Thursday, November 09, 2006

Democrats vs. the Dollar

Democrats in control usually spells trouble for the economy, because they like to impose rules, regulations and taxes so they can redistribute income. They will increase the minimum wage, they will "tax the rich" (we must all learn to share), and of course they will block oil exploration off the US coasts and in Alaska, and maybe even try to find other ways to make life difficult for the oil companies and other big business.

Felicity sharing her popsickle with Erin
[Thanks to kurthfamily.com for the adorable photo.]

If the economy panics a bit and starts to show signs of real sputtering, instead of the slight stagflation it's now performing under the best regulatory conditions we've had in decades, you'd think that eventually the Fed will be forced to lower interest rates and start to pump more money into circulation (in spite of Mr. Lacker.) Treasuries would probably follow suit interest-wise, at least as long as there remains a demand for them.

Then we'll find ourselves awash in more money, and if the CPI still remains relatively immune to it all and we get more bubbles instead, this should at some point turn into more dollar drop. But -- how far can it drop and not cause a collapse of the Treasury market? Remember, about 45% or more of the outstanding debt is in the hands of foreigners who would be the first hit.

Yep, these will be interesting times. If the Fed can't squeeze the excess liquidity out of the system under the Republicans, just imagine what they'll do with a Democrat-tightened economy.

All this is good for gold. (Just talking to myself.)

6 Comments:

Blogger Idaho_Spud said...

Katy,

I agree with you that Dems have a penchant for redistributing income in a heavy-handed way - they were already announcing their intention to raise the fed min wage. I share some of your disdain, but it seems more of a stereotype than a problematic issue. Tax cuts for the very wealthy but not the rest of us is "redistributing" wealth, is it not?

On the other hand, undivided govt was a clearly a danger to our liberties (have you made any international calls in the past few years? I have.), and crony capitalism is the opposite of a free market.

Gold is going to take off. The Big Picture blog has an interesting post about the US treasury usurping the role of the Fed by printing money there too! Very good for gold/silver.


Not so sure about oil, as I think we are on the cusp of a nasty recession and severe demand destruction will result.

Just talkin to myself too! :) Best wishes from someone trying to get by in a polarized world ;)

7:04 PM  
Anonymous Anonymous said...

Democrats in control usually spells trouble for the economy, because they like to impose rules, regulations and taxes so they can redistribute income.

What about 1992 - 2000? Does the name Bill CLinton mean anything to you?

7:36 PM  
Blogger Idaho_Spud said...

Anon, I don't get you. Which regulations that Bill Clinton was responsible caused you problems? If I recall correctly, he embraced Asia trade, NAFTA, CAFTA, eurozone trade and welfare reform - all good for the economy.

Anyway, heck yeah I remember those years - in the late 90's the economy *rocked*. I couldn't wait to open my 401(k) statements every friggin' month. Of course it was a bubble :)

Then too it was divided government, which is what this country (apparently) needs to avoid the pitfalls of either fascism or socialism.

Personally I prefer not to have my phone calls monitored without adult (court-authorized) supervision, and would prefer to have an end to it.

I'm kinda fond of my constitutional rights, but hey, that's just the libertarian in me. I really have no need to have the KGB looking over my shoulder. You may dismiss the grave danger to our freedoms this rubber-stamp congress posed, and of course you are entitled to that opinion. I would respectfully disagree that the economy and security come ahead of liberty.

As for rules and regulations, wasn't it a rep congress and prez who put Sarbox into existence? The EPA (one of the most regulation-intensive agencies ever) was created in '71 during Nixon's presidency.

This bunch has also imposed steel tariffs, lumber quotas, and doled out huge agricultural subsidies to a handful of powerful ag businesses. That is the opposite of free and efficient markets. And that, amigo, is not good for the economy either.

In short, it may not be as black and white as people make it out to be ;)

8:11 PM  
Blogger Katy said...

Hi Idaho and Anon,

I like this discourse, and I tolerate, indeed seek out, difference of opinion.

Idaho is right that the Repubs have not been minding the store the way they promised. At least the Dems are honest about their misguided intentions (although I'm dying to see what they'll do about the deficit now that they've got the majority.) The Repubs in power have clearly let their own party down on many fronts.

It all boils down to the old Public Choice Theory of economics, i.e. each one of us (including the politicians) will do what is expedient to get ahead as we see it, and most of us see only a few feet in front of our nose. That may mean a Republican president passing steel tariffs, or a Dem prez signing (a Republican Congress's) welfare reform, while his wife promotes health care for everyone (which is probably coming soon.) Idaho has got this right, the Repubs have talked the talk but they haven't walk the walk, at least not as religiously (pardon the pun) as they promised to do.

But personally, I must respectfully disagree about the danger the Democrats' admittedly more honest platform represents. Their whole agenda is openly based on strangling capitalism in the hopes of giving some of its lifeblood to the less fortunate. Watching out for the destitute is not a bad intention in and of itself, but unfortunately, reality plays out quite differently. Taking money from the wealthy (and who is considered wealthy -- maybe even you soon?) places constraints on the marketplace that inhibit capitalism, and if it goes too far, the stranglehold can be lethal. Just look at Western Europe's problems trying to back out of their "Third Way" progressivism. It's very difficult to take the favors back once they've been doled out.

The "very wealthy" are people like Bill Gates who employs over 60,000 people around the world. If you take away some of his "play money" (his or someone else's) you take away some of the tools he uses to raise our standard of living. You also take away some of those billions he's been giving to charitable causes. (We won't bicker about his choices; I'm talking about the collective good the rich do as a group, not any particular individual's actions.)

That's basically what the Laffer Curve is all about, you know, the theory that says "increasing tax rates beyond a certain point causes a reduction in government revenues [and employment] by discouraging production and investment." That's just life. I'd rather have my standard of living in this country of stinking rich, than have the standard of living of the Portuguese where there is much less wealth because it is taxed to death. (Actually, most of it probably has left the country a long time ago for greener pastures like the US and Brazil.)

And I do think the "tax cuts" have benefited ordinary people. I'm referring to those who have a 401K who may have to pay capital gains taxes at a higher rate soon, and I'm referring to those who are in the 10% bracket now, and who may be paying 15% soon. We'll have to see how that plays out.

And I have indeed made many international calls. Bush and his Neocons are extremely unpopular, if that's what you're referring to. I agree, we should probably never have gotten into this war, and there shouldn't ever have been the shadow of an excuse to overstep our liberties. Agreed. And it is so true that fear drives a people to hand these over on a silver platter.

As for crony capitalism, I admit that Republicans are as guilty as the Dems. However, I believe the size of goverment is a direct result of the Public Choice mentality described above, to which the Dems openly give their full allegiance and about which the Repubs are hypocritical.

What is the solution? Term limits? Unfortunately, I don't think there is a quick fix. Democracy means that we sink to the lowest common vision of society. Okay, but I guess it's still way the heck better than any other alternative.

And let's hope they don't try to take away our right to own gold/silver etc. They could try to tax it to death, you know. As it stands, we are supposed to pay taxes when we sell any as though we had a capital gain, in spite of the fact that it is the inflating that has caused gold to rise in price, not any profitable activity. As you probably are aware, past presidents have made it illegal when it became expedient. We must be vigilant.

11:31 PM  
Blogger Idaho_Spud said...

This comment has been removed by a blog administrator.

3:23 AM  
Blogger Idaho_Spud said...

Katy, thanks for that thoughtful post. With respect to international calls, I was referring to illegal monitoring - a small part of their broader phone call information gathering tactics. I take a dim view of these things as you can see.

Happy veteran's day, from a cold war vet. We may yet avoid becoming what I was protecting the US from.

3:24 AM  

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