Apr 092013
 

The United States’ debt is higher than it has ever been before and some people have started to blame the fact that the United States is no longer on the gold standard. In 1971, the United States took its currency off the gold standard and instead said it was based on the full faith and credit of the United States and allowed our currency to float on the exchange markets. Basically this means that our money does not really have anything backing it. Now, we have an overwhelming amount of debt and we cannot really seem to get our economy back on its own feet and in full swing again. Therefore, some politicians including Ron Paul and some Libertarians have advocated that we return to the gold standard as a way to add value to our currency and to control our spending. This is because if the US dollar was on the gold standard, we would not have control over monetary policy.

Now this seems like a great idea in theory but the practicality of it is just not there. The reason why we left the Gold Standard is that even back in 1971 there was not enough gold to back up the amount of currency we printed. After WWII, the US made all other countries tie their currencies to the US dollar, and then the US dollar would be tied to the gold standard. This way the US could help rebuild Europe and Asia without having to go through meaningless transfers. The US promised that any country who wanted to trade in US dollars could get the gold value of it. However, the rebuilding of the world took much more money than anyone had anticipated and the US printed trillions of dollars and gave it to countries. Charles De Gaulle, the leader of France, thought this was the US trying to influence every country so in 1971 he collected all the US currency in France and wanted to trade it in. The US in no way had enough gold to give Charles De Gaulle and that is when we left the gold standard. Therefore, think about it if we did not have enough gold back then to cover our checkbooks it would be impossible for us to cover what we now have spent. If we force ourselves to go back on the gold standard then we would really weaken the American dollar. Plus right now America only has $405 billion worth of gold in our reserve and therefore it is impossible for us to use this to cover our debt. Also another problem with the gold standard is that the value of the US dollar would be tied to the supply and demand of Gold and in the stock market gold is not as stable as one might assume. Also, if there is a shortage of gold than prices plummet hurting everyone and sending the country into another recession. This could happen if confidence in the American economy is shaken and too many people try to transfer their assets into gold at one time.

Now there are some reasons why this is a good idea. First this would make it so the treasury could not just print trillions of dollars, or a trillion dollar Obama coin (let’s not forget that was actually an idea),  which some argue would force Congress to rein in spending. However, as we saw with the Fiscal Cliff, Congress does not seem to do well when they have a time limit. Another argument is that this will make US currency more attractive on global markets because it would be tied to an actual commodity. However, this does not make sense because the US dollar is the basis for all commodities in the world and it would not really increase the want for US dollars. Also most economist agree that transferring back to the gold standard would be foolish and holds no real widespread benefits. So overall, while the United States does need to control its spending, we are too far gone to even think about going back on the gold standard.

http://www.theatlantic.com/business/archive/2013/04/david-stockmans-delusions-the-gold-standard-is-still-a-really-really-terrible-idea/274559/

http://www.econlib.org/library/Enc/GoldStandard.html

http://usatoday30.usatoday.com/money/markets/story/2012-04-23/return-to-the-gold-standard/54493710/1

Mar 122013
 

Congress failed last week to stop the sequester from occurring. To remind all of you, since it been a long long time (about two months) the Fiscal Cliff was going to be set off by sequester, which was automatic cuts in spending  which could possibly send the economy into another economic downturn. Two months ago, Congress created the Fiscal Cliff deal to postpone the sequester cuts till the end of February and if they could not come up to a compromise the sequester would occur. Well Congress worked diligently, waited till a couple days before the cuts were going to take effect, and failed to stopped them this time. Therefore people were fearing that with the sequester cuts occurring our entire economy was going to collapse again and we would hit another recession. However, it did not happen right after the cuts occurred actually the shocking thing is the Dow Jones hit a five year high a couple days after the sequester took effect. So what did the sequester, do if anything and what did it cut and why is the economy still rising.

The sequester cut $1.2 trillion from deficit over ten years as not to cause too much strain on economy. However, this means only $109 billion needs to be cut from the yearly budget and Congress broke it down into $42.7 billion on Defense, $28.7 billion in the domestic discretionary budget, $9.9 billion in Medicare and $4 billion spread through the rest of the budget. One of the biggest impacts of these cuts that people will see is in Medicare spending, where doctors only will receive reimbursements of 98% for the same rate charged. Therefore, if someone using Medicare gets a $100 procedure doctors will only be paid $98. However, the effects on domestic spending won’t hit the people immediately and politicians and economists are arguing over when the actual impact will occur. The last cuts are the military cuts which do not really affect our military strength because if you list all the country’s in order on how much each spends on their military the United States is number one and spends more than the next seven combined.

However even though people assumed immediate effects would not hit the people, economist still predicted that we would see a downturn in the stock market as a predictor for a rough road ahead. However, a couple days after the sequester took effect the Dow Jones hit its high as stated above. Therefore economists have now started theorizing we are in an economic bubble. An economic bubble is basically where through people seeing prices continuing to go up, people keep buying and selling stocks without caring for the economic conditions of the entire economy.  Therefore, with the Dow Jones rising so much before the sequester the momentum of the stock market just continued to carry it up. Plus with the Feds keeping interest rates at all-time lows still and bond prices high there is little risk in investments and people are able to take normally very risk actions. However, like an actual bubble, an economic bubble will burst mainly when prices get too high and people no longer wish to continue buying. As soon as a big drop in the share price occurs, people will lose all confidence and the stocks will fall drastically. The problem with economic bubbles is people will see the rising prices and invest most of their money in hope of making a quick buck and when it bursts, someone will get burned. While it is not definite that we are in an economic bubble it seems likely and this means that we should look for ways to either slow down the rising prices which could be done through careful manipulation of government spending. This would have to be led by the Feds since Congress cannot do anything. The best suggestion for the Feds would to be slowly increasing interest rates to cause people to stop throwing so much of their savings into the stock market. Or we would need to find a way to cushion the blow for the pop. This would most likely be putting up a way to make sure losses are minimize but this is even more unlikely because Congress, other than legislating against mainly trusts and in-trading, have left the stock market alone.

http://www.motherjones.com/kevin-drum/2013/03/the-sequester-explained

http://www.nytimes.com/2013/03/06/business/daily-stock-market-activity.html?pagewanted=all&_r=0

http://business.time.com/2012/12/19/do-we-have-another-financial-bubble-on-our-hands-or-three/

Feb 052013
 

So in a time when the economy has been rated as the top issues for Obama’s second term to handle one wonders how the government is spending our tax money. Well one could say $97,000 spent on floating outhouses for Oregon farmers was money well spent, but most would say what the hell, and is that what my tax money is going towards. Our government wastes millions of dollars on pork-barrel legislation that is meaningless and provides no benefit to the country. And all of this happens under the supposed watchful eye of our bureaucracy who has little power to implement laws anyway wasting even more money.

In the United States, pork-barrel legislation is what many people say is how our legislators help their districts out. However, Obama and Congress promised, during his first term, to stop all pork spending because it was not serving the interests of all people. However, all this did is sweep the issue under the rug. Pork barrel legislation has not stopped and it has barely slowed down. For example, the US gave $750,970 to Smuttynose Brewing to build three new brew tanks at its main brewery. Even our foreign aid has gotten excessive, with the United States spending $27 million on pottery classes for Morocco to make Moroccan pottery more competitive on the global market. As stated before the United States cries about our uncontrollable budget but we waste millions and while it won’t fix the budget crisis it is a place to start.

However, that is not the only problem our government has. We also have an extremely ineffective bureaucracy, the sector of government responsible for the implementation and enforcement of laws. For example, during a listeria outbreak in a meat packaging factory both the CDC (center for disease control) and the FDA (Food and Drug Administration) both had to investigate and test the factory to prove the listeria was coming from this particular factory. The reason for this, is the government has outlawed communication between bureaucratic agencies, because if they communicated, government would be getting too big. What is worse is neither of these agencies actually could shut down the factory. They could only issue warnings saying there was an infection in the plant and it was up to the plant to shut itself down and fix the problem. Of course this only occurred after three people were killed. After this case the CDC and FDA both asked Congress for the ability to fine or temporarily shut down factories that were being investigated and after several months of battle in Congress, Congress passed a law that ended the requirement for inspectors to go to meat packing factories. And no that is not a typo the law they passed did not regulate the meat packing agencies at all. What is worse is in 2011 another listeria outbreak in cantaloupes killed 30 people with 146 confirmed cases in total. Of course no major legislation was passed to end stop this from happening again. The reason why this all matters is because if agencies are performing the exact same tests and neither can actually do anything with the information they gain from it what are we spending millions of dollar on. Plus the US budget is distributed through the bureaucracy, so if they have little practical power that can be used without legislation than why are they getting the money.

Now in this post I have laid out the arguments for what is wrong with our bureaucracy and government pork-barrel legislation. However, both of these issues have simple solutions. First of all with the bureaucracy, give them power is the simple way of putting it. Give the FDA and CDC the power to put companies temporarily out of business, I mean the FAA (Federal Aviation Administration) only got power after the Patriot Act was passed after 9/11. Also if you simplify the bureaucracy and even try to end overlapping of responsibilities and allow communication. The CDC and FDA both deal with diseases, drugs, and outbreaks, why can’t they work together if they are investigating the same thing. Fear of a tyrannical government is not insane but if giving into this fear threatens the safety and security of innocent people do we want it to be the defining characteristic of our government. And for pork-barrel legislation, is it necessary to give $750,000 to a brewery. Who does that benefit other than the brewery. Some things should not be a problem but the only issue is even though everyone said they would stop adding pork to bills they still continue to do it. The only solution is for people to stop expecting money from their representatives if we care more about the overall good for the country rather than the money in our pocket Congress will stop sending money directly home. Overall the solution is truly for Congress to follow through on their promises or to stop hiding pork as amendments onto legislation. There is not a technical solution for how to get rid of pork because it is passed through Congress as amendments on more important legislation. Now I know trying to get Congress to be honest, let alone give the bureaucracy power is harder than it sounds. But that should be a sign that maybe it is time we start dealing with it. Both of these things are obviously a major issue in our government that most people agree needs to be fixed and yet we cannot fix it. The strongest country in the world doesn’t even seem to track where their money is going and we, the people, don’t seem to really care. If you spent millions of dollars, I would expect you would want to see some benefits or results. The government has been spending too much money frivolously. And while it is not a major amount of the budget, I don’t think any money should be going to floating outhouses because that is a load of crap.

 

Sources:

http://www.publishyourarticles.net/eng/articles/complete-information-on-bureaucracy-characteristics-advantages-limitations-and-its-role.html

http://www.polisci.ccsu.edu/trieb/Cong-8.html

http://money.msn.com/investing/12-examples-of-government-waste

 

Jan 162013
 

Economists have officially declared that the Great Recession has been over for quite some time. Corporate profits are now higher than they have ever been before. However, 46% of those polled by Gallup in July still believed the economy was in a recession and now there is fear of another recession in 2013 due to the fiscal cliff. (Bagchee) However, the US’s unemployment rate has gone down to 7.8% according to the Bureau of Labor Statistics. As well as there was an increase in average hourly earnings (bls.gov). However, even with this decrease in the unemployment rate there is still a large number of Americans out of work, many who have quit trying to find a job, and many who are underemployed. So now the question is where to go from here. We have an overwhelming amount of debt, we barely got past the fiscal cliff without completely going over the edge, we are going to have another debate over raising the debt ceiling and now the gloomy forecast of another recession.

Those are the facts. That is where the American economy is and where it is going in the future. However, how do we fix it, how do we stop the need for sequestration. First of all, The United States should cut the defense budget. Defense department is requesting $526,205,000,000 in 2013, now while we do need a standing military and defense programs, we do not need the defense budget to be this high (comptroller.defense.gov).  What is even worse is while this is the Department of Defense’s requested budget and they have cut their own budget, many Republican Representatives still wish to increase the amount of defense spending. The United States has ended one war and already has plans to end another war there is no reason why we should increase the defense budget. Therefore, a decrease in the defense budget even by 25% of what they requested will still give the defense department $394,653,750,000 and save the government $131,551,250,000, a nice amount of change. This way the defense department will still have more than enough money for military personal who only receive $135,112,000,000 of their budget, and enough money to maintain upkeep and to fund research into military weaponry.  (comptroller.defense.gov)

However, just cutting the military defense budget is not going to end all of our problems. There are two more obvious suggestions that Congress should follow. First, we need to increase taxes especially on the wealthiest Americans, at least the wealthiest 10% of Americans. While these people have the chance to hide their money in offshore accounts, the amount of money the American government will receive will increase no matter what. Also stop giving tax breaks to the wealthiest Americans to try and increase spending. The trickle-down effect does not work (it has not worked in all of history), and the only thing it does is increase investment on Wall Street which does not directly help the unemployed members of the economy. This is a tired out idea that for some reason continues to pop up over and over again. Second, even though it pains me to say this, we need to cut money from welfare programs. While people depend on social welfare, the United States needs to balance its checkbook before we can spend our money the way we want. Also we cannot ask the wealthiest Americans to pick up the tab for everybody as a country we all need to sacrifice to help get our country past one of the most uncertain parts of its economic history.

While these suggestions won’t fix every issue the US has it will be a start and at least get us part of the way there. However, the truth of the matter is that paying back the debt is not the biggest issue rather it is cutting the yearly deficit so the debt stops piling up and then when we finally get a surplus can the US start to pay back some of the debt. However, just remember every country has debt it is the way that the international system works but the United States has just let too much of it build up on its credit cards.

 

Sources:

http://www.bls.gov/eag/eag.us.htm

http://www.cnbc.com/id/49898014/Morgan_Stanleyrsquos_Doom_Scenario_Major_Recession_in_2013

http://comptroller.defense.gov/defbudget/fy2013/FY2013_Financial_Summary_Tables.pdf