Beyond the Cusp

October 21, 2014

Upcoming Midterm United States Elections, a Slightly Different Look

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Who is ahead in the different races depends on the state and even on the political leanings of the news or talk shows one follows. If you go to polling it gets even more confusing. Not only are the polls often slanted depending on who ordered the polling but it also depends on what the subject the poll is covering. Here are a few examples from some polls. A CBS poll recently showed that fifty percent of those responding said the Democrats are the party that “cares more about the needs and problems of people” while only 34 percent chose the Republicans. Meanwhile, the Republicans have a nine point lead concerning the economy, an eleven point lead on foreign policy and a twenty-one point lead on addressing terrorism in an October CBS poll. So, who wins; the party of the people or the party which appears to be more competent? These numbers are nothing new as often the Democrats have polled well on sympathy and feeling the people’s pains while the Republicans historically win on foreign policy and confronting threats from the outside world. The fact the Republicans are polling slightly ahead of Democrats on the economy is not nationally definitive enough to be applied to every race. The probability is that in the traditionally Democrat leaning states the Democrats will probably poll even or ahead of the Republicans while in traditionally Republican states the Republicans will poll ahead. The place where that mere nine point lead for the Republicans becomes evident will be in what is often referred to as the ‘purple’ states where the parties have split the wins between them would thus likely give the Republicans a slight lead on the economy. Unfortunately that may not transfer to votes as there is also the personality of the candidates as well as the effectiveness of their campaigns and whether there are third party or independent candidates on the ballot and from which side they will draw away votes. Libertarian and Constitution Party candidates tend to take more votes from Republicans while Green and sometimes Libertarian Party take more votes from the Democrats. But other than their campaign, their affability or their campaign commercials and use of media and social networks, the most important determining item will simply be which party gets the voters to the polls, period.

With this year not being a Presidential election year, the national party machines are operating but there are far fewer volunteers and fewer funds for them to make a large determining difference. This means that it will be up to the State and even more local party machines and the candidate supporting campaign staff which will make up a significant part of the get out the vote efforts. States with Gubernatorial elections this election will have more party influence than those without. What makes these midterms so difficult to make predictions is because there is no real enthusiasm evident in the electorate and it is very possible that both of the major parties will suffer from miserable voter turnout and thus calling the elections near impossible. There will be some states where polling data is so skewed to one candidate that there is almost no challenge to picking the likely winner short of an unseen stumble where the leading candidate is caught in a criminal act or other compromising situation. They do not even need to actually be guilty as that will depend on a court of law, but such accusations can sway the court of public opinion and that is exactly what elections are, the court of public opinion choosing those they feel are less guilty of potentially bad leadership. That has been the truth in all too many elections in the United States in recent times where people are literally trying to choose which evil is less harmful. Some have gotten to the point that they have finally refused to vote for the lesser from two evils and they refuse to ever again vote for evil no matter how slight. These voters are demanding the parties to put forth candidates who are capable of leading and representing the people with integrity and virtue. This might even lead to making a third party or independent candidate to have a real possibility to take elections and possibly change the American political landscape once again. Perhaps it is time for a new political movement as the last great movement was the Abolition Movement which birthed the Republican Party and the Whig Party was laid to rest. The more likely bet is that the two major parties have so slanted and poisoned the election laws throughout the United States that it has become next to impossible for any third party or independent candidate to make the ballot, let alone have any funds remaining should they manage to make ballot, and trust I know from where I speak. This is really a sad problem as this may prevent a new direction to be proposed and placed before the American electorate and instead continue forcing them to choose between two toxins, progressive Democrats who want to double the size of government every decade, or the progressive Republican who wishes to slow government growth so that it doubles only four or five times each century. Since both the major parties are in favor of growing government and the sole difference is exactly the rate of growth the American people can rest assured that over time the Republicans will seem like the Democrats of a few decades back while the Democrats will be breaking new ground which the Republican will fall in love with a few decades hence. Should this trend not be reversed soon the United States will continue in decline and only accelerate with time.

Beyond the Cusp

March 9, 2014

The Coming Inflation and Its Hidden Damage

Inflation has effects beyond the obvious of making the item we buy, especially the necessities which we cannot live without, more expensive eating away at what little money we have after the various levels of government take their overtly large share. What has not been discussed much are some of the many hidden side effects caused by inflation and what are some of the driving causes of inflation. One of the surest causes of inflation comes when the money supply is increased no matter the reason. When the government prints or electronically invents money in order to finance government spending, especially deficit spending, then eventually this gets represented by rising prices. The United States since sometime during the second term of President George W. Bush began printing money electronically. This was used in order to fund the original “bailout” of two-thirds of the American auto industry, kudos to Ford who actually turned down any bailout monies as they had taken a precaution and downsized two years earlier in anticipation to trends they predicted that the other two major companies, General Motors and Chrysler, had ignored. Of course, once the Federal Government found that it could boost a lagging economy by injecting more and more monies an addiction set in and every problem became just an opportunity to throw good money after bad. When it also turned out that throwing more money into the economy also had the effect of pushing the stock market higher and higher, well, what’s not to love?

 

The problem is these increases in the value of the stock market were nothing more than inflationary effects caused by the increased money supply. What basically resulted in the increases was that each stock is actually a value of a percentage of the total money supply which is presumably driven by GDP and production. When the government simply pushes more money into the supply and there has been no increase in actual goods, services and other tangible assets, then it is reflected in higher prices, inflation, as the price of commodities and even stocks are what their worth is in the total of production times the total money supply. If produced goods have not increased and there are additional monies in circulation, then everything rises in price to restore its value in percent of the available money proportional to its actual percentage of the total value of goods. The goods and services have not changed in their actual value, but instead are now revalued to equal a larger money supply. Much, if not all, of the higher prices in stocks is not representative of increased worth but reflects cheaper money as the total money has been increased through Quantitative Easing, a fancy pair of words that actually mean printing money except they can now make money simply by pressing the appropriate keys on a computer keyboard and presto, increased money supply leading to higher stock market gains and eventually inflation which will eat up an equivalent percentage of everybody’s wealth as inflation will eventually even everything back to represent the ratio of total goods and services against the total amount of monies in circulation whether it is in higher stock prices or bundles of dollars at the Federal Reserve or individual banks and corporations who received bailouts.

 

So, what could be the most damaging effect of inflation? There is the obvious effect of increasing prices at the grocery store, the service station and everywhere else but that would theoretically work itself out as salaries would also rise to reflect the inflation, though somehow the salaries never quite keep pace with inflation, or at least that has been my experience. But the effects of inflation within any nation’s borders according to economic theory pretty much equal a zero sum game where everything rises proportionally. The real difficulties come when we look at trade between nations. As inflation forces prices up on goods and on the processes that manufacture the goods, the price on the international market rises and remains higher until the balance of currencies eventually works itself out in the exchange rates. The rebalancing of the currencies is always a lagging indicator and thus inflation has an initial effect of damaging trade of the nation under its effects. Inflation also will eventually cause all imported goods to increase in price, though this is a lagging indicator that represents the changing balance of currencies. So, when inflation first strikes it takes its toll on exports but eventually takes a permanent hit on imports.

 

As noted earlier, inflation is directly proportional to increased money supply that exceeds the increase in total goods and services within the national economy, it is a ratio. Thus, there is only one solution to prevent inflation from heating up, which is to remove the excess monies from the total supply. The reason the United States has not experienced excessive inflation from the large amounts of monies pushed into the total money supply starting with President George W. Bush and continued by President Obama is because the vast amount of the monies is being sat on and kept from circulating as the banks have been woe to put it in circulation through making loans. Another reason has been that a fair share of the cash has been invested in European banks and institutions in order to prop up numerous European economies which were in varied amounts of distress. The effect this has had is to allow banks to keep the interest rates low and inflation in check, but such a game cannot last forever. Eventually the economies will begin to recover and the banks will begin to make more loans as the interest rates increase. As the interest rates increase, so will the required payments on national debt increase even if all that is being paid is the interest payment and no principle is paid off, exactly what the United States has practiced for a very long time. As the interest rates increase thus pushing debt payments higher then taxes will also be increased in order to pay off the debt and still finance the government including any inflation. As rough and difficult as such may be, this distressed situation actually will have an eventual benefit, it will remove a portion of the excess monies in circulation. Eventually an equilibrium point will be attained and inflation will slow or even virtually stop and the interest rates will stabilize and possibly lower for a while. Unfortunately, do not expect the government to lower anybody’s taxes when this occurs as the government is very adept at finding ways to waste inordinate amounts of money thus never cutting its ability to take more from the people and the engines of production. Actually, the one eternal hidden cause of inflation is government spending and government largess simply makes for higher inflation as government spending seldom adds to the total amount of goods and services provided in the national total production. An interesting ride is in the makings as the economies of the world adjust to the policies of the past decade and there may not be very many winners.

 

Beyond the Cusp

 

January 3, 2014

Enough with the Peace Process Already

There has been a rumor around the office that some people might be getting tired of endless repetition of the same basic material just from a slightly more oblique angle covering on the failures that are the Israeli-Palestinian Peace Process and the potential damage Secretary of State and his boss, President Obama, are planning to do to Israel with full knowledge and vile intent. That possibly being true, and our own recognition that we may have exhausted the subject for maybe a number of hours, maybe even a day or two, so don’t say we never heed suggestions. So, without much further ado, on we go to today’s subject.

 

First up, let’s tackle the reputed economic recovery in the United States. We have been told that the housing market has begun to return to a healthier outlook as more houses are selling. Prices of homes for resale have still not returned to the inflated prices of early 2008 but they are moving from their low points. The Christmas sales were still less than hoped but still showed some signs for hope. Unemployment is still a disaster as there is now an entire class of young people who are probably permanently unemployed with little or no hope of reentering the workforce. There have been more jobs available to replace the positions lost during the bust which started in 2008. The difficulty is that these new job opportunities are either part time or low paying service sector positions and some are offered only as the employee acting as a sub-contractor thus freeing the employer from any healthcare requirements which will result from Obamacare going forward. The real sign of a recovery that almost every report relies upon is the records being set by Wall Street. So, what is the truth about the economic recovery and should we feel that perhaps the worst of the economic downturn is over.

 

First up, we should address the increasing home prices. The reality is whether the increasing prices of housing is simply responding to inflation because of the weak dollar or are houses actually accruing real equity. There is an easy way to compute whether or not houses are accruing equity or simply responding to the weakness of the dollar. Choose some commodity which has proven value other than gold, silver or other precious metals. My particular favorite is a top of the line Mercedes; but Porches, Bentleys or even gemstones also work well. You find how many of whatever metric you have chosen if you sell your house and spend all of the proceeds on that item, Mercedes, two carrot diamonds, Porsche 911 GT3 or whatever item you chose. Then allow a period of time to pass and repeat the procedure with the new price your house will sell for say after a year or two. If you are able to buy more of the same model but the New Year’s model, not the two year old model as it has to be new car to new car comparison. My bet is that most items you will discover that you will not be able to purchase any more of your control item than you had at the earlier price. The same test can be used to rate stocks or anything else that one uses for investments for the future. Much of what is currently appearing to be gained equity and profits is really simply the result of a devaluing dollar. But even if this is true, the fact that housing sales are increasing is something to be glad to see and that is very true.

 

The real question is what the prospects are going forward. With the appointment of another follower of the principles of Keynesian economics to head the Federal Reserve we can expect that Janet Yellen will fully support the continuation of President Obama’s stimulus policies trying to utilize Federal Government spending as the best way to invest in the economy. One might think that the past seven years of Presidents Bush and Obama stimulus spending with no real economic recovery to show for what has resulted in almost one trillion dollars per month added to the debt that at least a few would have figured out something was not working and the policy might have been flawed. The debt has risen to dangerous levels and as soon as a real recovery should begin the rising interest rates will make the debt payments untenable. There have been estimates that should the interest rates reach five percent the payments on the debt would approach a minimum of one third of the Federal budget. That should be a sobering truth that should worry any economist who desires to be honest and considers their predictions to have any realism. The real problem would be if the economy began to show signs of runaway inflation, then the Federal Reserve would need to consider some way in which they could reduce the speed of the increasing economic engines in order to corral inflation. The quickest and easiest way available to the Federal Reserve to slow runaway inflation is to raise interest rates. This is where the Federal Government runs into a problem as increasing interest rates will soon make the debt payments unmanageable. The Federal Government could influence the Federal Reserve to keep interest rates at the lower rates but only if they are willing to hike taxes significantly. Either through higher interest rates or seriously higher taxes are the sole solutions to runaway inflation as it is necessary to remove available levels of funds in order to curb inflation. Inflation is often the result when there is more cash available in the market which can occur when government increases spending in order to stimulate the economy. The problem during this economic period of lethargy has been that despite huge injections of cash into the system, there has been only a slow recovery. Eventually the economy has to respond to the available cash which currently is sitting in many of the major banks, the same banks whose top officials make up the Federal Reserve Board. Once the banks see that they can make gains investing their money by loaning as the interest rates increase the funds sitting in the banks will be loaned and thus enter the market. This inflow of additional funds into the economy will cause inflation, and the amount of funds currently sitting in banks could pose a huge influx of available funds which would give velocity to great volumes of monies thus pushing inflation. Things could become interesting as never before in history has such a reserve of available funds been resting in banks not circulating but with a potential to almost quadruple the amount of funds currently in circulation. That will result in rapid inflation and a perceived economic emergency which will require a miracle to solve without forcing a default on the debt.

 

Another problem we can talk about that is not part of the Middle East is the expanding influence which Russia is gathering. Russian President Putin appears to be steadily putting the Warsaw Pact back together under a different name. The current victim is the Ukraine which had been negotiating with the European Union. This caused Russian President Putin great amounts of consternation. In an attempt to ease his discomfort, Putin threatened the Ukraine to cut off all trade including any petroleum and natural gas sales and flow in or out of the Ukraine unless they rejected the trade agreement they had worked on for more than a year with the European Union and instead signed a trade partnership with Russia and basically gave Russia reserved status and sole trade partner. Putin’s threat worked and this has been a repeat occurrence of late. The people of the Ukraine have been protesting in the thousands to the point that they have closed down the central areas of the capital, Kiev. The leadership of the protests has requested assistance from the European Union and the United States. They have listed the questionable and outright illegal financial transactions on line hoping that the Western powers would assist their protests by freezing these funds of Ukrainian President Viktor Yushchenko. Where expecting the European Union to stand up against Putin is a fool’s game, the United States in normal times would be a reliable friend who could place some pressures on President Putin preventing his bullying the neighboring nations into strictly Russian oriented trade relations. In the past the United States had, somewhat foolishly, gone to the furthest corners of the planet in order to foster democracy with varying levels of disaster. The Ukraine is actually one place where democracy might have had a decent chance of succeeding but, alas, the United States is sitting this decade under President Obama (OK, only eight years) on the sidelines refusing to act in any conflict, situation or even golden opportunity. We are so sorry Ukraine as you will now face the same rejection from the Obama Administration which the Green Revolution leadership and the hopes of the thousands of Iranians which included businessmen for the first time ever in numbers who also hoped for assistance against the Ayatollahs from President Obama who refused to even discuss their plight, it did not serve his agenda of fundamentally transforming the United States from a beacon of hope into a dark recess of silence in the face of any challenge in the wide world. President Obama not only sat emotionless while the hopes in Iran were snuffed out violently, and is doing a repeat performance on the hopes of the people in the Ukraine, but also turned steady and solid former allies of the United States into snubbed and insulted nations wondering why their friend had turned so cold. The American people have not turned cold, only the resident of the White House has forsaken America’s friends. Unfortunately, so many believed the hype and were deprived of a truthful press as much of the liberal press decided that supporting the greatest domestic realignment and permanent change of government responsibilities completely disregarding almost every Constitutional limitation on the Federal Government rather than report anything that might have hurt the chosen one from reelection. That only required a complete ignorance of all things foreign policy and also ignoring the known disasters coming down the pike due to Obamacare. The foreign policy attitude of President Obama was made evident very early, like within the first few months, with his treatments of one of the United States longest and strongest allies, Britain, by sending back the present from the British in the form of a bust of Winston Churchill, giving presents which were completely inappropriate such as recordings of his own speeches to the Queen and video tapes which were unplayable on European video players to the Prime Minister. But what’s a few snubs between friends.

 

Beyond the Cusp

 

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