Public Education and the Economy

Discussion in 'Too Hot for Swamp Gas' started by MaceoP, Jul 29, 2013.

  1. MaceoP
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    MaceoP Well-Known Member

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    My golfing buddy sends out an email occasionally with his ideas on a myriad of matters. His ideas parallel mine in quite a few ways. I wanted to post his latest thoughts, and see if anyone agrees/disagrees with his ideas. He usually spends the summer out in Bend Oregon. He titled this "Limits of Public Education", even though he writes alot about his favorite topic, the Fed.


    "My nephew recently commented on the absence of La Plumes recently. Bend is alot of fun but having a good time is hard work, so I'm recovering today and creating this missive. The market is unfathomable to me except that Marty Zweig's time honored principle of not fighting the Fed has gone exponential these days. The financial repression in practice today which has made the return on cash negative and on "safe collateral" negligible has resulted in a growing equity market bubble. In today's world, central bankers, ours in particular, are viewed as omniscient and omnipotent. The PhD standard has replaced the markets as a determinant of asset prices. What would happen if the tables turned and rather than controlling events, events controlled the bankers. Today, our central bank materializes, (counterfeits) money and buys our debt to the tune of 45 billion of Treasuries per month. In essence, we are monetizing our debt. It was interesting that non other than the Bernanke, when asked whether QE1 was debt monetization, responded in the negative and stated that we would only be monetizing the debt if we failed to release these balance sheet assets into the markets at a later date, in essence sterilizing the original injection of liquidity. Today, the only relevant question is how much QE for how long; reducing the balance sheet is out of the question. Now back to the original question of how our or any central bank could lose control. 45 billion of Treasury purchases seem like alot but remember that our debt market is 17 TRILLION. That 17 TRILLION sits complacently for the moment but what if there was a crisis of confidence or perhaps even inflation? What happens if the Fed loses control over the long end of the bond market?

    The fact that bank reserves at the Fed have gone from about 100 billion in 2007 to over 2 TRILLION today is alarming. Since, by the end of this year, the Fed will have raised our monetary base by about 4 TRILLION, the only thing preventing inflation is the absence of money growth and money velocity because of of the absence of credit expansion. Come to think of it, financial repression may be a cause. Why would a bank be eager to loan money, say a 30 year mortgage to a deadbeat, default -risk American for 3.5%? Suppose, however, the rate increased to say 5-6%? Do you think the spigots might open up abit? If they did, money velocity, hence inflationary pressures might appear and jack up rates further. If this trend became apparent, what portion of the 17 TRILLION roosting in the bond market might flee and what effect would that exert on interest rates. Now imagine, for a moment, a situation where the economy still sucks but inflationary pressures and interest rates are climbing as this 4 TRILLION, starts to emerge in the real economy. The Fed would be faced with Sophie's choice; ignore inflation or ignore the economy. Just speculating.

    Have you ever wondered how much bullshit you were indoctrinated with during your respective tenures in public schools? Now some of it is harmless. For those of us older folks, we can remember the illusion of Camelot, the idyllic marriage of JFK and Jackie with their all so perfect children. In reality, of course, old Jack converted the White House into a whorehouse and his security staff into pimps. Jackie, for her part, was paid off by her criminal father in law to keep the myth alive. Well, I say no harm, no foul because we all like fairy tales. Slightly more pernicious is the myth of honest Abe. We forget that when he ran for President in 1860, he was not an abolitionist. He fought the Civil War to keep the Union together, not to abolish slavery. The slavery issue was an afterthought. He, like Jefferson, felt slavery was immoral but like Jefferson, felt that the races were incompatible. As recently as 1862, he conferred with Northern free blacks about the concept of relocating the blacks to Africa. Since they were more aware than Lincoln of the "limitations" of living in Africa, they refused. He realized that he could undermine the stability of the South by freeing the slaves, inciting revolt and hopefully recruiting these individuals for service in the Union Army and subsequently passed the Emancipation Proclamation. Importantly, this document did not free slaves throughout the country but merely in states aligned with the Confederacy. Hence, slavery was still permitted in Missouri, Kentucky, Maryland and Wash. D.C. But, we've got to give the guy a break; we can all agree that slavery is wrong, (even in Africa where it is still endemic) and besides, he was afterall, a politician.

    Some forms to disinformation are, however dangerous because misinterpretations of history lead to future errors in policy. Have you ever wondered why the US got into WW1? Kaiser Wilhelm was no Adolph Hitler and as far as I can see, was no worse than Lloyd George, Clemenceau or the Russian Czar. US vital interests were never threatened by the outcome of this catastrophe. Nonetheless. our Princeton grad du jour, Woodrow Wilson decided that we should fight this war to "end all wars" and at the successful conclusion, created the League of Nations to prevent all future wars. Perhaps, his policy failures were an early warning of the fanciful notions of Liberals. Anyway, our newborn Cental Bank was enlisted to fund the deficits of this war with measures like today's financial repression. US borrowing costs were arbitrarily capped at 3% at a time when war time inflation was measured at 18%. Needless to say, as always, in response to this easy money, leverage, speculation lead to malinvestment and bubbles. Post war, in 1919, the economy went into a deflationary depression of great magnitude and the PPI plunged by 40%. Unemployment soared. The stock market was hammered. But remember that those were the days of the gold standard and the Central Bank had but one mandate, price stability which required actions to preserve the nation's supply of gold. That required an increase in the discount rate, ultimately by 3% to 7%. The President of the day, Harding, a guy we were taught to loathe because of Teapot Dome and since he didn't know better and John Maynard had not yet been born, embarked on the irresponsible path of cutting federal debt. Now in our enlightended age, we know in an economic deflationary pit, the worst thing you can do is elevate interest rates, tighten money and cut the government's role in the economy.....or do we? The economy contracted enormously from 1920 to 21 but rapidly regained it's footing and was reslient by 1922 and continued to be robust until 1929. Now the fact is that few of us were ever educated about this Depression which in it's initial magnitude was everybit as large as the Great Depression and it's lessons which are that if the Federal govt. does NOT intervene, the healing is much more rapid because markets are allowed to correct, equilibrate and subsequently heal.


    Now consider the fiasco of the New Deal. We were taught that FDR was heroic in his policies of repairing the damaged economy in the 30's. The cornerstones of his strategies were the National Relief Act and the Agricultural Adjustment Act both of which were forms of centralized economic controls, price controls and were ultimately determined to be unconstitutional by the Supreme Court. Interestingly, in his arrogance, he attempted to rebuke the Constitution by packing the Supreme Court, a move which was thwarted by his fellow Democratic colleagues. The economy improved rapidly, undoubtedly more due to the resilience of the US economy than any of his particular policies but deteriorated severely later in the decade. Economic growth went negative and unemployment once again exceeded 20%. What happened? We are told that the error lay with the Federal Reserve which concerned with price stability raised the discount rate inappropriately. A factor to be sure but not the only error. Remember the Social Security Act of 1935? This newly created entitlement sucked money out of the economy from both employer and employee. The Wagner Act, the magna charta for labor unions resulted in new power for the workers who rapidly priced themselves out of a job. (How many members does the UAW have now compared with say 1980). FDR raised exponentially, the taxes, particularly on those who hire and make capial allocation decisions. Finally, he waged a continuous war on business, creating a hostile environment for the backbone of our economy. Lest you think I am being unfair to this Liberal scumbag, consider the judgement of his contemporaries: in the 1938 Congressional elections, Democrats lost 6 Senate seats and 86 House seats. Democratic leadership told FDR to focus on events in Europe and stop meddling in the economy. What we really learned from this epoch of history is not to pursue the very policies which are now being advocated by the current Administration.


    I'm done and will go back to more worthwhile endeavors like golf and biking."
  2. vangator1
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    vangator1 Well-Known Member

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    I haven't read the piece yet, but I will, so I can't comment on it yet. I was intrigued by the "golf" part. :)
  3. RealGatorFan
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    RealGatorFan Premium Member

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    Interesting. His take on employment is appealing because of what is happening across the country today.

    It seems a large number of fast food workers want $15/hr or else. Like raising their wages by 200% is going to give them a new lease on life? How about McDonalds did this and other fast food restaurants only to turn around and increase a happy meal by $5? Then, everyone associated with McDonalds does the same since it now costs more to do business. This cascades until everybody pays more everywhere. That $15/hr will feel like $7.25 in about 5 years. Idiots. This is why they are where they are - unable to comprehend the bigger picture. If you want better pay, go to school and learn a real skill or else deal with $7.25/hr (or maybe move up into management).
  4. oldgator
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    oldgator Premium Member

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    Though, as you say, JFK turned the White House into a Whore House, etc as you say....You failed to consider in your mockery of the notion of Camelot back in the early 60's that the main thing about it being an era of 'Camelot' was that the American people strived to create a much better America during those years and subsequent years(space exploration, equal rights in regard to race and gender, the arts had a surge like nothing prior to the era or since in America, etc), there was of course the misleading of U.S. by politicians of the 1960's in regard to Vietnam War, and pandering to corporate interests like never before, and their protecting their sons from serving in Vietnam by methods that kept Clinton and GWB from ever seeing combat in Vietnam. And there is of course te matter of extremists both hawk and dove in regard to the war along with the sudden surge of drug abuse. But for the most part the American people were initially optimistic in the early 60's and carried that optimism to the moon and equal rights efforts. So what sabotaged Camelot wasn't that JFK was whoring around with babes at the white House. What shattered Camelot were politicians(of both parties) waging Vietnam War, pandering to corporations, and to cap it off---Watergate

    Perhaps America would be better off if the public really ran things instead of politicians and corporations.

    yes, the notion of a modern Camelot(or even medieval England Camelot) is an illusion. It is a fantasy story based on ---'wouldn't it be nice if...........'

    I sense you are putting a negative spin on the thought of Camelot based on it being a fantasy that can never be achieved.

    The important thing about the thought of Camelot is that it is something that can be strived for. That Camelot is a fantasy 'perfect world'.

    But for centuries prior to JFK and for a few years after JFK people were of the mindset that a person should strive for not just good, or better, but strive for the best(ie--perfection that can be achieved with means available at the time)

    Compare the striving for perfection that was the hallmark of the greatest generation, not when they were young which was during the horrors of the Great Depression, but that they strived to survive the Great Depression, fought WWII, and then in the years after that strived to create as good a world as they could. So their children would not have to experience another Great Depression or world war.



    compare the mindset of striving for perfection to the mindset of many Gator fans today on the issue of player discipline at UF.....being satisfied with not being as bad as scUM or 1/2 Ass U. That negative mindset brings things into a downward spiral. I believe we should have the mindset to have UF players being the best in the country both on and off the field.

    To not have a Camelot to dream of and to strive for is to be setting the bar low(with all that entails).

    To not have a Camelot to dream of and to strive for is pretty much a definition of complacency.
  5. MaceoP
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    MaceoP Well-Known Member

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    Dis-information and fantasy should not be in the purview of our government, nor our education system. The media should not be complicit in condoning fantasy and dis-information. (unless you want a soviet style regime)
  6. wgbgator
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    wgbgator Sub-optimal Poster Premium Member

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    Why are 100% of the people who write long e-mails to their friends about the Fed Bircher-esque cranks?
  7. MaceoP
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    MaceoP Well-Known Member

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    I guess he is cranky because he sees the U.S. economy heading off a cliff, sort of like watching a train wreck in slow motion.. (with Barack driving the train).
  8. wgbgator
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    wgbgator Sub-optimal Poster Premium Member

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    People who are worried about hyper-inflation have been worrying about this for at least 2 decades now. Still hasnt happened. Maybe the cliff is like a million miles away, and he just has extraordinary vision. Or maybe the train is just super-slow. These are the same people who think the gold standard is a great idea, when it is a terrible one. Cranks.
  9. MaceoP
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    MaceoP Well-Known Member

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    Sort of like rising sea-levels and global warming?
  10. wgbgator
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    wgbgator Sub-optimal Poster Premium Member

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    No, not really.
  11. gator85jd
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    gator85jd New Member

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    The unions and left in Greece no doubt thought the cliff was "like a million miles away", too.
  12. wgbgator
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    wgbgator Sub-optimal Poster Premium Member

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    Anyone who compares the US to Greece has little credibility on economic matters, or is just being dishonest.
  13. GatorNorth
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    GatorNorth Premium Member Premium Member

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    No one really knows when the cliff may really come, but everyone agrees that when it does it will be swift and relentlessly unforgiving.

    Kind of like the fellow that jumps from a 100 story building and about halfway down so "hmmm...so far so good"

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