Monday, April 30, 2012

Is Government Too Big?

Currently, the US Government has a multi-Trillion dollar debt load. The Federal Entitlement spending is approximately 3 times the amount of military spending. Oh, speaking of military spending, people are questioning our projects in the Middle East, are they effective? Time will tell. However, Government spending is egregious. Here is a link regarding the current spending($3.7 trillion) To contrast to the GDP, GDP out put is $15,601 billion.

Here is a debate between discussing the concept of the role of Government. The Debate that includes Dr. Yaron Brook and Dr. David Callahan

Tuesday, April 10, 2012

Quantitative Easing, Inflation for Jobs

There are rumors of implementing the third round of Quantitative Easing delivered by the Federal Reserve. This third round aptly known as QE3. The possible implementation will be delivered based on how the economy performs moving forward. Currently, U-3 Unemployment levels are at 8.3%, while U-6 unemployment levels are at 14.5%. GDP trended up 3.0%. If the economy trends upwards, and unemployment goes down, will the Federal Reserve implement QE3? The answer: Probably not. If the economy continues to be stagnant, or goes down, look for the implementation of QE3. If this happens what does this mean? It could mean inflation, simply to lower the unemployment rate.

Right now, Fed has been purchasing up Assets(see the chart). Since 2008, the Central Bank's assets have grown well over 200%.  In the Bloomberg article, "To QE3 or Not to QE3?", here is a key excerpt: 

"The Fed is now sitting on a balance sheet that has ballooned to $2.89 trillion after three and a half years of aggressive bond-buying activity" 

The rationale behind this aggressive asset purchase is rooted in an attempt to increase aggregate demand.  If the Fed can purchase more Government securities, keep the interest rates low, and pump more money into the system, the objective is to have more spending by consumers. And, the other objective is to lower the unemployment rate.

The problem is that this action creates inflation, as witnessed by a depreciating dollar, and a spike in Commodity prices:e.g Gold. (see chart with current Gold Prices)

Gold typically has been used as a hedge against a depreciating currency. It is a good indicator of how the currency is depreciating or if inflation is around.

This leaves the Fed at the paradox: Should they continue with their quantitative easing strategy to "stimulate" the economy? If so, what is the cost of this action? Is it worth higher prices from a depreciating currency? People may have lower unemployment levels, but at what cost? Higher Gas and food prices?

If you are saving for retirement, how does this impact your portfolio? When you "cash" out your monies from your qualified accounts(401k, 403b, and the like), how long will your money last if the currency is being depreciated?

Thursday, April 5, 2012

Thought for the Day:Inflation

Inflation is commonly known as the rise in prices. Many economists argue that it is monetary phenomenon, or related to the money supply as it circulates in an economy. For example, many economist state the current high gas prices are related to inflation, thanks to the Federal Reserves expansionist monetary policies. Of course, another school of thought believes that re-establishing the Gold Standard might help control inflation. Here are some videos and links explaining this issue.

How inflation destroyed the Roman Empire:

Nixon's famous speech ending the Bretton-Woods agreement. SN: After this major change, the US experienced stagflation.

FDR Removing the US from the Gold Standard in 1933:

Dr. Milton Friedman discussing the Great Depression:

Tuesday, April 3, 2012

Private Property: A Foundation for a Strong Economy

Private Property ownership or control is central to having a strong economy. It obviously establishes ownership, but what else does it establish? From the establishment of ownership, the owner of the property can manage risk, calculate economic costs, generate and produce goods or services to the marketplace. It is key because it allows the individual ownership or control over factors of production. Some articles expanding on this topic:

Thought for the Day: Debt

"The Rich Rule over the poor, and the borrower is the servant to the lender"~Proverbs 22:7

Sunday, April 1, 2012

The concept of the Quantity of Money and Inflation

A lecture from one of the great minds in the world of Economics, Ludwig von Mises. This lecture is on the topic of Money and Inflation.