Maximize Liberty

Social, political, and philosophical issues through the eyes of a Libertarian

[maximizeliberty]

Predictions for 2014: We've Got A Turd In The Punch Bowl

In my last blog post, Echo Bubbles in 2014, I discussed how responding to popped bubbles with a loose monetary policy only serves to reflate more bubbles. The more liquidity injected into the system, the more intense the ballooning.

Since 2008, the Federal Reserve has injected around 4 Trillion of liquidity into the U.S. market. 2.3 Trillion has gone towards Treasuries, to keep demand high and interest rates low. 1.6 Trillion has gone to banks in the form of asset purchases. The Fed has been offloading Mortgage-Backed Securities from banks in order to provide liquidity, and eliminate exposure to housing volatility.

What happens when 1.6 Trillion is injected into our fractional-reserve banking system and real interest rates are negative? Incentivized speculation leading to all-time asset highs, stock market highs, Emerging Market (EM) liquidity, price inflation, etc.

In late 2013, The Fed recognized that it's balance sheet was growing monstrous, it's policy was only enriching Wall Street, and unemployment was moving towards 6.5%. The Fed reacted by tapering it's QE program from 85 billion, to 75 billion, and now 65 billion. With these events in mind, here are my predictions for 2014: 

These will largely begin this year and continue out into 2015.

Lack of Participation: Unemployment missed target in January and was largely attributed to cold weather (even though outdoorsy construction jobs gained). In the unemployment rate calculation, The Bureau of Labor Statistics doesn't include people who are no longer looking for work. Isn't that amazing? So if someone gave up searching for a job, and now lives off of the public dime, they are not factored into the unemployment rate. So the really unemployed aren't counted as unemployed. That's like not including people over 400 lbs as obese because they are morbidly obese. A better economic indicator is Labor Participation, which hit 35-year lows with a reported 91.8 million people not in the labor market as of January, 2014. My Prediction: That number will grow to over 108 million by January, 2015.

Labor Statistic Obfuscation: and yet, when the government doesn't count non-participants as unemployed, they are able to pad the employment rate dramatically. Even with around a third of the entire population removed from the Labor market, by the miracle of statistical conflation, we'll see unemployment rates around or below 6.5% for all of 2014.

Food Stamp-ede: But you can't have it both ways. The Administration will suffer from record Food Stamp Participation when they conflate unemployment rates with lack-of labor participation. Last reported near 47 million partipants, food stamp participation will hit all times highs with over 60 Million Americans buying government-subsidized high fructose corn syrup products. Don't worry, Obamacare's got 'em covered. I mean do worry, because you'll be paying indirectly for mandated health services you didn't need, never wanted, and were forced to buy.

Retail Slides, Moves Online: What hasn't QE propped up? The middle class. Who buys cheap chinese goods that keep the consumer-economy going? The middle class. With wages and wealth being eroded by an inflationary monetary policy, we can see why retail has recently slid so hard. As if retail didn't have enough problems getting customers in the door, they're getting squeezed even harder by government-caused inflation and government-mandated wages. On one end there's rising cost of goods, rising energy costs, and rising price per square foot in rental space. On the other end, they're getting rising health care premiums and a populace-driven minimum wage hike. Retail is usually a first rung for youth entering the job market. The minimum wage hike will move the overall pay-scale upwards (if new person makes $10.10, an experienced person now has to make more than that). Good thing they can just increase the price tag... Wait, the middle class loosing jobs and having it's purchasing power transferred to the politically well-connected might undermine that plan. Maybe that's why JCP, Sears, Abercrombie, Aeropostale, Best Buy, Radioshack, Target, and the like have all undertaken major downsizing. In 2014 and 2015, we'll see massive retail misses, closings, major bankruptcies (JCP), and buy-outs. Labor substitution methods, like the robotic warehouses of Amazon, will see wider adoption as retail looks to cut their overhead.

Housing Tanks: Instead of letting housing prices deflate and become affordable to the masses, The Federal Reserve policy has been to purchase them from banks at around 40 Billion per month. This takes the toxic asset off of the bank balance sheet and puts it on The Fed balance sheet. If they can't unload them at the overvalued purchase price (if it wasn't too high, the banks would have sold them), then who do you think will be on the hook to cover the losses? Congratulations American taxpayer, you now own 1/6th of a dilapidated house. What happens to housing when it sits empty? It deteriorates. 10.3% of U.S. housing is vacant because the government didn't want housing to find it's bottom after the crash. Too Big To Fail Banks would have failed and we can't have that for our best campaign donors. Unfortunately, when the middle class's purchasing power gets eroded, and student-loan debt becomes a lifetime burden, people can't afford housing prices that are propped up by Fed policy. The same policy that enriches Hedge Fund Managers and Bank CEOs. Too bad they only need a few houses each (one for vacation, one for the mistress, etc). As a perverse side effect of QE stimulus, Investment Funds like Blackstone were able to get housing deals while borrow at record low rates. Say hello to the new Fund Lords for the upcoming rental-economy. My prediction: housing will miss month after month with the polar vortex no longer to blame.

Tuition Forgiveness Gets Serious: Tuition forgiveness gets serious legislation proposals in the form of tuition freezes and debt-to income repayment plans. Nevermind that the near infinite supply of government loans is what drove up the price in the first place. Loans that are given without risk analysis or repayment analysis. With youth unemployment on the rise, college has become the new first "job rung" in order to delay actual joblessness. What would happen if government got out of the student loan business? Probably the same thing that happened with car ownership, computer ownership, cell phone ownership, and tuition before the government got involved: it becomes affordable. Sure, rich kids will still drive daddy's BMW but at least poor kids will have a Ford. There's something to be said for graduating without a life-time of student debt.

Channel-Stuffed Automakers Get In A Wreck: With channel-stuffing at an all-time high, car dealerships will be looking to store their inventory in the Denny's parking lot next door. For consumers, this will be great as rock-bottom prices will go even lower. For the auto industry, the silver lining will turn red as margins are crunched in order to move two-year old inventory. In Q2 of 2014, look for insane car deals and even lower auto manufacturer evaluations after channel-stuffing turns into BOGO for the dwindling middle class.

Emerging Market (EM) Crises Goes Full Blown: The new Fed Chair, Janet Yellen recently indicated that they will continue with the taper for QE. They have already reduced it from 85 to 65 billion per month in the last few months. When you take an economy off it's life support, the first thing to go are the extraneous limbs. The Fed-pumped liquidity that has found it's way into the riskier emerging economies (Asia, Eastern Euro Block, South America) will be running for the door when future liquidity begins to dry up. You can't throw no money after bad money and expect growth or to sell out to some greater fool. Besides the taper, giant retail closings will slowly narrow our 500 billion year-over-year trade deficits with China, drying up their cash reserves even more. Expect a full-scale bailout in Asia during 2014. A few of them. The Eastern Block and sections of South America are already imploding. Risk off.

China vs. Japan Heats Up: That's not Fukushima radiation they're getting all hot and bothered over, it's a series of uninhabited islands that offer relatively little in terms of natural resources. The Senkakus battle between China and Japan is steeped in history and represents a proxy power-match more than a real threat. In bad economic times, superfluous threats can escalate very quickly. Unfortunately, both Japan and China are about to face some very real economic turmoil. The former has adopted a bulked-up QE program that has been causing price inflation. Meanwhile, China has been experiencing a liquidity problem that was referenced above. In addition, they have a massive amount of shadow-banking debt that is just about to dry up. The entire world is about to find out how much China has over-expanded. My Prediction: These two will be fighting over these islands (and others) in a game of escalated war posturing throughout 2014. NBD. The IMF should just come in and buy the islands to pay off both sides.

Tapered Taper: When the conflated labor statistics and lack of growth "catch up" to the taper timeline (even though they were already horrid during last round of QE), the QE taper will be reversed. If they're stupid, they'll call it QE again and everyone will know that it is a failed policy. If they're smart, they'll figure out a better euphemism for government inflationary stimulus. How about "trickle-down inflation." No, that doesn't sound appealing. Wait a second. Obama's new MyRA plan can keep demand high for Treasuries while the government starts a New, New Deal to "create" jobs. That's more like it. Since The Fed can't come out and directly say that QE is a huge failure that robs the middle class, and since the U.S. economy is propped up on it, the government will do what is politically expedient: keep over-stimulating while blaming the 1% and capitalism. They'll need to hide it a bit better so expect to see more bond buying out of Brussels and London. They buy our bonds, we'll buy their bonds, everybody lends a hand, arm, and foot—of the proletariat—in order to keep the game going.

The New, New Deal: Obama will announce a massive government spending program on infrastructure. This is geared more towards the elections in November 2014 or might even be towards the end of 2015 (for the 2016 elections). Nevermind that doing so transfers wealth from the middle class to the politically-well connected (Big Labor) through inflation and future taxation. And nevermind that government doesn't know how to value a project because it doesn't run on a voluntary market system with profits (consumer value) and losses (consumer doesn't value). With the help of QE, government spending has been at an all-time high and yet, we've seen the widest gap in wealth inequality. The New Deal? For the middle-class, it will continue to be the New Steal.

Bitcoin: Is tough to predict. It's been widely speculated that the U.S. government will eventually try to prohibit, hijack, or regulate bitcoin. If they regulate it to death or ban it, then obviously the evaluation will be much lower than what I predict. I don't think they'll do that because Bitcoin is providing an opportunity for wealth creation, in an economy that will soon be lacking in both wealth and opportunity. Bitcoin cuts costs when governmental policies are creating more. Innovation in logistics, automation, and globalization have been driven by entrepreneurs responding competition and governmental regulatory policies. Customers always want the most value for their money, that's why Wal-Mart exists. Whether a consumer is purchasing Chinese crap from Wal-Mart or a company is purchasing Chinese labor from Guangdong, economizing value is part of the human genome. This is a good thing because it leads to more efficiency. Bitcoin adds to this efficiency by lowering fees by cutting out the middleman: the bank. Bitcoin also replaces the financial sector with an open platform that entrepreneurs can compete in. After the Goxing that just took place, I predict that Bitcoin will rebound off of $580 and end up around $800 on average for 2014. I predict that it will see turmoil throughout the year but no major governmental policy against it (besides uninformed grandstanding). As a result, it will shoot up in Q3 and Q4 as adoption spreads in the e-commerce sector. It will be a few overnight booms from big-box announcements that will drive the price up over $1200, which will raise the mean for the year to $800. This should be multiples higher, but governments around the world have cut bitoin off at the knees by segmenting it from financial institutions, or outright banning it. They don't want a currency that they can't control. You can't inject 4 trillion in liquidity if you don't own the printing presses. You also have to tax the people to pay for budget-deficits, rather than inflate.

Silver and Gold: A steady climb until beginning of Q3 when the economic turd rises to the top of the punchbowl. Fixed statistics, hedonics-based CPI, and conflated labor can only fool for so long. Silver will go from $20 to at least $28. Gold will go from $1330 to at least $1550. This comes on the heels of the discovery of massive manipulation in the gold price. If the Fed tapers the taper, inflation concerns will become mainstream and precious metals will be purchased as the usual hedge. If the Fed continues to taper, the faux economy will collapse from lack of QE and money will shoot to safe assets. Since historically-safe Treasuries will have real negative rates (thanks to the Fed, ECB, and London keeping demand artificially high), investors will look to gold and silver as an inflation-protected asset during economic turmoil.

Boom and Gloom

If it looks like doom and gloom, it pretty much is. But that's a good thing. Since we've gone completely off the gold standard in 1971, we've seen an ever-expanding monetary policy (chart below) and the gradual erosion of the middle class. In the past few years, more wealth than ever has been transferred to the government and politically well-connected (banks) through the creation of new money via debt instruments. In an attempt to deficit spend while avoiding taxation, the government has gutted the middle class through inflationary policies.

Savings is the delayment of present consumption for future consumption. Deficit spending borrows our future would-be consumption so we can consume now. Deficits add interest, which curtails future consumption even more. All of the fractional-reserve monetary expansion in the world cannot change the mathematics. New money only serves to erode old money, temporarily prop up markets, and transfer wealth.

We need a contraction, it's the medicine to overexpansion. We need to deleverage and clear out the waste and asset over-evaluations so we can figure out what really has value instead of following the new money. We need to stop inflating away the middle class's fixed savings and wages. There's a difference between earning money in a free market, and getting money in a crony capitalist system. We need to get back to the free market.

In 1920s, the US faced a horrible recession. In response, the government cut spending and did very little to interfere. The recession abated in six months and was altogether over in a year. Today, we're drunk on monetary punch and we keep drinking more to delay the massive hangover that awaits us. Pretty soon, we'll be at the bottom of the punch bowl and we'll find out that there was a turd in it the entire time.

[maximizeliberty]

Echo Bubbles in 2014

Fudgamentals

The story every year is follow the money. Normally, this would mean in-depth analysis of company fundamentals and management, trends, and disruptive technologies. To the contrary, in the last few years, fundamentals haven't mattered near as much as fiscal policy. When the world's reserve currency is taking part in one of the largest monetary expansions ever (3.5 trillion on balance), economic analysis doesn't really matter. What matters is where that money goes and what bubbles inflate as a result.

Past Stimulus: Negative Interest Rates

In 2013, The Federal Reserve directed nearly half a trillion to the Too Big To Fail banks through the asset repurchase program under Quantitative Easing (QE). A little more than half a trillion went to U.S. Treasuries under the same program.

The Treasuries money inflated debt demand by providing a constant buyer: The Fed. This kept interest rates low so the government could continue to debt spend at the high rate it's become accustomed to since 2008. Don't curse Obama though, curse Greenspan. After the dotcom mini-bubble of 2001, Greenspan dropped the Fed Funds rate from 6% to below 2% in under a year. When there should have been a contraction from over-investment, Greenspan incentivized more spending. 

The dramatic drop in the Fed Funds Rate resulted in an effective negative interest rate when compared to CPI. In essence, if you had put money into a savings account, you would have lost wealth as price inflation outpaced your interest. The negative rate becomes intensified if you consider real housing inflation versus the Government's concocted version (HPI vs. OER). Chart Below.

So if people are de-incentivized to save their money, then what do they do with it? They speculate. Padded by other factors, the artificially-low rates spurred massive speculation in the housing sector, as highlighted by the squared sections of the chart. This eventually lead to the bubble that burst in 2008.

Since then, private spending has stagnated as debt-per-citizen levels have soared to 51.5k. Obama's massive spending is doing what post-housing-bubble consumers can no longer do: prop up bad bubbles. Interest rates alone used to suffice. Now, personal debt-to-income ratios are too high to secure a loan, so the government props up the market by doing what it does best: spending more.

Same Bubble, Different Central Banker

You can see in the chart above that "stimulating" growth after a bubble only serves to create an Echo Bubble. It's like trying to cure a hangover with shots of tequila. It happened after the dotcom bubble and it's happening again now.

In 2006, the monetary torch was passed from Greenspan to Bernanke. Not to be overshadowed by his predecessor, Bernanke sunk interest rates to all-time lows and inflated monetary stimulus to all-time highs.

With the American consumer tapped out on debt, who will be the greater fool to buy up overpriced assets? Enter the Fed. Since 2008, the Fed has injected 3.5 trillion dollars in monetary stimulus called Quantitative Easing. Not only is Fed policy encouraging massive speculation with effective negative interest rates, it's inflating the monetary supply in order to do so.

QE: Re-inflating Bubbles and Concentrating "New Wealth"

The problem with QE is that the ensuing inflation transfers wealth away from private savings and wages to the banks and politically well-connected. If I print a bunch of new money and loan it to my friends, they benefit by spending that money first. Prices haven't reacted to the increased supply of money so they can purchase assets at lower than the future market value. If I trade this money for toxic assets, like Mortgage-Backed Securities (MBSs), then I've done my friends another favor by liquidating their bad assets. This is exactly what the Fed has done for Too Big To Fail Banks.

QE to banks resulted in a ballooning stock market, funneled through a spoon-fed financial sector. Triple-digit Price-to-Earnings ratios for "hot" (unprofitable) companies has become the new normal. This has created a windfall of bonuses for corporate CEOs, whose company evaluations were artificially boosted by easy money. Money that was searching for any return in the land of negative real interest rates.

The already-wealthy benefited from stock market inflation by owning the majority of U.S. stock and company assets. The bankers and hedge fund managers earned major commissions on the massive influx of cash. Can you guess who didn't benefit? The middle class and the poor, whose wages are the last to see the boost from inflation.

The Cliffhanger: 2014

So what happens in 2014? To understand that, you have to understand where the 3.5 Trillion in extra liquidity has gone, what it has propped up, and what monetary policies the Fed will resort to when their plan doesn't work. I'll be covering that in my Predictions for 2014 post next time.

[maximizeliberty]

Hulk-Smashing Bitcoin Haters at Business Insider (Part III: Bitcoin Lowers Fees)

In Hulk Smashing Bitcoin Haters at Business Insider (Part II: Bitcoin Protects Liberty), I countered Jim Edward’s claim that Bitcoin created "boss-class criminals." I argued that boss-class criminals arise from a black market, which develops as a result of the State prohibiting a good that the public deems valuable. Since there is no legal recourse, the market actors resort to violence. There were boss-class criminals before Bitcoin, and as long as the State continues the War on Drugs, there will be boss-class criminals in a digital-currency world.

Jim's next claim was just as misguided: "There is no compelling reason for ordinary people to use it [Bitcoin].”

Bold claim Jim. Let’s do some merchant math to see why, despite being a non-State currency in it’s infancy, Bitcoin has already been adopted by tens of thousands of merchants.

…the Bitcoin equivalents of Paypal, BitPay, announced last week that it has now processed over $100 million in BTC transactions in 2013, has increased its merchant base to over 15,500 approved merchants in over 200 countries, but most importantly, has seen a surge in the number of merchants using its BTC payment pricing plan, by 50% since October while the volume of transactions has tripled. - Zerohedge, As Bitcoin Transaction Volume Triples Since October, Europe Prepares To Regulate, Tax The Digital Currency

$100 million is a lot of Bitcoin volume for merchants in 2013, especially when that doesn’t include processing behemoths like Coinbase (18000+ merchants). That seems at odds with Jim Edwards claim that “there is no compelling reason for ordinary people to use it.”

The Simple Math

Let’s do the basic arithmetic to see why Bitcoin is so attractive for merchants. A merchant can accept Bitcoins for no processing fees. If they want to change Bitcoins into their local currency, they can do the first million for free. After that, they pay 1%. Credit card processing averages around 3%. 1% is less than 3%, netting the business a savings of 2% of revenue when customers use Bitcoin.

If we delve into the border-crossing powershoppers and the booming international e-commerce space, there’s absolutely no comparison. The borderless Bitcoin destroys all competitors at 1% local currency withdrawal rate. Credit cards aren't even close with 3% fees piled on top of 2% currency exchange fees. That’s a 4% savings when customers use Bitcoin.

Now if you blog for Business Insider, you should know a little about business. When a company is able to reduce costs through technology, they can offer a better product for the same price, or the same product for a better price. Integrating Bitcoin allows for either option because it reduces overhead costs in payment processing. Consumers will gravitate to merchants with lower prices, like Overstock, who already accepts Bitcoin.

As the ecosystem grows past it’s infancy, the user friction for Bitcoin will diminish. Shopify is already offering native Bitcoin integration and Magento has Bitcoin payment extensions.

What About Safety?

As a programmable currency, Bitcoin can have almost every bonus of today’s financial system - insurance, fraud-protection, escrow, fail-safes, etc, which makes general adoption even more compelling. All of the things that worry Bitcoin detractors are opportunities for entrepreneurs to create solutions. Just like seatbelts and airbags in cars or virus protection with computers.

With an open Bitcoin protocol, companies can compete for market space, which drives down prices. The fact that Bitcoin is entirely digital means much of it can be automated via programming, lowering costs for consumers even more. If some services are too expensive, the consumer or business can opt out. Right now, individuals and businesses have no choice if they wish to partake in e-commerce. Bitcoin creates a choice, eliminates fees, and can be programmed for financial services. That is why Bitcoin is useful to ordinary people.

[maximizeliberty]

Bitcoin Gox-Blocked: Not Too Big to Fail

Transaction Malleability: Don't Feed The Scapegox

Today, one of the largest bitcoin exchanges went dark. Mtgox had previously reported a bitcoin "malleability problem" that was somehow only affecting their exchange. As it turns out, the ability for transaction IDs (TXIDs) to be changed was a well-known feature of bitcoin (for crowdfunding, escrow, etc), not a bug.

Because of its mutability, Garzik says that the main purpose of the TXID was never to act as a primary or definitive way for bitcoin wallets and other second-layer protocols to track transactions. Rather, transaction IDs were designed as an easy reference for support services. "[Processors] will issue this transaction ID, and if you have an issue with the transaction, you can call the support desk and tell them if the transaction didn't arrive." - David Z Morris, Cryptocalypse now: Bitcoin's issue with 'transaction malleability'

Unfortunately, the Mtgox software dubiously tracked the transactions using only TXIDs instead of using more robust methods. In the last few weeks, this had caused a run on the Japan-based exchange as account holders rushed to liquidate their bitcoin positions. Demand fell causing an aggregate price drop across all exchanges.

This wasn't the first gox-block. The bitcoin giant has had a dismal trading history resulting in price-crashes and exchange halts. They often employed extended withdrawal times, sometimes up to three weeks. With clear alternatives like Coinbase, BTCe, Kraken, and Bitstamp, Mtgox was never a viable contender for my money. Given these flaws, I wouldn't trust them with my magic beans let alone a few thousand dollars.

More Circle Knee-Jerking

The resulting bitcoin downward price trend has caused many to take notice. Bitcoin-opposers are coming out of the woodwork. Now that Mtgox is insolvent, many are claiming that bitcoin itself is insolvent, or at least deeply flawed. The mistake of this logic is the fallacy of composition. There is a difference between an exchange and bitcoin itself.

For example, just because Bernie Madoff ran a ponzi, doesn't mean that the USD was insolvent. Just because Mtgox dubiously relied on TXIDs to match up withdrawals, doesn't that mean btc itself is broken. This can be clearly demonstrated by pointing to the several thriving exchanges that are all still running.

Too Big To...Oh Shit!

It is interesting, that in a non-state-backed currency, we are experiencing a Too Big To Fail entity, failing. That's the part I love. No bailouts for one of the largest market holders. No political connections usurping bad business practices. No blindly advocating future moral hazard. Those who had an account at Mtgox, and those who were invested in Mtgox, lost their money, not the public at large. Private profits, private losses. Much better than the private profits and public losses that the current U.S. monetary policy has been employing.

Due diligence and personal responsibility will trump moral hazard in the long run. People forget that even with the FDIC, your deposit is an asset on a bank's ledger. The Cypriots found this out the hard way last year. The FDIC couldn't possibly fund a gox-type run on banks, it's just a there to maintain confidence. Papering over a problem will only lead to that problem going unchecked and being magnified in the future. By experiencing the Goxplosion and knowing a bailed out is not forthcoming, consumers and exchanges have had to prioritize the issue:

But for those with better practices, transaction malleability has turned out to be a non-issue. Bitstamp, BTCe, and other operators that had halted trading to assess their systems were able to reopen within hours. Others avoided even brief problems. Among these was the bitcoin-based foreign exchange service Kraken, whose staff on Feb. 11 cheerfully tweeted: "Kraken halts nothing! Because planning. Carry on :)" -David Z Morris, Cryptocalypse now: Bitcoin's issue with 'transaction malleability'

What Doesn't Kill You...

With any new, non-State currency there will be bumps in the road. Bitcoin is still just a toddler, growing pains are inevitable. In a market cut off from the political expediencies of the vote-buying State, the pain experienced by those bumps will lead to a more robust ecosystem. Hopefully regulators will express their knee-jerk reactions through their propaganda and not their pens. To them I say, "There's no bailouts here. This isn't the currency you are looking for."

[maximizeliberty]

Not-So-Big Mac: Debunking the Australian Minimum Wage Myth

Myth: Australia's minimum wage of $16 only results in a marginal price increase, which is usually cited by comparing the Big Mac Index. Therefore, the U.S. can dramatically raise minimum wage with only a marginal rise in prices.

Let's ignore the fact that the minimum wage outlaws labor between two consenting adults below a certain rate-per-hour floor. Let's ignore that it has been increased 19 times in the past. Let's even ignore that the reason it keeps needing such an increase is because of a government monetary policy that inflates away savings and wages. The Australian Minimum Wage Myth still fails to do one thing, factor in the costs.

Koala Costs

If I have a Koala-cuddling business that makes two million in revenue, you might say, "Nice job Mate! The business is having a Hugh Jackman. Glad I invested!" Then I tell you that my operating costs are four million. You immediately want to boomerang me in the back of the head. What did you learn that made you change your tune? That you must factor in costs.

So what are the costs of the Australian minimum wage? The cost-of-production theory of value states that since wages are factored into product costs, they are positively correlated with product prices. The Austrian theory says that higher wages reduce supply, increasing the marginal utility of the product, and therefore, increasing the value proposition that the customer may find favorable. With either theory, higher wages lead to an increase in price, so costs are transferred to the consumer. So the question isn't one of direction, it's one of magnitude. How much do prices increase? Well, since we're not going to be eating Big Macs for every meal, or living in a Big Mac, or using it to heat our homes, we should probably look at other costs of living. Luckily, we have Numbeo.com, who has an impressive resume for economic statistics.

Looking at Numbeo's comparison between the U.S. and Australia, we find that:

Consumer Prices in Australia are 41.37% higher than in United States

Rent Prices in Australia are 58.27% higher than in United States

Restaurant Prices in Australia are 44.95% higher than in United States

Groceries Prices in Australia are 27.45% higher than in United States

Local Purchasing Power in Australia is 21.73% lower than in United States

Here’s the interesting part: Australian’s average monthly disposable income after taxes is only 14.75% more than the U.S. With a 41% increase in consumer prices, Australian's monthly disposable income purchases 33% less than that of their U.S. counterparts.  

Not-So-Big Mac

To make matters worse, the Australian Big Mac is 20% smaller than the U.S. Big Mac. With that downsize, the Little Mac is still priced 18% higher than it's U.S. counterpart ($4.94 vs. $4.20). Since cost of food is usually 32% of fast food sales, we can hypothesize that the Australian Big Mac would cost $5.26, or 25% more than the real Big Mac. Looks like everything isn't bigger Down Under, except the bill. And Foster's; you could punch a crocodile in the face with that can.

Comparing Apples to Papayas

Comparing minimum wage between two countries is usually dubious. The countries will have different tax laws, business structures, natural resources, locations, regulations, levels of corruption, monetary policies, military sizes, subsidies, etc.

Minimum wage raise advocates ignore country differences and try to compare Big Macs without looking at relevant living expenses. By only focusing only on a faulty Big Mac comparison, they're missing the cost of having a high minimum wage that manifests in higher consumer prices. When we compare a wider swath of people's actual expenses, we see that Australia is one of the most expensive countries in the world. So don't be fooled, the myth that a $16 minimum wage results in only a slight cost-of-living increase is wrong. Myth debunked.

[maximizeliberty]

Obama's MyRA: Mo' Borrowing, Mo' Inequality

Rate Cut, Stock Glut

Wow! The Federal Reserve actually cut their bond buying today from 75 to 65 billion per month. The taper prompted the stock market to take an appropriate dump (Dow -189.77, NASDAQ -46.53). 

Recently, financials have buoyed the stagnant retail and home-buying sectors, beset with a dwindling labor force. For the Too Big To Fail Banks, accounting tricks can only replace fundamentals for so long. With their Fed lifeline loosening, it's going to be a bumpy ride this Spring.

As the US consumer and Venture Capitalists slow their home buying, loan origination revenue is being replaced with accounting conflation. There's only so much in bank reserves that can be shuffled around after "discovering" new "risk models" that allow for more leverage. Only so much can be reduced in tax rates. How many aces are left in the deck for the Too Big To Fail Banks? They still have the accruing interest from their reserves parked at the Fed, but that has already been padding their previous earnings. To beat those, they'll have to get creative. My guess is that we'll see them further contort their risk behavior during the stock market bomb this spring. Meanwhile, the Banks can just keep breaking the law by frontrunning clients.

Two Birds, One Bernanke

Today's bond buying cut is a genius Fed maneuver in my mind. With the crises in Emerging Markets, money will search for return and find US Treasuries as one of the only safe assets. The Fed can move their 35B per month purchasing towards the short end of the curve, covering any demand gaps. The result: interest rates remaining well below their historic average so we can safely service our insane debt. Of course, the low interest rates will still mis-signal the entire economy to spend when it's already overleveraged. Oh well, what's a few trillion in wasted resources and energy?

Enter Obama's MyRA Retirement Plan

We wouldn't want to start the Fed's slash and burn party without a back-up plan. Enter MyRA.

Last night, the President unveiled his MyRA plan, which will allow anyone to funnel invest their money directly into US Treasuries. With nearly 5 Trillion parked in IRAs, the government is desperate for their piece of the geriatric pie.

Why so desperate? Is it the 17.3 Trillion dollar US Deficit? Or should we be expecting the need for an immediate alternative to the stock market? Obama is probably thinking both. He's not being a bad news bear, he's just helping "Americans save for retirement...MyRA guarantees a decent return with no risk of losing what you put in."

That's right folks! You never lose the money you put in, the money just loses it's purchasing power as compounded inflation outpaces interest. This is by design. The Federal Reserve's stated target for inflation is 2% per year, and that's if you rely on their numbers and hedonic counterbalancing. Here's the best part, when you invest in MyRA you become the financier for more big government spending (and interest on that spending) and you'll be responsible for paying your "fair share" in the future. Tell your kids to stop dancing with Yo Gabba Gabba and start prepping for their Goldman Sachs interviews. They've got a lot of "fair share" to pay back too.

Since the natural progress of any productive economy is lower prices brought about by economies of scale, innovation, and new technology, the CPI will always be stacked against you. When prices should have been going down, the Fed inflated to keep them steady. That's one level wealth erosion. Now it's going to inflate even more to hit 2% per year. That's another level of wealth erosion. Why? Because money needs to remain cheap so the US can service the interest on it's giant deficits.

Mo' Spending, Mo' Inequality

Inflation transfers purchasing power from the people to the government and politically well-connected. It's no wonder that Washington D.C. has 7 of the top 10 wealthiest cities/suburbs in the United States. Whoever gets the inflated money first can purchase assets and labor cheaply, before prices adjust upwards. The newly-borrowed money increases the tax burden on the working class. By the time the inflation trickles down to worker's wages, prices have adjusted upwards. The fixed-wage workers have not only lost out to inflation, but their savings has lost its purchasing power as well. This is why the previous 19 minimum wage hikes never worked and, as the government spends more, the wealth inequality gap widens.

Deficits Matter

The take away is that deficits do matter. Large deficits cause a monetary policy of cheap money by setting interest rates artificially low. Cheap money is the bubble of all bubbles because you need money to buy everything. With rates low, the government can continue to borrow and spend more, never actually paying down the balance. The spending inflates the money supply through stimulus, transferring purchasing power to the government and it's politically well-connected cronies. What do average workers get? Eroded savings and wages. You want to know the real reason for wealth inequality? Take a good look at President Obama, Congress, and their financier, The Federal Reserve.

[maximizeliberty]

Why The Previous Minimum Wages Haven't Worked and How That's Relevant to Wealth Inequality

The President's State of the Union is tonight. I'm sure somewhere between the nebulous rhetoric of "fair" and glossing over the 91.8 million people who are no longer in the labor market, Obama will demand a "living wage" for minimum wage workers. The question that nobody is asking is why haven't any of the previous 19 minimum wage hikes worked in the long run? The answer is the same reason why the "living wage" won't work: inflation.

The Great Depression and Deflation

In your basic high school history class, you probably learned that deflation is the boogeyman, and if left unchecked, it will cause another Great Depression. This is false and much of America's history proves it:

In 1913 prices were only about 20 percent higher than in 1775 and around 40 percent lower than in 1813, during the War of 1812. Whatever the mandates of the Federal Reserve, it is clear that the evolution of the price level in the United States is dominated by the abandonment of the gold standard in 1933 and the adoption of fiat money subsequently. One hundred years after its creation, consumer prices are about 30 times higher than what they were in 1913. This pattern, in varying orders of magnitudes, repeats itself across nearly all countries. - Carmen Reinhart and Ken Rogoff, Shifting Mandates: The Federal Reserve’s First Centennial, 

Deflation happens as a natural counterbalance after inflation. When credit is perpetually expanded, bubbles are expanded in different sectors. When this occurs, asset prices are at their all-time highs, much like the recent housing bubble and the current stock-market bubble. The credit begins to contract and the prices begin to deflate their way towards a bottom. The downward momentum continues because too many would-be buyers are already over-leveraged on credit/debt.

Austrian Economist, Murray Rothbard, analyzed the inflationary trend during the economic boom of 1921-1929. In America's Great Depression, he wrote, "Over the entire period of the boom, we find that the money supply increased by $28.0 billion, a 61.8 percent increase over the eight-year period. This is an average annual increase of 7.7 percent, a very sizable degree of inflation."

In 1927, the New York Federal Reserve Governor, Benjamin Strong, bragged to a French central banker that his policies were giving "a little coup de whisky to the stock market." Boy was he right. Although, he never considered the radical hangover that would follow once the credit expansion contracted.

Deflation is to inflation what a hangover is to binge drinking. It's the equilibrium process that removes the waste and brings the system back to balance. The problem is that most people mistake deflation, itself, for the problem because it's the part that hurts. So the policy-makers say we need "more stimulus." That's like trying to cure a hangover with more shots; you'll just end up sick several hours later.

So if an inflationary booms lead to deflationary busts, then why would the U.S. monetary policy include an inflation target of 2% per year? Because printing money is much more politically expedient than taxation.

For Government, Inflation Is Easier Than Taxation

With higher taxation, everyone feels the hit; the numbers are evident. People like to keep what they earn so it's tough to pass tax laws without major resistance. As an alternative, the Federal Reserve inflates the money supply. They type numbers into an account and use that newly-created money to purchase an asset, like a government IOU. The asset owner receives the newly printed money and can spend it. I wish I could do that! I could just sell IOUs to the Federal Reserve for a few trillion dollars and buy everyone's things. Wait, does that mean the government can do that to? Well, not blatantly...

The new money goes to the politically well-connected and towards government spending. How else could we borrow for these multi-trillion dollar budgets? Wherever the government spends this money, you'll find high prices from inflation. Whether it's 900 Billion towards healthcare in 2012, or doling out student loans at all-time highs, one government's inflation is another consumer's price increase.

Wealth Inequality Via Trickle Down Inflation

Whoever gets the newly-printed money first has a huge advantage: they get to spend the money before prices correct for inflation. This is great for the interests who lobby for these financial purposes. The politically well-connected end up with government contracts, co-sponsoring, loans, subsidies, favored legislation, or wages and pensions. The increase in the crony's assets is an increase for the rest of us in prices. The crony gets the money from government first, then it goes into financial instruments, the stock market, dividends and bonuses, consumer goods, and finally to the laborer who works for the consumer goods companies. That's five steps of spending, and inflation correction, before the printed money trickles down to the rest of us in the form of wages.

Inflation is the greatest shill game in history. It keeps the middle class and poor from accumulating capital by eroding savings and/or raising prices. Rich people stay on top because they have income producing assets that track prices with inflation. The politically well-connected stay on top because they can lobby for the money first. The bureaucrats stay on top because they receive lobbying money and have the power to decide where it goes.

Masking Inflation With MORE GOVERNMENT POLICY

In order to mask this dilution, the current monetary policy is no longer to maintain price stability, but to maintain a 2% inflation target every year. This means that money you put away now will lose half it's value in 20 years. 

Inflation makes it easier to borrow money and then pay it down later with more inflated dollars. Government can keep borrowing to buy votes, wage wars, and prop up social programs, all in the name of the "Greater Good" and "Fairness."

The Federal Reserve has no other option but to keep rates perpetually low, otherwise the interest alone on the United States 17.3 Trillion of debt would become the largest budget item. With historically low rates, It's already the 4th largest budget item.

Artificially Cheap Money Causes Misallocation Resulting in Wealth Destruction

In a Free Market, interest rates would be determined by the amount of money banks held in savings. The more money in savings, the lower the rate. This makes sense because the saved money is there for future consumption.

When The Federal Reserve artificially lowers the interest rates, the American populace goes on a spending spree, like it did in during the housing bubble. Businesses spend money on capital assets like factories and machinery. The problem is that the interest rates are artificial, there's very little savings for future consumption. Who will buy the business's goods created from the new factory when there is no savings?

The artificially low interest rate disincentivizes savings, and encourages spending, which drives up asset prices. More people see the rising prices and hop on the bandwagon, preferring that their savings makes more than the .6-1% yearly return it would from a $10,000 minimum CD. Hmmm, inflation policy at 2% per year and savings rates at 1%. Government policy has induced speculation for people looking to outpace inflation.

When these assets eventually pop from the credit contraction, much of the false wealth is destroyed. The entire boom period causes people to misallocate resources on the wrong things. That's why there's 14.6 million vacant houses in the United States. Imagine all of the waste that could have been saved by a government that didn't need artificially low interest rates to pay off it's massive deficits. A government that spent money within it's means.

Minimum Wage Policy

The problem is that big budget inflationary tendencies become obvious once the new minimum wage is a few years old. To deflect the issue, the government accuses employers of not paying a "living wage." Well, the employers were paying a living wage five years ago. Who's fault is it that it's been inflated away? Look no further than big government and it's bankster, The Federal Reserve.

I'll be returning to the Hulk Smashing Bitcoin Haters at Business Insider series next.

[maximizeliberty]

Hulk Smashing Bitcoin Haters at Business Insider (Part II: Bitcoin Protects Liberty)

In Hulk Smashing Bitcoin Haters at Business Insider (Part I: Intro), I covered how Jim Edward's used the Bitcoin/Silk Road connection to attack Libertarianism. I listed Jim's dubious claims and gave a short review of my rebuttals. We'll start by smashing Jim's boldest claim:

“...The Libertarian Idea Of Paradise Would Be Hell On Earth”

In Bitcoin Proves The Libertarian Idea Of Paradise Would Be Hell On Earth, Jim Edwards is determined on “exposing” the Libertarian paradise as the gun-toting, pirate-shipwreck that he imagines. He argues that the Bitcoin/Silk Road experience was "…characterized by radical instability, chaos, the rise of a boss-class of criminals who assassinate people they don’t like…"

Jim’s comparison is mistaken because in a Libertarian society, drugs would be decriminalized. People could voluntarily sell and consume what they wanted, as long as they adhered to the Non-Aggression Principle. There would be no need for anonymity. Company’s would exalt their employees in “about us” pages, just as Business Insider does with their bloggers. Just as Colorado marijuana businesses do now.

With drug-penalties removed, the motivation for Silk Road assassination threats would have been non-existent. Instead, users still had to face the consequences of paternal, outdated drug laws. Since Silk Road was part of a larger system that has drug laws, it was not a Libertarian paradise.

Boss-Class Criminals...Created By The State

Even though Silk Road was not a Libertarian paradise, we should wonder if the virtual exchange reduced violence when compared to similar drug transactions that take place physically, like in South Chicago. No one has been harmed from the Silk Road plots. The fact that billions of dollars in drugs were sold without violence should raise concerns about the current state of the drug war, and who it actually harms.

But Jim never questions the effects of paternal drug laws. Laws that create the “boss-class of criminals” he so detests. In his version of history, Capone’s cartel status had nothing to do with Prohibition. Neither did the rise in murders and assaults per capita, as shown below. Capone always said, “I am just a businessman, giving the people what they want.” With that in mind, maybe the $300+ Billion per year market cap on illegal drugs displays a societal preference for non-alcoholic stimulants. When illicit drug use in the U.S. grows year over year to 23.9 million in 2012, we should reconsider the effectiveness of trying to regulate non-violent behavior.

Economic Freedom Enables Social Freedom

Bitcoin shines a golden spotlight on the failure that is The War On Drugs by replicating online what cash has been doing offline for decades. Not realizing this, Jim Edwards attacks the means and ignores the message: that people value economic freedom as much as they value social freedom.

In many ways, economic freedom enables social freedom. If you can't purchase marijuana because it's prohibited, then that restricts your right to use it.

When something presents possible harm or benefit to ourselves, like ordering an X-Large soda from McDonald's, do we really want the government to decide for us? The Free Market allows us to pick for each of our individual tastes, circumstances, and benefits. Government law is a restrictive, one-size-fits-all monotone mandate. Some of us might like to dance to different music... or drink an XL soda.

The problem with unjust laws is that people who justly disobey them, are often sent to prison. An entrepreneur in Colorado specializing in hemp sales today, would have been arrested a few years ago. If that sounds arbitrary, it's because it is. Government prohibition of opium, alcohol, marijuana and the like, can often be traced backed to race and culture hegemony, rather than principle. When society moves past those barriers, the outdated laws still remain.

With Silk Road-type websites, Bitcoin has enabled a societal preference to be exercised that wouldn't have been possible over the internet. That’s the beginning of the true Libertarian paradise: more choice.

Back-Edwards

Jim Edwards has it backwards. Instead of condemning Bitcoin as a contributor to boss-class criminals, he should be questioning a legal system that has been creating cartel bosses long before computers were invented.

Bitcoin is part of a peaceful solution that can turn boss-class criminals into entrepreneurs competing for market share. Since the internet is unlimited, a turf war between rival internet sellers doesn't make much sense. In a global marketplace, competition is impossible to snuff out, especially if its thousands of miles away. There's no back-alley meetups and no face-to-face transactions, where someone can be violently assaulted. Just like Yelp or eBay, Silk Road's seller reviews stick with them; great service is rewarded. Bitcoin didn't create the boss-class criminals of history's past, but it can help to eliminate them..

Next up: Part III of my Business Insider dissection, where I address Jim Edward's claim that "There is no compelling reason for ordinary people to use it [Bitcoin].”

[maximizeliberty]

Hulk Smashing Bitcoin Haters at Business Insider (Part I: Intro)

In the last month, Jim Edwards of Business Insider has come to my attention as a blogger needing a Hulk Smash. Not because he uses Bitcoin for blog pumping. Not because he doesn’t understand Bitcoin or basic economics. He deserves the Smash because he’s exploiting the hotness of Bitcoin, flavored with vitriol, and spiced up with uneducated assumptions, to dilute Libertarianism. Don't drink the Kool-Aid.

Short History

Jim and his Business Insider compatriot, Joe Weisenthal, have been busy little bloggers. Their posts about Bitcoin were immediate hits. Recognizing this, they continued with more controversy founded upon more obliviousness. Like a pair of hired-hands, they pulled a 1-2-uppercut, but failed to realize that they were shadowboxing. How can they properly fight something that they know nothing about?

When Bitcoin remained resilient, Joe wrote his griefless Mea Culpa, basically “admitting” that Bitcoin is useful... just for shady black market types who wish to subvert the law.

Thanks Joe! Glad we could all see the depths of your reasoning powers. That’s like saying, “I was wrong for calling you an asshole, you’re really just a dick.”

And Yet, Bitcoin Remains. 

The unmalleable Bitcoin can no longer be ignored or laughed at, it must be fought. With Joe on the sidelines, Jim is left holding the buck, literally. This came to my attention over a month ago when Jim wrote Bitcoin Proves The Libertarian Idea Of Paradise Would Be Hell On Earth.

Normally, a tech blog would invite a new technology that disrupts traditional gatekeepers, offers users anonymity, and empowers the individual. They DO know that they’re blogging on the Internet, right? Apparently, it’s ok to disrupt “evil corporations” but when that applies to the largest banks and financial arm of the State, the technology is said to be “not useful for ordinary people” and dismissed as "Basically For Criminals."

Bitcoinistan

Jim introduces the fear-based Silk Road/Bitcoin vertex as a “Libertarian paradise, Bitcoinistan.”

Unfortunately, that experience looks like a total nightmare. It’s characterized by radical instability, chaos, the rise of a boss-class of criminals who assassinate people they don’t like, and a mass handover of wealth to a minority even smaller than the 1% that currently lauds it in the United States. -Jim Edwards, Bitcoin Proves The Libertarian Idea Of Paradise Would Be Hell On Earth

Wow. That sounds pretty bad. I wouldn’t want to live there either…You know, in Jim’s head, where all of this hyperbole is true and makes perfect sense. So I’ve decided to alleviate his cognitive dissonance by smashing his Bitcoinistan claims:

Silk Road was not a “Libertarian paradise” because participants still had to face paternal drug-laws if caught. Those laws wouldn’t exist in a Libertarian society.

Bitcoin is useful to ordinary people and businesses alike. Businesses can use Bitcoin to lower their overhead by reducing credit card fees. People can use Bitcoin to transfer money with no fees, create complex accounts, and purchase things for less from vendors who are accepting Bitcoins.

All of the money laundering, illegal sales, and money transferring that can be accomplished with Bitcoin is also accomplished with cash and other financial instruments (like big banks). The Black Market makes up about 625 Billion in the U.S., and that’s without Bitcoin. Money laundered throughout the world is 2-3 Trillion per year, without Bitcoin.

Crypto currencies are only four years old, with only major markets last year. Credit cards are almost a century old. How can we expect a brand new currency to have the same ecosystem that took federal institutions and banks billions of dollars to build over several decades? Give it at least a few more years ;)

Wealth isn’t zero-sum: someone doesn’t have to lose wealth for someone else to gain it. If that were the case, every gain throughout history would result in an equal loss somewhere, and society’s standard of living would never improve. When you voluntarily purchase a Bitcoin, you buy it for the price that is at least what you currently value it at. Afterwards, it may go up or down based on demand and it’s specific fundamentals. It operates a lot like stock.

This upcoming week, I'll be breaking down each Business Insider claim separately, in a way that Jim and Joe can understand. Let the Smashing begin!

[maximizeliberty]

A Minimum Wage Raise From the Employer Side: Time To Outsource...

In the previous post, I discussed how minimum wage creates an artificial threshold that limits price competition. As a result, it limits job opportunities for unskilled workers who can only compete on price, rather than skills.

That post was a response to the recent Bloomberg article “Seven Nobel Laureates Endorse Higher U.S. Minimum Wage,” where several Nobel winners argued that raising the minimum wage would have no negative effect on unemployment. I stated that demand is based on price and when price goes down, with all things being equal, demand goes up. This is why giant retailers will always clearance last season's items - to raise demand and clear shelf space.

In this post, I cover the costs of the employer that many employees are oblivious to. 

Seven Nobel Laureates vs. Basic Arithmetic

I live in Chicago. Let’s say a new business owner wants to create a part-time job in the Windy City. If the job only generates $15 per hour, and the minimum wage increases to $10.10 per hour, they have very little incentive to create that job. Here’s why:

The employer, along with the employee, must each pay 7.65% in FICA taxes. The $15 per hour job now generates $13.75 per hour.

The employer must pay federal unemployment insurance at .6% (for the first $7000). The job now generates $13.65 per hour.

In Illinois (as in every state), the new employer must pay for state unemployment insurance at 3.95%, putting the job at $13.06 per hour.

In Illinois (as in every state), the employer must pay worker’s compensation insurance. The Illinois rate averages to around 2.83% of wages putting the job at $12.64 per hour. 

The employee makes $10.10 per hour so now the job generates $2.64 per hour. 

With the current Illinois minimum wage of $8.50, the job would generate $4.24 per hour. At the Federal minimum wage of $7.25, that job would generate $5.39 per hour; more than double the newly-proposed minimum wage counterpart. Deduct more for health and dental insurance, paid sick days, paid vacation, paid holidays, 401k contributions, pensions, etc. Deduct more for training, equipment, perks, and any sort of employee regulatory compliance for the job, etc.

The employer must also pay for all rent, all equipment, all accounting fees, operating fees, utilities, and pay themselves. They take risks with lawsuits, up and down economies, and have risked their own money, credit, and time to start the business. Given those added costs, at $2.64 per hour, there is little incentive to create a job that generates $15 per hour for the employer.

Accountant specialists cite a cost multiplier of 1.5-2.5x the original salary for employees with benefits and the like. With a $10.10 minimum wage for a job that generates $15, the employer would take a loss with a 1.5x multiplier.

Workarounds For Outlawed Labor

When labor is outlawed below $10.10 per hour, employers get creative. There are four options for employers whose would-be jobs do not generate enough to justify the costs:

Don’t create the job because it’s not worth the cost and risk.

Break the law and pay under the table.

Automate the job with machinery and/or software.

Outsource the job.

With Automation, the employer takes a greater risk with capital. The Federal Reserve has kept borrowing rates artificially low so they have incentivized companies to finance large purchases like software and machinery. However, automation is still capital intensive and tough to test without diving in headfirst. If you're a small company, you won't be able to afford it. To mitigate risk, regulatory burdens, and taxes, employers often go with outsourcing.

Outsourcing

When an employer cannot automate, there's outsourcing. Sites like Amazon Mechanical Turk, ODesk, Freelancer, Elance, Vworker, Guru, Alibaba, 99Designs, etc. all specialize in outsourcing worldwide.

These websites have people selling their labor for $3-$50 per hour. The lower listing are usually from foreigners. With all things being equal, how many people would choose a product priced at $5 over the same product priced at $10.10? What makes the Bloomberg Nobel Laureates think that the laws of economics will change when that product is labor? A quick look at the trade shows deficit averages at around 550 Billion per year since 2000. In recent years, China has made up almost half of that so we know that deficit is not oil imports. It's consumer goods and manufacturing jobs that would be in the United States if we had no law that outlawed jobs under an artificial wage floor. To think that a minimum wage hike of 39.3% won’t incentivize more of the same outsourcing is reckless and illogical.

Costs of Outsourcing That Could Go Towards Wages

There are extraneous costs for products produced outside of the U.S. These costs include: scouting manufacturing, having a manager located onsite, ensuring IP protection through contract and compartmentalization, shipping the items across the ocean, and customs fees. At scale, all of these costs are far less than the U.S. minimum wage, taxes, and regulatory burdens.

Imagine if those jobs were sourced here. There would be little overhead in scouting. no one would have to be perpetually onsite, no costs with IP protection, no costs with shipping, and no customs fees.

I've imported clothing through air carrier and the shipping was almost as expensive as the apparel itself. I chose air freight from China because it is much faster. With this method, I could manage the business logistics more effectively.

With more jobs sourced inland, improved logistics would be another bonus to U.S. businesses. Businesses would have a 2-3 day turnaround time on container-type shipments traveling via semis that usually takes 21-30 days with an ocean freighter. Better logistics enables businesses to eliminate costly waste, and therefore, lower prices for consumers.

Wages, Regulatory Burdens, Taxes, Are All Part Of Product Costs

When prices fall, everything is more affordable. Since wages are factored into prices, lowered wages result in lowered prices. Add to that the cheaper costs and efficiencies of producing inland, and prices go down even more. If wages fall 30% but prices fall 35%, then there is a net gain of wealth of 5% for the entire country. For the 91.8 million folks who are no longer participating in the job market, making $5 an hour would be much better than making nothing once unemployment benefits run dry. I guess these seven Nobel Laureates don’t worry about that…

In review, when a product is the same or inferior, it can only compete by lowering its price. Every consumer knows if you shop for clothes at Walmart, the quality won't be as good as Ralph Lauren. This same price-sensitivity exists with labor. When you limit the floor on labor prices to a minimum wage, you take away the only way for an unskilled laborer to compete against skilled laborers: lowering their price.

As the minimum wage goes up, more jobs that generate between $10 to $20 per hour will be outsourced or automated. By doing so, the employer avoids all of the extra costs that having an employee entails, beyond wages. Since the outsourced/automatized jobs will be the low-skilled jobs, low-skilled potential employees will be left out of the labor market. If the minimum wage goes up to $10 or more, the 91.8 million folks who are no longer participating will go up.

[maximizeliberty]

Q: How Many Nobel Laureates Does It Take To Create A Job? A: More Than 7.

Awww, Nobel Prize winners say the darndest things. In the recent Bloomberg article "Seven Nobel Laureates Endorse Higher U.S. Minimum Wage," several Nobel winners argue that raising the minimum wage has had no negative effect on unemployment. I was happy to see that, in contrast, Bloomberg cited last year's Nobel Laureates as all opposing the proposed minimum wage hike. One of the three, Eugene Fama said, "“I am against the concept of a mandated minimum wage... Wages should be determined in the open market, without government interference.”

We should give Fama another Nobel Prize just for understanding the most basic law of economics: prices influence demand.

Supply and Demand

A lot of factors go into demand with the most important one being price. If the price is too high, there will be no demand. If every cell phone was still the same price as the first one, $4000, would there be much real demand? No. Sure, we may all want a Yacht Island for our weekend getaways, but there's little demand because the price is hundreds of millions. So wanting something and actual demand are different; price (cost) plays a pivotal role.

Logically and historically, lowering the cost of something, with all things being equal, increases the demand. If you've ever bargain-hunted for an item, like a computer or apparel, then you have contributed to demand elasticity based on price. That is, the lower the price, the higher the demand.

For whatever reason, these seven economists think that raising the price of minimum wage won't result in less demand of US minimum wage workers. Nobel Laureate Christopher Sims said, "Certainly a high enough minimum wage would have damaging effects, but it seems to me unlikely that $10.10 is high enough to have widespread bad effects." 

Sure it will. $7.25 to $10.10 is an increase of 39.3% on the cost of labor. Imagine if a new company called Phoneywage sold all of the same Samsung phones for 39% more than every other retailer. Would they experience the same amount of demand? Every consumer knows that they would purchase the cheaper phone. Lower pricing is why the Samsung market has exploded in the last three years, surpassing Apple in market share.

Labor is a product that business owners' purchase, not regular consumers. Business owners know that a higher labor cost reduces their demand to purchase that labor. Since business owners are the minority, and employees are the majority, of course employees will vote for a raise in labor prices; something that they never directly purchase. That's the Tyranny of the Majority, promise somebody something for free and they'll vote for you. Welcome to America.

Unfortunately, there's no free lunch and the detrimental effect will be less employment for the unskilled folks who voted themselves out of a job. When you have no advanced skills or experience, price is the only thing you can compete on. By making it more expensive for employers to hire for the most basic job, they will want to hire a skilled worker over an unskilled worker. The 39.3% increase will force employers to consider automation and outsourcing to stay competitive. Minimum wage creates an artificial threshold that limits price competition. As a result, it limits job opportunities for unskilled workers who can only compete on price, rather than skills.

[maximizeliberty]

Ridiculous Meme of the Day Debunked: Paris Hilton vs. Nikola Tesla

Oneness

Today's Meme comes from the Earth. We Are One. facebook page. I scrolled through their posts today and agreed with a lot of the sentiments. However, I find it ironic that when it comes to economic theory, We Are One criticizes the economic system that contains the most free and most voluntary attributes ever: Capitalism.

In Free Market Capitalism, one is only able to trade goods with another, if those goods provide the buyer value. This makes each man the servant to another man. In order to earn wealth you must provide something of value to others. Talk about We Are One, Capitalism does just that: makes us more empathetic to others needs so we can provide them with a valuable service or product.

Capitalism also gives everybody the freedom to become rich and successful, it doesn't guarantee it, because to do so would be at the expense of someone else's opportunity. Unlike socialism, Capitalism provides flexibility for people to voluntarily choose what they value and how they provide value. For that reason, Capitalism is closely aligned with freedom and liberty.

Meme Fail: Telsa was a Millionaire in his time

Tesla would have been one of the richest men of his time had he not reinvested his entire earnings into failed projects. This meme is ridiculous because it doesn't account for how Telsa made millions (in todays dollars) from his DC patent royalties with Westinghouse (thanks to Capitalism). Then he spent nearly all of that money on more projects.

Tesla was a millionaire in 1890 (which would have been 25 million today), before he was 35 years old. He chose to go all in with his money to self-fund projects with incredible overhead costs, and that's fine. He was also able to continually raise money for more projects (thanks to Capitalism). In just non-royalty lump sum payments, he made over 7 million in todays dollars. He risked it all for technology projects and ended up living in a hotel and having debt. He wasn't impoverished.

Paris makes money from "modeling, TV shows, a shoe line, perfume line, CD and movie royalties, money from appearances, a book, clothes, and hair accessories, just to name a few. Paris gets between $25,000 and $100,000 for a hosting fee to appear at parties and clubs".

The Blame Game

Don't blame Capitalism for Paris's wealth. Our current form of capitalism (more cronyism) is a reflection of society's values because purchasing goods is still somewhat voluntary. If you're concerned about Paris's wealth and want to blame something, blame the society that freely purchases her products and a monetary system that creates an artificially strong dollar. A system that has made the U.S. consumer lazy and benign. Actually, go ahead and blame Capitalism too, as the economic system. While you're at it, also blame it for AC and DC power, computers, phones, TVs, cars, and pretty much everything you use every day, all for the lowest costs in history.

Social Freedom means people can do stupid things to themselves, like abuse drugs. Economic freedom means some people can do stupid things with their money. If people want to pay Paris Hilton $100k for a party appearance, then so be it. If Tesla wants to reinvest all of his earnings back into new projects, great! People can also make smart choices to buy the first cell phones (at $4000), first cars, and first computers. Purchases that made the initial investment for those products viable so they could be scaled and scaled into the low-cost, high-quality products that we have today. I can buy a $30 smartphone at a 24 hour store in about 5 minutes. Our grandparents couldn't have dreamed of such capabilities. That's Capitalism.

Better yet, don't even worry about Paris's wealth because it has no negative effect on you. Wealth is not zero-sum.

[maximizeliberty]

Wealth Is Not a Zero-Sum Game

Many people believe that in order for some to be wealthy, others have to be poor. If this were the case, then the entire wealth of the planet could never go up because one person's gain would be offset by another person's loss. If we look at just the last 200 years, we can see that the entire wealth of the world has gone up dramatically. Our standard of living is much better than our parents, just as their standard of living was much better than their grandparents. So how is this happening? Let's break it down to the story of a Capitalism best asset: The Entrepreneur.

The Story of Steve, The Entrepreneur

Steve was always traveling and sick of using a rotary phone so he invented a new gadget that you could take with you on the go. Steve had to eat ketchup and mustard sandwiches while saving three years worth of salary to risk it on his vision: a business selling his new product, mobile phones. Initially, they were priced at $4000 each and he had just enough money to produced forty. Companies and rich tech geeks purchased them up as the first-adopters because it was more efficient for their specific needs. Steve lived off some of the profit and put the rest back into the company to buy in larger quantities. This bulk purchasing brought down prices for the next batch of phones and Steve was able to sell them for $3,500 to more people while keeping his profit margins. Steve did this several times as he reinvested into R&D, manufacturing, and innovated more efficient ways to assemble the phone. He was able to get the price all the way down to $600.

Economies of Scale Help Producers and Consumers

At this point, millions of people wanted to purchase. Steve was able to reduce his profit margin per phone but still make more overall profit than he did at $4000 per phone. Seeing this giant customer base, competitors flocked into the mobile phone space with their own innovations to drive down prices and/or create a better phone for the same price. What was once complicated to manufacture had now been tweaked to perfection. Designs were their most efficient. Consumers could now walk into a store and get a phone that was ten thousand times more powerful than the first mobile phone, 1/10th of the size, and 1/200th of the cost.

Planetary communication grew faster and more connected, which helped other business's lower their costs and pivot as fast as possible. Cost reductions and improved efficiency allowed businesses to decrease prices in order to compete for more market share, driving prices down in a competitive market. Many consumers were now able to afford products that were once unaffordable, which raised their standard of living.

Free-Market Capitalism

This is the story of Free-Market Capitalism. The best attribute of capitalism is that you can only grow rich if you labor and innovate for what other people value. Steve solved his own problem first, and then saved and worked hard to solve that same problem for millions of other people. Their dollars "voted" for his product over others because each individual valued his product over others. Money acts as water flowing towards the entrepreneurs who offer the best product at the best price. Consumers voluntarily chose to purchase these products, which rewards the best entrepreneurs. The business owner can then decide to reinvest the new capital, save the new capital for future consumption or opportunity, or spend it on current consumption. All of these roads eventually put the money (water) back into the economic pool where it will voluntarily flow to the most valued producers. Then they'll save, spend, or reinvest, and the process repeats. The culmination of every voluntary, value-based consumer choice for every product is called "The Market."

The Market rewards good entrepreneurs with more resources and leaves inefficient entrepreneurs with less resources. This is important feedback because The Market is saying that it does not value the product at it's price point. This provides a valuable learning experience for entrepreneurs. Ask any successful business owner how many times they've failed or had to pivot. You won't find one that hasn't had hardship.

Private Investment = Incremental Risk

The silver lining is that success breeds more success, in larger and larger intervals. If you start off with a successful venture, you will earn money to be able to put back into your business, just as Steve did. If you fail, you fail with only what you started with: your capital and your labor.

Sometimes, you gain more traction, and may be able to convince others to invest in growing the business faster than you could have alone. Still, in this situation, the risk is only spread among those who volunteered to take on the risk for the calculated reward. 

Free Market > Government Spending

On the other hand, when the government takes on a venture, the risk is spread out among current taxpayers and future taxpayers. You, your children and their children are being involuntarily involved in risky government ventures as we speak.

When a public project fails, it fails huge and for everybody. Instead of thousands being spent incrementally, it's millions upfront, without establishing traction first. Instead of one or two people working, it's hundreds. You get almost all of the risk, right away.

Since the government operates on tax money and not profit, the government will never know if it's product is the Market's true choice or if it is just wasting resources. This is why you see zombie government projects like the bridge to nowhere, amtrak, no child left behind, war on poverty, war on drugs, California High-Speed Rail, etc that keep getting funded even though they have had little to no effect for the amount of resources they take. Or they start funded, and end up incomplete because costs go beyond initial projections and the utility of the project was never established (by the Market).

In the Free Market, there is a natural process of attrition where resources used inefficiently are released back into the resource pool so other entrepreneurs can have their shot to utilize them effectively. In the Government, there is a job that goes on endlessly, even if it's providing no value. Consumers' dollars don't vote to keep the project in place, instead, it's kept on life-support with tax dollars.

[maximizeliberty]

Money as Debt: "The Biggest Scam in the History of Mankind"

link: http://www.youtube.com/watch?v=iFDe5kUUyT0

Implications

This well-done video implies that we are all ultimately beholden to the bankers as debt slaves. For every dollar created, there is interest that must be repaid. When all dollars are paid back, there is no money left in circulation to pay the interest. Therefore, it's impossible to pay back all of the interest and the massive deficit we run is a natural consequence of this faulty, debt-based system.

Debt Repayment is Possible in the Current System

Every dollar ultimately begins through credit creation and then balances back to zero once repaid. The video argues that there will be a point when there are zero dollars and interest is still left over. This argument ignores the time-periodization of interest and payments. The same dollar that I pay back to the bank, the bank can use to purchase assets from me, or someone else, so I can earn that dollar back to finish off my interest payment.

Ex: How to Repay a $10 Loan When There's Only $10 in the Universe.

You borrow $10 from Tom's bank, the only $10 in existence. You use it to create value and wealth for yourself and must repay $10 + $1 interest back to Tom over 11 months. After you pay half of it, you notice that there isn't another $1 anywhere, except in Tom's bank. At this point, you must sell a product (could be your labor) to Tom to get that last dollar back to pay the $11 total.

If there are other people getting loans, you could also sell your labor or product to them to pay back Tom. In the end, they would end up working or selling something to Tom to pay back the rest of the loan, just as you did.

Since every dollar ultimately begins through credit creation and then balances back to zero once repaid, the labor value for the interest left over (once all dollars are repaid) will ultimately go to the bank in some form or another. The 14 other currencies and 7 billion people that can enter into the equation are just surrogates as the IOUs travel through the worldwide system.

There's nothing inherently wrong with this system. Interest is charged for the labor and risk associated with the banker's product: money. Defaulting on the loan is also an option, which will stick the banker with a huge loss.

The One Thing Wrong

What should strike everyone as strange is that Tom made that money come into existence by using a computer and saying he's cool with it as a form of repayment of debt and taxes.

Tom did not have to toil for it as our ancestors did when they first used gold and silver in the United States. There was no mining or labor involved in the money creation. He did not have to wait for depositors to deposit something of value. Because Tom can print the money, there is no rarity or labor involved in the initial credit creation. Without any checks or balances on the amount of currency that can be created, Tom is able to print and print. This is why we've seen insane inflation since 1971, when we went completely off the gold standard.

Government Printing = Ownership and Inflation

No matter the system, debt-based or commodity-based (gold-backed dollars), there would still be a price to borrow money because of the risk and labor involved. The debt-based system allows government to do so virtually unchecked.

With the debt-based system, the government can print and buy up whatever it wants. In the old days, banks would have to wait for customers to deposit gold and silver before they could issue new credit. Every dollar was worth a certain amount redeemable in gold. The government couldn't gain purchasing power by printing, it had to raise taxes. These taxes were very unpopular as people could easily see their money being taken from them.

Today, the government can print money and immediately have it's spending value. It no longer needs to raise taxes because it can borrow and tax away our future and erode our savings through the hidden mechanism of inflation. 

We see the high price of inflation wherever the government spends it's money: healthcare through medicare/medicaid, college tuition through federal loans, and war products through military spending (Top six budget items at usdebtclock.org). This public money overflows the pool of private money and drives up prices based on simple supply and demand. More money is now chasing the same amount of goods, so prices are bid up.

The Federal Reserve is there to keep the borrowing cheap in our debt-based system. This keeps bank interest rates cheap, even when they have very little money to loan. When interest rates are kept perpetually low, spending bubbles go unchecked and the boom and bust cycle is created.

The Solution: Go Back to a Commodity-Based Currency.

Our Constitutional forefathers were very keen on the effects of inflation after the American Revolution. They had experienced rampant inflation with the continental dollar and state-based currencies. They knew a check needed to be put in place and that's why they gave congress the power to coin money (gold and silver specie), not issue fiat money.

When fiat money, money backed by nothing, is adopted, inflation becomes the politicians favored form of debt-bondage.

[maximizeliberty]

Why Retirement Savings Will Get You Nowhere

When I'm helped by an elderly person at a store, I feel that something has gone terribly wrong. Here is someone who has worked their entire lives and throughout their "retirement." They've been politically-promised a financially-unburdened life after the age of 65, with Social Security and Medicare buoying them above the poverty line. So what happened? And what can you and I do to make sure that it does not happen to my friends, family, and loved ones?

In my quest to understand economics and wealth, I've came across three main tenants that are often repeated:

1) To be wealthy you must produce more than you consume, and then scale that production.

2) You must first under-consume (consume less than you produce) in order to save for a productive opportunity, not retirement or future consumption.

The first two points are self-evident and widely accepted. The third point is much more elusive, and exposes a dangerous delusion that many have, literally, bought into.

3) You will not be wealthy by merely saving for retirement, you must have assets that continually produce.

Wealth From Savings: from reality to myth

In the past, people could retire comfortably, and even wealthy, because the natural state of a gold and silver-backed economy is deflation. Your savings will buy more over time, much like your $500 will buy a much better TV three years in the future than it will now.

Our great grandparents and those before them were able to experience this sort of price deflation on a regular basis. This is because the gold supply increases slower than the supply of goods. We have to mine a limited amount of gold, whereas we can print an unlimited amount of paper. Technological efficiencies (better and better tools, that are more productive), entrepreneurial innovation, and economies of scale make products more abundant while total gold supply remains relatively unchanged. The same gold (or dollar backed by a set amount of gold) can buy much more 10 years down the road than it could now. Your great grandparents were able to save their gold-back money and retire comfortably because the purchasing power increased.

Now, we have a free-floating currency that fluctuates based on supply and demand of paper. It is fiat, which means it is backed only by the Full Faith and Credit of the United States, or nothing tangible. Supply of this currency keeps going up as politicians deficit spend and the Federal Reserve (the Fed) keeps interest rates artificially low, allowing for more cheap borrowing.

Bubble-Popping is the Market Trying to Correct For Too Much Inflation

When deflation should have happened during the housing crisis, the Federal Reserve stepped in to recapitalize banks by purchasing bad mortgages at a price higher than anyone in the market would pay. The Fed encouraged consumer borrowing by lowering interest rates. These actions propped up housing prices because the bad mortgages were never truly liquidated; no market-value bottom was found. Instead, consumers saw this low rate and start to borrow when they otherwise wouldn't have. Instead of under-consuming, they were incentivized to consume by low interest rates. Same goes for businesses.

The government incentive of consumption over savings keeps asset prices high so the banks' bad mortgages don't become liabilities. During a time when the government wants affordable housing, it easy to see that their actions with TARP, coupled with the monetary policy of the Fed, actually propped up housing prices above what many consumers could afford. If they would allowed the bubble to pop, instead of reflating it with printed money and artificially low interest rates, then housing would be much more affordable and the bad assets could have been purchased or written off. There would have been temporary pain and some bank failures. When given a choice between doing the right thing, politicians will always do what is expedient rather than risk reelection.

Where deflation should have happened in the dot.com bubble burst, Alan Greenspan kept rates low which carried the bubble into housing. When housing burst, Ben Bernanke kept rates low, bought bad assets from banks, and monetized the U.S. debt through banks, thus pumping money into two new bubbles: the stock market and the government.

Deflation is Scary...for the Government.

Deflation is the artificial boogeyman and the Fed itself has recently stated that it's target is 2% inflation per year. Compound this over 10 years and you lose more than 1/5th of your savings. Money you put away 20 years ago will lose half of it's value. The hidden truth behind inflation is that it makes our debt easier to repay so the government can keep borrowing to buy votes, wage wars, and prop up social programs (check top six budget items at usdebtclock.org). The problem is that inflation also erodes any savings at the same time. Any savings that you have for future productive investments will lose purchasing power every year. This is in direct opposition to creating wealth.

To make matters worse, when you save money, you are supposed to make interest from the bank to outpace inflation. This is no longer the case. I just did a comparison and could find only a few Money Market Accounts (MMAs) at 1%. To compound this, government inflation is vastly understated which puts your savings on a steady path of erosion. The CPI is Stacked Against You

The Consumer Price Index (CPI) tracks inflation so consumers and businesses can plan their investment and spending accordingly.

Where the CPI at one time met those parameters desired by the public, government efforts turned the CPI away from measuring the price changes in a fixed-weight basket of goods and services, to a quasi-substitution-based basket of goods, which destroyed the concept of the CPI as a measure of the cost of living of maintaining a constant standard of living.

...Estimated by computer models, hedonic adjustments alter inflation accounting for nebulous quality changes that cannot otherwise be measured directly and that commonly are not recognized by consumers...

Maintaining Constant Standard of Living (Fixed-Basket Inflation) versus Substitution in CPI

Allowing substitution of lower-priced and lower-quality goods in the basket (i.e. more hamburger when steak prices rise) lowers the reported rate of inflation versus the fixed-basket measure.

BLS introduced: Geometric weighting—a purely a mathematical gimmick that automatically reduces the weightings of goods rising in price, and vice versa—it has no demonstrated relationship to consumer substitution of goods based on price changes.  It was explained as a surrogate for a substitution measure.

-Public Comment on Inflation Measurements, Shadowstats

In summary, the CPI has been repackaged in several ways by the Bureau of Labor Statistics (BLS). CPI-U was utilized  to compare a basket of the same set of goods year over year. Now a chained-weighted CPI compares a basket of goods that achieve the same level of "satisfaction" for each consumer. For instance, a 20oz Prime Rib, 12 oz bag of Doritos, and a New Ford Focus one year maybe be compared to a 20oz Sirloin Steak, 12oz bag of Essential Living Chips, and New Kia Forte the next year.

The main problem with this is that you are comparing apples to inferior-apples. The BLS doesn't know if consumers maintained their current satisfaction with these inferior products in order to "stretch" their dollars or if they just couldn't afford them and had to go on partially satisfied.

The Chain-weighted CPI records inflation at lower rates by saying that consumers are adjusting their purchasing habits based on price-sensitivity. To that I say, "No shit Sherlock!" CPI is supposed to be recording the rising price of the same item instead of substituting an inferior one through hedonic computer modeling. Seeing the opportunity to undercut payments to Social Security benefits, the Obama administration has proposed tethering inflation adjustments to the understated Chain-weighted CPI starting in 2015.

Another index is Core CPI which doesn't count food or fuel because they are "too volatile." So what? If the price is in both directions then it will equal out. The issue is that food and fuel are major expenditures and rise year over year. Keeping this inflation hidden makes the government seem like it has been responsible with it's monetary policy. That's why you'll often get Core CPI quotes from Media outlets versus regular CPI.

Taxes also have a large effect on CPI because the more money you are taxed, the less money you have to spend. If income and FICA taxes go from 30% to 70%, maybe we'll all be eating dog food but the hedonic Chain-weighted CPI will say that we substituted that for Sirloin to "maximize our income utility and received the same amount of pleasure" Purina anyone?

And finally, I've saved the worst for last:

Where the quality of the product was deemed by the government to have improved (the usual circumstance), prices in the CPI calculations were adjusted lower to offset the higher quality.

-Public Comment on Inflation Measurements, Shadowstats

This is an egregious abuse of American wealth and prosperity. The government is ignoring the fact that quality of life has steadily improved since 1776. Technological efficiencies (better and better tools, that are more productive), entrepreneurial innovation, and economies of scale have made products more abundant, better, and usually at the same or lower price point (until the Fed in 1913, see graph below). Despite government-created inflation and ever-increasing taxes, we can still see this in many areas today like consumer electronics. However, when calculating CPI, the government is saying that this natural progress is not the case, and instead, they have to artificially adjust the inflated price lower to offset the natural occurrence of technological advances.

In other words, our standard of living is never supposed to improve. When it does, they've fixed the math models to reduce current inflation, giving them more room to further inflate in the future to hit that 2% target. Do you still think real inflation is around 2% per year? 4% inflation every year for ten years will erode half of your savings. 6% inflation will erode nearly 80% of your savings. This is much worse than any other tax.

Can you imagine a future when rising prices from inflation could force us to switch from steak, to hamburger, to Purina dog food with vitamins? Even worse, the CPI will tell us that the $10 price for a can of Purina is really only $6 because now we're getting vitamins that we weren't getting when we had hamburger. Then they'll inflate more to hit that 2% target.

CONCLUSION: You Will Not Attain Wealthy by Merely Saving for Retirement, You Must Have Assets That Continually Produce.

In conclusion, your savings will be eroded over time. With Social Security benefits on the Chain-weighted CPI chopping block and outstanding government debt at 17 trillion, odds are that every promise made can only be delivered through the guise of high real inflation, while understating the real effects through a skewed CPI.

One branch of the government (BLS) is guarding the other (the Fed), while the majority of congress is complicit (search "The Way the Politicians Wanted It" here). After all, more money printing and monetization of debt gives congress the ability to promise more and spend more to buy votes and maintain their power positions. It also makes it easier for them to pay down the debt with watered-down cash. Unfortunately our savings is also watered-down. If their bad monetary policy is blamed for the inequality of wealth and a waning standard of living, then they are the culprit. However, if they can switch blame to the 1%, then the rich are the evildoers. The same rich who under-consumed, risked their savings, produced products that Americans valued voluntarily, scaled that value so it multiplied to many, paid more in real taxes, and provided jobs from the systems they created.

To keep up with inflation, you must have assets that continually produce products. In a business, costs of goods and prices adjust to inflation so your profit margins can remain steady.

As wealth decreases from more governmental inflation and deficit spending, American pocket books decrease. We've seen stagnating wage effects for the last thirty years, shortly after we went off the gold-standard completely in 1971. As an entrepreneur, you must keep innovating ways to supply value to the waning American consumer and the emerging middle class around the world. Save your capital and use it for value-providing businesses rather than retirement. This is the only way to retire wealthy; the only way to pace with inflation.

[maximizeliberty]

All Roads Lead to Higher Rates...Eventually

Wow, Silver is so low that I'm starting to think traunch buying should usurp paying down my credit card. The Fed farted taper and treasuries took the biggest shit ever.

1) If the Fed tapers bond buying, rates rise dramatically and interest on the 17 trillion national debt becomes a huge burden. The economy gets squeezed and all sorts of bubbles burst (student debt, new housing bubble, stock market, GM, some states/munis go bankrupt) because the cheap money is gone. This is the right move so the economy can finally liquidate/restructure the debt and get on with it. It will suck for a while, but the road of huge credit expansion has been paved with Chinese rugs.

2) If Fed was just jawboning, then we'll keep QEinfinity and rack up more debt, and blow the bubbles up to unheard of levels because borrowing is much less painful (short-term) than debt liquidation. Just like the previous housing bubble, forced credit expansion (debt) will eventually lead to inflationary risks, driving up interest rates, only to explode much larger bubbles in the end. How long can they draw it out? Years as long as we don't mind a little Japanese-style stagflation.

With great forced credit expansion, comes great forced credit contraction. Bernanke must love the high-highs and hopes he can head for the exit before the low-lows. Maybe him and The Maestro can trade Time Magazine covers while our new savior is christened by a new crisis.

[maximizeliberty]

Marriage Equality: Why Are We Asking Permission?

I don't want marriage equality for just homosexual couples, I want it for every consenting adult. What about polygynous and polyandrous groups? Why should the government have to "recognize" marriage and legislate it's beliefs through the tax code, regulations, and inheritance laws? Why not remove the government from marriage altogether and let people rely on personal contracts and their respective churches/communities for marriage?

The same state nullification that fought for marijuana legalization and gay marriage against federal drug and marriage laws will undoubtedly push back on new gay federal marriage laws, in some states. Everyone is fighting to persuade the power that the government shouldn't have in the first place. Subsidiarity works here, reduce marriage back down to consenting adults and a contract. Problem solved forever.