Tuesday, December 30, 2008
Wednesday, December 24, 2008
Merry Christmas!
Merry Christmas, everybody! I hope you're all as depressed as I am!
If you don't have any reason to be depressed, here is a video that explains how this year has been particularly lame.
Courtesy of JibJab.
If you don't have any reason to be depressed, here is a video that explains how this year has been particularly lame.
Courtesy of JibJab.
Monday, December 22, 2008
Central Banking Revolution?
A quiet revolution in central banking is gathering speed, as the Federal Reserve ploughs ever deeper into the brave new world of unorthodox monetary policy and other central banks ponder how far they might have to follow.
The world’s central banks have already undergone dramatic changes since the start of the credit crisis more than a year ago. They have cut interest rates with unprecedented rapidity – in some cases to historic lows – and have increased bank reserves massively to meet heightened private sector demand for liquidity.
Brave New World?
Unorthodox monetary policy?
Dramatic changes?
Last time I checked, cutting interest rates, bailing out big companies, and "injecting liquidity into the market" are the Standard Operating Procedure. I'm pretty sure they did it in the 1930s... and the 1960s... and the 70s... and the 90s...
That's where all of America's money has gone (spent the last of it during the dot.com crash), and it's where Australia's budget surplus is going now.
The only thing different this time is that they're doing MORE of it... and they're making it worse.
A Capitol Christmas, by S.J. Masty
T'was the night before Christmas:
All year through the House
And the Senate you'd find
Not a smidgen of nous.
Were there a machine
That detected IQ,
One could run it a month,
Then return it as new.
Except for one person
Asleep in a corner,
A government watchman
Named Ermingard Horner,
Who woke up abruptly
And pointed her Glock
At a fat man who stood
By the grandfather clock.
Drop em!" she said.
He replied with a quake,
"Dear me! Do you want
"All the presents to break?"
As she patted him down,
She concluded, right quick,
The nocturnal intruder,
In fact, was Saint Nick
But inside his bag
Was no football, no ring,
Nor a toy nor a doll
Or new video thing,
Just pieces of paper
And pieces galore,
And they spilled from the sack
On his back to the floor
"What's this?" she demanded,
"Start telling me true!"
"Each," he confessed,
"Is a big I.O.U.
"For many a year
"Congress plundered the store;
"When they spent all they had,
"Then they borrowed some more."
"Till the lenders, exhausted,
"Collapsed in distress,
"Then the government cranked up
"Its vast printing press,
"Until every tree
"From Nome to Miami
"Was cut to print money
"For your Uncle Sammy."
Ermingard, being
Sufficiently bright,
Knew in an instant
That Santa was right.
And even today, she recalls
(With some chills),
The ladies room stalls
Stacked with ten-dollar bills.
The money was there for
(She found this alarmin')
The banknotes were worth less
Than White Cloud or Charmin.
Somewhere, she knew,
Politicians would gloat
That they'd picked her own pocket
To buy her own vote.
Then Santa sighed, "Presents?
"Let's all just forget it,
"Since cash is now worthless
"And no one gives credit.
"So, Christmas? Prepare
"All the kids for bad news,
"As I stuff their wee stockings,
"With cheap I.O.U.s"
He mumbled farewell
With a cynical laugh.
But she said, "I've a sandwich
"And you can have half."
He paused and he squinted,
Then smiled with a sigh,
And sat down beside her,
A tear in his eye.
He said, "Christmas can be,
"What we make it to be.
"Merry Christmas to you,
"Tuna salad for me."
Reprinted from the DC Examiner, by way of LewRockwell.com.
All year through the House
And the Senate you'd find
Not a smidgen of nous.
Were there a machine
That detected IQ,
One could run it a month,
Then return it as new.
Except for one person
Asleep in a corner,
A government watchman
Named Ermingard Horner,
Who woke up abruptly
And pointed her Glock
At a fat man who stood
By the grandfather clock.
Drop em!" she said.
He replied with a quake,
"Dear me! Do you want
"All the presents to break?"
As she patted him down,
She concluded, right quick,
The nocturnal intruder,
In fact, was Saint Nick
But inside his bag
Was no football, no ring,
Nor a toy nor a doll
Or new video thing,
Just pieces of paper
And pieces galore,
And they spilled from the sack
On his back to the floor
"What's this?" she demanded,
"Start telling me true!"
"Each," he confessed,
"Is a big I.O.U.
"For many a year
"Congress plundered the store;
"When they spent all they had,
"Then they borrowed some more."
"Till the lenders, exhausted,
"Collapsed in distress,
"Then the government cranked up
"Its vast printing press,
"Until every tree
"From Nome to Miami
"Was cut to print money
"For your Uncle Sammy."
Ermingard, being
Sufficiently bright,
Knew in an instant
That Santa was right.
And even today, she recalls
(With some chills),
The ladies room stalls
Stacked with ten-dollar bills.
The money was there for
(She found this alarmin')
The banknotes were worth less
Than White Cloud or Charmin.
Somewhere, she knew,
Politicians would gloat
That they'd picked her own pocket
To buy her own vote.
Then Santa sighed, "Presents?
"Let's all just forget it,
"Since cash is now worthless
"And no one gives credit.
"So, Christmas? Prepare
"All the kids for bad news,
"As I stuff their wee stockings,
"With cheap I.O.U.s"
He mumbled farewell
With a cynical laugh.
But she said, "I've a sandwich
"And you can have half."
He paused and he squinted,
Then smiled with a sigh,
And sat down beside her,
A tear in his eye.
He said, "Christmas can be,
"What we make it to be.
"Merry Christmas to you,
"Tuna salad for me."
Reprinted from the DC Examiner, by way of LewRockwell.com.
Friday, December 19, 2008
Thursday, December 18, 2008
Thursday, December 11, 2008
The Mechanism of Price
Today I thought I'd give you my thoughts on one of the most overlooked facets of an economy: a good, or services, price.
A "price" is the amount of one good you trade for another good, as agreed upon by the buyer and the seller. In all but the most primitive of economies, this price is usually listed as the commonly agreed upon "monetary unit" (ounces of gold or silver, paper dollars, etc).
SUPPLY AND DEMAND
A good, or services, price is determined by many many factors, collectively referred to as the Law of Supply and Demand (a Law like gravity or relativity, not a law like a speed limit.) According to this law, if the supply of a good increases, then it's price decreases. It usually means that production techniques are cheaper and more efficient, or more of the good has been found to dig out of the ground (in the case of natural resources). The reverse is true. If the supply of a good goes down, for whatever reason, the price will tend to increase.
If the Demand for a good goes down (that is, if consumers do not wish to purchase a good) then the price also goes down, as the people who are trying to sell the good need to give the consumer a reason to buy. It's better to sell at a lower price, and get some money, than not to sell at all. If, however, the demand for a good goes up, then prices will rise, as people will be willing to spend more money on that good.
The ratio between supply and demand is what ultimately determines the price. Many factors contribute to the supply and demand of a good or service: the availability and cost of raw materials, he overall cost to produce the good, the current economic climate, the general need for the good being produced, and the amount of competition (or threat of competition) in that sector of the economy.
In short, an objects price is a very complex amalgamation of many different pieces of information about the availability, demand, manufacturing costs, durability, efficacy, or usefulness of a given good or service, and as such it is the mechanism which drives an economy. It is the flag that displays to the world the economic viability of buying, or producing, a good or service.
THE MECHANISM OF PRICE
Think about it: how does an entrepreneur know that a business is worth starting? Simple. He looks around at businesses of that type, if their are any, and sees what price they are charging for that good or service. If he feels he can sell that good, or service, for less than his would-be competitors, and still make a reasonable profit, then he will immediately begin producing this good or service. And seeing as he is providing it for a reduced price, the other companies must also lower their prices, or be put out of business. The effect is a lowering of price.
What about the other way around? How does a business owner know when producing a good or service is no longer economically viable? Simple: when he has reduced his prices as low as they can go, and people are still not buying his good or service. Our business owner must cut costs, or lay off employees, or move to a different sector of the economy. His efforts are turned to a good or service that people do desire, and that will produce him a profit. The net effect of which is a removal of the over-supply of the first good, and a shifting of the businessman's, and his ex-employees, skills and resources to more productive sectors of the economy.
THE WAGE
An employees salary or wage is a price as well. An employee is trading their skill and/or labor in exchange for a fee. Salaries and wages are subject to the same supply and demand laws as every other commodity on the market. That's why many dangerous or genuinely unpleasant jobs, as well as jobs that require rare skills, have such high salaries (the supply of workers, or the skill in question, is low, relative to their demand), whereas common jobs that don't require much skill have lower salaries.
SO MUCH INFORMATION
It is essentially impossible for any one person to predict, control, or understand, the movements of prices in the every day market. That's because prices are the net result of trillions of decisions made by billions of people every day. What do buy, what not to buy, what to sell and how to sell it, where to invest. In short, the only people that can know the decisions, wants, and needs of everyone on the planet... is everyone on the planet. And the decisions of everyone on the planet result in this wonderful number, the price, and the price influences the next round of decision making.
Hopefully you've learned something from this impromptu essay. Remember this, as I'm sure I'll be talking about price again, in the near future.
A "price" is the amount of one good you trade for another good, as agreed upon by the buyer and the seller. In all but the most primitive of economies, this price is usually listed as the commonly agreed upon "monetary unit" (ounces of gold or silver, paper dollars, etc).
SUPPLY AND DEMAND
A good, or services, price is determined by many many factors, collectively referred to as the Law of Supply and Demand (a Law like gravity or relativity, not a law like a speed limit.) According to this law, if the supply of a good increases, then it's price decreases. It usually means that production techniques are cheaper and more efficient, or more of the good has been found to dig out of the ground (in the case of natural resources). The reverse is true. If the supply of a good goes down, for whatever reason, the price will tend to increase.
If the Demand for a good goes down (that is, if consumers do not wish to purchase a good) then the price also goes down, as the people who are trying to sell the good need to give the consumer a reason to buy. It's better to sell at a lower price, and get some money, than not to sell at all. If, however, the demand for a good goes up, then prices will rise, as people will be willing to spend more money on that good.
The ratio between supply and demand is what ultimately determines the price. Many factors contribute to the supply and demand of a good or service: the availability and cost of raw materials, he overall cost to produce the good, the current economic climate, the general need for the good being produced, and the amount of competition (or threat of competition) in that sector of the economy.
In short, an objects price is a very complex amalgamation of many different pieces of information about the availability, demand, manufacturing costs, durability, efficacy, or usefulness of a given good or service, and as such it is the mechanism which drives an economy. It is the flag that displays to the world the economic viability of buying, or producing, a good or service.
THE MECHANISM OF PRICE
Think about it: how does an entrepreneur know that a business is worth starting? Simple. He looks around at businesses of that type, if their are any, and sees what price they are charging for that good or service. If he feels he can sell that good, or service, for less than his would-be competitors, and still make a reasonable profit, then he will immediately begin producing this good or service. And seeing as he is providing it for a reduced price, the other companies must also lower their prices, or be put out of business. The effect is a lowering of price.
What about the other way around? How does a business owner know when producing a good or service is no longer economically viable? Simple: when he has reduced his prices as low as they can go, and people are still not buying his good or service. Our business owner must cut costs, or lay off employees, or move to a different sector of the economy. His efforts are turned to a good or service that people do desire, and that will produce him a profit. The net effect of which is a removal of the over-supply of the first good, and a shifting of the businessman's, and his ex-employees, skills and resources to more productive sectors of the economy.
THE WAGE
An employees salary or wage is a price as well. An employee is trading their skill and/or labor in exchange for a fee. Salaries and wages are subject to the same supply and demand laws as every other commodity on the market. That's why many dangerous or genuinely unpleasant jobs, as well as jobs that require rare skills, have such high salaries (the supply of workers, or the skill in question, is low, relative to their demand), whereas common jobs that don't require much skill have lower salaries.
SO MUCH INFORMATION
It is essentially impossible for any one person to predict, control, or understand, the movements of prices in the every day market. That's because prices are the net result of trillions of decisions made by billions of people every day. What do buy, what not to buy, what to sell and how to sell it, where to invest. In short, the only people that can know the decisions, wants, and needs of everyone on the planet... is everyone on the planet. And the decisions of everyone on the planet result in this wonderful number, the price, and the price influences the next round of decision making.
Hopefully you've learned something from this impromptu essay. Remember this, as I'm sure I'll be talking about price again, in the near future.
Sunday, December 7, 2008
A trend for all seasons...
I've been noticing an interesting trend. It became noticeable with the first US bailouts, then in the UK and Europe... and I suspect that it will hold true in India and China.
1) Due to previous government regulation, the economy begins to tank.
2) The government promises to inject money in to the economy, thus making everything fine!
3) On hearing the news, investors loose some of their understandable skepticism. They begin investing again, and the stock market prices rise. Government says "Yay! Look at us! We'll make everything okay again, see?!"
4) The government injects the money.
5) The money is instantly lost to the regulations and resulting bad business practices, that were present before the bailout.
6) Investors, with good reason, loose hope. Stock markets continue to dive. Government says "Ho, hum, guess we didn't do enough."
7) Lather.
8) Rinse.
9) Repeat, ad collapsium.
1) Due to previous government regulation, the economy begins to tank.
2) The government promises to inject money in to the economy, thus making everything fine!
3) On hearing the news, investors loose some of their understandable skepticism. They begin investing again, and the stock market prices rise. Government says "Yay! Look at us! We'll make everything okay again, see?!"
4) The government injects the money.
5) The money is instantly lost to the regulations and resulting bad business practices, that were present before the bailout.
6) Investors, with good reason, loose hope. Stock markets continue to dive. Government says "Ho, hum, guess we didn't do enough."
7) Lather.
8) Rinse.
9) Repeat, ad collapsium.
Meanwhile, In China, Copycats.
China weighs new plans to boost economic growth
BEIJING – Chinese leaders began weighing possible plans Monday to expand a massive stimulus package with higher spending on health and social programs amid signs an economic slowdown is worsening.
The meeting of top planners also might consider proposals to boost exports and to inject government money into slumping Chinese stock markets, according to state media. The government has released no agenda for the meeting.
The meeting comes as Beijing tries to figure out how to get the most out of a 4 trillion yuan ($586 billion) package announced in early November meant to shield China from a global slowdown with spending on construction and other projects.
Optimism that the meeting will produce more steps to bolster the economy lifted stock markets in Hong Kong and Shanghai. Hong Kong's Hang Seng index surged 7.5 percent Monday, while the Shanghai Composite index was up 2 percent.
A friend of mine remarked to me: "It's almost like every country in the world is joining a giant, economic suicide pact."
And if China jumps, it pulls us all with it.
Friday, December 5, 2008
The Money Hole
A disturbingly accurate metaphor from The Onion News Network...
In The Know: Should The Government Stop Dumping Money Into A Giant Hole?
In The Know: Should The Government Stop Dumping Money Into A Giant Hole?
"Is this where we pretend to vote?"
Welcome, Hyperinflation, to your new home!
http://en.wikipedia.org/wiki/Hyperinflation
Just when I thought Great Rudd and the Ruling Class couldn't get any more stupid, they go ahead do something like this.
Luckily enough, Australia isn't in budget deficit yet (or so they tell us). First, some comments, then some maths.
1) This is tax money.
2) The report states that millions of families will receive this benefit.
3) The report further states that these families will be poor families.
4) For arguments sake, let's say that there are one million poor families, each with a single child. According to the article, these families will be given $1000 per child. That's another ONE BILLION dollar bite into the budget surplus. That number is very generous, as a lot of families have more than one kid, there's probably a lot more "poor" families than one million, and the calculation doesn't account for pensioners or veterans.
It's probably not a stretch to say that several billion dollars are going to be distributed in this scheme.
Now, you're probably thinking "So what?! Poor people get an extra buck! Isn't that a good thing?"
My answer would be: for the poor people, maybe, and ONLY in the short run.
Firstly (and you'll scoff at this) Lord Rudd is playing favorites by stealing from the rich (well, everyone, really) and giving to (only) the poor, in true socialist fashion.
Secondly, what happens when these several billion dollars enter circulation? An increase in the money supply. The direct cause of inflation. Prices are going to rise EVERYWHERE, so the benefit that the poor families gain at Christmas is going to be immediately mitigated when prices "stabilise" in January. So, the poor don't gain or loose anything, technically, and the slightly better off people just have to cop the price rise.
Thirdly, and finally, when you tally up this policy with all the other bits of government spending that Divine Rudd wants to introduce, you'll notice that the budget surplus is quickly disappearing. When it finally goes into deficit, we'll have to do what the Americans are doing. First, we'll have to borrow from the Chinese (but seeing as they've already lost all of THEIR cash in the US, they might be reluctant). When that avenue is closed, you know what they have to do? They have to PRINT the money. Poof! Whole budgets out of nowhere!
And the Weimar Republic comes home to Australia.
Oh, and if you think this COULDN'T happen in modern times, watch Mr. Mugabe put a scowl of disapproval on your mug: http://en.wikipedia.org/wiki/Hyperinflation_in_Zimbabwe
Just when I thought Great Rudd and the Ruling Class couldn't get any more stupid, they go ahead do something like this.
CHRISTMAS is coming, but the cupboard won't be bare. Millions of Australia's cash-strapped families, black and white, are about to get the biggest pay day of their lives.
The money, which comes under a Rudd government package to stimulate the economy, will begin to arrive from Monday.
The sums involved are considerable: parents will receive $1000 for every child in the family (the benefit is means-tested); single carers, pensioners and veterans will get $1400; coupled pensioners, carers and veterans will receive $2100. In some remote Aboriginal communities, where families live in extended kinship arrangements, between $10,000 and $20,000 will be deposited per household.
Luckily enough, Australia isn't in budget deficit yet (or so they tell us). First, some comments, then some maths.
1) This is tax money.
2) The report states that millions of families will receive this benefit.
3) The report further states that these families will be poor families.
4) For arguments sake, let's say that there are one million poor families, each with a single child. According to the article, these families will be given $1000 per child. That's another ONE BILLION dollar bite into the budget surplus. That number is very generous, as a lot of families have more than one kid, there's probably a lot more "poor" families than one million, and the calculation doesn't account for pensioners or veterans.
It's probably not a stretch to say that several billion dollars are going to be distributed in this scheme.
Now, you're probably thinking "So what?! Poor people get an extra buck! Isn't that a good thing?"
My answer would be: for the poor people, maybe, and ONLY in the short run.
Firstly (and you'll scoff at this) Lord Rudd is playing favorites by stealing from the rich (well, everyone, really) and giving to (only) the poor, in true socialist fashion.
Secondly, what happens when these several billion dollars enter circulation? An increase in the money supply. The direct cause of inflation. Prices are going to rise EVERYWHERE, so the benefit that the poor families gain at Christmas is going to be immediately mitigated when prices "stabilise" in January. So, the poor don't gain or loose anything, technically, and the slightly better off people just have to cop the price rise.
Thirdly, and finally, when you tally up this policy with all the other bits of government spending that Divine Rudd wants to introduce, you'll notice that the budget surplus is quickly disappearing. When it finally goes into deficit, we'll have to do what the Americans are doing. First, we'll have to borrow from the Chinese (but seeing as they've already lost all of THEIR cash in the US, they might be reluctant). When that avenue is closed, you know what they have to do? They have to PRINT the money. Poof! Whole budgets out of nowhere!
And the Weimar Republic comes home to Australia.
Oh, and if you think this COULDN'T happen in modern times, watch Mr. Mugabe put a scowl of disapproval on your mug: http://en.wikipedia.org/wiki/Hyperinflation_in_Zimbabwe
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