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