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Civility is the ability to disagree with others while respecting their sincerity and decency. Civility begins with understanding. We can best understand our political differences by first understanding the moral foundations upon which political views are built. This site features research, resources, and commentary related to the pursuit of Civility through understanding.
 

Class warfare, or fairness?  The Brookings Institute explains.

From a well done article at brookings.edu. concisely describing the “Buffett Rule”.   Since it is brief, we quote the entire article below:

On Monday, the administration released its deficit reduction blueprint. One part of the administration’s proposal, which has received enormous attention, was that the Joint Select Committee on Deficit Reduction observe the “Buffett Rule” if it attempts tax reform. The furor over this proposal is surprising and the debate about it seems to have largely missed the point.

For background, the proposed Buffett Rule, so named from Warren Buffett’s op-ed in the New York Times, says, “No household making over $1 million annually should pay a smaller share of its income in taxes than middle-class families.” Setting aside the ambiguous definition of “middle-class,” the intent of the proposed rule is clear: tax reform should follow the principle of vertical equity, a hallmark of the progressive tax system—that as one’s income increases so should one’s tax payments as a share of income.

To see why the furor is surprising, note that the Buffett rule is an extremely mild form of progressivity—it just says that tax payments as a share of income shouldn’t be lower for someone with high income than for someone with low income. Is anyone seriously proposing the opposite? That people with income above $1 million should pay a lower share of their income in taxes than a middle-class family? If not, then what is objectionable about the Buffett Rule?

Opponents to the Buffett Rule frequently make the point that households with the highest-incomes already, on average, pay a higher portion of their income in taxes than middle-income households. Indeed, according to estimates from the Tax Policy Center, those making over $1 million in cash income paid an average federal tax rate (excluding excise taxes) of 29.1 percent while those with cash income between $50,000 and $75,000 paid an average federal tax rate of 15 percent.

This type of analysis, though, is based on averages. The Buffett Rule as proposed by the administration would apply—precisely and only—to those high income households who are paying less than the middle class average tax rate. The fact that the average tax rate among very high income households is higher than among middle class households means that the system, on average, is progressive, but it can still be the case—and is—that some people with very high income pay little or no taxes. That is what the Buffett Rule is addressing.

The Buffett Rule is also a matter of horizontal equity, a concept often used when analyzing the fairness of tax proposals but notably absent from the current debate. In an equitable system, people of similar means should have similar tax burdens. The Buffett Rule could improve both the vertical equity and the horizontal equity of the federal tax system by ensuring that every millionaire pay a minimal rate.

To be clear, the administration did not suggest how the Buffett Rule be implemented nor did it score specific versions. Rather, it proposed that the Joint Select Committee observe the principle of vertical (and horizontal) equity when trying to reform taxes. The Buffett Rule could be a guideline either for tweaks to the tax code that will reduce the deficit or for comprehensive tax reform. In any case, the vehement opposition to the proposed rule seems unfounded.

 

Well said.  The New York Time cites Treasury Department estimates that there about 60,000 “some people”, and taxing them per the Buffett Rule would raise approximately $1.3 billion per year…about 1/10 of what the government spends every day.

 

 

Libertarian beliefs about Liberal beliefs.

In his book The Revolution, Ron Paul cites an essay by William Graham Sumner titled “The Forgotten Man“.   Mr. Sumner began the essay with this:

The type and formula of most schemes of philanthropy or humanitarianism is this: A and B put their heads together to decide what C shall be made to do for D. The radical vice of all these schemes, from a sociological point of view, is that C is not allowed a voice in the matter, and his position, character, and interests, as well as the ultimate effects on society through C’s interests, are entirely overlooked. I call C the Forgotten Man.

We thought it would be interesting to list the assumptions underlying this framework as a way for Libertarians to make their case.  From the Libertarian perspective then, Liberals assume that:

A & B know what’s best for D.

A & B are not self-interested

C will not help D unless A & B compel him.

A & B are fine with using force to coerce C into helping D.

A & B are not fine with C using force to resist helping D.

A & B prefer C to be unarmed.

C will not help D unless A & B compel him.

C will not help D unless A & B compel him.

Without the assitance of A & B, D will languish or even perish

D wants the help of A & B, or for that matter C.

D will be grateful for the help.

D will not become dependent on the help.

The help will not discourage D from helping himself.

The use A & B have for C’s resources is superior to what C would do on his own.

A & B have dominion over C and first claim on the fruits of his labor.

C will try to avoid his “responsibility” to help D, so they must confiscate his earnings first by withholding from his paycheck.

There are more D’s than C’s, so A & B will get elected by taking from C and giving to D.

A & B are making the world a better place.

 

 

 

 

.

 

 

 

Krugman: More stimulus.  Much more.

The nobel laureate argues we aren’t doing enough and urgently need to reverse course through government spending and expansion of the money supply.

What should be happening? The answer is that we need a major push to get the economy moving, not at some future date, but right now. For the time being we need more, not less, government spending, supported by aggressively expansionary policies from the Federal Reserve and its counterparts abroad. And it’s not just pointy-headed economists saying this; business leaders like Google’s Eric Schmidt are saying the same thing

 

Be sure to catch Eric Schmidt’s recent comments too…

But the current strategy is ludicrous. You have a situtation where the private sector sees essentially no growth in demand. The classic solution is to have the government step in, and with short-term initiatives help stimulate that demand. If they do it right, they’ll invest in income and growth producing things, like highways and bridges and schools.

 

 

Paul Volcker cautions the Fed against playing fast and loose with inflation.

 

 

Top strategist: “I believe printing money to be a fundamentally dishonest endeavour”

Dylan Grice takes a strong stand against government money creation.  Mr. Grice is one of the world’s foremost finacial strategists according to the Thomson Extel Survey.

Here’s his view, heavily edited for brevity.  Read the full transcript here.

…I believe printing money to be a fundamentally dishonest endeavour. Think about how it works. When the central bank, at zero cost, increases the monetary base by 1%, where does that money go? Answer: into the market for government bonds.

By issuing bonds to itself the government seems to have miraculously raised
revenue without burdening anyone else. This is probably why the mechanism is
universally adopted throughout the world’s financial system. Yet free money does
not, and cannot, exist… someone, somewhere has to pay.

But who? This is where the subtle dishonesty resides, because the answer is that
no-one knows…The point is we can’t know who will pay, only that
someone will pay. Thus the government has raised revenues
without even knowing upon whom the burden falls, let alone telling them.

The burden of this money printing…seeps silently into the
economy, falling indiscriminately but indubitably on unseen, unknowing victims.

 

The full article is much more extensive and highly worth reading.  In particular he makes the point that increases in asset valuations, not just goods as measured by the CPI, should be included in the inflation calculation.

Mr. Grice prefers the classical definition of inflation, which is inflation of the money supply.  For those who share this view, here’s a sobering chart…

 

Esquire argues Jon Stewart needs to take a stand.

 

High school Valedictorian speaks out against public education

 

Humorist reveiw the week, from politico.com

 

By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens… The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

John Maynard Keynes, 1919

 

Government has a bottomless piggy bank, and it’s us.  We just don’t realize it.

Keynes was referring to inflation of the money supply.  In simple terms the money supply is the total of everyone’s physical money plus everyone’s bank accounts.   Government can increase or decrease the total supply of money through actions of the Federal Reserve (Fed).  In fact, one of the Fed’s main functions is to regulate the money supply, this is called monetary policy.

When government increases the supply of money, the money already in circulation is automatically worth less.   It’s much like shares of stock.  If you own 100 shares of a company that has 1000 shares outstanding, you own 10% of the company.  If the company was able to issue 1000 new shares, your 100 shares would now own just 5% of the company.  This kind of action in a company’s stock is called dilution.   When it happens to money it’s called inflation.  Same effect.  Whenever new stock/money is created, the value of existing stock/money is now lower.

Let’s look at it another way.  We all know that when lots of people want something, the price goes up.  For example, you may wish to purchase a new car.  You have the money.  You know the price should be $15,000.  Then, just before you go to buy the car, the government announces they will give everyone who doesn’t have a car $20,000 to buy a car with.  Suddenly lots of people have access to the cash needed to buy a car.  Guess what the dealer does to the price?   At first your $15,000 was valuable enough to by a car, but after the government increased the supply of money available to buy cars, your $15,000 was no longer valuable enough to afford the car.   So (the government program) increasing the  supply of money  made the value of (your) existing money lower.

At any given time you own a certain percentage of the money supply.  When government increases the money supply, the value of your money is lower.  But since your bank account didn’t change, you wouldn’t have any way of knowing.

How would you become aware you now own a smaller percentage of the money supply?   When money is created,  more dollars are chasing the same amount of things to buy, causing prices to rise.  This rise in prices is how we measure the effect of increasing the money supply, so over time the rise in prices has come to be referred to as inflation.  The Consumer Price Index (CPI) is our most common measuring stick for inflation.  Because the economy is so large and complicated, it is impossible to know which prices will rise, when they will rise, or by how much they will rise when the money supply is increased.

So, whenever governement increases the money supply, it is eventually ”paid for” by an increase in the price of something, at some time.

How does government increase the money supply?  For reasons too complex to explain here, the Fed mainly controls the money supply by setting interest rates.  The Fed can also directly create dollars.  It creates new dollars by simply increasing the total in it’s own bank account.  If you’re unfamiliar with this it may sound incredible, but that is actually what happens.  The Fed can create money and use it to buy anything it wants.

One of the Feds favorite things to buy is Treasury Bonds.  The sale of Treasury Bonds is how the U.S. government finances it’s deficit spending.  When the government needs to borrow it announces a sale (the term they use is auction) of T-Bonds.  Guess who buys the T-Bonds?  The Fed.  Where did the Fed get the money?  They created it.  The Fed is by far the largest holder of US government debt, usually holding about 50% of the total.

This is called “monetizing the debt“.  If you’re the government and you’re short of cash, it is much quicker and easier than raising taxes or borrowing from the Chinese.

Monetizing the debt means (since the government inflated the money supply) we will eventually pay for it in inflated prices. And since the Fed is independent, they don’t have to tell anyone what they have done, what they are doing, or what they intend to do.   This is what Keynes is talking about when he says governments can confiscate the wealth of their citizens secretly and unobserved, and why not one man in a million can diagnose it.

Is there any limit to how much money the Fed can create?  Yes, it’s just that no one (including the Fed) knows what that limit is, because it’s just too complicated.  They know if they create too much money, inflation will increase.  If they create way too much money, they will lose control and money will hyper-inflate causing disruptions in society (imagine prices rising 50% or greater every year, which has happened many times in world history, and some voices believe can happen again in the U.S.).  This is why the Fed always says their main job is to fight inflation.  The Fed believes it can manage the money supply any way it wants, as long as it controls inflation.  So in practice, the inflation rate is the main limit on how much money they will create.

An inflation rate of 1-3% is, A) low enough that citizens won’t notice, and B) low enough the Fed doesn’t think it will lose control.  An inflation rate of say 10% is high enough citizens will notice and the Fed will fear losing control.

How did we get into this situation?  At the turn of the century economists developed theories that by managing the money supply they could control the business cycle, meaning they would prevent down cycles and keep the economy in a permanent semi-boom cycle, which would feature near full employment.   Especially after the Great Depression, this sounded mighty good.  And so, the last 100 years has been a living experiment.  All the booms and busts, including the one we are experiencing now, have been the result of the unforseen consequences of various interventions in the economy by government.

Likewise, no one knows what would have happened if the government had not been intervening.  And that is the battle line in the debate between (so called) Keynsian economists and ‘free market’ economists.  Stay tuned.

 

 

UPDATE:  A reader posted this article to reddit.com, generating extensive comments.  See the full thread here.

A more technical (and scarier) description is provided here by zerohedge.com.

 

 

 

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