The Race for the Gold

Some 110 Banks, 4 Insurance Companies, AIG, and hundreds more Banks are expected to ask for Bailout funds. The buzzards are beginning to cluster, and an estimated 46 have already been granted assistance–if not Cash. There is a lot of Promise but little Cash coming out of Treasury, except to the big Corporate Investment Banks. It is beginning to represent a Lottery, one where the winning Tickets are all picked in advance. The trouble emitted by this ad-hoc Selection choice of beneficiary means that there is huge amounts of Cash disappearing for the most nefarious of rationales. One questions the feasibility of Organizations granting Hundreds of Millions of Dollars as Bonuses and Salaries, while receiving Billions of Dollars of Bailout Dollars from the American Taxpayers. There is a level of Graft coming out of Treasury not seen since Teapot Dome, and all of it coming from former Goldman Sachs employees; it does not play well in Main Street, Rural America.

Greg Mankiw has a good Post about Inferior Goods doing well in the current drop of Income among Consumers. He fails to point out the Backlash Effect which Inferior Goods always induce, as Consumers are forced to adopt Goods they are not used to Consuming. Consumer irritation rises rapidly after only a Short Interval of such Consumption, and leads to increased family quarrels, a rise in juvenile delinquency, and vast increase in the anger against Governmental authority. Some 1930s Soviet historians, I could not even hope to cite them anymore, even insisted that enjoined Dietary change was the primary impulse generating Revolution. I cannot verify the thesis of these historians, yet I would accept their Thought as authoritarian until more relevant data is found.

I guess it is up to me, to tell a Nobel Prize Winner and Goldman Sachs that they are approaching a Problem from the wrong way. Goodie-Goodie! They both think that expansion of Cash volumes is not enough, and there must be a vast Stimulus program. I approach the Problem from a different direction. About 55% of all Incomes are relatively Income Inelastic; this means that Prices must increase for an average 14 months, before they begin to enjoy an increase in their own Incomes. An expansion of liquidity, on the other hand, allows for free movement of Prices among those Products having high Price elasticity. This spread of liquidity actually pressures a Decrease in Consumption, and reinforces Recessionary conditions. The United States and Japan are just as irresponsible as any Government entity, We cannot presume any aura of Innocense. The real Curative for modern ills in both the U.S., Japan, EU, and China is to spike the Interest rates (think a standard 4-5%), control Government Spending, and grant reverse Income Tax payments to lower Incomes; this will induce reduction in Price in Price elastic Goods, and thereafter induce higher Consumption. Prove Me wrong!! (I still won’t get a Nobel Prize!) lgl