The Obama Administration’s Dollar Devaluation lowers the Cost of Living in Britain

Posted by PITHOCRATES - October 6th, 2013

Week in Review

The British economy appears to be turning the corner.  Of course, they have an advantage over the American economy.  They’re not stuck buying petrol with a devalued American dollar (see UK economy growing at fastest rate in the developed world by Philip Aldrick, and Steve Hawkes posted 10/3/2013 on The Telegraph).

And there were hopes tonight that the signs of life could help tackle the cost of living, with a strong pound helping to push down the cost of petrol, which is traded globally in US dollars.

There are two primary forces that determine the price of gasoline.  Supply and demand.  And the strength of the US dollar.

Thanks to the worst economic recovery since that following the Great Depression, gasoline is not in as great of demand as it once was.  Before President Obama became president.  With so many people having left the labor force people just don’t have the money to put into their gas tanks.  Hence the ‘staycation’.  Spending the family vacation at home.  Doing fun things in the backyard.  Like cutting the grass.  And then when the kids’ chores are done there’s hotdogs on the grill.  Can a week at Disneyland compare to that?

Even though we’re buying less gas gasoline prices are still pretty high.  Why?  Because unlike the British we buy our gasoline with devalued dollars.  Due to all of that quantitative easing.  Printing money to buy treasury bonds.  To stimulate the economy.  Where only the rich Wall Street traders who buy and sell these bonds are getting stimulated.

With more money in circulation chasing the same goods and services in the economy it takes more dollars to buy what they once did.  Including gasoline.  Especially gasoline.  For the higher price of gas can be hidden in other products by reducing the package size of the product sold.  Such as smaller cereal boxes.  The prices may not be going up on cereal but we have to buy cereal more often.  Spending more money in the long run.  The higher price of gasoline (due to a weaker dollar) makes everything more expensive in the supply chain that ultimately puts those boxes of cereal on the supermarket shelf.  Ditto for everything else that is moved with gasoline or diesel.  But they can’t shrink the package size of gasoline to hide the added cost from the devalued dollar.  Because they sell gasoline by a fixed measurement.  We buy it by the gallon.  We don’t buy it by the box.  If we sold cereal by a fixed measurement we’d see cereal prices rising a lot higher than they are now.  But they’re not. So the boxes are getting smaller.

The British pound is stronger than the US dollar.  So when the British buy oil on the world market they exchange stronger pounds for weaker dollars.  Getting more dollars in exchange for their pounds.  Removing the U.S. price inflation (due to the devalued dollar) from the price of oil.  Lowering the cost of oil in Britain.  And lowering costs throughout the British supply chain.  Which will help lower the British cost of living.  Making life easier for the British consumer.  Because the British are more responsible with their currency than the Obama administration is with the American currency.


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Australia’s Carbon Tax raised the Cost of Living so much that it’s hurting the Left’s Reelection Chances

Posted by PITHOCRATES - July 20th, 2013

Week in Review

The political left says we need to stop global warming RIGHT NOW before it’s too late to save the planet.  And the children.  Of course they’ve been saying that we need to do something RIGHT NOW since the Nineties.  When global warming became all the rage.  Leaving poor old global cooling and the coming ice age it foretold behind in the ash heap of fear mongering.

Why the change?  Simple.  What can you do to prevent global cooling?  Force businesses to emit more carbon into the atmosphere?   To remove carbon scrubbing equipment from power plants?  To produce more of our electric power from coal-fired power plants and less from solar, wind and hydro?  Reduce business taxes to lower the cost of electric power?  Thus lowering electric utility costs to encourage people to use more?

As you can see these are all options that benefit taxpayers.  Not the government.  That’s why the 180-degree change from global cooling to global warming.  Because government can combat global warming.  By forcing businesses to emit less carbon into the atmosphere.  To add carbon-scrubbing equipment to power plants.  Produce more of our electric power from solar, wind and hydro (that the government can subsidize) and less from coal-fired power plants.  Raise the cost of electric power generation to encourage people to use less.  These things benefit the government.  Not the taxpayer.  For the whole purpose of fighting global warming is to transfer more wealth to the government.  So they have more money to spend (see Australia to scrap carbon tax for trading scheme by AFP posted 7/14/2013 on Yahoo! 7 News).

Key greenhouse gas emitter Australia on Sunday announced it will scrap its carbon tax in favour of an emissions trading scheme that puts a limit on pollution from 2014, a year earlier than planned.

The move is set to cost the government billions of dollars but Treasurer Chris Bowen said cuts would be made elsewhere to compensate with the Labor Party sticking to its plan to return the budget to surplus in 2015-2016.

Bowen confirmed media reports that the fixed Aus$24.15 ($21.90) per tonne carbon tax would be dumped in favour of a floating price of between Aus$6 and Aus$10 per tonne from July 1, 2014, to ease cost of living pressures for families and help support the non-mining sectors of the economy.

The political left in Australia implemented a carbon tax to save Australia from global warming.  Yet when they’re making changes in that program what is the BIG problem they have to address?  Billions of dollars of lost tax revenue.  As if they’re spending that money elsewhere.  On government pork.  Not just on subsidizing green energy.  Which makes the carbon tax not about saving the planet.  But about giving the government more money to spend.  As governments everywhere have an insatiable appetite to spend money.  So the carbon tax was a lie.  Surprise, surprise.

And how do you get billions of dollars in additional tax revenue in the first place?  By increasing the cost of living and business with more taxes.  People don’t like paying more taxes.  Politicians on the left understand that.  Which is why they lie during political campaigns.

Former Labor prime minister Julia Gillard’s popularity sunk after she announced plans for the carbon tax in early 2011 — after pledging before her 2010 election that it would not be introduced by a government she led.

The policy backflip prompted protests around the country and conservative opposition leader Tony Abbott, who opinion polls suggest will narrowly win the 2013 election, has vowed to abolish it.

Abbott on Sunday said the shift to 2014 was “just another Kevin con job”.

“Mr Rudd can change the name but whether it is fixed or floating it is still a carbon tax,” he said, adding that “it’s a bad tax, you’ve just got to get rid of it”.

Wherever you are in the world liberals make up a minority of the population.  So the only way they win elections is by lying.  President Clinton promised he wouldn’t raise taxes on the middle class.  But after he won the election he raised taxes on the middle class.  President Obama promised that he wouldn’t nationalize health care.  And within his first 2 years in office he signed the most sweeping health care bill into law.  Obamacare.  Which has put the U.S. onto the path to national health care.  And in Australia Julia Gillard promised she wouldn’t allow a carbon tax happen under her watch.  When she apparently planned to implement a carbon tax all along.  And just lied to the people.  Knowing that they never would have voted for her if she had told the truth.  That she intended to raise the cost of living for everyone.

Politicians lie.  Especially those on the left.  And yet they fool the people time and again.  Getting exactly what they want.  By going out of their way promising that they will never do what they always end up doing.  Clinton.  Obama.  Gillard.  They’re all the same.  They get what they want by saying one thing.  And then doing something completely different.


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China is Restructuring their Economy to make them less Dependent on their Export Economy

Posted by PITHOCRATES - April 6th, 2013

Week in Review

Those who support more government regulation of business nod approvingly to the way China does business.  The Chinese government manages the economy.  They pick the winners and losers.  They decide where investment capital goes.  And their economy is surging because of it.  Something many in the United States see.  And want to emulate.  Only if the U.S. government had the same power over business the Chinese have they lament.  Then we would see great things in the U.S.  Or so they say.  But would we?

It should be noted that the only booming part of the Chinese economy is their export economy.  That is, it’s not ordinary Chinese enjoying this economic boom.  It’s those in other countries getting those cheap export goods.  And why are they so cheap?  Some will say because of unfair trade practices.  And because of cheap labor.  Which is why the same people who want the U.S. economy to be more like the Chinese economy, more government control, also want to limit the import of those cheap Chinese goods.  For they’re destroying American jobs with their cheap labor and unfair trade practices.  Yet they want the U.S. economy to be more like the Chinese economy.  Even though it is only that cheap labor that makes it all possible (see China issues plan to rejuvenate old industrial base by Aileen Wang and Nick Edwards posted 4/2/2013 on Reuters).

China will expand an urban regeneration plan for ageing industrial cities as part of efforts to restructure the economy and promote more sustainable growth, the National Development and Reform Commission said on Tuesday.

The plan, to run from 2013 to 2020, covers 95 prefecture-level cities and 25 municipalities and capital cities that were once the core of China’s heavy industrial base. A blueprint issued in November 2011 covered 62 cities.

The NDRC said in a statement on its website that investments would be made to help former industrial centres upgrade technology while also providing financing support and encouraging financial innovation – including bond issuance – to raise capital for the program…

Annual personal disposable income for those cities is targeted at 29,900 yuan ($4,822) by 2017 and 13 million new jobs will be created during the same period.

Obviously the Chinese way isn’t working.  If it were there would be no need for such a mammoth restructuring of the national economy.  But they apparently need this restructuring.  As the export economy did make the Chinese government rich.  And those connected to the government rich.  But the ordinary Chinese worker earning those cheap wages sure didn’t get rich.  Which is why they are not helping to sustain the economy.  Making China totally dependent on their export economy.

They are targeting $4,822 in annual disposable income.  This is NOT the disposable income they have now.  It’s what the government hopes they will one day have.  Which really isn’t a lot of money.  For that comes to $401.83 each month.  Or $92.73 each week.  And only $13.21 a day.  So if this was your disposable income in the U.S. you may be able to afford a house or a car payment.  But not both.  Or much else.  Such as that smartphone with those expensive monthly charges.

Of course people will say that it is different in China.  Where the cost of living is less than in America.  So they will be able to buy more with their lower disposable income.  But, again, the reason why their cost of living is less in China is because of their cheap labor.  For that’s how the Chinese system works.  They can underprice the goods of most nations because they don’t pay their people much.  For there are no powerful labor unions negotiating better pay and benefit packages in China.  No.  In China they use the power of their communist government to keep labor cheap.  So they can pick winners and losers.  And get rich in the process.  While the average Chinese worker does not.


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Price Inflation has led to Wage Inflation in the Eastern Manufacturing Cities in China

Posted by PITHOCRATES - December 25th, 2011

Week in Review

Inflation has arrived in China.  Wages are going up.  Increasing the cost of their manufactured goods.  And the cost of living (see China province raises minimum wage by 23% posted 12/22/2011 on the BBC).

Sichuan province in southwest China has increased the minimum wage sharply to try and attract workers amid a rapidly rising cost of living.

Sichuan raised the minimum monthly wage by 23.4% starting on 1 January, state news agency Xinhua said on Thursday…

Severe labour shortages in Chinese cities have prompted wage rises in many provinces this year and last.

An example of the role prices play in supply and demand.  Life is good in the Eastern manufacturing cities.  So good that there is a lot of economic activity.  And prices are rising to allocate scarce resources that have alternative uses.  Even labor.  But inflation isn’t always good.  Higher prices eventually will lower sales as people can’t afford to buy as much as they once did.  And those cheap exports become not so cheap.  Which means those factories eventually will cut back on production.  As a recession settles in to readjust those prices.

Rising wages have prompted analysts to predict that China, previously known for its low cost of labour, could lose its edge as a manufacturing hub.

Manufacturers could look to countries such as Vietnam, Bangladesh and Cambodia where wages are still low.

However, Chinese authorities have been trying to boost domestic consumption and be less export dependent, and a rise in wages will encourage spending.

Before China it was Mexico.  Remember that great sucking sound as all those American jobs went to Mexico?  Mexico was chopping in high cotton for awhile.  Until they heard that great sucking sound as their jobs went to China.  And now China may hear it next.  As some of their jobs go to Vietnam, Bangladesh and Cambodia.  Who will lament one day the loss of their jobs to some other low-wage country.

This is economics.  And consumerism.  Consumers are always looking to get the most value for their money.  So manufacturers are always trying to undercut the competition to give these consumers what they want.  Good for consumers.  But not good for countries whose poor get a taste of the good life.  And don’t want to be poor anymore.  Thus raising the cost of production.  And eliminating their low-cost advantage.  At least for their export markets.

Eventually all emerging economies will be emerging no more.  And the low-cost advantage will not be attained the easy way.  With cheap labor.  For these once emerging economies will go to the next step in their economic development.  Capital investment in plant and equipment.  To lower their cost of production through economies of sales.  By doing more with less people.  With people leaving the low-skill assembly jobs in massive factories.  And instead design, build, run and maintain the equipment that replaces them at their old jobs.

Socialists and communists (as well as Big Labor) say this is a bad thing.  Replacing people with machines.  Even though they help to relieve chronic labor shortages that labor just can’t meet.  Lowering the cost of living for everyone.  And increasing the standard of living for everyone.  It’s happened everywhere through history.  And it now appears to be happening in China.  Which should ultimately be a good thing for the Chinese.  Especially for the masses who don’t live and work in the Eastern manufacturing cities.


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FUNDAMENTAL TRUTH #3 “Inflation is just another name for irresponsible government.” -Old Pithy

Posted by PITHOCRATES - March 2nd, 2010

INFLATION CAN BE a complicated thing.  When there’s inflation, prices rise.  But it’s not because evil business owners raise their prices.   It’s because the government made money worth less.  Let’s illustrate this with a simple example.

Let’s use a lotto.  Everyone understands how the lotto works.  Those who have winning tickets win the prize.  If there is only one winning ticket, the winner claims the whole prize.  If there is more than one ticket, the winners split the prize evenly.  The more winners there are the smaller each individual’s prize is.

Let’s say the winning prize is 10 gold bars.  And let’s say there is only one winning ticket.  That one winning ticket is ‘worth’ 10 gold bars.  If there are 2 winning tickets then each ticket is ‘worth’ 5 gold bars.  If there are 5 winning tickets then each ticket is ‘worth’ 2 gold bars.  If there are 10 winning tickets then each ticket is ‘worth’ 1 gold bar.  Etc.

If you have one of the winning tickets, you see the value of that ticket decline as the number of winners increase.  In the example above, your ticket ‘worth’ in gold bars went from 10 to 5 to 2 to 1.  The more winning tickets there are, the less ‘purchasing power’ your winning ticket has.  Substitute ‘money’ for ‘winning tickets’ and you have inflation.

NOW LET’S LOOK at prices.  The ‘price’ for all 10 gold bars is the total number of winning tickets.  In the above example, the ‘price’ in winning tickets increased from 1 to 2 to 5 to 10.  The ‘price’ of those 10 gold bars, then, increased as the number of winning tickets was inflated.

This is why business owners raise their prices during periods of inflation.  Are these business owners greedy?  No more than you.  Let me ask you something.  If you paid $50,000 for a starter home and put it on the market after it appreciated to $75,000, are you going to sell it for $50,000?  Or are you going to be greedy?

All right, let’s say you’re an altruist.  You care about people, not profit.  You sell your home for $50,000.  Now let me ask you something.  Do you know what kind of house you can buy for $50,000?  Probably not like the kind you just sold.  Houses like that now cost around $75,000.

Inflation makes things more costly.  And if costs go up, prices go up.  They have to.  If a business doesn’t cover its costs it will go bankrupt.  As would you.

SO IF INFLATION is bad, why do ‘they’ increase the money supply?  Here’s the short, short answer.  Because ‘they’ like to spend more money than ‘they’ have.  I say ‘they’ because it’s complicated who ‘they’ are.  The Federal Reserve is responsible for monetary policy.  The federal government spends the money.  But don’t sweat the details.  Suffice it to say that ‘they’ are responsible for inflation.  And ‘they’ aren’t business owners.

High taxes have consequences.  Usually at the polls.  So government looks for other ways to raise money.  They can sell debt.  Or simply print money.  Neither says ‘I’ve increased your taxes’.  But they both have the same affect.  The inflation they cause increases your cost of living just as a tax increase would have.  But it’s hard to blame your misery on the government when they weren’t taking (taxing) but giving (pork barrel spending).  Quite the devious bastards, aren’t they?

Not only does the cost of living go up, but the value of your savings decline.  If you saved $10,000 in the bank, inflation will make the purchasing power of that $10,000 worth less.  $10,000 today won’t buy as much as $10,000 did a decade ago. 

This is how inflation destroys wealth.  The flip side is that it also reduces government debt.  At your expense.  If you own government bonds, inflation makes those bonds worth less.  You lose wealth.  Because they’re worth less, it is now cheaper for the government to buy them back from you.  The debt sold a decade ago is ‘cheaper’ to pay off today.

SHORT TERM DEFICIT spending can be beneficial.  If it’s used to cut taxes to stimulate the economy (like JFK and Reagan did).  An increase in economic activity can generate more tax dollars even at a lower tax rate.  This can close the gap in the budget between spending and revenue.  However, if government continues deficit spending only to buy political favor (like FDR and LBJ), there will probably not be a corresponding increase in economic activity.  The gap between spending and revenue will probably not decrease.  In fact, it will probably increase.  And unchecked deficit spending will most probably result in runaway inflation.  Sooner or later.  And you know what the consequences of that can be.  If you don’t, you can ask Jimmy Carter.


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