Posts Tagged ‘recession’

Banks and Government Stealing Our Savings

Thursday, October 6th, 2016


Dear Friends,

It seems to me, government and Too Big to Fail banks, (TBTF) are colluding to steal from retirees. Now that is quite an allegation isn’t it! Imagine how bad it would be if it is true? That would mean government officials are so corrupt they are so corrupt they steal from hard working people, who have gone without so they could have some savings for their retirement, not only that but that government officials are so bereft of any decency at all they would rob those who live on a fixed income, indeed stealing that very income itself! If a private citizen were even accused of such a thing, the cost in legal expenses alone would be astronomical, so much so it would probably devastate their savings as well as future earnings. What about the executives at the TBTF banks? Imagine how evil they are if this is true? They make millions of dollars a year as the agents of the stockholders, the principles, specifically to protect the agent’s interests. Such malfeasance by a plumber would land the criminal in jail for decades. So, let’s look at the evidence, open and available for all to see, and judge for ourselves if this allegation is true.

First a little history. During the 2007-2008 financial meltdown, the banks that were considered too big to fail were given billions of taxpayer dollars, to bail them out of the catastrophic decisions they made, leading up to the financial calamity. Those same banks had lobbied congress to eliminate the Glass Steagall act, that forbade banks from using customer deposits to bet on risky ventures, the very same risky ventures that caused the crisis, several years earlier. When the risky bets went bust, taxpayers, in other words, hard working people living paycheck to paycheck, had to pay higher taxes to save people making millions of dollars a year as the executives of those banks. Look at how those executives have paid us back…

Of course, government had a hand in the crisis as well, the democrat controlled congress forced banks to make loans to people who had no means of paying the loans back, because not doing so would be racist. The big banks had to protect themselves so they grouped good loans with bad ones, chopped them up into pieces parts and sold them as derivatives. (A part of a financial product sold as an investment). They were called mortgage backed securities, (MBOs), or put another way… collateralized loan obligations. Since a bunch of loans were bailed together, the bankers and government overseers thought the good loans would keep the securities from failing, and the banks could make a tidy profit as well. When the housing market collapsed, no one could tell which MBOs were sound and which were worthless, and so the value of those securities could not be measured, since so many banks had them listed as assets, and those assets could not be quantified, the banks went bankrupt.

Since the “great recession” the security and exchange commission has found numerous acts of wrongdoing by the TBTF banks. Each time, no one was criminally charged but the bank was charged billions of dollars in fines. Those banks would then engage in further fraudulent activities, get caught, and fined again. Deutsche bank is facing a $ fine, thats fourteen billion dollars, as I write this, Wells Fargo is under investigation for opening fraudulent accounts and charging their customers hundreds of millions of dollars in fraudulent overdraft fees and other fees, once again, no one is facing jail, only a huge fine by regulators, the same regulators who allowed MBOs and forced the banks to give loans to people because of race, to prevent racism. Every year the TBTF banks pay the government billions of dollars in fines for fraud, price manipulation, etc… Moreover, The economy requires zero interest rates else it would collapse instantly, as evidenced by the Federal Reserve’s reticence to raise interest rates even a point, which is another form of theft from savers, who don’t get interest for their hard earned savings, while banks loan that money back to us at 3-10 percent.

The executives at those banks however never face criminal charges for even the most heinous crimes, MF Global stealing money directly from customers segregated accounts, for example. Since it is obvious that if a criminal is not charged and allowed to skate, he or she will do it again, that is simply human nature. If you are allowed to rob a bank with impunity no matter if you are caught, what is the incentive not to? It is obvious that if government wants the criminal actions to stop they would charge, try and jail the wrongdoers, since the government always, and I mean always, give the criminals a pass, it is only common sense the government wants the criminal actions to go on. If your child draws on the wall with crayons, and you don’t punish her telling her she is an artist, she will continue to draw on the wall, because you have encouraged her.

So who is actually punished when the TBTF banks get fined billions of dollars? The executives still get their fat bonuses, in fact the executive in charge of the division the was caught fraudulently opening accounts in customers names, then charging the customers hundreds of millions of dollars in fraudulent fees, just retired with a fat bonus of $125,000,000, yes, that is one hundred twenty five million dollars, so no sane person could argue the executives, the people doing the crimes, are punished, in fact they are rewarded handsomely for their criminal acts. To understand who gets punished, one has to look at the result of the fine. The investigation lowers the stock value of the company, as when Goldman Sacks was fined recently, and they lower the amount of money the bank can pay shareholders as dividends. The people who hold the stock are the ones punished, by a diminishment of their investment, and lowering of the return on that investment. Who holds stocks in TBTF banks? Retirees. Probably you too if you have a 401K or do business with one of those banks.

What we have then, is a government that encourages criminal acts, overtly and subvertly, then profits from those criminal acts, which is the definition of collusion. We also have the executives at the TBTF banks, who get rewarded by those criminal acts, in increased bonuses for the “enhanced profits,” and when the charges are filed their bonuses don’t go down. Those crimes steal, not only from shareholders, but from customers as well. Since not one red cent of the fines is ever returned to the victims of the crimes, the customers, nor the indirect victims of the crimes, the shareholders, it follows that the government is not fining the wrongdoers to protect or recompense the victims, but for profit. Therefore… it is a great con game being played on the American public, to defraud us of our hard earned money several ways, by directly stealing by fraud from our savings accounts, eliminating interest on our savings, lowering the value of our investments and taking directly from our dividends, transferring that money to uber rich new class executives and government. Ever wonder why the new class always wants government to have more power? Crony crime pays, very very well…


John Pepin

The Coefficient of Opportunity

Thursday, February 11th, 2016

Dear friends,

It seems to me, interest rates should be a reflection of the coefficient of opportunity in an economy, not some random arbitrary level set by an elitist brainiac. Speaking of elitist brainiacs, Janet Yellen will be making her semi annual report to congress today about the Federal Reserve’s policies. She will be explaining if the Fed will continue to tighten interest rates or go back to zero interest rate policy due to the recent market rout. The rate at which a person or institution has to pay to use someone else’s money, is supposed to be a reflection of the time value, inflation, risk and opportunity value. Today that equation is totally out of whack due to the world wide recession and currency war raging across the planet.

Taken in the traditional definition of interest rates, what they really are, boiled down, are a reflection of the opportunity in a country. When the rate is set below the opportunity coefficient, the economy heats up, bubbles form and inflation ramps up. When the rate is above the coefficient of opportunity the economy goes into a slump, demand drops off, wages stagnate and if kept up long enough economic depression happens. The coefficient of opportunity however, is not dependent on the interest rate, it stands on it’s own as the measure of opportunity to make money in the free market.

The opportunity coefficient is a term I have coined to describe the opportunity in an economy. It depends on many things, the level of economic repression in the form of regulations, taxation, pernicious incentives, corruption and cronyism. You might be thinking cronyism and corruption are the same, and in one sense you are right, but in the sense I mean they are different. Corruption in this example means private corruption, the protection racket, pyramid schemes, price manipulation, monopolies, cartels, etc.. for example, while cronyism in this context is government corruption like, bribery, the need for political connections, graft, rent seeking, etc. All of the economic repression in the aggregate subtract from the opportunity coefficient.

Put in the simplest of terms, the opportunity coefficient is the ease at which someone can make money in an economy. During the early days of the US republic, the opportunity coefficient was so high labor couldn’t be found at any price. This was because there was so much opportunity for the average person to make money no one wanted to labor for another. In the early days of the republic all the dominoes lined up, virtually no corruption, cronyism, regulations, extremely low taxes and a virtuous people. The coefficient of opportunity was very high. In the years since then the elite have corroded the coefficient of opportunity to the point where even negative interest rates as in Europe and Japan are still above the coefficient of opportunity.

If the opportunity coefficient is sufficiently low a zero interest or even a negative rate doesn’t create runaway inflation. This is what is often referred to by economists as pushing on a string. An economy can be stopped in it’s tracks by increasing the interest rate but it cannot be driven to be more efficient or faster growing by lowering interest rates. That is because, while the interest rate can be arbitrarily set by bureaucrats, the opportunity coefficient cannot. Bureaucrats only lower the opportunity coefficient. The coefficient of opportunity changes over time, it was very high in the nineteen twenties and very low in the nineteen thirties. In both cases the economic policies of the government was the arbiter of the coefficient of opportunity.

So today Janet Yellen will be reporting whether or not the federal reserve will be raising the interest rate or lowering it. She won’t mention the coefficient of opportunity but she will be talking about it the whole time she speaks. The elephant in the room will be the fact that the elite, including the people she will be reporting to, have so lowered the coefficient of opportunity that even negative interest rates are above it! That means there is almost no way to make money in this market without government connections. Savers are being pummeled today, if you save money and forgo the opportunity to spend it today, suffer the reductions due to inflation and take the risk you will not be paid back, you have to pay the borrower! Entrepreneurs are being crushed, workers are seeing lower wages compared to the cost of living, investors are being scalped by high frequency trading and business people are seeing a drop in demand. The coefficient of opportunity is indeed low.


John Pepin

Economic Armageddon is Upon Us…

Thursday, August 13th, 2015

Dear Friends,

It seems to me, everything has a rhythm, the Sun rises crosses the sky and sets, the Moon waxes full then wanes new, people wake in morning, work then sleep at night, everything has a rhythm… even and especially an economy. Central banks have been trying, unsuccessfully, since Adam Smith wrote Wealth of Nations, to stop the cycles of the economy. The attempts by central banks have grown ever more extreme over the years, culminating today with quantitative easing (QE), zero interest rate policy (ZIRP), price controls, manipulating the stock markets with naked interventions, manipulating the price of gold and silver, etc… They have so upset the normal rhythm or cycle of our economy they have created a dead man walking scenario. The economy, barred from it’s normal sleep wake cycle, is now suffering ailments and a general decline from the lack of a sleep cycle. Now with the economy melting down again, another attempt by the economy to get a bit of sleep, central banks around the world have nothing left to fall back on, interest rates are already zero, they have printed huge gobs of money and fed it into the system, their ability to manipulate stock prices, gold and silver, is being swamped by market forces, so now some are devaluing their currencies to get a larger portion of a smaller pie. Your standard of living is directly effected by their foolishness.

Imagine if someone wanted to stay awake forever. They could take methedrine. That would keep them awake, but the side effects are terrible, performance drops and if the regimen is kept up long enough… death. QE, ZIRP, monetizing the debt, price controls, etc… these are all exactly like economic methedrine. They interrupt the normal economic rhythm, forcing an economy to stay growing when what it really needs, is to shrink for the next leg up. The side effects are well known and have been proven historically. Monetizing debt leads to hyper inflation ruining the currency, and price controls lead to empty shelves. ZIRP and QE are new attempts, the crack cocaine of economics, who’s side effects we are just about to learn of. It would seem however that ZIRP creates incentives for the misallocation of money and QE will probably result in inflation. In economics as in life there are no free rides, but that doesn’t prevent economists from holding out their thumbs.

In this last “recovery” every quarter has seen negative wage growth in the US! Some recovery eh? While the Federal reserve has claimed inflation is under control, all anyone need do is go to the shopping center to buy food, pay rent or buy a car, to see inflation first hand. Moreover, the Federal Reserve has just lowered the actual GDP growth for the last 3 years… lower! That means they have been counting inflation as growth. With wages getting lower and prices getting higher, by the standard measurement, our standard of living goes down. All while the Federal reserve has been printing billions of dollars and feeding it into the system, keeping interest rates artificially low and manipulating stock prices to fabricate a “Wealth Effect.”

Now the economy is going into recession again. Stock prices in the Dow Jones Industrial Average have made a “death cross.” What that means is the 200 day average has risen above the 50 day moving average. This presages a bear market in stocks, which is a strong signal of a recession. Commodity prices have cratered which is another sign of impending recession. The worker participation rate is at a decades low and layoffs are increasing. The U6 unemployment rate is near where it was during the great depression with soup lines hidden by EBT cards. The transportation index is crumbling, with container shipping dropping precipitously, which is a measure of international trade and demand, railroad shipping is dropping and FED EX as well as UPS are showing weak demand as well. All these signs and others are pointing to a recession. Moreover, a recession is overdue, economic recoveries don’t last almost a decade, they usually run for 58 months or just under 5 years. All signs point to the economy of the world about to pass out.

Central banks are terrified that their shenanigans will come to light and they will be blamed. They are out of methedrine to keep the economy awake, and the negative side effects of all their tinkering is about to be visited on the people of the world. The results of their actions will be impossible to hide, as history shows they must eventually be. No amount of active intervention will be able to keep the economy awake, an economic crash must happen, and it will be ruinous. Think of it this way, if someone stays awake for weeks using methedrine and crack cocaine, when they do fall asleep, they will crash hard, that is where our economy is headed. Yes, everything has a rhythm, the sun, Moon, people, bacteria… and even an economy. Will they learn this time? History shows they haven’t in the past, so probably not, this cycle will be revisited on our great grandchildren sometime in the future as well.


John Pepin

The Fiction of Unending Economic Growth

Sunday, May 3rd, 2015

Dear Friends,

It seems to me, the desire of economists, government officials, the media and brainiac 2000’s, that the economy grow in a straight line is as absurd as it is ignorant. Unending economic growth has been the siren call to economists, politicians and business elite for ever. They all want only economic expansion, (as do we all), and they will do anything in their power to get it, even destroying the engine of economic advancement, if that is what it takes. The desire for unending economic growth without recession has led our policy makers to take us down paths that can only result in perpetually lower economic growth. Such measures as fiddling with the interest rate to stave off recessions, bailouts, the ever increasing size and scope of monopolies as well as regulations designed to control the economy, are the norm. To paraphrase an ancient Chinese philosopher, (Mo Ti)… they spend that which they have too little of to gain that which they have too much of…

First lets define recession versus depression. A recession is a period of time where an economy shrinks and a depression is a period of time where an economy grows at less then it’s normal growth rate. A depressed rate. The effect of a recession is to eliminate inefficient businesses from the economy freeing up resources to be used in more productive enterprises. There is utility in a recession. A depression however, where an economy grows at less than it’s normal rate, has no utility. That lower growth rate lowers the economic lot of the people drastically and that lowering is multiplied over generations. Look at it this way… Let’s say you have a savings account and are normally getting five percent. One year in ten you get negative two percent. Now look at the same initial savings in another account where you get two percent. The first account will out earn the second by orders of magnitude. That difference is exaggerated over time, the longer you get the depressed rate, the lower the actual total returns.

Economic suicide has come to fruition in the modern welfare state. Japan is the poster child for a failure of welfare state economic policies but does the government of Japan change it’s policies? No, of course not, instead, they double down and claim they just need to pass more regulations, raise taxes and print more money, all so the government can spend more money on five thousand dollar toilet seats and thousand dollar swizzle sticks. If only the government had a bit more money they would fix the economy and everyone would be richer than rich. That line of argument is so transparent it shouldn’t fool a toddler but it seems to work exceptionally well on the highly educated new class.

Meanwhile the rest of the developed world follows Japan’s example of lost decades. The US has been in a depression since Obama took office and the government has done everything in it’s power to ensure it stays that way. The Federal Reserve has printed trillions of dollars and handed them to the monopoly banks, lowered interest rates to essentially zero when you factor in inflation, they under count inflation to make the economy appear to grow and the Obama administration has ushered in a tsunami of regulations and taxes that especially stifle small business growth. Not to seem unfair, they have even regulated the Internet, to protect the titans like Google and Facebook, from competition from small businesses. Economists sing the praises of Obama because the unemployment rate has dropped and there are no soup lines. Well, the unemployment rate has dropped because a record number of people are no longer in the workforce, and the soup lines have been replaced by EBT cards. Those measures have changed from that which is seen to that which is unseen…

The economy of any nation is like an organic system. An organism grows for a period then stops growing, even shrinking for a small time, then grows again. That is the way organic systems and complex systems grow. Rapid growth creates instabilities and inefficiencies, those sub par hindrances can only be addressed by short periods of rebalancing, in organisms and recessions in economies. Without those short periods of rebalancing, structural deficiencies grow out of control until the organism gets cancer, or an economy becomes inefficient to the point of depression. Like the illustration earlier in this article… that less than ideal growth rate drives down the economic standard of everyone. That lowered economic outcome is more obvious at the bottom of the economic ladder and less visible at the upper end.

That lowering of economic outcome for those at the bottom of the economic scale, creates conditions where hate, envy and jealousy flourish, but the fix the elite propose is always more of what caused that lowered economic outcome in the first place. There are never enough jobs, wages, savings or start ups in an economy but they are spent to create more welfare, monopolies, taxes and regulations. So we can say with certainty… the elite spend that which we have too little of to get that which we have too much of. The question is, how long are the rest of us going to fall for the flim-flam?


John Pepin

Taxing Production Or Consumption?

Thursday, August 14th, 2014


Dear Friends,


It seems to me, if a leviathan government must be built and paid for, it is better to tax consumption than production. Examples of taxing production are, income tax, taxing interest on investments, corporate taxes, inventory taxes etc… Taxing consumption is when government imposes sales taxes and value added taxes. The question of whether or not we build up a leviathan, since we already have, is moot and so, until we tear the edifice to human hubris is torn down, the question of how we pay for the thing becomes paramount. Taxation, being a counter force to whatever it taxes, if we choose the wrong method of taxation and stifle our economies in pernicious ways we lower potential economic output more than is necessary. So this question, whether to tax production, consumption or both, has implications for every one of our standards of living.


It is a well know phenomenon that taxes drive up the cost of that which is taxed. As the cost of a thing goes up the demand for it goes down via the supply demand curve. The utility of spending that additional dollar for what you get diminishes… eventually to zero. As demand for a thing goes down the production of that thing will follow. As production drops units of productive capacity are taken out of production from building that thing, and are put back into the system, (people are laid off, machines are idled and plants are closed). Now we can frame our question this way, should we lower productive capacity, or demand, by taxes necessary to maintain the gigantic government we have, while limiting the damage to our economy such necessary taxation will do.


Many economists in the Keynesian camp will immediately argue demand must not be stifled by taxation and so production must be taxed. Their mantra is; demand drives supply. They follow the aggregate demand aggregate supply model of economic growth. The aggregate demand aggregate supply model has the advantage of being simple but it has the disadvantage of being wrong. Japan has focused like a laser beam on their economy for over a decade using the aggregate demand aggregate supply model. You know… their “Lost decade.” FDR went whole hog Keynesianism and ushered in the Great Depression with it. There is no example in human history where aggregate demand aggregate supply actually predicted or accurately modeled an economic event, but the faithful are hopeful. So taxing demand might not be such a bad thing as the demand side economists would have you believe.


Most who call themselves supply side economists, and so would be against taxing and thus lowering production, don’t have a clue about the basis of supply side economics. To say “supply side” is to focus on too narrow a policy. Supply side economics seeks a dynamic economy while demand siders only seek to increase demand, the source of which, (to them) is irrelevant. As a result, a demand sider is perfectly happy with a stagnant economy where, the older a firm is the safer it is, as long as it reliably grows it’s demand. Those of us who are supply siders seek to make conditions favorable for entrepreneurs to start businesses, grow those businesses and disrupt older technologies. We recognize that it is in the very disruption itself, of new ideas being implemented making old ideas outmoded, that is the fire in the chamber that drives an organic free market system. An organic free market creates new luxuries, makes old luxuries necessities and lowers the cost of our needs, and it does it by implementing new ideas.


Taxing production lowers production and so puts people out of their jobs, lowers wages due to the lower demand for labor but most importantly… creates a barrier to entry for entrepreneurs. Taxing consumption on the other hand drives down demand for those goods and services that are taxed, while creating a demand for behind the counter merchandise. Clearly, if we tax both production and consumption, we get the negative outcome of both, so in a sane world the doing both option should be out. If the very thing that powers the market system however, is the introduction and implementation of new ideas, then it follows that the implementation and introduction of new ideas should be fostered at all costs, and not undermined by any means. While taxing production makes it harder for an entrepreneur to start a business, taxing consumption makes capital more available, (since the interest on it wouldn’t be taxed), which would lower the barrier to entry for the would be entrepreneur.


The track record of the demand siders should speak for itself as should the track record of the supply siders. Every time demand side economics is blindly followed the economy gets the moniker “Great,” like, Great depression, Great recession etc… When supply side economics have been followed the economy has always flourished. The supply side policies of Calvin Coolidge, who came into the Presidency during a bigger economic downturn than Obama did, ushered in the period of the fastest economic growth in US history. Ronald Reagan, who inherited Jimmy Carter’s economic, foreign policy and Cold War messes, made it easier to do business in the US and the US economy rebounded. So, given their historical track records, taxing consumption and only consumption, would be the smartest move and would have the least negative effect on our economy. Because… If you seek green, blending yellow and blue works better than red and white, no matter how much you might want red and white to make green.





John Pepin


Why Our jobs are dwindling, Wages are Stagnating and Wall Street is Raging.

Sunday, July 6th, 2014


Dear Friends,


I wonder, why would a big company spend money on plant, equipment or it’s workforce, when government is all too happy to drive the competitors out of business with regulation? Government regulations protect companies with political favor from any real competition and all large corporations have it. The lack of competition to large firms allows them to concentrate on giant bonuses for top executives, instead of the tedious drudgery of vying with a competitor by improving products, lowering costs or innovating. Now that government has shown all a firm need do is give to the right political campaigns, and their markets will be protected from any real competition by government bureaucrats intent on punishing the “rich,” that is what all self interested CEOs will do. This all leads our economy to stagnation, a stagnation that we see every time a new economic number comes out and is spun by the unbiased press, to make it appear better than it actually is.


People are self interested, some pretend to be altruistic, usually to fool others into giving them something they otherwise wouldn’t. Those in government fall into that category. They seek to appear to be virtuous only to have their need for power and wealth met by manipulative means. That is why the elite vilify the wealthy, while protecting the wealthy’s riches and privilege with regulations that are billed as “fair, protecting the consumer, saving jobs and for the children,” when nothing could be further from the truth. The elite want to appear to be virtuous, because as Thrasymachus inferred in Plato’s Republic, It is better to appear virtuous and be a villain than to be virtuous and be perceived as a villain. Our leaders know this very well and practice it through regulations sold as virtue but in reality are villainous.


The market system is built on innovation. That is one reason it is so dynamic. Ideas are the oxygen to the market but like oxygen they corrode older more politically favored industries and firms. Older businesses, especially very large companies, are less nimble and have a hard time competing with smaller more innovative ones. Efficiency of scale refers to the ability of a large firm to mass produce a product, not to innovate. This is one reason mergers and acquisitions are so touted by the Wall Street press corps. When government seeks to protect their cronies with regulation, innovation is limited to places where older larger firms are not doing business, as such, most innovation is undermined. The buggy whip industry would be alive and well in today’s regulatory environment. As innovation is limited by regulation our economy must necessarily suffer.


Small businesses are the drivers of innovation, and regulations always effects small businesses more than large ones. Small businesses are the drivers of new employment. Every economist worth his stripes will tell you this. Old firms pay more but don’t produce jobs. Job creation comes from innovative small firms. As regulation protects large politically favored firms, at the expense of smaller ones, the engine of job creation in an economy is shut off. Without new jobs created by innovators, aggregate employment stagnates, and since wages are a function of the availability of labor versus demand for it, a stagnant job market puts an inexorable downward pressure on wages, which also benefits the top management of large firms, by driving down labor costs and freeing up money for bonuses and golden parachutes for top management of those firms.


Examples of regulation that does the exact opposite of what it is supposed to are everywhere. Dodd Frank is but one. It has put incredible pressure on banks to grow “Too Big to Fail,” and is driving out smaller banks, due to the huge costs it puts on banks. This has magnified the danger to our economy of banks that are too big to fail. Remember, small banks are the primary source of funds for small business start ups, further limiting the competitive forces of the job market and the market system as a whole.


Innovation is destroyed by regulations, but that effect is acceptable to those who are making a killing from the system as it is, they don’t want to have to face competition and so they give to the political party that will protect their markets, drive down their labor costs and defend their bonuses, the most. The top management of every company understands the rhetoric of class warfare is only a scam the elite use to do just that. One last point is that lawyers, economists, and the elite in politics, media and business, are all members of the New Class. As I have shown, regulation protects the new class, at the expense of every other class in society. The proof is in the fact that the more the elite regulate our economy, and vilify themselves, the richer and more powerful the new class gets, and the poorer the rest of us get, even as they wring their hands at the gap between rich and poor, only to promote more self serving regulation. So I ask you again, why would a company invest in plant, tools and it’s workforce, when all it needs to do to protect itself, is to keep the rigged system going?





John Pepin


Today’s Federal Reserve Meeting

Thursday, June 19th, 2014


Dear Friends,


It seems to me, economists have been predicting three plus percent GDP growth since Obama came into office, and all their predictions have been wrong. The US GDP has stagnated for over five years despite the huge recession we were in when Obama came into office. Today, the Federal Reserve danced around the obvious, and all the economists Bloomberg radio interviewed, provided the dance partners. Yellen claimed the economy will achieve liftoff once we get by this latest slow patch and will exceed long term economic output… next year. This, despite all the previous predictions that have said the same thing, and have been wrong. I guess if they predict it enough, eventually it will come true, like if I predict a solid gold meteor will land on my property making me rich… long enough, it will happen. At some point however, this ceases to be a prediction, and becomes instead wishful thinking.


Typically, immediately after a recession economic activity rebounds strongly for a year or two, but the recovery from the 2008 recession didn’t. The reason economies typically rebound strongly after a recession is due to the fact that the units of production become cheap. Labor rates go down, interests rates plummet along with the cost of plant and equipment. The destruction of outmoded firms drives down the costs. Lower costs of the means of production give those with new ideas, the ability to implement those ideas, resulting in the virtuous cycle of economic growth. This is the creation part of creative destruction.


This last recession had it’s share of what, at he time, were called “Vee shapers.” They were largely those economists in Obama’s political camp, who eschew the Schumpeter model of the economic cycle, creative destruction, and instead favor the Keynesian, aggregate supply aggregate demand model. They thought that since interest rates had been so suppressed by the Federal reserve, government was spending such tremendous amounts of money, in the form of stimulus, and their man was in, demand would go up and the economy would rebound very strongly, resulting in a V shaped recovery. We found that they were wrong… it was more of an L shaped recovery.


The economy dropped like a cow chip. Instead of rebounding it stagnated despite the record amount of stimulus. Trillions of dollars were spent by the government, what is called fiscal tailwinds, spending that drove up aggregate demand, but did nothing for the average man and woman. Interest rates have been extraordinary low for half a decade now with essentially no real GDP growth to show for it. Inflation has been alarmingly low as well despite the record monetizing of government debt that the Federal Reserve has done. Pimco has named the recovery, or lack of one, the “New Normal,” now the term has become the “New Neutral,” but by any name a skunk is a skunk. The labor participation rate has fallen off the table, GDP growth hasn’t even reached normal levels, let alone takeoff velocity, and the Federal Reserve along with most of the central banks of the developed countries have followed along and monetized their debt… to no avail.


The one exception is Britain who instead embarked on a policy of fiscal austerity. Economists the world over warned that Britain would suffer economic Armageddon as a result. They were wrong. Today Britain and Germany are the only developed countries that are experiencing real economic growth at all. Since their economies are too small to be the engine of the world’s economy, the world is left with America as the little engine, that couldn’t. The developing countries have stalled as well due to the lack of an engine pulling the train.


What everyone in the economic community are dancing around, and trying their best to ignore, is the tsunami of regulation that washed over the US economy in 2008-2009. That tidal wave of regulation continues flowing in to this day. Obama care was a thousand page law, one that has fluffed up to tens of thousands of pages of arcane regulation, hindering economic growth in a myriad of ways. It has driven up the cost of labor dramatically, without a penny of it going to workers. That increase in the cost of labor is still rising even today from Obama care! The incentives of that single piece of legislation has directly resulted in lower wages, terrific job losses and a cost of labor that is unpredictable. Dodd Frank was meant to eliminate the problem of too big to fail but has made that problem even more intractable than ever. It is driving small banks out of business, and pushing large banks to get larger, exacerbating too big to fail. In short Dodd Frank has failed. Environmental regulation has skyrocketed under this administration. But these are only the top waves of the tsunami.


These problems that regulation has created cannot be worked through with low interest rates, we have had a low interest rate policy for 5 years, and it has failed. No amount of new regulation can solve the problem of too much regulation, it’s like trying to heal a burn, by burning yourself more. The long term unemployed will not be solved by importing millions of low skilled labor, sopping up the few jobs that are still available, and raising the minimum wage will only drive down the demand for those low skilled jobs in the first place. Dancing is all well and good, but when the elite dance around the problems they created, simply to protect a President and theory they are in love with, all of us suffer. Any alcoholic can tell you, the only way to solve a problem is to recognize it, then roll up your sleeves and actually fix it. Unfortunately, that is not on the Federal Reserve’s dance card.





John Pepin


Stagnationist Economic Policies

Thursday, May 22nd, 2014


Dear Friends,


It seems to me, we have learned nothing from the stagnationist policies that created the Great Depression, and so are repeating it. The policies that kept the US, and indeed the entire world, in recession for a decade led directly to the Second World War are being mirrored today, with the only exception being unprecedented monetizing of US debt by the Federal Reserve and aped by most of the rest of the economic powerhouses around the world. The economic stagnation has been only slightly mitigated by the flood of printed money flowing into the world’s economies, but the potential for economic disaster is greatly magnified. Had our economists learned a thing from their history books, they would be decrying the stagnationist policies of the US government, for causing such stagnation in the US economy and by extension the entire world’s. Our jobs, wages, retirement, children’s future and our very lives are all put at risk by the stagnationist policies of the US government.


When FDR was elected he ran on a platform similar to Calvin Coolidge’s laissez faire policies. Once Roosevelt gained power however he turned to the policies of Hoover instead. FDR increased regulation by orders of magnitude, just like Obama, taxes were raised by Roosevelt higher than they had been under Wilson, the same as Obama raised taxes on everything he could and is still raising taxes today, Roosevelt vilified business and the free market exactly like Obama has. The only place the policies of Roosevelt and Obama have differed are the price fixing that Roosevelt was so in favor of, and the money printing Obama has had the “benefit” of.


In US economic history there have only been three recessions that led to stagnation. The Great Depression, Stagflation of the 1970s and Obama’s New Normal. All of them had Progressive Presidents and all of those Presidents taxed, regulated and attacked the free market. They all poured sugar into the gas tank of the economy and then claimed the fault was the economy’s. All had a willing media to muddy the water so the American people couldn’t see what the real problems were. The policies of those three President’s, Roosevelt, Carter and Obama are the epitome of stagnationist.


Two of those periods of stagnation took the unseating of the President and new policies to be adopted to break the cycle of stagnation. Roosevelt’s Great Depression took the Second World War to shock the economy and the American people out of the malaise that builds up during extended periods of economic stagnation. When Roosevelt died and Truman took over, the policies of over taxation and regulation were backed off, and the economy roared to life. In the case of Jimmy Carter’s Stagflation, it took the laissez faire policies of Hayek, and put into action by Ronald Reagan, to get the economy going again. The economic rebound of the 1980s were in stark contrast to the economic malaise of Carter’s Stagflation. Obama’s New Normal is still underway and will take the removal of Obama and a wholesale overturning of his economic policies to get us and the rest of the world out of stagnation.


The Second World War was largely a result of the Great Depression. The economy was bad in the US but it was much worse in Germany under the Wiemar Republic. The blatant socialist policies fueled by money printing, coupled with the draconian reparations from the armistice of the First World War, destroyed Germany’s economy. The result was poverty, hopelessness and famine, which always leads to social unrest. In such a climate, the conditions are ripe for an autocrat to seize power, and in Germany in the 1930’s one did. Adolph Hitler used his Brown Shirts to distribute food to the hungry, medicine to the ill and hope to the hopeless, (just like Caesar did a few centuries earlier). This gained him the good will of the masses and they ignorantly flooded to him. The people of Germany didn’t take seriously Hitler’s rhetoric about world conquest, they only saw the fattened faces of their children. The result was the war and all the misery it visited upon the world and Germany.


The conditions are becoming ripe for a replay of that tragic war because of the stagnationist economic policies of Obama and the world’s leaders. The policies of Obama, like Obama care, eliminating tax deductions to businesses for plant and tool upgrades and burdensome regulations that make it impossible to make a profit, unless the firm has political favor and doesn’t have to compete in the marketplace and instead get’s it’s profits from the taxpayer… the list goes on and on. These are all stagnationist policies similar to Carter’s and Roosevelt’s. Stagnationist policies always lead to stagnation and stagnation always leads to social unrest. In a climate of social unrest the conditions are ripe for a maniac to seize power. Where the next psychopath will rise is only known to God, but that one will unless we change our path, is certain. With the proliferation of weapons of mass destruction the next world war will make the last look like a walk in the park. So, isn’t it time to stop the stagnationist policies, and return to economic policies that lead to growth instead?





John Pepin


John Kennedy’s Legacy

Monday, November 25th, 2013

Dear Friends,

It seems to me, John Kennedy was a great man, for the very same reasons today’s democrats are not and never will be great. Every aspect of Kennedy’s Presidency was the antithesis of progressivism, which made him a curse to the progressives, and so he had to be taken out of the picture. This is a blog I have been mulling writing for a few years and on the 50th anniversary of his murder I thought would be a good time. JFK was a man, with all that being a man implies, he had failings and failures. We are imperfect, we make mistakes and we disappoint, but to be truly human is to strive to be more than we are, we ask others to join us and be great, and we achieve things that are so far beyond what we are, it is certain proof we are the children of the divine. This has special import today in that the world we live in has become earthly and base, our leaders have lowered us to a level below the animals, by their perversions of our founding ethos, their actions and rulings lower us more every day. We are in sore need of another JFK.

John Kennedy was a patriot. He fought for his country in the Second World War on a PT boat. When his boat was sunk John Kennedy swam, carrying a wounded man on his back, for miles to an island. This well known story illustrates several things about the man. He cared for other people, he had a deep endurance, he persevered and he took responsibility. The last thing his war record shows is that he was indeed an American patriot. Being a patriot should be the first qualification a person needs to be President, to lack that important quality, in fact to openly avow the founding documents of our country are deeply flawed, in a sane world, would mean disqualification for any office let alone President.

John Kennedy was an anathema to the democratic party. He didn’t coddle people, instead he urged us all to do more. His famous quote, “Ask not what your country can do for you but what you can do for your country…” is not a whine to go on the dole but a call to greatness. He urged us to go the extra mile and to be excellent. The democratic party of Woodrow Wilson, FDR, and later Presidents like Carter and Obama, urge us to be less, to demand from our government, and to hate those groups they tell us to. JFK never urged hate or promoted class warfare he uplifted mankind in his words and his deeds.

John Kennedy was a deeply spiritual man. Yes, it is reported he had affairs and was a womanizer, but this simply points out he was a mere human being. His spirituality shone through his words and speeches. Another famous quote, from his inaugural address, ”The world is very different now…and yet the same revolutionary beliefs for which our forebears fought are still at issue around the globe — the belief that the rights of man come not from the generosity of the state but from the hand of God.” This quote not only illustrates his faith but shows his understanding that our Rights come from God and not from government. How wonderful it would be if this basic American concept were understood by the democratic party today.

He had a far sightedness that is lost in our politicians today. His call to put a man on the Moon and return him safely by the end of the decade was inspiring and insightful. This forward looking goal made people look outward instead of inwards. Today Obama has changed the goal of NASA from space exploration to making Muslims feel good about themselves. We have even ceded the ability to put a man into orbit. Every statement from the modern democrat party is a call to look inward and reject big ideas… unless they empower the State. Kennedy’s grand idea, to strive to the future because it is hard, to seize the initiative propelled us, not into the space age as the thought of the time was, but to lay the foundation for the computer age we now live in.

When the US went into recession JFK lowered taxes. His tax cut got the US out of recession, while today Obama uses a recession as an excuse to raise taxes and regulation, ushering in a new normal of low labor participation, high unemployment and economic stagnation, worthy of Carter’s stagflation, FDR’s great depression or Wilson’s economic collapse. Kennedy believed in economic freedom. When Obama was elected the unbiased media declared, “we are all socialists now!”

During the Cuban missile crisis JFK took a strong stance when he knew that to back down would mean certain death for millions. He had learned the lesson of Neville Chamberlain and was loathe to repeat it. Contrast John Kennedy’s strong stance against nuclear missiles being placed in Cuba, to Clinton’s allowing North Korea to gain nuclear technology, or Obama’s placating Iran in his latest bumble, which will certainly result in the deaths of hundreds of millions of human beings, in the inevitable nuclear war, once Iran finally gets nuclear arms. JFK stood up to tyranny and hated communism while Obama was raised by a communist and promotes tyranny. John Kennedy was murdered by a communist domestic terrorist, and Obama is good friends with a communist domestic terrorist, Bill Ayers.

While I don’t agree with every stance JFK took, I recognize the greatness of the man. He was in many ways the opposite of his brother Teddy who rode John’s coattails until they were tattered and worn. We as a nation are indebted to John Kennedy for his patriotism, faith in God, his tough stance on communism, his out of the box thinking, and his insight. Today he wouldn’t be allowed in the democrat party for his stance on abortion, God, defense, economic freedom or space exploration, but these are the very things that made him a legend. These stances were the antithesis of progressive ideology, based on the Frankfurt School, and was reason enough for him to be assassinated. Not saying that it was LBJ who had Kennedy killed, like the Soviet Archives claim, but John was an anathema to them back then as much as today.

God bless John Kennedy, forgive him his sins, and take him into heaven… Amen.

John Pepin


I Pencil and Complexity Theory

Monday, October 14th, 2013

Dear Friends,


It seems to me, the most commonly known analogy in economics is, I Pencil. This narrative shows that the capitalist system produces things of such complexity it would be impossible for a central authority to do it. Moreover this story illustrates what can be produced at extremely low cost opening up their availability to the masses of people. What is not well known about I Pencil. is that it also illustrates the complexity theory of economics. This is a very important point that the writer of I Pencil couldn’t have known because complexity theory had not been invented. What makes this important for the average person to understand is that it shows the futility of government control over an economy. If we as a people understood this very important concept, we would stop undermining our own economic prosperity by electing progressives, who only seek power and authority over everything.


I Pencil. is a story of how a pencil comes into being. If you or I set out to make a 10 cent pencil the cost to us would be extraordinary. The cedar in a pencil is from the Appalachian mountains, the graphite and glue from where ever they are cheapest made, the paint from China, the eraser from rubber made in south America and the brass ferrule from who knows where. For you or I to gather all these components and assemble them into a pencil would be prohibitively expensive, yet they are produced by the market system so cheaply they can be thrown away, if the eraser is worn. All the inputs are from diverse parts of the world, made by diverse people for diverse reasons. The point is they are all available to the capitalist to produce something that is fundamentally different in kind from the original inputs.


All of the advancement of Western society has been through the innovation of the market system. Innovation that is made possible by the diverse products the market provides. As new products are made available by the market more innovations are available to the entrepreneur. If graphite were not available the pencil would not be possible. People, not governments, make innovations. Governments stifle innovation through regulations that, while well meaning, serve to undermine the availability of new products. This is usually done to protect some job or politically favored industry. The result is always lower wages, lower productivity and high unemployment. All add up to a lower standard of living.


The various inputs to a pencil are manufactured probably for other reasons than to make pencils. Glue is made for furniture and a myriad of other reasons by the glue industry. These divers industries can also be considered components in the complex system that is the market or an economy. These diverse actors in the economy are interdependent, are able to learn, they communicate, and they respond to their environments, IE, the demand for their products versus the cost to manufacture them. Firms within industries are another example of complex actors that lower the granularity of the approach. Each has an interest in creating new products that can be used in new ways.


As new products come onto the market more products can be made or perhaps made cheaper. Like the mechanical loom made it possible for the laborer to have a wool coat, because coats became cheaper, new products allow entrepreneurs to come up with new products and services that further improve the lot of Man. The new products are different in kind from the inputs. Like a pencil is different in kind from rubber sap, graphite or cedar, new products that could have never been predicted emerge from old and newly made available products. No one ever born, let alone a bureaucrat, could have predicted that an innovation devised by Bell Labs, the transistor, coupled with another Bell Lab invention, PCM, would enable the innovations we live with today.


Just as the digital computer is different in kind from the transistor the transistor must have been invented before the computer would be possible. The original innovation as well as the emergent innovation could only come about under a system of bottom up emergence into a viable product. Once government eliminates the complex system of the economy, breaking it to the whims of the political elite, innovation will necessarily stop. The standard of living of the people of the world will stagnate and then decline. We see this in every nation that has risen up under capitalism and fallen under socialism. England used to be the world’s super power until it destroyed itself with socialist regulation. Japan rose under laissez fair capitalism and now is grinding to a halt under socialistic friction, Hong Kong has maintained laissez fair market regulations and continues to see a steady increase in the standard of living of it’s inhabitants as well as huge immigration.


The best way to understand this fact is by watching human emigration. The mass of people move from places where the markets are limited by regulation for whatever reason, socialist, religious, protectionist or any other, to places where the market system is more free to work. That they often undermine the market in their new homes by calling for protectionist measures, socialist “fairness” or demand religious exceptions, is a tragic consequence of freely moving people. That governments go along with these anti market regulations is a sure sign of the decline of that nation. Soon the people will vote with their feet to leave that weakened magnet and are drawn to the new country that has embraced laissez fair. Let it work, should be the motto of every nation on the planet, because it works.





John Pepin