Monday, April 13, 2009

The Socialist bamboozled swindle

Even if some say the market is recuperating some at the moment and stock-markets seemingly are a bit more stable, there is still that problem with the pesky inhabitant that don’t do as they are expected to do. The world’s governments are consequently facing two main troublesome questions:

1) Why are not people borrowing and spending so the wheels can keep turning?
2) How much more money do we – the government – need to borrow and print in order to get the populace to do what we want (=1)?

What would you do if you were in charge? There are of course several answers to this conundrum, depending who you are, what degree of knowledge in economics you posses, if you are right or left in politics and many other things play their part in making this decision. But before you decide if you want to spend 1 trillion dollars or 20 trillion dollars you might wanna check out a couple of things first.

First Economic Fact
It is feasible that a country can have a growing economy counted in GDP, low inflation and still get poorer. Why? Because of borrowing. The people and/or the government can be borrowing money and since GDP mainly take into account the spending, not the debt, this can increase poverty. Especially when this is combined with lower production and that the money being spent only is spent, not invested or saved. This means people is only getting stuff, not producing them. And this is why United States today is more or less bankrupt. If you do not produce, only borrow in order to buy things, you get deeper and deeper in debt and consequently poorer and poorer. And what are the governments all over the world doing, with Obama as frontrunner, to fix the crisis? That’s right; borrowing more money to spend it! It is not production they are putting the money on, it is not savings and it is not investments, it is almost only spending. And what a spending! During the next coming years, the Obama administration will spend a sum equivalent to World War 1+ World War 2+The New Deal+ All stimuli before and during the great depression + Iraq War*2 + Vietnam and then some. But the Americans are not alone. Everyone is doing the same thing, not really at the same level though.

Second Economic Fact
You can be producing things faster, better and more and getting a higher salary, but still getting less and less for your money. Why? Because of the increase in money on the market. If the amount of money in the system grows more than the production rate, you will get less and less for you money in regard to prices. This also means that if this happen; you are getting taxed! Think of it in terms of supply and demand. If something is plentiful, the price on it goes down. If something is scarce, the price goes up. This is also true for money. This is the second thing that is the basis of today’s crisis and also the main reason why production is going down in relation to GDP. Another way of referring to the printing-game is ‘Quantitative easing’ (QE). Basically this means that the central bank presses some keys on a keyboard and presto; more money exists. The bank then uses this magically appearing money to buy government and corporate bonds. The government and those corporate businesses (financial institutes) then have more money in their hands they can invest or buy things for and the theory is that this will get the economy going again since there is suddenly more money in the system. Of course this also means that this extra monopoly money without any value attached to them have an expiration date attached to them. Whoever gets this money first wins the most. Money works like any other commodity so when you increase the supply it means that the demand (the price) goes down. Each pound loses in value. But at the start this is hardly noticeable so the persons/companies that get the money first can “trick” other people/companies that the money is worth more than it really is. This is the main reason why the markets are going up and down at the moment. While the "experts" don't know why the financial markets are going up and down, you who read this knows why. And if you understand this you will also know which investments to make.

Third Economic Fact

Low interest rates make us borrow and spend more, high interest rates make us borrow less and save more. If rates goes up and makes it more expensive to borrow, you will not borrow or at least borrow less. This is the third big reason for this crisis because in several countries the interest rates have been artificially kept down by governments. They have forced central banks to lower rates or they have put in their own public banks or loaning institutes on the market to make people borrow more money. This is very obvious in America were the governmental institutions of Freddie Mac and Fannie Mae practically gave away money to an very low interest rate, and of course people took them and went out spending them on things they in reality couldn’t afford. This in combination with 1 (and 2) above is the real problems and why we are in deep, deep trouble. Because, again, what are governments trying to do to divert the crisis? Yes, that’s right; they are trying to force people to borrow more so they can spend more to keep GDP up and growing.

So where does this leave us?

Basically people are in debt, thanks to the governments artificially rates. Many people also instinctively know (without really understanding why) that money being conjured up out of thin air and flooding out more papers and coins lead to inflation. And the financial markets are behaving strangely since more money is in the system, rates are wrong and regulations come and go. And we all know that the government (all of them, just at different degrees) is in debt and there is a crisis going on which means jobs aren’t safe. All this makes people uneasy, and what does the government do to ease the tension? They announce regulations, more laws plus extra restrictions and so on which means people don’t really know what will be the rules tomorrow. And if the crisis lasts, maybe more rules and regulations will come. Why would anyone want to spend, borrow and invest when the uncertainly is so high?

And fun part is what the governments have been doing, are doing today and will continue to do tomorrow: Borrow more, print more and impose more regulations!

This means that even IF they manage to trick you all to start borrowing and spending again and that the markets seemingly recuperate, nothing has change, the problems remains, and the crisis isn’t gone. So IF this crisis can be “avoided” in this sense, the next one will be just around the corner and since their mad plan “worked” (=you started spending again) they will do the same thing the next time. Crisis after crisis after crisis as an obvious result of this planning economy. In other words, if we don’t stop with the socialism, this will never end; it is an ongoing crisis that exists even in times it seems to ease off. If someone writes or say that the crisis is over or slowing down, they are either lying or have no idea what they are talking about.

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