Cap & Trade – Lobbyism Gone Wild With Your Tax Dollars

Some facts about Cap and Trade:

This whole debate is so utterly misguided, one doesn’t even know where to start. The federal government, of course, once again has no other answer to offer than to tax the people to the hill with the pretense of protecting the environment.

Does anyone seriously think that yet another 1200 page government bill that most representatives have not read will be our salvation? A bill that adds to the already constantly rising tax burden for Americans. If we were truly so concerned about environmental protection, then why don’t we attack the problem at its root? Who is the biggest polluter in the nation? Dr. Mary Ruwart tells us in The Pollution Solution: Stopping the environment’s worst enemy:

Who’s the greatest polluter of all? The oil companies? The chemical companies? The nuclear power plants? If you guessed “none of the above,” you’d be correct. Our government, at the federal, state, and local levels, is the single greatest polluter in the land. In addition, our government doesn’t even clean up its own garbage! In 1988, for example, the EPA demanded that the Departments of Energy and Defense clean up 17 of their weapons plants which were leaking radioactive and toxic chemicals — enough contamination to cost $100 billion in clean-up costs over 50 years! The EPA was simply ignored. No bureaucrats went to jail or were sued for damages. Government departments have sovereign immunity.

In 1984, a Utah court ruled that the U.S. military was negligent in its nuclear testing, causing serious health problems (e.g. death) for the people exposed to radioactive fallout. The Court of Appeals dismissed the claims of the victims, because government employees have sovereign immunity.

Hooker Chemical begged the Niagara Falls School Board not to excavate the land where Hooker had safely stored toxic chemical waste. The school board ignored these warnings and taxpayers had to foot a $30 million relocation bill when health problems arose. The EPA filed suit, not against the reckless school board, but against Hooker Chemical! Government officials have sovereign immunity.

Government, both federal and local, is the greatest single polluter in the U.S. This polluter literally gets away with murder because of sovereign immunity. Libertarians would make government as responsible for its actions as everyone else is expected to be. Libertarians would protect the environment by first abolishing sovereign immunity.

By turning to government for environmental protection, we’ve placed the fox in charge of the hen house — and a very large hen house it is! Governments, both federal and local, control over 40% of our country’s land mass. Unfortunately, government’s stewardship over our land is gradually destroying it.

For example, the Bureau of Land Management controls an area almost twice the size of Texas, including nearly all of Alaska and Nevada. Much of this land is rented to ranchers for grazing cattle. Because ranchers are only renting the land, they have no incentive to take care of it. Not surprisingly, studies as early as 1925 indicated that cattle were twice as likely to die on public ranges and had half as many calves as animals grazing on private lands.

Obviously, owners make better environmental guardians than renters. If the government sold its acreage to private ranchers, the new owners would make sure that they grazed the land sustainably to maximize profit and yield.

Indeed, ownership of wildlife can literally save endangered species from extinction. Between 1979 and 1989, Kenya banned elephant hunting, yet the number of these noble beasts dropped from 65,000 to 19,000. In Zimbabwe during the same time period, however, elephants could be legally owned and sold. The number of elephants increased from 30,000 to 43,000 as their owners became fiercely protective of their “property.” Poachers didn’t have a chance!

Similarly, commercialization of the buffalo saved it from extinction. We never worry about cattle becoming extinct, because their status as valuable “property” encourages their propagation. The second step libertarians would take to protect the environment and save endangered species would be to encourage private ownership of both land and animals.

Environmentalists were once wary of private ownership, but now recognize that establishing the property rights of native people, for example, has become an effective strategy to save the rain forests. Do you remember the movie, Medicine Man, where scientist Sean Connery discovers a miracle drug in the rain forest ecology? Unfortunately, the life-saving compound is literally bulldozed under when the government turns the rain forest over to corporate interests. The natives that scientist Connery lives with are driven from their forest home. Their homesteading rights are simply ignored by their own government!

Our own Native Americans were driven from their rightful lands as well. Similarly, our national forests are turned over to logging companies, just as the rain forests are. By 1985, the U.S. Forest Service had built 350,000 miles of logging roads with our tax dollars — outstripping our interstate highway system by a factor of eight! In the meantime, hiking trails declined by 30%. Clearly, our government serves special interest groups instead of protecting our environmental heritage.

Even our national parks are not immune from abuse. Yellowstone’s Park Service once encouraged employees to trap predators (e.g., wolves, fox, etc.) so that the hoofed mammals favored by visitors would flourish. Not surprisingly, the ecological balance was upset. The larger elk drove out the deer and sheep, trampled the riverbanks, and destroyed beaver habitat. Without the beavers, the water fowl, mink, otter, and trout were threatened. Without the trout or the shrubs and berries that once lined the riverbanks, grizzlies began to endanger park visitors in their search for food. As a result, park officials had to remove the bears and have started bringing back the wolves.

Wouldn’t we be better served if naturalist organizations, such as the Audubon Society or Nature Conservancy, took over the management of our precious parks? The Audubon Society’s Rainey Wildlife Sanctuary partially supports itself with natural gas wells operated in an ecologically sound manner. In addition to preserving the sensitive habitat, the Society shows how technology and ecology can co-exist peacefully and profitably.

The environment would benefit immensely from the elimination of sovereign immunity coupled with the privatization of “land and beast.” The third and final step in the libertarian program to save the environment is the use of restitution both as a deterrent and a restorative. Next month’s column will feature the second part of the Pollution Solution, answering the question: “How would libertarians keep our air and water clean?”

… how about for once we try some common sense to solve a problem, not another monster bill that accomplishes nothing but a bonanza for corporate interest groups, with taxpayers footing the bill. Please don’t give us another TARP.

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The Federal Reserve’s Power Grab – The Insanity Knows no Boundaries

Statements from President Obama and the people around him reaffirm a sad fact. They have not learned a single thing. The New York Times writes Behind the Scenes, Fed Chief Advocates Bigger Role:

WASHINGTON — During the debate over financial regulation, the Federal Reserve chairman, Ben S. Bernanke, has been surprisingly quiet.

But behind the scenes, he has been a forceful proponent of giving the Fed more power, both defending his management of the economic crisis and arguing that more authority would help the agency act more decisively to reduce the chances of a recurrence, according to interviews with lawmakers and officials from the Fed, the Treasury and the White House.

I may point out, as I have again and again, that credit expansion and the consumption business cycle were created by none less than the central bank, the Federal Reserve Bank, and the fractional reserve banks under its oversight. Giving the Fed more power will accomplish the opposite of reducing the chance of a recurrence. We need more regulation, not more decrees from a government institution, or an institution that only exists by means of government granted monopoly. More regulation can only be attained through the market place.

Despite criticism by some lawmakers that the Fed failed to anticipate the problems that led to the crisis, Mr. Bernanke has told associates that such critics fail to recognize the extraordinary actions taken by the central bank over the last year.

What the Fed has done over the last year was to get involved in corporate bailouts and an attempt to force lending. How are corporate bailouts a good thing? All they accomplish is to slow down and prolong the correction. What has the lending to banks accomplished? Are banks lending more now than 1 year ago? No, as a matter of fact credit is visibly imploding across the board. And in fact they shouldn’t be making any more loans. Bernanke still hasn’t been able to grasp the fact that lending can’t be forced. He has the wrong objective and on top of that he hasn’t attained it. How can one be any more out of touch with reality? The reality is: People are sick and tired of debt. What has Bernanke done to facilitate a swift liquidation of debt? Nothing.

Mr. Bernanke believes the Fed’s actions have played a major role in averting a possible second Great Depression, according to government officials who know his thinking. Those steps, the Fed chairman has told these people, demonstrate that the agency is up to the larger task assigned to it by the Obama administration.

Of course Bernanke is clueless about The Great Depression. The Fed has imitated virtually everything from the Great Depression playbook.

Mr. Bernanke has one important champion — President Obama. On Tuesday, the president reinforced his preference for an enlarged role for the Fed in a news conference at the White House.

The administration’s proposals for a regulatory overhaul are built around the idea “that there’s got to be somebody who is responsible not just for monitoring the health of individual institutions, but somebody who’s monitoring the systemic risks of the system as a whole,” Mr. Obama said. “And we believe that the Fed has the most technical expertise and the best track record in terms of doing that.”

And Mr. Obama: Would you mind telling us to whom the Fed is accountable? Congress is not allowed to audit their most fundamental operations. I am hoping you are aware of the fact that paragraph 714 of US Code 31 rules out any meaningful audit. I fear that you do not support Ron Paul’s Audit the Fed bill. Could you tell us if you are at least going to sign this transparency act before you give this secret institution any more powers? Who owns the Fed? Who is it accountable to? Right, the very banks it is supposed to oversee and who own member stock that pays 6 percent divident per year. You can read it up right here on the Fed’s own website. At the beginning of the same paragraph where this relationship is explained it says the Fed is not owned by anyone. Which one is it now? But then, is any one of those two options better than the other? If the Fed is not owned by anyone then it is accountable to nobody which is actually worse. If this kind of independence was so good, why don’t we make the military unaccountable to anyone as well. Heck, why don’t we abolish accountability of any government institution to anybody alltogether? What a misguided debate!

He said that while the Fed was not blameless, it was not fair to single it out for failing to avert the crisis.

“I think that the Fed probably performed better than most other regulators prior to the crisis taking place, but I think they’d be the first to acknowledge that in dealing with systemic risk and anticipating systemic risk, they didn’t do everything that needed to be done,” Mr. Obama said.

Unfortunately no, when you are instrumental to creating a crisis it is not permissible to claim that you “performed” in any way before it. In fact you didn’t perform at all if the objective of said performance was to avoid a crisis. As a matter of fact, you have done the exact opposite of “performing well”, you have “failed miserably”. That President Obama would utter such a baseless and false statement is simply deplorable.

The president and Mr. Bernanke do not, however, see eye-to-eye over whether to create a Consumer Financial Protection Agency, part of which would be carved out of the Fed’s existing jurisdiction over mortgages and credit cards.

Breaking ranks with the administration, Mr. Bernanke is expected to tell Congress that the Fed would prefer to keep the responsibility for consumer lending. He is also expected to promise a stronger emphasis on consumer debt issues in the future.

Mr. Bernanke’s surrogate in the debate has been the Treasury secretary, Timothy F. Geithner, who in Congressional testimony, speeches and interviews has praised the Federal Reserve’s performance.

(Mr. Geithner’s views may also have reflected his pedigree. He joined the administration after serving five years as president of the New York Federal Reserve, where he worked closely with Mr. Bernanke.)

I don’t think there is a more clueless person in this administration than Tim Geithner. That he would support Bernanke is only to be expected. That he himself admitted that the Fed kept rates too low for too long is probably just another statement that he has forgotten about, did not quite think through, and/or has no particular context for in his limited and low level mindset on economic theory.

Mr. Bernanke has been reluctant to get involved in the political debate, but has argued to associates and lawmakers that the often-mentioned alternative of a council supervising the largest firms would not be nimble or accountable enough.

And Mr. Bernanke: Would you mind telling us to whom the Fed is … darn, I am beginning to repeat myself.

He also has said that the plan is not a radical departure from the Fed’s current role. The Fed is already the umbrella supervisor of virtually all of Wall Street’s largest institutions, and the Obama plan would add only a handful of new companies to the Fed’s oversight list. The Fed so far has not specified which companies it would add to its purview, but once it decides, it is expected to make the list public.

One simple question: How well has the Fed done in overseeing the nation’s banking system as a whole over the past 10 year? Who is to believe that adding to its purview is a decision that a creature with more than one brain cell can possibly support.

The biggest impact, government officials said, is not in the number of institutions the Fed regulates, but in how it regulates them. It will have to go beyond measuring the financial safety of institutions to examining their connections to other firms and markets, and the dangers those connections could pose.

By possibly requiring the largest institutions to hold more capital against losses or to reduce the amount of debt they carry, for example, the Fed could make firms less profitable and less competitive with their smaller rivals. That in turn could prompt some of the largest institutions to decide to shrink, either by borrowing and lending less, or selling off units.

… how about a fair and free market in banking? You know, that thing where the ones who serve the consumers best prevail, and those who don’t, go out of business. That thing where irresponsible lending is punished. That thing where any bank that does not hold close to 100% reserves against their checking deposits, goes out of business. You know, all the things that the history of money has taught us, things that these clowns in office are obviously completely oblivious to.

If we were so concerned about big institutions with monopoly positions then why did the government by law create the hugest behemoth of all of them and give them exclusive privilege to print fiat money. Why does the President praise this institution so much? Does insanity have any boundaries?

Fed officials said they expected that new capital requirements would be tailored to the risks and strengths of each bank.

They and top administration officials disagree that the Fed’s new authority amounts to overseeing “too big to fail” banks. Under the plan, the government would have explicit authority to seize any faltering institution that was judged an unacceptable risk to the overall financial system. As a result, the government would not have to guarantee creditors 100 cents on the dollar — and “too big to fail” would no longer be the default policy.

That breaks from the practice of last year, when creditors to the American International Group, Fannie Mae and Freddie Mac were repaid in full because Mr. Bernanke and Henry M. Paulson Jr., then the Treasury secretary, did not think the government had the legal authority to shut down nonbank institutions, or to choose which loans to repay in full and which to discount.

I have a very simple solution to this: How the government AND the Fed once and for all stop all corporate bailouts? They are harmful and slow down any potential recovery. They hurt the productive and reward the unproductive. Why not put an end to this circus?

Mr. Bernanke has also told people that he finds it illogical that some lawmakers are citing the Fed’s failure years ago to curtail deceptive or abusive subprime loans as the reason for their objections to the administration’s plan.

This is not the criticism of the Fed. It is the fact that it is a substantially flawed institution, that it has brought about the worst crises in economic history, that we simply don’t need a Fed. These are the issues that Bernanke has to answer to, not some superficial criticisms of its regulatory activities.

In recent months, a series of new regulations issued by the Fed on mortgages and credit card policies issued under Mr. Bernanke have generally been applauded by consumer groups and some lawmakers, although Congress recently passed a law, which President Obama signed, to add some features. The new law requires banks and card companies to give 45 days’ notice before a change in interest rates and prohibits them from raising rates on existing balances unless a card holder falls 60 days behind on minimum payments.

Some critics have raised other concerns — that the Fed is stretching itself too thin, or compromising the political independence that is essential for setting monetary policy.

“The plan does give more power to the Fed and just complicates its job and therefore raises questions about its ultimate mission,” said John B. Taylor, a professor of economics at Stanford and a Treasury under secretary in the Bush administration. His book, “The Road Ahead for the Fed,” (Hoover Institution Press) is being published this week. “If the Fed goes further off its course and doesn’t focus on what it did in the 1980s and 1990s, it will have less control over inflation. It will lose its independence. It will have to become more political.”

Vincent R. Reinhart, a resident scholar at the American Enterprise Institute and former director of the Fed’s division of monetary affairs, said that policy makers needed to be concerned about mission creep.

“The main problem in becoming the systemic risk regulator is that it can be a very diffuse responsibility,” Mr. Reinhart said. “Should the Federal Reserve have been monitoring Enron and Long Term Capital Management and the Hunt brothers when they were involved in silver market manipulation?”

He added: “What is the ideal governor of the Fed supposed to be, someone who understands monetary policy, systemic risk, bank regulation, consumer affairs and Congressional relations? You are reaching the point where the agency is being spread pretty thin.”

Mr. Bernanke’s views, which have evolved as the financial crisis has unfolded, contrast markedly with those of his predecessor. Alan Greenspan, who said last year in his book “The Age of Turbulence” that the idea of the Fed as a systemwide regulator was “mission impossible.”

Of course it is impossible. And we will see it sooner or later. Who knows what problems a new and more powerful Fed will manage to create again down the road. But whatever it is, at some point we will be back to square one, debating how this could have happened, and debating how much more powers to grant to it in order to avert the problems that it itself has brought about.

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Fixing Health Care in the US

The large majority of Americans hold health insurance. It is estimated that about 15.6% don’t. But out of those who don’t, most are between jobs and not having health insurance remains a temporary phenomenon. About a quarter of the uninsured lack coverage for periods of less than one year.

The health care debate in the US too often focuses on health insurance per se. The real problem, however, is the fact that health care products and services themselves are too expensive. If one had to pay only a tenth or less of current prices for, say, a hospital visit or a doctor’s appointment, one might not even need insurance and could easily pay out of his pocket.

But even if one were to buy an insurance policy, the premiums would be much lower if prices for products and services were lower. Thus, the main objective of health care policy needs to be the lowering of prices along with an improvement of quality of all health care products and services offered.

Why are prices for health care so high in the US? It is simply because there exists no sector in this country with higher government involvement than health care. One look at the most recent budget shows us:

  • Department of Defense and international expenses (spending on wars and occupations) will go up from $666 billion to $673 billion (under President Bush it grew from $316 billion to$666 billion)
  • Other appropriated programs will go up from $613 billion to $695 billion (under President Bush it grew from $298 billion to$613 billion)
  • Social Security expenses will go up from $662 billion to $695 billion (under President Bush it grew from $406 billion to$662 billion)
  • Medicare expenses will go up from $425 billion to $453 billion (under President Bush it grew from $216 billion to$425 billion)
  • Medicaid expenses will go up from $259 billion to $290 billion (under President Bush it grew from $117.9 billion to$259 billion)
  • Other mandatory program expenses will drop from $673 billion to $571 billion (under President Bush it grew from $290 billion to$673 billion)
  • Net interest will go up from $139 billion to $164 billion (under President Bush it dropped from $222.9 billion to$139 billion)
  • Disaster cost will go up from $4billion to $11 billion (under President Bush it went from $0 billion to$4 billion)

In fact, public health care spending in the United States is higher than in most other large western countries. The Trouble With Bureaucracy is that always and everywhere it leads to higher prices and lower quality.

Every expansion of governmental powers (…) will inevitably lead to a bureaucratic misuse of the scarce factors of production available, an increase in poverty, and a lower standard of living for everyone.

The Montreal Economic Institute points out some interesting fact about the US health care system in Two myths about the U.S. health care system:

A totally private system?

Another big myth presents the U.S. health care system as totally private, or almost. It is true that most health care establishments are private – either for profit or non-profit – and that private health insurance systems generally run on a forprofit basis (apart from Blue Cross and Blue Shield). But it is incorrect to suggest that public health care spending is low or that no public health insurance system exists in the United States. The U.S. very clearly has public health insurance systems, Medicare and Medicaid. Heavy public spending also goes toward various areas such as public hospitals or Department of Veterans Affairs facilities.

With everything taken into account, public health care spending in the United States is higher than in most other large western countries (see Figure 1). Public health care spending as a proportion of GDP is 6.6% in the U.S., putting it ninth among the 30 OECD countries. It should be noted that the U.S. comes just after Canada, where public health care spending accounts for 6.7% of GDP. Moreover, per capita government spending is higher in the U.S. than in Canada – $2,364 compared to $2,048 at purchasing power parity, based on OECD data.


The corollary of this myth is that the health care market in the United States is completely free and that unbridled capitalism runs rampant. In fact, the U.S. health care market is highly regulated at several levels, leading to distortions in the use and supply of care. This explains in part the difficulty that millions of Americans face in paying for private insurance. Standards set by state governments and by federal authorities are ubiquitous in the insurance field, limiting the introduction of cheaper, more accessible policies. Regulations specify, for example, which medical procedures an insurance policy must cover. Private health care supply is also tightly regulated, both by the medical profession and in the management and financing of health care establishments.



Contrary to myths that have been going around, only a small minority of Americans are involuntarily uninsured on a long-term basis, and even these people generally have access to free health care. Public health care spending is higher in the United States than in most other OECD countries, and the U.S. has sizable public health insurance systems.

The problems of the U.S. health care system largely result not from its private character but rather from the heavy regulation to which it is subjected and from the way the insurance system functions. The tax treatment of insurance and the very low degree of direct involvement by policyholders in controlling health care costs are partly responsible for bloated insurance premiums and for the presence of a certain proportion of uninsured people.

As with public financing, when the payer is a third party, costs tend to run wild. In this regard, it is not very surprising to see that the most innovative solutions proposed for reforming the U.S. health care system resemble those suggested for dealing with problems in the Canadian system. These solutions involve the assumption of greater responsibility by patients receiving care and a liberalization of supply mechanisms, whether in terms of care or its financing.

One highly promising suggestion involves health savings accounts, established in 2003 with slightly over a million accountholders across the United States by March 2005. These accounts enable individuals to build tax-free savings for coverage of health care costs while purchasing insurance policies with fairly high deductibles but lower premiums. Be that as it may, a more realistic perspective of the advantages and flaws of the U.S. health care system would lead to a more pertinent debate than the repetition of unfounded myths.

… if we truly want to fix the US health care system, that means lowering prices for health care services and products, we need to take those facts into account.

Any proposal that suggests even more government involvement, decrees, and spending than we already have, needs to be rejected unconditionally.

If you want to look for true solutions, listen to those people who recommend the opposite of what we have been doing for the past decades, and in particular the past 8 years, during which President Bush presided over an increase of public health care expenses on the federal level of no less than 100%.

Listen to the people who recommend to get the government out of health care, to spend less on Medicare and Medicaid, and to get rid of government decrees and rules that aim at regulating the market for health products and services.

Only then will the dream of affordable health care for every single American become reality.

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Ron Paul on GM – It’s Amtrak all over again …

Ron Paul writes in GM, Amtrak and an Increasingly Fascist America:

Last week, General Motors finally declared bankruptcy. Many in government thought $20 billion in taxpayer dollars would save the company, but as predicted, it only postponed the inevitable. The government will dump another $30 billion into GM and take a 60 percent controlling interest for it. Public officials are now involving themselves in tactical business decisions such as where GM’s headquarters should move and what kind of cars it will build.

The promise that this is temporary and will eventually be profitable is supposed to ease the American people into accepting this arrangement, but it is of little comfort to those who remember similar promises when the American taxpayers bought Amtrak. After three years, government was supposed to be out of the passenger rail business. 40 years and billions of dollars later, the government is still operating Amtrak at a loss, despite the fact that they have created a monopoly by making it illegal to compete with Amtrak. Imagine what they can now do to what is left of the great American auto industry!

In a truly free market, GM would get your money one way and one way only — by selling you a car you want, at a price you are willing to pay. Instead, the government is giving public money to a private company in spite of the market signals it has been sending. Throwing money at GM does not stop it from being an engine of wealth destruction; on the contrary, it simply gives it more wealth to destroy.

Had it been allowed to fail naturally, the profitable pieces of GM would have been bought up and put to good use by now. The laid off employees would likely have found new jobs and all that capital would be in private hands, reinvested in companies that produce products demanded by consumers. Instead, we are all poorer now.

Political pressure, rather than the rule of law, is deciding how to divide up the remains of GM. The bondholders had billions in retirement savings invested in the company, and though they were entitled to nearly three times as much as the United Auto Workers, the bondholders were left with just a 10 percent stake compared to the union’s 17.5 percent stake. For their 60 percent stake, taxpayers have a future of constant bailouts to look forward to.

Comingling public control of private business is known as fascism. While today’s politicians may feel emboldened with all their new power, history will only repeat itself as all this collapses on itself. It is the height of hubris for bureaucrats and politicians to attempt to control the market and the freewill of the American people. In the end, the market always wins out. Maybe one day future generations will wise up and allow free markets to function and thrive without the albatross of government around its neck. For now, it looks like those in charge have not learned the lessons of the past, and have doomed us to repeat those mistakes once again.

… GM is here to stay for a long, long time. It will take ongoing subsidies, monopoly rights, and bureaucracy to keep it on live support. Bureaucracy is the scourge of the US System. More bureaucracy won’t fix it. Favoritism will be rampant. Corruption scandals along the way will be predictable. The solution presented to fixing such problems will be yet more bureaucracy. As Ayn Rand wrote in Atlas Shrugged:

Politicians invariably respond to crises — that in most cases they themselves created — by spawning new government programs, laws and regulations. These, in turn, generate more havoc and poverty, which inspires the politicians to create more programs . . . and the downward spiral repeats itself until the productive sectors of the economy collapse under the collective weight of taxes and other burdens imposed in the name of fairness, equality and do-goodism.

There is no point in denying the inevitable Trouble with Bureaucracy:

So long as the government confines its activity to the protection of individuals against aggression and theft only little harm can be inflicted. Every expansion of governmental powers, however, will inevitably lead to a bureaucratic misuse of the scarce factors of production available, an increase in poverty, and a lower standard of living for everyone.

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Consumer Goods vs. Factors of Production

The recent consumption business cycle in the US  can be easily quantified.

The chart below shows the development of private consumption, private investment, and government expenses in the US since 1947:

Click on image to enlarge.

The output of a country, its GDP, is approximated by adding those three components up and adding exports and deducting imports. The logic being that if someone consumed something, then someone must of course have produced it. Items exported are not consumed inside the country and thus not captured, hence they are added. Items imported are reflected in the components above, but they are produced outside the country, hence they are deducted.

Consumption expenses give us an idea of how many consumer goods are produced in the country, investment expenses give us an idea how many factors of production are being turned out (duly accounting for exports and imports).

It is completely safe to assume that government expenses can be equated to consumption. It is true that the government spends a fraction of its money on investments such as roads and other infrastructure. However, this fraction is almost negligible when compared to consumptive expenses on goods that are used up immediately and don’t aid in any production processes, such as military products and health care.

The chart below shows the development of the percentage of consumer goods production in relation to the total output, GDP from the Great Depression through now:

Click on image to enlarge.

As can be seen above, the percentage of goods produced for consumption by the productive factors in the US has historically oscillated between 79% and 98% since 1929. The average has been 86.27%.

Another way to look at it is to only look at private consumption only:

Click on image to enlarge.

It reveals a severe drop in personal consumption during World War 2 which was more than replaced with government consumption.

Where can we go from here? It is safe to assume that production of public and private consumer goods will at least fall back to the average of roughly 86%, but maybe even drop to around 80%, given the fact that corrections usually seem to overshoot that average and given the severity of the current correction.

A good indicator of when a true recovery is near will be when investment expenses stop to fall and begin to bottom or even rise again. Meanwhile, the production of consumer goods may continue to drop while employment in businesses that produce factors of production should begin to absorb the released resources at some point.

Businesses that produce this capacity may be attractive at that point. This includes in particular companies from the mining and drilling industries, such as the canadian energy trusts (examples: PVX, PDS, PWE, AAV). New AND old energy sources are likely to be explored and expanded. Alternative energy businesses, such as wind or solar energy may be worth looking into for people who understand the technological challenges that they are exposed to. Basic commodities should do well. Gold and silver should continue to act well so long as people consolidate their finances and demand cash to pay off their debt.

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