I partly made this point last week. Now here’s Marc Faber saying it well:

The Fed has been flooding the system with money. The problem is the money doesn’t flow into the system evenly. It doesn’t increase economic activity and asset prices in concert. Instead, it creates dangerous excesses in countries and asset classes. Money-printing fueled the colossal stock-market bubble of 1999-2000, when the Nasdaq more than doubled, becoming disconnected from economic reality. It fueled the housing bubble, which burst in 2008, and the commodities bubble. Now money is flowing into the high-end asset market – things like stocks, bonds, art, wine, jewelry, and luxury real estate.

Money-printing boosts the economy of the people closest to the money flow. But it doesn’t help the worker in Detroit, or the vast majority of the middle class. It leads to a widening wealth gap. The majority loses, and the minority wins.

Bold added. Faber has neglected to mention that Big Government is “closest to the flow” of anybody; money-printing is, first and foremost, a hidden tax to pay for Obama’s oh-so-ingeniously-productive(!) deficits and spending. And a regressive tax, at that. Obamunism at work!

By the way, the effect that Faber talks about is well known to Austrian School economists and other believers in sound money; it’s called the Cantillon Effect.

And if anyone wants to say it’s Bernanke doing it, not Obama, my answer is this: Yes, but Bernanke was re-appointed by Obama and is absolutely doing what Obama needs and intends.

Even as I read about the stock market making new highs, I keep reading about more Americans on food stamps than ever before, more Americans quitting the workforce, old people who can’t get a decent income from their savings anymore, business people who can’t start businesses or who are cutting back or even shutting down, and Americans struggling under their debt loads and unable to make ends meet.

This is in Obama’s fifth year. Whom is Obama’s economic recovery (such as it is) for? Cui bono?

My answer is: Obama’s policies benefit the Big Government – Big Banking – Big Labor elites, in that order of seniority. My next question is: how did the world get to the point where the people who support Obama’s elitist policies are supposedly friends of the little guy?

Why isn’t Big Government recognized as the ultimate ‘special interest’? Why aren’t we all laughing in Obama supporters’ faces, when they pretend to stand for the People? And what will it take to get the average person to understand that she would find life much more feasible and affordable, if only America would return to a system of (genuine) free enterprise under sound money and small government?

Some days ago, cnbc.com ran an article called $2 Trillion Underground Economy May Be Recovery’s Savior. It uses quotes from experts:

The shadow economy is a system composed of those who can’t find a full-time or regular job…

“You normally see underground economies in places like Brazil or in southern Europe,”…

Estimates are that underground activity last year totaled as much as $2 trillion…double the amount in 2009, according to a study… “The jobs are in service industries from small food establishments to landscaping.”…

A report from ADP Research Institute states that many employers, especially in low-wage businesses such as retail and food service, plan to reduce workers’ hours to less than 30 a week to avoid having to offer health benefits through Obamacare…

“The result is less tax money paid to the various levels of government.” “Those working and not paying the taxes puts the burden on those who pay the tax,”…

Workers who aren’t on the books don’t get Social Security or health benefits…

Several points here leap out at me.

1. How Obamacare destroys full-time jobs, as predicted by many on the Right before it passed.
2. How ‘normal’ taxation creates Second or Third World conditions in the economy.
3. How people can at least survive, when taxes are lower (or absent).
4. The experts’ and media’s cluelessness about all this. Despite the information presented by the article, its unspoken perspective remains that government is robbed, when people avoid taxes. Umm… how about people being robbed, when an excessively large and redistributive government taxes them so heavily that they (or their potential employers / trading partners) are forced into the underground economy?

In other words: Shouldn’t we shrink government and lower taxes enough that people won’t need to be in the underground economy?

That’s the question these articles never ask; the one you’re supposed to never think about. They are always written from an assumption that people do something illegitimate, when they avoid the government’s tax man; never from an assumption that the government does something illegitimate, when it charges people enough to drive them to it.

Here’s a fun chart. (Source: Gluskin-Sheff. Hat tip, Zero Hedge.)

What does it mean? It means that, starting around 2008 or so, the stock market has been strongly linked to the Federal Reserve Bank’s “Quantitative Easing” (QE) policy.

We’ve seen that point before; this chart shows it another way. Since the second half of 2008, the market moves up if the Fed is growing its balance sheet; the market stops (or declines) if the Fed stops; which means that the ratio of them (shown above) has kept fairly level.

In other news (and also hat tipping Zero Hedge), a Chinese woman wants to sue the Fed over its QE policy:

A woman in Kunming, Yunnan province, is trying to sue the United States central bank after discovering that the real value of the US$250 she put in an account in 2006 had shrunk by 30 per cent.

She claims it was a result of the Federal Reserve issuing too much money.

Her attorney, her son Li Zhen , called the lawsuit “litigation for the public good” which aimed to stop the Fed from continuing its quantitive easing policy…

He filed the lawsuit alleging “the abuse of monopoly in issuing currency” last month at the Kunming Intermediate People’s Court…but the court has yet to decide whether to officially place the case on file.

Why didn’t I think of that? The woman gets the issue: that the Fed has been debauching the dollar. Whether her suit succeeds is another question, but God bless her!

Finally, I want to mention the recent controversy over Reinhart-Rogoff’s work. It might be boring, so further discussion is beneath the following ‘fold’.

(now with updates) (more…)

Just saw this on Zero Hedge.

You can view it in just a few minutes, but here’s the gist.

• Government is great at creating ‘make-work’ (jobs which are a net economic loss).
• Government is terrible at creating real jobs (jobs which are a net economic gain[1]).
• People need to understand that having a free enterprise system, which eliminates jobs by economizing on human labor, and which then creates new jobs (if allowed to) in unforeseen new areas, is what raises a country’s living standards.

I often hear left-wingers argue that it doesn’t matter if government ‘jobs’ are unproductive, because the recipients will spend the money on something else which is more productive. So let’s even pay people to do nothing at all: benefits for the unemployed, for street addicts, adult babies, nepotism/graft, etc.

Their argument is deeply wrong. It’s a recipe for a society where corruption, laziness and incompetence are rewarded, and a recipe also for a de-valued currency, leading over time to hyperinflation. Were it otherwise, then government spending would lead inexorably to prosperity, and Zimbabwe would be the wealthiest of nations. Neither is so.

([1] A subset of government jobs are, of course, necessary – and thus ‘real’ – even though they are ‘overhead’ to the rest of the economy. Example: police, courts, military.)

From the comments: A pingback from Religio-Political Talk puts us onto this video, wherein Prof. Lee Ohanian explains how FDR worsened the Great Depression:

Here, the point is not about FDR’s make-work policies (which also inhibited recovery), but about his efforts to fix prices and wages at artificially high levels (which prolonged the high unemployment).

I must hat-tip John M. Mason at Seeking Alpha for inspiring this post. He weaves some recent news articles into a story which I shall sharpen, with my own viewpoint and commentary.

First, consider that “Recovery in U.S. is lifting profits, but not adding jobs” (says the New York Times). As percentages of national income, corporate profits today are they highest they’ve been since the 1950s, and employee income is the lowest it’s been since the 1960s.

So what are companies doing with their profits?

• “More U.S. Profits Parked Abroad, Saving on Taxes” (says the Wall Street Journal).
• “U.S. Firms Send Record Cash Back to Investors” as dividends, share buybacks and mergers (says the Wall Street Journal).

In other words: Companies just don’t feel that they have many productive opportunities / uses for their money, in the U.S. And do feel that they face unpredictable, yet ever-growing regulation – as well as relatively high taxes. So, they don’t hire (in the U.S.). Instead, they dispose of their profits in ways that accomplish little but to reward their shareholders, thus raising the stock market.

Connect that, folks, to the market’s recent highs. But what does a rising stock market accomplish? Little but to make the wealthiest households feel wealthier.

And so, to the extent that rising consumer spending has contributed something to U.S. recovery, that spending has come more from the wealthier households. “Wealthier Households Carry the Spending Load”, says the Wall Street Journal. Meanwhile, Wal-Mart and Target, who serve less-wealthy households, have reported slower sales.

This is an economy suffering from the anti-market, anti-growth policies of the Obama administration. Not surprisingly, it is also an economy skewed to the wealthy.

I say “not surprisingly”, because I know that the two things are connected. It is precisely the middle and working classes which (more…)

Some make the case for how well things are going, in the U.S. economy. The statistics say that GDP has been edging up, and unemployment ticked down to 7.7%. One GP commentor recently put it like this:

…the stock market is reaching all time highs, the real estate market is bouncing back and the unemployment rate is going down. Yes, the unemployment rate needs to go down lower but overall, things seems to be really improving.

But I say, look at how we’ve gotten here: not in any way that can end well.

Last week, I mentioned that the markets are most likely up because the Federal Reserve Bank is pumping out $85 billion per month in new money. That’s a rate of about $1 trillion per year. By no coincidence, the government’s FY2013 deficit is projected to be around $1 trillion.

Please let me borrow, print-n-spend $1 trillion a year (or more), and I will also get you higher GDP numbers, along with financial market bubbles, $4.50 gas, and job growth that is positive, only after several years (and with a lot of part-time jobs). But, how much real wealth?

Analogy: Say your spouse is out of work. You have a family business. You create a job paying your spouse $50,000. The job doesn’t really produce much. You created it so your spouse will feel good. Paying for it tips your business into a loss, that you make up by borrowing. Has your household gained? Your tax return says that your household income is $50,000 higher. Is it?

The income isn’t an economic gain, if all you did was borrow money to simulate earned income. That’s what the government does. It borrows money, spends it on un-economic jobs (e.g., bureaucrats, bailouts, or paying the unemployed to do nothing), and says “Look – the national income (GDP) is up!” (^^)

I’ve said for a couple of years that GDP is not a number we should care about. We should look at GDP net of new debt.

According to this chart, in the four years of Obama’s reign so far, the U.S. has added around $1.1 trillion to its GDP level, and around $2 trillion in cumulative GDP (giving Obama credit for all amounts above the deep-recession GDP level that he inherited). In the same calendar period, the U.S. added $5-6 trillion in debt.

That’s a disaster. In the name of government deficits to “stimulate” the economy, we have, over several years, added much more in debt than we’ve gotten in GDP increases.

It’s not all Obama’s fault. But he’s captain of the ship, (more…)

Good article from Michael Boskin. Since it mostly speaks for itself (and since I’ve pounded the table on some of these ideas before), I’ll just quote a few highlights.

President Obama’s most recent prescription for economic growth—more government stimulus spending, new social programs, higher taxes on upper-income earners, subsidies for some industries and increased regulation for all of them—is likely to have the same anemic results as in his first administration…

Standard Keynesian models that claim a quick boost from higher government spending show the effect quickly turns negative. So the spending needs to be repeated over and over, like a drug, to keep this hypothetical positive effect going. Japan tried that to little effect, starting in the 1990s. It now has [ultra-high] debt-to-GDP…

Since World War II, OECD countries that stabilized their budgets without recession averaged $5-$6 of actual spending cuts per dollar of tax hikes…In a paper last year…Stanford’s John Cogan and John Taylor…show that a reduction in federal spending over several years amounting to 3% of GDPbringing noninterest spending down to pre-financial-crisis levels——will increase short-term GDP.

Why? Because expectations of lower future taxes and debt, and therefore higher incomes, increase private spending…

An economically “balanced” deficit-reduction program today would mean $5 of actual, not hypothetical, spending cuts per dollar of tax hikes…

…the demand by Mr. Obama and Senate Democrats that any dollar of spending cuts in budget agreements this spring (to fund the government for the rest of the fiscal year and when the debt limit again approaches) be matched by an additional dollar of tax hikes is economically unbalanced in the extreme…

Emphases added. Read the whole thing. Boskin backs his claims with examples, which I’ve omitted, to give you a reason to go there.

I’ve titled this “A start on fixing the economy” because we need additional steps to reduce government’s crushing, depressing burden on the economy. Spending cuts alone will not be enough. Repealing Obamacare would also help a lot, as would some other sort of measures to make clear to people that the Obama administration’s nonstop, unpredictable interference in business is over.

Today the stock market, as measured by the Dow Jones Industrial Average, hit an all-time high of 14,283 (intraday basis; closing at 14,253). A broader measure of stocks, the S&P 500 index, also seems to be doing well as it closed at 1539, nearing its all-time high.

So all is well in Obama’s economy, right? People are confident, great time to invest in stocks, right? Not necessarily.

The economy’s fundamentals remain poor. I believe that the Federal Reserve Bank’s “Quantitative Easing” program, which pumps around $85 billion per month of newly-printed money into the financial markets, causes the stock market to go up irrationally.

People know that America’s economic fundamentals are poor; but if the Fed is pumping so much money into the markets, then the markets are going to do well ‘no matter what’, at least for awhile. Realizing this, people feel a pull to join the party – after all, everyone else is doing it – and that makes markets go up even more.

I don’t see how it can end well. I see it as another market bubble. When the Fed stops QE – and it will have to, eventually – the stock market seems more than likely to crash. Bubbles are terrific fun, while they last. That is the phase we’re in now: the drug-QE-induced euphoria.

Moreover, what’s really going on here is (I believe) a process of inflation. I’ll explain. (more…)

I could talk about Lance Armstrong’s recent shameless exploitation of his prior shameless lying, but y’all know I like the economic topics. And one aspect of honesty is, calling things by their right name. To his credit, Whole Foods CEO John Mackey recently called Obamacare by its right name:

Mackey told NPR[,] “Socialism is where the government owns the means of production. In fascism, the government doesn’t own the means of production, but they do control it — and that’s what’s happening with our health care programs and these reforms.”

Of course that set off the howling spree, and now we have a partial climbdown:

“I made a bad choice of language,” Mackey said on WNYC’s Brian Lehrer Show… I was trying to distinguish it between socialism so I took the dictionary definition of fascism, which is when the means of production are still owned privately but the government controls it — that’s a type of fascism. However, I realize that that word has so much baggage associated with it…So I do regret using that word…

Funny: Leftists never seem to regret it, when they use the word.

But Mackey rightly emphasizes the positive: “What I do believe in is free enterprise capitalism, and I’d like to see our healthcare system really unleash [its] power…” – Nice to hear that.

Like most things that people need to live, coffee has gone up these last few years. Even after a big decline in the last 18 months, the commodity still costs about three times what it did ten years ago.

If you read Zero Hedge, you may have seen a recent item from Daily Finance on declining coffee quality. It seems that the brand producers have lately been swapping in the cheaper Robusta beans for the better-tasting Arabica.

“Why should I care?”, you ask. Because this is a good little example of inflation at work. Many things have gone up a lot, in the last 10 years. But the coffee makers don’t want to ask people to pay (much) more. They figure, people will settle for Robusta, a worse taste.

So, retail coffee prices rise don’t rise (as much as the commodity has). Then the government elves who compile the consumer inflation statistics say: Look, the consumer price isn’t rising! Whee, no inflation! If you say “But Robusta isn’t as good”, they say: It’s a change in consumer preferences! Not inflation!

Except… it was inflation. Declining quality – the substitution of inferior goods, for roughly the same money – means a lower living standard. That’s one form of inflation; especially if it keeps happening.

I swear the Romney/Ryan campaign is paying attention to what the conservative bloggers are talking about.  I remember watching John McCain in 2008 and screaming at the TV something like — “Hey you idiot… why didn’t you bring up [this topic] — it is all the blogs are talking about!”

Now during each debate this year, I scream something like – “Mitt must be reading my Twitter timeline!  He knew that [non-covered MSM fact or story].”

Last night I had a number of moments, but one was most important.  Many of us in the conservative blogosphere have been contrasting the Obama “Recoversession” to the actual Reagan Recovery.  It is a tale of stagnant growth and meager employment versus robust quarterly growth and the fastest job growth in post-WWII America.

Romney laid it out last night and I cheered at my TV.  Glenn Reynolds has a great graphic this morning at Instapundit that further illustrates the stark (and I mean damned-ass stark) contrast between Obama and Reagan on economic recovery.  If these are the “three decades of problems in our economy” that Obama whines he inherited — please bring more!

-Bruce (GayPatriot)

President Obama, writes the Cato Institute’s David Boaz:

doesn’t talk about free enterprise as an American value, not even when speaking of freedom to students in China. Search for “free enterprise” on the White House website, and the first hit is to his famous “You didn’t build that” speech in Roanoke—which doesn’t include the word “enterprise,” or the word “free.”

Read the whole thing.

Again, I appreciate your clicking over to my company website for a good interview by Business Insider with the former Inspector General of the TARP program.

And a reminder – I’m available for speaking engagements as well as your small company’s government relations, media/PR and social media needs.

/end of shameless plug

-Bruce (GayPatriot)

As some gay activists are planning a “kiss-in” at Chick-fil-A franchises across the country today, the LA Times reports that a number of activists are “questioning whether such outward displays of affection will ultimately help or hurt their cause“:

But even among LGBT supporters, some wonder whether such an in-your-face act might be too provocative, or amount to taunting.

“I respect not patronizing their establishment … but by taunting them in their establishment is hate-filled and inciting anger and hate,” said one commenter on a Causes.com page urging people to participate in the kiss-in.

Suggested another: “Its okay to disagree but its not okay to confront a person on their views in such an aggressive and provocative manner. There are forums for that.”

Via Instapundit.  Well, I did kiss a guy at Chick-fil-A Wednesday night and had he been more boyfriend, the kiss would have been, well, a little more affectionate.  Anyway, I’m with Ed Morrissey (and Mike Huckabee!) on this one:

. . . there is nothing wrong with protesting over Chick-fil-A’s political connections or ownership’s political views, as long as protestors obey the law in doing so.  That is a perfectly acceptable free-speech, free-market approach to disagreement within commerce.  I’d rather see kiss-ins than lawsuits, for instance, and certainly more than seeing politicians extort businessmen to support their political agendas, as is exactly what Thomas Menino and Rahm Emanuel attempted to do in Boston and Chicago, respectively.  Protests that don’t block customers from accessing the business or act violently are a good release valve for a free society.

Now, there is a difference between kissing someone out of affection and kissing someone to make a statement. And the latter seems to serve only to politicize an intimate gesture.  So, the question we should ask is how will the kiss-in be seen? (more…)

Via Walter Olson (on Facebook) via Lachlan Mackay (also on Facebook)