The current release of wikileaks appear mostly to be disinformation. Whether knowingly or unknowingly, much of the information released appear to be another round of false advertising. It appears to be incorrect information being released under the guise of data falling into the wrong hands.
I doubt the Chinese hacked google. I doubt there was any discussion about North Korea as described. Most likely concepts created out of thin air. A right wing ploy pretending to be left wing.
If you wish to strengthen a lie, mix a little truth in with it.
Zohar
Tuesday, November 30, 2010
Monday, November 29, 2010
Fiat Money
The Russian Federation would not even sell some uninhabited islands to the Japanese for 2 trillion usd. And Japan did not even have 2 trillion usd. What does South Korea possibly have that is worth all of North Korea? No one in the 21st century is willing to give away land for fiat money. Because fiat money has not been backed by anything for almost 50 yrs.
http://www.youtube.com/watch?v=-yblvWycttA&playnext=1&list=PL687AC3A449258F82&index=31
Even negotiating an exclusion of us troops from South Korea after reunification would not be good enough. Without a pro-Chinese government, they could easily re-invite american forces back in and this time China would not even have a local ally to rely on.
How many Warsaw Pact states have now fallen under the influence of the united states?
http://www.youtube.com/watch?v=-yblvWycttA&playnext=1&list=PL687AC3A449258F82&index=31
Even negotiating an exclusion of us troops from South Korea after reunification would not be good enough. Without a pro-Chinese government, they could easily re-invite american forces back in and this time China would not even have a local ally to rely on.
How many Warsaw Pact states have now fallen under the influence of the united states?
Why would China need the us?
Exports depletes China the fruits of its labor and only leaves China with inflation.
We cannot eat, wear, or enjoy the goods we send abroad. We eat bananas from Central America, wear Italian shoes, drive German automobiles, and enjoy programs we see on our Japanese TV sets. Our gain from foreign trade is what we import. Exports are the price we pay to get imports. As Adam Smith saw so clearly, the citizens of a nation benefit from getting as large a volume of imports as possible in return for its exports or, equivalently, from exporting as little as possible to pay for its imports.
Milton Friedman 1980
There is no benefit in exporting to the united states. The only product they can ship back in return is IOUs.
We cannot eat, wear, or enjoy the goods we send abroad. We eat bananas from Central America, wear Italian shoes, drive German automobiles, and enjoy programs we see on our Japanese TV sets. Our gain from foreign trade is what we import. Exports are the price we pay to get imports. As Adam Smith saw so clearly, the citizens of a nation benefit from getting as large a volume of imports as possible in return for its exports or, equivalently, from exporting as little as possible to pay for its imports.
Milton Friedman 1980
We have 50 percent of the world's wealth, but only 6.3 percent of its population. . . In this situation we cannot fail to be the object of envy and resentment. Our real task in the coming period is to devise a pattern of relationships which will allow us to maintain this position of disparity. We should cease to talk about the raising of the living standards, human rights, and democratization. The day is not far off when we are going to have to deal in straight power concepts. The less we are then hampered by idealistic slogans, the better.
George Kennan 1948
George Kennan 1948
There is no benefit in exporting to the united states. The only product they can ship back in return is IOUs.
China's interest to support NK is absolute
I doubt the current wikileaks are real. There is nothing interesting in the diplomatic cables that is remotely damaging similar to the videos showing helicopter gunships attacking journalists in Iraq. The current wikileaks discussions are just trivial points similar to that of a tabloid. X civil official consorts with busty woman, Sunnis do not like Shiites. There is nothing useful being provided. For somebody who is trying to retaliate against the united states for trying to arrest and imprison him for the video releases, the current diplomatic cables do not seem to incriminate the united states one bit. The type of information released seem like something dreamed up by a insurance salesman turned novelist.
Supporting North Korea since the Korean War was the single greatest event to ever give China any ounce of credibility. If China never sent troops to force the us to retreat back into South Korea, there would be no independent Vietnam. The united states lost no battles against Vietnam. Unlike the Korean war there were no 50 mile retreats or floods of american marines fleeing the battle zone. The us lost no battle against the Viet Cong.
The onslaught of hundreds of thousands of Chinese troops forced the Americans to make a desperate retreat. As American forces were nearly overrun, they engaged in the largest retreat in U.S. history. By December of 1950, the Communists recaptured Pyongyang. In January, Seoul fell as both sides dug in at the 38th Parallel.
Since China had not demonstrated any precedence to intervene in a war on its Asian Borders, the United States would have rolled into the North Vietnamese capital of Hanoi with tanks and armored personnel carriers and completely overtook the northern half of the country, effectively ending the Vietnam War.
Such a military policy was impossible solely because of the precedence set during the Korean War. The united states was forced to fight the entire Vietnam War in South Vietnam with one arm tied behind its back because if the us did pursue Viet Cong forces into North Vietnam, that would have been an invitation for the Chinese to enter the war.
Any reunification would have to come under North Korea or a Pro-Chinese state. A unified Korea under a South Korean government is unacceptable. An extension of South Korea is a retraction of Chinese influence in the Peninsula and an expansion of anti-Chinese sentiment.
Supporting North Korea since the Korean War was the single greatest event to ever give China any ounce of credibility. If China never sent troops to force the us to retreat back into South Korea, there would be no independent Vietnam. The united states lost no battles against Vietnam. Unlike the Korean war there were no 50 mile retreats or floods of american marines fleeing the battle zone. The us lost no battle against the Viet Cong.
The onslaught of hundreds of thousands of Chinese troops forced the Americans to make a desperate retreat. As American forces were nearly overrun, they engaged in the largest retreat in U.S. history. By December of 1950, the Communists recaptured Pyongyang. In January, Seoul fell as both sides dug in at the 38th Parallel.
Since China had not demonstrated any precedence to intervene in a war on its Asian Borders, the United States would have rolled into the North Vietnamese capital of Hanoi with tanks and armored personnel carriers and completely overtook the northern half of the country, effectively ending the Vietnam War.
Such a military policy was impossible solely because of the precedence set during the Korean War. The united states was forced to fight the entire Vietnam War in South Vietnam with one arm tied behind its back because if the us did pursue Viet Cong forces into North Vietnam, that would have been an invitation for the Chinese to enter the war.
Any reunification would have to come under North Korea or a Pro-Chinese state. A unified Korea under a South Korean government is unacceptable. An extension of South Korea is a retraction of Chinese influence in the Peninsula and an expansion of anti-Chinese sentiment.
Sunday, November 28, 2010
Nuclear policy
The goal of the nuclear forces is not simply to inflict damage. We do not simply pursue a nuclear arsenal that is to create a credible response. That is just bad policy. We do not know how far a nuclear war can escalate thus we do not pursue a nuclear policy that simply assumes a limited nuclear response. You pursue a nuclear policy that achieves unlimited nuclear response. We do not know what X is, but we should be maximizing our production frontier to best be able to reach it. The closer we are to X, the more peace of mind we are able to acquire. And a self awareness of how less vulnerable we have become.
Officially, the Russian Federation is the world's largest nuclear power. I find it hard to believe China would not have a nuclear arsenal larger than all of the nuclear powers combined. This issue is just far too great to ignore.
Officially, the Russian Federation is the world's largest nuclear power. I find it hard to believe China would not have a nuclear arsenal larger than all of the nuclear powers combined. This issue is just far too great to ignore.
Thursday, November 25, 2010
Economy
The economy is driven by demand. Whatever kind of demand. Whether it is consumer demand or military demand. And it is that demand that fuels the economy. And it is monetary policy that helps us shape demand. By giving consumers the financial means to consume, they help shape the economy towards one where consumer goods are produced to meet consumer demand. Likewise, if we give the military the financial means to consume, the economy is shaped to produce military goods to meet military demand.
So its not necessarily a question of if we produce too many warships, we wont be able to produce more cars. When you have an economy as massive as China's, what else are you going to do with 550 million tons worth of steel making and 55 million tons of shipbuilding per year? Because industrial output is so massive, millions would find themselves without work if military demand were to evaporate. The production frontier is where it currently stands because there is state demand for goods and services. If state demand were to contract, so would the economy and jobs along with it.
The second world war did not cause global economies to contract. In contrast it caused, the greatest economic boom ever seen in the 20th century. It effectively ended the Great Depression. Nowadays, whenever we admire a nation's economic growth. We make statements like, the greatest level of economic growth ever seen during peace time. This is because it is still pale compared to economic growth normally seen during war time.
So its not necessarily a question of if we produce too many warships, we wont be able to produce more cars. When you have an economy as massive as China's, what else are you going to do with 550 million tons worth of steel making and 55 million tons of shipbuilding per year? Because industrial output is so massive, millions would find themselves without work if military demand were to evaporate. The production frontier is where it currently stands because there is state demand for goods and services. If state demand were to contract, so would the economy and jobs along with it.
The second world war did not cause global economies to contract. In contrast it caused, the greatest economic boom ever seen in the 20th century. It effectively ended the Great Depression. Nowadays, whenever we admire a nation's economic growth. We make statements like, the greatest level of economic growth ever seen during peace time. This is because it is still pale compared to economic growth normally seen during war time.
Another call to reason
I am hoping it has become abundantly clear that a lot of how the monetary system operates is irrelevant. And that the only thing state planners should concern themselves with is maximizing production, and achieving national objectives. Thus the recent military spending booms that China is experiencing is a godsend. And increasing that spending by multiples would be even a greater godsend as it helps increase jobs and improve productivity. I am not suggesting that China should start a war. The economy does not need a war in order to create a healthy economy. It only needs to prepare for one. War mobilization even when ultimately, there is no war to fight, is the greatest stimulus package you can give to the economy.
Just focus on Productivity
The National Central Bank should ignore things like profits and let the speculators, the investors, the old guys who stare at the Shanghai Index all day worry about that. Your primary goal is productivity and objectives. Because profit and loss is all imaginative. None of it is real. The only profit and loss that people care about is the legally binding one. Meaning the profit and loss stated in the value of their national currencies.
It does not matter if the value of my profit depreciated 99 percent against cotton, gold, iron, or nickel. All that matters is that I still reported a profit in fiat money. So a Japanese only cares that he reported a profit in Yen. He does not care if he reported a loss if that value was converted to Euros. Likewise, a European only cares if he reported a profit in Euros, he does not care if its actually a loss if converted to RMB. Because the only obligations he has to worry about is paying his employees and being able to deliver tax to his state. And both are legally obligated to accept payment in fiat money.
Even if the contract demanded that payment be paid in some physical or tangible good. The courts are willing to accept payment in the form of fiat money, because that is the law.
It does not matter if the value of my profit depreciated 99 percent against cotton, gold, iron, or nickel. All that matters is that I still reported a profit in fiat money. So a Japanese only cares that he reported a profit in Yen. He does not care if he reported a loss if that value was converted to Euros. Likewise, a European only cares if he reported a profit in Euros, he does not care if its actually a loss if converted to RMB. Because the only obligations he has to worry about is paying his employees and being able to deliver tax to his state. And both are legally obligated to accept payment in fiat money.
Even if the contract demanded that payment be paid in some physical or tangible good. The courts are willing to accept payment in the form of fiat money, because that is the law.
Ultimately, it is the state that becomes the arbiter of whether or not the economy remains profitable or becomes unprofitable. And that can be achieved by controlling the money supply. Thus when the government operates a loose monetary policy. Running almost any business would appear profitable. However when the government operates a tight monetary policy, profit seems to escape everyone. This is because if A wishes to report a surplus, B must report a deficit with A. However if the money supply remains loose, both A and B can report a surplus because new money is being created out of thin air.
Profit
Profit is not real. It is all psychological. Profit is needed to create incentive in people's minds that what they are doing is the right thing. As long as they think what they are doing is profitable, they will keep doing it. Even if it is not profitable from one perspective, so long as it seems profitable from their perspective, it justifies a continuation of that activity.
The native americans of Manhattan sold the island for 64 Dutch Guilders worth of animal skins. That is about 24 ounces of silver in the 1600s. At today's market price, that is about 648 dollars or 4 cents an acre. The Natives really valued animal skins. They walked away absolutely happy with the transaction.
In contrast the Louisiana purchase that Napoleon sold to Jefferson in order to fund the continental war in Europe cost 15 million dollars or 7.5 million ounces of silver in the 1800s. Which at today's market price is about 2.5 dollars an acre.
Joseph in the old testament was sold for 20 silver coins, Jesus for 30 in the new.
In all of the above cases, they thought it was worth the transaction. Both parties walked away thinking they made a profit. Profit is nothing more than a mind game. Depending on how you measure profit, whether its in Yen, Euros, Dollars, Gold, Silver, Beaver skins, victory in Europe, you will come up with different results.
If I made only 10,000 ounces of gold in one year, but the price of gold fell to 1 dollar an ounce, that would be considered a loss to the year where I only made 1 ounce of gold the entire year, but that one ounce was worth 50,000 dollars.
But at the same time if I made 100,000 dollars a year, but the price of gold per ounce also went up to 100,000 dollars a year, I might walk away thinking I had a profitable year.
The native americans of Manhattan sold the island for 64 Dutch Guilders worth of animal skins. That is about 24 ounces of silver in the 1600s. At today's market price, that is about 648 dollars or 4 cents an acre. The Natives really valued animal skins. They walked away absolutely happy with the transaction.
In contrast the Louisiana purchase that Napoleon sold to Jefferson in order to fund the continental war in Europe cost 15 million dollars or 7.5 million ounces of silver in the 1800s. Which at today's market price is about 2.5 dollars an acre.
Joseph in the old testament was sold for 20 silver coins, Jesus for 30 in the new.
In all of the above cases, they thought it was worth the transaction. Both parties walked away thinking they made a profit. Profit is nothing more than a mind game. Depending on how you measure profit, whether its in Yen, Euros, Dollars, Gold, Silver, Beaver skins, victory in Europe, you will come up with different results.
If I made only 10,000 ounces of gold in one year, but the price of gold fell to 1 dollar an ounce, that would be considered a loss to the year where I only made 1 ounce of gold the entire year, but that one ounce was worth 50,000 dollars.
But at the same time if I made 100,000 dollars a year, but the price of gold per ounce also went up to 100,000 dollars a year, I might walk away thinking I had a profitable year.
Wednesday, November 24, 2010
Random stuff
On any given week, China's shipbuilding industry produces more ships than the us navy produces ships in one year. One missile and 20 seconds, and that is enough to take out an entire fleet. Naval ships of foreign vessels travel the globe all the time. The Chinese navy is currently in the Indian Ocean and the coasts of Africa. They make routine port stops all across Europe from Portsmouth England to St Petersburg Russia. China won the Korean War. All of North Korea was retaken by the Chinese. It was largest retreat in united states history since the revolutionary war.
China is North Korea's Ally. It is dedicated to defending North Korea regardless of what North Korea does or does not do. If North Korea is in the right, China must defend them. If North Korea is in the wrong, China still must defend them. It is geopolitics, you never give up your national interests.
Of course americans will back then. They do not want to see their own cities burned under nuclear fire over some country on the other side of the planet.
The united states has trade deficits with China. So us owes China goods and services. China does not benefit from american trade. China gives goods and services to the united states that the us still has not given in return. Thus the trade deficit.
Chinese exports to the us does not benefit China since the us has never the means to pay for it.
China is North Korea's Ally. It is dedicated to defending North Korea regardless of what North Korea does or does not do. If North Korea is in the right, China must defend them. If North Korea is in the wrong, China still must defend them. It is geopolitics, you never give up your national interests.
Of course americans will back then. They do not want to see their own cities burned under nuclear fire over some country on the other side of the planet.
The united states has trade deficits with China. So us owes China goods and services. China does not benefit from american trade. China gives goods and services to the united states that the us still has not given in return. Thus the trade deficit.
Chinese exports to the us does not benefit China since the us has never the means to pay for it.
Recession and debt
The reason some people call for austerity measures is not because it would improve the economy. It is meant to tighten a nation's belt and help pay off previous debt. If anything, a strong economy would only further the national debt as imports exceed exports and a weak economy would help bridge that gap as consumers have less income to spend.
Austerity is no more fun for the country than it is for the individual. After all, how is using 25 percent of one's income to pay off debt be considered better off? Indentured servants are simply semi-slaves.
The us economy saw its trade deficit decline from 800 billion to 400 billion a year as a result of the recession. This meant the united states was exporting 400 billion less in fiat dollars to pay for foreign goods and services. For countries doing trade with the us, that is a considerable loss in expected liquidity. However, liquidity can always be substituted with more liquidity. Thus if one nation is no longer exporting paper money, another nation can easily make up for the difference by printing their own.
A statement on the government's website said the State Council had approved a plan to invest 4 trillion yuaninfrastructure and social welfare by the end of 2010.[4][3]
Chinese banking officials were reportedly considering establishing a fund worth between 600 billion and 800 billion yuan to purchase domestic shares listed on the Shanghai Stock Exchange, particularly those in the Shanghai Composite, in the event the Shanghai Index fell to 1,500 points.[9]
Public infrastructure development took up the biggest portion -- 1.5-trillion yuan, or nearly 38% of the total package. The projects lined up include railway, road, irrigation, and airport construction.
China's economic growth was sustained by the economic stimulus and in addition, assisted neighboring countries with the economic recovery in 2010.[12] Chinese economic growth was around 10 percent even as its European and north American economies were slowing. [13] The stimulus provided funds for infrastructure projects and housing developments. Some were used to assist local governments to lend money to state-owned companies to develop housing estates, roads and bridges. [13] This will drive employment in areas of manufacturing, steel, cement and other sectors of the economy. [13][14]
As stated before, the markets only care about liquidity. They want to see monetary expansion because it makes them see profit. And for consumers, it means economic growth since it triggers businesses to expand. China's economy still grew 10 percent even as trade with the united states fell. Because the Chinese economy does not need american dollars, it simply needs liquidity whether it is RMB, Yen, Rand, Rubles, or shellfish and glass beads.
Austerity is no more fun for the country than it is for the individual. After all, how is using 25 percent of one's income to pay off debt be considered better off? Indentured servants are simply semi-slaves.
The us economy saw its trade deficit decline from 800 billion to 400 billion a year as a result of the recession. This meant the united states was exporting 400 billion less in fiat dollars to pay for foreign goods and services. For countries doing trade with the us, that is a considerable loss in expected liquidity. However, liquidity can always be substituted with more liquidity. Thus if one nation is no longer exporting paper money, another nation can easily make up for the difference by printing their own.
A statement on the government's website said the State Council had approved a plan to invest 4 trillion yuaninfrastructure and social welfare by the end of 2010.[4][3]
Chinese banking officials were reportedly considering establishing a fund worth between 600 billion and 800 billion yuan to purchase domestic shares listed on the Shanghai Stock Exchange, particularly those in the Shanghai Composite, in the event the Shanghai Index fell to 1,500 points.[9]
Public infrastructure development took up the biggest portion -- 1.5-trillion yuan, or nearly 38% of the total package. The projects lined up include railway, road, irrigation, and airport construction.
China's economic growth was sustained by the economic stimulus and in addition, assisted neighboring countries with the economic recovery in 2010.[12] Chinese economic growth was around 10 percent even as its European and north American economies were slowing. [13] The stimulus provided funds for infrastructure projects and housing developments. Some were used to assist local governments to lend money to state-owned companies to develop housing estates, roads and bridges. [13] This will drive employment in areas of manufacturing, steel, cement and other sectors of the economy. [13][14]
As stated before, the markets only care about liquidity. They want to see monetary expansion because it makes them see profit. And for consumers, it means economic growth since it triggers businesses to expand. China's economy still grew 10 percent even as trade with the united states fell. Because the Chinese economy does not need american dollars, it simply needs liquidity whether it is RMB, Yen, Rand, Rubles, or shellfish and glass beads.
Chinese superpower
Of course China is a super power. Greatest industrial power the world has ever known. And the power to strike hundreds of cities across the planet.
Tuesday, November 23, 2010
A return discussion to how depressions strengthens the national currency
As discussed before, economic depressions strengthen the currency while economic booms weakens the currency. When we increase the money supply we are able to increase demand. This is because consumers who were always willing to purchase more goods were unable to until they have acquired the financial ability to do so. When we give the people the financial ability to purchase more goods by either granting them newly printed money or by loaning them newly printed money we are able to increase demand.
As the chart indicates, stronger demand forces businesses to increase the volume of their goods. The increase in quantity is seen in Q1 vs Q2. However the national currency is further devalued as a result of inflation as seen in P1 vs P2. This is because businesses do not have the incentive to increase Q1 to Q2 without first demanding that they get paid more for each unit of output.
If the economy were to contract, first you would have to contract the money supply. You contract the money supply by increasing taxes, increasing interest rates, demanding businesses and consumers immediately pay back their loans, or whatever methods you choose. When the money supply contracts, so does consumer demand. D2 thus reverts back D1. The price of goods fall from P2 to P1. And businesses revert their production of goods from Q2 to Q1, thus causing the economy to have lost that surplus production of goods.
The reversion of P1 to P2 indicates that the price of goods have now fallen due to lesser demand. Thus economic contraction actually elevates the value of the national currency.
Monday, November 22, 2010
Markets like bailouts
Markets like liquidity. More money means more money to spend. So markets make a natural assumption that government bailouts make it easier for liquidity to become available. If the bailout were to be paid by taxes, then that would be a different matter since that does not create new liquidity. That is just a transfer of money. More spending on A only means less spending on B.
Thus when liquidity is provided by deficit spending, that means the money does not come from taxes, instead, it comes from thin air. And that the total money supply is expected to be increased in some way. Austerity measures on the other hand are not good for the economy. Austerity measures are maybe necessary in order to repay one's creditor. But austerity measures defeats the purpose of having a bailout altogether. By accepting a bailout, but then forced to apply austerity measures. Ireland is still in debt. Simply trading one creditor with another creditor. Thus nothing has improved.
Bailout increases the money supply, but austerity measures only further reduces it. There is no net gain to the monetary system. Whenever money is created from thin air, the markets become excited. It creates an opportunity to make new money, not simply old money. Thus austerity is not all that exciting.
Thus when liquidity is provided by deficit spending, that means the money does not come from taxes, instead, it comes from thin air. And that the total money supply is expected to be increased in some way. Austerity measures on the other hand are not good for the economy. Austerity measures are maybe necessary in order to repay one's creditor. But austerity measures defeats the purpose of having a bailout altogether. By accepting a bailout, but then forced to apply austerity measures. Ireland is still in debt. Simply trading one creditor with another creditor. Thus nothing has improved.
Bailout increases the money supply, but austerity measures only further reduces it. There is no net gain to the monetary system. Whenever money is created from thin air, the markets become excited. It creates an opportunity to make new money, not simply old money. Thus austerity is not all that exciting.
Hyperinflation
With inflation, we can manipulate businesses to create more wealth for society. Whoever drew this curve drew the line to indicate there will be marginal returns down the road if liquidity continues to be pumped in for businesses and consumers. Near the end of the line, the supply curve no longer extends towards the far right end, but instead exponentially extends upward. This is to indicate that no additional liquidity would ever cause added productivity beyond this point. That the only change that can occur is price.
This is a well constructed curve because it acknowledges that eventually, no matter how much liquidity you continue to add, productivity will not follow. The curve recognizes real life constraints like 100 percent employment and 100 percent utilization of factories, and retail outlets. You can only hire a person once. With no more people left unemployed and no more factories left unused, no matter how much money you throw at the system, the system is not going to create more wealth.
Sunday, November 21, 2010
Deregulation
Fractional reserve lending might be viewed as reckless. But deregulation helped streamlined money creation. Its what fueled the economy. Trying to regulate the economy so that there will never be another bubble means the economy wont ever have another boom or recovery either.
Its a real shame Ireland can not produce its own money
The Euro is a good thing and it allows members states to collectively pool their resources under one economic unit. Thus a Euro is not just a monetary unit that day traders can play with. But as a business owner or a consumer. You know a Euro is also able to purchase a basket of goods and services that are produced and sold in Europe.
With the Euro, not only can I can set up bank accounts in Luxembourg, buy German cars, or vacation to Dublin. But I can sell Euros to day traders who simply want to trade Euros like little kids trading baseball cards. So there are a number of benefits of having a single monetary unit stretching across Europe.
Now for the bad news. Ireland can not print Euros. The European Central Bank does. And they thus get to decide monetary policy for Ireland so long as Ireland chooses to use the Euro as its domestic currency. This very much complicates matters for Ireland since they are now being leashed to some foreign bank they are not even really a part of.
I suggest Ireland just play it tough. And threaten to remove itself from the Euro if Europe tries to push Ireland into adopting austerity measures.
Germany picks up the slack for much of Europe. It is through their trade surpluses with Europe that helps subsidize much of the Euro region. But they are also psychologically happy with it. If they were not so mercantilist, then they would not have to subsidize the rest of Europe. They get gratification that they ship out more goods than they receive. And that is an illness that only they themselves are responsible for.
You see, many countries across Europe post trade deficits with Germany from having purchased German cars and German industrial goods. Without German productivity, Europe would not be as productive. However, Germany would not have it any other way. Although they subsidize much of Europe, they would absolutely not accept that Germans drive non-German cars, or Germans use non-German machinery. They want Europe to post trade deficits with them, thus they want to subsidize Europe. Why complain about Greek debt when German companies insist on making every Greek use German products thus creating that debt. Germany can always concede Volkswagon sales to Peugeot. But that goes against German pride. This is because Germans are mercantilist.
Either stop complaining about the debt, or stop posting trade surpluses. You cant have both.
With the Euro, not only can I can set up bank accounts in Luxembourg, buy German cars, or vacation to Dublin. But I can sell Euros to day traders who simply want to trade Euros like little kids trading baseball cards. So there are a number of benefits of having a single monetary unit stretching across Europe.
Now for the bad news. Ireland can not print Euros. The European Central Bank does. And they thus get to decide monetary policy for Ireland so long as Ireland chooses to use the Euro as its domestic currency. This very much complicates matters for Ireland since they are now being leashed to some foreign bank they are not even really a part of.
I suggest Ireland just play it tough. And threaten to remove itself from the Euro if Europe tries to push Ireland into adopting austerity measures.
Germany picks up the slack for much of Europe. It is through their trade surpluses with Europe that helps subsidize much of the Euro region. But they are also psychologically happy with it. If they were not so mercantilist, then they would not have to subsidize the rest of Europe. They get gratification that they ship out more goods than they receive. And that is an illness that only they themselves are responsible for.
You see, many countries across Europe post trade deficits with Germany from having purchased German cars and German industrial goods. Without German productivity, Europe would not be as productive. However, Germany would not have it any other way. Although they subsidize much of Europe, they would absolutely not accept that Germans drive non-German cars, or Germans use non-German machinery. They want Europe to post trade deficits with them, thus they want to subsidize Europe. Why complain about Greek debt when German companies insist on making every Greek use German products thus creating that debt. Germany can always concede Volkswagon sales to Peugeot. But that goes against German pride. This is because Germans are mercantilist.
Either stop complaining about the debt, or stop posting trade surpluses. You cant have both.
A return to inflation and wealth
As stated before inflation does not lead to poverty. It leads to a destruction in savings. Higher food prices do not lead to starvation unless higher food prices were a result of destruction to productivity. Hurricane, locusts, drought ect. Higher food prices as a result of monetary expansion and inflation leads to higher productivity and greater abundance.
China has been experiencing quite a lot of inflation in food prices. But that is not causing the Chinese to eat less. On the contrary, Chinese are eating more and more and the high food prices drives farmers to produce even more agricultural output to chase after inflation.
As stated before, if there was deflation in food prices, it would force farmers to pull back on productivity and then Chinese would actually have less on the dinner table. By holding down grain prices, farmers will stop growing staples and start growing things that will offer a better return on investment.
Thankfully she is not switching to coffee beans and tea which has almost no caloric benefit. The Chinese entrepreneur thrives on inflation. You take away inflation, and then they have no incentive to produce. Inflation is the brainchild for productivity and abundance.
China has been experiencing quite a lot of inflation in food prices. But that is not causing the Chinese to eat less. On the contrary, Chinese are eating more and more and the high food prices drives farmers to produce even more agricultural output to chase after inflation.
Tian Lanying has given up growing wheat.
For most of her 60 years, Tian has raised wheat on a small plot of land in Henan province and sold it to the State at a fixed price. This year, she will plant corn and vegetables instead. The reason?
"Wheat does not make much money," she said.
Thankfully she is not switching to coffee beans and tea which has almost no caloric benefit. The Chinese entrepreneur thrives on inflation. You take away inflation, and then they have no incentive to produce. Inflation is the brainchild for productivity and abundance.
Booms and Bubbles
An increase in demand leads to higher supply. And inflation creates the illusion that there is greater demand for a product. Because we actually are creating more demand whenever money is created to help consumers purchase a product when they were willing but simply not financially able.
Businesses thus go out of their way to produce more product in order to collect on this inflation. This is why housing bubbles produce such a huge inventory of housing.
The reason why housing prices increase is largely due to a loose monetary policy. Either PBOC is printing more RMB, or banks in China are practicing a lot of fractional reserve lending. Whatever the case, this productivity would have never occurred under a period of no inflation. There just would not be the incentive to produce or to push the envelope if it is not driven by inflation.
By increasing inflation, or expanding the money supply, we are actually extending the production frontier beyond our normal expectations. In other words, by printing more money and pushing up inflation, China is actually creating new wealth.
Businesses thus go out of their way to produce more product in order to collect on this inflation. This is why housing bubbles produce such a huge inventory of housing.
By increasing inflation, or expanding the money supply, we are actually extending the production frontier beyond our normal expectations. In other words, by printing more money and pushing up inflation, China is actually creating new wealth.
Saturday, November 20, 2010
Inflation and futures
Retirees are no longer working and thus they are no longer receiving income except through some retirement fund that may or may not be enough. Inflation is one of those fogs of war that makes it very difficult to predict the future. Whatever your retirement plan is, it may or may not be enough to keep up with inflation. Running race tracks is for the youth, not for the old.
For businesses and working people. They have usually accrued a certain level of debt that requires repayment. And if there is deflation, then the value of the debt exceeds the value of their business and the revenue they collect. They have no choice but to default if the value of the debt exceeds whatever income they receive.
Personally, inflation is good. But then, I am not a retiree. If anything, I would open my arms for hyperinflation. Although not exactly just yet.
For businesses and working people. They have usually accrued a certain level of debt that requires repayment. And if there is deflation, then the value of the debt exceeds the value of their business and the revenue they collect. They have no choice but to default if the value of the debt exceeds whatever income they receive.
Personally, inflation is good. But then, I am not a retiree. If anything, I would open my arms for hyperinflation. Although not exactly just yet.
Outsourcing and imports benefits the countries doing the consuming
People in the first world are wealthier today, than they ever had been prior to outsourcing and trade deficits. Goods and services are stacked high through out department stores and supermarkets. There are more food available all around the year because it is shipped from third world countries. The trade deficit means, that the first world does not produce anything to pay for the goods that first world countries consume from third world countries.
There is a very large disparity in wealth between countries that post trade deficits versus those that post trade surpluses. And this is because more goods and services get shipped to the first world, than it does to the third.
"Another fallacy seldom contradicted is that exports are good, imports bad. The truth is very different. We cannot eat, wear, or enjoy the goods we send abroad. We eat bananas from Central America, wear Italian shoes, drive German automobiles, and enjoy programs we see on our Japanese TV sets. Our gain from foreign trade is what we import. Exports are the price we pay to get imports. As Adam Smith saw so clearly, the citizens of a nation benefit from getting as large a volume of imports as possible in return for its exports or, equivalently, from exporting as little as possible to pay for its imports".
Milton Friedman 1980
There is a very large disparity in wealth between countries that post trade deficits versus those that post trade surpluses. And this is because more goods and services get shipped to the first world, than it does to the third.
"Another fallacy seldom contradicted is that exports are good, imports bad. The truth is very different. We cannot eat, wear, or enjoy the goods we send abroad. We eat bananas from Central America, wear Italian shoes, drive German automobiles, and enjoy programs we see on our Japanese TV sets. Our gain from foreign trade is what we import. Exports are the price we pay to get imports. As Adam Smith saw so clearly, the citizens of a nation benefit from getting as large a volume of imports as possible in return for its exports or, equivalently, from exporting as little as possible to pay for its imports".
Milton Friedman 1980
Inflation and wealth
Businesses chase after inflation because inflation produces opportunity. In addition it is much easier to pay back a loan when inflation is introduced to the market. Gold miners would not have incentive to produce more gold if the price of gold was not increasing. Milk producers would not have more incentive to produce more milk if milk prices were not increasing. Grain producers would not have more incentive to produce more grain if grain prices were not increasing. Greater demand leads to greater supply and inflation creates that illusion that there is greater demand.
It is the same psychological application used to force greyhounds to run race tracks.
In fact, if prices actually fell, so would real wealth. Deflation has a destructive effect on people's willingness to produce. Businesses would cut back on production just to manipulate prices to increase. By creating scarcity, and destroying production, they are hoping to push prices back to higher levels. Without higher prices, there is just no justification to keep productivity at previous levels.
790,000 gallons of fresh milk dumped
Farmers in white heat over milk prices
Updated: Wednesday, 16 Sep 2009, 12:01 PM EDT
BRUSSELS (AP) – Belgian farmers sprayed 3 million liters (790,000 gallons) of fresh milk onto their fields Wednesday, furious over the low milk prices they say are bankrupting farmers.
Milk farmers’ groups said world prices had sunk so much they are having to sell milk at half their production costs, leaving more and more farmers unable to pay their bills.
January 23, 2010
Sometime before early afternoon on Thursday, Dean Pierson, a 59-year-old, second-generation dairy farmer, took a rifle and shot to death his 51 milking Holsteins, State Police said. He selected only the ones that had to be milked twice a day to prevent painful complications from setting in.
It is the same psychological application used to force greyhounds to run race tracks.
In fact, if prices actually fell, so would real wealth. Deflation has a destructive effect on people's willingness to produce. Businesses would cut back on production just to manipulate prices to increase. By creating scarcity, and destroying production, they are hoping to push prices back to higher levels. Without higher prices, there is just no justification to keep productivity at previous levels.
Farmers in white heat over milk prices
Updated: Wednesday, 16 Sep 2009, 12:01 PM EDT
BRUSSELS (AP) – Belgian farmers sprayed 3 million liters (790,000 gallons) of fresh milk onto their fields Wednesday, furious over the low milk prices they say are bankrupting farmers.
Milk farmers’ groups said world prices had sunk so much they are having to sell milk at half their production costs, leaving more and more farmers unable to pay their bills.
January 23, 2010
Sometime before early afternoon on Thursday, Dean Pierson, a 59-year-old, second-generation dairy farmer, took a rifle and shot to death his 51 milking Holsteins, State Police said. He selected only the ones that had to be milked twice a day to prevent painful complications from setting in.
Pierson left unscathed some 50 other cows, the young stock, heifers and calves that don’t need to be milked and require less care.
And then, alone in the dairy barn where he arrived each morning before sunrise and finished up the day’s second milking long after sunset, Pierson turned the weapon on himself. Why can't we just use the money supply we have now?
Because the economy would remain near stagnant without a financial push. You would need to increase the money supply just to absorb new people who have just reached working age. If people died as fast as people gave birth, or retired as fast as new people entered the labor force, then perhaps that would not be an issue. But populations tend to expand, and the labor force as well. Thus, just to absorb the new labor without forcing everyone to suffer wage cuts, you need new money.
Even without growth in the labor force, it would be best to inject new money. Because new industries and new projects need to be performed every day. And those projects can not be financed without new money. Whether its the state running budget deficits, or banks encouraging private market expansion through fractional reserve lending, new money needs to come from somewhere. We can't increase taxes, or wage cuts in one sector to come up with enough capital to fund an entirely new project. Doing so would create dissatisfaction amongst the group being axed.
While the expansion in the money supply would increase inflation. It would not increase poverty. In fact, the injection of new money would produce new wealth. Fiat money is the synthetic replacement for gold and other precious commodities. Its introduction into the economy stimulates economic growth the same way a mechanical rabbit stimulates a group of greyhounds to run around the track. And its through human labor is wealth created. And anything that motivates the unemployed to contribute more for society helps generate new wealth.
How much did a box of Kellogg's Corn Flakes cost?
Inflation is very real. A loaf of bread was only 9 cents in 1929. And a box of corn flakes was only 10 cents in 1908 versus 3 dollars today.
But people are not any poorer as a result of inflation. In fact, world grain production continues to grow exponentially because of inflation. People eat better today than they did in 1909.
Fiat money destroys savings. But when the fiat money is allocated to maximize employment, and productivity, fiat money expands aggregate wealth.
Even without growth in the labor force, it would be best to inject new money. Because new industries and new projects need to be performed every day. And those projects can not be financed without new money. Whether its the state running budget deficits, or banks encouraging private market expansion through fractional reserve lending, new money needs to come from somewhere. We can't increase taxes, or wage cuts in one sector to come up with enough capital to fund an entirely new project. Doing so would create dissatisfaction amongst the group being axed.
While the expansion in the money supply would increase inflation. It would not increase poverty. In fact, the injection of new money would produce new wealth. Fiat money is the synthetic replacement for gold and other precious commodities. Its introduction into the economy stimulates economic growth the same way a mechanical rabbit stimulates a group of greyhounds to run around the track. And its through human labor is wealth created. And anything that motivates the unemployed to contribute more for society helps generate new wealth.
How much did a box of Kellogg's Corn Flakes cost?
| [June 29, 1907] "large size," 10 cents [1908] no size, 10 cents [1909] no size, 10 cents [1910] no size, 9 cents [1911] no size, 10 cents [1912] no size, 9 cents [1913] no size, 10 cents [1914] no size, 10 cents [1915] no size, 8 cents [1916] no size, 8 cents [1917] no size, 8 cents [1918] no size, 8 cents [1919] no size, 12 cents [1920] no size, 11 cents [1922] "large size," 12.5 cents [1923] no size, 9 cents [1924] no size, 8 cents [1925] no size, 9 cents [1926] no size, 10 cents [1927] no size, 10 cents [1928] no size, 8 cents [1929] no size, 7 cents [1930] 7.6 oz, 7.5 cents [1931] no size, 9 cents [1932] 8 oz, 25 cents/four pkgs [1933] no size, 20 cents/three pkgs [1934] 8 oz, 8 cents [1935] 8 oz, 8 cents [1936] 8 oz, 20 cents/three pkgs [1937] no size, 7 cents [1938] 8 oz, 13 cents/two pkgs [1939] 8 oz, 13 cents/two pkgs [1940] 8 oz, 11 cents/two pkgs [1941] no size, 9 cents [1942] 11 oz, 8 cents [1943] 11 oz, 8 cents [1944] 6 oz, 5 cents [1945] 11 oz, 8 cents (also: 6 oz, 5 cents & 18 oz, 12 cents) [1946] 6 oz, 5 cents [1947] 13 oz, 17 cents [1948] 8 oz, 12 cents [1949] 13 oz, 19 cents [1950] 8 oz, 16 cents [1951] 8 oz, 13 cents [1952] 8 oz, 16 cents [1953] 8 oz, 15 cents [1954] 8 oz, 25 cents | [1955] 12 oz, 19 cents [1956] 8 oz, 29 cents/two pkgs [1957] 8 oz, 17 cents [1958] 8 oz, 18 cents [1959] 12 oz, 22 cents [1960] 18 oz, 27 cents [1961] 12 oz, 23 cents [1962] 18 oz, 27 cents [1963] 12 oz, 23 cents [1964] 12 oz, 29 cents [1965] 12 oz, 25 cents [1966] 12 oz, 25 cents [1967] 12 oz, 29 cents [1968] 18 oz, 39 cents [1969] 12 oz, 29 cents [1970] 18 oz, 38 cents [1971] 8 oz, 21 cents [1972] 18 oz, 37 cents [1973] 12 oz, 25 cents [1974] 18 oz, 43 cents [1975] 12 oz, 45 cents [1976] 18 oz, 69 cents [1977] 12 oz, 50 cents [1978] 24 oz, $1.15 [1979] 12 oz, 59 cents [1980] 19 oz, 99 cents [1981] 18 oz, $1.12 [1982] 18 oz, $1.25 [1983] 18 oz, 99 cents [1984] 12 oz, 89 cents [1985] 18 oz, $1.09 [1986] 18 oz, $1.39 [1987] 24 oz, $1.99 [1988] 18 oz, $1.49 [1989] 18 oz, $1.69 [1990] 18 oz, $1.99 [1991] 18 oz, $2.19 [1992] 18 oz, $1.99 [1993] 18 oz, $1.29 [1994] 24 oz, $2.19 [1995-1996] no prices found yet [1997] 18oz, $2.59 [1998] 18 oz, $2.29 [1999] no prices found yet [2000] 18 oz, $2.99 [2001-2003] no prices found yet [2004] 12 oz, $2.99 [2005-2007] no prices found yet [May 10, 2008] 12 oz, $2.99 |
Inflation is very real. A loaf of bread was only 9 cents in 1929. And a box of corn flakes was only 10 cents in 1908 versus 3 dollars today.
But people are not any poorer as a result of inflation. In fact, world grain production continues to grow exponentially because of inflation. People eat better today than they did in 1909.
Silver is nice
Silver is traditionally a monetary unit second only to gold. But it has flaws that Gold does not possess. It has a tendency to corrode and tarnish. Not as much as copper and iron, but it will still tarnish over time. The metal is also much more abundant than gold thus it suffers from two different sets of flaws.
2008 was a terrible year for silver. The price for silver collapsed by 50 percent. I suspect it was because people were dumping their personal silver reserves and selling them for fiat money so as to pay off their personal debts. In contrast, very few people were willing to dump their gold to meet their debt obligations. Oil was being dumped, gas was being dumped, iron and copper was being dumped. But many people refused to part with their gold for some reason.
Silver is still a great metal. But the contemporary ratio between silver and gold was 50 to 1 or 60 to 1. Stretching further back, silver was 16 to 1 to gold.
2008 was a terrible year for silver. The price for silver collapsed by 50 percent. I suspect it was because people were dumping their personal silver reserves and selling them for fiat money so as to pay off their personal debts. In contrast, very few people were willing to dump their gold to meet their debt obligations. Oil was being dumped, gas was being dumped, iron and copper was being dumped. But many people refused to part with their gold for some reason.
Silver is still a great metal. But the contemporary ratio between silver and gold was 50 to 1 or 60 to 1. Stretching further back, silver was 16 to 1 to gold.
Gold has better returns when the economy is good
The economy is not good by any means since 2008. However with the press marketing quantitative easing policies and near zero interest rates. It is inevitable for investors to think that recovery is right around the corner. Thus they are going to invest in gold and commodities now thinking higher consumption will be just a few more quarters ahead.
The truth is, there is not much in real demand right now except for investor optimism. People are not exactly buying SUVs and business cards written with gold print.
Mining is a dangerous job
Working beneath the earth where a collapse can occur at any moment is not exactly what people go to college to do. At the same time, raw commodities are necessary.
Why do government's put up with fractional reserve lending?
Because they realize they could not finance new economic growth by any other means than creating money from nothing. If the money supply was stagnant, so would the economy. The only people who would still have money are those who had already profited from the previous injection of new money. In order to create new opportunities, new money needed to be injected.
Initially, government's were not so fond of such a concept. But they quickly realized that they fell behind nations that did operate a loose monetary supply and were also forced to adopt it.
Much of this grows out of the gold standard. If gold is assumed to be the only form of monetary wealth. No one would work until they were paid in gold. Businesses and consumers could never complete a transaction until gold was traded between the two. But if the supply of gold remains stagnant, so would trade and economic growth. So banks devised a scheme where they distributed gold certificates instead of real gold. And thus the trade of these notes also known as currencies, helped encourage trade and economic growth. Because businesses and consumers can simply exchange these notes with one another for goods and services.
There was much inflation from the introduction of national currencies, but at the same time, it encouraged an explosion of economic activities, since these activities were no longer tied to the gold supply.
Initially, government's were not so fond of such a concept. But they quickly realized that they fell behind nations that did operate a loose monetary supply and were also forced to adopt it.
Much of this grows out of the gold standard. If gold is assumed to be the only form of monetary wealth. No one would work until they were paid in gold. Businesses and consumers could never complete a transaction until gold was traded between the two. But if the supply of gold remains stagnant, so would trade and economic growth. So banks devised a scheme where they distributed gold certificates instead of real gold. And thus the trade of these notes also known as currencies, helped encourage trade and economic growth. Because businesses and consumers can simply exchange these notes with one another for goods and services.
There was much inflation from the introduction of national currencies, but at the same time, it encouraged an explosion of economic activities, since these activities were no longer tied to the gold supply.
Consumption is not hard
An infant can do it. Consumption is no more labor than opening your mouth to chew. If the people are inclined to save its through government manipulation. If people are saving. The question to ask is why are they saving? What is it that they are trying to purchase in the future that forces them to save? Is it healthcare? Is it education? Is it a new car? A new home? Why are they withdrawing themselves from the market and refusing to participate by saving?
If they have concerns over their future health or the education of their children. And that is what forces them to save. Then just give them free health care and free education. And then they will have no incentive to save for those consumer items. Are they trying to put together enough fiat money for a new car? a new home? Is that what is stopping them from spending ? Because we can wire them money in the form of rebates to pay for that new car or that new home.
You can decrease interest rates on savings accounts. You can also raise inflation by creating the specter of better to spend now than later.
If encouraging consumer spending was truly the objective, there are a number of ways to reach that objective.
If they have concerns over their future health or the education of their children. And that is what forces them to save. Then just give them free health care and free education. And then they will have no incentive to save for those consumer items. Are they trying to put together enough fiat money for a new car? a new home? Is that what is stopping them from spending ? Because we can wire them money in the form of rebates to pay for that new car or that new home.
You can decrease interest rates on savings accounts. You can also raise inflation by creating the specter of better to spend now than later.
If encouraging consumer spending was truly the objective, there are a number of ways to reach that objective.
Friday, November 19, 2010
In the event of a modern war
The surface fleet would not last very long. They would be the most obvious targets to strike thus the first combat vessels to be sunk. There would not even be a need to form a battle line at sea since strikes can made all all over the world without a single vessel in the same hemisphere as the target being destroyed.
Thursday, November 18, 2010
The benefits of capital flight?
Less inflation.
There is no shortage of liquidity. Money can be created out of thin air all the time. So when this money leaves the country, the benefit is less inflation as that money is no longer available domestically to chase after finite goods. As new money continues to be created, the money then leaves again helping to ease inflation.
The biggest fear is that this money will eventually be sent back by the foreign recipients of this money. Money creation policies then need to be controlled either through higher interest rates or less government spending to help ease the incoming money flow. Because if the government and banks are creating trillions and foreign recipients are also sending trillions back. That might just push inflation into the double digits.
"Bastiat argued that the national trade deficit was an indicator of a successful economy, rather than a failing one. Bastiat predicted that a successful, growing economy would result in greater trade deficits, and an unsuccessful, shrinking economy would result in lower trade deficits. This was later, in the 20th century, affirmed by economist Milton Friedman".
"Another fallacy seldom contradicted is that exports are good, imports bad. The truth is very different. We cannot eat, wear, or enjoy the goods we send abroad. We eat bananas from Central America, wear Italian shoes, drive German automobiles, and enjoy programs we see on our Japanese TV sets. Our gain from foreign trade is what we import. Exports are the price we pay to get imports. As Adam Smith saw so clearly, the citizens of a nation benefit from getting as large a volume of imports as possible in return for its exports or, equivalently, from exporting as little as possible to pay for its imports".
Milton Friedman 1980
I disagree with some of the suggestions made in the above statements. However it is true that a country is unable to enjoy the goods they export and are only left poorer as a result of having the goods they produce shipped overseas. A South African gold miner who exports gold to Switzerland means South Africans now have fewer gold. Diamonds exported from the Congo means the Congolese now have fewer diamonds. The South African and Congolese miner make a profit, but that profit is not enough to make up for the loss their countries suffer from the transaction. During the height of imperialism the goal was for the Conquering state to import as much goods as they could from the conquered state thus reporting a trade deficit with the conquered. The goal was not to have the commanders perform more work for the natives. The goal was to have the natives perform more work for the commanders.
Effeminate leisure class as a sign of nobility
There is one potential setback to all this profligacy. In the form of the potential force of the nation posting the trade surpluses and using its excess reserves in attacking the currency of the country posting the trade deficit. But this was inevitable. The currency was always meant to devalue, except it was being pent up all this time.
There is no shortage of liquidity. Money can be created out of thin air all the time. So when this money leaves the country, the benefit is less inflation as that money is no longer available domestically to chase after finite goods. As new money continues to be created, the money then leaves again helping to ease inflation.
The biggest fear is that this money will eventually be sent back by the foreign recipients of this money. Money creation policies then need to be controlled either through higher interest rates or less government spending to help ease the incoming money flow. Because if the government and banks are creating trillions and foreign recipients are also sending trillions back. That might just push inflation into the double digits.
"Bastiat argued that the national trade deficit was an indicator of a successful economy, rather than a failing one. Bastiat predicted that a successful, growing economy would result in greater trade deficits, and an unsuccessful, shrinking economy would result in lower trade deficits. This was later, in the 20th century, affirmed by economist Milton Friedman".
"Another fallacy seldom contradicted is that exports are good, imports bad. The truth is very different. We cannot eat, wear, or enjoy the goods we send abroad. We eat bananas from Central America, wear Italian shoes, drive German automobiles, and enjoy programs we see on our Japanese TV sets. Our gain from foreign trade is what we import. Exports are the price we pay to get imports. As Adam Smith saw so clearly, the citizens of a nation benefit from getting as large a volume of imports as possible in return for its exports or, equivalently, from exporting as little as possible to pay for its imports".
Milton Friedman 1980
I disagree with some of the suggestions made in the above statements. However it is true that a country is unable to enjoy the goods they export and are only left poorer as a result of having the goods they produce shipped overseas. A South African gold miner who exports gold to Switzerland means South Africans now have fewer gold. Diamonds exported from the Congo means the Congolese now have fewer diamonds. The South African and Congolese miner make a profit, but that profit is not enough to make up for the loss their countries suffer from the transaction. During the height of imperialism the goal was for the Conquering state to import as much goods as they could from the conquered state thus reporting a trade deficit with the conquered. The goal was not to have the commanders perform more work for the natives. The goal was to have the natives perform more work for the commanders.
There is one potential setback to all this profligacy. In the form of the potential force of the nation posting the trade surpluses and using its excess reserves in attacking the currency of the country posting the trade deficit. But this was inevitable. The currency was always meant to devalue, except it was being pent up all this time.
Defaults seem inevitable
When there is about 9 or 10 loans for every 1 fiat currency in reserve. You would think people would understand defaults and bankruptcies being inevitable. The only way someone could pay back a loan would be to depend on another person's loan to pay it back. Ten indebted people all scrambling after 1 currency unit. The only way to get out of debt is to have someone else to get into debt.
As long as the lending does not end, current debtors can always rely on future debtors to ease their means of paying off their present debt. But if the lending were to ever end to future lenders as well. Then there will probably be a rise in defaults.
As long as the lending does not end, current debtors can always rely on future debtors to ease their means of paying off their present debt. But if the lending were to ever end to future lenders as well. Then there will probably be a rise in defaults.
Wednesday, November 17, 2010
Fractional reserve lending and GDP
There really is not that much currency in the world. Much of what people own is not fiat money at all. Its just a share of the fractional reserve lending, stocks, bonds, and financial products throughout the years.
So whoever these elites are, I doubt they have fiat currency in their possession. Much of their wealth is probably tied to these financial products.
Job creation
Six hundred billion dollars from QE2, if went strictly to job creation should produce 15 million jobs for just one year if each job paid 40,000 dollars a year. These 15 million people would not even need to show up to work. The government could just mail 40,000 dollars to them for just staying at home. But the assumption is that they should actually show up to work for the entire year to be entitled to this 600 billion.
However, unless its war spending or some other government spending program. money is rarely distributed from the state to the citizenry. The money 99 percent of the time is given to the nation's financial sectors. These men decide how the money will be distributed thus producing private sector jobs. Thus as a result, there probably wont be much in job creation given that the financial sector does not appear to be willing to do much with that money. Some might argue this is bias between the elites who are simply filling up their own pockets. Perhaps. But the other reason is because this is typically how the private sector works.
If an entrepreneur wishes to start a business and hire 20 people, he takes a loan from his bank. If a consumer wishes to purchase a product or service from that business, he takes a loan from his bank. Thus why banks typically receive this money. Furthermore, if the banks were willing to fully leverage the 600 billion awarded to them, they could extend that 600 billion into an additional 5.4 trillion through fractional reserve lending practices.
Banks are responsible for almost all private sector projects from local business support to multinational corporate financing.
Without the state and private banks helping to produce money out of thin air. Many projects from local to national would simply be put on hold.
However the mood is just terribly sour, so I could not expect to see the financial sector willing to do much with that 600 billion. Job creation is by no means hard. It is quite a simple concept. But the us federal system tries not to operate through dictate. It nudges and influences most of the time. It is not like China, where its lend or die. Or even, if you lend, I will kill you. The Chinese Central Government can force its banks like ICBC, CBC, and BOC to lend or not lend by fear and persuasion. Because these are actually state owned banks.
However, unless its war spending or some other government spending program. money is rarely distributed from the state to the citizenry. The money 99 percent of the time is given to the nation's financial sectors. These men decide how the money will be distributed thus producing private sector jobs. Thus as a result, there probably wont be much in job creation given that the financial sector does not appear to be willing to do much with that money. Some might argue this is bias between the elites who are simply filling up their own pockets. Perhaps. But the other reason is because this is typically how the private sector works.
If an entrepreneur wishes to start a business and hire 20 people, he takes a loan from his bank. If a consumer wishes to purchase a product or service from that business, he takes a loan from his bank. Thus why banks typically receive this money. Furthermore, if the banks were willing to fully leverage the 600 billion awarded to them, they could extend that 600 billion into an additional 5.4 trillion through fractional reserve lending practices.
Banks are responsible for almost all private sector projects from local business support to multinational corporate financing.
Exxon seeks financier for the LNG project
Mon Apr 20, 2009 12:00pm
Exxon Mobil Limited and its partners are reportedly seeking US$9-billion more than K26-billion in debt financing for the PNG liquefied natural gas project.
They are looking at raising the funds from a combination of loans from export credit agencies, bonds and commercial bank loans to supplement more than K8-billion loan from Exxon itself.
Without the state and private banks helping to produce money out of thin air. Many projects from local to national would simply be put on hold.
However the mood is just terribly sour, so I could not expect to see the financial sector willing to do much with that 600 billion. Job creation is by no means hard. It is quite a simple concept. But the us federal system tries not to operate through dictate. It nudges and influences most of the time. It is not like China, where its lend or die. Or even, if you lend, I will kill you. The Chinese Central Government can force its banks like ICBC, CBC, and BOC to lend or not lend by fear and persuasion. Because these are actually state owned banks.
Tuesday, November 16, 2010
GDP is simply inflation
If GDP rises, I expect the price of commodities to rise as well. GDP is only a reflection of inflation. The higher the GDP, the higher the inflation. Which is why in 2008, when experiencing the financial collapse, prices actually fell and there was a sudden stroke of deflation. During the IT bubble and realestate bubble, we were all experiencing inflation through high commodity prices, and high housing prices.
The financial collapse in 2008 was the worse year for commodities.
The financial collapse in 2008 was the worse year for commodities.
Gold only grew a meager 5 percent against the usd in 2008. It even depreciated against the Chinese RMB and the Japanese Yen as people fled gold and purchased RMB and Yen instead.
I suppose some people who trade commodities trade out of the doom and gloom reports of an impending global collapse. And that is what motivates them to buy hard assets. There is some logic to that being that why hold a national currency if that nation-state may not even exist. Why buy stocks when stock markets will cease to exist. Thus only gold and silver acts as a safe haven.
But I do not think that is always a fair assumption to make. If the economy does recover, then you can expect more paper money in people's wallets and in their checking accounts. And if they have more money then that motivates a rush towards spending, whether it is into securities or into commodities. And what really drives the price upwards is the inflation induced by economic growth.
Why do some countries pursue trade surpluses?
The same reason why banks continue to hoard gold even when they refuse to sell the gold at a pegged exchange rate. I suppose it is simply out of tradition. Everything is fiat money now, thus most monetary decisions are inconsequential. Mercantilism was a common theme prior to the introduction of fiat money on a global scale. A trade surplus often meant you were allowed the means to withdraw gold and silver from the nation posting the deficit at a pegged rate. Unlike today, the market price for commodities would actually rise if there was a sudden explosion in buying. Under a commodity standard such as the gold standard, the price of gold would remain stagnant regardless of trading behavior. This helps lend to the credibility of a nation's fiat currency because it remains solid, even against commodity prices.
Thus nations that adhered to a gold standard were risking having all of their gold withdrawn not at market price, but at a pegged exchange rate if their imports exceeded their gold reserves. Today, no such relationship exists between a nation's currency and its gold reserves. Just like a bank will never sell gold to its depositors, a nation-state does not sell its gold reserves in exchange for its own fiat money. As a result, there really is no incentive to have any sort of trade balance.
In fact, manipulating the currency to become overvalued so as to import the world's commodities and then letting the currency value collapse would actually be a profitable venture. The exporter of those commodities would then be holding depreciating assets in the form of fiat currency, while the importer of those commodities are now in possession of an appreciating asset.
Thus nations that adhered to a gold standard were risking having all of their gold withdrawn not at market price, but at a pegged exchange rate if their imports exceeded their gold reserves. Today, no such relationship exists between a nation's currency and its gold reserves. Just like a bank will never sell gold to its depositors, a nation-state does not sell its gold reserves in exchange for its own fiat money. As a result, there really is no incentive to have any sort of trade balance.
In fact, manipulating the currency to become overvalued so as to import the world's commodities and then letting the currency value collapse would actually be a profitable venture. The exporter of those commodities would then be holding depreciating assets in the form of fiat currency, while the importer of those commodities are now in possession of an appreciating asset.
Japan lacks the will
Japan worries about it economic malaise ever since its market crash. Although even after the 1997 financial collapse, things were by no means terrible. Things simply were not upbeat. Japan still enjoyed first world living standards, they still had a huge inventory of goods and services that could be purchased and sold. But the job prospects and the sense of opportunity waned for much of its younger generation.
These younger generations still don't sense that there is the same kind of job stability and proper paying jobs compared to their previous generation. But they aren't starving by any means.
Then the question becomes what has changed since prior to 1997 and after 1997? And I suspect it has much to do with the money supply. Japan's Yen appreciation was fairly bold after the Plaza Accords. And the Japanese government simply could not increase the money supply as it previously had without changes to its trade structure.
Previously, Japan doubled its money supply every 5 years. Meaning its GDP actually doubled every 5 years. This created quite a bit of inflation, but it also meant jobs were plenty and incomes grew just as fast. But with the Yen appreciation taking hold. Incomes grew even faster than its export lobby would allow. If incomes continued to grow, then at some point the Japanese would actually be exporting more Yen than they would be importing foreign fiat currencies. And the Japanese are very self conscious about this. So I suspect from a Central Government level, they had already decided to cut short the money supply so as to keep jobs scarce and to maintain a reasonable trade balance, although more on the surplus side. Unemployment and stagnant incomes thus becomes a means to prevent consumers from importing more foreign goods and makes it easier to produce goods for exports at a cheaper cost.
Above: Japan Money Supply
In short, the so called lost decade was self-induced. If they had not been so self conscious of their trade balance and continued forward with a loose monetary policy, the economy would have continued to grow its double digit rates as it had prior to the 1997 collapse.
These younger generations still don't sense that there is the same kind of job stability and proper paying jobs compared to their previous generation. But they aren't starving by any means.
Then the question becomes what has changed since prior to 1997 and after 1997? And I suspect it has much to do with the money supply. Japan's Yen appreciation was fairly bold after the Plaza Accords. And the Japanese government simply could not increase the money supply as it previously had without changes to its trade structure.
Previously, Japan doubled its money supply every 5 years. Meaning its GDP actually doubled every 5 years. This created quite a bit of inflation, but it also meant jobs were plenty and incomes grew just as fast. But with the Yen appreciation taking hold. Incomes grew even faster than its export lobby would allow. If incomes continued to grow, then at some point the Japanese would actually be exporting more Yen than they would be importing foreign fiat currencies. And the Japanese are very self conscious about this. So I suspect from a Central Government level, they had already decided to cut short the money supply so as to keep jobs scarce and to maintain a reasonable trade balance, although more on the surplus side. Unemployment and stagnant incomes thus becomes a means to prevent consumers from importing more foreign goods and makes it easier to produce goods for exports at a cheaper cost.
| Year | ||||
| 1955 | 8,369,500 | |||
| 1960 | 16,009,700 | |||
| 1965 | 32,866,000 | |||
| 1970 | 73,344,900 | |||
| 1975 | 148,327,100 | |||
| 1980 | 240,707,315 | |||
| 1985 | 323,541,300 | |||
| 1990 | 440,124,900 | |||
| 1995 | 493,271,700 | |||
| 2000 | 501,068,100 | |||
| 2005 | 502,905,400 |
Above: Japan Money Supply
In short, the so called lost decade was self-induced. If they had not been so self conscious of their trade balance and continued forward with a loose monetary policy, the economy would have continued to grow its double digit rates as it had prior to the 1997 collapse.
Monday, November 15, 2010
Did it ever really matter?
So called reserve currencies were never important to begin with. I would be just as glad being paid in South African Rand, European Euros, Mexican Pesos, Russian Rubles, Swiss Francs, or any national currency since all currencies can be quickly traded for commodities at market price.
Granted, it is no gold standard. But why would anyone sit on paper currency longer than they needed to. If there is a purchase you need to make in the short term. Then keep it as paper currency. For everything else, have it stored in the form of commodities.
Your wage eventually is unable to keep up the appreciation in price. But you are still better off than those who did not convert their cash into something with a solid foundation.
Granted, it is no gold standard. But why would anyone sit on paper currency longer than they needed to. If there is a purchase you need to make in the short term. Then keep it as paper currency. For everything else, have it stored in the form of commodities.
Your wage eventually is unable to keep up the appreciation in price. But you are still better off than those who did not convert their cash into something with a solid foundation.
RMB and Gold
A currency is like gold and silver. It is not something that is stagnant. Its value will rise and fall based on a multitude of circumstances. Thus the RMB can be undervalued by 30 percent and still be undervalued by 30 percent and still be undervalued by 30 percent more. Just like gold can be undervalued by 30 percent, by another 30 percent, and another 30 percent. Which is why it appreciates at a rate of 25 percent a year.
So just like gold keeps appreciating, so will the RMB. We do not expect the RMB to appreciate a single time and never again. Like a precious commodity or a noble metal, the RMB will keep appreciating because it is worth it.
So just like gold keeps appreciating, so will the RMB. We do not expect the RMB to appreciate a single time and never again. Like a precious commodity or a noble metal, the RMB will keep appreciating because it is worth it.
Sunday, November 14, 2010
Budget deficits
Budget deficits are a necessity. Taxpayers do not pay enough in taxes to run national expenditures. The entire second world war was paid by budget deficits and budget deficits have been the norm as long as americans have been alive.
National expenditures such as military spending, social spending, and education are expensive. Taxpayers do not pay enough in taxes to pay for it. Thus every presidency ran budget deficits instead of raising enough in taxes to pay for national expenditures. Clinton ironically managed to run some surpluses during his presidential term. Although in the aggregate, he still ran deficits. It is quite remarkable he managed to run any surplus at all. I suspect there was a lot of money creation through Greenspan during the tech bubble before it popped. And the government was able to collect in tax revenue from that expansion in the money supply.
Either way, running budget deficits for the most part is a necessity. If taxpayers actually had to pay for national expenditures, most would just end up refusing to pay.
Just a reminder, tax payers do not pay for budget deficits. If they did, there would not be a budget deficit. A deficit, whether its trade or budget simply means it still has not been paid for.
If I go to a lemonade stand and pay 40 cents for a 1 dollar worth of lemonade. That is a deficit of 60 cents. Because I refuse to pay the full amount, its a deficit.
It might seem strange to some. You are probably asking. If the government does not have taxpayers pay for it. Then who pays for it? Use your imagination, but it is not the taxpayers.
Either way, running budget deficits for the most part is a necessity. If taxpayers actually had to pay for national expenditures, most would just end up refusing to pay.
Just a reminder, tax payers do not pay for budget deficits. If they did, there would not be a budget deficit. A deficit, whether its trade or budget simply means it still has not been paid for.
If I go to a lemonade stand and pay 40 cents for a 1 dollar worth of lemonade. That is a deficit of 60 cents. Because I refuse to pay the full amount, its a deficit.
It might seem strange to some. You are probably asking. If the government does not have taxpayers pay for it. Then who pays for it? Use your imagination, but it is not the taxpayers.
Western China vs Eastern China
I suspect the reason why western China remains to be backward compared to eastern China is because there just has not been much of a monetary push to develop the region. Comparatively, the amount of money that gets distributed to western China versus eastern China is fairly imbalanced. People in eastern China do pay more in taxes, but that is largely misleading since most new money that gets created by PBOC or any of the state lenders mostly ends up in eastern China. Western China would pay just as much in taxes if they had received the same volume in money supply as eastern China.
PBOC would need to crank up the printing machine and have more of it distributed to western China to bolster incomes and to motivate growth. It may sound superfluous, but that is all the modern day economy really is. Fiat money. Ideally the economy is goods and services, but ultimately, its just legal tender. People do not work for corn chips and hot dogs, rice cakes and mabo tofu. They work for legal tender. The modern economy is not based around barter, its based on the printing and distribution of legal tender notes. People in western China would love to build that new bridge, that new factory, that new highway, or that new canal. But they cant build it until PBOC creates RMB out of thin air and pays them to have it built.
A loose monetary policy needs to be encouraged with much of the money flow entering the western regions.
PBOC would need to crank up the printing machine and have more of it distributed to western China to bolster incomes and to motivate growth. It may sound superfluous, but that is all the modern day economy really is. Fiat money. Ideally the economy is goods and services, but ultimately, its just legal tender. People do not work for corn chips and hot dogs, rice cakes and mabo tofu. They work for legal tender. The modern economy is not based around barter, its based on the printing and distribution of legal tender notes. People in western China would love to build that new bridge, that new factory, that new highway, or that new canal. But they cant build it until PBOC creates RMB out of thin air and pays them to have it built.
A loose monetary policy needs to be encouraged with much of the money flow entering the western regions.
Trade deficits and wealth
These countries need to post trade deficits. Without being able to import more than they export they would actually have to do equal work for the goods they enjoy. And that would be a terrible mess for the standard of living.
The world's top Universities
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| The top Universities in the world with the best scores are usually Chinese and Russian in international meets. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Spending Spending Spending
This can not get reiterated enough. Without spending, the economy would crash. It does not matter if its military spending, social spending, education spending, or just digging holes all over the countryside. Without spending, the economy would end.
Thus goal of the state is just to keep the money flowing whether its through quantitative easing, fractional lending, or whatever money creation practice it wishes to employ.
We can be building schools, hospitals, ICBMs. Point is, when the goal is 10 percent growth we have to create enough monetary incentive to reach that goal by the end of the year. And it does not matter what we build, so long as we build it.
We can be building schools, hospitals, ICBMs. Point is, when the goal is 10 percent growth we have to create enough monetary incentive to reach that goal by the end of the year. And it does not matter what we build, so long as we build it.
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