Rant Break:

We have a saying in Canada. ‘Forget about August’ and for good reason. We live in a country where, despite the admonition of global warmers,  we experience nine months of winter and three months of bad ice every year.  Small wonder therefore that our citizens pay scant heed to what is happening, or what the media says is happening, during the dog days of the month.  I think the same might be said for bloggers and other pundits. Accordingly this will be the last rant until we return in the relative sanity of the fall. 

We in North America  have now entered the election cycle (if in fact it ever ends). For a practicarian (sic), such as myself, I find this rather depressing, until  I remember that free elections are at the heart of the democratic process. As Winston Spencer Churchill said “democracy is a terrible form of  government  until it is compared to everything else”

 So my  rant is in the form of a question.  If we hold democracy so dear why in thunder do we not make it mandatory for every tax paying citizen to vote, either in person or by proxy?  

I link the issue to the paying  taxes because we in Canada have a thing going on, that relates to the necessity of being  tax paying resident citizen, as a precursor to vote;  as opposed to the present system,  where non-resident and non tax paying citizens have the right to vote.  In the US this is handled differently, namely every citizen must file a tax return or  risk going to jail;  a system I like a lot better.

With the advent of the digital age, hackers not withstanding, surely it should be possible to cause all citizens over  the age 18 to use the smart phones, tablets, desk tops et al   to vote on generic electronic platforms where ever they might be.

Australia has performed this rather neat switch with no serious side effects, leading, as some would have  it, to  a far more enlightened populace and greater social cohesion. The reason for this is that by forcing the issue as to the number of voters, as opposed to the first by the post system now in use,  leaders from all parties have been forced to consider the opinions of third parties.  It is noteworthy that using this system, Australia is one of the few countries that has been able to come to grips with the issue of  illegal immigration, a formally very divisive issue.

It seems to me this is an issue with a lot of upside potential and very little  downside

A  second rant relates to the issues that should be aired and debated during these same elections and sadly are not. Like lemmings we only seem to discuss those issues we are told are important, leaving aside those that require more that a sixty-second sound bite to describe.  

 One issue that really needs airing  is  that of bankers and government statisticians cooking the books in order to understate the rate of inflation or disinflation and thereby influence monetary policy; a practice  that is very damaging to the welfare of citizens.  It seems to that the soothsayers start with the desired result and then  change the playing field  in order to get the desired result. 

Following the debacle of Stagflation during the 1970’s our governments were forced  to the conclusion that the practice of reporting monthly inflation figures was causal to anticipatory wage and price inflation. (Government sponsored agencies had become part of the problem)

Rather than kill the goose, the statisticians and other government hobgoblins,  decided, in their wisdom, to change the method of calculating the rate of inflation. Without the  boring details , this involved changing the content of the basket of goods and services used as a measuring stick,  so as to allow for substitution when there was a sudden  change in price in one of the component goods. We are told that the  theory behind this change is  that enlightened consumers will make a substitution when it is in the monetary benefit to do so, a theory that smacks of elitism and maybe totally incorrect. (Lower income folks cannot afford enlightened choices.)

The major beneficiaries of inflation are central governments, (they can pay down  debt with depreciated dollars) ; the banking fraternity; and the uber rich. For the rest of us it is misery. Make no mistake,  it is not possible to inflate our way to prosperity, no matter who is selling the voodoo economics. The hamburger index tells us that we now have to work longer to buy a smaller burger  an unfortunate fact that seems to be finally dawning on both  Big Mac, and the elites.

Henry Ford (no saint by anyone’s standards) got it right when he realized that by increasing the standard of living for his huge workforce he was creating new customers for his factories.

I am of the belief that if our governments can be persuaded to stop lying to citizens and  get out-of-the-way, the great ingenuity inherent in our way of life will take over and dig us out of the awful mess we now find ourselves in. 

It might also help if we would put the genie s’   of the central banks back in the  box where they belong. It is time to recognize that bankers make poor choices when faced with the greed of their constituents. 

 

 

 

 

Bankers Gone Bonkers:

I saw an interview on PBS  of Christine La Garde the  erudite, obviously smart,  Managing Director of the International Monetary Fund. This happened to come after  news clips of Janet Yellen ‘s  (Chair Women of the Federal Reserve) annual shindig with members of the US Congress during which she was supposed to lay out the intentions of the Federal Reserve in regard to monetary policy.

What struck me was the difference in the manner of speaking  between the two ladies. In the case of Madam  La Garde the bare truth on the Greek Tragedy  vs the obvious waffle of the Chair Women of the Fed on the future of Interest  rates in the USA, something that affects  the whole world.

La Garde told it like it is. The Greek Bailout is, in real-speak, a delay of the inevitable  hair cut that lenders (banks) will be forced to take on Greek Sovereign debt  at some point in the future; after those same banks have been recapitalized by the European Central Bank that itself will have to recapitalized by member nations.  (A case of the dog wagging the tail)

 Its’ all about optics for the sake of the Germans who apparently, despite having been bankrupt on more than one occasion, cannot tolerate a member of the club being given a second chance to get their act together. I liken this to the organizations for professionals (Accountants Architects et al)  who prohibit  members from declaring bankruptcy even when they are  insolvent. 

It seems to me to be all part of a charade put on to try to fool the bond market that members of the EU do not do bankrupt. All rather like the New York Federal Reserve  printing money to keep interest rates artificially low, supposedly to help employment, when in reality they are really only helping their member banks.

Where did we get off the bus on the issue of monetary policy being the only game in town?  Even Milton Friedman dean of the Chicago School of Economics realized that monetary policy alone could not do the trick, and that bankers were fallible.

If the governing elite must be responsible  for ensuring full employment, a task for which  they have proved remarkably inept, then surely it is the legislatures rather than faceless bureaucrats,  that should shoulder the responsibility. 

 

A New Cookie Jar:

This week back to an old theme where I got started with my occasional rant. I am referring to gold and stories I told in “Sell the Pig”  “Stories of an  Accidental Gold Miner” In particular “The Skin of the Gods” and the tangled history of gold.

With the news this week that the BRIC Countries (China, Russia, India, Brazil, and South Africa) have formed a new pool of currencies to replace the Special Drawing Rights (money of last resort) provided by the IMF (International Monetary Fund) The initial amount set at a value $150 billion  is roughly the same amount as provided to launch Special Drawing Rights, the exchangeable currency into gold,  US dollars, Euros, Pounds, and Yen after the collapse of the Breton Woods agreement in 1969. At that time SDRs’ were valued at .888671 grams of gold and hence carried forward the convertibility of the old US dollar into gold.

It is more than a little interesting that the fanfare of the launch of the new cookie jar led by President Putin makes no mention of gold, as being a part of the new arrangement. All of this bears a strange resemblance to Hans Christian Anderson’s  tale of the Emperor Clothes or the lack thereof. I suppose if all the participants believe BRICS (If that’s what they will be called) are worth something it will be alright but outside the pool it will be problematic.

Officially the BRIC countries hold 3011 tons of gold as reserve currency. ( approximately 10 % of the world total ) Unofficially China and India  may have a first call on a great deal more, and hereby hangs a tale. The gold is owned by BRIC  citizens rather than the sovereign countries, in much the same way as it was in the US prior to  1935  when, desperate to stop hoarding, the US Government devalued the dollar by purchasing all gold held by Americans at $35 an ounce.  

If there is another wobble, such  as was seen  in China during the past few weeks, history could well repeat and set off a chain reaction amongst other BRIC nations to consolidate gold holdings in the hands of government and devalue paper currencies.  I have said before the Communist Party cannot afford for the Chinese economy to go into a tailspin and to avoid this they have to keep the economy growing and more than a billion people happy. 

The Japanese condition of deflation and stagnation is not an option for China or the other the BRIC countries.

The BRIC nations alone  now comprise 40% of all World Trade and must now be bought into the fold to counter balance the ECB and the   US. Seems to me the knobs should be spending more time on this possible race to the bottom than fooling around with Greek insolvency that will make absolutely no difference to world prosperity. 

 

 

Bar Stool Economics:

I have no idea where this came from. It was contained in a mail from an old friend and I do not think he knows either!

Sometimes I am rendered speechless by these things. This is one of those times and no further comment is called for.

‘And now for a bit of an economics lesson about the income or wealth gap:’

Suppose that every day, ten men go out for a beer and the bill for all ten comes to $100.
If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.
The fifth would pay $1.00
The sixth would pay $3.00
The seventh would pay $7.00
The eighth would pay $12.00
The ninth would pay $18.00
The tenth man (the richest) would pay $59.00

So that’s what they decided to do. The men drank in the bar every day and seemed quite happy with arrangement, until one day, the owner threw them a curve.

“Since you are all such good customers, he said, I’m going to reduce the cost of your daily beer by $20.00. “Drinks for the ten men now cost just $80.00

The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men – the paying customers? How could they divide the $ 20 windfall so that everyone would get their “fair share?” They realized that $ 20.00 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man’s bill by roughly the same percentage they had been using, and he proceeded to work out the amounts each should pay!

And so:

The fifth man like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33% savings).
The seventh now pay $5 instead of $7 (28% savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before! And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.

“I only got a dollar out of the $20“ declared the sixth man. He pointed to the tenth man, “but he got $10!”

“Yeah, that’s right, shouted the seventh man. “why should he get $10 back when I got only two? The wealthy get all the breaks!”

“Wait a minute,” yelled the first four men in unison. “ We didn’t get anything at all. The system exploits the poor!”

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn’t show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!

(As France is learning)

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

For those who understand, no explanation is needed.

For those who do not understand, no explanation is possible.