Category Archives: Economics

The Current Fed Mandate Doesn’t Allow For Prosperity

What we need is not necessarily a gold standard, but rather a “de facto” gold standard where the fed keeps the price of gold within a tight range. That way there’s plenty of liquidity for growth, and excess liquidity during recessions is “sopped up” so that it can’t cause inflation. What’s interesting is that the Fed’s policy now doesn’t allow for growth. Because even during growth surges, such as the first internet boom, they cut off the liquidity supply. They crash boom cycles, and prolong downturns as well as adding inflation on top of them.

I wrote the above as a comment to a Facebook post by Steve Forbes. Here is his FB post:

“Reading book on the gold standard by the noted economist, Mark Skousen. Skousen is also the founder of Freedom Fest, a great gathering of libertarian and conservative thinkers.”

It got me to thinking of how destructive the Fed is, and how it’s philosophy or mandate, simply will not allow for economic growth. Also, it got me to thinking again about how it’s ideas, such as adding liquidity to an economy somehow stimulates growth, or that growth itself somehow creates inflation, are the economic equivalent of Science still saying that the Sun orbits the Earth. I don’t know how they get away with it, nor how the media and politicians get away with espousing as fact, ideas that are not only not true, but the exact opposite of what they state.

The end result is suffering. Suffering for most of us, and a huge amount of unearned, unworked for, or risked for wealth, for the few of the establishment, those who hold positions or are friends with those who hold power.

Why Netflix Inc (NFLX) Won’t Raise Prices and What Their Real Endgame Is.

I don’t think Netflix is interested in raising their subscription price or tiered pricing. I think they look at the subscription like Magazines and Newspapers in the pre-digital days looked at subscriptions: a validation of intent and also to show the content creators the legitimacy of their audience. I think Netflix’s endgame is to become the “de-facto” global distribution network for digital motion pictures, tv, and entertainment. When that happens, then so many other options for revenue enhancement open up. Paid placement at the top of the page when you sign in, al lá “House of Cards,” for instance, and then also one can imagine theaters dying altogether, and Netflix being THE place the next big James Cameron or Ridley Scott release. That kind of thing is what I envision, and I think* that’s what they are shooting for.

If one wants to dream hard, since we are on the heels of it, wouldn’t a Global audience paying a modest but fair price, not only sufficiently finance the Super Bowl, but perhaps bring the NFL even more money and exposure, in a more satisfying and efficient way for both the content creators and the audience?

I think so.

The CEO of Citigroup at Davos said that the main economic themes right now are Globalization, Digitization, and Urbanization. It would seem to me that a company like Netflix is not only the beneficiary of, but leading the charge in at least two of the three of those trends.

Addendum: In Response to the article:  What if Netflix, Inc. (NFLX) Is Wrong? from InsiderMonkey.com

I think it makes the medium better and more enduring overall. It can be consumed more like a novel. And if the medium is strengthened that gives more leverage and incentive to make a better product. At the end of the day I think it comes down to whether the show or movie is good or not. That’s the value proposition. What this is, is an innovation in the distribution proposition. All business comes down to two variables: Value + Distribution. This new model is, of course, aimed at greater viewer satisfaction, which of course leads to subscriber growth and more distribution leverage. But is also interesting to think how innovation in Distribution could possibly also affect, in a positive way, the quality, i.e. ‘value’, of the content, the product itself.

Why Netflix Will Become THE Global Distribution Channel for Filmed Art & Entertainment.

House of Cards Promo(Editor’s note: I wrote this piece originally in response to this article from TheStreet.com:  Amazon vs. Netflix: Jeff Bezos Could Squash Reed Hastings Like a Bug)

A) I’ve been an HBO subscriber since the 80’s, watched almost everything on it, and “House of Cards” is totally as good as anything that has ever been on HBO, better than most. (I’ve seen the first three episodes, and wait until you see Spacey’s mind blowing performance in #3). B) Netflix is not competing against Amazon, nor HBO. I’m a subscriber to Netflix and Amazon instant, and even together their cost is 1/10th of my DISH bill. And if HBO had a stand alone $10/mo app, I’d sub to it too, and my cost would still be way lower, but more importantly my value would be greater. Think about the power of that: Greater Value and Much Less Cost. Netflix is competing against cable & satellite TV. And they are going to crush them. C) It’s about distribution. Hollywood cares as much about distribution as it does cash money. Perhaps even more so. Netflix has 30 million subs and growing. How many “Instant” subs are there? 30 million people all seeing “House of Cards” promoted on the front page of Netflix. That’s powerful. How much is that worth? And it’s growing. And it’s Global. Being released Globally at the same time as its being released in the US. I think that is a first ever for any TV show or Motion Picture. That is very attractive to the best writers, actors, producers and directors. Netflix and it’s model are the future: Digitization, Globalization, and Urbanization, and their endgame is to be THE Global distribution channel of filmed digital arts and entertainment, and they will succeed. They’ve already entered escape velocity. 5 years from now they’ll have at least 100 million subs, but more likely closer to a quarter billion. And once again, it’s not the $8/mo from those subs that’s the real power. It’s the distribution and reach of the platform and brand.
You see, at the end of the day, it’s all about distribution. Yahoo Finance gives you distribution for this article about Netflix. Google Finance doesn’t. Luckily, Finance is one category Yahoo does lead in. I leaned this from Dave McClure on Twitter: Business = Value + Distribution. There’s no question about Netflix’s value proposition. So, all these years it’s main focus of energy has been in building distribution, and now it has succeeded and will continue to grow massively.

How to End Inflation Once and For All

In Response to this blog post “Why Coke Cost a Nickel for 70 Years” I wrote this comment:

“Same reason the price of oil was basically the same from 1920-1970, even through the invention of automobiles and Jet Airplanes! It’s because Nixon closed the London Gold window in 1971. That’s the whole and only reason for inflation, lack of a Standard unit of Account. We don’t need a Gold Standard because then there wouldn’t be enough liquidity, but we do need a Gold barometer to tell the Fed how much liquidity the economy needs at any one moment in time.”

What this means is that the Fed should target the price of Gold as far as adding or subtracting liquidity into the economy as whole. Gold is the most Stable Unit of Account for a whole host of Reasons, too numerous to write down here.

So how does one target Gold? Once the target has been decided, let’s say for the sake of argument $1000 per ounce. Then, if the price of Gold moves above that target, that means that there is too much liquidity awash in the market. So at that point the Fed would sell bonds to sop it up. Same thing in reverse: If the price of Gold goes below the target, that means the economy doesn’t have enough liquidity, and at that point, the Fed would purchase bonds or T-bills, to add liquidity, i.e., add fuel to a growing economy.

So an economy can grow without any inflation. In fact, growth creates more efficiencies and innovation, which cause the prices of all things to come down, in “real” terms, without any inflation or deflation, needing to come into the picture.

It’s as simple as that.

The Government Was the Cause of the Financial Meltdown of 2008

There were three causes, and all were the government driven:

  1. The Congress – The Community Re-investment Act. This is what gets me: Everyone thinks it was lack of regulation that caused it. The regulation in the form of this act forced them to lend to everyone and everybody! I mean how much more ironic can it get than that? Do you think bankers in a free market are going to lend their money to people who don’t have the means to service the debt? The regulation caused the meltdown, not the lack thereof.
  2. Freddie Mac – This is a government entity. It’s billed as a “quasi” half government/half privatized enterprise. But it’s all government. Created by congress to buy the loans and package them as securities that could be sold to other Financial institutions. Now why in the World would anyone want to do that? Supposedly to create more liquidity in the mortgage market, in order to do the very thing that everyone rails against now: Encourage more people to buy more homes! So banks could sell them their loans taking the risk of loaning off the table, and Financial institutions were willing to buy them because they knew that they were backed by the Federal Government. Freddie had a seemingly endless supply of liquidity to make good on its losses, until the hole became to big to cover up, so big that it even made a dent on the Government’s ability. Then someone had to be found to blame.
  3. The Federal Reserve – The creator of money itself. When a private company is creating the money for the Government, but not doing anything of value for that money, then lending it out at interest, thus making a profit from the whole economy by not doing anything, how do you think that is going to turn out?

So the Federal Reserve is the drug grower, Freddie was the dealer, and Congress was the Police, who not only didn’t stop it, not only turned a blind eye to it, but encouraged it to go on! Okay, well you got me on the last one: The Federal Reserve is a private agency, but it’s existence and it’s operations are all under the protection of the Government.

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This poppycot editorial by the nitwit David Brooks in the NYtimes today, “The Party of Work,”  got me all stirred up to write this. I was going to write a comment, but guess what? Comments were closed! Ha! Oh, I wonder why?

Oh, and Asians, broke 3-1 against Romney because of his stupid demonizing of China, threatening trade sanctions, etc.

As much as I was dissappointed by the elections, the reality is, Romney was clueless. At best he was clueless, at worst he was another puppet of the Neo Cons, and not only would have started trade wars with Asia, but actual wars with Iran, Syria, you name it. Sure he would have been a Capitalist at home, but Romney was the “Forbes” candidate. You ever read Forbes? They’re great on economic policy, but man, their Foreign Policy is horrifying.

Plus, Obama won’t be able to get any more of his socialist programs through with this Republican House. And after two more years of this misery, the Senate will flip. Then two years after that, the Presidency, unless the Republicans continue to nominate people who are Neo Con puppets.

I know what you are saying: But Obamacare will now come into effect! Yeah, and that’s bad, but here’s the deal, and I think it’s very enlightening to see, in part, why Romney lost: During the Primaries, Romney was vehement about repealing it. During the actual Presidential debates, he said, he wanted to, but didn’t know if he could now! Now, who’s going to go out and vote for a guy like that? Exactly.

Bob Beckel, on O’Reilly the other night said it best: “People don’t go out to vote against someone. The go out to vote FOR someone.” Romney was an empty suit, that no one was energized to vote FOR.

The Biggest Problem the World Faces: No Stable Unit of Account

Here’s the best way to put it: Quantitative Easing (QE) is like saying that simply feeding a guy will make him exercise more. It doesn’t. It just makes him more fat (inflation). On the other hand, someone who is working out and growing muscle (ie, a metaphor for a growing economy) does need to be fed more (i.e. in economic terms this is the time to increase liquidity) or else his body won’t have the energy or building blocks to create the new muscle (i.e., analagous to derailing a growing economy by raising interest rates and choking it.) Either way, whether we have growth or recession, we can’t win. And that’s why we have continual crisis after crisis, at a time in our Civilization’s history when there should instead be a Cornucopia of Abundance for all and a Golden Age.

The sole mandate of the Federal Reserve, or any “Central Bank” should be to keep the supply and demand of liquidity (a fancy word for money) in balance. If there’s too much supply in relation to demand, then you get inflation. And this is the ONLY cause of inflation. They would have you believe that growth causes inflation, and that inflation is somehow a ‘natural’ occurence. But growth in no way causes inflation. Because growth causes an increase in production as much or even more so than it does in consumption. Growth also causes innovation with increases in productivity and efficiency. They try to make you believe that inflation is a natural occurance so that they can keep their jobs, their huge budgets, and their elevated status in society of some kind of Knights continuously “fighting inflation.”

On the other hand if demand for liquidity outstrips supply, which is the case usually during economic booms, not only does this cause ‘deflation’ but even worse it chokes off the “air supply” of much needed liquidity and kills the boom in it’s tracks. An example of this would be the late nineties economic boom caused by the Internet boom that went suddenly bust in 2000, not because of failed business plans, but because the air supply was cut off. An example of the deflation of that period was when oil hit $10 a barrel.

So, the Federal Reserves actions not only cause and unstable unit of account, they actually cause the downturns and “Financial Crises'” that seem to be a continual part of our lives, which is so ironic considering the times we live in: Technology and Science, whose knowledge and actual physical products are doubling in power and efficiency every 12-18 months, driving productivity increases throughout every area of our economy. Indeed, under such salutary conditions, it should be impossible to have any kind of economic crisis. There must be something that is throwing a monkey wrench, so to speak, in our economy, and unnaturally derailing it.

The biggest problem in the United States and the World is that adding Monetary Liquidity doesn’t stimulate economic activity. It only causes inflation. And through inflation, it actually sludges up and slows the economy even more. That’s the biggest problem that the World faces: is that we don’t have any Standard Unit of Account.

Only three things can increase economic activity: An increased appetite for risk, more work, or more efficiency, which is usually supplied through innovation.

People are only going to work more if there is a financial incentive (unless they are one of the lucky few who love their work so much, that they’d rather be doing that than what they like to do in the free time. This is why a lot of people advise that whatever it is that is your hobby, you should consider making into your career. Or the other famous phrase that’s been used so much that it’s almost lost its meaning: ‘Do what you love.’ Or Joseph Campbell’s famous phrase: “Follow your Bliss.”)

So, basically, the only way to achieve this kind of productivity, is through fiscal policy, reducing the amount of tax upon physical work. Allowing workers to keep more of what they earn.

Increasing productivity through efficiency is intimately tied to innovation, which not always, but almost always is tied to the first part of the equation, which is an increased appetite for Capital Risk. This second part can only be achieved fiscally as well. A decrease or elimination of all unnecessary regulation (ie, regulation that is not helping or protecting the public) and a lowering or completely zeroing out of the Capital Gains tax. Indeed, many Economists believe (Alan Greenspan being one, I think) that the no. 1 impediment to raising the standard of living for all is the Capital Gains tax.

This is not a tax on merely the “Wealthy.” For taxing Capital Gains directly decreases the amount and the rate of innovation in every area of society and the economy, which has a direct impact on the standard of living for all. Also, the Capital Gains tax is applied to every amount. So if a middle class or lower middle class person makes, say $1000 on a successful use of his mind and productive flow of capital into an area of growth in the form of a successful investment, he is taxed the same rate as someone who makes a million. And one could argue that the $300 confiscated from him is more of a discouragement as well as a practical harm, from a day to day living standpoint, than the $300,000 confiscated from the Wealthy person.

And what is more is that it’s the millions of thousand dollar investments that make up a much more huge majority of the nations Capital markets than the few million dollar investments. Whether they are in the form of a stock certificate on Wall Street or a small business on Main.

 

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I wrote a comment to this Yahoo post:
“So true. Monetary “Stimulus” doesn’t stimulate anything except inflation. There’s no evidence of it ever stimulating economic activity or “growth.” The only way to create a runway for growth and jobs is to maintain a stable unit of account, which should be, in fact, the only mandate of a Central Bank. “