A Windfall from Twist?

Are we inadvertently reaping a windfall as consumers from the Fed's Operation Twist that originally brought such negative reactions and sell offs on Wall Street?  Commodity prices, including oil, are crashing.  Gas prices at the pump are falling, and perhaps food prices will follow. While generally deflation is not considered a positive thing, perhaps this will give consumers some relief from the artificially high prices at the pump and in other 'non-core ' inflationary items such as food--which grew out of the Fed's QE2 program earlier this year.  Lower energy prices might help jump-start sputtering industries and lower transportation costs for goods in general--putting downward pressure on prices of competitive manufactures, while money saved at the pump and in the grocery store might encourage consumers to go back to consuming, and hence set merchandisers and manufactures back to supplying and the economy back to growing.  On the cautious side, the Fed's maneuvers have complex implications for the markets that may not be fully understood, and in this climate it's hard to look very far into the future.  Is this an unforeseen windfall from the Fed's pronouncements this week, or a fleeting phenomenon?  At this point any relief, no matter how minor seems good.

D.T. Johnson

Economic Warning and Explanation for Americans/QE2, the U.S. and China

China's has started an ongoing process of jacking up their interest rates in order to slow down their economy and to keep the value of the yuan strong while stopping inflation. The U.S. on the other hand is doing approximately the opposite.  Through the Fed's policy of Quantitative Easing (QE2) it is printing money to buy up government debt, driving bond yields lower and forcing people into the more risky stock equities, all in an effort to keep corporations growing, and in theory stimulating new hiring, while at the same time making borrowed investment capital cheap, which in theory helps people with mortgages and other loans along with putting small businesses in positions of favorable liquidity levels.
All this as well, in theory, resuls in more refinancing, spending and expansion/hiring. This also makes for a larger supply of dollars in our economy, which, in turn, drives down the value of each dollar--which means dollars aren't worth as much anymore and the places at which we are buying things start to want more of them.  In other words, our prices on things like food and gasoline go up (I'm sure you've noticed).  How does Congress keep buying things the government needs at these high prices? Answer, they try to borrow money from China.  Problem...since U.S. prices have gone up, so has the price of buying a US Treasury Bond--the thing that Treasury Secretary, Timothy Geithner  wants to sell to China for money to finance our government's operations (that's how we borrow money from China--by selling US Treasury Securities--which are kind of like I.O.U.s with payouts (to the Chinese) along the way till the due date--we get a lot of cash up front from China in return).  Look, the price of our bonds have gone up. China will have to use more of the dollars she's got stashed in her bank to pay the higher price (she got those dollars originally when we bought her stuff at Walmart (and other Chinese marketing channels), who, in turn, sent a sizable portion of their dollar revenues back to China after they taking their cut).  The question now is, will China want to drain her dollar account in her bank to pay for the more expensive I.O.U.+/U.S. bonds at the new higher price?  Not so much.

What's Congress going to do if China won't buy their bonds/lend them the money they need so that they can keep spending money on stuff that they and President Obama want?  Answer, you're not going to like it but...they're going to have to stop spending so much money on us, also they're probably going to raise our taxes to get more money.  They're probably also going to keep purchasing the Treasury's securities, trying to stimulate the economy, while at the same time driving up inflation and making the dollar worth less, until our money won't buy us the things we need and our standard of living is gone, all the while the government sinks under its accumating debt. Why is bankruptcy a possibility?-- because our country is over $14,000,000,000,000 (that's $14 trillion--with a 't'--in debt (that's about the same amount of money value that everyone in the entire country (U.S.A.) produces together in one year (GDP).  The country that is the single largest holder of that debt is China.  

What's all this mean to U.S. citizens?  1) We're going to have to get ready for the government to not spend so much money on us; 2) we're going to have to stop spending so much money on things we don't need, be smarter shoppers, negotiate better deals, make sacrifices, and try to find new ways to make money; and, 3) prices on food and gasoline and other things are probably going to keep going up, until the Fed stops the type of activity described above..

Now is the time to fix this and prove we're Americans.  

D.T. Johnson Tuesday, April 5, 2011

Gingrich Forsaken by Fellow Republican Staffers for His Positions on Issues

Gingrich Forsaken by Fellow Republican Staffers for His Positions on Issues

I read in The Wall Street Journal that Newt's campaign staffers have left him (Neil King Jr. at neil.king@wsj.com, June 9, 2011).  This is primarily due, no doubt, to his opposition to the Ryan Plan--transforming Medicare into a private voucher system.  Newt knew that the vast majority of Americans, including many Republicans opposed the Ryan Plan. Trump knows this as well. Newt and Trump are the only Republicans to admit it. Ryan's Plan, whether you agree with it or not, is a political non-starter. For one thing, who in the 50-55 age range is going to support it? We've paid into Medicare our whole adult life and now the arbitrary 55 year old cut-off line says to us, "Too bad you didn't quite make the cut-off line...now look, here's some vouchers instead". And whether or not one finds Newt's comments about a 'radical' plan offensive, the plan is 'radical' by definition. The word 'radical' comes from the Latin word for root. A radical change therefore involves pulling up a plant, or program--Medicare--by it's 'roots'. Medicare is a well established 'plant' with deep 'roots'. Polls show the Ryan Plan would be opposed by as many or more Americans than opposed Obamacare. Shall we punish Newt and Donald because they dare tell the truth? A better way to solve the budget problem would be to downsize the federal government by combining/integrating government departments/agencies. Fold the Department of Education into the old model of Health, Education, and Welfare. Fold the EPA into the Department of the Interior. Fold the IRS into the Department of the Treasury. We forget that Reagan sought to reduce/sunset the Dept. of Education (which has existed only since Jimmy Carter), while most Republicans agree that the EPA is way too big, powerful and growing, and while Huckabee has called for the elimination of the IRS. We do not have enough money anymore to maintain so many departments, separate staffs, facilities and materiel. Any well run business would do such things in such a situation.


D. T. Johnson,  June 2011