Anarchy and Wealth

The only force capable of preserving a thing is the force that created it.  With this in mind, let's see if we can figure out where wealth comes from.

There are two definitions of wealth, both refer to the personal, but one definition regards an individual and the other in regards to a person in an economy, or a communal definition of wealth.  The definition of wealth in regards to the individual relates to property, money, goods and services that individual commands.  The other definition is in regards to the access to goods and services a member of a community can afford.  For the individual, property is for subsistence and the means of production.

In this secondary definition, wealth is when a free market and its division of labor gives us both constant innovation in goods and services, plus the natural commodification which results in more better cheaper faster production of the most popular introductions.  We see this process to some degree when phones were unregulated to a certain degree, and the combination of phones and computers gave us the astonishing computer revolution with the internet.  If we had a similar unregulation in medicine we'd see similar advances, and our economy recover.  But that is another point made her many times before.  Cancer cures, OTC, $29.95.

People may identify themselves in terms of a unit in the sense of individual, a family, or a cooperative of some sort.  What property they have may be shared among each group, or combined in some way.

Generally when we think of wealth, our minds drift to Rockefeller, Buffett and Gates, and not to the idea of an individual's access to goods and services.  These people certainly have exceptional wealth, since the wealth at their disposal, in terms of money, property, goods and services is in excess of the natural law definition of what you earned by mixing your labor with natural resources, your property no more than the total product of individual labor, or in the case of a family or a coop, of all members.

People might object, isn't Microsoft just a big co-op?  No, the legal fiction is a corporation is a person and a co-op is a membership organization.  What's the difference?

Let's look at REI, a coop, formed in 1938 by a group of mountain climbers.  None of the founders are in management roles.  End of year 2011 REI had member equity of $581,000 and 11.6 million members, or roughly equity of about 5 cents a member.  People are generally happy with the products, and all members are owners and any customer may become a member.  REI has no lobbyists, gets no tax breaks, no subsidies, indeed paid taxes at the personal rate of 35%.  Plus it pays out a rebate each year of about 10% to its members.  REI members are the single most effective recruiter of members.

REI sells camping equipment that you can take or leave.

Microsoft has quite wealthy owners (in one sense), frustrated customers (start me up - you make a grown man cry...), subsidies, most customers are not owners, (most owners are not customers) tax exemptions, massive lobbying, perpetual lawsuits, and spins off breathtaking individual wealth.  For a very few.  And for those few, it is well worth preserving.  Microsoft pays actors to say "I'm a PC."

Microsoft sells software you are rather obliged to use since the government and big business generally use it.

But people will object, those fellows were simply the most clever, played by the rules, rules we all agree to, and created wealth for many others as well.  Capitalism at its best.

Not quite, the rules are set by power brokers, lobbyists, judges, etc, and are much admired by those who benefit by them, which means all those in the commanding heights, and all those whose sense of entitlement assures they too are not only able to ascend such heights, but very much expect to.  And then there is too the minions who attend to the status quo, and have no desire to see their portion of the landscape change.  Finally, there are those third party rent-seekers who take taxpayer money to enforce agreements between Microsoft and its customers and vendors, and also such items and IPR.

How do corporations create wealth?   By conforming to the patterns and practices established in capitalism, the Microsoft players have done very well by the state.  Did the owners of Microsoft create their wealth, or did the state?  In the particular case of Microsoft, state regulated "IPR," state specification of Microsoft on computers (and the growth of government and Microsoft correlates almost perfectly), and the 1994 Justice Department settlement, in which Microsoft agreed change its marketing practices (and slam the door on anyone else competing the way Microsoft did, or as we say, shutting the barn door after the horses are out) are three ways Microsoft depended on the state for its concentration of wealth.  Exceptional wealth is always the result of state intervention in the economy.

So lets compare Microsoft and REI.  Microsoft and the exceptional wealth in the sense of the individual, is assured in perpetuity, sustained by the creator of the wealth, the state.   And REI, well, wait.  There is no exceptional wealth at REI, only the other kind, the communal wealth.  The professional managers are paid reasonable market rates, and the equity holders each have a slice worth 5 cents.  With shareholder equity that would disgrace a Pink Sheet listing, REI is one of the soundest outfits in USA. To be sound, 75 years old, and 5 cent equity is a tribute to excellent management and the value, or wealth finely matched to member consumption.

With Microsoft, the state created the wealth and the state sustains it.  With REI the members created the wealth and the members sustain. it.    With Microsoft it is wealth in that sense individual sense.  With REI it is wealth is the secondary sense, access to goods and services universally affordable.

At both coops and corporations, management can fire employees. But here is one more profound difference: at PCC and REI, the customers/employees can fire the managers, and do.

If we were to eliminate the state, the wealth of those associated with Microsoft would evaporate given that those who "own" it now simply would not have the perspicacity to work it. It would be "adversely possessed" away.  Those whose individual wealth from Microsoft was within their means to mix their own labor, the vast majority, would be able to keep their portion.  If we were to eliminate the state today, tomorrow REI would still be selling ice axes to mountain climbers.  Microsoft would evaporate for lack of state support. The state is the force which created Microsoft, people are the force that assures REI's continuance. The only force capable of preserving Microsoft is the force of the state.

It is not envy to ask why we pay taxes to support patterns and practices in law to maintian a state that maintains the individual wealth of some individuals.  We are not advocating the transfer of wealth, at least not by the state.  Only by natural law.  Let everyone keep what they have.  Just don't make us pay for you to keep it.  All we are saying is, is give free a chance. Instead of sitting on exceptional wealth, come out and play. We already know we need no state to enjoy private property commensurate with our abilities and wealth in the communal sense, as in affordable camping equipment at REI and cancer cures, $29.95 over the counter.

The economy we have now has fallen apart, and we see the powers that be and their facade, the state, have many tricks yet to deploy.  Repudiating govt union pension liability is rather early in the options available.

It would not hurt our economy anything if the state were to put a 100% wealth tax on what it creates, that is, corporate wealth, and the individuals who derive their wealth from corporations. Let the corporations pay their "employees" ever more, and watch it taxed at the personal rate.  Let the stockholders watch management gut the company for paychecks.  To whom will they turn in plaint?  For all their talent, let them pursue self-employment, like the rest of us.

The Gates family is a heavy supporter of inheritance tax which dispossesses family property directed at subsistence and means of production.  Vast resources are directed at strategies aimed at circumventing these laws by small businesses.  At the same time, the Gates family and Microsoft has armies of lawyers to assure the the Gates wealth, in the individual sense, is in Foundations that assure the wealth is expendable on Gates whims but untouchable by the State and unavailable for the competitive market.

Sitting on vast individual wealth, we are denied the good of the competition of very talented people.  This is the real cost of capitalism, not what Joseph Stiglitz has to say.  The state is the force that created such vast individual and exceptional wealth.  We are denied the free market and internet-style innovation in such fields as medicine because of the state and the laws and patterns and practices it enforces.

We see in spite of the state what communal wealth would like like in the individual efforts of persons and co-ops.  The most revolutionary thing a person can do is start a business.

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Wealth And Money and Currency

Anonymous, the most prolific writer in history, has visited my blog and left a question:

Is it best to hold our wealth in metals (gold or silver) then?
We live in an imperfect world, but what is the best currency then to store some wealth in? Hong Kong dollar?

And a trick question at that.  "Is it best to hold our wealth in metals...?"

But the definition of wealth is what range of goods and services is accessible to how wide a range of demographics with their own money.  Weal, the root, means common good, well-being, prosperity, and wealth being the state thereof, and commonwealth is a group sharing in that.

And as I have pointed out elsewhere, the root of the word prosperity is "spe" or hope.  Prosperity is not what you have, but that your hopes can be met.

Have metals entered into the discussion yet?

Money, those metals, are a medium of exchange and a store of value.  No mention of wealth in that definition.  Your wealth is the degree to which you contribute to the commonwealth.  You wealth is your contribution along with all of the others which collectively creates wealth.  The paradox is no wealth for you if you do not contribute, your claim on wealth is the degree to which you have built up the means of production to serve others.  The irony is you can live off others if you do not contribute.

The idea that wealth is what you can stash away for a rainy day has been odious throughout history.  Today it is celebrated, and a key element of all celebrities is they are rich in the sense of metal stored away, and contribute little if anything.

That money is a medium of exchange is only in the service of exchange, that is facilitating the commonwealth and prosperity (and the peace that attends the provisions against want.)  That it is a store of value is a consequence of the medium of exchange coming from a commodity, and necessary for those who need to store up money to meet the EOM commitments.

No where is money to be used for anything else, or something absurd, like retirement, an idea some cracker named Otto came up with as a solution to too many old people.  This idea, like police departments, is about 150 years old and utterly destructive.  As long as a person is alive, he has something valuable to contribute.  Anyone who insists he is no longer necessary, and may retire, may find his argument convincing to people who want to eliminate the cost of paying for the retirement.

But that is just for the future.

So wealth by definition is not metal in a safety deposit box, but a pizza oven or a laboratory putting out bacteriophages, or clinic on a corner that cleans teeth.  Money is necessary to these people as a medium of exchange, and since they need to hold on to it for EOM needs it also works as a store of value, but its purpose is in serving the commonwealth, not to escape responsibility for participating in the commonwealth.  Once you imagine money is wealth then you have deluded yourself and denied yourself the good of contributing to true wealth.

Take those metals and start a business.  Consider your retirement plan an event where you grab your chest, gurgle, and drop dead mid-sentence while making a sale.  "Tag 'em and drag 'em."

To consider money as wealth is to invite very unhappy results.

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Tim Ayles Awfully Wrong, Like His Target

Tim Ayles is getting good press on an article he wrote.  He is attacking the idea of the demise of the USCurrency.  He is right, it will not die soon.  His analysis is awfully wrong.

But to argue that government spending is all a waste and the money spent ends up being vaporized, is wrong. Government spending, even wasteful spending, is someone's income. Food stamps become the income of Safeway and Albertson's. Employees who work there get paychecks, and the shareholders get dividends. That money ends up being spent as well. Again, not fair to some who are productive, but also not a waste. If you run a productive business, chances are you too have received some of this "stimulus" money. If you are that against government spending, go to great lengths to make sure you don't let any of that money get into your hands, and then watch your business struggle.

Here Ayles forgets something:  where did the money come from?  Government spending is my income mulcted from me.  Why should I be forced to give it to Safeway for nothing in return?  Ot worse, to have Ssfeway give the benefit to someone else? Which causes that someone else to not produce, like a farmer paid not to grow.   It is far worse than Ayles perceives in his keynesian universe, I am denied the good of the creativity and productivity of those who simply have money transferred to them and on to Safeway.  Ayles misses both sides of the equation.

There is this funny little thing that keeps us from being truly free men. Taxes. Grocery stores don't have the luxury of deciding to exist on barter as some would have you believe. It's not that they don't desire such situations, but the government mandates they continue to accept paper money by force. The US Government has determined that taxes are to be levied on owners of property and services, and those taxes will only become extinguished in the form of paper dollars. Failure to submit to this monster will require time in prison. So under the motivation to not spend time in jail, citizens work tirelessly, offering labor and goods in exchange for paper dollars so they can feed the tax monster. I am not saying I approve, but it is the system in which we currently live. Thus, individuals and businesses who can create wealth are forced to figure out ways to obtain paper dollars. Capitalism allows a small carrot of incentive in that the more dollars you can obtain by productivity, the better lifestyle you can live, even though taxes go up with the higher income.

Or not.  A financial adviser reckons wealth in dollars.  Again, there is more under the sun that is dreamt of in his philosophy.  How about lifestyle?  But Ayles thesis, that contrary to Gloom and Doom reports, foreignors will keep accepting dollars is not because we are forced to pay taxes in dollars, but because the USGovt still has countless ways of mulcting ever more value, and rich targets at cutting expenses.  California’s situation is ripe for wiping out the debt by repudiating Gray Davis’ errors.  If it comes to protecting the dollar or taxing pensions 100% over $30,000, and 100% on the second pension, expect the tax.  The dollar will stand because the USTaxpayer can still stand so much.  Sure, the dollar will fall, if and when things get to Stalingrad-like conditions in USA.  It's goofy to think the system is sound, it is merely tradable.

I try to stay away from businesses who leech the system of wealth creation when I invest. Entertainment companies for example do nothing to create wealth in America. These businesses would not exist unless producers created wealth, which in turn allows that wealth to be spent on these types of businesses. I am a big believer of going through your portfolio and ridding yourself of the leeches. Spend money with the leeches, but don't invest in them. They do not create wealth, they take it.

Odd definition of wealth.  Entertainment companies are notoriously obscure in accounting and no doubt funny in reporting, but if they make money offering people options in entertainment, how is that not wealth?  Or again, is wealth only dollars, or ever more access to goods and services by ever more consumers, including entertainment?

It gets worse..

Take a look at any defense contractor such as LMT, GD, NOC and LLL.

They are all cash cows, and most all of them get over 90% of their revenues from government spending.

They spend money on stuff that kills people and blows things up. Not very "productive".

Yet, those businesses are gushing cash.

This is awful.  Who cares if a company gets money to kill people (including USA soldiers) and blow things up (police crash a drone into a police tank!) in pointless elective wars, as long as it “creates wealth?”  A theme I hit is progressive USA is essentially racist, and dedicated to the Darwiinian project of eliminating people who are brown or darker.  the right wing wants to do it overseas, the left wing in USA.  There are countless people in the commanding heights who promote it, and the casual way in which war crimes are accepted as long as it is “creating wealth” (if that is how you define creating wealth) it is ok.

Ayles goes on with a reductio ad absurdum argument about giving everyone $1 million, to suggest it would not matter.  Back to my first paragraph.  It would so distort the economy by redistribution of wealth, misallocation of assets, and denial of productive participation in the economy, by the recipients, we’d never recovery.

His price of a chocolate bar in time taken to earn it again misses on two points:  a chocolate bar not only costs more today if you account for the weight, it is no longer as wholesome as it was back then.  the deterioration is theft.  Better to take the example of a 1964 Kennedy half dollar (silver) which you buy you a motorcycle tank of gas.  Today that would cost you $10.00.  Or you could sell the 1964 Kennedy half dollar for $10, and buy a motorcycle tank of gas.  The point is, gas was 50 cents a tank in 1964 when money was money, but it is $10 when money is funny.  50 cents is not the same thing as $10, the difference is $9.50 wasted in reduced benefits so many places.  In a properly functioning economy, prices naturally fall.  

Ayles is simply describing the Soviet Union economy as a good thing.  By all means, go communist, but try China instead.  they seem to have a more lasting communism.  Of course our system will fail.  They all do.  The question is how an individual responds.  Rome was invincible, But Seneca and his crew knew better.  From Miss Stroup:

"Quid autem interest quomodo sapiens ad otium veniat, utrum quia res publica illi deest an quia ipse rei publicae, si omnibus defutura res publica est?" (Seneca, de otio, 8.2)

In this case, otium is time characterized by private/social reading/writing as opposed to public involvement (Correspondent’s explanation) Translation:

"But what does it matter how a wise man comes to otium, whether because the state is unavailable to the man or the man is unavailable to the state - if the state is going to fail everyone, no matter what? "  

Whatever Ayles track record as a financial adviser, one should keep in mind Nassim Nicholas Taleb’s book on financial advisers and survivorship bias.



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Forbes Defines Wealth

I've been picking on Forbes for having the word millionaire or billionaire on every cover, and was astonished to see neither word appear on their Sep 29 edition, although the cover story is on the world's richest doctor (who happens to be a billionaire.)  As if to make up for this oversight, the Special Edition Oct 20 copy has five covers, one after another, each with a billionaire.

On page 264, Forbes editors quote a 2001 edition, defining wealth:

The Forbes 400 demonstrates that the real wealth of our nation is not physical - gold, jewelry, large cash accounts, lots of land, - but metaphysical, what stems from the human mind - creativity, imagination, innovation, inventiveness.

Boy is that bollixed up... yes, medium of exchange and land is not wealth, true, but neither is creativity, imagination, innovation, inventiveness.  Along with land, these are worthless without human action.

Next, after saying that, Forbes celebrates 400 people based on gold, jewelry, large cash accounts, lots of land.

Human action mixed with raw or owned materials creates property which may be pledged as assets against loans (at no interest) or simply money invested into projects which bring out new solutions or more better cheaper faster provision of commodities.  Wealth is the range of goods and services available to what range of people with their own resources.

On Page 25 Steve Forbes give his current definition.  Money is not wealth.  (I wonder how he defines money?)  He goes on to say money measures wealth.

Wait, what?  How does how much medium of exchange a person happens to be storing measure the range of goods and services available to what range of people with their own resources?

Forbes still has a mix-up of definitions...  and gets a lot right about money as a medium of exchange, and how financing matters, and condemns Keynesianism and its sinecure with a halo.  Forbes praises the free market and capitalism (well, pick one Steve, they are mutually exclusive)...  and then says those officious government hacks despise those who got wealthy providing the very goods they buy.

Just so... but something those government hacks know is capitalism picks winners and losers, so don't complain when the system under which your particular skillset thrived also demands you kick back to those whose particular skillset will go unused.

If Forbes wanted all of that creativity, imagination, innovation, inventiveness to optimize the range of goods and services available to what range of people with their own resources, then the optimal means is the free market.

But first you have to define money properly, next wealth, and then accept there will never be "exceptional wealth" in terms of gold, jewelry, large cash accounts, lots of land any longer since there will not be the capitalist system to enforce the rules that require pipefitters pay to protect Bill Gates' intellectual property rights, etc, ad nauseum.  No capitalist patterns and practices, not exceptional wealth as celebrated by Forbes.

Instead, we'd get a range of goods and services available to what range of people with their own resources, brain cancer cure, $29.95, OTC, sold by Jimmy's Better Cures, a world class laboratory out of Inglewood.  Fast Food would stop inducing diabetes since their subsidies of diabetes inducing ingredients would disappear.

The great big mystery in life is what would be?  We know what we have.  We see what capitalism gets us, and the people with the guns think it is just fine.  What we do not see, is what we might have.  When telephony was deregulated, we saw vast unrelated fields link up to bring astonishing new goods and services.  Yet, we will not hazard another instance of deregulation, what I would call "free market lite."

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A Defense of Capitalism

Here a fellow outlines the conflict between the capitalists and the communists, and comes down for capitalism, for its putative generation of wealth:

The populist/reform movement was concerned primarily with the distribution of wealth, not its creation. Lloyd and his fellow reformers viewed wealth as a static quantity, and rather than encourage further production, they preferred to advocate more equal distribution of that which already existed. However, they overlooked the fact that when production is discouraged, the amount of wealth available to distribute ultimately falls. This is why plans to achieve equal wealth invariably result in equal poverty.

So the capitalists create wealth and the communists distribute it, but they are mutually exclusive in his view.  Distributionism leads to poverty.  No doubt, but I doubt capitalism creates wealth.  There are some elements of what seems to be free markets in capitalism, but in toto it is no such thing.

Free markets on the other hand, both create wealth and justly distribute it.

Here is a serious mis-definition:

In a capitalist society, in which the government has no control over the economy,


I've seen many definitions of capitalism, even the laughable one above, but no definition that condemns charging interest (usury).  What evils capitalism engenders is directly and almost exclusively the result of usury (interest) which is a practice not sustainable without government protection.

The article continues:

However, American society was the first in which that wealth was attained, not by conquest or confiscation, but by production and trade.

True, true.  If you do not count people of some African heritage.  And the pre-columbian peoples here.  But if you do count the people conquered, slaughtered and lands confiscated, then USA is no different.

And the article summarizes:

But the Founding Fathers were political philosophers, not moral philosophers; therefore, capitalism was never provided with the proper moral justification.
 

What?  Adam Smith was specifically a moral philosopher, his title at the university.  He wrote plenty leading up to "Wealth of Nations" published in 1776.  Perhaps the lack of proper moral justification comes from an impossibility to provide one.

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Shostak On Stock Market Bubble

If you want a financial analyst who works in history, theory and specific effects, you'll do not better than Shostak.

As to QEVII or wherever we are, how it is affecting wealth, here Shostak is using the word wealth correctly..

An increase in money supply sets in motion an exchange of nothing for something, which amounts to a diversion of real wealth from wealth generating activities to non-wealth generating activities. In the process this diversion weakens wealth generators and this in turn weakens their ability to grow the overall pool of real wealth i.e. weakens their ability to grow the economy.

If one reads wealth as "I am a speculator and I want what will give me the most money with the least investment" then Shostak is against that which will so distort the economy that such opportunities obtain.  If wealth is the widest possible range of goods and services available to the widest group of people spending their own money, then such opportunities will not occur.  One is rather obliged to work for a living, which is a dreadful idea to many.

They would rather rule in hell than serve in heaven.

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Against Charitable Foundations

Bill Gates and Warren Buffett are leading an effort to get the top 400 billionaires in USA to “give away” most of their wealth.  Long ago Bill Gates said he planned to give away 95% of his wealth, which was met with derisive notice that would leave him a mere 2 or 3 billion.

The list of people who have pledged so far can be found at http://givingpledge.org/ . The billionaire founder of Dominos said he too already announced he was giving his wealth away, “planned to die the way he was born, penniless.”

This of course is a scam, one you and I must pay for.  Bottom line is nobody is giving anything away, but if you are not uber-wealthy, you’ll have to give yours up.

None of these people are giving anything away.  This is how it works:  The uberwealthy people hire an army of lawyers to set up foundations to give the money away, called by the IRS 501c3.  The money is put in the foundation, and the foundation is controlled by the family.  Now the wealth is free from taxes, and is protected by an army of civil servants, that you and I pay for.

The money is invested to earn a return, so it grows larger, tax free.

Next, these foundations are obliged by law to spend 5% of their assets in charitable giving each year. But since 5% is usually less than the investment earns, the foundations are usually growing.

What can they spend the 5% on?  Salaries to family members that serve in the foundation.  private jets and limousines for family members serving the foundation.  All sorts of living and lifestyle expenses “serve the mission of the foundation.  A family member paid $250,000 per year to work for the foundation is of course taxable income, the the salary is paid by the ever-growing foundation, which is tax-exempt.

Some foundations spend the majority of its obligatory disbursement on itself and insiders, sometimes up to 100%.  Salvation Army is renown for only spending some 7.5% of their money on administration, with 92.5% getting to people in need.

Charitable Foundations are great for the family, who would otherwise be obliged to manage all that money in the real world, if they could not protect it in a 501c3 tax-exempt foundation.  In the real world the first generation makes it, the second generation enjoys it, the 3rd generation loses it. Such is the naturally redistribution of wealth.  But not with the 501c3.

The bad part is this mass of wealth, free of competition, now has funds to spend on really whatever it likes.  Money can be given to nonprofit advocacy groups.  Do-good programs like buying mosquito nets for African villages, programs that do more harm than good. They can secretly finance strange science.

In fact, their is little the gates foundation has done that would not be approved by any given congress.  This wealth is usually spent to maintain the status quo, or advance some given agenda.  This concentration of wealth and power is certainly undemocratic.

A good example of this in action is Bill Gate’s dad works tirelessly to renew the inheritance tax on anyone who cannot afford an army of lawyers to keep their money, like the Gates can. Inheritance tax kills small and medium sized businesses, because people inheritors let a business die rather than pay the inheritance tax on inheriting the business.  

Also, since these businesses make or break a newspaper for advertising revenue, such taxes have pretty much killed off the city newspaper.

Have a small business worth 5 million owned by dad?  Take out $5 million in life insurance on dad, paid by the business.  Dad dies.  Life insurance proceeds are not taxable.  Take the money and run, one more small business dies.  Government policy of get big or get out is advanced, day by day, business by business.

In the bad old stalinist communist countries, they used to execute people and send a bill for the bullet to the family.  In capitalist countries, they make you pay for the bullet before they execute you.  Our tax money goes to support a superstructures of legislatures, courts,  lawyers, regulators and law enforcement that keep the 501c3’s safe from the rabble.  We pay for it, then they harm us.

An important reform would be to eliminate all 501c3, nonprofit, tax exempt status.  Yes tax churches too, but it might help us all if the clergy experienced taxation.  it would eliminate one option for those who would hijack democracies.  We do not need an elite in USA, so let’s not pay our taxes to protect their assets.  Let’s eliminate the 501c3, and the superstructure that maintains it, and then cut those taxes devoted to it.  Country’ll grow.

The Gates family made the billions in business, let them lose it too the old fashioned way, through competition.

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What is Going On...?

There are very many definitions of money, depending on who you talk to. Money is a medium of exchange, and anyone who defines it as anything more than that has designs on separating you from your money. Click to read on...

In terms of money, savings is wealth. In most economic theories, money and all other wealth can be objectively calculated, whereas the Austrian theory says it is subjectively calculated. Say I own a box of apples. I feel it is worth $20. You feel it is worth $10. There is nothing to keep the two of us at arriving at a price of $15, making us both wrong, but satisfied.

Now what is my $15 savings worth? All savings turn into investments. Either they are lent out, used to buy machinery or equipment that enhance my earning power, or I put it in a mattress where it gives me a confidence to do something risky, like go to school. Or I buy a painting that inspires me. It is all investment, and we would all generally disagree what it is worth.

In spite of this, progressives tell us they can objectively know value. To do their good work, they need to institute Communist manifesto item # 5. “Centralization of credit in the banks of the state, by means of a national bank with state capital and an exclusive monopoly.”

Even under communism money is still a medium of exchange. But at some point money taken over by government in every case in history ends up in disaster. So much so, our government take over of money in 1913 was rather poorly hidden behind a legal fiction that the Federal Reserve Bank is a private entity (Ha!) and even in Hong Kong they do not let the government control money, indeed, various private companies issue money, they way it should be in a free market.

With control of money, governments tax and transfer wealth... so far so good. It is wrong to take money from one group and give it to another, we call this stealing, but it does work. It does transfer wealth with some unintended consequences, but it works. It is wrong, but it is not real harmful, since the targets learn to adjust.

But when the powers-that-be go to far, the productive elements in society resist, and the progressives see diminishing returns. In this case, schools of economics such as supply side, Chicago and monetarists figured you can inflate the money supply and stealthily increase taxes by means of inflation. The advantage here is the cost of inflation is pushed down the line so banks and industry avoid paying the inflation while ultimately workers pay the most cost. It is so subtle few realize that 40 years ago one wage-earner could own a home and support a family, while now mom has to work just to pay the taxes to keep unessential government workers employed, and kids come home from government school to empty housing.

This inflation distorts the economic landscape and causes malinvestment., too much unproductive capacity. The diminishing returns reappear, leveraged.

So the government tries to stimulate growth to employ excess capacity by printing more money. Which is pouring gas on a fire, making things all the worse. Stimulus packages and printing money is both wrong, but it is also harmful because it is transferring money that does not exist to unproductive capacity. It is either paid for by diluting what wealth people have, or charging off to the future some folly today.
The democrats tax and spend takes wealth and forces it around. At least there is wealth being spread around. The republican lend and spend is based on pretend wealth. It was wildly successful in stimulating consumption, and the productive capacity to deliver much. But such bubbles pop. Since all politicians benefit from both scams, they all vote to bail out the system that benefits themselves.

Can you protect yourself?

“Too big to fail” banks were bailed out with money they will never pay back, so it was nothing to agree to pay 5% interest on the bailout money. This is bad. But it gets worse. To advance the US Govt policy of “get big or get out,” the plan requires small responsible productive banks to join the large irresponsible banks ini taking bailout money. IN this way , no bank is allowed to be rewarded for being prudent in its banking practices, and expand where to powers that be have failed. At 5% return, banks must lend out at about 8% to turn a profit. There is nothing out there investment wise that can earn 8%. Lend the money and you will go out of business. Bank officers at small responsible banks can say good bye to equity, stock options, pensions.

Better to just park the money and collect the money on the bonds. Bubble time in bonds

This is a twist on outlawing shorting. In one you are not allowed to protect yourself, in the other you are obliged to join the losers.

You can fight this entire system. Find your customers, develop your product, and get enough orders to cover the suppliers minimum, in a workable amount of time, profitably.


John


PS

Here are all ten points of the Communist manifesto.

1. Abolition of property in land and application of all rents of land to public purposes.

2. A heavy progressive or graduated income tax.

3. Abolition of all rights of inheritance.

4. Confiscation of the property of all emigrants and rebels.

5. Centralization of credit in the banks of the state, by means of a national bank with state capital and an exclusive monopoly.

6. Centralization of the means of communication and transport in the hands of the state.

7. Extension of factories and instruments of production owned by the state; the bringing into cultivation of waste lands, and the improvement of the soil generally in accordance with a common plan.

8. Equal obligation of all to work. Establishment of industrial armies, especially for agriculture.

9. Combination of agriculture with manufacturing industries; gradual abolition of all the distinction between town and country by a more equable distribution of the populace over the country.

10. Free education for all children in public schools. Abolition of children's factory labor in its present form. Combination of education with industrial production, etc.

Name one that has not been implemented, more or less, in USA:

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Shostak Explains False Economy

You cannot do better then Dr. Frank Shostak for explanations of what is going on financially.  This report pulls it together, read the whole thing.

These individuals are now engaging in the exchange of nothing for something. (Individuals that are engage in bubble activities don’t produce any meaningful real wealth they however by means of the pumped money take a slice from the pool of real wealth. Again note that these individuals are contributing nothing to this pool).
Now bubble activities like any non-bubble activity also require tools and machinery i.e. capital goods. So various capital goods generated for these activities is in fact a waste of real wealth. Since the tools and machinery that are generated here are going to be employed in the production of goods and services that without the monetary pumping of the central bank would never emerge.  (Wrong infrastructure has emerged).
These activities do not add to the pool of real wealth, they are in fact draining it. (This amounts to economic impoverishment). The more aggressive the central bank’s loose monetary stance is the more drainage of real wealth takes place and the less real wealth left at the disposal of true wealth generators. If such policy persists for too long this could slow or even shrink the pool of real wealth and set in motion a severe economic crisis.

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Say It Ain't So, Mish!

Mish claims the road back to prosperity is shared sacrifice.  He must have been blinded by the points in the specific article he was referring to and did not think through his argument.

What, in what proportion, is to be shared by whom, and on what schedule?  To believe this can be figured out, and summarized in the slogan "shared sacrifice" is to be as obtuse as the people who got us in this mess in the first place.  Mish is not obtuse.

Mish quotes from an interview that gets at the heart of the matter:

Right now, the four main components of the federal budget are Social Security, Medicare, Defense and interest payments on the debt.

Hang on, we have an immediate problem not contemplated by that list: misallocation of private wealth.

So there are two problem areas, overinvestment in public debt, misallocation in private debt.  The flip side is the unstable distribution of assets and wealth.  Here the government has no problem, because it can always commandeer private property, using violence if necessary.  It is private property where the pain is felt, and whence government wealth and incomes are derived.  So the problem is entirely within the sphere of government policy, the pain is entirely within the sphere of private property.

Now the patterns of laws in the United States prefer the concentration of wealth in the hands of the few as it militates against new wealth creation.  Yes, one big culprit is the federal reserve system, but the other is the fractional reserve laws and the problem if usury being protected in law.  (Usury, like gambling, should not be outlawed, but the usury portion of loans, like gambling debts, ought not be enforceable in the law. But that is another day...)

So to this idea that we can get out of this mess by shared sacrifice. What is it that we are suppose to share?  What is the sacrifice?  Is it we need to work more for less?  Get less than promised when we began pitching in to the above systems?  Die earlier so we are less of a burden?  Hard to say what is contemplated.  

But what is clear is that shared sacrifice means that Social Security, Medicare, Defense and interest payments on the debt, all failed government policies, is what is to be supported by our sacrifice.

We are on the path where bailouts and regulations will continue, all in the name of “shared sacrifice” and each program will have winners and losers, spiraling downward, where each attempt at sharing alienates ever more people... so we will need a strong man to fix problem. It will get so bad that we will need a “strong man”, a fuhrer, to lead us out of the problem.

We’ve opened the way for the US Military to take over and provide the strong man necessary to save our country.  Count on it.

How to redistribute without requiring a strong man?

The Amish are exempt from Social Security, so let’s learn from the Amish and get rid of it.  Medicare has ruined medicine, so let’s go back before Medicare in the 1960’s to when we had doctors who care.  Let’s follow the constitution on defense and save trillions.  And let’s repudiate interest payments, and return the principal.

That ends the failed government policy problem.  But that still does not solve the problem.   Our system promotes the misallocation of private wealth. 

Everyone holds exactly the assets and liabilities they gained during the boom that the failed system allowed.  One’s balance sheet perfectly reflects one’s praise or blame.  By returning to free markets, and property rights, those who have ill-gotten gains will have a hard time keeping them.

For example,  if we had respect for property rights, and a deleveraging of anti-market regulations, Goldman Sachs would find it simply does not have enough employees to keep track of all of its assets.

Goldman Sachs has trillions in assets under its control, and protected by a anti-free market collection of laws and regulation.  Among those trillions in assets is title to a hotel in Bakersfield, California, from which they mulct the profits while enjoying a tax write-off..

We have in the free market property rights a system called adverse possession.  One may take ownership of a piece of property, say a hotel, after a period of time, say ten years, as long as your use is exclusive, notorious, adverse among other elements, it is yours.  

So say the employees of that hotel form a corporation, or a soviet, or whatever, and stop sending money to Goldman Sachs.  Say 100,000 such assets did so.  Goldman Sachs would never get around to challenging all of the adverse possessions, so most would in time transfer to the adverse possessors.

A speculator with one condo too many is going to lose it.  Prices will fall.  Economy will recover.  Country’ll grow.

In precisely the measure the bad laws allowed Goldman Sachs to arrogate wealth unto itself, the undoing of those laws would redistribute the wealth into exactly the right hands.

So enough of this talk of “shared sacrifice.” What we need is a return to freedom, and stop propping up failed policies and those who fail under that system.

To return to prosperity we must return to a natural economy, not fix the unnatural things.

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Gilder on Gold and Bitcoin

When teaching I draw on some famous insights of George Gilder to make points.  He has come out in support of the gold standard, and inscrutably bitcoin.  I read his argument, and post-study, his position is still as inscrutable.

Let's start with his summary, to get to his point:

The likely path of Bitcoin’s advance begins on the Internet
and only later moves to the domains of government
currencies. As it gains momentum, its price will converge
with the price of gold, and Bitcoin will become bitgold.

OK, nothing special there, IF Bitcoin works out, it will be co-opted by governments to replace cash.  Well, that has been the conspiracy theory all along, that it is a government gig, always was.  That Gilder is predicting it will get there is nothing new, but his argument for its inevitability of becoming parallel to the gold standard, and mutually self-reinforcing is new.  He takes 100 pages to make his case, worth reading because it is Gilder, but Gilder usually makes sense.  Not this time.

Let's look at highlights of his paper, but check your premises before you go in.  He does a lot of definition shifting in this piece, unconvincingly.  How do you define wealth, time, money and do you believe the internet is a net benefit? Hang on to those so you can compare and contrast.  he comes at you out of the gate:

Is money a measuring stick that gauges the value of economic
activity? Or is it a magic wand wielded by central banks to
summon new economic growth?
Is money chiefly a source of information? Or is it an embodiment
of wealth that can be created out of thin air.

So he starts with a straw man argument about the definition of money, and offers a false dilemma as an answer.  He is spicing it up with name-dropping.  I told you to hold onto your definitions, because when you compare the standard definitions with his changes, the changes are useless in the real world, and only work in the transformed Gilderneueweltanshauung.  Why not just come up with new definitions for your novel ideas, instead of loading yet another set of definitions on terms economists keep layering up?

Anyway, techies love to think they world started in 1975 when they were born, because they were born, and before that nothing else happened.  So the world is completely new...  and Gilder knows how to rock this conceit:

To understand our current economic stagnation, we need to step
back from the current debate and ask a broader question: What is
money? And in particular what is its role in a new 21st century
information age economy?

That ain't gonna fly with those who've seen both sides of the 1975 divide.  Those of us who actually produce things, as opposed to the false economy David Stockman chronicles, know there is nothing new in the 21st century regarding info and economy, only that thing can move faster, but never better, that attendant to this putative improvement is astonishing waste, not efficiency.

Gilder does ask the right questions, one I have been answering in this blog repeatedly, because it is a premise upon which one proceeds, and determines direction:

The key to understanding good monetary policy is to address the
question: What is wealth, and how is it created? What is the role
of money in the creation of wealth?

And he answers the question:  "Wealth is knowledge."  Hmmm... ok, I certainly have argued a college degree should be in the humanities, but that is not what he means.  He then gives the standard anarchist means for economic development but weaves in his new definition:

Wealth is created by the learning curves that result from a million
falsifiable experiments in entrepreneurship by economic actors in
mostly free market economies.

Well, knowledge comes from the market process that Gilder mentions, and prices as quoted in money, are the signal as to whether your meeting the needs of the market, but please some how connect this to "knowledge is wealth"  No, all that is left behind, we are off to the races.

He goes on to make fairly standard criticism of monetary central planners, and he brings in another important estimation that is new to me:

Meanwhile, Wall Street bank profits, effectively guaranteed by
government policy, return to previous highs. Currency trading to
set the measuring stick of monetary values yields a hypertrophy of
finance. Transacting $5.4 trillion every twenty-four hours, foreign
exchange markets are now scores of times larger and even more
volatile than the markets for real goods and services that they are
supposed to measure. Rather than promoting enterprise, banks
harvest the profits of currency changes, imposing a volatility toll
on businesses that have to hedge all their activities against the
chaos of floating moneys.

Well, this is another example of the waste of the FIRE economy, finance, investment, real estate.  he also notes the trillions the banks have invested to track this valueless false economy activity, all to drain the resources of productive people to bankers.

Next he starts bringing in a Bitcoin conceit to fit in his new definitions:

The theorists of Bitcoin explicitly tied its
value to the passage of time, which proceeds relentlessly beyond
the reach of central banks.

From here he tells us "money is time."  Not time is money, silly, but the opposite!  And until you get that, you'll never get Bitcoin, and you need to get with the program.  The he ties bitcoin to gold:

Bitcoin is a major experiment in new Internet infrastructure,
but gold works the same way in the global economy. Gold can
function as money because it operates outside the financial
economy as an index of the time it takes to extract it from the
earth. Because it becomes more costly and time consuming to
extract thinner and deeper lodes of the metal from more remote
places, gold remains a lodestar amid the monetary turmoil. The
cost of extraction rises almost in proportion to the advance of
mining technology. Gold thus cancels capital and technology and
becomes almost a pure measure of time.

Ugh...  as though there are any similarities between gold mining and video games.  But as long as your brain is dulled by arguments grounded in logical fallacies and shifting definitions, while your brains is mush if you have not maintained your definitions, comes a new definition:

The source of the value of money is time—irreversible, inexorably
scarce, impossible to hoard or steal, distributed with remorseless
equality to rich and poor alike.

There, now it all comes together.  The new definition, its benefits, all to be contemplated at leisure while spending decades unemployed as the economy goes bad and there is not a single thinker on the horizon who can offer a solution.

Gilder cites a fact that perplexes most people.  The general impression is internet sales is what, 50%?, of all retail sales in USA.  It is not.  It has not risen above 6%, lower than what mail order catalog sales were in the 1980s, before the internet.

Although online purchases remain
between six and seven percent of all commerce, Internet
trade is expanding rapidly. 28

The fact of the matter is the internet is merely a self-service checkout option, and explicitly so in the case of internet sales titan Victoria Secret, with 1.5 billion in online sales, generated by 400 million catalogs mailed out a year.  "Order online" sure save VS a lot of money.

As an aside, my sources say 6% of retail, gilder puts it as "all commerce (online stock trades?), which, if his sources are correct, then online sales are negligible in the USA economy.  In any event, the idea that the internet has changed anything, that marketing on the net is a viable means for business development, is utterly delusional, and a very widespread delusion at that, up there with the "earth is flat" and the "sun revolves around the earth".

And Gilder clearly knows this, and points it out, yet he is bothering with a thesis that appeals to an extremely narrow group of very delusional people.  O well...  onward...

Money is the central information utility of the world
economy. As a medium of exchange, store of value, and
unit of account, money is the critical vessel of information
about the conditions of markets around the globe in both
time and space.

In his classic definition reiteration he goes partial, he leaves out "testable, divisible, verifiable," something bitcoin will never achieve, by design.  It is a relative store of value, inasmuch as it is also a commodity, and after spending so much time denigrating the problem of the measuring stick being part of what is measured, he necessarily (to advance his argument) calls "money" the vessel of information (another new definition!)  Prices are signals quoted in money.  Don't make a hash of what is simple and useful.


My best guess is Gilder has crafted a piece in which the necessary gold standard is wedded to the inevitable elimination of currency in favor of some sort of universal bitcurrency, and made it his thesis.  Two problems: no government wants a gold standard and there will always be tallies on other media besides electronic, making the universality unlikely.  Perhaps he is merely trying to entice techies into the gold standard camp, knowing full well bitcoin will never happen.  Who knows.  But this piece is not convincing or persuasive.

Gilder argues for sound money.  Good.  But he is trying to be all "futurist."

But human creativity and surprise depends
upon a matrix of regularities, from the laws of physics to the
stability of money. 38

B O R I N G !  You mean to repeat what Aristotle pointed out, to be interesting something has to be different?  I imagine people with a post 1980 college degree, meaning of less probity than a 1960 high school diploma, may be wowed by such overwrought typing, but spare the educated, if you want to keep their interest.

His ruminations on money are a mess...

Paradoxically, to serve as a store of value, money cannot
be hoardable. If money is not invested or spent, it rapidly
becomes worthless, as no goods are produced that it can
purchase. Time is the quintessential Heraclitean stream in
that it cannot be hoarded. Time is the basis for Say’s Law—
supply creates its own demand, and in one way or another,
depending on policy, savings are always invested.

Money has little to do with a free market economy.  the freer the economy, the more credit is extended by all of the players, not any nonsense regarding the velocity of money.  "Hoarding money" that is to have 100 oz of gold in a vault does not make it worthless, since it may be collateral on a legitimate (non-interest bearing) loan, and in any event is it at least a commodity, and a fairly stable store of value at that.

And as to his quote of Say's Law, someone should gentle point out Say never said anything so stupid (or stupid at all)... the only source for that quote is Keynes.  Sheesh!  Say did have some good things to say, and this is an example of the bad quotes crowding out the good.

Gilder reaches too far outside his ken, and makes beginner's errors:

According to Szabo, velocity is the critical element
differentiating money from commodities. Over the course
of human history, various commodities evolved from mere
consumables into collectibles and thence into wearable décor
and jewelry. On occasion, in a phase change, some of them
became “wampum” and clamware, shells and exchange. Thus
we “shell out clams” to buy stuff.

Or maybe not, he quotes Szabo on this, so Gilder is actually free.  Maybe gilder knows what he is doing.  Anyway, that's not what happened.  Clamshells and whatever else was traded were tallies of who owed whom what. Into the 1830s in the UK credit (non-interest bearing loans) was recorded on tally sticks and stored to be liquidated when the debt was satisfied.  Liquidation in this case was actually burning the tallies, but sadly the fire got out of control and burned down Westminster.  People did not use sticks as money in the UK in the 1830s.  What people have done through history is run tallies, and recorded on all sorts of media.  So Szabo, whoever he is, is kind of an idiot.  But Gilder only refers to him.

He points to the history of New Amsterdam (New York),
where a 17th-century Dutch entrepreneur had his bank
arrange a large debt in wampum. The Indian baubles had
crossed the velocity barrier to become a vessel for indirect
transactions—real money.

As if there was a meeting of minds between the Dutch and the Indians.  Absurd.  But there you have it, a straw man example to support whimsical definitions.

This goes on for 100 pages, satisfying where factual, pleasing when condemning the actual malefactors, but otherwise implausible call to action.

I wonder at it...  such a narrow audience.  Is this a pitch to techies to come over the the gold standard?  Who knows!

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Control Vs. Available

I've said that in a free market there is no exceptional wealth since on the basis of a free market, that is natural law, you only own what you actually work in land, tools, savings, etc.

In natural law we have inalienable rights, that is to say we cannot give them up, nor can they be taken away. For example, not only it is wrong for someone to enslave another, it is wrong to offer to be enslaved, even for a good reason, like to avoid apparent starvation.

Exceptional wealth is formed as one aggregates control over things through others. As people agree to work for someone else, at once the employee agrees to take less for (false) security direct more to the employer. The more the employer can convince others to direct their creativity to the employer's benefit, the more the employer grows in wealth.

Now that wealth the employer gains is not all that great, it just seems so relatively speaking. the great loss to society is the opportunity cost, that is to say what is lost, when that employee fails to contribute to us what they would have contributed in a free market.

Another aspect is as this employer becomes more wealthy, he is able to persuade political masters to tax others to protect his wealth. For example, taxes are paid to protect the intellectual property rights of individuals. Massive infrastructure is maintained at taxpayers expense to protect the savings and investments of the exceptionally wealthy. In a free market, should someone gain a billion or two, the task of defending it would overwhelm the billionaire and it would dwindle in marginal investments or other natural dispersions.

Since the super-wealthy control so much, they can hop on a private jet and fly to an exotic location to have some medical condition addressed. We are impressed and envious. But many diseases go unaddressed.

In a free market, there are so many more cures for diseases, and they are cheap and plentiful, but they are not under anyone's control. Transportation is cheap and plentiful, so getting to some exotic location to take a cure is no big deal. Knowledge of where the cure is and its efficacy is alos cheap and plentiful. This of course would not only pertain to medicine, but every field of art and science.

IN a free market, the wealth is not concentrated in the hands of a few, as it is in capitalism and communism. In a free market there are for more and better goods and services, dispersed far wider and more easily available, at lower costs.

In a free market wealth is far more than in capitalism and ever expanding, and it is not in anyone's control, but it is available to all.

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Free Markets and Exceptional Wealth

Both the left and right say things about the free market that are not true.  The left says the free-market is "devil-take-the-hindmost" "competition, and the right says the free market is the path to riches.  How come in practice, neither is true?

In places where free markets reign relatively, say Hong Kong, there are two reasons why no one goes for want.  One, anyone and everyone who wants to work, can work.  Help wanted signs are up everywhere, because people start their own businesses given so much opportunity.  Th communist party restricts Chinese from moving to Hong Kong, because everyone would.  So for slackers to say "I can't find a job" would get no sympathy in Hong Kong.  ("Then go to China...")  For those who are truly in trouble, a house burns out, serious domestic violence, often what charities offer is a step up from where victims came, charities are so well funded.  In a free market, where so many people live authentic lives necessary to a free market, with all of its ups and downs, nobody has the nerve to say "no" to someone truly in trouble.  Those the left pretend to care about are better served in a free market.

There are no billionaires who got their fortune from working in the free market.  Bill Gates and Ross Perot computerized the welfare state.  Govt forced pensions paid into the stock market which made Warren Buffett a billionaire, one of his most famous companies is GEICO, a company that runs delightful ads with several pitchmen.  GEICO of course stands for Government Employee Insurance COrporation.  He started with a shirt company, but pensions had to put the money somewhere.  You'll say, "But Buffett was smarter than the rest.."  Are you sure it is not just an example of "survivorship bias?"  True true,  had he not picked the stock biz, on the advice of his congressman father as to where the money would be, he would not have had a chance.  And do you really believe, with his connections, it was chance?

But what does if matter chance or not, without a government requirement and tax coercion, there would not be the funds flowing through stocks that are the basis of his wealth.

Of course, at this point, people will ask, if not exceptional wealth, then what is the point of a free market?  The point of a free market, as in freedom from and freedom to, is competition and division of labor.

Free competition is what keeps anyone from amassing exceptional wealth, short of government intervention.  The left knows exceptional wealth is the result of government intervention in markets, and in essence picking winners and losers, and protecting the winners by statute (not common law), so the left logically wants to tap those "winners" to pay for the left's generosity to selected groups.  In a free market, there is no exceptional wealth because competition is drawn to success, and in essence invited to compete.  In USA we do not allow open competition, so we have these vast disparities as to who gets what portion of an unnaturally limited pie.

And here is what a free market competition does not do:  it does not copy exactly what someone else is doing. In a free market no one would see microsoft's success and open a microsoft clone.  In a free market someone would do microsoft one better, or serve that market microsoft ignores, such as those who desire improved efficiency when using a computer for work, or security when online.  In a free market there would be no reason to try to take microsofts customers away, there would only be people doing microsoft one better or one different, serving people microsoft cannot or will not serve.  This is division of labor, leading to more and better options.  The pie just gets bigger and bigger, assuring a surfeit for any and all participants in the market.  Right now, in usa, anything remotely like anything microsoft does, real or imagined or even just tendentious, leads to a crippling lawsuit.  Chinese are freer under communism than we are in USA under democracy.

So you can see why the left and right hate free markets: the left has no poor to exploit, and the right has no means to amass wealth.  There is only the more better cheaper faster of the constant improvements readily introduced.  Who wants that?

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A Degree, Not an Education: Enslaved By Student Loans

I was pulling in an easy $50,000 a year on the side teaching and publishing, spending less time on that than most people spend following sports. The work itself was rewarding, but the money was amazing.  I say "was" because things changed after 2008.

The people who knew what was going on called the crash in 2008, and it was clear the economy would not recover.  The powers-that-be could, and did after 2008, goose the stock market, but if you were unemployed, it is a depression going on.  I decided to show others how to do what I was doing as well, especially since 2008 it became clear no one unemployed over 50 would ever work again.  Help out my cohort my cohort, and all that.

I wrote  book and marketed a class to schools in essence "Go back to school, but as the teacher!" showing how people could teach write and consult on their favorite topic and keep themselves on the cutting edge while they road out this economic depression.

Well, fresh upon making student loan debts unbankruptable, the powers-the-be pointed to the bailed-out goosed stock market as proof the economy was doing well, and also claimed all you needed was more education, and "we'll loan you the money!"  Well, what was loaned was malcredit, and at interest, and student loan debt went from $500 billion to $1.5 trillion.  People found it easier, as always, to borrow malcredit than create their own benecredit.  By the way, I had two children graduate from college after 2008, neither with a dime of debt.  I simply forbid it, and we found other ways.  You are never obliged to cooperate with evil.

The decade it took to borrow that money and enslave themselves diverted them not only from my world trade start-up seminars but from my "teach and consult your way to publishing" seminar.  And that massive group is not inclined to spend any more now that they moved into mom's basement, now realizing the economy was false all along.

Now comes this from Canada, as the writer notes, no difference with USA

As money is siphoned from academic programs through attrition, it is channelled into a host of middle-management positions.From 1979 to 2014, central administration and staff ballooned by three and a half times, while the size of the faculty merely doubled.Parents, students, and governments keep supplying them with capital, assuming there will be a genuine return on investment. But since the institution no longer produces anything, no such return is forthcoming.

Not unlike USA. Mish has these comments on a new report.

Over 40 percent of those in student loan programs have stopped making payments. Many borrowers have never made any payments.
The department of education (a useless body that I would eliminate in one second if given the chance), cannot figure out why this is happening.
“We obviously have not cracked that nut but we want to keep working on it,” said Ted Mitchell, the Education Department’s under secretary.

Well, Ted, if there were jobs one could take upon graduation, in which the income covered the cost of the student loans plus a susbsistence, then no doubt these people would start paying.  But they find there is not.  Probably the biggest mistake a person can make is to believe his own PR.  I agree an education is the path to freedom, but does Ted really believe a college degree represents an education?

malcredit offers a fantasy wealth effect, "ther is money for me to get an education and a better job in this excellent economy.  Wrong on all counts.  not money, credit, not and education, a socialization, no jobs, and a false economy.

Although I think anyone who is in these dire straights was self-deluded and desrves no breaks, I do believe all student loan debts should eb forgiven, for one simple reason:  People will fill my seminars again.

What will happened to the 2.7% to whom these people owe that $1.5 trillion?  I don't care.  Their wealth is based on a false economy and a scam, and just because the played the winning side of the scam...  well... let's look where they are headed anyway... wealth effect.

Economists talk about the “wealth effect” that occurs when asset values go up. If your stocks, real estate, or other assets gain in value, you derive no immediate benefit unless you sell them. Yet you feelwealthier and more confident. That confidence changes your behavior, so you spend more freely. You’ll buy that second home, nicer car, or diamond ring. You’ll take more risks with your investments.
The wealth effect is a real phenomenon, and it has economic consequences. In a consumer-driven economy like the United States, higher spending from asset-wealthy people lets businesses expand and create jobs. Politicians and Fed officials tout the effect as a beneficial consequence of their genius plans. Yet they seldom remind us of thenegative wealth effect that occurs when asset values decline.
When your perceived wealth contracts, you cut spending and turn cautious. Your altered strategy also has macroeconomic consequences – but sometimes they aren’t immediately obvious. I recall reading back during the 2009 recession that lawnmower sales had spiked higher. That seemed odd at first, but then I understood: affluent people who had lost jobs or income fired their yard services and started mowing their own grass. A good move for them, but terrible for yard workers.

I no longer offer the seminar, although the book is on Amazon.  Do I recommend you get the book?  No.  It is valid, but not relaible.  Now I work at teaching online on a new model.  Pay me only if my seminars work for you.  This model is fine for me since the teaching always was a gratifying sideline. But not if you need the money.

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Business Start Up Worldwide Changing Trends

Barclay's report:

So is America losing its entrepreneurial mojo? There is some evidence that entrepreneurial activity is flagging. The latest data from the Kauffman Foundation found that there were 514,000 new business owners a month in 2012, down from 543,000 in 2011. The 2012 numbers marked the lowest in five years.

Rothschild said the time to invest is when the blood is flowing in the streets.  Contrarians will tell you the time to move is when others are not.  This negative indicators is positive towards actually starting.

In the U.S., only 21 percent of millionaires cited business sale or profit as their source of wealth. A much larger percentage cited saved earnings or personal investments as their sources of wealth. 

Now this shows what people who WOULD be starting businesses are now doing.  They are working the false economy to build up personal wealth.  The years spent doing this are two-fold tragic:

1. All that "wealth" will be stolen one way or another.  Easy come easy go.

2. The time spent making fake wealth is time not spent learning how to make real wealth.

If this was a financial weather maps, it shows global cooling for USA and Europe.  Asia and South American do not have the imperialism of the USA/Euro axis, so they have to make money the old fashioned way.  The map does not quite illustrate where freedom is strongest - Pacific Rim: East Asia and South America.

I am convinced that BigBiz/BigGovt is dreadfully antipathetic to entrepreneurs.  many other have said it, but it is relentless.  This article comparing entrepreneurs, for no particular reasons, ends with:

"Entrepreneurs need to embrace volatility and recognize that fortunes can be lost as quickly as they were made," the report said.

How does that relate to anything in the article, or anything in reality.  Entrepreneurs never take risks (maybe because Barclay's is a bank and banks invented the idea to scam entrepreneurs.)  I can see people with present high net worth reading that and thinking "I'll stay with my investments in Barclay's, where the are safe."  Given the tottering economic structure we have such people will most likely end their years eating Alpo and tearing out pages from back issues of Architectural Digest to make toilet paper.  Time to start a business.  Diversify.  Take 10% of those savings.  Does not matter how much that is, it is enough.  And start up your business.

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Stock Market Head Fake

Laissez les bon temps rouler!  The stock market is roaring up on the new industry of....  of what?

It may not feel like it for many Americans. But with the Dow breaching 14,000, shareholders and investors have recovered the more than $8 trillion in wealth lost during the recession and attained levels of paper wealth they haven't seen since the Roaring Oughts.

Which of those stocks is based on newly deregulated industry growing organically in freedom like telecommunications and trucking and airlines and beer in the 80's and 90's?   Nothing.  It is based on war and health care.  The war industry is about as productive as kids making pipe-bombs in the garage.  And "health care" is about shake down, not medicine.

And what is the nature of this "wealth?"  How does one define that?  Is it more better cheapre faster?  More options of better goods at lower cost available quicker?  That is what we get in a free market, but can you name anything (except Apple products) that fits that description today?

This "wealth" is denominated in fiat currency and in the form of debt.  Since when is being in debt "wealthy?"  Think of yourself starting up a business.  You borrow a million to start up, and your first years sales are $100,000.  You hit your first year target. Are you successful?  Are you wealthier than before?

Now think of taking $10,000 in savings and putting it into starting up a business and you have $100,000 in sales your first year.   Are you successful?  Are you wealthier than before?  You certainly are not in debt, and you certainly are making money on your investment. Which scenario would you prefer?  The latter is easier and more likely.  But the stock market "wealth" is based on the former.

But John, the new jobs, that proves this is real!

Jed Graham has a nice post on Investor's Business Daily that describes what I have been saying for months: Obamacare has accelerated the trend towards part-time jobs. There are more jobs, but fewer hours in them.
Read more at http://globaleconomicanalysis.blogspot.com/search?updated-max=2013-02-03T10:44:00-08:00&max-results=3#yybrMe4CGbFwwysL.99 

Nice try.  If you are unemployed, there is a depression going on, but it is hidden by EBT cards and section eight housing.  It is hard to see.

This "good news" just tells us the can was successfully kicked down the road.

When it goes bad, and it will, it will be that much worse and that much faster and take that much longer to get out.  In the meantime we slowly grind down, the frog sits quietly as the water heats up. How do they get away with it?  Because people believe the press, the powers that be etc.

For your own business, whatever it is, study your customers.  Is your customer base dependent on people who have ersatz wealth?  Watch out, adjust while you can...  for example, people who sell services, is a critical per cent of your sales expense account driven?  Stop marketing to those customers and start marketing to people who organically earn their income.

The three groups being hammered are those who have paychecks, pensions and property, and only in the middle class.  USA has a middle class of 200 million people, among which are productive citizens who will avoid by industry these deprecations.  They will be good customers for you in the future.  Small Biz people selling to small biz people.  An alternative economy within the economy.

But China and India also each have middle classes of 200 million.  If your product or service sells in USA, then it is now a likely candidate for export as well.  If you took my classes you know what to do. Overseas you'll find a middle class that is not under the degree of control that the USA middle class is bound.  Foreign middle class citizens are much freer than we are, in the sense it is more difficult for their Governments to abuse them.

And as to "cheap imports" coming in, you need not let them hurt your business, get ahead of the game. If you have distribution for your organic blueberries grown in USA, then you import the alter-season Chilean blueberries and distribute them to your on-season customers.  Whoever is responsible for the blueberries coming in from Chile right now is doing a terrible job.  Someone domestically who knows and cares about blueberries could crush the present importers.  Multiply that by all industries and opportunity abounds...

If we can believe some rumors, there is a plan afoot by the powers that be to "kill the dollar."  What does that mean?  In essence to make the dollar cheaper vis a vis other currencies so USA products are cheaper for importers overseas, and we get a sales increase in exports from USA.



This is controversial, and Mish summarizes it well. First challenge is "can it be done?"  Just because a policy is set does not mean it can be implemented.  Other countries may decide they do not want to have their economies flooded with cheap currency-manipulated USA goods and defend themselves accordingly.  But I'd reply, as the world's central banker, USA can play harder longer than the teams it has to beat.

But attempting any policy does have some effects, often unintended.  There are side effects to every policy decision, a set of winners and a set of losers.  One really cannot know what those will be.  And policies such as these would not be announced.

And as a side note, Bass's comment about how do you "expand exports without wage deflation" betrays, for all his brilliance, a fundamental error.  Low wages has nothing to do with int'l trade, never has, never will.  Those countries who grow int'l trade also grow their wage rates at the same time.

Yes, we will not have economic recovery without falling prices and falling wages, which would be a reflection of economic expansion through more better cheaper faster.  But USA workers who are putting out more goods per man hour is in effect "wage deflation" in the sense it costs less per man hour to put out a given unit.

But that is profoundly different than paying people less to do the same work, which is that to which Bass refers (and in his defense, he couches it as an impossible scenario - as in "if not the impossible, then what?)

What we are doing right now is putting less of everything, at lower quality, in everything we produce, and charging the same price.  Industry is arbitraging the spread between the speed with which quantity, quality and service degeneration can out pace consumer awareness of getting screwed.  The Dow at 14,000 shows our collective economic consciousness is roughly at the level of Down's Syndrome, God bless us.  The market is doing very well!

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