Last week, I explained that the so-called ’prosperity’ the economists are braying about, isn’t so. If Joe Six Pack takes his credit card and buys a new TV set, he may be buying a TV set (made in China), which is a purchase, but he is taking on not only that debt, but the interest which accompanies it. Quarter an hour labor in China may have built another TV set, and there was profit from the sale of the TV set to whomever sold it, but where is the net gain? A boost to the economy would be paying cash for the TV, out of savings, not a credit card purchase. If Suzie Fairweather leases a car, rather than buying it, as has been the custom for a century of American automotive business, a car has been built, and the dealer maybe has profited a few sheckels, but the car is not owned. It has not been purchased, but leased. At the end of the lease period what happens to the car? Who knows? Maybe they fill the used car lots, driving down the prices of used cars, I don’t know. I do know that the consumer PURCHASING SOMETHING AND PAYING FOR IT, has been defeated. Therefore I hypothecate that the ’booming economy’ is a fake, or nearly so anyway. Go to the bottom of this and read last week’s column to see a further exegesis of this.
Now let’s continue with the ’booming economy.’ I hear that sales are up just about everywhere, and this means that all is well. As an example, take the drug store chain Walgreens, which right now is building a new store in my town. They want to have 10,000 stores by 2010, it is said. Their sales were up 7% last year. Wal Mart says its sales over the past Christmas Season were up only 2.2%, which is a disappointment to them. Most businesses’ sales are up in dollar volume. Isn’t this grand? Not really in my opinion anyway. Let’s suppose that we have 7% inflation, which I think is very conservative. This means that the presses have been rolling a lot, a lot of dollars have been created, and as Sir Alan says, “Liquidity has been injected into the economy.” This means that credit is easy, and money is floating around, waiting to be spent. How? By wage increases, consumer loans, credit card reserves, and other ways of ’injecting liquidity.’ As an example, the New York Subway motormen, conductors, bus drivers, etc, have gotten a raise after a brief strike. They will have more money to spend, as will people in states where the minimum wage has been raised above the federal level.
With more money to spend, and more money in circulation, guess what? Prices go up. They have to go up, because there are more dollars chasing consumer goods, and this is what is known as INFLATION. If the subway motormen have more to spend, and prices have gone up as much, or as is usual, more, where is the ’booming economy?’ If Walgreens has a 7% increase in sales, and the cost of merchanndise have gone up by 7%, and perhaps even the wages of store personnel, rents, utilities, and property taxes, where is the ’booming economy?’ All have gone up, probably not equally which is usual when an economy is not booming, but going down. How can an economy go down, when everyone’s business grosses are up? How can an economy go down, when everyone’s getting a raise? It’s all very easy, as history has shown over and over again, time after time.
With prices and wages going up, due to the increase in currency supply, the situation feeds on itself, till it can’t feed any more. If an alcoholic has unlimited access to hooch, he will enjoyably drink till he dies. If a fat person can eat endlessly, with no repercussions and no limits as to finance, appearance, or life span, they will eventually enjoyably eat themselves to death. If a housing bubble can build and build and build with cheap money, easy credit, and virtually no limits, it will have to burst, because eventually prices will be so high, as will payments, that no one can afford to buy. The housing bubble collapses. If dot com stocks become the rage, and everyone buys them, because there is no limit as to high they will go, guess what? Everyone will buy the bejesus out of them, till they get so high as to appear and actually be absurd, and then everyone will sell. Guess what happens to the prices of those stocks? That’s correct! From 5,000, to about 1,000 on the NASDAQ.
Endless examples can be made. If the currency value goes down and down and down till it requires wheelbarrows full to buy a loaf of bread, it will collapse. The well-worn simile of Germany in the 1920’s has been rehearsed over and over again to readers, but the principle remains. The higher prices go, and the more currency that is in circulation, the more that will be needed. In cases of inflation at maybe 10% a year, the phenomenon of currency shortages may not appear to the average citizen, but to banks it is obvious. Think about how rare a $100 bill was a decade or so ago, and compare it to today. Prices have gone up, and the currency requirements have gone up with the increase in prices and wages. IT NECESSIATES MORE CURRENCY TO OPERATE AN INFLATING ECONOMY, BECAUSE IT REQUIRES MORE CURRENCY TO BUY AND PAY WAGES. In Germany, they took old bills and stamped larger values on them. A thousand reichsmarks became a million, with the imprimatur of a stamp over the old value. In America, we simply have tons of hundred dollar bills around, at least until they become so common, and purchase so little, that the $500 bill may be re-introduced, and then the thousand dollar bill.
A sound economy, doesn’t have any inflation, and prices do not go up. Henry Ford invented the production line, and Model T Fords eventually got down to $275, brand new! Computers have done the same, thanks to mass production, as have cell phones. So, in a sound economy, the Henry Fords and mass manufacturers, many times lower prices, which is healthy. At least as long as the merchandise is made by those who consume it! After WW II, a merchandising genius named Levitt began mass-producing homes in suburbs of New Jersey, and New York. The Levittowns became famous, and allowed people of lesser means to own a home, which they did, en masse. One could buy a brand new home in a Levittown for under $10,000. (In New Jersey they have changed it to “Willingboro”). This was the ’booming economy,’ not consumer goods made in China with cheap labor, and America exporting its capital by the hundreds of billions every year to a foreign entity.
A ’booming economy,’ has stock prices with P/E ratios of well under 10, with dividends being paid on them, and a booming, manufacturing sector, not a rusting, crumbling one. A ’booming economy,’ doesn’t have welfare, destroyed neighborhoods, rampant crime, and thousands of containers coming into our ports every week, with merchandise we didn’t make, but have to buy with our remaining capital. A ’booming economy,’ has currency backed by tangible gold, and coinage made of silver. This limits the amount of currency which can be produced, thereby making inflation impossible. Wages, in a ’booming economy,’ don’t have to go up regularly, to keep up with prices, which do the same. A ’booming economy,’ invents things, makes things, discovers things, and in these economies, people care for themselves. In a ’booming economy,’ government doesn’t grow, nor attempt to protect citizens from their own foolishness at their expense. In a ’booming economy,’ manufacturing is for consumer goods, not guns, tanks, and jet fighters, because the nation is neutral and minds its own business. (It’s so much fun to write these, because I get all wound up and disgusted at the same time.) In a ’booming economy,’ I would have no business, because it wouldn’t be at all necessary. Who would want to buy gold or silver, when the dollars were backed by and convertible to them, and the quarters, dimes, and halves were made of silver? In a ’booming economy,’ I’d have to do something entirely different, or retire for the third time.. I wouldn’t have to say at the end of each column, “protect yourself,” now would I? I wouldn’t even be writing this screed! Now, for god’s sake, PROTECT YOURSELF.