Loose Change

If you purchased an item for $20.00 in 1913, the same product would cost you $459.93 today. That represents a 2199.6% rate of inflation. Is the product worth more than two-thousand times its original value? Probably not…. because the worth of the product has not varied, but the value of the money used to acquire it has gone down.  In other words….the (formerly) high prices for real estate and homes and nearly every other purchase in our market baskets are a result of our money becoming worth less…..and closer to becoming worthless. The decreasing value of our currency means that most people are constantly scurrying to earn enough so as not to lose too much ground.

Though conventional wisdom states that inflation or weakening currency is good for borrowers because they repay with cheaper dollars than those they borrowed, every other aspect of life for the typical individual buyer increases in price thus rendering the payback gains as negligible.  Besides, borrowing money should be a thoughtful process that weighs the probability that the use and value of the product outperforms the capital cost and carrying charges. If one borrows money merely to benefit from a cheaper-dollar payback, the underlying reason for the initial purchase is probably of questionable value. The scrambling that is necessary just to outrun the inflationary cycle could consume more energy than the minimal gains that are realized.

The economic uncertainty that results from an accelerating inflation cycle lures investors and business owners into unwise decisions. If the “chickens come home to roost” the faulty decisions will be exposed, and various sectors of the economy could be negatively impacted. Inflated money demonstrates the unreality of a currency or coinage that is based on nothing. There are no precious deposits that insure the stability of the money, and there is no underlying basis for valuing it. The value of an inflationary currency must ALWAYS be relative to other currencies and their purchasing powers. As nations and their economies ebb and flow the relative positions of their monies will change based on the underlying strength of each nation. It is an unstable system that allows for nefarious manipulation (see Soros, George). A sound money supply must be backed by a stable valuable commodity in order to assure a predictable and consistent value for the money in good times and bad.

There is another factor regarding devalued money that is rarely addressed in the mainstream. A nation whose currency undergoes a long-term pattern of devaluation must be, to some degree, a nation in decline. Currency manipulation, purchasing decisions and business plans become hurried “under the gun” activities rather than thoughtful and systematic. Long range planning becomes difficult because of the unreliable nature of the money supply and value. Consequently, the short view takes precedence in the offices and boardrooms of the nation, and most gains are ephemeral. Living for the short term can be costly, and especially so for nations and businesses. One misstep….one miscalculation can have a devastating economic outcome. Long term vision allows for tweaking, nudging and redirecting the plan, but the short duration reactionary action plan is similar to rolling the dice for the big payoff…. or bust.

When our medium of exchange (money, gold, barter) is volatile, people become either overly cautious or dangerously risky. The uncertainty that follows a widely fluctuating currency undermines citizens’ confidence in their government, their economies and their futures. The impact on the national psyche could conceivably be more damaging than the harm that is done to the economic well-being of the nation. Imagine for a moment if you were a citizen in Greece. Greece….the birthplace of democracy ( a very limited version) is functioning like an economic bungee cord. The citizens have lost faith in the government and justifiably so. The Greeks, however, have been major contributors in their government’s fragility because of their vociferous resistance to necessary austerity measures. The angst arising from the failure of the Greek economy, the turmoil among the people and the fragility of the Euro have combined to create a nation that seems to have lost hope and expectations for a better future. Unfortunately the United States is traveling a similar path.

Our inflated dollars have distorted the true value of goods and services produced in the U.S.A. Our profligate spenders in governments at all levels have contributed to the inflation by over spending and over borrowing. Although our local governments are forbidden from running deficits, they are too eager to issue bonds for underwriting large chunks of spending…..especially capital expenditures. Debt is deadly whether it’s in the household the business or the statehouse. As debt increases and inflation takes hold, more funds are required to finance the continuation of the enterprise…..whether public or private. Thus begins the cycle for the issuance of more money. If our currency were based on a solid measurable standard, the excessive indebtedness in the public and private sectors would not be possible. Borrowers would have to compete for loans and stand in line to wait their turns. Our money, our economy and our sleep would all be more stable.

cearlwriting@hotmail.com

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FED Up

At a basic level the idea of a central bank and clearinghouse for the United States of America makes sense. It seems apparent that big banks, medium-sized banks and small banks will from time to time need a ready supply of cash to offset short-term or momentary needs. Just as many retailers rely on wholesalers to stock and supply their products, a bank accepts deposits and loans money at a profitable rate of interest. Their cash reserves rarely equal their deposit totals, so they may find themselves short of cash even with an outstanding portfolio of performing loans. It should be apparent, however, that the Federal Reserve Bank has abused its charter and its purpose. It has become a tool of the government and global banking interests.

The elementary problem with the FED as it has been designed is that Congress has subordinated its constitutional responsibility for the coining (printing) and valuing our money to a consortium of private bankers. Odd isn’t it that despite all the overreaching by government into the private sector, it is a constitutionally mandated role or obligation that Congress chose to privatize? Why banking? Why money? The entire FED revolves around debt. As money is loaned out by individual banks, they go to the FED to restore their reserves. The FED must print the money and LOAN it to the banks. Without debt the FED would not have a real function other than the constitutional coinage one that Congress gave to it. So the bottom line is that the powers for printing money and creating debt reside with a cabal of private mega-bankers. Cheery thought, huh? You might ask “how do they create debt?” When a bank seeks additional funds for loaning, the FED creates it digitally. In other words if the local banks didn’t have the funds for additional lending, borrowers would have to go elsewhere for funds but the money supply would be more stable.

The unceasing printing (digitizing) of money expands our indebtedness and our money supply…thus generating de facto inflation. Without a corresponding surge in production of goods and services every dollar created increases the number of dollars ‘chasing” a finite supply of products or labor. More dollars chasing fewer things means higher costs. Increasing debt and inflated/lower-valued money are not recipes for a prosperous nation. In the short-term inflation may lull the unsuspecting into assuming that prosperity is flourishing, but will have the opposite effect after a time as goods and property become more difficult to purchase because of escalated prices and higher interest rates.

The FED because it is private uses the resources and wealth of the United States as its own “net worth” as it props up other national currencies and governments. The value of the dollar is directly related to the productivity of the United States, the number of dollars in circulation and the confidence that the indebtedness will be repaid. If any of those three factors experience some slippage, the corresponding effect will negatively impact the U. S. economy. If any of the three major factors underperforms, the government must collect additional revenue to maintain some level of equilibrium to avoid massive runaway inflation, excessive interest costs or severe reductions in productivity. Thus, the FED with full compliance from the government through its policies practically insures higher levels of taxation for American taxpayers. Taxes collected through force are theft. Taxes that stifle economies and intrude on individual freedom are tyrannical. Because of its power over our productivity, our indebtedness and our money supply, the FED, in effect, controls our economy. Our government increasingly controls our lives, and the Federal Reserve manipulates our livelihoods.

It should be dawning on you that as debt problems increase, taxes go up. When interest rates begin to ratchet upward due to inflated money driving the cost of borrowing higher, the governments’ needs for debt service will grow astronomically, the resultant tax increases will stifle the economy and higher taxes plus lower economic productivity joined with massive debt leads to catastrophe. It is an inescapable cycle that can at the best be postponed for a while but becomes worse during the delay. In their efforts to manipulate the market, the currency and debt, the FED will create economic bubbles that will enlarge and eventually burst. As the FED scheme and rig the system, shrewd investors will seek other avenues for avoiding the FED action….thus the bubbles will be created.

Compounding the problem of the FED’s unhealthy and unconstitutional control of the basics of our fiscal and economic systems is the fact that they operate with impunity. We the people have no standing to audit the Federal Reserve or to insist on transparent accountability. In 1913 Congress handed the keys and the car to the Wall Street manipulators and self-serving big bankers. Now Congress lacks the courage to reclaim its constitutional duty yet continues to meddle in a plethora of other unconstitutional arenas. We are now on the precipice of economic collapse. Although the nation and its people will suffer, you can wager your home and all your worldly goods that the Fed governors, their favored bankers and career politicians will emerge unscathed. Obviously….I’m FED Up.

cearlwriting@hotmail.com

www.littlestuff-minoosha.blogspot.com

  

Four Letter Words

“Food” is a four letter word. It’s vital for our long-term survival. Here in the United States our cost for food has been rising rather steeply. There are a number of related reasons for this phenomenon. China is suffering severe drought as are certain parts of the Southwest U.S. Other global regions are having difficulty raising food because of weather or war. As I have noted in previous columns, food is not included in the government’s “market basket” when calculating inflation. Somewhere in the bowels of Big Brother’s lair is a “white paper” that thoroughly justifies why food should not be part of the inflation/cost-of-living metrics. Major appliances such as washers and dryers are included, and most people purchase those every ten years or so. So why is it that “big ticket” items are dropped into the basket but not a basic unit of survival such as food?

The conspiracy theorist that resides in my body suspects that government does not include food in the market basket so they can lie to us about our cost or standard of living. They assume, probably rightly, that even though we see the increases in prices or the shrinkage of portions at the supermarket, we are not clever enough to identify the accelerating costs of our nourishment. They probably also assume that if we are perceptive enough to detect the creeping price increases, we’ll blame the store, the wholesalers or producers rather than the limply weak dollar that our Federal Reserve and our overspending governments have given us. If the government were the information source of the inflationary status of our food, we might blame them (correctly) for higher prices. So, in your efforts to eke out a living, “food” becomes a four letter word.

Another four letter gem that the market basket ignores is “fuel” or energy. We all know how little impact energy has on our cost of living, don’t we? (sarcasm mode). As our gasoline prices leap to roughly four dollars per gallon, the daily commute is transformed into a costly and necessary proposition. The politicians, primarily President Obama, loudly and crassly blame “Big Oil” for our situation, but the greatest culprit is the weak dollar…again, the Fed and the feds are to blame. As the value of the dollar slides, the number of dollars required to purchase goods must increase. The per barrel cost of oil ratchets upward while the worth of our dollar is shrinking. Add to the weakness of our currency the fact that our energy needs are nearly 70% dependent on imports, and we are condemned to the pain of higher costs. Fuel and food…are four letter words that represent vital elements of our economy and our lifestyles.

Rain is word that is having a huge impact on our economic situation today. Clearly the flooding in the Mississippi Valley and the various tributaries is covering thousands of acres of valuable crop land. It may be several years before the submerged acreage can return to its former productivity. If you’ve been following the news, you are probably aware that more than 130,000 acres in Missouri were intentionally flooded by the Army Corps of Engineers to minimize the threat to more highly populated centers downstream. The rain has delayed planting in many other areas of the Midwest and will undoubtedly result in lower yields because the growing season will be shorter than normal. The wet weather will have the greatest impact on feed grain production which will cause livestock feed prices to increase, and thus, elevate the prices for meat, dairy and poultry products. In addition, because feed grains are the primary components of ethanol bio-fuels, in order to satisfy their contracts farmers will have to divert additional acreages from feed-oriented production. As a result of the terrible weather, both food and fuel will be more costly in the near and distant future. Food, fuel and rain are four letter words that will have a negative impact on our economy as we move forward. The most damaging effect, however, has come from an unaccountable Federal Reserve Bank and an irresponsible federal government. If our money were sound, and if our political class did not promote an asinine energy policy, the bad weather would be limited to a short-term inconvenience for consumers in the supermarkets and at the gas pumps. Once again, the political elites and the banking interests blow it, and the people pay the piper.

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Dire Education

If you want to succeed, you must go to college. Since the end of World War II, that has been considered conventional wisdom in our society. We are constantly bombarded with facts and figures supporting the idea that without a college diploma, a person will not be capable of living a financially satisfying life. So, one would assume if all that were true, a college education would be as important as any staple such as bread or milk. Higher education, as a necessity, has been infused into our marrow, melded into our subconscious, and branded into our epidermis. In other words, the absolute requirement for one to matriculate from an institution of higher learning is sheer propaganda. Oh certainly, it may be helpful. Four or more years of learning to do one’s laundry, managing one’s pocket money, and attempting to avoid a drunk and disorderly citation are valuable learning experiences that can pay dividends for a lifetime.

When I was teaching, my favorite students were those who in mid-life decided to pursue higher education. There were a number of reasons that they had not done so earlier such as an unplanned pregnancy, flunking out, military service, tired of school and bevy of other personal circumstances. They truly appreciated the classroom. Because of their life experience, they would challenge anything I said that tripped their “b.s.” alarms. Their work was timely and well done. The adult students would engage in vigorous debate as we examined issues that impacted mass media. They were older, wiser and more mature than their fellow students, and ……….they paid their own bills. They wanted a 3 credit-hour course to contain 3-credit hours or more of content and value. The bottom line is that the value of a formal education is directly related to the effort of the student. Personally, I have more than seven (7) years of college and university education, but my greatest learning was acquired on my own by reading and studying outside my academic field.

You might ask why I am discussing this subject when we have budget showdown underway and military conflicts in a number of areas around the globe. The cost of higher education slides into our current environment because we are focused on the costs for government, healthcare, energy and food. Over the past two decades college costs have been at the top of escalating outlays. In other words, the cost for higher education has increased much faster than for many other sectors of the economy. Why? Why should students and their parents pay so much for something that may be of questionable intrinsic value? Why should parents and students pay so dearly for four or more years of steady leftist indoctrination from instructors and professors who are refugees from the turmoil of the 1960’s?

Because of the upward spiral of college costs, many students face years of student loan debt repayment after graduation. In a small way this is a good thing. They learn rather quickly how oppressive debt can be, and maybe can translate their personal situation into a basic understanding of how deadly debt for the country can be if it becomes too unmanageably huge. In addition after the graduates have been out of school for a few years, they’ll begin to understand what real learning is about. They’ll use the tools they developed in college to equip themselves for real life. Self discipline is something that many college students develop in their forays through the halls of academe. It is extremely difficult to sit through the political and philosophical garbage spewed by many college teachers without suffering from a massive gag reflex.

Neal McCluskey wrote in a February, 2008, article that the primary accelerant for the rising costs of college was the myriad government programs for loans and grants to allow our children to advance their educations. All the programs have done is to provide a huge pot of money for schools to tap and has allowed them to escape true fiscal responsibility. In defense of the colleges and universities of America, they really need those funds in order to provide a higher level of pay for their U.S.-hating, aging hippie faculty. Think of it as a welfare program because a large number of those faculty members could not survive in the real world. They must have the nest of the academy to nourish them and protect them because they cannot fly on their own.

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Over the Horizon

Because it is the last day of 2010, it’s time to look ahead. New Year’s Eve Day here in Ohio is usually cold and sometimes features nasty weather so it offers a perfect environment for reflection and hopeful thinking. A steaming cup of coffee (in my world it represents “hair of the dog”) and a bowl game on the telly provide the ideal background for looking…over the horizon. There are two main areas that I wish to examine although they are intertwined with one another and with other concerns. They are the economy and the world of domestic politics and governance. Certainly international affairs, domestic social policy and the global economy are important sectors worthy of consideration, but I am not Nostradamus so I will not overreach.

As an relatively small time investor- Buffet (neither Warren nor Jimmy) doesn’t call me for advice,- I’ve been struggling in recent months and years to develop a strategy for the forthcoming short ter. For a while I was torn between expecting radical deflation followed by streaking inflation, but it seems to me that for the short term, the deflationary movement has become less likely. Deflation will be hovering around, however as local communities, state governments and ultimately the federal government face the prospect of financial collapse…default and bankruptcy. The impact of such a scenario would be immense as thousands or hundreds of thousands of vendors and recipients receive no payment. But in the immediate future (indeed, it’s already begun), I anticipate a rather aggressive inflationary movement.

There are three primary reasons and several ancillary ones for my expecting inflation in the near future. The first is the most obvious. The Federal Reserve Bank has indicated that it will be pursuing a modulated inflationary policy in the months ahead. One reason for this approach is that it allows the federal government and others to repay indebtedness with cheaper dollars which in turn may provide some easing in the GDP/debt ratio. A second reason that I expect marked inflation is the weakened dollar. The massive debt of the federal, state and local governments and the corresponding printing of dollars by the Fed have caused the value of each dollar to decline. As a result, it requires more dollars to purchase goods and services. The third primary impetus for an inflationary period is our nation’s misguided and radically stupid energy policy. Green solutions for our energy needs have not yet proven to be sufficient and efficient, yet we have ample resources of coal, oil and gas within our national boundaries. Misdirected environmental concerns have hamstrung our national energy production. Energy costs affect every transaction in our economy, and they will rise dramatically….and have a corollary impact on food prices.

Allow me to state here that I’m not antagonistic to the green movement or unconcerned about environmental issues. A growing vibrant economy provides the capital for research and development to find solutions for some hazards. I believe that petro chemicals are a reliable and efficient energy source, but I don’t want to spray them on my fields or my crops.

Politically speaking, there will be a few pitched battles between the President and the GOP. Those Congress watchers who anticipate a massive shift in attitude in D.C will be dismayed. There are just enough wobbly RINO’s in the Senate to blunt most of the House initiatives. I fully expect the Republican House to win a few early battles, but eventually the GOP Senators will beg for comity and compromise away more of our freedom. There will be hundreds of opportunities to advance the cause of freedom, and they will fail on most of them. The campaign for 2012 will begin in about three months (or fewer), and we will be back in the silly season again.

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