Ten things the government could do to help create jobs

There's been a lot in the press recently about the need to create jobs. Yet the only solutions offered seem to be things like cutting taxes or new spending on various government-sponsored job programs (Keynesianism). You would think it would obvious to most people by now that this doesn't work -- remember that $1 trillion "stimulus" from a few years ago? Did it help? Clearly not.

So if government spending doesn't work, then what's the answer? It's basically the opposite of what the government has been doing. Rather than increasing regulations and creating more and more barriers -- just get out of the frigging way!

[[MORE]]A few examples:

1. Repeal regulations. It may not even matter where you start -- almost all of them are bad.


2. Allow failure. Freedom only works if it's also possible to fail. Don't protect companies from failure or mistakes; let them go bankrupt or be sued. You'd be shocked at how many laws there are that seek to interfere in this area.


3. Make it easy for people to be fired. Although it might seem paradoxical at first, making it easy for an employer to fire their employees also makes it easier for them to hire. If an employer is likely to be stuck with someone they can't get rid of, it makes them reluctant to hire in the first place. Easy firing also lets them trim dead wood, so the truly productive are more likely to be rewarded.


4. Abolish the minimum wage. Unemployment is highest among young adults. Is it better to work for a low, yet mutually agreed wage, or to not work at all? Keep in mind that even when working for a low wage, people are building experience -- which often leads to higher wages down the road.


5. Repeal all laws that require jobs to be licensed. You need a license these days even if you want to just wash someone else's hair. Licensing has become a way for people who do certain jobs to put up barriers against competition. Caveat emptor is a much better policy.This would be especially effective at reducing healthcare costs.


6. Allow employment testing. The Supreme Court's 1971 decision against employment testing ended up making it much more risky for employers to hire, because they're can't be as confident in their hires as they would be otherwise.


7. Repeal all "equal opportunity" laws. If an employer is forced to hire someone only due to their race or gender, and not because they are the best person available for that job, it means the company is less productive, and therefore able to support fewer jobs than it could otherwise.


8. Reduce or eliminate corporate taxes. Higher profits means more money would be available for jobs. Corporations aren't living entities. The real burden of corporate taxes falls on their shareholders -- which includes many of today's ailing pension funds. Corporate taxes are really just hidden taxes on individuals; we pay them in higher prices for the things those companies produce.


9. Something needs to be done about unions. I agree with the idea that people should be able to collectively bargain, and things like that. But current union-related laws go much further than that. It seems to me that what we see in Detroit today is largely a result of unions that have taken things too far. I don't know exactly what the solution is.


10. Legalize owning and making stuff. There is a surprisingly huge list of things that are illegal to make or own in the US. For example, alcohol stills (which are legal in New Zealand, BTW). Once legalized, assuming there is demand, companies would spring up to manufacture them, and those companies would need employees -- as would supporting companies, such as accounting firms, transportation, distribution, wholesalers, retailers, construction, etc.

In addition, when the government borrows, it is competing with businesses for capital. Reducing government borrowing would therefore make more capital available to businesses, which would allow them to hire and grow.

Example of conservative investing results in New Zealand

Let's look at what would have happened if you bought New Zealand dollars (using US dollars) 4 years ago, held them in a savings account in a bank, and sold them today. To keep the math easy, let's assume you're in a low tax bracket and don't pay taxes (hey, that's half the US now, right?).

mid-2007: Buy US$100 worth of NZ dollars. Exchange rate = 0.68 USD/NZD, so net = NZ$147.06
mid-2007 to mid-2008: Interest rate for savings account 7.4%, so NZ$157.94 at the end of the year
2008 to 2009: 7.2% --> NZ$169.31
2009 to 2010: 6.0% --> NZ$179.47
2010 to 2011: 5.0% --> NZ$188.45
mid-2011: Exchange NZ$188.45 back to USD. Current exchange rate = 0.81 USD/NZD, so net = US$152.64

That's a 52% gain over 4 years, or 11% compounded annually. 19% of the gain came from a weakening USD vs. NZD alone.

For comparison, gold has about doubled in USD terms over the same period, but pure USD deposits are up only a few percent.

Should the US sell the gold in Fort Knox?

There has been some talk recently about whether the US should sell the gold it has in Fort Knox, as a way of offsetting the budget deficit.

There are reasons to suspect that the gold in Fort Knox may not be there. GATA has shown evidence of a very active program of the government leasing gold to so-called “bullion banks,” as a way of generating a return on an otherwise stagnant asset. However, in spite of that, let’s assume for the moment that the gold either is there, or can be readily recovered.

Governments and central banks have a history of holding gold, for good reasons. In World War II, a number of countries that the US government did business with would not accept dollars in payment, nor would the US accept their currencies. Many war supplies could only be purchased with gold; it was a major medium of exchange during a period of shortages and substantial uncertainty. In that sense, it is a strategic asset.

[[MORE]]Another reason central banks hold gold is in case of a currency collapse. If the dollar becomes worthless, having a large store of gold would allow a “reboot” of some kind.

In fact, I would like to suggest that the reasons central banks hold gold are the same reasons individuals should; not as an investment per se, but as a form of insurance.

This also suggests that selling the central bank’s gold would be a bad idea without other substantial changes happening first. If anything, I would argue for the reverse. Since we are clearly in the middle of a long-duration crisis, it would seem like the time to increase insurance, rather than eliminate it. However, the situation might change if the US were to adopt gold as currency again; not by backing the dollar with gold, but by repealing the legal tender laws, not taxing gains on the sale of gold, and allowing it to circulate on a by-weight basis as an alternative to the dollar. In that case, it’s possible that the resulting durable wealth of the people might be able to take the place of the central bank’s holdings – whereas if the gold is simply sold, the most likely buyer would be other central banks (as happened when central banks in Europe sold their gold).

In addition, the oft-repeated meme that the government “stole” the gold from citizens doesn’t paint the full picture. It’s true that FDR required people to turn in their gold. However, they were given paper money in exchange – money which could be spent in the same way as gold. It was the subsequent act of devaluing the dollar that was the real theft, as inflation is today.

Socratic questions: social, economic, political or ethical

I thought it might be interesting to put together a list of Socratic questions that highlight a contradiction in popular social, economic, political or ethical thinking, in such a way that it helps people think about complex issues.

Here are a few that I came up with. If you can think of any to add to the list, I would love to see them.

1. Why do labor unions insist that their employers "share the wealth," while they refuse to share in any of the losses?


2. If education should be free, why do teachers and their unions demand (and receive) such high salaries?


3. Why are the politicians who preach economic egalitarianism so strongly against a system with true political equality?


4. Why are parents chastised for not spending enough time with their children, while also being forced to send their kids away to public schools all day?


5. Since initiating force against another person is immoral, how can you justify legislating morality, since it requires force?


6. If people making over $200,000/yr are considered rich and evil capitalists, why are the public and union employees who make that much considered "deserving"?


7. Why does government expect us to obey the laws they pass, when they exempt themselves from many of them, and when they refuse to follow the Constitution?


8. How can government protect my freedom by violating my rights?


9. If more legislation is the answer, how much will be enough?


10. If money (or the love of money) is evil, why do you use it?


11. How many poor people have you ever worked for?


12. Why do so many Black Americans embrace Christianity, a religion which was imposed by force on their slave ancestors?


13. Why does getting elected to public office entitle elected officials to spend public tax money for their own personal holidays?


14. If equal pay for equal work is a good thing, why isn't it OK for someone not to be paid for doing nothing?

Out of control state occupational licensing

According to a Feb 7 article in the Wall Street Journal, more than 1,100 occupations in the US now require state licensing; everything from florists to barbers to people giving massages. In 2008, an astounding 23% of US workers required state licensing and approval to perform their jobs, up from 5% in 1950.

The article points out that “licensing mostly serves as a form of protectionism, allowing veterans of the trade to box out competitors who might undercut them on price or offer new services.” It also quotes a labor professor from the Univ. of Minnesota, “Occupations prefer to be licensed because they can restrict competition and obtain higher wages,” and “If you go to any statehouse, you'll see a line of occupations out the door wanting to be licensed.”

In other words, using the force of government to limit competition and keep prices artificially high – another flavor of the same problem that has corrupted labor unions and many industries.

I’d like to suggest two straightforward and principled ways to address the high unemployment rate: abolish all occupational licensing requirements, and eliminate the minimum wage. Not only would more people be employed, but prices for those of us who use such services would decline, and the overall quality would likely improve as service providers became more competitive.

Nine examples of Black Friday violence

Re-posted from The Economic Collapse Blog:

9 Shocking Examples Of Black Friday Violence -- Is This A Foretaste Of The Economic Riots We Can Expect When The Financial System Collapses?

It seems with each passing year the madness on Black Friday gets even worse. This year, there were reports of fights and rioting from coast to coast. It was estimated that over 180 million U.S. shoppers headed for the stores on Friday, and whenever you get that many people together there are going to be problems. But just how crazed ordinary Americans are getting over saving a little bit of money is deeply disturbing when you really start thinking about it. If people will go this wild just to save 40 percent on a television set, then what in the world are they going to do when they have been without food for a couple of days? If Americans will act like psychotic animals just to save 50 bucks, then what in the world will they do when they have lost everything and are desperate to survive?

[[MORE]]All of us had better hope and pray that an economic collapse does not happen any time soon, because it is becoming increasingly apparent that the American people are not morally equipped to be able to handle one. Greed and selfishness have become so rampant in America that large segments of the population have totally forgotten how to be any other way.

If the United States ever experiences a really, really bad economic downturn, this nation could very quickly start looking like New Orleans after Hurricane Katrina from coast to coast. Most Americans would simply not know how to handle it.

The following are 9 shocking examples of Black Friday violence that should make all of us wonder what is happening to America....

#1 At a Target store in Buffalo, New York the crowds waiting impatiently outside suddenly became a chaotic mob once the doors opened at 4 AM on Friday morning.

http://www.youtube.com/watch?v=YOVD-m8urJU

One man that was lying on the ground remembers thinking "I don't want to die here" while he was being trampled by crazed shoppers....

#2 Crowds were becoming so violent at a Wal-Mart in Sacramento, California that the police actually evacuated the store early Friday morning.

#3 Three women from West Palm Beach, Florida said that $1,000 in presents that they had just purchased at Best Buy were stolen from their vehicle on Friday morning within minutes of being purchased.

#4 One U.S. Marine reservist that was collecting toys for children was stabbed with a knife when he attempted to stop a shoplifter in eastern Georgia on Friday.

#5 Blogger Lynne Elder-Blau has posted about overhearing police officers describe a huge brawl that erupted this year at one well-known store on Black Friday....

Well, the girls and I were in a popular convenience store in Garden City last night while a store employee and a Garden City Police Department Officer were visiting. They were conversing about a large group of customers who got into a knock-down brawl at a nationally-known variety store in Garden City yesterday morning. Several police officers were brought in to break up the ball of adults who were pulling and tugging at products and actually punching other customers in their faces and stomach areas! We're not just talking about a few people who were involved in this violent non-sense. The officer said that there was a large amount of people involved in this particular altercation. Ridiculous!!!

#6 A 21-year-old woman from Middleton, Wisconsin was arrested when she threatened to shoot other shoppers while waiting to get into a Toys R Us store for Black Friday. The other shoppers had objected when she attempted to move to the front of the line.

#7 The following is video of customers literally tearing apart a store display at a Wal-Mart in Douglasville, Georgia as they pushed and shoved each other in an attempt to grab the best deals....

http://www.youtube.com/watch?v=vESlkalBbIk

#8 The Los Angeles County Sheriff's Department actually "locked down" a section of a Cerritos, California shopping mall after a wild fight broke out in the food court. There were even reports that some people were flinging chairs at other customers.

#9 At one Wal-Mart in Texas, a near-riot broke out right in the middle of the store as a huge crowd of customers pushed and shoved each other to get a handful of Black Friday deals that were being wheeled out to the floor....

http://www.youtube.com/watch?v=fCoR2hcseIw

Remember, the products that these Americans are fighting over are not free. This is how crazy people are willing to go just to get a deep discount on an item.

So what is going to happen someday when people are desperate for food or shelter?

If this is how people act when the sun is shining, how are they going to behave once a really bad storm arrives?

(continues)

Americans, I have some bad news for you

Reposted from Life After the Oil Crash:

Americans, I have some bad news for you:

You have the worst quality of life in the developed world -- by a wide margin.

If you had any idea of how people really lived in Western Europe, Australia, New Zealand, Canada and many parts of Asia, you'd be rioting in the streets calling for a better life. In fact, the average Australian or Singaporean taxi driver has a much better standard of living than the typical American white-collar worker.

I know this because I am an American, and I escaped from the prison you call home.

I have lived all around the world, in wealthy countries and poor ones, and there is only one country I would never consider living in again: The United States of America. The mere thought of it fills me with dread.

[[MORE]]Consider this: you are the only people in the developed world without a single-payer health system. Everyone in Western Europe, Japan, Canada, Australia, Singapore and New Zealand has a single-payer system. If they get sick, they can devote all their energies to getting well. If you get sick, you have to battle two things at once: your illness and the fear of financial ruin. Millions of Americans go bankrupt every year due to medical bills, and tens of thousands die each year because they have no insurance or insufficient insurance. And don't believe for a second that rot about America having the world's best medical care or the shortest waiting lists: I've been to hospitals in Australia, New Zealand, Europe, Singapore, and Thailand, and every one was better than the "good" hospital I used to go to back home. The waits were shorter, the facilities more comfortable, and the doctors just as good.

This is ironic, because you need a good health system more than anyone else in the world. Why? Because your lifestyle is almost designed to make you sick.

Let's start with your diet: Much of the beef you eat has been exposed to fecal matter in processing. Your chicken is contaminated with salmonella. Your stock animals and poultry are pumped full of growth hormones and antibiotics. In most other countries, the government would act to protect consumers from this sort of thing; in the United States, the government is bought off by industry to prevent any effective regulations or inspections. In a few years, the majority of all the produce for sale in the United States will be from genetically modified crops, thanks to the cozy relationship between Monsanto Corporation and the United States government. Worse still, due to the vast quantities of high-fructose corn syrup Americans consume, fully one-third of children born in the United States today will be diagnosed with Type 2 diabetes at some point in their lives.

Of course, it's not just the food that's killing you, it's the drugs. If you show any sign of life when you're young, they'll put you on Ritalin. Then, when you get old enough to take a good look around, you'll get depressed, so they'll give you Prozac. If you're a man, this will render you chemically impotent, so you'll need Viagra to get it up. Meanwhile, your steady diet of trans-fat-laden food is guaranteed to give you high cholesterol, so you'll get a prescription for Lipitor. Finally, at the end of the day, you'll lay awake at night worrying about losing your health plan, so you'll need Lunesta to go to sleep.

With a diet guaranteed to make you sick and a health system designed to make sure you stay that way, what you really need is a long vacation somewhere. Unfortunately, you probably can't take one. I'll let you in on little secret: if you go to the beaches of Thailand, the mountains of Nepal, or the coral reefs of Australia, you'll probably be the only American in sight. And you'll be surrounded crowds of happy Germans, French, Italians, Israelis, Scandinavians and wealthy Asians. Why? Because they're paid well enough to afford to visit these places AND they can take vacations long enough to do so. Even if you could scrape together enough money to go to one of these incredible places, by the time you recovered from your jetlag, it would time to get on a plane and rush back to your job.

If you think I'm making this up, check the stats on average annual vacation days by country:

Finland: 44
Italy: 42
France: 39
Germany: 35
UK: 25
Japan: 18
USA: 12

The fact is, they work you like dogs in the United States. This should come as no surprise: the United States never got away from the plantation/sweat shop labor model and any real labor movement was brutally suppressed. Unless you happen to be a member of the ownership class, your options are pretty much limited to barely surviving on service-sector wages or playing musical chairs for a spot in a cubicle (a spot that will be outsourced to India next week anyway). The very best you can hope for is to get a professional degree and then milk the system for a slice of the middle-class pie. And even those who claw their way into the middle class are but one illness or job loss away from poverty. Your jobs aren't secure. Your company has no loyalty to you. They'll play you off against your coworkers for as long as it suits them, then they'll get rid of you.

Of course, you don't have any choice in the matter: the system is designed this way. In most countries in the developed world, higher education is either free or heavily subsidized; in the United States, a university degree can set you back over US$100,000. Thus, you enter the working world with a crushing debt. Forget about taking a year off to travel the world and find yourself -- you've got to start working or watch your credit rating plummet.

If you're "lucky," you might even land a job good enough to qualify you for a home loan. And then you'll spend half your working life just paying the interest on the loan -- welcome to the world of American debt slavery. America has the illusion of great wealth because there's a lot of "stuff" around, but who really owns it? In real terms, the average American is poorer than the poorest ghetto dweller in Manila, because at least they have no debts. If they want to pack up and leave, they can; if you want to leave, you can't, because you've got debts to pay.

All this begs the question: Why would anyone put up with this? Ask any American and you'll get the same answer: because America is the freest country on earth. If you believe this, I've got some more bad news for you: America is actually among the least free countries on earth. Your piss is tested, your emails and phone calls are monitored, your medical records are gathered, and you are never more than one stray comment away from writhing on the ground with two Taser prongs in your ass.

And that's just physical freedom. Mentally, you are truly imprisoned. You don't even know the degree to which you are tormented by fears of medical bankruptcy, job loss, homelessness and violent crime because you've never lived in a country where there is no need to worry about such things.

But it goes much deeper than mere surveillance and anxiety. The fact is, you are not free because your country has been taken over and occupied by another government. Fully 70% of your tax dollars go to the Pentagon, and the Pentagon is the real government of the United States. You are required under pain of death to pay taxes to this occupying government. If you're from the less fortunate classes, you are also required to serve and die in their endless wars, or send your sons and daughters to do so. You have no choice in the matter: there is a socioeconomic draft system in the United States that provides a steady stream of cannon fodder for the military.

If you call a life of surveillance, anxiety and ceaseless toil in the service of a government you didn't elect "freedom," then you and I have a very different idea of what that word means.

If there was some chance that the country could be changed, there might be reason for hope. But can you honestly look around and conclude that anything is going to change? Where would the change come from? The people? Take a good look at your compatriots: the working class in the United States has been brutally propagandized by jackals like Rush Limbaugh, Bill O'Reilly and Sean Hannity. Members of the working class have been taught to lick the boots of their masters and then bend over for another kick in the ass. They've got these people so well trained that they'll take up arms against the other half of the working class as soon as their masters give the word.

If the people cannot make a change, how about the media? Not a chance. From Fox News to the New York Times, the mass media in the United States is nothing but the public relations wing of the corporatocracy, primarily the military industrial complex. At least the citizens of the former Soviet Union knew that their news was bull****. In America, you grow up thinking you've got a free media, which makes the propaganda doubly effective. If you don't think American media is mere corporate propaganda, ask yourself the following question: have you ever heard a major American news outlet suggest that the country could fund a single-payer health system by cutting military spending?

(continues)

End game: Detroit

In case you have any doubt about the end game, here's a link to some sobering pics of Detroit:

http://www.marchandmeffre.com/detroit/index.html

Unemployment during the Great Depression

Unemployment during the Great Depression:

1929 -- 3.2%
1930 -- 8.7%
1931 -- 15.9%
1932 -- 23.6%
1933 -- 24.9% peak
1934 -- 21.7%
1935 -- 20.1%
1936 -- 16.9%
1937 -- 14.3%
1938 -- 19.0%
1939 -- 17.2%

[[MORE]]On an apples-to-apples basis, we're at about 19% now according to SGS, with no sign of a slow-down in the unemployment rate, much less a reversal. So we're already worse than 1931.

Based on the current rate of change, I'm guessing U-6 might peak at or above 20% -- that's 24% on the Great Depression scale above and around 13% on the more widely-reported U-3.

How bad is the Dow now, really?

Every once in a while, I like to break the Dow index down and look at the 30 individual components. I just finished comparing it to where is was on Jun 1, 2008. A few facts:

1 company was dropped from the average (AIG). Its price has dropped 99%. It was replaced with Kraft Foods.

1 other company has dropped more than 90%: Citigroup.

3 companies have dropped between 80 and 90%: Alcoa, BofA and GM.
[[MORE]]
5 companies have dropped between 50 and 80%: Dupont, Amex, Boeing, GE and Caterpillar.

The average itself has declined by 43.6%.

The top 3 best performing companies dropped 9.5% (McDonalds), 11.7% (Walmart) and 22% (Home Depot)

GM alone lost 45% of what all of the other companies earned together (on a per-share weighted basis).

The companies that are the largest components of the Dow are IBM, Exxon Mobil and Chevron.

Including AIG, the P/E on the Dow is 27. Excluding AIG and GM, the P/E is about 9.7. Historically, "reasonable" valuations are around 7 at the end of a bear market. Using the more optimistic number, that would put the bottom around 5100. Except earnings are declining rapidly with no end in sight and the impact of unfunded pension fund liabilities hasn't hit yet, either. If the P/E goes to 5 and earnings of the profitable companies drop by another 30%, that could be 2500.

The highest individual P/Es (which applies only to companies earning a profit) are 27.2 for Alcoa, 26 for JP Morgan, 16.4 for Coke and Home Depot is at a very questionable 15.2.

The lowest P/Es today are Caterpillar 4.3, GE 4.7, Amex 5.0 and Chevron 5.3.

A one-point move in any of the Dow components moves the Dow average by almost 8 points.

Sucked into the green zone

I ran across a blog post that includes an article called Sucked into the Green Zone, by Andrew Redleaf (Dec 2008). It presents an interesting perspective on how government-backed borrowers are crowding others out of the market:

Here's an excerpt:

When a massive and sudden deflationary credit collapse hits a modern economy, borrowing becomes extremely expensive for everyone—almost. The government, and certain government backed institutions, will still able to borrow at pre-deflation rates. With money plentiful and cheap on one side, the government’s side, but scarce and expensive on the other side of the room, assets will flow toward the government’s side of the room like water flowing downhill. Over time all ‘normal’, not government-backed, asset holders who can borrow only at high rates would lose everything they own to those who can borrow at the government rate. If government backed entities can finance an asset at 5 percent, and everyone else in the room is obliged to finance it at 15 percent, and if this condition could long endure, ultimately every asset in the economy would be owned by the government backed crowd.

Thus, just as in an inflation, by precipitating a sudden catastrophic deflation the government not only shifts wealth from one citizen to another, the government itself can massively confiscate assets.

[[MORE]]At first this seems odd, since the government itself is massively a debtor, and deflation is generally held to be bad for debtors (as inflation is generally held to be good for them). Is it not for this very reason that governments are tempted to inflate the currency, so that their own debts can be wiped away, paid off with cheap currency of its own issuance?

All true. But our deflation—let us call it the deflation of the Red Zone—is the creature not of a long term shortage of currency, as for instance the US saw frequently in the 19th century, but a catastrophic credit collapse. A credit collapse, as the very word implies, is preeminently a crisis of trust. A lone trusted borrower in the midst of a financial terror can borrow and lend at an extraordinarily favorable spread, putting assets on its balance sheet at amazing bargain prices. This is exactly what the government is doing right now—even though it is trying to give the spread away by tossing money to its favored banks. Right now, the only US debtor with access to still functioning credit markets is the U.S. government. Because only the Treasury can borrow, only the Treasury, or those on whose behalf it consents to borrow, can lend, or buy.

A deflation arising from a catastrophic credit collapse can thus be described simply as a condition in which the spreads between risk free, or Treasury rates, and all other rates, or risk premiums, are radically out of proportion with real economic risks. (Or at least those real economic risks apparent before the collapse. The longer credit markets remain dysfunctional, the more the real economic risks will increase to match the increase in risk premiums.)

If such a condition could persist forever, only the state would own any assets, which is why the estimated price of the bailout keeps rising. The government is borrowing, lending, and buying in an attempt to keep the system afloat, but it is not closing the spread between risk free and risk premium paper. Perversely, by driving down risk-free rates it is actually widening the spread.

(continues)

Home mortgage modifications from Fannie & Freddie

Fannie & Freddie have started to offer mortgage loan modifications. As of the moment, the loan mod is voluntary.  Accepting this ’solution’ means you:

* Acknowledge the full debt regardless of the value of the home
* Waive all rights to fraudulent or predatory lending claims in the future
* Turn your loan into a full recourse loan that could follow you for life even if you choose foreclosure down the road
[[MORE]]* Remain underwater, full-leveraged, renter for the rest of your life (in most cases)
* Will save no money at 38% housing debt-to-income ratio plus all other debts
* May not discharge any of this mortgage debt through any bankruptcy even after foreclosure

If widely accepted by home owners, this will ruin the American consumer and make housing a dead asset class for decades. If you are in a serious negative equity position when signing these forms, as most are, remember that you will:

* Never be able to sell your home
* Never be able to buy a new home
* Never be able to rent your home due to owner occupant provisions
* Be responsible for the full loan amount even if the value of your home keeps dropping for the next 10-years.

The 38% debt-to-income ratio on top of all of your other debt means you will save no money and live hand to mouth to keep this underwater roof over your head.

From: http://mrmortgage.ml-implode.com/2008/12/17/fanniefreddie-come-get-your-loan-mod-pay-for-life/

Food Shortages

There are more and more reports in the news about food shortages. Riots have even started in some places, like Haiti. And of course, when their citizens start to feel threatened, governments feel compelled to respond. Unfortunately, that always makes things worse. What many don't understand yet is that the reason for the shortages in the first place is entirely because of government "controls" or various other forms of intervention.

[[MORE]]

Look at Britain, for example. A while back, the government mandated that pig farmers reform the way they raise pigs to make the process more "humane". As a (totally predictable) result, raising pigs became more expensive. The farmers were unable to pass the costs along to the public, who, presumably, wanted the changes in the first place. So a lot of farmers stopped raising pigs. Their breeding herd is now about 425,000, or roughly half the size it was in 1990. Combine that with the recent run-up in grain prices, and presto! Now there's a crisis with pigs.

No government ever seems to ask "who will pay for this?" or "what will the effects be?" Unfortunately, even if they did ask such questions, their answers would usually be wrong. The economy is just too hard to predict. That's one reason why free markets are the only viable long-term answer. In the case of pigs, if people wanted farmers to treat pigs more humanely, they could have boycotted farmers who didn't, and expressed their willingness to pay a higher price for better animal conditions (analogous to organic produce). The market would have communicated the message. No shortages would have developed.

Now the same kind of thing is happening with other foods. The government says "if you grow corn for biofuel, we'll give you a subsidy." After all, biofuels will help reduce our dependency on oil, and that's a good thing, right? So farmers replaced wheat with corn. Now there's a wheat shortage. Oh, and it turns out that corn-derived ethanol isn't an economically viable substitute for oil after all. So now we're screwed three ways: not enough wheat, ethanol that takes more energy to produce than it delivers, and more government debt / inflation. Again, this just wouldn't have happened in a free market.

What about food aid to developing countries? Those people are hungry, and they deserve our help, right? We're richer than they are, and we can afford it, so it has to be a good thing, right? Wrong. Food aid actually does MUCH more harm than good. For one thing, the money never goes to the people who it would really help the most. Let's say the money is used to buy food on the open market and deliver it to poor, downtrodden communities. First, the extra demand for food drives prices higher for everyone else, so the people who aren't receiving aid suffer as a result. Second, how can a local farmer compete with free food? When continued over a long period, farmers are driven out of business. As Jim Rogers explains in his book Adventure Capitalist, there used to be a lot of farmers in Ethiopia. It has rich, fertile land. Lots of free food over the years has driven the farmers out of business – there are probably few people there now who even remember how to farm. So now if there's a global food shortage, where the food programs are no longer able to afford to buy food in the open market, guess who suffers? The people in those countries you thought you were helping will starve, because they've become dependent and can no longer support themselves. Yeah, food "aid" – another collectivist crime against humanity.

So what's the cure for food shortages? Stop subsidies. Stop interventions. Abolish tariffs and other restrictions on free trade. Repeal or minimize government restrictions on farmers (like legislating how pigs are treated). Let the free market work!

Producer vs. Consumer Jobs

The Bureau of Labor Statistics' in the US recently published numbers for how many people are employed in various areas of the economy can break this down slightly differently than how they do it, according to producers (those who are creating things of value) and those who are either consumers or whose jobs directly depend on the producers (accountants, lawyers, etc). Using their numbers:

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Producers
13,643,000 Manufacturing
  3,010,000 Information (it might be a stretch to include all of these jobs...)
     751,000 Mining and logging
------------------
17,404,000

Consumers
22,387,000 Government
13,682,000 Leisure and hospitality
21,467,000 Wholesale and retail
18,036,000 Professional and business services
18,699,000 Education and health
  8,228,000 Financial
  4,532,000 Transportation
  7,338,000 Construction
  5,516,000 Other services
------------------
119,885,000

Total workers = 137,289,000

Which means that the ENTIRE ECONOMY is being carried by only about 13% of the total population (or about 1 out of every 8 people).

Just to be totally clear: if those producer jobs were to go away, the rest of the economy would collapse, even under the best of economic conditions.

Imagine an economy with just a handful of people: a farmer, an accountant, a store clerk and a government worker. The farmer is the only one producing anything. If the farmer goes away, what's left to sell at the store? With no sales, who needs an accountant? With nothing left to tax, there's no way to pay the government worker. The ripple effect is catastrophic -- and importing more stuff from overseas than we sell there just compounds the problem.

Interest rate manipulation

The problem with central banks like the Fed is that they distort the markets by setting interest rates at artificial levels. That sends incorrect signals to investors and businesses. For example, low interest rates cause business valuations to rise, so stocks go up. Or apparently cheap money might allow a business to justify a loan or an expansion that wouldn't be possible if rates were higher. That's the boom phase. What happens next is that when the economy gets "overheated" (high inflation), the central banks raise rates. Things then start to unwind: company valuations drop, new loans are no longer affordable, etc. That's the contraction (recession) phase.

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On a gold standard with full-reserve banking, interest rates are always set at free-market levels -- so businesses and individuals are receiving correct, undistorted information about the economy. Rates also tend to be more consistent. Longer-term planning becomes possible; 99 yr loans again become feasible, for example. The business cycle also goes away: no more booms and busts, because the assumptions underlying investments and other spending don't suddenly turn out to be untrue.

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.