Argentina Makes Our Favorite Mistake – Again

Printing-Money-300x300A year ago I wrote an article warning that Argentina, under bubble-headed socialist president Cristina Fernández de Kirchner, is headed for yet another financial disaster by printing artificial fiat currency, denying the reality of inflation by cooking the books, and failing to restrain runaway government deficit spending.  I predicted things would only get worse in Argentina, and we would be right behind them because our own bubble-headed socialist leaders are following the same script.

I was right.

Argentina is in a world of hurt.  And so are we.  Our president told the nation this week that the state of the union is strong, and we are creating plenty of jobs.  But, he said, we must print more money to extend unemployment benefits again (beyond 99 weeks).  Only 63% of adults are active in the labor force.  A majority of Americans receive government checks.

Soon the Democrats will demand to increase our debt limit.  The Republicans will cave.  Again.  The Democrats insist we must grant amnesty and open our borders to millions of illegal immigrants who will put untold strain on employment and demand for public services.  The Republicans will cave.  Again.  The Democrats have thrown our system of medical care into a state of chaos, and all indications are that it will wreak even further havoc on our economy.  And the Republicans . . . well, you know.

Meanwhile, the Federal Reserve sucks up the wealth of those who have worked hard and saved money by holding interest rates to zero, passing it on to the mega-bankers.  They hold the Fed’s artificial dollars on their balance sheets and enjoy the risk-free interest, or play the stock and derivatives markets with their corrupt “pennies from heaven.”

As vehemently as our administration and the media deny it, we have a currency inflation bubble ready to pop.  We peasants should pay attention to the Argentine people.  They have been in this boat before and have developed strategies for dealing with their idiotic government.

One way they attempt to beat crushing inflation is to spend all of their cash as quickly as they get it.  Whatever one can buy with a dollar today will cost two dollars tomorrow.  Why hold on to cash?

Another strategy is to buy tangibles that will hopefully have some value to somebody in the future, even when cash has lost its value.  Real estate and gold are in this category.

But as predictable as the results are, they keep making the same mistake – they swallow more kool-aid, and elect more socialists.

They are the product of the same mistakes that have produced previous busts: uncontrolled government spending, heavy taxes on exports coupled with strict controls on imports and disincentives to foreign investors. Never learning from its mistakes, Ms. Kirchner’s Peronist party has pursued this course repeatedly, even as neighbors, including Chile, have soared past it in per-capita income by adopting free-market policies.  — Washington Post editorial board

Can we Americans learn from our mistakes?

Tom Balek – Rockin’ On the Right Side

Rockin' On the Right Side

It’s the perfect ending
To the bad day I’ve got used to spending
When you go all I know is
You’re my favorite mistake
You’re my favorite mistake

Whose Bomb Will Explode First? North Korea? Iran? or The Fed?

atomic bombEverybody is worried about THE BOMB.  Will Iran build one?  Does North Korea have one?

I’m more concerned that our economy will be blown to Smithereens first by the misguided Keynesian policies of our own Federal Reserve.

Ask any ten people you meet:  What is the Federal Reserve? Who owns it?  What do you know about the Fed’s power, policies, politics, leaders, and motives?

If you know anything at all about the Fed, you are a rare American, indeed.  Although the Fed controls the value of our money and indirectly manages the economy of the United States and its 300 million citizens, most of us have no clue what it’s about.   Since the Fed’s creation 100 years ago we have blindly trusted this mysterious organization with our hard-earned wealth and that of future generations.

Is it a government agency?  Well, not exactly.  It isn’t owned by the government.  It was created by the Federal Reserve Act of 1913 and signed into law by the most progressive president in our history, Woodrow Wilson – Democrat, racist, proponent of eugenics, and enemy of the constitution.  The Fed’s leadership is appointed by the sitting U.S. president, and its actions are supposedly under Congressional “oversight”, although it claims total independence from political influence.

The assets of the Fed come from privately-owned banks who allocate a portion of their depositors’ funds to the central bank.  Do these private bankers own the Fed?  Again, not exactly.  But they are getting a pretty good deal out of the “partnership.”

The U.S. Government receives all of the system’s annual profits, after a statutory dividend of 6% on member banks’ capital investment is paid.

That 6.00% statutory dividend paid to the banks sure beats the heck out of the 0.05% interest you are receiving from your savings account.  Meanwhile, the big banks use your deposits to buy risky derivatives and stocks, knowing that the government will be right there to bail them out with your tax money if their gambles don’t pay off.  Not a bad gig.

For years the Fed has been “printing money”.  While they aren’t actually cranking out dollar bills with a printing press, they have been regularly expanding the money supply by buying treasury and mortgage bonds with “credit” – a practice called quantitative easing.  When the money supply (dollars) expands for no reason (no real wealth has been created) it obviously decreases the value of every other dollar that exists.  The price of everything goes up.  It’s called inflation.

At the same time the Fed holds interest rates to near-zero for years in the hope that it will spur economic activity.  This misguided policy has had the opposite effect, as banks fear making long-term loans in what will surely be an extended period of ugly inflation.

So congratulations for working hard, earning money and saving it.  You are not only receiving zero interest, but the dollars you have in the bank are worth less every day.  And while the value of your dollar plummets, so does real family income and employment.

And who benefits from the policies of the Feds?  It seems the big banks are doing fine.   Fed Chairman Ben Bernanke announced last week that the Fed will continue to “print” $85 billion a month.  That means the banks will buy more stocks and derivatives with wealth squeezed from your saved dollars, and the government will pay more entitlements in lieu of wages derived from earned profits.  It’s clear to me that the Fed exists to protect the bankers, and lately that has been at the expense of the citizens and taxpayers.

I don’t know if Iran has the brainpower or the money to build a nuclear bomb.  And I guess I’ll just trust Dennis Rodman to take care of the situation in North Korea.  But if we don’t get the Fed under control soon, the Dollar Bubble is going to blow up, and it won’t be fun.

Tom Balek – Rockin’ On the Right Side

Rockin' On the Right Side

You turned me out, you turned me on
And then you dropped me to the ground
You dropped a bomb on me.

You Dropped A Bomb On Me – Gap Band

Change – Be Careful What You Wish For

obama_change_01I had an interesting conversation with a liberal this week – a junior manager who works very hard, earns a modest salary, and would like to improve his family’s standard of living.

Our business conversation had turned to the hesitancy on the part of business owners to invest.  “No one is willing to pull the trigger on any major spending in the current political climate,” I said.

My friend asked, “What does politics have to do with whether or not a business owner wants to invest?”

I pointed out that politics and economics are inseparable.  After all, the only thing a government can do is spend other people’s money.  Everything the government does affects the economic environment, and conversely, voters and supporters of candidates make decisions based on their own current financial situations.  Business owners are not confident right now that risking additional capital will provide them with any financial reward.

“Well I have always been a liberal,” my friend said.  “And I agree with you, nobody wants to spend for anything right now.”

I let him talk.

“Nobody wants to upgrade their facilities or hire more employees.  They just don’t know if customers will be able to afford to buy their products.”

I nodded.  Keep thinking, young man.

“You know,” he continued, “wages sure aren’t what they used to be – if you can find a job at all.  People can’t afford to buy houses and cars and other things because they just aren’t making enough money.”

He was on a roll.

“If nobody can afford to buy things, why would you want to build a new store or hire more people?” he concluded. “Times are tough.”

I wanted so badly to deliver my speech about how government waste, corruption and misguided overspending takes a huge bite out of our GDP and personal wealth.  About how government social policies discourage savings and personal responsibility.  About how federal fiscal policy has devalued our dollar, destroyed our balance of trade and built an insurmountable debt.  About how we have become a nation of undereducated, disengaged sheeple, victim to any media-savvy, slick-talking promiser-in-chief.

I wanted to ask, “So why are you a liberal?”  Instead, I shook my head and said, “Gee, I wonder what has changed?”

He didn’t answer.  But the concerned look on his face told me he knew.

Tom Balek – Rockin’ On the Right Side

Rockin' On the Right Side

I still don’t know what I was waiting for
And my time was running wild
A million dead-end streets
Every time I thought I’d got it made
It seemed the taste was not so sweet

Changes – David Bowie

Magic! We’ll Never Have To Work Again!

Readers of my blog have often heard me proclaim my faith in basic economics.  I still have that faith.  At it’s most basic level, here’s what I believe:

  • every person on earth wants to improve his or her family’s standard of living
  • the more scarce something is (goods, talent, labor), the higher its value
  • we obtain things that we want by providing somebody else something they want
  • rather than exchanging chickens for gasoline, and labor for nails, we use a “medium of exchange”

IOUMacroeconomics makes sense as long as we have a medium of exchange that we can trade back and forth with each other, and we all agree on its relative value.  Here in the United States we use dollars.

Sam’s employer will give him twenty dollars for loading a truck for an hour.  Sam will give twenty dollars to the pet store for a bag of dog food.  The store will give twenty dollars to the utility company for an hour’s worth of electricity.   It works great as long as we all agree on the relative worth of twenty dollars.

Here’s where it gets tricky.  Twenty dollars is a piece of paper in your pocket.  You can’t eat it.  It won’t keep you warm.  It has no intrinsic worth at all.  There was a time when that piece of paper could be exchanged for gold (a scarce commodity) at our national treasury, but those days are gone.  Now a twenty-dollar bill is nothing more than an IOU – a promise to pay.

Unlike you, the government does not create any wealth.  It can take IOUs from one person and give them to another person.  And if that’s all it did, the economy would still work.  But the government now gives out more IOUs than it takes in.  It can do that, because it can print IOUs.

Stick with me now.

It should follow that the more IOUs that are out there, the less each one is worth.  Supply and demand, right?

If this were not true, NONE OF US WOULD EVER HAVE TO WORK AGAIN.  We could just print as many IOUs as it takes to buy whatever we want, just like our government is doing now!

But our government continues to tell us that there is no inflation, they don’t expect inflation, and everything is under control.

You’d have to believe in magic . . .

Tom Balek – Rockin’ On the Right Side

Rockin' On the Right Side

You have to believe we are magic
Nothin’ can stand in our way
You have to believe we are magic
Don’t let your aim ever stray
And if all your hopes survive, destiny will arrive
I’ll bring all your dreams alive, for you

Magic – Olivia Newton-John

 

Don’t Cry for Argentina, Cry for Us

All of this talk about “the fiscal cliff” sounds so sudden, so personal.  Like something that happens to you, and me, as individuals.  We fall off the cliff, like Wiley Coyote, and it hurts for a minute.  Then we are right back chasing the Road Runner.


The dirty little secret is we have screwed things up so badly for the next generation – maybe several generations – that it is beyond the point of repair.

Economics is not a mystery.  There is a ton of historical evidence about what happens when you try to goose the economy and stave off debt by printing fiat money – it’s called inflation.  Argentina wrote the book on how to create rampant inflation.

In the 1980s the inflation rate in Argentina ran in the triple digits.  When it hit 12,000% in 1989, suddenly everybody was broke – even those who worked hard, saved money, and played by the rules.  You have money?  Big deal!  It doesn’t buy anything!  All of the predictable ugly behavior occurred – stores were looted, violent protests  erupted, and politics devolved into a cesspool of corruption.

Argentina_158624432_620x350 In 2001 the IMF bailed out Argentina, preventing bloody revolution.  In exchange, there were strings attached:  you will manage your economy conservatively, and you will hold inflation to sane levels.  Twelve years later, Argentina is on the verge of being tossed out of the IMF, and perhaps the G20 for failing both dictums.  Stores are again being looted.  Argentine president Cristina Fernández de Kirchner is accused of “cooking the books” by reporting much lower inflation rates than actual.  While government reports claim inflation rates of 8% to 10%, life on the street shows a rate closer to 25%, and accelerating.

Sound familiar?

Our Federal Reserve, in cahoots with our administration, is pretending that we have no inflation in the US.  By holding interest rates to near-zero, they “think” they are stimulating the economy and tempering unemployment.  But it’s not working.  Banks, because of the risk of a rapid increase in interest rates down the road, aren’t loaning money to businesses.  Consumers who rely on interest from savings have puckered up.   And investors seeking decent returns gobble up riskier investments, building dangerous bubbles just waiting to pop.

Our government is trying the old “cook the books” strategy too.  While our administration claims success at creating jobs, our rate of labor force participation declines, and “real unemployment” takes a toll on American workers.  Last week 20,000 applicants scrambled after 1,500 available  flight attendant jobs at bankrupt American Airlines, who cut 2,200 higher-cost employees in a contract buyout.  And another 90,000 Americans chose permanent disability over the fight for jobs in December – breaking another record and holding unemployment rates conveniently and artificially low.

We are told that there is no inflation in the US.  But anyone who has been to a grocery store, a gas station, or any other destination not frequented by beltway-insiders knows better.  I freaked when I recently saw plain old hamburger at $6 a pound at a discount supermarket.

In 2001, Pat Buchanan wrote a blistering and revealing article about the debacle in Argentina.

It is a catastrophe for South America’s second economy and nation. Four years deep in recession, with unemployment at 18 percent, tax revenues vanishing and credit rating ruined, Argentina will now resort to the printing press. Fiat money – a “third currency,” the “argentino” – will be introduced in January.

“Printing money to satisfy the popular desire for spending unmatched by taxation is a recipe for chaos,” warns the Financial Times. “The new currency would then swiftly disappear into the hyper-inflationary flames.” Rely upon it. For the Peronists are less concerned with chaos than victory in the March elections.

For this disaster, Argentinians are, themselves, to blame. They have repeatedly elected demagogues and wastrels who misruled and looted their nation.

His scary prediction came true then for Argentina.  We’re next.

Who will write our epitaph?  And will our children and grandchildren forgive us?

Tom Balek – Rockin’ On the Right Side

Rockin' On the Right Side

Have I said to much?
There’s nothing more I can think of to say to you
But all you have to do
Is look at me to know
That every word is true

Don’t Cry For Me, Argentina (Evita) – Madonna

If Obama Wins – Then What, Montana?

courtesy ConsumerBoomer.com

  • No fracking, drilling, or pipelines – guess what that does to our Montana and US economies – and our future?
  • No coal plants in the US – if we are allowed to mine coal at all, we will probably not be allowed to ship it to the coast by train to meet the huge demand for Asian coal.  Coal dust blows off the train cars, you see.
  • Energy prices will double within a year – (see above).  We will continue to subsidize wind and solar energy companies, electric car manufacturers, and other chosen “winners”, many of whom will not survive economically.
  • $8 per gallon gasoline within two years.  Remember, Energy Secretary Stephen Chu said he wants our gas price to be the same as Europe.
  • At least two more far-left Supreme Court Justices take the bench.
  • Severe restrictions on gun ownership and use (see above – Sotomayor says “the right to possess a gun is clearly not a fundamental right.”)  Hunting on government land is forbidden, and is severely restricted on private land.
  • Health care will be expensive and rare.
  • Government employee unions will rule with impugnity.
  • Inflation will skyrocket as national debt soars and the Fed continues to print funny money.
  • Conservative talk radio, free speech, free internet, and Fox News are toast.  The first amendment fades in our memories, like most Constitutional freedoms.
  • Our government will never again write a budget – as Harry Reid said, “There’s no need to have a Democratic budget in my opinion.”  Budget, schmudget.  They can always print more money and spend it however they want.
  • Obama and his administration will make life hell for everyone who opposed them.  Listen to Valerie Jarrett:

    …Valerie Jarrett is letting it be known that if Barack Obama secures election victory next week, there may be, quite literally, hell to pay for those who opposed him…

    …Jarrett told (staff members) ‘After we win this election, it’s our turn. Payback time.

    Everyone not with us is against us and they better be ready because we don’t forget. The ones who helped us will be rewarded, the ones who opposed us will get what they deserve.

    There is going to be hell to pay. Congress won’t be a problem for us this time. No election to worry about after this is over and we have two judges ready to go.’

    She was talking directly to about three of them. Sr. staff. And she wasn’t trying to be quiet about it at all. And they were all listening and shaking their heads and smiling while she said it…

Obama has promised revenge too. If you ever spoke out against the left, watch your back.

I could go on, but it’s more than I can bear on the night before the most important, and the closest, political race of the modern political era. There is so much at stake. We can only pray for God’s mercy at this point. It may be our last chance before prayer is outlawed.

Tom Balek – Rockin’ On the Right Side

So let’s bow our heads and pray –
with the unbelievable ZZ TOP

Have Mercy – and – Jesus Has Left Chicago