Morality101.net

by Michael S. Rozeff, original post at LewRockwell.com

November 6, 2009

India’s central bank, Reserve Bank of India, announced on Nov. 2, 2009 a purchase of gold from the International Monetary Fund (IMF):

“The Reserve Bank of India (RBI) has concluded the purchase of 200 metric tonnes of gold from the International Monetary Fund (IMF), under the IMF’s limited gold sales programme. This was done as part of the Reserve Bank’s foreign exchange reserves management operations. The purchase was an official sector off-market transaction and was executed over a two week period during October 19–30, 2009 at market based prices.”

By my calculation, the bank disposed of about 2.3 percent of its June 30, 2009 foreign currency assets or about $7 billion worth, expressed in dollars. These assets grew tenfold between 1998 and 2007, and by only 20 percent since then. RBI’s gold reserves, at market value, were 3.85 percent of the total foreign currency assets before the purchase. They jumped by 60 percent. They become about 6.3 percent of the new lower amount of foreign currency assets.

We don’t know how many dollar assets RBI disposed of as compared with pound and euro assets. It’s likely to have been a large amount.

This transaction has a significant meaning that goes well beyond the dollar amounts involved, which are not that large. It means that a major central bank has actually disposed of dollar assets and prefers gold instead. It means that it regarded its dollar holdings as excessive. There are more central banks in the same position. They may do the same. China had been suggested again and again as the potential buyer of the 403 tonnes of gold to be offered by the IMF. India’s purchase was a surprise.

In financial terms, RBI is not simply adjusting its reserve position. It is arbitraging. It has a profit incentive to sell dollars and buy gold. In a recent article, I suggested the following:

“There is another way to arbitrage the difference between the market price of gold and its ZDV [Zero Discount Value] when the market price is less than the ZDV. Other central banks can borrow dollars, buy gold, and then issue currencies against it. With these currencies, backed by gold, they can repay the dollar borrowings and still have a profit. They can gain the arbitrage profits in precisely the same way that the FED might have or that private entrepreneurs might have.”

RBI and other central banks hold dollars whose nominal gold backing is about 15 percent of the FED’s monetary base liabilities (currency plus reserves). RBI sells $1,000 worth of U.S. securities and gets 1 oz. of gold. The $1,000 that it gives up have only $150 worth of gold behind them. RBI profits by $850. The article pointed out that this arbitrage is an economic incentive or force for selling of dollars and buying of gold. RBI has availed itself of this opportunity.

The article observed that foreign central banks and governments, for their own reasons, had spurned this opportunity in the past, thereby maintaining various economic disequilibria:

“MANY foreign central banks have done the opposite. They sometimes have sold gold. They have usually accumulated dollars in substantial amounts in the form of dollar loans. They have not only not competed with the FED and taken advantage of this arbitrage opportunity, they have gone the other way and supported the FED and the U.S. government by their loans. This was one part of the financial side of government-run economic policies.”

RBI’s action signals a change in this behavior. It is a fresh signal, since we already had been given others. The arbitrage between dollars and gold is so large that it is bound to draw further players into it. The dollar is on its way to losing its reserve status.

Does India’s purchase signal a run on the dollar? Does it signal a rapid and widespread attempt by major players to divest the dollar in favor of hard assets? Not at this time. Bear in mind that China has already been accumulating hard assets for a few years now. There is no run on the dollar, but there is a steady movement away from dollars as a reserve asset in the coffers of central banks. A stroll on the dollar has become a brisk walk on the dollar, and there is a threat that this will become a trot on the dollar.

In economic terms, the end of dollar dominance has momentous implications for the world’s political and economic arrangements. Price levels, interest rates, loans, asset prices, production facilities, trade arrangements, and much else all have been put into place based on the dollar as a reserve asset. Domestic political arrangements, promises, taxes, and programs are involved. All of these are in for adjustments. Some serious changes await us. Even if the changes are smooth and gradual, they are likely to be large. Large discontinuous changes cannot be ruled out.

A dollar overhang is a sword of Damocles hanging over the U.S. government and economy. If a surplus of dollar securities exists at current prices, then their prices will have to decline. This will drive U.S. interest rates up. This has many implications. For one thing, it will drive the U.S. budget deficit up even further, which in turn will set off untold political actions and reactions.

Dollar overhang is not a new problem. It goes back to 1971 and earlier. It has never been solved. The problem is now far larger than ever before. If a scramble for new solutions is not already on among economists who are trying to save this system, it will be soon enough. We can expect to hear new ideas broached, each of which is supposed to resolve the problem.

There are only two kinds of solutions: inflationary and non-inflationary. A British pound as good as gold is long gone. A U.S. dollar as good as gold is long gone, but the dollar has hung on for 37 years now. A yuan as good as gold does not exist. A basket of currencies as good as gold does not exist. The inflatable dollar and inflatable currencies are ruling the roost at present. India’s action and some of China’s actions signal that they are inching – really groping – their way back to hard assets and a non-inflationary solution.

China’s IMF proposal indicates a degree of confusion on her part. It is at best an attempt to buy time and gain political influence, but it does not address the international monetary problem. The IMF solution won’t work if the SDR is backed up by paper currencies or is a paper currency basket. There is no way that all the central banks can offload their dollar reserves on the IMF. What good will it do to receive another paper credit, the Special Drawing Right (SDR) in return? It especially won’t work if the IMF is selling gold reserves, for that weakens the backing for its supra-national currency, which is the SDR. RBI’s purchase shows that at least one central bank is not waiting for such a “solution.” It prefers gold.

The world’s State-controlled money system based on the dollar has built up serious and embedded economic imbalances or disequilibria. They are what lay beneath the stock and real estate bubbles and the market crashes of 2008 and 2009. They are just beginning to be unwound. Political and economic statements, trial balloons, conferences, speeches, negotiations, and frictions among the major powers will be the ongoing indications of this process. So will actions like that of the Reserve Bank of India.

Viewed in this context, U.S. fiscal and monetary policies seem grotesquely out of step with reality. Yet another bout of massive inflation and debt creation in order to “create” a buoyant economy does nothing to address the basic political economic issues. While America ponders further socializing health care and further controlling and taxing energy use, it continues to debase its currency. This used to provide U.S. pressure for other countries to inflate their currencies. That situation appears to have changed. It now provides ever-greater incentives to other countries to abandon the dollar and revalue their currencies upwards against the dollar and gold. American legislators have not yet woken up to this fact, which entails serious changes in U.S. domestic and foreign policies.

Michael S. Rozeff [send him mail] is a retired Professor of Finance living in East Amherst, New York. He is the author of the free e-book Essays on American Empire.

Copyright © 2009 by LewRockwell.com. Permission to reprint in whole or in part is gladly granted, provided full credit is given.

The Best of Michael S. Rozeff

This article has been submitted to Digg and Propeller

I received this in an email and found some food for thought. I think others may too.

BODY OF EMAIL TEXT

The numbers I checked out are okay except I can’t verify the $1 Billion to run the program. I suspect that is way off base. There was an article that said there were 3 agencies involved in the program but the government does not specify if these were existing employees or new hires or a combination of both but that 79 employees were brought in to assist in the program. If only 80 employees were involved I estimated their wages at $91,000 annually (with 30% fringe benefits) or $45,500 for six months for a total cost $3.6 million. If you throw congress and their staff into the equation you are talking, for three months, about $27 million.

Sorry about the lengthy follow up. I just wanted to be sure I was comfortable with the numbers.

What is clear is we are throwing money at a problem without reasonable numbers to determine the game plan results.

A good example of how our Federal Government uses your tax dollars to fund one of their money/earth saving programs and then announces how successful it was!!!!

· A vehicle at 15 mpg and 12,000 miles per year uses 800 gallons a year of gasoline.

· A vehicle at 25 mpg and 12,000 miles per year uses 480 gallons a year.

· So, the average clunker transaction will reduce US gasoline consumption by 320 gallons a year.

· They claim 700,000 vehicles – so that’s 224 million gallons a year.

· That equates to a bit over 5 million barrels of oil.

· 5 million barrels of oil is about ¼ of one day’s US oil consumption.

· And, 5 million barrels of oil costs about $375 million dollars at $75/bbl.

· So, we all contributed to spending $3 billion to save $350 million.

. I billion of the package was for the Dept. of Transportation to administer the program.

. You don’t need to provide citizenship information, SS# etc. to qualify and Canadians and Mexicans can cross the border to cash in.

Edmonds (a highly thought of on line auto retailer, auto comparison web site.

Edmunds.com estimates that the average cost to the taxpayer will be about $20,000 per vehicle.

If all buyers have qualified for the higher $4,500 rebate, the “cash for clunkers” program will mean a marginal increase in car sales of 22,000 this quarter. $1 billion divided by 22,000 means a net cost to the government of $45,354 per car. (This is a cost estimate for the first $1 billion and does not consider the additional $2 billion.)

. Some clunker deals are being rejected by the government because they don’t meet all of the program’s specifications. For example, the trade-in must have been continuously insured for the 12 months prior to the clunkers transaction.

Car & Driver

. if you’re trading in a car that’s worth $3000, your net gain is only $500. Although if your car is worth $100, CFC couldn’t come at a better time.

people driving cheap old beaters are probably doing so because they can’t afford a new car. And $3500 doesn’t go far when the average transaction price of new cars hovers around $24K. The vouchers don’t apply toward the purchase of used cars, for which the majority of old beaters are traded in.

However, we hope these legislators don’t expect it to meaningfully help the domestic automakers. Many of the automobiles with fuel-economy ratings high enough to qualify for the vouchers come from Japan and Korea

Washington Post

Cash for clunkers’ effect on pollution? A blip (The article has been pulled from the post. This was the the title of the article.)

Wall Street Journal-Auto Repair Association comments.

The automotive after-market, a $250 billion industry that employs about 4.6 million people, could be among the biggest losers in the clunkers program, said Kathleen Schmatz, head of the Automotive After-market Industry Association: “It’s everybody from the Fortune 500 parts manufacturer all the way through the supply chain to the independent repair shop.

On the other hand, this is crackpot economics. The subsidy won’t add to net national wealth, since it merely transfers money to one taxpayer’s pocket from someone else’s, and merely pays that taxpayer to destroy a perfectly serviceable asset in return for something he might have bought anyway. By this logic, everyone should burn the sofa and dining room set and refurnish the homestead every couple of years.

U.S. News and World Report

Cash for Clunkers may have cut our oil consumption by less than 0.2 percent per year. It didn’t even save us a day’s worth of gas. (The numbers in this report are a little different

than the numbers I received in red above but are very close).

What’s more, some analysts wonder if Cash for Clunkers really created any new sales at all. It’s possible that the program simply caused some people to buy cars earlier than they otherwise would have. What good comes from adding to August sales if we subtract from future sales to do it?

Even if it brought in new buyers, that scenario might create its own economic problems. The program led hundreds of thousands of Americans, for instance, to take on new debt in the midst of a recession and an uncertain job market.

from email subscription at GaryNorth website.

Tuesday, September 1, 2009

Nobody wants to mention tax rises just ahead of the elections,” said Thorolfur Matthiasson, an economics professor at the University of Iceland. “But if the budget deficit is 10 percent of GDP and the official debt is approximately what the nation can produce in one year, then the politicians will have to raise tax and reduce public spending.

Striker

It’s hard to pay attention to what’s happening in such a seemingly small, remote and insignificant country as Iceland, but the parallels of retro-progress in Iceland and USA are stunning and terrifying. Think for a moment, this is a part of global collapse begun here in our USSA with the last trigger on this shotgun being the CRA. Then note our Rulers now considering renewal of the CRA to cure the problems caused by the CRA.

Please read this article and review the Digg comments.

read more | digg story

Published by Your Liberties on April 7, 2009

A domestic uprising is becoming more of a reality as our rights are threatened by the epic failure that is socialism.  It’s common knowledge that our country is struggling within its own borders.  Conservatives and liberals are at each others throats, and although there was much talk about bipartisanship we have yet to see any inclination this will happen with the democrats holding the majority.  The real question is how bad do things have to get before actions overpower negotiation.

The economy is still garbage, the unemployment rate is 8.5%, and there is active legislation to suppress rights and liberties afforded to us by our founding fathers.  This administration is an embarrassment to society, and society will only take so much before it fights back.  Attempts at negotiation with have proved fruitless, Ann Coulter said it best herself.

Political debate with liberals is basically impossible in America today because liberals are calling names while conservatives are trying to make arguments.

Its no secret that the financial stability of our country is in jeopardy.  The massive amount of money being poured into the financial sector has to come from somewhere, and that somewhere is our pockets.  Its likely going to come from pockets of Americans not yet old enough to have a voice.  Funding the bailouts is like stealing from piggy banks.  There is not an American out there who is not feeling the effect of stupid liberals trying to level the playing field.  Our country was founded around capitalism; keep your filthy hands to yourself.  Obama, in his infinite wisdom was was quoted saying

I think when you spread the wealth around, it’s good for everybody.

The only people this is good for is the lazy liberals who have refused to apply themselves and expect to dig in my pocket for “change”.  Try it again and you will pull back a bloody stump.

The national unemployment rate is hovering around 8.5% the highest rate since 1983.  With this many misplaced workers tension is mounting between unemployed citizens and the marxists who think its their job to run this country.  To all Karl following morons who put faith into big government and our current administration, we have news for you, we were given the right by men much wiser than all of you collectively to take you down a peg or two.

A country not focused on free enterprise is doomed to fail, and your unwillingness to admit that will be your demise.  Every public asset has roots in free enterprise, and therefor every argument you can make for socialism is weak.  If you do not stop force feeding us your agenda we will have no choice but to take a defensive stance, and by defensive I mean smear your sorry excuse for an opinion back to London where it came from.  This is not a threat, it is a promise, one that I am allowed to make if you continue to violate my rights.

I am an American, DO NOT TREAD ON ME!

To All My Valued Employees,

There have been some rumblings around the office about the future of
this company and, more specifically, your job. As you know, the economy
has changed  for the worse and presents many challenges. However, the
good news is this: The economy doesn’t pose a threat to your job. What
does threaten your job however, is the changing political landscape in
this country.

However, let me tell you some little tidbits of fact which might help
you decide what is in your best interest.

First, while it is easy to spew rhetoric that casts employers against
employees, you have to understand that, for every business owner, there
is a Back Story. This back story is often neglected and overshadowed by
what you see and hear. Sure, you see me park my Mercedes outside. You’ve
seen my big home at last year’s Christmas party. I’m sure; all these
flashy icons of luxury conjure up some idealized thoughts about my life.
However, what you don’t see is the BACK STORY:

I started this company 28 years ago. At that time, I lived in a 300
square foot studio apartment for 3 years. My entire living apartment was
converted into an office so I could put forth 100% effort into building
a company, which by the way, would eventually employ you.

My diet consisted of Ramen Pride noodles because every dollar I saved
went  back into this company. I drove a rusty Toyota Corolla with a
defective transmission. I didn’t have time to date. Often times, I
stayed home on weekends, while my friends went out drinking and
partying. In fact, I was married to my business — hard work,
discipline, and sacrifice.

Meanwhile, my friends got jobs. They worked 40 hours a week and made a
modest $50K a year and spent every dime they earned. They drove flashy
cars and lived in expensive homes and wore fancy designer clothes.
Instead of hitting the Nordstrom’s for the latest hot fashion item, I
was trolling through the discount store extracting any clothing item
that didn’t look like it was birthed in the 70’s. My friends refinanced
their mortgages and lived a life of luxury.  I, however, did not. I put
my time, my money, and my life into a business with a vision that
eventually, some day, I too, will be able to afford these luxuries my
friends supposedly had.

So, while you physically arrive at the  office at 9am, mentally check in
at about noon, and then leave at 5pm, I don’t. There is no “off” button
for me. When you leave the office, you are done and you have a weekend
all to yourself. I  unfortunately do not have the freedom. I eat, and
breathe this  company every minute of the day. There is no rest. There
is no weekend. There is no happy hour. Every day this business is
attached to my hip like a 1 year old special-needs child. You, of
course, only see the fruits of that garden — the nice house, the
Mercedes, the vacations… you never realize the Back Story and the
sacrifices I’ve made.

Now, the economy is falling apart and I, the guy that made all the right
decisions and saved his money, have to bail-out all the people who
didn’t. The people who overspent their paychecks suddenly feel entitled
to the same luxuries that I earned and sacrificed more than a decade of
my life for.

Yes, business ownership has is benefits but the price I’ve paid is steep
and not without wounds.

Unfortunately, the cost of running this business, and employing you, is
starting to eclipse the threshold of marginal benefit and let me tell
you why:

I am being taxed to death and the government thinks I don’t pay enough.
I have state taxes. Federal taxes. Property taxes. Sales and use taxes.
Payroll taxes. Workers compensation taxes. Unemployment taxes. Taxes on
taxes. I have to hire a tax man to manage all these taxes and then guess
what? I have to pay taxes for employing him. Government mandates and
regulations and all the accounting that goes with it, now occupy most of
my time.  On Oct 15th, I wrote a check to the US  Treasury for $288,000
for quarterly taxes. You know what my “stimulus” check was? Zero.. Nada.
Zilch.

The question I have is this: Who is stimulating the economy? Me, the guy
who has provided 14 people good paying jobs and serves over 2,200,000
people per year with a flourishing business? Or the single mother,
sitting at home pregnant with her fourth child waiting for her next
welfare check? Obviously, government feels the latter is the real
economic stimulus of this country.

The fact is, if I deducted (Read: Stole) 50% of your paycheck you’d quit
and you wouldn’t work here. I mean, why should you? That’s nuts. Who
wants to get rewarded only 50% of their hard work? Well, I agree, which
is why your job is in jeopardy.

Here is what many of you don’t understand … to stimulate the economy
you need to stimulate what runs the economy. Had suddenly, the
government mandated  to me that I didn’t need to pay taxes, guess what?
Instead of  depositing that $288,000 into the Washington black-hole, I
would have spent it, hired more employees, and generated substantial
economic growth. My employees would have enjoyed the wealth of that tax
cut in the form of promotions and better salaries. But – you can forget
it now.

When you have a comatose man on the verge of death, you don’t
defibrillate and shock his thumb, thinking that will bring him back to
life, do you? Or, do you defibrillate his heart? Business is at the
heart of America and always has  been. To restart it, you must stimulate
it, not kill it. Suddenly, the power brokers in Washington believe the
poor of America are the essential drivers of the American economic
engine. Nothing could be further from the truth; this is the type of
change YOU can keep.

So where am I going with all this?

It’s quite simple.

If any new taxes are levied on me, or my  company, my reaction will be
swift and simple.  I’ll fire you.  I’ll fire your co-workers. You can
then plead with the government to pay for your mortgage, your SUV, and
your child’s future. Frankly, it isn’t my problem any more.

Then, I  will close this company down, move to another country, and
retire. You see, I’m done. I’m done with a country that penalizes the
productive and gives to the unproductive.  My motivation to work, and to
provide jobs, will be destroyed and, with it, will be my citizenship.

So, if you lose your job, it won’t be at the hands of the economy; it
will be at the hands of a political hurricane that swept through this
country, steam-rolled the constitution, and will have changed its
landscape forever. If that happens, you can find me sitting on a beach,
retired, and with no employees to worry about….

Signed,  THE  BOSS

Bailouts for billionaires and socialism for the rich are not policies that inspire confidence. Instead of feeding capital to productive business, the new dollars of our exploding money supply are supporting incompetence. Inefficient use of capital does not save an economy from collapse.

Among those rare best-ever articles you are ever read, will take a bit more time and worth it.

read more | digg story

I believe this to be the most important blurb I’ve ever written.  I have submitted this to Digg, so help us all, both at Digg It!, and have the courage to comment here at Morality101.

I am very disappointed that Ron Paul abandoned us today, telling us to ‘vote no’ by voting for any other 3rd party candidate.  Horsefeathers!  I am equally disappointed that Dr Paul chose to abandon his former Libertarian Party and play Republican.  Pseudo-Libertarian Bob Barr doesn’t even grasp libertarian principles, and has never addressed the issues and possible solutions of our economic collapse.  All the other parties and their candidates are a joke, yes, absolutely including the Republicans and Democrats.

While I might waste the gas to go write in Ron Paul, the fact is voting just became an exercise in futility.

So, back to after Digg truncated a post for me, my point is…

It seems clear to me that America can survive but little longer unless it takes immediate and drastic steps to reverse it’s progression into economic collapse.  Failing that, we may not survive even to this coming election.  Given the horrible choices for our next leadership, certainly we cannot continue on this path for another four years.  I am 70 years old; I am not and never have been a Gloom & Doom guy, but folks, we are at the end of this rope!  Unless somehow the goons in government suddenly show signs of life and rationality, which we have no reason to anticipate, the show is all over.

The economic collapse will be triggered by inflation running to hyperinflation, caused by overwhelming national debt which grows with every stimulus, every bailout, and every new socialist scheme.  There is no money for any of this, so it’s all simply being piled atop the national debt.  Our dollar will become worthless and unacceptable to the rest of the world.  The USA will have to admit it is bankrupt, however that might be accomplished, and disavow not only the national debt, but also will default on all it’s other obligations, e.g social security and medicare and welfare and highway maintenance — you name it, it will disappear.

Few of us will have enough to buy food or pay our utility bills, plain survival will make life interesting indeed!  The rich (bless ‘em) will be able to pay off their mortgages and other debt with hyperinflated money, and find tremendous bargains to the extent of their bankrolls.  But most of them will run out of money too, and find themselves holding a whole truckload of worthless T-Bills and investments as our government and private interest also collapse.

The only way I see of saving our butts depends on two key actions:

1.  Congress immediately acting to rein in or abolish the Federal Reserve.  The Fed’s manipulation of the economy must end, NOW!  The Fed must be barred from more debt and thereby expanding the money supply.  It must also be barred from tinkering with monetary policy, that which destabilizes our economy and interferes with free market capitalism, throwing us back and forth between boom and depression.

2.  Congress must reverse course immediately on everything adding to the national debt, and show the world HUGE progress toward paying that debt down.  Nothing impromptu can be added to the debt – e.g. no bailouts, no takeovers, no stimulus, no subsidies… all must end.  We may have to tell Iraq and Afghanistan and Israel that we believe we have accomplished our objectives and we’re going home.  We must tell the world we can’t support them anymore because we must deal with our own issues here at home.  We must seek to collect the abandoned debts due us around the world.  Here at home, we must eliminate most of our bureaucracy, first because of it’s immorality, and also because we can’t afford it.  Among other moves we might take would be selling off the government lands, e.g. those held by the BLM — and yes I know that would be very disruptive to the market enjoyed by big real estate investors, but perhaps they’ll take advantage, so ???  We must put an end to all support to immigrants, legal and illegal, while making it simple for enter legally for anything serving our American interests.

The above is the “short list”.  If you have something helpful to add to the above, or can contribute other solutions to our national dilemma,  registering is as easy as possible, please join us!

I may return to edit this page later, simply because both the underlying casual morality and the longer-term solutions could well be included here.

Meanwhile, those are already written in several pages you’ll find in my Tax-Strike category, along with the Libertarian and Objectivism tabs in the header at the top of all blogger pages here on Morality101.

Over half-trillion dollars has been spent on the war in Iraq.  When the true applicable costs are tallied, It’s probably much more.  It has not been paid for, being all piled atop of our insurmountable national debt.

The war was started by the first and only Hitler-President America has ever elected, his veep has multiplied his wealth via his interests in Halliburton.  The political stooges are arguing, not about getting out, but only about when someday in the future.  What is wrong with tomorrow morning?  Get the hell out!

Most of the middle-eastern countries hate us and want to destroy us.  The UN wouldn’t buy the idea of attack; England was our only ally; France and Germany were adamantly against it, even Turkey wouldn’t allow us to use their air-bases.  It’s hard to understand, but maybe we’ve given them good reason?

This does NOT mean I’ll be voting for some socialist, either.  McCain and Obama — both will increase spending, that decreases personal freedom and choice, so what’s the difference?  If I vote at all, it will be for Ron Paul unless the supposedly Libertarian Bob Barr gets onto the economic issues, which are the only issues with fatal potential.  I am beginning to believe, however, that our economy cannot survive until November, so what’s the difference?  We’re all gonna be out in the woods hunting rabbits.  That’ll soon make rabbits extinct, so we’ll have the environmentalists all over our butts.  There’s no way to win anymore.

But my subject here is ‘the REAL cost’ — the economic collapse of the USA.  This war is only a relatively small part of the national debt which has soared beyond hope.  It’s been going on for years.  Check back – even when Clinton supposedly had managed a surplus at the end of his reign, the national debt continued it’s climb.