Archive for the 'Economics9698' Category


Mark Schmidter Jailed for Handing out Pamphlets

February 21, 2013
Posted by Economics9698 @ 14:24 PM

FOR IMMEDIATE RELEASE

Mark Schmidter got 145 days in the hole for handing out pamphlets

Mark Schmidter got 145 days in the hole for handing out pamphlets


Contact: Adam H. Sudbury, Esquire

(407) 395-4111 (Office), (407) 335-0646 (Mobile/Text) or adam@sudburylaw.net

February 21, 2013; Orlando, FL. Mark E. Schmidter appeared in court today, Thursday, February 21, 2013, before the Honorable Belvin Perry Jr. for resentencing on one count of criminal contempt of court. The resentencing occurs after the Fifth District Court of Appeal in December found that Schmidter’s First Amendment right to free speech was violated by requiring him to stand within “free speech zones” at the Orange County Courthouse. However, the appeals court also found that restricting distribution of literature to jurors summoned for jury duty was legally permissible, and that Schmidter’s conviction for contempt on those grounds should be upheld. Schmidter was re-sentenced today to serve 145 days in the Orange County Jail, and was immediately taken into custody.

“Judge Perry views Mark’s actions as being a form of jury tampering. That just isn’t the case,” said Adam H. Sudbury, Schmidter’s attorney. “Jury tampering requires an intent to interfere with a specific case. Mark is simply trying to inform jurors that they have the right to acquit people charged under unjust or immoral laws.”

Cross dresser Belvin Perry gave Schmidter 145 days for handing out informed jury pamphlets

Cross dresser Belvin Perry gave Schmidter 145 days for handing out informed jury pamphlets


The organization with which Schmidter is affiliated, the Fully Informed Jury Association (“FIJA”) has had widespread success in advancing the cause of “jury nullification,” which is the right of a juror to judge both the facts and the law under which a person is charged.

“This case isn’t about jury nullification, or whether you agree or disagree with it. It is about our First Amendment freedom of speech. Mark has every right to tell jurors and non-jurors what he believes their role to be in our constitutional republic,” said Sudbury.

According to Sudbury, the next stage of the proceedings is to file a Petition for Writ of Habeas Corpus in federal court. He expects these papers to be filed at some point early next week. “Our case is currently pending before the Florida Supreme Court, and we also have a federal declaratory judgment action in the United States District Court for the Middle District of Florida. We will try to get Mark released by filing a habeas corpus petition as soon as we are able,” said Sudbury.

Questions about this release should be directed to: SUDBURY LAW, 407-395-4111 or adam@sudburylaw.net .


John P. Hussman “S&P 500 Index Overvalued”

February 7, 2013
Posted by Economics9698 @ 12:52 PM

Wall Street analysis has been bearish on Wall Street since 2009. The DJIA recently hit 14,000 again, the first time since 2007 but this is a “nominal” number that does not take into inflation. Inflation adjusted the DJIA is still 9.4% below it’s 2007 high.

For those not familiar the Federal Reserve “pumps” money int the stock market to keep “liquidity” and “markets moving” in a upward direction. Some would call this money creation a EBT card for the top 0.01%.

Towards the end of 2010 the Federal Reserve announced it would be creating $600 billion known as “Quantitative Easing part II” and distributing the money through the federal open market committee (FOMC) to member banks such as Goldman Sachs and JP Morgan (the owners of the private Federal Reserve) which in turn can invest in equities.

In this graph of the DJIA the upward positive affect can be seen for the duration of the program up to about the end of June 2011. After the program ended you can see the drop in the stock market. The stock market and bond market has been receiving these injections of cash and are now overpriced and dependent on the Federal Reserve polices of inflating the money supply.


Despite this discount Hussman is still bearish on stocks and bonds. The only reason equities have been performing the last four years have been the massive Federal Reserve interventions in the marketplace called by various names notably quantitative easing and operation twist.

Here is what Hussman had to say about the value investors can expect to see in the near future:

In recent years, I’ve gained the reputation of a “perma-bear.” The reality is that I’m quite a reluctant bear, in that I would greatly prefer market conditions and prospective returns to be different from what they are. There’s no question that conditions and evidence will change, unless the stock market is to be bound for the next decade in what would ultimately be a low-single-digit horserace with near-zero interest rates. For my part, I think the likely shocks are larger, and the potential opportunities will be greater than investors seem to contemplate here. Investors who are eager to lock in whatever prospective return might be available at present valuations – or have operationalized their investment discipline and tested its outcomes across market cycles over history – can certainly ignore the evidence that drives my own concerns. Even then, I expect that the perspectives here would augment the performance of that discipline. But for investors who have tested no discipline at all, and have little data to support the enthusiasm that surrounds them, what follows is a summary of my concerns.

Present market conditions now match 6 other instances in history: August 1929 (followed by the 85% market decline of the Great Depression), November 1972 (followed by a market plunge in excess of 50%), August 1987 (followed by a market crash in excess of 30%), March 2000 (followed by a market plunge in excess of 50%), May 2007 (followed by a market plunge in excess of 50%), and January 2011 (followed by a market decline limited to just under 20% as a result of central bank intervention). These conditions represent a syndrome of overvalued, overbought, overbullish, rising yield conditions that has emerged near the most significant market peaks – and preceded the most severe market declines – in history:

John P. Hussman’s graph “I can’t stress enough the importance of seeing the larger picture here – it would have been easy to miss the forest and get lost in the weeds and trees of daily and weekly market advances at each point identified in the chart above. Pursuing short-term returns in those environments would have been a mistake, because the initial losses typically came in the form of vertical “air pockets.””


S&P 500 Index overvalued, with the Shiller P/E (S&P 500 divided by the 10-year average of inflation-adjusted earnings) greater than 18. The present multiple is actually 22.6.
S&P 500 Index overbought, with the index more than 7% above its 52-week smoothing, at least 50% above its 4-year low, and within 3% of its upper Bollinger bands (2 standard deviations above the 20-period moving average) at daily, weekly, and monthly resolutions. Presently, the S&P 500 is either at or slightly through each of those bands.

Investor sentiment overbullish (Investors Intelligence), with the 2-week average of advisory bulls greater than 52% and bearishness below 28%. The most recent weekly figures were 54.3% vs. 22.3%. The sentiment figures we use for 1929 are imputed using the extent and volatility of prior market movements, which explains a significant amount of variation in investor sentiment over time.

Yields rising, with the 10-year Treasury yield higher than 6 months earlier.

The blue bars in the chart below identify historical points since 1970 corresponding to these conditions.”


Thompson’s Rule to Balance the Federal Budget

January 18, 2013
Posted by Economics9698 @ 15:45 PM

Gresham’s Law, “bad money drives out good money (from circulation)”

Economists though the years have had simple economic rules that they attach their names to. There is:

CATO Scholar Dan Mitchell’s Golden Rule: “Good fiscal policy exists when the private sector grows faster than the public sector, while fiscal ruin is inevitable if government spending grows faster than the productive part of the economy.”

Okun’s Law when unemployment falls by 1%, GNP rises by 3%.

Gresham’s law “Bad money drives out good”

And so forth.

One of the debates that will intensify when the fiat currencies collapse around the world is how to keep federal governments around the world from exploiting their positions of power over the people. By this I mean running up the debt and creating invisible taxation in the form of inflation on the people.

Hopefully we will have competing currencies from private banks and this will not be a big issue, when money is based on hard precious metals it is very difficult for government s to run deficits, but if some countries remain on fiat money there is a way to discipline them, call it Thompson’s Rule.

It is relatively simple:

1. Restrict federal spending to a percentage amount. Here in the USA because we have income, payroll and corporate taxes but no value added tax (VAT) we have historically collected around 18% of the GDP in federal revenues. This has varied little since WWII with the exception of today and the late 40s. Other countries will have to evaluate this percentage on a country by country basis but keep in mind for ever 10% of government created the economy loses 0.5% to 1.0% in GDP growth per year. This adds up over time very quickly.

Currently politicians have a powerful incentive to create inflation to buy votes. By using the invisible inflation tax politicians can blame capitalist and rich people for rising prices.


2. Subtract two years from the budget year. 2013 – 2 = 2011. 18% of the nominal 2011 GDP.

Finished.

18% of the 2011 GDP is $15.075 trillion x (0.18) = $2.7135 trillion. Current tax receipts are $2.671 trillion with the resulting deficit of 42.5 billion. Quite a difference from the trillion dollar deficits we are currently running.

Let’s check a few years to make sure this works.

2000 GDP was $9.951 trillion x 0.18 = $1.79 trillion in spending for 2002. Taxes collected in 2002 $1.859 trillion for a modest surplus.

1990 GDP was $5.800 trillion x 0.18 = $1.04 trillion in spending for 1992. Taxes collected in 2002 $1.148 trillion for a modest surplus.

1980 GDP was $2.788 trillion x 0.18 = $502 billion in spending for 1992. Taxes collected in 2002 $617.4 billion for a modest surplus.

Most years tax collections are predictable, but when they are not if the federal government has already accumulated funds collected during good years running budget deficits for brief periods will not be as politically or economically damaging to a nation.


Most years there will be a surplus. Only in bad economic times like today will there be a deficit. If the federal government is forced to run a surplus in the good economic times then deficit spending will not be such a politically and economically traumatic event in the bad years. This is how a federal government is supposed to operate, evening out the business cycle.

A couple of more advantages to this system is if greedy politicians want to spend money to buy votes they are forced to pass legislation that grows the economy. The less the economy grows the less they have to spend.

Second this forces greedy politicians to look at the hidden inflation tax as a negative not a positive like today. If the value of 2011 money is diluted by inflation the politicians will have less to spend to buy votes. This is the reverse of the system we have today where politicians have every incentive to create inflation as a hidden tax on the gullible public.

I would argue that this is better than a balanced budget amendment. With a balanced budget amendment what is to stop politicians from passing a VAT and increasing spending to 25% or 30% of the GDP?

Voters?

Politicians will win that battle every time.

This system is simple and incentivizes politicians to control inflation and pass legislation that encourages economic growth.

If other economists want to steal this idea they are more than welcome.


The WWII Economic Myth

January 14, 2013
Posted by Economics9698 @ 12:49 PM

D-day June 6, 1944.

One of the big economic myths out there is that if it was not for the massive federal spending for the military during WWII we would still be in the Great Depression.

According to the myth after the 1929 stock market crash, capitalism failed, and FDR with his great economic central planning saved the day. There is usually no explanation of why if FDR was inaugurated in 1933 we were still in a depression in 1940 with unemployment at 14.6%. During those years the textbooks focus on the central planning work programs and regulations like the SEC and the WPA.

Anyway, so in 1941 the USA began preparations for the possible entry into WWII and on December 7, 1941 we were officially at war. The economy was saved at last by massive federal planning and spending. There is usually an economic endorsement of this planning is needed for a modern economy to exist. Without this central planning evil capitalist would employ children in steel mills and we would revert back to the darkest days of the industrial revolution. This is the standard version of economic history in just about any textbook in any high school in America.

100% propaganda and balderdash.

Briefly, Hoover plunged the economy into the depression with higher taxes 25% to 63%, the Smoot-Hawley tariff bill, increased spending, 48.9% by 1932 with, of course, the ensuing deficits. He also organized agricultural cartels that worked to fix prices of basic food products at artificially high price levels establishing the USDA to serve as the price enforcement police. Fought against price reductions in crude oil when huge deposits were discovered in West Texas, and largely unknown in any history books, fought for high union wages and demagogue companies that cut wages even though prices of goods and services were plummeting.

FDR, 1933-44, is portrayed as a economic hero who saved America from the Great Depression, yet in 1940, after seven years of FDR economic policies, unemployment was 14.6%.


FDR was the same as Hoover to a large extent. He raised taxes to 79%, confiscated gold from the people, devalued the dollar from $20.67 to $35 for an ounce of gold, or 69%, with the predictable inflation passed along to Main Street America at a time they could least afford it, passed pro union legislation making wages in many industries noncompetitive resulting in the predicable layoffs, and for good measure the Federal Reserve doubled the reserve requirement for banks.

One minor economic myth about the Federal Reserve from 1929 to 1933 is that they reduced the money supply; the usual number is 27%. This is completely false. The money supply was indeed rapidly shrinking but only because of the incompetence of Hoover and fear that the banks had overextended their balance sheets. Both 100% correct. The reality, according to the Federal Reserve, is that the monetary base, the money used to increase loadable funds to the public, was increased from $6.1 billion in 1929 to $7.6 billion in 1933 by the time FDR was inaugurated.

The textbooks never tell these stories, or that the Federal Reserve created the stock market and real estate bubble of 1925-29 by increasing the money supply 61.8%. The standard textbook tells of capitalism mysteriously exploding in 1929 and our wise overlords steering the economy back to health with great public’s works programs, regulations, and finally WWII spending.

Herbert Hoover, 1929-33, justifiably gets the blame for the Great Depression because of his poor economic policies but his policies are almost identical to FDR’s.


The results of this successful propaganda campaign are remarks like the following appearing on a newspaper message board:

“In my opinion we can out grow the deficits if we can get the economy running at full capacity and growing. It is how we took care of the deficit after WWII which was a much bigger piece of the GDP than the present deficit.”

This thinking embraces the standard Keynesian economic thought we have today where if the government just spent enough money the economy would grow.

But isn’t this what happened after WWII?

Not even close.

There is simply no way the economy would have recovered after WWII if the federal government would have continued spending money and consuming resources. The official White House record on this is very clear.

Spending and Deficits.

1940 spending $9.7 million. 1940 federal consumption, percent of the GDP 9.8%. 1940 deficit -3.0%

1943 spending $78.6 million. 1943 federal consumption, percent of the GDP 43.6%. 1943 deficit -30.3%

1945 spending $92.7 million. 1945 federal consumption, percent of the GDP 41.9%. 1945 deficit -21.5%

1948 spending $29.8 million. 1948 federal consumption, percent of the GDP 11.8%. 1948 surplus +4.6%

The percent of the economy going to federal consumption in 1943 was an astonishing 43.6%. In real terms of the 1940/1943 comparison the public consumed $91.5 in 1940 compared to $86.6 million dollars worth of goods in 1943. In 1943 people had LESS to consume than before the war even though GDP had increased an astonishing 96%. This should be obvious, if the federal government increases its consumption of goods and services there is less in the private sector to meet the needs of the people. In real terms you may have had a job in WWII but you definitely consumed less.

By 1948 consumption had increased to $237 million, a 174% increase in consumption with a reduction in federal spending by 68%, from $92.7 million to $29.8 million. Clearly the economic lesson of WWII is when the federal government finally let go of the American people with poor central banking, poor economic regulation, less federal spending, and budget surpluses the economy responded with a huge economic boom.

The post WWII economic boom lead to the baby boomer generation, 1946-64.


Please feel free to verify this publicly available data using the White House Historic Data Tables and the Federal Reserve Economic Data web sites.

Economic policy is two parts, fiscal and monetary. Both can be mismanaged as is what happened from 1929 to 1940. Having sound fiscal and monetary policies means people can make a decent honest living without government assistance.

To simplify good fiscal policy is when the federal government sets spending limits as a percent of the GDP, say 18%, and sticks to a budget. There is no magic money fairy. Federal spending comes from taxes, borrowing, or printing money. The federal government may provide desirable programs but they are not free, they cost society resources that must come from the productive private sector of the economy.

Sound monetary policy is even simpler, stop printing money, stop setting artificial interest rates, stop setting the reserve requirement for banks. Artificially low interest rates are preventing the economy from recovering today and set the stage for the housing boom and bust in 2003-04 when the federal funds rate was lowered AFTER the 2001 recession to 1%. It is that simple, stop printing money for Wall Street and politicians, stop artificially interfering with interest rates, let banks manage their own reserves.

The politicians and economists who work predominately for government universities try to confuse the public about the subject of economics. The ulterior motive is greed and power. Wall Street benefits by the central bank indirectly stimulating stocks and increasing liquidity in member banks like Goldman Sachs and JP Morgan. Politicians benefit by having their budget deficits monetized by the Federal Reserve. The loser is the public who pays for this theft with taxes and inflation.


Are Banks Gambling Excess Reserves?

January 11, 2013
Posted by Economics9698 @ 10:11 AM

In this graph the red line is costumer deposits and the blue line is bank loans. In a normal banking environment they are roughly 1 to 1, banks want to make loans from their deposits. Loans lending peaked out in 2008 and is still below the 2008 level despite deposits increasing $2.133 trillion in that time. Where is the money going?

When banks get deposits they are allowed to loan out 90 cents of every dollar. If a bank loans out 80 cents and keeps the legally required 10% as reserves the additional 10% not loaned out is classified as “excess reserves” or money that could be loaned out but is not due to the banker’s assessment.

A typical place for a bank to put these excess reserves would be in short term deposits at the Federal Reserve, the private “bankers bank” established in 1913. Typically the bank would receive a very low interest rate of, say, 0.07%, for a three month bond.

Traditionally banks have held almost zero excess reserves because of the financial penalties of having that money sitting idle doing nothing and losing value. With today’s historically low interest rates not exceeding inflation holding idle cash at 0.07% yields a negative return on investment. For instance a bank holding $100 at 1% with an inflation rate of 2% would lose $1 and at the end of the year and only have $99 in principal.

So why are excess reserves at historic highs of $1.5 trillion and by different accounting method $2.1 trillion?

This amounts to a staggering 13% of the GDP. If this money were lent out there would be $2.1 trillion in new loans. Why would banks be so willing to intentionally lose money?

It makes no sense.

In normal economic conditions banks do not want excess reserves because the interest rate paid on these deposits is typically less than what can be obtained loaning the money out for housing, cars, commercial construction, and other ventures. Why would banks want to have $1.5 trillion representing $1.5 trillion in loans sitting idle losing principal because of inflation?

Some might say banks are scared of the investment prospects available, certainly plausible. Others might say they are afraid of loaning money out at 3.5% with the possibility of inflation increasing in the near future making low interest long term loans a money loser.

But what about the possibility of the banks using those excess reserves as collateral and investing the money in the stock market or other risky ventures?

This practice is known as “rehypothecation” or the practice by banks and brokers of using, for their own purposes, assets that have been posted as collateral by their clients. Normally clients who permit rehypothecation of their collateral may be compensated either through a lower cost of borrowing or a rebate on fees.

But what if the client is the Federal Reserve?

It is no secret the Federal Reserve has been expanding the money supply dramatically since 2008. Member banks have been recapitalized with newly created cash. Some of this newly created cash was authorized by congress with the 2008 TARP bail out and other Federal Reserve programs like the various quantitative easing monetary expansions.

If you were in the banks position of getting essentially “free” cash what would you do?

Many people would take their “free” cash and gamble it away. What is there to lose? You are playing with the houses money, right?

As disturbing as this is the financial web site Zero Hedge has reported that JP Morgan did just this. To quote ZH:

JPM used its $423 billion “deposit to loan gap” to fund a $323 billion internal prop trading book.”

Zero Hedge investigated JP Morgans financial report and discovered the astounding $100 billion dollar loss and the likely source of the funds.


What happened next is well-known to all: JPM’s Bruno Iksil, together with Ina Drew and the rest of the CIO group (all of whom have since been dismisses), decided to put on a massive bet amounting to over $100 billion (and potentially much greater – sadly there still has been no full disclosure by either the bank nor regulators just what JPM was invested excess deposits in) in notional across the credit spectrum (the one place where a position of this size could be established without becoming the entire market, although by the time it imploded Bruno Iksil was the market in IG9 and various other indices and tranches). The loss was just as staggering, and amounts to what is one of the largest prop bets gone horribly wrong in history.”

Does this make more financial sense for a bank than to have money sitting idle losing principal?

The old cliché comes to mind “if it’s too good to be true it probably is.”

The problems for banking and the economy is this practice of having money in two places at the same time dramatically increases financial risk and the possibility of collapse. If some of the people holding the bets in the stock market call in their bets the whole system collapses. Boom. The house of cards comes tumbling down. 1929.

Zero Hedge writers pen their blogs under the pseudonym of Tyler Durden of Fight Club fame to remain anonymous.


This is what is occurring in Europe today. Banks have loaned out real estate properties and other collateral two, three, four times, and all it takes is one margin call to bring it all crashing down. The end result when the financial Ponzi scheme does come to an end is 26% unemployment in Spain and Greece. The current 11.8% unemployment rate for the EU countries is at a historic high and the deleveraging has many more years to run its course. Deleveraging can be extremely painful.

What this means in America is that the trillions of newly created money from the 2008 TARP legislation, quantitative easing, and money creation from federal debt that has been monetized by the Federal Reserve has not made it to Main Street, in fact bank loans are DOWN from 2008. The newly created money is either sitting idle losing principal or most likely a much worse fate, it has been gambled away with the possibility of catastrophic losses in the future.

Getting “leveraged up” is good for the bankers’ profit margins but creates financial instability when depositors demand their money.

Sound banking practices would require banks to issues currency backed by gold or silver. Require banks to get permission from borrowers to lend out their money. This shifts the financial scales in favor of the saver who now can demand more compensation for their money. This would dramatically transform America from a spending and consumption society to a saving and investing society.

We have not been on any form of a gold standard since 1971. In that time we have had the S&L boom and bust, Nasdaq boom and bust, the housing boom and bust, and now the money bubble boom and bust. Each one more damaging than the last one.

In addition to the financial instability created by the Federal Reserve and fiat currency rules there is the corruption of the way money is distributed by the Federal Reserve to the federal government and favored Wall Street firms. The Federal Reserve is in a position to pick winners and losers and has the means to finance those choices with an unlimited supply of newly created cash. JP Morgan, Goldman Sachs, and European interest own the Federal Reserve, not the people of America. The Federal Reserve is a private for profit bank that acts in the interest of its owners and member banks.

There most likely will be another monetary imposition in the very near future. Some are putting the date around September 2013. Others economists have predicted 2014 or 2015. Everyone with any comprehension of banking would certainly admit by the end of the decade the world financial landscape will be dramatically different.

The pattern over 41 years since 1971 is inescapable. Our banking system needs to be replaced. We need to get back to sound money.

When the USA went off the post Civil War “greenback” fiat money in 1879 and returned to sound money backed by gold the economy grew 84% in the next decade. 8.4% per year. The best period of economic growth ever recorded for America.

We need to return back to sound money and prosperity. We need to come together as Democrats and Republican and demand sound money backed by gold and silver.