Wednesday, February 1, 2012

The Perniciousness of ZIRP

Suppose that I promised to give you free chocolate for the next three years: How much chocolate would you eat today?

Mmm . . . money . . .
—er, I mean: Mmm, chocolate . . .
A pound? Half a pound? A few ounces? Or would you not eat any chocolate at all, once I made the announcement? After all, you’re going to have free chocolate for the next three years—seems silly to gorge on chocolate today, when you can have as much as you’d like tomorrow, or next week, or whenever you want over the next three years.

So free chocolate for the next three years? Great! . . . uh, only not right now, thanks very much: I’m kinda full.

But then what if I said to you, “Chocolate is free now—but I’m definitely going to raise the price in the near term. In a month, chocolate might be free—or then again, it might cost $1,000 an ounce. So get some while you can, because tomorrow, you never know!”

Well, obviously, to such an uncertain outlook, you’d go out and buy some chocolate now—because tomorrow, it might well be unaffordable.

In fact, it seems quite obvious that if you don’t know when I’m going to raise the price of chocolate, you’ll probably wind up buying—and eating—more chocolate than if it was free. A paradox? Sure—but true.

In point of fact, if the chocolate is free, you might not eat any chocolate at all. Every time you make the decision as to what to eat, you might well find yourself repeating the same mantra: “Chocolate is free—I can have it any time I want. So I won’t have any now.”

This is the problem Ben Bernanke and the Federal Reserve currently have—and it’s their own stupid fault: They have promised to maintain interest rates at effectively 0% until at least the end of 2014—they have in fact announced this zero interest-rate policy (ZIRP) as the hallmark of their strategy to reignite the economy—

—but then they’re surprised when businesses aren’t borrowing more. They’re surprised when lending is in fact contracting. They’re surprised when the American economy doesn’t start borrowing—and thus growing—like crazy.

So the American economy obviously doesn’t benefit from ZIRP. In fact, it stagnates because of ZIRP.

Leaving aside the deplorable notion that debt-fueled consumption is “growth”, businesses are not going to borrow to expand during the announced period of ZIRP, because business owners will say, “I’m really not sure if my market is growing—and since I can get a low-interest loan for at least the next three years, I think I’m going to hold off on any expansion of my business, hold off on hiring new workers, and instead wait and see if the economy really does pick up. If it doesn’t pick up, I won’t have more debt to service. And if it does pick up, I can always borrow and expand later.”

I can always borrow and expand later”: That’s what every sensible business owner is saying today. Why eat free chocolate now—when I can eat it for free later? Why borrow for free now—when I can borrow for free later?

And of course, later becomes never.

See, mainstream economists presume that uncertainty—by definition—is bad. This is why Ben Bernanke and the FOMC are doing this whole “transparency” thing: By announcing their interest rate targets, they think they are giving the markets security. They are trying to eliminate uncertainty insofar as their bailiwick is concerned, by making their monetary policy predictable.

Predictable? Hell, they’ve flat-out announced it.

But uncertainty is not by definition bad. Uncertainty is essentially ambiguity about the future. And as any novelist (such as myself) can tell you, ambiguity per se can be bad—just as easily as it can be good. Why? Because uncertainty about the future can lead people to think that the future will be bad—but also lead them to think that the future might be better.

In fact, most people—especially business people—are fundamentally hopeful, occasionally to the point of delusion: Ask any person, and nine times out of ten, they will tell you that the future will probably be better than today. Ask a business person? Eleven out of ten will tell you that tomorrow will be better than today. After all, entrepreneurship attracts fundamentally hopeful people: Nobody starts or runs a business if they think they’re going to fail.

So if business people see their markets picking up—even if it’s only just a little bit—even if they’re only really imagining it—and if they are uncertain for how long this free Fed money will last—then they’ll jump at the chance to expand their market now: Borrow the free money now, expand now, pick up more customer now

—and therefore hire more people now, and turn their irrational hope into a self-fulfilling virtuous circle.

But that’s not happening—because of ZIRP.

Mainstream economists—and Ben Bernanke and his Merry Gang of FOMC Fools in particular—don’t get the value of uncertainty at all. They rightly realize that uncertainty about the future makes some people wary. But it can also make them take chances now—something that their rigid worldview cannot seem to entertain.

Thus the Fed insists on offering free money to the economy—and the economy insists on politely declining. Why eat free chocolate now, when I can eat as much free chocolate as I want later?

So then, if businesses—and the wider economy—do not benefit from ZIRP, who does?

Why, the banks and the Federal government! (Yeah, I know: How am I not surprised . . . ?)

See, the banks get their 0% loan from the Federal Reserve—and promptly go out and buy U.S. Treasury bonds, yielding 2% or so. Sure, a 2% yield is nothing—but it’s a whole lot of something when it is risk-free, and adds massively to the banks’ bottom line. And ultimately to the banksters’ bonuses. After all, the Federal government isn’t borrowing twenty bucks for gas: It’s borrowing $1.6 trillion a year—every year.

Thus the Federal government, that glutton for debt, also benefits from ZIRP.

Worse still, ZIRP is a disincentive to reduce the deficit and the overall debt. Since Bernanke and the Federal Reserve are putting out 0% money over the next three years, the Federal government will be under zero-pressure to reduce the deficit and pay down the debt. In fact, ZIRP encourages fiscal irresponsibility. After all, it is the rising coupon payment which eventually leads to rising debt levels being choked off.

ZIRP doesn’t eliminate the Minsky Moment—that is, the Day of Debt Reckoning. Rather, ZIRP merely postpones it—while making it a whole lot bigger.

Thus the Federal Reserve’s zero interest-rate policy does not help businesses expand and thus hire more workers to restart the economy; it does not encourage banks to lend to economically productive sectors; and it does not get the Federal government to begin reducing the deficit, let alone the debt.

In fact, ZIRP makes all these problems worse.

Chocolate, anybody?

77 comments:

  1. I really applaud Gonzalo's fresh view on things. His explanations are dead on.

    ReplyDelete
  2. Okay so ZIRP is for making sure the future is for kings, lords and those with a letter of mark from the oligarchy.

    Why are you preaching to the jokers of the throne?

    Why is not your effort to explain this to the guy on the job who is a paycheck from the street?

    Why is not your effort to join the likes of Dr. Ron Paul and make it clear voting for any other candidate is voting for their own indentured servitude and the president to inherit the title of king/master?

    Why do I get the feeling this article is addressing the concerns of the niggerslaves who believe money makes money at all costs even if there is no Trust and Value to stand on?

    ReplyDelete
  3. I'll make an order for the free Chocolate...but its gotta be
    the special kind of chocolate ..not the normal mainstream stuff that gets mass produced. Its of the "Dark" variety....with a high concentration of the key ingredient. I like the extra kick you get from the juiced up stuff....hmmmmmmm!!!

    The theory goes like this....
    Spread the word....Dark Chocolate ;-) is actually healthy.
    The word catches on and in no time ...there are literally millions clambering for the stuff.
    When there is sufficent take up and stocks start diminishing faster than it can be supplied...you increase the price....demand is inelastic...so you try to increase the price even more but to no avail. It gets to a point that no matter what you charge for it, everyone wants a piece of it. Finally the Chocolate is seen for what it really is....something which should not be overconsumed and when it is, it can have detrimental health effects even causing death in some cases. Everyone starts dumping what they have and the price falls dramatically.
    Some people have gotten fat on their insatiable buying spree.
    Others become sick and depressed for the bad experience they have had....or from the worrying about the future ill effects of consuming too much. Even those that leveraged into buying the chocolate find it near on impossible to repay their debts.

    There are even those that swear that they will never eat chocolate again.

    AND yet ....a few years hence....someone will modify the recipe and change its name and start the very same game again.

    Its a truly diabolical world in which we reside.
    Full of temptation and evil.

    To damnation for the inventors of "Chocolate"

    There are no "free" lunches in this world. Every thing has a cost. Zero interest rates are not normal market conditions. You cannot cure abnormalities and distortions with irregular and unusual policy. For markets to function properly governments and CB's need to stop interfering.

    Whatever they have done to date = ZERO results.
    Whatever they do in the future = magnified problems.

    SOMEONE TELL THEM TO STOP.

    ReplyDelete
  4. Well thought out and written.

    ReplyDelete
  5. If in the rental business, one input determining an item's rental price is its value of the item being rented. Banks and the FOMC are in the business of renting money. ZIRP is confirmation they think the dollar is woorthless, and they may be correct.

    A second point is retired folks are being hit hard by ZIRP. If rates were higher, their income increases and they would spend it generating economic activity.

    ReplyDelete
  6. Here's the problem with your analogy (and don't get me wrong, the Government is evil and is not a business.)

    With Chocolate, if you don't say it is free forever and instead fluctuate the price, then people consume more chocolate when they SHOULDN'T, because they are worried they won't get it one day. In that type of society, you have very fat Americans :-) IF however, you give them free chocolate forever and they make the decision not to eat it because they can always get it, you just might end up with a society that is NOT so fat.

    So, with ZIRP, the intent was to stimulate the economy (ie. have more people eat chocolate) and your argument is that it's not working. In reality, it is wonderful that the intent of ZIRP is not working. I would MUCH rather have businessmen NOT take on debt until they feel they will profit from it versus taking on debt because they feel the interest is so low that they better get it now because it's "on sale." Sale events lead to gluttony and poverty, not wealth. Savings lead to wealth. America needs a good dose of hard work and exercise. So, I think it's wonderful that ZIRP is not working, even though BenTheSpend wants it to. The unintended consequences of his dumb program are exactly what we need, people NOT borrowing. America... STOP EATING CHOCOLATE TO LOSE WEIGHT, be it free for a while or forever!!!!

    ReplyDelete
    Replies
    1. The Mr. and Mrs. Obama team may come through with the official win. QE's will be sapped out from EU for as long as possible.

      Delete
  7. Still waiting for the "imminent" hyper inflation predicted for 2010. I thought Gonzalo had figured out why every economist's predictions were wrong...he even wrote a song about it...

    ReplyDelete
  8. What Benny B is aiming for by announcing extended ZIRP, is less to induce new lending, than to lower the cost of projected rollovers for those already too deep into debt; thereby preventing them from contracting. These entities are predominantly state and local governments, banks and the real estate complex.

    Sans promises of low future short rates, longer term rates would creep up, forcing the above into contracting, or bankruptcy.

    Another goal is to keep short rates low long enough for banks to earn their way out of bankruptcy by handing them a "free" spread of a few percent on Treasuries. As long as voters are stupid enough to fall for the scam that the Federal Government "must" paid it's debt, this is risk free money for dollar banks.

    All these shenanigans completely mess up the real economy that most people live in, though. After all, the reasons why governments, banks and the real estate complex are in such trouble to begin with, is that the way they have been conducting business is wealth destroying; they use up more wealth in inputs that they produce outputs. Yes, their charging people money for destroying their wealth does create activity, measured by GDP, whose blind maximization is some sort of holy grail for progressive era macro-"economists", but if wealth was not being destroyed by their activities there would be surpluses generated from their business processes that would obliterate the need for artificial stimulus.

    By far the most direct solution to the whole mess, is for voters to recognize they have been had, and to elect someone who will simply say: "It ain't my signature on those Treasury loan documents. If you creditors feel you're entitled to some money, go knock on the door of the conman who signed for the loans." Once the "risk free Treasury scam" is up, the rest of the rotten pyramid will fall with it.

    ReplyDelete
    Replies
    1. nail...head...screwed.

      Delete
  9. An addition to the argument of why business does not borrow when zirp is announced is the message that zirp sends to business- that message is that the economy is horrible and hence we need artifical stimulation to get it going. The businessman reads this into the policy and sits back and says if the FED thinks the economy is so horrible then maybe it really is. Thus the businessman sits back and waits for concrete data that things are getting better before borrowing. Remember the old addage: you can pull on a string but you cannot push it.

    ReplyDelete
  10. GL, you are brilliant and I agree with most of your work, but this one I cannot completely agree with. If the Fed said they would raise rates in 6 months to like 5%, average people that could would run out and try to get loans, but the banks would work very hard not to loan before the 6 months to regular people. The banks are crooks and wouldn't want people to take out long term debt at low rates and then have the little guy profit when the rates go up. If they were to lend, it would be with these adjustable rates that burn the little guy in the end. The perceived scarcity argument is accurate in a normal world and I agree with it, but the commodity of chocolate or money does not completely follow supply/demand dynamics in today's America in the near term as the Fed and banks manipulate the game. I don't think they want the little guy to get more leverage or have a better life, they don't do favors like that without strings attached. I also don't think they care about US manufacturing and want business to produce more and get stronger. They have near slave labor in other countries where they can profit more and pay less taxes than they would if they had to in the U.S, so they don't want to spurr industry here. So, they don't want the productive parts of the US or the common people to gobble up more chocolate, now I think they are in a consolidation phase where they take everything of value from people for next to nothing. They are scaring everyone with scarcity so they will sell all their assets to them, and at the same time build up inflation like a compressed spring. Now, the inflation is potential energy, when the trigger is pulled, this energy will translate to kinetic and all hell will brake loose. The 0-0.25% Fed funds rate I think is for the big boys to paper over as much of their mistakes as they can and have the tax payers pay for it. Indebt the average person to pay for sucker derivates in the 700+ trill range, and then use this fiat to gobble up what's of real value (homes, land, machines, factories, commodities, etc etc.) Once they have all the valves firmly in their hands (more than they have now), they will unleash the tsunami of fiat and have people wish they never went to that Cash for Gold to pay off a phone bill. Wow, those iphone apps are cool, but where are they now when that gold you had you will now need to work years to buy back.

    ReplyDelete
    Replies
    1. this is the theory that Iliargo and Stoneleigh at automatic earth hold....they opine that gold will be hard to hang on to, it will be sold off for less and less to pay for necessities like food and heat in the big long deflationary depression. After a decade of everything falling in value, but there being real shortage of dollars to buy it with,you get used to it like a backwards version of inflation...you anticipate everything getting cheaper and cheaper each day. After the PM's are mostly sold off...then they will go up in value.

      there is more than one way to have an economic crash, we are all used to inflation so may be myopic and not recognize whats coming

      Delete
    2. Wow.. I can't wait for my paper money to buy more and more. Pure fantasy. This is just a trope for people that still can't wrap their minds around the fact that the USA is going third world.. in slow motion.. right in front of their eyes. Have you seen a chart recently of all big central bank assets in total? No? Didn't think so;
      http://www.ritholtz.com/blog/wp-content/uploads/2012/01/balu10.gif

      Delete
  11. Excellent and well written explanation, but I have a question... what's to stop the FED from changing their mind? I know, it's an outrageous proposition and highly unlikely, but what if a government bureaucrat breaks his promise? What if a new regime takes over in November 2012 and Uncle Ben gets the boot, or what if the central banksters see green shoots and decide to raises rates a year or two early? To use your chocolate analogy, how would you feel if anyone from the government offered you free chocolate till the end of 2014 ... I think most would load up on chocolate before they changed the deal.

    - Contrarian

    ReplyDelete
    Replies
    1. This would only really happen if Ron Paul won, which he won't. Americans are too dumb and brainwashed. If the Fed raised rates all of a sudden, pretty much everything would crash. The US is now over 100% debt/gdp and will never pay it back. If the interest rates on that debt goes up, the things goes into overdrive and it's all over. The 0% rates are a game the Fed is playing to fool the sheep into thinking everything is ok. The point of no return has been reached with QE2, at that point it is all in the details and timing from this point. The choice is major depression or major inflationary depression. The fed and people in power will stick with the latter as it gives them time to grab everything they can and get onto their little life boats before the titanic sinks. The masses will drown like rats.

      Delete
    2. Ron Paul wont win....not because of the "dumb factor" but because the real $$$$ are behind Mitt R. His support ($$$$)to BO's is in a ratio of 2:1. IN this world we all know chocolate buys everything. You will see MR stuffing his face with the silky smooth stuff come NOVEMBER.

      Here is a fact...BO's father was a communist.
      Might explain a few things........!

      Contrarian....game over for the FED and the economy, no way out....no matter who is steering the ship. Its QE all the way to the bottom. There are no green shoots and there wont be for a v.long time. You can be as optimistic as you want ....but a high dose of realism would better serve you.

      Delete
  12. I like your chocolate analogy but I think the goose the economy talk is hype. The low rates keep treasury rates low by producing an artificial market. The banks take free federal money and lend it to the federal government instead of maximum utility that economic theory advocates. No economic stimulus here just the banks laying claim to future taxes.

    ReplyDelete
  13. I'll have as much free chocolate as possible please, and then I'll stock it and make sure I have it on hand for when we run out of chocolate in the future. I will tell my wife that I have lots of chocolate in case something bad happens but I will secretly pledge it shut up my old elementary school class mates for when I used to borrow their chocolate years ago that they were given by their parents to keep for their old age and in case they got sick and needed something to pay the doctor.

    Yes please, I can have a lot of chocolate, but I won't eat any of it, and neither will my wife, because we know that we don't own it anyway. In fact I will put it in a big box under my bed. It will be Schroedingers Chocolate Box.

    Or as my zen master friend says: "Does wealth exist if no-one is using the money in the safe?". No.

    ReplyDelete
  14. Dear Mr. GL,

    I've read your analysis carefully but it is wrong. Everything you say is wrong.

    ZIRP has nothing to do with monetary policy, fiscal policy, economy, employment or even ordinary people.

    ZIRP only purpose is to prevent the Federal Reserve from being terminated by politicians. We do this by saying we are the only organization who can grow chocolate at no cost. We know the politicians are addicted to, and absolutely must have chocolate every single day. We are the only one who can supply the drug, ... eh, I mean food commodity.

    As you can see, it is working most wonderfully. Not a single politician, and not a single presidential candidate, dares to offer solutions. Except perhaps Ron Paul but we are working on feeding chocolate to him from the other end of his body.

    Sincerely,
    Ben B.

    ReplyDelete
  15. The FEDeral Reserve [a Private Corporation-few know this] is Owned by the Big banks US and European. The FED gives Our money to those Banks.
    –No money gets to Main St.–Small Businesses make 70% of jobs–
    –Those small businesses get their capital from pensioners and middle class savers CD’s in local/regional banks and credit unions-
    -Those savings are wiped out by FED zero interest rate policy of Greenspan and Bernanke–
    –Until Interest rates normalize at 4-5% and people can save again–THERE CANNOT BE ANY JOBS INCREASE…SO–
    EVERYONE TAKE YOUR MONEY OUT OF THE BIG BANKS NOW AND SAVE WHAT YOU HAVE LEFT–THEN THEY CANNOT GAMBLE ON DERIVATIVES WITH YOUR MONEY–[RESTORE THE GLASS STEAGALL ACT]–
    –PUT YOUR MONEY IN LOCAL/REGIONAL BANKS AND CREDIT UNIONS WHERE IT CAN CREATE JOBS–
    *****LOBBY TO END THE UNCONSTITUTIONAL, CROOKED FED—–

    **PLEASE COPY AND SEND THIS VIRAL–


    MAIN STREET
    It would be cheaper for the Fed Govt to just pay off the mortgages and let people have their homes and the derivatives be satisfied--but that is not what the big banks want --they want to fail the derivatives so they get the taxpayers to make them whole--then they want to seize the homes with taxpayer money for pennies on the dollar, sell them for a profit and the taxpayer [read homeowner] has paid them several times for the home and still owes...
    That is why the Big 5 banks own the Federal Reserve--Greenspan brought about this mess, and Bernanke is following up--
    And have I mentioned that the Defense Act has taken away your Constitutional rights, and a new act is being looked at that can allow them -without redress -to take away your citizenship--This is rapidly becoming a dictatorship--
    --the Supreme Court has not even raised an eyebrow and demanded a test to these new "laws"--
    BUFFETT SAID THERE IS A CLASS WAR AND THE RICH ARE WINNING--
    The FEDeral Reserve [a Private Corporation-few know this] is Owned by the Big banks US and European. The FED gives Our money to those Banks.
    –No money gets to Main St.–Small Businesses make 70% of jobs–
    –Those small businesses get their capital from pensioners and middle class savers CD’s in local/regional banks and credit unions-
    -Those savings are wiped out by FED zero interest rate policy of Greenspan and Bernanke–
    –Until Interest rates normalize at 4-5% and people can save again–THERE CANNOT BE ANY JOBS INCREASE…SO–
    EVERYONE TAKE YOUR MONEY OUT OF THE BIG BANKS NOW AND SAVE WHAT YOU HAVE LEFT–THEN THEY CANNOT GAMBLE ON DERIVATIVES WITH YOUR MONEY–[RESTORE THE GLASS STEAGALL ACT]–
    –PUT YOUR MONEY IN LOCAL/REGIONAL BANKS AND CREDIT UNIONS WHERE IT CAN CREATE JOBS–
    *****LOBBY TO END THE UNCONSTITUTIONAL, CROOKED FED—–
    **PLEASE COPY AND SEND THIS VIRAL–

    ReplyDelete
  16. StukiFeb 1, 2012 11:19 AM, excellent answer but you forgot probably the most important reason for ZIRP and it certainly isn't to "get the economy going again" as Gonzalo implied. It's to keep the interest rate swaps from triggering and bankrupting the major banks in the US. I suspect they are buying time till the majority of these contracts end, or at least that's what they should be doing while they engineer an agreement among the banksters to stop issuing this toxic stuff. The interest rate swap market is something like 10x the credit default market.

    ReplyDelete
  17. What if Bernanke, being a member of the jewish criminal network, wants to destroy the economy instead of improving things?
    Then it makes sense to anounce this ZIRP so that the economy goes south for sure.

    We need to arrest politicians and banksters before it is too late for us.

    ReplyDelete
  18. Hey G,

    Here's a thought.
    What happens when the other clever folk (non US banks )who are holding t's, start to realize that they are in reality paying the US government. A miniscule yield vs cost of their funds(inflation rate) = negative return.....and its called a "riskless trade"....based on ......???? sovereign strength ??
    Even those clever banks that you allude to making a whole lot of something from nothing....I say it equals nothing in the end anyway. Which then leads me to conclude that if that very same whole of something (made from nothing which equates to nothing) adds to the banks bottom lines, then the banks have a whole lot of nothing which goes further to distorting the whole picture. The banks have artifical profits. Their share prices are artificial because price is a factor of earnings.
    MMMMMM...my my....my. You opened a can of worms here my dear friend.
    That being the case then the seemingly only place to seek positive returns would be by chasing risk. IN that case that implies by deduction ....er.......STOCKS.
    Now....if we deduce that Stocks can provide a higher yield, does this in itself outweigh the RISK of buying artificial profits/earnings.....???
    Did you know the word Dilemma is of Greek origin...it means
    "double proposition".... is a problem offering two possibilities, neither of which is practically acceptable.
    OR....my favorite...
    "a situation requiring a choice between equally undesirable alternatives".
    To buy bonds....OR.....to invest in equities......???
    Neither are attractive/wise in this climate and YET the FED wants everyone to make the "RIGHT" choice.
    ....."lead us not into temptation...but deliver us from EVIL"

    ReplyDelete
  19. Here is a question I was never able to fully get from anyone. This includes some with finance degrees and lots of experience behind their belts.

    "The 700+ trill in derivatives, what if?".

    They're not really bonds, stocks, money market, real assets, they are speculation or pure bets derived from actual investments. 700+ trillion!!!!!!!!!!! There is not enough money out there to cover them, if they go belly up, 1 trillion a year per the CBO in the US is nothing compared to 700 trill. Is the 700+ trill out there in bets inflationary, deflationary, or just a huge cluster F that will crash everything like a global tsunami and no one knows what would happen? I mean, people are afraid of nuclear war, others like to watch scary zombie movies and imagine an acopalypse, but no one speaks about 700+ trill bets going bad. What would happen....

    ReplyDelete
    Replies
    1. The number is actually closer to $1 qdln...and in the event of otc derivatives being triggered perhaps by a "default event"...the entire financial system would be destroyed notwithstanding the purported "net net" as proposed by the BANKS.
      CB's could not save the system as the velocity and severity and uncertainty of otc deriv's would be toooooo BIG to handle.
      What we have learned recently (which GL discussed previouly) is that the PTB will not act in an ethical manner.
      A "bank holiday" would necessarily imply a judgement...holders of accounts would be forced to take massive losses...no escape. Across the board wealth destruction. If ur fortunate enough to have some wealth outside of the "System" then kudos...dont tell anyone !!!

      Delete
  20. As a business owner one thing only stops me from borrowing and expanding at this time. I have no confidence what so ever in the economy in the near future. At present my company is debt free and is in survival mode. Will it survive, who knows? If it doesn't, I won't be stripped by the banks in bankruptcy court. If there were to be a general consensus of a confidence in the future instead of a universe class debt overhang there would be a interest rate attached to borrowed money. Of course, it would be nice if this interest rate were to be market determined.

    ReplyDelete
    Replies
    1. "debt overhang" ...at least 1...perhaps 2 decades. Death by a thousand cuts...slow and painfull.

      Delete
  21. Hello,

    Timely article. The idea that ZIRP is resulting in the exact opposite of what the FED claims it intends has finally come into its own. From Bill Gross

    http://www.pimco.com/EN/Insights/Pages/Life-and-Death-Proposition.aspx

    to a very excellent and detailed article by Satyajit Das aptly entitled "Low rates: the drug we can all do without"

    http://www.ft.com/intl/cms/s/0/372a405c-480e-11e1-b1b4-00144feabdc0.html#axzz1lFQaBiky

    people are noticing that ZIRP is saving the banks for now (which is all the FED or the ECB really cares about) but at the expense of the real economy.

    ZIRP is the ultamate bank bailout transfering trillions in wealth from savers and pension funds to the politically, both Dem and Repub, well connected banking establishment on Wall Street, City of London etc.

    Regards,

    Unna

    ReplyDelete
    Replies
    1. Ah, it's "ultimate". As in so many other ways, the Holy Sisters failed with me in their spelling lessons....

      Unna

      Delete
    2. "saving the banks" ...hmmmm..yes indeed and indirectly stopping the system from collapsing.
      BANKS are the "heart" of the system..pumping liquidity to ensure continuance.
      ZIRP is just another erroneous story....the monetary system has been stealing by stealth....wish someone would calculate how much in fact western govts and CB's have stolen over the decades via inflation.

      Delete
  22. Which is why Warren Buffet has referred to those derivatives as "financial weapons of mass destruction"

    ReplyDelete
  23. Consider for a moment that our world's currencies are "debt currencies". This fact and its consequences are completely lost in today's monetary, financial, commercial and political discussions. In order for a debt currency to exist, "currency/money" must be borrowed. If a debt economy converts to a cash and carry economy, debt is repaid and when debt is repaid, there is no currency. (Because all currency/money is created when borrowed into existence and vanishes into the ethereal source when repaid. Debt currency/money does not survive the loan/repayment process as does a "real" money.)
    When the debt principal (the amount borrowed) is repaid, there is no surplus currency/money to pay the interest, fees and other expenses of the "loan". Therefore, a Ponzi -like scheme is necessary to induce additional borrowing to create more debt currency to service the costs of debt currency borrowing. If the money supply of debt currency does not continually increase at a rate exceeding the cumulative cost of issue and repayment of debt currency/money, the system fails. Fractional reserve banking facilitates the creation of excess debt currency and can provide even greater reserve multipliers as necessary to sustain currency growth. Unfortunately, at some predictable moment, there are not enough borrowers to support the mandatory growth of debt currency. Death of the currency is unavoidable. I think we may be at that moment where a debt economy and a debt currency monetary system have attained their maximum capacity for growth and by the laws of supply and demand, reduced debt economy demands will force the reduction of borrowing and increase debt repayment, each of which must lead to the death of the federal reserve "dollar. (Federal reserve notes are denominated in "dollars" but are not "dollars". See Federal Reserve responses to this question.) You cannot borrow enough debt currency to buy your way out of failure of a debt-based monetary system. The Fed and Treasury cannot artificially borrow at an ever increasing rate to prevent the demise of the federal reserve's debt currency. When the currency dies, the debt-based economic system and debt-based political systems fail, devolve and are re-born - in my opinion, the creators of theses systems will create one or more inspired iteration s of the same processes and we will suffer through another period of a century or two of growth to another harvesting by the political and financial elite. This has been the history of the human race. Why should we expect change?

    ReplyDelete
  24. From an economic incentive standpoint the author is absolutely correct. The author however, perhaps assumes that the privately owned FED is interested in an economic recovery. Let's look at some of the actions this group has taken over the last ten years.

    ten years ago I could go to the FED's webpage and see the M3 money supply. Sometime around 2005 they stopped being transparent. The M3 tells you the total amount of US Dollars in circulation. They stopped showing the M3 just before the housing bubble burst. Why? Around this time Greenspan was getting ready to retire (rat jumps off sinking ship) and Bernanke a.k.a. "Helicoptor Ben" gets the nod because of his thesis about literally dropping money on people from a helicoptor to stave off German type inflation. This is the genius running the FED, getting drunk in local bars and telling anyone who will listen just how bad we are all going to get it.

    Then you have the fact that the FED does not want to be audited. Why?

    In reality, and on youtube recently I witnessed Sir Evelyn Rothschild claim that the "powers that be" are looking towards an international currency (one world currency) to make it easier on global transactions etc.

    So one of the owners of the FED who is a PTB is outwardly advocating a one-world currency. In order for that to happen, the USD has to bite the dust, bring America to its knees etc.

    Conclusion, the FED is not your friend, they are destroying the US and the USD on purpose to usher in a N.W.O. This ZIRP is just allowing the federal government time to disenfranchise us and destroy our bill of rights. Anytime the FED wants to pull the plug on the USD they can.

    ReplyDelete
    Replies
    1. Why do so many people give credit to the Benmeister...for the "helicopter drop" phrase....Milton Friedman is the author.
      The correct analysis to apply to Benny...is that he is the ultimate "anti-deflationist".

      The PTB..control the Elite....who in turn control the FED..control the banks...control the govt.....
      Banks are the medium used to rape and pillage. How did Amerika become the world's super power...look to where the money came from and how they utilised the leverage of 300 mln people to achieve their strength. Means to and end. Once they have.. as you so eloquently put it " bring Amerika to its knees" they will move on....this has already started ...look to ASIA...in particular China...then it becomes evident. Seeds are already being planted in African nations.....its a cycle....they are so prevalent in developed and emerging economies....they make themselves ...for want of a better word...indestructable....highly infectious and felicitous.

      Delete
  25. The analogy is good so far as showing why ZIRP is having the desired affect (proping up government spending), but it fails in the physical sense. If you were to use something that does not spoil, like gold, and make it free, people would not only take all they can for today but also start piling it up in the basement in case you changed your mind later.

    ReplyDelete
  26. Excellent article and thank you. I may pay for your writings in the future, but not right now.

    In the last paragraph you wrote that "ZIRP does not help business expand and thus hire more workers..." Well even if businesses expand, it appears that a large percentage of the employment will go to off-shored companies, special work permit foreigners and illegal aliens, and not to American workers. Very few economists address these fundamental requirements for recovery: end "free trade", eliminate foreign worker visas, and stop illegal immigration. Until these abuses are ended, American living standards will rapidly fall.

    ReplyDelete
    Replies
    1. Why would anyone want to do business in a country that is increasingly critical of those who achieve success & profit from it?

      The attitude is being put out from the Whitehouse all the way down: tax the wealthy - they're not paying their "fair" share.

      Well what's "fair" about the 47% who pay nothing but still consume services? What's their "fair" share?

      Tax big oil more for making "too much profit". That's an arbitrary grab. Why stop there? Why not tax Apple for making too much profit as well?

      Who the heck would willingly invest in an environment where they stand to be villainized if they succeed?

      Why would anyone choose to deal with a 20,000 page tax code that NO ONE can claim to understand thoroughly, but can be used to screw a tax-payer upside-down & sideways if they don't follow it to the letter?

      Asinine layers of bureaucracy that download more & more cost onto business are discouraging (if not driving out) businesses.

      There's a hell of a lot more behind off-shore job loss than cheap wages and illegal aliens who work at the bottom end of the wage scale doing jobs most americans just would not do.

      Delete
    2. Keynesian economics via Inlation is the No. 1 killer of business in America. Inflationary pressures from a fiat currency system...makes it nigh on impossible to return the economy to normality. The saviour...GOLD.

      Delete
    3. Every dollar tied up in gold is a dollar less being put to work in something productive.

      But every new dollar that comes out of Uncle Ben's Instant Money machine just make the existing ones worth less, so in a way the dumberment is encouraging people to tie up capital in inflation hedges.

      Delete
    4. U want to play the "game"....be my guest...go ahead...play with the fiat money.
      I wasn't referring to choosing Gold as opposed to keeping fiat.No it is more pertinent to think of Gold in terms of backing currencies (not replacing them).
      Before you make statements like tying up money in gold....how about some analysis:
      - What % of wealth (USA)is currently tied up in GOLD ?
      - What % of investable funds are directed at PM's ?
      - Is seeking Gold in fact tying up Capital ? or would it be considered "Protecting Capital"...?

      There are examples in history where Gold did absolutley nothing during periods of high Inflation ...."Inflation Hedge" ???

      Delete
  27. At the mall this afternnon, I read the following on the back of a young man's tee-shirt:

    WHEN INJUSTCE BECOMES LAW REBELLION BECOMES DUTY

    Hmmm. Maybe America's youth isn't as distracted, cowardly, and hair-brained as the PTB and politicians think.

    ReplyDelete
    Replies
    1. May be true...but when the SHTF...the PTB know where to go...while all and sundry are left to play the game of survival.... of the fittest.

      Delete
  28. The only ZIRP 'benefit' I see is that the govt gets to snort a few more lines of debt-cocaine before it becomes obvious to all that they cannot & will not ever be able to service the debt.

    So... is ZIRP is the last kick at the can before the US govt has to 'fess up publicly that they're irrevocably, irreversibly, insolvent?

    ReplyDelete
    Replies
    1. Kicking the can....can go on indefinitely ...as long as the monetary system is kept intact and the USD remains the accepted international currency of settlement.

      Delete
    2. It's becoming increasingly clear that there's going to be a definite end to "indefinitely".

      Sino-Russian trade is moving into Yuan & Rubles. India openly talking about continuing to buy oil from Iran in Rials/Rupees/Gold or whatever-else-but-not-USD.

      "As long as..." may be a surprisingly short time.

      Delete
    3. My response wasn't definitive or absolute...I was merely stating the key(s) to the continuation of the fiasco. UR correct...it is very close to its nadir.

      Delete
  29. FACT: Since the Fed initiated its Operation Twist in Sep 2011, the Fed has been the buyer of 91% of all long-dated US Treasuries.

    Think about that.
    91% !!!!!!!!!!!!!!!!!!!!!!!!!!!

    There are NO other large buyers who want US bonds at this time ... at least not at current rates. This means that the current shape of the US yield curve is completely meaningless - it is entirely the result of manipulation. It also means that no-one in the world believes that the United States can maintain the current economic status-quo for another 20-30 years.

    It is not possible to stop the cascading series of debt defaults that must come. That is inevitable. The central banks cannot "be" the whole functioning world economy. Real production cannot be sustained in a financial system that is built on leveraged promises of never-ending credit.

    PeteCA

    ReplyDelete
  30. If the time value of borrowed money is zero, the utility value of borrowed money is also zero.

    ReplyDelete
    Replies
    1. Because there's no utility in borrowing money, even at zero percent, in order to buy overpriced assets. The assets remain overpriced, in part, because the time value of borrowed money is kept artificially low by the FED at zero. Hence, a stagnate slowly contracting real economy.

      Unna

      Delete
  31. The reason why FED offers ZIRP, is obviously beyond the understanding of the crowds. They think, that the ZIRP is there to revive either the economy, or the banks, or both.

    Wrong.

    ZIRP is nothing but a simple money-laundering operation. You see, the FED can print trillions and trillions of dollars, any time it chooses so. However, it is a bad taste for USA to openly behave as some banana republic.

    The thing is, we are banana republic now, but we like to pretend that we aren't. Every colossal empire likes to keep the status quo, during it's collapse.

    So, what Bernanki is doing, is laundering the freshly printed fiat through the banks, before loaning it to the government. The government, can afford no more than 2 percent rate. If Bennie loans it to the feds at 2%, then fingers are going to be pointed - monetization! But, when banks loan it to the feds, - it's "private" money.

    So, at what rate can Bennie loan "give" money to the banks, to make it possible that the banks do their part in laundering and turn the paper to the feds at no more than 2%? Yep, zero would do.

    Why does the FED announce their intentions all the way to the end of 2014? Because, nothing short of such an announcement would make the crowds sure that the FED is REACTING to the situation, while it is actually having the need to keep the ZIRP at least till the end of 2014. Whould you like the FED to say instead : "We have no choice. Either we monetize at a 2% loss, or we collapse!" ?

    There is absolutely no intent to help an economy.

    I am of an Austrian school of thought, and I understand that we are talking Keynesian definition of help here, however, what I am saying is that there is zero intention to "HELP" the economy even in Keynesian understanding.
    If the FED really wanted to recapitalize banks, they would simply assume their debts and fill their accounts up to the brim with money. If the FED really wanted to help the housing market, they would simply bail out it, every underwater home owner, and send free money to anyone enough to buy ALL of the hanging inventory.

    Do you see this happening? I don't.

    Why? Because, the banks are held hostage by the FED, and the deal is, that as long as they continue to launder the money, nothing drastic is going to happen to them.

    Last thing the FED would want now, is for the banks to start lending. If that happens, then where the government is going to get the 2% money?

    ReplyDelete
    Replies
    1. Bingo



      Informed

      Delete
    2. Mava:
      You basically confirms what I said earlier. ZIRP only goal is to save the Fed itself. By laundering fiat money thru its subsidiary the banking system (who takes a fat cut), before feeding the laundered money to the Treasury to finance the annual $1.5 trillion deficit. By feeding the government and the politicians black chocolate this way, the Fed ensures no one dares to propose any legislation that might harm it.

      Ben is playing Madoff a thousand times over. But instead of going to jail, he calls it sound monetary policy. Do this sort of thing in any other country and they send in the squad.

      Delete
  32. ZIRP is NOT the result of the actions of the FED or any other central bank. But it's Mr. Market that determines interest rates.

    ReplyDelete
  33. The price for borrowed dollars may be zero, but worldwide demand for dollars is dropping.

    Russia and China have been trading in rubles and yuan for over a year. India uses yuan in its trade with China. Japan and China are promoting direct trade in yen and yuan. Iran and China have agreed to settle all new trade and joint investments in yuan and rial. India will soon begin to buy oil from Iran in gold. China is making noises about doing the same.

    Just because something is free doesn't mean anybody will want it.

    But it's dangerous to not want dollars - Mr Gaddafi learned this the hard way.

    I smell war.

    K Smith

    ReplyDelete
    Replies
    1. Iraq was in talks with some EU members about selling oil to them in Euros.

      It didn't work out very well for Mr Hussein either.

      Delete
    2. Saddam's WMD was economic, not high-explosive or nuclear.

      The plan to drop the USD was the WMD.

      It HAD to be stopped - under any pretext.

      Delete
  34. I just have to clear some things up here:

    Poor banks being abused by the government? Please.

    True, one of the aspects of ZIRP is a kind of three card monti monetization which allows the "government" to fund certain operations. But what are those operations and whom do they benefit? Who gets to put money in their pockets because of ZIRP? Who gets money taken out of their pockets because of it?

    Ask yourself who got bombed by all those war planes etc this monetization paid for? Whose currency was protected by those bombings and who benefited thereby? I once told a "liberal" friend of mine who was against the wars that the value of his overpriced house, which he bought with an artificially produced low rate for credit, was dependent on those wars. He seemed upset at all three notions. In a mad way, substitute the financial system for my friend.

    Many have argued that American dollar hegemony depends upon American military hegemony resulting in America's ability to force people to buy oil in dollars. Once again, monetizing debt to buy weapons helps whom?

    As an aside, the FED isn't monetizing debt, and America hasn't gone broke, buying milk for school children. And yes, America is broke.

    It's gone broke paying for a pampered military that's been kicked out of Iraq and been fought to a stand still by lightly armed goat herders. It's gone broke paying for its for profit medical insurance congressional industrial rent seeking scam which has reached new levels of mendacity with Obamacare. And no, I don't expect a pro corporate Supreme Court to overturn Obamacare. We'll see.

    Now some people may not realize this, but people at or in poverty by definition don't pay much in income taxes. And when people at or near poverty make up close to 50% of your country's population according to data from the 2010 census, then close to 50% of your population doesn't pay income taxes. Also, the one in four children living in poverty in America don't pay taxes on the earning of their non existent trust funds either.

    By the way, poor people who work do pay SS taxes, which the employer and employee contributions together add up to a higher percent of their earnings "taxed" by the government than Mitt payed last year. And if the SS "trust fund" has been "spent" just as general revenues (which is one the arguments for cutting SS, see Alan Simpson, Paul Ryan etc) then SS taxes are in fact just a very regressive income tax. Again see Alan Simpson et al. So yes, any poor person who pays SS tax does have skin in the game at a higher percentage of his earnings than Mitt does. And Mitt's running for president.

    I may be out of line here, telling a foreign country what to do, but I think Mitt ought to have more skin in the game than a working poor person, not less as he would have if he's elected and enacts his lower taxes for the rich policies. But to each his own. How's that crumbling infrastructure and those low math and reading test scores working out for you?

    Of course the FED would prefer a healthy economy, but agreed, if it has to choose between the real economy and the banks, it picks the banks every time. That's why we have ZIRP.

    The Fed is, and has always been, a creature of the banks. Its one great purpose is to promote bank profits. Poor Banks: they control the FED, they own both Barry and Mitt, wars are fought and good people die for them, they run the congress.

    So no, the banks don't serve the government. The argument can be made that the banks, de facto, are the government.

    Unna

    ReplyDelete
  35. Unna,

    A state that prints money at will, doesn't need ANY taxes. You understand this? You would not need to go and cut wood if you could press a button and split wood would appear at your doorstep, at a cost way less than what you'd spend even getting to where you'd cut wood.

    OK?

    Governments that can print money DO NOT need any revenues.
    The act of printing money IS the act of extracting purchasing power from the population that holds the note being printed.

    To say that the economy is better or worse because of the revenue that government did or did not receive is then the same as to say that whether the light turned on or off was affected by what shirt did you wear when you flip the switch on, and not by the fact that you flip it.

    So, this means you can spin the question of taxing the rich however you want, but until you can beat this argument, you cannot use tax argument in any sort of economic cause and effect argument.

    ReplyDelete
    Replies
    1. Hi,

      I do understand a little about Modern Monetary Theory (MMT) which is what I think you're talking about. And yes, according to MMT you generally don't have to tax. The government simply prints up what money it needs, and spends on what is required. No borrowing is necessary, which is the appealing thing about MMT.

      But MMT doesn't end the politics of who gets what. The way I understand it, the danger in MMT is that the government prints up too much causing such demand for goods, commodities, etc that the country can suffer inflation. One way of avoiding this is to take the money back out of existence through taxation.

      And here's the problem. Politics still decides on what the spending is used for. I want to use it to buy milk for school children, and perhaps Mitt wants to use it to subsidize his latest business operation, or the UAW wants to help out GM, or the military Ind. complex wants to use it to fight the latest undeclared war against...fill in the blank. K Smith would use it to provide first rate Veteran medical care among other things. And he's right about that.

      Since an important part of MMT is that some taxation persists to prevent inflation. Who gets taxed and by how much is still a political problem.

      It's a problem of political and social fairness. And it's a problem of social and economic utility.

      And of course, who gets or keeps the money is very important. If it's spent on milk for kids, or bridges to some where, that positively affects the real economy. If Mitt or whoever gets to keep more, it's doing what? Placed in his (fill in the blank) Swiss bank account or the Cayman Islands account to support a bit of gambling in some arcane financial derivative "product"? Or to hire Lady Gaga or Elton John for a private birthday celebration? Now, as a Mormon Mitt wouldn't do that, but as a human being he'd use it for some other foolishness.

      So, and let me bring down the wrath of GL upon me, there's no such thing as neutral taxation or neutral spending. As soon as you tax or don't tax any one or any thing, you create economic and social consequences - even with a flat tax. By choosing any particular structure of taxation, the choice is not only the tax, but more importantly, the choice is of the political, economic and social consequences that are reasonably anticipated.

      Personally, I'm intrigued by MMT, but I have serious questions about how it would work in the real world. I'd venture to say, it would be better than the system we have now because at least the monetization would be up front and be a political decision by the elected congress instead of their hiding behind the FED for each dose of monetization. AND the US would pay no interest on "debt".

      Whether it would be better than a commodity or gold backed system...? Well, that would be the real question.

      Unna

      Delete
    2. Unna,
      IS there any evidence that an economy can survive, grow and prosper under an MMT regime.
      For me it produces large amounts of distortions in price discovery/determination.

      If the Govt.were to operate under such an "opaque" system, then analysing your words "simply prints up what it needs" and "spends what it requires" leaves everything open ended. Where is the accountability (massive printing = unrestrained spending). It moves further away from the necessity of the mantra of productivity which in turn leads to growth through normal market mechanisms not through arbitrarily caused actions.

      The Govt. needs to take a "less not more" active role in monetary / fiscal management with increased discipline.

      Agree with you on the practicalities,functionality and implementation of such a system. But still a long way short of a desirable solution.

      Taxation always was and always will be a form of stealing...enacted by/for govt...the sooner the govt moves away from that tool, the clearer the other options become.

      Delete
    3. Unna,
      MMT - Modern Monetary Theory - is just a garden variety government money printing system wrapped in different vocabulary. There is nothing modern about it. These systems have been instituted many times in many nations over many centuries.

      Government money printing always results in massive inflation. In the system in place during the American Revolution the currency lost 97% of its value in 5 years. Civil war greenbacks lost 67% of their value in 4 years. When Zimbabwe did it their currency lost 99% of its value in 2 years. The collapse of the imperial Chinese economy precipitated by money printing was so devastating the culture abandoned paper money for over 500 years. Your example of imperial Rome illustrates the same thing.

      The MMTers will tell you all you need to do to keep inflation down is to tax the citizens. This is textbook theory. Textbook theory never works in the real world because it never accounts for human behavior.

      In the real world of real humans the level of taxes necessary to hold down inflation will be so confiscatory it will require a totalitarian state to collect it. Totalitarian states are not nice places to live.

      Monopoly fiat money systems, whether they are based on debt, commodities, or nothing, are automatic wealth extraction machines. They vacuum wealth from the pockets of those who create wealth thru work.

      The system advocated by the MMTers is a monopoly fiat money system.

      K Smith

      Delete
  36. What does it matter what % Romney pays in taxes?

    If you argue out of "fairness", then what is in your opinion "the fair share" that he should have paid, and why is it any better than anyone's else opinion, and why should anyone's opinion matter at all in this regard?

    Are you arguing that Romney should pay at least same percentage as you do?

    Do you think Romney needs a social safety net?

    Do you personally pay larger share for food whenever you go to eat out with friends who make less than you do?

    ReplyDelete
    Replies
    1. Hi,

      I think that being a free citizen in a representative democratic polity of constitutionally limited powers requires one to form political opinions, hopefully studied and well founded, and then to act on those opinions both by voicing those opinions from time to time and by voting in accordance with them. Developing political opinions is important, a duty.

      I think that Romney's fellow citizens should form a considered political opinion about what he should pay and then have laws enacted accordingly.

      Romney enjoys privileges and protections as a US citizen. His wealth was inherited and acquired in the US and it is invested around the world. He is protected by US police, diplomatic and military power. He has access to the courts, the congress, and all the rest of the legal, political, educational, and physical infrastructure of the US in his quest for wealth. He has access to all these things at a very high and presumably expensive level. Yes, at a far more expensive level than the typical US citizen uses this infrastructure and these services, who after all are the ones who paid for it all through taxes.

      And one more thing. The history of societies shows that political freedom does not exist for long in places where wealth is stratified at the extreme. That's not a statement based on political ideology, but on historical experience. Thus, a society which fears for its continued freedom might do well to place some practical limits on the accumulation of private wealth. That's because wealth is power, wealth buys political and governmental power. Freedom should fear any dangerous accumulation of power, whether public or private.

      Taxation as a means to limit dangerous accumulations of wealth is a kinder and gentler way of protecting freedom as opposed to having to haul out the guillotine every so often when things get out of hand.

      And of course, sometimes I've paid more at a restaurant, or just paid the bill, because the person I was with had substantially less money than I had. "I'll get it, you just throw a few dollars down for a tip," because it's always important to maintain a friend's dignity.

      Unna

      Delete
    2. Taxation is not an equaliser. This is especially true for the current system.

      It is primarily an income based system. Keep in mind that taxation in the recipients (govts.)hands is not "income" per se (as defined). Where have they exerted their skills or produced goods to derive such a revenue stream ?

      Perhaps what you are refering to is a "Wealth" based tax system which inherently inhibits "entrepreneurship". You take that away and you destroy capitalism. Employment then becomes a bigger issue for Govt. in a more highly centrally planned economy.
      The poor and the middle class (the so called non-wealthy) do have more power than you give them credit.
      Their voting decisions are to a large extent determined by the "welfare State" mentality. "Blame the govt for not fixing the economy , creating enough jobs not taxing the wealthy enough,...and when things are tough we need them to pay our medicals, unemployment and living costs". Blame is misdirected.
      The system is broke....while it may be true that individuals / corporations may wield "influence", it is ultimately the Govts. ability to enact that causes the inequality. Remembering that the elected Govt is chosed by the democratic process which in my eyes is somewhat skewed in favour of the majority (which includes those that dont possess the "wealth" effect).

      Delete
    3. Hi,

      Taxation should definitely not be an equalizing mechanism, per se. My weasel words. And I agree that taxes should not generally fall on private wealth itself, but on income. Estate taxes are the exception. I threw this in, I suppose, because it's provocative.

      We all have blind spots in our perspectives. It's been said that Libertarians are very good at pointing out the dangers of concentrated government power. But often people focused on government power sometimes don't see the problems of concentrated wealth or financial power to control governments and what purports to be a free economy.

      Americans are not allowed to import drugs from Canada because Big Pharma pays the Congress money. Here's wealth buying the government in order to disrupt free markets. People certainly want less expensive drugs. People don't want bank bailouts, want less military spending etc. Why is democracy not working?

      Here, let me make a very un PC joke. Barack Obama is not the first black president, Bill Clinton was. Barack Obama is simply the first black Bill Clinton. And if Romney is elected, he'll be the first white Barack Obama.

      So why is democracy not working? Why can't Ron Paul get press overage? Who's got the money and how are they using it?

      On the other hand, progressives are no better and are now being instructed on the dangers of having promoted social programs with a reliance on the government's monetary power which has now proven to be the servant of Wall Street power and military expansion. It's a strange world.

      Unna

      Delete
  37. Unna,
    Our military is not pampered. The men and woman of our military are misdirected and abused. They are fed lies to get them to act in ways that line the pockets of the string pullers.

    Several months ago I had dinner with a retired Army psyops officer who served 2 tours in Afghanistan. His mission was to create a unified national identity among the 7 ethic groups who all hate each other. This is not defense. This is nation building.

    Our military personnel are routinely rotated to serve 3, 4, 5 and 6 one year tours in dangerous and violent areas of the world. During the Vietnam war service personnel saw only one tour.

    The war dead numbers reported by the media are fake. In the Vietnam era if you died as a result of injures experienced in battle you were counted as war dead. Now you must die on the battlefield. If you die en route to the hospital or in the hospital your number goes in a different column. If military death rates in Afghanistan were tabulated the same way they were in the Vietnam era the number would be over 70,000.

    I have a neighbor whose garage is filled with donated food items. Her friends, neighbors, and members of the community pack them in boxes and use donated funds to ship them to a relative of hers who is a service member stationed at a forward base in Afghanistan. He distributes the food to members of units who go out on patrol. Those on patrol often run out of food. The need is so great she is in the process of moving the operation out of her garage and into donated commercial space.

    PTSD rates among those who serve are at an all time high. Those who have been diagnosed with PTSD are returned to serve more tours.

    Suicide rates among those who serve are at an all time high. Those who are successful in their attempts at suicide have their service viewed honorably. Those whose attempts are unsuccessful are subject to a bad conduct discharge, a federal conviction, and incarceration.

    The rate of criminal activity among returning veterans is very high. In my state it is so high there are legislators working to establish a separate criminal court system to adjudicate crimes committed by veterans.

    War is hell. For many of those who serve the hell continues after they come home. This is why Ron Paul has more donations from active duty military than all the other candidates - including President Obama - combined. Ron Paul wants to stop the endless wars and bring the troops home.

    Our military is not pampered. They are abused. They and their family members experience untold pain and suffering.

    K Smith

    ReplyDelete
    Replies
    1. Hi

      "Our military is not pampered. They are abused. They and their family members experience untold pain and suffering."

      Yes, you are right and what I said and how I said it was incorrect, wrong.

      When the typical person thinks of the American military, one thinks of America spending more than all other countries in the world combined. All the wars and the insecurity they create.

      But one tends to forget the ordinary soldier or marine sitting in an underfunded VA hospital after he's been used up, or the vet that can't get medical help or other services because he can't fight a dishonest Bureaucracy saying everything is a preexisting condition and so on.

      Yes, I read that Ron Paul has received far more money than all other candidates combined. I've read about most of the things you've pointed out but some things like food shortages, I've not heard of, but it's bewildering.

      In the face of so much neocon posturing, it's hard not to push back. They're giving America a bad name and leading it to ruin. They won't serve themselves or generally let their kids serve, but they can't see to it that the troops are fed. Barry's girls will never go and Mitt's boys never did. Hillary's kid married a guy from Goldman Sachs.

      Americans need to understand that when the American neocons say they want to establish hegemony over the entire globe, people take them at their word. And there are too many people all over the world who will be frightened by that and will resist.

      This abuse of ordinary soldiers is typical of empires. Tacitus has a long passage where he describes the revolt of Roman soldiers on the Rhine in the First Century. Low pay had been eaten away by inflation, no food, soldiers held years beyond their service contracts, faulty supply of weapons, tattered uniforms, total neglect while the Emperor Tiberius lounged in unimaginable luxury on the Isle of Capri surrounded by young prostitutes of "indeterminate sexual identity" as Tacitus delicately phrased it.

      The senators occupied themselves with meaningless political intrigues and ever more clever ways of making money, usually by procuring government contracts, influence peddling etc.

      By the way, the senatorial class eventually exempted itself from paying taxes. That, along with endless military spending, seriously impacted the empire's fiscal situation, especially in a society with extremes of wealth

      So the emperor and the senate turned to debasing the Roman currency to pay the bills and imposed crushing taxes on the productive middle class. They eventually destroyed the middle class, their currency, and the real economy this way. Political and economic freedom went too. It's what happens.

      I think-hope Ron Paul understands a lot of this. People don't like it when someone puts a gun to their head. Peoples should develop their own societies and trade and travel freely. Seeking "full spectrum dominance" or claims of exceptionalism will only bring unhappiness. The most powerful foreign policy is setting an example of prosperity and freedom at home.

      I tell my progressive friends in America they ought to vote for Ron Paul. Of course they don't like his economics, but the guy is running for president, not dictator. He won't be able to enact his economic program unless there is a consensus for it, which there is not, at least not yet. There is, however, a consensus for his foreign and military policies and for his domestic civil liberties and constitutional rights agenda, and his policies toward the FED.

      Freedom and empires are incompatible. I say, see to the most important things first. Start with that and prosperity, in time, will return almost on its own. Plenty of time to argue about the particulars of money later.

      Sorry for writing too much.

      Unna

      Delete
  38. Hi

    "Our military is not pampered. They are abused. They and their family members experience untold pain and suffering."

    Yes, you are right and what I said and how I said it was incorrect, wrong.

    When the typical person thinks of the American military, one thinks of America spending more than all other countries in the world combined. All the wars and the insecurity they create.

    But one tends to forget the ordinary soldier or marine sitting in an underfunded VA hospital after he's been used up, or the vet that can't get medical help or other services because he can't fight a dishonest Bureaucracy saying everything is a preexisting condition and so on.

    Yes, I read that Ron Paul has received far more money than all other candidates combined. I've read about most of the things you've pointed out but some things like food shortages, I've not heard of, but it's bewildering.

    In the face of so much neocon posturing, it's hard not to push back. They're giving America a bad name and leading it to ruin. They won't serve themselves or generally let their kids serve, but they can't see to it that the troops are fed. Barry's girls will never go and Mitt's boys never did. Hillary's kid married a guy from Goldman Sachs.

    Americans need to understand that when the American neocons say they want to establish hegemony over the entire globe, people take them at their word. And there are too many people all over the world who will be frightened by that and will resist.

    This abuse of ordinary soldiers is typical of empires. Tacitus has a long passage where he describes the revolt of Roman soldiers on the Rhine in the First Century. Low pay had been eaten away by inflation, no food, soldiers held years beyond their service contracts, faulty supply of weapons, tattered uniforms, total neglect while the Emperor Tiberius lounged in unimaginable luxury on the Isle of Capri surrounded by young prostitutes of "indeterminate sexual identity" as Tacitus delicately phrased it.

    The senators occupied themselves with meaningless political intrigues and ever more clever ways of making money, usually by procuring government contracts, influence peddling etc.

    By the way, the senatorial class eventually exempted themselves from paying taxes. That, along with endless military spending, seriously impacted the empire's fiscal situation, especially in a society with extremes of wealth. So the emperor and the senate turned to debasing the Roman currency to pay the bills and imposed crushing taxes on the productive middle class. They eventually destroyed the middle class, their currency, and the real economy this way. Political and economic freedom went too. It's what happens.

    I think-hope Ron Paul understands a lot of this. People don't like it when someone puts a gun to their head. Peoples should develop their own societies and trade and travel freely. Seeking "full spectrum dominance" or claims of exceptionalism will only bring unhappiness. The most powerful foreign policy is setting an example of prosperity and freedom.

    I tell my progressive friends in America they ought to vote for Ron Paul. Of course they don't like his economics, but the guy is running for president, not dictator. He won't be able to enact his economic program unless there is a consensus for it, which there is not, at least not yet. There is, however, a consensus for his foreign and military policies and for his domestic civil liberties and constitutional rights agenda, and his policies toward the FED.

    Freedom and empires are incompatible. I say, see to the most important things first. Start with that and prosperity, in time, will return almost on its own. Plenty of time to argue about the particulars of money later.

    Sorry for writing too much.

    Unna

    ReplyDelete
  39. Unna,
    I don't think you wrote too much. I think you wrote exactly the right amount to convey what you intended to convey.

    K Smith

    ReplyDelete
  40. Unna,

    Try to not get offended by what I will say.

    The problem with you, is that you're a communist at heart. As such, there will probably never be an agreement between us, since our goals are extreme opposites.

    What you doing now, is you are trying the to use your mind and the knowledge you have, the best you can to figure out what is wrong and what to do about it. I know, I have been where you are now. What you do not realize is that all the knowledge you have so far, was purposely given to you by the system, because this, shall I say, collection of knowledge can only lead one to a set of very much predetermined conclusions. And you are correctly arriving at those conclusions.

    I think that you're a smart one, but currently you are working only with what you've been given. Thus your thoughts always conclude on communism, even though you may not call it that way, since it has a bad label to it, historically.

    Why am I saying this?

    Because, it is impossible to have a conclusive argument on this board. Our writing to each other will get chain-linked first, intertwined second, and finally buried under a ton of other people's posts. Been there, done that.

    So, I have no interest in disproving you online. By the way, this line gives you a nice rebuttal, but I don't care still.

    I am writing this, to give you a hint, just as I have been given a hint some time ago. As a result, I decided to check and double-check all the "knowledge" that this f-ing system has given to me to operate with, and have found ALL of it to be a never ending set of fabricated lies.

    You might want to do the same, if you still have time. First, you need to arm yourself with a better knowledge of economics, in order that you can not be defrauded by any of the official economists, that will allow you to travel further and now look up some history. I have started out with Reisman's "Capitalism" (free download while he is alive). The Mises, Hazlit, Rothbard...

    In the end, you will be in a very unpleasant state, living in the world absolutely devoid any hope, but, this just might to be the right price to know the truth (It was for me). I took the red pill. Or, you can remain in the world seemingly full of hope, the fake world. Up to you.

    ***

    Speaking of you paying for your poor friends. So, what prevents you from doing so? Keep paying! Ah yes, I know, I know. No one wants the true sacrifice, everyone only wants to look like he is sacrificing something for his beliefs.

    ReplyDelete
  41. Anonymous,
    I, too, dwell in what you call an unpleasant state. But I don't see it as unpleasant. I see it as living in truth. Unless I know the truth there is no way to make informed decisions on how to move forward.

    I, too, was deceived. I was steeped in Keynesianism in the halls of academia. But I later read the authors you cited. My eyes were opened. Now I know the truth. Many others have done the same. Our irrelevant, corrupt, anachronistic institutions are crumbing before our very eyes as the truth about their extortionist functions continues to be revealed.

    Here is proof. Today the FBI held a news conference warning that "anti-government extremists opposed to taxes and regulations pose a growing threat to local law enforcement officers. These extremists, sometimes known as sovereign citizens, believe they can live outside any type of government authority. The extremists may refuse to pay taxes, defy government environmental regulations and believe the United States went bankrupt by going off the gold standard."

    I am a sovereign citizen. My life comes from God, not the state. If taxes become confiscatory I can refuse to pay them. I haven't defied environmental regulations, but I might. Going off the gold standard has indeed led to national bankruptcy.

    But I am not a threat to law enforcement officers. I am nice to them. One of my relatives is a county sheriff. When they set up speed traps at the entrance to my neighborhood in the heat of the summer I bring them ice cream bars and milkshakes.

    For me, living in truth is not unpleasant. It is liberating.

    We are not devoid of hope. There is hope after taking the Red Pill. Where there is life there is hope. Hope beings with those who have the courage to live in truth and speak truth.

    I am a sovereign citizen.

    The corrupt fear me.

    The honest support me.

    The courageous join me.

    K Smith

    ReplyDelete
    Replies
    1. Knowledge is Power....and Power corrupts... the mind !!
      Although you have a positive attitude in your world of truth, you need to ensure that the power doesnt become self defeating and destructive.
      Knowing what you know..which others may not...does that give you an advantage or convey superiority ?
      I too "tolerate" the unpleasantries..the lies,deceipt...but ensure that I consciously keep a sense of balance.
      "Truth" may very well provide a sense of freedom....but ultimately you are trapped.

      Delete
  42. Hi,

    Of course I'm not offended. I'm not a communist, certainly, but I am immensely pessimistic. Also I'm not a Keynesian, although some policies commonly called Keynesian do seem to be useful, but only in certain very specific and limited situations. I'm not dogmatic.

    I did download Reisman's "Capitalism". Since it's a thousand pages, I haven't read it yet.... But I did quickly look at his blog and read his essay on socialism in Nazi Germany.

    Perhaps it's time to read him. He's interesting, but my fear is that he may have produced a beautiful and perfect intellectual world where something called Free Market Capitalism has assumed the role of Perfection. A secular Nirvana. A teleological End of History. The Death of Change in the culture of everything apart from more and increasingly sophisticated forms of consumer and or capital acquisition according to who you are in the world.

    For myself, I tend to see Chaos as the most essential understanding of things. That History qualitatively leads nowhere in particular and spins in cycles or not as it happens. That's why, by definition, I'm not a communist.

    Remember that book, The End of History and the Last Man, by Francis Fukuyama? The "last man" is a Nietzschean concept, and not a particularly complimentary one. So I always wondered why Fukuyama would have chosen that title. I think I knoe now. His world for me was a nightmare of stasis where everything had been settled and all truth was known.

    I think Free Market Capitalism when seen as the End of History, instead of as a very useful social construct, can itself become a totalizing force on human society. Free Market Capitalism established this way as a presumed perfection can both underestimate the violence that may be directed against it, as well as the violence required to sustain it.

    Who is the FBI talking about and what particular taxes and regulations do they mean? A local school tax decided upon by free people at a town meeting so they can educate their children? Or is the revolt one against a tax that has been imposed upon them from above that benefits someone else, say, oh, some corporation claiming to be a person?

    Besides, some people don't sublimate well which may be the case both with guys living in Idaho with guns, and with OWS. There are just too many people running around the world rioting right now for it all to be a coincidence. I wonder if the sometimes frightening disorderliness of the human appetite places a natural limit on the domestic peace required to maintain the current system.

    I too dislike very much any violence. Which is one reason I'd like to see more "free milk" for school children. But history suggests that violence is a natural force of the human reality that flashes forth from time to time given the correct circumstances, and in very unpredictable and unhappy ways. So I wish the FBI good luck. And I'm very glad I don't have their job.

    And on that note, something tells me we'll find enough common ground on many things to make the conversation worth while.

    Unna

    ReplyDelete
    Replies
    1. No GS, this chocolate study is too pure much like dark chocolate itself.

      Life is not that uncomplicated.

      The dollar is the reserve currency of the world. There is no substitute (no, not gold; is the USA to buy a million barrels of oil with gold bars???).

      Thus, unlike poor Ireland or Greece, the USA can devalue its currency (QE 2) to help pay back debts and foster exports.

      Plus China, Saudi and everyone else are buying US debt like crazy! They want it!

      The big problem is not too much certainty of current and future liquidity, it is pro-corporation free trade.

      USA needs pro-worker free trade. Or better, fair trade.

      Made in America is the only way to bring jobs and business activity and prosperity to EVERYONE in the US not just to the 1%.

      Delete
  43. This generation is completely engrossed in their image, even more so than before. Facebook alter egos, for example. Everyone seems to be posing or fronting, even if it means having the newest iPhone. iPhone 4S Unlocked

    ReplyDelete
  44. If you are very pleased with Home windows 7 and also Or windows 7 had been, there's office 2013 key engaging purpose to switch to House windows Eight.

    ReplyDelete

Whether you agree with me or not, thank you for your comment.

If you liked what I wrote—or if it at least made you think—don’t be shy about making a payment. The PayPal button is there for your convenience.

If you have a question or a private comment, do feel free to e-mail me at my address expat229@gmail.com.

GL