According to this Christian Science Monitor article, the Federal Reserve has loaned banks trillions of dollars. More than $9 trillion from a single program. And, yes, Goldman Sachs was one of the happy recipients.
How can anyone look at this mess with a straight face and still think the Fed should continue to exist.
Its easy money policies blew up a bubble in the market for the most expensive thing most Americans will ever own, their homes. And in a country where homes were already heavily subsidized by interest deductions, capital gains exclusion, first-time buyer loans and grants, Fanny and Freddy nothing-down loans and probably a half dozen other things.
One can argue that all this was necessary to keep depositors from losing their money. But aren't they going to be losing it anyway by the time we have a full accounting of all of these swindles?
How much better things would be if people knew they could lose their deposits when they put them into the bank. Most would not unless a bank proved to a reputable rating firm that it wasn't investing recklessly. We'd have individual institutions failing when they got into trouble, not the entire system going down in secret until the day arrives when our leaders tell us "no one could have seen it coming."
Image via WikipediaAll people who fly should be treated equally under the law. If you're a fat cat celebrity, businessman or politician flying in private jets, you ought to have the same groping or ionization options as the rest of us.
Maybe then the government would stop this nonsense.
Image by infomatique via FlickrThe pattern with the government is the same from situation to situation.
1) They make something free
2) The market for private delivery of the same thing dries up. Those few that still want to pay must pay much more than they would have before the government started giving it away for free because the market has shrunk so much
3) The same thing happens to alternatives to the thing they made free
4) Decisions are now made by those delivering the process instead of the person choosing between the alternatives. Costs and benefits are no longer weighed together or by the person that cares about the outcome the most. Considerations easily described in resumes and sound bites become uber important
5) The corporations and unions move in and start influencing the decision makers, carving out expensive niches for themselves
6) Things that truly matter but aren't profitable for the politically connected fall by the wayside
7) People getting something free put up with it because ditching the free thing for same thing done right is now a super expensive alternative
8) Delivering the free thing grows more expensive, much faster than the rate of inflation
9) Eventually the tax payers fight back and the costs of delivering the thing are slashed, along with quality. The corporations and unions have to spend and/or threaten more to hang on to their protected positions.
10) Those getting the service for free now have to spend all their time at rallies and fine tuning the stories about how badly they're being treated.
Happens with health care. Happens with roads. Education. City services. Anything they give away for free or heavily subsidized.
Image via WikipediaIn a speech today, Obama urged the Asian countries to buy more US products. "One of the important lessons the economic crisis taught us is the limits of depending primarily on American consumers and Asian exports to drive economic growth."
As if its the selling of products to Americans that's the problem and not the massive borrowing the US has been doing.
All the speeches in the world will not resolve US trade imbalances.
Imports will ALWAYS be greater than exports when a country consumes MORE than it produces.
When you borrow trillions and subsidize consumer borrowing by keeping interest rates abnormally low, imports HAVE to go way up.
You're borrowing the LABOR of others; it has to be delivered somehow. That means someone in some other country is working to produce something.
Borrowing creates jobs alright. Just not for the borrower.
If dollars are created in order to stimulate, everybody pays higher prices because of inflation. Demand has merely been moved, a little from everybody in random amounts, depending on what they by and where the stimulus is spent, becomes a lot for whoever is handed the stimulus first.
There's no magic. Nothing is created. Those very small amounts are very difficult to measure. The constant small changes happening in markets hide the tiny losses the stimulus creates via price changes.
If you were the person handed those stimulus dollars and you decide to burn them instead, no one is affected. The creation and the dollars balance each other out.
But there are real effects of stimulus. There is the loss of the labor of those who would have had to work to produce the free stuff they're getting because of stimulus. There's a real decline in the total amount of capital when capital is invested in unproductive things that people are not willing to pay for and that do not result in the capital being paid back and even increased.
If you don't spend the dollar bills you have, they don't compete with other dollars and prices are slightly lower for everyone. Which is actually what's happened since the housing bubble collapsed and everybody's reduced their spending. They are getting a lot more for their money whenever they spend.
Nikki Haley is for term limits, the end of secret legislative voting and full disclosure of legislator income sources. All great first steps to better government.
I refer to what is probably the largest environmental disaster in US history, BP's gulf oil spill. The US has this crazy law limiting the liability from oil spills to $75 million.
Apparently, this was done to give oil companies the incentives to take on risky exploration and drilling.
And guess what? It worked!
But, as always, you create more of what you subsidize. More risk taking, with less concern about the consequences.
Of course, Obama is trying to change this limit RETROACTIVELY, which is a clear violation of the rule of law. You can't make a set of rules and then go back and change them after the fact. People can't violate rules that weren't in place when they made their decisions.
If that effort succeeds, we will have further eroded the rule of law. The government took on that liability when it passed that rule and now we're stuck with it.
This is just one of many issues that affect quality of life in neighborhoods. What's the best way to make these sorts of decisions?
I think the real solution is letting each small area within cities decide for themselves what businesses or activities are permitted. Ideally, people should be able to buy property with the assurance that certain things won't be happening in the area, unless a high percentage of residents vote to allow it. And currently legal things cannot be made illegal without a similar high percentage.
Democracy is not always a good thing and having your rights changed by simple majority vote is often quite bad. Contracts on the other hand create a lot of stability and thats a good thing for neighborhoods. We need rules that can only be changed that can only be changed by 70, 80 or 90% of the voters in a neighborhood.
Or perhaps, how many people vote for a measure determines how quickly it is implemented. If 95% vote for it, a measure might be implemented right away. But if only 51% do, it might take effect in 5 years, giving people plenty of time to sell and move away.
We need more local control, micro-local really. Many different kinds of neighborhoods make a city interesting and give all kinds of people the space they need. Those who don't want to be around drug use and those who want to both need to be accommodated and this is one approach.
You can't even enforce a lot of laws like this without the cooperation of citizens anyway, so why not align the rules with the neighborhood instead of trying to do the opposite, which only produces soul-crushing uniformity?
In any normal market, prices cause supply and demand to equalize. If demand is higher than supply, prices rise and both supply and demand react to the new price. Some buyers decide not to buy and/or some suppliers step up production.
But if prices are not free to change, if they are held too high or low, the market cannot react to changing conditions. One side of the transaction, either buyers or sellers, will not be able to buy or sell
If prices are held low, demand will be higher, of course, but suppliers won't invest more money to meet that higher demand. They may even get out of the business altogether if the low price causes them to lose money or they make more money in a different business.
The result? Shortages. Buyers spend all kinds of time and money compensating for the shortages, maybe even more than the artificial low price is saving them. For example, when the US government held natural gas prices down in the seventies, shortages developed, even though all of the natural gas back then came from the United States.
And when prices are held too high, demand is certainly curtailed. That's bad news for the lowest quality suppliers. For example, if all cars now had a minimum price of $50K, car makers focused on the low end of the market are screwed. The market will be buying fewer cars and the low end will suffer most.
This is precisely the problem with labor market in many countries right now. Minimum wage laws are keeping wages on the low end higher than buyers are willing to pay. Buyers were willing to pay those prices when the housing bubble was distorting demand for labor, but that's all over now.
These workers would like to sell their labor, but its too expensive for employers.
What can be done without unnecessarily hurting the workers making the least? Two things. First, eliminate the minimum wage. And, at the same time, cut taxes on those who make below the minimum wage, enough to compensate for any loss.
These actions will make low end workers more attractive to hire and enable employers to compete in the global market place.
Tax revenues will decline, but so will unemployment insurance costs and government job creation expenses.
This morning from a Wall Street Journal article entitled Economy of Lies:
"When government and business collude, it's called crony capitalism. Expect more of this from the financial reforms contemplated in Washington."
When something is regulated by the government, the nature of that regulation is subject to being influenced by the regulated.
If the regulator itself had competition and participation in the regulatory scheme was voluntary, there would be real pressure to honestly regulate.
The government could, instead of regulating companies itself, manage a system of competing regulatory regimes and let people decide which one they trust.
There could be a "Good Housekeeping Seal of Approval" for accounting competing with FASB, companies could pick one and then publish to investors which one they adhere to.
If investors find that they are consistently burned by companies governed by FASB, they would start to favor companies governed by the alternative.
There would be real pressure to perform honestly over the longterm that a monopoly is not subjected to.
I work in technology and we have all sorts of competing standards that live and die by how good the results are. Competition is a good thing and we need more of it, especially in government.
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