Labor Unions Want Your Retirement Account

As if things couldn’t get any more unbelievable out there, a key union ally of Obama proposes creating mandatory public pensions for all workers and forcing existing 401K and IRA funds into them. From WorldNetDaily:

A key labor union ally of the Obama administration has mounted an effort to create government-mandated worker retirement accounts as an entitlement program, with the possibility that a portion of all private retirement funds could be forced into U.S. Treasury debt. 

Branding the program “Retirement USA,” the Service Employee International Union, or SEIU, has joined with the AFL-CIO, the Economic Policy Institute, a Washington-based economic left-leaning think tank that receives substantial labor funding and two other left-leaning interest groups, the Pension Rights Center and the National Committee to Preserve Social Security.

Retirement USA promotes the concept that all workers in the U.S. have a right to a government account that would fund a secure retirement in addition to Social Security and private workplace programs such as the 401(k).

“Our goal is to involve all workers and all employees in a government-mandated retirement program, with the government putting up the difference for lower-paid employees,” Nancy Hwa, a spokewoman for the participating Pension Rights Center, told WND.

Retirement USA would require by law employers and employees to contribute to a retirement account for every employee and demand that a portion of that contribution go into a federal-government-created annuity that would be funded by purchasing Treasury debt.

“Retirement USA is basically an effort that amounts to nationalizing 401(k)s and IRAs,” David John, a senior research fellow at the Heritage Foundation told WND.

I really hope that Obama doesn’t go along with what basically amounts to the theft of Americans’ retirement savings. I’m sure that this proposal will be rationalized with declarations of “it’s for your own good” and “workers have an unalienable right to a retirement account”. At one point I would have considered something like this unthinkable, but with the federal government growing increasingly tyrannical and literally drowning in debt, it is just too convenient and tempting of a way to finance future spending binges.

This proposal demonstrates that the SEIU and AFL-CIO (both heavy Obama supporters) are utterly evil. That they would even consider forcing a scheme like this on us is almost beyond belief. Such are the times we live in, and such is the “quality” of leadership under which we suffer.

Chavez the Fool Strikes Again

Hugo Chavez is a fool, and an arrogant one at that. Foolishness and arrogance seem to go together, do they not? The AP reported Monday that Venezuelan president Hugo Chavez shut down stores this week that raised their prices following the government’s recent currency devaluation. According to the AP, “authorities began inspecting retailers a day after President Hugo Chavez threatened to temporarily close or take over businesses that raise prices as a result of the devaluation he announced Friday. Chavez said he is determined to curb inflation — even if it means deploying the military to prevent price hikes.” 1 Though Mr. Chavez seems to think much of himself, he obviously knows nothing about economics – and his nation is paying the price. You cannot devalue a currency and expect prices to stay the same. Money is a commodity like anything else, therefore it’s value to everything else is relative. If the purchasing power of money is devalued, that means it purchases less than it did before. And if it purchases less than it did before, that means it takes more money to purchase goods and services. In other words, prices have to go up. If they don’t, businesses can’t make a profit and stay in business.

Chavez may intend for his heavy-handed measures to make goods and services more affordable for the poor, but the end result is going to be scarcity. If retailers can’t sell and make a profit, they will choose not to sell at all.

With policies like these, Chavez is doing extreme damage to his nation’s economic future by making it astronomically risky to start a business. Think about it: would you want to invest tens or hundreds of thousands of your hard earned cash knowing the government might choose to regulate your pricing, shut your business down, or confiscate it altogether? Most people wouldn’t. It will takes years of sound economic policy to repair the perception that Venezuela is a risky place to do business, and in the meantime the citizens of the nation will suffer.

References

1. Venezuela shutters stores in price-hike crackdown. (January 9, 2010). Retrieved January 9, 2010, from http://www.dailyfinance.com/article/venezuela-shutters-stores-in-price-hike/

Stimulating the Economy With Pork . . . Literally

Agriculture Secretary Tom Vilsack apparently was annoyed at Matt Drudge for pointing out that stimulus dollars were spent on pork – real pork, as in ham products. According to the New York Daily News, “federal bean counters had spent $1.19 million for ’2 pound frozen ham sliced.’ An additional $16.7 million contract was earmarked simply for ‘canned pork’.” Vilsack claimed “the purchases for sliced ham and other contracts – including mozzarella and other cheeses – were to provide soup kitchens and homeless shelters with food for the needy.” Nevermind the fact that Vilsack formerly was the governor of Iowa and that Iowa is “the nation’s No. 1 pork producer.” 1 It certainly makes sense that he would defend the purchases since it was his own former constituents that directly benefitted. It also wouldn’t be surprising if this pork project was payback for some campaign contributions to Iowa’s congressional delegation.

As annoying as it is that the federal government spends money this way, what is most galling is the fact that Vilsack “argued that buying hams for poor people would stimulate the economy, in line with Obama’s $787 billion stimulus package.” 2 Vilsack said the following:

“While the principal purpose of these expenditures is to provide food to those hardest hit by these tough times . . . the purchases also provide a modest economic benefit . . . [to] food retailers, manufacturers and transportation companies as well as the farmers and ranchers who produce our food supply.” 3 

If this kind of thinking resulted in just a few million dollars of federal pork barrel spending every year, maybe it wouldn’t be that big of a deal. The problem is that this kind of thinking currently permeates through all levels of government. The belief is essentially this: if the government spends money to buy stuff for people it is stimulating the economy because businesses are being supported by government funds. The businesses can employ new people, purchase new equipment, new inventory, etc. That’s a good thing, isn’t it? Well, that depends on how you look at it. The problem is that most people seem to only acknowledge one side of the equation. Sure, government money stimulates pork producers when it is used to purchase nearly $18 million in pork products. I’m sure the employees of the pork producers got bonuses, bought stuff, went on vacation, etc. But didn’t that $18 million have to come from somewhere? Before the government can give money to one person, does it not first have to take it from another?

Frederic Bastiat, a French philosopher, economist, and statesmen who lived in the 19th century, illustrated the fallacy of Vilsack’s thinking with the parable of the broken window. The parable, reproduced below, is part of a larger work entitled That Which is Seen And That Which is Not Seen that is well worth reading.

Have you ever witnessed the anger of the good shopkeeper, James B., when his careless son happened to break a square of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact, that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation – “It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?” 

Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.

Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier’s trade – that it encourages that trade to the amount of six francs – I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.

But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, “Stop there! your theory is confined to that which is seen; it takes no account of that which is not seen.”

It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.

Let us take a view of industry in general, as affected by this circumstance. The window being broken, the glazier’s trade is encouraged to the amount of six francs; this is that which is seen. If the window had not been broken, the shoemaker’s trade (or some other) would have been encouraged to the amount of six francs; this is that which is not seen.

And if that which is not seen is taken into consideration, because it is a negative fact, as well as that which is seen, because it is a positive fact, it will be understood that neither industry in general, nor the sum total of national labour, is affected, whether windows are broken or not.

Now let us consider James B. himself. In the former supposition, that of the window being broken, he spends six francs, and has neither more nor less than he had before, the enjoyment of a window.

In the second, where we suppose the window not to have been broken, he would have spent six francs on shoes, and would have had at the same time the enjoyment of a pair of shoes and of a window. 4

With regard to federal purchases of pork products, “that which is seen” is that pork producers are wealthier because the federal government spent $18 million on pork products. However, “that which is not seen” is that $18 million or more will have to be extracted from taxpayers to cover it. Taxpayers, in turn, will have less money to spend on other things. The net benefit of this kind of spending actually is zero because money was simply moved from one hand to another with a little skimmed off the top for government overhead. No new wealth was created in the process, therefore the economy gained nothing. If buying pork products is so beneficial to the economy, why don’t we increase the spending to $18 billion? Why not have the government buy up all the agricultural products currently available for sale in the entire country? Wouldn’t that benefit the economy because all the farmers and ranchers who would suddenly be flush with cash to spend on cars, flat screen TVs, and iPods? Maybe that would be true in Vilsack’s world, but in the real world things work a little differently.

Government money is well spent if it prudently invested in projects that directly support wealth creation, such as roads and energy infrastructure. Purchasing $18 million worth of pork products was not stimulus, it was a handout to favored constituents. The “stimulus” rationale was simply the cover story used to justify it.

References

1. Drudge story on pork draws ire from President Obama’s agriculture chief. (July 21, 2009). Retrieved July 21, 2009, from http://www.nydailynews.com/news/politics/2009/07/21/2009-07-21_obama_admin_calls_drudge_pork_story_slop.html
2. Ibid.
3. Ibid.
4. Frederick Bastiat, What is Seen and What is Unseen. (n.d.). Retrieved July 21, 2009, from http://www.econlib.org/library/Bastiat/basEss1.html

Peter Schiff: The Upcoming Minimum Wage Hike Will Make Unemployment Even Worse

Peter Schiff of Euro Pacific Capital wrote a great editorial this week about the upcoming minimum wage hike and the impact it will have on an already terrible unemployment situation in the United States. In short, minimum wage laws are a form of price controls on labor that can lead to a shortage of available jobs, particularly for low-income workers. Business owners faced with a minimum wage hike may deem it too expensive to pay people minimum wage for certain positions, therefore they eliminate the positions altogether and shift the responsibilities onto other workers. The end result is fewer jobs available and higher unemployment. Schiff’s article contains a lot of great points, check it out here.

I also wrote about the problems with minimum wage policies. Check it out here.

The Printing Presses Are Running Full Speed Ahead

The printing presses are running full speed ahead at the Federal Reserve as it pumps more money into the economy in an attempt to awaken it from the economic doldrums. Bloomberg reported recently that the Federal Reserve has completed its “eighth purchase of government securities” in its quantitative easing campaign, bringing the total amount of Treasuries acquired to $43.9 billion since the purchases began on March 25th. The Federal Reserve “plans to buy as much as $300 billion in U.S. debt over six months”, further increasing a balance sheet that has already “more than doubled . . . in the past year”. 1 As mindblowing as all this is, it is even more mindblowing that it is being advertised. Our government is making no effort to hide the fact that it is debasing our currency by creating money from thin air and buying up government debt.The consequences of all this? The article discusses that too:

Fed Chairman Ben S. Bernanke’s plans may result in a higher cost of living, said Allan Meltzer, the central bank historian and professor of political economy at Carnegie Mellon University in Pittsburgh. Rising costs erode the value of the fixed payments from bonds.

Inflation “will get higher than it was in the 1970s,” Meltzer said. At the end of that decade, consumer prices rose at a year-over-year rate of 13.3%. 2

Considering how much the Fed has expanded the money supply over the past year, I don’t see how Meltzer could be wrong in his assessment. High inflation down the road seems to be pretty much “baked into the cake” at this point. Check out the following chart from the St. Louis Fed, which shows the expansion of the monetary base.

What is scary and sobering about this chart is the fact that inflation in the monetary base has a direct impact on inflation in prices. Widespread price inflation is a symptom of monetary inflation, which is the growth of the money supply. More money in the economy means that more demand is placed on goods and services, which in turn, drives up prices for goods and services. If this is difficult to understand, think of it this way: imagine that Congress passes a new, even more massive stimulus package that gives everybody in America a check from the government for $10,000. What do you think the majority of people would do with that money? Spend at least a good part of it, right? All that spending would represent increased demand for goods and services, and as we all know from high school economics, higher demand leads to higher prices. As can be seen in the chart above, the monetary base has expanded massively over the past year. The only reason we haven’t seen rampant price inflation yet is that banks are largely hoarding the money because they are afraid that if they lend it out they will never get it back. Once the economy begins to stabilize and bank lending begins to loosen up, all that hoarded money will begin to enter the economy, and the result may be a massive surge in price inflation.

References

1. Treasuries Gain After Federal Reserve Buys Government Debt. (April 13, 2009). Retrieved April 23, 2009 from, http://www.bloomberg.com/apps/news?pid=20601087&sid=ahXVnbCqrqP8&refer=home.
2. Ibid.

Economic News: More Insanity From Chavez and a Few Lessons From Zimbabwe

Some Lessons from Zimbabwe

References:

1. Chavez threatens to seize farms. (January 21, 2008) Retrieved January 23, 2008, from http://news.bbc.co.uk/2/hi/americas/7199543.stm
2. Chavez threatens to seize farms.
3. Zimbabwe bank to issue $10m bill. (January 18, 2008) Retrieved January 23, 2008, from http://news.bbc.co.uk/2/hi/africa/7195569.stm

Economic News: Senate Raises Debt Ceiling, Dollar Index Declines, and Is China Dumping Treasury Debt?

Senate Panel Votes to Raise Debt Ceiling

Then no man can, by natural right, oblige the lands he occupied, or the persons who succeed him in that occupation, to the payment of debts contracted by him. For if he could, he might, during his own life, eat up the usufruct of the lands for several generations to come . . .” -Thomas Jefferson to James Madison, September 6, 1789

I’m not sure what President Bush thinks his legacy will be when he leaves office, but one thing we can count on is that it will be a legacy of debt. Enormous debt. A Senate panel voted today to increase the nation’s debt ceiling by $850 billion to $9.82 trillion. When the new ceiling is reached at some point in the future (which it inevitably will) it will equal a $4 trillion increase in the national debt since George W. Bush took office. 1 Folks, if you have ever thought of Bush as a true conservative, think again. No President in history has ever presided over such a large increase in our national debt. And all these bills are going to have to be paid back someday, most likely by our children and grandchildren. There should be no question that this is absolutely immoral; no good parent would abuse the credit cards and stick their children with the bill.

Dollar Index Drops Below 80

The U.S. Dollar Index continued its decline this week to a 15-year low. 2 The index, composed of six different foreign currencies, provides a benchmark to measure the purchasing power of the dollar against foreign currencies. The dollar has been in a decline for years in part because of mounting federal debt and continued expansion of the money supply by the Federal Reserve. The result has been inflation, a decline in the purchasing power of the dollar that erodes savings and makes everything more expensive. With the Federal Reserve lowering interest rates an aggressive 50 bps this week, the dollar has become even less attractive for foreign investors. The resulting reduction in demand for the dollar drove it to record lows against the euro and to an even parity with the Canadian dollar – something that hasn’t happened for over 30 years. 3 Additionally, the weak dollar pushed the price of oil to a record $83/barrel and gold to over $745/oz – a gold price not seen since 1980. 4 The Saudis placed additional pressure on the dollar with the raised possibility that they would unpeg their currency from the dollar to fight inflation, stoking fears that the move would trigger a “stampede out of the dollar across the Middle East” 5

Folks, the position of our currency is precarious; a declining dollar means that inflation is upon us and probably will get worse. As the dollar becomes even less attractive to foreign investors over the coming months, we can expect it to decline even further. The safe harbor to protect your purchasing power is still today what it has always been throughout human history: gold.

Is China Selling U.S. Treasuries?

Ambrose Evans-Pritchard of the Daily Telegraph recently wrote that the recent “sharp drop in foreign holdings of U.S. Treasury Bonds” over recent months has “raised concerns that China is quietly withdrawing its funds from the United States”. 6 Based on recent comments by senior officials in China, this would be no surprise and it is worrisome because it increases the vulnerability of the dollar. With the high rate of money supply expansion in the U.S. in recent years the U.S. dollar ought to have a much lower purchasing power than it does, meaning that inflation should be much higher and the goods we pay for every day should be more expensive. The fact that the Chinese are willing to hold such large amounts of U.S. debt has helped keep inflation and interest rates in the United States much lower than they should be. It won’t be known until November – when the Treasury releases the data – if China is indeed behind the drop in holdings of Treasury debt. If they are, they undoubtedly would prefer to divest themselves of their dollar holdings quietly to prevent a run on the dollar and a crash that could destroy the value of dollar holdings they need to keep for now. As I wrote before, Americans should be furious that we are in this position. The government has put us in this position by borrowing massive amounts of money from foreigners like the Chinese to finance unending deficits. If we were on a sound money standard, i.e. a gold money standard, we likely would not be in the position of hoping that China will be nice enough not to destroy our currency and wreak havoc on our economy.

References

1. Senate approves increase in national debt limit. (September 12, 2007). Retrieved September 12, 2007 from, http://money.cnn.com/2007/09/12/news/economy/federal_debt_limit.ap/index.htm?postversion=2007091216
2. Dollar plunges on fears Saudis might drop peg. (September 20, 2007). Retrieved September 20, 2007, from http://www.marketwatch.com/news/story/dollar-drops-record-low-vs/story.aspx?guid=%7B5FA1CA78%2DD591%2D4DC2%2DBFA1%2DE260625858FB%7D
3. Ibid.
4. Ibid.
5. Ibid.
6. Is China quietly dumping US Treasuries? (September 6, 2007). Retrieved September 20, 2007 from, http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/09/05/bcnchina105.xml