The United States appears to have moved over time from an agrarian economy, to an industrialized economy, to a services and information economy. Selling leisure, celebrity, and entertainment where we used to sell material goods that enabled one to entertain themselves instead of watching the boob-tube.
The United States appears to be a net consumer society where we no longer manufacture the things we use, but outsource the production to areas of low-cost raw materials, energy, and of course, labor. The unions’ control over large-scale manufacturing (automotive, aircraft, shipbuilding, steelmaking, etc.) has distorted labor prices to the extent that producing goods in the United States is economically unfeasible if we want to remain competitive. This presents a problem to a progressive socialist democrat government because of politicians who cannot politically tolerate the manufacture, distribution, and sale of low-priced goods (beneficial to all) without trying to drive up wages (through unionization) – which in turn, will drive up the cost of the low-priced goods. Pretty much why the unions are attacking Wal-Mart and McDonalds with their “living wage” nonsense. Most of the jobs at these mass employers involve ever-shifting entry-level positions meant for the young and not career positions – that is, unless one is poorly educated, lacks in-demand skills, or lacks ambition. When most of our taxes and the cost of large consumer goods goes to union pensions and benefits, we are in deep, deep trouble.
The United States incentivizes those who produce nothing, but act as functionaries – often in a speculative manner. These are the financial industry executives and Wall Street Wizards who dream up new investments and then create stories to drive the market up or down – anything but sideways which does not produce trading or commission profits. A sound company one day, a dog whose stock tanks on a rumor the next day. How can you explain a multi-billion dollar evaluation of a company that has never turned a profit? An industry bubble where the asset class has been inflated beyond all reason – and those who manipulate finances look forward to the bursting bubble because they can make money on the way down.
The government, having interfered in the major markets, is busy covering up the fact that many of the largest “too big to fail” institutions were technically insolvent in prior years – and may be so today if they were called upon to resolve their derivative positions in a chaotic market without buyers and the ability to evaluate prices. We can see that the United States Treasury and the bank-owned and private Federal Reserve has developed a scheme to recapitalize these banks before consumers and citizens become smarter and realize that the burgeoning debt is little more than another bailout of the financial sector and that executives are gorging on bonuses created by sure-fire profitable investments.
The consumer, taxpayer, and small investor is being majorly screwed by the machinations of the Treasury Department and the Fed because earnings on bank deposits, mutual funds, and other investments are in the crapper – mostly affecting senior citizens on a fixed income.
So what I do not understand is simple. Why the hell are the politicians and intellectuals dancing around the real issue of bad government and feting the asshats that created this death-spiral system?
At the IMF Research Conference on Nov. 8, Larry Summers gave a succinct presentation that explained what may be the most pressing economic matter of our time.
The speech is being widely praised (by Krugman and others) for being a brilliant and thorough elucidation of an issue that's underdiscussed. Over the past 50 years, the Federal Reserve has cut short-term interest rates during recessions to spur economic growth, but a new problem has arisen recently. The Fed cut the rate to zero, but we still have had a slow recovery.
The problem is that the natural interest rate — where investment and savings bring about full employment — is now negative. However, the Fed cannot cut the nominal rate below zero because people will choose to hoard money instead of putting it in the bank. This is called the zero lower bound and has reduced the power of Fed policy.
To offset that, the Fed has used unconventional programs such as quantitative easing (QE) to push long-term rates down to try to bring about greater investment. QE is the technical term for the Fed buying billions of dollars of Treasuries and mortgage-backed securities.
Even with that though, the natural interest rate is still stuck below zero. Cutting short-term interest rates is the Fed's greatest power to bring about full employment during recessions, but it has been hamstrung by the zero-lower bound. While this has caused a weaker recovery so far, the larger problem is that this is not a short-term issue.
If another recession were to hit now or in the next couple of years, the Fed will have even less power to combat it since rates are already at zero. This is what Summers warned of in his speech at the IMF.
"Imagine a situation where natural and equilibrium interest rates have fallen significantly below zero," Summers said. "Then conventional macroeconomic thinking leaves us in a very serious problem because we all seem to agree that whereas you can keep the federal funds rate at a low level forever, it's much harder to do extraordinary measures beyond that forever, but the underlying problem may be there forever."
There are a couple of other ways we could attack this.
-- The Fed could allow for greater inflation, and thus incentivizing people to spend now if they're hoarding money.
-- We could also move to a cashless society where all money is electronic. This would make it impossible to hoard cash outside the bank, allowing the Fed to cut interest rates to below zero, spurring people to spend more. Read more at:Larry Summers IMF Speech On The Zero Lower Bound - Business Insider
Incentivizing? You mean social engineering to force the population to act against their own individual or best interest?
I call bullshit …
America is a consumer economy, but people are not spending money. They are hoarding it for uncertain time and paying down their debts. Neither which creates economic growth. Even worse Obamacare is killing jobs, reducing many jobs to under 30-hours to avoid onerous costs penalties associated with Obamacare. Obama should be impeached for this alone.
Yes, the Federal Reserve could allow for greater inflation, but that is what is already happening. Inflation is when too many dollars chase after too few goods. For those who do not realize it, our Dollar is in the crapper NOW! So before you blame the Middle East oil producers for the high cost of gas, just remember it now takes more dollars to purchase the same amount of oil – so we are seeing inflation at the gas pumps. And everywhere else. Because the Fed computes the inflation rates and tells you there is low-inflation, does not necessarily make it so. Using my FedWatcher program, I calculated that on December 5, 2013, it would take a 2.9% hike in the Federal Funds rate just to return to a neutral (0%) inflation rate using a 10-year outlook. Imagine some bank borrowing billions of dollars at zero interest rate, charging 4% for a mortgage, and up to 22% for a credit card balance – booking the guaranteed profit and then rewarding their executives based on this sure-fire profit. We are so screwed.
Our government’s public policies, such as the Patient Protection and Affordable Care Act, the EPA rules and regulations, and the support of unions demanding higher wages and benefits without a corresponding increase in productivity is what is ailing our economy. No investor in their right mind will invest in an enterprise in an atmosphere of FUD: fear, uncertainty, and doubt. Thus the dollars are locked-up in liquid investments or kept off-shore.
The government wants electronic money – so they can monitor and control funds flows. And, potentially like Greece, grab a chunk of your savings, retirement pension, or even market investments to make the financial markets whole. Socializing losses and privatizing the profits – like the business models of Fannie Mae, Freddie Mac, Amtrak, and the Postal Service.
Bottom line …
If you want a healthy economy, you start by throwing the progressive socialist democrats out of office in the 2014 congressional election cycle. Investigating and prosecuting those who have raped the system and subverted government for their own personal professional, political, and profitable agenda. We must conquer the socialist malaise where everyone shares in the misery and no one looks to a bright future. Where the socialists and communists create and manage scarcity rather than encouraging entrepreneurial activities that would lift our economy and our spirits. We need to fete companies that produce things at a profit – not companies that are little more than entertainments for the masses. We need to educate our children AND adults, not produce union-made functional illiterates who become socialist activists looking for an entitlement.
And why are we buying the latest cars and computers when we barely use the capacity we now have? Save your money. Pay down your debt. Take care of yourself and your family first. All before being forced to voluntarily contribute to your neighbor’s new appliance in the guise of energy-saving incentives that you are paying for.
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