Topic: Economics
Mr. Paulson, I have enough stuff.
This article explores the goals and consequences of the recent actions by the US Treasury, the Federal Reserve and the corrupt US Congress (except Ron Paul)
by Jahfre Fire Eater
(libertarian)
Wednesday, November 26, 2008
Today, Tuesday, 11/25/2008 was a three trick day but the stock market only rose 36 and change. Yesterday's trick, Citi, was good for almost 400. Friday's trick, Geithner's appointment, was worth another bunch. I think the poor showing for the three-trick-pack offered today is a sign that a lot of people aren't taking the bait anymore. The attempts to "free up credit" are just wrong-headed. The three tricks today were: $200 billion to buy up securities backed by credit cards, student loans and auto loans, the $500 billion to buy up mortgage-backed securities and another $100 billion to buy mortgages directly from the people's mortgage companies, Fannie Mae and Freddie Mac. For details please see the article:
Massive new programs aimed at loosening credit It appears Yahoo changes the title and contents of the article at the referenced link so you may have to search the web for a better source.
I think the goal is to get people to spend more...or is it really to get people to borrow more? Are they not one in the same? No, they are not the same thing and therein lies the root of the misguided actions by the central banks and their governmental minions.
Paulson has seen that American's have very little savings to tap so the only way they can spend more is if they borrow more. You know what they say, when your only tool is a hammer every problem looks like a nail. He has tools to make borrowing easy. He doesn't have tools that make people spend more. He acts as if he thinks it matters what part of the rope he grasps to push.
What comes first the demand or the supply? I know, that depends. The masters of the financial world are walking a fine line. If they simply "put" too much money in the hands of the public it could set up a commodity bubble. In the scenario where inflation is pushing the price of Gold to the moon yet interest rates are near zero, the carry trade in gold would explode. Average citizens wouldn't be involved much but the deep pockets would be leveraging this carry trade as it is simply a profit generator. The more they put in the more they get out. Sounds a bit like the housing bubble, no?
The problem is the gold. A gold bubble would not drive complementary industries like the housing bubble did. A gold bubble would be a fly in the Treasury's ointment even if only a handful of very wealthy investors were involved and the rest of America spent their "free" money on goods and services...but would they?
I'm not so sure about the net results; some would, some wouldn't. There is more at work here than meets the eye. That is why the policy makers are so far off the mark. They are mechanics looking at a mechanical feedback system. They do not consider the human element. No Socialist program ever can because doing so undermines the foundation of Socialism. Individuals and their unpredictable behavior are the Achilles' Heel in the Socialist paradigm. Which is why the oppressive force of government is the only way to maintain a Socialist society. Conversely, individual actions are the root of the strength and resilience of free market capitalism. Which is why maintaining a tightly limited government defines the constant struggle for liberty.
So, what is a central banker and his government minions to do about the gold problem? Eliminate the market? I think so. Then what about the subsequent black market? I'm sure someone is concocting a marketing plan for why Americans must support the "war on gold" even as I write this. It is the only way any of the recent policy and program actions make sense. We are trending towards a scenario where it will be illegal to store wealth for future use. It is the only possible path for the Socialists. If anyone besides the core of wealthy elite has an opportunity to attain wealth, Socialism cannot exist...in the long run. In the short run, of course, anything is possible.
Getting back to the question: What comes first, the demand or the supply? Lets look at the Paulson plan.
In a nutshell his plan is as follows: If money becomes easy to borrow, demand for loans will rise. This does happen, but what are the ramifications at the limits? Is there such a condition as consumer saturation? No, I know there will always be people who want to climb the ladder of affluence so I'm not wondering if they will cease to exist. I'm wondering about the net results, when considering the humans in the equation.
Consider the psychology in the baby boomers as they begin their shift from middle-age into their elderly years. Folks who retire today, or tomorrow, are either ready or not. Folks who retire next year are nervous about the future, folks who will retire in 5 years are VERY nervous about the future. Especially if they had bought into the bubble economy of the past decade. People who will retire in 15-20 years are simply more cautious now then they were 10 years ago. My guess is that anyone 45 or older (in a bell-curve context) is becoming more cautious on a daily basis. Making loans easier to get does not relieve this wide spread caution. The thing that is missing from the Paulson plan is a mechanism to build confidence that the risk of taking on debt is worth the consequences.
Most of the population that can get a loan for a house or a car already have them. Will making it easier for these people to get loans cause a vehicle owner to suddenly want to buy a new GM product? T'ain't likely. Will easy credit cause a family of four living in a 6000 sq. ft. home decide they should move into a 10,000 sq.ft. home? The magic 8-ball says, "NO!"
Personally, we, the Fire Eaters, have enough stuff. We live in a 1000 sq. ft. home and my plan is to live here until someone carries me out in a pine box. We don't have a garage or any external storage so everything we own is here, in the house with us. We don't have room for a lot of junk, gadgets, collectables, conveniences, etc. Making loans easier to get is not going to cause us to take on a single additional nickel of debt. We are not typical of the consumer culture in which we live. Are more people becoming satisfied with their current collection of stuff? I think so. Is it enough to shut down production and trade on a scale large enough to cause a downward spiral in our nation's productivity? I think so.
Will making loans easier for people who do not have enough stuff to get cause them to go into more debt for their additional stuff? What comes first, the supply or the demand? If the people were just given the money they would certainly buy more stuff. Will they go into debt for it? When 4 homes on one block are having a garage sale and they are all attempting to sell nearly the same set of stuff will neighbors who also have nearly the same set of stuff filling their homes come to buy the garage sale items? When consumer stuff becomes worthless in a garage sale will other consumers take out loans to buy more of it new? I doubt it.
My guess is that the Paulson plan will hasten the demise of the consumer-driven economy because it will expose to the consumers the folly of their behavior in the face of a future they have no confidence in. The election of Barak Obama seems to have happened on a wave of hope but not a wave of confidence.
What will restore consumer confidence? Sound money and free markets. So far, our "leaders" show no sign of embracing actions that will restore confidence. That isn't surprising. Until the bottom is reached caution and fear will temper confidence even if hope is high. The debt that results from confidence and the subsequent demand for goods and services that result from spending borrowed money cannot be realized until the only way to go is up. Right now, both up and down are possible but down is the prevailing trend and most Americans are acting as if they know this. More easy credit is not going to restore confidence.
Is the goal of the policy makers to get people to spend more or to borrow more or both? I think their goal is irrelevant because their actions will not result in either goal being realized. Borrowing more and more dollars that are being devalued at an accelerating rate will not increase national productivity. Spending more and more devalued dollars to buy less stuff will not increase national productivity. These actions will change the nominal dollar amounts but will not stimulate new production, new jobs nor encourage Americans to take on additional debt risk. We will have to live with the consequences of their policies regardless of their stated and unstated goals. In the words of the Mighty Mogambo Guru, "We're all feakin' doomed."
Jahfre Fire Eater
©2008 Jahfre Fire Eater, all rights reserved. You must have written permission from the author in order to republish this work.
Published: Wednesday, November 26, 2008
Last modified: Wednesday, November 26, 2008
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Reader Comments:
Posted By: Master C
Date: 2008-11-26 11:32:45
Jahfre,
Do you have enough food? Enough electricity? Enough water and sewage? Enough education (well, I can clearly tell that you don't WANT anymore of that)? Enough travel to vacation spots or to see sick or healthy relatives? Enough fuel to heat and cool your home? Enough medicine or medical help?
No man is an island. And, no one EVER has enough stuff.
By the way, who cares what Richard Daughty (the "Mighty" Mogambo Guru) has to say about anything that matters? He's a bigger doomsayer than YOU are!
Master C
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Posted By: Jake, the Champion of the Constitution
Date: 2008-11-26 14:17:10
Dear MC -
You completely missed the point here. As usual. JFE is not writing about how his family is bravely leading a hermit lifestyle, (even if they are) -- he is writing that people are going to stop buying the NONESSENTIALs - who will buy the newest 52" TV from China when they already have a 42" that they bought with 12 month free loan from stellar businesses such as Best Buy or the bankrupt Circuit City.
The cycle of the American consumer does appear to be at an end. Go buy some stuff next week on Monday for Christmas - be patriotic! Sounds like Bush after 9/11.
Btw, love the MMG's writing style, its actually similar to yours, MC. He rants, just like you, but (wonder of wonders!) he at least usually lists his sources. Plus he's funnier and more educated.
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Posted By: Jahfre Fire Eater
Date: 2008-11-26 15:01:30
Ahh, Master C, I do believe you're becoming one of the most regular hits on my articles. Thank you. I can't quite call you a reader. Based on the nature of your responses there isn't enough evidence to make that call.
Perhaps you know people who take out loans to buy food and energy. Until your reply I had never considered the possibility. My well and septic are all paid for so I shouldn't need to take out a loan to flush my toilet either. There may come a time when I take on debt for more education if I decide it is necessary to secure my future. Until then I continue to spend a portion of every day learning something new as I have since I was a child back in the 1960's. Thanks for asking. It sure beats assuming you know the answers to your questions and going off on a misguided diatribe about my inner character.
Jake, thanks for trying to clarify the situation for Master C but it really isn't necessary. In fact it is futility in total. Reason from one frame of reference has no substance in others. Master C and I live in incompatible frames of reference. I can accept that without doubting my own goals and actions. I think it was Bill Hicks who described it as similar to a golden retriever trying to figure out the Tokyo bus schedule. I'll follow the things I understand regardless of who else might or might not understand them the same way.
For the record, although I may refer to myself as a hermit sometimes in jest, I have to confess that being a self-sufficient hermit is only an ideal I aspire to not a nirvana I hope to attain. It is hard to really be a hermit when you're involved in local politics and community events. There is always some meeting I must attend to defend my right to stay home to enjoy my liberty free from government interference or oppression. That bitter irony makes the life-long struggle for the defense of liberty even less attractive to would-be participants. Especially those who aspire to idyllic hermititude.
Jahfre Fire Eater
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Posted By: Master C
Date: 2008-11-26 21:22:55
Dear Jake and Jahfre,
The man was talking about having "enough stuff". Whether he needs to borrow to get more or pay cash isn't the point at all. He says that he doesn't need any more. I merely asked about a few things that he certainly doesn't have too much of. And, as usual, both of you stumbled over yourselves trying to defend a point that was never made.
Master C
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Posted By: Jahfre Fire Eater
Date: 2008-11-27 19:40:08
Master C,
I was tempted to quote myself to "prove" that you missed the entire point of my article but if you didn't read it in the article, why would I hope for you to read it in this comment? I wouldn't.
Your recent comment indicates you probably did read the headline but didn't manage to read all the way to the 2nd paragraph of the article where I set the context for the point of my writing the article; the point both Jake and I drew your attention to.
The absurdity of your trying to tell me the point of an article that I authored and that you have apparently not even read is enough of you for me.
I don't judge you for your behavior. It is none of my business how you present yourself in this world. It is my business what kind of exchanges I participate in. Giving your comments further consideration is a waste of my time. The older I get, the less tolerant I am of those who would waste my time
Since the Nolan Chart website does not have an ignore function I will simply manually ignore your comments and articles. The value of your input is a known quantity. Zero.
Have a nice life, Master C.
Jahfre Fire Eater
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Posted By: Mrs. Fire Eater
Date: 2008-11-27 19:56:40
Husband,
Regarding your article, yes, very true and I concur but I have a totally off topic comment.
I realized that we have everything on our list AND Master C's list so tomorrow I will be that much more confident and happy about our place in the world. Although that wasn't the point of the article and, indeed is nearly irrelevant to the point of the article, I thought it worth mooning over. Liberty is sweet after all.
Hooray for Master C and his "sour grapes" brand of reverse psychology. I shall go forward in life with an even bigger smirk than usual.
Love, Your Low Maintenance Wife
Ps. "Doomsayer," MC? The man can say doom all day long and it has no bearing on whether or not the doom is near or not. Again the point is lost in the void of context. The point is living well no matter the circumstance. The point is to giggle in the face of any doom whether it's probable or unlikely, inevitable or preventable, near or far and The Mogambo is simply hysterical, grasshopper. Try it again, and make sure that pencil is sharp when you come back.
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