The US Heads for High Inflation and Probably Default. Spending Must be Cut.

Abstract: Our government is spending us into unrecoverable debt and massive inflation. They will NOT cut spending and will NOT lower taxes for businesses. We are at the point where we cannot recover from the debt, the stimuli are failing to aid the GDP and more spending is envisioned by Obama and his leftists. Our currency is being debased by our cleptocratic [defined as the government stealing from its citizens] government using the obvious mechanism of inflation. Things are going to get a lot worse.

In a previous blog entitled Deflation and Defaults: The Path Downward from Debt and Excessive Spending,[1] I outlined some potential problems concerning deflation, inflation and the Fed’s printing of vast, and mostly unknown, amounts of money. In a more recent blog entitled Maximizing Both Tax Revenues and Economic Growth: The Folly of Government and the Generation of Phony Numbers and Class Warfare [2]problems with US Treasury bonds are emphasized. Our credit rating is bound to slip. We face a crisis.

The topics of inflations or deflation, in particular, always provoke a contentious political and economic dispute[3] consisting of those players who insist this phenomenon is in progress, and can actually prove the existence thereof, in a fierce battle with the opposing forces who insist we are inflating or other. The analysis process to solve this riddle is seemingly wrought with technical difficulties because there are many varied financial inputs and calculations that must be assessed by the jury in this trial until a final verdict is returned. It appears that even identical economic elements can be used to argue either case thus leading to a conundrum.  The proof, however, that we have transitioned, in part, from deflation to potential high inflation happens when we examine the US Treasury bond auctions.

This spending is what is driving our deficit into an ocean of debt[4] and we rank high amongst the list of other losers who may soon default on their sovereign debts:

* Figures from OCED forecast in November 2009. [5]

The US debt is crushing our society. Since there are only 65 million workers to handle 12 trillion dollars in National Debt [soon to be 14 and rising] and only half of them pay taxes above the median of $32,000 then this works out to $192,000 each for these workers and that ignores Social Security, Medicare, Medicaid and state debts.[6][7] But, there is no signal to stop spending.  

Overspending, to bribe voters to keep socialists in power as we see in California[8][9][10][11] [Our National Leper[12][13]], New York, and other states, is testing the bond markets. California now hopes for a miracle in revenues and will ‘wait.’ The federal stimuli had a very short and shallow effect on the US economy but did send money to the states. They spent that and now want to spend and borrow much more. Attempts to provide federal “stimuli” lead to disasters like the previous ‘jobs’ program that spent $92,000 per job![14] And, then, we spent $24,000 per car on the Clunker Follies and a mere $43,000 per house on the housing scam. [15] This is a farce.

All along, we were reassured that inflation was not a problem and that we could unwind the Fed monies used to salvage our Zombie Banks, which are, to be frank, quite dead.

The Geithner Pledge:

"We have the deepest and most liquid markets for risk-free assets in the world. We're committed to bring our fiscal deficits down over time to a sustainable level.

"We believe in a strong dollar ... and we're going to make sure that we repair and reform the financial system so that we sustain confidence," he said.”[16]-- Geithner tells China its dollar assets are safe On Monday June 1, 2009 [Emphasis is mine in all quotes.]

We are already past the limit of sustainability of our currency values and the bond interest rates that just shot up a few days ago show that inflation concerns are now affecting into the market for US Treasuries. Inflation is on the rise.

US Treasury Sales:

“For more than a year, analysts have been warning that record sized debt sales by the US Treasury were at odds with a 10-year yield sitting comfortably below 4 per cent. This week, the yield on 10-year notes jumped from 3.65 per cent to a peak of 3.92 per cent on Thursday. On Friday it was 3.87 per cent.

Falling inflation [deflation, ed] , rising unemployment, the housing market slump, the Federal Reserve’s policies of a near zero overnight borrowing rate and its purchase of up to $1,700bn in bonds have all helped keep Treasury yields near historic lows.”[17]-- Supply fears start to hit Treasuries By Michael Mackenzie in New York and David Oakley in London Published: March 26 2010 [Emphasis is mine in all quotes.]

The Fed has, we think, some 1. 7 trillion in bonds on their books  and what not, but we cannot know what the Open Market Committee is doing or what is happening in the Fed’s Off-Balance Sheet operations. We do know that Fannie Mae and Freddie Mac hold some 3-5 trillion dollars worth of worthless mortgages of the Toxic Asset type. We also need to understand that Barney Frank and other liberals want the banks to readjust interest and principal levels for many home owners who are ‘underwater’ and cannot make mortgage payments. The banks are asked to take massive loses. Mortgage defaults are still soaring and unemployment is still too high. Where is this money going to come from? The printing presses? Probably.

US and state budgets are out of control:

““The spotlight on Greece only helped to reveal that the US’s kitchen – with Federal and state budget balances – was itself full of cockroaches,” says William O’Donnell, strategist at RBS Securities””-- Supply fears start to hit Treasuries [Emphasis is mine in all quotes.]

More massive spending.

““The environment for debt auctions has turned negative,” says Rick Klingman, managing director at BNP Paribas. “Long-term rates are rising and it is no coincidence that this has occurred after the passage of healthcare reform and the end of Fed buy-backs.””--Supply fears start to hit Treasuries

Social Security is going broke:

“Also rattling US investors this week was a report by the Congressional Budget Office that falling payroll taxes due to high unemployment, means that the social security programme will pay out more in benefits than it receives for this fiscal year.“”--Supply fears start to hit Treasuries [Emphasis is mine in all quotes.]

All this was predicted by me and many others although Paul  Krugman seems to think we can handle this and 9 trillion[18] more dollars to spend.[19]

So, what do we do about this?

Slow spending? Lower he deficits?

Actually, none of the above as the Obama Administration, Congress and many states will NOT STOP SPENDING.  Thus, we are crashing into a debt limit barrier that we cannot reverse without massive inflation. Soon, nobody will buy our debt.

Many bonds are ‘insured’ by interest rate swaps, a very complicated process that is mostly confined to sovereign bond markets.[20] Before such ‘insurance’ on debt was available in world markets, a bond holder was at risk of a default or a currency debasement, two favorite avenues for governments to take when they overspend and cannot meet their debt obligations [known as cleptocracy] as we read in the new book This Time is Different: Eight Centuries of Financial Folly[21] by Carmen Reinhart and Kenneth Rogoff. This tome reviews this very common process of overspending, massive debt, bank crises and inevitable defaults that plague California, Greece, New York and other entities and shows that such defaults are very common in the last several centuries. The US has no option but to default on this massive debt.

Now bonds for private issuance are now sold at lower rates than US 10-year bonds—a signal that the current notion of ‘safety’ of the US Treasury is not accepted:

“For the first time since swaps emerged in the mid-1980s, the 10-year swap rate traded below that of the “risk free” 10-year Treasury yield. Analysts say this reflects how government debt issuance has altered the dynamics between “risk-free” yields and swaps, which reflect borrowing costs for non-sovereign borrowers.”--Supply fears start to hit Treasuries

Money markets and capital acquisition operations are now global and it appears that the massive spending and huge, unsustainable deficits in the US are showing up in market actions. Once the Fed stopped buying up stuff to keep the rates artificially low the market forces are driving up the interest rates and the US Treasury will have to offer debt at a higher rate. That means that our debt service, currently $191 billion on $12.1 billion in debt for an average  rate of only 1.5% will have to rise. That will, in turn, drive our deficits higher at constant spending and tax revenues. As bonds mature and are redeemed new bonds will have higher interest rates so the 1.5% will tend to double and with it the debt service of $191 billion will double too.

This starts off a spiral: if interest rates are trending higher then businesses will suffer in earnings and will not hire more people. They may have to lay off more workers to keep their bottom lines reasonable. The new Obamacare costs are now being incorporated into business plans and many companies like ATT, Deere and others have publicly given notice that they will have to raise prices. Fewer employed workers will buy less and default more on mortgages and the problem will become worse in time. Higher prices means inflation.

Spending must be halted at this time and new spending on illegal aliens, weird green things that may be only asset bubbles brewing[22], and avoiding massive tax increases like the Cap and Trade Taxes are all mandatory. There is no way to solve this problem with more spending as Krugman and other Keynesian economists advise. Tax cuts to allow businesses to hire more employees are the only way out of this and that avenue is not acceptable to the far left and their lackeys.

This massive spending by liberals, intoxicated by their own phony rhetoric, will sink our economy and we will return to the depression days of the 30s.

We MUST cut spending and furlough several government projects and reject EcoNazism[23][24] and Cap and Trade and other phony nostrums.

rycK

Comments: ryckki@gmail.com

Maximizing Both Tax Revenues and Economic Growth: The Folly of Government and the Generation of Phony Numbers and Class Warfare

Governments cannot seem to balance tax revenues and spending. A reading of two new books: Ascent of Money[1] by Niall Ferguson’ and the newer book This Time is Different: Eight Centuries of Financial Folly by Carmen M. Reinhart and Kenneth Rogoff show, very clearly, that the vast majority of governments cannot manage finances with any competence. An inspection of the actions of various government agencies starting in the 1890s and leading up to August 1914 where most stock markets suddenly shut down for months is enlightening. By 1916 most governments had spent all they had and were wildly printing money to fund the Great War. We see more and more of this, for instance, as Portugal’s deficits soars and now Fitch has downgraded their credit rating.[2] Why? Why because massive deficits of the sort that can trigger defaults and financial crises are the singular reason. We have witnessed several massive financial crises and dozens of sovereign defaults in the last 120 years and it is clear that these events are not going to stop. It is also clear that the financial operations of governments are not transparent given, for instance,  the recent news that Greece’s military spending is ‘state secret’ and that they lied about their debts to gain entrance into the now failing EU.[3] China’s reserves are also a state secret. A collection of EU members known appropriately as the PIGS [Portugal, Italy or Ireland—pick one or two--, Greece and Spain] have massive and unsustainable deficit problems all rooted in the inability of their leaders to control spending  and exacerbated by the greedy and Marxist-based unions who hold the political power and refuse to cut anything.  This is the kind of climate that produces depressions and wars.

Now, we could sift through the wreckage and pick out particulars to dwell upon but, using a popular leftist nostrum, the holistic view[4] is more enlightening. This approach is facile as the holistic theory leads to utter nonsense and a thickening of the crusted drool upon the shoes and slippers of the left so we can apply that to the operations of government, financial, social and military.  We find only mumbling and excuses as we expect. As long as some ‘government’ has the power to tax then the ‘reasons’ or methods of that government are  always self-defined, self-serving and lead eventually to social and financial disasters. We saw that in the debt-driven deflationary spiral[5] and Depression of 2007-2008 now only half way finished. That was stalled half way down by such interesting measures as a 10 trillion spending spree by the Fed and other governments by simply printing money, a process known as quantitative easing.

The basis of the deficit, if I could be politically obtuse or stubbornly blunt in the algebraic sense, is that governments spend more than they take in thus taxation and debt are the two vectors that will eventually bankrupt a country such as ours. After this, the path to reason is lost and the quest for OPM [other people’s money] becomes the prime mover of any government. Revolution and nationalization of business and land are the next obvious step. What else can they do? Let the capitalists get control? Our government had ‘problems’ yesterday with bond sales and many experts, like Bill Gross of PIMCO, recommend “advising that investors buy the debt of countries such as Germany and Canada that have low deficits and higher-yielding corporate securities.”[6]

What should be expected to be a reasonable consideration of government is the accurate forecast of tax revenues so that spending might be adjusted for some moderate growth for the economy so that debts might be managed for the good of the society. Spending is the only financial attribute known up front for any government entity posturing to set up a “budget.” They can get that much right until ‘emergencies’ occur and then, usually in a panic, they instinctively spend more to fix the problem.  Tax policies are frequently a lower form of insanity: Here is an example where reality flies off into the swamps for a rendezvous with illogic. The following is an example of illogicality that illuminates the financial swamps infested by politicians who make the laws:

Example: Differential revenues from tax rates:

“The absurdity of this approach became clear in 1988 when Senator Robert Packwood (R-OR), then ranking Republican on the Finance Committee, asked the JCT [Congress's Joint Committee on Taxation[7]]  to estimate the revenue impact if the government confiscated all income over $200,000 annually. The revenue estimators at JCT responded that such a tax would raise $104 billion the first year, $204 billion the second year, $232 billion the third year, and $263 billion and $299 billion in the fourth and fifth years, respectively. Needless to say, this was a nonsensical estimate. As Senator Packwood noted, the JCT's calculation "assumes people will work if they have to pay all their money to the Government. They will work forever and pay all of the money to the Government when clearly anyone in their right mind will not.”[8]--The Correct Way to Measure the Revenue Impact of Changes in Tax Rates Published on May 3, 2002 by Daniel Mitchell, Ph.D. 2010 [Emphasis is mine in all quotes.]

This is political reality--sick as it is. The tax base is considered to be an unending wellspring of wealth that can be taxed at rates up to and probably exceeding 100% with the confidence that the money will flow like honey forever.  This becomes a financial reality when you add in the propensity to borrow for incalculable reasons and the last-resort mechanism of getting money: the printing press. This is not a joke—this is political reasoning as the world practices it today. This is a prime example of liberal thinking as taught at Harvard.

We can choose the simple arithmetic view and ask what happens under a few scenarios whereby we think we can reduce the deficit to zero from growth alone. This is a multivariate system so simple examples like this only lead to objections that there are other possibilities. Here goes anyway:

[1] We currently have a 14 trillion dollar debt level and essentially a 10% deficit of about 1.4 trillion dollars. We also have a 14 trillion dollar GDP.

[2] IF we stopped the increase in spending and allowed growth alone to reduce these deficits how long with it take at a 2% growth rate in the economy to zero out the deficit? The assumption here is that a 2% growth rate leads to a 2% increase in tax revenues that would subtract from the deficit because there would be no increase in spending. We can then try 4% and higher variants and see what happens.

[3] The Results:

So, fixing spending for 5 years would cut the deficit to zero at a 2% growth rate. At a 4% growth rate it would vanish in 3 years. This kind of deal works because when Congress submits fairy tales to the CBO [Congressional Budget Office] they must take the Congressional numbers on faith. Thus, when planning for the future the higher the growth rates the better. This is the way our government works or, better, fails miserably to manage our finances. Of course, there is no way our government could hold spending at zero for even a year. We can dream up all sorts of spending and revenue streams to our fancy and the CBO must conclude that these numbers are reasonable and sanction them by law.

The interest rate on our national debt, for many reasons is [today] 0.191 trillion/12.649 trillion or only 1.51%. That looks great. But, what happens if Moody’s cuts our AAA rating? Greece is now paying about 7% or so if they can get it. Look what happens if our interest rates rise to 7.5%:

If we halt spending and our interest rates rise because we have to raise money to pay off the debt and that interest rate rises to .5% then it will take 9 years to cut the deficit to zero and we still have the national debt fixed at 12.1 trillion to service.

If our budget deficit grows by 5% per year and it goes into debt then here is what our national debt will be:

Now, there is a theory to describe the optimal tax rate for maximizing revenues and that is the Laffer Curve.[9] Here is a video on the process.[10][11] This is not accepted by liberals and an alternative scheme known as ‘dynamic scoring’ is preferred by the left. [12]  They assume that tax levels have no effect on the revenues. Thus GNP may remain constant with various tax levels. This is nonsense, of course, but that is what the left is all about. The curve clearly shows that maximum growth occurs at much lower tax rates than does maximum tax revenues and growth is the engine of the economy.

The Reagan Tax Cuts brought the following:

HOW DID THE REAGAN TAX CUTS AFFECT THE U.S. TREASURY?

Many critics of reducing taxes claim that the Reagan tax cuts drained the U.S. Treasury. The reality is that federal revenues increased significantly between 1980 and 1990:

Total federal revenues doubled from just over $517 billion in 1980 to more than $1 trillion in 1990. In constant inflation-adjusted dollars, this was a 28 percent increase in revenue.

As a percentage of the gross domestic product (GDP), federal revenues declined only slightly from 18.9 percent in 1980 to 18 percent in 1990.

Revenues from individual income taxes climbed from just over $244 billion in 1980 to nearly $467 billion in 1990.

In inflation-adjusted dollars, this amounts to a 25 percent increase.

The rabid left point to the percentage decline in federal taxes as a fraction of the new higher GDP as ‘proof’ that there was a ‘cost’ to the Regan Era. Reagan doubled revenues and there was some ‘cost??’ Krugman rejects the Laffer Curve and gives his own nostrums of how the projected 9 trillion dollar deficit envisioned by Obama will fit into the growth:

“What you have to bear in mind is that the economy — and hence the federal tax base — is enormous, too. Right now GDP is around $14 trillion. If economic growth averages 2.5% a year, which has been the norm, and inflation is 2% a year, which is the target (and which the bond market seems to believe), GDP will be around $22 trillion a decade from now. So we’re talking about adding debt that’s equal to around 40% of GDP.”[13]--How big is $9 trillion? By Paul Krugman The Conscience of a Liberal, August 23, 2009, 5:54 PM

Notice that there are two fixed numbers in this estimate: 2.5% growth and 2% inflation. The inflation-adjusted growth rate for 2007 was 2% and 2008 was only 1.1%.[14] There are lots of numbers to choose from including World Bank estimates but the choice has to be reasonable.[15] We are still stuck with a 9.7% unemployment rate and much of our current GDP comes from temporary stimuli like the recent ‘jobs’ program spent $92,000 per job[16] and, then, we spent $24,000 per car on the Clunker Follies and a mere $43,000 per house on the housing scam[17] And, none of these had a lasting effect. All of the money to propel this was either borrowed or printed up quickie fashion by our government.

Krugman and other dynamic scoring types seem to ignore the fact that Social Security is going broke and lugs along a 34 trillion dollar legacy while Medicare carries a similar burden of about 14 trillions. This 54 trillion dollar lump sum is almost as big as the entire household assets of our country at 57 trillions and total national assets at 72.3 trillions.[18] Ignoring the Laffer Curve is politically expedient as they can claim that their tax revenues will be on target despite tax hikes, Social Security debt service, new health care taxes for business and more. In other words, growth will continue onward and upward no how they tax business. The CBO thus must act as parrots and squawk out the good news on command.

The Reagan System could restore much growth to the economy with tax cuts especially for small businesses but that is not to be. The left wants to increase taxes on every level for political power reasons. This is proof that they care more about power and long terms in office with their powers influence and attract bribes and sweetheart deals [Chris Dodd, Barack Obama, Hillary Clinton, Charlie Rangel, Cold Cash Jefferson and others].

And on we go. It turns out that the left are only propelled by the hatred they see for those in the capitalist markets. They tend to form sticky cabals and drug-infested societies where their hatred is celebrated. Here is an example from James Cameron the director of Avatar as he flies into a rage:

“Cameron said at a news conference that he would like to shoot "those boneheads," referring to skeptics of anthropogenic global warming. "Anybody that is a global warming denier at this point in time has got their head so deeply up their a** I'm not sure they could hear me," Cameron added.”[19]-- James Cameron: Shoot Climate 'Deniers,' Glenn Beck a 'F------ A--hole' By Lachlan Markay (Bio | Archive) Wed, 03/24/2010 - 18:45 ET

It is easy to characterize the attitude of the left with a new word: Cryptomisoxeny [20]

Cryptomisoxeny is a mental condition in which a person is compelled to enlist in a valiant crusade to ferret out and squash such human notions such as bigotry, racism and hypocritism. The person with this disease is completely unaware of its presence and control of his actions and is deluded with the false or reverse notion that his or her conduct is actually the exact opposite from the unacceptable targeted conduct in others. Hence, those who rail and rant and search for bigots frequently use overt bigotry in their sanctimonious quest for the offenders and employ bigotry in its strictest definition to condemn other persons or groups. All this proceeds unconsciously as the bigots, in this case, believes that they are far above such a social defect and are some form of cleansing device for our society. Sanctamonicity is the ultimate internal psychosomatic reward as it draws rave reviews and wild applause from peers and others also burdened with this affliction and offers comfort and camaraderie.  The same argument holds for those who chase and attempt to correct racists using overt racism and, of course, this is hypocrisy, but a form hypocrisy that is buried deeply in the id.[21]

We hear of cutting deficits by Obama and his minions:

“In his speech, Geithner renewed pledges that the Obama administration would cut its huge fiscal deficits and promised "very disciplined" future spending, possibly including reintroduction of pay-as-you-go budget rules instead of nonstop borrowing.

"We have the deepest and most liquid markets for risk-free assets in the world. We're committed to bring our fiscal deficits down over time to a sustainable level.

"We believe in a strong dollar ... and we're going to make sure that we repair and reform the financial system so that we sustain confidence," he said.”[22]-- Geithner Monday June 1, 2009

Can we believe this tax cheat or Nancy Pelosi [a.k.a. Spartacus[23]][24] and her rush to spend trillions on bigger and farther-left government?? Didn’t Obama just chop off the secured bond holders in the Chrysler bankruptcy fiasco? Were these also risk-free assets? It is hard to believe that Nancy has not been excommunicated by the Pope. She has the gall to instruct the Pope on abortion?[25]

Here is the Obama promise to cut the deficit in half:

“This budget actually is going to assume that there will be a hurricane, tornado, earthquake, flood or manmade disaster in the United States in fiscal year 2010, and each year going forward 10 years,” the official said. “The Bush budget never assumed that.”

Under White House projections, this year’s inherited budget deficit of $1.3 trillion will be cut to $533 billion by fiscal year 2013, the end of the first term.

“So we’ll cut it at least in half,” the official said.”[26]-- Obama vows to cut huge deficit in half By Mike Allen  2/22/09 6:58 AM EST

That is such a lie!

Our federal elected officials parasites must have learned politics from California[27] as the once Golden State is turning brown in a storm of bad debt and default. Sloth, sodomy and drugs—the old liberal recipe for success.[28]

And so it goes. The only process we see is the frantic quest for the wealth of others using racism and a political corruption of the Constitution as vehicles. The liberals have no regard for anything that would really stimulate the economy as they think that bloating government ‘provides jobs’ and that they can print money ad infinitum to finance their social justice projects. Their projects, however destructive to the American people are always enthusiastically endorsed by the New York Times—aka the Walter Duranty Papers[29][30]--a turn-of-the-crank Marxian puppet stage where intermezzos and grand opera ring.

We need to be prepared for some revolts, some tax protests [perhaps we can call it ‘civil disobedience!’], bunker mentalities[31]and much more from a group of some 175 million Americans as they realize that the rabid left are destroying our society from the currency down to the courts. We might expect visits to our homes from some ‘community organizers.’ We can also expect that our ‘government’ will backlash against some of us like Clinton did at Waco as the lefties cannot tolerate criticism.

Hard Times Ahead.

rycK

Comments: ryckki@gmail.com

The Babbling Brooks of the NYT Babbles about Brokenness and other Fluffs He must like Utopias.

Abstract: David Brooks shows off his deep perceptive talents by essaying on the incoherent rants of some British cleric who runs amuck in the literary world. The sad, but predictable, case of Liverpool and its race riots run willy-nilly through a ‘new theory’ on reversing the roles of local and state governments with a stunning array of foolish comments.  Brooks is led down some path that Alice seemed to have missed.  There is wild talk of a ‘moral’ market and other strange notions. Brooks sums up this piece with the comment “that the only way to restore trust is from the local community on up” in one of those famous all-or-nothing leftist edicts where there is no middle ground. This is a farce but amusing to read.

As we peruse the hallowed pages of the near-bankrupt NYT—aka the Walter Duranty Papers[1][2]--a turn-of-the-crank Marxian puppet stage where intermezzos and grand opera ring until the wall paper curls, we must always be alert for true political designs and other odd bits of propaganda that are thoughtfully woven into the fabric of the average op-ed piece presented before us. There are more talented  writers and web-spinners like Maureen Dowd, the Old Red Lady [3][4][5] [than our current author] who offer us interesting political enigmas to dissect as she sandwiches literary clichés, unlikely metaphors and newsworthy characters with leftist political demands with sound and fury and the messages are usually very clear. But today our Chief Babbler David Brooks[6][7][8][9] broaches the banks of his pond to instruct us on broken societies. Brooks, in this episode, manages to leap beyond much of the sticky cliché besotted pulp that is both boring and intellectually insulting and spares us from the hackneyed nostrums that we need to ‘hear both sides of the story.’ But we need to be prepared to first hear the sobs of brokenness and then wade through a swamp of pity and social insanity until we reach the end and find out here was no clear fix recommended or intended. Thus, we are left hanging.

How to best read my blogs:

[I offer extensive quotes in this blog so that the reader can view the exact language and can be confident that nothing was taken out of context or that nobody was misquoted. The easiest way to take in the salient points is to read the emphatic points in the quotes and then peruse my comments. Comments on my comments are always welcome: ryckki@gmail.com.]

We begin this episode with some stale facts:

“The United States is becoming a broken society. The public has contempt for the political class. Public debt is piling up at an astonishing and unrelenting pace. Middle-class wages have lagged. Unemployment will remain high. It will take years to fully recover from the financial crisis.”[10]-The Broken Society -By David Brooks Op-Ed Columnist Published: March 18, 2010 [Emphasis is mine in all quotes.]

We knew this. And, we knew that Obama and others had ‘solutions’ to our economic and financial problems as well and could guide us out of the swamp we are mired in. We know we are broke and heading for a currency default with our AAA credit rating now in serious jeopardy.[11] The liberals who now infect Congress and the White House  didn’t have any ‘solutions’ other than to print more money and bloat government like a sow with gangrene [ a reflection of California[12][13][14] and their  ejukashon[15]] so now they  promise  more and more as control more and they continue to  print more  money and monetize the debt and make matters worse. What else is new?

Now, the fix upon the fix:

“This confluence of crises has produced a surge in vehement libertarianism. People are disgusted with Washington. … But there is another way to respond to these problems that is more communitarian and less libertarian. This alternative has been explored most fully by the British writer Phillip Blond.

He grew up in working-class Liverpool. “I lived in the city when it was being eviscerated,” he told The New Statesman. “It was a beautiful city, one of the few in Britain to have a genuinely indigenous culture. And that whole way of life was destroyed.” Industry died. Political power was centralized in London.”-- The Broken Society

Liverpool was and is a dump and was wrecked by far left-wing activists.[16] The Toxteth Riots, a Labor Party stronghold [thus political power centralized there in contrast to Blond’s inaccurate comment above] had major problems with racism  that took place there in 1981 with tear gas and rioters of all colors and creeds fighting in the streets and need to quell the mess by massive government force. This war resembled Watts 1 and 2. Liverpool is a prime example of how importing poverty from Third World results in a massive incompatibility with the indigenous society in it is collision with modern education, work force ethics, conduct and government. We would expect a first-hand victim of this social wreckage to fly off the wall and scrounge for unworkable solutions to this problem. Phillip Blond is just the guy to stir the scant and misfiring neuronal remains of David Brooks.  He demonstrates just that in this article. He should study Oakland next.

The revolutions revolve:

“Blond[17] argues that over the past generation we have witnessed two revolutions, both of which liberated the individual and decimated local associations. First, there was a revolution from the left: a cultural revolution that displaced traditional manners and mores; a legal revolution that emphasized individual rights instead of responsibilities; a welfare revolution in which social workers displaced mutual aid societies and self-organized associations.

Then there was the market revolution from the right. In the age of deregulation, giant chains like Wal-Mart decimated local shop owners. Global financial markets took over small banks, so that the local knowledge of a town banker was replaced by a manic herd of traders thousands of miles away. Unions withered.

The two revolutions talked the language of individual freedom, but they perversely ended up creating greater centralization. They created an atomized, segmented society and then the state had to come in and attempt to repair the damage.”-- The Broken Society

This is so convoluted it is impossible to untangle the circular logic. There must be a punch line somewhere in this rag.

The Reformation Project:

“Economically, Blond lays out three big areas of reform: remoralize the market, relocalize the economy and recapitalize the poor. This would mean passing zoning legislation to give small shopkeepers a shot against the retail giants, reducing barriers to entry for new businesses, revitalizing local banks, encouraging employee share ownership, setting up local capital funds so community associations could invest in local enterprises, rewarding savings, cutting regulations that socialize risk and privatize profit, and reducing the subsidies that flow from big government and big business.”

He talks about morality? I can see part of what he means by a relocalization of the economy but the recapitalization of the ‘poor’ smells like more welfare to me.  Education of the ‘poor’ is usually a failure and it must have been a wreck in Liverpool. Since cognitive skills are not evenly distributed among peoples of various races we expect to see places like Liverpool, Watts, Baltimore City, San Francisco, Oakland[18] and Atlanta degenerate into social cesspools. People with talent and brains left Liverpool never to return and for good reason.

Didn’t they do this in the French Revolution?

“To create a civil state, Blond would reduce the power of senior government officials and widen the discretion of front-line civil servants, the people actually working in neighborhoods. He would decentralize power, giving more budget authority to the smallest units of government. He would funnel more services through charities. He would increase investments in infrastructure, so that more places could be vibrant economic hubs. He would rebuild the “village college” so that universities would be more intertwined with the towns around them.”-- The Broken Society

“Essentially, Blond would take a political culture that has been oriented around individual choice and replace it with one oriented around relationships and associations.”-- The Broken Society

“The only way to restore trust is from the local community on up.”-- The Broken Society

Well, there you have it or not. I missed the details. What I get from this seems to resemble what the utopians[19] were talking about many decades ago and seems to strongly resemble Local Exchange Trading Systems (LETS)[20]  where there is little need for currency and swaps are controlled by individuals.

There are so many holes in this argument it resembles something freshly dug out of a dumpster:

[1] This system would migrate backward to the feudal system as only locals would make and enforce laws.

[2] There is no way to tax this system and who would pay for the army, Social Security and other government programs?

[3] To think that by multiplying our ‘government leaders’ some 10,000 fold might improve decision making of the cognitively disnimble is a joke.

[4] This just about cracks international trade and hikes inefficiency because the tendency would be to make any and all products locally.  In a country of 304 million people we could imagine some 25,000 different laws and government bodies with a few hundred tariffs and taxes upon those outside the utopias.

The Brooks summation comment that the only way to restore trust is from the local community on up in one of those famous all-or-nothing leftist edicts where there is no middle ground. I would only participate in such as system if I were Head of Secret Police.

rycK [a 5^th generation Californian in exile]

Comments to: ryckki@gmail.com

The New York Times Mumbles [again] about Education and No Child Left Behind.

What is interesting about the NYT, famous for being known for skirting the outer levels of bankruptcy and for their most famous contributor [or infamous] Pulitzer Prize winner Walter Duranty,[1] is the apparently accidental collision with reality on selected cases. The topic for the day is the never-ending quest for educational ‘results’ wherein the young are supposedly ‘educated’ to learn something not quite well defined. The educational arena [known in the state of California[2][3][4]as ejukashon[5] or the dust bin where 40% of their citizen’s tax revenues are summarily dumped[6]] is a hot contest for the hearts and minds of potential voters and a key entry point into the elegance of propaganda and its propagation.

What is even more interesting is the perennial announcement of new and wonderful advances in educational theory and the sweeping changes that are necessary to make the system work better even though the costs of education doubled before the Ronald Reagan terms ended and doubled again before the Obama Era.  One is tempted to point this out to ‘educators’ [ejukashonistas?[7]] but that only starts arguments.

In the glaring forefront of this grand arena stands the impairing monolith of ‘equality[8]’ gleaming in the sun wherein be writ that every child ought to get an even chance to succeed at something, grades occasionally included. The obvious solution is not to give out grades so that those who perform poorly on their exams might not feel bad. For some reason, this progressive option has not been implemented. If the exams were omitted we could, in principle, choose our brain surgeons by lot since all candidates would have an equal chance and would, of course, have equal grades by default.

In the spirit of continual improvement over education we must first read what the NYT has in mind:

“President Obama’s blueprint for reworking the No Child Left Behind Education Act of 2002 has good ideas, but it doesn’t have anything close to the rigor that the word “blueprint” would suggest. Whether the president’s plan will strengthen or weaken the program will depend on how the administration fleshes out the missing details — and how Congress rewrites the law.”[9]--Mr. Obama and No Child Left Behind  EDITORIAL Published: March 17, 2010 [Emphasis is mine in all quotes.]

We struggle for details here.  This is all hokum so far. The blast comes in the second paragraph:

“Teachers’ unions, state governments and other interest groups have long wanted to water down or kill off the provision of the law that requires the states to raise student performance — especially for poor and minority children — in exchange for federal money. They will likely gin up their lobbying. Congress must resist.”--Mr. Obama and No Child Left Behind

After reading this twice and calling for water, a search for the reason why feather-bedding unions and their supplicants might be ignored by the NYT reveals this:

“President Obama’s blueprint adheres to the principles first set by former President George W. Bush. The new proposal, however, would focus federal sanctions and monitoring heavily on the relatively small number of chronically failing schools and allow better-run schools more flexibility to fix themselves. That makes sense, but only if the latter group is not allowed to shortchange poor and minority children.”--Mr. Obama and No Child Left Behind

Ah, the hot spot is revealed. The spotlight thus would shine upon failing schools [read ‘schools’ with failing students to be more precise]. Performance standards tend to torpedo the egalitarian nostrum of ‘equality’ because it forces standardized tests upon students, and sometimes, indirectly, their ‘teachers.’ The process becomes more intractable when we sort test results by race only to find that Asian kids do better than whites on average on tests with high cognitive loading thus mangling the term ‘minority’ and prompting injustice in numbers and scores. Millions of test scores show that certain minorities cannot perform at the same levels as other people so the sticky nostrum that we can ‘fix’ this cognitive problem is impossible. The Times has this backward.

“The current system designates schools as needing improvement if they miss progress targets. The Obama proposal calls for employing a new model that gives schools credit for improving student performance, even if the schools miss the targets. This, too, makes sense, as long as the improvement being rewarded is significant.”--Mr. Obama and No Child Left Behind 

A sliding scale for equality it seems. This is like accepting an F on your test as long as the remote possibility exists that you might get a D next time. Abject failure is thus sanctioned by our government. We can always improve these schools even, we might suspect, when falling grade averages, crime and discipline problems that might double. All we need is some notion of a slight improvement in a single metric to pass the schools along the pathway to mediocrity. Now, the Times in on leftist track.

“The most exciting section of the Obama proposal deals with new strategies for getting states to measure, develop and improve the effectiveness of teachers, principals and programs in teacher-preparation.”--Mr. Obama and No Child Left Behind

Now, the problems with education become amplified so even the rocks shake and moan.

“That means observing teachers more closely in their early years so that the less-capable ones are either trained up or weeded out. States also need to take a much closer look at the quality of teachers assigned to schools with poor and minority children — the primary focus of the No Child Left Behind law. Eight years later, federal data show that these children are still disproportionately taught by inexperienced teachers who have not majored in the subjects they teach.”--Mr. Obama and No Child Left Behind

No teacher will be fired. We may only recite the union mantra “Equal Pay for Equal Work’ as being an ignoramus or a parasite in education is clearly equal work if they just show up. In the California case, it takes years to document and discharge a teacher[10] and in L.A. only about 1/1000 is discharged and many get more than $100,000 in lawyer expenses to defend them even though some kept drugs, porn or had other disgusting habits and performance at school. Many firings are overturned later at more expense. It is clear that the ‘weed out’ and ‘less capable’ language in the Times article is subject to union influence, rules and bureaucratic processes that resemble swamps and is merely subjective. The brutal facts appear to be that the maintenance of union jobs is more important than mere education since the unions pay so much money to bribe greedy politicians at all state and federal levels. And, much of this fits the notion that this is more about employment than education since we don’t’ need highly educated students in the first place if this process leads to wealth inequalities in the final analysis.

Back to the Bell Curve and Urban Politics![11]

We can review the poor outcome of the Great Society that seemed to show that those with lesser cognitive skills could not compete well with their intellectual superiors. This caused frenzy and gross anger when revealed in the 1960s as now there was a cognitive ceiling that many could not breach and this effect was confounded by analyzing standardized test scores and sorting the results according to race. Many schools hide this data now. The Bell Curve debunks this phony theory of equality with numerous—nay millions—of examples.[12] President Obama is against standardized testing for the most part. Standardized testing proves the point that the phony liberal concept of equality is so much buncombe thus it cannot be allowed.[13] Extensive and comprehensive testing of teachers in poor schools would allow us more information, but that will be blocked by the NAACP and the unions [same thing as NAACP is a blacks-only union].

We all know that affirmative action is a tacit admission of the failure of ‘education’ to equip each of our citizens with an equivalent set of mental and entrepreneurial skills and opportunities so they can compete. Cognitive equality is an oxymoron. There is no way you can give standardized tests and ensure that everybody gets the average test grade with nobody getting a higher or a lower test result. The much maligned Bell Curve[14], sometimes accused of actually causing the ‘problem’ of cognitive distribution in the US, actually states the blunt facts about our societies and the distribution of mental skills. This salient fact that half the people who take the standardized test will score below the median is the rallying point for ‘change’ in ‘education.’[15] That is not fair. Society must be equalized.[16] Thus propaganda must replace education. The Bell Curve correctly predicts who will pass high school, college and who will excel in the work place—and who will not—on a group basis. It doesn’t work for individuals. This fact commits millions to menial jobs but is casus belli for the political left.[17] Politically, then, about half the populations are candidates for political exploitation based only on their intrinsic skills. This works well politically. That is 50% of the vote.[18]

The competitive arena of capitalism is even more interesting. Capitalism[19] is a natural process whereby jobs and leadership is determined by the outcome of profits. Indeed, the capitalistic process is founded on the salient fact that people are not equal and thus need different jobs and have different skills. Capitalism is a ladder system whereby those who attempt to play the game either win or lose and the losers are demoted and assigned other duties so the more successful can take over. Capitalism is a refining process where the system is continually tested for performance unlike Marxism and other socialist variants that tend to lock in ‘leaders’ at all levels of government with little regard to performance or successful outcomes. Thus capitalism is self-improving while bureaucratic government tends to stagnate as it promotes its members based on party loyalty or dogma rather than efficiency or success. For proof of this statement we need only review Congress or the White House staff members for a few decades.

Many teachers and other bureaucrats would not fare well for long in a capitalist system to they tend to teach away from such a process so they can keep their jobs and hold power. As such, ‘education’ in the modern liberal sense is vectored to produce ‘citizens’ who have been steeped in the political view that government can provide them with what they need. Such a process sullies the workforce for business and many must carefully select their employees and retrain them in necessary business skills and ignore their political legacy unless it becomes a problem in the workplace. Business frequently reeducates their employees and soaks out the Marxian fluff that so-called teachers teach. Much business has fled the US to Asia to expand and prosper.

This process forces a crevasse of immense proportions to exist between liberal education and the business community. The educational process cannot produce skill-ready persons for hire given   of the obtuse political baggage forced upon students. Business thus runs special schools and training courses that reset the attitudes and skill bases of employees and circumvent this problem for the most part. The country is actually better off if those with poor skills get jobs with the government if the vicious actions of such government can be controlled. Our government is clearly anti-capitalistic and anti business and rarely attempts to correct this obvious vision in public. The penalty for such antagonism toward a sector that provides 99% of the tax revenues is a poor economy or a flight from oppressive states by business such as California, New York, Michigan, New Jersey and many others. Socialism does not create wealth so the left beats upon their benefactor with mindless rage.

This is a global economy now where business can readily outsource jobs to Asia where the educational levels are very high compared to the US. Businesses will continue to migrate in force toward lower-cost arenas as the US has the second-highest corporate taxes in the world and is determined to be number one. The current health care follies will drive competent doctors out of the country [to places like Belize] and many of our citizens will travel abroad for various treatments.  This is essentially the reverse process of the colonial era in North American whereby the inefficient feudal system stagnated with remnants of centuries of inbred family members who made decisions. Those people finally lost out to the entrepreneurial people who dumped their social baggage on the trip across the Atlantic and were successful in America. If the US is polluted with a similar form of inbred social baggage from the public school system then the obvious tack is to go private with home schooling and other formal schools. This feature thus truncates the undesirables in the flow of labor and leadership to business and such and is desirable in many ways. Being ‘graduated’ from a poor school is a true stigma that signals employers to look elsewhere for talent.

The Obama scheme to concentrate on the problems of the problem schools is thus self-defeating and its only benefit is to advertise where not to look for talent after graduation if it occurs. We can spot a general trend in such ‘educational’ systems in inner cities where liberals have full power to implement any plans they wish. In a blog entitled Murder in the Cities[20] I cover what happens when liberals are in total control of education and other social factors. This leads to poverty, crime, sloth, celebrations of sodomy, drug addiction, prostitution, many socially acceptable diseases such as AIDS and chlamydia and many other ailments that tend to drive wholesome people out of the areas never to return. Whole states like California are trending toward the tenets of liberalism and now they want to grow and tax drugs to help pay for their failures. Other states will foster and attempt to tax crime and perversions. They are also going broke and will default from extending their ‘education’ to show that going green is socially and environmentally and cost effective.[21] More likely, such phony adventures will lead to more asset bubbles of the kind that will sink the states in debt.[22]

The NYT sums up here:

“Better systems for gathering and evaluating information about teacher and student performance are important. But states could use the information they have now to improve schooling for this country’s children.”--Mr. Obama and No Child Left Behind

The educational process now needs to be clarified for most citizens: If you want your child to be educated with skills and reasoning power to function effectively in business then you need to get your kids out of public schools and into something better. This list includes private schools and home schooling. In addition, our young must be taught that our government via the school system is not educating us on anything but only working the stale levers of propaganda in the socialist or Marxist sense. Many of our students must be cautioned that some ‘teachers’ are corrosive parasites and trundling propaganda cadres and that they must ignore the ‘truth’ in their screeds but carefully parrot back the rubber-stamped hokum and fluff from their educational agenda on exams. Extending this, our young must be taught to identify such parasites in the workplace or in social life and to avoid any contamination from their rants and distorted ethics. In contrast, we mush teach our kids who to trust for schooling, counseling and training and that usually vacates the left. Much of this will transpire on the Internet where government cannot, as yet, interfere with informational and educational processes. That may come later.

These proposed “systems for gathering and evaluating information about teacher and student performance” are phony.  Our government is now run by political hacks. The only thing they will or ever find is that capitalism is bad and blacks suffer from ongoing racism. They will not accept social failure that starts in the homes of certain minorities. They must always find other excuses.

Liberals are losers and promote failure and cannot compete in our society without your taxes and your compulsory acceptance of their destructive and sordid existence. They are simple caustic parasites and will consume all your wealth if they can and then announce that capitalism has failed. These people are the enemies of a great society.

rycK [a 5^th generation Californian in exile]

Comments to: ryckki@gmail.com

Krugman Takes on China. We Must Blame Them for the Collapse of our Economy.

Abstract: Paul Krugman addresses the problem of China. The China Syndrome is Success and we have lost our economic and business power. But, China has our money so we need to force them to buy our exports to their disadvantage. Our economy is being wrecked by wild Marxian spending patterns such as ‘affordable housing’ and the new Obamacare, which will cost trillions. Obama wants to spend about 9 trillion more to push up our debt from 14 trillion past 20 trillion in a few years. Either we cut spending and drop phony social programs or our dollar will inflate and become worthless, the usual mechanism by which governments steal the assets of their citizens [kleptocracy]. Our government will not cut spending so down we go. Buy gold.

The political question of ‘equality,’ and this is only a political essay as there is clearly no equality in the world, ushers forth numerous ‘solutions’ to social problems the most important being the redistribution of wealth. Of course, equality is a myth.[1] This redistribution process is an ongoing project as people cannot seem to ‘share’ their assets in the manner deemed egalitarian by the Fabians and their followers thus defaulting according to the aforementioned definition which changes monthly anyway. Much of this is driven by the mathematical inspection that half of all of us must be below average and this result is not acceptable. Thus, a host of measures including wars, taxes, kleptocratic manipulations with currencies and various social programs are implemented in a quest for other people’s money to buy votes with. This means that the demand for higher taxes and other forms of wealth attachments including theft are the major ongoing project in the political world. They don’t have enough money so they need more and more and must get it from their citizens or, in this case, from abroad.  Borrow, steal or put in punitive tariffs. This quest extends to successful sovereign nations solely because they have the money and all other known governments need all they can get. China, with its massive reserves is thus the culprit by definition and needs to pay up.

As is tautologically universal in the Paul Krugman essays[2] his propaganda pieces frequently begin with a conundrum and broadcast the urgent need for the expedition for the ‘facts’ so the guilty can readily be identified. The solutions, as always, depend on higher taxes and more government and this harangue habitually pacifies the local left liberal to the point of boredom for the reason that they are already part of the game and know the score. But, the topic today is China. At this writing, there is no way to tax China directly from the U.S., California[3][4][5] [the best example of how not to run a government outside of Cuba or a few spots in Africa] or another pitiful sister such as New York or numerous other states that need the money and can’t seem to beg enough from our powerful federal government. Here, the usual chum-chucking and pestering of the politicians is of little use as those in charge of the world’s most powerful economy [China] are immune to the rants and cajoling processes currently employed  by the New York Times and the persistent iridescent lights that still radiate from their infamous Pulitzer Prize winner Walter Duranty.[6] So, what do we do? We consult an ‘economist’ for the answers: Paul Krugman.

The Problem has been identified and it is China [read capitalism here]

“Tensions are rising over Chinese economic policy, and rightly so: China’s policy of keeping its currency, the renminbi, undervalued has become a significant drag on global economic recovery. Something must be done.”[7]--Taking On China By Paul Krugman Op-Ed Columnist

Published: March 14, 2010  [Emphasis is mine in all quotes.]

How to best read my blogs:

[I offer extensive quotes in this blog so that the reader can view the exact language and can be confident that nothing was taken out of context or that nobody was misquoted. The easiest way to take in the salient points is to read the emphatic points in the quotes and then peruse my comments. Comments on my comments are always welcome: ryckki@gmail.com.]

Here the alarm is sounded and all eyes are upon our leader as he instructs us how to deal with China! Since most currencies float [since Nixon threw the Bretton Woods Agreement[8] into the latrines], we should all wonder who determines what the proper value of a given currency might be and who would set it right for the world.

Penalties [or Rewards] from an Undervalued Currency:

“To give you a sense of the problem: Widespread complaints that China was manipulating its currency — selling renminbi and buying foreign currencies, so as to keep the renminbi weak and China’s exports artificially competitive — began around 2003… the trade balance — of $46 billion. Today, China is adding more than $30 billion a month to its $2.4 trillion hoard of reserves. The International Monetary Fund expects China to have a 2010 current surplus of more than $450 billion — 10 times the 2003 figure. This is the most distortionary exchange rate policy any major nation has ever followed.”-- Taking On China By Paul Krugman

China refutes this notion[9]  but:

“The yuan was tied to the dollar until 2005 when it was allowed to rise in value by about 20%.

The peg was reinstated in 2008 when the global economic crisis cut demand for Chinese products and factories began closing.”[10]-- China denies currency undervalued Chinese Premier Wen Jiabao has rejected criticism that China is keeping its currency undervalued.

Of course they are holding the yuan low for export reasons. Everybody knows that. What people don’t know is that the exact amount of the reserves is a state secret like the Greek military spending.[11] But, China and Japan are buying fewer US treasuries since January.[12] This is because they fear that the US will kleptocratically[13] debase their currency using the common mechanism of inflation.[14] These are all well known facts so what will Krugman recommend we do?

“And it’s a policy that seriously damages the rest of the world. Most of the world’s large economies are stuck in a liquidity trap — deeply depressed, but unable to generate a recovery by cutting interest rates because the relevant rates are already near zero. China, by engineering an unwarranted trade surplus, is in effect imposing an anti-stimulus on these economies, which they can’t offset.”-- Taking On China By Paul Krugman

This is all factual except for the part where the world is not recovering although this is true it is not in Obama’s best political interests to call attention to this salient point. Christine Roemer signaled a recovery months ago. But, the statement oozes a bit further into the slime pits as the ‘rest of the world’ does not include the spendthrift types who fomented asset bubbles and frothed over and obliterated real-estate equity. China, India, Australia, Canada and Brazil, for example, are not in this mess and are not wildly printing money to keep their sorry politicians jobs in order. More asset bubbles are brewing in many states.[15]

Since there is no actual reference point for any currency because the gold standard excluded we cannot fix a price on the Renminbi without referencing other currencies.  Thus the trade ‘imbalance’ forces capital to flow into China and India and their economies surge at the expense of those who print money. Why invest in the USA with its punitive business atmosphere? Krugman knows this since he claims to be a economist. China is being accused of ‘unwarranted’ trade surpluses only because they are successful. Other countries, like Mexico, that cheat on trade rules are exempt because [and only because] they didn’t achieve international trade successes and this is probably only because their narcotics business profits are not well documented.

Now, he recites law for us:

“Twice a year, by law, Treasury must issue a report identifying nations that “manipulate the rate of exchange between their currency and the United States dollar for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade.””--Taking On China By Paul Krugman

Krugman now cycles his What-If scenarios for our benefit predicting, in his way, the outcome of each particular choice China might make and the effect on our currency and economy:

“If Treasury does find Chinese currency manipulation, then what? Here, we have to get past a common misunderstanding: the view that the Chinese have us over a barrel, because we don’t dare provoke China into dumping its dollar assets.

What you have to ask is, What would happen if China tried to sell a large share of its U.S. assets? Would interest rates soar? Short-term U.S. interest rates wouldn’t change: they’re being kept near zero by the Fed, which won’t raise rates until the unemployment rate comes down. Long-term rates might rise slightly, but they’re mainly determined by market expectations of future short-term rates. Also, the Fed could offset any interest-rate impact of a Chinese pullback by expanding its own purchases of long-term bonds.

It’s true that if China dumped its U.S. assets the value of the dollar would fall against other major currencies, such as the euro. But that would be a good thing for the United States, since it would make our goods more competitive and reduce our trade deficit. On the other hand, it would be a bad thing for China, which would suffer large losses on its dollar holdings. In short, right now America has China over a barrel, not the other way around.”-- Taking On China By Paul Krugman [Emphasis is mine in all quotes.]

There are some serious errors here. Krugman substitutes political policy for economics here.

[1] If China even quits buying our worthless dollars then somebody must buy up our massive and infective debt and who will that be? We can find buyers IF we raise interest rates to Greek levels say 5-7%. That hikes our massive debt service costs to the very dizzying heights that our economy cannot stand. China and Japan now shun the dollar and it is not reasonable that India and the Eurozone will buy dollars. They are not that stupid.

If we cannot find buyers we will just start printing dollars and monetize the debt, a known rabid ‘solution’ to financial crises. Note there is no hint of spending cuts that would strengthen our dollar and make it more attractive to hold as an investment. There are no hints of business tax cuts that would attract business to our shores. Only tax hikes everywhere.

[2] A Falling dollar only appears to help our exports as massive debts and massive debt service puts us in the same spot Greece is in now: Disaster. The Fed may not be able to hold interest rates to certain levels because of the massive global markets we are in. With Moody’s and Fitch rating services  placing a firm floor of 10% deficit to GDP ratios for a AAA rating it is not reasonable that our deficit spending could be held at that point when California, New York, New Jersey, Illinois, Maryland and some other states floundering in deficits themselves. Our US Treasury bonds could sink to junk level as California has.

[3] The 30 year Long Bond would have to be priced to accommodate inflation before the international set would buy and how high might that be? 10% 20% 30%? We doubled our money supply M2 since Sept of 2007 and much of that is somewhere on the secret Fed off-balance sheet accounts. So much for transparency.

[4] The 10-year bond reflects the price of capital so it would raise too thus making business expansion more costly and temp businesses to expand overseas as they have done for 20 years successfully.

[5] The only option Krugman misses is the threat to default on the Chinese debt and that would be an interesting choice.

Krugman then asks himself the question for which he already knows the answer:

 “So we have no reason to fear China. But what should we do?”-- Taking On China By Paul Krugman

Why let’s start a trade war! Let us do the same thing FDR did in the 30s with our agricultural products that was so criticized by Krugman and his Keynesians.

“But if sweet reason won’t work, what’s the alternative? In 1971 the United States dealt with a similar but much less severe problem of foreign undervaluation by imposing a temporary 10 percent surcharge on imports, which was removed a few months later after Germany, Japan and other nations raised the dollar value of their currencies. At this point, it’s hard to see China changing its policies unless faced with the threat of similar action — except that this time the surcharge would have to be much larger, say 25 percent.”--Taking On China By Paul Krugman

“I don’t propose this turn to policy hardball lightly. But Chinese currency policy is adding materially to the world’s economic problems at a time when those problems are already very severe. It’s time to take a stand.”-- Taking On China By Paul Krugman [Emphasis is mine in all quotes.]

The problem here is that there is no effort to make the dollar acceptable to the world as a reserve currency because of the massive US social spending. Our Obamacare is a joke and an expensive one and Social Security and Medicare are clearly broke.[16]If we were running a surplus then the problem would not be so critical and we would not have to crawl around the globe to find suckers to buy our inflating dollars. We are debasing the dollar no matter what China does but if China and India and Japan internalize their markets they can shut out the cheap US crap from their economies by cutting imports and trading internally and just let us sink. Five more years of 8-10% growth by India and China can allow them to form an Asian Common Market or Asia Zone that we might be shut out of because our currency is rotting away. There is nothing standing against their circling their own wagons and putting a 25 or 50% tariff on all US products. Where is the argument against reciprocity here from Dr. Krugman?

Here is a little message from China that Krugman would rather forget:

“Mr Luo, whose English tends toward the colloquial, added: “We hate you guys. Once you start issuing $1 trillion-$2 trillion [$1,000bn-$2,000bn] . . .we know the dollar is going to depreciate, so we hate you guys but there is nothing much we can do.””[17]—wild rant by Luo Ping, a director-general at the China Banking Regulatory Commission [Emphasis is mine in all quotes.]

So we keep right on spending because Paul Krugman sees little wrong with debt service rising to 3.5% of GDP, some 500 billion dollars.[18] Then, if the interest rates rise……………….

The big message here is that the US has restructured its economy to allow half-baked, cognitively disnimble persons [e.g., many of which are derived from  gratuitous government jobs offered to token-grade minorities] to snarl our economy with bloated government. These creatures are steered in the proper Marxist direction by 60s radicals whose hatred of American is the prime mover of their politics.

Our 14 trillion dollar debt will balloon to 20 trillion very soon and our currency will be essentially worthless by then and the radical left can announce that ‘Capitalism has Failed” and take over our assets. This kind of thing has happened in Third World before and we are joining that select set of economic losers.

Here is the Krugman view from one of his previous blurbs:

“But there’s no reason to panic about budget prospects for the next few years, or even for the next decade. Consider, for example, what the latest budget proposal from the Obama administration says about interest payments on federal debt; according to the projections, a decade from now they’ll have risen to 3.5 percent of G.D.P. How scary is that? It’s about the same as interest costs under the first President Bush.

Why, then, all the hysteria? The answer is politics.”[19]--Fiscal Scare Tactics [Emphasis is mine in all quotes.]

This guy receives only 1 point on this propaganda piece today: a point for “The answer is politics.” That is all he has as his economics is bankrupt.

Either we quit sending and dump this phony ‘affordable housing[20]’ mantra and forget socialized medicine or we will go broke. Social Security may break us before the Chinese do.

rycK

Comments to: ryckki@gmail.com

Spain’s Solar Energy Bubble Bursts. California is Next. The First of a Series of GanGreen Asset Bubbles Bursting.

Abstract: Well-meaning but idiotic government workers in Spain subsidized a hopeless solar power project that is now essentially worthless. The cost was astronomical and the government is now withdrawing the subsidies as even the most dedicated leftist can work the numbers and see that this project is terminal and will never work out. This is a classic debt-driven asset bubble formation folly and now it comes crashing down in disgrace. Clumsy excuses are offered for this mess by the Times and we are encouraged to hear that the government regulators in Spain are still ‘learning’ how to subsidize a worthless project. Maybe some of them can rush over to California and show them some new tricks before that state crashes in debt.

The New York Times, aka the Walter Duranty Papers[1] features a raster of computer keyboard finger-gepokers who can blend any news item, save  very few, with the goals of bigger government and higher taxes into high song and  noisy glory. We can always appreciate how such an advance [pick one at random] can ‘create jobs,’ ‘save the polar bears’ or bring peace and justice to our society with your tax monies. This is so wonderful that  we wonder why the Times is not the  Star Chamber Central clearing house for the world where our conduct, products and governments can be streamlined and continually improved by their careful analysis and expertise.

Then, a marvelous concept like busing, Social Security, War on Poverty, Cash for Clunkers or other enthusiastically sanctioned project[2] goes bust and the embarrassing necessity to offer justifications becomes paramount. Here, the excuses abound but are almost always focused on the evil capitalists. Today, the NYT reluctantly reviews what went awry with Spain’s magnificent surge into solar power as their green bubble appears to be bursting. The analysis is interesting as it discretely skirts around several salient points while avoiding the central issue:

[I offer extensive quotes in this blog so that the reader can view the exact language and can be confident that nothing was taken out of context or that nobody was misquoted. The easiest way to take in the salient points is to read the emphatic points in the quotes and then peruse my comments. Comments on my comments are always welcome.]

The Promise and the Glory!

“PUERTOLLANO, Spain — Two years ago, this gritty mining city hosted a brief 21st-century gold rush. Long famous for coal, Puertollano discovered another energy source it had overlooked: the relentless, scorching sun.”[3]--Solar Industry Learns Lessons in Spanish Sun By Elisabeth Rosenthal, New York Times, Published: March 8, 2010 [Emphasis is mine in all quotes.]

“Soon, Puertollano, home to the Museum of the Mining Industry, had two enormous solar power plants, factories making solar panels and silicon wafers, and clean energy research institutes. Half the solar power installed globally in 2008 was installed in Spain”-- Solar Industry Learns Lessons