Sunday, August 15, 2010

Dr. Brown on the Last Days

"You don't know, any more than I know, that we are living in the last generation. You can't prove it to me scripturally that we are living in the last generation." ~Dr. Michael Brown, Line of Fire Radio Show, August 12, 2010

Listen to the "Last Days Revival, Apostasy or Both" at Dr. Brown's website.

Saturday, August 14, 2010

Thinking About Our Economic Future (Part Two)

Our Economic Future (Part Two)

1. Gold is still the currency of the future - and don't you ever forget it. The U.S. Dollar has lost nearly a tenth of it's purchasing power in the 21st century alone, 95 percent if you add the 20th century. Austrian economists and financial experts, such as Tom Woods and Peter Schiff, argue that now is the best time in history for a new and, in the most optimistic sense of the word, improved gold standard; and, you know what, I'd argue that too! As Schiff details in his 2009 wealth preservation strategy guide, Crash Proof 2.0, it could work much like a credit card, thus reducing the burden of actually carrying physical metals. Here is an excerpt:
... there will always be people who say gold is a "barbaric relic," that gold standards don't work, and that there's not enough gold to make a monetary system viable. That's all nonsense. Scarcity is what gives gold its value, and price structures will adjust to reflect the money supply. Governments resist a return to a gold standard because it forces discipline they don't want. It forces them to make a choice: get more gold, reduce spending, or raise taxes.

The modern world has never been better positioned to use gold as a medium of exchange as it is right now.

Back in the early days, if you wanted to use gold you had to either carry it around or store it with a goldsmith and obtain a receipt; for smaller transactions, you had to use lesser metals, copper as in pennies, nickel as in nickels, and silver as in dimes, quarters, half-dollars, and, optionally, dollars. You couldn't break gold down beyond a certain point.

But today, with the internet and with debit cards, it has never been easier for the world to transact in precious metals...What I expect is that financial institutions... will emerge that are reliable depositories of gold and, in conjunction with Visa or Mastercard, will offer the opportunity to hold deposits in bullion.

Already, Americans who travel around Europe can walk into a restaurant and have a meal for 200 euros, then whip out a credit card and pay with it... The reason that's possible is that when the card company gets the bill, it does a currency conversion and takes enough dollars out of that account to settle the euro bill.

So it's just going a small step further to imagine how someone with 200 ounces of gold bullion on deposit with a company issuing a credit card could walk into a restaurant and have dinner and when the bill was presented... have their account debited the grams of gold equal to the exchange rate of currency in which the bill was presented. Being a cyber transaction, there would not be a problem breaking down a bar of gold since the service company would simply charge your account and keep track of the amount of gold remaining.

2. Obama's Economic Advisors Resignations as Indicators of Economic Downturn (and that they really don't have a clue) - It was a rather silent event, but several of Obama's economic advisers have stepped down. This is a good thing, of course, that Obama has less Keynesianists around him than before. Perhaps, with no bad economic advisors around he can make some good decisions, or be so paralyzed by their absence that he can't do anything. I'm being completely unrealistic, and on purpose. Of course, I don't believe that everyone will leave. Paul Volcker is one man on the Obama Administration that I like, for the simple reason that he helped curb the inflation of the 1980's. Pray he will be influential enough to do it again. And, even though I rarely cite them for anything but their movies, Inflation.US predicted in December that Paul Volcker will resign. Admittedly, they also said it was a long shot that will happen.

Some, like the woman in this article, probably are getting out because they don't want to have a depression on their resume. The official story is that she is leaving for her kids. And you know what, I trust her to a degree. But I also think their may be something else unsaid: she might not get that UCLA job back if the economy goes into a worse slump; nor will she get that White House job back if there is no recovery. It is best for her to get out now before the UCLA fall semester begins; perhaps the same goes for the others.

As for the "not really having a clue" part, read her statements:

Among her challenges was explaining why her prediction that the Obama-backed fiscal stimulus would keep the unemployment rate below 8% proved overly optimistic. The unemployment rate is now at 9.5%.

"I certainly hoped it would be lower," she said. "The world deteriorated between November 2008 when I started" and the initial estimates were made "and when we took office January 21. Do I wake up every morning and wish it were 8% instead of 9.5%? You bet."

Let's hope those UCLA students don't ask her to explain why she was so optimistic. And why didn't she wish the unemployment rate was 0%?

3. How the GDP is not a Good Indicator of Economic Growth - Unfortunately, people have measured the economic "recovery" in terms of gross domestic product. This is, of course, a bad indicator as I will soon explain. The problem using the GDP as an indicator of growth is that it calculates too much. Let's relate this to the tragedies of 2001, 2005, and 2010, respectively, to serve our purposes. On September 11, 2001 the terrorist attack against the United States destroyed, what I guess is, millions of dollars worth of property. Then, as businesses recovered and clean-up initiatives began, millions of dollars more were used to clean up the mess.

In 2005, New Orleans was hit with the devastating Hurricane Katrina. Once again, millions of dollars worth of businesses were destroyed, homes were lost, and people relocated. In this case, too, millions of dollars were used to clean up the mess.

In 2010, the Gulf Oil Spill devastated the Gulf Region once again; and the image of black water was engraved in the minds of millions of Americans. Like the previous disasters that affected the American economy, millions of dollars are being used to clean up the mess.

What is the point of being so repetitious? Because, none of these disasters resulted in more production, yet the GDP would have taken into account the millions of dollars to clean up these damages from these events. As Peter Schiff puts it in Crash Proof 2.0:

One big problem with GDP... is that it makes no efforts to distinguish between transactions that benefit the nation's health and those that subtract from it. Destructive activities are included as well as productive activities....every thing it and a contribution to a nation's economic health.

He then goes on to recite Exxon's Valdez as an event that increased GDP because money was paid to clean it up. Think about it in another application, if a 1000 people were injured on September 11th, then the GDP would calculate the increase in medical care spending as an increase GDP. But would that really mean we are being more productive? Obviously not. A 1000 injured people will contribute to medical costs, but paying for medical care will take away from what could have been spent on something else that is truly productive.

4. The Difference Between a Service-Based Economy Versus a Manufacturing-Based Economy

Think about the relationship between a service-based job, such as lawyering, and a manufacturing-based job, such as being an Apple Computer Systems factory worker. The lawyer has his job because he is able to effectively charge these manufacturing companies high prices for them to keep their own money in the face of lawsuits and accusations. But as manufacturing goes, so does the legal work. If I were to predict a trend, legal workers, both lawyers and paralegals, would shift from lawsuits to business start-up as legal work begins to dry up. As one Philadelphia-area lawyer told me, they get paid for doing bankruptcies, but once a business is bankrupt the legal work for that business evaporates.

The Apple factory worker, however, will always have work as long as someone is willing to pay for Apple products.

5. Short Term Volatility is their only Argument against a lot of arguments

The price of gold has been on the rise for some time now. However, anti-gold advocates rail that the time for gold is over. The evidence: short-term volatility. If the price of gold goes down 10% one week, even though the price has been increasing steadily by over 300 percent, then this short-term volatility will be used as evidence for the downfall of gold. However, in the long-term, secular basis, gold has gone up and doesn't look like its going down anytime soon.

Similarly, short term GDP-growth is also the same argument used to say that the stimulus package worked. In the quarters of 2009 that stimulus spending was most "effective", the GDP--remember its dubiousness--rose the most. This is hailed as evidence for an economic recovery. But the problem is that it is just another short-sighted trend. Long-term trends--rising unemployment and decreasing consumer habits--still prevail.

6. Long-Term Trends Still Remain

Trade deficits are expanding.
Industrial decline in US continues.
More people are on food stamps than ever before
Social Security is still a ponzi scheme

7. Is a Stock Market Crash Coming?

Wall Street Journal thinks it's possible.

The First Two Books for Your Reading

The first two books for your reading, Inherit the Earth and Honest Money, can be found on the following website in PDF form.

Click Here

[This post is a continuation of the previous one]

10 Books and 4 Movies to Understand the Financial/Currency Crisis

To read the books in the following links you will need a PDF reader and DJvu reader.

10 Books to Read to Understand the Financial Crisis

To watch the movies in the following links you will need access to Youtube and Google videos.

4 Movies to Help Understand the Economic Crisis

The time for preparing yourself for a more severe downturn is winding down. Educating yourself and acting on that education is the only way out.

Positive Responses to Our Economic Future (Part One)

So I received some really good responses to my previous blog post. Ok, I make it sound like a lot, but I really did have one really good exchange with a friend. It was so good that I decided to repost the exchange in full.

His comments:

I definitely agree with a lot of what you are saying. I whole heartedly think that housing prices were artificially high for so long, that it may seem like a bad thing that they are going down...but its a neccessity. Its pretty much market correction.

As far as interest rates..they do need to rise temporarily I think they need to rise because eventually countries with money are going to want to stop investing in our bonds.

Now, I will argue that a lot of that "free-market" economic and Milton Friedman stuff is was got us into the mess we are in now.
And this statement here:

.......I didn't plan to go into detail, but in free-market economies prices go down, wages go up, and standards of living go up. This is contrary to what other schools of economic thought believe. Don't believe the myth that says that "capitalism necessarily requires permanently low-wages to be successful." It is a lie and anti-capitalist propaganda.....

I don't know if I would completely agree with this because in a truly non regulated capitalistic society there is a huge incentive for employers to pay workers less in order to get the most out of profits. If you really look back in history to societies where TRUE free market policies occurred, there was always a crucial economic divide b/w rich and poor. Now I ask you, do you think that if the governement in this country did not enforce a minnimum wage or child labor protections that companies would actually pay people a living wage or not hire little kids at a cheap wage. Before you answer the question about hiring children, look at how the US labor force was before child labor laws were put into effect.

Anyhow, I am definitely glad to see you reading and forming a good opinion on this stuff, if more people had an understanding of the economy and could form opinions the way you do, we might not be in the mess we are in now.

My Response:
Thanks for responding.

I'm glad you mentioned Milton Friedman because now I have a chance to clarify a point: Milton Friedman started the Monetarist School of Economics, a school that the Austrian School of Economics is very critical of. Friedmanites believe that central banks ought to control the money supply; Austrians believe that central banks shouldn't even exist. So Friedman isn't all "free-market" as people may think he is; and, you are correct in criticizing Friedman. His ideas, in a sense, enabled the actions of the Federal Reserve today. (I mistakenly posted a video of one of Friedman's speeches a few months back, but that was before I found out critical Austrian's are of him. I always knew there was a difference between monetarism and austrian economics, but I didn't know how harmful his ideas were later)

As for your minimum and living wage concerns, I have been asked this question before, and I hope I don't miss your question entirely. But before I attempt to answer I must call to mind what a wage is: an agreed upon price for your labor. When you accept a job's wage, you are essentially saying "the value of my labor is X." If you didn't believe the value of your labor was X, then you would negotiate for a higher wage.

This "price"--in practice--is no different than the price of goods on a shelf. Let me explain:

Just like consumers want the most bang for their bucks, so do employers. A consumer is entitled to savings when he chooses one brand over another, and the employer is entitled to savings when he chooses to hire one person over another. For example, if a person chooses Tide over Clorox (assuming Tide costs less), he or she is saying three things: the prefer Tide (which is obvious), they prefer to save, and that it is a detergent that gets the job done.

But what happens when you implement a price control on all detergents, and all detergents are now $5 - every brand. How does the consumer choose what he wants? He can go by looks, reputation, the ability to get the cleaning job done; the one thing he can't factor in is savings, which often goes into most people's calculations. In effect, Tide has lost all of its bargaining chips to the consumer. Why? Because people will choose a brand for reasons other than savings.

Why is all of this relevant? Because the minimum wage is essentially a price control. It is saying no matter how good, or bad, a person can do the job all the costs of labor is worth the same. Historically, the minimum wage has had the worst effects on black people, and originally it was meant to do so. When white labor unions were concerned about poor low-skilled whites being put out of work by poor low-skilled blacks, the first thing they wanted was a minimum wage. The reason was because blacks were using their bargaining chips and taking jobs for cents less than whites, just to have a job. But once the minimum wage was implemented employers could no longer factor in savings to hire workers. They had to choose something else. In that time, the color of a man's skin could be the difference in hiring someone. But if there wasn't a minimum wage, blacks could bargain for a job.
(This also goes to show that even if an employer is racist, it isn't always in his best interest to practice his racism if he prefers saving and making money.)

On another note, price controls like the minimum wage also have another unintended effect: labor shortages. In other words, unemployment rises as the price of labor goes up. Labor shortages because of price controls work the same way we have food shortages, gas shortages, or other shortages when price controls are implemented. It was before my time, but I think it was in the 1970's or 1980's when the gas prices were skyrocketing and the government's reaction was to implement price controls on gas. The rise in prices was the market's way of saying that supply is short and demand is high, therefore the price is going up. But once they put a cap on prices, gas companies had incentive not to supply gas, because there were no profits.

In the same way, when you implement a price control on labor, employers have less incentive to hire, because it cuts into profits.

Finally, now, I think that while employers were free to not provide a minimum wage (a reasonable wage is probably the better term) at one point, it wasn't always in their best interests to do so. Too many workers strikes cuts into business activity. At the same time though, we have to factor in what they can afford, and that a price control is still a price control. During the industrial revolution when children received low pay for long hours and hard labor, we have to take into account that often these were kids in poverty, many facing starvation. If they didn't have that job, they wouldn't be eating. When you implement a minimum wage, their employers have less incentive to hire more workers. In a situation like that, I think, the principle would still be the same: higher minimum wages leads to higher unemployment. You would then have kids eating to not really eating at all.

While this may seem cruel, the money being saved from profits is being exchanged for goods and services in other industries (where real people also work). So the benefit of an employer keeping profits is not immediately seen, but nonetheless exists.

...I don't think eliminating the minimum wage necessarily means that employers will begin to provide terrible wages. Some wages will in some industries get lower, but then you have some wages getting higher; but that would just be the market setting the prices of wages like it sets the price of everything else.

A while back one of my friends pointed out to me that while minimum wage may actually help secure a certain amount of income, it may also create incentive for employers to pay them "only" a minimum wage, even if the price of labor is much higher. In other words, the minimum wage can have another unintended effect: people are duped into thinking their labor is worth less than what it really is. Now, how true my friends observations are is uncertain, but it definitely seems reasonable.

Our Economic Future (Part One)

[This blog post is a re-post of a Facebook mass message I sent out.]

So it has been a minute since I have last posted a blog post or sent a mass message like this. Everything is okay, but its a lot of stuff going on the world (read "Economy") that are really disturbing that I had to talk about. I decided not to write a blog, but instead send this message.

Please bear with me. I know it looks long, but it really is a quick read. Think of it as your daily Washington Post 2-page article.

Anyway, here are some of my primary concerns about America's economic future. By the end of this message, you should be able to understand why being afraid of lower prices is non-sense and how inflationary policies ultimately hurt poor people (and everyone else).

I understand that I do not go into full detail about how deflation works or happens, or how "credit easing" is bad, and that much is to be desired, but this is part one, and part two will likely be more specific and be in blog form.

(Don't worry, I will define terms as I go along. Remember, the Goins Report is all about you understanding (Austrian) economics. There really is no point in keeping conversations in incomprehensible academic jargon.)

1. "Helicopter" Ben Bernanke's "Credit Easing" - The Chairman of the Federal Reserve bank may actually live up to his nickname, "Helicopter", in an effort to curb the dreaded - not dreaded by Austrian Economists, like me - deflation that may come by dropping more money into the economy (i.e. inflation), hence the name "Helicopter." Many pop-economists are frightened by a deflationary scenario; they would rather keep prices stable or make them higher. But was is so wrong about deflation?

As you will see in a moment, people without jobs don't need inflation, they need deflation.

But back to this idea hinted at in the topic. "Credit easing" is Ben Bernanke's solution to the economic crisis. But credit easing is something that we've had since 2001 under Alan Greenspan when he lowered Federal Funds rates from 4% to 0.75-1% to avert the 2001 recession. What we really need is "crediting tightening", a reverse in interest rates, which is a painful but necessary correction to our economic ills. It will cause some short-term economic sting, but will provide long-term growth. Bernanke's solution, however, will cause short-term growth and long-term economic damage. What is so great is that we have evidence that credit easing doesn't work: Obama's stimulus package was enacted during a period of "credit easing". Sure, the package provided short-term relief to many people. But what isn't seen is the long-term damage done by doing so. On a different note, the stimulus package provided growth in GDP. But the GDP isn't the best indicator in economic growth for reasons I'll mention in another post. At best, the stimulus provided the "illusion" of growth and political brownie points to keep the executives in office in power and credible.

2. "Deflation" - The second concern is directly related to the first. But first, some definitions. If you remember when I first started this group (and blog) I was making a lot of noise about inflation, hyperinflation, deflation, and really trying to make the different directions the economy could go very clear. While inflation is still expected in the long run, deflation is expected short term.

But what is deflation? Deflation is a decrease in the money supply (total amount of dollars in U.S. markets). Inflation is just the opposite, an increase in the money supply. What this means in everyday terms is that when there is deflation in the money supply the prices of goods and services (things you buy regularly) drops. That means lower prices for everybody.

But the FED doesn't want lower prices. It wants to keep them high.

Imagine a person (let's call him "H-man" from this point on) who receives $100 per paycheck. Now lets say that with this paycheck they save $20 per paycheck and use $80 for bills and utilities. Now imagine a deflationary scenario happens and the prices of their goods desired drops. What happens? Answer: they have more money to save! Hypothetically, their per paycheck savings go from $20 to $32. That's $12 more that can be saved for investment, or spent improving their quality of life, or spent improving someone else's (charity or otherwise).

But what if the FED (and other pop economists) get what they want and they inflate? Answer: "H-man" is spending more on bills and utilities! Instead of $20 saved, or $32 in savings, H-man now loses his savings because of higher prices on everyday goods. Let's say his per paycheck savings go down to $12, or $10 because of an increase of prices. H-man now has less money for investment, goods, and himself. Above all, his standard of living is diminished. Who would want this for another person?

If you grasp this simple concept, then you will understand why falling prices, whether it is in the housing market or automobile markets, is not a bad thing.

I didn't plan to go into detail, but in free-market economies prices go down, wages go up, and standards of living go up. This is contrary to what other schools of economic thought believe. Don't believe the myth that says that "capitalism necessarily requires permanently low-wages to be successful." It is a lie and anti-capitalist propaganda.

Anyway, does anyone catch the stupidity of inflation?

People who are struggling to make ends meet don't need to be spending more money for everyday items, they need to be spending less. The money that they are saving through lower prices can be saved and put to other uses. Who knows? Maybe that money can be put to create work for others!

This concept applies to the large-scale (i.e. Businesses), too. The less they spend the more they can save to hire more workers, or to spur innovation, or something!

WCF Chapter One "Of Holy Scripture" Sunday School (Sept.-Oct. 2021)

Our text for Sunday School (also "The Confession of Faith and Catechisms") Biblical Theology Bites What is "Biblical Theology...