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Inflation Nation

As you may know, I’m a big fan of inflation.  I think inflation is the best way to pay off our national debt (makes it a smaller percentage of the GDP) and the only people who really hate inflation are the people who lend you money.  They get paid back in dollars that are worth less (worthless?) than the dollars they lend you.


That’s why the Federal Reserve, a bunch of Bankers, spend day and night combating inflation.  They’re not doing it for you – you borrow money!  They are doing it to make sure that your mortgage stays at 30% of your income.  If you keep getting raises due to inflation that mortgage (and you should always have a fixed, of course) might go down to 10% of your income over time leaving you with extra money.

Too much inflation leads to high interest rates which causes consumers not only to borrow less (gasp!) but to save more.  I remember a time when you got a CD that paid 12% AND a toaster for putting money in the bank!  Now you get 3% and a $1.25 fee for reviewing your statement – and they wonder why Americans save less!

You often hear that we are not a nation of savers but Americans have deposited $1.5T since 2002, bringing our people’s total savings to just under $4 Trillion, about as much as the rest of the planet combined!  While it may be a small part of our total income, it’s quite a large total income to begin with!?

The joke is that we are being paid less money for our savings than at any time since 1960 so again I will point out that you are being fed a line of crap by bankers! They are holding $4T of your money and paying you 3% interest yet if you want to buy a home you must pay 7% (plus fees!).

This is what is holding rates down, the massive availability of cheap cash right here in our own country yet you will never hear it from our government (other than Ben hinting at “Global liquidity“) because they work for the guys that borrow your money and lend it back to you.

Their mandate is to keep inflation down at all costs: At the cost of your wages, at the cost of your home’s value, at the cost of runaway commodities, just to make sure you pay back the bank in a way that they get to maximize their inflation adjusted profits. That is our government’s policy. What would you really care if gas were $5 a gallon as long as the minimum wage was $15 an hour?  

You could afford a $1M home if you could count on a 5% raise every year to bring down your mortgage payment. Even the property tax increases wouldn’t seem so bad if your salary kept going up…

The math is simple. You take on a $4,000 a month mortgage on a $600K home and you take home $7,000 a month – it’s a struggle but you make it happen.  If you get a 7% raise every year in just 11 years you will be taking home $14,000 a month and paying the same $4,000 mortgage.

Great for you, bad for the banker who has to pay his clerk double what she made when you first came in there.  It’s also great for the economy as you have much more disposable income to spend.  Even if your $3,000 in living expenses also doubled in 11 years you would still be making $4,000 a month more than you need to live on.

If you had taken half of that money and invested it at 7% in the bank, you would also have $150,000 in savings tucked away. Keeping up at this rate and by year 20 you would have saved $500,000 for your retirement with a salary of $28,000 a month in a fully paid for $2.4M home with just $12,000 of monthly living expenses.

Who needs social security?  Oh the horror of inflation!!!  It’s not so terrible for the bankers, they still make plenty of money - just not the obscene amounts of money they make by rigging the system to keep inflation from eating into their profits at your expense!  Since Ben liked my last position paper, let’s make this the next one he gives a speech on… Inflation can be our friend, let’s make peace with it!

Nancy Pelosi mentioned “Draining the Swamp” and much has been made of it but I think she may have been making a slightly different reference…  There is a book called “Draining the Swamp” that espouses the anti-fed positions of the National Economic Stabilization and Recovery Act, something that’s got to keep bankers tossing and turning at night as we await the coming of the 110th Congress!

Thomas Jefferson, once said “If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around the banks, will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered.”


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  1. Thanks Phil, another good read. Do you see raising the minimum wage to be de facto inflationary, and if so, will that be addressed fiscally?

  2. There are less than 2M people making the minimum wage of $5.15 an hour. Raising the wage $2 x 40hrs x 2M x 52 weeks = $8.3Bn!

    This is the kind of crap that we are fed to scare us into voting for bigger corporate profits. Corporate income is up 17% from last year yet the Federal minimum wage hasn’t changed since the 80s.

    In 1968 the minimum wage was $1.60 but that’s an inflation adjusted $9.50. $5.15 means a person working 8 hours a day takes home less than $200 a week – how can you interact with a live human being and treat them like that?

    The real argument against raising the wage is that it will cause other wages to rise so now we have 100M people making an extra $2 an hour rather than just 2M. That would be $400Bn and would likely affect the corporate earnings but maybe they’d make more if people had an extra $300 a month to shop with.

    So who opposes it: Oil companies, industrials, Wal-Mart – because you will go there whether you are rich or poor so they’d rather keep you poor.

    If you have money you might go to ANF or Bloomingdale’s instead and you might buy deluxe rather than basic appliances. If you have money you might do something crazy like get solar energy for your home or insulation or perhaps a more economical car, all of which don’t do Exxon any good at all…

    Another thing they fear is that you have enough money to travel (good exchange rates cause this too). Then you might save money to spend it in another country, taking right out of their grasp!

    So yes, raising the minimum wage could cost XOM, with 106K employees, $440M out of the $4,000M they earned this year .

    WMT has a real problem since they actually do pay many of their 1.8M employees minimum wage and a $2/hr raise for all of them would cost the comany $7.5B, most of their $12B profits!
    That sounds fairly dire but, in reality, they sell $300Bn worth of stuff so they would end up having to raise prices 2.5% to compensate and be a little more in line with the retailers that pay people a living wage.

    If you ask the average Wal-Mart worker, I’m sure they would rather have the extra $320 a month (a 40% increase in salary) than save 2.5% on their next purchase. Even if they spent their entire $286 weekly salary at Wal-Mart, the price increase would only eat up $7.15 of their $80 raise.
    That’s not the BS you hear from the army of WMT lobbyists, who Wal-Mart pays tens of millions of dollar to in order to make sure they can keep paying their employees less money per week than those lobyists charge per hour.

    The same people who tell you it is critical to the nation’s survival to make permanant a $400Bn annual tax break and are lobbying for another $400Bn inheritance tax break are telling you that a $400Bn (worst case) national increase in salary would destroy the country.
    As they always try to tell you “Just follow the money!”

  3. Another cool one, Phil…

    If Inflation is a friend of the economy, and Ben allows inflation to raise, what sectors, will be a nice play…

  4. And we call ourselves a civilized country…

  5. Hmmm…too many generalized statements to comment on them all. But here are a couple.

    You over dramatize the inflation scenario and who likes it and who doesnt. Bankers make money from the spread of what they loan and what they pay for savings. They WILL ALWAYS make that spread! What they dont like is rapid inflation which forces them to pay more out to short term savers than they receive from long term fixed loans. So it’s not inflation that the Fed Bankers are trying to control but the stability of the inflation. We have inflation now and we will have inflation in the future.

    Inflation is neither good nor bad…it is how we participants react to the inflation change. The RATE OF CHANGE OF INFLATION is more important than inflation itself since a predictable inflation rate will allow participants to plan rationally. AN unstable rate of inflation forces participants into irrational decisionmaking and benefits the wealthy and large businesses as they will be able to withstand poor dicision better than the not so wealthy. Looks like you are seeking a villain!

    As far as the minimum wage goes…why not allow the market to set wages??? Why do we think that beaurocrats can do a better job of setting wages or prices than the market??? Wh yraise the minimum wage to $7 or $8? WHY NOT $20/hour or $40 per hour??? seek a villain and Walmart fits the bill…but all Walmart cares about in their business planning is that they sell an item for more than they pay for it. If you raise the minimum wage you are artificially introducing a cost into their formula that they will have to pass along to the consumer or swallow. You say..let them eat cake and swallow the cost because they make so much money..I say, who are you or anyone else to come in and tell someone else how to manage their private property. You smuggly quote Thomas Jefferson at the end of your inflation article..but I request that you re-read that quote and see how aptly it applies if we allow biased politicians seeking votes to forcefully decide how companies and individuals manage their own affairs.

  6. Phil, I don’t even know where to start with that anti-lender diatribe, but Nick basically hit it on the head. Also, that 3% for deposits is crap because you can get 5% 1 yr CD to counteract a 30yr fixed that is at 6.5%. You take out .25-.50 points of servicing fees, and the bank is making 1% on that loan not inflation adjusted.

    Nick is completely right and the rates, including the entire bond / treasury market bases rates on inflation expectatoin and future rate paths. The margins on the residential mortgages are so small that banks are cutting down on originations because the NPV and cash flows for that lending capital is becoming unprofitable, hence the shift to higher margins commercial loans (which is also why the commercial real estate market is doing sooo much better than the residential).

    The way a bank prices a loan if the rate it is index to, LIBOR, Treasury, COFI, etc. In a fixed loan, there is a set margin, most of the time based on the borrowers credit score, add in any loans exceptions (LTV too high, Debt to income (DTI) above 40%, etc.). That margin takes into account servicing costs, capital costs, and inflation expectations. Also do not forget that the average life of a mortgage is roughly 5 yrs, so the lender does not worry about inflation farther out than the average life of their portfolio / securities.

    Lastly, yes inflation (un-predicatble), if a worry for londers, however it is also a problem for all those consumers who choose to spend more than their income. You have a number for the amount that we saved last year, what about if our savings rate was equal to the world savings rate, what would the saving be then considering that our current savings rate is negative. The average consumer borrows more than they make and inflation will only raise interest rates further putting them more into debt.

    Inflation is naturally occurring and is not, in itself, a problem. It is unpredictable inflation which consumer, lenders, investors, don’t see coming and changes already make investment and capital allocation decisions for the worse. Uncontrolled inflation hurts everyone, not just lenders.


    Euro rates mimic U.S., sparking global slowdown fear
    Yield curve inversion, slumping copper price send a gloomy signal
    Last Update: 3:44 PM ET Nov 10, 2006

    NEW YORK (MarketWatch) — Interest rates in Europe are starting to mimic U.S. rates, raising the question of whether a U.S.-led economic slowdown is already impacting global growth, analysts and economists said Friday.
    Euro zone short-term interest rates briefly topped long-term rates for the first time in over six years on Thursday, creating a so-called yield curve inversion. On Friday, short-term rates returned to stand slightly below long-term rates.
    Under normal circumstances, short-term rates — which represent the price of borrowing money over a short-period of time — are below long-term rates because lending money over a longer period of time carries more risk, mostly the value-eroding impact of inflation.
    Long-term rates that are below short-term ones have traditionally signaled a looming economic recession: As markets expect negative growth to cut inflation — and to even possibly induce deflation, or falling prices — the price of borrowing money over a longer time span drops.
    Analysts attributed the change in euro zone rates to expectations that the European Central Bank will deliver its last quarter-point hike of short-term rates in December. That’s because they expect that inflation pressures will recede as the euro zone economy slows.
    “Most people believe that the last hike in interest rates will be in December,” said Jay Bryson, international economist at Wachovia. “Euro zone growth appears to be slowing down, and inflation is slowing down.”
    Boosting those expectations on Friday, France’s GDP unexpectedly ground to a halt in the third quarter, according to the French statistics office Insee. See full story.
    This should at least raise the question of whether a housing market economic slowdown in the U.S. is going to spill over into Europe and the rest of the world. After all, U.S. consumption is one of the key drivers of global growth. See latest story on U.S. housing market.
    “The currently rapidly slowing US housing market not only poses severe risks to the U.S. economy but might also become a threat for some European countries,” wrote Deutsche Bank economist Tobias Just in a research note.
    In the U.S., long-term rates have been nearly equal to or below short-term rates for over a year. Third-quarter GDP growth unexpectedly dropped to 1.6%.
    Many economists, including Federal Reserve Chairman Ben Bernanke, believe that this time the yield curve inversion might be the result of an excess of savings in many countries – including China and oil-producing countries – that need to park their money outside of their borders and opt to invest it in long-term U.S. Treasurys.
    Interest rates are determined in the bond market, where a bond yield, or its interest rate, rises or falls inversely to its price.
    A few economists, such as Nouriel Roubini of the Stern School of Business at New York University, are convinced that the answer is much simpler: The time-tested market mechanism of predicting the direction of the economy is signaling a recession, as it always has. See full story.
    Slowing U.S. consumption would naturally impact global growth, starting with the export-driven Chinese economy and also Europe.
    The price of copper, used in large amounts for manufacturing by China and other producers, dropped sharply this week, confirming for some the moves in the U.S. and European bond markets.
    “The behavior of the bond market this week has been revealing,” wrote Tony Crescenzi, interest rate strategist at Miller Tabak, in a note. “When combined with the big drop in copper and the near-inversion of European yield curves, it is clear that sentiment toward continued economic slowing growth runs deep in the global fixed-income markets.
    According to Deutsche Bank economists, the connections with Europe run deeper. After the Fed cut interest rates to historic lows to revive the economy after the bursting of the tech stock-bubble, the ECB followed the move.
    And just as rates at historic lows in the U.S. fueled a housing bubble here, they also boosted housing markets all across Europe, according to Deutsche Bank.
    “Over the past 10 years, housing markets on both sides of the Atlantic largely moved in sync,” Just wrote. “Correlation analysis confirms significant ties between the housing markets of the US and eight major European countries.”
    Over the last ten years, house prices in Spain have surged by 150%, in the UK by 200% and in Ireland by as much as 300%, the analyst noted.
    The risks facing the European economy are moderated by the fact that Germany, the euro zone’s largest economy, has seen little increase in housing prices. “Most important, however, almost all European countries face substantial contagion risk, not only stemming from the US but also from European neighbors,” Just wrote.
    On Friday, news that the National Association of Realtors forecast a 12% slump in new-home construction in 2007, had little immediate impact on the stock market.

  8. Phil -

    You seem to have ommitted a glaring problem from your call for inflation- Federal entitlements; Social Security and Medicare, and their cpi inflators.

    IMO – The Fed, along with both Bush 41 and WJClinton, were keen to get inflation down – and manipulate how cpi is calculated as well- in order to get those mandated costs under control.

    How does an “ipro-nflation” strategy recalculate when considering the looming entitlement challenges ?

    Unless the market was nuts enough to buy into one “mother-of-all” T-Bill auctions at current rates, so we will not have to finance the government at future inflated rates, I don’t see a way out of that problem – lol

    Your analysis seems incomplete is all I’m saying. Until a better supported argument is offerred, I’ll stick with low inflation thank you – just the same, I’m a realist, so will be buying more gold/gold miner

  9. “As far as the minimum wage goes…why not allow the market to set wages???”

    Because the market does an astoundingly poor job of it for low wage workers. Have a BIT of compassion. That could be your mother, your sister, your brother earning $5.15 per hour.

  10. I have to agree with John. While I am sure that the other posters are more knowledgeable in these matters than I am, it is just a little too Darwinian for me to subject low-income wages to market forces.

  11. Wow – good topic I guess…

    Not going to get into it about lenders, Shakespeare covered that 400 years ago. I think the trend of the BKX, the fact that the exchanges and CC companies are some of the most profitable institutions on the planet plus the merchant banking institutions like GS and Hedge Funds that suck additional hundreds of billions of fees out of the economy should be indication enough that “lenders” are getting a very fair slice of the pie.

    As to a simple S&L, I don’t care about their spread, inflation is pro consumer as long as it is coupled with equal wage inflation because the free market will determine what they have to pay for goods and services but fixed item expenses, like cars and homes are more affordable to people who can realisticaly expect significant income increases over the life of the loan.

    When you engage in a Federal policy of artificial inflation contrainment (and yes, stabilization is a good thing but not elimination) and when the primary inflation component is wages paid – who are you helping?

    I’ve never heard an analyst say “The Fed is concerned about a 17% rise in corporate profits this quarter” but they should be! Do you think that’s not an inflationary pressure – we sure aren’t getting that out of productivity increases so you MUST be getting less for more money.

    While the top 1% of the nation (most of whom work for GS) were able to increase their earnings from 7.5% of the nation’s income in 1979 to 11.4% in 2002, the middle 20% of the people saw their income drop from 16.5% to 15.8% of the national income.

    I don’t want to even discuss what happened to the bottom 40% because I’ll be labeled a Marxist for caring! Even Allan Greenspan thinks this is a problem…

    The top 10% of the wage earners in this country earn 15 times what the bottom 10% do ($300K to $20K) vs. Japan, for example, where the ratio is 4:1.

    SS, Medicare/aid – these are real programs with real money that “they” have been trying to streal for years but the funds are locked up pretty tight and contain a lot of real money. The only danger to SS in the next 20 years is congress messing around with it.

    5% Inflation takes the $2T trust find and can turn it into $6T in that 20 years while inflated wages will dump another $5T in during that time above what is already scheduled to be contributed. Removing the cap on SS would add another $4T (with interest) to the fund by 2025 and, since the same amount of people will retire and the fund would have $15T (under my administration), rather than the current $5T projected, we will be well within the 160% CPI adjustment required.

    Meanwhile those seniors will be living in homes they own that have increased in value 215% and been paid off with mortgages they could afford giving them a comfortable retirement nest egg and a reliable SS check to cover expenses.

    Currently the average person gets a home with a 7% morgage against a a 2.5% annual raise and 3% inflation.

    If they currenlty earn 40K and buy a 200K home (good luck):

    The first year they earn $3,300 a month and pay $1,330.60 mortgage let’s call living expenses $2,000 a month (-$30/month to save)

    The 5th year they earn $3,733 and pay $1,330 + $2,318 ($85 spare)
    The 10th year they earn $4,224 and pay $1,330 + $2,687 ($207 spare)
    The 20th year they earn $5,407 and pay $1,330 + $3,612 ($465 spare)
    The 30th year they earn $6,921 and pay $0 + $4,854 and have a home that’s worth $485K and a spare $2,067 a month for as long as they can continue working.

    Under my administration, I would set a 5% inflation target and mandate wages keep pace, let companies find other areas to cut costs!

    Assuming the benevolent lenders don’t gouge then we’ll let mortgages float to 9% (although I’d be cracking down there too!).

    The same person could then only afford a $180,000 home but I think home prices will adjust to this as they would under any 9% mortgage environment. They will also have to cut 5% of spending but let’s say they cant to keep things even…

    The first year they earn $3,300 a month and pay $1,448.32 mortgage let’s call living expenses $2,000 a month (-$148/month to save)

    The 5th year they earn $4,211 and pay $1,448 + $2,552 ($211 spare)
    The 10th year they earn $5,375 and pay $1,448 + $3,257 ($670 spare)
    The 20th year they earn $8,755 and pay $1,448 + $5,306 ($2,001 spare)
    The 30th year they earn $14,262 and pay $0 + $8,643 and have a home that’s worth $778K and a spare $5,619 a month for as long as they can continue working.

    Where would you rather live? The simple key is that, in a rising wage + inflation environment that person will have a 40% increase in spending/saving power in year 20 compared to today’s environment where they have just 15%.

    Of course, if they saved some of that extra money at a 7% interest rate they would be in very, very good shape by year 30.

    Here’s why “they” have spent your whole life telling you this is a bad thing.

    1) Inflation creates a bigger and bigger middle class

    A) Those people might retire of feel free to switch careers, just when you had them well trained
    B) People with excess capital and skill might go into competition against you
    C) You can’t accurately predict the allocation of excess disposable income (this may empower industries that compete for consumer dollars – ie biotech, internet, gaming)
    D) They don’t need to borrow money to live
    E) They may educate themselves
    E) They may not feel the need to play the market or pay “retirement planners”
    F) Some of that spare money will find it’s way into the hands of unions or rival political parties

    No upper class really wants true upward mobility for the masses – this is (or used to be) the greatest country in the world for people to be able to work their way up the ladder but now days it’s more of a game show/lottery mentality than work hard/get ahead society.

    I know this sounds very communist to conservatives but it’s really just very slightly socialist, which has also been made into a very evil word in this country for all of the above reasons. It’s human nature, those in power (currently the conservative elite) want to maintain and enhance their positions so they take natural actions to ensure their security.

    In the past 30 years the middle class of this country has been ruthlessly and efficiently torn to shreds to protect the interests of the top 1% (who are “generous” enough to allow some trickle to fall on the next 9% but not much further).

    Even in the 1800s, the people who owned people had to feed and clothe and house them. A slave had his children taken care of and had an expectaion of being taken care of after thier “useful” work life ended. When they became sick, a doctor was called (generally).

    Try doing all that for $5.15 per hour!

  12. Funny how conservatives feel the need to describe themselves as “compassionate,” how else would we know, right? A rising tide lifts all boats, but not if you are standing on the shore.

  13. Phil,So the you think the rest of the world keeps lending you money, at all cost? Even if the lose money every day? I really don’t understand this. Now you’re talking only about the American side. Can you please explain why other Countries would keep lending the US money forever?

    How I read it now is “we can spend and spoil money forever and ever, it really don’t matter, others will pay the bill for us”

    Maybe I am just too stupid,please forgive me ;-)


  14. On minimum wage, there is also the whole argument that if you increase the minimum wage it could discourage people from seeking further education and better jobs if they know they can just slide through life making minimum wage at Walmart.

    I’m not saying it is a good argument, but it is valid in certain circumstances. I hate to say it, but Darwin was mostly right, and like welfare, if you make it easy on people to not try to get the best education and the jobs, then they will have less drive, society’s progress as a whole will be hampered, and lastly, that gap between the rich and poor will only grow wider and wider.

    Also how can you make a national minimum wage when the cost of living is so very different in each geographical region of the country? If there is anything passed, I feel it should be national, but the amount based on a percentage of the median salary in that area/state/whatever.

  15. Dutch – we have to move forward on the premise that you guys will keep lending us money or the whole thing just falls apart real fast!

    At this point you have the problem an large creditor has with a bad debt – you either keep lending us money or you write off the Trillions you have already lent us as a bad debt – not a pretty picture either way.

    As long as the US keeps paying the interest then, like GM, people will keep lending us money because the alternative is not pretty for anybody.


    Jeff, I’d hate for the government to mess around in every state – the states can already set their own levels but there is a poverty line and families with 2 working parents earning “minimum wage” should be able to expect to be above it.

    The point of a national minimum is to stop any single state from forcing substandard wages on people – as they used to do before there was on. Even now 18 states already have higher wages – Santa Fe’s (not all of New Mexico) is $9.50 and, much to many conservatives’ surprise, it was not swallowed up into the firey pits of hell….

    The world needs floor sweepers and newspaper boys and stock clerks and grocery baggers etc but you certainly can’t pretend that what holds most of these people back from a white collar job is laziness! Sure Darwin was right but survival of the fittest doesn’t mean a civilized society condems the rest to a life of misery – saying they should just try harder is just an excuse to dehumanize those who, for whatever reason, are less fortunate.

  16. I agree with Phil on the minimum wage issue. Letting market forces determine fair wages works extremely well, but only within certain limits. The market itself requires regulations, as do societies -or else the people who have the power to do so will co-opt the market (or society). Jim Crow laws are a perfect example of how a power can subvert basic rights while nominally upholding them. The sub-poverty-line earners are perfectly able, from a legal perspective, to pull themselves up by their bootstraps. But by removing their leisure time, educational opportunities, access to quality medical care, etc. one is bolting their boots to the ground. Above a certain minimum level, the level which provides the basic living that any affluent society should grant even its poorest citizens, I’m all for the market forces.

    I’m not as knowledgeable as some of the commentators on the issue of lending and so forth, so I won’t try to argue about the mechanisms. From my perspective the end result is pretty striking. The rich are earning more and the poor are earning less as a percentage of GDP than they were a couple of decades ago. Is this just? Is their foul play? A different question entirely, but the fact itself can’t be sidestepped. Likewise, it is pretty clear where the money is going; so I would hazard that those who are making more and more have found some mechanism, whatever it may be, to take money from those who are making less and less.
    Also, raising the standard of living of the poorest members of our society is probably a very good idea from an economic standpoint. Educated societies are clearly more productive, for one thing, and a higher standard of living engenders better education. For another, it requires a lot of resources to deal with the problem of a very poor neighborhood. In addition to the broken families and drugs and such, it takes a lot of money to house prisoners and to staff and run municipal courts. And, judging by the statistics, that money isn’t solving the problem, so it’s a fixed cost.
    So, if you asked the top twenty percent of wage earners if they were willing to pay an extra one percent tax, which would then be distributed to the bottom twenty percent of wage earners -and that in return for that extra one percent they could expect a several percentage point drop in the crime rate, an eventual reduction of their tax burden (as the “criminal treatment” machinery downsized), a better quality of life (increased national productivity)…would they say yes? I don’t know. But the question can be rephrased: if you asked a corporation if they were willing to take a small hit to their bottom line, in return for which they could expect an eventual increase in the productivity of their workers, expect to pay less for management fees (associated with training and re-training and constantly monitoring their uneducated, unhappy workforce), and a more vibrant economy…
    I admit that I’m no expert; but from my point of view this type of expansion of the gap between rich and poor is extremely unhealthy for a society. It’s only a matter of time before Louis and Marie are scoffing eclairs from diamond encrusted dishes and the poor are finding pitchforks. Or, with a little bit of imagination, until the elephants and donkeys are one-upping each other by giving their prime donors even larger checks, and by seeing who can attach the largest piece of pork to the next “national security” bill -while poor Kim and Ahmad are looking for nukes.

  17. I agree Rock. When people become economically disenfranchised and see no hope for improvement, society will suffer, and the question of which way interest rates are moving will be trivial by comparison.

  18. Tell us how you really feel about the republicans Phil?

    I bet you don’t mind the tax breaks you see.

  19. You can read my last year’s worth of columns to see how I feel about the Republicans, the election’s over and I’m a little bored with that topic…

    I’m with Rock – I’ll gladly give back the taxes (and yes I donate to charity but it’s an anthill compared to the 3.2T tax cut that’s taken away vital services and disenfranchised the poor (bottom 40%, 100M people) in this country.

    Since I’m not 5, I do mind the tax breaks I see. I try to teach my daughters every day the value of saving and planning ahead and the concept of working now (homework) for goals in the distant future.

    Just like with her math, spelling, science etc, – my 6 year-old can’t imagine a real use for the 20 years of hard work she has ahead of her but I take the role of good government and look at, what to her is an unimaginably long-term future, and help her build the foundation for a better life ahead where she can become independent of my welfare and productive in her own right.

    Republicans (acutally not republicans, that’s just a label and certainly not all republicans are bad so let’s just say “the morons who just got thrown out of office”) are like children at Halloween who get a big bag of candy on one good night and eat though the whole thing the next night.

    They don’t share, they don’t save, they waste half of it, they make a big mess and they eat until they throw up and then expect someone to take care of them because “who could have seen that coming?”

    Needless to say I am very proud that even my 4 year-old has a still mostly full bag by her bed and I know I can trust her as we only recently finished off the Easter baskets!

    The first story from the Bible I ever remember learning was the story of Joseph and the Pharaoh, where Joseph interprets the Pharaoh’s dream and advises him to save grain during years of plenty so the people would not starve during times of strife.

    It’s economics for children and what really shocks me about conservatives is how often they quote the Bible without learning a single lesson from it.

  20. John Stewart on the Minimum wage:

  21. Hi Phil,

    I think the issue of minimum wage is better handled separately from inflation. A rule like all corporations, limited liabilities, any other entity that is artificially created by law (as opposed to being born) can only provide a maximum compensation to an employee that is no more than 100 times the lowest compensation given to any employee, compensation being of all forms, including stock options, benefits, stays at various penthouses ( take the difference between the penthouse rate and the days Inn rates that everyone else in the company has to use when on business travel), etc.

    Inflation is the result of increasing the money supply at a rate faster than population and products. It is done by letting the government spend newly created money at the same value as the money had before new stuff was created, and let people further down the food chain take the hit against their savings in the form of savings that are now worth less. It amounts to a tax of savings held in the form of money, which isn’t one of the authorities given to the government. It is allowed to have excise taxes, income taxes, real estate taxes, tarrifs, sales taxes, maybe even a tax on money that is transferred to heirs, but not a tax against savings that are just sitting there. A stuffed mattress or safety deposit box shouldn’t be subject to tax as far as I understand the Constitution. So having a Federal Reserve with it’s ability to create money is an end run around the limitation to tax and around the Constitution. So, inflation from a Federal Reserve printing money is unConstitutional and should not be supported.

    Another problem with inflation is that my understanding is that all instances of hyperinflation resulted in a change in the form of government – not just a change in who was leading the government, but whether it was a democracy or monarchy or dictatorship, etc. Hyperdeflations have only lead to a change in who was in charge, but not a change in form. So it seems best to keep things close to 0, but to err on the side of deflation over inflation.

    Another issue with inflation is that I’ve read that whoever was in charge of making credit slips as money would create more slips than there was anything to back them up, spend them himself and get things of value in exchange for what was fraudulently passed off as being worth more than it was, see the economy boom as people would mistake increased monetary supply and velocity for increased production, and then watch people overextend on getting loans in anticipation of economic expansion, much of the loans from the credit slip supplier, and then the credit slip supplier would stop making more credit slips, watch monetary velocity and relative supply contract, then watch collateral for loans, like real estate, go down in value and no longer match the value of the loans, and then the credit slip supplier would call the loans on the basis that the collateral was no longer enough, then take the collateral when the loan couldn’t be paid in full all in return for credit slips that were created from thin air. So the credit slip supplier would create the situation where he could get items of value from something created by him from air, and then ultimately get other things of value, like real estate, by calling loans in. It’s inherently a bad system and it’s tied to inflation.

    Then there is the issue that the Constitution gives the authority to coin money, where the money already exists, and coining it means changing the form of the money into the form of a coin. The Constitution doesn’t explicitly give the authority to create money, and under the 10th amendment, the government doesn’t have an authority not explicitly given to it. So Congress can’t delegate to the Federal Reserve an authority which it doesn’t have itself to begin with. Another way that inflation from printing money is unConstitutional and shouldn’t be supported.

  22. Ah the minimum wage…I wish we could have an honest debate…but alas it is a polictical issue and being a political issue you will get garbage analysis.

    Here are my questions I need answered:

    1. Why raise the minimum wage $1 or $2/hr. If you REALLY care about hte bottom 10% why not raise the minimum wage to $20/hr????? Please someone answer this. Why does the government think IT KNOWS the fair wage? Why is $6/ hr or $7/hr appropriate. Why should someone in NYC earn the same as someone in Fargo, ND? If you CANT LIVE ON $ can you live on $7? Of course there is a simple answer to this. Governemtn doesnt is a policitcal issue not an economical one.

    2. If not the market to set wages..then who? Government right..ok? So if the government is soooo wise and efficient in protecting the bottom wage earners..whyhas it taken so long for them to “fix” this problem? Ah, you say..those bastard conservatives….which reinforces my point…that is still the government…so when posters say NO to market forces..they say YES to the BEAST. The market IS much more compassionate. Studies have shown again and again…those that earn the minimum wage earn MORE than the minimum 5 years later. They get their foot in the door. They learn, they work, they acquire skills and gain more responsibility and then…presto..earn more money. What’s more fair than that?

    3. What happens to those wage earners that earn slightly above minimum wage? Let’s say I earn $8/hr. Who’s going to raise my wage? Why is someone LESS productive than I am, going to get a raise while I still struggle? What’s fair about that? So if “benevolent” government has the compassion to set the bottom wage, why dont they have the power to set ALL WAGES? Lawyers..overpaid (except ACLU lawyers off course). Executives..overpaid. Point is the government doesnt have a clue. They are neither compassionate nor egregious. Government exists to re-inforce its own power. ONLY the selfish market has the capability to analyze its peculiar cases and determine in hte structure of its own business plan what it wishes to pay and doesnt wish to pay. Fair and effecient.

    As far as inflation goes…..again government exists to reinforce its own power. You want will get it. Be careful for what you wish for. We have over $30 Trillion in unfunded liabilities for our welfare state. How are we going to pay for that? Raise taxes? NO! Cut welfare programs? No! We will just print money…presto…inflation. Phil’s dreamland…our nightmare.

    Politics suck….can we just stick to volatility smiles?

    For those interested on why free markets always work best…


  23. Nick, you’re right $7.50 is still outrageously low but one look at WMT’s bottom line and you can see how we are going to have to ease into the radical concept of “a day’s work for a day’s pay.”

    Australia’s minimum wage is $10.50, England is $10 but $8.33 for 18-21 year olds in their first 6 months of work (there’s your training idea!) but both those countries have universal health care so put that into your math as well!

    The harsh reality of life is that not every person who serves you fries at McDonald’s is upwardly mobile. Millions of people will hold jobs like that for their entire lives. I’m trying really hard to see your point of view on this but I just don’t understand what you want these people to do…

    Is it OK for anyone, anyone who shares your air tries to live an honest and decent life, to have to chose between medicine and diapers at the end of a week? Do “market forces” dictate that other people’s families to go to sleep fully dressed so they can keep the thermostat at 65 on a cold winter night?

    The Fair Labor Standards Act of 1938, which established the minimum wage, also enforced the payment of overtime wages (as people used to work 60-70 hour weeks for substandard wages) and eliminated child labor (because “benevolent market forces” enabled you to hire those little bastards for just pennies an hour).

    We could talk about this for hours but I’m sure the conversation would be the same as one immortalized by Dickens 200 years ago:


    ‘At this festive season of the year, Mr Scrooge,’ said the gentleman, taking up a pen, ‘it is more than usually desirable that we should make some slight provision for the Poor and destitute, who suffer greatly at the present time. Many thousands are in want of common necessaries; hundreds of thousands are in want of common comforts, sir.’

    ‘Are there no prisons?”

    ‘Plenty of prisons,’ said the gentleman, laying down the pen again.
    ‘And the Union workhouses.’ demanded Scrooge. ‘Are they still in operation?’

    ‘Both very busy, sir.’

    ‘Oh. I was afraid, from what you said at first, that something had occurred to stop them in their useful course,’ said Scrooge. ‘I’m very glad to hear it.’

    ‘Under the impression that they scarcely furnish Christian cheer of mind or body to the multitude,’ returned the gentleman, ‘a few of us are endeavouring to raise a fund to buy the Poor some meat and drink, and means of warmth. We choose this time, because it is a time, of all others, when Want is keenly felt, and Abundance rejoices. What shall I put you down for?’

    ‘Nothing!’ Scrooge replied.

    ‘You wish to be anonymous?’

    ‘I wish to be left alone,’ said Scrooge. ‘Since you ask me what I wish, gentlemen, that is my answer. I don’t make merry myself at Christmas and I can’t afford to make idle people merry. I help to support the establishments I have mentioned-they cost enough; and those who are badly off must go there.’

    ‘Many can’t go there; and many would rather die.’

    ‘If they would rather die,’ said Scrooge, ‘they had better do it, and decrease the surplus population.”


    You’ll have to forgive me for having had a life where I’ve met many of those “surplus people” and have found great value in their company – As a former CEO of a small company (100 people) I do understand that one person can be “more productive” than another, but I provided 100% health coverage for my employees and their familes, matched 401K savings and, of course, gave stock (not options) to everyone because the extra money did a lot less for me than it did for them.

    So when you ask if lawyers are overpaid, if executives are overpaid – of course they are! The incomes of the top 10% are out of control when they can average 15 times the wages of the bottom 40%!

    In last year’s Forbes, they had a statistic that the heads of the fortune 500 got a 54% pay raise, from $3.3B to $5.1B from ’03 to ’04 – I don’t know the exact current number but I’ll bet $10B is about right for those 500 guys (maybe 20 girls).

    I know, it’s a paltry $20M each, how will they scrape by? Those are just the CEO checks, figure $20B more for core upper management of just 500 companies.

    Those 500 companies take in $9.1T (74% of GDP) with profits of over $700Bn this year – that’s after paying everyone’s salary.

    While the average energy industry worker creates $1M in revenues, the average grocery store worker generated just $600K – there’s your productivity gap…

    Profits in the medica product and equipment sector were up 45% last year and are doing well this year too! That’s money that comes out of everyone’s pocket to feed that Beast…

    Medical facilities made 30% more, managed care companies (the ones that are supposed to be saving you money) managed to make 30% more and big Pharma added 16% but the Pharmacies that sell the drugs managed to tack on 30% more profits for themselves on top of that.

    The free market is working for you as Texas has supplanted New York as home to the most F500 companies (56) as corporations flee to the state with the weakest labor laws and the lowest rate of unionization.

    “New numbers for 2005 at Fortune 500 companies show revenues up by 10.2 percent while headcount increased only two percent. Modest employment levels and declining real wages account for much of the spectacular 18.8 percent average increase in profits for the year.
    UPS, the third largest employer in the Fortune 500, increased its workforce by six percent in 2005 while revenues and profits both rose by more than 16 percent.
    Home Depot, now the fifth largest employer, increased headcount six percent while revenues rose 12 percent and profits jumped 17 percent.
    Citigroup, the tenth largest employer, added only 12,500 workers in 2005, an increase of just four percent, but its revenues increased 21 percent and profits ballooned by 44 percent.
    This trend toward generating high revenue and profit growth with fewer employees spells softer labor markets and less leverage for workers across the United States.”

    In a no inflation environment with less workers working for more total revenues and income there is only one place that the additional $200Bn in profits the F500 made since 2004 could have come from – that’s right, they took it from the “surplus population.”

    Merry Christmas Nick!

  24. Libs are what you get when you think with your heart not your head. There is a time and place for that, but not always, with everything.
    Why should people work to improve themselves when you will just give it to them? Read a little about the original Mayflower colony and see how their socialist views changed quickly when it became a matter life and death.
    You are completely wrong on social security. There is no ‘real’ money there. As I said here before: it has been spent. There are only IOUs in the form of gov. bonds. DEBT. To be paid by us in taxes, with a lot fewer people when the boomers retire. A double blow – they quit paying higher taxes and start receiving SS.
    Inflation is not higher prices. That is the result of inflation. Inflation is an increase in the money supply. Guess who controls the money supply? Anyone? Yes, BANKERS.
    Inflation destroys savings, causes business failures, layoffs, high unemployment, people lose their houses and jobs. See the Carter admin. for good examples of how bad it can be.
    Doug Noland quoting a book by Andrew Dickson White -
    “White begins: “Early in the year 1789 the French nation found itself in deep financial embarrassment: there was a heavy debt and a serious deficit. The vast reforms of that period, though a lasting blessing politically, were a temporary evil financially. There was a general want of confidence in business circles; capital had shown its proverbial timidity by retiring out of sight as far as possible; throughout the land was stagnation… There was a general search for some short road to prosperity: ere long the idea was set afloat that the great want of the country was more of the circulating medium; and this was speedily followed by calls for an issue of paper money.” (pages 23/24) What began with a 400 million issue of assignats (government issued fiat currency) fully backed by property (confiscated for this purpose), ended six years later with “forty-five thousand millions of assignats. The nation in general, rich and poor alike, was plunged into financial ruin from one end to the other.”"

  25. Again..why NOT raise the minimum wage to $20/hr? WHY NOT? Why not $30/hr.

    Answer: because you cant….companies would cease all hiring. I need to know where you would set the minimum wage. What is the correct rate level..the answer is there is NO correct level…no one knows…because it doesnt exist..this is such a silly’s purely get votes.

    The market gets it right almost all the time. Are there people who are stuggling..yes. Does rasing the minimum wage help? NO!

    Another question…how much does a struggling teenager, living at home with his parents and driving a beatup VW need per hour to live??? Please answer this question. I contend that he would work for less than the minimum wage if the job was appealing enough for him.

    How about a senior greeter working at Walmart who owns there house and collects a pension and social security and is just looking to keep himself busy? How much does he need per hour to sustain him/herself? Please answer that question…SOMEONE..please!

    As someone who pulled himself up from the absolute bottom I can tell you honestly…God helps those who help themselves…I sacrificed a lot and I plan on collecting…and I plan on helping those less fortunate…by spending my money, investing it, saving it and hiring people ot take care of it (and of me). THATS the best way to help the less fortunate (and the food and clothing I drop off to the homeless EVERY WEEK!).

    Again..can we get back to vega spreads?

    Happy Thanksgiving y’all

  26. All money is an IOU, what else would it be?

    The money supply is controlled by bankers and they just eliminated the M3, which was the only real way to track it. I’m certain serious inflation (or a massive collapse) is just around the corner so I’m just getting ahead of the curve and embracing it.

    Make no mistake about it, we just had a nice friendly revolution where the working class threw out the upper class in a bloodless coup (just like Indonesia last month!). Republicans outspend Dems 2:1 in this loss and that does not bode well for ’08.

    I know that the Dems are really just Republican Lite and there’s not going to be any major changes but the current Admin + Congress just swung the pendulum too far in favor of the top 10% (and the top 2-10% are just deluding themselves that they are in the same league as the top 1%).

    Jefferson (quoted way above) was worried about exactly this sort of boom/bust currency manipulation back in the 1770s (smart guy!).

    Your France example is excellent except that America is already, on a per capita income vs. debt level – 10 times more in debt than the French were at the time of their crisis. We’ve already done every irresponsible thing possible and I can’t even imagine what kind of discussion we’d be having if I suggested we raise taxes to pay off the debt – so I’m chosing the easiest path out of this nightmare…

    As to Carter inflation under:

    Kennedy: 1961 – 1.1%, 1963 – 1.2%
    Johnson: 1964 – 1.3%, 1967 – 2.3%, 1969 – 5.4%
    Nixon: 1970 – 5.8%, 1974 – 11.3%
    Ford: 1978 – 9% (in 1978 inflation rose 30% and was handed off to Carter)
    Carter: 1980 – 13.5%, Dec 1981 – 8.9% (he reversed it in 4 years and handed a strengthening economy off to Reagan).
    Reagan: 1982 – 6.2%, 1986 – 1.1%, 1988 – 4.4%
    Bush: 1990 – 6.1%, 1992 – 3%
    Clinton: 1994 – 2.6%, 1998 – 1.61%, 2000 – 3.4%
    Bush II: 2002 – 1.59%, 2004 – 3.4%

    And what was the difference between Carter and Reagan. Carter annoyed everyone, especially conservatives, by telling us we had to curb spending, economize and raise taxes to curb inflation. He did a remarkable job of beating it back in a very short time.

    Carte took the national debt down 10% during his term.

    Reagan had Carter thrown out of office by telling us all that belt tightening stuff was BS and it would be party time in America once again if he was elected. How did he do it? Easy, the debt under Reagan climbed from $1.8T (about where it had been since the end of WWII in inflation adjusted dollars) to $5.8T by the end of Bush I.

    Clinton pushed the debt back down to $5.6T by 2001 and Jr has us up another $1.6T so far.

    And that’s just the inflation adjusted picture! I hesitate to show the actual picture as poor Bush and the Republicans have suffered enough this week but here it is:

    And if that’s hard to read, this one breaks it down in very simple terms:

    They took our great country, leveraged it to death, handed money out to all their friends and now they are going to leave us with the bill – and we are in for one hell of a hangover!

    They’ve got theirs and now they are going to be living on fixed incomes and don’t want any of that nasty inflation upsetting the apple cart!

    It’s not the inflation per se, its that the main component on which controls are exercised is wages – so inflation control ends up being wage control which is sort of the oppositie of everything this country was founded on.

    Even Barron’s points out this weekend that the inflation numbers are a joke because computers are included in the core CPI as are autos, which are big and trending down. Food, medical, clothing, housing, insurance are up well over 5% but that only really hurt those who haven’t pulled themselves up yet.

    I just so happened to go to the 7-11 before and bought 2 medium milks for $5, that’s a lot of money as we must go through 6 a week! I’m sure they are cheaper at the grocery but I’m just saying – how can you expect a person to live on $5 an hour?

    When I was a kid, minimum wage was $2.25 and you could get 3 shots for $1 at the bar and $5 all the beer you could drink. I think that’s a fair ratio, 2 hours of work should give you two hours of liesure. A VW was $1,995 (I was saving up for one) so I think that’s a fair number – 1/900th of basic transportation should be a minimum, minimum wage (with gas and insurance factored in too).

    Nick, please tell me you are a paid lobbyist and not a person who actually believes that 70 year-old people spend 8 hours a day on their feet greeting people at Wal-Mart for kicks!

  27. You said all you needed to say but saying ” Carter handed off a strengthenen economy to Reagan”

    What? Excuse me? Thats good spin Phil.

    “Clinton pushed the debt back down”

    Huh? He did? It wasnt the gridlock of a republican congress and a democratic president? It wasnt the billions of $$$ of additional tax revenue from the conversion of IRA’s to Roth IRAs? It wasnt the bubble internet economy where companies earning no money were paying college kids $110k to design web sites? How about all the capital gains tax revenue generated from the soaring stock market?

    “They took our great country, leveraged it to death, handed money out to all their friends and now they are going to leave us with the bill”..yes they did. Theywill continue to do so. You MADE MY POINT. Governement in all its shady identities can NOT be trusted.

    Sorry Phil, for all your data, you didnt answer any of my questions and you confirmed my point. You will never get to your target 5% inflation rate, and you will never be able to control the rich/poor gap by using the minimum wage….governement will screw it up democrats and republicans alike.

    Is it your point to make me out to be a heartless person. You dont think there are greeters at Walmart who would..if given a chance work for less than the minimum wage? You dont think? I think if the minimum wage was $3/hr ALL THOSE JOBS WOULD STILL BE FILLED! Thats not heartless…just reality. No one takes a job unless they want it. If they dont want it..they wouldnt take it. Maybe it SHOULD PAY MORE…but thats for those two parties to figure out.

    Whats heartless is adding further regulation, adding further costs to honest people and honest companies in the attempt to fix a problem thats cant be fixed in Washington DC. You’re right..we arent France..praise allah…we have a freer (not FREE) market so we are better…if we become France…the poor will still be poor and the rich will still be rich…but the poor will be even poorer. That’s heartless. Let them eat cake right?

    We might as well talk about flying to the moon because we (all of us) are collectively moronic when it comes to that as when it comes to economic factors. SO it’s just silly to continue this deiscussion.

  28. Inflation is neither prevented by, nor overly detrimental to, Bankers due to the Banker almost immediately selling any loan that is not A+ and/or carries a variable rate (ARM). Accordingly, interest rate increases on fixed rate mortgages will have min direct effect to the Bank. The majority of monies received from the sale of loans is used to purchase govt secured bonds and treasuries due to the restrictive bank regs imposed to prevent insolvencies such as the S&L’s in the 80′s. A limited % is typically invested in public utility and other “safe” bonds. Laddering is used for an orderly maturing to hedge against dramatic increases in int rates. If history serves me correctly the Carter era of stagflation (high prime rate and high unemployment (typically inverse relationship except in stagflation) was predominately caused by Volker at the FRB, who was so set in his ways he would of made Rumsfeld seem like a fence sitter. Starting with Greenspan and hopefully currently, the Fed Chairman’s have either been better listeners or just plain more intelligent; and have learned from history, what works and doesnt regardless of textbook theory.

    The min. wage is simply a base from which most other hourly jobs base their rate of pay. It also is an effective tool for those employees who have been made “exempt” by management (to avoid paying overtime and/or less than the min. wage when dividing their salary by total hours worked). The local, state and FLRB has been active as of late targeting companies that abuse classifications of employees as well as the companies they contract out certain positions (Walmart and their subcontracted PM cleaning crews). Pelosi wants to raise the min wage because she knows it has appeal with the hourly workers and for some others may aid her politically. In essence it makes no difference to her; she wont have to pay the migrant workers who work in her vinyards additional wages anyway.

  29. Phil, you made the following remark:”….3.2T tax cut that’s taken away vital services and disenfranchised the poor (bottom 40%, 100M people)”

    May i ask what vital services you are referring to…besides how do you justify your faith in government dispensing these services to these 100M folks?

    I am just a little bit surprised by the enormous faith you have in government sponsored services while every study…of every political hue has stated, from what i recall from readings, that government services are wasteful and mismanaged.

    As a taxpayer, how do you justify such inefficient spending…by a government which in most cases is not accountable (even though we all pretend it is)…just curious

  30. Nick,

    It’s not at all silly to continue this discussion. Sure, I’m not Keynes and you’re not Smith, but this is how it works. We present our ideas, and discuss them; empty political rhetoric doesn’t help, and neither does the old, world-weary sigh. No one else is going to figure this out -we are the electorate, and we have families and friends and communities. This impacts our lives on a day to day basis, and if we foment a few good ideas from a discussion such as this, and we bring them into our lives, maybe we’ll have a smarter, more capable electorate; maybe smarter, more capable elects. Or you can just absolve yourself and hope that it gets better.
    Why not $1000 an hour minimum wage? Because that’s ridiculous. There are legions of statisticians and sociologists whose work involves discovering almost everything there is to know about our society. We can calculate how much it costs for food, for child care, for public transportation, for medicine -and we can even figure it out by state and county. The minimum wage, in my personal opinion, should be a living wage. It should cover basic expenses. If we are using an outdated standard from the nineteen sixties, which doesn’t take account of single-parent families (and child care), or of the developments in medicine (which now costs more than it used to); it should be updated. Do a simple Google search and you’ll find articles published by secondary government agencies, by university researchers; all of which break down by expense what is required to live a basic life. Set the minimum wage there, and exactly there. To wit, whose “report” are you more likely to believe -the one written by someone who has a lot to gain if they can convince you to believe it (i.e. the people making a lot of money by screwing us all), or the person who is basically volunteering (i.e. non-profit, tenured academic, etc.).
    If you take the society out of society, and go for all-out free-market libertarianism, you end up with nothing more than might makes right. For example, say Disney or Marriott determined that the land that you live on would make a great theme-park or hotel. They lobby your local politicians and you are evicted. My point is that you have to provide boundaries, limitations, rules -a framework for people to compete within. They shouldn’t be able to take your house (and by the way, if you’re throwing out the rules, they can “squeeze” your local appraiser and pay you the new “fair” price for your home). Also, we shouldn’t be paying a less than living wage to millions of workers. This same society is what allows the rich to become rich -without our lower strata they wouldn’t be rich. It makes sense to me to provide them a basic living, both morally and economically.

    “Whats heartless is adding further regulation, adding further costs to honest people and honest companies in the attempt to fix a problem thats cant be fixed in Washington DC.”
    The constitution is a set of regulations. Roads and policeman are costs. The problem isn’t that there are regulations or costs, the problem is that the regulations are being subverted and the money that we pay isn’t being used to our greatest benefit. Washington DC is the only place the problem can be fixed -its our government. First, of course, we have to fix Washington DC…but that’s the only place it can be fixed.
    How honest will the people and companies be if you take away the IRS and the police? The charter of a company is to make a lot of money, and their executives do everything possible to do that. The charter of a government is to protect its citizens from abuse. Checks and balances, just like a good football game. Everyone puts out their best, within a framework of simple, basic rules (to ensure fairness), and you end up with great athletes. Even the mob figured out that you need rules and you have to take care of your own.


    Once again I’ll stay on the sidelines of the inflation/banking debate because I don’t understand it that well (as of yet). But about government-sponsored services. First of all, government dictates the circumstances of our lives. Maybe there are many things wrong with it, and maybe it is failing in important areas -but you and I don’t make the laws, don’t collect the taxes, don’t allocate funding. The question isn’t whether or not we should give the government power, that is a moot point. I’m not happy with the inefficiency and waste, not at all, but you can’t change that by trying to eliminate government. How do we justify the services dispensed to us? Why shouldn’t we buy bulldozers and make our own roads? Why shouldn’t we have to show up with pitchforks (yes, I like pitchforks) to guarantee that we get a fair quote? Government dispenses services to everyone in the society -the only is question is what is dispensed and where it is dispensed to. I trade the markets on an intraday basis, and this is because government is dispensing something to me. Someone regulates (to a certain extent) these exchanges, someone has set up this market. The market is a government-sponsored service. It takes regulation, commissions, lawyers, international agreements in order to ensure that we aren’t getting (too) cheated.
    Inefficient spending…
    I know (since he’s family) someone who works in the echelons of the Googleplex. They provide, first of all, a shuttle to work (replete with good coffee and Wi-Fi). Secondly, after hearing about it, I’m not sure I wouldn’t want to live in the Googleplex. In addition to every type of food imaginable, available at will, they provide swim-in-place pools, lounge areas with pool tables and tasteful decor, hair stylists…etc. Not much of a cost to Google when you consider the results. He’s damn good at managing programming teams and software development and he left a nice position at another top-tier tech company to go work there. I wonder what would happen if we used our wealth to treat teachers that well.
    So yes, government spending is inefficient and sucks, but I doubt that has anything to do with the “nature of government”. It has to do with who runs the place and how the system works. If you bow out, it just keeps working that way, and you and I suffer for it. What’s wrong with spending an extra fractional amount to bring the poor up to a living wage, and thus increase their happiness, education and productivity? Even if you want to disregard the moral aspect, which kind of makes me wish that I believed in hell so that I could imagine those who do disregard it going there, the rational aspect of it seems pretty clear to me.

  31. Crude production from the 10 OPEC members bound by the cartel’s output agreements fell to 27.73 million b/d in October, down 80,000 b/d from September output of 27.81 million b/d, a Platts survey of OPEC and oil industry officials showed November 9.

  32. Thanks Rock – that saved me a lot of writing!

    Here’s a video for Ramana:

    I love capitalism, I love making money but I love it because it lets you do things to help other people – be they family or friends or strangers.

    Government is the most effective way of helping those less fortunate than you. It has been turned into (since Nixon) the most effective way of concentrating wealth into the hands of the few.

    There was a brief moment in history when the will of the American people was to change the world and use our economic might to make it a better place. That leader was murdered and, shortly thereafter the new leaders let the people know, in no uncertain terms, that the new government was going to put a stop to that crap:

    As I said earlier – to make sure we never “squandered” our prosperity again, they set about a plan to cripple the nation financially, pick the bones clean and are now in their end game where they are willing to crash the economy as long as they can protect their ill-gotten gains (elimintaing capital gains and inheritance taxes).

    As Jefferson pointed out, it’s a land grab. Force people to buy high, crash the economy so they can swoop in and buy low – it happened in the 30s and it’s very close to happening now.

    Like any corporation, the government has waste and mismanagement – we just need the right CEO and management team in place to turn it around.

  33. Soccer – Whoa! That’s 560,000 barrels a week!

    Quick buy Exxon!!! Let’s remember to watch for this report around Dec 10 because if they aren’t down below 27M by then, we should really see some action…

  34. Hey guys … my head is getting inflated reading all this nonsense about inflation … you are all right … fugedaboutit … a couple more hours to trading … let’s roll .. LOL

  35. Lively debate always mind stimulating….my final comment which explains (to me at least) the major difference between the two major political parties.

    Democrats – They feel they should spend your money for you = higher taxes

    Republicans – Believe you have the intelligence to spend your money where you see fit = less taxes

  36. Bull (and others) – here is a list of coutries you can live in that will not charge you, some of which are very nice.

    It’s a free market and countries compete for you to park your money in them with various incentives.

    I choose to remain in a country that exercises a degree of social responsibility and taxes it’s citizens accordingly but, if it was really so terrible, then all the rich folks would leave (as they left England when taxes were outrageous in the 60s).

    The fact is that America has/had the best educated, robust workforce on the planet with a massive infrastructure (thanks FDR) and a positve business environment unmatched on the planet. You can go to a tax free country, but you’ll never make that kind of money anywhere else.

    You want to have your cake and eat it too – use all the benefits of decades of positive social programs but contribute nothing back, we’ve had 25 years (Clinton did not reverse the trend) of seeing how intelligently Republicans spend money in a low tax environment – it turns out they had to borrow $7 Trillion during that time (average $300Bn a year), not including the long-lasting mess that’s been made of the entitlement programs.

    It was fun but we simply can’t afford to let it continue. The kids were given free reign and screwed up big time so now the parents (dems) will have to step in and, yes, tell you how you should spend your money.

    Better them than the world Bankruptcy court.

  37. phil,

    what do you think about amzn puts today? if i can’t sell the nov 40 puts against the dec’s, should i buy the nov 40 calls at .35ish for a hedge? should i wait until tomorrow’s numbers? i need to do something. thanks again for any advice.

  38. I didnt say zero tax, just less….If you were escorted by a chauffer all you life you wouldnt know (and prob wouldnt want to learn) how to drive. That is the problem with programs started as stopgap measures; they become entitlements (Medicare for example). Bush originally wanted to limit welfare payments to possibly motivate those that have been subsidized (sometimes) for decades to receive training, find employment, get out of the muck, etc. Dem’s roared disapproval; insinuating racial motives. Dont have an answer, existing programs were originated to help those who were “temporarily” struggling, Try to remind people of that and you are a racist?

    Problem is it is too expensive to run as a political candidate in our current system without selling out to the devil (lobbyist). Then you’re theirs; and your ehtics and morals must take a back seat to your “sponsors”. Only thing one person can do is work from within their own ethics; join civic clubs and try at your local level to make a difference. If everyone did that, maybe we woiuldnt be having this debate.

  39. Ah but Bull, everyone does not!

    There are many many freeloaders who reap the benefits of this wonderful society we’ve built and give nothing (or not enough back).

    That is the entire point of government, although the Bible says to love thy neighbor and provides guidllines for a life of charity, it mainly gets lip service in tofay’s society.

    The function of government is to prevent (for example’s sake) the Walton Family, from making $5Bn a year from the efforts of the labor of 2M people (who are barely paid enough money to afford the spare tire on one of the Walton’s cars) and not paying their fair share of the social costs of creating and caring for those 2M drones.

    That family can make a big show of giving $200M to charity along with a 15% tax rate and say “Hey look at us! We are giving more money than anyone else – isn’t that enough for you sponges?” and you could easily say that they would be correct but this society would collapse around you and, eventually, those 2M servants will rise up and burn down the mansion (it happens every time) enabling a new batch to claw their way to the top and start the cycle all over again.


    AMZN – maybe keep you finger on the $40s as a momentum play to stop yourself from getting toasted in an upspike. Keep an eye on the Nasdaq and Ebay for directional signs.

    Right now the market is not looking all that strong for the open.

  40. [...] Phil’s Stock World High Finance for Real People – Fun and Profits! « Inflation Nation [...]

  41. “Clinton pushed the debt back down to $5.6T by 2001″

    LMAO!!!! Too bad the treasury doesn’t agree.

    Good read on .gov trickery when it comes to the budget and no there never was a surplus.

  42. That was using 2000 inflation adjusted dollars (per the chart I put up). Sorry if I did not make that clear.

    It’s interesting you say there never was a surplus when GW ran on the premise that there was and he was going to give us tax breaks because we should get “our money” back…

    So your chart shows the debt under Clinton grew $1.2T in 8 years (and 1/3 of that was in his first year, 1993, but you can say that’s his fault) while W has racked up $2.1T in 5 years – you’re making a point but I’m not sure it’s the one you wanted to!

    As to SS – I don’t debate that, the math is way too complicated to say what is and is not available. The bottom line is that the people who worked and had money put aside for all these years deserve to get paid so it’s up to the 147M people who have jobs to give the 48M who collect what they are owed.

    That works out to $750Bn a year so there’d better be some money somewhere to pay for all this! What’s so sad is that we stole the money, they put $15T (inflation adjusted) into that fund and we can’t make a 5% payout?

    That’s pretty bad…

  43. Why not keep consumer inflation at 5 to 6% a year and let the government report 3% CPI – wouldn’t that sove our problem. It is so much easier being a nation of “paper flippers” – it is the opium of the people so let us all watch DH or E-intertainment and not trouble or little heads over inflation or deflation (not possible with a paper currency until repudiation).

  44. [...] Let’s not forget that we asked for this when we told China to strengthen the Yuan.  Currencies don’t strengthen in a vacuum and for the Yuan to rise, something had to fall and it’s no surprise to my readers that the dollar would end up suffering.  All of this is right in line with my Inflation Nationpolicy but it’s a fine line between a steady devaluation and a total meltdown so let’s watch our gauges! [...]

  45. This is a great thread. Leaving inflation alone for a moment, here are a couple of thoughts about why the “free market” is not always the best at setting minumum wages. A free market implies that each side in a transaction is “free” to take it or leave it. If a man pulls a knife on you in an alley and demands your wallet, most would not consider that a free market transaction. Now consider the plight of someone without much education or prospects with a family (or even just himself) to feed. At it’s most stark, there is almost no wage that is too low when the alternative is starvation. You can see this play out all over the world where the vast majority of humanity lives on less than 2$ a day and a small handfull of folks control the supply of capital (and the government, etc) in poor countries. I am a huge fan of the free market and don’t trust the federal government as far as I can throw it, but a higher minimum wage is just leveling the playing field ( a little) between those with tremendous leverage (those with capital) and those with none. Look around the world and make a list of the countries with the greatest wealth gaps. Then make a list of the most prosperous countries overall. You will find that there is very little overlap, and this is no accident.

  46. [...] So does this really matter?  No – as long as you can be happy buying American goods and services and don’t have a hankering to travel too far from home, we are lucky enough to be in a fairly self-sufficient nation that can probably get through a crisis but be aware that there is an inflation storm on the horizon that may or may not be the government’s goal, as I proposed earlier in the month. [...]