Tuesday, August 01, 2006

Federal Reserve and Monetary Policy:States' Separatist Movements and Local Currencies.

Separatist movements in the 21st century? How can this be?

The ingredients are a President that believes he is above the US Constitution.
Bush signing statements 'undermine rule of law': ABA task force

[JURIST] An American Bar Association Task Force on Presidential Signing Statements and the Separation of Powers Doctrine [ABA materials] has determined [press release] that President Bush's practice of attaching signing statements [1993 DOJ backgrounder] to new laws "undermine[s] the rule of law and our constitutional system of separation of powers." In a report and recommendations to be released Monday, the task force found that the frequency and purpose of signing statements has changed dramatically during the Bush administration. Bush has used signing statements to clarify his interpretation of laws and in some instances reserve the right to bypass laws more than 800 times, compared to just 600 signing statements for all other presidents combined. ABA president Michael Greco expressed concern that Bush's "unchecked" use of bill-signing statements "does grave harm to the separation of powers doctrine." The task force recommended that Congress adopt legislation to allow the president, Congress or other entities to challenge signing statements in court any time the president claims he has the authority to change the bill duly enacted by Congress, and urged President Bush to veto bills instead of signing them with a statement attached. The ABA Board of Governors [ABA backgrounder] voted in early June to launch an inquiry [JURIST report; ABA press release] into President Bush's frequent use of signing statements to bypass provisions of new laws because of his interpretation of presidential and executive powers under the US Constitution. The bipartisan task force [member list] will report its findings to the ABA Board of Delegates at their annual meeting [ABA materials] in August, where the ABA policymakers will decide whether to adopt the task force findings and encourage legal challenges over signing statements.

Add an illegal alien crises.

See The Role of Immigrants in the U.S. Labor Market
and a judge who will not uphold the law. Judge Keeps 11 Illegal Immigrants From Deportation

The CBO report also shows immigrants with technical skills are also dragging down wages.

Mix well with income distribution problems.
Treasury Secretary Sees Inequities in U.S. Economy

“Amid this country’s strong economic expansion, many Americans simply aren’t feeling the benefits,” Mr. Paulson said in a speech at Columbia Business School. “Many aren’t seeing significant increases in their take-home pay. Their increases in wages are being eaten up by high energy prices and rising health care costs, among others.”
It was a somewhat unusual concession from an administration that has spoken only glowingly of recent economic gains and has generally joined with
Republicans in Congress in dismissing Democratic concerns about growing economic equality in the United States as “class warfare.”
Mr. Paulson made no reference to specifics, particularly the debate in Congress over tying an increase in the minimum wage, as advocated by Democrats, to sharp cuts in the federal estate tax, as pushed by Republicans. Democratic leaders in Congress accuse the Republicans of cynical politics in packaging the two proposals to get Democratic support.

This income distribution problem was evident in the Federal Reserve's Survey of Consumer Finances.

Much like median income, median real family net worth in the 2001−04 period increased 1.5 percent, but mean net worth rose 6.3 percent. The increase in wealth appears to have been clearest in the middle income group. Over many other demographic groups, the data show a complex pattern of mixed increases and decreases in wealth; in some instances, median and mean values moved in opposite directions, a pattern that signals distributional changes within groups. In contrast, the growth in wealth between the 1998 and 2001 surveys and between the 1995 and 1998 surveys was stronger both in the mean and in the median, and the growth was shared by most
demographic groups (figure 2). Three key shifts in the 2001–04 period underlie the changes in net worth. First, the strong appreciation of house values and a rise in the rate of homeownership produced a substantial gain in the value of holdings of residential real estate. Second, despite the general recovery of prices in equity markets since 2001, the direct and indirect ownership of stocks declined, as did the typical amount held. Third, the amount of debt relative to total assets increased markedly, and the largest part of that increase was attributable to debt secured by real estate. As debt rose over the period, families devoted more of their incomes to servicing their debts, despite a general decline in interest rates. Also, the fraction of families with large required debt service payments relative to their incomes rose a small amount, and the fraction of families that had payments that were late sixty days or more in the year preceding the survey rose more substantially. These increases affected mainly the bottom 80 percent of the income distribution.
One liability of using the median as a descriptive device is that medians are not ‘‘additive’’; that is, the sum of the medians of two items for a common population is not generally equal to the median of the sum (for example, median assets less median liabilities does not equal median net worth). In contrast, means for a common population are additive. Where a comparable median and mean are given, the growth of the mean relative to the median may usually be taken as indicative of change at the top of the distribution; for example, when the mean grows more rapidly than the median, it is typically taken to indicate that the values comprised by the top of the distribution rose more rapidly than those in the lower part of the distribution.


Education is no longer the equalizer. Delphi decided to shut down its engineering department and move it to China along with the production. An engineering degree is now worth less than toilet paper!!!!!!!!

States and cities are taking action on laws the US government should be enforcing.

Arizona began the process of intercepting Federal Tax money with SB 1459.

I live in eastern Washington state. A few conservative, right wing nut cases tried to create a separate state. They argued that eastern Washington had its own climate, political ideology, etc... I guess they got tired of being associated with the west coast when their fellow right wingers called the west coast the left coast.
SJM 8009 – 2005-06 Petitioning for the creation of a new state in Eastern Washington.
I know a separatist movement has already formed.

In time, other states will see that they (the states) will need to protect their revenue source and follow Arizona's process. Its every man/woman/child for him/her self.

The States' separatist movement is predicted by economic theory. One can go as far back into history to the time of Adam Smith and show the proof. See An Inquiry into the Nature and Causes of the Wealth of Nations book 4 chapter 1

Mr. Locke remarks a distinction between money and other movable goods. All other movable goods, he says, are of so consumable a nature that the wealth which consists in them cannot be much depended on, and a nation which abounds in them one year may, without any exportation, but merely their own waste and extravagance, be in great want of them the next. Money, on the contrary, is a steady friend, which, though it may travel about from hand to hand, yet if it can be kept from going out of the country, is not very liable to be wasted and consumed. Gold and silver, therefore, are, according to him, the most solid and substantial part of the movable wealth of a nation, and to multiply those metals ought, he thinks, upon that account, to be the great object of its political œconomy.*3

I'm going to change money to mortgage related securities.

Others admit that if a nation could be separated from all the world, it would be of no consequence how much, or how little money circulated in it. The consumable goods which were circulated by means of this money would only be exchanged for a greater or a smaller number of pieces; but the real wealth or poverty of the country, they allow, would depend altogether upon the abundance or scarcity of those consumable goods. But it is otherwise, they think, with countries which have connections with foreign nations, and which are obliged to carry on foreign wars, and to maintain fleets and armies in distant countries. This, they say, cannot be done but by sending abroad money to pay them with; and a nation cannot send much money abroad unless it has a good deal at home. Every such nation, therefore, must endeavour in time of peace to accumulate gold and silver that, when occasion requires, it may have wherewithal to carry on foreign wars.

...

The enormous expence of the late war, therefore, must have been chiefly defrayed, not by the exportation of gold and silver, but by that of British commodities of some kind or other. When the government, or those who acted under them, contracted with a merchant for a remittance to some foreign country, he would naturally endeavour to pay his foreign correspondent, upon whom he had granted a bill, by sending abroad rather commodities than gold and silver. If the commodities of Great Britain were not in demand in that country, he would endeavour to send them to some other country, in which he could purchase a bill upon that country. The transportation of commodities, when properly suited to the market, is always attended with a considerable profit; whereas that of gold and silver is scarce ever attended with any. When those metals are sent abroad in order to purchase foreign commodities, the merchant's profit arises, not from the purchase, but from the sale of the returns. But when they are sent abroad merely to pay a debt, he gets no returns, and consequently no profit. He naturally, therefore, exerts his invention to find out a way of paying his foreign debts rather by the exportation of commodities than by that of gold and silver. The great quantity of British goods exported during the course of the late war, without bringing back any returns, is accordingly remarked by the author of The Present State of the Nation.*24

...

A nation may purchase the pay and provisions of an army in a distant country three different ways: by sending abroad either, first, some part of its accumulated gold and silver, or, secondly, some part of the annual produce of its manufactures; or, last of all, some part of its annual rude produce.

The gold and silver which can properly be considered as accumulated or stored up in any country may be distinguished into three parts: first, the circulating money; secondly, the plate of private families; and, last of all, the money which may have been collected by many years parsimony, and laid up in the treasury of the prince.

States are funding Bush's vendetta in Iraq (Hatfield vs McCoy syndrome). They do this with the help of mortgage related securities (just substitute homeowners' mortgage related securities with “the plate of private families”). The rest of the world holds $923 billion. See Flow of Funds Matrix pdf page 123. Bush cuts taxes while this war rages.

Smith on trade:

The two principles being established, however, that wealth consisted in gold and silver, and that those metals could be brought into a country which had no mines only by the balance of trade, or by exporting to a greater value than it imported, it necessarily became the great object of political œconomy to diminish as much as possible the importation of foreign goods for home consumption, and to increase as much as possible the exportation of the produce of domestic industry. Its two great engines for enriching the country, therefore, were restraints upon importation, and encouragements to exportation. The restraints upon importation were of two kinds.

First, restraints upon the importation of such foreign goods for home consumption as could be produced at home, from whatever country they were imported.

Secondly, restraints upon the importation of goods of almost all kinds from those particular countries with which the balance of trade was supposed to be disadvantageous.

The local currency I'm referring to are mortgage related securities due to the local housing market. The US dollar has less value than the local, per dollar value, of the equity of ones home. The Bush administration's economic policy is the same the Japanese took when their twin asset bubbles popped (land and equity stock values). The deflation was a natural process due to the Japanese shifting production to China. Prices are relative. See Neoclassical Theory. Homeowners natural reaction toward a pending downturn in their local economic environment is to act as an land monopoly. This restricts new ownership. I live in an area in which a house-siding firm was offering half-off on the cost of labor, not on materials. The only way this firm could do this and make a profit is to employ an illegal alien work force. Homeowners' desire to maintain the value of their home reduces their worth as laborers. This is the source of class warfare.

Bush's policy of using housing wealth to pay for the Iraq war only served to hyper-inflate the housing market. The inflation genie is out of the bottle. The Federal Reserves current monetary policy is restrictive relative to the mortgage debt burden. See Household Debt. Note mortgage debt burden is at 93.32 and Homeowner Obligation is at 17.59, the highest in 10 years. The growth rate of debt can not maintain housing prices which will force prices to reflect local economic conditions.

Bush tax policy are not what free market calls for. These policies only accelerate the income distribution problem due to the giving of a reward for off-shoring production and services. The US of A is not trading.

One final quote:
The undertaker of a great manufacture, who, by the home-markets being suddenly laid open to the competition of foreigners, should be obliged to abandon his trade, would no doubt suffer very considerably. That part of his capital which had usually been employed in purchasing materials and in paying his workmen might, without much difficulty, perhaps, find another employment. But that part of it which was fixed in workhouses, and in the instruments of trade, could scarce be disposed of without considerable loss. The equitable regard, therefore, to his interest requires that changes of this kind should never be introduced suddenly, but slowly, gradually, and after a very long warning. The legislature, were it possible that its deliberations could be always directed, not by the clamorous importunity of partial interests, but by an extensive view of the general good, ought upon this very account, perhaps, to be particularly careful neither to establish any new monopolies of this kind, nor to extend further those which are already established. Every such regulation introduces some degree of real disorder into the constitution of the state, which it will be difficult afterwards to cure without occasioning another disorder.

GE moving more production offshore

FAIRFIELD, CT, United States (UPI) -- Most of General Electric Co.`s production will be outside the United States by 2010, the Financial Times said Thursday.
GE is moving production to low-cost, fast-growing developing markets such as China and India to help lift earnings by at least 10 percent every year.

Bush has made certain his corporate masters get a chance to bail out of the US of A.

There are some misguided economist that believe in the long run, US trade policies are good for the US. The term “long run” is so ambiguous. The world is a small and constantly shrinking. We know that global politics and behavior of people has, in effect, removed the term exogenous from economic theory. People build on known earthquake zones and near active volcanoes. There are regions that are constantly being battered by strong hurricanes. Global production has triggered global warming so that droughts and floods will increase in numbers and intensity. Current Middle East crises has resulted in economic warfare by oil producing countries. In the “long run”, the US may be replaced by:







from What's New


I bet Adam Smith thought that in the “long run” the world would be a better place.