As US Economy Turns Down Due to Taxes – So Does the World
Obama and the Democrats have to get through their thick skull that Karl Marx’s ideas are dead. The Collapse of Communism proved that and now it is their turn with socialism that really is the same thing – the people are incapable to spending their own money so government should do it for them. Government is infested with lawyers – not economists. Leave the world alone and it would be a better place. Here is the picture worth a thousand words. It is the growth in US imports between 1993 and May 2013. When it turns red, we head into recession. When you raise taxes, you reduce the spending of individuals, and that is reflected in the declining imports. Why do you think China is starting to turn down? Why do you think Europe will belly-flop into a deep depression?
Increasing government spending is a total waste. If a small business man spends $1 million on dinners rather than $1 million on new equipment to increase production, there is a huge difference in his business. The dinners contributed nothing to his productive capacity and amounts to a pure expense. The $1 million spent on new equipment will expand his business whereas the dinners are just having a very good time.
The PEOPLE are better at spending their own money than government where most goes out the back-door in corruption anyway. Raising US taxes will produce yet another nail in the coffin of the global economy but these lawyers in Congress and the White House are arrogant suckers. You cannot tell them anything. So we must crash and burn. It is part of the cycle of change. Smith called it the “highest impertinence”.
What Should the Next Fed Chairman Do?
QUESTION:
“If you were appointed to be the next FED Chairman (after Bernanke), what would you do to solve today’s problem?” M.J.
ANSWER: SCREAM! Look for the longest rope, tie it around my neck and jump. The Fed is really powerless despite popular belief. The whole problem breaks down into two parts:
1) We have defined INFLATION incorrectly as an increase in the supply of money and then assume that the Fed is in charge of that so it is their job – not Congress.
The first assumption is DEAD wrong. A simple correlation study of money supply and inflation reveals NO SUCH relationship. Look at Japan for 23 years the money supply increased yet inflation was eradicated. Gold is declining because people sold the same nonsense that the Fed increased the money supply by $3 trillion, we will go into hyperinflation and the world will end. We ended up with declining inflation and people swearing there must be some sinister plot to manipulate gold because they just have to be right.
INFLATION rises with the decline in confidence in government. It does not matter what they tell you, no matter what they teach you, no matter what they call you, no matter what they do or attack, and no matter what they outlaw or where they take you, all that matters is what you believe. It is that BELIEF that controls and nothing else. The gold promoters made up outrageous accusations even arguing there is no gold in Fort Knox knowing that cannot be confirmed or denied. All these claims were desperate attempts to convince the majority that what they BELIEVED was true. It failed. INFLATION will rise ONLY when people see everything rising – home values etc. That requires rising interest rates.
When I was young, I fell out of a tree and over a cliff. It was fall so the bottom of the ravine was filled with leafs from all the trees. The wind was knocked out of me and my nose was bleeding. I went to my friends house to clear up and stop the blood flowing out of my nose. When I succeeded in stopping that, I still tasted blood. I opened my mouth and then saw a hole inside my lip where my teeth had nearly gone completely through. Suddenly my lip hurt and began to swell. I went to the hospital for stitches. But I began to wonder why did my lip not hurt or swell UNTIL I saw it? Today, they can teach you biofeedback where your mind and control pain. This was an example that I stumbled upon at a young age – what you do not know won’t hurt you.
HYPERINFLATION takes place not because of any threshold in the quantity of money that has been crossed. It is a matter of confidence. I have mentioned that in Japan the people simply refused to accept any coins produced by the government. They lost total confidence in “official” money because with each new issue of money the government valued it at 10 times that of what was in circulation. In effect, they were DEVALUING the money supply rendering it worthless. People stopped SAVING and this practice led to a collapse in confidence. Any coins ever used were foreign. In Russia US dollars were the number one currency circulating there in the 1990s. The people did the same thing. There was no HYPERINFLATION, they just did not trust the Russian government.
The value of anything depends solely upon what someone else is willing to pay. That is plain and simple. The value of gold historically was NOT that it was money, but the fact it was the alternative to government. That is a critical distinction. Here is a picture of a Roman tax-collector gold bar. The government was unwilling to accept its own coins back in return for taxes. Thus, gold coins were NOT legal tender. They paid you in gold coins that they reduced the weight, but taxed you in gold according to weight not coins.
Therefore, the assumption that the Fed is actually in control of the money supply is absurd. The velocity of money is driven by (1) domestic leveraging from bank lending, and (2) from international capital flows in (increasing) out (decreasing). If the Fed could really control the money supply, they would have to control the world and eliminate bank lending. The danger of this assumption that the Fed is in control is not only bad analysis that causes people to be confused and lose a fortune, but it allows Congress to exonerate itself from all responsibility for their actions and blame the Fed. Even in Japan, the Japanese Ministry of Finance did not like us too much because we warned that they could not save the day and in fact their constant claims of being in control led corporations to hold on to positions in shares that created a 23 year bear market.
2) We assume we can manipulate the DEMAND within society by raising and lowering interest rates and thus again that is the Fed’s job not Congress.
This is once more a hopeless assumption. There is no correlation whatsoever that will ever prove this theory correct. When you approach a issue with an honest unbiased perspective to learn how something actually works rather than to justify a theory, you actually discover something – how things really work.
We have looked at the level of interest rates and their peaks with each stock market crash. There is ABSOLUTELY no rule that can be crafted that say is interest rates hit x% then the market will peak. Nice idea, but way too simplistic. The market has NEVER peaked with the same level of interest rates TWICE in history!
The whole thing about DEMAND side economics and why it has failed, is that the premise justifies government spending and the presumption is that whatever you spend money on is irrelevant provided you spend something. Government routinely turns to infrastructure spending to “create” jobs and stimulate the economy. That produces nothing that contributed to the national wealth nor does it increase international trade. It justifies politicians and that is all. You are also selecting one sector in the economy and not the broad base. This also fails to create permanent jobs.
The SUPPLY SIDE ECONOMICS is demonized as evil for it helps the rich and not the poor as the Marxists love to say. Those who have made such claims are closet communists who just hate anyone with more money then they have. Real SUPPLY SIDEECONOMICS is simple. Invent something and demand will appear. You cannot create a demand first for something that nobody has ever even thought of. Create the internet and demand will expand it. Invent the car, and demand will expand it. Government cannot contribute to SUPPLY SIDE like a big corporation for neither are capable of creating anything. This is why even big corporations buy start-ups because creativity comes only from those who see with their mind’s eye, not lawyers who are obsessed with words.
So my answer is simple. It’s a global economy and the Fed can do nothing about it. You can run around with virtual glasses on and pretend to be in charge to give confidence to the people who think somebody is in charge even if they do not know what they are doing and why.
So I would do nothing. Would not want the job. Could not change anything because the Fed really has no power to alter the course of the economy only aggravate it increasing volatility while unable to change the trend despite all the conspiracy theories. The power lies in Congress. Put in term limits one time only preferable one-year terms, privatize the bureaucracy for there in lies the unelected dictatorship, end all borrowing, and eliminate taxes that have become a barbaric relic of the past and fuel lobbying corrupting politicians right to the core. Do this, and we will be on our way to creating a real democracy – not a perpetual republic.
Rising Interest Rates – Bullish for the Market
QUESTION:
Rates in US going high.
Reasons? (right reasons?)
Margin calls when markets melt down
Fed stops QE
It can´t be so simple, can it?
Could you please explain more about this?
Thanks for all.
G.G.
Reasons? (right reasons?)
Margin calls when markets melt down
Fed stops QE
It can´t be so simple, can it?
Could you please explain more about this?
Thanks for all.
G.G.
ANSWER: A central Bank is never really in charge of the interest rate. It get the credit for being in charge, but it actually is not. Nor is a Central Bank actually in charge of the money supply. Here too, if a building is sold between two domestic citizens, nothing happens to the money supply. But if a foreign buyer comes in, the money supply increases in size and velocity. The money they bring in goes into the pocket of a citizen to be spent and they have a DEAD asset that is outside the money supply.
The theory that the central bank can intervene and influence the economy by raising interest rates or pushing them lower and thus remain in control is a Keynesian theory that has proven to be completely invalid. Keep rates low as the Fed has done, wiped out pensions and the elderly. They are actually driven into shares and other investments even overseas to earn income. Consequently, artificially low rates set the stage for shortages in cash that manifest is rising interest rates. What we will see going into 2015 will be that the Fed raises rates trying to stop what they have set in motion the next inflationary bubble.
Part of the whole shift in confidence from PUBLIC to PRIVATE is also a change in the thinking process. In the Greatest Bull Market I provided the press articles all along so you could see what I saw. The commentary going into 1929 was that the rising interest ratesPROVED there was a bull market because there was a DEMAND for money. When interest rates declined, it was always a RECESSION or DEPRESSION – entirely opposite of what they tout on TV today. After the collapse and we entered a PUBLIC WAVE, that is when this mindset changed. We entered the Age of Keynesianism and with that the assumption that the Fed/Central Bank was actually in control.
In truth, Bernanke is leaving because he knows the truth. The Fed boasts a lot but it knows it is not in control and that rates are starting to tick up. He did not direct that change, but it is unfolding as capital moves. The Flight to Quality shifts and with it cash just on deposit declines forcing banks to pay more at last.
So it is simply time. We need to see RISING rates and that will show there is a rise in demand for money/borrowing and that will be the start of INFLATION. This was the trend into 1929. When rates decline, stocks collapse with commodities. That is an economic decline. This whole nonsense spouted out on TV is opposite of reality. These are people putting out the government propaganda. Government is NOT in control and behind closed doors they KNOW that. Why would our firm get called in to EVERY crisis since the 1970s if they were in full control? Even Paul Volcker conceded that the Fed was not in charge of the economy in his Rediscovery of the Business Cycle. The previous Fed Chairman said the same thing as did the British Politician. The talking head just talk to each other – that’s it. Rising rates will be bullish unto 2015.
