Economy Truth

Our vote.  Something that is prized in speeches and taken for granted at action time in the United States.  Conditioned into our minds is the notion that our vote is simply what we cast at the polls.  A vote however is much more.  Your dollar itself is a vote.  Each time a decision is made to purchase something, a vote is cast.  A consumer has the ability and the freedom to buy a product from whatever source they want.  That is just one of the many beauties of capitalism and a free market.  What many poll goers do not realize is many of them actually vote their vote away.  The more regulation the federal government passes, the fewer choices we as consumers have the ability to make.  Some may argue that a free market with zero regulation is ideal… I say to have socialism, and expect the government to do no wrong is also ideal.  I also maintain that a mixed market (as is present in the United States) is one of the most dangerous scenarios at least you know who has the power in socialism and a free market. 
The principles of capitalism will function at the heart of businesses even when put into a more socialized market.  For example subsidies slow innovation.  If you are a business and receiving money from the government for producing a product causing it to be cheaper than other current alternatives you will make a business decision to take advantage of the subsidy.  It is a good business decision, the equivalent of “opportunity cost” in a free market, only in this case the government is making the opportunity cost.  With your productions costs now stabilized, and profits guaranteed, there really isn’t any reason to innovate to a new product, or new source as you are secure.  The same can be said to welfare for the individual, it sooner teaches many to rely than to improve.  Hence if you just “pulled the blanket” out from under those using welfare, many would not make it.  Taking away rent control would also result in a lot of evictions.  Rent control doesn’t teach people to improve to be able to afford to live in a certain area, it teaches people to rely on a subsidy.  It also hurts many building owners in Manhattan for example making only a 1 or 2 percent return annually on their buildings because of rent control.  If a business had no subsidies, it would force innovation to bring costs down and find new alternatives.  Creating more choice for the consumer, better products and so on.
Subsidies and government mandated initiatives creates false markets.  Take our subsidy of corn for example.  Corn is our most heavily subsidized crop.  Because the government forces the price of corn down, it creates an artificial market.  Demand and uses for corn increase because of its artificially low price.  Why do sodas and fruit juices in the states all use High Fructose Corn Syrup (HFCS)?  It’s cheaper.  It’s cheaper for a number of reasons, first off corn is subsidized to the point HFCS becomes cheaper, the healthier cane sugar alternative is made more expensive from a lack of a subsidy, additionally there are protective tariffs placed on sugar cane imported to the U.S. plus there is a quota to how much sugar we can import.  Of course an additional resource for sugar would be Cuba, but we have an embargo on them.  So the United States is stuck with Corn Syrup.  No reason to find an alternative, they’re being subsidized.
It wasn’t until recently that some manufacturing companies were finding alternatives to corn syrup, which was caused by yet another government mandate.  This time it was using our food for fuel.  Though certainly not the most efficient, or clean way to make a fuel, corn for ethanol initiatives started popping up from our government in the past couple years as “going green” is often stealing the spotlight in the political arena.  The sudden spike in demand caused by government initiatives caused the price of corn to skyrocket in spite of the subsidies already put in place.  This effected the entire food industry, suddenly growing corn was not turning over a much larger profit than grain, causing the price of flour to skyrocket.  Corn Syrup became expensive with so much corn being used to make fuel.  Corn syrup isn’t just used to sweeten beverages, it’s also in ketchup, apple sauce, cereal bars, cereal, bread, just about every corner of the food market.  This is all a result of government subsidies and initiatives.  To combat the rising HFCS prices Ocean Spray has started to make their juices using either cane sugar, or beet sugar.  Heinz Ketchup has started to use selective breeding to produce sweeter tomatoes for their ketchup.  This is the kind of innovation that would be naturally taking place at greater rates if subsidies and mandates were not in place.
Making a choice on where one shops or which candidate gets one’s vote is a very powerful tool decision.  Pounded into us is the notion to “go with the majority” on voting.  That, even if there is a stronger candidate out there, your vote would be wasted if cast for him/her.  The “what’s the point?” mentality takes over.  If the people of the United States would vote with what they really believed in and not what is simply fed to them, the splits in elections would be far more interesting.  Almost ironic is this years “Yes we can!” slogan.  It is supposed to show the power of the people, and it most certainly does.  The ironic part is that the message is backed by social policies that take power away from the people.  “Yes we can all throw our support behind a cause, show the power of the people… and hand it over to the government.”  Whether its in the case of health care, business regulation, internet regulation, they all take choices and power away from the consumer.  If “we” can do it… why do we need the government to do it for us?
Many people demonize companies like Wal-Mart.  I can’t say that I myself approve of all their practices, but how on earth did they get so big in the first place?  Well Wal-Mart got big because of a good business model.  One was not charging a stocking fee for placing a product on their shelves.  This allowed more products of a greater variety to hit the shelves.  It gave businesses just starting out a better opportunity to sell their products.  Currently Wal-Mart gets benefits on the Federal, State, and Local levels of government.  They receive reduced property tax rates, income tax breaks, subsidized production costs, flexibility of environmental regulation because of the jobs they offer in the end.  I can’t really blame Wal-Mart for taking advantage of such opportunity.  I don’t perhaps condone Wal-Mart’s wages or working conditions in their China workshops, but at least I as a consumer can make a decision not to shop there.  The only problems is, so long as I’m voting in more politicians who will keep business subsidies going, I’m simultaneously voting my economic vote out.  A business will have less worry of losing me as a consumer than losing their subsidies from the government.  A consumer CAN keep a business in check as long as the government is not propping the business back up. 
This is why I say the mixed market is one of the most dangerous.  The government can pick and choose who gets to be a monopoly, which businesses receive subsidies, and so on.  It’s tough for a new company that has innovated to compete with a subsidized market.  Even if a consumer likes it, the success isn’t guaranteed.  AT&T for example was split up in a court ruling for being a monopoly.  How did AT&T become a monopoly in the first place… well it was mandated to be one of course!  In 1918 the government had declared AT&T at “Natural Monopoly” citing the national security and the need for telephones to be in every household across the United States.  So competition with AT&T for many years was in fact illegal.  AT&T got all the government contracts, and was made into the giant company by the government.  Whats ironic is that the five companies AT&T was broken into have all re-merged to form the “New AT&T”.
Another scary part of a mixed market and government regulation is that it gives much more power to lobbyists.  When the government does things through regulation, businesses will lobby for lower regulations, or even tighter regulations if it’s in the name of making competition “fair”.  Congressmen are bought and sold because of regulation.  A free market doesn’t have to take business to an extreme.  It certainly makes businesses fend for themselves, that they don’t get free handouts, that the ones with a good business model will succeed, a failing business with a bad business model will not be propped up by the government. It keeps businesses accountable for their actions, if they take a big risk and lose customers, they may fail, and another business will rise.  It keeps the success of the business in the hands of the consumer… the people.
An aspect that is overlooked by many when it comes to making businesses large is government contracts.  And not just military contracts, even things like foreign aid have to come from somewhere.  When a manufacturer is chosen for the government the contracts pay handsomely.  If you as a consumer do not like the company being used for assistance, or for war… you’re still paying for it in your taxes.  A company is being paid for the mandatory vaccinations in the United States.  The government is not needed to nurture the people.  Individuals and companies will come together in time of need… provided they are allowed.  In the aftermath of Katrina while still awaiting for more supplies, FEMA turned away truckloads of supplies provided by Wal-Mart.  They were not allowed to help or give supplies.  FEMA blew through billions of dollars before any actual help was provided to the city of New Orleans.  Businesses and the people can provide help more efficiently than the one size fits all government programs.  Where the government doesn’t provide for us the people pick up.  Many of us donate to causes both domestic and foreign already.  Organizations and charities are often started up because the government is not providing something, or doing something poorly.  In the absence of government programs these organizations would be found in greater numbers.  People do care, they do step up.  When election day rolls around cast your vote for liberty!

A top General Motors executive has made claims that the automobile manufacturer “deserves” up to 50 billion in federally backed loans.  Sale of large automobiles have plummeted with rising energy prices.  The consumer has become more conscious about the fuel efficiency of their car.

GM has said that the loans would be used to develop more fuel efficient cars.  In my opinion if a company cannot meet the demand of the consumer, they should not be bailed out.  Their business model is then a failing one.  Why should tax money go to save a failing business.  Where one company fails another will rise with innovation to meet the demand of the consumer.

Such loans can be likened to a bailout, which is really just a subsidy for a business to stay on their current course… a bad one.

Peter Schiff on Squawk Box 07-31-2007 talking about our economy.

Part 1

Part 2

There are plenty of signs, many people saw the early signs this is just one example. Peter Schiff calls out the Fed on their economic policies, voices of truth like this should be louder.

As I mentioned at the end of my previous post, when the Federal Reserve bails out a business, they are effectively saying that if a business makes a bad decision they don’t have to suffer the consequences. The reserve is acting like a safety net for businesses to partake in risky investments. The most recent example is obviously the Bear Stearns “bailout”. JPMorgan Chase has bought out Bear Stearns for pennies on the dollar. They paid two dollars a share for Bear Stearns. It cost more money for their building, that what JPMorgan paid for the business. A terrible impact of this 93% discounted buyout is that 1/3 of Bear Stearns was owned by the employees, now their stock in BSC is valued at $2.00 a share. It is a terrible injustice, savings have been wiped away. It should also be noted that to aide JP Morgan in buying out Bear Stearns the Fed is giving up to 30 Billion dollars in new credit to Chase.

Ron Paul has said as a pretty simple and straightforward rule, that “when you subsidize something, you get more of it”. This holds true for the good and bad in our economy. In a way the Feds actions is subsidizing bad investments. The Fed is using money to save a failing business. There is a reason the business is failing, and the reason is not from making good economic decisions. Articles are surfacing in papers calling the collapse of Bear Stearns “The tip of the iceberg”. We can expect to see more businesses going under, and probably more bailouts and the cost of the taxpayer.

Some are hailing JP Morgan as the “Savior of Wall Street”. JP Morgan is not doing this unassisted, it is being allowed and promoted by the Fed. History is repeating itself, where as businesses go under the are bought up for pennies on the dollar, only now it’s being subsidized.

Our economy will only tolerate so much abuse before it collapses. Tuesday there will probably be more interest rate cuts in hopes of “stimulating” the economy. This is a method that has been tried and tried again, only to result in more failure. We can expect a rate cut ranging from .25% to .75% This will most certainly drive down the value of our dollar even more. Get Ready.

Burden brought to the people! Last week, March 10th - March 14th, the federal reserve made two moves that will weaken our economy even more, and place a burden on the people, the taxpayer… you. In the beginning of the week, the Federal Reserve announced it would make available an additional 200 billion dollars to the financial sector. Nothing is free of course, the additional money being pumped into our system comes at the cost of the value of our dollar. Each time the Federal Reserve adds money into our system without nothing additional backing it, it debases our currency. On top of flooding money into the economy, the fed also frequently cuts rates as a means of a fix, though this is farthest from a fix. The interest rates are artificially low, and they don’t plan on stopping the rate cuts anytime soon, another is expected this coming week.

Usually these measures when talked about on the media are portrayed as good measures. As legitimate ways of fixing a problem, when in reality it is a temporary patch to a much bigger problem. The economic policies of our Federal Reserve are frowned upon in the global market. Our dollar continues to slide to new lows as more rates are scheduled. Forbes had an article on this very issue.

For some icing on the cake at the end of the week, Bear Stearns stock (BSC) opened at about $54.24 and tumbled to a low of $26.85. Not to worry though, the Fed to the rescue. The Federal Reserve has endorsed a bailout plan for Bear Stearns. Where does the money for the bailout come from though? In the end? You! The taxpayer. Essentially you are paying to save a failing business.

If a business large or small has a failing business modes, a bad business practice, does anything to its own demise, who is responsible for the business? It should be none other than the people who own and run the business. The decision makers. Nobody should be taking your money and using it to bail out a company. If a business wants to involve itself in subprime mortgages, or subprime hedge funds, it must accept the risks that go along with that. Your wallet should not be a safety net for a business that’s not your own.