Quantitative Easing, Inflation and Gold

Posted by PITHOCRATES - September 23rd, 2013

Economics 101

The FOMC makes Money out of Nothing to Buy the Bonds for their Quantitative Easing

The Federal Open Market Committee (FOMC) decided to keep their quantitative easing.  Their monthly $85 billion purchase of Treasury Securities and mortgage bonds.  To stimulate the economy.  Which hasn’t stimulated the economy.  But it has greatly expanded the money supply.

When people buy Treasury Securities and mortgage bonds they have to first work and save up the money.  Then when they buy these investments they no longer have that money.  It’s how we buy things.  We exchange money for things.  So we can have the money or the things.  But never both.

Unless you’re the federal government.  That has the power to print money.  When they make these monthly $85 million purchases of Treasury Securities and mortgage bonds they pay for them with an electronic transfer of money.  They add money to the account of the holders of the Treasury Securities and mortgage bonds.  And that’s it.  They subtract no money from their ledgers.  Because they ‘printed’ that money.  Just made it out of nothing.  Literally.

The Danger of a highly Inflated and Devalued Currency is that it loses its Purchasing Power and People lose Faith in It

The Secret Service protects our presidents.  Ironically, the president that created the Secret Service was assassinated.  Abraham Lincoln.  Who created it not to protect presidents.  But to combat a great threat to the country.  Counterfeiting.  The scourge of paper money.

During the American Revolutionary War the Continental Congress had no hard money (i.e., precious metals) to pay the Continental Army.  So they resorted to printing paper money.  Igniting massive inflation.  The more money they printed the greater the inflation.  And the greater they devalued the dollar.  Requiring more and more of them to buy what they once did.  Until no one would accept them in payment anymore.  Forcing the army to take what they needed from the people.  Leaving behind IOUs for the Congress to honor.  Once they figured out how to do that.

This is the danger of a highly inflated and devalued currency.  It loses its purchasing power.  Until it gets so weak that the people lose faith in it.  And refuse to accept it anymore.  Returning to the barter system instead.  Trading things that hold their value for other valuable things.  But the barter system has high search costs.  It takes a lot of time for people to find each other that can trade with each other.  Greatly reducing economic activity.  And crashing a nation’s economy.  Which is what Abraham Lincoln wanted to prevent.  And why a lot of America’s enemies have tried to flood the American economy with counterfeit bills.

The Hard-Money Prices remained Relatively Constant during the Inflationary Periods of the Revolutionary War

With the FOMC’s decision to continue their quantitative easing the stock market soared.  As investors were instead expecting a ‘tapering’.  A reduction in their purchases of Treasury Securities and mortgage bonds.  And if the government stopped creating this money out of nothing to buy bonds from these investors these investors could not continue to buy and sell in the market like they were doing.  Pocketing handsome profits in the process.  Which is why they were so happy to hear the FOMC would continue their currency devaluation to continue buying like they had been.

But this continued currency devaluation has a down side.  For it can’t go on forever.  There will come a point when it ignites inflation.  Causing prices to soar.  Requiring more and more dollars to buy what they once bought before.  So with this possibility on the horizon and with continued currency devaluation some people were taking steps to protect their assets.  Especially their cash.  For there is nothing worse than having a lot of cash when it’s losing its purchasing power at an alarming rate.  So they convert that cash into something that holds it value better.  Such as precious metals.  Which is why when the dollar tanked (after the FOMC decision) the price of gold surged.

So what’s the difference between gold and paper money?  Well, the government can’t print gold.  They can’t create gold out of nothing and add it to someone’s account.  So they can’t devalue gold.  And because of this gold will hold its value during inflationary periods.  Which was why during the Revolutionary War people sold things with two prices.  One was in paper Continental Dollars.  With these prices increasing sometimes daily.  And one in hard money (i.e., precious metals).  The hard money prices remained relatively constant.  Even during the inflationary periods of the Revolutionary War.

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FT158: “Journalists are more partisan than wise.” —Old Pithy

Posted by PITHOCRATES - February 22nd, 2013

Fundamental Truth

The Mainstream Media sacrifice their Journalistic Integrity to help the Obama Administration Advance their Agenda

The president has warned that the $85 billion in spending cuts of the sequester will gut government programs leaving Americans at great peril.  This despite baseline budgeting automatically increases spending every year.  From 1974 (after Nixon decoupled the dollar from gold and the government adopted baseline budgeting) through 2008 (before the spending orgy of the Obama administration) federal spending increased approximately 7.5% each year.  Crunching the numbers for the spending increase from 2012 to 2013 we get $284.7 billion.  Applying the cuts of the sequester reduces this increase in spending to $199.7 billion.  We will spend more in 2013 than we did in 2012.  Even AFTER the sequester cuts.  So all the peril the president is warning us about is not real.  He’s lying for political gain.

Yet the mainstream media is discussing this issue as if there are real cuts in spending.  That we will reduce spending in the numerous government programs the president warns about if we let the sequester happen.  Less food inspection.  Less airport security.  Fewer police officers.  Fewer firefighters.  Fewer teachers.  Fewer flu vaccinations.  And less childcare.  In their reports they discuss these as a matter of fact.  When they are just not true.  And it’s no secret.  Anyone can do what we did and look at federal outlays and see the automatic spending increases each year.  And see that we will still spend more in 2013 after the sequester cuts than we did in 2012.  You’d think a journalist would study the facts.  The historical record.  And then question the president and his administration.  Ask them why they are lying.  But they don’t.  Why?

Because they are partisan.  Committed to the leftist agenda the president is trying to pass.  So they either help spread the lie.  Being complicit in the lie.  Or they spread the lie because they are victims of the lie.  They are so committed to the leftist agenda that they don’t question anything coming from the liberal left.  Because they want to believe.  They sacrifice their journalistic integrity to help the administration advance their agenda.  More a propaganda arm of the administration than a free press.  The kind of journalism they practice in Venezuela.  Cuba.  China.  North Korea.  And the kind of journalism they practiced in East Germany.  The Soviet Union.  And Nazi Germany.  Where there was no free press.  Only state propaganda.  Propaganda in a totalitarian regime is one thing.  They already oppress their people and their news is more for the benefit of outsiders.  Where they lie about record harvests.  And record gains in industrial production.  Things their people have long stopped believing as they suffer through the misery of the reality.  But it’s different in a free country.  For it lends legitimacy for illegitimate actions of government.  And allows them to overstep the restraints of their constitutional authority.

The Mainstream Media helped Downplay the Resurgent al Qaeda in Benghazi to help President Obama win Reelection

In 2010 the greatest cause of accidental deaths for children age 5-15 was motor vehicle accidents.  In 2010 there were 806 deaths.  Representing 49.1% of all deaths.  The number two cause was drowning with 251 deaths.  Or 15.3% of the total.  Next came fire/burn at 135 deaths.  Then death by suffocation at 79 deaths.  Then death by other land transportation at 68 deaths.  Then poisoning at 54 deaths.  Then came firearms at 37 deaths.  Yet many in the mainstream media actively support the Obama administration in their push for gun control.  Especially a ban on assault weapons.  Even if (as they say so often) it saves only one child.  But guns aren’t the leading cause of death for children.  In fact, as horrific as scenes like the Newtown shooting are they are very rare occurrences.  Far more children die in automobile accidents each year.  No doubt because we are driving smaller cars to save the planet (lighter cars means greater gas mileage and less pollution).  But the journalists don’t report this fact.  Because they endorse the leftist agenda of saving the planet.  And more gun control.  Even if saving the planet means the death of more children from driving in smaller and less safe cars.  While more gun control probably won’t save a single child.

The Obama administration’s foreign policy record has been a poor one.  The greatest threat to peace and stability in the Mideast and North Africa is Iran.  Yet the Obama administration did not support the Green Revolution protesting the 2009 Iranian election results that most felt were unfair.  There are few bigger enemies of the United States.  The Iranian supported insurgency killed or wounded a lot of U.S. military in Iraq.  Our strongest allies in the region (Israel, Egypt and Saudi Arabia) all feared growing Iranian influence in the region.  But given an opportunity to support an uprising that could overthrow a great enemy to peace and stability the Obama administration did nothing.  But when the Arab Spring swept through Egypt the president abandoned one of America’s most stalwart allies and the anchor to stability in the region.  Hosni Mubarak.  Now the Iranian influence in Egypt is stronger than ever.  When the Arab Spring spread to Libya the Obama administration supported that movement, too.  Despite Colonel Muammar Gaddafi having denounced terrorism and supported the Americans in the war against al Qaeda.  When the Arab Spring spread to Syria the president did not support that protest.  Despite Syria being Iran’s strongest ally in the region.  A sponsor of terrorism.  And a nation with a chemical arsenal likely manufactured by Iraq (those weapons of mass destruction that Saddam Hussein had used on his people but had disappeared when the Americans arrived on the scene, likely having skedaddled across the border into Syria).  As bad as the ruling regime was in Syria we did nothing to help Syrians overthrow their oppressor.

Now civil war engulfs Syria.  Elements of al Qaeda have joined the opposition.  Making sure Iran wins however things turn out there.  And the Iranian influence is stronger than ever in Libya.  When al Qaeda killed the American diplomat in Benghazi the Obama administration made up a story about a YouTube video causing spontaneous protests that led to the ambassador’s death along with three other Americans.  To downplay a resurgent al Qaeda during the 2012 election campaign.  As they had refused to beef up security in Benghazi as the ambassador requested.  Because it would look bad in the 2012 election.  Yet the mainstream media did not question these very poor decisions the Obama administration made for political reasons.  Instead accepting their position that there was nothing newsworthy in Benghazi.  Which they wholeheartedly reported.  Refusing to even ask questions.  Such as why did they refuse the ambassador’s request for more security?  Who edited the talking points for Ambassador Rice used for the Sunday morning shows?  Or why is al Qaeda now stronger in the Middle East, North Africa and West Africa after 4 years of the Obama administration that they were during 8 years of the Bush administration?  No.  They showed no journalistic curiosity.  Or integrity.  Simply accepting the administration’s statements as fact.  While the Middle East and Africa become more dangerous places.

The Mainstream Media is no longer a Free Press for the People but a Propaganda Arm of the Obama Administration

Obamacare is the most sweeping change to the American economy since LBJ’s Great Society.  Which was the most sweeping change since FDR’s New Deal.  The American Left has always wanted a national health care system.  Just like what they have in the United Kingdom.  The Left likes to point to their National Health Service (NHS) as the right way to do health care.  As does the mainstream media.  Yet if you read the British papers their NHS is not all the American Left says it is.  Britain’s aging population has caused health care spending to explode.  The UK is in the midst of massive budget cuts to bring down health care spending.  While the NHS has long tried to deal with chronic problems of long wait times.  Rationing.  A shortage of doctors and nurses.  Even ambulances.  Their emergency rooms are overflowing with people with non-emergencies as the NHS closed their neighborhood clinics to reduce costs.  And the quality of care has been falling in their hospitals.  The problems in the NHS are no secret.  All you have to do is pick up a British paper and read about them.  For they are ongoing.  Yet the mainstream media never reported these problems during the Obamacare debate.  Or what passed for a debate.  No.  They never asked how Obamacare was going to avoid all the problems they were having in the NHS.  Which they should have.  As the US has an aging population, too.  Worse, they have about five times the population the UK has.  Guaranteeing any problems they have will be five times worse in the US.  Serious questions a good journalist should have asked.  But no.  They didn’t.  Because they support the liberal agenda more than they believe in journalistic integrity.  So they only report what helps the administration.  While avoiding anything that is critical of them.  Or their agenda.

When it comes to economics the mainstream media are all supporters of Keynesian economics.  Despite their record of failure.  When Nixon decoupled the dollar from gold in 1971 it allowed the government to go all in with Keynesian economics.  And they did.  Printing so much money that it led to excessive inflation, high unemployment and economic stagnation.  Ronald Reagan reversed those Keynesian policies.  His administration stopped printing money.  And got the government out of the private sector economy.  Cutting regulations.  As well as tax rates.  And economic activity exploded.  There was so much economic activity that tax revenue nearly doubled.  Even at those lower tax rates.  But the mainstream media doesn’t report this.  Instead, they revise history.  Always supporting Keynesian economic policies as they allow government to expand.  So they can implement their leftist agenda.  Which is anti-business.  Pushing higher regulations.  And higher taxes.  And whenever anyone talks about Reaganomics they say those cuts in tax rates only increased the deficit.  When the historical record clearly shows tax receipts increased.  Which they could easily look up (see Table 2.1—RECEIPTS BY SOURCE: 1934–2017).  But they don’t.  Or chose not to.  Preferring to support the liberal agenda.  Instead of having journalistic integrity.

The mainstream media today is no longer a free press for the people.  They are an extension of the Democrat Party.  At least the liberal wing of the Democrat Party.  More of a propaganda arm of the Obama administration.  That is more interested in changing the country than keeping our politicians honest.  Or reporting the facts.  They are fiercely partisan.  Or they are just not very smart.  Either woefully ignorant of the material they report on.  Or so in the bag for the Obama administration that they will report falsehoods as truth.  The kind of thing that isn’t a big deal in a totalitarian regime.  But a pretty big deal in a free country with a government that continues to try to exceed its constitutional authority.  For a free press is the vanguard of a free country.  Keeping the politicians honest so they can’t exceed their constitutional authority.  And if the journalists aren’t going to do their job by the time we find out what our politicians are doing it will be too late.  As we now have Obamacare as law.  Which passed on partisan lines.  With enough moderates and independents voting for Obamacare as few in America knew of all the problems the British were having with their national health care.  Today it’s Obamacare.  Tomorrow it may be gun control.  Or a war in the Middle East thanks to a resurgent al Qaeda.  And a growing Iranian influence.  Thanks to such a poor job in foreign policy that if the mainstream media had reported it honestly President Obama may not have won reelection.  And four Americans may not have died in Benghazi.

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Baseline Budgeting, Sequestration and Lies

Posted by PITHOCRATES - February 21st, 2013

Politics 101

The Sequester Automatic Spending Cuts equal about 2% of Current Federal Spending

If you heard the president speak recently we’re all doomed.  The automatic spending cuts in the sequestration he proposed and signed into law will take food away from children.  And lead to the collapse of society as we know it.  Ushering in the end of the world.  For he warned…

Border Patrol agents will see their hours reduced. FBI agents will be furloughed. Federal prosecutors will have to close cases and let criminals go. Air traffic controllers and airport security will see cutbacks, which means more delays at airports across the country. Thousands of teachers and educators will be laid off. Tens of thousands of parents will have to scramble to find child care for their kids. Hundreds of thousands of Americans will lose access to primary care and preventive care like flu vaccinations and cancer screenings.

President Obama gave this speech in front of some first responders.  Police officers.  And firefighters.  Always the first they threaten with layoffs when the government can’t raise taxes.

Amazing what $85 billion can buy today.  And if it can buy all that you’d think we wouldn’t have to spend $3.8 trillion at the federal level.  For if we can get all of that for a little over 2% of all federal spending it makes you wonder what else that 98% is buying.  What’s even more remarkable is that the federal government doesn’t even pay police officers, fire fighters or teachers.  We pay for these with property taxes.  At the city and county level.  Which the federal government cannot cut.  Because they don’t pay for these.  Yet the president says the sequester will even cut these.  Remarkable.

The Important Thing to understand about Baseline Budgeting is that Spending Cuts don’t Cut Spending

To understand sequestration you have to first understand baseline budgeting.  Which goes back to the Congressional Budget Act of 1974.  When we stopped being responsible.  And set government outlays to forever increase.  The baseline is the starting point for the following year’s budget.  And the baseline is last year’s outlays.  This year’s spending will be last year’s spending plus an additional amount based on inflation and population growth.

So spending always increases from year to year.  Automatically.  No one has to request an increase in appropriations.  And no one has to cut spending elsewhere for new spending someplace else.  Because all of last year’s spending is approved.  No matter how wasteful and pointless it may have been.  And on top of that spending there is new spending.  Always.  Guaranteeing that federal spending will always grow greater.  There will always be deficits.  And always a growing federal debt.

Now the important thing to understand about baseline budgeting is the meaning of ‘spending cuts’.  In a household if a family decides to cancel the family vacation because things are a little tight that is a spending cut in the real world.  Because it results in less spending.  But a cut in baseline budgeting doesn’t result in less spending.  For the only thing they cut is the amount they will increase future spending by.  For example, if spending for ‘X’ is scheduled to increase by $100 million but will only increase by $75 million that is a $25 million spending cut.  Even though spending will still increase by $75 million.

The President’s Sole Objective now is to destroy the Republican Party

President Nixon decoupled the dollar from gold in 1971.  Taking American off the gold standard.  Unleashing the inflation monster.  Allowing government to spend more.  As they paid for that additional spending by printing money.  And with the addition of baseline budgeting added in 1974 they spent more.  A lot more.  Total federal outlays from 1974 to 2008 increased on average 7.5% each year.  Total federal outlays in 2012 were approximately $3.8 trillion.  So the scheduled increase in spending (thanks to baseline budgeting) for 2013 is approximately $284.7 billion.

The spending cuts of the sequester are $85 billion.  Which President Obama says will usher in the end of the world as we know it.  But these ‘cuts’ are not cuts per se.  They are not like the cuts a household makes when they cancel the family vacation.  These are cuts that reduce the increase in future spending.  So instead of increasing future spending by $284.7 billion they will only increase by $199.7 billion.  Which is 2.3 times greater than the amount of the sequester.  Now President Obama said the sequester cuts would be the end of the world as we know it.  Even though total federal outlays will actually increase by an amount 2.3 times the sequester.  So one cannot but ask the question how will this sequester usher in the end of the world as we know it when we are actually increasing spending?

Because it is not the end of the world.  The president is lying.  Everything that we can pay for today we can still have after the sequester.  Because there are no real spending cuts.  We’re just increasing spending less than the original baseline projection.  Which means all the jobs we will lose will be future jobs.  But talking about losing future jobs doesn’t put the fear of God into people like telling them they won’t have any police or fire protection anymore.  Or telling them that their children’s teachers will lose their jobs.  You see, the president’s sole objective now is to destroy the Republican Party.  The only thing standing between the country and the liberal agenda he wants to impose on the country is the Republican opposition.  Which is why the sequester that he proposed and signed into law is now the fault of the Republicans.  This is the reason for all of this theater.  To get people to hate Republicans.  For why else would the president call a spending increase a spending cut?  If it wasn’t to demonize the people who keep demanding spending cuts?

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