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Penalizing Prudence

October 2, 2020

PENALIZING PRUDENCE

“Economy, prudence, and a simple life are the sure masters of need, and will often accomplish that which, their opposites, with a fortune at hand, will fail to do.” – Clara Barton

“Affairs are easier of entrance than of exit; and it is but common prudence to see our way out before we venture in.” – Aesop

One of my conceits, of which there are many, is the belief that because I have entered the third trimester of my life, I am now in possession of great volumes of wisdom and perspective. Thankfully Mrs. Cog is always nearby to efficiently and surgically remove any such thoughts of grandeur and omnipotence. That said, at some point during the flight of life, even birds of prey eventually turn their thoughts to the comfort of a nearby nest rather than their next fearless fight.

Even the most reckless among us begins elevating to greater importance the preservation of resources rather than mindless squandering, especially when we are closer to the end than the beginning. This is a good thing, by the way. It adds balance to the socioeconomic system, both personally and collectively, as well as countering the self-destructive tendencies of those obsessed with endless consumption.

There’s a reason we’re no longer referred to as ‘citizens’ in mainstream media or political speech, but rather the more personal-responsibility-evading ‘consumer’. If given even a minimum of thought, one quickly realizes this subtly propagandized term (consumer) is a significant, but not the only, component of the obvious agenda to infantilize the US (and global) population.

Like the one year old who eats, sleeps, plays, defecates, eats, sleeps, plays……with no personal responsibility other than to be self-indulgent and consume food and attention, we are being reduced (distilled down might be a better term) to our most base impulses. I suspect most people, if told this to their face, would not react well to my observation, assuming instead I was being critical of them personally.

…click on the above link to read the rest of the article…

Currency Which Expires – That’s the Solution – Or Just Cancel it all?

September 6, 2019

Currency Which Expires – That’s the Solution – Or Just Cancel it all? 

Back during the Great Depression, there were people who theorized that gold hoarding was preventing economic recovery. There is always this same theory that people who save hoarding their money and are not spending it results in the lack of a recovery suppressing demand. This theory has been around for a very long time. It assumes a recovery is always blocked by people hoarding their money and saving for a rainy day.

Back during the American Civil War, the federal government issued paper currency for the first time after the Revolution. Much of this currency paid interest. Some were in the form of virtually circulating bonds with coupons for the interest payments. Some were backed by gold. Others offered a table on the reverse providing a schedule. The interest baring notes remained valid currency, but the interest expired within a specific time period. Hence, one would redeem the note since it would no longer pay interest beyond a specific date.

The rumbling behind the curtain I am hearing is a growing idea of making the currency in Europe simply expire. I have explained before that in Europe currency routinely expires – even in Britain. The United States has never canceled its currency so a note from the Civil War is still legal tender. But that is not the case in Europe.

Europeans are accustomed to having their money simply expire. This is not limited to paper currency. They also cancel the coins. The proposal being whispered in the dark halls of Europe is that perhaps the way to impose negative rates to force people to spend is to just cancel all the currency and authorize only small notes for pocket change. They want everyone to be forced to use bank cards and this is the new theory to revitalize the economy.

 …click on the above link to read the rest of the article…

Japan’s “Deflationary Mindset” Grows As Household Cash Hordes Reach Record High

September 21, 2017

Japan’s “Deflationary Mindset” Grows As Household Cash Hordes Reach Record High

After being force-fed more stimulus than John Belushi, and endless rounds of buying any and every asset that dares to expose any cracks in the potemkin village of fiat folly, Japan remains stuck firmly in what Abe feared so many years ago – a “deflationary mindset.”

As Bloomberg reports, cash and deposits held by Japanese households rose for 42nd straight quarter at the end of June as the nation’s consumers continued to favor saving over spending.

The “deflationary mindset” that the Bank of Japan is battling to overcome was also evident in the money laying idle in corporate coffers, which stayed near an all-time high, according to quarterly flow of funds data released by the BOJ on Wednesday.

Still, as Bloomberg optimistically notes, with the economy expanding much faster than its potential growth rate, greater inflationary pressures could be on the way, which may prompt a shift in behavior by consumers and companies… or not!

Saving and Money–What is the Relationship?

August 8, 2017

SAVING AND MONEY – WHAT IS THE RELATIONSHIP?

Conventional wisdom says that savings is the amount of money left after monetary income was used for consumer outlays, implying that saving is synonymous with money. Hence, for a given consumer outlays an increase in money income implies more saving and thus more funding for investment. This in turn sets the platform for higher economic growth.

Following this logic, one could also establish that increases in money supply are beneficial to the entire process of capital formation and economic growth. (Note increases in money supply result in increases in monetary income and this in turn for a given consumer outlays implies an increase in savings).

Relation between saving and money

Saving as such has nothing to do with money. It is the amount of final consumer goods produced in excess of present consumption.

The producers of final consumer goods can trade saved goods with each other or for intermediate goods such as raw materials and services.  Observe that the saved goods support all the stages of production, from the producers of final consumer goods down to the producers of raw materials, services and all other intermediate stages.

Support means that these savings enable all these producers to maintain their lives and wellbeing whilst they are busy producing things. Also, note that if the production of final consumer goods were to rise, all other things being equal, this would expand the pool of real savings and would increase the ability to further produce a greater variety of consumer goods i.e. wealth.

Note that people do not want various means as such but rather final consumer goods. This means that in order to maintain their life people require an access to consumer goods.

 

…click on the above link to read the rest of the article…

Should the Fed Raise Interest Rates?

October 1, 2016

Should the Fed Raise Interest Rates?

For some time now the Fed has been hinting that it will moderate its interventions–monetizing government debt by printing money to buy government bonds and now quantitative easing by printing money to buy corporate bonds–in order to drive down the interest rate to unprecedented low levels. The Keynesian theory behind these interventions is that lower interest rates will spur lending, which in turn will spur spending. In the Keynesian mindset spending is all important–not saving, not being frugal, not living within one’s own means–no, spend, spend, spend. The Keynesians running all the world’s banks firmly believe that it is their duty that spending not diminish one cent, even if this means going massively into debt. Keynes himself famously said that government should borrow money to pay people to dig holes in the ground and then pay them again to fill them back up.

To Austrian school economist like myself, this is childish, shallow, and ultimately dangerous thinking. Austrians understand that economic prosperity depends first of all upon savings, not spending. Savings is funneled by the capital markets into productive, wealth generating enterprises. Gratuitous spending is simply consumption. Now, there is nothing wrong with consumption…as long as one has actually produced something to be consumed. Printed money is not the same as capital accumulation. Or, as Austrian school economist Frank Shostak explains, goods and services are the “means” of exchange and money is merely the “medium” of exchange. Expanding the means of exchange through increased production–which requires increased capital, which itself requires increased savings–is a hallmark of a prosperous society. Increasing the medium of exchange out of thin air, as is current central bank policy, is the hallmark of a declining society that has decided to eat its seed corn.

…click on the above link to read the rest of the article…

The Declining Interest Rate Cap

November 14, 2015

The Declining Interest Rate Cap

Believe it or not, one of the topics in economics that confuses macroeconomists is the actual role of interest rates.

For the most part they just assume that an interest rate is the cost of money, the price of money, or even the transfer of the fruits of production from producers to idle capitalists. This last assumption appears to have been Keynes’s motivation for his dislike of savers, or rentiers as he disparagingly labelled them. The thought that workers slave for a master who then pays interest to capitalists energises Marxism as well.

In a free market, consumption comes in two basic forms: that which is consumed today, and that which is postponed into the future. Deferred consumption is saving, and Keynes’s target was the saver, even “looking forward to the rentier’s euthanasia” as he put it in his General Theory.

Denying Say’s Law or the law of the markets allowed Keynes, in his own mind anyway, to replace the saver with the state as the principal source of funding for industrial investment. That he came to this conclusion can only be the result of moral principles unsupported by reasoned theory. But once you launch yourself down what amounts to the slipway of prejudice, there is no knowing where it will all end. In Keynes’s case, it produced a following which has become the mainspring of today’s macroeconomic mainstream. We play this down, commonly saying that the reason for discouraging saving is to encourage current consumption. This is an error, and everyone who utters this knows or should know it. All Keynes’s work, from his Tract on Monetary Reform onwards hints at his true desire, to eliminate idle savers as an economic factor.

…click on the above link to read the rest of the article…

Goldman Sachs——-Perpetuator Of The Fed’s Jihad Against Savers

September 14, 2015

Goldman Sachs——-Perpetuator Of The Fed’s Jihad Against Savers

You can’t blame Janet Yellen entirely for the growing prospect that the Fed will take a powder on Wednesday and opt for the 81st straight month of ZIRP. After all, she’s basically a fuddy duddy school marm caught in a 1970s labor economics time warp—–a branch of the “home economics” taught by John Maynard Keynes after he turned protectionist in 1930.

Accordingly, she does apparently believe that the US economy resembles a giant bathtub, and that it is the Fed’s job to see that employment and output rise full to the brim. Nor does that mission take much special doing——-at least according to the primitive macroeconomic plumbing theories of Keynes’ disciples like her PhD supervisor, Professor James Tobin of Yale. Just crank the interest rate valve lower until the economic ether thereby released called aggregate demand works its magic.

Indeed, the good professor did help ignite a rip-roaring inflationary boom in one country during the Kennedy-Johnson years. Back then the world economy was still segmented and unmonetized enough to at last partially encompass a closed economy model of state managed pump-priming. That was especially possible because more than a billion potential workers were trapped in the economic Gulag of Mao’s China and the post-Stalinist Soviet bloc.

Never mind that today the US GDP bathtub leaks like a sieve and that massive trade, capital and financial flows transmit economic and financial impulses from around the globe. Accordingly, the marginal price of labor is set in the rice paddies of China, the call centers of Bangalore, the temp agency body shops of America and on the “bid for gigs” sites of the worldwide web.

call center

The Bureau of Labor Statistics, which is apparently the Keynesian chapel where Yellen worships, captures none of this; it ought to be put in the Francis Perkins memorial museum along with souvenirs from the WPA and FDR’s Fair Labor Standards Act of 1938.

…click on the above link to read the rest of the article…

FED LUNACY IS TO BLAME FOR THE COMING CRASH

August 5, 2015

FED LUNACY IS TO BLAME FOR THE COMING CRASH

This week John Hussman’s pondering about the state of our markets is as clear and concise as it’s ever been. He starts off by describing the difference between an economy operating at a low level versus a high level. He’s essentially describing a 2% GDP economy versus a 4% GDP economy. We have been stuck in a low level economy since 2008. And there is one primary culprit for the suffering of millions – The Federal Reserve and their Wall Street Bank owners. They are the reason incomes are stagnant, the labor participation rate is at 40 year lows, savers can only earn .25% on their savings, and consumers have been forced further into debt to make ends meet. Meanwhile, corporate America and the Wall Street banks are siphoning off record profits, paying obscene pay packages to their executives, buying off the politicians in Washington to pass legislation (TPP) designed to enrich them further, and arrogantly telling the peasants to work harder.

In economics, we often describe “equilibrium” as a condition where demand is equal to supply. Textbooks usually depict this as a single point where a demand curve and a supply curve intersect, and all is right with the world.

In reality, we know that economies often face a whole range of possible equilibria. One can imagine “low level” equilibria where producers are idle, jobs are scarce, incomes stagnate, consumers struggle or go into debt to make ends meet, and the economy sits in a state of depression – which is often the case in developing countries. One can also imagine “high level” equilibria where producers generate desirable goods and services, jobs are plentiful, and household income is sufficient to demand all of that output.

…click on the above link to read the rest of the article…

 

 

Financial Shenanigans Should Have Trained Me For This

July 18, 2015

Financial Shenanigans Should Have Trained Me For This

So there I was, caught in a bramble of sharp blackberry thorns coming from every direction. I’d been snagged first by the swooping thorn from high up that caught my hair, then by two more barbed branches that grabbed my pants and arm as I tried to retreat. Having left the house in an overconfident manner, thinking it was like any other day, I had no urgency to remember my phone, a sidearm or my small pruning shears to cut my way out. Cog was at work and there was no one for miles to hear me scream should the black bear come by for a late blackberry lunch.

Obviously I survived to tell the tale, but not without several important lessons learned which I would like to share with you all today.

Just as people save and invest for their retirement down the road, we seek to store our picked berries by jamming or freezing them for the winter months ahead. Like the banks and government agencies, there are many middle level workers whose job it is to tend to the ecosystem of blackberry growth who never intend to harm another. They are simply doing their job. The spider who resides in the berry patch and eats the smaller bugs which would decimate the berries was just doing what he does when he bit me.

In life it is not the sole fault of bank tellers or courthouse clerks that the systems of banking and government morphed into something we don’t want. Sure, these employees help hold up the system by working where they do, but no more than we ourselves support the beast with banking business to transact and payment of local tax and municipal bills. Like the aggressive bugs in the berry thickets, we ultimately all want to get through the performance of our respective roles there and fulfill our goals.

…click on the above link to read the rest of the article…

 

 

 

An Important Economic Indicator – Money Velocity – Crashes Far Worse than During the Great Depression

June 6, 2015

An Important Economic Indicator – Money Velocity – Crashes Far Worse than During the Great Depression

Underneath the Propaganda, the Economy Is In BAD Shape …

We noted 3 years ago that the velocity of money – an important economic indicator – is lower than during the Great Depression.

Things have gotten even worse since since then …

By way of background, the velocity of money is the rate at which people spend money.

In other words, it’s the speed at which a dollar moves from one person to the next through the economy.

The Federal Reserve Bank of St. Louis explains:

The velocity of money can be calculated as the ratio of nominal gross domestic product (GDP) to the money supply … which can be used to gauge the economy’s strength or people’s willingness to spend money. When there are more transactions being made throughout the economy, velocity increases, and the economy is likely to expand. The opposite is also true: Money velocity decreases when fewer transactions are being made; therefore the economy is likely to shrink.

The St. Louis Fed labels the velocity of money as “Gross Domestic Product/St. Louis Adjusted Monetary Base” …  and provides the following data on the velocity of money between the start of the Great Depression and today:

Money

Here’s the money velocity right before the Great Depression hit:

Money 1

Here’s the money velocity from the darkest point during the Great Depression:

Money 2

…click on the above link to read the rest of the article…

 

 

The Euthanasia Of The Saver

April 23, 2015

The Euthanasia Of The Saver

What have been the economic consequences of ultra-low interest rates? The answer might not be as hopeful as you may think.

While better known for the role of government in stimulating the economy, John Maynard Keynes, one of the most influential economists of the 20th century, also provided the intellectual framework for a big reduction in interest rates with two goals in mind: to reduce economic inequality and to achieve full employment.

Here’s what he had to say about the “rentier” (a quasi-Communist term for “saver”) in Chapter 24 of his seminal book “The General Theory of Employment, Interest and Money”, published in 1936. It requires some effort to go through it (and even more to comprehend it, if at all) but because it influences so much of the current economic thinking it is worth it [our emphasis in bold]:

“The outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes.

…click on the above link to read the rest of the article…

 

 

 

Olduvai IV: Courage
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Olduvai II: Exodus
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