Category Archives: Economics

I Need to Make a Correction in My Teachings…

… as it turns out, I wasn’t paranoid enough. To all my former Economics students, I apologize.

It seems as though the major banks have been colluding to rig the main interest rate in the world, the LIBOR, for their fun and profit since 2005. That means the guys that kept hollering the loudest to let the market decide efficient outcomes were in a back room, letting their own greed decide the best outcome for themselves, no matter who they killed to get it.

These guys that demand there be no regulations because banks can self-regulate are also the first to claim innocence when their banks are caught doing heinous things. Why? They claim there’s no way they can watch over all the far-flung operations of their banks.

When guys like that pulled stunts like that in the Roman Republic, the senators there passed ex post facto laws that made stuff like that retroactively illegal and then had the culprits sewn up in bags full of snakes and then tossed into the Tiber. The British Parliament considered a similar course in the wake of the South Sea Bubble of 1721, but chose instead to personally fine each man involved in that financial crisis. In the USA, we can’t do ex post facto laws and corporations have limited liability – the perfect combination for the perfect crime, one in which the government itself is a partner.

So, in sum, interest rates are not set by the market. They are set by gangsters that are out to get every last bit of your money. I’ll be teaching that from now on.

Yet One More Way Wall Street Has Ripped You Off

Rolling Stone has an important article that should be required reading for anyone that still believes markets are efficient or that it makes a difference if we vote for Democrats or Republicans. Markets are rigged, frequently, and the parties exercise a cozy duopoly in which they do the bidding of the big corporations doing the rigging of the markets.

This isn’t isolated stuff, either. This is the way things roll in the USA. We’re not a land of the free, nor is there justice for all. The big players pay tiny fines, keep their ill-gotten gains, and then go on to keep doing what they’ve been doing. They commit massive felonies, admit no guilt, and then the government sets them up to commit the same felonies over and over.

Three-time losers get life in jail, but only if they’re individual felons. Corporate three-time losers face no such penalties. Instead, they can bend Congress to let them murder to get gain. And before anyone balks and says nobody in the financial world is directly killing anyone, I’m going to come right back and say that acting as the killer or the killer’s accomplice is the same thing. They’re responsible for health care not provided to the poor, food not available for the hungry, shelters unbuilt for the cold. Inasmuch as they have done it unto the least among us, they have done it unto Jesus, as far as my religion goes.

And now you know why Jesus had so much hostility towards the rich. They tend to be Satan’s most dependable servants.

Is Your Bank About to Murder You?

Strange times we’re in when that’s a legitimate question. Here’s the proof behind the question mark:

Citibank arrests people for withdrawing money legally:

Goldman Sachs execs preparing for the Muppet Apocalypse:

Citibank kills a guy for not paying his credit card:

Does the list go on? Yes, yes it does… Read the whole page.

The banking industry is behind the campaigns of both Obama and Romney. Whichever man wins, they want him under their control. Why is that?

Well… ask yourself… what happens to you if you decided to just quit paying your credit cards? Would your bank decide to make an example of you? Maybe not by having you whacked by a hitman, but there are other ways these guys can rain hell down on you, all 100% legal and taxed at a rate of 0% or less.

I’ve said it before, and I’ll say it again: interest on debts of any amount is a tool of oppression, a tool of the devil. Jefferson was absolutely right when he said banks were more dangerous than standing armies in terms of threatening our liberties.

Violence Will Not be the Answer

While I say violence will not be the answer, it doesn’t mean that others will try to see if it will be the answer. If history is any guide, and it most assuredly is, then the United States of America will be entering a period of heightened violence. It may be directed inwardly or outwardly, but it is going to be much, much more violent in the near future. It will either be a revolt against those who are both too wicked and too rich, or – more likely – a diversionary conflict with a high body count that may well be the fight of the nation’s collective life.

No war, no violence will solve the problems of a nation. People yearn for peace, trust, and quiet: things that are impossibilities in war. If possible, a people should leave an area of conflict and put distance between themselves and a potential aggressor. If not possible, then that people should defend itself and trust in God for deliverance.

That last part is important. It demands that a nation be righteous, that it be honest, and that it be virtuous. It demands that the nation is led by people that use their power to comfort the afflicted, not to comfort the comfortable. It demands that a nation be guided by principles of sacrifice and not personal profits. To trust in God means a nation cannot have its leaders enmired in the pursuit of profits and powers with an eye towards self-aggrandizement. A nation that trusts in God will face trials, but it will emerge from those trials all the better for having endured them. Trusting in God for deliverance implies that dangers and perils will arise and may nearly overwhelm, but that God will see the nation through those trials. Men and women will make sacrifices, even ultimate sacrifices, but the nation will endure in faith and humility.

A nation that does not trust in God for deliverance will instead play the devil’s game and kill before it is killed. It will exist as a paranoid entity. It will exploit the weak for its own game and assert that all is fair when the fittest are about the business of surviving. Darwinism is dangerous not in the biological sciences, but in the social fields – where it does not belong. In its lack of trust in God, it embarks on a history of violence.

That violence will not solve any problems. It will only lead to the breakup and destruction of nations. Then, when there are no more fit targets for conquest, the remaining nations will exhaust themselves in a mutually destructive war. With nuclear weapons, that mutual destruction will happen at a faster rate than ever before.

I see the events in the world today, and while they are not good, I don’t think I’ll be overly troubled by them. I still trust in God for deliverance. I have my reasons for my faith, and they are sound in my judgment, and that is all I need as precondition for my faith. I do my best to keep honest, to do the best work I can do, and to forgive debts others owe me. If the leaders of the USA were of the same mind, I would not be writing this essay.

Market Failure and Alexander Nevsky

In the classic Russian film, Alexander Nevsky, the merchant princes of Novgorod think they can buy their freedom by paying tribute to the advancing forces of the Teutonic Knights. Turns out, they can’t, and the rest of the film is about Alexander Nevsky leading the stout-hearted Russians in defense of what they held dear: land, family, and community.

In professional terms, that’s what economists call a market failure – and what free-market ideologues say can’t exist. That’s the problem with ideology: it blinds a person to the truth. This morning, I saw a news piece about how the military is finding it difficult to get enough healthy recruits. The blame for this national defense problem belongs to the unregulated markets that allow people to shove just about anything they’re addicted to into their bodies. Food, alcohol, tobacco: it’s all a mess.

I find it ironic that the biggest boosters for national defense are also the biggest proponents for not regulating diddly squat. Seems like you can’t have both. It’s further ironic that this lesson is brought home quite effectively in a 1938 Soviet Union propaganda piece. The problem with unregulated capitalism and free markets is that anything can be bought or sold, including poisons that destroy the youth of a nation and leave it unfit to defend itself.

Greed is not good: it undermines the soul of a nation. Forced collectivization is a horror, as well: nations must resist the extremes of any ideology if they wish to survive, let alone prosper. Markets have failed, are failing now, and will fail in the future. It is the role of a just government to address those failures with appropriate legislation.

If You Want to Understand the Economy…

… follow the real interest rate. The nominal rate, what banks and other lenders quote, is only part of the story. Subtract the rate of inflation from that rate and what you have left is the real interest rate. The real interest rate controls the availability of money to borrow, the strength of our currency, our balance of trade, and the severity of the national debt.

The real interest rate also measures the rate at which income disparity is growing. In simpler terms, the higher the real interest rate, the faster the middle class disappears. While we may look at the real interest rate as it pertains to the prime lending rate or the interbank lending rate (also known as the Federal Funds Rate, in case you’re in AP Economics) and see a very low real interest rate, those rates don’t apply to the poor and the middle class. They’re paying the real interest rate as it pertains to credit cards and consumer loans, and those rates are quite high. They’re higher than they used to be in the 1970s, which explains why the middle class has been on the run since that decade.

Even with a very low real interest rate for one and all, the money still flows from borrowers to lenders and the income/wealth gap continues to widen. Whatever other benefits borrowing may provide, the iron rule is that it will enrich the lender and impoverish the borrower, unless the borrower can pass his costs on to his customers via prices. Therefore, borrowing with interest will further impoverish the poor as sure as the moon goes around the earth.

$7.77 Trillion of Your Money

Bloomberg has obtained documents under the Freedom of Information Act that show guys like the Bank of America executive lying through their teeth. The banks were telling customers and investors that they were sound and solvent and doing just fine while they were, collectively, desperately borrowing trillions to cling to life. And, you guessed it, the execs kept their bonuses coming with those dollars.

The Federal Reserve is supposed to help provide liquidity in distressed financial markets. I get that. But these documents show that the Fed was picking winners and losers as they made their loans. They kept some firms solvent just long enough to complete buyouts – Wachovia and Bear Stearns were two such Fed-sustained comatose corporations. The Fed and the banks kept the loans a secret during the crisis and only released their information under a FOIA request.

The question is if these revelations will result in real regulation for the branch of organized crime we euphemistically refer to as “the banking industry.” Given the fact that the banks still have loads of cash to pay armies of lobbyists and you don’t, I’m not very optimistic about this leading to changes.

Little Ivory Lies

The New York Fed posted an apology for not predicting the economic catastrophe that began in 2007-2008. Better late than never, right? Except this apology dodges responsibility…

The article describes how nobody could have foreseen the catastrophic events of 2007 and on. To be sure, nobody in the rational behavior, efficient market ivory towers could foresee them because their own ideology required that they be blind to market failures. They were weather forecasters that denied the existence of tornadoes and hurricanes; geologists that refused to admit that earthquakes can happen; doctors that could not imagine the possibility of an epidemic. They were useless, in a word.

No, they were worse than useless. They got politicians and academics alike to deny reality and to strip away protections that were necessary to keep disaster from happening. They encouraged a host of policies – subprime lending, home equity loans, no regulation for credit default swaps, et cetera, et cetera – that people not in power said would lead to disaster. Those who were in power became the biggest gang of criminals the world has seen by using their money and influence to have legislatures make their actions legal.

Many of us outside the government and outside the ivory towers saw the reality and knew we were in for a disaster. The double bubble in housing and government debt would lead to a major economic collapse. We called it. We couldn’t say precisely when, but it was obvious it was going to happen, and it did. We also made the call that Europe was coming apart economically and, well… see for yourself.

We live in an age of irresponsibility. People that hold power deny their mistakes with an arrogance that transcends logic. Heads do not roll. The intelligence failure of 9/11 cost more lives than jobs. The same can be said for the terrible destruction of New Orleans in the 2005 Hurricane. In this latest, economic disaster, the perpetrators of the crimes were, for the most part, rewarded. Madoff is doing time. Who else?

So the New York Fed issues its non-apology at 6PM on Black Friday… it’s even dodging the attention it should be enduring for shutting its eyes to the greatest financial disaster in 70 years. Worse, as an Economics teacher, I’m supposed to teach the stuff that got us into this mess like it’s accurate and useful. The establishment’s refusal to recant is particularly galling.

Irving Fisher was the biggest bull market booster in 1929. When he realized he was dead wrong, he abandoned his wrong ideas and developed a workable model for analyzing economic depressions. I can appreciate that. The current crowd has no such ability or desire to recant. It’s as mentally paralyzed as the Chinese Communist Party in the midst of the Great Leap Forward: ideology is more important than reality. We see this in the Fed and we see this in Congress. They tell us their little ivory lies, and even if we don’t believe them, we are bound by their vision.

Krugman Agrees with Perry

Both these men sit on opposite sides of the political divide. Yet, they’ve made the same call about Social Security. Perry called it “a Ponzi scheme.” Krugman said, “In practice it has turned out to be strongly redistributionist, but only because of its Ponzi game aspect, in which each generation takes more out than it put in. Well, the Ponzi game will soon be over, thanks to changing demographics, so that the typical recipient henceforth will get only about as much as he or she put in (and today’s young may well get less than they put in).” That was in 1997, even.

Technically, it’s not a Ponzi scheme. A Ponzi scheme involves an intent to defraud. We’re really not intending to defraud people paying into Social Security, but it’s Ponzi in every other way. It needs more people paying in than those collecting benefits. As originally structured, most people would die – losing what they paid in – before being eligible to collect. Now, changing aging in the USA means more people don’t die before collecting, so the system is drawing down rapidly.

As people discuss benefits, the overall consensus is to cut them for younger folks and preserve them for people already receiving them and who are about to receive them. Worse, there is no discussion of what should be done in the place of cutting those benefits, which act as a lifeline for so many people. Even if people never receive the benefits of Social Security, there are a lot of folks that would need to have those benefits in order to keep going.

As a nation, as a people, we have failed in our duty to preserve our vision for what it means to be an American. Our soldiers in our movies and on the battlefield never leave a man behind: why do we lose that camaraderie for the poor, the aged, and the infirm?

We need a plan. We need one that works and that is sustainable. Simply saying, “*I* plan to take care of my family” isn’t enough. There are enough resources in the USA so that nobody would have to go hungry or homeless. We need to figure out how to make it so we don’t have any hungry or homeless.

Or do you prefer images like this?


The Statistics of Propaganda

There are 400 Americans that have $1.57 trillion between them, which is as much as 50% of the US population. That’s one group of 400 with $1,570,000,000,000, or $3.92500 billion apiece and 153,503,275 Americans with $0.00001 billion apiece. Somehow, the PR firms hired by the top 400 and their ilk have managed to make this fact seem to be a justification for taxing the people with $0.00001 billion more and the ones with $3.92500 billion less. That’s not right.

In the game of divide and rule, the minority at the top must fracture the majority in as many ways as possible, so that it does not unite and topple the minority. With wealth, this is easily done. The pattern is repeatable: mercenary security forces provide muscle and a few of the majority are invited to partake of a crumb or two so that they become boosters for the supposed prosperity afforded by going easy on the people with wealth and power. Meanwhile, racial, religious, and gender divides are exploited with opportunistic propaganda fomented by agents provocateurs in the pay of the rich. They just have to start the ball rolling. They don’t have to go along for the ride.

When I see emails that try and make it sound that the rich are victims, I become angry. It’s a lie. How can a person that buys and sells congressmen and judges and regulatory agencies be a victim? These guys will avoid taxes however possible just so they can keep a bigger pile of goodies for themselves. They probably don’t know what people who have to have a pan card seva go through to earn money and did they earn their pile on their own? Not likely. Inheritance is the number one way to make money in the USA, followed by interest earnings. Of course, for every dollar collected in interest, a dollar is paid in interest, and the poor pay those dollars. Even when a rich man borrows from another rich man, his interest payments are passed on to the poor as part of the prices of the goods and services he provides. A poor man with zero debt will still be paying interest. Interest is money made off of someone else’s labor. Kinda like what a vampire does, only with money and only in real life.

For every “Top x% of earners pay y% of our taxes” I see, I want to shout that that x% is earning more than y% of the national income. They’re not paying their fair share in a straight proportional scale and when you consider how much tax is already claimed in the form of widow’s mites, it’s revolting to see people try to paint the rich as victims.

Cherry-picked statistics are some of the most effective propaganda out there. Watch out.