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 20^th 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.

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.

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.

Econographs 20081114

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.

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

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. We expect rapid GDP growth along with considerable inflation to offset all these performance data deviations.

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

ECONOFACTS

Vol.26 No.1
October 2008

LLB Information Systems, Elon, NC
Copyright © 2008

This month marks the beginning of the 26th year of Econofacts publication. Econofacts was started to report on the development of an investment system to make money in the stock market. Today, over 25 years later, that investment system shows some promise but it requires a disciplined financial system for success. The main problem has been that the financial world is undisciplined, erratic, and most often irrational. It trades on rumor, gossip, hearsay, whispers, and occasional truths. It indulges in deceit, duplicity, double-talk, despair, deviousness, dissembling, and patronization. Separating fact from fiction is never easy. We had to model the US economy with a system of our own to know where it stood.

Economic Modeling

LLBIS modeled the economy after the economic system of the universe. No system is more complex or difficult to model than the one that guides the constant reconfiguration of the universe and all its components. The reconfiguration of the universe is always done along economic lines. When economics is mentioned, most people think of financial models, bankers, and treasuries. However, in our book Universal Economics: Laws, Theories, Principles, and Paradigms, economic thought considers the physical, chemical, and biological formulas developed by scientists. These formulas describe the most efficient interrelations among the energy, forces and matter of the universe. All reconfigurations of the universe or any of its components follow these formulas. Financial systems are but a small part of the universal system but they also comply with the formulas. They follow the same scientific principles that guide the reconfigurations of the universe.

The cover of the October 2008 issue of Scientific American, a century old popular science journal of America, reads: “Forget the Big Bang: Now it’s the Big Bounce. Quantum gravity theory predicts the universe will never die.” Finally, after a century of irrational relativity theory, the scientific community has recognized that nuclear explosions of stars scatter matter throughout the universe to reconfigure its composition. Then gravity re-consolidates the matter within and without galaxies to perpetuate the basic organization of the cosmos. This reconfiguration of the universe by a stimulation phenomenon applies not only to the cosmos but to national economies as well.

Stimulation Energy

In the cosmological system of the universe, stimulation energy required for reconfiguration comes from exploding supernova stars. In a national economic system, the stimulation energy comes from newly printed money which is convertible to energy. The stimulation energy drives both systems to faster performance paces that lead to more system changes and the byproducts that ensue. Over time, however, the printing of new money reduces the value of existing money to insignificance but unlike the universe which never dies, the money based economic systems do die. Thus, there is a common natural stimulation phenomenon that drives changes in both the universal cosmos system and the national economic systems but with different final outcomes.

John Maynard Keynes was the first to academically recognize this monetary stimulation phenomenon in economies although it was used by the Egyptian Pharos at least 3500 years ago to motivate the builders of the great pyramids. More recently, it has been used by Americans to unilaterally build an international free trade system to achieve a new world order controlled by the elite running a centralized international government out of Brussels.

Gravitational Persistence

In 1990, Dr. Herbert Rost identified a gravitational persistence phenomenon that is the natural counterforce to the stimulation phenomenon of the universe. At LLBIS we have used the basic scientific discovery of Rost to measure the energy needed to counter the dispersion of the universe’s matter. From his persistence formula, we derived an Econolibrium table. This table defines the fiscal, monetary, labor, and productivity metrics for each economic equilibrium state pertaining to each performance pace of any economy. Economic and financial managers no longer have to guess at the metrics. The table provides them. By adhering to the metrics, our nation can run a most efficient economy at various sustainable economic equilibrium paces.

US Economy Stabilization

Today, US banking and stock market trading continue to be problems as the Fed and Treasury have reconfigured the brokerage and banking systems without rational guidelines. Our nation may not survive the current Congressional assault on scientific common sense and reason. A political solution based on Universal Economics is needed to stabilize the economy and that will be difficult to achieve given the current distribution of wealth among the elite in America and the economic naiveté of Congressmen and women.

Labor Data

September 2008 employment in the US fell to 47.55% of population. Employment is now below its highest level of 19 months ago (48.57% of population). In that time, employment has dropped by a million jobs while the population increased 4.3 million. Thus, the net overall loss is 1 million actual jobs plus the potential for 2 million more jobs because of population growth. America is in a recession. Employment will continue to fall for a while despite the recent large increases in both the federal deficit and M1, M2, and M3 money supply amounts in the last few weeks. Nevertheless, a 47.55% employment rate is very high for any economy and one to be enjoyed. See p3 of attached graphs.

Fiscal Data

In the last few days, the federal deficit jumped from 4.7% of GDP to 7%. If the deficit remains above 6% of GDP, employment should move up to 48% of population again. Meanwhile, the total public debt outstanding passed the $10 trillion mark for the first time. Since the federal deficit is always added to the public debt, the debt always increases. As the public debt increases, the GDP must also increase to maintain economic equilibrium. The maximum sustainable debt to GDP ratio is .607. Since the current debt to GDP ratio is .69, we need an 8% jump in GDP to restore a maximum sustainable debt to GDP ratio. Consequently, our economy is running very inefficiently. See p2 of attached graphs.

Monetary Data

The Fed recently boosted M1, M2, and M3 money supply to GDP ratios. M1 rose to 10.2% of GDP, M2 to 54.6%, and M3 to 84.8%. With employment at 47.55%, the ratios should be 17.07%, 59.07%, and 81.73% respectively. With the public debt at $10.1 trillion, GDP should be $17.1 trillion compared to its current $14.48 trillion. The US economy has some fast growing to do and most of it will come from inflation. A contracting economy always needs faster GDP growth to maintain its equilibrium balance. See pp3-4 of attached graphs.

The fed funds rate is now 2%. For today’s economy, it should be over 5%. The biggest problem with our financial system today is that lending institutions cannot make enough profits at prevailing low interest rates to overcome the current 8% dollar inflation rate. Consequently, they are not lending. The Fed should raise the bank reserve requirement rate to 15% to match the receipts to GDP rate of 15.1% and the fed funds rate to 5.5% to match the deficit to GDP rate. To compensate for this tightening, the Fed should raise the M1 to GDP ratio to 15%. See pp2, 3, and 8 of attached graphs.

Investment Data

The US Treasury has driven the US$ to GDP ratio up 10% when the dollar should be declining with respect to GDP at an 8% rate. This boost gave investors holding cash a 10% gain in the value of their money. Why would investors buy stocks declining at 25% per year when they could hoard cash for a 10% appreciation in value or, further, why should they buy stocks when cash is only losing 8% in value per year from inflation compared to 25% in the stock markets? The markets are declining for a good reason. See pp5 and 7 of attached graphs.

The DJW5000 index has declined 25% YTD. It is now 9% below M3 when it should be higher. For example, last July 13, 2007, the index was 40% higher than M3. With a deficit/GDP ratio exceeding .07 (.058 optimum), a debt/GDP ratio exceeding .69 (.607 optimum), and a M3/DJW5000 ratio of 1.087 (.945 optimum), the stock markets are poised for a gigantic leap upward. Once the economy is brought back to an equilibrium state, we should get a 14% rally. See pp 7 and 2 of attached graphs.

Disequilibrium Contributors

The US is flush with cash but no one can make a reasonable profit from it because of low interest rates. Cash is in excess supply because reserves are leveraged too much. For example, a high 40 to 1 leverage rate, which has been commonplace, assures excessive lending practices. This excess of cash drives both currency purchasing power and interest rates down. Today, the 90 day Treasury bill returns less than 1% interest because it is the only place money can be deposited with the assurance it can be recovered. If the bank reserve requirement rate was raised to 15% to match the federal receipts to GDP rate, reserve leveraging would be reduced to 7 to 1, the surplus of cash would be reduced significantly, and US economic equilibrium would improve.

Another reason for all the cash is that several plane loads of Federal Reserve notes were flown to Iraq and used to bolster the economy there. Who knows how much and to whom the dollars went? We weren’t told. A third reason is that the Pentagon supposedly misplaced a trillion dollars and cannot account for $3.3 trillion of its transactions. A fourth reason is that in the 70s, our universities preached transferring our technology to developing countries and shortly after, our jobs followed the technology transfers. Subsequently the dollars we paid for foreign goods came back to inflate our economy.

Our economic facts are clear and backed by a rational mathematical model. You can help save your country by sharing the above Econofacts information with others.

LLB & KNB