2003: The Rich Got Richer . . . and so did everyone else.


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FRIZ
December 31, 2003, 11:11 PM
The Weekly Standard
12/30/2003

2003: The Rich Got Richer . . . and so did everyone else.
by Irwin M. Stelzer

http://www.weeklystandard.com/Content/Public/Articles/000/000/003/545jspjt.asp

MOST ANALYSTS expected this year to end with a whimper. Instead, it is ending with a bang, and not only because Saddam Hussein was extracted from his rat hole. The economy is roaring ahead at a pace that so amazes observers they are guessing it will slow a bit in the new year. That would still mean an economy growing fast enough to satisfy those in charge of George W. Bush's reelection campaign.

Big-company share prices rose by more than 20 percent, and the high-tech and small-business sectors soared at twice that rate. Productivity is scaling new heights, profits are up, incomes are rising, inflation is nonexistent, and the dollar is in a so-far agreeable decline, shrinking the trade deficit. The unemployment rate has fallen to the level it averaged in the 1990s, which decade included both boom and bust. The Bureau of Labor Statistics' survey of households shows that over 2 million more Americans are working at year end than were employed at the start of 2003.

America's industries and workers produced almost $500 billion more goods and services in 2003 than during the previous year. That means that America added to the size of its economy an amount equal to a Brazil, or an India, or over one-and-a-half Russias.

Of the world's ten largest businesses, measured by market capitalization, eight are in the United States (the others are the U.K.'s BP and HSBC Holdings). Americans bought over 16 million cars and light trucks and some 2 million houses in 2003 (estimates for the most recent months, as yet untabulated by government, come from Morgan Stanley), as consumers rewarded Bush for his tax cuts by spending about $3 out of every $4 he refunded to them, thereby putting the economy on course to become a plus in the election that is less than a year away, and finally getting our two lagging indicators--employment and CEO confidence--to turn up.

BUT ENOUGH about the year we are about to see off. This last column of 2003 (sighs of relief from readers are not appreciated) is the place to take a longer look at the past performance of the American economy. The American system is deservedly famous for the material benefits it produces, but less well known for the system's ability to distribute those benefits very widely. There is some useful evidence of the ubiquity of progress that has seen, according to some observers, the material well-being of today's secretary exceed that of Queen Victoria.

As Gregg Easterbrook, an editor at the New Republic, reports in his new book, "The Progress Paradox," there are at least 200 housing developments built around golf courses, and not all are occupied by the very rich. One such, which includes "a well-reviewed eighteen-hole course reached from the porch door via personal cart . . . [offers] beautiful, well-appointed homes . . . from about $285,000 . . . , within the means of tens of millions of Americans."

The list goes on. Almost 15 percent of all homes purchased are for use as second, vacation homes, at which Americans deploy their 3 million all-terrain recreational vehicles (cost: about $5,000 each), or their recreational watercraft, on which they spent an amount greater than the GDP of North Korea. All of this, says Easterbrook, illustrates "the grand increase in living standards for people who aren't rich." Indeed, so widespread is American affluence that "old money"--from the merger boom of the 1980s--is complaining about the crowding of marinas, golf clubs, and ski slopes created by "new money" arrivistes who made their fortunes in the high-tech boom of the 1990s.

Of course, no sensible person would claim that poverty has been eliminated in America. Or ever will be, since the poverty line is periodically raised. But remember: Data gathered by the Federal Reserve Bank of Dallas show that over 40 percent of America's poor own their own homes, 72 percent have washing machines, 60 percent own microwave ovens, 92 percent have color television sets, half have air conditioners, and 72 percent own one or more cars.

IT IS FASHIONABLE to dismiss these indicators of material prosperity on two grounds. The first is that inequality is rampant and rising; the second is that money can't produce happiness.

There is no question that statistical measures show a rise in inequality. The main reason: America welcomes more immigrants--legal and illegal--than all the other countries of the world combined. These newcomers typically start at the bottom rung of the economic ladder. Exclude them from the statistics, calculates Easterbrook, and the increase in inequality disappears. Indeed, for the 9 out of 10 Americans that are native born, inequality is declining. And here is the reason that will surprise America's critics: The decline in inequality is due in good part to the rising affluence of African Americans.

Which leaves happiness, a commodity many argue cannot be bought with money. America's Founding Fathers were certainly onto something when, in the Declaration of Independence from British tyranny, they held it to be "self-evident" that the "Pursuit of Happiness" is among the unalienable rights of all people. But they failed to opine on whether that pursuit would be aided or impeded by increased material well-being.

Charles Murray, the social scientist who has written a book on the subject of happiness, says that although moving from very poor to reasonably well off increases happiness, students of the subject are uncertain whether beyond that point more income results in greater happiness. The portion of Americans who consider themselves "very happy" or "pretty happy" has hovered around 87 percent in recent years. So it seems unlikely that wealth, which unambiguously increases choice, can also produce misery, although it may produce the leisure time in which to find things to be unhappy about. This economist leaves the final decision about the relationship of wealth to happiness to sociologists, and confines himself to wishing all of our readers a prosperous and happy New Year.

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Art Eatman
December 31, 2003, 11:40 PM
My problem with this rosy picture is that corporate profitability is still in the toilet (P/E ratios averaging above 30) and that the buying power of the middle class is still stagnant--if not in constant-dollar decline.

The "new" jobs don't pay as much per hour as the "old" jobs.

Average household debt is stated to be some $8,000 per each, for credit cards. Now, since I'm aware of several households at $zero, somebody out there is in deep doodoo. And personal bankruptcy filings are still increasing...We're at record highs of house payments being a month or more behind.

Part of the deal of the European Union is that no member country's budget shall be over 3% of GDP as deficit spending. We're what, 4+ to 5%?

And, to keep this at least mildly gun related, with the Euro now at US $1.25--up from US 0.84 just a couple of years back--any foreign-made pistols and rifles are gonna increase dramatically in price.

Art

FRIZ
January 1, 2004, 12:11 AM
Hi Art:
Thank you for bringing some very interesting points to our attention. But I would like to add the following.

“Part of the deal of the European Union is that no member country's budget shall be over 3% of GDP as deficit spending. We're what, 4+ to 5%?”

Germany and France, the two main players in the European Union, are again not able to comply with the 3% cap on deficit spending.

“with the Euro now at US $1.25--up from US 0.84 just a couple of years back”

This means that U.S. products and services are now very attractively priced in the world market. It means that more U.S. products and services are sold abroad. This brings down our trade deficit, boosts our economy, and ultimately causes U.S. companies to hire again.

Happy New Year.
FRIZ

Mike Irwin
January 1, 2004, 12:28 AM
WAAAAAAAAAAAAAAAAAAA!

The Rich don't pay their fair share of taxes!


They're getting rich on the blood and toil of the poorest members of society!


WAAAAAAAAAAAAAAAAAAAAAAAAAAAA!


All I can say to that is...

Good.

FRIZ
January 1, 2004, 12:32 AM
...In 2000 (the latest figures) the richest 1 percent of Americans paid 26 percent of federal taxes and the richest 10 percent paid 52 percent, says the Congressional Budget Office. Meanwhile, most spending goes to the poor and middle class. In fiscal 2003 federal spending, excluding defense and interest payments, totaled $1.6 trillion. Of that, 81 percent went for social programs, including $475 billion to 47 million Social Security beneficiaries, $249 billion for 41 million Medicare recipients, $161 billion for 40 million Medicaid beneficiaries and $25 billion for 21 million food stamp recipients...

The Washington Post
Thursday, December 18, 2003; Page A35
Muzzling Speech
By Robert J. Samuelson
http://www.washingtonpost.com/wp-dyn/articles/A9997-2003Dec17.html

7.62FullMetalJacket
January 1, 2004, 12:36 AM
Welcome to socialism.:mad:

w4rma
January 1, 2004, 01:14 AM
Economy On the rebound? (No)

By John Atcheson
Originally published December 24, 2003

WASHINGTON - Before America allows President Bush to take bows on the economy, let's take a closer look at this recovery. A simple thought experiment will help.

Imagine for a moment that you took all your credit cards and maxed them out. Now take your mortgage and borrow the maximum on it. Cash in the kid's college fund, your rainy day savings, your 401(k) retirement savings. While you're at it, stop paying for your health insurance and the maintenance on your house, your car and your yard. Now take all that money and spend it. Feeling pretty flush? Sure you are. You just pumped tens, maybe hundreds of thousands of dollars into your pocket.

But you'd never do that.

Because you know that just because you'd be living large for the time being, you wouldn't be wealthier. In fact, you'd be getting poorer by the minute. And yet, that's exactly what Mr. Bush's recovery is - a giant borrowing binge. But he'd rather you didn't know that. In February, the administration buried a report from its own Treasury Department that said our current fiscal policies, the ones Mr. Bush likes to claim are bringing on a "recovery," would create more than $44 trillion in chronic debt.

As the London Financial Times noted, $44 trillion is roughly equivalent to 10 times the publicly held national debt, four years of U.S. economic output or more than 94 percent of all U.S. household assets. No wonder things seem good. We've cashed in everything we own at the Bush Pawn Shop, and now we're flashing a serious wad of walkin' around money.

The Democrats like to point out that we're still down some 2.5 million jobs since Mr. Bush took over and that, absent a miracle, Mr. Bush is likely to be the first president since Herbert Hoover to have fewer jobs at the end of his administration than when he took over. But the real story is, how can we not be living even larger, after borrowing all our children's assets and shrinking the Federal Reserve rate to the lowest level since 1958? What have we got to show for it?

An essentially jobless recovery. Mr. Bush likes to say the jobs will come. They'd better. Because right now, all he's managed to do is spend about $350 billion of "your money" to hire 328,000 checkout clerks and greeters at the local Wal-Mart. Meanwhile, we've shipped some 2.6 million high-paying manufacturing jobs overseas since January 2001.

Is this a success?

So if we're cutting taxes by $350 billion a year in order to stimulate the economy and the economy is growing, but we're only getting an anemic response in employment, what's up? Kenneth L. Lay's stock portfolio, for one thing. And the portfolio of those Bush pioneers we hear so much about. And, of course, Mr. Bush's campaign contributions. As for the rest of us?

Mr. Bush seems to think people can eat gross domestic product. But a growing economy doesn't mean a whole lot if it's not creating jobs. Unless you happen to be Ken Lay or one of those Bush pioneers who don't need a job to earn money. For them, so long as the rest of us keep mortgaging our future, they can keep getting richer.

Not a surprising result, really. Look at Mr. Bush's economic plan. He says the tax cuts were about "your money." But the truth is, if you're like 80 percent of Americans, most of the taxes you pay from "your money" are in the form of payroll taxes. And until Mr. Bush gave it away, you got "your money" and more back in the form of Social Security, Medicare and disability income.

Mr. Lay and his friends pay most of their taxes in the form of income taxes, dividends and capital gains. Guess which ones Mr. Bush cut? Not your payroll taxes. What's the biggest pot of money subject to double taxation? "Your money" - the payroll tax. What double taxation did Mr. Bush eliminate? Ken and friends' dividend tax. For some reason, Mr. Bush thought it was OK for you to be double taxed, but not all right for Ken and his CEO friends. Bottom line: Mr. Bush traded away "your money" to give his wealthiest millionaire buddies an annual tax cut of $40,000 or more each.

The Democrats seem to be trembling at the recent numbers on the economy. They shouldn't. We can't be a nation of Wal-Mart shoppers if we're all employed at Wal-Mart. And that's exactly where Mr. Bush's plan is taking most of us. Democrats should just quit worrying and give credit - or blame - where it's due.

John Atcheson has held a variety of policy positions in several federal government agencies.
http://www.sunspot.net/news/opinion/oped/bal-op.badeconomy24dec24,0,3292091.story?coll=bal-oped-headlines

El Tejon
January 1, 2004, 08:54 AM
2003: El Tejon continues to pull the wagon while others ride in it and bitch that I am not pulling fast enough.

2004: Dcotor Mean and the rest of the Democratic candidates want to increase the weight of the wagon.:uhoh:

greyhound
January 1, 2004, 09:14 AM
Before America allows President Bush to take bows on the economy, let's take a closer look at this recovery

Okey doke.

(Taking a look at the WHOLE picture.)

OK, take that bow now, President Bush.:D

Seriously, yes I am troubled by the deficit spending, but regardless of what the hard left seems to think 9/11 started a WAR, not a "law enforcement matter", and what was appropriate in say, the 90s, is not now.

Yes we are going to have to deal with that deficit, but for right now given the accompanying growth, the economy is moving along fine.

El Tejon
January 1, 2004, 09:24 AM
I propose dealing with any budget shortfalls by abolishing the Departments of HHS, Energy, Education and the EPA and auctioning off small arms (M14s, M1s, etc.) via the CMP. More money to help kill the New Barbary pirates. Talk about a win-win proposal!:cool:

BigG
January 1, 2004, 09:31 AM
Teej, you got a pretty good handle on the economy. I vote for you for head of OMB.

El Tejon
January 1, 2004, 09:41 AM
BigG, can I be Attorney General or, better yet, head up ATFE instead, please!:)

BigG
January 1, 2004, 09:49 AM
OK, Teej, AG. If I were king, BATFE would cease to exist in about a millisecond. ;)

Mike Irwin
January 1, 2004, 10:33 AM
All I know is that since April I've seen my mutual fund portfolios gain (minus my scheduled contributions) nearly $50,000, and the value of my house based on comparable sales in my neighborhood has gone from about $265,000 to $305,000.

I don't care if it's a jobless recovery or not.

Engsetter
January 1, 2004, 11:46 AM
Yeah, you may not care now. You say your house is worth $305,000 today. If you paid more than $152,500 for it in the year 2000 then you have not kept up with inflation. Why? The dollar has lost 30% percent in value this year alone, and the dollar has lost 50% of its value since the year 2000.

The stock market is up; house prices are up, it’s all an illusion.

JohnBT
January 1, 2004, 12:33 PM
I think you're confusing inflation with the decline of the dollar against Euro. Unless you're buying something made in Europe that 30% drop against the Euro isn't going to have much if any effect on your purchasing power.

If the rich don't buy stuff then the poorer man won't have a job making it. The economy requires consumers to function.

The economy is rolling around here it appears. According to yesterday's paper the regional unemployment rate is 3.3%. The Charlottesville area is down in the 2's and some smaller areas are in the 1's.

John

El Tejon
January 1, 2004, 01:05 PM
Eng. what is this the Carter years? What's the inflation rate now?:scrutiny:

Would not a little more inflation be good right now?:confused:

BenW
January 1, 2004, 01:10 PM
But the truth is, if you're like 80 percent of Americans, most of the taxes you pay from "your money" are in the form of payroll taxes. And until Mr. Bush gave it away, you got "your money" and more back in the form of Social Security, Medicare and disability income.
Why does he write "your money" using quotations? Is he pulling a smug, statist "it's not REALLY your money, it's our money" routine? Why yes he is.

I don't want my money to go to the disability payment of someone who "hurt their back" at work but can collect disability to go skiing in Vail. I can also handle saving for my own retirement, thank you very much. Like El Tejon, I'm getting tired of pulling the cart (excellent analogy by the way El T), especially for people making me buy my own horseshoes to do it.

7.62FullMetalJacket
January 1, 2004, 01:22 PM
I am with El Tejon on this.

I am getting tired of pulling the cart. 50% of workers pay no federal income tax. By default, any cut in income taxes is going to return to the "rich" that paid taxes. How can a tax cut go to people who do not pay taxes? That is called welfare. If you keep making my cart heavier, I will either tire of pulling, or climb on to the cart. Then who will pull the cart?

All indicators show that the economy is growing. Consumer spending creates jobs. Were you ever hired by a poor person? "Rich" people like me create markets and hire people. I am not rich. Only the government and communists thinks I am rich.

Socialism has been tried and failed (or is failing). Communism imploded. Free-market capitalism backed-up with a constituional republic prevails every time. Stop trying to tear it down.

Mike Irwin
January 1, 2004, 01:34 PM
"Yeah, you may not care now. You say your house is worth $305,000 today. If you paid more than $152,500 for it in the year 2000 then you have not kept up with inflation. Why? The dollar has lost 30% percent in value this year alone, and the dollar has lost 50% of its value since the year 2000."

I beg your pardon?

I guess I wasn't looking when the inflation rate skyrocketed to approximately 32%.

Your figures are WAY off.

I'm curious...

Where did you get such unique figures?

The international currency market?

Sorry, but that doesn't have a direct correlation to the value of the dollar towards domestic purchases.

Oh, by the way...

I paid $154,900 for my home in November 1993.

My interest rate at that time was, IIRC, 7.5%.

My interest rate now, since my last refinance, is 4.25%.

Incidentally, since 1993?

My salary has more than doubled. There were some hard times along the way, including a year out of my primary profession in 1994-95, and a relatively low paying job from 1995 to 1998, but I'm doing OK. In fact, I'm doing so OK that I'm considered one of the "rich" by the Democrats.

Engsetter
January 1, 2004, 01:45 PM
“I think you're confusing inflation with the decline of the dollar against Euro.”
Well you must ask yourself; what is inflation? The drop against the Euro is a symptom.

“Eng. what is this the Carter years? What's the inflation rate now?”
The government says the inflation rate is around 2%. This is a fabrication of the truth as I see it. They calculate the inflation rate based on rent costs not home costs. They also don’t use energy and food costs as part of the equation. Inflation rate is probably over 15%

“Would not a little more inflation be good right now?”
Well, if inflation was truly not being hidden then we would have much higher loan interest rates. The country is going into debt by $2 billion plus per day (1/2 trillion since March) and the printing presses are in high gear pumping out 4.6 billion in cash every week (created from nothing, add that up). We have inflation but a lot more than most think.

Engsetter
January 1, 2004, 05:34 PM
“Where did you get such unique figures?”
I don’t remember where I read 50% since 2000, but I can at least give you an article corroborating the 30% loss for this year http://www.house.gov/paul/tst/tst2003/tst120803.htm “The Disappearing Dollar”

“I paid $154,900 for my home in November 1993.”
So, I was pretty close to right. I don’t know what the dollar did between the years 1993 to 2000 but it was stronger, at least until the year 1998. You said your house probably had a $40,000 increase in worth in 8 months. Does this not indicate to you something is wrong?

“My salary has more than doubled.”
In general most people’s salaries did close to the same during that period give or take a few years. But today salaries generally have not increased at the rate of inflation.

“My interest rate now, since my last refinance, is 4.25%.”
Home and personal debt is at an all-time high right now. Many people took advantage of the low interest rates but instead of refinancing the original mortgage principle, they also took additional money based on the latest value of the house and bought new cars etc.

It does not matter whether we borrow or whether the gubmnt borrows or takes money from us through inflation, we can’t borrow our way to prosperity. Collectively we are spending much more money than what is coming in (edit - I meant spending more than saving) that can’t continue forever.

When I said “It’s all an illusion” what I meant was debt-driven growth is a trap and I believe it’s going to get worse. We are paper rich but dollar poor.

Art Eatman
January 1, 2004, 06:54 PM
Some of us are making out quite well, like Mike (and me), but some ain't. That's why I try to leave my own situation out of my viewpoints and judgements about "the economy".

I try to follow the "regular" news views of the overall economy, as well as the contrarians ("The Daily Reckoning", for example. It's on the Web, and does daily emails.) I like to believe this lets me do more of my own assessing about "reality".

I guess I'll always be naive enough to believe that a trainload of unpaid debt is bad, whether at personal or governmental level.

I also tend to look beyond the immediate good times, wondering about the future. When I read that China's need for oil is doubling every few years, or that our imports of natural gas are climbing at a steady rate, I'm indisposed to give serious consideration to a big pickup or SUV. Increases in natural gas prices means higher electricity costs, as well as higher costs of plastics. And OPEC is mumbling about pricing oil in Euros...

Dollar down, exports up? Trouble is, nowadays, fewer of our exports are produced by the more highly-paid blue collar workers. And, generally, a smaller percentage of our workforce is employed in export-related businesses. (No specific references, here. Just the gist of what I've read during the last several years.)

I'm debt-free, and intend to stay that way...

:), Art

Bob Locke
January 1, 2004, 07:30 PM
All I really know is this:

I'm the father of four wonderful kids (10, 8, 6, and 3), the husband of a great wife who doesn't work outside the home, and we have more disposable income right now than at any other point in our 13+ years of being married.

I made more money this year than any other in my life by a margin of over $10,000, we own a nice home (well, the bank owns it and we're paying them for it, like most folks), and I just bought a 2004 Chevy Silverado 2500 crew cab the day after Thanksgiving.

I like my job, coworkers, and bosses, have really good benefits at work, and we have 9 years left on a 10-year contract with Colorado Public Service to produce electricity for them so we've all got some pretty good job security. At the end of those 9 years, if we hold to our plan, we'll own this house free and clear, so it won't much matter what happens with PSCO at that point.

In short, from where I'm sitting things are pretty darn good! :D

And I'm thankful each and every day, even the ones that suck at work!

Now if I could just get Unlce Sam to let me opt out of Social Security...

JohnBT
January 1, 2004, 08:41 PM
"Well you must ask yourself; what is inflation?"

No. Sorry. I know what inflation is.

John

ARperson
January 1, 2004, 10:17 PM
The whole "jobless" argument against an improving economy right now is a little premature. Jobs are the last part of an improving economy to be seen. Couldn't it just be, maybe, that we aren't yet at that point in the economy where the jobs are being created? But couldn't the economy still conceivably be improving towards that point? Maybe? Ya think? :rolleyes:

As for the whole "rich" thing. I'm sick of people who made decisions and are living with the consequences use their jealousy as motivation for taking more of my money. One of my tenants is living paycheck to paycheck and trying to bail on of his daughters (3 of them total) out of some of her poor decision-making. He's Democrat big-time because he thinks the Republicans are "big business" and against the working guy. And yet, he's the one who decided to leave the Army while more than half way through the requisite 20 years for retirement benefits (at least that's what I think the time frame is). And now he's working 6 days a week, 10 hours a day. Why? Because he chose to. Why is that my fault?

And my husband works with a bunch of liberals who complain about their taxes but don't do diddly squat to change it (voting for more fiscally conservative candidates) or shelter it (real estate, other investments, etc.). Also, these same nimrods spend almost every dime of their disposable income on toys and things and maybe only contribute a fraction to savings. They aren't planning for their future like we are. They aren't making decisions today that will (hopefully) result in residual income (meaning I don't have to work in order for the income to come in) for tomorrow.

I hate the poor people mentality. :fire:

Mike Irwin
January 1, 2004, 10:36 PM
"Does this not indicate to you something is wrong?"

No, it indicates to me that I live in one of the hottest housing markets in the nation -- Washington, DC, metro.

There's absolutely nothing wrong with that.

Here's a sad fact for you...

The dollar waxes and wanes internationally -- any currency does, and it happens largely independent of a nation's internal economic health.

Your figures for inflation, however, are still VASTLY overinflate. If I were to take your figures at face value, even given my salary performance over the past 5 years, I'd be unable to buy gas for my car, buy food for my table, put clothes on my back, pay the mortgage on my house, etc. They would all be priced well beyond my ability to pay. But that's not the case.

You're right on one thing -- we can't borrow our way to prosperity.

That's why about 35% of my pre-tax salary goes right into long-term savings -- 401K, IRA, other mutual funds.

"We are paper rich but dollar poor."

Speak for yourself, Homer. Isn't the case inside my front door.



Art,

"That's why I try to leave my own situation out of my viewpoints and judgements about "the economy"."

That's the only economy I care about, so of course I'm going to use it as my benchmark. :D


The funny thing about all of this is that we're coming very close to getting right back to parity with where we were during the supposed "best of times" that the Democrats wrongly claim to have created.

And now that that's happening, the Democrats aren't lauding themselves with how wonderful things are, they're screaming bloody murder about how bad things are.

Makes you wonder how well we were really doing under the Democrats, doesn't it?

And just how much they were looking out for the "little guy" that they're always claiming the Republicans are crushing.

w4rma
January 1, 2004, 10:53 PM
Gas has gone up in price about 200%, correct? The dollar is worth about 75% of what it used to be worth next to the Euro and other foreign currencies, correct? Prices on pretty much everything have been going up instead of down, despite all of the factory and more and more of the accounting and engineering being hired in China, India, Mexico, Indonesia, etc.

Ken Lay and Enron's upper management (except for Baxter who was supposed to be testifying in front of Congress but was found in his car with a suicide note, shot in the head from ~2 (http://www.whatreallyhappened.com/baxterautopsy.html) feet away) are still free, making money on their money and are not only not bankrupt, but filthy rich.

Real estate and houses are either costing more or worth more depending on whether you are buying or selling.

Folks pay payroll taxes on their labor up until their labor is worth more than $85,000. After that you are payroll tax free. Note the payroll tax is about 15%, and yet the tax cuts cut the income tax rates of folks making well over $85K, instead of cutting the payroll tax. So now folks who make over $85K are paying a smaller percentage of taxes than folks who are making under $85K who are being double taxed by the income tax and the payroll tax. Folks who have so much money that all of their money is made in the stock market, now pay much less or no taxes on those capital gains.

America is being run into the ground, because America is becoming an more and more of an aristocracy instead of a meritocracy and many of you folks are not only letting this happen but cheering it on.

You just remember that aristocracies are *NOT* democratic-republics the next time Congress takes away more of your rights.

Art Eatman
January 1, 2004, 11:28 PM
I sometimes I wish I was more into taking notes about year-to-year costs. I wonder what the annual increases in price have been for various models of rifles, pistols and shotguns, with one factor being comparative finish. Are the increases less than the 2% or 3% rates of inflation of which we're told?

I'm positive the increases in cost of motor oil seriously exceed 3%, over the last five years, although filters seem to be holding constant.

Light truck prices seem to have increased more than 3% or 4%, particularly the 4WD variety.

I ran across an article which noted that most governmental employees or receivers of government benefits get paid monthly. These amounts of money are unaffected by ups and downs in the economy, and discretionary spending by the recipients is relatively constant. A large segment of the private sector employees get paid on the 1st and 15th. WalMart, then, supposedly closely watches their sales on the 15th and the days following. This gives them a pretty good clue on variations in the amount of discretionary spending by private sector folks. During the latter half of 2003, these sales were down compared to prior years...

I guess it's fair to say that from an economic standpoint we certainly do live in the proverbial Interesting Times.

Art

Bob Locke
January 2, 2004, 12:36 AM
Gas has gone up in price about 200%, correct?
In what time frame? That's a vague question. Sure gas has doubled, but it's been many, MANY years, not a couple.

I note your comments about taxes, w4rma, and would hasten to point out that the vast majority of those taxes (about 80%, give or take) go to non-defense spending. Most of that goes to social programs foisted on us by people who have the idea that government ought to do for us what we should be doing for ourselves. I believe Howard Dean is pretty well encamped among those folks.

It is not the role of the government to take from one person and give to another. That's called stealing, and doing so under the color of law doesn't make it any less wrong. If you do not provide a service to me, then I should be under no legal obligation to fork over one red cent to you.

If I had it my way on taxes, everyone would get one bill for their full federal income and FICA taxes instead of piecing it out over a year. We'd get a whole new perspective about what the role of the government ought to be, and in a hurry.

Bill Hook
January 2, 2004, 01:04 AM
Gas has gone up in price about 200%, correct?

IIRC, this started around 1999, well within the Klinton era, particularly since the lack of refineries due to more stringent regulations and the increased burden of reformulating gas for various regions and metro areas, a legacy of the "democrats" and their thoughtful approach to regulations, increased production costs. The oil companies DO seem to be milking it, but guess who gave them the excuse? :rolleyes:

Oh, it's also more like 50-75%, since gas still isn't $3/gal.




If I had it my way on taxes, everyone would get one bill for their full federal income and FICA taxes instead of piecing it out over a year. We'd get a whole new perspective about what the role of the government ought to be, and in a hurry.

Neal Boortz says this all the time. :cool:

FRIZ
January 2, 2004, 01:21 AM
BusinessWeek
JANUARY 12, 2004

How The Skeptics Missed The Power Of Productivity
By Gary S. Becker

Happy New Year. More job and productivity growth is coming

http://www.businessweek.com/@@NIo48GQQ2foURgQA/premium/content/04_02/b3865016_mz007.htm

During most of 2002 and early 2003, many pessimists among business and academic economists, Democratic politicians, and media pundits worried about the slowdown in the U.S. In retrospect, it is amusing how many comparisons were drawn between the U.S. recovery and Japan's long stagnation. But the general concern was that the world's largest economy would stagnate for years, dragging down the global economy.

Since a few American price indexes briefly declined, there was a fear even among some Federal Reserve officials that price deflation would further depress the economy. Also emphasized was the sharp decline in payroll employment and a rise in unemployment, to 6.4%, from a low reached during the '90s of less than 4%.

YET I CONTINUED TO ARGUE that pessimists overlooked crucial factors that made the performance impressive, despite the recession and slow recovery. The U.S. had been exposed to a rapid series of devastating shocks that would have sunk much weaker economies. These began with the collapse of the high-tech bubble, fed by unrealistic expectations that drove stock prices and investments in various industries to ridiculous heights. Then came the deadly, unanticipated September 11 attacks, the subsequent war against the Taliban and Al Qaeda in Afghanistan, the war with Iraq, and a difficult postwar occupation. Last but far from least were the accounting frauds at Enron, WorldCom, and other companies that shook world confidence in American business.

Nevertheless, the recession that began in March, 2001, officially lasted only eight months. The subsequent recovery was slow, although not unusually so, and total output grew during the entire recovery. The most disturbing feature was the sharp decline in employment seen in the Bureau of Labor Statistics payroll data. According to the bureau's household survey, the unemployment rate's peak was well under peaks reached in most prior U.S. recessions.

The pessimists went wrong because they overlooked an encouraging statistic that continued during bad times: a rapid improvement in productivity. Measured productivity usually falls sharply during recessions and early stages of recoveries, partly because of unused capacity of equipment, plants, and employed workers. Yet even though 1995-2000 had unusually high productivity growth, productivity accelerated rather than slowed during most of the recession and recovery. Labor productivity in the third quarter of 2003 grew at an annual rate of 9.4%, the highest quarterly rate in decades.

This productivity growth is the key measure and reflection of the enormous underlying strengths of the U.S. economy. Its prime movers are the entrepreneurial spirit, worker flexibility and dynamism, and relatively free and open markets that allowed the economy to benefit from the technological revolution brought about by the computer, Internet, wireless communications, biotech, and other recent major innovations. The much-criticized Bush tax cuts will definitely help the economy grow more rapidly in the longer run, but they probably played a small role during this recovery.

Forecasting short-term movements in the economy is difficult, but readers expect crystal ball-gazing from economists at the beginning of a new year. So here are my brief assessments of the prospects for 2004. Productivity and aggregate output should grow at a rapid rate, although neither will be close to the third quarter of 2003. Employment will also continue to improve, and unemployment will decline considerably below the current level of a little under 6%.

If the American economy meets these expectations, it will greatly benefit the rest of the world, as U.S. industry and consumers import more goods, materials, and capital equipment. More important, it will show that nothing about modern economic conditions prevents rapid output and productivity growth in Europe, Japan, and other rich economies.

Foolish regulatory, taxation, and bankruptcy policies -- not underlying economic forces -- caused these economies to stagnate during the past decade. The recent liberalization of labor markets and lower taxes in Germany and a few other European economies, along with Japan's gradual willingness to tackle its banking crisis and regulatory burden, are hopeful signs. These nations too finally may begin to take much better advantage of the great economic potential offered by modern technologies and knowledge.


Gary S. Becker, the 1992 Nobel laureate, teaches at the University of Chicago and is a Fellow of the Hoover Institution.

Mike Irwin
January 2, 2004, 01:53 AM
If the price for gas were adjusted to keep up with inflation, over the past 15 years, it would be currently priced somewhere on the high side of $2.50 a gallon, IIRC.

I paid $1.399 a few days ago.

cracked butt
January 2, 2004, 09:19 AM
I think the so-called 'bad economy' has been more hype than substance.
-I bought my house 3 years ago- its gone up by 25% in value since then.
-I had a 15% return in my stock market investments in 2003.
-When I go back to work on monday for 2004, my salary will be 17% higher than it was in 2003, as I will be working more hours because my company currently has more production scheduled for 2004 than it can handle.
-My salary has doubled in the last 5 years.
-My wife's salary has doubled in the last 5 years.


Some observations about the economy:
- unemployment around 6%: The typical unemployment rate in the best times is around 4.5-5%- these are mostly people who are able to work but are not actively pursuing employemet. These include people on seasonal or yearly scheduled layoffs, college students, and a certain group of people who are too 'good' to work. That leaves us with 1-1.5% who are legitimately jobless and in want of a job. This figure is not too terrible when you consider that Germany currently has an unemployment rate in the double digits.
-Stock market: crashed a few years ago due to corporate shenanigans, overvaluation of stocks by people who had no idea what they were buying, and a shakedown by the former administrations DOJ of one of the most productive companies in the country. People lost some confidence in the economy and withdrew. Over the last 1.5 years, the stock markets have recovered, and market indices are near to what they were in 2000- this time built on value not just hype.
-Housing: With the continued rise in real estate values and incredibly low finance rates, alot of people not only bought their first home, but have seen returns on their investment almost immediately.




Everytime I hear about how bad the economy is doing, I roll my eyes. Most of the time the mantra comes from people who have been brainwashed by the media while watching Jennings, Rather et al on their big screen TVs in their $250,000 homes.

JohnBT
January 2, 2004, 09:33 AM
Art - I don't know how to compare the prices of firearms over the years because I can't figure out how to factor in the expense of lawsuits and such.

On gas prices... When did they double? During the OPEC embargo?

Yup, gas prices have been falling hereabouts. I paid $1.36 on Christmas Eve over in the Valley near I-81 and locally the 7-11 is getting $1.39 for regular. And it's cheaper in the suburbs I hear. As far as I'm concerned anything under a buck and a half is reasonable. Live to far from work like some of my coworkers? Move closer.

I remember when gas was 18 cents a gallon, but that was during a price war in 1970. The regular price was about twice that. Then we hit the OPEC embargo a few years later and prices went waaaay up and you could only buy gas every other day depending on whether your license plate was odd or even.

The economy runs in cycles and this hasn't been a particularly bad downturn compared to some of the other rough patches I've seen. I guess I've learned that things are never as bad as they seem and they will change if you work at it - my parents and grandparents were always there to tell me about the Depression if I worried too much.

I'll always be in the camp that says pay cash and don't borrow except maybe for a home. I do wish the government would lean a little more in this direction, but I'm not holding my breath while I wait.

To quote a U.S. government promotion from WWII:

Use it up
Wear it out
Make it do
Or do without

But then they had rationing and restrictions on lots of things during that war, compared to our land of Supersized consumer goods..

John...there are things we could improve, but I don't believe the sky is falling.

Art Eatman
January 2, 2004, 12:34 PM
A few points, of no particular great importance, but just points to ponder:

Even in the 1930s, some folks--besides the bootleggers--increased their wealth; some stocks went up. I note that many consider the recent runup in the Dow to be a "Bear market bounce"; it's something to take advantage of, so long as one is able sell before any further bear market drop.

The records of Insider Sales have corporate executives, right now, selling some $34 worth of stock for each $1 bought. As I commented earlier, corporate profitability is very poor.

There is the acknowledged unemployment rate. To this, add those who could or would work but have given up on looking. Further, add in those who are "under-employed"; working much less than the usual 40-hour week and who are on the ragged edge as to income. I have read that this accumulates toward eleven or twelve percent of the workforce.

Art

JohnBT
January 2, 2004, 06:32 PM
"Even in the 1930s, some folks--besides the bootleggers--increased their
wealth"

Funny you should mention that. I recently looked through some of the records of my grandfather's apple business going back to about 1900. He and his 2 brothers owned the family orchard and it was their lifelong daily labor until their bodies gave out.

What I found interesting was that they did their best business during the Depression and in a couple of those years they made 2 $10,000 sales to England. Not bad money back then if you owned the land and were more or less self sufficient.

Seems the Queen and her court had developed a fondness for Albemarle Pippin apples and my dad's family had some 1500 apple trees at the base of Heard's Mtn. on Hungrytown Road south of Charlottesville, VA. My grandfather always called it Apple Valley, but it's still on the map the other way - a deadend dirt road that follows the creek back into the mountains about 1.5 miles. Ten grand must have looked like a fortune even split 4 ways - 3 for the brothers and 1 for operating expenses. Twenty grand in one year must have been something to see.

OTOH, the apple business wasn't so good after WWII when everything else was booming. They eventually got out of the business in the '60s.

John

Soap
January 2, 2004, 08:46 PM
The government says the inflation rate is around 2%. This is a fabrication of the truth as I see it. They calculate the inflation rate based on rent costs not home costs. They also don’t use energy and food costs as part of the equation. Inflation rate is probably over 15%

That's interesting you should say that. I've always thought that the rate of inflation was calculated using the Consumer Price Index. CPI includes things such as housing and food. I can't find a definitive list but when I do, I'll post it. CPI does have its flaws though, such as the quality bias.

So, I was pretty close to right. I don’t know what the dollar did between the years 1993 to 2000 but it was stronger, at least until the year 1998. You said your house probably had a $40,000 increase in worth in 8 months. Does this not indicate to you something is wrong?

What do you think is wrong? Trying to pin the 40K increase on a single issue, i.e., the strength of the fiat dollar is very difficult. His property could have been undervalued or he may have had improvements done that significantly raised the value of the home.

It does not matter whether we borrow or whether the gubmnt borrows or takes money from us through inflation, we can’t borrow our way to prosperity.

Well...in general that is true. But not always. Many companies use leverage to increase the value of the company. An individual can use leverage as well. But the individual needs to find investment gains past the rate of interest. Probably about 99.9% of all people cannot do this regularly.

When I said “It’s all an illusion” what I meant was debt-driven growth is a trap and I believe it’s going to get worse. We are paper rich but dollar poor.

Wealth is always an "illusion" since it is based on contract. Money is an I.O.U. Money is debt. The more one understands this, the more comfortable one becomes in dealing with this reality.

PlayTheAces
January 2, 2004, 08:48 PM
I've been out of college more years than I care to think about, but this thread did bring to mind something an old economics professer once told our class. Something I never forgot.

His contention was that if all the money in the world was gathered up and equally divided among every living person, that within a generation most of the people that had the money initially would have it back, and most of the poor would once again be poor.

Made sense to me then - makes sense to me thirty years later.

BigG
January 2, 2004, 10:32 PM
This is the kind of stuff that makes a horse race. Now, which one do you bet on? ;)

Art Eatman
January 3, 2004, 12:28 AM
Ah, the good old CPI!

The people setting the criteria claim that if the price of namebrand canned veggies goes up any notable amount, Mrs. Housewife will then switch to generic canned veggies, thus lowering that part of the CPI.

Duh? This guy is obviously not married.

:D, Art

Mike Irwin
January 3, 2004, 01:08 AM
Cripes, I buy store brand vegetables already.

Why?

Because Harris Teeter's store brand for most vegetables are better than the name brands.

Engsetter
January 3, 2004, 04:30 AM
-------------------------
“That's interesting you should say that. I've always thought that the rate of inflation was calculated using the Consumer Price Index. CPI includes things such as housing and food. I can't find a definitive list but when I do, I'll post it. CPI does have its flaws though, such as the quality bias.”

Yes the CPI includes housing and food. However, they are using the CORE CPI instead which is a special index that excludes the price of food and energy. The core index uses rent instead of house prices also.
-------------------------
-------------------------
“What do you think is wrong? Trying to pin the 40K increase on a single issue, i.e., the strength of the fiat dollar is very difficult. His property could have been undervalued or he may have had improvements done that significantly raised the value of the home.”

What is wrong? A $40,000 increase in 8 months, increased house values of double over 5-10 years. I think the dollar is being devalued through both inflation and deflation at the time (some call it stagflation). As a result house prices are inflated and other goods remain seemingly close to the same cost (but that’s starting to change) Your dollar is worth less and less every day.
-------------------------
-------------------------
“Well...in general that is true. But not always. Many companies use leverage to increase the value of the company. An individual can use leverage as well. But the individual needs to find investment gains past the rate of interest. Probably about 99.9% of all people cannot do this regularly.”

Well if you want to get technical, when you buy a house after you give the bank your down payment you leverage the rest of the money, in this case you use someone else’s money (the banks money created from nothing through fractional lending).

Yes, an investor tries to find investments that stay ahead of his devaluating dollar. Someone else gets poorer and someone else gets richer, and you hope the rich someone is going to be you. Funny how the stock market is increasing today and people are excited that they are getting some of the value back into their accounts. But as I said before since the value of the dollar is less; any increase is about 1/2 of what you think it gained since the latest market correction.
-------------------------
-------------------------
“Wealth is always an "illusion" since it is based on contract. Money is an I.O.U. Money is debt. The more one understands this, the more comfortable one becomes in dealing with this reality.”

That is right, it is debt money. The rich get richer and the poor get poorer. Why? I’ll try to use an analogous story. Now for the purposes of this story there are only two people in the world. There is a banker who can create money from nothing, and Engsetter, who owns only a ballpoint pen and the clothes on his back.

“The Rich Banker vs. Poor Engsetter”:
Daniel is the banker. Poor old Engsetter needs a loan for some reason (go with me on this one). The loan won’t really be that much, around a dollar is needed. Daniel agrees to lend me $1.00 at 10% interest for 1 year, but requires collateral. Well the only thing of value I can use for collateral is my ballpoint pen. Daniel the banker agrees and Engsetter goes happily away with his loaned (created from nothing) dollar, the only dollar in existence. Man did the year fly by and now I need to repay my loan. Daniel the banker asks for his dollar plus 10% interest. Since the bank requires debt notes as payment, how is Engsetter to pay this interest? Remember I have the only dollar in existence. Since I cannot repay the dollar with interest, Daniel requires forfeit of the item I put up for collateral. The only way I can keep the ballpoint pen is to sign another year contract for $1.10 at 10% interest and use the ballpoint pen and additionally the shirt on my back as collateral. No matter what Daniel the rich banker owns me - I will eventually lose my ballpoint pen and all the clothes I wear. I will own nothing.

Now back to reality. In today’s world, if you don’t carry debt someone else now carries the debt you used to carry. The only real wealth being injected into today system is raw materials obtained by exploiting the earth and then usually selling those raw materials to someone who turns those materials into goods people want. When this country is a debtor nation (and are we ever) with our dollar as the world standard reserve currency. By trying to create wealth using debt-driven growth creates major problems with banking systems around the world. What happens there and at home? Bankruptcies, forclosures, inflation, deflation, hyperinflation (look at Zimbabwe and Argentina today) recessions, depressions, banks going out of business, other banks getting rich, companies going out of business, companies and jobs leaving the country, unemployment, increasing poverty, house prices rise carrying the debt, stock markets rise and crash, corrections of all different kinds and I have only touched on few. Why? Because the dollar is a fiat system backed by nothing.

What our gubmnt is doing is extending the problem for who knows how many more days, months, or years, but a correction will come. We are paying for this extension now and will also pay for the resulting correction in the future, but it will be much harder felt. The rich will get richer (because they prepare), some average folks will get richer (because they prepared also), and the poor, well they will get poorer.

JohnBT
January 3, 2004, 07:44 AM
"In today’s world, if you don’t carry debt someone else now carries the debt you used to carry."

After 30 years of full-time work I don't have any debt. My home is paid for, the balance on the 100-and-some-odd-thousand home equity line is zero, my one credit card has a balance of zero and I paid cash for a new Subaru Forester 2 years ago.

The assessment on my 85-y-old house has gone from 107k to 198.5k in 2 years. The new assessment is due this month and the old neighborhood is still HOT - this is getting expensive for a 1350 sq.ft. house. There are 5000 old buildings around me and they typically sell about the time for sale signs go up. I liked my tax bill better in 1980 when the assessment was 37k.

Please explain who is carrying the debt I used to carry. I don't get it. Are they still making payments on my stuff even though it's paid off?

I guess I just don't understand how the whole money and debt thing works. :)

John
__________

Inflation? What Inflation?...There isn't and hasn't been any for some time. The Fed would like to have about 3% IIRC, but has been worried until recently about deflation. Note that the Core Rate experienced its first DROP since 1982.

From today's AP wire reports:

"Just days after the Fed changed its stance on deflation, the Labor Department issued a report that showed the Consumer Price Index, the government's widely followed measure of inflation, fell 0.2 percent in November. That pulled the year-over-year pace down to 1.8 percent from 2 percent.

And the core rate of inflation - subtracting out the volatile food and energy categories - was off 0.1 percent, its first drop since December 1982.

In addition, 40 percent of the components in the core Consumer Price Index are flat or negative from a year ago, according to David Rosenberg, chief North American economist at Merrill Lynch. That includes an 11.3 percent slump in used-car prices, which are deflating at a pace not seen since February 1961. Apparel and furniture prices were also down."

Art Eatman
January 3, 2004, 10:14 AM
"That includes an 11.3 percent slump in used-car prices, which are deflating at a pace not seen since February 1961. Apparel and furniture prices were also down."

I agree that this is good for consumers. However, to me, it raises the question about the number of jobs at car lots and in the apparel and furniture business. I note that Asia supplies a high percentage of our clothing, and has strongly impacted US furniture manufacture.

The US is still the world leader in exporting ideas. Software comes to mind, along with music and movies. These do not rely on natural resources. However, it does mean a shift in comparative incomes, increasing for those with more intelligence and imagination. The trouble here is that one-half the population is below average in smarts. IMO, the economic pyramid is changing its shape; the sides are becoming concave, with a much wider base at the low end.

Art

Mike Irwin
January 3, 2004, 11:15 AM
"I think the dollar is being devalued through both inflation and deflation at the time (some call it stagflation). As a result house prices are inflated and other goods remain seemingly close to the same cost (but that’s starting to change) Your dollar is worth less and less every day."

That's a ludicrous statement.

Housing prices are driving by DEMAND.

No demand equals falling prices, which was the case in 1993. Houses were sitting on the market for months, unpurchased, the same with commercial real estate. I paid $154,900 for a home that the previous residents had paid $179,000 for 5 years earlier.

High demand equals skyrocketing prices -- the situation where I am right now. Homes frequently have 3 or more people BIDDING on them. Homes in my area have gone on the market at $279,000 and sold for $299,000 because people bid up the price.

In 1993 the economic picture is thought to have been just as bleak as it was over the last 20 months -- except over the past 20 months of a "horrible economy" as the Democrats have been calling it, housing sales and starts have remained near all time highs while mortgage rates are near all-time lows.

I don't know what you're talking about, and I seriously suspect that you have no clue, either, because your statements simply don't make ANY sense.

If what you claim was even remotely true, the effect would NOT be seen in a single segment of the economy -- it would be seen across all hard-good sectors -- food, clothing, housing, durable products, etc.

Stagflation is a slowing in the growth of the economy accompanied by a rise in prices across the entire economic base, NOT in targeted markets.

Has the economy slowed over the past couple of years? Yes.

Have some prices risen dramatically? Yes. Housing, driving by high demand and record low interest rates.

Have some prices fluctuated dramatically? Yes, gasoline, home heating oil, natural gas, but all have seen a general downward trend over the past 16 months.

Have other prices remained stagnant or risen only marginally? Yes. Clothing, food, durable goods, and other segments have showed marginal increases in prices.

Now that the economy is showing signs of life again, what's happening?

Housing prices are remaining high, even though interest rates have risen. Gas, fuel oil, and natural gas are seeing seasonal fluctuations. Gasoline has dropped by about 15 cents a gallon natiaonlly in the past 4 months.

Clothing, food, durable goods, etc., prices have remained pretty constant.

Mike Irwin
January 3, 2004, 11:28 AM
The "core" rate removes food and energy components from the figures.

All others, housing, transportation, medical care, etc., remain.

If what you are saying is true, and inflation is a direct measure of the rise in home prices based solely on demand, then the inflation rate would A) be in the 40 to 50 percent range (small, South American banana republic, anyone?) and B) that inflation rate would also be driving not only housing, but also food, transportation, medical care, clothing, etc.; every sector of the economy.

That's simply not the case here.

Housing prices are moving OUTSIDE of inflation rates -- the market is completely skewed, and that's why housing prices are simply not a reliable indicator of either inflation rates or inflationary trends.

Mike Irwin
January 3, 2004, 11:29 AM
Hey, can anyone spare $72.50 for a stamp?

I have to mail a letter...

Soap
January 3, 2004, 12:22 PM
Interesting discussion. There is a lot of things that one can't learn in econ class. Another reason why I love THR!

JohnBT
January 4, 2004, 11:06 AM
"Have some prices risen dramatically? Yes. Housing, driving by high demand and record low interest rates."

Something else I've seen, although maybe it's just around here, is parents buying houses for kids. It appears to me they're using money that they either had in the stock market or money that they would have put in the market and are buying houses instead. (The surge in 2nd and 3rd home vacation properties is likely due to scared stock market money going elsewhere, too.)

Of the 14 houses on my short block, I see three that have some parental involvement. Don't get me wrong, the young marrieds/college students/medical students appear to be making the payments, but I don't think they bought the three most expensive renovated properties all by themselves.

Do I have proof? No. Do I need any? No.

Do your parents come by and trim the ivy and the bushes in front of your home when you aren't there? Does your dad come by every other day to meet with the plumber, the painter and roofing contractor? Does you dad come by and organize the leaf raking in your yard? :) Maybe I'm just not living right.

Just an observation.

Engsetter
January 5, 2004, 08:38 PM
“Please explain who is carrying the debt I used to carry. I don't get it. Are they still making payments on my stuff even though it's paid off?”

Ok, back to the story of “The Rich Banker vs. Poor Engsetter” The story is now revised to include a third person named John. John is wealthy he has one ballpoint pen, two pencils and the clothes on his back.

“The continuation of the Rich Banker vs. Poor Engsetter”
A month later for reasons known to wealthy John, he wants my ballpoint pen. John talks to me about it and I tell him I want $0.50 and one of his pencils. John caves into his ballpoint pen obsession and pays Daniel the banker a visit. John signs an agreement for a loan of $0.50 at 10% interest with one of his pencils as collateral. John, bless his heart makes the exchange with me. I get $0.50 and a pencil and John gets another ballpoint pen. After the exchange I pay Daniel the banker a visit and hand over that evil dollar I’ve been carrying for over a year along with $0.11 ($1.10 plus one month’s interest) the loan is satisfied and I am FREE. Poor John doesn’t know why I started calling him Poor John. Poor John is in big trouble as I Engsetter vow to never get a loan again. And I now have a pencil and $0.39. In effect John now carries my debt. At the end of the year he will have to decide if HE wants to cut his losses by giving up the pencil he used as collateral.

Looking at the above story Poor John is not making all the payments on Engsetter’s stuff as Engsetter could not spend the dollar until Poor John came into the picture. If Engsetter could have spent the dollar on something else, then in order for his debt to be fully paid he would have needed John to carry more debt in order to make the full debt payment.

Since the dollar was still in Engsetter’s possession he was able to use that dollar to satisfy the obligation and close the loan. The loan agreement Poor John signed to obtain debt money that was used to obtain Engsetters ballpoint pen effectively transferred Engsetters original interest obligation to him. Poor John is now the one that must deal with the banker not Engsetter. My debt is now Poor Johns

Extrapolate the story to include more people and you will see that debt money is transferred around from person to person and business to business based on wants and needs. When it becomes difficult to obtain these debt dollars from others many times the only outlet is personal and business bankruptcy, foreclosures etc. these corrections are the result of a debt money system.

------------------------
“Inflation? What Inflation?...There isn't and hasn't been any for some time. The Fed would like to have about 3% IIRC, but has been worried until recently about deflation. Note that the Core Rate experienced its first DROP since 1982.”

My definition of inflation is an increase in the paper money supply which was created from nothing as this increase devalues your dollar. Inflation always causes higher prices. Higher prices are not inflation itself. Higher prices are the results of inflation. I’m not exactly sure why inflation has not really appeared in many daily items everyone uses but I’ll bet we will see price inflation in these goods this year, kind of a lagging effect. The Fed printing press has been in full swing. The new Fed-created money roughly equals the amount of consumer debt extended

In the 1970’s $1.5 new dollars generated $1 new dollar in GDP. In 2001, the ratio was $5.0 new dollars to one. In 2nd quarter of 2003, the ratio grew to $6.5 new dollars to one this summer. Now it takes $7.

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