San Juan Mountains

San Juan Mountains
San Juan Mountains: Grenadier Range

Friday, January 13, 2012

Government Loans = Taxpayer Losses

The January 12th issue of the Denver Post had the following front page headline, "City's Bad Loans Add Up".  The story went on to say, "Nonprofit housing groups, restaurants, a tavern, a furniture store and a theater company are among 91 borrowers with delinquent city loans through Denver's Office of Economic Development.  The city is working on cleaning up its portfolio of 655 loans, of which roughly 14%, or $21.6 million worth of loans, are in arrears."
Now let me get this straight....evil corporate bankers refuse to give loans to some groups because they do not consider them to be creditworthy.  Since the evil corporate bankers will not perform their civic duties and suffer losses on behalf of these uncreditworthy groups, the government steps in with loans from the taxpayers so we can all do our civic duty and suffer losses on behalf of these groups.  I have only one question....where do I go to get my loan?
Let's put this in perspective.  According to the Federal Reserve, the delinquency rate on all loans at all commercial banks in the US is presently around 5.7%.  That is down from a high of 7.5% in 2009 and up from the previous low of 1.6% in 2005.  The average rate of delinquency over the past ten years has been right around 4%.  That means loans made by beneficent government leaders have a rate of default that is two and a half times higher than the rate of default found at evil, greedy, corporate banks.  Of course, when one of those evil banks suffers a loss, the loss is suffered by the shareholders who voluntarily assumed the risks associated with the loans.  When government suffers a loss, that loss is suffered by all of us, whether we wanted to be in the loan business or not.  When officers of the evil banks continually make bad loans they are fired by the shareholders.  When officials in good government continually make even worse loans they are awarded plaques for their civil service and reelected by landslide margins. 
The net effect is that I am being used by government as a source of welfare for people and groups who are unable to obtain loans by conventional means.  If anybody should be thanked, it is me (and you, fellow taxpayer). 

Thursday, January 12, 2012

Income Disparity Is Not A Problem, Envy Is

I just read in the Denver Post today that a recent survey of Americans caused the survey company to conclude that "income disparity" is the biggest problem facing Americans today.  As the survey company described it, income disparity is the alleged fact that the rich are getting richer and the poor are getting poorer.  Of course, there were no precise definitions of what constitutes rich or poor.  In my experience when people use the terms rich and poor they always assume they are poor and their neighbor is rich.  That allows them to justify voting for government income transfer programs that will rob their neighbors and give the money to them.  I think it just might be the case the envy is the actual biggest problem in the country today.
Michael Brush, of MSN Money, posted on his blog (10-18-11) that, "Occupy Wall Street is highlighting a real economic trend that's not good for our country. While the superrich keep getting richer, living standards for the median household have declined more or less steadily since the late 1990s, says Mark Zandi, the chief economist and a co-founder of Moody's Analytics. Here are some stats that back this up:
* Between 1993 and 2008, the top 1% of families raked in more than half the gains in overall income, according to Emmanuel Saez of the University of California, Berkeley. And from 2002 to 2007, the top 1% of U.S. earners got two-thirds of all income gains. Their income grew by more than 10% a year after inflation, while the rest, the 99%, saw more-modest income gains of just 1.3% a year.
 * In 2010, median household income, $49,500, fell back to levels last seen in 1996."
Now those are some very interesting stats.  He begins by saying that "living standards for the median household have declined" and then goes on to quote a statistic in support of his position that asserts that middle class income gains have been +1.3%/year. Rising income is not declining standards, envy notwithstanding.
The second stat about median household income is probably true.  I haven't checked it.  But, measuring income by households rather than per capita does not fairly represent real personal income.  If the average size of the median household declines (which it has), then the median household income number is distorted.
Real per capita personal income (a much more accurate statistic)  peaked at a little over $34,000 in 2008.  Real per capital personal income is presently around $32,300.  The last time it was at this level was in late 2006, not 1996 as he would have you believe.  Being envious of others should not cause the truth to disappear.

Wednesday, January 11, 2012

World's Most Profitable Company: The Fed

Well folks, they have done it again!  For the second year in a row the Federal Reserve Board emerges as the most profitable company in the world.  The Fed announced yesterday that it earned $78.9 billion dollars on $2.9 trillion in assets for 2011.  This was down slightly from the all time record of $80.9 billion in income for 2010.
To put the Fed's earnings into perspective consider that the nation's largest publicly held company, Exxon, earned $40.9 billion on $323 billion in assets.  Apple earned $25.9 billion on $116 billion in assets.  Microsoft earned $23.5 billion on $107 billion in assets.  IBM earned $15.6 billion on assets of $110 billion.  General Electric earned $13.0 billion on $734 billion in assets.  Those are the five biggest companies in the US and none of them even comes close to the earnings and assets of the Federal Reserve Board.  In fact we have to add the top three together to get to the size and scope of the Fed.
Why is this important?  Because the Fed is stealing investment opportunities away from the public.  Prior to the fourth quarter of 2008, when the "financial crisis" erupted, the Fed had a balance sheet that was less than $1 trillion, most of that in Treasury securities.  Over the next two quarters the Fed balance sheet more than doubled, eventually reaching the bloated size of $2.9 trillion dollars we find today.  During that period of time (and especially during the last quarter of 2008 and the first quarter of 2009) the Fed specialized in purchasing mortgage backed securities and the securities of Fannie Mae and Freddie Mac.  In fact, almost $1 trillion of the present balance sheet is mortgage backed and government agency securities.  These are securities that the Fed purchased that were available on the open market to any investor who wanted them.  At the time the Fed purchased them very few people wanted them and many of their prices had dropped to near zero.
Where did the Fed get the money to buy this $1 trillion security package?  It made the money out of thin air.  The Fed simply said it had the money and then it purchased the securities.  Those securities are now generating huge profits for the Fed.  Those securities are now worth much more than the Fed paid for them.  Those securities could have been in the portfolios of ordinary investors had the Fed not captured the market and excluded the public.  Anyone remember how the Treasury and the Fed told us that the profitable securities the Fed now owns were "toxic" and would destroy the economy?  Were they lying and trying to deceive us or just being stupid?
What the Fed did in buying these securities with counterfeit money and then selling them at a profit would be grounds for imprisonment if any ordinary citizen were to do so.  Yet, strangely, the Fed is heralded as our economic savior for doing just that.  Men that should be in prison are described as heroes.  How strange.

Monday, January 9, 2012

Monopoly is Always Related to Hegemony

One of the most popular themes of the 99 percenters, socialists, Keynesian economists, and others found within these branches of misinformed thinkers is the belief that monopoly is the creation of free market capitalism.  According to these folks, the free market necessarily gravitates to the point where large corporations are able to exclude all competitors and force consumers to purchase their goods and services exclusively.  This belief is utterly erroneous.
Monopoly is always directly related to hegemony.  In order for a corporation to exercise monopoly powers it must necessarily be able to either forcefully exclude competitors or force consumers to purchase its goods and services.  In the entire history of humankind, no corporation operating in the free market has ever been able to bring about either of those conditions.  The simple fact that a corporation can grow very large (due to the fact it is highly successful at giving consumers what they want) does not necessitate that the corporation suddenly has the power to force consumers and competitive produces to bend to its will.  Microsoft is huge, but anybody who wants to is free to start up his own software company.  Conversely, anybody who wants to use open source software is free to use it.  Microsoft cannot stop him.  Exxon is huge, but anybody who wants to is free to drill for oil.  Conversely, anybody who wants to buy his gasoline from Texaco is free to do so.  Exxon cannot stop him. 
All true monopolies that exist in this country exist because they have the power of government behind them.  You are not free to enter into the business of medical services without a government license and government approval.  You are not free to purchase pharmaceutical products from anyone who is not government licensed.  Failure to use a government approved pharmacist can result in the imprisonment of both you and the pharmacist.  You are required to use the services of the USPS to mail a letter.  You have no choice.  You may not start up a taxi company unless you have obtained a government medallion.  You are not free to practice law without a government license.  If you wish to transmit information over open space, you must apply for and exclusively utilize government approved frequencies.  The list goes on, and on, and on, and on.  We live in a highly monopolistic society and every monopoly that exists does so because of government.  Don't blame capitalism for monopoly power.  Blame government.