TruthSleuth

Let's briefly consider the current reality. The value of the dollar affects all who hold dollars or our debt. Regardless of what label we put on it, we have a government system of economic control and fiat currency that has evolved over 200 years. The data that tracks the various measurements of the economy varies by the administration reporting that data. The USA, Inc. PDF (http://www.kpcb.com/usainc/) has a compilation of data from government sources. Or dig it out yourself from http://research.stlouisfed.org/fred2/, http://www.bls.gov/cpi/, http://www.shadowstats.com/, et al. Regardless of size or complexity, the USA has revenues, expenses, assets, and liabilities like individuals and businesses. Its solvency or viability can be analyzed using the same methodology as a business. The government monopoly creates fiat currency by selling debt instruments to its affiliate banks in return for paying interest to those banks from more created money, so that the government can spend more than it takes in in revenues. (That's all on The Fed's site.) The US is doing what most of the 21 countries in the last 25 years have done that have gone into hyperinflation. Regardless of which data set one looks at the trajectory of government size, money creation, debt, and dollar devaluation is unsustainable. Even Bernanke said the Federal budget is unsustainable. Understanding that there is a problem is the first step to correcting the situation.

" . . .and neo-Keynesianism is our best current model, and the most accurate tool available for viewing today's markets when used correctly." Then "our best current model" has gotten us in really bad shape. "When people disagree with his [Keynes] work, it's disagreement based on ideology and personal political beliefs, not evidence or empiricism." Ideology is a "system of ideas and ideals, especially one that forms the basis of economic or political theory and policy" (New American Oxford Dictionary). This is exactly what we're talking about here along with evidence. Recall that Keynes said in his forward to the 1936 German edition of his General 'Theory' that was sent to Hitler: "The theory of aggregate production, which is the point of the following book, nevertheless can be much easier adapted to the conditions of a totalitarian state than the theory of production and distribution of a given production put forth under conditions of free competition and a large degree of laissez-faire. This is one of the reasons that justifies the fact that I call my theory a general theory." First off, Keynes misused the word 'theory.' It should have been hypothesis. Since this is a science forum, we should call it what it is. The American Association for the Advancement of Science (and similarly the US National Academy of Sciences) states: "A scientific theory is a well-substantiated explanation of some aspect of the natural world, based on a body of facts that have been repeatedly confirmed through observation and experiment. Such fact-supported theories are not "guesses" but reliable accounts of the real world." None of which was true for his ideology at that time nor today. If Keynesianism works best in a totalitarian state I'd also be leery that a state would seek to get to that best totalitarian state. Oh, wait, we're heading in that direction. Back to, "How do you disprove an economic hypothesis?" Several reasons make it difficult, but not impossible. Psychology has already been mentioned. Confirmation bias is a really big player under that heading. But the most difficult reason to deal with is getting true data and information about the reigning state. Every administration for the last forty years has changed the definition, baseline, etc. for how they reported various numbers. Talk about fuzzy numbers. It was serious enough that an ex-government wonk, John Williams, created his website (http://www.shadowstats.com/): Shadow Government Statistics: Analysis Behind and Beyond Government Economic Reporting. He has many free charts there, but he sells subscriptions for his in-depth data and analysis. His clients are mostly businesses and corporations that need to plan based on real numbers. Inflation is reported by the Bureau of Labor Statistics (BLS) in the form of the CPI. Supposedly it would take a hypothetical basket of thirty goods that most everyone buys and track its cost over time. In 1996, President Clinton formed the Boskin Commission and implemented their findings. So, now instead of simply measuring that basket of goods from one year to the next, they would use substitution, weighting, and hedonics on this basket. For substitution, they proposed that if item A goes up in price, people will substitute a cheaper item B. I don't believe I did that on any item in the original basket. Using substitution the BLS calculated that food costs went up 4.1% from 2007 to 2008. However, the Farm Bureau, which just tracks it directly, calculated that same basket of thirty items went up 11.3%. If basket items rise in price too quickly, the BLS applies a "geometric weighting" factor to lower their impact on the basket. So, while part of the government said that healthcare was about 17% of the economy, the BLS weighted it as only 6% in the CPI basket, because healthcare is rising too quickly. Now we come to the most unbelievable adjustment of all, hedonics (the pleasure of). In 2004, the BLS recorded that a new 27 inch TV was selling at $329.99. This was the same as the prevous year's price, but it had a better screen. They surmised that this better screen was worth $135, subtracted $135 from the total price and reported that TV prices had fallen by 40%. Never mind that the TV still cost $329.99 in the store then. To make it even worse, they only apply hedonics to their benefit (i.e. reporting inflation as lower). They will use a discount on newer telephones because they have more features than the older wired phones. However, they don't adjust any for the fact that the old ones last thirty years and the new ones only a couple of years. Hedonics are now applied to everything from automobiles, dryers, refrigerators, washers, to college textbooks. Hedonics adjust as much as 46% of today's CPI. The BLS using the official methodology for computing CPI-U reported it as 3% for 2011. John Williams calculates, without the fuzzy math using the pre-1980 basis, today's CPI is 11% through December 2011. A handy chart reference, compiled by a bipartisan group, is USA, Inc. - A Basic Summary of America's Financial Statements, February 2011. The forward states, "By imagining the federal government as a company, they provide a simple framework for understanding our current situation. They show how deficits are piling up on our income statement as spending outstrips income and how our liabilities far exceed nominal assets on our balance sheet. ...The authors' ingenious indirect approach is to ask what a turnaround expert would do and what questions he or she would ask. The report describes how we first stumbled into this mess, by failing to predict the magnitude of program costs, by creating perverse incentives for excessive behavior, and by missing important trends. By pointing to the impact of individual responsibility, USA Inc. gives us reason to believe that a practical solution exists and can be realized." This is an excellent place to start to get a handle on the actual numbers and magnitude of the problem without even talking about economic philosophies.The free PDF is available here: www.kpcb.com/usainc.

No, we're not in hyperinflation yet, because the Fed is pumping dollars into the system. This pumping may stave off the inevitable for five or maybe ten years. No one can predict that--not even the Keynesians. But exponentials go up very fast in a short period of time toward the end of their curve. Look at the CPI curve I referenced using the Fed's own data. And the debt is increasing as we speak. We're on the Titanic and Congress is arguing about the bar tab. Your rebuttals are right out of the government/Keynesian doctrine. Those are the folks that created this situation. Again, what magic allows the government to inflate the currency and deficit spend without going bankrupt while everyone else would go bankrupt? The Fed's monopoly of the fiat money system depends on growth to offset the interest paid to its affiliate banks. The fact is the US is already insoluble from an NPV standpoint. If you need more facts, look up USA, Inc. My link compiled by a bipartisan group. As for reality, Bernanke said there wasn't a housing bubble, but there was. The Fed kept the interest rates artificially low and that increased the bubble by bringing more speculators and home owners into the bubble. Higher interest rates would have stopped the speculation, the misallocation of resources and encouraged people to save. In an October 4, 2010 speech, even Bernanke said the federal budget is on an unsustainable path. The Austrians got it right, not the monetarists/Keynesians. But here's the bottom line. If a majority don't recognize that the US's current economic trajectory is unsustainable or expect the same doctrine that got us here to get us out, then things are going to get much worse than they would if correction were done sooner. Unfortunately, the majority will take the minority down with them. =(

First off, my agenda is our survival--yours and mine. Seriously. My observations tell me that the government, academics and the media are the reason for the economic mis-education of American voters and similarly in other countries. They have accomplished it like this: Academia sold the Government on an economic doctrine (e.g. monetary policy 1913 & later added Keynesianism after WWII) and trains new economists (or engineers in my case) in the same economic philosophy The Government hires academics as employees and many others (80%+) as consultants and research grants. The media also hires academics to write columns or put on a retainer as subject matter experts to translate economics for the public The media interviews The Fed Chairman or a surrogate from the Fed board or academia. The public is indoctrinated into the government's doctrine and the circle is completed. The majority have swallowed the blue pill. I'm hoping the readers of this forum have taken the red pill ("embracing the sometimes painful truth of reality"). =) Without going into the philosophies of the various economics in CaptainPanic's excellent list in my already long post, let's follow the dollar. It should fit in with this forum, because it involves mathematics. First let's stipulate that both political doctrines have participated in getting us to this crisis point over forty years. Second, let's stipulate that Presidents are at best cheerleaders as far as tax and spend are concerned. Article I, Section 7 of the U.S. constitution says: "All bills for raising revenue shall originate in the House of Representatives; but the Senate may propose or concur with amendments as on other Bills." The President may recommend tax increases or decreases or veto Congress' proposals. But Congress can ignore a President's veto or recommendations. Therefore, ignore any academics or media blaming Presidents for tax increases or Presidents saying they won't increase (or will decrease) taxes. So, the people need to control Congress. Third, let's stipulate that all Americans (and the world) are in the same ship of state. What happens to the dollar happens to all of us. Fourth, let's stipulate that if the government confiscated (not tax) every penny owned by every millionaire or billionaire in the US, it would only pay one-tenth of the US's total indebtedness. The behind the scenes facilitator for this crisis since its inception in 1913 is The Federal Reserve System of the US (The Fed). Despite the name it's a private banking cartel. In fact one of the share holders is the Queen of England, but that's another story. It creates money by printing dollars and loaning them to its affiliate banks. This creates inflation of the money supply, which causes prices to rise and allows governments to deficit spend. Looking at the Bureau of Labor Statistics's own data (bls.gov) the dollar has lost 95% of it's value since 1913 and 82% since 1971. The Minneapolis Fed's data (www.minneapolisfed.org) shows the CPI virtually flat from 1800 until a bump up about 1914 (WWI), back down, and up again for WWII, where it kept increasing, then it really took off in 1971 creating the hockey stick (exponential like) we see today. Nixon took the US off the gold standard in 1971. Prior to that, The Fed had to have enough gold or silver on hand to cover any amount that the citizens might want to trade their silver or gold certificates for. Therefore, The Fed can't inflate certificate money beyond its current inventory of physical gold or silver. For the same reason, the government can't deficit spend. This forces the government to 'live within its means' just as individuals and corporations must do. There's nothing magical about gold or silver. They are limited in availability, have commercial uses, and unless prevented by governments can be traded for goods and services worldwide. (I fear we'll need to use this barter ability in the near future.) The US debt is indicative of a government consuming too many resources. European governments consume about 49% of their country's GDP. The US federal government currently consumes about 25% of GDP. Even the CBO projects it to grow to 43% by 2050. State and local governments currently consume 10% to 15%. So, the US will have a larger government than any European government today except Ireland. The chronically high unemployment rates and slow economic growth in most of Europe portend what's in store for the US if it stays on its current trajectory. How can the government continue to borrow without revenues (a.k.a. taxes) to service that debt? Or how can the government do what an individual or corporation can't do without going bankrupt? There's no free lunch. Since the US dollar is the world's reserve currency (for now) other countries have been willing to lend us money cheaply. As our creditor countries realize the reality of the situation, they will raise their interest rates and the US will be in Greece's situation. More of the US budget will be spent to service the increased interest rate. Somewhere in this process the US could decide to default on its debts, which will make those holding US Treasury debt instruments upset. We've already seen from the debt ceiling issue in 2011 that there's no political will for the US to default. So, The Fed will create more fiat money creating more debt. All of this will ramp up exponentially and we'll be in hyperinflation. The average inflation rate over the last forty years is about 3.4%, but ln(2)/ln(1+.034) = 21 years. The loan amount will double in 21 years. But that's without an increasing deficit interest, which will make the curve an exponential. People and corporations can't pay suppliers. Suppliers won't accept the worthless fiat money, so, water, food, and gas stop flowing. How bad will it get before an enlightened majority controls Congress to allow sound money and produce a balanced budget? Or will the majority let it get much worse and collapse on its own? All our futures depend on getting this right.