economics

Of interest

The Quiet Coup – Read This First.
Simple Crash Course in Economics
Money. What it is and how it works – excellent course in money
How The Fed Monetizes Debt
The State of the Economy, by Jeff Harding – February 9, 2010

Charts you have to see to believe

1. Monetary Base. Historically, the higher the monetary base, the more inflation rises, since the nation’s GDP (total of goods and services) cannot keep pace with the debt-based money supply. This chart goes back to 1920, even before the Great Depression. The increased monetary base comes directly from monetized debt, that is, bonds that are sold to Japan (as of Feb. 2010, the biggest creditor to the U.S.), China, the UK and US investors. The Federal Reserve then prints money out of thin air to provide to the economy.

2. Debt of the United States. Except for the Keynesian spending during the Great Depression, US Debt has hovered at a relatively steady rate as compared to our GDP. But not since 1970. Once we got rid of the Gold Standard, when Nixon unilaterally revoked the international gold standard that we were part of.

3. Nowhere to go. Since about 1980, when Reagan took office, with high unemployment and a bad recession in progress, the Federal Reserve under Volcker and Greenspan has lowered interest rates to keep the economy growing. My student loan in 1982 was 9% and I was very happy with such a low, subsidized rate. 9%!!!!!! Notice that the interest rates are now at zero so there is no way for the Federal Reserve to “bump” the economy with interest rates.

4. Why Debt Matters. The higher the US debt, the less effect that incurring more debt has on stimulating the economy. Back in 1970, one dollar of debt injected into the economy added about one dollar in GDP. Now, in 2010, each dollar of debt gets us about twenty cents of GDP. This is why the stimulus will not work. Worse, check out 2014, when debt does nothing at all for the GDP.

5. The creation of the 401k and other private investment vehicles created unprecedented growth in the profit potential in the financial services market.

6. Another chart showing that this economic contraction is not like any other. Another hidden stimulus that is going to disappear as the printed paper money runs out.