Friday, October 29, 2010

Eaters Living to Eat

The moderns, mad upon mere multiplication, have even made a plural out of what is eternally singular, in the sense of single. They have taken what all ancient philosophers called the Good, and translated it as the Goods. — G.K. Chesterton

Chesterton wrote on rotten apples
covering this in a much more entertaining way than I can ever hope to

Our problem stems first from the fact that our government in collusion with the business sector and the media calls us "consumers". We are told we are a consumer society. We exist to consume. China sees us as consumers of their goods. They have financed our consumerism in order to fund their military machine. During the gap between the two 20th century world wars in which the original Great Depression took place, America happily sold scrap metal to the Germans. A World War I veteran told my father, "They'll be shooting it back at us in a few years." The same might be said of the Chinese and our dollars. Perhaps we can throw resin figurines and Christmas lights at the invading ChiCom soldiers, should it come to that.

The consumer cycle is crashing, and no one wants that to happen. Corporate America runs on debt bubbles. The most recent and what will be the most devastating debt bubble is U.S. Government Treasuries. When that crashes — and it will, we will have an opportunity to rebuild from the ground up. It will not be pretty or easy, and it will be fraught with the danger of totalitarianism. The Tea Party is a good start. The increasingly libertarian (note the small 'l') sentiment of Americans is a good sign, as is the number of people, especially men, embracing a kind of economic minimalism.

The list of bad signs includes our fascination with mindless entertainment — from sports hysteria to "Glee" to "Dancing with the Stars". A large portion of the population lacks any sense of commitment or personal responsibility. That, too, is a bad sign. Many believe the government has money that it doesn't take from someone else at the point of a gun, and that they should be entitled to a share of said funds. Another group believes money is the same as wealth. Yet another block of blockheads lacks respect for private property — true capital.

This brings up an interesting point. Capital is often seen in terms of dollars. Capital is, first and foremost, the means of production. If you own a sewing machine, a plow, a cow, a loom, a forge, a garden plot, or a grapevine, you own means of production — you capitalist pig. Most of us own lots of junk that will make some people think we are well-off. Meanwhile we own very little that is actually productive or that could be considered capital. I'm having a little trouble imagining how a 52" flat-screen television could be productive. I suppose if we rented it out for Sunday night football viewing at the local church, it might return some of our investment, but that market niche is pretty small. The other thing we could do is to find someone who really wants a big-screen TV and sell ours to him. Then we take the money or medium of exchange he gives us and buy something productive, like a set of woodworking tools or a bunch of strawberry plants.

Those are the kinds of transactions that make money handy. The odds of me with my excess big-screen TV finding a person who has an excess of strawberry plants and who wants a big-screen TV are fairly small. So far, I think, Chesterton the Distributist is right there with me.

Let's consider a scenario Bastiat might employ. Suppose instead of buying a direct means of production in terms of tools, seed, plants, or whatever, I keep the money that I received from my TV. I don't need it at the moment to buy food or clothing or other necessities. I do, however, know a man down the road who really needs a new tractor for his farm. I offer to loan him my money to buy the tractor. In exchange, he agrees to pay back the full amount I have loaned him plus, say, five percent, when his next harvest comes in at the end of the year.

Because he now has a new tractor, he is able to turn more land, plant more seed, and harvest a substantially larger crop — enough to pay for the tractor and leave him a decent amount on which to live. The next few years he will enrich himself because he is able to use the tractor. If his crops fail and he doesn't make the payment, then I have the option of taking the tractor. He's no worse off than he was, and I am not much worse off since I can sell the tractor to recover some of my principal. The interest is reasonable since I am the one taking the risk of loss.

I see our current system as being flawed in two ways. One is "consumer debt". Instead of taking on debt to finance a capital purchase, as with our farmer above, we borrow in order to purchase items like the television. Far from enriching us, consumer debt makes us poorer. Even if we sell the item to clear our debt, it is unlikely that we will get all of our money back — certainly we would lose the interest we have paid. Plus, as things now stand, we are transferring debt to the purchaser — moving it around rather than eliminating it. (Note: I am not saying there is no benefit to consumption, it's just that is not capital. It does give a return on the capital investment of the television builder. This is another facet to the discussion since the television builder is building purely to sell. See
Chesterton's essay.

The second problem is even more pernicious. Money can be capital, but it seems to me that it is a special case. We should be careful that we do not allow money to get too far from the physical capital that it finances. Once money becomes an abstract version of capital, it is subject to accounting manipulation and multiplication without regard to any kind of concrete reality. This is precisely what happened when nations came off the gold standard. As long as money was based in precious metals, it could not be infinitely derived. It isn't necessary to use gold, but gold is a known limited quantity that makes money, in a sense, honest. Once we have moved to fiat currency in a consumer society, the sky is the limit. Inflation becomes a policy of the fiat creator because people are willing to take on debt for consumer goods if the "value" of the debt is being reduced over time by a gradual devaluation of the currency.

In other words, incurring $60,000 in debt over a five-year period for a new car costing $30,000 today is acceptable, if we know that in five years, a car of equal value will cost $60,000. General Motors and Ford, along with the lending businesses they owned, finance their entire operations and growth on the basis of this fact. That is the beginning of derivatives.

Of course, the money that GM takes in for a car does not disappear. It goes into the pockets of workers at all levels, of stockholders, of suppliers and their employees, dealers, salesmen, mechanics - all of whom can now, in turn, acquire stuff, usually mostly through taking on debt, on the basis of their wages and salaries. The government and all the layers of government workers get their cut via income, sales, and property taxes. It's a nice little ecosystem with your herbivores and your carnivores and your scavengers (i.e., the government). At least it seems that way.

It is multipling money by basing consumer spending on the inevitable process of price inflation and currency devaluation. Corporate revenues will go up as long as the bubble lasts. The same is true of a government that is financed by inflationary dollars from a progressive income tax. The worst things done to America in the 20th Century were the Sixteenth Amendment, the establishment of the Federal Reserve, the creation of government dependents through entitlements (New Deal — Social Security, Great Society — Medicare, Medicaid, AFDC, etc), and sundering of the dollar from gold in 1971. Singly, probably none of those things would have done us in, but in combination they have enslaved us.

Both the Republican Party of my ancestors and the Democrat Party are guilty by association. Both lack the political will to begin the painful process of lancing the bubble, of draining the entitlement swamp, of weaning government from the systemic inflation feeding expansion. The libertarian-leaning Republicans and the Tea Party are still too much of a political minority and too unfocused to address the base issues. It's a really big problem, after all. It means a complete reversal — not just of policies but of the very American mindset of the last one hundred years.

The only way out is for the bubble to burst, the scheme to collapse, and the house of cards to fall. And, as I said earlier, that's a most dangerous opportunity.

It is my belief that in preparation for this collapse, we should do our best to acquire some means of production for ourselves. But foremost we should recognize that the Good is not goods, as Chesterton says.

Thursday, October 14, 2010

Tool Update

In my earlier post concerning certain tools, I mentioned that I normally fired slugs through my favorite 870 by simply switching to an Improved Cylinder screw-in choke. I also said that the long, vent-rib barrel is a little unhandy in confined spaces. That's not a big deal since I have effective center-fire handguns within easy reach should interior work be necessary. I decided, though, that a riot-gun configuration would sure be cute.

To that end, I called my friends at Midway and asked if they had a short barrel with a matte finish. They did. Since I live in the same state, I had to pay sales takes as well as shipping, but I got a Remington factory barrel with rifle sights adjustable for windage and elevation for $194.00 (including the NRA round-up contribution). The barrel is 18 and a half inches and is marked "Modified". I'm not so sure about the choke. It seems pretty open to me. However, it shoots slugs like they are going out of style. I won't be able to try it out at 100 yards until my eye gets fixed next month, but at 50 yards, it puts a nice big, round hole exactly where you point it. The rear sight is easily adjusted and has a white triangle pointing up at the U-notch. The front bead is highlighted in white as well, so visibility should be good under most conditions.

As I expected, the shotgun looks as good as it functions inspiring me to christen her "Geraldine" in honor of Alan Arkin's switchblade in "Wait Until Dark".

The Dollar Decline

Denninger says, We Got Problems right here in Sold-Down-the-River City.

And then they take away our AAA debt rating so it will increase the cost of servicing the debt -- assuming there are any takers out there.

I tend to agree with one comment on the Market Ticker that Bernanke has been trying to keep the stock markets up through the election. At some point, he has to tighten credit or see a euro buy three dollars. Even in a depressed economy we're looking at soaring commodity prices. Imagine what that's going to do to dollar-denominated oil prices. I think it was around $84 today. If it goes past $100, I'm guessing unemployment hits 12%.

I wish I knew of a "safe" investment -- unimproved land, perhaps.

The only upside is that this would make imports more expensive and encourage a surge in American manufacturing -- except for the fact that the Chinese currency is pegged to the dollar and is going down with it.

Thursday, October 7, 2010

Inflating the Problem

From the Wall Street Journal "Fed Officials Mull Inflation as a Fix".

That will end well, won't it? Let's destroy the savings of the thrifty, moral, hard-working people to make things better for the lazy and profligate.

And what the Fed can't screw up, $100-a-barrel oil might.

I'll say it again, the government cannot afford deflation. They will not allow it to happen if they can help it.

Gallup reports the unemployment rate at 10.1%. The ADP analysis also suggests the unemployment rate has climbed in the last month. New UI claims are holding steady in a narrow range around 450,000 weekly. "Official" unemployment numbers are due out tomorrow. Gallup suggests that the government numbers may understate the rate. I suspect things will be "revised upward" after Election Day.

And then there is No Way Out of the Greater Inflationary Economic Depression from the Market Oracle. Casey makes some good points. It is inconceivable that the U.S. government would ever go broke, but I do like his analogy of the Financial Asteroid Strike. I don't think there's one in the immediate vicinity, but I think the economic equivalent of the Tunguska Event is certain given enough time.

Sunday, October 3, 2010

Is Near Depression Like Near Beer?

The IMF admits that the West is stuck in "near depression".

Near-depression sounds so much nicer than Depression. The PIIGS are still squealing. There are riots in Spain over the austerity measures put in place to try and deal with the debt crisis. It looks funny to me that the Euro is holding up so well -- even against gold. I don't see how the European economic union is going hold together. At some point the Germans have to bail on the bloodsuckers.

Bernanke and the Fed are still fighting deflation -- supposedly. What they are really trying to do, good Keynesians, is kick-start some inflation -- their target is probably in the 6-8% range. The federal government cannot afford deflation -- not with deficits in excess of a trillion per year as far as the eye can see and no way to pay. A wiser group of people might start thinking that maybe a cattle prod is not the fix for a dead horse.

I'm beginning to think maybe we need a new horse. Maybe instead of taxing people who earn money, we should tax the spending of money. We definitely need to get rid of the capital gains tax and all estate taxes.

I'd like to see Medicare -- which is broke, and Medicaid replaced with increased competition and catastrophic medical insurance policies. If we were to go to the Fair Tax, medical savings accounts would be unnecessary, as would employer subsidized health insurance.