop needing the U.S. dollar. That’s how and why the dollar is getting set for a fall.

I don’t think this trend has been reported much, in U.S. media. I try to spread the word, as I can. The U.S. has worsened its own problems in the last six years, and is moving toward some tough times. Get ready. Have your life in order: health & relationships fixed, debts paid, career solid. Also, don’t hide under a rock, but just in case things get really bad, consider maybe having some emergency supplies, gold and/or guns.

Don’t say you weren’t warned. Russia, China and India have problems too, but some (not all) of those problems stem from U.S. dominance and will be solved as they slowly re-organize the world in their favor.

Inflating the cost of retirement

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To retire, you need a regular income stream. For a lot of Americans, that’s Social Security. But many will tell you it’s not enough; plus you only get it in your 60s. What would it take for a person to retire on their own, today?

For that, you need investment income. Hopefully, you invest capital safely and live off the proceeds. Let’s take a lottery-ticket approach. Say you’re young (no Social Security for decades, and your principal needs to last, so no dipping into that). How much do you need to win in the lottery, to get $50,000/year of investment income?

This will be verrrry quick-and-dirty. Let’s simply assume that you keep your lottery winnings half in 5-year bank CDs, and half in a U.S. stock market index fund. I won’t bore you with the math. In brief, currently you’d get 1.55% from the 5-year CDs (per bankrate.com), and 1.88% from the S&P 500. It comes out to your needing roughly $2.9 million.

$2.9 million, just to yield $50,000/year. But what’s interesting is how this compares to times past.

  • 5 years ago (2009): the 5-year bank CD rate was around 3.5% (again per bankrate.com), and the S&P dividend yield was around 2.5%. You would have needed roughly $1.7 million.
  • 10 years ago (2004): the bank CD rate was around 3.5%, and the S&P dividend yield around 1.8%. You would have needed roughly $1.9 million.

Again, these numbers are just for a long-lived person to get themselves a $50,000 annual yield. A person in their 60s, collecting Social Security and/or dipping into their principal, would need rather less money. Especially if the stock market goes well (we know that always happens, right?) so they get some capital appreciation.

But here’s the point that applies to everyone: the kind of change we can see in the numbers.

  • Between 2004 and 2009, the cost of a $50,000 yield stayed roughly the same (going down 10% or so).
  • Between 2009 and today, the cost of a $50,000 yield has skyrocketed (up over 60%).

And that’s why tens of millions of Americans now feel like they can never retire. They can’t retire because the cost of getting X amount of retirement income (from bank CDs or stocks) has skyrocketed, in the last five years. Whatever their own “retirement number” was, big or small, suddenly they need much more. So they can’t retire, and keep working.

This is one dark side of market bubbles. The Federal Reserve’s ZIRP and “QE” policies are designed to make the financial markets go higher. A stock market bubble means, among other things, everyone paying more money for small (or nonexistent) yields. Higher bond markets mean lower bank CD yields. High real estate markets mean higher housing costs. The financial markets are roughly like your price tag for retirement. In the last few years, Obama/Bernanke/Yellen have pumped some giant inflation into them. It’s not a good thing.

And all of that is aside from the question of inflation in general: the fact that $50,000 today won’t buy you what it did 5 years ago. (Gasoline and medical costs, for example, are way up.) “Thanks, Obama!”

Obama, not fixing his Debt Bomb

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Last week, President Obama released his new budget proposal, which in February he said would be the end of austerity. First let’s ask, what is meant by “austerity”? As a policy, was it ever tried?

As discussed by myself and others, “austerity” means tax hikes (not spending cuts) in practice. Lefties hurl the word “austerity” to demonize the idea of spending cuts. But few of the countries which left-liberals accused of cruel austerity in the last few years cut their overall government spending levels; the majority continued to increase spending. So spending cuts can’t explain those countries’ poor economic results. What can? Well, most of them raised taxes.

Clearly, we should end (or reverse) the tax hikes. That would be a great “end of austerity”. But Obama’s meaning is that we should undertake spending increases; which, for reasons touched on below, probably mean deficit increases.

Before going into Obama’s proposal, let’s review the current state of the U.S. budget. [Read more…]