I really didn't have time for the usual format, I hope this will do. Please read the fact checks as they add important points and correct some details.
I'm ill as hell today. Still managed to finish it though!
Rough Transcript: Remember the movie back to the future 2? The villain uses a time machine to go back 30 years and change the timeline.
In the alternate timeline, the good guys are either dead or subjugated by the villain, who is so powerful he can essentially do whatever he wants.
The people of the alternate timeline are oblivious to how they ended up in that mess and just assume it's the way things are meant to be.
This is kind of the same thing we see with government stimulus. Essentially, our future could go one of two ways: with stimulus, or without. When stimulus is applied, the result is that people are in worse shape, and don't recognize what they've lost by government altering the timeline.
Let me first say that I'm talking mostly in terms of fiscal stimulus here, like the TARP, Obama's $700b stimulus, and the upcoming $15B jobs bill. However, many of the things I'm about to say could be applied to monetary stimulus as well.
Let's pretend first that you're an investor in 2008 after the stocks, housing, and other asset prices have fallen dramatically. Things are uncertain, and you want to be very careful in reinvesting your money. You're going to choose businesses that look like they have a healthy outlook. You're going to research, and you're going to pick your next investment solely based on the profit it will yield.
Government, on the other hand, does the opposite: Stimulus projects are chosen not based on what will be the biggest wealth producer in the future, but by a myriad of other factors including: - Who paid what in campaign contributions - Is the business located in my district where it will employ my constituents - What the most influential lobbyists are saying - What the politician is currently invested in*
*I bet you didn't know that it's actually legal for politicians or their friends to invest in a business they know will benefit from an upcoming piece of legislation. They can therefore use your tax dollars to bolster a stock and enrich themselves.
A lot of economists reply to this and say: "So what? It doesn't matter what the money is spent on. As long as the money is being spent, it will create jobs and help the crisis." This is what the Keynesians call boosting "aggregate demand."
The problem with this is two fold 1) Jobs are not about babysitting people or generally killing their time and handing them a paycheck, they're about creating wealth. 2) The money comes from somewhere, and invariably is shunting money away from legitimate long-term investments
Let's talk about jobs. Like I said, jobs are about creating wealth. I'm going to use a quick example of how wealth is created, so you can understand how it is our standard of living rises.
Say I save up and buy an empty plot of land and some saplings for $1,000 dollars. I spend another $1,000 on labor and grow the trees for lumber. I sell the rights to the trees to a lumber company for $5,000. Did you see that? I just created $3,000 of wealth. It doesn't end there, either. The lumber company cuts the trees down and processes them into planks and blocks at a cost of $1,000 in labor, $1,000 in machinery costs, and resells all that wood for $10,000. They have just created a net of $3,000. The company they sold the wood to makes furniture in a factory at a cost of $2,000 for the labor, $1,000 for the machinery, and resells the pieces for $20,000. Another $7,000 is created.
The laborers and capital investors of this scenario added $13,000 in value. That value is reintroduced into the economy either through consumption or yet even more capital investment. Using my profits from my tree farm, I can now choose to spend another $2,000 and double the size of my business. Then I could put the other $1,000 in the bank and they might loan that money out to someone else who might start their own businesses.
When government ties up labor for its own purposes, that labor never creates as much wealth as it would in the private sector. This can be due to the laziness of government contractors or employees, but it's also due to the fact that the investor chooses projects based on yield whereas the government does not. Essentially, government money is primarily either paying people to work less productively or paying people not to work at all.
Therefore, the biggest problem with government spending is not the taxes, it's actually the loss of the fruits of the labor we would've gotten in the alternate scenario where government was smaller and employed fewer people.
Now let's talk about the money. 100% of these stimulus packages have essentially been lumped into the national debt. People know that debt is simply deferred taxation--that we're syphoning off our children's future in exchange for a better standard of living today. What you probably didn't count on is that even in the present, large deficits have repercussions.
The national debt is composed of bonds. Bonds can be bought by anyone, and in fact despite what you may have heard, most US bonds are held domestically by Americans and American institutions. The biggest foreign bondholder is Japan, followed by China.
The question that you need to ask is: where is the money for the bonds coming from? People invest in US treasury bonds because they're perceived as a secure investment. In fact, until recently, most investors wouldn't even fathom a future where US Bonds wouldn't be the most secure investment out there.
In spite of the ballooning debt, people are still buying these bonds. The question is, as an investor, if in an alternate timeline, the government weren't issuing bonds, where would your money be?
Unless these people are inclined to keep their money under their mattress, their money would either be in other, carefully-chosen investments or in a bank. What does a bank do with deposit money? It also carefully invests.
So basically, by issuing government bonds, the government ensures that those monies are not put into the wealth-producing private sector, but instead into the wealth-draining public sector.
Not only that, but there's the obvious problem with having to pay back those bondholders in the future, which is paradoxically better for the economy than the stimulus the debt was used to fund. (217,308)
[slide 1]Spending, Printing, and Debt are all interrelated. As I illustrated in part one, poor fiscal policy can lead to a inflation and even hyperinflation. I will briefly review this again.
[slide 2] Everybody knows that the more our government spends, the more indebted it becomes. This is because tax revenue doesn't come close to our spending. [slide 3] What most people don't know however, is that some of the fiscal shortfall is paid for by printing money. The government does not do this directly, as I will explain later, [slide 4]however the net effect is identical, and that is inflation.
[slide 5] Inflation decreases the value of currency, including the currency loaned out by lenders. [slide 6] The interest on bonds and loans then increase to entice the lenders back into lending. [slide 7] Higher interest rates mean higher service must be paid on any future debt. Since government bonds are mostly short term nowadays, this effects spending within a matter of months.
[slide 8] More spending leads to more debt, [slide 9] more debt leads to more interest payments, and [slide 10] you can see we're trapped in a vicious cycle.
[slide 11]You're probably wondering why, if this is going on, are we seeing some of the lowest interest rates ever.
[slide 12]Interest rates are determined by 3 things: The supply of loans, demand for loans, and inflation.
[slide 13] In an effort to stabilize the economy, The Federal Reserve is currently printing trillions of dollars and pumping it directly into the banks. [slide 14] In the short term, this will reduce interest rates. [slide 15] In the long term, however, all this newly printed money will lead to MASSIVE inflation. Eventually, interest rates will rise to an equilibrium with infaltion. At this point, we will be in a state of stagflation. [slide 16] The only way to get us out of [slide 17]it will be to do what we did the last time,[slide 18] and that's to stop printing money. This will lead to a record increase in interest rates, far greater than those we saw in the 1980's.
[slide 19] The high interest rates will lead initially to fewer people being able to take out loans to buy homes and cars. This will lead to a sharp and dramatic fall in home prices--possibly the lowest home prices ever. Since banks have tens of thousands of homes on their balance sheet, this will lead to massive mark-to-market losses. This, combined with the inability to loan money, will lead to massive bank failures and recession.
In addition, the government will be forced to raise interest rates on treasury bonds. You should know where it goes from here: The more debt service, the more spending, and therefore the more borrowing and printing. This will lead to a viscous cycle further exacerbating the situation.
[slide 20]To give you some perspective on the fiscal situation, the debt service for 2009 will be under $300 billion. The deficit will be about $2 thousand-billions. Keep in mind the current deficits include defense, social security, medicare, those enormous bailouts, as well as lots of other things.
After 2009 ends, the national debt will be at around $13 thousand-billion.
Interest rates will easily reach 15% at some point within the next few years, but let's be optimistic and say it happens in 2010. 15% of 13 trillion dollars is nearly $2 thousand-billion. Keep in mind, the deficit for 2010 would have to include all the other fiscal shortfalls we had in 2009.
[slide 11] Because of the nature of the relationship between these forces, many believe that a high rate of inflation and maybe even hyperinflation could occur quickly and without much warning from the economic numbers.
[slide 12] Unlike the stagflation that occurred during the late 1970's and early 1980's, we will not be able to escape from the inflation by borrowing money instead of printing it. Instead, the only option will be to do what many have suggested for years and just [slide 13]cut spending.
[slide 14a] As I explained in part 2, cutting spending has always been unpopular, which is why the government budget rarely does anything but grow. Americans overwhelmingly agree that they want to keep expanding [slide 14a-ss]social security, [slide 14a-med]medicare, and [slide 14a-sd]a strong defense--all while paying low taxes.[slide 14b] It is undeniable that this situation is unsustainable. What's scary is imagining what it will take for this cycle to meet its end.
[slide 15] During the Great Depression, many unusual laws and regulations were enacted in an attempt to restore our economy. This is likely to be repeated in our current crisis, however, like then it will be disastrous.
[slide 16]In the 1930's under presidents Hoover and Roosevelt, government grew enormous and struggled to find revenue. [slide 18a - US import tax w/hoover face] Herbert Hoover enacted record tax increases on income and imports. The Smoot-Hawley Tariff passed in 1930 was the largest peacetime tax increase on imports in American history. [slide 18b - foreign import tax] This lead to a retaliation in the form of import taxes in other countries and therefore ultimately meant a reduction in US exports. In 1932, Hoover doubled the income tax, raising the tax rate on the wealthy especially.
[slide 17a-'it all started with tires'] Already, we can see that our current president is following the historical example set by Hoover. Obama has increased income taxes on those he deems 'wealthy' and recently, he sparked an international trade dispute by placing a 35% import tax on tires. [slide 17b-retaliation] Like the Smoot-Hawley tariff, this assault on free trade was met with threats of reciprocation in tariffs. If these countries follow through, this would have a devastating effect on our already vulnerable economy.
[slide 18] When FDR took office in 1933, he continued to increase taxes and spending, but not before he issued an executive order to confiscate all privately owned Gold. In total, 500 tons of gold were taken from private United States citizens.
[slide 19] Based on these facts, it's logical to assume that when facing a severe enough recession, government may again attempt to seize property in order to fund the ever-expanding government without having to inflate the currency.
[slide 20] Historically, countries that have attempted to seize the wealth from the wealthy end up experiencing what is referred to as "capital flight." This is where rich people lead a mass-exodus out of the country in an attempt to evade persecution. [slide 21] To prevent the wealthy from simply leaving, laws may be enacted to keep their fortunes here, and possibly to prevent the sale of certain types of property like large homes and to forestall high-volume stock trades.
------------------------- [slide 23] It should be noted, however, that our current crisis is very different from the one in the 1930's. Back then, the dollar was still on the Gold standard and therefore the government was limited in its ability to print money, that is no longer the case today.
[slide 25]I believe that eventually the rate and cause of inflation will be recognized by the media, political candidates, and most importantly, the American people.[slide 26] As Reagan identified the stagflation in the 1970's and ran on a platform to shrink government and curtail inflation, I believe that so too will the candidates of 2012 or 2016.
[slide 27]Of course, the sacrifice endured by people participating in the 1980's economy will pale in comparison to the sacrifices of our generation. [slide 28] In the 1980's, Reagan's government was cowardly and irresponsible. Instead of cutting spending and suffering the consequences, he was able to issue a record amount of debt to therefore defer his fiscal crisis to another generation. [slide 29] Unlike the 1980's, our current government will not have the credit rating to issue as many bonds.
[slide 31]Unfortunately, the elderly who rely on the government for support will suffer the most during this transition. After decades of politicians telling them not to save for retirement, America will finally wake up one morning to find no government check in the mail box. This will be devastating for these retirees who are no longer able to earn a decent wage. If we acted today on a campaign to taper-off the citizenry from these programs before they disappear, it would drastically reduce the suffering of these people. [slide 32] I do not, however, feel this is possible under the current mindset.
[slide 30]Regardless of our history, I think it will be politically possible for the necessary spending cuts to take place after we slam into the tip of the inflation iceberg. (195,232)
This is more of a political take on why we're on the path towards a collapse in the dollar.
UPDATE: More technical data available here... looks like this video is going to need updating pretty soon.
Rough Transcript:
[cycle through lbt faces]In my last video, I outlined why it is that so many libertarian-minded people believe the dollar is headed towards collapse.
If you're new to this subject, it's natural to assume that we're all exaggerating, and are probably overstating the problem in order to scare people for our own personal gain--whether it be for votes [rp], money [ps], or youtube popularity [me].
[thumbs up]This level of cynicism is perfectly healthy. In fact, anytime anybody is [al gore] trying to convince you that the sky is falling, it's probably a good idea to assume that they're full of it, because most of the time, you'd be correct.
[7mike moore] There is money to be made and [8george bush] power to be gained out of fear. Anyone who believes everything they're spoon-fed by a person or political party [9picture of idiots1] is probably an idiot.[10picture of idiots2] Regardless of who your idles might be, they're human after all, so always keep that in mind.
[11clear]That said, there are plenty of reasons to believe we're on the path towards a collapse in the dollar. Most of them are historical.
[12 stop collapse]First of all, there is only one way to avoid a collapse in our currency, and that's to stop printing money. [13 stop collapse2]This sounds simple enough, but as I explained in my last video, to do this you must balance the budget. There are only 2 things you can do to balance the budget. [14 stop collapse3] You either have to increase taxes, reduce government spending, or some combination of both.
[15 deficit]If you know your history, you know that only time our budget has been balanced within the past 40 years was a brief period that occurred a decade ago unde r president Clinton. Many believe that even this tiny blip of fiscal sanity was actually an accident.
[erase 16,17]
[18 - spending] As you can see from this graph, never in his 8 years of office did clinton EVER reduce government spending. The reason the budget became balanced was in a small part due to an increase in individual income taxes, but mostly due to an UNEXPECTED increase in tax revenues due to the boom and bubble in our economy occurring at the time.
[19 stop collapse3]A boom like that of the late 1990's is extremely unlikely to occur within the next few decades. In addition, raising taxes in the foreseeable future would have a devastating effect on the our already beleaguered economy. This would lead, paradoxically to even less revenue. [20 stop collapse3 - no taxes]Therefore, the only option that remains is to dramatically reduce government spending and to pay down the national debt. This is where the trouble begins.
[21 spending]Government spending has risen, in real terms, almost every year for the past 60 years. Obama has promised to cut the 2010 budget from its all-time high in 2009,[22 New Deficit] but if you exclude 2009, his budget projection still requires a deficit three times as big as the record set by President Bush.
[23 Budget 1]Obviously the bailouts were to blame for most of the spending increases in 2009, but when you look at the 2008 budget, you can clearly see that our problems will not end when the bailouts do. The budget is still far too large and the debt grows larger every day. Many believe that simply pulling out of Iraq would solve the budget shortfall. The problem is that the numbers just don't add up.
[24 Budget 2]Even if you took out Iraq spending, the deficit still remains.
[25 - New Revenue] On top of all that, the tax revenue for 2009 going forward is going to be much lower. This would require an even GREATER reduction in spending to balance the budget.[26 - New Debt] When you factor in the bailouts, things get even worse. Even by extremely conservative estimates, like this one provided by the government itself, our debt will overtake our GDP in less than 2 decades.
[26 Question mark] So what do YOU think? Does it look like we're doing anything about our currency situation? Based on the horrible track record of our politicians, is there anything out there to suggest we're taking care of this? Would any of our politicians risk losing an election in a futile attempt to persuade congress to save our currency? What if the necessary spending cuts are in medicare or social security? Coming out in favor of cutting either of those programs is practically a death sentence to politician's career.
[1 lbt]With all that in mind, do the warnings of hyperinflation and collapse in the dollar seem all that far-fetched? Do you really believe the republicans and democrats in power are going to recognize and do what is necessary? (179,081)
I don't start my next rotation until tomorrow, so I decided to do another one:
Rough Transcript:
[slide 1] This box right here represents the yearly federal budget.
We're going to divide it up into 2 parts: [slide2] the part paid for by tax dollars, [slide3] and the part paid for by everything else. For the purposes of this video, we'll say about [slide 4] 2/3 of the budget is paid for with tax dollars, but you should know that in this year, 2009, taxes account for much less.
[slide 5]Now we're going to divide this up further and look at just the portion paid for by using money outside of taxes. [slide 6] On the left, we'll put the part paid for by privately purchased treasury bonds. [slide 7] This will contribute to the infamous national debt, which is currently approaching $11.7 trillion dollars.
[slide 8] The other part is paid for by printing money. This is done by an institution known as the federal reserve, also known as The Fed.
The Federal Reserve is NOT officially part of the government. Theoretically, the reason for this is to make sure that the government cannot print money directly to pay its bills. The Fed is supposed to act independently and not print money unless it is in the interest of the economy. However, the end result of this is that the government gets all the printed money it asks for, regardless of the effect it may have on inflation and the economy.
Whenever a government or central bank prints money, it causes inflation.
Inflation is a classic double-edge sword. [slide 10] By making the currency worth less, people who owe money in that currency OWE less. This includes the US Government.
Many shortsighted economists see this as a Godsend to quell the ever-expanding national debt. However, there are many downsides to inflation as well.
[slide11]Stocks and property tend to rise in price along with everything else. Therefore, people who have their savings in stocks or hard assets aren't as affected by inflation. However, the less wealthy the individual, the more they deal in cash. It is in this way that inflation affects the poor more than the rich.
[slide12]In addition, by helping debtors, you are by definition hurting lenders. This includes those who own treasury bonds. Generally speaking, these lenders are not in the business of losing money. [slide13] Some lenders will therefore choose to put their money elsewhere.
[slide14]In order to try and entice the lenders into coming back, interest rates on the loans will have to increase.
[slide15]The problem with both of these outcomes is that they lead directly to even MORE inflation.
This type of thing has happened in numerous other countries in the past. It happened to Germany after World War I, and it's happening to Zimbabwe now.
[slide16]As this is happening,[slide17] the budget will be growing exponentially as interest payments on the national debt balloon.[slide 18] This will compound the problem.
[slide19]This cycle of printing and lending will continue until [slide20] the treasury is no longer able to find any lenders to buy the bonds at all. [slide21]At that point, inflation will get out of control. This is known as Hyperinflation.
[slide22]This is where the economy really starts to suffer. People will start losing their jobs or quitting because their paychecks aren't worth the paper they're printed on. That, combined with higher prices, will lead to people saving less and spending more. Taking money out of savings increases the money in circulation. This will further contribute to inflation.
[slide 23]More unemployment leads to LESS revenue. [slide 24] With the budget remaining the same or even growing, [slide 25] this leads to yet even more inflation.
Eventually, people will lose faith in the dollar and stop using it. [slide26] This is known as a currency collapse.[slide 27]
The question is: where is the United States in this cycle? [graph1] The answer is quite complicated. As you can see from the graph of the money supply, over the past 40 years, we have done everything we could to destroy our currency. Even still, our GDP is so strong, the world still sees our treasury bonds as a good investment. [graph2] It's only been recently, with the Fed printing more money than it ever has before, has the world started to grow wary of our position.
This is the reason people like [pic]Ron Paul ,[pic] Jim Rogers,[pic] and Peter Schiff all come out strongly against our current monetary policy. (183,563)
I was testing out my new condenser mic setup and got carried away. Sorry about the volume level, I'm still figuring it out. Logo at the end by DeadcowX.
Transcript (roughly): People like Ron Paul are constantly lamenting the good ol' days when America was on the gold standard. The reason for this is not that gold is pretty or magical or any better than counterfeit-resistant pieces of paper; the reason is simply that no matter how much they may want to, government cannot create any more gold to pay its bills.
Of course, if we could trust our government not to abuse the privilege, there would be no need to rely on the finite nature of atoms to keep the purchasing power of our currency constant.
Though the United States had been shying away from the gold standard since the early 1900's, it wasn't until 1971 that President Nixon took us completely off the gold standard. This basically meant the government was now given free reign over the purchasing power of our currency. Let's take a look at the result of that experiment.
As self-granted government powers to print money have expanded, so too have the money supply.
You may also notice something happening at around 1922: this is the year the federal reserve started participating in open market operations. Seven years later, in 1929, America experienced the infamous black friday stock market crash, which was followed by the worst depression in its history.
Supporters of the gold standard do not see this as coincidence, and in fact blame the federal reserve for accentuating the natural booms and busts of the market by manipulating interest rates (132,323)
Looking to raise some capital for your new online turnip twaddler portal enterprise? Noah Dyer from WealthNet Partners and Nicholas DiBiase from Hepnova lay down the rap about how branding, both business and personal, affects your chances with potential investors. Learn to avoid generic muddled garbage and imitating 'The DOC' when in crucial meetings! Don't make those "angel investors" bop you over the noggin with their harps.
Here's Nicholas DiBiase from Hepnova (@Hepnova) laying down th' rap on urban agronomy and food security at Ignite Phoenix 4 :
Transcript :
Food security : what does it mean?
Food security is regular, reliable, daily access to sufficient quantities of nutritious food.
It affects everybody, and it has to do with income, access, and information.
Let me tell you a story about access. In the late 90s when I was at ASU and they shut down Stabler's Market, suddenly I was left without a grocery store within a mile of where I lived. So, I started eating a lot of ramen and fast food -- how many students hear that?
Now, at the grocery store, you can get produce, but a lot of the stuff we find there is grown with chemicals that we don't necessarily want to put in our body.
Now, we can look for food that's labeled by the USDA as "Organic." But there are a couple of problems there, too : 1) it's hella expensive, right? And 2) there are over 2 dozen chemical approved by the USDA for use in foods labeled as organic.
On top of that, most of this stuff comes from far away, other states or other countries, so it spends a lot of time on container ships, in planes, and in trucks, using up a lot of energy and fuel just to get to our supermarket and losing nutritional value every day it's on the road.
The solution is urban agronomy : the scientific approach to gardening in the urban environment. It's efficient,
because we get a lot for what we put in, there's little waste, and we save on all those transportation costs. It's edible : we get the food at the peak of its perfection and the peak of its nutritive value.
It's all about community -- this is what makes it work. This is a grassroots movement that's growing every day. Here's Ryan and Ericka Cero Wood showing 70 interested people around their house and garden.
As much as this is about nutrition and supply security, it's also about taste. Fresh food tastes amazing! I never liked squash until I had one that was raised here in Phoenix. It was like I was eating wax before. It's a revolutionary experience to taste food as it's really meant to taste.
We can do this stuff without changing our lifestyle tat much -- we can keep our urban identity. This is a simple approach that yields real results.
For the apartment dweller and those living in small spaces, we use containers to grow delicious leafy greens, and other good stuff.
Those who have some yardspace can design sunken planting beds with raised paths that conserve our precious water and conserve resources. Vital to success is the use of native plants. We live in the desert, we exist in the desert, and so we eat in the desert. Foods that we eat in the desert should grow naturally in the desert. Native foods like corn, beans, and squash are designed by nature to thrive and be easy to grow in the desert -- and I don't know about you, but I don't like to work any harder than I have to -- especially when it comes to food!
You can enhance your system by using biodegradeable soaps and recapturing the water you use for washing at home -- this is called greywater, and it can be as simple as a bucket!
You can also add chickens to the setup, I love these guys! They're cute as all-get-out, they're great at controlling pests, they eat scorpions - that's true --, and they give us eggs at a fraction of the cost of organic eggs from the store!
The most important thing here is to share your surplus! This is what makes this work at a scale that's a the community level. When you produce more than you can eat fresh during the season, share it with someone who has something you want! Or better yet, share it with someone who may not have anything.
Food insecurity is disturbingly prevalent in America and in our community. If we use some of our extra space and resources to grow some food for these folks, everybody will benefit.
The inspiration and the information that brought me here here came from the Phoenix Permaculture Guild. These folks are full of energy, have a wealth of knowledge and are eager to help anyone interested in exploring this stuff.
We can shred up a guitar neck; we can rev an engine -- I wanna grow up this landscape, take back our food supply, and have a rockin' fun time doing it!
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