According to the AP, new-home sales fall for the third straight month in July, setting a pace that would mark the worst year since 1963. For those who are surprised, I ask: why? This is yet another example of why the Federal Reserve should be completely dismantled and abolished, never to arise again.
Why, you ask? It’s the Fed’s policy of keeping interest rates artificially low that is the main cause of prolonging the hurt that is the depression we are currently in (along with many previous ones, most notably the Great Depression). Let’s look at two paths to take: the path of keeping interest rates low and the path of letting market prices reset.
The Fed operates on the Keynesian theory of keeping interest rates low and prices high. The belief is that keeping prices high, or “stable”, will keep fears of a recession or depression down and will spur investment spending. The idea is to keep investment spending up so that unemployment is not hurt and therefore the economy can keep booming. There is a fundamental flaw in this though. In order to keep rates low, money needs to be printed. Otherwise, the cost of borrowing money will be higher than the Fed’s intent and curb investing. So the money supply is increased.
This is where it gets messy. Because rates are low and the money supply has increased, the investor now has an inaccurate view of economic conditions. The investor will borrow money and invest where he otherwise wouldn’t. In addition, the investor is also going to run into unforeseen budget overruns. We’re taught to accept that all projects run over budget. However, the Fed has a hand in this as well. Because of the increased money supply (and the resulting devaluation of the dollar) cost of goods go up. The investor doesn’t take this into account because, again, he has an inaccurate view of the economy. So the investor is now investing where he otherwise wouldn’t. Cost overruns cause problems at the end of the project (let’s say building a house) and now he cannot finish. He now has to abandon the investment, squandering the time, labor and materials. Even if he had the resources to continue to completion, the cost overruns eat into the profit margins. So we have a completed house the cost more to build than budgeted due to the increase in cost of materials. In addition, because we’ve built a type of house that, if we had an accurate market, would not have built, the consumer does not buy it. We’d have to reduce the price of the house anyway and the investor takes a loss which will keep said investor from building any more houses.
The problem with the Fed policy is that we’ve misallocated resources into an area of the economy that didn’t want it. If I’m a homeowner and the price of housing is too high, why would I want those prices to continue to be high? It discourages buyers.
The second path is to let the prices adjust naturally. With a recession, we see a natural adjustment. The economy has determined through consumer preferences that the prices are too high to be sustainable (again, this is due to the Fed printing money and creating the housing boom). So if we allow prices to come down and let investors make the choice on the true economic conditions, we will see a turnaround. The reduction of prices is not a bad thing. If anything, we should continue to see reduction in pricing due to efficiencies and higher production. This stretches your dollar further as well. When the dollar is stretched further through efficiencies and production, we see a true wage increase rather than an inaccurate wage increase through printing of additional currencies and increase in physical wage.
Back to the housing example, if I’m a potential homebuyer and I’m looking to buy a 4 bedroom 2 bath for $300,000 and the current market price is $450,000, I’m out of the price range. However, if the market has determined that this price is inflated, the natural deflation of this price takes place. Now the price begins to gravitate closer to where I, and other consumers, would purchase this house. With the increase in potential buyers, we now have an equilibrium price that is a truer indicator of what the actual market price is. However, under the Fed policy, keeping prices artificially high would eliminate those potential buyers.
One might argue “What about the one who is selling the house? Won’t they potentially take a loss?” Yes, they may and almost certainly will. But the reduction of price is due to the inflated value of the home that was unsustainable to begin with. So should we allocate economic resources from good pools to prop up bad ones? Or should we let the prices fall, have the losses taken and the resources reallocated to good sectors of the economy? In the second scenario, we’ve lessened the hurt. Under the first, we not only allocate resources to bad sectors, but we also encourage riskier behavior. Take the bailouts for example. Should we let the banks reallocate their resources to profitable parts of their company and grow them and discontinue their non-profitable sections? Or should we bail them out using money from consumers (taxes)? If we bail them out, we’ve essentially said that no matter what half-baked ideas you invest in, the government will be there to bail you out. This is the main reason why our current recession is still going on four years after the initial conditions started showing.
The bottom line is that we should not be surprised that new-home sales are falling to record lows when we’ve essentially mislead investors on the true economic conditions. Government intervention has always been the cause of the problems, not the solutions. Just let the market make the corrections and we’ll all move on that much quicker and a lot less painfully.
Tuesday, August 23, 2011
Thursday, August 18, 2011
Progressive Obama Blames Unemployment on Progress
In the past couple of months, we’ve heard Obama blame all that is wrong with the world on everything except himself. I’m not saying that he’s responsible for all that’s wrong in the world, but he deserves much of the blame for our current economic conditions. More specifically, the economy not rebounding and actually getting worse again (double dip?).
He’s previously blamed the high unemployment on ATMs and kiosks. According to the Bureau of Labor Statistics, in 2009 there were approximately 154 million people in the work force, excluding the military. Let’s assume that bank tellers and manned kiosk workers were fired and they couldn’t get another job. We have to assume that this happened during the recession, because before the recession we didn’t have an unemployment problem. To affect the unemployment rate by one percentage point, 1.5 million workers would’ve had to have lost their jobs. Plus they couldn’t have found another job. Two percentage points would be over 3 million. Are we to seriously believe that what’s contributing to our unemployment rate was reducing the number of bank tellers and kiosk workers?
Perhaps Obama realizes this. I mean, it’s pretty absurd. For once he’s crunched the numbers and figured that that can’t be right. So he’s got a new scapegoat. Apparently the internet is now to blame for the unemployment rate. The internet. Something that’s been around for decades. Ok, fine. Let’s assume that the internet needed time to develop into the online shopping frenzy that it is now. It put people out of work because we, the people are no long going to stores outside of our homes. Wouldn’t this imply that online sites have been growing? If that’s true, wouldn’t you need a larger workforce to update and maintain these sites? How can this possibly contribute to unemployment? And how can a president who calls himself a Progressive claim that progress is causing unemployment? The truth is, Progressivism fundamentally brings us backwards. Think about. Universal healthcare takes you from a healthcare system where you have a choice of doctors and payment plans to one plan—the government’s. Most of their ideals are socialistic in nature and bring society back to a kind of feudalism.
But let’s go back to this idea that automation is contributing to unemployment. Fundamentally, this just doesn’t make sense. The automobile replaced the horse and buggy. The telephone eliminated the telegraph. Airplanes reduced the need for trains. Email replaced the need for the postal service. Were these progressions responsible for high unemployment rates and continuing recession? Of course not. If they were, we’d still be beating our rugs with a stick, washing our clothes on a rock in the river and hunting and growing our own food supply in a constant recessionary period.
The one thing that Obama doesn’t know is how automation actually increases the value of your dollar. For example: a retail company has 20 stores open and costs $1.5 million to operate. But because of online sales, they can close some of their underperforming stores and save $500 thousand. They can now offer better deals on their products, creating a more competitive environment. This stretches your dollar further as the consumer, even if this same retailer decides to expand their online workforce due to efficiencies.
This is just another example of how this President either doesn’t understand how and economy works, or he’s trying to destroy the one we have. There’s no other possibility. Not only does his reasoning to explain the high unemployment rate not make any sense, but it goes against his whole Progressive label.
In other news, Israel was attacked five times today. This has got to be the country with the most restraint. Even with this president, I think if we were attacked the way Israel is attacked, we’d be retaliating without much of a thought. But Israel restrains itself. Doesn’t Obama have a medal for restraint?
He’s previously blamed the high unemployment on ATMs and kiosks. According to the Bureau of Labor Statistics, in 2009 there were approximately 154 million people in the work force, excluding the military. Let’s assume that bank tellers and manned kiosk workers were fired and they couldn’t get another job. We have to assume that this happened during the recession, because before the recession we didn’t have an unemployment problem. To affect the unemployment rate by one percentage point, 1.5 million workers would’ve had to have lost their jobs. Plus they couldn’t have found another job. Two percentage points would be over 3 million. Are we to seriously believe that what’s contributing to our unemployment rate was reducing the number of bank tellers and kiosk workers?
Perhaps Obama realizes this. I mean, it’s pretty absurd. For once he’s crunched the numbers and figured that that can’t be right. So he’s got a new scapegoat. Apparently the internet is now to blame for the unemployment rate. The internet. Something that’s been around for decades. Ok, fine. Let’s assume that the internet needed time to develop into the online shopping frenzy that it is now. It put people out of work because we, the people are no long going to stores outside of our homes. Wouldn’t this imply that online sites have been growing? If that’s true, wouldn’t you need a larger workforce to update and maintain these sites? How can this possibly contribute to unemployment? And how can a president who calls himself a Progressive claim that progress is causing unemployment? The truth is, Progressivism fundamentally brings us backwards. Think about. Universal healthcare takes you from a healthcare system where you have a choice of doctors and payment plans to one plan—the government’s. Most of their ideals are socialistic in nature and bring society back to a kind of feudalism.
But let’s go back to this idea that automation is contributing to unemployment. Fundamentally, this just doesn’t make sense. The automobile replaced the horse and buggy. The telephone eliminated the telegraph. Airplanes reduced the need for trains. Email replaced the need for the postal service. Were these progressions responsible for high unemployment rates and continuing recession? Of course not. If they were, we’d still be beating our rugs with a stick, washing our clothes on a rock in the river and hunting and growing our own food supply in a constant recessionary period.
The one thing that Obama doesn’t know is how automation actually increases the value of your dollar. For example: a retail company has 20 stores open and costs $1.5 million to operate. But because of online sales, they can close some of their underperforming stores and save $500 thousand. They can now offer better deals on their products, creating a more competitive environment. This stretches your dollar further as the consumer, even if this same retailer decides to expand their online workforce due to efficiencies.
This is just another example of how this President either doesn’t understand how and economy works, or he’s trying to destroy the one we have. There’s no other possibility. Not only does his reasoning to explain the high unemployment rate not make any sense, but it goes against his whole Progressive label.
In other news, Israel was attacked five times today. This has got to be the country with the most restraint. Even with this president, I think if we were attacked the way Israel is attacked, we’d be retaliating without much of a thought. But Israel restrains itself. Doesn’t Obama have a medal for restraint?
Tuesday, August 16, 2011
The Magical Misery Bus Tour
Yes, I’m jumping on the bandwagon—pun intended—of this presidential—or lack thereof—bus tour. This just reeks of desperation. I’m surprised he hasn’t hired a PR company to try and remake his image. Of course, when you have the entire media working round the clock for you, perhaps you don’t need that. No, the one thing Obama needs right now is results. What results? Why, unemployment coming down, the dollar going up, and the restoration of America. Of course, it’s difficult to restore America when he vowed to “fundamentally transform” it.
Yes, results are what he needs, but all the campaigning in the world (well, country; world would violate campaign contribution laws) won’t help him get results. It’s all image with this guy. He’s claimed to have promised laser focus on creating jobs multiple times during his first year in office, yet he never actually does it.
Now some comments on some of the things that he’s said on this tour. He claims that carmakers can’t “just make money on trucks and SUVs” and that they should focus more on small to mid-sized cars and energy-efficient vehicles. Mr. President, forgive me for asking, but what do you know about business? Let me rephrase: what do you know about growing a business. We know that you know how to destroy them. Even your green-energy companies that you promote so much are folding. But what do you actually know about managing a company? The only real job that you’ve had was as a lawyer, but even then you claimed to have felt you were “behind enemy lines”.
He’s also claimed that he turned the recession around until he hit some “bad luck”. Bad luck? Like what? An earthquake? The Arab Spring? Well, we can’t exactly control earthquakes, but he encouraged those in the Middle East to rise up and make the Arab Spring a reality! So, not only is he driving across America in his big bus, but he’s clearly throwing plenty under it too.
Shifting to the GOP primary field, Rasmussen shows that Perry is on top with 29% with Romney and Bachmann at 18% and 13% respectively. This isn’t at all surprising, but we still have a couple possible shake ups in the mix. Rumor has it that Chris Christie and Paul Ryan are mulling late bids. Paul Ryan’s an interesting possibility as he’s clearly a numbers guy and with our current debt, we need the right numbers guy now. Chris Christie might shake things up and there’d be a lot of excitement, but he hasn’t had a full term as governor yet so I don’t believe he’ll rise to the top of the field.
In obscure news, researchers in Australia have found that watching an hour of TV after the age of 25 can shorten the viewer’s life by just under 22 minutes. I’m sorry if I sound skeptical, but how do you possibly figure that one out? I tend to ignore these types of studies anyway since they prove to be wrong so often or, for every study that shows one thing, there’s another study that shows the opposite.
Yes, results are what he needs, but all the campaigning in the world (well, country; world would violate campaign contribution laws) won’t help him get results. It’s all image with this guy. He’s claimed to have promised laser focus on creating jobs multiple times during his first year in office, yet he never actually does it.
Now some comments on some of the things that he’s said on this tour. He claims that carmakers can’t “just make money on trucks and SUVs” and that they should focus more on small to mid-sized cars and energy-efficient vehicles. Mr. President, forgive me for asking, but what do you know about business? Let me rephrase: what do you know about growing a business. We know that you know how to destroy them. Even your green-energy companies that you promote so much are folding. But what do you actually know about managing a company? The only real job that you’ve had was as a lawyer, but even then you claimed to have felt you were “behind enemy lines”.
He’s also claimed that he turned the recession around until he hit some “bad luck”. Bad luck? Like what? An earthquake? The Arab Spring? Well, we can’t exactly control earthquakes, but he encouraged those in the Middle East to rise up and make the Arab Spring a reality! So, not only is he driving across America in his big bus, but he’s clearly throwing plenty under it too.
Shifting to the GOP primary field, Rasmussen shows that Perry is on top with 29% with Romney and Bachmann at 18% and 13% respectively. This isn’t at all surprising, but we still have a couple possible shake ups in the mix. Rumor has it that Chris Christie and Paul Ryan are mulling late bids. Paul Ryan’s an interesting possibility as he’s clearly a numbers guy and with our current debt, we need the right numbers guy now. Chris Christie might shake things up and there’d be a lot of excitement, but he hasn’t had a full term as governor yet so I don’t believe he’ll rise to the top of the field.
In obscure news, researchers in Australia have found that watching an hour of TV after the age of 25 can shorten the viewer’s life by just under 22 minutes. I’m sorry if I sound skeptical, but how do you possibly figure that one out? I tend to ignore these types of studies anyway since they prove to be wrong so often or, for every study that shows one thing, there’s another study that shows the opposite.
Sunday, August 14, 2011
Michele Bachmann Wins in Iowa; Did We?
There was big news in Iowa this weekend. In case you were in a media blackout, Michele Bachmann won slightly beating Ron Paul in what was basically a statistical tie. Bachmann has surged as of late and the media’s attempt to destroy her a la Sarah Palin seems only to have propelled her to the top. Perhaps the media’s philosophy is “the higher they are, they harder they fall”. Ron Paul’s close second makes for an interesting turn. While fiscally, Bachmann and Paul are quite similar, they differ on a range of other issues, mostly concerning foreign policy.
In the same poll, the next in line was Pawlenty, who had less than half the votes of either Bachmann or Paul. This shows a considerable gap from the top two to the rest on the bottom. In related news, Jake Tapper has indicated that Pawlenty will be dropping out of the race in an ABC news exclusive. Curiously, this came mere hours after Pawlenty’s twitter account thanked his supporters and mentioned that he looks forward to the campaign ahead. Perhaps he meant someone else’s campaign?
The question now is: with Michele Bachman’s win, did America? The short answer is: we really don’t know at this point. I like Bachmann, especially over Ron Paul. However, there are a myriad of variables to take account. First, it’s the first straw poll. This is hardly the deciding victory in the GOP primary. Second, where would Mitt Romney have ended up? He decided to not even enter himself into the poll. It’s an interesting strategy. It could be that he feels that he is the GOP frontrunner in the primaries and didn’t want to risk losing first place in the Iowa straw poll. His next move could be to selectively enter into the poll he feels confident he’ll win. A first-place finish could take the wind out of the sails of the Bachmann and Paul campaigns. The downside to this strategy is that he may have offended so many of the GOP voters, that they send him crashing to the bottom, kind of like what happened to Giuliani when he focused on Florida voters in the 2008 presidential primary.
Then there’s Rick Perry’s late entrance into the field. How will he affect the primaries going forward? He’s the candidate that I feel has the most to say. Ask anyone what the biggest problem in America is right now and almost uniformly the answer is job growth. As the Texas governor, he’s created about half the total jobs created in the US during this recession. Right now, the other candidates have ideas on job growth, but this guy actually did it. That puts Perry at a huge advantage.
The bottom line is we still have a lot to learn going forward. With Romney’s absence and Perry’s late bid, things could shake up.
In the same poll, the next in line was Pawlenty, who had less than half the votes of either Bachmann or Paul. This shows a considerable gap from the top two to the rest on the bottom. In related news, Jake Tapper has indicated that Pawlenty will be dropping out of the race in an ABC news exclusive. Curiously, this came mere hours after Pawlenty’s twitter account thanked his supporters and mentioned that he looks forward to the campaign ahead. Perhaps he meant someone else’s campaign?
The question now is: with Michele Bachman’s win, did America? The short answer is: we really don’t know at this point. I like Bachmann, especially over Ron Paul. However, there are a myriad of variables to take account. First, it’s the first straw poll. This is hardly the deciding victory in the GOP primary. Second, where would Mitt Romney have ended up? He decided to not even enter himself into the poll. It’s an interesting strategy. It could be that he feels that he is the GOP frontrunner in the primaries and didn’t want to risk losing first place in the Iowa straw poll. His next move could be to selectively enter into the poll he feels confident he’ll win. A first-place finish could take the wind out of the sails of the Bachmann and Paul campaigns. The downside to this strategy is that he may have offended so many of the GOP voters, that they send him crashing to the bottom, kind of like what happened to Giuliani when he focused on Florida voters in the 2008 presidential primary.
Then there’s Rick Perry’s late entrance into the field. How will he affect the primaries going forward? He’s the candidate that I feel has the most to say. Ask anyone what the biggest problem in America is right now and almost uniformly the answer is job growth. As the Texas governor, he’s created about half the total jobs created in the US during this recession. Right now, the other candidates have ideas on job growth, but this guy actually did it. That puts Perry at a huge advantage.
The bottom line is we still have a lot to learn going forward. With Romney’s absence and Perry’s late bid, things could shake up.
Friday, August 12, 2011
America's Loss of Confidence
There’s been plenty of news today to talk about. There was the GOP debate in Iowa where we’re starting to see some actual differences in the candidates instead of the uniform “we’re not Obama” responses. Now is when the herd starts to get thinned and we see the real contenders.
But that was yesterday and this is today. Right at the start of the day we had two big, if conflicting reports come out. The first is Thomson Reuters/University of Michigan preliminary index of consumer sentiment report. This was a shocker. I’ll spare you with the numbers, but it was the lowest level since 1980—more than three decades and goes back to the Jimmy Carter years. Now, when I think of Obama and Carter, I am reminded of Rush Limbaugh comparing this term of Obama as “Jimmy Carter’s second term”. Well, there we are. We’re as confident as we were during the Carter years.
Now there’s one main reason for this right now besides the obvious fact that we’re not reducing the current available labor pool (unemployment rate). The main reason we’ve taken such a huge hit is due to the last week’s performance of the stock market. This movement wasn’t all that unexpected, however. There has been no substantial improvement in the economy in the past two years with the exception of the stock market. And the only reason that the stock market had surged was due to Fed programs such as QE1 and QE2 (quantitative easing programs that flooded the markets with cheap cash). Once those programs ended, we saw huge selloffs: once last summer at the end of QE1 and again last week after the end of QE2. QE2 actually ended at the end of June, but the markets have been in a holding pattern waiting to see if there was going to be another program. When it was seen that there wasn’t going to be any, the selloff began.
Then we had the debt deal shortly after which did nothing to help alleviate our current debt. So Moody’s downgraded the US outlook to Negative and the S&P downgraded the credit rating from AAA to AA+. More selling ensues. Since then, it’s been a roller coaster ride of 400-pont gains and losses for the DOW.
For a bit more in-depth look into the consumer confidence report, think back a couple weeks ago. The DOW was well over 12,000. The high for the DOW in 2007 was securely past 14,000. Did it feel like the DOW was at 12,000? It certainly didn’t to me. The unemployment rate (which is a dodgy number to begin with) has not improved. Our government continues to spend. Stimulus proves to be futile. Our economy is stuck in neutral. I feel like the Coyote chasing the Roadrunner off a cliff yet I’m still running. Then I realize that there’s nothing under me to keep me afloat. Down I go.
But there was another report out today as well: a rise in retail sales. The market chose to act on this report even though from my perspective the consumer confidence report should trump this one. Perhaps it’s because with all the selloffs, the market is seen as being at a discount. Or that real dollars spent is better data than a measure of metaphysical sentiment such as consumer confidence. But for me, the consumer confidence report made the retail sales report quickly obsolete.
Just some quick thoughts on a couple other items in the news, the Appeals Court for the 11th Circuit ruled that Obamacare is unconstitutional. Specifically, they ruled on the part of the bill that mandates Americans buy health insurance. All other parts of the bill seemed fine to them. This is a bit of a blow to the White House, however not completely unexpected. All parties know that this is going to the Supreme Court for a final showdown. These rulings do serve a purpose as the Supreme Court will be reviewing these rulings to assist in their own ruling.
But that was yesterday and this is today. Right at the start of the day we had two big, if conflicting reports come out. The first is Thomson Reuters/University of Michigan preliminary index of consumer sentiment report. This was a shocker. I’ll spare you with the numbers, but it was the lowest level since 1980—more than three decades and goes back to the Jimmy Carter years. Now, when I think of Obama and Carter, I am reminded of Rush Limbaugh comparing this term of Obama as “Jimmy Carter’s second term”. Well, there we are. We’re as confident as we were during the Carter years.
Now there’s one main reason for this right now besides the obvious fact that we’re not reducing the current available labor pool (unemployment rate). The main reason we’ve taken such a huge hit is due to the last week’s performance of the stock market. This movement wasn’t all that unexpected, however. There has been no substantial improvement in the economy in the past two years with the exception of the stock market. And the only reason that the stock market had surged was due to Fed programs such as QE1 and QE2 (quantitative easing programs that flooded the markets with cheap cash). Once those programs ended, we saw huge selloffs: once last summer at the end of QE1 and again last week after the end of QE2. QE2 actually ended at the end of June, but the markets have been in a holding pattern waiting to see if there was going to be another program. When it was seen that there wasn’t going to be any, the selloff began.
Then we had the debt deal shortly after which did nothing to help alleviate our current debt. So Moody’s downgraded the US outlook to Negative and the S&P downgraded the credit rating from AAA to AA+. More selling ensues. Since then, it’s been a roller coaster ride of 400-pont gains and losses for the DOW.
For a bit more in-depth look into the consumer confidence report, think back a couple weeks ago. The DOW was well over 12,000. The high for the DOW in 2007 was securely past 14,000. Did it feel like the DOW was at 12,000? It certainly didn’t to me. The unemployment rate (which is a dodgy number to begin with) has not improved. Our government continues to spend. Stimulus proves to be futile. Our economy is stuck in neutral. I feel like the Coyote chasing the Roadrunner off a cliff yet I’m still running. Then I realize that there’s nothing under me to keep me afloat. Down I go.
But there was another report out today as well: a rise in retail sales. The market chose to act on this report even though from my perspective the consumer confidence report should trump this one. Perhaps it’s because with all the selloffs, the market is seen as being at a discount. Or that real dollars spent is better data than a measure of metaphysical sentiment such as consumer confidence. But for me, the consumer confidence report made the retail sales report quickly obsolete.
Just some quick thoughts on a couple other items in the news, the Appeals Court for the 11th Circuit ruled that Obamacare is unconstitutional. Specifically, they ruled on the part of the bill that mandates Americans buy health insurance. All other parts of the bill seemed fine to them. This is a bit of a blow to the White House, however not completely unexpected. All parties know that this is going to the Supreme Court for a final showdown. These rulings do serve a purpose as the Supreme Court will be reviewing these rulings to assist in their own ruling.
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