I believe what the Federal Reserve has begun was completely idiotic and unnecessary which will ultimately hurt the majority of the American people. However, many economists disagree with what I just said. I guess you can fool the people sometimes, but economists can be fooled all of the time. Part of economist’s problem, and why they are so horrible at predicting things, is because they live inside of models and rarely look up. They are also way overpaid for what they do which adds more of a problem with their theories since higher prices do not impact them as fast as it impacts 80% of Americans who live paycheck to paycheck.
Paul Krugman is one of those people who has been far more wrong than right, but for some reason people still listen to him, odd, really, really odd. Mr. Krugman has taken aim at Jim Rogers recently claiming that inflationist’s have gotten the last few cycles’ dead wrong. Really? So, oil going from $50 to $147 never happened. Gold rising to new highs isn’t happening. Food prices going ballistic did not happen then and is not happening now, sure, whatever. The fact is that prices, including food and energy, have moved higher this year and before the collapse of 2008, but Krugman says that did not matter… why do people read him?
It is my opinion that higher food and energy prices helped collapse the system in 2008. As prices rose people diverted more money to the things they needed the most, food and heat which took away from our consumption oriented GDP. After the collapse began we saw these prices ease, a lot, and GDP did pick up after the crossing point was reached. Of course, government intervention helped and many people simply stopped paying much of their debt which has helped GDP since now one cannot pay their bills, not lose their home and now needed a new Kindle or iPad. Now we have rising commodity prices again, but no one seems to think this is bad news. Well, it is.
While mainstream economists talk about “sticky” CPI, excluding food and energy while concentrating on wage inflation as the sole indicator of inflation proves that most economists have lost their minds. Wage inflation does not have to come before food and energy inflation, I am not sure why anyone thinks this is always the case, and if we look back at 2008 we see a similar situation, rising commodities and flat to lower wages. This is a major red flag, but most mainstream economists don’t care. These economists look at me or a Jim Rogers and assume we do not have a clue about what we are talking about. The do not seem to understand that an economy can go from deflation/disinflation to inflation overnight, it happened in Germany. Maybe they are right, but at the same time they are so devoid of reality it is not even funny.
To think food and energy prices do not matter to people is idiotic. It is the same as saying fish can live fine out of water as long as they can hold their breath long enough. With money being diverted to $4 gas or $5 loaves of bread it is clear that we will continue to have deflation in color TV’s which means economists will not see any inflation, anywhere. This is a common sense issue which might fool Wall Street people into believing everything is fine, but Main Street, well, Main Street is not quite that stupid. They know $4 a gallon gas and $5 loaves of bread is bad news. They know that those iPads will be out of reach when a greater portion of their incomes are moving towards those unimportant things… like eating. This is bad news for the economy.
I have no illusions, the market will go up and economists will demand more QE because it is “working”, but this policy is not benefiting Main Street, it is killing it. More and more investors are moving out of stocks which negates the “wealth effect” of magical 9% S&P gains which are based on pure liquidity and not fundamentals. While stocks will move higher I am betting silver and gold will continue to outperform, along with other commodities. This is a catch 22 to the Fed because higher commodity prices is bad for the people, but good for GDP growth, even though it is imaginary growth, but that doesn’t seem to matter as long as the politicians are happy. So much for an independent Fed.
I think the recent views and writings of major economists have proven that they are completely worthless. To think intentionally driving the prices up for the basic essentials in life with high unemployment and flat incomes is barbaric. The worst part is economists all say this is a good thing, what world do they live in? We might get wage inflation out of this at some point, but it will be after price inflation is in full swing and major damage is done to the consumer. I also have no idea how the Fed can reverse this latest policy decision without blowing itself up, I actually believe this is now a permanent policy the Fed is following, just like Zimbabwe.
The biggest question is will Tim Geithner and Ben Bernanke be impeached for lying to Congress when they said they would not monetize the national debt? They should be, the last I checked lying to Congress was frowned upon, but we do now live in bizzaro world.
The Fed is doing everything I feared it would do and they are inflating the country out of its debt, they say they are not, but what credibility can they possibly carry with the people now? On top of that, their actions speak louder than words. When you are intentionally trying to create inflation and write an op-ed about it that makes it harder to say we are not trying to inflate our way out of our trillion’s in debt. Everyone can see what is happening and when Brazil is giving you a smack down, as well as Russia, man, you got problems.
As far as economists, perhaps they should be put on a salary that mirrors the national average in their respective areas so they can understand how higher commodity prices really impact the people. It is easy to say higher prices don’t natter when you make high 6 or 7 figure salaries for playing with computer models, but on a modest 5 figure salary I bet they will see things differently. I am not one of those ‘social justice’ people, but in this case I might make an exception since they are all being complacent in one of the greatest snow jobs ever given to the people. This will do nothing for the people other than create misery and it certainly will not improve the image of Wall Street. We are not a banana republic because we voted in Republican. We are a banana republic because we have idiots in charge of our monetary policy. Stay long commodities.
All the talk about the double dip recession is being blamed on not enough stimulus, but that is not true since there is a lot of money being spent right now because of the stimulus. The final spending of the stimulus funds will end this year, right near the elections ironically enough, but it is clear it did not work. We now have Paul Krugman out railing about a deflationary depression because governments are cutting back stimulus efforts. My question to him is, if stimulus is the answer and we are spending it now why are we seeing disinflationary forces? His excuse does not hold water. It is the massive government intervention that is causing the problems, not a lack of stimulus, but too much stimulus.
I am in disbelief how anyone could not have seen these problems coming, the signs were everywhere. Employment was the best indicator, but look at money velocity, what you can piece together at least, and declining credit combined with higher foreclosures, bankruptcies and weak retail sales it is clear as day that at best we stabilized at less bad and at worst we are heading for really tough times. This is not something I wanted to happen I think you would be hard pressed to find anyone wishing pain and suffering on anyone, but the signs were all there. Not to mention the implications of Europe tightening its belt and trying to force China to revalue its currency, talk about insanity, we took it to the next level.
So, Krugman may be right and we may have a deflationary depression, but I am sure it will last for only a little while. Because Bernanke will not stand for a deflationary depression, which is ironic considering Ben is the Great Depression expert and he is creating another one, and he will print our way out settling for an inflationary depression. The unfortunate part is Mr. Krugman has the reasons wrong for the depression we are in and he doesn’t seem to understand that you cannot cure debt problems with more debt, it just doesn’t work. Our debt is so large that is will now be a complete drag on GDP which means lower growth, the new normal anyone? Again, his reasoning is flawed because we just spent $1T, give or take between all the programs, on stimulus and we are not even done spending and he is calling this a deflationary depression because there is no stimulus? Maybe he likes to confuse the less informed or something, but talk about being wrong, wow.
My point is that you need to remember today, what is going on, the money that is being spent, what politicians are saying and blaming because they will, whichever party, will point to right now saying we should have done more or we should have done less. The fact of the matter is we are doing both, stimulus is declining and we are not adding more to it, and keep in mind that the data we are all looking at is still coming from April or May when much more money was being spent. All that data, even further back then April, is also showing significant decline in economic activity when the stimulus was running full speed ahead. To clarify, just because the spending is slowing now don’t blame the negative data on that since the data was generated prior to the slowdown in stimulus spending. Furthermore, employment never recovered or even showed significant improvement given the price tag.
Will the decline of stimulus spending hurt? Yes, a lot, but it needs to stop somewhere. The problem with the stimulus is that it is cruel because it extends the bad periods much longer than they should have lasted by blocking the markets from finding a true bottom. The more you spend, the more it distorts reality and lures people into a false sense of security, but when it stops the real pain begins because those fooled may have to lay more people off and readjust for a post stimulus world. So not only do the long-term unemployed receive the proverbial shaft, but newly hired employees may also receive the same treatment after they thought they caught a break.
Right now you can see what worked and what did not, but in a few months many might not remember. They may point to the 5.6% GDP print and say remember how good things were then? Well, they weren’t that good to the unemployed or those in bankruptcy or losing their homes, but that is how it will e framed and there will be cries for more stimulus. Those cries must be rejected and the only government stimulus that must continue is unemployment insurance. You cannot dump millions of Americans who are not unwilling to find a job it is that no jobs exist for them.
We tend to have very short memories and forget things quickly because of who knows what, I blame TV. You cannot forget what is happening right now because if you do they might talk you into another round of stimulus or God knows what else. We are in trouble, I know this, but we tried Krugman’s way and it failed, let’s give it the “let’s not give it the college try” and see what happens. Besides all of that, we simply cannot afford more spending especially for mediocre results, I am being generous here. While Krugman is grabbing the headlines for using the “D” word, let’s not forget I started using the term depression months ago based on the employment figures, food stamp numbers and the way foreclosures and bankruptcies were growing because I was paying attention and not traveling to my vacation house in the tropics unlike some BY Times economist.
We all know that the President has surrounded himself with a vast army of individuals to combat everything from the economic downturn to green jobs. While it is not unusual to have a literal army of people to help with a variety of issues in the Whitehouse it is unusual to have as many Czars as we have and to have so much dependence on an economic team of advisors. However, what if the team of economic advisors is a group of people who are inept, irresponsible and, in general, incompetent?
For many months now we have seen conflicting messages coming from various members of Obama’s economic team, Christine Roemer says that we are not doing that great while Larry Summers says everything is great and a host of other conflicting messages. We have also heard several stories about conflicts between Paul Volcker and many on the team, Volcker, who I am not a huge fan of, seems to be the only voice of reason and the only one who actually solved any real problem in the US while Summers and others created our problems or merely worked on hypothetical illustrations only. However, the most troubling person on this economic team is Paul Krugman who gets the most press I might add.
I realize the Krugman did win the Nobel Peace Prize, but so did a bunch of others who should not have, so who cares. Any person who actively advocates excessive deficits the way this man does must be insane. Not only is he advocating more deficit spending, a doubling of the original stimulus to $1.4T if he had it “his way,” but he also thinks a VAT consumption tax is a dandy idea as well. Most disturbing is this latest interview from Advisor Perspectives I read today were Mr. Krugman said the following:
“There is a pretty good case, at very high incomes, to have something like a tax rate in excess of 50%. We had a 70% tax rate for a good part of the 1960s and 1970s at the top end and survived with that. We had a 50% rate for a good part of the Reagan years, which people forget about. I would be willing to go north of 50% but I don’t know how high.
If you put a super-high rate on income of $5 million, then you are basically hitting only sports stars and Wall Street wheeler-dealers.”
Now, I am not sure if many people remember the 1970’s or not, but it was not exactly the era of prosperity that America is known for and is the direct result of over taxation and spending from the 1950’s and 60’s. He also does describe “super-high” incomes, but does not describe high incomes so that is open to interpretation and my guess that would be those earning more than $200K a year. However, if you add in his VAT, higher state income taxes, higher property taxes, higher sales taxes, now higher federal income taxes and all the other higher fees we have to pay this is a different ballgame than the 1960’s-70’s.
To frame and claim “we survived” the 1970’s is not exactly what most American’s want to hear, especially if they lived through it. I know that Obama’s base was not alive during that period of time, but it was not pretty and is a time most people would not care to repeat. I know retro is cool, but disco was terrible, bell bottoms are not cool and inflation really does stink. I know we are going to have to face higher taxes, that is inevitable, but how much and who is going to have to pay?
What we do know will happen is this, when taxes go up, on the wealthy, they will earn less money. This has been proven time and again through treasury tax receipts. Why does this happen? Because there is a cross over point where it is more advantageous for a wealthy person to earn less, not work as hard, and bring home the same or more money because they are paying less in taxes, it is a fact. When this happens the government will then be forced to raise taxes on more people causing marginal rates to go up across the board. Now, the poor have nothing to worry about, but the middle class does. The middle class always gets stuck with the bill, it is just the way it is.
Krugman must have lost his mind, which is all I can possibly think has happened. He is just set on mortgaging the future of the US on more stimulus and raising taxes, a system we know does not work long-term. I know we cannot lower taxes, that is impossible given our fiscal issues, we could create employment tax credits that are worthwhile to hire employees, i.e. an ongoing tax credit instead of the onetime credit often proposed or something to that effect. The best way to collect tax revenue is to close loopholes and reduce tax deductions for wealthier Americans, end of story and much better than a tax hike. An even better solution would be to simply stop the senseless spending, but that will never happen.
I guess what I am saying is that most Americans pay enough in taxes already. Just look at what the average American already pays in taxes, it is insane. Between state and federal income taxes you lose a ton of your income, never mind FICA and Social Security taxes. There is also the AMT, hopefully you are not subject to this one, but if you are it is really unforgiving. Sales taxes which you pay on just about everything you buy, think about that one for a minute and how much you pay just for groceries. Utilities tax, including your cell phone. Property taxes, which you do get a income tax deduction for, but you still pay it. If you own a car, registration fees, there is about a $.40 on every gallon of gas you buy. The list just goes on and on, but Krugman, oh, he wants you to pay way more.
So, my suggestion is that Krugman, Matt Damon, the Baldwin’s, Nancy Pelosi, Barney Frank and every other nut job that wants heavy social programs should voluntarily issue a cashier’s check for 70% of their income to the treasury every year. That is until their higher taxes are passed into law, then they do not have to worry about it. Just like you should not have to pay for your neighbor’s home that they bought and could not afford, we should not be forced to pay for these peoples wacky ideas and social programs that they cannot afford. Oh, if they do not want to write the check out to the treasury, they can send it to me, my name is CASH.
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