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Posts tagged Federal government

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The Perniciousness of ZIRP

by Gonzalo Lira

WEDNESDAY, FEBRUARY 1, 2012

This is the problem Ben Bernanke and the Federal Reserve currently have—and it’s their own stupid fault: They have promised to maintain interest rates at effectively 0% until at least the end of 2014—they have in fact announced this zero interest-rate policy (ZIRP) as the hallmark of their strategy to reignite the economy—

—but then they’re surprised when businesses aren’t borrowing more. They’re surprised when lending is in fact contracting. They’re surprised when the American economy doesn’t start borrowing—and thus growing—like crazy. 

So the American economy obviously doesn’t benefit from ZIRP. In fact, it stagnates because of ZIRP. 

Leaving aside the deplorable notion that debt-fueled consumption is “growth”, businesses are not going to borrow to expand during the announced period of ZIRP, because business owners will say, “I’m really not sure if my market is growing—and since I can get a low-interest loan for at least the next three years, I think I’m going to hold off on any expansion of my business, hold off on hiring new workers, and instead wait and see if the economy really does pick up. If it doesn’t pick up, I won’t have more debt to service. And if it does pick up, I can always borrow and expand later.”

I can always borrow and expand later”: That’s what every sensible business owner is saying today. Why eat free chocolate now—when I can eat it for free later? Why borrow for free now—when I can borrow for free later? 

And of course, later becomes never

[…]

So then, if businesses—and the wider economy—do not benefit from ZIRP, who does?

Why, the banks and the Federal government! (Yeah, I know:How am I not surprised … ?

See, the banks get their 0% loan from the Federal Reserve—and promptly go out and buy U.S. Treasury bonds, yielding 2% or so. Sure, a 2% yield is nothing—but it’s a whole lot of something when it is risk-free, and adds massively to the banks’ bottom line. And ultimately to the banksters’ bonuses. After all, the Federal government isn’t borrowing twenty bucks for gas: It’s borrowing $1.6 trillion a year—every year

Thus the Federal government, that glutton for debt, also benefits from ZIRP. 

Worse still, ZIRP is a disincentive to reduce the deficit and the overall debt. Since Bernanke and the Federal Reserve are putting out 0% money over the next three years, the Federal government will be under zero-pressure to reduce the deficit and pay down the debt. In fact, ZIRP encourages fiscal irresponsibility. After all, it is the rising coupon payment which eventually leads to rising debt levels being choked off. 

ZIRP doesn’t eliminate the Minsky Moment—that is, the Day of Debt Reckoning. Rather, ZIRP merely postpones it—while making it a whole lot bigger. 

Thus the Federal Reserve’s zero interest-rate policy does not help businesses expand and thus hire more workers to restart the economy; it does not encourage banks to lend to economically productive sectors; and it does not get the Federal government to begin reducing the deficit, let alone the debt. 

In fact, ZIRP makes all these problems worse

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Filed under economy economics politics editorial Federal Reserve Bernanke zero interest-rate policy Federal government national debt banks U.S. treasury bonds banksters’ bonuses

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This Is Why There Are No Jobs in America

polyslime:

By Porter Stansberry                                                                                     May 23, 2011

I’d like to make you a business offer. Seriously. This is a real offer. In fact, you really can’t turn me down, as you’ll come to understand in a moment…

Here’s the deal. You’re going to start a business or expand the one you’ve got now. It doesn’t really matter what you do or what you’re going to do. I’ll partner with you no matter what business you’re in – as long as it’s legal. But I can’t give you any capital – you have to come up with that on your own. I won’t give you any labor – that’s definitely up to you. What I will do, however, is demand you follow all sorts of rules about what products and services you can offer, how much (and how often) you pay your employees, and where and when you’re allowed to operate your business. That’s my role in the affair: to tell you what to do. 

Now in return for my rules, I’m going to take roughly half of whatever you make in the business, each year. Half seems fair, doesn’t it? I think so. Of course, that’s half of your profits. You’re also going to have to pay me about 12% of whatever you decide to pay your employees because you’ve got to cover my expenses for promulgating all of the rules about who you can employ, when, where, and how. Come on, you’re my partner. It’s only “fair.” 

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Filed under economics jobs unemployment federal government taxation control regulations politics economy

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polyslime:

No Limits to Federal Power?

This short video says it all. This is precisely what is wrong with big government in general and with our big government specifically. Listen carefully to the woman questioning the Congressman at the Town Meeting and see if you don’t agree with me here. The questioner should be the Congresswoman and the Congressman should be tossed out on his big fat ass along with so many other of our legislators in office. This gives me hope that the sheeple are beginning to wake up. Three big hurrahs for the lady who should be in Washington.

Just watch it.

Filed under Constitution Obamacare Ron Paul Town Meeting big government campaign 2012 democracy federal government healthcare libertarianism liberty politics red pill rights video Federal Reserve End the Fed totalitarianism

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3 stealth tax traps

 @FortuneMagazine July 22, 2011

FORTUNE — Congressional gridlock over whether to cut or raise income taxes is obscuring a different threat to six-figure earners: a host of stealth taxes implemented in the name of deficit reduction. Many of the provisions, as with the dreaded alternative minimum tax, have never been adjusted for inflation. As a result, they have morphed into tax traps for upper-middle-income earners. Here are three of the most glaring examples.

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Filed under stealth tax stealth tax traps economy economics politics Federal government middle class deficit reduction