Thursday, July 28, 2011

What's In It For Me?

So suppose the Republicans actually follow through on the premise that they would rather the country collapse than suffer rich people to pay taxes? What will happen?

Everyone agrees at least that interest rates will rise and the dollar will fall. But interest rates are like energy prices. They are built into every other price somehow. If they rise, it seems like prices should rise generally. But interest is a transfer of wealth from borrower to lender. If rates rise, that should increase the amounts transferred.

My impression, is that the relationship between borrowers and lenders is that in general lenders have more money than borrowers. If it were any other way, the borrowers wouldn't need to borrow and the lenders wouldn't have anything to lend. So one can say that in general interest is a transfer of wealth from the poor to the rich.

And the Republicans' obduracy in Congress, if it leads to higher interest rates, is almost certain to benefit the rich at the expense of the poor. Isn't that a surprise to find the Republicans pursuing such a policy? Who would have thought it?

As the dollar falls, as surely it must with trillions of recently created dollars floating around, the price of imported goods must rise. Which is further inflation.

How does the government, usually through the Federal Reserve Board, fight inflation? By raising interest rates. That should not be too hard, considering that interest rates - to banks at least - are now less than zero. I.e. zero less the inflation rate.

But the reason the rates are zero - to banks - is to keep money flowing by banks borrowing for free so they can lend at low interest rates so borrowers can invest and buy and sell. That is, to keep the economy from stopping. Less politely, to keep it from collapsing. Which it nearly did in 2008 and 2009.

So the economy faces the risk of inflation if nothing is done, if interest rates are kept low. And as we have seen in earlier decades, particularly the 1970's, that once started, an inflationary spiral can be hard to stop, very hard.

Conversely, if interest rates are raised, either by the Federal Reserve raising them, or by the Republican sabotage of the national economy, we could fall back into a deflationary spiral. As the example of Japan in the 1990's has shown, once a deflationary spiral starts, almost nothing can stop it. And the attempts to slow it down leave the government with staggering amounts of debt afterward.

Assuming I were a Republican and thus so selfish that I were willing to destroy my country and impoverish its people rather than pay even a token amount of taxes on my income and assets, which disaster would I prefer to inflict on my country?

A deflationary spiral would mean that prices would go down so the cost of living would be less. Or would it? It would mean that costs incurred by corporations selling goods would go down. Prices would only go down if they lowered prices in response, if they passed on the savings to their customers. That is, if the market were really competitive rather than oligopolistic. In short, do falling producer price really mean falling consumer prices?

Oddly enough, even during the recent sharp retreat in consumer demand, there were almost no price reductions. Instead, there were special offers, things were 'On Sale', there was this gimmick and that, all of which were ways to disguise price reductions. This was so they would not have to admit to either the price reductions nor the inevitable price increases when consumer demand returned.

For goods in which the demand is less elastic, i.e. in which the consumer has fewer choices and little opportunity to simply not buy the product, e.g. medical care, pharmaceuticals, utility bills, food staples, and the like, the corporations have simply pocketed the difference and passed on none of the savings from falling costs.

So does supply-and-demand economics, the marketplace setting prices, really work in real life? In a word, NO.

Though I am no economist, my guess is that the Adam Smith model of the free market only works if every buyer and and every seller has identical economic power. Since that happens exactly never, the free market model is a theoretical construct that never actually happens. The ideology of the Republican Party and of free-market conservatives generally, is based squarely on this fantasy.

In short, if there were a serious deflation, my pension and the rents from my house would be seriously diminished. My stocks would go down. My mortgage would remain the same. The cost of living, though disguised, would not fall significantly. I would be screwed.

Conversely, if there were a serious inflation, my pension would rise about the same amount, the rents from my house would rise about the same amount, my stocks would rise about the same amount, and prices would rise about the same amount. Travel would probably not become much more expensive because though the dollar would be worth less, there would be more of them.

BUT my mortgage payment, which is a fixed rate mortgage, would NOT go up. Paying this is by far the largest expenditure I have. More than half of every dollar I get goes to paying it. If the inflation were severe enough, the mortgage might become just another bill like the utility bill - noticeable, but not crushing.

So it is in my interest for the party bickering to go on forever, for the deficits to grow ever-larger, for interest rates to rise ever-higher to keep the Chinese lending us money for the ever-larger debt.

Fortunately for my soul, I am not quite that selfish. I plan to live in the United States for the rest of my life and I would prefer that it not be a social and economic wreck, neither in my time nor after.

So what I would like to see would be for Anders Breivik to escape from prison in Norway, and come to the US and kill everybody in Congress. And then for the next Congress to raise taxes, reduce expenditures, and eventually balance the budget.

p.s. Hi, FBI. Just kidding about killing everybody in Congress. It's a metaphor for the 2012 elections. Get it? Really. Just kidding.

Hey, wait. I am in Canada - I can say anything I want. Go get 'em Anders!



  1. Anonymous4:02 PM

    You need to be cautious what you out in writing, even if you speak for many of us. R

  2. Jasmin1:33 PM

    Hi Jack. This is Jasmin, yes JASMIN. Not some Irish kid, not a terrorist, not a Palestinian, JASMIN. And I find your ramblings here yet again crude. Joking about a child murderer, it wouldn't be see funny if he was Islamic, you still haven't explained your stupidity in that thread either? Your Fox news like accusation that it must have been a muslim. YOu racist sad fool. Breivk the Zionist christian murderer. By your logic, all Christian zionists are terrorists. I'm laughing really hard at how stupid you look now. Never have you the right to post up your vitriol on this blog again.

  3. Oh grow up, Christie. You are a bore.

  4. Jasmin4:09 AM

    HAHAHA, you really are that thick, I can't believe you think I'm Christie. What a fool you are dog.

  5. And you Christie are so stupid you can't recognize how many ways you fail to conceal your identity. Think about it, Christie - if you are too stupid and inept even to be a troll, maybe you are just too stupid to live? Maybe that is why you are unemployed and living with your mother?

  6. Jasmin6:10 AM

    Believe what you wish, you pea-brained idiot. I don't even think you are stupid enough to believe that I'm Christie. I believe this is just a defence derived from you inability to answer for your stupidity. Your stupidity where you racistly declared the Christian Zionist murderer as an Arab. Stop jumping around the issue pretending I'm Christie and explain yourself. Or else forever be the fool that you are.
    إذا كان رجل يعيش في سلام، أنه ينبغي أن يكون أعمى، والصم والبكم.

  7. One can pretty much see the spittle flying from your ignorant Irish gob, Jasmin.

    If you were a little less a mass of reactions and apparently incapable of thought, or apparently even of reading, you might have noticed that this article is not about Norway but about the American debt ceiling debate in Congress and its possible effects on the US economy.

    How exactly were you able to miss that? :o)