Beyond the Cusp

February 8, 2017

The Coming Destructions of the $15 Minimum Wage

 

There are a number of Democrat run and owned cities which feel they have found the solution to poverty caused by those working merely for the paltry $7.25 per hour; the new dawning of the $15 per hour minimum wage. These cities see no problem with doubling their minimum wage and believe that the businesses, such as burger and other fast food restaurants and retail shops will have no choice as they will be unable to move from the city. They have missed another alternative that those unable to move beyond the city limits will face, total disappearance as they find it impossible to sell their merchandise at the inflated price required to pay their remaining help the overly inflated salaries. Where the minimum acceptable wage is already around $10 per hour the increase will still cause hardships for the retailers and manufacturers. Their higher priced goods will cause financial distress for those residing within the city limits without the means to get to the suburbs where the prices will actually be lower. Even the real estate will lose value as it becomes more difficult to rent their retail and manufacturing spaces and the cities slowly fall into disrepair as the people find they have little if any choice but to leave the city. With what jobs currently exist being initially cut just to remain viable, the economic base for these cities will be cut from under them. The loss of jobs will lead to decreased business which will again lead to more job loss in a slow death spiral. These cities will slowly turn into husks collapsing under their bureaucratic foolishness. They are signing their death warrant in their misguided attempt to right a nonexistent wrong.

 

When I first entered the job market the minimum wage was all of $1.25 per hour; yet nowhere in the entire area around the city where I resided could one find a job at that wage. The minimum wage by 1975 had risen to the unbelievable heights of $2.00 per hour and even that was not high enough to affect work in my home city. The reason was simple, nobody would accept such a wage nor could any employer find workers even for digging ditches at such a wage. My first job was washing dishes at a diner which paid more than $1.50 and was among the lowest paying of jobs. As it turned out I was a poor dishwasher and was fired within the first few weeks. From there I found work stocking shelves at a chain shoe store which paid even more and eventually became a commissioned sales person where minimum wage never became a consideration. Still, even friends who took construction work actually digging ditches or, as I did one summer, building railroad tie walls in a new community development were paid well above minimum wage. I know that across the nation there were many places where the minimum wage was the guideline for minimum wages of employment but that was always a starting salary. Anybody working at a minimum wage who was still making the minimum wage within six months or a year was usually soon to be seeking a different line of work as they were not up to par. Minimum wage was a test salary which was offered largely as one learned how to work at their chosen job and once they proved proficiency their salary would rise above that minimum rate. This fact was one of the truths I found wherever I moved was that any employee worth their salt made minimum wage only for the shortest of periods and once they proved their worth they received a more decent wage. Are there those who make minimum wage to start and will continue making that level no matter how hard they work? Yes, but these are a very small minority and few of them are raising a family on their salary. Those who only make minimum wage for extended periods of time will not benefit from a $15 per hour minimum wage as those will be the first people who will be let go. Often those making minimum wage for prolonged periods of time often are kept on the payroll not because they are price efficient but because their employers realize they are doing the best they are able and they remain employed more for spiritual or social reasons than economic ones.

 

History of the National Federal Wage Rate

 

The reality is the world is a hard and cruel place with little sentiment, though fortunately there is more sentiment just not in the workplace. In the workplace every salaried individual must fulfill a simple parameter; they must make more money for their employer than their employer pays them. Businesses are not for generosity or charity, even those in the business of charity as even they must show a profit for every employee. Their secret is the majority of their employees are largely volunteers and thus can easily take in more than they cost. Businesses need to make a profit or they serve no purpose and would soon go out of business without a profit margin. Let us take an example of a business which makes exactly the money as it pays out in salaries. How long would the owner and his family survive if this was the case? Owners only receive a salary from profits after all expenses are paid and thus employees must make more than they cost or the owner has no reason to remain open. Further, what is the owner to do when the rent for the store space comes due, the water and electric bills, the gas bill, taxes on the property and on sales, and how do they pay for the insurances for their employees such as medical (Obamacare does not come cheaply to the average business) and unemployment and payroll taxes etc. And then there are the other incidentals an employer has such as the Christmas party and cupcakes for employee birthdays and of course meals for their own family. If it is a large company then there may be stockholders who also demand profits otherwise they will take their investment capital elsewhere.

 

These are the most basic of reasons that the $15 per hour minimum wage is going to bust many of the cities employing it. There are probably a select few cities such as San Francisco, New York, Los Angeles, Washington D.C., Chicago and a maybe others where the minimum employable wage, not the minimum wage but for that location it acts as the minimum wage, is already over $15 per hour. These cities could make the empty statement that they are raising their minimum wage to $15 per hour knowing that virtually every employer, especially their main employers, already are paying $16, $17, $18 or even more just to find worthy candidates to fill their positions. The problem with their taking their minimum wage above the national average is it places an upward pressure on smaller and less affluent cities to follow suit when their economic situations cannot support such a wage scale. It is all well a good for the major cities where there are no shortages of employable people compared to the job base to make offers to raise their minimum wage to less than the going rate as they and their employers will not suffer. But as this is not about their minimum wage, it is about making a case to raise the Federal minimum wage to $15 per hour, which the Democrat Party has been pushing, which would have disastrous results especially for rural neighborhoods and farm laborers. Small towns would find the higher prices near impossible for families to meet and employers would run their businesses as lean as humanly possible possibly leaving numerous former employees unemployed. These communities would soon be faced with taking their economies off the grid, so to speak. They would most likely turn to a barter system which is untaxable and makes things relative and neutralizes the minimum wage as what is the worth of bushels of wheat in exchange for a new roof on the barn? Soon these communities would drive out any competitors who could not accept bartered goods such as the chain stores which run only on dollars and cents. No, the $15 per hour minimum wage argument is mostly being pushed in Democrat controlled major cities such as Seattle, where their Federal Court Judge heard a case and has attempted to nullify President Trump’s immigration vetting delay from terror ridden nations. These cities already have virtual minimum wages well above that $15 per hour and thus are only going to hurt small Mom and Pop stores and other smaller enterprises or workplaces with low profit margins such as miniature golf courses, etc. The whole reason behind the minimum wage argument is to give false hope to young employees who see such a higher minimum wage as their salvations not realizing that it will only bring about a bout of inflation until the new minimum wage will be equal in buying power to the present minimum wage and will only result in the American worker becoming more expensive and thus chase more jobs overseas. This is a bad argument and can only harm America, but what do the politicians care if they can garner a few extra votes in November?

 

Beyond the Cusp

 

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March 13, 2014

Putin Threat Harbinger of Greatest Danger to America

Putin made an unveiled, direct threat focused to cause President Obama to stop and consider if he really desires to enter a financial war with Russia when he threatened to end his nation’s practice of utilizing the Dollar as their reserve currency. In many ways such a threat is an empty one holding little credence as very few nations would accept the Russian Ruble in payment for resources or other transactions between nations and would still demand that Putin pay them in Dollars or at least Euros. But that is this very moment and the future does not promise that the dollar will continue to be the reserve currency of the world. That begs the question of what will become the world’s reserve currency and what will such a change do to the power and credibility of the United States?

There have been many in the recent few years who have sought to find an alternative to the American Dollar as the reserve currency of the world. Most of those proposing such oppose the United States though they are not adversaries on the brink of actual war. These nations all have a couple of items in common. They are all developing nations recently joining the advanced industrial world and are entering the information economic world and are struggling to be on a par with the United States. For the reason of gaining an advantage of equal footing with the United States, many of these nations have proposed a multi-currency reserve usage if not their currency replacing the Dollar. Now there are those who believe that virtual is better who talk of a world currency driven by demand to set its value such as the bitcoin. Where the bitcoin is a quaint idea and the whole concept of a virtual universal currency, such an idea has one very glaring drawback, no nation is going to go willingly to such a system that is outside the political control of governments, though such would provide a useful reality in the monetary markets of the world. Bitcoin is an unlikely choice as the originators are not quite as well connected as would be required for nations to trust such a system thus bitcoin would need to compromise with international political powers before they could be accepted as the new universal currency. Expect some more prominent and well know entities to enter the market of virtual money with Pay-Pal, which is mostly Dollar centric, having already taken steps in that direction.

Some of the major competitors to the Dollar are the European Euro; the main reason behind the European Union was to establish a trade center equal to the United States market and the establishing of a currency to rival the Dollar, the Chinese Yen and a few others. Which nations and currencies are vying for the title of the replacement currency for the Dollar is unimportant as long as the Dollar retains sufficient stability and recognized value making it the continued universally accepted currency. Even those places which have decided to accept currencies other than the Dollar still rely on the Dollar for the setting of the value of the other currencies thus even when using the Iranian, the Chinese Yen or the Euro; these currencies are accepted in trade depending on their value as measured against the Dollar. So, even if you are paying with some other currency, your bill is still being charged in Dollars and your payment is in an equivalent amount of another currency.

So, what will it take to change the reserve currency of the world? One large step would be to have OPEC begin to use a different currency for purchases of crude oil. There is a reason the Dollar is often referred to as the Petro-Dollar, because the true value of the dollar is the amount of oil that can be purchased with a set amount of Dollars. Thus far, the only places accepting alternate payment for crude largely have been Iran. The reasons are obvious; Iran is attempting to weaken the Dollar as part of their offensive against the United States and the Western nations. The real test would be if the GCC (Gulf Cooperation Council) and especially Saudi Arabia were to stop accepting Dollars and choose another currency or group of currencies in payment for their crude oil. Even should these nations simply start accepting alternate currencies it would weaken the value of the Dollar and would be the initial step to the devaluing of the Dollar to the point that it would be dropped as the reserve currency of the world. If you question what affect such an event would have on the United States if the Dollar of today ceased to be the reserve currency of trade tomorrow, you only need look to the nation that once before minted the dollar that was the reserve currency of the world, Spain. The Spanish dollar which was the originator of the phrase “pieces of eight” as it was a bar of gold that was able of being separated into eight equal pieces that was the currency of trade. Part of the reason behind this was the Spanish exacted a serious penalty for anybody caught shaving their dollar, death. We need to remember the death of the Roman currency system and possibly a large contributor to the death of their empire was the shaving of Roman monies by, at first, the most unscrupulous and eventually it becoming almost commonplace such that it became necessary to weigh each Roman coin before accepting its value.

The Dollar is currently being shaved by a new destructive force, inflation. Because the United States has adopted the practice of simply printing monies in order to finance the government stimulation of the economy, a practice with a dodgy history and limited effect currently, there is going to come a time of rampant inflation in the United States which will result in a drastic devaluation of the Dollar. This devaluing of the Dollar will hurt far more peoples than simply the American public; it will hurt any nation holding large reserves of Dollars. This looming threat is also behind many nations’ nervousness with holding any excessively large amount of Dollars or American certificates or bonds which are Dollar based. This is what urged China to finally stop purchasing more American debt by buying bonds backed by Dollars. This, in turn, led to the Federal Reserve purchasing the Treasury Notes necessary to print additional Dollars, a practice which has artificially sustained the stock market prices and is leading them to new heights. This is an empty valuation as with time the Dollar will have to fall compared to the other currencies of the world which will make the higher priced stock market return to a value that truly represents its actual worth. The real fallout of this eventuality are the other nations whose currencies are directly tied to the Dollar and any nation with excessive holdings in Dollars as well as all those heavily invested in American companies’ stocks which are valued in Dollars. The first signs of the near universality of the effect of a devalued Dollar have been displayed each time the Federal Reserve had threatened to stop its constant Quantitative Easing which is a euphemism for making money, Dollars, out of thin air, and never a good idea. The nations whose currencies took direct hits resulting from such Federal Reserve threats are the nations most vulnerable due to their heavy investment in Dollars. This is what was behind the Chinese fire sale selling off a large portion of their Dollar reserves a few years back. That sell off came within six months of China refusing to purchase additional Treasury Notes, i.e. Dollars. Yes, the Dollar has become extremely vulnerable and yes, the Dollar may very well be on the verge of a collapse and no, we have no idea what the far ranging effects on the economies and currencies of the world when the American Dollar falls beyond the cusp into a great chasm of debt riddled valuelessness. We may not have to wait decades for an answer, but it would be best to never be in the position of realizing that everything we thought had value had become worth the cloth/paper it was printed on and not the value the pretty designs and numbers inferred. That will be a day of reckoning, a great and painful reckoning.

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

 

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