Wednesday, May 11, 2016

Economic Stupidity

- "Public debt is a curse on the American public."

- James Madison

The real thinkers among the founding fathers, whose rock is this question: what is the best foundation for a new nation to which it will have the best chance to succeed? People like Madison, Jefferson and Franklin, all hated fiat money because they knew its dangers. The Federal Reserve was pushed by bankers for bankers. It is based on debt which gives them greater riches and power. They were also at our beginning, but the other revolutionaries avoided them because their attitude was seen as self-serving.
It is why the critics(see founding father above) attacked the first resolution of Hamilton because it was debt formulated. Hamilton was a friend to banking. The critics forced him into his creative mind to find gold and silver for a foundation in our treasury. It made outside influences(think English aristocrats) who wanted to purchase shares in the new nation's first bank, The Bank of the United States to deposit gold or silver for their shares. I haven't seen the play "Hamilton," but I wager this isn't mentioned. In any event, we are in the here and now. I remind you of our roots when you consider our present situation.
came in at 0.5% in the first quarter, but that stat does not reveal this inherent weakness in the results. Our nation is going into debt to the tune of $33,000 per second. We added $1.9T in debt in 2015 and our economy only added $599B to our GDP. By my math, this is a losing proposition, but by the Federal Reserve and government policymakers like Summers and Clinton, this is growth. Now, you know why we are deep in dodo. In addition, we have not paid down one cent since we had a small surplus under Bill Clinton. By the way, this is no endorsement of him or her because he began the devaluation of the dollar which helped export jobs to get the surplus. It was really an economic smoke screen. He robbed the dollar(Peter) to pay Paul(allow exports to flourish). All citizens paid with higher inflation.
Some of you know some or all of the above, however our present environment of  credit being classified as an asset has spilled over into our private sector. The easy money without a true contemplation of its risks has added 59 oil and gas companies to the line waiting in bankruptcy court.
$100 Oil
was actually down almost $50 from oil's peak, but the shale explosion clouded the eyes of shale CEOs. In addition, the century price had built-in risks like geopolitical and speculators which kept oil at $100, to which these same shale producers were mitigating. Their $20 margin was being erased by their production, while at the same time, the global slowing exaggerated the demand for more oil. The Fed only knows cheaper is better and they supplied all the money anyone wanted. It helped companies refinance older, higher interest loans, but it sparked the use of cheap money for stock buybacks, mergers and the oil industry. Weak minded CEOs did not use this opportunity for R&D. Small oil firms did not find a safe solution for fracking because time is profits! Now, lawyers are cleaning up. They are like the people who supplied shovels, bedding or food for the early gold miners. That is where the real money was made just as the esquires is the gold mine today.
The oil price risk, caused by more supply than demand, which is another basic principle of economics, has resulted in lower prices. The banks maybe greedy, but they are not stupid. So, they began to tighten their lending standards and revolving credit lines. In fact, Commercial and Industrial lending(read oil and oil service companies)has gotten tighter with stringent measures in three straight quarters. Meanwhile, loan demand is at a negative 8.7 which follows a negative 11.1 reading in the first quarter. This is the first back-to-back negative readings in 6 years. This only appears during recession periods. One point that could be confusing. Oil companies are seeking more money(demand), but banks are closing their vaults(supply). The government expresses the transaction as loan demand shrinking when in reality, the standards are being tightened. This begs the question: has a recession already started?
If we are to attain the evolution of democracy, we first must End the Fed!