By Lenart Wagemans Many claim the problem with fractional reserve banking is that it loans money into existence. It does, but under normal circumstances, the money created by commercial banks disappears when loans are repaid or defaulted on, which therefore doesn’t create a permanent inflation of the money supply. Government intervention, however, converts temporary money into permanent money through bailouts like the Troubled Asset Relief Program. They purchase loans that would have been defaulted on, preventing the evaporation of credit. When banks hold loans that are at risk of default, they face having to write them off, which would remove this part of the money supply. Bailouts turn … [Read more...]
The Effects of Raising the Debt Ceiling
In this article, Professor Daniel Lacalle examines the relationship between Federal debt and crony capitalism. ~Tim McMahon, editor. Key Facts: Congress has raised the debt ceiling 78 times since 1960 US debt to GDP is 123.4% 8% of the budget goes to pay interest Discretionary spending is around 30% of the budget Fiscal year 2023 outlays = $5.9 trillion The United States budget is unsustainable More Federal Debt Means More Taxes, Less Growth, and Weaker Real Wages By Professor Daniel Lacalle Since 1960, Congress has raised the debt ceiling 78 times, according to Bloomberg. The process of increasing the debt limit has become so regular that markets barely worry … [Read more...]
How Loose Monetary Policies Cause Recessions
Advocates of Keynesian economics believe the Federal Reserve should pursue policies that will prevent the possible decline of the economy into a liquidity trap. But what is a liquidity trap? Economic activity often is presented in terms of a circular flow of money. Spending by one individual becomes part of the earnings of another individual, and spending by another individual becomes part of the first individual’s earnings. Recessions, by this thinking, occur because consumers—for whatever reason—have decided to cut spending and increase their savings. For instance, if people become less confident about the future, they are likely going to lower their outlays and hoard money. … [Read more...]
How Does Inflation Affect Foreign Exchange Rates
Inflation affects every consumer, business person and investor in some way or other. Inflation is one of the key factors that affect consumer prices, financial markets including Stocks, Bonds and Forex. As such, it is important for consumers, investors and traders to get a deeper understanding of what is inflation and what causes it. What is Inflation? Understanding inflation is often complicated by the fact that the cause and the effect are often muddled together in people's minds due to the lazy way we often refer to inflation. The effect of inflation is what people see when they go shopping and see increases in the general price of goods and services. When the individual prices of just … [Read more...]
Hyperinflation and Government Debt
By Doug Casey The over-leveraging of the U.S. federal, state, and local governments, some corporations, and consumers is well known. This has long been the case, and most people are bored by the topic. If debt is a problem, it has been manageable for so long that it no longer seems like a problem. U.S. government debt has become an abstraction; it has no more meaning to the average investor than the prospect of a comet smacking into the earth in the next hundred millennia. Many financial commentators believe that debt doesn’t matter. We still hear ridiculous sound bites, like “We owe it to ourselves,” that trivialize the topic. Actually, some people owe it to other people. There … [Read more...]
Living in a Free-Lunch World
It seems that every once in a while, we awake from a deep sleep with what appears to us to be a brilliant revelation. Unfortunately, if we don't write them down they are usually forgotten by morning. Sometimes in the light of day they turn out to be totally ridiculous... but occasionally they actually do turn out to be a flash of inspiration. I had one such experience a few weeks ago. Of late I have been increasingly disturbed by the growing gulf between Liberals and Conservatives. It seems that they can't find any common ground and for all intents and purposes might be living on entirely different worlds. My revelation, although perhaps not earth-shattering, was to me at least … [Read more...]
A Very Weak Economic Recovery
By Elliott Wave International Editor's note: The following article is excerpted from Elliott Wave International's new free report, "U.S. Economy Still on Life Support." For years, the government has manipulated its unemployment statistics to line up with its claim that the economy has recovered strongly. But that's not ALL the government is hiding from you. From foodstuffs, to crude oil prices, to GDP, the numbers and analysis reported by the government and mainstream financial press are misleading at best, downright falsehoods at worst. Get the hidden truth -- click here to read the full two-part report now >> For years, the government has been manipulating its unemployment … [Read more...]
The FDA Thinks You’re Stupid
I always bristle when I hear that the government is doing something for my own good. Generally, I prefer to decide what's best for me by myself. Obviously, there are exceptions relating to criminal behavior and dishonesty but in most cases, I figure I am a big boy now and I can make my own decisions and take care of myself. In today's article Chris Wood looks at another instance of the Federal Government pushing business around. In this case, it's the FDA. Take a look and decide for yourself if this is where the FDA should be focusing its efforts. ~Tim McMahon, editor. The FDA Thinks You’re Stupid Does the FDA think you're too stupid to have access to your own genetic information? It … [Read more...]
What Causes Unemployment?
I recently received the following question about unemployment from a gentleman in Tanzania and I thought it was a good question and I would share the answer with you. What Causes Unemployment? I have been thinking on that situation of unemployment. Why does the rate of unemployment increase day after day? Does it mean that people have decreased the rate of thinking on creating jobs or there is any other reason? ~ Lioba from Dar-es-Salaam Tanzania. Here is my Response: Lioba, That is a very good question. Unemployment is a function of how efficient the marketplace is. In a purely agricultural economy, there is no unemployment, everyone has to work, if they don't work they don't eat. … [Read more...]
BLS Recovering From Shutdown
The government shutdown is over and the U.S. Bureau of Labor Statistics is recovering from their unscheduled vacation. The United States federal government shutdown of 2013, lasted from October 1 to 17, 2013. Unemployment data for the month of September was due to be released on October 4th i.e. four working days into the shutdown. So the employment data is now scheduled for release on October 22nd. And the Consumer Price Index which is used to calculate the September inflation rate, which was scheduled for release on October 16th is now scheduled for release on October 30th. Although the shutdown inconvenienced vacationers wanting to see National Monuments and the National Zoo, did it … [Read more...]