Wednesday, July 27, 2011

USA Broke, Sick

The attached graph shows that the cost of medical services jumped from $13 in 1947 to $400 now, over a 5% annual rate of increase. But since 1974 the cost has been growing over 6% per year. This has resulted in the following two GDP shares according to the attached article:



14.4% of GDP for the federal government tax collections, lower than most countries and the lowest share since 1950.



17.4% of GDP for health care vs a 9.5% for healthier wealthy countries. Probably Obama care and increasing sickness of the population will make USA costs rise further.



It seems these imbalances cannot be sustained because of increasing debt. USA will have to quit spending so much on health care or raise taxes to pay for it. Which will it be?



Most of the health care costs are for obesity, addiction, sexual diseases such as HIV AIDS, and Medicaid and Medicare. The costs are paid for by government or health insurance, both ripoffs that drive up the cost of health care for everyone. Is it fair to force people to pay for this mess or should we move to Panama for lower priced medical care?



My opinion is that the government should get out of health care except for the military and maybe medicare. Personal responsibility should be emphasized, such as eat broccoli and walk more. Most people don’t get sick until they are old and by then they will have saved enough to pay for it. I have been paying insurance my whole life and never got sick. The current system is a ripoff that needs to be cancelled.



Joe



ln(400 / 13) / (2 011 - 1 947) = 0.0535392998
ln(400 / 40) / (2 011 - 1 974) = 0.0622320295



http://old.news.yahoo.com/s/ap/20110727/ap_on_re_us/us_global_economy_tracker



This year’s federal tax revenues are forecast to equal 14.4 percent of gross domestic product, a broad measure of economic output, according to the Office of Management and Budget. That’s the lowest share since 1950, long before Congress approved expensive programs such as Medicare. Tax collections have been reduced by the recession and by tax cuts enacted in 2001 and 2003. Among 29 countries ranked by the Organization for Economic Development and Cooperation, only Japan and Spain take in less tax revenue than the U.S. as a percentage of GDP. When it comes to health care, the U.S. spends the equivalent of 17.4 percent of its GDP — by far the highest percentage among wealthy nations. The next highest is the Netherlands, where health care spending equals 12 percent of GDP. Among the 34 wealthy countries that belong to the OECD, health care spending averages less than 9.5 percent of GDP.



Wednesday, July 20, 2011

Tax the Rich?

Why is Obama cutting the top tax bracket again? That proposed tax rate would be a third of what it used to be, back when USA could win big wars quickly and amassed a huge manufacturing base where even an uneducated negro could move to Detroit and assemble cars that he could afford and have a middle-class life. Higher taxes would allow repayment of the national debt as under Truman, Eisenhower, Kennedy, Johnson, Nixon, Ford, Carter, and Clinton. It seems like nowadays the rich like Bill Gates and Warren Buffet are more concerned about curing HIV-aids in Africa and rebuilding Iraq and Afghan instead of rebuilding the USA. USA is becoming a third world banana republic as in Latin America (like Panama) with rich people living in gleaming towers in the big city surrounded by poor people pushed into slums and rural areas. If the USA rich people and politicians are so smart, why are USA businesses getting clobbered, banks going bankrupt, dollar tumbling, infrastructure crumbling, schools not educating, health deteriorating, jobs not increasing as fast as population? Maybe the rich should pay some taxes to help solve these problems as they did back in the good old days.



Historical tax rates:
http://www.taxfoundation.org/files/fed_individual_rate_history-20110323.pdf
http://www.irs.gov/pub/irs-soi/02corate.pdf



Monday, July 18, 2011

Borrowers Support Savers in Old Age

Pablo never saved, like most in the USA. They live in debt and die in debt. This is good for bankers who collect interest off Pablo and pay that interest to savers in retirement. Sooner or later we will get old and will need the Pablo’s to pay us interest so we do not starve in old age. Pablo has fun borrowing and spending all that money, eating junk food, movies, TV, radio, fancy cars, hubcaps, ipods. Pablo’s desire to borrow and spend now helps those who want to save and earn interest.



Pablo may die young from excess food and not enough exercise but that is good too because Pablo cannot afford to retire. ObamaCare will pay for his expensive diseases. Some people prefer to have a few good years for certainty than to live a long time waiting to die: live hard, die young, and leave a beautiful corpse.



On the other hand one good thing about staying healthy and living a long time is that when you die, you die quickly because your whole system is weak. For $300 you can get your telomeres measured that says how old you really are biochemically
http://antiagingnutritionnews.com/blog/1856/today-show-telomere-testing-reduced-price/
The Hayflick limit is around 120 years at which point you will die when your cells can no longer divide. Bad health practices can cut that to 40 years or less.
http://en.wikipedia.org/wiki/Hayflick_limit
You can see if you have been robbed of years of life. The usual suspects: diet, exercise, healthy habits.



I expect to see the limit of 120 years raised to 1200 years soon. That will be followed by raising the age of retirement to 1000 years. It is just biochemistry. Unfortunately this will lead to world population jumping from 7 toward 70 billion people and constant wars and maybe an eco-system collapse that kills everybody.



I think ObamaCare premiums should be raised for fat people, short telomeres, drugs, homosexuality, smoking and other health hazards that increase the need for medical treatment.

Sunday, July 17, 2011

Blankfein vs Pablo

Yes, Pablo and Blankfein are fulfilling their evolutionary roles. Pablo is reproducing like rabbits and having a good time while Blankfein slaved away doing god’s work through 18 years of difficult private schools and ivy-league colleges only to be taxed excessively to pay for Pablo’s government checks and health care expenses. In the free market there is always demand for near worthless assets such as gold and government mandated sub-prime loans so investment banks must figure out a way to meet that demand or they will be gobbled up by smarter rivals. Pablo will never understand if the contracts were legal or not because he never went to college and his mental abilities are crippled by obesity. But Pablo is still living in the house he cannot afford, like most of his cousins, and his other cousins are buying foreclosed houses real cheap. Like Pablo says “the best asset is a party!” The government or crooks cannot take away that party once it has been held. A bastard is still your own flesh and blood so if you reproduce like rabbits eventually you will take over the world, or at least so Pablo thinks.



In equilibrium there are a small number of Blankfeins and a larger number of Pablos. Unfortunately Blankfeins parents were democrats who voted for LBJ who ushered in a new set of Great Society welfare benefits. Blankfeins grandparents voted for FDR who set up SS and other programs. Blankfeins uncles developed GMO and other green technologies to greatly expand the food supply, and ipods and drugs to let Pablo stay happy for optimal reproduction. Bill Gates is giving his fortune to stopping AIDS in Africa so more will survive in that troubled dark continent. These policies enabled the Pablos to expand their numbers in far excess of equilibrium, worldwide as noticed by many US residents and also shown in maps at http://www.indexmundi.com/map/?v=24
The infallible pope is opposed to the most useful means of stopping this trend — maybe Martin Luther was right? Now Blankfein is getting worried that life has been made too easy by deflation and that the ballooning populations and government deficits threaten the existence of the entire species. We can only hope that Blankfein can figure a way out of this predicament but Ecology and Demographics was not part of his education and is not very well understood by anybody.



Lessons from the animal kingdom show that when prey reproduce faster than predators they can outrun their food supply and die off suddenly leaving the predators with nothing to eat so the predators go extinct as well. In human history we have have many examples such as Easter Island where the population dropped 80% due to ecosystem collapse and cannibalism:
http://en.wikipedia.org/wiki/Easter_Island#History
180 Spanish defeated 80,000 Incas
http://en.wikipedia.org/wiki/Inca_civilization#Spanish_conquest_and_Vilcabamba
The Aztec population also declined by 80%
http://en.wikipedia.org/wiki/Aztec#Spanish_conquest
In such cases, the Catholics won out over the native religions due to disease, infighting, and conquest. In the coming catastrophe Pablo may have big numbers, but he is in poor health, lacks knowledge, and owns legalized guns that can be used to kill his cousins and neighbors as they fight over scarce resources. Blankfein is holed up in the big city with the best funded doctors, cops and US military to defend himself or fly off if it gets really bad. After the big collapse we will see more Blankfeins than Pablos — The system is designed to ensure that future. Like they say “give a fool enough rope and he will hang himself.” Survival of the fittest has happened over and over in history and is the will of god.



Q: ———————————
Reviewing the Pablo Parable I now get it!! When Lloyd Blankfein, GS CEO, responded to congressional inquiries about any possible guilt feelings over his creating and selling derivatives KNOWN to be likely to fail, he said “I’m doing God’s work.” Many of us wondered (as did I) what he could possibly mean after openly acknowledging the creation and sale of “certain to fail” derivatives to various pension funds, widows & orphans et al.

Now it all makes more sense in light of Pablo’s plight. Blankfein and his bankster cronies are simply engaging in eugenics, an enhanced anthropogenic “natural selection” process. By inflating prices and reducing incomes to these groups of “useless eaters” they are culling the herd and paving the way for the “ubermensch.” They are accelerating natural selection and restoring, I suppose, the ongoing evolution of mankind. The human must evolve and adapt (to the banksters’ new paradigm), or die. What happens to the “masters of the universe” after the process is unclear at this point – maybe they’ll migrate to some other planet to continue the process.

Thanks ever so much for helping me to finally see the actual purpose of the Wall Street thugs.

Friday, July 15, 2011

Green Revolution vs Malthusian

These are all important points and get to the heart of the matter: what are people doing with their money? In a free market they are free to buy what they want, and that dictates what corporations must sell to stay in business. Both consumers and producers are poorly educated so they make poor decisions. I just learned about GMO problems a month ago and am not yet convinced GMO is a problem but am avoiding GMO. I just learned about lectins last week, a worse problem, and now will avoid them too.



However, GMO and lectins are not necessarily “bad things” just because they are unhealthy. The economy needs to produce these to prevent mass starvation. The world food system cannot produce enough alternatives to feed even half of our current 7 billions in the short run, or maybe never, without GMO, lectins and the like.



The poor SSI retirees etc. you speak of would not be alive to complain about inflation without the massive deflation in food prices and the increased production of food items and other life-support technologies including financial technologies that has occurred over the past century.



Around here I see daily thousands of fat white trash who are clueless as to how the system works and would not be able to survive and reproduce even 60 years ago when I saw their grandparents barely making it even with some modern technology and lots of spoils from WWII. In California the Mexican is more common, but they share with white trash an extreme dependence on an economy that has greatly pushed up wages with respect to the prices of food and other essentials. Such “progress” is to be the main goal of economic policy — balanced growth. White trash are born with these benefits, while Mexicans migrated here to escape a less financially sophisticated government and institutions. The Mexican derivatives exchange began in 1998 while the Chicago Board of Trade was established in 1848, for example, and played a major role in the development of the USA breadbasket.



Those who get their checks boosted due to CPI inflation may see that cut off as budgets get balanced. The CPI is a poorly constructed index that does not reflect what the average person can buy today. There may not be enough voters to force politicians to allocate money based on CPI. Even if they do, in a bankruptcy the court may not only refuse promised CPI adjustments, but cut the whole check in half or worse. If there is not enough money then it won’t be paid. The rich own the politicians and bankers who will decide what they want to spend on the poor.



Ultimately it is survival of the fittest. The rich will eat steak in New York City and Los Angeles and make history while the poor starve in the barrios or remote areas where nobody will hear them as has been going on for a long time as a law of nature http://en.wikipedia.org/wiki/Malthusian Nowadays there suddenly is a much bigger population, most overfed, widely dispersed and less educated, so when push comes to shove there will be numerically more misery. It will be interesting to see if the exponentially growing population slows down or shrinks before an ecological catastrophe. Graphs attached. Populations are like prices — what goes up suddenly is likely to fall back suddenly.



Q:
“Government checks adjusted for inflation?” If Pablo is on SSI there has
been no COLA for two years because the official indices say there is no
inflation. I speak with persons on a fixed income on a daily basis. They are both retirees and SSI recipients of all education levels. Pablo does not realize that his corn tortillas are now GMO grown and contain a variety of adulterants designed to fill space without changing the flavor while lowering the cost. The retired teacher on a fixed income DOES realize he/she is getting a Frankenfood because that person can read and investigate. But what is really important is the net profit of corporations. The human species be dammed.To many “eaters” anyway as the elite like to say. We are no longer persons we are now “consumers.”
     You are partially correct in that inflation per se is not the sole
direct cause of Pablo’s woes. Inflation is simply a hidden additional tax on Pablo’s already meager earnings. Thanks to institutionalized central bank currency debasement his earnings are like sand falling thru his fingers as he attempts to provide for his loved ones. Pablo may not be very sophisticated. He is unaware of the dynamics behind his predicament. Because he is a poor unsophisticated Mexican worker does not make him a gun and drug runner for the Calle cartel. He is most likely honest and god fearing and only wants the basics that more sophisticated others need as well. He doesn’t understand derivatives and auction rate securities.



     So if his air is polluted, his food adulterated, and he daily has a
corporate boot on his head it really does not matter whether it is being
done by a Mexican cartel or a member of the Goldman-Sachs or ADM gangsters who wear $5000. suits. They are moral equivalents.



Pablo is much like the young child in your lap or the pet dog at your
feet looking up at you with blind trust. As for what ultimately awaits those
who prey on the weak or naive. As the Bible says; “It would be better to
have a millstone placed on their heads and have them tossed into the sea”  
   

Two-Tier Medical System

I realized by 1972 that the rich have their own medical system and everybody else gets leftovers. Even if the poor marry a doctor that doctor is probably not as good as what the rich get. I was in Boston and knew people at Harvard Medical school who gave me this opinion. This can also be seen by the bell curve, where in any profession there are only a few people at the top in any field. I realized by age 20 that there is a dramatic difference in quality between the top producers and those a few rungs down. Medicine is especially problematic because the monetary incentives are wrong. Also medicine for a long time was affirmative action for rich white kids whose parents could afford to send them to medical school even though they were not as smart as many poorer kids including blacks, jews, and catholics. California colleges have been cheaper than those in Massachusetts so this allowed some smarter but poorer to rise to the top of the heap. But if they are good they will still treat only the rich who can pay cash. Kaiser, Blue Shield, Tricare are at best a training ground for doctors or more likely a dumping ground for those who are not good enough to treat the rich who can pay cash. One reason the rich cluster in certain expensive zip codes is that is where their doctors are, and their lawyers, and accountants, hairdressers, and all professional services. Birds of a feather tend to flock together.



Now we have the phenomenon known as medical tourism where supposedly you can get the same work done for half price or less in Panama, India, etc. I looked at some online prices and it does not appear cheaper if you factor in quality and transportation. Indeed it may be a scheme to exterminate some of our excess population.



I have recently read studies that the better educated live longer, irrespective of income. Good health habits can also prevent needing a doctor in the first place. Given the above system, I would recommend avoiding doctors unless absolutely necessary. Invest that time into study and practice of good diet and exercise.



Q:
I wonder what if any correlation was found between income as a predictor and education level as a predictor. Presumably better educated persons make better lifestyle choices throughout their lives. Higher income persons have access to state of the art diagnoses options and treatments but may have unhealthier lifestyles. These two categories may greatly overlap but they are still mutually exclusive.



“Best health care system in the world”? There are at least two health care systems in the U.S. At the bottom rung are for profit corporations available to the average working person. These offer low co- pays for checkups and routine testing but little in the way of high end treatment. At some point a difficult case is retired to home and painkillers. Kaiser Permanente is representative of this group. At the other end are institutions such as Sloan-Kettering available to the uber wealthy. This may be why you see billionaires such as David Rockefeller and Kirk Kerkorian leading active lifestyles well into their 90s while the average American is an overweight borderline diabetic popping Vicodins by the age of 50.

Thursday, July 14, 2011

Inflation: Conceptual problems

Assume that starting in 2001 that prices double in one year, then fall in half the following year and the cycle repeats indefinitely.



2001 2002 2003 2004 2005 2006……
price 100 200 100 200 100 200…..
%ch 100% -50% 100% -50% …



This gives an average rate of inflation of 25% per year (100-50)/2.



Consider Pablo in the Porterville Barrio who lives on government checks that are adjusted for inflation so that they also double or fall in half each year, say either $10,000 per year or $20,000 per year. Assume he spends that whole paycheck each year and buys exactly the same basket of goods each year. Despite the raging inflation rate of 25%, his consumption pattern is totally not affected. He consumes the same basket of goods each year. This shows that inflation does not impact people if prices and wages move in tandem. The price level per se does not add any information.



Pablo is still eating too many tacos, getting fat, breathing smog, and spending too much money on drugs, guns, cigarettes, beer, hubcaps, gold, and silver. He is uneducated and is not getting enough work done so will be replaced by cheaper illegals. He will probably not live very long — if he does not get shot he will get diabetes, cancer or a heart attack. All these problems are not solved or caused by inflation.



Another problem with inflation indexes is that people do not buy the same basket of goods over time. It is an apples and oranges problem. If they buy 5 oranges for a dollar one year and 6 apples for a dollar the next year have prices gone up or down? A conceptual problem.



Another problem with inflation indexes is that people tend to substitute away from expensive goods toward the cheaper goods as prices change over time. Turntables and vinyl records can be quite expensive in comparison to an ipod and not get video. Students can pay $200 dollars for an ipod touch that can watch free videos all day at a higher quality and more portable than they could decades ago. This may be one reason they spend more time watching music than working with their 20 pound $200 Calculus textbook — some skip the hard classes and build up a large student debt without learning anything, like Pablo.



There are too many conceptual and practical problems with the inflation indexes to get very excited about them. People who are smart enough to solve some of these problems will not do it because they are getting rich in other fields of endeavor. Trying to fix Pablo after he crashes will pay well even if it does little to help him. That is rehab, physical therapy, medical insurance, medicare, counseling, auto-body, etc.

Monday, July 11, 2011

Negative Real Interest Rates?

They are really positive real interest rates. Nominal interest rates are near zero but prices are falling in absolute terms or quality adjusted terms. House prices have been falling for years, as have computers, and many other items. Some items may go up in price but their quality is going up faster. Even a cheap used car nowadays is cheaper than the new ones a few decades ago but are far more reliable and luxurious.



The CPI and such indexes do not properly account for quality or they would show a massive deflation over the last century. The quality of goods for sale today is very high. I never even imagined an ipod, cell phone, or PC when I was a boy and millionaires could not afford them but nowadays they are commonplace and an incredible variety of items are now available in our local small-town shopping center that you could not buy in New York city at any price a few decades ago. Interesting 60 minutes film of San Francisco April 1906 just before the great quake:
http://www.cbsnews.com/8301-504803_162-20019755-10391709.html
People are rich now and pay more to buy higher quality. There is no theory on how to adjust CPI for quality. You can read some of the BLS articles and see that they run a lot of regressions but do not have any theory as to what these mean — they are just printing out a lot of numbers to confuse the numbers so they can give retirees a few crumbs while the rich fat cats take over the country:
http://www.bls.gov/cpi/cpihqablsbib.pdf



What we are seeing is one of the Friedman rules that sets interest rates to zero and deflates the currency. Go ahead and put your money in a bank at zero nominal interest rates because anything you want to buy you will be able to get something better or cheaper within a few years. Especially gold and silver which are still in a bubble. The zero real interest rates are really positive in a deflation.

Sunday, July 10, 2011

Climate, Income, Diet, Long Life

High income and long life are positively correlated as shown in the attached graphs. However, both income and longevity can be caused by underlying factors such as diet, weather and geography. Most rich people live in big cities near the coast which has better weather than deep inside continents (often cited as an important cause of African poverty). The attached summary of a project at Yale shows some excellent graphics on economic activity on a fine-mesh grid. More detail work is needed to trace down the exact causal pathways. Fogel found that the high calorie diet since 1700 caused an “increase in human body size of over 50%, and an increase in longevity of over 100%.



Cool climates also trigger brain activity that cause economic activity that causes higher income. Cool climates also trigger physical activity that leads to better health and better diet that leads to longer life. I feel more sluggish on hot days and perform much more slowly physically and to some extent more slowly mentally as well. The best dairy comes from cool climates: Jersey, Guernsey, Wisconsin, etc. Good diet is required for good health, as discussed by Fogel.



http://www.amazon.com/Escape-Hunger-Premature-Death-1700-2100/dp/0521004888



Escape from Hunger and Premature Death, 1700-2100 is an extension of Fogel’s briefer 1993 Nobel Prize Lecture. It provides a synergistic view of the impact of increasing human environmental control on the demographic, economic and physiological conditions of successive generations over the past 300 years. According to Fogel, the interaction of these forces has over this period, and most dramatically over the last century, brought about a new stage of evolution —- non-genetic “techno-physio evolution.” He indicates this is evidenced by an unprecedented positive change during this period in caloric intake of about 250%, human body size of over 50%, and an increase in longevity of over 100%. Pointing to the future, Fogel’s extrapolation of data over the last 140 years in optimal life circumstances, suggests that centenarians will be common by the last quarter of the 21st century. During the past three centuries there has also been an accompanying substantial decrease in the hours it takes each day to earn one’s daily bread and increase in the percentage of discretionary income.

Friday, July 8, 2011

Oil Price versus Milk Price

The attached chart shows that oil prices are high after a common inflation adjustment. This agrees with my personal observations. But many cars get better mileage than they did back in the 1970s, sometimes double or triple the mileage. Also people can walk or take the train to work to mitigate the high prices.



I remember paying .33 for gasoline in the late 1960s and now prices are up tenfold to 3.33 per gallon of gasoline. That same .33 would buy a quart of milk that now costs 1.33 so the price of gasoline has gone up more than the price of milk.



Nowadays the price of a gallon of milk about the same as a gallon of gasoline, although milk prices varies widely. Back around 1970 gasoline was much cheaper. 40 cents versus 99 cents.



Milk has deteriorated in quality more than gasoline. Cows are stuffed into factories and fed chemicals and breath smog resulting in foul tasting milk. My grandparents had a cow that produced better tasting milk. Nowadays good tasting milk can be found but you have to search around for it and pay more.

Wednesday, July 6, 2011

Are Bankers Overpaid?

These NYU professors analyzed 100 years of history and prepared the attached graph. A U shaped pattern appears. The regulations after the crash of 29 great depression drove talent into other professions such as fighting wars. During the booms of the 1920s and 1990s that talent moved back into finance and banking.



Will banking pay remain high due to the increasing size and complexity of the global financial system and the computational mathematical infrastructure of that system? I wonder if even 1% of college graduates even know about this system or if even 1% of ivy-league college graduates have a good idea of how it works and the theoretical rationale of financial derivatives?



http://sternfinance.blogspot.com/2008/11/are-banker-over-paid-thomas-philippon.html



Employees of the financial industry have enjoyed very high compensation in recent years. The bonuses of Wall Street reached more than $200,000 per employee in 2007. Bonuses fell in 2008 but remain surprinsingly high in light of the industry’s dismal performance. So, are bankers over-paid? The history of wages and human capital in the US financial sector turns out to be quite fascinating. Before I spoil the suspense by showing you what actually happened, ask yourself what one should expect. Here are a few hypotheses:



- “Textbook economics” hypothesis: finance has always been a relatively high skill/high pay industry. So financiers have always been more educated and more highly paid than the average worker, and this reflects an efficient allocation of human ressources.



- “Bankers as parasite” hypothesis: finance wages are unrelated to their true contributions to economic prosperity.



- “Stock market” hypothesis: when the stock market goes up, wages in finance go up (why this should be the case remains unclear, however)



- “Computer” hypothesis: all these traders and managers have seen their productivity boosted by computers and IT. This is why they earn so much.



These are just a few extreme hypotheses, and they are not mutually exclusive. It turns out, however, that none of them is correct.



Historical Evidence



Ariell Resheff and I have analyzed human capital and wages in the US financial sector over the past century. Our analysis reveals a set of new facts. First, the relative skill intensity and relative wages of the financial sector exhibit a U-shaped pattern from 1909 to 2006. From 1909 to 1933 the financial sector was a high skill, high wage industry. A dramatic shift occurred during the 1930s: the financial sector rapidly lost its high human capital and its wage premium relative to the rest of the private sector. The decline continued at a more moderate pace from 1950 to 1980. By that time, wages in the financial sector were similar, on average, to wages in the rest of the economy. From 1980 onward, another dramatic shift occurred. The financial sector became once again a high skill / high wage industry. Strikingly, by the end of the sample, relative wages and relative education levels went back almost exactly to their pre-1930s levels.

Monday, July 4, 2011

Inflation or Deflation

I don’t think there has been as much inflation as commonly assumed and reported by CPI — that is only an illusion caused by comparing apples with oranges and not taking into account quality or variety. I go shopping every day in dozens of stores. Prices are not that much changed since the 1960s but there are vast improvements in the quality and variety. In one case I get to see them still selling the same old vinyl LPs for $1-$5 in the shopping center right next to Walmart where you can get Lady Gaga for $15 in a more useable format. The new stuff sells much better than the old, nobody wants the old stuff, they have “substituted” into the new. People have a lot more money now and buy a lot more stuff and it is fancier. They make a lot of poor decisions and waste a lot of money but that is the free market. They are not suffering from high prices but from their money being able to buy too much, especially junk food and fancy vehicles that deprive them of exercise.



Ultimately, individual people decide how much money they want to hold. The fed can influence this by offering to buy or sell securities and impacting interest rates. But it is up to the individual to engage in such transactions or not.



Always in a money transaction one party gives up some integer number of pennies in exchange for 1 or more items such as a bill, deposit, tire, sox, coke or whatever. I think what you are describing what is known as “helicopter money” where they fly over in a helicopter and throw bills out of the helicopter to citizens on the ground. This is not really creating money, it just changes its location and who has the money. I don’t think the PC printer version of that would work because people would think those printouts are a forgery and would not accept it for payment.

Friday, July 1, 2011

FOMC, Gold, Audit the Fed, Treasury

The FOMC operations are of public record and are accounted correctly to the penny and reported at http://www.federalreserve.gov/econresdata/releases/statisticsdata.htm
and can be verified by the the records counterparties to the transactions. They deliberately want people to know what they are doing so as to achieve the market impact they desire.



There have recently been a lot of other secret and semi-secret transactions, some reported later. There is a reason for secrecy — to avoid bank runs. But at some point, maybe within 2 years, I think all of these should be made public as well, and an “audit” should be periodically conducted to make sure all that information is divulged.



There is nothing physical, it is all paperwork, so there a physical audit would be a waste of time.



Gold is not really an issue because that is held by the Treasury. Should not be brought up when talking about the Fed or people will get confused and no audit will happen. Maybe the Treasury should be audited, but that is a different issue. Gold is a distraction, like Puerto Rico, might be good to get rid of but how and when?



Bloomberg and others have been suing to get at the Fed information. NYC is filled with journalists with inside contacts. Much is leaked into the press indirectly if one wants to follow the news that carefully. Anybody interested should move to New York and develop contacts. Eventually everybody will find out, but it will take years longer. You can get a good sense of what is going on just by talking to the right people. When large amounts of money move around they show up in all sorts of accounts. Banks are public corporations that have to file numerous statements.



There is a theory called “contagion” or something like that. My whole adult life I have seen little ideas by one or more people diffuse through the info food chain: 1) discussions 2) seminars 3) meetings 4) journals 5) books 6) textbooks 7) students 8) Media, TV, radio and it can take 5-10 years at each stage. Geography is critical. People on the east coast and west coast talk about different things even when discussing the Fed. The further away from the source of information the more the disinformation can thrive.



I don’t pay a whole lot of attention to these issues. Most trading systems do not need them. The main problems are theoretical — Bernanke and the whole crowd studied the Great Depression and are trying to apply theories developed then even though the financial system is greatly changed. It is not surprising we crashed in 2008. Like right now, house prices have declined yet most banks have not written down the value of the paper they are sitting on. There have been a lot of suggestions on how to do that but often not precise enough to be implemented. Basle II leaves much up to the banks but nobody knows how to do this right. The whole system has become a Rube Goldberg device that needs simplification, not further obfuscation.

Sell USA gold bullion reserves?

Instead of raising the debt ceiling, why can’t the USA start selling gold out of Fort Knox?   (147.2 million oz.) Even more in Manhattan. Why should the government hold gold?  Shouldn’t they dump their gold to defuse the current gold bubble and to lower the national debt? Private citizens have too much gold so they are dumping it at little stores that have sprung up all over town.  I am going to get rid any gold or silver that I can find before they crash again.  Hedge funds have securitized and made derivatives out of gold and silver.  Thus gold and silver have become way over valued as in the recent booms in houses and dot-com stocks.   There is a sucker born every minute.  Why not sell gold and silver to suckers to make the suckers happy?



Fort Knox 5046 tons 147.2 million oz. troy
FRBNY Manhattan 7716 tons160.8 million oz. troy
Over 5% of all the gold ever refined throughout human history



Selling the USA gold bullion reserves would put downward pressure on the dollar. Countries like China would use US$ to buy gold and ship that gold back to China. The US$ would sink, but other things will happen. Chinese would sell bonds to raise cash to buy the gold so bonds would also sink causing interest rates to rise and kill autos and housing. Then after the dollar stops sinking some foreign money will flow in to get those higher interest rates. The cheap dollar would cause USA exports to rise because and USA imports would fall so the USA trade balance would improve. Lots of impacts.



Mostly I would worry that selling the gold to avoid issuing new bonds would postpone the budget cuts that need to occur to balance the budget. On the other hand if they sell off the gold they can fire security guards and other costs associated with holding all that gold. That space could be rented to banks for storing other valuables. The government is into too many activities and running up too many bills.



However, if they get desperate due to lack of ability to raise the debt ceiling they may have to sell gold despite the dire consequences.

gold, train, horse, blimp, wall of debt

Looks like Geithner wants to resign before the next crash. Hoping to pass some sort of debt ceiling increase to tide things over until after the election so Obama can get democrat majorities in Congress again?



Instead of raising the debt ceiling, why can’t the USA start selling gold out of Fort Knox? (147.2 million oz.) Even more in Manhattan. Why should the government hold gold? Shouldn’t they dump their gold to defuse the current gold bubble and to lower the national debt? Private citizens have too much gold so they are dumping it at little stores that have sprung up all over town. I am going to get rid any gold or silver that I can find before they crash again. Hedge funds have securitized and made derivatives out of gold and silver. Thus gold and silver have become way over valued as in the recent booms in houses and dot-com stocks. There is a sucker born every minute. Why not sell gold and silver to suckers to make the suckers happy?



Why all the interest in high speed trains? USA can’t even get cheap low speed trains to turn a profit. The tracks are bad. Locations, times, and frequency cannot attract enough riders. Shouldn’t they fix the slow speed trains first? When slow trains work right and become profitable then do the high speed trains? Also must prevent terrorists from derailing trains, etc. Much better to derail a slow train than a fast train. Security problems must be solved. Steel on steel is still the cheapest land transportation and trains can stop downtown —- much better than airports that require 2 taxi rides. Trains make a lot of sense if done right.



Also it seems that horses can be useful — they don’t require paved roads, imported oil and are cheap and better pets than dogs and cats — grazing animals are a natural part of the environment. Horses can help eat the vegetation down and help avoid the huge fires that have become so common. USA population is so spread out and streets so jammed that I really need a horse to get around my current community. Decaying roads and infrastructure indicates a need for horses. Blimps dirigibles would also be useful in areas that have less wind. Blimps don’t need roads or airports and can bypass traffic jams and are fun! Hydrogen blimps can burn the same cheap fuel that gives them lift.



Dan Walters in the Sacramento Bee made some good points on the budget just passed. Lots of questionable assumptions and most importantly the huge “wall of debt” that must be dealt with sooner or later, that overhangs everything:



“Even if the shaky assumptions do become reality, however, the state still has a hefty structural deficit – and what Brown calls “a wall of debt” from past budgets – that could plague his second governorship for years to come



http://www.sacbee.com/2011/06/29/3734469/dan-walters-californias-new-budget.html