Monday, September 28, 2009

Some Do not like what I say!

Mike Shedlock hopes for Change in a bureaucratic structure dependent upon several other bureaucracies of longstanding intransigence. No one expects or believes in Change, though All mouth it. Remember that Great Britain lead the fight against Slavery, yet almost went to war with the Union, because of the Embargo of the South. The United States is not going to take any Steps to limit the national debt, or free up Agricultural Products because of the power of the Midwestern Senators. China and India will not follow in revamping internal obstacles to Trade, or allow the increase of Imports to their domestic markets. The EU is still maintaining old world Trade barriers, with absolutely no pressure on its members to alter their positions when domestic opposition appears. Great Britain points to the United States every time there are financial requests from suffering Third World nations. France is so constituted that the French leadership has only to make a few Calls to get whatever demonstration desired from Students, Labor, Farmers, Business, or Banking. The German government agrees to anything and everything, then doesn’t even bother to report it domestically. Japan remains the only nation willing to engage in a serious cooperation with the United States, but also wants to flood American markets with Japanese products, often produced below Cost. The G-20 is only a Vacation event for government leadership!

Jeff Cornwall still believes that the entrepreneurial spirit can be unleashed. One important statistic works against him and his argument. The Consumers are buying less Product at greater Price. We are overstaffed with Small Business under this numeric, and new Capital will only reduce the Product Sale Spread among the businesses. There is no indication that Consumers will have any increase in Disposable Income anytime soon, and Export Sales cannot be expected to increase by any wide margin especially for Small Business. The World is growing larger, and splitting in Parts, at least for your average businessman; the weakening of the dollar is no panacea, due to the disparate spread between Imports and Exports. We are all waiting for something to happen, but the drawing boards are empty!

I wanted to finish today with a response to a Question about my statement made yesterday that fiscal policy which injected Spending without debt acquisition was the only real Stimulus. The whole Point is that Stimulus must alter the relationship of Spending and Capital Investment, with Consumption increasing 2-3% against Capital Investment. The later can diminish, stay stable, or increase. Government debt creates Capital Investment; Government simply spends the Money, but promises to repay the funds in the future. That promise of repayment is what creates the Investment increase, so that the funds must be spent twice, with the provision of Interest throughout the loan period. Fiscal policy will stimulate if and only if Consumption increases in ratio against Capital Investment, so that Tax revenues must increase for Stimulus to take place effectively. Most Economists and all Bankers do not want to believe this face. lgl

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