The Fed’s Multi-Trillion Dollar Ponzi Scheme

August 22nd, 2016

“You loan me ten bucks. I photocopy the bill four times, give you back one of the copies, and announce that we’re square. That’s monetizing the debt.”                                                                                                                                                                         From Lionel Shriver’s The Mandibles

In the private sector, it would be called a Ponzi scheme.  When the Federal Reserve Board does it, it’s called “monetizing the debt.”

The Balance explained that, “The Federal Reserve monetizes debt any time it buys U.S. Treasuries. When the Federal Reserve buys these Treasuries, it doesn’t have to print money to buy them. It issues credit and puts the Treasuries on its balance sheet. Everyone treats the credit just like money, even though the Fed doesn’t print cold hard cash.”united-states-money-supply-m1@2x (1)

The process lowers interest rates, because the bonds taken out of circulation reduce supply, driving demand higher. But if reducing the supply of bonds drives prices higher and interest rates lower, shouldn’t more dollars drive the value of the dollar lower and the price of goods higher?

Logically, if you were to double the supply of money tomorrow, a dollar should be worth half of what it is worth today.  Prices would double, so the rate of inflation would be 100%.

And yet even with boatloads of new money, the inflation rate has barely budged.  The M1 money supply, which includes cash, checking accounts and other liquid monetary assets, is about 245% higher than it was eight years ago, when the Federal Reserve Board began its easy money policy.  Meanwhile, the Fed has been reluctant to increase interest rates in part because it has not been able to reach its targeted inflation rate of 2%. Read the rest of this entry »

Do You Like Being Told What to Do?

August 15th, 2016

Listen, this whole system of yours could be on fire and I couldn’t even turn on the kitchen tap without filling out a twenty-seven B stroke six … bloody paperwork.                                                                                                                                                            Harry Tuttle in “Brazil” 

Americans didn’t used to like being told what to do.  We fought the Revolutionary War so that we wouldn’t have to take orders from England.  We fought the Civil War to end slavery and make every American free.  We fought two world wars to hold on to that freedom.

And then along came big government.  Medicare to help the old.  Medicaid to help the poor.  Food stamps and medical leave, help for the disabled and guaranteed wages, regulations to reduce pollution and prevent financial wrongdoing.  And much, much more.88468_Words-and-Actions-by-Eric-Allie-Caglecartoons-515x356

Some of it was good.  Some of it was needed.  But much of it wasn’t.  Do we really need more than 80 federal welfare programs to provide money, food, housing, medical care and social services to low-income Americans?  Wouldn’t maybe three or four be more efficient?

It’s difficult to pinpoint exactly when regulations got the better of us.  You could argue that it goes back to 1930, when the protectionist Smoot-Hawley Tariff Act helped cause the Great Depression and the New Deal made the impact worst.  You could argue that it was during the ’60s, when the Great Society programs and the War on Poverty took place.  As we (and many others) pointed out last year, during the 50th anniversary of the War on Poverty, after spending $20.7 trillion (based on 2011 dollars), the poverty level today is essentially unchanged at about 15% of the American population. Read the rest of this entry »

What’s Your Platform?

August 8th, 2016

“My reading of history convinces me that most bad government results from too much government.”                                                                   John Sharp Williams

We’ve made our disapproval of both presidential candidates clear, but suggested that, given this year’s poor choices, voters consider the platforms of both parties before deciding how to vote.

Last week, we dissected the Democratic platform, and concluded that the party’s problems extend beyond having an untrustworthy candidate.  While both Hillary Clinton and Donald Trump deserve their high unfavorable ratings, the party platforms showcase the differences between the two parties.Trump

If a Congressional majority is from the same party as the president, the party platform provides a guide for what to expect.  Neither candidate, if elected, is likely to veto major legislation that’s overwhelmingly approved by his or her own party and both have signed off on their party’s platform.

Based solely on the party platform, if you want slow growth, higher taxes, more government and an activist Supreme Court with little regard for the U.S. Constitution, vote for Hillary.  It’s all outlined in the platform, which makes 10 references to the right to unionize, but not a single word about the need for tort reform.

While there’s no guarantee that if Donald Trump is elected president the economy will grow again, the Republican platform at least doesn’t abandon the free-market capitalism and Constitutional rights that have made this country the freest and most prosperous country in history. Read the rest of this entry »

No Hope and No Change

August 1st, 2016

Finally, the candidates are no longer presumptive.

American voters and their delegates have chosen, yet somehow we’ve ended up with candidates from both parties that almost no one likes. Both are liars. Both are power-hungry narcissists. Both have questionable morality. Most of us would use the term “sleazy” to describe actions both have taken to add to their personal wealth. Few of us would trust either of them enough to buy a used car from them.

But come November, barring a third-party candidate, a coup or an act of God, we’ll be choosing either Hillary Clinton or Donald Trump as president. If our founding fathers were alive today, they might be thinking that a monarchy doesn’t seem so bad after all. Never has the phrase “lesser of two evils” been so literal.Hillary

So which candidate is the greater lesser?  Or, more to the point, which candidate should get your vote?

One way to decide is to review the platforms each party passed at this year’s convention. A party’s platform, of course, is just a guide. Either candidate, if elected president, may ignore the party platform. Congress will have an influence, too, even if the next president follows President Obama’s precedent and pretends that Congress doesn’t exist. Read the rest of this entry »

At a Loss over Profits

July 25th, 2016

Apparently, there are two Americas.

In one, corporate profits are soaring, the economy is booming and jobs are available for the asking.

In the other, corporate profits are dismal, America is in or close to a recession and more than 100 million Americans have left the labor force.

In one America, more people approve than disapprove of the job President Obama is doing (49.2% approve, 46.8% disapprove, according to Real Clear Politics).  In the other America, more than two thirds of the country believe the country is on the wrong track.  Real Clear Politics found that 69.3% of Americans believe the country is on the wrong track, while only 22.5% believe it is on the right track. Profits

While media are increasingly reporting that the economy is at or near full employment, that America is at odds with reality.  As we’ve written, participation in the labor force has dropped to 62.6%, which is near a four-decade low.

The America where the economy is booming is even more delusional.  Some may say that it’s all relative.  They may concede that U.S. growth in gross domestic product (GDP) is sluggish at best, but typically add that it’s better than GDP growth in the rest of the world. Read the rest of this entry »

Grading on a Curve

July 18th, 2016

 “We do not target the level of stock prices.                     That is not an appropriate thing for us to do.”

                                    Fed Chair Janet Yellen

 It’s the equivalent of social passing or grading on a curve. While the stock market is breaking new records, its recent performance is not a reflection of reality.

As Larry Fink, chairman and CEO of BlackRock, told CNBC’s “Squawk Box,” “I don’t think we have enough evidence to justify these levels in the equity market at this moment.” Buybacks

He said the recent rally has been driven by institutional investors covering shorts (i.e., hedging bets that stock prices would fall), and not by bullish individual investors. In fact, he noted that outflows in mutual funds show that individual investors are becoming squeamish about stock prices.

Institutional investors were short going into Brexit, but are recalibrating their portfolios, Fink said, given that the Brexit aftershock has not been as long-lasting as expected. While some may have been concerned about the economic impact of the United Kingdom voting to leave the European Union, ultimately its impact on markets was muted by the knowledge that Brexit would most likely keep the Fed from increasing interest rates anytime this year.  Read the rest of this entry »

Can We All Be Greeters at Wal-Mart?

July 11th, 2016

Job reports typically report on jobs as if they are a commodity; a job is a job, whether you’re a CEOs or a greeter at Wal-Mart.

So it’s good news that 287,000 new jobs were added to the economy in June—assuming you believe government statistics—but it’s bad news if the jobs are so mediocre, illegal immigrants wouldn’t work them. Older workers

First, let’s consider the numbers. In May, the experts predicted that 160,000 new jobs would be created, but the U.S. Bureau of Labor Statistics reported that only 38,000 were created. The unemployment rate dropped to 4.7%, though, because 458,000 workers dropped out of the labor force and were no longer counted in the statistics.

For June, experts predicted that 175,000 new jobs would be created, which is 112,000 fewer than the BLS reported. At the same time, the BLS revised the May figure downward to just 11,000 new jobs. The question no one seems to be asking is why there was so much volatility between May and June. How does the economy add virtually no jobs one month and then produce 26 times as many jobs the following month? Even the stock market isn’t that volatile.

The report prompted headlines such as, “U.S. employment rebounds strongly in June, calming fears of economic slowdown” (The Washington Post), “Job growth surges in June as employers add whopping 287,000 jobs” (USA Today) and “Jobs Roar Back With Gain of 287,000 in June, Easing Worry” (The New York Times).

And, by the way, the unemployment rate increased from 4.7% to 4.9% in June, primarily because some Americans rejoined the work force.  Read the rest of this entry »

Happy Dependence Day

July 4th, 2016

On the fourth of July, we celebrate our freedom from tyranny. Yet King George would be envious of the control the U.S. government, and state and local governments hold over American citizens today.

Our freedom is eroding and, unless major changes are made, someday it will be gone.  If America is the “land of the free,” why are college campuses and media increasingly accepting only “progressive” viewpoints?  Diversity is a great thing, but it should go beyond race and gender to include differing points of view.SR-fed-spending-numbers-2012-p8-1-chart-8_HIGHRES

President Obama has said that he is not a king, but he has acted like one, signing a seemingly endless stream of executive orders. New laws are no longer passed by Congress, but are created by executive order (environmental regulations, dropping restrictions on Cuba) or by one-party vote (the Affordable Care Act, Dodd-Frank Wall Street Reform and Consumer Protection Act).

And, increasingly, Americans are trading their independence for government dependence.

Consider some of the ways in which we are losing our freedom. Read the rest of this entry »

To the Back of the Queue

June 27th, 2016

If I go there will be trouble
And if I stay it will be double
So come on and let me know
Should I stay or should I go?

The Clash                            

Maybe it was the fear of Britain being overrun by immigrating Turks.  Maybe Brits had enough of being told what to do by elitist policy makers in Brussels.  But Great Britain’s vote to leave the European Union was also a rebuke of President Obama.

You may recall that President Obama announced on his recent visit to the UK that if Brits voted to leave the EU, the UK would be moved to “the back of the queue” for trade deals.  Maybe he’ll call his new policy with the United Kingdom “trading from behind.” EU

The comment didn’t endear him to British voters, but our president wasn’t exactly an anglophile to begin with, having confessed to removing the bust of Winston Churchill from the White House.  To our knowledge, he hasn’t replaced it with a bust of Che Guevara, but he’s treated Iran’s mullahs with more respect than he has our friends the Brits.

Perhaps after watching the Dow Jones Industrial Average drop more than 500 points during the early minutes of trading, President Obama’s tone was more conciliatory on Friday, as he said, “The people of the United Kingdom have spoken, and we respect their decision,” adding that, “The special relationship between the United States and the United Kingdom is enduring.”  Read the rest of this entry »

Theater of the Absurd

June 20th, 2016

Vladimir: “Well? What do we do?”

Estragon: “Don’t let’s do anything. It’s safer.”

From “Waiting for Godot” 

In Waiting for Godot, two men spend more than an hour talking nonsense and it’s called Theater of the Absurd.

After last week’s Federal Open Market Committee (FOMC) meeting, Fed Chair Janet Yellen spent an hour talking nonsense and it was called a press conference. But, really, it could be argued that the Fed is at least as absurd as anything in Waiting for Godot. Much of the dialogue in Godot could, in fact, have come from the FOMC.  For example …

Vladimir: “I don’t understand.”

Estragon: “Use your intelligence, can’t you?”

Vladimir uses his intelligence.

Vladimir: (finally) “I remain in the dark.”

Janet Yellen: “Although the unemployment rate has declined, job gains have diminished.”talawa waiting godot

Estragon: “I can’t go on like this.”

Vladimir: “That’s what you think.”

The FOMC has continued ZIRP (zero interest rate policy) for 90 months. Estragon and Valdimir waited for Godot for only a couple of days.  Read the rest of this entry »