TCS Daily

The Jobless Recovery

By Larry Kudlow - September 5, 2009 12:00 AM

The jobless-recovery theme re-emerged on Friday with the arrival of a disappointing employment report. The daunting number was the unemployment rate, which jumped from 9.4 percent in July to 9.7 percent in August. This is a big-versus-small-business issue. Sort of the haves versus the have-nots.

The large companies are gradually recovering as a result of major cost-cutting, inventory reduction, and a lean-and-mean return to profitability and high productivity. So the payroll survey registered a 216,000 job loss, the smallest drop in over a year.

However, the household survey, which picks up small, owner-operated, LLC/S-Corp-type businesses, registered a devastating 392,000 job loss, which follows losses of 155,000 and 374,000 in the prior two months. This is the source of the unemployment-rate jump, as 466,000 newly unemployed were scored in the report.

So while the big companies are getting healthier, the smaller firms are being left in the dust. Unfortunately, small businesses provide most of the new job creation in the United States.

Veep Joe Biden is out there saying the Obama stimulus plan has saved or created 150,000 jobs in the administration's first 100 days and another 600,000 in its second 100 days. But he sure isn't talking about small-business jobs.

In fact, it's hard to know what he's talking about. Uncle Sam has borrowed $388 billion in the second quarter and is scheduled to borrow $406 billion in the third quarter and nearly $500 billion in the fourth. In order to provide $152 billion in so-called fiscal stimulus, the government is draining close to $800 billion from the private-sector savings supply -- $800 billion that will not be invested in new-business enterprises, including small businesses.

Borrowing from Peter to redistribute to Paul is not fiscal stimulus. It's a fiscal depressant. Small businesses are having enough trouble getting their hands on credit. And now they can't find enough capital for new start-ups. The government prospers, but the small-business sector sinks.

Then there are all the tax and regulatory threats related to health-care and energy reform. Until Mr. Obama retreats from his plan for a government takeover of the health-care sector, and a cap-and-trade program that will cripple the energy sector, the cost of hiring the new job will continue to rise.

The threat of higher payroll taxes and energy costs is more than enough to deter new hiring. Taxes on upper-end investors are going to rise, too, and there may be a health-care surtax on top of that. And don't forget that small businesses pay the top personal tax rate, which is going up. Oh, and how about the recent minimum-wage hike? Yet another business cost.

So while the government doles out money for transfer payments and one-time temporary tax credits, the ensuing increase in the private-sector tax-and-financing burden becomes a complete deterrent to new job creation, as well as capital formation.

We're going to recover. Improved ISM reports for manufacturing and services, along with better profitability for big corporations, suggest we're looking at a mild, V-shaped recovery of 3 percent. But it will be a jobless recovery.

Of course, if Mr. Obama pulls the plug on his new government-insurance plan, and all the spending, taxing, borrowing, and regulating that goes along with it, the stock market will rally at least 500 points -- at least. Investors understand that an Obama retreat on government-run health care will lead to stronger economic growth for America's vibrant health-care industry -- and small businesses in general.

With all this, why is Wall Street so shocked by the recent gold rally, with the yellow metal marching back toward $1,000 an ounce? The run into gold is a clear revolt against paper money and financial profligacy.

The Federal Reserve's monetarist experiment to balloon the money supply will backfire with much higher future inflation unless the economy is capable of generating enough new investment and jobs to produce the goods to absorb all the new money. Indeed, this is a worldwide problem. Too much cash chasing too few goods.

The G-20 finance ministers are meeting in Pittsburgh this weekend, although nobody there has an exit strategy from the money explosion that has been aimed at solving the financial meltdown. None of the big countries have plans to reduce marginal tax rates to promote economic-growth incentives. There is no golden anchor of currency value, and no exit strategy from the potential inflation effects of the new-world monetarism.

The bottom line is that governments today have no financial discipline. And while growth will reappear, it may be a meager sort, with incipient inflation pressures plaguing the new recovery.

This article first appeared on Kudlow's Money Politic$.


We need economic entrepreneurs...
not political entrepreneurs.

Ain't it the truth
Much as it rankles me, I'll have to admit that Kudlow's on the side of the angels on this one. Small businesses are the backbone of the kind of America I like living in. But ehy have always, since the days of Richard Nixon, taken a seat at the back of the bus while major corporate contributors occupy Congress's time with all their whims and wants.

In my state they have to pay make-up taxes, to restore the revenues given away to large corporate headquarters-- who need to be bribed before they will move here.

Giving them a little leg up seems to go against the grain of both parties. The Gov has been just as pitiless and unmindful under Clinton and Obama as they've been under any other administration. Meanwhile small businesses in the best of times are only as healthy as the fortunes of their biggest clients.

I note in passing that when Chrysler and GM were experiencing their troubles, the suppliers they owed hundreds of millions to were down at the bottom end of anyone's concerns. These suppliers should have been the first to get paid, for goods supplied.

Someone should do a tally of the number of jobs lost just in that way. It would be sobering.

And you still want government to have more power to control the economy.
Power corrupts.....

And when it does pick up...the velocity of all that money being printed will too
And that means: HYPERINFLATION, kiddies!

Apparently, the gold market and the Chinese are in full agreement on this one:

[Off Topic But Funny As Hell] Little Kid Writes To The Dear Leader
I'm still rolling on the floor over this one!

Well how about that
Looky there.. we agree again. Incentives come out of a pot that everyone who didn't get one has to fill back up, So the playing field is definitely tilted against the little guys, with no corporate clout. And ironically, incentives programs are designed to lure jobs.. while the burden has to be borne by small companies that really do try to employ people.

Meanwhile when one of the biggies shows up, he usually brings his own people. They do hire locally for grounds maintenance, etc.

WalMart came to our state with a five-year tax break for new stores. So every five years, the store in Dunn closes its doors and moves across the street. That's enough to start the clock going again. The place is now littered with dead old WalMarts. Meanwhile the old downtown is dead, with once-healthy stores now flea markets and hair parlors.

Inflation defined
""(I)nflation is always and everywhere a monetary phenomenon, in the sense that it cannot occur without a more rapid increase in the quantity of money than in output." "

"Thinking of inflation as rising prices permits politicians to deceive us and escape culpability. They shift the blame saying that inflation is caused by greedy businessmen, rapacious unions or Arab sheiks. Instead, it is increases in the money supply that cause inflation, and who is in charge of the money supply? It's the government operating through the Federal Reserve Bank and the U.S. Treasury. "

"The founders of our nation feared paper currency because it gave government the means to steal from its citizens. When inflation is unanticipated, as it so often is, there's a redistribution of wealth from creditors to debtors. If you lend me $100, and over the term of the loan prices double, I pay you back with dollars worth only half of the purchasing power they had when I borrowed the money. Since inflation redistributes (steals) wealth from creditors to debtors, we can identify inflation's primary beneficiary by asking: Who is the nation's largest debtor? If you said, "It's the U.S. government," go to the head of the class. "

Finally, something at your reading level
Your reference is a good example of how the right can take mulitple subjects that don't relate and jumble them to creae a whole new confusing, inaccurate expression of poltical ideology.

I'm glad to hear you got a laugh though Z. You needed it.

Interesting statement on the Nixon era
I'm currently reading John Morton Blum's V Was For Victory: Politics and American Culture During World War II. In his section on Industry and Government, he notes:

"... the War and Navy departments naturally favored the large, established firms that they had induced into war work and found so convenient, as well as so capable.... In 1940, when the defense program began, approximately 175,00 companies were providing some 70 per cent of the manufacturing output of the United States, and one hundred companies produced the remaining 30 per cent. By March 1943, even though twice as much was being produced, that ratio had been reversed. The one hundred companies previously holding only 30 per cent now held 70 per cent of war and civilian contracts, and were still gaining in proportion to the others. That development reflected the decision of the War and Navy departments about contracts, materials, and priorities. The great bulk of federal funds expended on new industrial construction had gone to the privileged one hundred companies."

So yes, it was war time, but let's be clear: your statement should read, "... since the days of Franklin Roosevelt..."

How does a corporation have clout?
They can have no clout if the government can't 'give' them anything or 'take' anything away.

My sister-in-law complained about Bush's 'no child left behind' program.
I don't support federal control of education at all, but I wonder what BHO is doing to the program.
Like BHOs war, where are the critics?

That you don't see the relationship is an example of a faulty public education.

I was one of those kids who blew the curve, too
In high school, one had to take Biology in order to graduate. I kept blowing the curve -- esp on the extra credit points.

The teacher knew he had to throw my grades out (along with about three others) or a lot of kids who otherwise would have made a C- were headed for D+ or worse. It also kept me from getting my butt kicked and stuffed in a garbage can by the jocks. I could tell by the look on this face what a tight spot he was in. He did give his signature to get me into Honors Chemistry in the next year, though.

Although, I did have to explain all of this in little words to one of the jocks who didn't understand and thought I was a threat to his continued participation on the football team. Moron. He was the perfect candidate for Union Thug recruitment.

'Too big to fail' has its roots in the mediocrity of any collective effort. Sometimes, it is not a bad thing. 'Only' as in: it helps EVERYONE and does so constructively.

What was inaccurate about it?
My frend Bob is da nu Troll Zar! And I dunt ven no wat a 'zar' iz!

Hey Roy! I thought you said gold is so no longer necessary?
Hong Kong, the Chi-Coms and others apparently disagree with you.

Especially since they agree -- via their actions more than their words -- that hyperinflation will make the dollar worthless.

...and why aren't they screaming...
..about EVERY fatality in Iraq and Afgrhanistan that happens? They do still happen, just extremely reduced and many are non-combat related (auto accidents, etc).

But when Bush was in power, EVERY body bag that came home...even if it wasn't even holding bodies was protested, 'newsworthy', and a horrible crime that the Left claimed was intolerable 'because we don't hate Bush but care for our soldiers (whom we spit at at airports still to this day)'.

What happened?

What happened to Cindy Sheehan?

What a bunch of hypocrites.

Sheehan was at Matha's Vinyad
Didn't you hear the news?

"The" government?
"I think you are looking at the situation in a vacuum. The incentives given to the large corporations would never have happened without the help of big government. But I get the feeling that you are willing to let the government off the hook. Why?"

Maybe I wasn't being explicit enough. The issue is one of the fifty states competing with one another in the matter of encouraging large corporations to relocate to their state. They enter into a bidding contest, where the state offering the most perks gets the prize.

By this means the corp gets to externalize costs (allowing the state to pay for things like streets, water and sewer and other infratsructure, absorbing the costs of permits and forgiving land tax assessments, etc.) while continuing to privatise all the gain in the enterprise. That is, by having all or a portion of their state taxes forgiven for a period of years.

What does the state get in return? According to all the politicians, city and county managers and so on, they get JOBS. Great glorious gobs of jobs.

Which usually don't materialize in any great number. But the existing employees of the corp do relocate to one's fair setting, allowing the brothers in law of these politicans to grow fat building new subdivisions in which to house them. And the banks do love lending to facilitate all this coming to pass.

And we the taxpayers get the bill. Because of course they need new schools. And the existing infrastructure starts creaking because it's being asked to accomodate larger and larger numbers of people.

So, as is usual, there is one set of players who are the beneficiaries. And there's another set of players who are the contributors. Where I differ with everyone here but me, it seems like, is that simple minds who've never participated in the process like to think this is "all government's fault".

In fact it is a complex process of the holders of many kinds of power scratching one anothers' backs. Holders of corporate power, of state and local power, of banking power.. ALL collude and all work together in closely practised consort. They constitute the team of the movers and the shakers. The Haves, if you will.

We the mere voter-residents, get to pay for it. And we have the opportunity to open up a little sandwich shop near the new corporate headquarters, catering to the lunchtime trade.

Notice I have not once mentioned "the" (meaning the federal) government. It has no interest that I can see in this particular dynamic.

Who benefits?
"As for all the empty WalMarts in your area. Someone other than the corporation is benefitting from that. So, the question you have to ask yourself is who that someone is. Sounds to me like these stores are being used to create construction jobs. Instead of people digging ditches and then filling them back up, they're simply building new stores."

That's certainly a nice side effect. Builders do love building stuff. But I was referring to WalMart's motivation for shutting down perfectly good stores and putting up new ones at a not inconsiderable expense.

If they get a five year tax abatement for each new store, when their nice new store turns five, they have to start paying taxes. On a kazillion acres of prime commercial property. They may even have been getting abatements on sales taxes, starving the local communities of revenue while they still have to pay the costs of conducting road traffic to and from the store.

Easier for Wally to just shut the place down, build a new one and start the clock ticking again. He gets another five years, on the same deal.

Wally ain't dumb.

Long live the Fourteenth Amendment
Mr Pearle.. It's a pleasure being critiqued by someone who actually reads history. Yes, to be sure, all this did not start with Richard Nixon.

Nor did it with FDR. The war industries were certainly given a grand opportunity to expand their influence and wealth during World War One (a war, you may recall, that was tremendously unpopular with the great majority of Americans). So maybe I should have said Wilson.

And, lest we forget, it was DuPont who first broke into the big time supplying powder to the Union armies. Black powder, incidentally, that much of the time either sputtered to a fizzle or backfired into the soldier's face. So that a very considerable number of Union sorties had as their object the capture of reliable Confederate powder. Old Mr DuPont made out, as they say "like a bandit".

So maybe it was Lincoln. But at any rate the point where most Americans really saw the place going to the (big) dogs was during the time of the railroad barons.. who'd found a way to game the government into giving them the means by which they extracted the profit from America's grand agrarian experiment out on the Great Plains. Which would be whom? Rutherford B Hayes?

So I guess we could fill in the blank: "Small businesses are the backbone of the kind of America I like living in. But [they] have always, since the days of _______, taken a seat at the back of the bus while major corporate contributors occupy Congress's time with all their whims and wants."

Chicken Little brings a message
Yes, the sky is falling. As always the dire warning is in the future tense. Meanwhile, here are some observations from the Present:

China has, since they first entered the marketplace as America's supplier of stuff, accepted US dollars for it. And as nearly their entire savings is in that medium, they have a vested interest in keeping the dollar as strong as possible.

So naturally they get alarmed when we take advantage of that fact, inflating our money supply whenever we need a little extra spare change. And I'm sure they were routinely shouting to the heavens back in the early 1990s, when money supply expansion appeared to be without limit.

And they were certainly blowing a gasket when George Bush hooked a U-ey on the policy of fiscal responsibility, and in eight years pretty much doubled our national indebtedness.

But they had a vested interest. So they supported the dollar. At some considerable cost to their own national expansion, they chose to invest their savings in keeping America strong, rather than develop their own woefully wretched hinterlands. They thought that much of the dollar.

So whenever the Treasury held an auction they bought up everything on sale.. even when the interest being offered got so low you'd have made as much money just sewing your dollars into the mattress.

The question you have to ask is WHY? There were so many things they could've done with those dollars. In fact it took the global meltdown to convince them they needed to set aside a few hundred billion for their own recovery and expansion. Which they have now done.

And in direct response, the Fed has decided to invent a sum of 'dollars' equivalent to what the Chinese would've bought, to keep our debt based fiscal system on track.

They have no vested interest in making dollars worthless, as you seem to think. I can't imagine what their motivation would be, to so ignorantly bankrupt themselves.

But I'm sure Larry Kudlow has an answer. And that I'll hear about it from you.

When the time comes, I think the Fed's first course of action will be just what I was saying they SHOULD do.. call those new issues back in by getting the federal government to start retiring the Debt.

Congress, of course, will be kicking and screaming. What they like best is spending, not paying for. But as the national duress grows more acute, I believe there will be a time when the public sets up a clamor that all this insanity has just gone too far. And we will again return to those halcyon days of 1998, when we resolved to start paying it back down.

There's a large building with a smokestack down behind the Rayburn Building in DC. It's a coal fired plant that steam heats all the government buildings in town. It would constitute the best and final use of all those dollars we shouldn't have needed in the first place.

And someone will have to pay them in as taxes. Sorry, bro.

How can they offer 'perks'?
"they" shouldn't have such authority.

Wally ain't dumb, but governments are.

Then give us another definition
I'm fine with that. But if there's no link between "inflation" and rising prices.. what's wrong with it? We can have inflation just as another natural phenomenon, like photosynthesis. Both describe the continuing creation of new energy.

So we need another word. What word would you use to describe our current situation, where the money supply is increasing but prices are falling?


GOVAGs aren't dumb Marjon; it's the Roys of the world who are, for placing their trust in GOVAGs

Inflation is not a natural phenomena
Without a free market supply of money, inflation is not natural. It is created by the state.

One joule of energy is the same today as it will be tomorrow. The dollar value of that joule will vary as a function of the value of the dollar, the value the buyer places on that joule and the price the seller is willing to accept (which accounts for his cost of production).

Prices based upon buyer demand and seller's supply has nothing to do with inflation.

"Falling prices (a falling cost of living) are what Murray Rothbard has described as the "great advantage" of recessions. If you can imagine the Great Depression without falling prices, you have conjured up an image that is far worse than the reality.

Ask yourself whether during economic downturns, you want your money to grow or shrink in value? If your future job security is in doubt, do you want to pay more or less for goods? If your savings are meager, do you want them to have more or less purchasing power in the future? If you answer these questions rationally, you can see that deflation is wonderful for everyone, and the saving grace of a period of economic contraction. Throughout the 19th century, prices fell in periods of economic growth, which is precisely what one might expect. This is all to the good.

As Rothbard has said, "rather than a problem to be dreaded and combatted, falling prices through increased production is a wonderful long-run tendency of untrammelled capitalism. The trend of the Industrial Revolution in the West was falling prices, which spread an increased standard of living to every person; falling costs, which maintained general profitability of business; and stable monetary wage rates—which reflected steadily increasing real wages in terms of purchasing power. This is a process to be hailed and welcomed rather than to be stamped out.""

"For the same reason that deflation is a good thing, rising prices during a recession are the worst possible thing, because they provide a disincentive to save and invest for the future. They encourage present consumption and thereby gut the capital base necessary for future growth. They prolong suffering in every way.

Thus can we see that the widely-approved prescription to prevent deflation, namely inflation, is the worst possible path. But this is precisely what the Fed has endorsed as a matter of policy. It is hardly surprising that the central planners managing our lives would adopt the exact policy that will make us so much worse off. "

Prices are falling because demand is falling regardless of the value of the money. People are uncertain about the future and don't want to spend money they don't have.

You didn't address the question
So what would you call it when the money supply is increasing, while consumer prices are going down? A good thing or a bad thing? You say

"Prices are falling because demand is falling regardless of the value of the money. People are uncertain about the future and don't want to spend money they don't have."

Which brings up the observation that it really doesn't matter how much money is being created somewhere and given to the investment bankers. Because not a dime of it's been hitting the street. Any money we're seeing down here we're using to retire debt. Which, to me, is a GOOD thing.

Only it delays the recovery, in the sense that purchasing remains low and job (re)creation will be stalled until people get far enough ahead of their household debt to start spending again. I think maybe that's the best form of recovery we can hope for right now.

So where does this inflation, using your definition, have an impact? It inflates the prices of bonds and the face value of outstanding loans.

And here it is actually, IMO, doing good work. Recall that our economy stalled precisely because so many BAD DEBTS had been created. Meaning some trillions of dollars in loans whose face value was either at or below zero.

And lending would stall until they were again worth something. So, as the mission was for the government to get lending started, the approach they took was to artificially inflate the value of those investment banks invested in below-waterline loans, until they came up to zero.. and eventually into the black ink again.

So I think the plot is succeeding. Personally, I'd have rather they'd just given the money directly to mortgage holders in danger of foreclosure. Then they could have brought their loans current and the net effect would have been the same: the banks would have been saved from the effects of their own bad choices.

And millions of us would still have homes.

However I don't want to sound entirely negative. Your Mises article does a very good job of describing a world that doesn't quite resemble the real one we live in.

Inflates the price of stock and houses.
In the late ninety's stock prices were inflated and with your friend Barney's help, housing prices were inflated, not from demand but from cheap money being shoveled out the door, GUARANTEED by the government.

Once again, Roy lives in a Reality Free Zone
"When the time comes, I think the Fed's first course of action will be just what I was saying they SHOULD do.. call those new issues back in by getting the federal government to start retiring the Debt."

How can they retire debt that gets paid off the the Chinese?

You ARE aware that the Fed only holds a fraction of the total outstanding national debt, right? And that they can ONLY remove from circulation money they get from either selling the Treasuries they do own or getting the cash when they are paid off. They can't remove money the Chinese have (or anyone else) after the government pays them off.

In 1998, we did not 'resolve' to paying the debt down. Deficits were 'balanced' (not really) but that had nothing to do with paying down the debt accumulated so far and Congress wasn't about to waste that money on doing so.

What a world you live in, Roy. Must be nice.

It didn't hurt my GPA
Let me clarify. He had to throw my grade out of the curve calculation. I still got the grade.

The jock didn't threaten me in the classroom, of course. He wasn't THAT stupid.

You're right about Honors Chem and he knew that too. Thing was: I was lousy in it. Now that I look back, a lot of it had to do with the flaky teacher (she couldn't teach stoichiometry to save her life). I did very well in Anatomy & Physiology later on.

Joe Wilson for PREZ!
And and as soon as I find out which Democrat Wetnurses that call themselves 'Republicans' forced him to apologize are, I am sending money to the PACs of their opponents during next year's primaries.

It all depends upon what is measured and how.
"But, what is significant about this is that this phenomenon should have been factored into monetary policy over the last decade or so but it wasn't."

With all the 'deflation' in Asia, the Chinese economy seemed to have been growing quite well.
Bring on the deflation if it produces real economic growth.

I'll second the motion.
Time to call a spade a spade.
Republicans have been too eager to please the local MSM.
Since the MSM has been flailing lately, they now have an opportunity to obtain positive media attention.
Palin has a good start. How many others will follow?

Who to pay, and how?
"How can they retire debt that gets paid off the the Chinese?"

Funny you should ask. Because I know you know the answer to this one.

You'll recall that I said when the Chinese became reticent to purchase new Treasury offerings, the Treasury had two options. Either they could hike up the interest they were willing to pay for cash (not a good option) or they could just get the Fed on the phone and say "Hey! How about printing us up some more money?" Which the Fed obligingly did, purchasing more debt.

So the problem with one source of funding was it would compromise our ability to pay back our loans at higher interest rates.. while the other source had us inflating the money supply. Both not good.

The only responsible way to respond would be as soon as possible to start bringing in more revenue. Then if the Chinese want to retire some of their existing credits on account we can pay them at the cash desk. And if they don't, we can give the money back to the Fed.. so they can burn it.

I suspect that was the same answer you got.. but you were hoping I wouldn't have figured it out too.

He thought he was on the Baboon Show
Sure, his act appeals to people like you. But it really doesn't play well in the South, where people prize their menfolk always acting the gentleman. To his constituents, Bigmouth Joe came across as an ill-mannered boor and an embarrassment.

And overnight in fact his opponent in the upcoming election received $100,000 in fresh campaign donations. So the loudmouth may have felt good for a moment or two. But he has shot himself in the foot.

Jesse Helms would NEVER have done anything so crude. He may have been a bigot and a despot. But he was always the perfect gentleman about it.

Being gentlemen hasn't helped the conservatives much.
As Sean Connery said on the Untouchables, you have to play the Chicago way if you want to win.

'Deflation' hasn't hurt the electronics industry.
How does an industry that continues to build and sell products at lower prices with higher quality and more features stay in business let alone prosper?

If the auto industry could emulate the computer or cell phone companies, a basic new car would cost $1000 or less.

Practice what you preach.
"Your Mises article does a very good job of describing a world that doesn't quite resemble the real one we live in."

Put some meat on your assertion.

No...that was purely all Roy, I am afraid
"Then if the Chinese want to retire some of their existing credits on account we can pay them at the cash desk. And if they don't, we can give the money back to the Fed.. so they can burn it."

The Chinese -- or any other Treasury debt holder -- do not have the option to take the money or not. They get the money automatically. These are coupon instruments, Roy.

And why hasn't the media reported on Joe's contributions?
Because they don't want to. I bet is 4-5 times more than the measily $100,000 his 'opponent' got.

"But it really doesn't play well in the South, where people prize their menfolk always acting the gentleman"

Funny, because in my (admittedly limited) experience in the South, they don't like blacks getting too upity and they are more than loud and boisterious and proud of it. The gun racks (non-empty) on all the pick-ups in the parking lot at the bars are a nice touch, too.

So, I don't think your characterization of the South is anywhere as accurate to reality than your economics on Planet Roy is to...well, the economics of ANYWHERE.

Contribute for Joe!

And he got his Oscar in that role, too
Hey, I hear that there's a racy Pamela Anderson PETA ad out there that CNN denied. Gotta see that.

Or the medical industry
Low cost, high quality lasik eye surgery, mobile ultrasound labs, cheaper drugs,.... all benefiting from lower prices, higher volume for more profit.

Parsing a fine point
You are a master of small technical detail. Yes, at the maturity of any UST note the depositor gets the cash back. But most of our major depositors, central banks like that of China, choose customarily to roll the money over.

Should they decide at some point to take the money and keep it, Treasury would have the option of either upping the interest being offered, to see whether the fish might bite once more, or to fund their shortfall with insta-paper from an obliging Federal Reserve.

However in recent months I believe we've seen the interest fall to a fraction of a point, with China still gobbling up the paper at every new auction. Obviously they're not there to make a killing, or even to keep up with inflation. They're there to bolster the US government, so it stays in business and preserves the value of their holdings in dollars. IMHO.

Your further thoughts and comments are invited.

Money trickling down on us everywhere
Here's the meat:

In a deflationary environment no one would ever want to borrow money at greater than a negative interest rate. The reason being, even at par they would be paying their loans back in more valuable future dollars. So the promise to pay back even the mere sum being lent would imply a real rate of interest.

Lenders would no doubt balk at this. So the entire edifice of commerce based on credit would go into a tailspin. None of this is covered in Rockwell's article.

We're already seeing this at the level of Fed lending to the major banks. They've been flooding these banks with nearly free money, in order to keep an unsustainable economy going for a while longer. I think you and I may even be in agreement here.

But, as deflation has only hit in certain sectors (and vexed them greatly, as in real estate values) this has not yet reached down into the consumer lending economy. In fact banks for some time have been posting losses (or very lackluster gains) in what's supposed to be their main business, commercial loans. So they've been making it up by imposing sky high rates of interest on hapless consumers the money they get in over their heads on credit card debt.

That's when the interest, fees and penalties kick in. Also banks make handsome sums on checking accounts and debit cards, via those same interest, fees and penalties. Together this now constitutes greater than fifty percent of their income!

If we were ever to get to the point where all this invented money actually trickled down to the consumer, and he-she was able to pay down all their debts, it would drive card rates to near zero, just as has been done at the upper levels of Fed lending, to their bank clientele. And with the money left over in their pockets, consumers would rush to the stores, buying up everything in sight.

In response to such an increase in demand, all prices would broadly begin reversing course and climbing again. But this is a HIGHLY imaginative scenario, and unlikely to ever happen in the real world. Because the promise of money trickling down has always been a lie, designed to keep the peasants hopeful that some day a bit of the Rock may be theirs.

Thus I describe the situation penned by Rockwell as coming from an imaginary world. The piece is full of idiocies and distractions like this: "Economic activity slows, unemployment rises and demand continues to decline." Well, but that presumes that consumers have something to gain by forever stocking up on dollars and never buying anything, which is absurd."

What's absurd is any scenario that has the workers, upon whom the nonworkers rely for their sustenance, to stock up on such sums of money that they could just quit their crappy jobs and spend their afternoons shopping at the mall. Nuh uh. I don't believe it.

No Subject
Wilson's problem is that his contributions base is heavily corporate, plus money from the Party. Mostly hospital and nursing home outfits, defense contractors, law firms, the real estate industry and other institutional sources.. plus many local businesses:

His opponent, on the other hand, got money from 14,000 voters:,0,5584524.story

However I know you'll want to give him lots of your fast-depreciating money. You can do so here:

Source of money is immaterial.
What matters is how many votes one receives.

If his opponent only gets 14,000 votes, I don't think he will win.

But let's wait and see what happens as the election year progresses.

getting better
"that of China, choose customarily to roll the money over."

That means they buy Treasuries that are still paying. And that doesn't mean they buy them from the Treasury always.

"Should they decide at some point to take the money and keep it, Treasury would have the option of either upping the interest being offered, to see whether the fish might bite once more, or to fund their shortfall with insta-paper from an obliging Federal Reserve."

That is true. But it has nothing to do with supporting your fantasy of the Fed retiring money from paid off national debt that it does not possess in the first place.

And your suspicions of why the Chinese keep buying our used toilet paper called 'dollars' are also on the mark, I believe. We are basically playing a game of chicken with them and they always blink. Thus, all this nonsense about the UN instituting a new reserve currency is BS.

But again, the issue I take with you is your belief that the Fed can remove money from circulation it does not possess. The other idea: That Congress will actually use tax revenue to pay off the debt is also even less believable.

Then there is the Fed even having the political will of removing money it does get a hold of. Hahahahahahah! Why do you think Bernanke got reappointed instead of Summers or some other Obama crony? Because he sold his soul (Fed independence) to Obama.

Which is pretty much how the central bank chief in Zimbabwe keeps his job, too.

The NY Times...yes THE TIMES...just released a report showing that Wilson's overwhelmingly REPUBLICAN district supports him:

And, since you seem to care about making distinctions between where money comes from...especially whether it came from voters in his district or not, his opponent these last two days clearly got all of his from and Latte-sipping, WalMart-hating Libs, mostly from out of state and mostly have never even heard of the dude before now.

Still waiting on the reports of what Wilson made in contributions over the past two days. I'm betting his ratio of institutions vs individuals just flipped over big time and the money is in the millions.

Funny how the press doesn't report on that, eh?

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