Tag Archives: money

Old Bad Remedies Are Still Bad Ones

We are faced with difficulty at the moment in our economic and financial affairs.  Many refer to it as a crisis.  I suppose that is in the eyes of the beholder.  But a faltering economy is a fact whatever its degree.   Some are  proposing certain remedies that they vervantly hawk as new and different to fix the exigencies of our times.  The proposal of Government, Inc. include among others the following: i) a  program of wage and price controls ii) printing of money that will debase the current value of money and iii) the issuance of extraordinary amounts of notes–borrowing. 
The phrase “exigent circumstances” has even been used by the Federal Reserve to justify several of its more extreme actions of late, such as the take over and funding of AIG and other banks.   Likewise the Treasury has called upon such language for its justification for recent actions.    We have tried wage price controls before and without exception they have all been dismal failures.  Check your history.  There is not a single example of that effort being efficacious.  

Government, Inc. has not set the sticker price of GM cars, at least not yet, but it has in reality.  By mandating the amount of wages the company will pay and the amount of debt it will be allowed to carry on its books and lastly demand that it produce “green cars” , the Government, Inc. bureaucrats and politicians are setting the price.   The market is not setting the price.  Likewise Government, Inc. through its regulatory controls will be setting the price of borrowing for everything from cars to houses.  In the face of growing international hesitancy to buy our debt the Treasury is issuing even more debt of unprecedented proportions–Trillions.  (See China for the hesitancy).  Lastly, the Fed has embarked upon a policy of printing up money and dumping it into the stream of commerce without any underlying economic justification that there is an equivalent  increase in  value in our economy.   Have these problems and attempted remedies been tried before?   Yes.   Go all the way back to the embryonic days of our Republic.

During the Revolutionary War we faced these problems.  Shortages and disrupti0ns caused by the war with Britain were causing a tremendous spike in prices.  We weren’t really a nation yet but a confederation of colonies with limited financial resources and were facing difficulty in provisioning our armies.  Indeed that was the constant thorn in the side of Washington throughout the war.  As early as 1776/77 the effort was made to impose wage price controls by some of the colonies.  A few did.  They prepared very specific lists of the prices that could be charged for services or products.  “horse-keeping, at sea port towns per night or 24 hours, 2s, 6d”, “best beaver hats at 42s. best felt hats at 8s”, and the lists go on.  This was from Rhode Island in 1777.  There were many others.  There were those who were opposed to the whole notion.  From Dr. Rush in 1777–“The wisdom and power of government have been employed in all ages to regulate the price of necessities to no purpose”.  ….”We estimate our viture by a false barometer when we measure it by the price of goods”….”The resolution before you is nothing but an opiate.  It may compose the continent for a night, but she soon will awaken again to a fresh sense of her pain and misery”.   Later John Adams commented “I much doubt the justice, policy and necessity of the resolution.  The high price of many articles arises from their scarcity.  If we regulate the price of imports we shall immediately put a stop to them forever”.

The colonies varied in their approach to the controls.  Many ignored them completely.  It was a hodge- podge of enforcement but they were failures.  We printed more money through the Continental congress.  The Continental currency had little value because we printed too much and our power was limited.  Thus the phrase “not worth a Continental”.    There were heated arguments about the effects of inflation.  Those arguing against the wild printing were right.  A few years later in 1781 we had to reconstitute our money and debts.  We traded in the old debt at 40 to 1.   Our currency was recognized as having little worth and thus our debt was without value.  The King of France loaned us millions out of his own purse.  So did other French interest and the Dutch.  This was all before our final victory at Yorktown.  Those were our biggest debts.  The money was used to pay for the war.  Naturally the French King and his subjects had their own selfish reasons for helping us defeat the British.

 A few years later when we adopted the Constitution and organized our affairs as a nation one of the first things we did was recognize the obligation to pay our national debts.  Mr. Morris of Pa. had also financed much of our war expenses.  Indeed he financed almost alone our campaign and victory at Yorktown.  The decision to honor our debts was not universally popular at the time.  Many thought is was merely favoring the rich here and abroad.  Those in power recognized how important it was for our new nation to start its voyage as an equal on the world stage by honoring its debts–by doing the right and honorable thing.  The memory of the inflation and debasement of our debt and currency was fresh on the minds of all in the late 1780’s.  Despite the populist demand and rants that we deny payment on the debts of the Confederation decency  and common sense prevailed.  Thus we have Article VI of the US Constitution. 

Having money that is worth something is vital.  Honoring your debts by paying with real value is economically important and letting the market work will keep our economy free.  Government, Inc. is not the solution, it is going to be the problem.   Our virtues and values are the solution.  Please, please read some history yourself on this topic from different eras in history.   Government intervention into market systems universally leads to bad results.  Otherwise the Soviet Union would still exist and be the world’s premier economic powerhouse and leader.ore  www.olcranky.wordpress.com

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Filed under Economics, Foreign Affairs, government, history

Gold or Money Which to Trust

From the most ancient of times governments have dealt with the issue of having a medium of exchange–money.  From earliest Babylonian times  to the long ago Chinese empires to the Romans and the Hanseatic League, kings, emperors and rulers of one stripe or another have tried to manipulate the currency in use to their advantage.  The common man and thieves have always been active also trying to figure a way to counterfeit the currency of choice or gain a profit on the fluctuations of the perceived value of any currency.  Various tokens and coins have been used from the earliest of times.  One of the problems was that the currency or money usually only had value within the jurisdiction of a particular state or empire unless it was made from a precious metal that had universal recognition as a store of worth.

That is why from the earliest times money was supported by some underlying comodity if the coins were not of gold or silver.   Sometimes if an empire was large enough or strong enough then it could have coins from non precious metals.  This was true with the Roman empire.   The paper or metal money had to represent the ability to get something you wanted to have any exchangeable value.  The coins themselves had insignificant value in and of themselves.  It was what you could exchange it for that gave it value.  You could buy an ox or pay the carpenter to build a cabinet with it and that is what gave it value.  There had to be a consensus that the value was there.  Doubt and hesitation would diminish the value of the money overnight.   To protect the integrity of the coins they would have images and embosed features to make it more difficult to counterfeit.  Plus it boosted the ego of the current ruler.   More than one favorite of a king or emperor was felled by the temptation to alter the mix of the currency by blending in more copper with the gold.   Sometimes that wasn’t really true but the accusation could result in a lost head.  Read English or French history for examples of this. 

This country remained on the gold standard longer than it has been off the gold standard.  There have been a few calls recently for the return to that standard so that confidence in our money and thus our economy will be restored.  Probably not a bad idea but it will not happen because then the Government could not create as much money as was convenient whenever it wanted.  Power of the coin is the ultimate power once we became more than hunter-gatherers.   This is true in any economic system.   The politicians will never cede that power voluntarily.

We made an attempt to remove politics from the monetary system almost a century ago with the creation of the Federal Reserve Bank in 1913.  The whole point of that bank was to make it independent of politics.  It was designed specifically not to be a branch of the Treasury or subject to the whims of any particular Administration.  It has the power to print the money.  Congress can authorize the amount of debt that can be incurred by the US and has the power to authorize the use of the funds.  It doesn’t have the power under current law to determine the amount of money in the system, the Fed does that.   Article One of the Constitution has two provisions dealing with money and coins.  You should read both of them for yourself.  The history of our nation is replete with examples over the last 100 years of the Fed demonstrating its independence and there being conflict and disagreement betwee a particular Administration and the Fed.  Often a sitting President who wants a second term will want the Fed to prime the pump as it were and put more money into circulation in an election year to boost economic activity or take other action they deem useful for the short term to enhance their political aims.  Almost every President has had difficulties  and disagreements with the Fed at one time or the other.  That is a good thing, not a bad thing.  That tension between a current Administration and the Fed represents the difference between a long term view and a short term feel good solution to real or perceived troubles. 

I am very worried about the relationship of the current Fed and the new Administration.  The Fed chief is never, never supposed to be a spokesman for any Administration.  His job is strictly monetary policy to insure a sound banking system to prop up or increase our economic growth or well-being.  Bernacke is being rolled out too often now.  He may have disagreements with the current Administration but he is talking the party line.  His recent TV interview was not a good idea regardless of what he said.  Regrettably he is giving the appearance of doing the bidding of the Treasury department.  That might not be true but the appearance can’t be denied.   Appearances matter.  Ask any bride or groom.   The recent stimulus bill is a grave concern.  It is not his job to support that or to implement it or make it work.  His job is the overall economy.  That stimulus bill is pure politics and for a short term goal.  That is not the precept of the Fed.   I have the impression that the Treasury at the instigation of the President can give a call to Bernacke and seek his support for just about anything they want.  I don’t care for his approach as you can tell but I do hope he fulfills his full term and doesn’t resign early to allow the new administration to appoint another Fed chief “friendly’ to their views.   Again  that would give the wrong impression.  We are drowning in politics now as it is.  We don’t need politics to invade the realm of the Fed’s domain.  Once that camel’s nose is in the tent the whole camel will follow and I don’t believe any of us will like the result.  Let’s at least keep the dung outside the tent.

The Fed is printing up over 1.2 trillion more dollars in the next several months to purchase the Treasury bills and mortgage backed securities.  This was announced yesterday.  There is nothing to support that money in terms of comodity value.  The Congress will authorize the Treasury issuance then the Fed will buy them.  Gold soared over $50 on the news and Treasuries dropped over 1/2 a point.  You may think these are arcane matters that don’t affect you.  They do.  You best make the effort to learn something about it.

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Filed under Economics, government, history, Politics

Cheapseat opinions on economic proposals

One great thing about the ole US of A is that we all get to have opinions and so far we are able to express them.  Sure hope that proposal by the Dems to regulate the internet for “hateful language” doesn’t get anywhere.  That was the latest proposition put out last summer by some of their leaders.  Just like the “fairness doctrine” it will have a chilling effect on comments and criticisms of the Government.  I was especially disturbed by Sen. Schumer’s comment saying that we regulate pornography on the airways and we should be able to regulate political opinion the same way.   That is scary.   It took decades to get rid of the fairness doctrine and its return would be a harbinger of Government control of free speech run amok.  I don’t listen to talk radio but I am glad it is there.  I love a diversity of opinion and the freedom to express it.   It is good that it is there and the market place is the best way to regulate it.  If the public doesn’t agree with the comments then they can simply tune out and those voices won’t be heard anymore.  The people put them off the air not the Government.  But the huge difference is that those views didn’t have an audience and the people ignored those views rather than the Government preventing those views being heard in the first place.

I see the new administration is proposing even more bailout and stimulus packages.  Now it is another 700 billion that the new guy wants on his desk by the the third week of January.   Apparently half or so of the funds will be used for those infrastructure projects.   That 700 billion will be in addition to the already announced over 3 trillion of bailout and rescue monies already committed by the Governement.    This is not monopoly money.   Further have you forgotten  that just last spring the Congress passed a 300 billion infrastructure bill; the one that was so overloaded with pork.   Wasn’t that enough for now?  Damn, how much do they plan on spending for this stuff?  Can’t we at least wait and spend that 300 billion first and see where we are before throwing more money at the alleged problem.   Spending so much money in such a short period of time will lead to corruption of colossal proportions and inefficiency.   We don’t have enought engineers and managers to do that many projects in that constricted  time frame.   Lots of that money will go to the big cities and the coastal corridors.  That is fine for those folks.   There are a few of us living somewhere else in this large nation of ours and we have a hard time understanding the benefits to us for expanding the train service between Boston and Washington.   

Some facts that we can’t change are the demographics of the world.   You know that China is exempted already from the Kyoto accords that the tree huggers think is such a great deal.   India doesn’t have to comply either.   Their growth in population and economic expansion is not going to slow down.  Oh, their economies might droop a bit for the next couple of years, but in the big scheme of things that is the blink of an eye.   They will grow-period.  As they do they will not be using wind, solar or any of those other exotic alternative methods for power or fuel.  They will  use coal for electricity and petroleum for their cars.  They will be buying millions of cars over the the next twenty years.  They will be gas powered.  They want the most inexpensive vehicle and the ones with proven mechanical features.  Those will be gasoline vehicles.  Gas driven cars will be the cheapest for them and if not us then someone else will build them for sale there.   Whatever we do here will be completely subsumed by their demands for energy.   Every few years they are adding the population of the  US to their populations.   The pros say that there are 6 billion of us now and we are heading toward 9 billion in just a few decades.   Think about the demands of that additional 3 billion folks–about 50% of whom will be Indian or Chinese.

I still do favor ongoing research for alternative energies and vehicle imrovement, don’t get me wrong, but I believe we must be realistic about it and work to improve what we can with existing gasoline powered cars until those alternatives can actually compete in cost and reliability.  We can get there.  If we allow the profit motive and private enterprise to do their thing.  Government mandates for a particular solution always, always go awry.   Are you still  enamoured with ethanol?

Try a goose for Thanksgiving next year or for Christmas.  You should smoke them slowly over the hooded grill.  With some spicy mustard they are delicious and a change from the usual but still very traditional, see Scrooge.

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Expressions to Heed

Burning the candle at both ends means one is overextending one’s self or being overwhelmed from two directions at once.   We seem to have that problem now with our economy.  On the one end we are facing the problem of credit.  We have as individuals and as a Nation relied on it too much for our own good.   Prudent use and application of credit for personal and business reasons is a sound use of future earnings and potential and a way to acquire and accumulate wealth.  The classic example is buying a house and keeping it for many years.  Over the long haul it will appreciate and an affordable mortgage is worth it.  Running up credit card debts into the thousands of dollars for disposables is not a wise use of credit and will negatively impact the ability to amass future wealth.  Instant gratification is fun for a few minutes but certainly not the way to plan a budget or build wealth.   On the other end of the candle we are not saving enough.   Too many of us have virtually no savings at all.   Change and unexpected events do occur and we should plan for them with savings.  After all you don’t expect a fire but you do have a fire department.   Further, those savings are used for capital investments.  When you save those funds are used by the bank or brokerage firm to make loans that fund new companies creating jobs and opportunities for others and also for you even though indirectly.   Remember money is never stagnant.  It moves.  Money in your money market is not sitting still it is at work.  Unless you literally take your money in cash and hide it under the mattress it is always on the move.   Historically, a subtantial portion of our savings has come from the little people’s money; and that money is in turn  being used to build our national economy.  Our Government has no savings.  It hasn’t for years.  The so-called Trust Fund for Social Security is not a trust fund at all.  That is a myth.  If it were a real trust fund the trustees would be prosecuted for fraud for cooking the books!   The Government quit saving decades ago and now merely prints more money when it is short.   Yeah, I know about the Treasure Bills etc. but the reality is that it prints money.  It doesn’t have a store of value to draw upon.

Another darn good reason to have savings and a balanced budget is Murphy’s Law.  You know if something can go wrong it will sooner or later.  If subprime loans can be a problem they will eventually won’t they.   The warnings went unheeded by those in Congress for too long.  A little forethought goes a long way when making economic plans and making Federal laws.   They will say they had good intentions because they wanted more marginal credit risky Americans to own a home.  We all know that those good intentions are the paving stones to Hell.  And no good deed goes unpunished as some wise man opined long ago.

Making a virtue of necessity is something that the politicians are very good at doing.   They come up with their plans and schemes but sometimes when faced with real world circumstances they will adopt a contrary position and sing its praises as though it were their own.   Of course it can also be said that necessity is the Mother of invention.  When faced with really hard facts we humans can suddenly become quite creative.  With our current economic woes you can be sure that proposals bandied about now by the politicians will be reversed or quashed entirely and they will act like the new direction is the greatest thing since sliced bread.   Naturally the new direction will be clothed to make it appear like something similar to their original idea even though it is not.  The original promise will be “delayed” or “improved”.   If you can deal with it, it is quite humorous to see those folks making  a virtue of necessity.  The dips and wiggles they make with the King’s English are often breathless in their obfuscation.

Lastly for today’s lesson we offer that old standby–Robbing Peter to pay Paul.  It means doing harm to one to allegedly do good for another.  Or to put it another way to  take from some for an announced purpose but then using those proceeds for another purpose.   That seems to be the order of the day for some politicians.    I remind you that Robin Hood was a myth.   He was in fact was a brigand, murderer and thief.  He definitely did harm to some then doled out only a portion of his ill gotten gains to his chosen “special  interest group” and it actually only hurt one group and didn’t ultimately help anyone else but his band of merry men (government).

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Filed under Culture, Economics, Politics

AIG–Regulate what?

The events of the last 24 hours regarding AIG remind me of an old saying from Churchill.   I am paraphrasing but it is something like this–there is nothing like the sound of an angry bullet whizzing by your head to focus the mind.   Well, we sure have had the angry bullet whiz by.  The Feds are taking over a private company.  Yes, it may be large but it is a private company nonetheless.  It is no different than the car wash owner down the street from you.  If it got in financial trouble what is the rationale to take it over?   If size alone determines when the Government is going to seize a company, then I ask exactly what size matters.  Is it gross sales, total assets, net worth, cash flow, price per share if it is a public company?  More importantly is the question about exactly who is it that will be making this determination.   Do you want matters like this to be made by politicians on an ad hoc basis?  Or God forbid some new Government system of overseeing “vital” industries.  Stalin decided they were all vital.

In my opinion the free market is logical and fair if the Government rules don’t change in the middle of the game; and it is very efficient and expidetious.  Yes, it can be punishing to those who make stupid mistakes or bend the law.  It should work that way.   I have already written about how it is only the creditors of AIG that are at risk and those involved in funding insane mortgage insurance schemes, not the ordinary policy holders of the insurance subsidiaries of AIG.  I have read that the Government might even make a profit on the deal and that is fine but why couldn’t private parties have made that deal.  Do you want the Feds involved in your insurance dispute with an AIG sub?   Worse still is some bureaucrat making the decisions about whether you get a policy in the first place.   People have to be responsible for the consequences of their own actions.   The same is true for companies.   No one was forced to loan to AIG or do business with it.  They were making good money for a long time and now times get tough and they want someone else to clean up their mess and leave them whole.   Yes, I know the shareholders are being diluted substantially, but the fact is if the company is broke they should be wiped out.   The game of musical chairs has stopped.  The greater fool theory is proved valid once again.  What about the investor who bought AIG stock in 2003 and sold in early 2007 and made a kiling.   Is someone going to try and take back his profit?   And all those lenders who made loans in the same time frame and profitted handsomely in the bargain.   I don’t begrudge either one their profit but don’t feel sorry for those at the end of the line holding bad paper.  The Government should not be in the banking, insurance, steel, auto or any other industry. If you work for a large tech firm today would you want to wake up tomorrow and find you worked for the Government?   Any company with big debt is subject now to takeover with this precedent that has been set.  

Many are calling for new regulation.  Exactly and precisely what is it they propose?   What regulation are they going to put in place?   It is hassle enough to go to  the bank to get a car loan now.  Would you like it if you not only had to satisfy the banker you were credit worthy but then also have your loan approved by a bureaucrat in a faraway place.   Of course the politicians would just say they were protecting you from yourself.  How nice of them.  We already have bank regulators out the wazoo, both Federal and State; there is the SEC and FINRA for the security firms; every State has insurance regulators in place.  All our major industries are highly regulated as it is.  The Justice Department also enforces the Sherman Anti-Trust laws.   You do remember the Microsoft litigation of just a few years ago on that very issue.  People are creative and will always come up with new ways to own things, sell things and make loans and take collateral.   I much prefer the market place regulate those matters than the Government.  Our common law already has in place plenty of protections for those that have been cheated or defrauded.  The market works, with both rewards and punishments.   Every Government in the civilized world has bankruptcy laws, even the Chinese, because of this principle of risk/reward.

We need to protect and nurture all our industries from winemakers to steel makers and carpenters.   We need new businesses.   Don’t tear down the formation of captital and “rich” people.  We need them.  Their mony spurs growth for all of us.  Put it this way, have you ever been hired by someone poorer than you?  Didn’t think so.

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Money, Markets and Politics

With all the ado the last couple of days about Lehaman, Merril Lynch and reports on AIG it would do us all well to review a few of the basics of our economic system and the real world implications of any bankruptcy of these companies.   Of course the politicians will put their own spin on events to promote their personal agendas–which is to get elected, not necessarily solve any problems.  We are told that this is a credit and liquidity problem and that may be partially true but for whom is it a problem.   Per the stats at least 95% of you have a job and 98% of you are current on your mortgage and other debts.   The default rates remember are very small and clustered mostly around the government mandated loans of just the last few years to people who in fact were not credit worthy enough to get a loan on their own merit or they were speculators buying second, third or even fourth homes in the hopes of flipping them for a quick profit.  You make your investment and take your risk like the rest of us.  

The creditors of Lehman or Merril Lynch are the ones who face losses.  More than likely that won’t be any of you.  To keep the explanation simple, if you bought your stocks in your 401 or just in your own account with either of the brokerages you will be fine.  You are not a creditor as such.  Those are your assets, not theirs.  They in effect are the guardians for you assets.  I know they buy lots of the shares in “street” name but that really doesn’t change the fundamentals.   Also the SPIC has protection up the $500K which will cover most you if it is needed.  The reality is that the straight, heads up brokerage business will be sold by both of them in or out of any bankruptcy.  That is a money making proposition for the buyers and there will be plenty of other brokerages that would love to step into their shoes and take over your account for you.   That far and away is the most likely scenario.   It is the creditors of Lehman and Merrill who might suffer harm.  They actually loaned money to Lehman and are owed money.   They may  have to settle for cents on the dollar.  When they took their position they had counted on a nice profit.  But they did their own reserarch and are big boys.   They have the same consequences you and I do when we loan money or make an investment.   I know everyone says it will affect credit generally and that it will cause values to fall farther and make it harder to get a loan for a house or car.   There may be some effect but the consequences of this are being exaggerated wildly.  Hell, go back and read the comments in the early ’30’s or from 1987 after the market lost 22% of its value in one day!  We always think what is happening right now is the most important and stupendous event ever and lose sight of historical context.   Yeah, things might be a little slow for a bit, but this is not the end of the world as we know it; in fact you can’t even see the end of the world from  here.   The only fly in the ointment would be the Government stepping in to “solve” the problem.    As usual they muck things up more than they ever help.  Remember the operations of Fannie and Freddie were completley controlled by Congress for decades.  Those institutions did what they were told to do by Congress.  You are also reminded that corrective action was proposed by the Republicans several times over the last decade or so but it was blocked by the Democrats in the Senate and House even when the Republicans were in the majority.   This is not a defense of the Republicans.  They could have pushed harder and didn’t.   Let’s hope that time will heal most of the wounds  from this before Congress can do any more damage.   The market will correct itself.    The “market” is us and we’ll make decisions in our best interest if we are allowed to.

AIG is similar in that the consequences really won’t affect you.  First when they speak of bankruptcy they are talking about the parent company, the holding company, not the individual insurance  companies.  Insurance companies are not allowed to file bankruptcy under the Bankruptcy Code.   Insurance companies are controlled and regulated by the States and if they get into trouble they go into Receivership.   What happens then is that their “block of business” (the policies) is usually sold to another insurance company.   If you had a car insurance policy  with an AIG company you would keep paying the premiums and the policy would remain in force.  The insurance companies are required to have collateral if you will  behind the policy obligations they might owe.  Even if there were no buyers for the policies then the States all  have a requirements where they would make other insurance companies in their respective States take over all the policies.  So, the ordinary Joe with a policy for life, property, or homeowners coverage would have nothing to fear if AIG went down.   It is not  burden for the insurance companies taking over the policies because they would get all those new customers and the cash stream of their premium payments.

It is the creditors of AIG who are at risk.  Apparently that includes many foreign banks and sovereign investors.   I don’t care if they get paid or not.   When I have lost money on a stock purchase I never noticed anyone moaning about it and certainly no one stepped forward to bail me out of my bad investment.   Again the sound and fury from some quarters will be dramatic.    Please think about why they are squealing so much.   Is it possibly because it is their ox being gored?   The big boys on Wall Street promoted these deals and were paid handsome fees for their time.   And I ask who put their ox in that position in the first place.  It sure as hell wasn’t me or you.    The market will recover.  The American economy will be Ok after a short while.  The WORLD needs our economy.  They all want a piece of this American pie.  Never forget that.  The last thing any of them want is for the US to have long term financial difficulties.  We are their primary source of revenue–think China and the Arab States.

God bless to all.

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Filed under Economics, government, history, Politics

Adages for Politicians to heed

Some of the old bromides have real use even in our sophisticated world.   After all they became popular and endured over the ages because there was some deep seated truth to the comment, otherwise they would have wilted on the vine of time.  Let’s look at a few of those sayings that have endured and apply them to our politics and politicians of this election cycle.

Measure twice, cut once–an old saying from the carpenters of the world.  It has great application for anyone, anytime.   The idea is straightforward–think and plan your actions.  The carpenter knows that you need to make sure your mearsurements are correct before you take to the saw.  If you miss the right measurement and the board is too short then you have a useless piece of wood.    Therefore make sure of your goal and end result before you embark on any enterprise.    Think it through, then once again.   That extra measure will sure prevent aggravation later on.   It is a good lesson for life and politics.

Neither a borrower or lender be–our good friend Ben Franklin made that popular but he took it from Proverbs.  Still sound advice that as endured for millennia.  It applies very aptly to our current economic situation and the proclivity of our government for a couple of decades now.  Both Democrat and Republican parties have allowed us to be borrowers on a gigantic scale.  We have run deficients for years.  Even under Clinton that everyone thinks had a balanced budget, the facts are we were not funding the Social Security and Medicare burdens to come.  We used the money from those collections to run the day to day operations of the Government.  Check it out.  That is a fact.  When the Government took money from the Social Security fund it simply gave the fund an IOU!  That is like you promising to pay yourself a million dollars.    Our foreign aid money is merely lending in disguise with no prospects of ever being repaid.   That doesn’t even begin to cover our obligations with the IMF and other world lending agencies.  Some argue that credit is the oil for the economic engine of the US and the world, but I take the position that it is the monkey wrench in the works.  Credit should always be kept to the absolute minimum.   We have become addicted to it.  Just look at the credit card debt of our people today.  That is not healthy for the individuals or our society.

Reinforce success–from our military friends.  It is good advice for all of us.  When we find that groove and are humming, we should go at it hard.   A current political topic that you can relate this to is the issue of drilling for more oil in the States, offshore and in Alaska.   The Republicans have hit a nerve with the man in the street on it and should hammer it every day in every appearance.   The ordinary Joe doesn’t give a hoot about Polar bears when gas is $4.00 and the people have the common sense to realize that those hundreds of billions sent each year to Arab nations could be spent right here at home and produce thousands of good paying jobs for Americans without tax payer money eing spent and that energy independence is a vital concern to the health of our nation.  Those monies spent with American companies will be spent by American companies and their employees and shareholders  in America.  Where does the money go that we hand over to the Arabs?  Not necessarily here.  You make up your own mind about it, but the point here is that it is a “success” and we’ll see if the Republicans reinforce it as the doctrine dictates.  Even T. Boone Pickens has stated repeatedly to drill, drill, drill.  Driling after all is the only way to get natural gas which by the way is a fossil fuel.  Thought we would give that little geology lesson to Ms. Pelosi.

A penny saved is a penny earned–a truism if ever there was one.  Politicians in particular should follow this advice from the ages.   They all seem to forget that there are two sides to ever balance sheet.   That when income diminshes or costs rise too much,  you can cut expenses.  You don’t HAVE to increase revenues (taxes) necessarily or borrow money.  (See above about borrowing).   How many Government agencies are in fact worthless?   Take OSHA for an example.  Do you really think we need thousands of Federal employees to insure safe work envoirnments?  Trust me there are plenty of John Edwards out there that love suing companies that cause harm due to unsafe or negligent work places or practices.  Those plaintiff’s lawyers are chomping at the bit.  Industry has plenty of incentive to protect its employees already and the employees  have remedies available.  Does OSHA truly add anything except a more swollen Federal payroll?   You could make your own list of useless Government spending and it would be right.  How many farmers need a County Agent anymore from the Department of Agriculture?  Other than some record keeping and research what does that department do that helps you with your daily life.

Don’t let the tail wag the dog–this is very applicable to the special interests groups where so often the small bloc exerts such great influence on our laws and policies.    Our tax code is bulging with little goodies for all stripes of interests groups as are our other laws.  They overwhelm.   This evil of a small group dominating policy and political outcomes cuts across party lines.  Unions, business groups and yes, those NGO’s are constantly seeking special tax breaks, grants or favors from the government.   The charities are as bad as any of them.  The farmers with their subsidies and the industries with their requests for trade barriers and unions with their demands to increase their membership all feed at the trough and the result is that some minority with political clout wags all the rest of us.   We can’t eliminate lobbying because it is fair for anyone to speak their mind and make their wishes known, but we can hold the politicians accountable for every favor  they hand out to those “tails” that we all end up paying for.   We, the people are the dog and those unions, etc. should get no more  special treatment than the average working bloke.

How about that Hadron  accelerator in Europe?  It is huge, 17 miles in circumference.  It is close to completion now and the experiments will be starting soon.  These are the ventures we should continue to pursue.  One breakthrough and our disagreements over energy policy could become passe in a generation.  Just as the stem cell debate is fading due to scientific advancement that is making it irrelevant, a breakthrough on the fusion front could transform  our energy supplies.  Fusion remember doesn’t have the waste problem of the fission process we have been using for decades.  Fusion could produce electricity in prodigess  amounts.  Let’s all wish them luck with the research.

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Give me a dollar’s worth

The US dollar is not backed by gold any longer since FDR outlawed that in the early ’30’s.  All those old gold backed notes had to be turned in for the new ones.   William Jennings Bryan would have finally been so pleased.  You recall his famous speech about not punishing the American public on this “cross of gold”.   It was thought by he and his populists supportors that any financial system or markert system was more or less criminal because it was used to trick and cheat the average Joe.   That is a paraphrase of course but I believe it pretty accurate.  I invite you to do your own reading and disagree if you like.

The US dollar is backed not by gold or anything else of a tangible nature but by the “full faith and credit” of the US.   Exactly what the hell does that mean?  It is a fair and necessary question.   After all when you pay for something with a dollar you want to be sure that the merchant or seller is willing to accept it for the good or service you want.   Now put on your thinking cap and don’t shy away from where the logic takes you in the examination.   At heart what that phrase means is that we are a big dog.   We have lots of what not only we want here within the confines of our border but also that many people around the world want what we have to offer.  Microsoft sells primarily services; we used to sell lots of steel, autos and other manufactured goods that everyone wanted.   We don’t sell much of those overseas any more but we do still have an export business think goodness.   We continue to sell manufactured machines, agricultural products, airplanes, services (oil and gas development and production skill for example) and hi tech equipment.  It is a shame we don’t also sell  TV, radios, Ipods and all those other products we formerly made right here.   Our textile, shoe , auto, furniture, and applicance industries are shells of their former selves.

We also have had stability in our economy, banking  and governmental systems for most of the last century.  Those are huge advantages for us.  But at the heart and soul of the backing for the dollar is a combination of several factors.   First is miliatry might.  You might not like to think of this one but it is a fact.   Every country can make demands, invoke sanctions against other nations, put tariffs on imports or exports or appeal to the United Nations but in the end if there is no muscle behind the rhetoric the world won’t pay much attention to you.   We have the power to enforce our will on others when push comes to shove.   Study your history and you will see that the US did not emerge as a true international power and player on the world stage until WWI and that was because we shipped a few million men to Europe along with the material to help defeat Germany.   Until then we were a important but nevertheless second rate power.   England was the big dog and had been for a century after its defeat  of Napolean.

Second, we have so many things the world still wants–even our real estate.   Surely you have noticed the foreigners buying American buildings and land for development.   This has been an accelerating trend for about 3 decades now.   We are the epicenter of marketing and merchandising.   The global markets love getting into the American market.   The Chinese love us.  Their sales to us are making them rich and building their nation.    You think the Chinese economy would grow the way it has without those billions in sales each year to the US?   They may not like us, but they love our consumers.  For those foreigners to do business here or to buy goods or services here they have to pay in dollars–hence value for the dollar.

Lastly, I submit it is the moral authority of the US and respect for our beliefs–yes, those corny beliefs set out in the Delcaration of Indendence and the
Constitution.   In the long haul that is what counts the most.   Even if we make mistakes on occasions we usually right the ship after a while.  We  survived the moral ignominy of being allies with Stalin after all.  We were truely in bed with the devil there.   We fought a war of ideas with the Communists for decades and held our own militarily and ultimately prevailed by having the better ideas for human advancement and hope.

So, the value of the dollar is an abstraction.   You can line up all the Phd. economists you want and let them lecture about bell curves, GDP, supply  side or demand economics but those things don’t really define what the dollar is worth.  The value of the dollar is like one’s reputation it can move up or down depending on how others perceive you.   The value of the dollar is based on ideals, principles, might and tenets of behavoir as a nation that will win the approbation of its own citizens and those around the world.   We, Americans, are the value of the dollar.   If we will be worthy of our heritage then the dollar will remain strong.

You can have your own ideas about this and no doubt some of you will have thoughts superior to mine.   I enjoy thoughtful reflection about fundamental questions of our time.  The value of the dollar is very fundamental. If its value diminshes so does ours and our lifestyles.

The pound sterling was 20 shillings and was made of silver.   Just like the sterling silver set on your hutch.   At the time silver was valued more than gold.  A guinea was 21 shillings.   A quid was a pound but of gold.

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Filed under Culture, Economics, history, Politics

Value and Meaning of the Dollar

If you believe this nation does not have its roots in religious beliefs then you should think again.   Our modern mania with “diversity” and political correctness has turned into revisionist history; that mania would have you believe that there is no religious  foundation to our American mores and culture and that all religion or mention of religion should be banished from public notice in any form.   We are at the core of our history a Christian nation  founded on the principle of religious tolerance for those who views things differently–which by the  way is a very Southern Baptist mindset.  But more on the Southern Baptist another day.

Take out a dollar bill and examine it closely.  On the reverse side you will notice the motto “In God We Trust”.  That is not there by accident.   That was a deliberate statement to proclaim our most fundamental tenets as a nation.  It doesn’t mean there can be no dissent but our collective wisdom leads us to accept that concept of trusting in God.    (That was the slogan on the German soldier’s belt buckle during WWII).   Now look to the left of the Great Seal and you will see the words “annuit coeptis” floating around the all seeing eye.   The translation is God has favored our undertakings.  We have been indeed blessed as a nation like no other in the history of the world and we should all pray that we will be worthy of those blessing in the future.   The all seeing eye is a Masonic symbol.  Yes, those Masons.   They were extremely influential in the early days of our nation and more US Presidents have been Masons than any other affliation  I.e., religion, school, statehood, etc.   For those who are completely in the dark about the Masons it should be noted that both Christians and Jews could be members.  A religious belief was required but not a specific religious doctrine.   There was the York rite for those who wanted a specific Christian experience and the Scottish Rite for those of either Jewish or Christian belief.  Both rites were Masons.

Now let’s look at  the other aspects of the dollar.  Below the great seal you will see “novus ordo seclorum” which means a new order for the ages.   We thought we were the bringing of something new and that turned out to be correct.  We were the first true republican democracy with no hint of nobility or privilege based upon birth.  We became the first meritocracy.   Oh, yes, it is true that in times past people could rise up through the ranks as it were but that was not the usual rule.  Even in ancient Greece it was possible to rise from slave to senator or general.  We were the first nation to look to what you accomplished or could accomplish and your personal integrity as the mark of the man.   Yes, I know the phrase has a similar ring to the Nazi New Order and the Third Riech but there is no relationship at all.  Ours came first by a long shot.   The  all seeing eye is interesting in its own right because of the implication that a higher power is watching over us and also that as a group we can conquer any challenge.

The other side of the great seal has the eagle.  Notice what it holds in its talons.  An olive branch in one but arrows in the other.   We seek peace in all things but will wage war to protect the ideals we hold dear and our nation.  The motto there is one you all know, e pluribus unum–one among many.   That is to emphasis our uniqueness among nations.   Of course the thirteen stars are for the original colonies.   I am sure the Navy has changed uniforms recently but for decades the pants worn by Bluejackets (ordinary seamen in the Navy) had thirteen buttons also for the colonies.   Many a sailor cussed up a storm undoing those when a call of nature came upon him suddenly.

Now for the value of the dollar we can make another close examination.  First realize that the dollar is really a note.  Just read what it says.  Up at the top there it says “Federal Reserve Note”.  A note is a promise to pay.   It is a real note not only because it says so but because it is a bearer note if you will and it carries the signature of the then sitting Secretary of the Treasurer; look down in the bottom right corner and you will see the signature.   It wouldn’t be a valid note without some signature.    Also see the comment to the left of Washington that says “This note is legal tender for all debts, public and private”.   The issuer of the note I am looking at is from the Federal Reserve Bank of Atlanta Georgia.  There are 12 reserve banks around the country.  They issue the notes as the agent of the US.  The Constitution talks about “coin” in Article One under the powers of Congress.  Congress can also set the value of it and of foreign money.   In times past, like merry old England say of a couple of centuries ago, it was quite common for people, banks and companies to issue notes as a means of payment and they would become negotiable by endorsement.  These notes were treated like currency that we think of because real printed money was  pretty rare and expensive for the Government to print.   Think of our dollars as a sophisticated update to that old practice. 

Now the real question is what is that promise worth?  We are no longer on the gold standard like we were for such a long time when you could go to the bank if you wanted to and actually get gold for you dollar bills.   So why do we and others around the world accept this note for payment for lunch, toothpaste, a car payment and all those other thousands of transactions we each make every year?   What am I going to get from the Federal Reserve if I present my note for payment?

Come back tomorrow for an exploration of that thought with me.  You might find it interesting.   I only want us all to think about our institutions, our body politic and economy so we can reach intelligent and informed decisions about our future courses of action.   Intelligence doesn’t necessarily equate to being informed.   Disagreement I can handle it is ignorant and ideological positions that annoy me.

Quo Vadis.

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