Posted tagged ‘Federal Reserve System’

Visual Explanation Of The Deficit And The Debt

November 1, 2013

The visual of this chart is outstanding, it jumped off the page when I saw it. The chart shows our Governments yearly revenue, yearly deficit, and total debt. This is from an article titled Great News! The Fiscal Crisis Is Over! by Jon Gabriel, at ricochet.com. I got there from this article at theburningplatform.com.

https://i2.wp.com/cdn1.ricochet.com/var/ezwebin_site/storage/images/media/images/debtchart/4700766-1-eng-US/debtchart_lightbox.png

Here is a quote from Mr. Gaberiel, “…imagine the green is your salary, the yellow is the amount you’re spending over your salary, and the red is your MasterCard statement.”

What is sobering about this chart is how a seemingly small yearly deficit compounds into a massive amount of debt over time. What is it going to look like in three more years if we continue our $1 trillion yearly deficit?

THE REAL DEBT TOTAL

Unfortunately the $17 trillion is really not the actual debt. If you factor in the unfunded liabilities for Social Security, Medicare, and Medicaid, which have been estimated to be between $55 to $222 trillion, look at chart here, the problem gets exponentially worse. What do you think Obamacare will add to this unsustainable mountain, or valley, of debt?

THE FED RIDES TO THE RESCUE?

Fortunately we have the Fed which can electronically print counterfeit money to pay our way out of this mess. Oh yeah, I forgot, the only way a Government can accumulate this amount of debt is because its Central Bank funds the expansion in the first place by buying Government bonds. Without the ability to electronically print counterfeit money, Governments can only grow to the size of what they can steal or mooch through taxing and borrowing. At a certain point, individuals won’t produce above a certain level if they can’t enjoy the fruits of their labor, and they won’t purchase bonds from a seller whose level of debt makes the transaction seem to risky. The Fed can’t print its way out of the economic reality of scarcity. Their denial of this reality is why they printed us into this mess in the first place.

Related ArticleLet The Counterfeiting Continue! The Fed Is Stuck In Their Feedback Loop, at austrianaddict.com.

Related ArticleThe Fed As Giant Counterfeiter, by Robert P. Murphy, at mises.org.

The Market (Individuals) Finds Ways Around Govenment Intervention.

October 7, 2013
600 mm by 300 mm (24 in by 12 in) emergency pl...

(Photo credit: Wikipedia)

INDIVIDUAL DECISION MAKING vs. GOVERNMENT DECISION MAKING

I’ve always thought free market capitalism would always out pace the interventions of Government, but when the bubble burst in 08, I started to change my mind as I began to educate myself about the interventions by the Fed via the double edge sword of low-interest rates and electronically printing counterfeiting money. I had never understood the ramifications of these policies until I started reading about the Austrian Business Cycle Theory. We have talked about these ramifications in these posts: The Role Of Interest Rates In A Market Economy, Thomas Woods Explains The Austrian Business Cycle Theory, Keynes Was Correct In 1919!,  A Look Over The Horizon At What Lies Ahead If We Continue Down The Central Planning Road, What Comes First Production Or Consumption,

I had become more pessimistic about the chances of the market regaining the lead over Government intervention, but recently I’m seeing signs of the market starting to reassert its dynamism. Two examples are the shale oil boom and another is the plummeting sales of electric cars. The oil boom is happening in spite of the best efforts of Government to get in it’s way, and electric car sales prove the consumer ultimately makes the decision on what succeeds and fails in the market, and not the Government. I should never have been pessimistic in the first place because the market is always attempting to correct the interventions perpetrated on it by the Government.

THE BUST IS THE CURE FOR THE PRINTED BOOM

If we look at the case of the housing boom that lead to the 08 bust, the boom was out pacing the corrections by the market, much like the story of the tortious and hare, but once economic reality finally caught up to the fake reality created by Government, the bust in housing occurred. The bust was the cure for the artificial boom created by the Government and the Fed, and should have been allowed to run its course in order to wring out all the misallocations that had been allowed to grow during the boom. From the politicians stand point this much-needed cure was a political nightmare, because they were in the driver seat when the crash happened. So instead of letting the market cure the problem they created, the Government and the Fed stepped in and “saved” the too big to fail banks by lowering interest rates to near zero and injecting close to $3 trillion into the economy through the purchase of mortgage-backed securities and treasury bills. This doesn’t even count the TARP bailout under Bush or the $900 billion economic stimulus package under Obama. What the Fed and the Government did to grow the boom and then “save’ the economy from the bust, was like a doctor prescribing steroids to his young patient in ever-increasing amounts to help build a big strong body. Everyone could see him growing because of his outward appearance, but no one could see what was happening on the inside. When his organs began to fail, and his body began to break down, the doctor prescribed more steroids to try to keep his body growing. This isn’t a perfect analogy but it’s close to describing what the Fed and the Government has done to the economy over the last 15 plus years. Unlike the patient, who will eventually die, the economy won’t die, it will continually keep trying to make corrections for all the interventions by the Fed and the Government. Why won’t the economy die? Because an economy is simply the result of all the decisions made by each individual as they cooperate and compete with other individuals on how to use scarce resources for production and consumption. Government intervention is just one variable that has to be considered when individuals make decisions. When Government intervention grows to a certain point, individuals start spending more time protecting what they have rather than spending  time producing more. The standard of living begins to stagnate as we start to consume more than we produce.

Here is a chart that shows that debt doesn’t create growth. The G7 nations consist of US, UK, France, Germany, Italy Canada, and Japan. The debt that was created to grow these economies has only marginally increased GDP compared to the growth in debt. In fact the GDP number is fake because the electronically printed counterfeit money that gets used for consumption is counted when GDP is calculated. You could say the central banks are counterfeiting a positive GDP number. Read article here.

CONCLUSION

This debt has to be paid back by future production. Future production also has to sustain future consumption by Government and private individuals. If production can’t cover all three (debt, Government consumption, and individual consumption), who do you think will have to sacrifice for the other two? The upcoming debt ceiling fight will answer that question. My prediction is the debt ceiling will go up and there will be no actual cuts in Government spending, just minor reductions in the rate of growth. I hope I’m wrong.

Let The Counterfeiting Continue! The Fed Is Stuck In Their Feedback Loop!

September 26, 2013
English: The front book cover art for the book...

The Case Against the Fed by the author Murray Rothbard. (Photo credit: Wikipedia)

Peter Schiff does his impression of a salmon swimming against the current in the video below. Of all the “experts” in the video, he is the only one who understands the trap the Fed has snared itself in. Does he have the ability to predict the future? Don’t be awed by his crystal ball gazing because he understands the Austrian Business Cycle Theory (read and watch video here), and the other “experts” probably have never heard of it,or if they have they don’t understand it. The Fed has electronically printed massive amounts of counterfeit money, and has artificially kept interest rates below what they would be in an unhampered market. Scarce resources, labor, and capital, have been misdirected into activities that wouldn’t stand up under normal market conditions. The only thing that keeps these activities viable is the fact that the Fed continues to inject counterfeit money into the market. If the Fed quits electronically printing counterfeit money, there will be a liquidation of these nonproductive activities, similar to what happened in the 08 collapse. The Feds only political solution, which means a solution that saves their skin, is to keep counterfeiting so they don’t get blamed for the collapse. They don’t understand that stopping the counterfeiting is the only cure for the artificial inflationary boom they created when they injected billions of electrically counterfeited money into the economy in the first place.

In this post, Incremental Steps to The New Normal, I say the Fed hopes their taper, no taper, strategy will get them out of the mess of their own making. Here are a couple of quotes by Ludwig von Mises, and Murray Rothbard from an article below.

Ludwig Von Mises: “Credit expansion is the government’s’ foremost tool in their struggle against the free market. In their hands it is the magic wand designed to conjure away the scarcity of capital goods, to lower the rate of interest or to abolish it altogether, to finance lavish government spending, to expropriate the capitalists, to contrive everlasting booms, and to make everybody prosperous.”

Murray Rothbard: “What makes us rich is an abundance of goods, and what limits that abundance is a scarcity of resources: namely land, labor, and capital. Multiplying coin will not whisk these resources into being. We may feel rich for the moment, but clearly all we are doing is diluting the money supply.”

Here are some short articles and videos showing what a fine mess the Fed has gotten us into.

The Treasury Secretary On How Unstable US Government Finances Are, at economicpolicyjournal.com

Is Bernanke Looking For A New PR Director? at economicpolicyjournal.com

Albert Edwards Asks You To Spot The Difference, (There Isn’t One) at zerohedge.com

Druckenmiller Blasts, “The Biggest Redistribution of Wealth From The Poor To The Rich Ever“, zerohedge.com

The Fed’s Reflexive Catch 22 In One Sentence, at zerohedge.com

Five Years Of Hard Work By The Federal Reserve, at zerohedge.com

Bill Bonner Announces His Candidacy For The Federal Reserve Chairmanship, at economicpolicyjournal.com

David Stockman Warns ” ‘Calamity Janet’ Yellen Has No Clue” at zerohedge.com.

Baupost Summarizes Today’s “Investment Process” in 50 Words, at zerohedge.com

This is from, “Is Bernanke Looking For A New PR Director?”

Group Politics Hides The Relevant In The Trivial, Benefiting Politicians

July 22, 2013
Divide-and-conquer

Divide-and-conquer (Photo credit: Wikipedia)

SELF IMPOSED BORDERS

I read an article in the LA Times titled, “British Choice Of Churchill On 5-Pound Note Leaves Women Out”, by Henry Chu, in which women are upset that Winston Churchill’s image will replace Elizabath Frys on the five-pound note starting in 2016. They’re saying “It’s another instance of women’s contributions being wiped out”. Because we have accepted the political model that each of us belongs to a different group; whether it’s men or women, white or black, rich or poor, old or young, gay or straight, union or non-union, democrat or republican, etc, etc, etc, we think of every politically contrived situation as an us versus them zero sum battle. These self-imposed borders become an imaginary ideological prison that we can’t reason our way out of. This prison prevents us from understanding that the true battle is between each person individually, vs. the only entity that can take individual liberty away, Government. This entity of Government exists only (more…)

Government Plunder Sows The Seeds Of It’s Own Destruction.

June 17, 2013
Pirates

Pirates (Photo credit: Gilmoth)

GOVERNMENT IS TOO BIG

Have we finally reached the point that we can all agree that Government is too big? The latest scandals, concerning Government overreach, should be driving this point home for everyone to see no matter how politically partisan a person may be. But the republicans and the democrats have done a great job of making this a game between two teams, each having a loyal following who will defend their favorite team no matter what the members of the team do. As long as the banner of their favorite team is flying high they let corruption, power grabs, and abuses of individuals rights slide.  The normal solution for any corruption or illegality in Government is to put a new angel in the position that was previously occupied by a fallen angel [aka devil]. This will not cure the problem, it will only temporarily take care of the symptom, but the underlying problem is still there. The underlying problem is (more…)

If You Want To See Our Future Look At Europe.

April 10, 2013
English: Members of the Socialists and Democra...

English: Members of the Socialists and Democrats in the European Parliament protest austerity measures at the Parc du Cinquantenaire in Brussels, Belgium (Photo credit: Wikipedia)

GOVERNMENT AUSTERITY

Austerity is what they call it in Europe, it means to cut excess or luxury from, which refers to Government budgets. We have many names for it in the U.S., sequestration, fiscal cliff, debt ceiling, etc. The question is who decides what is considered excess. Excess like so many things in politics is in the eye of the beholder, and when politicians have to make these decisions, the outcries of the people who are used to living off this excess carries more political weight than the people who work to produce this excess. So the politicians only option (more…)

“The Carrot’s In Reach:” The Myth Of A Self-Sustaining Recovery. By Charles Hugh Smith

April 8, 2013
how to move your ass

how to move your ass (Photo credit: ntenny)

This article, “The Carrot’s In Reach:” The Myth of a Self-Sustaining Recovery, by Charles Hugh Smith at oftwominds.com, is a must read. He explains how Government spending is not investment but is consumption not backed up by production. How the Fed’s “legal”  counterfeiting of trillions of dollars is nothing more than a transfer of your production to the Government and the banks, in other words, it is theft by the two entities who receive the money first, which is the same result as “illegal” counterfeiting.

Here are a few quotes from the article.

“The reality is the mythical self-sustaining recovery is the carrot dangled
in front of a credulous public:
though we’re constantly reassured (more…)