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Jim Cook

 

RUNAWAY SOCIAL SYMPATHY

Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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The Best of Jim Cook Archive

 
Best of Aubie Baltin
July 21, 2009
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There is no such thing as a free lunch, and there is no costless way to fund Government spending.

Given the Governments $ trillions of projected deficits as far as the eye can see, the only question is, “What economic poison will the government pick - taxation, borrowing, or inflation?” With the demand for money being so great, the only logical answer is all three. The Government's fiscal response to our current debacle is a near perfect example of what not to do when trying to regain economic prosperity. While not wanting to be identified as the great tax assessor and hence, promising to cut taxes for most citizens, the administration is actively seeking ways to increase taxes by calling them by different names besides Taxes. The Administration is also presently considering raising taxes on healthcare expenditures by taxing employer-provided health care benefits and decreasing the deductibility of medical expenses. It has already raised taxes on cigarettes, adult beverages and carbonated drinks, fruit juices, iced teas, and sweetened coffee drinks all in the name of the nation’s health. On top of letting the Bush Tax Cuts to lapse in 2010 they have also proposed raising corporate taxes instead of lowering them as would be more appropriate during a Recession. He wants to place heavier taxes on commodities and option traders. And are even considering increasing taxes on intangible drilling, an important technique in oil and gas exploration. While taxing these specific groups may be politically doable, it cannot be good for capital accumulation and economic recovery. It certainly will not reduce our dependence on foreign oil.

DEPRESSION WILL BECOME INEVITABLE ONCE CAP & TRADE AND HEALTCARE REFORM BECOME LAW.

OUTSOURCING has not been a political football lately, but if you thought that it was a problem before, wait till you see what happens after all those tax increases are put in place. Not only will jobs be moving off shore, so will whole companies and any expansion plans. The super wealthy will move their money and possibly themselves off shore, hence the Government’s recent attack on UBS and TAX havens. Can you imagine what will happen to Government revenue and therefore the deficits?

The U.S. government just reported the first monthly budget deficit for an April in over 70 years as well as a record budget deficit in the month of May and that is just the beginning. The current year's official deficit is slated to be $1.85 trillion (that's right, trillion)! But realistically, it will be well over $2 trillion. Can you believe it? The good news is that the Obama Administration is saying that it has things under control. They project that next year's deficit will only be $1.25 trillion.

When the U. S. Treasury spends over a trillion dollars more than it receives in taxes, it must borrow or monetize to fill the gap. In fact, the deluge of Government Debt has already begun. The National Debt has increased by $804 billion in less than five months. Not surprisingly, loanable funds are becoming relatively scarce and we know that they are being shunted to less productive uses perpetrated by the State. Even Ben Bernanke has risked his reappointment by publicly confessing his concerns that fiscal deficits like the ones being projected will serve as a serious drag on the economy. Maybe he is smarter than I gave him credit for and he does NOT want to be reappointed, so as not to preside over a full blown INFLATIONARY DERPRESSION.

WHERE IS ALL THE INFLATION?
One thing that Bernanke is not concerned about is inflation. Increasing liquidity by expanding the money supply is his drug of choice because the money supply growth is actually being held in check for the time being. This is due to $13.5 trillion in wealth destruction and the tremendous write-downs with more to come by the Banks as well as the additional $ trillions of losses, still hidden on their balance sheets by their recently approved new accounting rules. To make matters worse, the low interest rate mortgages is a disaster (S&L crisis) just waiting to happen. The monetary base was reported to have increased from $96.2 billion to $820.8 billion, an inconceivable annual rate of 753%. Such a huge expansion should have sowed the seeds of hyperinflation, but the increase in savings up from 0% to 7% as well as the concomitant reduction in the velocity has thus far held inflation at bay.

Meanwhile the banks, that look like they are presently sitting on a mountain of excess reserves, know the real truth and are not making loans. Besides, why should they when they can borrow from the FED at ¼% and then buy Treasuries yielding 2% to 4 % with no overhead or carrying costs and especially NO RISK and no reserves required? The Carry Trade for American Banks has been reborn. Notwithstanding official worries about deflation and potential additional defaults, especially when commercial real estate attempts to refinance this fall, the FED will continue to monetize the Nation’s Debt by having buying most if not all of the newly issued Treasury Bonds. This will ensure that Hyperinflation will eventually take hold as the new money created overtakes the credit (wealth) destruction. It has been recently reported that the non-seasonally adjusted consumer price index increased at an annual rate of 4.3% last month. All of these trends are consistent with the above-mentioned monetary inflation. Truthful economic analysis tells us that the recent monetary inflation has not provided any real help to the economy in general, but is only pushing the inevitable slightly into the future. The moral of the story is that the Obama Stimulus Plan will not stimulate economic progress, but will usher in a new Great Depression