Thursday, April 26, 2012

Centrally Planned Economics

Investors in the US need to realize they do not live in a free market.  Centrally planned policy has distorted economics in such a way that nostalgic investors face tremendous peril.  Reading books about Warren Buffett, maintaining loyalty to a Wall Street Journal print subscription and putting a Romney '12 bumper sticker on your car is not an action plan.

The central bank of the US is privately owned.  Anyone under the assumption that this private institution has the public's best interest at heart deserves what is coming to them.  The bank, like any well-run monopolistic corporation, has arbitrarily set the price for capital in an attempt to protect its own shareholders from suffering losses.  Romney supporters will frown at this notion but we question if they would allow a private company to set the price of all homes at $10,000 per bedroom?  Of course not, this is only something Chavez would do.  So why is a private company allowed to dictate the return on capital earned, saved or inherited by private citizens?

The weapon of US central planners is the treasury market.  This is the funding mechanism for the US government.  The US is currently spending over $300 billion per month yet it receives only $200 billion in revenue.  The balance is purchased by the private bank that possesses the right to create official US currency.  The are willing to finance this largess in exchange for carte blanche access to capital markets for the primary dealer banks.  They are allowed to run wild and steal from anyone they chose with impunity.

Is this far fetched?  Why has not one executive from MF Global been indicted in the wake of the company stealing $1.6 billion from customer accounts the day before filing for bankruptcy?  This money is gone and former account holders have no answers as to where it went.

As always, our mission here is to do what $250,000 in economics education failed to do.  We hope to help you cultivate your own ability to think.  How can we get out of the day-to-day emotionally charged news cycle and get into objective reality?

The first place to begin is with the fact that the US must issue $1.3 trillion more in debt than it receives in revenue.  So we know that someone must buy this paper.  Here is a chart of the three largest foreign buyers of US debt.  We urge you to notice that they are not expanding their purchases as a group.
What this means to us is Federal Reserve meeting minutes are utterly useless.  We know that the current Operation Twist expires in late June.  This round of counterfeiting has been effective but what will happen between June and the presidential election in November as $500 billion in excess treasury issuance must be absorbed.

As we consider these facts and lay them over a deep understanding of human behavior, it becomes clear that the society might feel pain for the next 6-8 weeks leading up to the expiration of Operation Twist.  We know that the central planners like the public to approve of, or at least not notice, each new counterfeiting program.

Notice the useless nature of this press release and consider that it is designed to make you think you are smart if you don't quite understand everything the great central planner is saying.  As a side note, you don't understand because it must be translated into plain English, "We are going to debase your currency and use your money to acquire wealth for ourselves for as long as you allow it then we will leave you stranded like a dead carcass....Thank you for listening."  


No comments: