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

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