Category Archives: Inflation
If Rep. Ron Paul has accomplished anything in his 2008 and 2012 presidential campaigns it would be the way he has educated the American public about monetary policy and the Federal Reserve. I’ve listened to on line lectures from the Cato Institute and read about monetary policy but more often than not its either over my head or bores me to tears. Paul manages translate the Fed’s policy and put into language people like me can understand and keep it interesting.
Today’s hearing where Paul questioned Federal Reserve Chairman Ben Bernake is a case-in-point. My favorite part is when he asks Bernake if he does his own grocery shopping driving home the point about how his inflationary policies impact average people where it matters most (cost of groceries and fuel doesn’t go into determining the rate of inflation).
LAS VEGAS – Republican presidential candidate Rep. Ron Paul unveiled his economic “Plan to Restore America” in Las Vegas Monday afternoon, calling for a lower corporate tax rate, a cut in spending by $1 trillion during his first year in office and the elimination of five cabinet-level agencies.”
Paul does get specific when he calls for a 10 percent reduction in the federal work force, while pledging to limit his presidential salary to $39,336, which his campaign says is “approximately equal to the median personal income of the American worker.” The current pay rate for commander in chief is $400,000 a year.
Based on Dr. Paul’s speech, there’s not a whole lot not to like. Cutting $1 trillion of government spending in the first year would be a very good thing IMO.
As a Gary Johnson supporter, I can’t help but get more than a little annoyed each time one of Paul’s supporters, member of his campaign staff, or the congressman himself makes the claim that Dr. Paul is the only candidate in the race who would balance the budget. Gov. Johnson has promised a balanced budget, not merely in his first term but in his first budget in virtually every debate, interview, and speech he has given since he announced his candidacy.
That criticism aside, I hope this plan is given serious consideration by the primary voters and debated among the candidates.
Just when I was starting to give Herman Cain another look, he lies to Rep. Paul’s face in last night’s debate concerning comments he made concerning the need to audit the Federal Reserve.
Yeah, there goes crazy Uncle Ron again with these crazy misquotes he picked up off the internet!
I’m not sure if the crowd was laughing at Cain or Paul at this point but it wasn’t that difficult to find audio of his “misquotes” on YouTube from when he was guest hosting The Neal Boortz Show.
But this wasn’t the first time Cain has been busted on a flip-flop followed by an accusation that he was misquoted or received “misinformation”. The next example: Cain changes his mind as to whether the president can target an American citizen for assassination without due process.
I never said that [President Obama] should not have ordered [the killing]. I don’t recall saying that. I think you’ve got some misinformation. Keep in mind that there are a lot of people out there trying to make me sound as if I am indecisive.
I don’t know all of the compelling evidence that the intelligence agencies and the military had. I’m convinced — I’m convinced that they have enough intelligence information that said he’s a threat to the United States of America. You don’t try to prosecute or capture him simply because he’s a United States citizen.
What will he say when he is confronted with these audio and video clips? Would he have us believe that these were imposters?
If Cain would have said on either of these issues “You know, I after thinking about it a little more, I was wrong…” I might be able to respect that. But to accuse people who challenge him of misquoting him when it’s so easy to prove otherwise is disturbing to say the least.
The Standards and Poor rating service has downgraded the U.S. Federal Government’s bonds to AA+ status. This action long overdue does not go far enough.
To understand the meaning of this, we should first understand the meaning of the S&P ratings.
The ratings indicate several things:
1) The likelihood of a default – the debtor failing to make interest payments owed to the people who purchased the bonds.
2) The likelihood that the bond holders will recover some of their losses after a default.
3) How quickly the debtor’s financial condition could deteriorate causing them to slide into default.
In the pdf explaining their rating system, S&P has a very interesting table showing the default rate associated with organizations based on their classification. As one would expect, in the past thirty years no AAA organization has defaulted, nor has any organization that is rated AA+.
In their press release explaining the downgrade, S&P makes the following points:
• The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics.
• More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.
• Since then, we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government’s debt dynamics any time soon.
• The outlook on the long-term rating is negative. We could lower the long-term rating to ‘AA’ within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case
• The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short ofwhat, in our view, would be necessary to stabilize the government’smedium-term debt dynamics.
• More broadly, the downgrade reflects our view that the effectiveness,stability, and predictability of American policy making and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned anegative outlook to the rating on April 18, 2011.
• Since then, we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government’s debt dynamics anytime soon.
• The outlook on the long-term rating is negative. We could lower thelong-term rating to ‘AA’ within the next two years if we see that lessr eduction in spending than agreed to, higher interest rates, or newfiscal pressures during the period result in a higher general governmentdebt trajectory than we currently assume in our base case.
In essence, the S&P rating agency is implying that since the recent debate about raising the debt ceiling was immaturely handled, they are now more pessimistic than they were this spring. This strikes me as and excuse to give plausible deniability to the accusation that for years they have been rating the U.S. government much more favorably than is appropriate by any objective manner.
The fact is that over the past few decades, the U.S. government’s long-term fiscal condition has been steadily eroding, and the legislature has shown no willingness to seriously tackle the issue. Unsurprisingly any legislator who broaches the topic of reducing any of the major sources of spending, medicare, social security, millitary spending, corporate subsidies, etc risks being voted out of office by an electorate whipped into a frenzy about an attack on the elderly, the poor, our allies, etc.
The rating agencies, having been granted a monopoly on ratings by the U.S. government, have been loath to bite the hand that feeds them, to risk the wrath of the legislature by frankly describing the terrible financial outlook for the U.S. government. At this point the AAA rating has become a joke; there is no way that the U.S. government can pay back the loans. There is no ideological chasm between the Republicans and the Democrats. Both parties support massive welfare spending, high taxes, and massive plundering of the productive bits of the economy. I am increasingly of the opinion that the debt fight was a kabuki theatre engaged in by the Democrats and the Republican leadership in order to end the Tea Party threat to the metastasizing state. The Teaparty were the grownups announcing that the party has to stop, and the political parties’ leadership were the petulant teenagers plotting to keep things going a little longer.
At this point U.S. government bonds are a very bad thing to buy. The interest the U.S. government is offering is pathetically low. Inevitably, to attract buyers, the government will have to raise the interest rate. Once they do this, prices in the secondary market for the older low-yield bonds will collapse. The interest payments needed to service the outstanding debt will increase, and the U.S. government will be in even worse financial shape. It’s possible that the Federal Reserve will buy the bonds itself, using newly printed dollars, much like the central bank of Zimbabwe.
Unfortunately too many retirees have invested in U.S. government bonds, expecting that the income from the bonds would provide a reliable, dependable source of income. Either they will be screwed by the inevitable default, or they will find their income’s purchasing power destroyed by inflation.