ECONOFACTS
February 2009
LLB Information Systems, Elon, NC
Copyright © 2009
The United States economy is grossly mismanaged and rife with inefficiencies. After October 2008 our country ran out of money and credit dried up. Excess lending was fueled by leveraging credit as high as 40 to one. Bad loans were rewarded with excessive bonuses. As banks and lending agencies began to fail, employment took a nose dive. Now a stimulus package is needed to resurrect the economy.
U.S. Economic Performance Rates are not consistent with Economic Theory. Current economic performance rates for January 2009 are presented in the table below. Actual performance data is obtained from the federal government. Theoretical data is obtained from the entropy theory of economics.
The economy has to be adjusted to perform along the guidelines of entropy economics as shown by the econolibrium table which is a tabular expression of the entropy theory of economics.
The US Public Debt to the Penny has been published every working day since the office opened in 1798. This debt figure is the theoretical basis for determining the actual performance of the economy. The latest public debt figure divided by the prior monthly debt figure gives a true reading of current economic growth.
Calculating the latest reported, 1/5/09 (10708) Debt by the previous months Debt (10654) of the previous month shows a deviation of + .6% which indicates the true current growth of the economy. This growth rate suggests a slowly expanding economy and markets. To pull the U.S. out of its slump, big growth in GDP is needed which requires high employment. High employment derives from a high M2 money supply and public debt.
Public debt drives the pace of the economy. M2 money supply compliments debt by driving up employment rates when it exceeds debt levels and drives down employment when it trails debt levels. Expansive money supply is always inflationary and keeps employment extraordinarily high.
Employment potential for an economy is set by capacity utilization and money supply. Capacity utilization sets the minimum employment level for an economy. Money supply adjusts employment higher or lower. Over time employment converges to reflect an equilibrium working employment rate.
Capacity utility theory currently supports 33% population employment, while money supply supports 45% employment. With money supply declining because of the credit crunch, employment will continue to drop.
Today a federal stimulus package is needed to keep employment at preffered levels. The amount of the stimulus should be at least half the difference between public debt and M2 money supply or $1.3 trillion.
Market inefficiencies include an employment rate that is declining. The deviation from expected versus actual economic growth bears this out. The stimulus package promised by democrats to resurrect the American economy will not open significant money flows until months after its approval by Congress, the Senate, and the President. This is too little, too late, to assert significant change in economic growth and employment figures should continue to decline.
Coordination between political, labor, and financial policy implementations must be synchronized to create a transition to economic prosperity. The politicians are pushing job development and security while the financial system cannot act fast enough to effect these changes with lagging promises of monetary stimulation. The United States is experiencing the pain of transitioning back to a production economy. The delusion of a service economy as the wave of the future has brought Americans to economic peril. We must produce goods to stay solvent amongst ourselves and competitive in world manufacturing. We must maintain fair trade policies that are inclusive to American goods being marketed overseas with the same benefits as our NAFTA cohorts.
Because of American economic mismanagement and inefficiencies, we are vulnerable to sacrificing our youth, not only now saddled with the burden of long term enormous debt, but also with mandatory conscription. Charley Rangel (D-NY) is poised and waiting for the stimulus package to pass and then will introduce his military draft legislation. These were the tactics of Nazi Germany. Indoctrinate the country’s youth and increase economic stimulation and gain momentum to push forward an agenda inconsistent with our country’s heritage, culture, and nationalism. Application of the entropy theory can help block this trend to keep economic control out of the hands of a few.
Monday, February 16, 2009
Saturday, November 22, 2008
Econopost
November 21 2008
Raw panic swept over the stock markets this week. Two days in a row, the Dow Jones Industrial index was down nearly 500 points each. This drop was matched by the other broad based indexes. After months of decline, the DJW5000 index is down 40% from its M3 money supply support level and 80% from its earlier high (see graph 10). Meanwhile, the federal deficit (graph 3) rose slightly to 10.6% of GDP, well above its maximum sustainable level of 5.86% of GDP. Furthermore, the federal debt to the penny (gr 4) rose to 73.5% of GDP, also well above its maximum sustainable level. The M3 money supply at 91.5% of GDP (gr 8) significantly exceeds its maximum sustainable level of 84.5% of GDP. Hence, the government is massively stimulating the economy to overcome the past leveraging losses in the housing market. Bye and bye, this stimulation should produce a huge rebound in stock values and market indexes. It will also reverse the rise in the dollar’s value (gr 12) and drive it to new lows never seen before.
In the midst of all the above economic distortions, employment continues to decline (gr 11). Employment will continue to decline until the economy reaches an equilibrium state. The lowest equilibrium state as indicated by the industrial capacity utilization rate of 76.4% suggests employment could reach a low of 38.5% of population, a loss of some 25 million jobs. Of course Congress would act with even more stimulation to avoid the wrath of that many unemployed constituents and the value of the dollar would fall much lower than it is today.
During the great depression of the 20th century, initiated by the great stock market crash of 1929-1932, our economists and financial wizards knew very little about panics and what caused them. Today, we have Universal Economics, the econolibrium table, and the econoperformance table (below), to guide us in dealing with economic and stock market problems. This is truly a new deal for our economy, not the false “only thing we have to fear is fear itself” nonsense of the 1930s. The only thing we have to fear today is that obstinate Congressmen and economists will inject their own private political interests into the solution of our economic and stock market problems. Have a good Thanksgiving.
Sunday, November 16, 2008
Econopost
November 14, 2008
Among the various changes this week, money supply, debt, deficit and dollar exchange value rose significantly. The money supply, debt, and deficit increases helped boost the market's viability. However, the increase in the dollar's exchange value killed the market's rebound. Investors holding cash will not buy bonds or stocks while the dollar's exchange value is rising. Once the dismal economists and financiers, who practice the dismal science of economics, comprehend that investors minimize risks, the dollar's value will decline and the markets will resume their inflationary rise.
Fear abounds that we are headed for a depression. With employment over 47% of population, a depression is impossible unless the Shlowmo McDismals are determined to have one. The biggest threat to our economy is inflation from the extremely high federal budget deficit and debt.
Among the various changes this week, money supply, debt, deficit and dollar exchange value rose significantly. The money supply, debt, and deficit increases helped boost the market's viability. However, the increase in the dollar's exchange value killed the market's rebound. Investors holding cash will not buy bonds or stocks while the dollar's exchange value is rising. Once the dismal economists and financiers, who practice the dismal science of economics, comprehend that investors minimize risks, the dollar's value will decline and the markets will resume their inflationary rise.
Fear abounds that we are headed for a depression. With employment over 47% of population, a depression is impossible unless the Shlowmo McDismals are determined to have one. The biggest threat to our economy is inflation from the extremely high federal budget deficit and debt.
U.S. Economy Performance Rates
| Econodata | Theoretical Maximum Sustainable Rates GDP | Actual Rates% GDP | Employment Equivalents % Pop |
| Public Debt | 60.7 | 73.5 | 51.17 |
| U.S. Deficit | 5.86 | 10.6 | 54.192 |
| U.S. Receipts | 17.93 | 17.352 | 47.68 |
| M1 Money Supply | 17.94 | 10.4 | 44.25 |
| M2 Money Supply | 60.7 | 54.6 | 46.47 |
| M3 Money Supply | 84.5 | 91.5 | 48.95 |
| Industrial Capacity Utilization | 90 | 76.4 | 38.5 |
| Employed | 47.94 % Pop | 47.44 % Pop | 47.44 |
Econopost
For the economy to be in a stable equilibrium state, all the expected actual employment rates should be the same, preferably at 47.95% for maximum sustainable employment. Since they are all different, we conclude that our economy is grossly mismanaged and grossly inefficient.
Saturday, November 15, 2008
Saturday, November 1, 2008
ECONOFACTS
Vol.26 No.2
November 2008
LLB Information Systems, Elon, NC
Copyright © 2008
Through the month of October, the US stock market lost $5 trillion, the global economic system collapsed, and the US economy was deleveraged from a 40 to 1 to a more reasonable 10 to 1 ratio. Furthermore, many stock market investors lost 30% to 40% of the value of their holdings. The reaction by our government financial officials was to convert the biggest private US banks into government sponsored enterprises (GSE) and boost their reserves with a bailout bill of $850B. Now the Federal Reserve System, Fannie Mae, Freddy Mac, and the nine largest surviving banks are being run by the US government.
The problem with the US economy today is its exaggerated disequilibrium state. The following table illustrates the amount of disequilibrium and its impact on employment.
Before reacting hysterically to this disequilibrium state as many in Washington D.C. are doing now, we should consider economic theory to plan a reasonable course for recovery. The first thing to recognize is that there is no such thing as a free market system or laissez faire government. Every economy is stimulated by its government to perform at an accelerated pace. Without government stimulation, an economy is naturally constrained to employ 35.4% of its population and can grow only at the rate of population increase. As government stimulation increases, however, the pace of the economy also increases such that more and prompter government regulation or mediation is required to keep the competitive elements working in harmony. Thus, government usually gets bigger to cope with the added protection and adjudication processes required by faster pace economies. The only time government gets smaller is when the public wants lower employment, slower economic growth, and less expensive government.
The worst trap government can fall into is driving employment above the maximum sustainable employment rate of 47.95% of population. Higher rates of employment introduce ever increasing rates of inefficiency in the economy with increasingly expensive output. To deal with these increasing inefficiencies, government must provide ever more protections and adjudications. It must get ever larger and distort economic equilibrium ever more to cope. Hence, there is a maximum sustainable pace economy which governments should never exceed by applying excessive stimulation. That occurs at the “Theoretical Maximum Econ Rates” for performance data shown in the table above.
The way the US government stimulates the pace of our economy is to write checks for deposit in the Fed. In turn, the Fed uses this money to buy US Treasury bonds and to lend to subordinate banks. It buys Treasury bonds from the Treasury and banks to increase money supply and sells Treasury bonds to the Treasury and banks to decrease money supply. It uses the fractional reserve system to multiply the amount of money it receives from the Treasury to boost the pace of the economy. At a 10 to 1 leveraging rate, the Fed can make available nine times the amount the Treasury deposits with them. For example, a $100B check deposited by the Treasury in the Fed could be parlayed into nearly a trillion dollars for lending. The only constraint the Treasury has on the amount of checks it can write is the public debt limit. Over the years Congress has never refused to increase this debt limit.
The two biggest enemies of the US economy besides excessive stimulation are inappropriate fractional reserve rates and free trade excesses. To keep the economy properly leveraged, the fractional reserve rate should be keyed to the federal receipts to GDP rate. Congress determines the nominal rate of federal outlays and receipts. To keep inflation in check, Congress must set taxes at a level consistent with federal expenditures relative to GDP. The optimum tax rates are provided by the Econolibrium Table. Today the US receipts to GDP rate is 15.66% of GDP. That means current financial leveraging should not exceed 6 to 1. The Fed is maintaining the fractional reserve requirement at 10% which means a leveraging rate of 10 to 1. It had been as high as 40 to 1. If the Fed was forced to follow the receipts to GDP ratio for setting the leveraging rate, Congress would be the de facto rate regulator for the country. Then when federal receipts climb to 20% of GDP and leveraging would be reduced to 5 to 1, Congress would be forced by the banks and the public to reduce taxes to be consistent with lower fractional reserve requirements.
Free trade is an ancient fiction. In the past, free trade occurred when armies invaded other countries and took what they wanted without completely destroying populations (goods and services for lives). Today, free trade occurs when banks invade foreign countries and take what they want without destroying the foreign economies (goods and services for economic survival). The cost of the free trade is borne both by the victims and the people supporting the marauding armies and banks. For example, America has been the recipient of goods and services provided by foreign countries for several decades. In exchange, America has furnished huge quantities of dollars. In the exchange, Americans have received wonderful goods and services for their currency of ever declining value. The imbalance is so bad that American industrial capacity utilization has declined to a marginal performance level. With no work for scientific and engineering professionals, our nation’s ability to compete in the technical global economy is seriously impaired. The US has already become a service economy based on financial manipulations of banks that are ever more suspect.
Free trade has driven our economy towards bankruptcy. The theft of a trillion dollars from the Pentagon budget to keep free trade going, the subsequent loss of $5 trillion in the stock market collapse, and the recent $850 billion bank bailout by Congress is the price ($7 trillion total) we are now paying for past free trade. These costs have to be added to the cost of all those cheap but desirable goods and services from foreign countries to get their true costs. Even today, Americans are perpetuating the free trade fallacy by buying foreign goods and services that will drive up inflation and further destroy our science/technology based economy thereby reducing us to a bank driven slave state. Free trade is acceptable only if the value of annual exchanges between countries match exactly and outsourcing tax losses are recaptured by offsetting tariffs on imports.
As long as our government officials continue working to bring about a socialistic new world order, our economy will be volatile, grossly inefficient, and prone to collapse. To bring a stable equilibrium state to our economy, the President, Congress, and the Fed should be working to bring the actual performance rates in line with the theoretical maximum econ rates as shown in the performance data table. They cannot run a 10% federal budget deficit and a 72% public debt rate relative to GDP without inviting serious inflation. They cannot hold M1 to 10% of GDP without squeezing the life out of our economy. They cannot boost M3 to 90% of GDP without attracting all the available US capital and much of the rest of the world’s capital to create another gigantic stock market bubble.
Our book, Universal Economics, still languishes in the federal Copyright Office. Each monthly status inquiry is answered by another excuse for delay and an additional two months before the examiners get around to looking at it. At first we were assured that registration would occur by mid June 2008. Now they say maybe January 2009. This reminds us of socialistic health care practices where patients are discouraged from applying for treatments by lengthy delays in appointments. Of course, the longer the book examination is delayed, the more time the financial community has to prepare and adjust to the compelling academic arguments advanced by the book.
We have opened a blog site www.llbis.blogspot.com under Google. This blog contains our monthly Econofacts newsletters for October and November. Next month and thereafter we plan to include the latest three monthly Econofacts newsletters. Soon, weekly performance graphs and investment data will be added to the blog. Other special site updates may occur at any time during the month. Two months from now, we shall cease distributing Econofacts and readers will have to access our scientific views on economics through this internet blog site.
Three months ago we offered to send a free DVD copy of Universal Economics to regular readers of Econofacts. The response was underwhelming. The lack of interest in scientific economic facts leaves us concerned about the future of America. Most people treat economics as though it was a theological belief system. For example, they believe in a balanced federal budget. President Carter nearly balanced the budget but inflation soared while employment dropped to painful lows. President Reagan restored the economy to stable equilibrium by raising the federal deficit to 9% of GDP. Later, President Clinton attempted to balance the budget again but employment took a sharp drop as free trade temporarily absorbed the inflation. President Bush restored high employment with tax cuts (higher federal deficit) and help from a 1% fed funds rate imposed by the Fed to cover the laundering of the $1 trillion theft from the Pentagon through the housing market that created a housing bubble. Today, Americans squander billions of dollars on Arab and Chinese products but not one cent on helping themselves understand and cope with the economic world we live in. For those interested we are offering our book Universal Economics in DVD form for $75.00 delivered to your USA address. Order the book through our econofacts@bellsouth.net e-mail address.
LLB & KNB
Vol.26 No.2
November 2008
LLB Information Systems, Elon, NC
Copyright © 2008
Through the month of October, the US stock market lost $5 trillion, the global economic system collapsed, and the US economy was deleveraged from a 40 to 1 to a more reasonable 10 to 1 ratio. Furthermore, many stock market investors lost 30% to 40% of the value of their holdings. The reaction by our government financial officials was to convert the biggest private US banks into government sponsored enterprises (GSE) and boost their reserves with a bailout bill of $850B. Now the Federal Reserve System, Fannie Mae, Freddy Mac, and the nine largest surviving banks are being run by the US government.
The problem with the US economy today is its exaggerated disequilibrium state. The following table illustrates the amount of disequilibrium and its impact on employment.
Economic..............Theoretical...............Actual..............Expected Actual
Performance........Max. Sustainable....Performance...Employment
Data Type.............Econ Rates..............Rates................Rates
Federal deficit.............5.86%.................10.2%........53.7% of pop
Federal receipts..........17.93%...............15.66%......46.9% of pop
Federal Public Debt.....60.7%................72.8%........51% of pop
M1 money supply.......17.94%...............10%...........42.6% of pop
M2 money supply.......60.7%.................54.6%........46.5% of pop
M3 money supply.......84.5%.................89.7%........55.4% of pop
Capacity Utilization....90%.....................76.4%........38.5% of pop
Before reacting hysterically to this disequilibrium state as many in Washington D.C. are doing now, we should consider economic theory to plan a reasonable course for recovery. The first thing to recognize is that there is no such thing as a free market system or laissez faire government. Every economy is stimulated by its government to perform at an accelerated pace. Without government stimulation, an economy is naturally constrained to employ 35.4% of its population and can grow only at the rate of population increase. As government stimulation increases, however, the pace of the economy also increases such that more and prompter government regulation or mediation is required to keep the competitive elements working in harmony. Thus, government usually gets bigger to cope with the added protection and adjudication processes required by faster pace economies. The only time government gets smaller is when the public wants lower employment, slower economic growth, and less expensive government.
The worst trap government can fall into is driving employment above the maximum sustainable employment rate of 47.95% of population. Higher rates of employment introduce ever increasing rates of inefficiency in the economy with increasingly expensive output. To deal with these increasing inefficiencies, government must provide ever more protections and adjudications. It must get ever larger and distort economic equilibrium ever more to cope. Hence, there is a maximum sustainable pace economy which governments should never exceed by applying excessive stimulation. That occurs at the “Theoretical Maximum Econ Rates” for performance data shown in the table above.
The way the US government stimulates the pace of our economy is to write checks for deposit in the Fed. In turn, the Fed uses this money to buy US Treasury bonds and to lend to subordinate banks. It buys Treasury bonds from the Treasury and banks to increase money supply and sells Treasury bonds to the Treasury and banks to decrease money supply. It uses the fractional reserve system to multiply the amount of money it receives from the Treasury to boost the pace of the economy. At a 10 to 1 leveraging rate, the Fed can make available nine times the amount the Treasury deposits with them. For example, a $100B check deposited by the Treasury in the Fed could be parlayed into nearly a trillion dollars for lending. The only constraint the Treasury has on the amount of checks it can write is the public debt limit. Over the years Congress has never refused to increase this debt limit.
The two biggest enemies of the US economy besides excessive stimulation are inappropriate fractional reserve rates and free trade excesses. To keep the economy properly leveraged, the fractional reserve rate should be keyed to the federal receipts to GDP rate. Congress determines the nominal rate of federal outlays and receipts. To keep inflation in check, Congress must set taxes at a level consistent with federal expenditures relative to GDP. The optimum tax rates are provided by the Econolibrium Table. Today the US receipts to GDP rate is 15.66% of GDP. That means current financial leveraging should not exceed 6 to 1. The Fed is maintaining the fractional reserve requirement at 10% which means a leveraging rate of 10 to 1. It had been as high as 40 to 1. If the Fed was forced to follow the receipts to GDP ratio for setting the leveraging rate, Congress would be the de facto rate regulator for the country. Then when federal receipts climb to 20% of GDP and leveraging would be reduced to 5 to 1, Congress would be forced by the banks and the public to reduce taxes to be consistent with lower fractional reserve requirements.
Free trade is an ancient fiction. In the past, free trade occurred when armies invaded other countries and took what they wanted without completely destroying populations (goods and services for lives). Today, free trade occurs when banks invade foreign countries and take what they want without destroying the foreign economies (goods and services for economic survival). The cost of the free trade is borne both by the victims and the people supporting the marauding armies and banks. For example, America has been the recipient of goods and services provided by foreign countries for several decades. In exchange, America has furnished huge quantities of dollars. In the exchange, Americans have received wonderful goods and services for their currency of ever declining value. The imbalance is so bad that American industrial capacity utilization has declined to a marginal performance level. With no work for scientific and engineering professionals, our nation’s ability to compete in the technical global economy is seriously impaired. The US has already become a service economy based on financial manipulations of banks that are ever more suspect.
Free trade has driven our economy towards bankruptcy. The theft of a trillion dollars from the Pentagon budget to keep free trade going, the subsequent loss of $5 trillion in the stock market collapse, and the recent $850 billion bank bailout by Congress is the price ($7 trillion total) we are now paying for past free trade. These costs have to be added to the cost of all those cheap but desirable goods and services from foreign countries to get their true costs. Even today, Americans are perpetuating the free trade fallacy by buying foreign goods and services that will drive up inflation and further destroy our science/technology based economy thereby reducing us to a bank driven slave state. Free trade is acceptable only if the value of annual exchanges between countries match exactly and outsourcing tax losses are recaptured by offsetting tariffs on imports.
As long as our government officials continue working to bring about a socialistic new world order, our economy will be volatile, grossly inefficient, and prone to collapse. To bring a stable equilibrium state to our economy, the President, Congress, and the Fed should be working to bring the actual performance rates in line with the theoretical maximum econ rates as shown in the performance data table. They cannot run a 10% federal budget deficit and a 72% public debt rate relative to GDP without inviting serious inflation. They cannot hold M1 to 10% of GDP without squeezing the life out of our economy. They cannot boost M3 to 90% of GDP without attracting all the available US capital and much of the rest of the world’s capital to create another gigantic stock market bubble.
Our book, Universal Economics, still languishes in the federal Copyright Office. Each monthly status inquiry is answered by another excuse for delay and an additional two months before the examiners get around to looking at it. At first we were assured that registration would occur by mid June 2008. Now they say maybe January 2009. This reminds us of socialistic health care practices where patients are discouraged from applying for treatments by lengthy delays in appointments. Of course, the longer the book examination is delayed, the more time the financial community has to prepare and adjust to the compelling academic arguments advanced by the book.
We have opened a blog site www.llbis.blogspot.com under Google. This blog contains our monthly Econofacts newsletters for October and November. Next month and thereafter we plan to include the latest three monthly Econofacts newsletters. Soon, weekly performance graphs and investment data will be added to the blog. Other special site updates may occur at any time during the month. Two months from now, we shall cease distributing Econofacts and readers will have to access our scientific views on economics through this internet blog site.
Three months ago we offered to send a free DVD copy of Universal Economics to regular readers of Econofacts. The response was underwhelming. The lack of interest in scientific economic facts leaves us concerned about the future of America. Most people treat economics as though it was a theological belief system. For example, they believe in a balanced federal budget. President Carter nearly balanced the budget but inflation soared while employment dropped to painful lows. President Reagan restored the economy to stable equilibrium by raising the federal deficit to 9% of GDP. Later, President Clinton attempted to balance the budget again but employment took a sharp drop as free trade temporarily absorbed the inflation. President Bush restored high employment with tax cuts (higher federal deficit) and help from a 1% fed funds rate imposed by the Fed to cover the laundering of the $1 trillion theft from the Pentagon through the housing market that created a housing bubble. Today, Americans squander billions of dollars on Arab and Chinese products but not one cent on helping themselves understand and cope with the economic world we live in. For those interested we are offering our book Universal Economics in DVD form for $75.00 delivered to your USA address. Order the book through our econofacts@bellsouth.net e-mail address.
LLB & KNB
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