WALMART AND THE ILLUSION OF QUANTITATIVE EASING. IT'S SO OVER FOR AMERICANS.

Allie: 

"Wal-Mart stock is tanking because if household income is $1,600 month and rents is $1,500 a month and if the price of ground beef has nearly doubled, milk and others up 30%, ya got nothing left. There is nothing left."

Me:

Current dollar prices are illusory. True food prices are falling, not rising.

See: PRICES HAVE BEEN FALLING FOR YEARS! INFLATION? MAJOR DEFLATION HAS BEEN UNDERWAY SINCE 2007.

The problem is that true wages have been falling faster than true prices of food and rent.

See: EVERYBODY'S WORKING FOR THE WEEKEND, FOR LESS.

Rent is rising because few built apartment houses during the residential realty boom and now few can afford mortgages on falling incomes. They need places to live. Population continues to grow.

When the prime working age increases faster than the spending rate on capital, wages fall. Wage rates are prices.

When wages fall, all prices fall. What are the source of other prices but wages?

Congress has accepted too many immigrants, legal and illegal. That has killed the return to capital and thus wages.

See: ILLEGAL IMMIGRATION. WHY IT'S BAD FOR YOU AND A BOON FOR ANTI-CAPITALISTS.

Allie:

Anyway - the point is CURRENT prices.

Me: 

Current dollar prices are meaningless. What counts is how much stuff you can buy for an hour's worth of work.

Prices in true dollars are down, way down. Wages in true dollars are down even more.

How can you believe in higher prices on falling true credit. What do you think happens after a great inflation stops?

A giant banking bubble bursts. That is the crisis. What comes next is deflation.

Quantitative easing has papered over massive deflation. There are 69.8% more dollars in circulation today that June 2008. Since all prices are tallied in current dollars, prices in dollars will be higher.

That most don't understand these concepts is why most believe as you.

The facts of reality and everything men have known about commercial banking and economies for 165 years fails to fit your narrative that you want to believe, desperately, and are trying to defend.

It's because of people like you that central bankers can engage in deceits like quantitative easing. If the many understood commercial banking, none of this would be happening because none of it could be happening. They couldn't get away with it.

If everyone believed as you, accepting statistics from the agents of Congress, stats expressed in current dollars for GDP and food prices, then pro-Congress politicians along with their hand-maidens and agents must be right. If so, the rest of us must be wrong.

Yet, if so, all market participants would have complete information. There would be no movement in stock prices or anything else. No one could gain competitive advantage.

We would be stuck in a dreary world of static Dystopian perfection.

Allie: 

You claim, "When wages fall, all prices fall. What are the source of other prices but wages?"

AND WHAT ARE THE SOURCE OF WAGES ? = JOBS

Me: 

Never in the history of mankind have jobs been the sources wages.  Returns to capital are the source of wages.

Wages are income and act like any kind of income. From the worker's perspective, wages are recurring sales in purchase and sales of cash or other bank credit for work done.

From the firm operator's perspective, work done by workers (employees) is capital (property put to production).


If firm operators lack income or credit supported by income, they can't buy capital (work done by employees) to put into a product.

Allie: 

The more JOBS the higher WAGES.

Me:

Wow, what another fallacy you have expressed. First, it's a non-sequitur. Second, you haven't proved it.


Wages are a result of capital. Without  capital and return to it, there are no wages.

Bare subsistence savages have no jobs and no wages precisely because no one has capital (property put to production) from which to gain returns and thus hire them to work at wages.

And for that reason, higher wages come from increasing returns to ever more capital.

Allie:

But ground beef is up!

Me:

Wage rates are prices. Wages have been falling, not rising.

Prices for everything else have been falling owing to efficiency gains and exacerbated, owing to falling wages. From whence prices exist except from wages?

You don't see these falling prices because you think in current dollars. As there are more dollars in circulation today than last month, last quarter, last year, last five years and so on, current dollar prices will seem higher, always. It's illusory.

How can you believe true food prices have been up on massive, increasing unemployment in America and Europe between 2008 and 2014? How does that magic work, exactly?

There have been no significant crop shortages owing to natural disasters and futures markets have provided for much grain storage.

————

Sadly, Allie believes as millions do.

Congress let in too many illegals and too many legal immigrants which swelled the ranks of the working age population. In so doing, returns to capital were impinged.

When collapse happened, extant capital bought on credit at much higher prices were crushed. 

Exacerbating this, idiots at the Federal Reserve engaged in near-ZIRP, which further damaged returns to capital. That led to firm operators doing the only act they could do to restore the return to exact capital bought on higher prices — they laid off workers.

Firm operators decide always on this alone: Is there a dearth or abundance of workers.

If there is a shortage of workers and firm operators want to produce, they must augment workers with capital.

Americans can't have massive immigration in a WTO, free-trade agreement world.

Adding would-be workers kills the return to capital. Without increasing returns to capital, there is no reason to hire anyway.

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THE 2010-2015 GREEK LAWGIVERS' CRISIS, THE EURO AND CURRENCY AREAS. SHOULD THE EURO ZONE BREAK APART?

So today, editors at Forbes published yet another train-wreck of flawed thinking by Tim Worstall. In The Cause of the Eurozone Crisis Was the Euro: The Solution Is Abolition of the Euro, Worstall tries hard to call for an end to the Euro by blaming its existence for the cause of a what he calls the Eurozone Crisis, which likely he means the the Euro Banking Crisis of 2008 the Greek Lawgivers' Debt Crisis of 2010-2015.




Seriously, I don't understand why Worstall doesn't find another line of work besides trying to write about economies and economics (see more on Tim Worstall right here on Bizarro Theater),

"Even a cursory glance at the economics of this field, optimal currency areas (founded by Robert Mundell) tells us that over such disparate economies a single currency just isn’t going to work." ~ Tim Worstall

Worstall seems not to understand Mundell's Optimum Currency Area Theory at all. Mundell included his theory in a textbook titled International Economics, (1968, pp. 177-186).

Mundell's Optimum Currency Area Theory is one where an authority can stabilize employment and prices over a well-defined region. According to Mundell himself:

• "If the case for flexible exchange rates is a strong one, it is, in logic, a case for flexible exchange rates based on regional currencies, not on national currencies. The optimum currency area is the region."
• "If the world can be divided into regions within each of which there is factor mobility and between which there is factor immobility, then each of these regions should have a separate currency which fluctuates relative to all other currencies."
• "The argument works best if each nation (and currency) has internal factor mobility and external factor immobility."
• "But if regions cut across national boundaries or if countries are multiregional, then the argument for flexible exchange rates is only valid if currencies are reorganized on a regional basis."

In the work, Mundell cites two who he believes has captured the essence for defining the optimum currency area — Meade and Scitovsky.

• "In both cases [Meade's; Scitovsky's ] it is implied that an essential ingredient of a common currency, or a single currency area, is a high degree of factor mobility;"
• "...neither writer disputes that the optimum currency area is the region-defined in terms of internal factor mobility and external factor immobility-but there is an implicit difference in views on the precise degree of factor mobility required to delineate a region."

According to László Andor, European Commissioner for Employment, Social Affairs and Inclusion, in his speech titled Labour Mobility in the EU: Challenges and Perspectives for a Genuine European Labour Market, Europeans have the necessary ingredient of labor mobility.

Free movement of workers began in 1968. Today, it encompasses the labor markets of 28 Member States of the EU and every Eurozone country.

EU nationals have the right to look for work and take up employment in another Member State and to receive assistance from the employment services in the host country when looking for a job.

Countries experiencing the highest increase in labor outflows to other EU countries in 2011-12 were Greece, Spain, Ireland, Hungary and Latvia. Labor outflows went mostly to Germany, Austria and the UK.

So according to Mundell and his theory, the European Central Bank (ECB) ought to make more credit available in Germany, thus pushing up prices in Germany to remove the demand of Greeks from buying German products.  With Greek demand for German goods cut by being priced out, Greeks would then produce the alike, substitute goods on lower prices (lower wages), thus taking up unemployment slack in Greece.

But the problem has been the lawgivers in countries like Greece. As wages are prices, they have kept wages up through massive fake-work, make-work government programs, pensions and welfare. Greeks had been living through a credit bubble, a public sector credit bubble and not a private sector. When that bubble burst — Greek lawgivers couldn't borrow without bailouts — Greeks suffered at the hands of lawgivers rather than commercial bankers.

For those who doubt that Greek lawgivers haven't been the source of the problems for the Greeks, have a look at GREXIT IS NO EXIT. Nigerians export more than three times as much as the Greeks, but only import 1.34 times as much as the Greeks.

So how do the Greeks do it? How do the Greeks pay for those imports? Their lawgivers have borrowed year after year to pay for government agency workers, pensioners and welfare collectees who, in turn, take their Euro borrowings and buy imports from those of other Eurozone countries.

In the countries hit hardest by the Euro Banking Crisis, their problems have been caused by lawgivers borrowing to keep afloat phony economies and thus hampering price discovery. As well, by Mundell's theory, those countries within the Eurozone experiencing trade surpluses need to have their regional central bankers rediscount more and thus pump more credit into those countries, which presumably would jack up prices relative to the Eurozone trade deficit countries. By Mundell's theory, it doesn't matter if Germany and Greece are separate countries as long as the countries operate under the same exchange rate and have factor mobility.

Mundell also said, "Similarly, if factors are mobile across national boundaries, then a flexible exchange system becomes unnecessary, and may even be positively harmful, as I have suggested elsewhere." 

The Euro is a "gold" standard - one rate for an internal common market with factor mobility that requires lawgivers to adjust policy to that standard. The price of that Euro "gold" standard relative to the outside world (other banking systems' cash) fluctuates.

Mundell wrote at a time when countries had fixed exchange rates with bank cash convertible to gold while many called for floating exchange rates with irredeemable cash. Mundell proposed his theory as an attempt to explain international disequilibrium caused by balance-of-payments crises under fixed exchange rates and price fixing by legislators (rigid wage and price levels).

Mundell believed that countries with trade surpluses whose leaders capped bank credit caused unemployment for those living in trade deficit countries because leaders of trade deficit countries had to shrink their economies to restore the imbalance.

Whether one banking system shared among a few countries or countries each with their own banking systems, according to Mundell, the fix for regional disparities is for trade surplus countries to inflate (add bank credits) —

• "In a currency area comprising different countries with national currencies, the pace of employment in deficit countries is set by the willingness of surplus countries to inflate."
• "Unemployment could be avoided in the world economy if central banks agreed that the burden of international adjustment should fall on surplus countries, which would then inflate until unemployment in deficit countries is eliminated"
• "But in a currency area comprising many regions and a single currency, the pace of inflation is set by the willingness of central authorities to allow unemployment in deficit regions."

Under floating rates with irredeemable bank cash, those living in the trade deficit countries would need to pay more for foreign cash of trade surplus countries until BOP equalized. Thus, all inflation would be unneeded as is the fix for disparities between regions under the same banking system.

So, absent the will to inflate by region in the Euro zone, the Euro zone ought to break up and let floating exchange rates do their work — force prices up of foreign goods as expressed in one's own bank cash.

At the end Mundell concludes, "...the optimum currency area is the world, regardless of the number of regions of which it is composed." By that Mundell means there should be one money and balance of payments would adjust regional difference. In short, Mundell means something like gold as money would be the ideal for the world over.

Legally, Europeans have labor mobility. Culturally, whether they move or not is another matter (see: On the Move, The Economist).



Hordes of illegal aliens, many claiming to be refugees, don't seem to have a labor mobility hang up. For more on the horde invading Europe, check out 2015 EUROPEAN REFUGEE CRISIS. FLEEING THE FAILURES OF TOTALITARIANISM, BUT FAILING TO EMBRACE BETTER WAYS.

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THE WEALTHY PEOPLE EFFECT AND WHAT IT TRULY SHOULD MEAN TO YOU

As their neoclassical school brethren, those of the Austrian school get reality as wrong as the Keynesians and Monetarists do. The latter wrongly believe one side of the coin, spending, leads to a better state of trade. The Austrians wrongly believe its the other side of the coin, savings (see Chris Casey's attempt to justify savings over at the Austrian mouthpiece in the USA, Mises.org).

Neither spending nor savings increases the state of trade. It's profit. 

Savings are illusory. It's profit that must arise. If profit lays idle, then trade stops.

Whether Austrians, Keynesians or Monetarists, the Neoclassicists get it wrong because economics is fake, a false knowledge. As I explained in WHY IS THE ECONOMY SO HORRIBLE? BECAUSE ACADEMIA ECONOMICS IS FAKE, like the Keynesians, the Austrians wrongly believe that the basis of trade, or what they call, "the economy" is scarcity and utility. 

Yet, the whole of what humans do, which is trade, can be summed up in two words, property and profit. 

The "wealth effect" is badly named. It should be said as the "wealthy people effect." The "wealthy people effect" also is known as "trickle-down" economics. 

The "wealthy people effect" is the belief that if street prices rise of extant property (right of ownership) that can be held as collateral, wealthy people will trade that property as wealth held in collateral letting them sell rights of action against themselves to buy bank credits in a purchase and sale. With these bank credits, these wealthy ones then will buy luxury goods (e.g., through HELOCs) or to expand business. In either case, it is believed that employment should rise either to produce more of these goods or to fulfill work in expanding business.

The idea of savings is rather silly. There is no such thing as savings. Beyond break-even, individuals and firms gain profit. In trade, there are only purchases and sales. Individuals for themselves or their firms through purchases and sales buy property in bank credits by selling cash, bank credits or debt, or buy property in other things by selling selling cash, bank credits or debt instruments.

Only through profit for workers (wages less living expenses) or firms (sales less outlays) can individuals and firms call for more goods. It is from confidence in expectation of profit that bankers enter into purchases and sales of bank credits for both cash and debt at discount. 

Back in 2010, then chairman of the Federal Reserve, Ben Bernanke said, "Higher equity prices will boost consumer wealth and help increase confidence, which can spur spending." Deciphering, Bernanke said, when stock prices rise, those who hold stock have collateral with increased liquidation prices, which instills confidence in bankers, who will sell bank credits to those seeking it with such collateral.

As I explained in YOU LIVE AT THE MERCY OF A CLOWN-CAR DRIVEN BY MEN AND WOMEN OF THE FEDERAL RESERVE, guys like Bernanke believe prices make people behave rather than increases in their buying power owing to increasing profits, whether by wages less living expenses for individuals or sales less outlays for firms.

Prices aren't wealth, whether rising or not. Only property which can be traded at the moment of trade is wealth. Once trade ceases, that which was traded no longer is wealth, but merely potential wealth. A used bicycle with flat tires and bent handle bars on offer at a garage sale no one buys isn't wealth, yet the seller has property in it.

The foolish believe the key lies in prices. For them, higher prices means worthier collateral. However, ever increasing prices leads to the profit squeeze, when at some point of ever rising prices, outlays outstrip sales and wages fail to rise with living expenses thus pushing people to below break-even loss. It is from then that collapse follows and debt reckoning begins.

Even the phrase "paradox of thrift" is badly named. Thrift means prosperity, not savings.

The word savings enters English in 1737 meaning "money saved," in turn from the Old French "save" meaning to "keep safe," which came into English around 1200. By 1300 save was being said to mean "keep possession, hold back." 

In the days of money, and money only ever can be coined metal by weight and fineness, some would sell their gold or silver to bankers in purchases and sales for shares of future profits of those bankers. The rhetoric around doing such became "Save your money with us," and "We'll keep your money safe with us."

Yet, nothing ever was saved. Bankers didn't keep anyone's money separated from all others in a warehouse, keeping anyone's money for safe. Instead, bankers lent money in which they had property, property acquired in purchases and sales of claims against profit, which gets called interest, for money.


The word thrift is a Middle English word from about 1300 meaning "thriving, prosperity" and comes from the Old Norse meaning the same.

In prosperity, anyone who wants to work can find work. Profit abounds. Wages increase faster than living expenses. Sales increase faster than outlays. The creation of property grows at an increasing rate.


Under false-belief faux prosperity, little creation of property of wealth happens. Instead, increases in the estimates of street prices for extant property of potential wealth swells false beliefs leading to credit inflation and speculative promotion (2002-2008 Residential Realty Bubble, 1997-2000 Dot Com Bubble) .

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DEBUNKING YET ANOTHER ACADEMICIAN EGGHEAD AND HIS ECONOMICS FOOLERY

ON THE FALLACY OF UTILITY AND VALUE

Art Carden fails at 0:46 when he claims, falsely, of course, that "value of a resource is determined by what you can do with one more unit of the good." Art Carden accepts and perpetuates fallacy when he spews such foolery. Value does not arise from use.

Value is not a quality, an aspect of a thing residing absolutely within it. Nor does value arise from utility as Carden foolishly claims nor cost of production or any other claimed intrinsic quality.

Value results solely in the trade rate of property each of two things.  Value expresses a ratio of importance each trader has for the two things traded. 

When one of two things in trade is cash or credit denominated in cash, we give value another name. We call it price.

It's a specious claim that utility stands as the cause of value. Holding that utility makes the cause of value forces the belief in intrinsic, absolute value owing to some quality inherent in a thing. While the qualities of a thing remain the same, such a thing can be useful during some times and yet not during others.

Numerous examples abound. Cigarettes are useful only for those who smoke and when they smoke. Alcohol is useful only for those who drink and when they drink. Medical drugs are useful only for when someone is sick and never when someone isn't. A rowboat is useful for a river or a lake but has no use when in the desert. A broom that sits idle has no usefulness in the now.

If utility were the cause of value, then things ought to be valuable in proportion to their utility. Water has the greatest utility, yet where it's abundant, it has little value. Food has the greatest utility, yet where crops grow abundant and men have no means to transport such to markets or even to tell others about the bounty, such crops have little value.

Art Carden falls for the fallacy of utility imputes value. He looks every bit the fool when he says diamonds are "worth a lot [because] we can do a lot with them." That is laughable.

Diamonds get their worth simply because of the bid rate some are willing pay to gain property in diamonds. Value arises in only trade of property in cash or credit for property in something else. Value has nothing to do with what happens "at the margin."

For someone could spend millions to hire men and buy huge machines to mine a ounce of gold buried miles within a mountain. And yet, another could stroll along a river descending from the Sierra Nevada and find an ounce of gold sitting on the riverbank.

Both could go to market and buy cash, each by selling their respective ounces of gold and both would get the exact same sum, $1,649.92, if they sold their ounces for U.S. dollars.

The infrangible Law of Prices girds under the whole of economics. Carden, like all others who accept pseudo-science Gossen marginalism, conflates the last winning bid, which sets the price with "at the margin."

ON THE FALLACY OF SCARCITY

Also, Art Carden fails at 0:42 when he claims, falsely, of course, that "resources are scarce." For assuredly, resources are not scarce. The Earth is superabundant with resources.

Scarcity is a bogus concept. Scarcity is chimera. Scarcity is a concept to justify political action — confiscation of output and redistribution to those of favored groups. Those who parrot the false belief that economics has anything to do with scarcity have accepted rhetoric and thus have let false beliefs get inculcated into their minds.

To believe in scarcity is to disavow the one, true, and only law in the whole of commece — the Law of Prices — and thus to reject reality. The Law of Prices holds that the winning bids of purchase and sale in the face of offers set the price. All should come to see at once the great working of the Law of Prices as the one true law that girds under the whole of trade, also said as commerce, both of which are authentic economics..

The highest bidders win the day for whatever is being offered. It's through superior buying power that highest bidders win the day. In short, it is a lack of cash and credit that makes losers go without. 

Excuse makers express their false beliefs and blame the false concept of scarcity rather than their skill at winning economic quantities of purchasing (cash and credit) to gain what they want. It is buying power — property in cash and credit — that constrains choice. Scarcity has nothing to do with it.

Take two women, one with $200,000 and one with only $15,000 in the market for a new car. The woman with $200,000 has many choices before her, from BMWs and Audis to Nissans and even Chryslers. In fact, she can buy from nearly every car manufactured today that would not be classed as a supercar and she could buy any of few supercars! This cougar has amazing buying power.

The woman with $15,000 has few choices. She can buy only a handful cars like a Honda Fit or maybe a Ford Focus. This poor woman has little buying power.

58,264,344 new cars were manufactured in 2010. That is many choices, the opposite of scarcity! However, the $15,000 woman faces few choices.

If only one thingamabob exists on the whole of the earth and someone is willing to pay a trillion dollars while everyone else is willing to pay something less than a trillion, that only one thingamabob exists doesn't make it scarce. The rest of those who would like to possess it simply haven't the means for the winning bid.

Any right-minded thinker at once sees that it us buying power that constrains choice and not scarcity.

ON THE AUSTRIAN SCHOOL

The Austrian School of Neoclassical Economics is flawed as all schools of Neoclassical Economics are. All schools of Neoclassical Economics base their doctrines on two things: [1] pseudoscience psychology [2] Smithian, Ricardian and Millian fallacies, of which there are numerous.

The Austrian School of Neoclassical Economics rests on two major false beliefs: marginal utility and time preference (see: INTEREST, CAPITALISTS AND FUTURISTIC TIME COPS). Both beliefs arise from faulty pseudoscience psychology never proven scientifically and thus must be rejected by all. This is why the Austrian School once was known as the Psychology School.

Only one law exists for the whole subject of commece, the Law of Prices. Any explanation that renders exception to this law automatically fails.

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