Inflation on the Horizon

I see inflation on the horizon, mainly because we have two presidential candidates that are both on track not to cut deficit spending and one who will surely support and implement another round of quantitative easing.

 

See below for a list of charts for price indexes from the Bureau of Labor Statistics website of common goods and see if that goes up next year (and look at how much the price index jumped in the last 4 years compared to the last 8):

 

Chicken, fresh, whole, per lb. (453.6 gm)
2002 1.091 1.111 1.110 1.110 1.094 1.066 1.077 1.035 1.074 1.027 1.044 1.048
2003 1.004 1.031 1.049 1.053 1.031 1.033 1.027 1.023 1.022 1.022 1.068 1.050
2004 1.062 1.060 1.100 1.120 1.039 1.060 1.077 1.092 1.078 1.078 1.039 1.030
2005 1.026 1.038 1.061 1.070 1.052 1.075 1.067 1.042 1.056 1.062 1.059 1.061
2006 1.062 1.045 1.047 1.054 1.034 1.055 1.040 1.048 1.063 1.038 1.049 1.057
2007 1.033 1.039 1.064 1.115 1.118 1.134 1.130 1.145 1.142 1.135 1.161 1.166
2008 1.163 1.159 1.168 1.176 1.194 1.181 1.191 1.223 1.214 1.205 1.304 1.305
2009 1.292 1.290 1.301 1.296 1.304 1.282 1.261 1.287 1.258 1.244 1.256 1.267
2010 1.265 1.265 1.231 1.230 1.259 1.239 1.280 1.254 1.276 1.302 1.277 1.280
2011 1.241 1.266 1.269 1.261 1.302 1.305 1.306 1.296 1.294 1.312 1.304 1.340
2012 1.334 1.356 1.372 1.401 1.347
Fuel oil #2 per gallon (3.785 liters)
Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Annual
2002 1.123 1.112 1.119 1.158 1.163 1.136 1.127 1.135 1.174 1.203 1.221 1.267
2003 1.396 1.641 1.766 1.491 1.372 1.305 1.279 1.283 1.284 1.297 1.331 1.360
2004 1.508 1.558 1.541 1.519 1.533 1.537 1.536 1.607 1.671 1.882 1.958 1.895
2005 1.859 1.962 2.078 2.120 2.036 2.059 2.173 2.276 2.593 2.626 2.458 2.407
2006 2.418 2.423 2.429 2.526 2.572 2.566 2.597 2.649 2.531 2.396 2.375 2.460
2007 2.368 2.425 2.505 2.555 2.567 2.561 2.621 2.634 2.706 2.808 3.169 3.247
2008 3.337 3.338 3.699 3.875 4.185 4.589 4.649 4.217 3.952 3.544 3.003 2.637
2009 2.509 2.451 2.319 2.354 2.344 2.449 2.452 2.559 2.553 2.603 2.790 2.788
2010 2.967 2.890 2.908 2.981 2.913 2.828 2.800 2.814 2.830 2.936 3.044 3.193
2011 3.415 3.607 3.827 3.975 3.914 3.824 3.689 3.671 3.654 3.642 3.682 3.646
2012 3.697 3.804 3.909 3.858 3.749

Eggs, grade A, large, per doz.

 

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Annual
2002 0.973 0.996 1.003 1.047 0.997 0.975 0.990 1.053 1.055 1.039 1.080 1.176
2003 1.175 1.189 1.209 1.131 1.009 1.199 1.150 1.277 1.257 1.330 1.448 1.559
2004 1.573 1.583 1.625 1.562 1.372 1.311 1.253 1.277 1.145 1.089 1.085 1.199
2005 1.211 1.284 1.132 1.164 1.185 1.139 1.165 1.166 1.279 1.264 1.279 1.350
2006 1.449 1.328 1.302 1.283 1.206 1.242 1.213 1.244 1.254 1.257 1.354 1.543
2007 1.549 1.746 1.634 1.616 1.504 1.373 1.502 1.634 1.825 1.771 1.862 2.099
2008 2.175 2.168 2.203 2.069 1.930 1.920 2.011 1.854 1.978 1.858 1.838 1.834
2009 1.850 1.795 1.693 1.774 1.501 1.529 1.495 1.632 1.627 1.595 1.705 1.772
2010 1.789 1.872 1.822 1.779 1.523 1.494 1.441 1.519 1.753 1.456 1.675 1.793
2011 1.806 1.708 1.732 1.727 1.692 1.683 1.647 1.711 1.947 1.871 1.836 1.874
2012 1.939 1.798 1.774 1.829 1.691

Louisiana Sets Dangerous Precedent – You Can’t Buy or Sell with Cash

cash not accepted

cash not accepted

“Those who buy or sell second hand goods are prohibited from using cash” – That’s the new law in Louisiana, House bill 195. This is outrageous since most people don’t carry checks around and shouldn’t need to be tracked on whatever they purchase. This is also a hit on retailers since all credit and debit cards come with a hefty fee that goes to the financial institutions which have been so vital in ruining our economy and way of life. States should not have the ability to place laws on the use of the official currency of the United States, and is usurping the rights of citizens in doing so.

If this type of law becomes prevalent, it would seem that living in other countries would afford more transactional freedoms then the United States. All of this of course is done under the guise of protection, similar to the other outrageous laws enacted in the past – the patriot act (I intentionally lower cased “patriot” because the as Benjamin Franklin put it: “Those who would sacrifice freedom for security deserve neither”). From the TSA stopping passengers for carrying silver on domestic flights, NYPD arresting people legitimately closing their bank accounts, to Presidential assassination without trial for American citizens, American freedom is becoming a ghost of the past and those who serve return home to a country less free.

On the Subject of Democrats Blaming Tea Party for Credit Rating Downgrade

I find it mildly hilarious that democrats are blaming the Tea Party for the credit downgrade… Overspending by Democrats and neoconservative Republicans has caused debt that has spiraled to extraordinary heights resulting in the need to raise the debt ceiling multiple times. Furthermore, I also see the credit rating downgrade by the S&P which may result in economic damage as nothing new. The S&P was one of the key players which led to the economic distress starting in 2007 based on faulty inflated ratings of mortgage-backed securities. Regarding whether the US is currently credit worthy, I believe the answer to that question is yes absolutely. The US has the largest economy and largest military to protect that economy in the world, in the past few years it has wasted trillions in wars thousands of miles away topped with paying off corrupt governments that harbor our number 1 enemy. If we can get our act together and reduce needless spending on destruction while improving domestic infrastructure and reducing restrictions and taxes on businesses I can see a recovery in order. Don’t blame the problem solvers for the result of a problem built by a tainted two party system that has had no respect for fiscal policy.

The democrats who have shifted the blame to the Tea Party include but are not limited to John Kerry and former Obama adviser David Axelrod, who have called the recent credit rating downgrade by the S&P to be the “tea party downgrade”. As an American interested in the long term livelihood of the United States as a sovereign nation, I support the spending cuts achieved primarily upon the stubbornness of the Tea Party to cave into political bullying and threats of major news organizations along with the Treasury Secretary’s unsubstantiated claims of economic ruin should the debt limit be exceeded. Right now, Democrats should focus instead on their party’s 2008 election promises that have never come to fruition. Bringing troops back from Afghanistan, for example, is something that will save the United States billions of dollars. The cost of the Afghanistan war in 2010 alone was 106.6 billion dollars, and it is estimated that this year we will spend 122 billion dollars [1].

References:

1.”Annual Costs of the War in Afghanistan | COSTOFWAR.COM.” Cost of War to the United States | COSTOFWAR.COM. Web. 07 Aug. 2011. <http://costofwar.com/en/publications/2011/annual-costs-war-afghanistan/>.

Why the American Economy Falters

The reason behind the faltering United States economy is outsourcing. The outsourcing option allows US businesses to bypass the stringent employment laws set by the Federal and State government regarding child labor, minimum wages, overtime pay, and the collection of employment safety. If other countries had such laws in place, their wages would be much higher than they are now and the benefits of outsourcing would be reduced. Outsourcing has increased the income gap in the United States (see below). In 2010, the top 20% earned 49.4% of the nation’s income. The bottom 15% earned just 3.4%. The basis for this problem stems from the lack of jobs for uneducated workers, while outsourcing exacerbates the problem yet is quite profitable given the set of circumstances. Add to the list of regulations on business the high corporate income tax rate of 35% (China has a tax rate of 25%, Singapore 17%, Russia 17%, and Bahamas 0%) then we have a problem. While the United States still claims champion status regarding intellectual property and technological advances, these ideas are often brought to other countries along with the ideas and brainpower. It’s hard to fault those who have chosen to outsource, since business is business and sadly the last one to outsource usually the one that goes out of business.

Debt Ceiling Shouldn’t Cause Market Failure

If congress does not raise the debt ceiling there will be winners and losers in the stock market, but since low interest rates can be helpful to a short sited consumer spending driven economy there will be more losers than winners. While interest may raise, the United States may not pay off its debt obligations so it would not really be prudent to sell shares of profitable companies with low debt in exchange for notes that may or may not be paid off. The value of the dollar is bound to drop if the debt ceiling is not raised, however it is uncertain whether or not there will be deflation if the ceiling is not raised. There may be inflation either way. The only certain thing that has been happening throughout the debate is that people have been buying up gold and silver in mass quantity. The price of gold has risen to over $1,600 per ounce while silver has risen to over $40 per ounce. Oil is also on the rise, after Europe bailed out Greece and demand in the U.S. remains high. If the raise in debt ceiling results in a plan to raise taxes, the market will most likely react negatively. Regardless, in the age of reckless spending and lack of thought on the debt issue, I’m sure a plan will be devised in the last minute which will make sacrifices on both ends – an increase in taxes plus a reduction in spending. However, if the reduction in spending does not exceed the amount of ceiling increase the debt problem will only get worse. Raising the imaginary “ceiling” is an imaginary move that will have a placebo like effect. Long terms changes must be enacted before default is necessary or inflation skyrockets through the roof (which if you use the price of gold to gauge inflation it already has). Pay close attention to what comprises consumer price index, as the basket used to determine this has been changing over the years to help make it look like inflation is lower than it actually is.

What Is The Federal Debt Ceiling

The Federal Debt Ceiling is simply the limit on how much the Federal Government can borrow. The Federal Government borrows money through issuance of bonds, both to external investors and also the Federal Reserve. When the Federal Reserve buys Treasury bonds the government is effectively increasing the Federal Debt through the printing of creation of digital money. The reason given for the Federal Reserve purchases of treasuries is to decrease the chance of deflation (aka stir inflation) in order to bring more jobs into the economy. The cited positive effect of moderate or low inflation is the shift towards equilibrium in labor markets, since relatively fixed wages have a lower nominal value when inflation occurs. However, there are a myriad of negative effects caused by inflation that should also be mentioned including decrease in quality of life, interruption in business cycles as prices for input and output products must constantly change, and the increased motivation for hasty or reckless business ventures. It is highly possible that the current US debt crisis can be partially attributed to the past practices of the Federal Reserve in keeping the interest rates artificially low for such a long time, in conjunction with Federal tax breaks for companies which outsource overseas which have ironically damaged US industry and employment.

If the Government reaches the debt ceiling it will most likely cause interest rates to raise dramatically, and perhaps deflation will start occurring. The stock markets will crumble, and many businesses that relied on operating on low interest rates and borrowing will be the first to go under. This will in turn cause higher unemployment, and even more deflation. Most likely the Federal Reserve will try to step in and buy more Treasury Bonds, but this will cause foreign countries to cease buying US Debt. The economy will probably be hit harder than the recession in 2007. The debt would eventually have to go under the debt ceiling for operations to continue. Vital parts of the government should still continue to function, such as the military and transportation department.

How Freedom is Lost

How does one lose one’s freedom? First of all, lets consider this from an individual level: a man loses his freedom when he commits a crime, fails to defend himself, runs out of money, or joins an organization which requires the forfeit of certain freedoms. These are major reasons why people around the world do not have freedom. Prisoners do not have the freedom to go where the choose, eat what they want, or simply live how they want to live. The reason for this in most cases is that the prisoner has done a crime and is paying for it with time behind bars. A person living without a gun or weapon in a crime ridden street has no chance to defend himself and will have to forfeit either his life or his worldly goods in the case that someone who overpowers him enters the house. A person who runs out of money must live their life paying back loans and possibly even joining the first category of prisoner. A person who joins a secret organization such as an intelligence agency forfeits his right to go to the countries of his choosing, hanging out with certain types of people, and sharing certain types of information.

How do these things apply to a country? Exactly the same, except the consequences are not always direct and imminent. When a country habitually commits crimes against humanity, other countries will decide based on whether or not it is politically, strategically, or economically beneficial, to intervene against the rogue government. This has happened in recent history against Hitler’s Germany, Facist Italy, Imperial Japan, Vietnam, Korea, Kosovo, Somalia, Afghanistan, and Iraq. The leadership of these countries except Vietnam and Korea ultimately had to give up power. Examples of countries which failed to defend themselves span the centuries and all share the common trait of no longer being sovereign. Corsica, the island in the Mediterranean Sea shaped similarly to the United States, is owned by France. Hawaii, a neutral nation ruled by Chieftains, was annexed into the United States in the late 1800’s. The Cherokee Nation, and all other American Indian tribes excluding the Inuit, were forced into reservations by the United States. Countries, unlike individuals, do not lose their national power when they run out of money. In fact, the people of those countries lose power and must cede it to their government as money is printed by the ton to make up for the lack of real value. As the government can spend as much as it wants with its fiat currency, the people must bear with making wages that drop in value in the double digits in the span of weeks! See Zimbabwe, which boasts yearly inflation in the millions(%)! There was a point at which Zimbabwe’s currency doubled every 1.3 days, and the bank has printing 100 trillion dollar notes (see photo) Zimbabwe 100 Trillion Dollar Note. Countries also lose their freedom when they join multinational organizations such as the United Nations, the World Trade Organization, etc. I will not go into the details today of how come countries cheat the WTO by putting trade protection on certain exports yet subsidize others.

Another point about freedom that must be stressed is that once a freedom is threatened by violence and hence not performed, that freedom is lost.

GDP Increase Does Not Represent Economic Growth

GDP is calculated as the sum of Consumption (C), Investment (I), Government Spending (G) and Net Exports (X – M). The problem using GDP in the past year to measure economic growth is that some of this is double counted, such as consumption and government spending. If the government pays salaries or welfare checks and the recipients put the money back into the economy, then the GDP is incremented twice of what one would assume. Also, government spending on military hardware in particular explosives cannot be said to much further the health of the economy as would something like building a new road or school etc. GDP does not account for disasters or situations in which tangible assets are destroyed.

In my opinion, a better gauge for the health of the economy would be roughly: gross wages – gross taxes * PPP

There is another system which determines the quality of life of a society called the ‘Human Development Index’ and is calculated as a combination of life expectancy, education, and standard of living (which is the natural log of GDP at PPP.

See below for Ron Paul’s comments on the problems with using GDP numbers. (notice they got his title wrong, it should be Dr. Paul)

Surprise! You are paying for the Greek Govt. Bailout

The United States is a 20% contributor to the IMF (International Monetary Fund) and the IMF is contributing $39 billion dollars to the European 110 billion euro bailout of Greece. This fact is going largely uncovered by the mainstream media and Congress classified it as an “expanded credit line.” Perhaps this is because the US views Greece as a mini representation of itself, largely in debt yet the difference is that one country can print money while the other is regulated by a unified currency (the Euro). The main point is that the US is paying almost $10 billion towards a bailout of a small country in which it has no responsibility for, with no promise of return like our own creditors have (those holding US debt accrue interest). The misery that Greece is going through is its own, and allowing it to have so much debt in the first place was a mistake – so is allowing our own country to create more debt without a clear strategy of reducing it.

Is Unemployment Bottoming Out?

The newest figures say that unemployment is unchanged. Hopefully this means that the bottom of the upside-down bell has been reached and the economy along with jobs will follow. Read below an excerpt from the US Bureau of Labor Statistics:

Nonfarm payroll employment was little changed (-36,000) in February, and the
unemployment rate held at 9.7 percent, the U.S. Bureau of Labor Statistics
reported today. Employment fell in construction and information, while tem-
porary help services added jobs. Severe winter weather in parts of the
country may have affected payroll employment and hours; however, it is not
possible to quantify precisely the net impact of the winter storms on these
measures. For more information on the effects of the severe weather on employ-
ment estimates, see the box note at the end of the release.

Household Survey Data

In February, the number of unemployed persons, at 14.9 million, was essen-
tially unchanged, and the unemployment rate remained at 9.7 percent. (See
table A-1.)

Among the major worker groups, the unemployment rates for adult men (10.0 per-
cent), adult women (8.0 percent), whites (8.8 percent), blacks (15.8 percent),
Hispanics (12.4 percent), and teenagers (25.0 percent) showed little to no
change in February. The jobless rate for Asians was 8.4 percent, not season-
ally adjusted. (See tables A-1, A-2, and A-3.)

The number of long-term unemployed (those jobless for 27 weeks and over) was
6.1 million in February and has been about that level since December. About 4
in 10 unemployed persons have been unemployed for 27 weeks or more. (See
table A-12.)

In February, the civilian labor force participation rate (64.8 percent) and
the employment-population ratio (58.5 percent) were little changed. (See
table A-1.)

The number of persons working part time for economic reasons (sometimes refer-
red to as involuntary part-time workers) increased from 8.3 to 8.8 million in
February, partially offsetting a large decrease in the prior month. These in-
dividuals were working part time because their hours had been cut back or be-
cause they were unable to find a full-time job. (See table A-8.)

About 2.5 million persons were marginally attached to the labor force in
February, an increase of 476,000 from a year earlier. (The data are not sea-
sonally adjusted.) These individuals were not in the labor force, wanted and
were available for work, and had looked for a job sometime in the prior 12
months. They were not counted as unemployed because they had not searched for
work in the 4 weeks preceding the survey. (See table A-16.)

Among the marginally attached, there were 1.2 million discouraged workers in
February, up by 473,000 from a year earlier. (The data are not seasonally ad-
justed.) Discouraged workers are persons not currently looking for work be-
cause they believe no jobs are available for them. The remaining 1.3 million
persons marginally attached to the labor force had not searched for work in
the 4 weeks preceding the survey for reasons such as school attendance or
family responsibilities.

Establishment Survey Data

Total nonfarm payroll employment was little changed in February (-36,000).
Job losses continued in construction and information, while employment con-
tinued to increase in temporary help services. Since the start of the reces-
sion in December 2007, payroll employment has fallen by 8.4 million. (See
table B-1.)

Construction employment fell by 64,000 in February, about in line with the
average monthly job loss over the prior 6 months. Job losses were concen-
trated in nonresidential building (-10,000) and among nonresidential specialty
trade contractors (-35,000). Since December 2007, employment in construction
has fallen by 1.9 million.

Employment in the information industry dropped by 18,000 in February. Since
December 2007, job losses in information have totaled 297,000. In February,
employment in transportation and warehousing continued to trend down.

Employment in manufacturing was essentially unchanged in February. Small job
gains in a number of component industries were offset by job losses in motor
vehicles and parts and in chemicals.

Retail trade employment was unchanged in February, after a sizeable increase
in January. Over the month, job gains in building material and garden supply
stores (7,000) and in department stores (6,000) were offset by declines in
food and beverage stores (-9,000).

In February, temporary help services added 48,000 jobs. Since reaching a low
point in September 2009, temporary help services employment has risen by
284,000. Health care employment continued to trend upward in February.

In February, employment in the federal government edged up. The hiring of
15,000 temporary workers for Census 2010 was partially offset by a decline
in U.S. Postal Service employment.

The average workweek for all employees on private nonfarm payrolls declined
by 0.1 hour to 33.8 hours in February. The manufacturing workweek for all
employees dropped by 0.4 hour to 39.5 hours, and factory overtime decreased
by 0.2 hour over the month. In February, the average workweek for production
or nonsupervisory employees on private nonfarm payrolls fell by 0.2 hour to
33.1 hours; the workweek fell by 1.0 hour in construction, likely reflecting
the unusually severe winter storms. (See tables B-2 and B-7.)

In February, average hourly earnings of all employees on private nonfarm
payrolls increased by 3 cents, or 0.1 percent, to $22.46. Over the past 12
months, average hourly earnings have risen by 1.9 percent. In February, aver-
age hourly earnings of private production and nonsupervisory employees rose
by 3 cents, or 0.2 percent, to $18.93. (See tables B-3 and B-8.)

The change in total nonfarm payroll employment for December was revised from
-150,000 to -109,000, and the change for January was revised from -20,000 to
-26,000.

http://www.bls.gov/news.release/empsit.nr0.htm

Will the Dollar Die?

The question is looming, and if you haven’t heard by now the US is deeply in debt. While this is called the ‘public debt’ most rational people I know would not have wanted it to come this far, but it did.

Let me summarize a few key points that will often be brought up in these grim yet true commentaries and tidbits. Public debt is another name for government debt, and the debt I refer to is that of the Federal government. It is called public because the government traditionally draws income from the public through taxes. Of late the government has had to draw upon other sources for money including loans to other countries accomplished through treasury bills and other instruments where the government promises to pay interest provided they are loaned the money.

The national deficit, which is the difference between Federal government revenue and spending, was $1.4 trillion dollars for fiscal year 2009 – the largest on record and in terms of purchasing power the largest any country in history has ever overspent. The deficit is possible through the trust of the dollar and the US government – yet history has shown that national debt and high deficits are rarely actually paid off through painful budget adjustments and shrinkage of government.

In fact quite the opposite is true, the government will actually either destroy its own currency or heavily increase taxes – the first of which will be good for manufacturing yet destroy whatever wealth families have accumulated over the years in order, and the second of which stunts growth and would result in less jobs locally.

Let us hope the less trodden path is taken and prudent budget adjustments are made and expensive and useless wars are avoided. In this way the dollar may survive and people wont be forced into bartering for goods and going back to the financial stone age.

Another important point to bring up is the actual production of goods and wealth. If the US was able to increase economic output in areas which haven’t already succumbed to the manufacturing advantages of certain Asian countries it could also reduce its deficit via a shrinking trade deficit (which I should are proportional to national debt). As it stands, each working person in the United States owes over $60,100 if the national debt was evenly distributed amongst them. Over 10% of 2009’s tax income will go towards paying public debt, the amount of debt the U.S. bears is around four times its annual income (compare that to a person who makes $100,000/year whos debt is $400,000). Another interesting blog I read puts the US in the ‘subprime’ category for buying a house.

How can you protect yourself from this? Aside from education, I would suggest either buying silver, owning land, steer clear of keeping large amount of money in low-yield bank accounts or checking accounts, and most importantly invest wisely. Of course spending money, while ironic, is one of the best ways of not accumulating it. Spending it on things that retain value is also a good idea. If you have any more ideas feel free to comment.