Monday, July 25, 2011

Walter E. Williams

Wallter E. Willaims recently called out an article published in Time Magazine* regarding the Constitution.  It is of no surprise that Williams easily disassembles the article and all associated foolish assumptions made therein.

The Constitution is Supreme Law, and therefore supersedes any/all other laws that may pose a conflict.  It staggers the mind that some people want to simply do away with, and forget, The Constitution - which is after all the rule of law - as it is supposed to protect individual rights to life and liberty.  (It should also protect the right to justly acquired property, however that is an issue best left for another day.)  Is anyone really against the rule of law?  We would hope not.  Surely, we do not all agree on each and every specific law, however anyone in the U.S. that disagrees with individual rights of life and liberty should perhaps research other countries.

If one has enough time, patience, and boredom to read this sad excuse for critical thinking; then good luck.  One problem is the concern that states with wide population disparities each have two Senators.  Nowhere in the article however does it mention that the 17th Amendment to the Constitution eroded the intended system of federalism, which would be a far superior system due to the varying complexities of each state.  Before the 17th Amendment was ratified, each state had the opportunity to allow their legislature to appoint U.S. Senator's to represent their own state interests.  State governments would therefore be much more inclined to appoint (and reappoint if applicable) Senators hesitant to defer state resources and powers to the federal government.  The current scheme of legalized bribery by way of earmarks (which also contributed to havoc being wrought on our health care system) does exactly that: defer state powers to the federal government.

With federalism as the main objective states could adapt laws, regulations, and taxes that suited their own needs--as long as they did not violate The Constitution and individual rights of life and liberty.  Is anyone really na├»ve enough to think that the social policies in Vermont should be the same as those in Texas?  Should New Hampshire and California maintain the same fiscal policies?  Would it be logical to force Utah and New York State to adopt identical policies on personal or economic issues?  No - three hundred million plus people would be far better off determining issues that are not covered in The Constitution on a state or local level.  Centralized planning always fails.  After all, people are allowed to move freely throughout the country, and trying to conform our society to a "one size fits all" lifestyle with identical values and priorities is a social engineering nightmare waiting to happen.

*Time Magazine: the favorite publication of Monday morningTuesday morningWednesday morningThursday morningFriday morning, and Saturday morning quarterbacks everywhere.  Note the Time magazine articles and covers over the years going back and forth between global cooling and global warming are not only contradictory but so incredibly desperate to cause sensationalism and/or panic in order to sell copies to the sheep/readers.  We have already stated our views regarding environmental issues: that the underlying goal for everyone should be to minimize waste; if not for environment reasons, then for economic reasons.

Sunday, July 17, 2011

Inflation and Government Control

"..... inflation is probably the most important single factor in that vicious circle wherein one kind of government action makes more and more government control necessary. For this reason all those who wish to stop the drift toward increasing government control should concentrate their effort on monetary policy."

F.A. Hayek - The Constitution of Liberty (pages 338-339)

On July 11, 2011, Doug Short put treasury yields into perspective (that is, yields that have been affected by the zero interest rate policy of the Fed) and summarized:

"A week after the end of QE2, the yield on the 10-year note has dropped 15 basis points to 3.03%. The most recent Consumer Price Index (the June reading for May) stands at 3.57%, which gives us a real 10-year yield of -0.54%."

Tuesday, July 5, 2011

Price Stability

As previously mentioned, The Federal Reserve determines monetary policy with the intent of maintaining stable prices, maximizing employment, and moderating interest rates as needed.  While analyzing the effects of QE2, Mike Ashton - The Inflation Trader - notes the following:

 - grain prices are up 17% since August 2010.
 - softs (coffee, sugar, cocoa, cotton) are up 56%.
 - gold and industrial metals are up, around 20% each.
 - crude is up 27% and retail gasoline prices at the pump are up 32%.
 - the dollar is worth 10% less on world markets.
 - stocks are up 24%

Ashton concludes that:

So if the Fed was trying to pump up stocks or nudge 2y note yields, they did a fine job. Beyond that, what we can see is… and what I’ve been saying all along… if you increase the quantity of money, the main thing you increase is the price level. The only reason you might expect a growth effect is if there is money illusion, meaning people see more money in their pockets and perceive themselves as wealthier because they don’t realize that the dollars are worth less. That is certainly somewhat true, but the figures above suggest that the most pronounced effects were on inflation expectations and the prices of raw commodities.

Well, we shouldn’t forget about this little effect as well: QE2 also kept Tim Geithner in his job for far longer than was good for the country. Obviously, Geithner knows that his job was made easier by the fact that the Fed was buying 85% of the Treasury issuance since November, and virtually 100% of the net TIPS issuance: he has apparently decided to “weigh” moving on from Treasury as soon as the budget deal is done. I’m sure the timing is completely coincidental and has nothing to do with the fact that the next guy is going to have to find a new $600bln buyer to take the Fed’s place (and maybe a bigger buyer, if the Fed ever decides to sell).