Capitalism vs. Socialism

Capitalism vs. Socialism

This is the week when Americans finally make their decision about who will be running this country for the next four years.  The decision is relatively easy, however, the media and the political machinery have muddied the issues.  In reality it boils down to a single decision-do you prefer a President who believes in free markets and capitalism, or do you prefer a President who feels that government should own the means to production and can solve all problems?  Personally I favor capitalism-it will be interesting to see how America casts its ballots.  Good luck to us all.

The equity markets were rained out for the first time since 1985, and were closed for both Monday and Tuesday, the first multi-day closure due to weather since 1887.  Good luck to all those impacted by the storm.  Damage estimates are closing in on $50 billion-and the devastation has been incredible.  

OK, someone finally said it.  QE-4 is now being discussed.  I thought that given the permanent nature of QE-3, we wouldn't hear the term “QE-4”, but I read about it over the weekend. QE-4, permanent QE-3-they are both frightening indictments on the state of the economy.  It's even more frightening to think that if the US government approached their debt financing like a prudent manager of capital, and began locking in some of these low rates for the long term, that the deficit would soar by another $320 billion per year.  In other words, these artificially low rates are keeping the $1 trillion budget deficit from being worse by 30%!

What is the impact to US citizens of the Fed's easy money policy?  Ever hear of the Cantillon Effect?  The Cantillion Effect describes how the inequality in wealth surges because of “artificial and iniquitous re-distribution of wealth” caused by monetary debasement.  Artificially created money redistributes wealth towards those closest to it, to the detriment of those furthest away.  

What is the end result?  Those who benefit from the newly created money drive the price of goods higher.  Those who don't benefit from the new money suffer because they can't afford the desired goods.   Where better is this demonstrated than in the battle between the 99% and the 1%?  The 99% blame the 1%, the 1% blame the 47% not paying taxes, business blames government, government blames business, the old and young point fingers at each other, yet no one blames the source of the problem.  Who blames the Fed besides Ron Paul?  Why aren't they held to a higher standard?  It's frustrating, and hopefully we will take the steps to resolve this inequality on Tuesday. 

German legislators generally were positive about the European Central Bank's bond-buying program after ECB President Mario Draghi gave them a two-hour explanation of how it works. "His answers were very convincing, and so I think we can send the message to German citizens that the worries about inflation that have been expressed here and there are unfounded," said Norbert Barthle, a member of the Democratic Union.  Really?  

The Federal Reserve's Open Market Committee said it will continue stimulus efforts, saying the U.S. economic recovery is too weak to significantly reduce unemployment without help from the central bank. "The committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions," the committee said.  Is anyone surprised by this?  This Fed thinks that low rates are the cure for all problems.  

Those currency manipulators, China, famous for “undervaluaing” their currency, may have some fodder to fight those accusations being made by a country (the US) so irresponsible with their own currency that they make a drunken sailor on shore leave look responsible.  The Yuan reached a 19 year high against the dollar last week, and has been rising steadily since QE-3 was launched.  Watch out for an impact on Chinese exporters.  

In a turn of events not unexpected, China has now replaced the US as the top desintation for foreign investment.  Direct foreigin investment of $59 billion for the first half of 2012 represeented a 3% decline in investments to the Red Giant. The US received $57 billion, down 39% over the same period.  Is anyone surprised that when your leadership makes a direct assault on free enterprise that investors will decide to direct their capital elsewhere?  If this trend continues, the US will have a difficult time funding their budget and trade deficits.  

Sales of new single-family homes last month reached their highest level in 2½ years, the U.S. Census Bureau said. Reversing a decline in August, sales increased 5.7% in September, to a seasonally adjusted annual rate of 389,000.

The Washington Post is reporting that nearly 1 million jobs have been lost in the US due to lay offs, delayed purchases, etc, due to the uncertainly around the fiscal cliff. The National Association of Manufacturers is estimating job losses of 6 million through 2014 and a jobless rate of 12% if the issue isn’t addressed rapidly.  

Here's another chart from my friend Bob Rezaee, who has been spitting them out like crazy lately.  The chart shows that last year we "sent" $60K to each of the 17 million households living under the poverty line.  Between direct payments, food assistance, welfare and other programs, we spent over $1 trillion to support these families.  My guess is most didn't receive anywhere near $60K, which not surprisingly means we are wasting quite a bit of money at the government level.

Let's talk football, after all, the season is almost over.  I went to the USC-Oregon game yesterday, against the advice of most of my friends (BTW-they were right).  It was the worst defensive performance I've ever seen.  All I can say is that Layne had better seriously consider firing his Daddy or he's going to find himself looking for another job.  Oh, and how about San Diego State pulling off an upset of Boise, in Boise?  Nice job Aztecs. 

I also heard a rumor the Bruins are now in first place in the Pac 12 South, sporting new uniforms that finally make them look and apparantly act like a football team.  Alabama squeaked past LSU, and Kansas State kept their title hopes alive.  

Have a great day

Ned