Tuesday, November 24, 2009

The Government Magic Wand

Start here with your reading of the day, minding especially to go through the Commentary. It is all a positive Statement about the lack of positive direction in our economic policy. It worries me that national debt continues to grow in the World, Recession after Recession, while the benefits of Stimulus can never seem to pay off the debt. Milton Friedman would have discussed the natural rate of Inflation at about this point, but I believe that is a Cop-out; I have hardened in belief that Inflation comes not from the aggregation of debt, it being channeled by sub-level rates of Interest on that debt. Read every link in the Post and the Commentary, and ask what the Inflation rate would have been since 1934, if the average Interest rate had equaled 8% at the central bank position. The Cost of debt would have changed many elements in the economy, while having produced about as much Product, though it would have been of enhanced quality and life-span, with lower Wages and less Recession. I have begun to dislike almost all economic policy by Government, starting to imagine Government is the sole cause of Recession because of excess Spending with artificial pressure on all Resource prices. I might be underrating the employment power of Government, but the existent strength of Make-Work lessens the power of real Labor in the economy.

Read this Letter, and ask what has altered the resource market for diesel. Gasoline stands as very market-oriented, but Government manipulation of Interest rates suppresses the market forces for diesel by inducing heavy consumption, by artificially low Production Costs at both the Producer and Consumer Production lines. It even curtails the Costs in Heating by distillate, so that the switch to Natural Gas was delayed. Suppressed Interest rates corrupt all Price mechanisms at vastly varying levels, so that central information to markets is negated or by-passed. Only careful data modeling can establish the impact of the distortion, but it can easily be seen that substandard production can be profitable, while necessary production finds itself operating in the Red. I personally have nothing against the Fed, but central banks should learn to alter their policy in a manner which does not reverse natural market forces.

This is the type of hyperbole which I dislike intensely. GM is celebrated for a debt repayment, which must be removed to open opportunity to subsidize further debt acquisition. Neither Government or Company cites the exact level of debt owed by the Company to the Government, and both laud a booming outlook while still going further into debt. No one supposes there will be any improvement in the near term, and Taxpayers are directly funding the recovery of GM; this means the debt is only advancing, while the Costs go up, and the value of the company goes down for Consumers and Labor both. The next thing will be GM executives awarding themselves Bonuses based on accumulated Debt; they sure can’t award Bonuses on Profits. lgl

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