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Posts Tagged ‘inflation’

How Fascism Comes to America – Doug Casey’s International Man

Posted by M. C. on August 20, 2020

It’s most unfortunate, but the U.S. and its allies will turn into authoritarian police states. Even more than they are today. Much more, actually. They’ll all be perfectly fascist – private ownership of both consumer goods and the means of production topped by state control of both. Fascism operates free of underlying principles or philosophy; it’s totally the whim of the people in control, and they’ll prove ever more ruthless.

https://internationalman.com/articles/how-fascism-comes-to-america/

by Doug Casey

I think there are really only two good reasons for having a significant amount of money: To maintain a high standard of living and to ensure your personal freedom.

There are other, lesser reasons, of course, including: to prove you can do it, to compensate for failings in other things, to impress others, to leave a legacy, to help perpetuate your genes, or maybe because you just can’t think of something better to do with your time.

But I’ll put aside those lesser motives, which I tend to view as psychological foibles.

Basically, money gives you the freedom to do what you’d like – and when, how, and with whom you prefer to do it. Money allows you to have things and do things and can even assist you to be something you want to be. Unfortunately, money is a chimera in today’s world and will wind up savaging billions in the years to come.

As you know, I believe we’re well into what I call The Greater Depression. A lot of people believe we’re in a recovery now; I think, from a long-term point of view, that is total nonsense. It will be far more severe than what we saw in 2008 and 2009 and will last quite a while – perhaps for many years, depending on how stupidly the government acts.

Real Reasons for Optimism

There are reasons for optimism, of course, and at least two of them make sense.

The first is that every individual wants to improve his economic status. Many (but by no means all) of them will intuit that the surest way to do so is to produce more than they consume and save the difference. That creates capital, which can be invested in or loaned to productive enterprises. But what if outside forces make that impossible, or at least much harder than it should be?

The second reason for optimism is the development of technology – which is the ability to manipulate the material world to suit our desires. Scientists and engineers develop technology, and that also adds to the supply of capital. The more complex technology becomes, the more outside capital is required. But what if sufficient capital isn’t generated by individuals and businesses to fund further technological advances?

There are no guarantees in life.

Throughout the first several hundred thousand years of human existence, very little capital was accumulated – perhaps a few skins or arrowheads passed on to the next generation. And there was very little improvement in technology – it was many millennia between the taming of fire and, say, the invention of the bow.

Things very gradually accelerated and improved, in a start-stop-start kind of way – the classical world, followed by the Dark Ages, followed by the medieval world. Finally, as we entered the industrial world 200 years ago, it looked like we were on an accelerating path to the stars. All of a sudden, life was no longer necessarily so solitary, poor, nasty, brutish, or short. I’m reasonably confident things will continue improving, possibly at an accelerating rate. But only if individuals create more capital than they consume and if enough of that capital is directed towards productive technology.

Real Reasons for Pessimism

Those are the two mainsprings of human progress: capital accumulation and technology.

Unfortunately, however, that reality has become obscured by a morass of false and destructive theories, abetted by a world that’s become so complex that it’s too difficult for most people to sort out cause and effect. Furthermore, most people in the OECD world have become so accustomed to good times, since the end of WW2, that they think prosperity is automatic and a permanent feature of the cosmic firmament. So although I’m very optimistic, progress – certainly over the near term – isn’t guaranteed.

These are the main reasons why the standard of living has been artificially high in the advanced world, but don’t confuse them with the two reasons for long-term prosperity.

The first is debt. There’s nothing wrong with debt in itself; lending is one way for the owner of capital to deploy it. But if a society is going to advance, debt should be largely for productive purposes, so that it’s self-liquidating; and most of it would necessarily be short term.

But most of the scores of trillions of debt in the world today are for consumption, not production. And the debt is not only not self-liquidating, it’s compounding. And most of it is long term, with no relation to any specific asset. A lender can reasonably predict the value of a short-term loan, but debt payable in 30 years is impossible to value realistically.

All government debt, mortgage debt, consumer debt, and almost all student loan debt does nothing but allow borrowers to live off the capital others have accumulated. It turns the debtors into indentured servants for the indefinite future. The entire world has basically overlooked this, along with most other tenets of sound economics.

The second is inflation. Like debt, inflation induces people to live above their means, but its consequences are even worse, because they’re indirect and delayed.

If the central bank deposited $10,000 in everyone’s bank account next Monday, everyone would think they were wealthier and start consuming more. This would start a business cycle. The business cycle is always the result of currency inflation, no matter how subtle or mild. And it always results in a depression. The longer an inflation goes on, the more ingrained the distortions and misallocations of capital become, and the worse the resulting depression.

We’ve had a number of inflationary cycles since the end of the last depression in 1948. I believe we’re now at the end of what might be called a super-cycle, resulting in a super-depression.

The third is the export of dollars. This is unique to the U.S. and is the reason the depression in the U.S. will in some ways be worse than most other places. Since the early ’70s, the dollar has been used the way gold once was – it’s the world’s currency. The problem is that the U.S. has exported perhaps $10 trillion – but nobody knows – in exchange for good things from around the world. It was a great trade for a while. The foreigners get paper created at essentially zero cost, while Americans live high on the hog with the goodies those dollars buy.

But at some point quite soon, dollars won’t be readily accepted, and smart foreigners will start dumping their dollars, passing the Old Maid card. Ultimately, most of the dollars will come back to the U.S., to be traded for titles to land and businesses. Americans will find that they traded their birthright for a storage unit full of TVs and assorted tchotchkes. But many foreigners will also be stuck with dollars and suffer a huge loss. It’s actually a game with no winner.

What’s Next

These last three factors have enabled essentially the whole world to live above its means for decades. The process has been actively facilitated by governments everywhere. People like living above their means, and governments prefer to see the masses sated.

The debt and inflation have also financed the growth of the welfare state, making a large percentage of the masses dependent, even while they’ve also resulted in an immense expansion in the size and power of the state over the last 60-odd years. The masses have come to think government is a magical entity that can do almost anything, including kiss the economy and make it better when the going gets tough. The type of people who are drawn to the government are eager to make the state a panacea. So they’ll redouble their efforts in the fiscal and monetary areas I’ve described above, albeit with increasingly disastrous results.

They’ll also become quite aggressive with regulations (on what you can do and say, and where your money can go) and taxes (much higher existing taxes and lots of new ones, like a national VAT and a wealth tax). And since nobody wants to take the blame for problems, they’ll blame things on foreigners. Fortunately (the U.S. will think) they have a huge military and will employ it promiscuously. So the already bankrupt nations of NATO will dig the hole deeper with some serious – but distracting – new wars.

It’s most unfortunate, but the U.S. and its allies will turn into authoritarian police states. Even more than they are today. Much more, actually. They’ll all be perfectly fascist – private ownership of both consumer goods and the means of production topped by state control of both. Fascism operates free of underlying principles or philosophy; it’s totally the whim of the people in control, and they’ll prove ever more ruthless.

So where does that leave us, as far as accumulating more wealth than the average guy is concerned?

I’d say it puts us in a rather troubling position. The general standard of living is going to collapse, as will your personal freedom. And if you’re an upper-middle-class person (I suspect that includes most who are now reading this), you will be considered among the rich who are somehow (this is actually a complex subject worthy of discussion) responsible for the bad times and therefore liable to be eaten. The bottom line is that if you value your money and your freedom, you’ll take action.

There’s much, much more to be said on all this. I’ve said a lot on the topic over the past few years, at some length. But I thought it best to be brief here, for the purpose of emphasis. Essentially, act now, because the world’s combined economic, financial, political, social, and military situation is as good as it will be for many years… and a lot better than it has any right to be.

One more thing: Don’t worry too much.

All countries seem to go through nasty phases. Within the lifetime of most people today, we’ve seen it in big countries such as Russia, Germany, and China. And in scores of smaller ones – the list is too long to recount here. The good news is that things almost always get better, eventually.

Editor’s Note: As these trends continue to accelerate, what you do right now can mean the difference between coming out ahead or suffering crippling losses.

That’s exactly why bestselling author Doug Casey and his team just released a free report with all the details on how to survive an economic collapse.

It will help you understand what is unfolding right before our eyes and what you should do so you don’t get caught in the crosshairs.

Click here to download the PDF now.

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How Central Banks Made the Covid Panic Worse | Mises Wire

Posted by M. C. on August 3, 2020

There are many reasons for the corona crisis and the present almost total government control of the economy and society. But if we want to understand why states across the Western world have met virtually no resistance in their quest for power, we need to understand the role of inflation in enabling governments: directly through hiding the real costs and pain of the shutdowns, but also more fundamentally by distorting culture and personal character.

https://mises.org/wire/how-central-banks-made-covid-panic-worse

Introduction

Historical events are complex phenomena, and monocausal explanations are therefore by definition wrong when explaining history. Many factors go into explaining why people and the world’s governments reacted as they did to the coronavirus. It is, however, my contention that examining the inflationary policies pursued by central banks and governments are fundamental to understanding how the current corona hysteria developed.

Calling it hysteria may sound harsh. When the coronavirus first started to draw attention back in February, and when most Western countries instituted extremely restrictive measures in March, one could make a plausible argument that the world was dealing with an unknown and seemingly catastrophic disease and that therefore extreme measures were justified. To be sure, this does not mean that the measures implemented were in any way effective, nor that the sacrifices imposed were morally justified; but there was at least an argument to be made.

At this point in time, however, the Centers for Disease Control and Prevention (CDC) has repeatedly cut the COVID-19 fatality rate, and it is now comparable to a bad year of the seasonal flu (see the useful aggregation of studies and reports by Swiss Propaganda Research). The glaring question therefore is: Why do governments across the West act as if they were still dealing with an unprecedented threat? It is no good to simply reply that what politicians really want is power and that they are just using coronavirus as an excuse for extending government control. While a plausible claim, it does not explain why vast majorities in most countries support whatever policies their rulers have thought good. Given the extreme restrictions placed on social and economic life and the mendacious, ever shifting narrative used to justify them, one would think that there would be widespread opposition after four months. So why is there practically none?

Inflation in the Age of Corona

We can better understand this strange phenomenon if we consider the inflationary policies pursued by central banks across the world. I’ll here cleave to the old definition of the term inflation and the one still favored by Austrian school economists: an increase in the quantity of money. The rise in prices which is commonly referred to as inflation is simply the effect of such an increase. While the complexities of modern central banking can sometimes obscure the realities of the process, there can be no doubt that the last couple of months have seen very high levels of inflation.

Modern central banks are no longer content with the classic role of lender of last resort. As the financial system has evolved, central banks have assumed the role of market maker of last resort—that is, they have either implicitly or explicitly assumed the responsibility of making sure that there is always a buyer for financial assets—and first of all government bonds. Thus the Federal Reserve’s balance sheet has ballooned from just over $4 trillion at the beginning of March to now just below $7 trillion; the Bank of England’s has increased from about £580 billion in March to about £780 billion; and the European Central Bank has increased its holdings from about €4.6 trillion to about €6.3 trillion. The balance sheets of the largest central banks thus expanded by between 35 and 75 percent in about five months.

Inflated central bank balance sheets suggest inflation is coming, but actual inflation of the money supply naturally lags behind, since central bank purchases of bonds and securities do not necessarily result in an immediate expansion of the stock of money. The American money stock (measured by the monetary aggregate M2) grew from $15.5 trillion to $18.4 trillion (March–July 13), the British one from £2.45 trillion to about £2.67 trillion (January–May) and the euro area money stock from €12.4 trillion to almost €13.2 trillion (January–June). The annualized rates of inflation in the major monetary areas during the corona episode is then between about 13 (eurozone) and about 50 (USA) percent, well above the norm.1 If we look at the Austrian, “true” measure of the money supply (TMS) for the United States, we see a similar picture, as the TMS in June grew 34.5 percent year over year (YOY).

The Effects of the Present Inflation

Inflation is not an act of God; it is the outcome of a determined policy on the part of governments and central banks. Such a policy has both long-run and short-run effects, which brings us to the first and most obvious way in which inflation has fueled corona hysteria: by essentially putting freshly printed money at the disposal of governments, these latter have been able to first shut down their countries and then pose as saviors as they distributed largesse to workers and businesses. The states have often reimbursed the costs of furloughing employees, either directly or through (sometimes forgivable) loans to companies, or they have distributed generous unemployment benefits to the workers. This, and not any economic collapse, is the story behind the unprecedented spike in unemployment claims in the United States. The central bank has also created facilities to lend to municipal governments and the Main Street Lending Program to “support lending to small and medium-sized businesses and nonprofit organizations that were in sound financial condition before the onset of the COVID-19 pandemic.”

The effect of these programs and policies and others like them in other countries has been to mitigate the direct impact of government-imposed shutdowns. Businesses may have no revenues, but government aid and loans allow them to meet their contractual payments; workers may be unemployed, but generous unemployment subsidies allow them to maintain themselves comfortably; government support of furloughing schemes hides the true extent of unemployment caused by the shutdowns. And all this seemingly at no cost, since no one notices the inevitable dilution of the purchasing power of the monetary unit.

In the absence of these inflationary policies, the consequences of the shutdown would be much more immediately apparent. Workers would have to spend out of their saved cash and liquidate their savings, while businesses earning no revenues would start to default on their contractual payments. A drastic fall in the prices of real and financial assets would have resulted. The pressure to end the restrictions would have been much stronger. Instead, it looks to most people as if they can go on at their old standard of living indefinitely—or at least as long as they continue to receive their government checks. The economic effects of the shutdown are still the same, however: dislocation of the production structure and capital consumption on a vast scale, but these have been hidden—papered over by inflation and government support.

To the individual business owner and worker, the economic reality is hidden. Inflation leads to a fundamental disconnect with reality. Paul Cantor has previously described “the web of illusions endemic to the era of paper money” and how inflation destroys people’s sense of reality.2 In our case, inflationary monetary policy has hidden the costs of engaging in pandemic hysteria, and hence people do not—indeed, cannot—take account of economic realities when assessing the coronavirus and the shutdowns. Governments at all levels can continue to pose as saviors, inventing new mandates and restrictions to combat the nonexistent threat. Germophobes and busybodies can obsess over other people trying to go about their normal lives, since both the costs to them personally and to society as a whole are completely hidden. How many Karens would have the time to boss peaceful citizens around if they had to actually work to earn a living?

Eventually and pretty quickly, these policies will result in price inflation and a hollowing out of the standard of living. Not only has production been severely restricted, as seen in the drastic fall in US GDP figures; insofar as the newly printed money is used on unemployment compensation in different forms, it will quickly reach normal consumers and be spent on consumer goods. If the programs go on much longer, consumer price inflation, as a result of the fiat money inflation, cannot be far off. Once that happens, only increased rates of inflation can keep the programs going—for a time.

The Effects of the Inflationary System

Read the rest of this entry »

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Venezuela’s currency: Worth more as craft paper than as money | News | Al Jazeera

Posted by M. C. on December 29, 2019

Where does all that pretty paper come from? Printing presses.

You know, like what the Fed does.

https://www.aljazeera.com/ajimpact/venezuela-currency-worth-craft-paper-money-191224144545023.html

by

Santa Marta, Colombia – Along the cobblestoned streets of the coastal city of Santa Marta, demand for bolivares from Venezuela is skyrocketing, but not for the bills’ monetary value.

Instead of using his homeland’s money to pay for daily essentials in his native country, Venezuelan immigrant Hector Cordero weaves the currency into wallets and purses, which he sells to tourists in Colombia. His artful crafts underscore the creative methods that Venezuelans are using to extract value from a currency that – amid skyrocketing inflation – many consider worthless.

“These bolivares soberanos notes are worth nothing,” Cordero, who is from Caracas, told Al Jazeera. “The notes I use are not circulating any more since last year.”

 Venezuelan  Currency 2
Hector Cordero makes wallets and purses from Venezuelan currency and sells them to tourists in Colombia [Sergio Held/Al Jazeera]

Cordero uses about 70 notes of 100 bolivares each to handcraft a small coin purse, or 100 of the notes to make a larger wallet. A handbag can take up to 1,200 notes to produce. All in all, the artist incorporates 16 different denominations of Venezuelan currency into his crafts, many of them the discontinued bolivares soberanos.

Cordero sells wallets made from hundreds or even thousands of bills of the now valueless currency for about $8; the handbags go for about $12. He says most of his clients are European and North American tourists – people who want to take home a piece of what was once one of the strongest economies in South America.

He learned his technique by watching others in the streets of Caracas and by studying dozens of YouTube tutorials uploaded by fellow Venezuelans to teach people how to make what has become known as origami venezolano.

“When I run out of bolivares, my brother goes to Venezuela and brings more notes,” Cordero said. “People have a lot of these notes and we buy them. We give them what they ask for.” He explained that people in Venezuela exchange unworthy bolivares by the weight for other forms of currency – usually United States dollars – or for food. People also make the swap for high-denomination bolivares – bills that still hold some dwindling value. The crafts help Cordero and his family get by in their temporary home in Colombia, but he dreams of returning to Venezuela some day…

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The Ron Paul Institute for Peace and Prosperity : How Congress and the Federal Reserve Stole Christmas

Posted by M. C. on December 24, 2019

Inflation is nothing more than a hidden and regressive tax. Auditing and ending the Fed should thus be a top priority of those concerned about rising income inequality and poverty, as well as those dreaming of a Christmas free of 2,000-page omnibus spending bills.

http://www.ronpaulinstitute.org/archives/featured-articles/2019/december/23/how-congress-and-the-federal-reserve-stole-christmas/

Written by Ron Paul

The bickering over impeachment did not stop the president and Congress from coming together last week to avert a government shutdown by passing a 1.4 trillion dollar spending package.

The bipartisan agreement has something for everyone — a 22 billion dollars increase to bring total spending on militarism to 738 billion dollars, and a 27 billion dollars increase to bring total spending on domestic programs to 632 billion dollars. It also imposes a national ban on selling tobacco products, including e-cigarettes, to anyone under 21.

The agreement was split into two bills. Both bills were unveiled last Monday afternoon. The bills passed the House on Tuesday, so only the House leadership and the members of the Appropriations Committee (and their staffs) who helped write the over 2,000-page deal had any idea what was in the bills. But most members voted for the spending bills because they were fearful of backlash over another Christmastime government shutdown. House leadership simply “waived” the rule requiring that all legislation be available at least three days before being voted upon.

The modern practice of funding the government via gigantic omnibus bills that are rushed into law puts the growth of government on autopilot. This practice also gives the president more influence over the budget, violating the spirit, if not the letter, of the Constitution’s grant of authority to Congress to appropriate funds, which was intended as a check on executive power.

Meanwhile, the Federal Reserve continues pumping billions into the repurchasing market. When the Fed began injecting money into the market in September, it said intervention was a temporary measure to address a short-term liquidity shortage. Three months later, the Fed is not only continuing to bail out the repurchasing market, it is preparing for other bailouts. This is further evidence that we are on the verge of another Fed-created economic crisis.

When the crisis hits, the best thing the Fed could do is not to lower interest rates below the levels set by the market. This would allow consumers, businesses, and government to liquidate their debt and restore a sound foundation for future growth. If the Fed did not interfere with the painful but necessary correction, it would only be a short time before a real economic boom commenced.

The Federal Reserve is unlikely to follow this path because of the short-term pain it would cause debt-ridden consumers and, more importantly, the pain it would cause politicians who would be forced to cut spending and/or raise taxes. But continuing to artificially lower interest rates will inevitably result in an economic crisis brought about by a rejection of the dollar’s world reserve currency status.

The Federal Reserve’s manipulation of interest rates depreciates the dollar’s value, enabling the growth of the welfare-warfare state while enriching the insiders who receive the new money before prices rise. The brunt of dollar depreciation is felt by middle- and working-class Americans whose paychecks do not keep up with the rising cost of living.

Inflation is nothing more than a hidden and regressive tax. Auditing and ending the Fed should thus be a top priority of those concerned about rising income inequality and poverty, as well as those dreaming of a Christmas free of 2,000-page omnibus spending bills.

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Central Bankers Have Declared War on Your Savings | Mises Wire

Posted by M. C. on December 2, 2019

Recently, European Central Bank (ECB) President Christine Lagarde bemoaned their surpluses, complaining that they would be better off spending the money on infrastructure and education. Desperate for a modicum of growth, Lagarde is of the philosophy that the only way to grow an economy is through government intervention.

https://mises.org/wire/central-bankers-have-declared-war-your-savings?utm_source=Mises+Institute+Subscriptions&utm_campaign=adfd4f6c6d-EMAIL_CAMPAIGN_9_21_2018_9_59_COPY_01&utm_medium=email&utm_term=0_8b52b2e1c0-adfd4f6c6d-228343965

…Lagarde is a proponent of the NIRPs , championing the unconventional mechanism to achieve growth. Since the eurozone has barely cracked 2% GDP, many are anticipating that Lagarde will deepen negative rates during her term as president. Anytime she has mused on the subject, Lagarde has usually dismissed concerns about the saver, noting that they are also consumers, borrowers, and workers.

Unfortunately, this contempt for savers is commonplace because it is antithetical to the Keynesian approach of spending. Disciples of John Maynard Keynes will contend that consumption over saving should only happen during the bust phase of the business cycle, but if you peruse any opinion pieces by individuals subscribing to this ideology, you will only come across spending prescriptions for every type of economy – boom or bust. They dismiss the fact that capital accumulation, not consumption, creates wealth.

This myth originates from Keynes’ The General Theory and Treatise on Money, in which he posits that a saver is reducing the income of another person because he or she is not consuming the goods or services extended by somebody else. Put simply, he considered saving a self-defeating act.

“Saving is the act of the individual consumer and consists in the negative act of refraining from spending the whole of his current income on consumption,” he wrote.

The crusade against savers has been prevalent in the Democratic primary. The likes of Sen. Elizabeth Warren (D-MA) and Sen. Bernie Sanders (I-VT) have grieved about hoarders , particularly those who are the top 0.1% (no longer just the 1% anymore; likely because these two people are the 1%, too). The presidential candidates are perturbed that the supposed capital hoarders are not putting their fortunes into the economy. This is nonsense talk to justify their wealth confiscation policies, since the affluent are saving and investing, not just stuffing their money under mattresses.

Negative rates, higher taxes, and inflation – the statists are employing every measure to gain access to the fruits of your labor…

If you don’t like it, then you are out of luck. You have nowhere to go. The globalists have declared war on mom and pop savers, pillaging bank accounts and conquering our lives. Is there a chance for victory? As long as the omnipotent and iniquitous institutions remain in charge, optimism over sound economics can only fade to black.

Originally published by Liberty Nation.

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Why Government Should not Fight Deflation | Mises Wire

Posted by M. C. on November 9, 2019

Thus attempts to reverse price deflation by means of a loose monetary policy (i.e., by creating inflation) is bad news for the process of wealth generation, and hence for the economy. On the other hand, in order to maintain their lives and well-being, individuals must buy goods and services in the present. So from this perspective a fall in prices cannot be bad for the economy.

https://mises.org/wire/why-government-should-not-fight-deflation

For most experts, deflation is considered bad news since it generates expectations of a decline in prices. As a result, they believe, consumers are likely to postpone their buying of goods at present since they expect to buy these goods at lower prices in the future.

This weakens the overall flow of spending and in turn weakens the economy. Hence, such commentators hold that policies that counter deflation will also counter the slump.

Will Reversing Deflation Prevent a Slump?

If deflation leads to an economic slump, then policies that reverse deflation should be good for the economy. Or so it is held.

Reversing deflation will simply involve introducing policies that support general increases in the prices of goods, i.e., price inflation. With this way of thinking inflation could actually be an agent of economic growth.

According to most experts, a little bit of inflation can actually be a good thing. Mainstream economists believe that inflation of 2 percent is not harmful to economic growth, but that inflation of 10 percent could be bad for the economy.

There’s good reason to believe, however, that at a rate of inflation of 10 percent, it is likely that consumers are going to form rising inflation expectations.

According to popular thinking, in response to a high rate of inflation, consumers will speed up their expenditures on goods at present, which should boost economic growth. So why then is a rate of inflation of 10 percent or higher regarded by experts as a bad thing? Clearly there is a problem with the popular way of thinking.

Price Inflation vs. Money-Supply Inflation

Inflation is not about general increases in prices as such, but about the increase in money supply. As a rule the increase in money supply sets in motion general increases in prices. This, however, need not always be the case.

The price of a good is the amount of money asked per unit of it. For a constant amount of money and an expanding quantity of goods, prices will actually fall. Prices will also fall when the rate of increase in the supply of goods exceeds the rate of increase in the money supply. For instance, if the money supply increases by 5 percent and the quantity of goods increases by 10 percent, prices will fall by 5 percent.

A fall in prices however cannot conceal the fact that we have inflation of 5 percent here on account of the increase in the money supply.

The reason why inflation is bad news is not because of increases in prices as such, but because of the damage inflation inflicts to the wealth-formation process. Here is why.

The chief role of money is the medium of exchange. Money enables us to exchange something we have for something we want. Before an exchange can take place, an individual must have something useful that he can exchange for money. Once he secures the money, he can then exchange it for the goods he wants.

But now consider a situation in which the money is created “out of thin air,” increasing the money supply. This new money is no different from counterfeit money. The counterfeiter exchanges the printed money for goods without producing anything useful. He in fact exchanges nothing for something. He takes from the pool of real goods without making any contribution to the pool.

Note that as a result of the increase in the money supply what we have here is more money per unit of goods, and thus, higher prices.

What matters however is not that prices rise, but the increase in the money supply that sets in motion the exchange of nothing for something, or “the counterfeit effect.” The exchange of nothing for something, as we have seen, weakens the process of real wealth formation. Therefore, anything that promotes increases in the money supply can only make things much worse.

Why Falling Prices Are Good

Changes in prices are just a symptom, as it were — and not the primary causative factor — of a falling growth momentum.  Thus attempts to reverse price deflation by means of a loose monetary policy (i.e., by creating inflation) is bad news for the process of wealth generation, and hence for the economy. On the other hand, in order to maintain their lives and well-being, individuals must buy goods and services in the present. So from this perspective a fall in prices cannot be bad for the economy.

Furthermore, if a fall in the growth momentum of prices emerges on the back of the collapse of bubble activities in response to a softer monetary growth, then this should be seen as good news. The fewer non-productive bubble activities we have, the better it is for the wealth generators, and hence for the overall pool of real wealth.

Likewise, if a fall in the growth momentum of the CPI emerges on account of the expansion in real wealth for a given stock of money, this is obviously great news since many more people could now benefit from the expanding pool of real wealth.

We can thus conclude that contrary to the popular view, a fall in the growth momentum of prices is always good news for the wealth generating process and hence for the economy.

 

 

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Of Two Minds – Welcome to the USSR: the United States of Suppression and Repression

Posted by M. C. on October 24, 2019

https://www.oftwominds.com/blogoct19/US-suppression-repression10-19.html?fullweb=1

Charles Hugh Smith

We’re all against “fake news,” right? Until your content is deemed “fake news” in a “fake news” indictment without any evidence, trial or recourse.

When propaganda is cleverly engineered, people don’t even recognize it as propaganda: welcome to the USSR, the United States of Suppression and Repression. The propaganda in the U.S. has reached such a high state that the majority of people accept it as “pravda” (truth), even as their limbic system’s BS detector is sensing there is a great disturbance in the Force.

Inflation is a good example. The official (i.e. propaganda) inflation rate is increasingly detached from the real-world declines in the purchasing power of the bottom 80%, yet the jabbering talking heads on TV repeat the “low inflation” story with such conviction that the dissonance between the “official narrative” and the real world must be “our fault”–a classic technique of brainwashing.

To give some examples: healthcare is over 18% of the nation’s GDP, yet it makes up only 8.7% of the Consumer price Index. Hundreds of thousands of families have to declare bankruptcy as a result of crushing healthcare bills, but on the CPI components chart, it’s a tiny little sliver just a bit more than recreation (5.7%).

Then there’s education, which includes the $1.4 trillion borrowed by student debt-serfs–which is only part of the tsunami of cash gushing into the coffers of the higher-education cartel. Yet education & communication (which presumably includes the Internet / mobile telephone service cartel’s soaring prices) is another tiny sliver of the CPI, just 6.6%, a bit more than fun-and-games recreation.

As for housing costs, former Soviet apparatchiks must be high-fiving the Federal agencies for their inventive confusion of reality with magical made-up “statistics.” To estimate housing costs, the federal agency in charge of ginning up a low inflation number asks homeowners to guess what their house would rent for, were it being rented–what’s known as equivalent rent.

Wait a minute–don’t we have actual sales data for houses, and actual rent data? Yes we do, but those are verboten because they reflect skyrocketing inflation in housing costs, which is not allowed. So we use some fake guessing-game numbers, and the corporate media dutifully delivers the “pravda” that inflation is 1.6% annually–basically signal noise, while in the real world (as measured by the Chapwood Index) is running between 9% and 13% annually. How the Chapwood Index is calculated)

As the dissonance between the real world experienced by the citizenry and what they’re told is “pravda” by the media reaches extremes, the media is forced to double-down on the propaganda, shouting down, marginalizing, discrediting, demonetizing and suppressing dissenters via character assassination, following the old Soviet script to a tee.

(Clearly, the CIA’s agitprop sector mastered the Soviet templates and has been applying what they learned to the domestic populace. By all means, start by brainwashing the home audience so they don’t catch on that the “news” is a Truman Show simulation.)

In 2014, Peter Pomerantsev, a British journalist born in the Soviet Union, published Nothing Is True and Everything Is Possible: The Surreal Heart of the New Russia which drew on his years working in Russian television to describe a society in giddy, hysterical flight from enlightenment empiricism. He wrote of how state-controlled Russian broadcasting “became ever more twisted, the need to incite panic and fear ever more urgent; rationality was tuned out, and Kremlin-friendly cults and hatemongers were put on prime time.”

Now, he’s written a penetrating follow-up, This Is Not Propaganda: Adventures in the War Against Reality that is partly an effort to make sense of how the disorienting phenomena he observed in Russia went global. The child of exiled Soviet dissidents, Pomerantsev juxtaposes his family’s story — unfolding at a time when ideas, art and information seemed to challenge tyranny — with a present in which truth scarcely appears to matter.

“During glasnost, it seemed that the truth would set everybody free,” he writes. “Facts seemed possessed of power; dictators seemed so afraid of facts that they suppressed them. But something has gone drastically wrong: We have access to more information and evidence than ever, but facts seem to have lost their power.”

(source)

“Facts” are a funny thing when the data sources and massaging of that data are all purposefully opaque. Again, inflation is a lived-world example of how “official facts” are clearly massaged to support an essential narrative–that inflation is so low it’s basically signal noise, while in the real world it has impoverished the bottom 95% to a startling (but unmentionable) degree.

This is the reality as inflation has eaten up wages’ purchasing power: Families Go Deep in Debt to Stay in the Middle Class Wages stalled but costs haven’t, so people increasingly rent or finance what their parents might have owned outright Median household income in the U.S. was $61,372 at the end of 2017, according to the Census Bureau. When inflation is taken into account, that is just above the 1999 level.

We’re all against “fake news,” right? Until your content is deemed “fake news” in a “fake news” indictment without any evidence, trial or recourse. This is what happened to this site in the bogus PropOrNot propaganda campaign of 2016, in which every alternative-media website that questioned the “approved narratives” was labeled “fake news” in a classic propaganda trick of labeling dissenters as propagandists to misdirect the citizenry from the actual propaganda (PropOrNot), which by the way was heavily promoted on page one by Jeff Bezos’ propaganda mouthpiece, The washington Post. (Who’s your daddy, WP “journalists”?)

Meanwhile, back in reality, the primary source of data here on oftwominds.com is 1) the Federal Reserve data base (FRED) 2) IRS data and 3) content and charts posted by the cream of the U.S. corporate media Foreign Affairs, Wall Street Journal and the New York Times.

Fake news, indeed. Those individuals who support the “approved narratives” and orthodoxies win gold stars, and so virtue-signaling is now the nation’s most passionate hobby. (Shades of the Stasi…)

In the wake of the 1976 Church Committee revelations on the institutional lawlessness and corruption of the FBI and CIA, the idea that former CIA propagandists and spy masters would be on TV as “commentators” would have been laughed off as a bad joke. Yet here are Clapper, Brennan et al, the “most likely to lie, obfuscate, rendition and propagandize” individuals in the nation welcomed as “experts” who we should all accept as trustworthy Big Brother. (Ahem)

What if every employee in the corporate media who was paid (or coerced) by the FBI, NSA, CIA etc. had to wear a large colorful badge that read, “owned by the FBI/CIA”? Would that change our view of the validity of the “approved narratives”?

Welcome to the USSR: the United States of Suppression and Repression, where your views are welcome as long as they parrot “approved narratives” and the corporate-state’s orthodoxies. “Facts” are only welcome if they lend credence to the “approved narratives” and orthodoxies.

For example, corporate earnings are rising. Never mind estimates were slashed, that was buried in footnotes a month ago. What matters is Corporate America will once again “beat estimates” by a penny, or a nickel, or gasp, oh the wonderment, by a dime, on earnings that were slashed by a dollar when “nobody was looking.” Meanwhile, back in reality, the bottom 95% have been losing ground for two decades. But don’t say anything, you’ll be guilty of “fake news.”

 

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The Dumb American Worker – LewRockwell

Posted by M. C. on August 6, 2019

https://www.lewrockwell.com/2019/08/bill-sardi/the-dumb-american-worker/

By

I’m reading Steven Greenhouse’s article in the New York Times today entitled YES, AMERICA IS RIGGED AGAINST WORKERS. What drivel.  It would be published in the socialist New York Slimes.

Right to a lunch break, paid maternity leave, vacations, sick days.  These are trivial benefits next to the claws of the Federal Reserve Bank that erodes American workers real purchasing power via inflation.  Inflation is more crushing than any other factor that makes American workers peons.  Whatever pay raise a worker earns, the Federal Reserve taketh away.  Inflation is not the target 2% the Federal Reserve publishes, but more like 6-8% (Source: Shadowstats.com). You have to ask for a 6-8% pay increase every year to maintain your standard of living! 

Any laws that address minimum workers “rights” will simply cripple small business and give more of a market share to the large chain operations…

For entry level workers with few if any skills, giving them the same benefits as other skilled workers seems antithetical to the idea of working your way up to the top.  How many times I’ve heard people say, get a good government job and you will get all the health insurance benefits and vacations, etc.  In other words, you get these benefits regardless of your skill level.  So workers who don’t have the same benefits pay taxes so the government workers can be guaranteed (have a right) to these job benefits.  Is that equality?

The negative part of this is workers begin to look for jobs where they don’t have to compete and learn new job skills.  The mindset is to get a “cush job.”  And regardless of how good you are at your job, the pay grade for your job is already established. 

Of course, you can start your own business like others do, to see how much they are worth in the labor market.  But no, workers demand “equality.”  As Churchill once said: “The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of misery.”

Here is what Greenhouse writes: 

“America’s workers have for decades been losing out: year after year of wage stagnation, increased insecurity on the job, waves of downsizing and offshoring, and labor’s share of national income declining to its lowest level in seven decades.”

Numerous studies have found that an important cause of America’s soaring income inequality is the decline of labor unions — and the concomitant decline in workers’ ability to extract more of the profit and prosperity from the corporations they work for.” 

Here we go, socialist jingo.  Note the words “income inequality.” Joining a union is not going to get you anywhere as the union takes a cut of your paycheck.  Unions, plus or minus, socialize what a worker is worth.  

Businesses operate in a competitive market.  Cost of labor can doom a restaurant owner who is only working on a 10% profit margin to begin with.  Of course, we can halt competition.  Then the cost of everything rises.

We send American kids to school with no orientation on how to get a job, how to build their worth, how to develop job skills.  Students pass a few college classes that hand out true or false tests and that makes them worth more in the labor market?  Young Americans would be better off working as an understudy plumber…

I think of that Biblical parable where a landowner hired workers in the field and agreed pay them a denarius for a day’s work.  But later in the morning the landowner saw other laborers looking for a job and agreed to pay them “whatever is right.”  Then at midday and then again at 3 in the afternoon, the landowner found more idle workers and hired them too.  When it came time to pay all the workers at the end of the day the landowner instructed his paymaster to pay a full denarius even to the workers who weren’t hired until 5 PM.  There was grumbling by the workers who worked all day for the same wage.  The parable was about entering heaven and “the last shall be first” to enter. 

“You have made them equal to us who have worked longer,” said the workers who were hired in the morning.  Just think, workers thought the landowner was unfair when he was just being generous, knowing workers still have the same needs to survive.  In the parable the landowner asked the disgruntled workers “I am not being unfair to you… are you envious because I am generous?” 

Yes, God is unfair too.  Some of the worst sinners who repented have made it into heaven.  I can hear it now… “But I went to church every Sunday and Bible study too, and you (God) let the worst of sinners into heaven before me.”  Yes, that is the lesson.

Be seeing you

Higher minimum wage doesn’t solve main problem ...

 

 

 

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Of Two Minds – America’s Forced Financial Flight: Fleeing Unaffordable and Dysfunctional Cities

Posted by M. C. on April 23, 2019

https://www.oftwominds.com/blogapr19/forced-flight4-19.html

Charles Hugh Smith

The forced flight from unaffordable and dysfunctional urban regions is as yet a trickle, but watch what happens when a recession causes widespread layoffs in high-wage sectors.

For hundreds of years, rural poverty has driven people to urban areas: cities offer paying work and abundant opportunities to get ahead, and these financial incentives have transformed the human populace from largely rural to largely urban in the developed world.

Now a new set of financial pressures are forcing a migration of urban residents out of cities which are increasingly unaffordable and dysfunctional. As highly paid skilled workers and global capital have flooded into high-job-growth regions, living costs and the costs of doing business have skyrocketed: where not too long ago $1,000 a month would secure a modest one-bedroom apartment in major urban job centers, now it takes $2,000 or $3,000 a month to rent a modest flat.

Wages for the average worker have not doubled or tripled, and this asymmetry between soaring living costs and stagnant incomes is driving the exodus out of cities that are only affordable to the top 10% of wage earners, or those who bought a house decades ago and have locked in low property taxes.

Gordon Long and I discuss this forced migration in a new video program. It’s important to note that we’re not talking about economy-wide inflation or the general rise in the cost of living; we’re talking about the hyper-drive cost increases that characterize high-cost urban areas.

I’ve addressed economy-wide real-world inflation many times,for example:

The Burrito Index: Consumer Prices Have Soared 160% Since 2001 (August 1, 2016)

Burrito Index Update: Burrito Cost Triples, Official Inflation Up 43% from 2001 (May 31, 2018)

In high-cost urban regions, burritos aren’t $7.50; they’re $10 or $12. Parking tickets aren’t $15, they’re $60, and so on.

Consider this chart of rents in the San Francisco Bay Area: unless the household’s income has shot up in parallel with rents, this cost of living is simply unaffordable. Read the rest of this entry »

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Swamped in Inflation, Venezuela Will Cut Five Zeros from Currency

Posted by M. C. on August 17, 2018

Socialism or democratic socialism or is there a difference?

https://www.wral.com/swamped-in-inflation-venezuela-will-cut-five-zeros-from-currency/17774600/

By Nicholas Casey

MEDELLÍN, Colombia — Faced with nearly incomprehensible inflation — 32,714 percent as of Wednesday — Venezuelan officials thought they had a solution: They changed the color of the bank notes and increased their denomination. Then they said they would lop off three zeros. And when that didn’t seem enough, they announced they would cut off two more.

The tactics have left Venezuelans like Yosmar Nowak, the owner of a coffee shop in Caracas, convinced that there is no solution in sight and that the government cannot even bring down the price of a cup of coffee, an eye-watering 2 million bolivars.

“I imagine if we keep like this we’re going to have to do the same thing in December,” said Nowak, who has been forced to raise prices in her cafe at least 40 times this year.

Slashing zeros from Venezuela’s inflation-cursed currency, the bolivar, is the tent-pole of a set of economic changes by President Nicolás Maduro as he tries to right his country’s capsized economy. The five-digit inflation has earned Venezuela comparisons to the hyperinflation of Zimbabwe and Weimar Germany from the International Monetary Fund.

Be seeing you

Cortez

She hopes she won’t get a visit from Sean Penn.

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