"Easy credit ripoffs ... good times."
Did you know that the United States still enjoys unprecedentedly low interest rates? That's because the federal lending rate -- the one used by commercial banks to get U.S. dollars from the Federal Reserve -- is near zero. That means that if you want money, you can get it. It also means that Treasury Bonds are near worthless. The Federal Reserve keeps on buying them back, flooding the global economy with U.S. dollars. This, according to Ben Bernanke, is supposed to be a good thing.
Isn't this how inflation starts? Of course it is. The difference is that most other currencies in the world are in free-fall. The Euro is in the toilet thanks to near-universal austerity measures. The Japanese yen is falling thanks to a natural disaster. China pegs its currency to the U.S. dollar, causing it to rise and fall accordingly, thanks to China's government. See, with a floating exchange rate system, like the world uses today, the U.S. dollar can keep flooding the market with fewer consequences than in the past.
(Absurdly, the Canadian dollar is trading above the U.S. dollar -- at least, this is absurd for me, who has been used to a Canadian dollar trading lower than the U.S. since my birth.)
Why is this good? Well, the U.S. is renowned as an importer of goods because of our high standard of living, but the government is keenly aware that if the value of the U.S. dollar is too high, then U.S. exports will drop. This will damage an economy with a weak manufacturing sector, and the U.S. economy is already on life support. The best way to pull out of a recession is to boost production of tangible commodities, and the U.S. has been lucky enough to enjoy these boosts when the economy has been hurt; for the early '90's there were computers, and for the early '00's there was the housing industry. Unfortunately, as pointed out by J.K. Galbraith in The Predator Nation (which is where the title of this blog is from), housing is the last of the commodities that can be used to haul an economy from the dumps (which is what happened in Japan in the early '90's). So, we need to return to production, and this means a return to the manufacturing of exportable goods.
The problem is that no one is buying our exports. The U.S.'s main exports are large capital items used for manufacturin elsewhere (ironically). Most of the U.S.'s GDP occurs within the country itself, which means that the U.S. is not a strong importer, and likely never will be. It's a fool's endeavor to think that the U.S. will regress back to its manufacturing roots, so Uncle Ben's ploy is unlikely to work.
There's no where for the excess money to go. Foreign nations cannot purchase our goods because their economies are depressed, so there's no demand for U.S. dollars out of the country. U.S. citizens are already stretched to the max regarding credit, so there's little hope that demand within the country will increase. With no demand, the volume of money floating within the U.S. economy will expand as the government borrows more and more. Naturally, this means that the price of goods will go up.
What's Uncle Ben up to? He thinks we should keep the rate low to continue to try to will the real estate market back into shape and increase property values. However, this will not assist American consumers because the vast majority have little or no equity in their homes. In short, there's nothing left for us to use as collateral, so unless the banks want to give away money, there is no reason to believe that property values will rise significantly. The flood of money into the market is pointless because, as Judge Richard Posner points out in The Failure of Capitalism, America and its lenders are in a crisis of insolvency, not illiquidity, and no amount of money in the market will turn an insolvent company into a solvent one (absent borrowing money, of course).
The U.S. suffers from a problem of solvency. As is already known, we have stretched our credit to the maximum, and no longer have equity in the country. Savings rates are low, and savings are what help keep banks afloat when their assets cannot cover their debts (also known as solvency). With the interest rates low, no one wants to put their money into savings, which is a problem for banks and credit unions. The only way to fix this is to raise the interest rate, but that is an option Uncle Ben won't consider.
If Americans and their companies become solvent again, they can afford to take more risks. Taking risks is a key behavior for capitalism. Apparently, Uncle Ben and his cohorts have forgotten that uncertainty is very bad for capitalism. Why try to make it into a science if you prefer it to be as chaotic as the arts?
Friday, March 18, 2011
Thursday, March 17, 2011
Arise, Chicken!
For those who are close to me, I have not posted in this blog recently due to a change from the public sector to the private sector. Why now?
Well, why not? Apparently, the conservatives are starting to pull away from Sarah Palin: http://www.huffingtonpost.com/2011/03/16/late-returns-pushing-away-palin_n_836862.html. This is a good sign for American conservatives; that is, for Americans who are truly conservative, not those who insist that Fox News is a bastion of conservative "thought." I know of several of them, hiding as moderate Democrats or Republicans, who vote for third-parties or anonymously. Talking with them, the most popular complaint is that neither party appears to represent their interests. This is wholly true.
Who are they? College-educated people with burgeoning careers. My peers are attorneys, engineers, and accountants. They don't like to talk politics in a large forum because the topic is overwhelming. It is overwhelming not because of the melange of political talking points, but because politics is a complex topic that requires substantial knowledge to understand fully. For instance, many people accept that lower taxes will result in higher employment, but few really appreciate the several presumptions and considerations that must be accepted or argued before the maxim should be accepted. Shifting gears from the common concerns of our daytime jobs to a long, in-depth analysis of policy isn't exactly the most appealing thing to do on a Friday night. So, we don't -- or, many don't -- and we simply step away from politics.
It doesn't help that the figures we could support either do not understand or do not appear to appreciate the complexity of each issue. For instance, in Ohio, Gov. Kasich is prepared to recall the mandate to local schools to create all-day kindergarten classes in elementary schools. There is the obvious cost of the program to school districts, but there is little discussion on the savings on the part of parents and families. There is no analysis regarding whether the increased cost to school would be offset by the potential savings -- in time and daycare costs -- to families. There is little discussion of how full-day kindergarten can positively affect the development of children. In short, there's little discussion regarding the complexity of the issue itself.
We can blame the media for this. The U.S. Today model of breadth over depth is a deplorable shift from Kronkite-like journalism to the inexplicable (and ironic) fascination with blogs as sources of "information." We can blame Fox News for spouting half-truths, or Headline News for projecting a constant stream of surface knowledge that convinces viewers they are experts where they are barely amateurs. But there is truly no one to blame for this. It is the way it is.
Politicians are in a position to change this. Although Gov. Walker of Wisconsin has been maligned for his war against unions and workers' rights, Gov. Walker has never been shy to tell the media exactly why he is doing what he's doing. He declines from using shim-sham rhetoric (like Gov. Kasich did when he defended his assault on public workers' rights as leveling the playing field), which should be applauded. Similarly, the single Republican who voted against Wisconsin's anti-union bill admitted that he voted against his entire party because he felt that his constituents demanded him to do so, rather than attempt to drum up some half-wit concoction so often employed by amateur politicians (or veteran ones, like Sen. Specter of Pennsylvania).
The Huffington Post reports that conservatives, realizing that the widespread voter apathy is likely a product of the excellent education of the general public, are starting to move away from talking heads like Palin, in order to preserve the "quality of conservative thought." It's about bloody time. Maybe now we can talk intelligently about some cost-saving measures, like ending agricultural subsidies and the wasting of produce for non-nutritional purposes. Maybe we can talk intelligently about funding public broadcasting to protect our right to free speech and political expression. Maybe we can talk intelligently about enforcing anti-trust laws against gargantuan banks and insurance companies, or commercial businesses that are choking out small businesses. Maybe we can talk about how single-payer medical insurance is not only feasible in America, but would also decrease the expenses of American taxpayers and companies. Maybe we can talk about repealing the 1980 DIDMCA, and letting states police their lending institutions, or dissolving government-backing entities like Fannie Mae and selling off their assets. Maybe we could talk about truly shrinking the government.
Well, here's to hoping.
Well, why not? Apparently, the conservatives are starting to pull away from Sarah Palin: http://www.huffingtonpost.com/2011/03/16/late-returns-pushing-away-palin_n_836862.html. This is a good sign for American conservatives; that is, for Americans who are truly conservative, not those who insist that Fox News is a bastion of conservative "thought." I know of several of them, hiding as moderate Democrats or Republicans, who vote for third-parties or anonymously. Talking with them, the most popular complaint is that neither party appears to represent their interests. This is wholly true.
Who are they? College-educated people with burgeoning careers. My peers are attorneys, engineers, and accountants. They don't like to talk politics in a large forum because the topic is overwhelming. It is overwhelming not because of the melange of political talking points, but because politics is a complex topic that requires substantial knowledge to understand fully. For instance, many people accept that lower taxes will result in higher employment, but few really appreciate the several presumptions and considerations that must be accepted or argued before the maxim should be accepted. Shifting gears from the common concerns of our daytime jobs to a long, in-depth analysis of policy isn't exactly the most appealing thing to do on a Friday night. So, we don't -- or, many don't -- and we simply step away from politics.
It doesn't help that the figures we could support either do not understand or do not appear to appreciate the complexity of each issue. For instance, in Ohio, Gov. Kasich is prepared to recall the mandate to local schools to create all-day kindergarten classes in elementary schools. There is the obvious cost of the program to school districts, but there is little discussion on the savings on the part of parents and families. There is no analysis regarding whether the increased cost to school would be offset by the potential savings -- in time and daycare costs -- to families. There is little discussion of how full-day kindergarten can positively affect the development of children. In short, there's little discussion regarding the complexity of the issue itself.
We can blame the media for this. The U.S. Today model of breadth over depth is a deplorable shift from Kronkite-like journalism to the inexplicable (and ironic) fascination with blogs as sources of "information." We can blame Fox News for spouting half-truths, or Headline News for projecting a constant stream of surface knowledge that convinces viewers they are experts where they are barely amateurs. But there is truly no one to blame for this. It is the way it is.
Politicians are in a position to change this. Although Gov. Walker of Wisconsin has been maligned for his war against unions and workers' rights, Gov. Walker has never been shy to tell the media exactly why he is doing what he's doing. He declines from using shim-sham rhetoric (like Gov. Kasich did when he defended his assault on public workers' rights as leveling the playing field), which should be applauded. Similarly, the single Republican who voted against Wisconsin's anti-union bill admitted that he voted against his entire party because he felt that his constituents demanded him to do so, rather than attempt to drum up some half-wit concoction so often employed by amateur politicians (or veteran ones, like Sen. Specter of Pennsylvania).
The Huffington Post reports that conservatives, realizing that the widespread voter apathy is likely a product of the excellent education of the general public, are starting to move away from talking heads like Palin, in order to preserve the "quality of conservative thought." It's about bloody time. Maybe now we can talk intelligently about some cost-saving measures, like ending agricultural subsidies and the wasting of produce for non-nutritional purposes. Maybe we can talk intelligently about funding public broadcasting to protect our right to free speech and political expression. Maybe we can talk intelligently about enforcing anti-trust laws against gargantuan banks and insurance companies, or commercial businesses that are choking out small businesses. Maybe we can talk about how single-payer medical insurance is not only feasible in America, but would also decrease the expenses of American taxpayers and companies. Maybe we can talk about repealing the 1980 DIDMCA, and letting states police their lending institutions, or dissolving government-backing entities like Fannie Mae and selling off their assets. Maybe we could talk about truly shrinking the government.
Well, here's to hoping.
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