CNN to Broadcast I.O.U.S.A. | Obama Foresees Trillion-Dollar
Deficits |
A Bipartisan Plea for Fiscal Responsibility | The Government We
Deserve

CNN to Broadcast I.O.U.S.A.

The public has spoken, and we’ve listened. In response to demand
for information about our country’s financial challenges, CNN/U.S.
will air the broadcast premiere of the acclaimed documentary
I.O.U.S.A. on on Saturday, January 10 at 2:00 p.m. EST and on
Sunday, January 11 at 3:00 p.m. EST. Accompanying the documentary
will be an unscripted panel discussion with policy leaders about
various economic solutions currently under consideration.

This exclusive televised event will air only on CNN, and will be
hosted by Ali Velshi and Christine Romans, co-anchors of CNN’s
Your $$$$$, the network’s weekend business roundtable program.
Throughout I.O.U.S.A.’s broadcast premiere, Velshi and Romans will
engage a distinguished group of panelists, including Pete
Peterson, Chairman of the Peter G. Peterson Foundation and former
U.S. Commerce Secretary; Dave Walker, President and CEO of the
Peter G. Peterson Foundation and former U.S. Comptroller General;
Alice Rivlin, noted economist and former Director of the Office of
Management and Budget; and Bill Bradley, a Managing Director of
Allen & Company and former U.S. Senator and Democratic
presidential candidate, in discussions about issues raised in the
film and their ties to current economic events.

Learn more about the film at www.IOUSAtheMovie.com. And be sure to
spread the word about the U.S. broadcast premiere!

Obama Foresees Trillion-Dollar Deficits

CNNMoney.com reported on Tuesday that when President-elect Barack
Obama takes office on January 20, he’ll inherit an economy deeper
in debt than ever.

Obama commented on the unprecedented deficit, saying, “At the
current course and speed, a trillion-dollar deficit will be here
before we even start the next budget.” In reference to his planned
economic recovery plan with an $800 billion price tag, Obama
added, “And potentially we’ve got trillion-dollar deficits for
years to come, even with the economic recovery that we are working
on at this point.”

Even with Obama’s promised budget reform, our economy will still
remain in the red — at least for the next few years. However,
incurring a trillion-dollar deficit in the short-term in order to
stimulate the economy is, according to organizations like the
Center on Budget and Policy Priorities, essential in order to
prevent “a deep and prolonged recession.”

Dave Walker, president and CEO of the Peter G. Peterson
Foundation, was also asked to comment on the deficit and Obama’s
proposed stimulus. A “timely, targeted and temporary” stimulus is,
according to Dave, the best way to shore up the economy while our
deficit continues to deepen.

To read the original article, visit CNNMoney.com.

A Bipartisan Plea for Fiscal Responsibility

On Monday, January 5, the two most prominent members of the Senate
Budget Committee – Sen. Kent Conrad (D-ND) and Sen. Judd Gregg
(R-NH) spoke out about the need for fiscal responsibility,
especially in the face of our current economic crisis.

In an impassioned editorial for the Washington Post, Conrad and
Gregg called for Democrats and Republicans to unite in support for
an economic recovery package, even with the short-term addition it
will make to our larger deficit. The senators also called for a
“bipartisan fiscal task force” to help create concrete solutions
for America’s long-term fiscal woes.

To read the full text of the editorial, visit the Washington
Post.

The Government We Deserve by Gene Steuerle

“Investment” and Obama’s First Budget

President-elect Obama’s chief in-house economic advisor Larry
Summers suggests in a recent Washington Post piece that the new
Administration will put a lot of effort into addressing long-term
growth challenges, not just short-term policies that generate
consumer spending. How? Through “investments.” To make sure we get
the point, Summers uses that word or some variation 12 times.

But the first Obama budget will not be oriented toward investment.
Just as with recent administrations, the words will stress
“investment” but the numbers will emphasize “consumption” – not
only in the short-term but, more dangerously, in the long-term. In
fairness, this is the budget the new administration inherits. They
gain control of the wheel of a battleship sailing full-steam ahead
toward the icebergs. But by using terms like “down payment” to
describe new proposals, Summers hints that no major course
correction will be sought.

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I’m reposting some of my thoughts from a blog comment discussion from last week.

I agree with the perspective that our currency should go back to being pegged to gold. This would force individuals, corporations, and governments to play by the same rules of economics. The side effect is that we wouldn’t really have bubbles and manias, there wouldn’t be as much real estate development and expansion (or “economic expansion” in general) because we would have a supply-side cap of money rather than an unlimited amount of money based on lending. We would be an asset-based society that rewards actual success rather than a debt-based society that builds its wealth by taking it from the people.

An asset-based society isn’t really wanted by many people who are wealthy thanks to debt. For instance, if you run a corporation that sells a product that people don’t have a strong desire or necessity for, then in an asset-based society you wouldn’t really sell them. In a debt-based society, people will buy your product using debt – by selling their future time simply because they don’t understand the true ramifications of their decision.

In an asset-based society, it’s much harder to start and run a successful business… the only products and services that will sell well are those that people want so much that they will buy them with their actual money. In a debt-based society, people just have to say “yes” to buy something. The decision itself is the form of payment. Unfortunately, that decision is also the forfeiture of future time in their life that could be spent doing enjoyable activities. Instead, the debt-funded “yes” sayer will be working with their future time because they have to in order to fulfill their “yes” obligations. The same concept applies to debts of government, but it’s the people who will pay the obligations through taxes and inflation.

Keep in mind, being “Pro-Dollar” may be anti-American. American principles include life, liberty, and the pursuit of happiness. Anything that interferes with our personal wealth is interfering with our liberty and pursuit of happiness. Consider becoming Pro-American exclusively. This means believing that if 300 million Americans were to pursue life, liberty, and the pursuit of happiness without monetary interference… the only losers would be bureaucrats and elitists.

If the dollars got sucked out of the US banking system, the banks would get crushed and individual wealth would be preserved. To leave dollars in the US banking is to crush individual wealth while preserving the banks. Once clearly grasped, it becomes a matter of recognizing whether your primary wealth position is one of being an individual or a bank. Then a simple, clear decision can be made whether to preserve your personal wealth or the banking system.

Don’t get distracted by the facade economy that everyone seems to be talking about – financial institutions. The real economy is personal wealth. If a Fortune 500 company crashes and you don’t own it, you aren’t affected. If the banking system implodes and you don’t own it or deposit in it, you aren’t affected. If all kinds of big companies and banks topple over, and we all have our personal wealth preserved, then the “real economy” (the wealth of the people) has been preserved. Each individual must make the choice between preserving the financial institution economy or the people’s economy. Indecision and inaction is a choice in itself that preserves the institutional economy rather than the people’s economy.

These are exciting times in that we have all been shaken up enough to think about protecting ourselves, our communities, our friends, and our families. We can thrive by returning to the principles that made us the world’s most powerful and wealthy country in the first place.

Some of the most prominent explanations of the cause of inflation can be extremely confusing and often end up leading the reader/inquirer to conclude “Ahh, it’s just too complicated. We can’t really put our finger on it, and there are many different factors.” In this post, I aim to undo that surrender of understanding and replace it with a simple, accurate explanation.

What is inflation?

Inflation is the steady, continual rise in the price of goods. It is typically measured using a “basket of goods”. In this approach, the prices of many different goods are tracked and then integrated using some sort of logical weighting calculation.

The Cause… Theory #1 – Demand-Pull Inflation

“Too much money chasing too few goods”. This is the theory that says inflation is caused by demand out pacing supply. Believers of this theory pat themselves on the back about inflation as if it is evidence of a growing economy. This kind of fantastical belief is possible only through naivety. A global review of inflation teaches us that some of the most rapid inflation occurs in economies that aren’t growing at all. Conclusion: False.

The Cause… Theory #2 – Cost-Push Inflation

“When companies’ costs go up, they have to raise their prices to maintain a profit margin.” This may explain fragmented price fluctuations, but remember that inflation is the steady rise in price of goods (in general). If prices are stable across the board, but wheat spikes in price, it won’t single handedly result in substantial inflation. Even if wheat is in the “basket of goods” that we use to calculate inflation, its rise in price will minimally affect the overall computation for inflation. Another thing to note is this: What is causing the companies costs to go up? The Cost-Push Inflation theory is almost like saying “Rising prices are caused by rising prices”. Huh? Conclusion: False.

Supply & demand of goods have nothing to do with inflation. Let’s look at the rising price of oil, and examine Demand-Pull and Cost-Push theory. Whether it’s because of an increase in demand, a decrease in supply or a combination of both… if Americans are spending more money at the gas pump, they have less left over for buying jewelry and dining out. All other things being equal, the price of jewelry and restaurant dining will go down because of its lowered demand caused by increased price of oil. The net effect is that in the “basket of goods” inflation calculation, oil prices rose, while prices of other items declined… and inflation is generally unaffected by theories 1 & 2.

The Cause… Theory #3 – Monetary Debasement

Imagine that tomorrow everyone wakes up with double the amount of money we had today. The companies who sell goods and services to us will discover that we will bear higher prices. This will cause prices to eventually double. If this happens once it isn’t inflation per se because it’s not continual. But if this happens every night, it will create inflation.

Unfortunately for American citizens (and anyone who earns or spends in US dollars) this monetary debasement doesn’t merely happen by each of us waking up each morning with more money. It happens from two central banking phenomena:

Phenomenon # 1 – Fed’s Digital Printing. In our economy, we use money created by a private bank, the Federal Reserve (abbr. “Fed”). When we came off the gold standard in 1971, our money’s ties to commodities were severed. Since that point, most money has simply been a blip on a financial statement, and more recently, blips in cyberspace.

Example: The Fed buys $50 million worth of U.S. bonds from its member bank, ABC Bank. The Fed credits ABC bank with money for the sale of the U.S. bonds. What account does this come from? A magical one. ABC Bank is credited with $50 million, but there is no corresponding Fed account that is debited $50 million. This is the Fed “printing money”. People talk all the time about how the Fed could print money, but few realize it’s actually happening all the time, and inflation is evidence of it.

Phenonmenon # 2 – Fractional Reserve Banking

Another equally magical way money is created is by fractional reserve banking. In this system, we can borrow money that doesn’t exist. If you deposit $1 into a U.S. bank, $7 (that did not exist) can be lent out. Often when money is borrowed it is then deposited into another bank account, meaning that only two levels into this set of transactions, $1 can turned into $49. Our banking system allows for money to be created simply by a person, corporation, or government borrowing money from a bank. That money is then brought out into circulation, and our prices go up. Because we didn’t wake up ourselves with more money, we essentially become victims of inflation. We didn’t get more money, but we do face higher prices. The benefit of inflation is only enjoyed by the banking system that earns interest on the money that was created at the exact moment it was lent and borrowed.

Almost as important in monetary history as coming off the gold standard is the 2006 Fed decision to stop publishing its “M3″ statistic. This is the report that tells us how about much new money is being created each year. Their last report (around March 2006) said that our money supply was increasing by about 8% per year. Independent sources have attempted to mimic M3 reports since Fed’s M3 discontinuation and are currently reporting annual money supply increases of 16%.

Simply put: monetary debasement (an increasing money supply) creates inflation.

Difficult to swallow, but easy to understand.