Bush Economic Doublespeak

In the article below, President Bush uses a lot of doublespeak, which I've attempted to translate here:

• "the country is not recession-bound" --> "the country is already in a recession"


• "concern about slowing economic growth" --> "concern that the election won't go the way I want and the next president might not carry on my policies"


• "rejected for now any additional stimulus efforts" --> "planning to hand out more cash right before the election"


• "We acted robustly" --> "we didn't know what else to do"


• "We'll see the effects of this pro-growth package" --> "everyone likes more money, so this has to help"


• "Why don't we let stimulus package 1, which seemed like a good idea at the time, have a chance to kick in?" --> "We have to number the cash hand-out programs now, because there will eventually be so many that you won't know which one we're talking about otherwise"

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• "I don't think we're headed to recession." --> "We've changed the definition of a recession so that they only happen when the Democrats are in office"


• "But no question, we're in a slowdown." --> "you ain't seen nothin' yet!"


• "So we're still for a strong dollar." --> "a strong dollar means that there are a whole lot of them, right? I read that on the Internet somewhere, so it has to be true, right?"


• "We'll make it through this period just like we made it through other periods of uncertainty during my presidency" --> "yet another unmitigated disaster"

WASHINGTON - President Bush said Thursday the country is not recession-bound and, despite expressing concern about slowing economic growth, rejected for now any additional stimulus efforts. "We acted robustly," he said.

"We'll see the effects of this pro-growth package," Bush told reporters at a White House news conference, acknowledging that some lawmakers already are talking about a second stimulus package. "Why don't we let stimulus package 1, which seemed like a good idea at the time, have a chance to kick in?"

Bush's view of the economy was decidedly rosier than that of many economists, who say the country is nearing recession territory or may already be there. "I'm concerned about the economy," he said. "I don't think we're headed to recession. But no question, we're in a slowdown."

The centerpiece of government efforts to brace the wobbly economy is a package Congress passed and Bush signed last month. It will rush rebates ranging from $300 to $1,200 to millions of people and give tax incentives to businesses.

On one issue particularly worrisome to American consumers, there are indications that paying $4 for a gallon of gasoline is not out of the question once the summer driving season arrives. Asked about that, Bush said "That's interesting. I hadn't heard that. ... I know it's high now."

Bush: 'We’re in a slowdown'
Feb. 28: President Bush says, "I don’t think we’re headed to recession. But no question, we’re in a slowdown,” at a news conference at the White House.

Bush also telegraphed optimism about the U.S. dollar, which has been declining in value.

"I believe that our economy has got the fundamentals in place for us to ... grow and continue growing, more robustly hopefully than we're growing now," he said. "So we're still for a strong dollar."

Bush also used his news conference to press Congress to give telecommunications companies legal immunity for helping the government eavesdrop after the Sept. 11 terrorist attacks.

Bush criticized the Democratic presidential candidates over their attempts to disassociate themselves from the North American Free Trade Agreement, a free-trade pact between the U.S., Canada and Mexico. Bush said the deal is contributing to more and better-paying jobs for Americans.

Following his news conference, Bush traveled to the Labor Department to meet with his economic advisers.

Afterward, he expressed confidence in the nation's ability to weather the economic downturn.

"We'll make it through this period just like we made it through other periods of uncertainty during my presidency," Bush said.

Path to Hyperinflation

I was reading the Wikipedia article on Hyperinflation, and noticed that they have a list of the ways that governments have historically hidden the true rate of inflation, which helps pave the road to eventual hyperinflation. In case you were wondering what might lay ahead:

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1. Outright lying as to official statistics such as money supply, inflation or reserves.

Current government statistics are awash in lies. Everything from unemployment statistics to the CPI and the GDP are badly distorted. See http://www.shadowstats.com/ for details.

2. Suppression of publication of money supply statistics, or inflation indices.

The M3 money supply stats are no longer published by the Fed.

3. Price and wage controls.

This hasn't happened recently. However, inflation was only around 4% when Nixon tried it back in the early 1970's. Inflation is now about three times that level, when calculated in the same way as it was back then.

4. Forced savings schemes, designed to suck up excess liquidity. These savings schemes may be described as pension schemes, emergency funds, war funds, or similar.

This sounds like Obama's "automatic workplace pensions".

5. Adjusting the components of the Consumer Price Index, to remove those items whose prices are rising the fastest.

Food and energy are not included in the CPI. They also make "hedonic" adjustments to remove other items from the index whose prices are rising fast, resulting in further distortions.

Is the US Economy Healthy?

If you're still having second thoughts about whether the US economy is healthy, here are few things to consider:

• Over the last two years, the dollar has lost 20% of its international purchasing power


• The impacts of a weaker dollar include more expensive imported goods, including oil


• Look at the prices of all commodities over the last few years (or even over the past few months), especially gold, silver, platinum, wheat, corn, oil, etc.


• The price of wheat about a year ago was around $5/bushel. Within just the last week it went up by more then $5/bushel to an all-time high of around $30.


• Think about the prices of things you buy on a regular basis. How much have they gone up over the last year? Do those increases match-up well with the government's claim of 4% inflation?

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• In 1964, while the US was still using silver coins, the average price for a gallon of gas was $0.30. Today, a 1964 silver quarter (now worth about $3.50) will buy a gallon of gas. So priced in silver, gas is actually cheaper today than it was 44 yrs ago. Or, to put it another way, the dollar is only worth 7% of what it was worth back then (a $100 bill today can buy what $7 could in 1964).


• Have a look at the charts at http://www.prudentbear.com/index.php...e/ChartLibrary The one showing consumer debt as % of GDP is particularly disturbing.


• Think about how much you're really paying in taxes. In the 35% federal tax bracket for people in California, it totals up to more than 60% (FICA, sales tax, medicare, state tax, etc).

Presidents Can't Manage the Economy

In John Stossel's recent article: Presidents Can't Manage the Economy, he says:

Manufacturing jobs are no better for America than other jobs. Some argue that they are worse. How many parents want their children to work in factories rather than offices? Increasing service jobs in medical, financial and computer sectors while importing manufactured goods doesn't hurt America. It helps America.

This is a common misconception in the US, and regardless of what parents might want, I strongly disagree.

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Service-based jobs depend on the existence of producers. Without that industrial base, those jobs go away. Producers are, in general, manufacturers.

A service-based economy (like the current situation in the US) is fragile. Production is wealth; money flows toward producers (provided they're producing something that is also consumed). That's why the US has such a huge trade deficit and China has such a huge trade credit. It's also why the world's largest creditor nation has always ended up dominating the world's economy.

How much of your income do you pay in taxes?

Here's a breakdown of just a few of the taxes that people in California pay:

Federal income tax: 35%
Sales tax in northern California: 8.25%
CA State income tax: 9.3%
FICA (social security): 6.2%
E-FICA: 6.2% (paid by your employer on your behalf)
Medicare: 1.45%

Total = 66.4% (60.2% not including E-FICA)
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That doesn't include property taxes (direct or indirect through your landlord), DMV fees, CPUC taxes on phone charges, electricity/utility taxes or embedded taxes like those on fuel, so the effective rate is even higher.

Throw some inflation into the mix, and you start to get a sense of how much the government is really taking from us.

Video: How Money is Created and Destroyed

I made a short video that summarizes the mysteries and magic behind the process of money creation and destruction.

Please have a look, and let me know what you think.

Bank Non-borrowed Reserves

There was a recent opinion piece by Carolyn Baum on Bloomberg: How Non-Borrowed Reserves Became a Sexy Subject.  While I agree with the basic facts presented by the author, I also think she leaves out a couple of important points, including why the TAF was created in the first place.

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In reference to the fact that non-borrowed reserves for US banks have recently gone negative, she said:

Reserves can be borrowed (from the Fed's discount window) or non-borrowed (supplied via the Fed's daily open market operations). It matters not one whit to the Fed where the banks acquire the reserves they require. If they borrow directly from the Fed, they don't need to tap the interbank, or fed funds, market.

Right. The Fed Funds market and the Discount Window both count as borrowed reserves. Non-borrowed reserves come from open market operations, where the purchase of treasury securities in the open market injects cash into the economy, which, when deposited into banks becomes reserves, since it's backed by government debt rather than commercial debt.

When the proceeds from open market operations are deposited into the banking system, they don't have a choice about whether to call those funds reserves. That's what they are, period. So the first thing that's interesting here is that banks needed to borrow more of their reserves than they have received through open market operations. Why would that happen?

The answer comes with a statement near the end of the article:

Some of the concern is justified, he said, given banks' massive losses and writedowns on subprime loans.

Exactly. Those losses destroy reserves. The only option banks have to replace the lost reserves is to borrow them. But other banks weren't lending much through Fed Funds, and the Discount Windows requires short-term, high-quality (AAA) assets, which were in short supply. So the TAF was created to fill the gap.

Open market operations probably could have been used to ultimately achieve the same effect, but the effect isn't instant, and the Fed has no control over which banks the resulting funds are deposited in. The fact that some banks have bigger problems than others was, I'm sure, another contributor to the creation of the TAF.

Taxation of inflated pseudo-profits

In the US, the financial unit of account is the US dollar. The right to money vests with the government; you have no right to a store of value, and government can pillage what value you might think you have at will, and without representation or due process.

26 U.S.C. § 61 of the Internal Revenue Code defines "gains from dealings in property" as one type of income. The word "gain" means a gain in the established financial unit of account, not a material gain (an increase in purchasing power).

[[MORE]]Let's say I buy stock (a form of property) for $100 and sell it a year later for $105, but inflation was 10% for that year. I'm taxed on the $10 nominal "gain," even though I've actually lost $5 worth of purchasing power.

The situation gets worse as inflation rates rise. Imagine that inflation is 100% per year. You buy a stock for $100 and sell it a year later for $150. You've lost $50 in purchasing power, but the government would tax the $50 pseudo-profit, thereby increasing your loss.

Eliminating the tax on capital gains would help to mitigate the damage here, although inflation and forcing the dollar as the unit of account are the also a big part of the problem.