John Maynard Keynes rides again

John Maynard Keynes, Brit statist and Socialist, is smiling from his grave. Best known for his economic theory which said that funding government to excess was good for the economy, because of government spending's "pump-priming" effects, Keynes would definitely approve of this idiotic deficit-boosting plan to forestall an obvious recession.

It's idiotic because most grade-school kids who have a piggy bank in which they save small change will tell you that this isn't real money the dot-gov is handing out, it's borrowed money. A borrowing crisis is what has set off this financial downturn anyway, and yet the government thinks we can pull out of the downturn with more borrowing?

The plan does several things, but will forever be known for it's worst part, which is the issuance of Federal checks to everyone. These checks won't be "serious" money, as the average Joe or Jill will get three or four hundred bucks, but supposedly it's enough to get us to spend our way out of the recession that you and I know we're in, but none of the econ boys will admit to yet.

In a still-further bit of foolishness, the government will tax you on this borrowed money that they're giving you. Before you've even cashed the check, the government will count those increased taxes as part of a revenue-enhancement that helps pay for giving you the money in the first place.

Of course, a perpetual money-machine is a pipe dream, they don't exist and never did, even when Keynes said so they didn't.

Real wealth is measurable by assessing the market value of things.

I have some real wealth. For example, my 1999 Mazda B2500 pickup is worth maybe $2,000. That's what I could sell it for, if I shined it up and armor-alled the tires like the gypsies do. The used vehicle market is a real market, based ONLY on what the vehicles within it could be sold for. The economy should be based on reality, but it isn't, and time is the reason. If you own General Motors, you don't want to have to sell a factory every time you need to borrow money, so the GM CFO goes to the bank and claims his company is worth x-number of billions of dollars, and the bank looks at his projections of coming sales, and decides to loan him y-number of dollars. This has to be done because physical pieces of commerce are best left in place creating wealth, instead of actually changing hands every time dollars need to be raised.

The problem comes when government thinks it can do the same thing. The government has taxing authority, the ability to skim the profits of business and individuals, and operate itself on those dollars. The Constitution, as amended, gives the government that authority. When Keynes' theories were popular here, up until Reagan, the government developed all sorts of mathematical models (which I could have learned to use but didn't) to predict the output of the economy. The first one was the Gross Domestic Product, the total sum of all the goods and services produced in the country. Then we became more international in our outlook, so we had to separate out the money that US corporations made overseas (because we aren't supposed to tax those profits directly, they get taxed where they are created), and foreign corporations working here made in this country (yes, we have the authority to tax all those profits, but we frequently give that authority away in deals to try to promote more business).

So, over the years, these business and taxing models have gotten to be less and less accurate as predictors of the future state of economies.

Simple is better.

There is one measure of how well any country is doing, and that is how well their currency is accepted for buying things on the international markets. Things like stocks and bonds, and contracts for delivery of things like oil.

We look at the horror that is the oil marketing business and we suffer the pain of watching the interminable rise in the price of petroleum, the most vital commodity in the world behind gold itself.

Mostly, though, we aren't seeing the value of oil rise, actually, we are seeing the value of the dollar fall (oil is measured in dollars per 42-gallon barrel, if you just got here from the planet Cylon). The government is responsible for the fall of the dollar, because just like the bonehead sub-prime mortgage borrowers, it can't pay for the money it prints (borrows) from us citizens.

Just in case you don't believe me, compare two indexes, the price of the aggregate of US stocks known as the Dow Industrials (DJIA) and the price of gold (which is fixed in London, against the prices of the world's currencies). The Dow is about the same as it has been, around $12,300 or so, give or take a few percentage points. Gold, however, has risen in the past few months from the $700s to over $921 today. The value of gold, as I've said here many times before, is a standard, and doesn't change. The prices paid for it in the various currencies of the world changes, and those prices are directly related to the stability of those currencies, or what the gold traders think those currencies will do in the future.

I trust the gold traders. They make few mistakes or bad projections, unlike the dot-gov, which totally failed to predict this recession.

So, what do we do with the comparison of the markets for stocks and gold we just did? We immediately come to the conclusion that false factors are at work in the stock market, and it is currently over-priced, which means it will fall.

My advice? I advise a "flight to quality". Buy oil contracts or gold, gold being the more stable because you have to deal for the oil in dollars at both ends. Just don't think you're rich when gold tops $1,000 as it will do in the coming weeks. You aren't rich, because the dollars you are pricing gold in are falling in value, your gold isn't actually generating more wealth for you. What it is doing is protecting your wealth. The greater percentage of your total wealth you have in gold, the better off you are, protected from your idiotic government which shouldn't be managing your child's piggy bank, let alone most of the available wealth on the planet.

So, this brings us to what we are going to do with our silly little rebate checks. The best thing to do is buy gold bullion. The worst thing to do is spend it on a weekend at the beach or a new I-Pod.

The second best thing is to buy guns and/or ammo, because those will increase in value very quickly, and have the additional potential to make you, as part of a determined citizenry, able to change the direction of the the idiot government which just issued you that phony check.

I love irony.

Comments

[GUYK]

All goods including real estate and gold are worth exactly what someone is willing to pay for it..and not one penny more!

I concur than precious metal, especially gold is a good investment but I would keep it buried under a tree and not in a bank or even in a safety deposit box..when the banks close you might not be able to get to that safety deposit box and a piece of paper that says you own X pounds of gold don't mean shit unless you can produce that x pounds of gold to use for barter.

I agree that the plan is bullshit and more of a "make the public feel good" than it is a viable plan to 'fix' the economy. If the government really wanted to "fix" the economy it would fix spending at its current level, lower taxes on the people that are actually paying taxes, and bring labor laws in line with the laws "against" business to help business compete with imports.

But you and I have seen this before..the dollar crashed against other currencies back in the seventies and that was followed by an increase in oil prices and stagflation. The tax cuts in the 80's helped stabilize the economy and pull us out of a recession but what helped most was the bust of the oil boom. Once crude prices went down the economy picked up a head of steam..

I have my doubts that crude prices will fall by 75 percent as they did in the early 1980s..we don't have a North Slope to drill and even if we did the enviro-nuts would make it difficult to drill it and transport the crude to refineries. Thus I don't look for much relief in the recession and if the dim-a-crits get complete control no doubt they will push Keynesian economics to the fullest which will bring about raging inflation and probably result in the government reneging on foreign debt..say it can't happen? It did to Mexico, Brazil, and several other countries that believed that Keynes ideas would work to build a strong economy.

But I reckon I want be buying gold..I am gonna take the second best option if and when I see the money..I have my eyes on a 9mm pistol and a 9mm carbine..and that 1200 bucks will buy both and a lot of ammo. I am afraid the time is coming when I might need both just to protect the bean patch.

[Aaron Neal]

Regarding recession:

The MSM has been screaming left, right and center that we're in a recession. It's almost like they have an agenda or something.

HOWEVER, something to take note of: The definition of a RECESSION is "Two consecutive quarters in which the GDP declines".

Anybody know what the GDP has done the last two quarters? Bueller? Bueller?

Hint: It's grown.

Anybody want to guess what the predictions for GDP for the next year are? Bueller? Bueller?

Hint: It slows down, from a past growth of 3% per year, to a predicted growth of 1.5% over the next 12 months.

Look back, and review the definition of recession, please, and then tell me we're in one, or one is about to happen.

Anybody claiming we're in a recession has been listening to the MSM too much without understanding what a recession truly is.

No offense Rivrdog, but "the recession that you and I know we're in, but none of the econ boys will admit to yet" tells me you've been watching too much CNN.

I know the price of oil is high. I know the subprime mortgage market has puked. I also know that on an inflation-adjusted basis, the price for a gallon of gasoline is lower than it was in the late '70s, and that the number of subprime foreclosures on houses amounts to about 1/4 of 1 percent of all the mortgages in the US. I know that jobless claims have risen in the past quarter, but are still (I think, might be wrong on this one) below 6% unemployment.

I know builders have over-built in a lot of areas, leading to supply > demand in the housing markets, which has slowed down home sales. That doesn't mean homes are truly worth less, it just means it will take longer to sell, until the supply/demand curves meet again. Exeptions are where real estate is grossly overinflated, such as many parts of California. This doesn't influence most of the country.

Finally, barring some kind of insider knowlege (use of which could mean jail time), I would NEVER buy gold as an investment, or even as a barter good.

The price of gold varies wildly. I'm not sure I agree with your assessment that the increase in the price of gold is proof of the dollar being devalued; I'd have to see the value of gold going up in dollars but NOT euros or yen to convince me of that. Sorry, but it's 2:21am and I'm too lazy to go look that up right now.

If you're looking for value-holding or -increasing barter goods in case of TEOTWAWKI, I'd suggest canned goods, salt, sugar, medicines, coffee, tobacco, and ammo. Gold only has "agreed-upon" value, whereas consumables have value that is intrinsic, ie it can keep you alive and/or happy. Plus, if it comes right down to it, you can't eat your stockpiled gold, but you CAN eat your stockpiled canned goods.

[Rivrdog]

Actually, Aaron, I don't see the MSM shouting "recession". What I do see is the real buying power of my fixed income falling fast in "unreported" inflation. We all know that the dot gov improperly reports the real prices of goods and services, so that they can claim economic growth when it doesn't exist.

I don't take the government's word for what is actually happening in the marketplace any more than I take their word for "global warming".

All government statistics are there to be inflated or deflated at will to manipulate the economy. We manipulate our economy just as much as Socialist countries, or even Marxist countries like Cuba or Venezuala, we just don't (currently) do it by overt controls. Instead, we do it by cooking the interpretation of the data to get a desired result. So, when the price of housing jumps an actual 25%, it may be reported as either 20% or 30%, depending on whether the "stability mavens" or the "booster mavens" want to prevail. To make the adjustment from the raw data to the derived statistic, they include or leave out certain known multiplier factors.

A good example is the known flight, during the years 2001-2006, to Portland of CA real estate investment money. This wasn't money from folks looking to live here, this was money from folks looking to buy and flip housing or create real estate empires. They drove the market upwards, and the amount it was driven upwards was under-reported by at least 25%, because investments in real estate are taxed, and the under-reporting results in less taxes. I know a professional appraiser, so I know what the real stats are/were. Worse yet, the County appraisers accepted this under-reporting, and so MY tax burden is higher because these Kali investors are getting a sweet deal.

So, even if the MSM ARE howling "recession", it's maybe because they see trends that are unaccounted for by the government indexes. Ask Lisa, and she will tell you that her last wage contract was negotiated down by at least 1% directly because the dot Gov arbitrarily chopped that percent off the reported COL. I know that for a fact because I know several nurses who belong to the same national union. Even if she has avoided having to join the union, her wages are subject to the union's negotiation anyway.

So, my Tejas pardner, you've already been hosed by the lying of the government on the cost of living. The other thing is that the dollar HAS taken a bath internationally against other currencies, even the weak Euro. All of these things should tell you something, and that something is that the dot Gov is lying through their teeth about the economic indexes. Bernanke put the lie to the dot Gov last week with his move. You don't think that VERY unusual overnight rate AND Fed Funds rediscount rate cuts would have been made, out of cycle for such cuts, if Bernanke didn't see disaster ahead that was NOT reflected in his own government indices?

Finally, gold. Gold is THE international standard by which our currency is measured. In the event of S.H.T.F. or TEOTWAWKI, there will be a currency collapse. That currency will have to be replaced. Owning gold permits one to purchase the currencies which become involved in trading. Ours might be the $CAN. Barter is fine, and one certainly needs a supply of food for when food distribution becomes erratic, but to re-establish one's family in a new cash position, one will need something with which to purchase the new cash, what ever it turns out to be. That cash will be exchanged based on the value of gold. Period.