Gravity and Inflation - A Point Of View

Gravity is one of the most pervasive yet weakest forces in the cosmos.
We can predict gravity, yet its source within matter remains a complete and utter mystery.

We remain convinced that it is an "attractive" force because that is what we perceive. However, equally possible is the theory of "atomic expansion" which would create the identical effects that we now call gravity. See: http://www.thefinaltheory.com/


Caption: Artist depiction of gravity waves around merging black holes. Credit: NASA

The point is that we really don't know if gravity is a mysterious, uncontrollable yet observable attractive force OR an attractive "sensation" we perceive because the quantum effect of atomic structures cause electrons to pierce the atomic cloud by the width of 1/2 an electron thus causing matter expansion. The result and therefore the effect is identical under both theories.

What does all that have to do with money?

Well, the Federal Reserve Note (aka "the dollar") is the base currency of the world. And we are printing a lot of them and plan to continue to do so because of our current worldwide economic crisis. Too much money chasing too few goods is considered inflation. Like gravity, we "perceive" inflation as higher prices. But it is eqally true that the prices are actually the same, it simply takes more dollars to buy the same thing because the dollars are worth less.

Like atomic expansion theory, the latter point (dollar de-valuation) is very hard to understand because, like gravity, it is all around us. We don't see anything else. After all, a dollar is worth, well, a dollar. Isn't it?

How about the law of supply and demand. If there are lots of dollars floating around because we keep printing them, doesn't excess supply of money mean the value of a dollar decreases?

These are hard concepts for many people to grasp, yet they are fundamentally important to them and everything that is going on around them.

Back to gravity... The time will come when science (probably through quantum physics) will show us that gravity as a strange, uncontrollable yet observable attractive force does not exist they way we think it. After all, why doesn't NASA use Einstein mathmatics when calculating orbital equations but rather uses Newtownian geometrical concepts. Hint: Space-time warping is probably an intellectual cul-de-sac.

Another dead-end is thinking that the world base currency (the dollar) cannot be devalued.

It is already happening. Banks are not lending despite infusions of liquidity and near zero interest rates on interbank commerce. They do not want to lend money now and get paid back with dollars that are worth less (much less) in the future.

They know it and no one may speak of it. When it appears to us that prices are increasing, we will not discuss it as dollar devaluation. We will seek to blame someone else.

Do not underestimate the gravity of this situation.

Investor Relations & Customer Service

With most customer service calls going to low labor cost countries where the person on the other end of the phone or email account can only follow a script and has no personal experience with the product/service for which you have a problem, here is a suggestion:

Send an email to Investor Relations. If you write a respectful, fact based letter and provide your full name, address and phone number, you would be amazed at the level of service you receive.

I have had to very positive experiences recently- One with INTUIT and one with GATEWAY COMPUTERS. In each case I received either a call at home or an immediate email from someone proporting to be one of their officers, I outlined my problem in more detail, and received near immediate satisfaction. Certainly levels of service that were above and beyond. I am not a stockholder in either of these companies.

To complete the story, there are 3 privately held companies which deserve mention on outstanding customer service through their normal channels: SC JOHNSON WAX, BOSE, MADRID SKATEBOARDS.

I'm Sure This Is Not Going To Be A Problem

As most of you know, I am a Fed watcher and I particularly enjoy reading their research papers.

This one is from the Federal Reserve of St Louis ( you can find this and other data/publications at http://research.stlouisfed.org ).

I posted this one because finally someone on CNBC used the "inflation" word. The "talking head" being interviewed pointed out that we must spend our way out of this recession and only governments are capable of doing it. We were advised not to worry about it for two reasons:

(1) Every Government is now doing this so don't worry about destroying the US dollar. I presume he means that every government is destroying its currency simultaneously therefore the net effect is zero. Oh boy....

(2) Any problems these government actions cause such as hyperinflation or currency devaluation can be fixed in later years when the world economy is on better footing.

How would you interpret those words? It sounds to me like:
(a) things are really bad,
(b) the cure will just about kill us,
(c) we will probably be ok (after all we always have been in the past).

Yikes!

Merry Christmas
Tedbits

Cheap At Any Price

It's official, money is free. Let me know if you are able to get any.

http://www.federalreserve.gov/newsevents/press/monetary/20081216b.htm

Recent Quotes - Is Anyone Listening Anymore?

When speaking of the next "bubble"

"Little pieces of paper are the next big thing," speculator Joanna Nadir, of Falls Church, VA said. "Just keep telling yourself that. If enough people can be talked into thinking it's legitimate, it will become temporarily true."

"America needs another bubble," said Chicago investor Bob Taiken. "At this point, bubbles are the only thing keeping us afloat."

When speaking of American rights:

"Every American family deserves a false sense of security." said Chris Reppto, a risk analyst for Citigroup in New York.

When speaking of the basis of our economy:

"The U.S. economy cannot survive on sound investments alone," said investment banker Greg Carlisle of the New York firm Carlisle, Shaloe & Graves.

"What America needs right now is not more talk and long-term strategy, but a concrete way to create more imaginary wealth in the very immediate future," said Thomas Jenkins, CFO of the Boston-area Jenkins Financial Group. "We are in a crisis, and that crisis demands an unviable short-term solution."


Legal opinions on these matters from Alfred Dewey, esq are forthcoming. And his partners Cheetham and Howe vacationing in war torn Greece were unavailable for comment.

Enjoy!

We Haven't Even Started Any Stimulus Yet

I thought it interesting how some reports confused China's financial actions these past weeks as a "bailout". It wasn't. It was leadership.

No bailout--- this was a stimulus package and talk about "thinking big"! It's early Saturday morning for me so forgive me if these numbers wobble a little but they are so freakin big I am rounding to the closest billion or so:

China GDP is about $4.2T. Their stimulus package was about $586B or 14% of GDP. Why do they need the stimulus- their annual GDP growth is still 9% per year? Why? Because they are not waiting for a crisis-- they are exhibiting leadership.

So far, the US has "printed" more than $2T this year and all of it went to either "prop ups" or "pay offs" for a bunch of institutions that don't look like they are going to make it anyway. And, as I predicted in my post of October 26 more and more people are lining up to "get paid" for their mistakes.

The $168B 2008 stimulus package was a good idea but misguided and too small to make a difference. Misguided--The money didn't go to the people who would actually spend it and rather went to those who wisely decided to pay off some of their credit card debt. Net stimulative effect --> zero.

Maybe it is time to swallow our pride and follow the Chinese. The US Government stimulus program needs to be 14% of US GDP. Hey, but do the math, if we print that much money on top of what we already have printed, we will be insolvent.

I still think we need to sell Alaska-- it's obvious we are not going to use it for anything.

Relax: There Is No Financial Crisis

If you take the time to read this you will see that bank credit has never been higher, interbank lending is ripping along just nicely and commercial paper (for other than financial institutions) is doing just fine.


Federal Reserve Bank of Minneapolis
Research Department
Facts andMyths about the Financial Crisis of 2008
V.V. Chari, Lawrence Christiano, and Patrick J. Kehoe
October 2008

ABSTRACT
The United States is indisputably undergoing a financial crisis. Here we examine four claims about the way the financial crisis is affecting the economy as a whole and argue that all four claims are myths. Conventional analyses of the financial crisis focus on interest rate spreads. We argue that such analyses may lead to mistaken inferences about the real costs of borrowing and argue that, during financial crises, variations in the levels of nominal interest rates might lead to better inferences about variations in the real costs of borrowing.

http://www.minneapolisfed.org/research/WP/WP666.pdf


My conclusions?
-- We've printed too much money
-- Basic economics teach us inflation will follow a short period of downturn
-- The world is not ending

Brother Can You Spare A Dime?

Back on my post of October 6th, I asked who was next to ask for a bailout? And now this from the AP:

Oct 25, 2:53 PM (ET)By MARTIN CRUTSINGER
WASHINGTON (AP) - The bailout is now the hottest lobbying game in town.
Insurers, automakers and American subsidiaries of foreign banks all want the Treasury Department to cut them a piece of the largest government rescue in U.S. history.
The betting is that many with their hands out will be successful, especially with financial markets in a stomach-churning dive and predictions the economy is about to tumble into a deep recession.
These groups argue that the credit squeeze is so severe and the risks to the economy so dire that their industries need financial support as well.
The Treasury is considering requests from a variety of industries, but has not decided whether to expand the program, officials said Saturday.
Lobbying efforts are intensifying.
Full story is here.

Here is a starter list of groups that I believe should be at the top of the list:

(1) States that spend and borrow more than they can possibly take in or pay off. Starting with California and New York.
(2) Municipalities that spend and borrow more than they can take in or pay off. Starting with cities in California and New York.
(3) Mainstream Media: ABC, CBS, NBC, New York Times, etc. whose ad revenue has plummeted because no one trusts their reporting anymore.
(4) Major unions because their membership may get laid off during a prolonged downturn which could have a negative affect on dues collections (especially since their coffers are depleted from donating money to the candidates of their choice.
(5) Non-governmental groups whose donations are facing a down turn due to weakening economy. This would only apply to secular institutions (religious affiliates are 48th on this list). Groups such as ACORN and Moveon.org would top my list.



Who would you add to this top five?

Also, I still think we need to sell Alaska. And I want to once again thank the midwest for agreeing to foot the bill as well since the commerce centers on either coast are having a tough go of it.

The Final Circumfusion

Before we start on this 3rd and final segment on taxes, let's review our tally to date:

$90B tax revenue from the 30% Illusion. (posted on 2008.10.18)
$50B tax revenue from the 6% Profusion. (posted on 2008.10.21)
$80B tax revenue from the Final Circumfusion.
------------------------------------------------------
$220B total tax revenue potential.

All of this is very achievable and there is nothing you can do about it- even if you know it is going to happen.

The last $80B comes from closing the tax loophole on 401K accounts and similar personal retirements accounts. Now, I am not suggesting that our government seize the $3T in personal retirement accounts like Argentina since I believe that our personal retirement accounts are protected under the Fourth Amendment of the US Constitution. I am saying however, that the tax preferences offered these accounts are costly to our country and a significant drain on government's ability to achieve wealth fairness.

As of now, Americans can contribute to private retirement accounts on a before tax basis- meaning that the portion that is contributed effectively reduces their Adjusted Gross Income and therefore their tax liability. In addition, gains are not taxed until money is withdrawn thus delaying revenue to the government and possibly reducing that revenue as the citizen is most likely to be in a lower tax bracket when they start withdrawing. All this must stop. We just can't afford this largess anymore.

Would you like some more tea?

The 6% Profusion

If you liked my "30% Illusion" posting - Here's part 2.

We are still targeting the UNREPRESENTED SUCCESSFUL or the 3.7 million tax filers of people making between 200K/year and $1 million/year.

Here is the expanded data on the Unrepresented Successful (let’s call them US for short):
Average adjusted gross income is $350K
Average taxable income (after deductions) is $290K
Average federal tax paid is $74K for an effective tax rate of 25%
Average Combined W2 Box 1 is $192K

I am looking at the W2 because we must have aFICA phase out. For purposes of my study, I put the FICA phase out at an even $100K for 2009 which means $92K of W2 wages ($192K - $100K) are not subject to "payroll taxes".

Removing the FICA ceiling, another 6.2% can be taken from the $92K - call it security for social security. That means another $6K from US's net income each year.

So, the 3% Illusion takes from US about $24K from net income and another $6K based on the 6% Profusion proposed here. So US better get ready because we need to take about $2.5K every month from US so we can be fairer.

But hold on, it can't stop there because the 6% Profusion only nets an additional $21B in taxes. We need to include those making between $100K and $200K in this plan as well because it doesn't make sense to stop FICA at $100K and start it up again at $200K. In the spirit of simple fairness we are lifting the ceiling for everyone (equal protection?). This is important because while there are on 3.7 million of US tax filers there are another 10.0 million between $100K and $200K which will net an additional $28B dollars.

So let's add it all up: $90B from the 3% illusion tax + $21B from the 6% Profusion Tax on US + $28B from the 6% Profusion Tax on filers below $200K results is about $140B in new government revenues. Now that's worth going after.

And, even if you know what is going to happen, there is little you can do about it because you have no representation.

Taxation without representation. Anyone for tea?

The 3% illusion

The data for the analysis that follows is located on the following IRS website: http://www.irs.treas.gov/taxstats/indtaxstats/article/0,,id=96981,00.html


Would you be willing to have your taxes increased a mere 3% so that most Americans can get a tax break? If this idea intrigues you, read on…

Let’s segment tax payers in to three groups:

THE INSULATED: These are the people making more than $1 Million/year who through their wealth, power, and access to Washington legislators are able to take as much as they give. There are about 350,000 of these filers. They will not be discussed in this article for obvious reasons.

SALT OF THE EARTH: 88 million tax filers representing people whose adjusted gross income is below $200K/year.

UNREPRESENTED SUCCESSFUL: 3.7 million tax filers of people making between 200K/year and $1 million/year. Here is the data on the Unrepresented Successful (let’s call them US for short):
Average adjusted gross income is $350K
Average taxable income (after deductions) is $290K
Average federal tax paid is $74K for an effective tax rate of 25%

To give the Salt of the Earth each a $1,000 tax refund (whether they paid $1,000 in taxes or not), we need about $90 billion of tax increases which must be obtained from US.

The way we get US to agree is to point out that a mere 3% increase in your effective tax rate to 28% is all that is needed to help out most Americans. Certainly the Salt of the Earth would vote in this type of tax increase and it would seem to me that a similar vote “for” would be done by US.

To make this simple, we would phase out all deductions and exemptions for US and attach the 28% effective tax rate directly to the adjusted gross income of US. The exciting feature for US is that the old higher tax rates under the Bush administration of 33% and 35% are reduced to 28% and there is no longer a need for the Alternative Minimum Tax.

Do I have your vote?

Bank Holidays

Is this a good thing or a bad thing?

http://www.bloomberg.com/apps/news?pid=20601087&sid=aP5mpMUORBWM

http://www.washingtonpost.com/wp-dyn/content/article/2008/10/10/AR2008101003147.html?hpid=topnews

I am sensing a "drum beat" from the press. In today's world the holiday can be effected by simply flipping a switch.

Regrets--- I missed by 50%

Dear Friends:

At this point I am sure that I have no credibility with you. On my post of 9/14, I indicated that the government created a trillion dollars. Now with a $700B bailout, $84B for Car Makers, $2.5B in new spending, we are now at almost $2 Trillion.

I am truly sorry for not being more accurate.

Any bets on what the number will be in November? Ooops, I forgot to add the
$600B+ additional money supply added by the Fed this month too.... Geez I need a new crystal ball.

Now California wants a bailout. New Hampshire is getting in line. And, New York is bellying up to the trough. Thank god for Iowa, I quess they are going to pay the bill.

Rumor is that we are going to sell Alaska to eliminate our debt. Is that Constitutional?

Ted

Understanding The Credit Crisis

This is worth 10 minutes of your time. Understanding The Credit Crisis.

Teddy Roosevelt, Debt Foregiveness and Second in Command

Dear Friends:

I have been overwhelmed by your replies concerning the current financial crisis. I was most touched by a good friend who shared a Teddy Roosevelt quote, "In any moment of decision, the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing." Good advice, no?

In reading the book "Outraged" this summer, I was struck by the number of people who lose their homes because they can't pay their mortgage due to medical bills. If we are not going to toss people out of their homes who took out mortgages they could never pay for in the first place, how we can foreclose on people who lose their homes for medical reasons? Seems to me that we should just forgive everyone's debt as of a certain date and start over in this country. I don't know if that is the right thing or the wrong thing but it is certainly something.

At the risk of ending on a political note. Please be aware that John McCain will not participate in the first presidential debate because he believes that he should be in Washington focused on our country's financial crisis. Barack is planning to attend the debate and has said that he will remain "available" in case anyone in Washington needs him. However, Barack will not be on the stage alone as McCain will send Palin to debate him because that's what Vice Presidents do when the President is otherwise unavailable.

Dear Friends:

http://www.chrismartenson.com/future_shock Chapter 19.

PLUS:::::I had an extraordinary opportunity to spend some time with a former government employee:

The conversation was mainly around China as he has been involved with the olympics ... Here is some snippets of the discussion that really stuck with me:
(1) The US is a pacific rim country-- look at the map.
(2) Taiwan now has a government that the Chinese feel is predictable. Predictability leads to peace.
(3) The success of the US is inextricably tied to the success of China and vice versa. Neither can fail.
(4) China is buying up the mineral rights in Africa with cheap loans, outright gifts and chinese technology and labor. US debt and US assets are being bought by China.
(5) The Chinese military is more formidable than anyone thinks and it has little to do with technology. They can muster a fighting force equal to the size of the entire US population.
(6) The Chinese are extremely proud of their country -- a feeling that is falling out of fashion in the US.
(7) The Bejing olympics must be successful (I spoke to him in July '08).
(8) The Chinese government are unelected communists. For them to stay in power, they must keep their population happy. This they will do at all costs.
(9) The largest problems (in priority order) for the Chinese government is Pollution, Water and Food. "You are dead if lack 3 minutes of air, 3 days of water, 3 weeks without food".

I asked him about the China judicial system, property rights and the educational system. My sense was that people's rights, like those in the US, are not top of mind because the needs of the population are so basic. However, the educational system is highly advanced and focuses on specialization rather than broad learning (like the US). What this means is that parents or the government predetermine what a child will be when they grow up and then send them away to the appropriate school.

There was a woman from Hong Kong in the conversation circle and she said; "China and the US are like husband and wife. Both sleeping in the same bed but dreaming different dreams." I don't know exactly what she meant; but I sure wish I could think of cool things like this to say.

Gold or Food

Dear Friends:

Well, my last note referenced that $765 gold was looking cheap.

You all must have went out and bought thus moving the gold market up 12% in 3 days. Thank you.

One of you replied to me that perhaps buying food is a better choice as it is much more easily bartered than gold. Hmmm, knowing the social circles that some of you travel in, my guess is that you would be storing upscale food. Therefore, I offer you the following..... http://www.thereadyproject.com/

On The Money

Dear Friends:

Dr. Martenson completed chapter 18 last week. If you have not been taking his crash course (and I suggest you consider taking the time to do so), this chapter is a good summary of all that was covered before. Try it.

http://www.chrismartenson.com/environmental_data

Now, this weekend the US Government is trying to decide how to help Lehman (and probably WAMU). If you don't think something big is happening then you may be blinded by the political news which taking the oxygen out of really important news. The Fed has printed almost a Trillion Dollars this year to maintain the money supply and do the financial bail out of Bear Sterns, Fmac, Fmae. Seems inflationary to me and I think a sound personal financial strategy now needs to consider future inflation.

I know some of you will say that we really didn't print the money but rather provided US government backing to cover the losses. So let's add this to other off-balance sheet financing like Social Security and Medicare. So do the math: If the US government took 100% of all salaries, wages and corporate profits, it can barely meet its obligations on an annual basis-- this is a tipping point.

Gold is starting to look pretty cheap at $765/oz.