Brains Not Included

Cracked Up, Whacked Out and Completely Out of Control

It Just Might Be on Purpose

I hate conspiracy theories and I hate it when commentators try to point to disparate events as proof that some politician is a bad egg.  But I have to say this and I know it’s going to make some of you mad.

It appears to some that the Democrat strategy is to keep the economy down and in the doldrums in order to continue to ‘blame’ the previous administration and keep the country in a state of economic crisis.  I know, it sounds crazy and I can’t even believe I’m writing this but here it goes.

 I believe the President and many on the far left in his party are purposely doing and saying things that keep the American economy in a state of constant flux and instability.  Take the press conferences over the past couple of day.  (01/21/2010)

 In an attempt to strike a populist tone and garner support to the Democrat candidate in Massachusetts, President Obama came out with a speech denouncing corporate bonuses and pay for CEOs.  After the Democrat loss and the exuberance of the electorate he made another speech about limiting the size of banks which practically collapsed the stock market.

If we take Rohm Emmanuel at his word; ‘never let a crisis go to waste.’  Then we have to assume that the left in this country needs us to remain in crisis to pass their agenda.  So I ask; is the President and his party purposely trying to keep our economy down?  Could this be true?  I’m beginning to believe it just might be on purpose.

Filed under: Economics 101, Smoke Screens, , , , , ,

Keynesian Kooks – Why Keynesian Theory Doesn’t Work

KeynesianWhose Theory is This?

Keynesian Theory was developed by John Maynard Keynes, a man who would eventually have the royal title of Duke bestowed upon him in England.  Born in 1883, he came to prominence as an economist and philosopher around the time of The Great Depression. 

 His theories were adopted by the government in England in the late 1930’s and were eventually adopted by the Americans towards the end of World War II.  Essentially he believed that government could and should control capital in order to abate the swings in unemployment that can be typical in capitalist economic systems.

His theory basically states that high rates of savings by the population should be discouraged because those rates of savings hamper growth.  He also believed that supply drove demand not the other way around.

One of his largest critics was Milton Friedman who believed there were some basic flaws in Keynes theory.  One of the things that bothered Friedman the most was that much of Keynes economic themes were based on his feelings or his philosophy and had very little to do with actual mathimatical formulaic proof.

Friedman actually disproved Keynes theory that supply created demand and proved mathematically the opposite was in fact true.

What is the Keynesian Theory of Economics?

Simply put, Keynesian theory states that government can place capital more efficiently than the private sector.  When government controls capital and directs its placement through taxation and heavy regulation or through deficit spending, then swings in economic cycles are flattened and full employment is brought into equilibrium for long periods of time.

It further hypothesizes that high savings rates are unsafe and destabilize the economy and that only low savings rates and high rates of spending by the population can sustain growth and fuel stable economic cycles. 

Therefore, when the public is saving in large numbers, the government must encourage spending through regulation and if government cannot encourage spending then it should tax heavily in order to put the saved money to work in the economy.

Why Keynesian Theory is Still a Theory

Keynesian Theory is still a theory because it’s never been proven to work.  While America embraced Keynesian Theory in the lat 70’s under Nixon and Carter, the British were quickly squeezing the vestiges of this failed theory out of their government.

Theories remain theories until they are proven at which time they receive the title of Rule or Law.  We don’t call it a law because the theory’s concepts have failed time and again.  If it worked we would call it a Keynesian’s Law or the Keynesian Rule.

Milton FriedmanCommon Sense Shows Us the Way

Think about the two basic tenants of Keynesian Theory.  1.)  That saving is bad and; 2. )  That capital in the hands of a few (the government) is better than the profit motive of capital in the hands of many.

Instinctively we know that having savings is good.  ‘Save for a rainy day’… ‘Neither a beggar or a borrower be’…  ‘Waste not, want not’…  All of these wise old sayings are telling us something.  SAVE FOR A RAINY DAY!  Saving is a good thing.

Next lets take a look at human nature.  How good would a person have to be if you put millions, billions or even trillions of dollars in their hands and said, this doesn’t belong to you but you have complete control over it? 

Now the rules say this person can’t use their emotions in deciding what to do with the money and they can’t let their personal opinions play on their decisions, but…  How does this person or these few people in control that kind of money keep their own human nature in check? 

They don’t, just look at the Marxist utopia that should have bloomed from the Bolshevik revolution.  Instead of Utopia we got the USSR.  Socialism and Communism are the end result of basic Keynesian Theory.

Friedman Got It Right

Milton Friedman used mathematics to prove his economic theories and to disprove Keynesian Theory.  While Keynesian approached economics from the viewpoint of philosophy first and mathematics second, Friedman comes at from the other side.

While the Keynesian experiment was all the rage in Europe and was being put into practice in the U.S.A., Friedman was being decried by his piers for his opposition to this ‘enlightened’ economic theory. 

But, armed with the mathematical facts and penchant for philosophy himself, Friedman was able to write one of the greatest books of all times.  Capitalism and Freedom is a must read for anyone that wants to understand why Capitalism works and how it creates freedom.

We can try Keynes ideas one more time, but doesn’t make more since to turn to the logical rules that are proven and documented for us by Friedman?  Capitalism may give us some ups and downs in our economy, but it is still the worlds last best chance for strong free societies where people have an opportunity to live free from tyranny and where people are free to live their lives as they see fit!

Filed under: Economics 101, , , , , , , , , , , , , , , , , , , , , ,

The GM Affect

Interest rates have gone haywire the last couple of days. You won’t hear it reported in the media though. Why? Because it would look bad for certain economic positions and actions taken by the current Administration …at least that’s my take on it…

The problem is that the bond markets are upset about the way the Obama Administration has handled the bond holders for Chrysler and fear the same will happen with GM. At the administrations urging, the judge in the Chrysler bankruptcy case forced the bond holder to take on more risk.

Usually bond holders are the first to be protected in a bankruptcy but this time it was other interests that were protected first. (think Unions) The bond holders took a back seat to almost every other concern.

Before you go saying those ‘evil’ bond holders (lenders) deserve it, think about this. Bond holders invest in companies by making loans to them because they are risk adverse. Investing in normal stocks is to risky for these investors. There reason? They are investing money from pension funds and insurance companies. This money needs to be invested in areas with very little volatility and steady returns with low risk to the money. (think about your pension, you want safety right?)

The way these bond holders are being treated is a huge change from how large restructuring like this normally takes place. And this sets a dangerous precedent going forward. So with a bankruptcy from GM looming on the horizon, the bond market got very, very nervous and everyone backed out of the market in one day!

I’m calling this The GM Affect because it was so awful. We saw rates jump 1% in less than 24 hours ….by the way… That is completely unheard of!

Rates have come back down today, but I don’t know how long that will last. Rates jumped up to 5.5% from a low the previous day of 4.5%. Rates today are back down to 5% but no one knows for how long.

With a very scary economic report just out about a 5.7% decline in GDP the first quarter of this year and about companies slashing inventories and jobs (approximately 2,000,000 more jobs lost) I’m not sure how much longer rates can stay this low.

So while the Administration rolls our their latest campaign touting the ‘good’ that the stimulus package has done and while they roll out the parties for the supposed 150,000 jobs that were created, our economy has had the second largest contraction since 1981. (By-the-way, only about $11 million of the $45 Billion that has hit the economy was for worthwhile make- work projects. The rest was for one-time payments for welfare and Medicare and for the extension of unemployment benefits.)

I know that this sounds like political commentary and I apologize because it is truly not meant to be a political view point. I’m commenting on my concern about the numbers The numbers don’t lie, and since they don’t lie, then someone or something else is lying. Could that something be the government, maybe both parties? Some will point back to the Bush administration as an excuse to support Obama’s actions. Guess what? Bush was wrong as well!

All the economic tricks and gimmicks being tried today have been attempted before. We did here in the late 70’s to early 80’s. and it didn’t work. Heck countries all around the world have tried what we are doing and they will tell you it doesn’t work.

Call it Keynesian Theory, call it Social Democratization, call it whatever you want but understand this. If it is illegal for you to ‘kite’ checks to cover your debt, then why do we allow the government to do it? (Kiting a check is when you deposit a check from one of your own checking accounts into another and then from that account back into the original account in a never ending circle just to cover checks that you right elsewhere, at some point it will catch up to you.

So why are we allowing our government to do a thing that we would be put in jail for doing? Because of some ‘theory’? Does this make sense to anyone?

At some point we will not be able to print enough money to buy our own bonds to fund our bloated and bureaucratic government. I’m hoping for the best and preparing for the worst. Here’s a link to a great article with the bad news/good news that can help you make up you own mind. http://www.marketwatch.com/story/us-gdp-revised-to-57-decline-in-first-quarter

Filed under: Economics 101

In Wonderland

Sometimes when I watch the news I feel as if I’m Alice and I just fell through the rabbit hole.

As I arrived home from another stressful day of barely scratching out a living and working 12-14 hour days just to do it, I was greeted with our President and Secretary “Dodgy The Tax Dodger” Geihtner announcing a new corporate tax program.

As I watched …in disbelief I might add… Secretary Geihtner actually had the gall to admonish corporations who use LEGAL tax loopholes to lower their taxes. He then had the unmitigated nerve to state that the new law would give government the ability to collect back taxes owed by these corporations and wealthy individuals.

Now wait just one cotton pickin’ minute! Is this the same guy that didn’t pay his fair share until he was caught? Isn’t this the same guy that didn’t pay all of his back taxes owed because the statutes of limitation had run out on some of it?

Do we really live in a world where the Sec. Treasury who is supposedly the ‘brightest financial mind’ of our nation can’t even use Turbo Tax to properly file his taxes but is the one lecturing others on the tax responsibilities? Will the hypocrisy never end?

Making American Companies Less Competitive

But let’s look beyond the hypocrisy to the stupidity. While this idea seems to be a good one on its surface and will play well with the ‘class warfare’ types, you know the ones that want to crush the rich and curse the evil corporations, the whole thing will never work.

Here’s why. The rework of the tax code is supposed to ‘punish’ corporations that ship jobs over seas and ‘reward’ companies that create jobs at home. However the tax rate on corporations in our country is confiscatory. We have one of the highest corporate tax rates in the world.

Companies will just choose to move their operations completely out of the U.S. rather than be subjected to further government interference. On top of the regulations on CEO pay and other socialistic policies, more capital and more companies will leave our shores not stay here!

We Pay Anyway

But that’s not the real point is it? In my usual fashion I’d like to take the conversation to where it belongs and it’s a direction that you are not likely to hear from any normal news cast.

No matter how much corporation is taxed they never pay it. The cost of the tax is just reflected in the retail cost of the goods when they are brought to market. That’s right; we pay the tax, not the corporation.
Higher taxes and tightening loopholes will only lead to more companies leaving our shores. It will lead to less jobs here and it will lead to higher prices on everything. We pay anyway.

Evil Corporations!

Now I know that many of you know that I am self employed and as such I am ‘part of the problem’ in this country. After all, I don’t conform, I’m ambitious, I work hard and I’m independent. You can’t fit me a box so I must be ‘dealt’ with.

That’s right, I’m a CEO and I own an evil corporation. But I’d like to say something here. As a dumb hick from the Southside of Atlanta with a high school education, I’ve worked hard. I’ve taught myself and I’ve put a lot of sweat into what I do.

Over the past two years I’ve endured a huge amount of sacrifice and worked 60, 70 and 80 hour weeks without earning a single dime! I’m barely holding on, but I’m holding on. And when things turn around I deserve to make an unlimited amount of money because of my sacrifice. Who has the right to tell me otherwise?

The IRS and The Hospital

Well it seems that the IRS has the right to tell me otherwise. After years of paying my taxes on time, paying 7.5% of other peoples taxes (BTW – that’s what employers do, they pay 7.5% of someone’s wages to the Federal government for the privilege of having an employee, oh yeah, and don’t forget the additional 15% we pay on ourselves. Sound crazy? It is!)

….sorry, I digress…. I received a letter form the IRS saying that I owed back taxes called FUTA taxes for employee payroll from 2005. When I called I found out there was more, they believed that I operated my business out of California even though I’ve only been to that state once in my life, I could not get them to understand otherwise.

So what’s my point? My point is that the way I was treated was so unprofessional and so harsh that the stress sent me into a tail spin and I ended up in the hospital (that story will come soon, I’m writing it now so stay tuned).

You see, I am to be ‘dealt’ with as far as this administration is concerned. So for those of you who think I’m some conservative hack and guys like me need to be dealt with, watch what you wish for. I’m sure that when the government is finished with guys like me, they’ll turn on you.

Remember, government does not create wealth and at some point those that wish to redistribute wealth will run out of other people’s money, that’s when they’ll come after yours.

BTW – I don’t owe the tax and I have proof. Do you think that matters to the IRS? The answer was and is a resounding …NO!…

Stay tuned for the unbelievable TRUE story of what happened when I called into IRS Customer Svc…. “Coming Soon”

Filed under: Economics 101, Rants!

As The World Turns

As The World Turns is a daytime drama that has been on for years. And as all soap operas are apt to do, the drama that unfolds on a daily basis is so complex and drastic as to be unbelievable. Well the same can be said for the World Economy…

In America we woke up this morning to news that the Swine Flu has broken out in Mexico and Mexico City is like a ghost town. Luckily the epidemic has only spread into 5 states in the U.S. and outbreaks here have been minor.

We also learned that the British Pound-Sterling will stay that way for quite some time. For better or for worse (I think for the better) the Brits will not acquiesce and diminish their economy even further by joining the EU and converting their currency to the Euro.

And yes, there’s even more world wide news, seems that China is developing even closer ties with Taiwan while property prices in Hong Kong are making a huge comeback.

So, why do I report all of these things going on around the world? It’s because they affect our bond market which ultimately affects the flow of capital and the interest rates we pay.

Weak Economies Follow the Strong

I wrote that article because many of the more liberal financial journalists were decrying our capitalist system and pointing to the strength of the EU and China and implying that their economic systems were superior to ours. In truth, these journalists with an agenda were wrong.

We don’t live in a vacuum and neither do our trading partners. Many bemoan the fact that America consumes so much, but we consume because our economy is so strong. What is happening to the world economy right now is a direct result of our economy losing it’s ability to consume.

So where is all this heading this morning? I’m not trying to make a political point here, I’m making a statement of fact. Property values in Europe have fallen and their banks are a mess. Their economic cycle follows ours by about 12-18 months.

Next it’s the BRIC economies …Brazil, Russia, India and China… These economies follow ours with a 20-24 month lag.

Stabilization is the Next Step

In the US we have seen a recent stabilization of property values and in the economy overall. Things may still be trending downward but not at as rapid a pace. The same is starting to happen in Europe, however, they still have a few big hits before they get to where we are.

But, China and the other BRIC nations are just starting to feel the heat. Remember earlier in this article I mentioned that property values in Hong Kong were on the rise? That’s because Hong Kong is one the few places in the world where the economy is somewhat insulated.

Their tax system (a consumption tax akin to the Fair Tax) has made the economy very insulated over the years. They follow patterns similar to the US so now that China is feeling the squeeze money is moving from China to Hong Kong!

What does all this mean to us …US…? It means this. We are getting close to the end of our economic down turn. Nobody knows if growth will be robust or sluggish, but that’s not the point. The point is we probably have one more big-hit coming and then we stabilize.

Ferocious Entrepreneurial Spirit!

This also proves another point. Many left-leaning ideologues would have us believe that capitalism can’t work without highly restrictive government oversight. But, they are wrong, capitalism works in spite of highly regulatory environments.

If you look at the data you will find that the government actions did very little to stop our precipitous fall. Some will argue that the TARP helped save banks, but did it really? Not all of the TARP money was even used.

The government still has hundreds of billions in unspent TARP money and the banks have stabilized. A very, very small percentage of the pork-filled, ear-mark laden, $800 billion dollar stimulus package has hit the economy. Yet, we are stabilizing.

The correction of the bubble in the economy was due to normal business cycles within the world wide Capitalist economy. No the ferocious entrepreneurial spirit will turn the American and World economies around despite the best efforts of central governments around the world and NOT because of them and their actions!

Filed under: Economics 101

Watch the Birdy

Recently in the news there was a lot of furor over AIG giving out millions in bonuses to some of it’s top executives. I don’t want to get into the argument of whether that was correct or not, I’m sure there are many opinions on both sides.

What I want to point out today is something that many of us missed. While the left hand was waving for our attention the right hand was doing something else that the dolts in the media didn’t see.

While the spectacle of Chris Dodd stuttering uncontrollably as he tried to explain his way out of allowing the AIG bonuses without throwing the Obama administration and Timothy Geihtner under the bus was amusing. It served to dupe the one-sided media types.

What didn’t get reported this weekend and last week was the fact that the Feds decided to throw and additional $1 Trillion dollars at the market and made an additional $6 billion dollar commitment to keep buying MBS (mortgage backed securities).

Sounds good right? What’s so bad about that. Well I’ll tell you. They don’t have the money …or should I say WE don’t have the money to do this with. So the printing presses were pushed into full gear and just to top the bad news off with more bad news… ready…

We used the freshly printed money to buy our own debt. Now in the real world this is essentially like ‘kiting’ a check. You know, you go down to the bank and you deposit a check from your own account back into that account.

You don’t really have an extra grand in the bank but for a brief while the books show that you do. The government just did that. I dare you to try it! They would nail you for fraud and throw you in the slammer for sure!

But the hypocrisy of all this nonsense is not the worst part. The worst part of all this is that we know, everyone with any common since and historical economic knowledge knows that printing money devalues the currency and leads to inflation.

Our only saving grace is that monetary policy with regard to printing new dollars has been relatively tight over the years and we are in a recessionary time, so maybe, just maybe we make it without getting dinged to hard this time.

It’s scary out there. While things should start to improve, we won’t see real improvement and wealth generation until the bureaucrats and blow-hards in Washington quit with their Tax & Spend ways.

America, this is our wake up call! We can’t spend our way out of the mess this time. We need to save and our government needs to save along with us. It’s time to STOP spending money we don’t have.

That’s my opinion, I welcome yours.

Filed under: Cons & Contradictions, Economics 101

Economics 101 – Raising Taxes Helps Nobody!

When I have conversations with close friends who may not agree with my fiscal conservative political view, I am always struck by one fact. Many of their views are formulated by an understanding of economics as described by the media.

And when I watch the major news networks and see their talking heads, I’m dumbfounded that these guys don’t have any clue about economics or the things they are reporting on.

It’s understandable that a majority of our citizens don’t understand economics but it is unfathomable to me that reporters who are supposed to investigate the stories they report on don’t have a clue.

I am going to attempt to strip the politics out of my statement but some will never see the truth of what I am about to say. For those people who are so partisan that you can’t get your head out the sand and see the truth then you deserve the totalitarian government that will one day befall us all.

There once was a Republican President that was followed by a Democratic President and they both ruined our economy. The commonality between their presidencies was a progressive tax rate with a mid range tax above 38% and the top rate above 50%.

Both these presidents believed in price controls and caused a calamity on commodities prices and production. Both presidents policies caused high unemployment, high interest rates and out of control inflation. Who were they? Richard Nixon and Jimmy Carter.

Further stripping away the politics from the economics of our country, there were two presidents, one Democrat and one Republican that lowered taxes, stripped away regulations and allowed the markets to work freely and the economy boomed. They were John F. Kennedy and Ronald Regan.

When we analyze the histories here we see that tax increases “on the wealthy’ or tax decreases “for the wealthy” has no sound economic strategy, it’s just pandering and populism to garner votes and power. The real story is that the way our progressive tax system works is not beholden to how we “feel” about the rich.

To read the rest of this post please visit my blog at http://brainsnotincluded.com/

(BTW – Who defines who the rich are anyway? That’s a scary thought…huh?)

Here are the real facts of the matter. We don’t just live in the vacuum of a capitalist economy. Our capitalist economy is part of the world’s greater Capitalist economy.

The truth is that we can’t detach our economy from the world economy no more than we can tax the rich into oblivion and expect to be able to lift up the poor to a higher status. Ever since we took our economy off the gold standard we stopped employing a Static scoring methodology and moved to a dynamic scoring system.

So what does all this gibberish mean? It simply means that we can’t punish the rich without punishing everyone. Two presidents, one Democrat and one Republican, proved that raising taxes and imposing heavy regulations on a capitalist economy will kill the incentive and motivation to work and produce.

They proved that less money comes into the treasury because every thing just stops. They proved what Thomas Jefferson said about government. Government cannot create wealth, it can only redistribute other peoples wealth thereby destroying it.

These same two presidents also proved what Margaret Thatcher said; The problem with Socialism is that you eventually run out of other people’s money. And a progressive tax system with a heavy handed government is very close to socialism.

Now on the other side of the equation we’ve had two presidents that employed a very different approach. One was a Democrat and the other a Republican and both lowered the tax rate to an optimum point to encourage, incentivize and motivate the populus.

These presidents created a robust economy and even with lower tax rates on ‘the wealthy’, they still managed to increase revenue to the treasury. This issue of whether to raise taxes or not has nothing to do with economics. If it did, we’d always keep taxes low.

No, the real issue is about feelings. Well, I for one am tired of feeling good about bleeding the rich for every red penny they have. I would much rather be happy because my own coffers are full and the economy is solid.

Let’s take the politics out of our discussion about taxation and let’s use real facts about how to get an economy moving and keep it growing. Higher taxes is not the answer!

Filed under: Economics 101

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