Posts Tagged ‘stimulus’

Embezzlement by Stock Buybacks…

Thursday, October 15th, 2015

Dear Friends,

It seems to me, if a business is the biggest buyer of it’s own stock, that business is admitting it has a problem. To take it a step further, if most businesses are the biggest buyers of their own stock, the economy has a real problem. Sadly this has been the case for the last few years in the US. Some claim buybacks are a valid means to return profit to shareholders, but in reality, it is a naked admission of failure. Stock buyback programs are an admission the business model is insufficient to produce profit from further investment in it’s core business. Logically then, buybacks on a massive scale are an admission the economy is not conducive to further investment in plant, equipment or personnel. Moreover, when a company doesn’t plow it’s profits into buybacks, but borrows money to do it, that is a symptom of a dire illness in that business in particular and the economy in general.

Buyback programs do help the executives at a corporation however. It enhances the bonuses of executives by artificially inflating the stock price. The new class likes stock buybacks because it allows them to siphon off more of the nascent profits for themselves. Of course the chief victims are really the shareholders themselves, because the stock price increase doesn’t reflect any actual change in the value of the company, and is not reflective of a rising demand for the products or services, but is a corrosion of actual value. The employees are damaged because their wages get downward pressure due to the lack of investment in the core business, which lowers demand for workers across the economy, and the customers interests are hurt by the lack of investment, when there is less innovation and availability of products to enhance their lives. The new class is the only beneficiary, but at a cost to the economy, wages, and investors.

The stock market as a whole is made to appear stronger than it really is. As the number of outstanding shares decrease the value as a percentage of a company increases. Sadly, buybacks can make the stock price increase, even as the total value of a company decreases. If the value of a company declines three percent in a given year, but the number of shares in that company decline at a rate of four percent, the company’s stock price will increase at one percent. The actual value of the investment will have declined but the stock valuation will not adequately reflect it. As more companies do this the actual value of the market as a whole decreases, even as the price of the market itself increases. Even a first grader would understand this is not sustainable. At some point reality must slap investors in the face.

The stock buyback programs are usually funded with borrowed money. This has been enabled by the Federal Reserve’s Zero Interest Rate Policy or ZIRP. This makes the stock buyback programs even more pernicious. While the CEOs and Vice Presidents get bigger and bigger bonuses, they put the company more and more in debt, further lowering the actual value of the company. It is like borrowing money against your home and squandering it by going out to eat at fancy restaurants. Clearly it is not responsible to borrow money to use on such frivolities. Borrowed money should be put into plant, equipment or product development, any other use of money borrowed against the shareholder’s value is irresponsible. Further, when a company borrows money against a corporation, the bondholders get in front of the shareholders! So once the chickens come home to roost the shareholders will be left penniless!

Those who are entrusted with protecting and growing the value of the actual business owners, shareholders, are instead lining their pockets and stealing their employer’s money. In a sane world they would be prosecuted for such fiduciary crimes, but in our world, a world run by and for the new class, there are no consequences for what is essentially embezzling. You or I would face long jail sentences for embezzling twenty bucks, while the executives get away with millions, taken directly from retirees and people who have forgone immediate gratification, to set some money aside.

Stock buyback programs will eventually blow up in the face of our economy, the stock markets and executives themselves. Buybacks inflate a bubble in stock price, a bubble that when it pops is more likely to explode than deflate, because the actual value underlying the investment will have been so diminished. However, as history has shown time and time again, the criminals will be held blameless and the victims will be vilified and left holding the bag. Unfortunately, there is little we can do to protect ourselves, the new class run our corporations, control the media, determine our culture and man the government from top to bottom. Our only recourse is to demand they be held accountable, because the only real power we have is political, and that is only if we stand enmasse.


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 Failure of the Welfare State

Monday, February 16th, 2015

Dear Friends,

It seems to me, Quantitative Easing, (QE), or in other words, monetizing debt, is the ultimate repudiation of welfare state economics. Greece, is the poster child for the failure of both the welfare state, (socialism by another name), and cronyism. Socialism has a long and storied history of spectacular failures, in both providing the essentials for the people, and in the atrocities visited upon them. Welfare state “capitalism” is only the latest incarnation to fail. Don’t worry though, the new class will never give up on their beloved socialism, if it fails, try, try again. Sadly, it is never the elite that really suffer for their idea’s failures, those who suffer are the average ordinary people, those who as Thrasymachus said, only want to live their lives in peace and so believe in justice… while the elite use “justice” as a tool to control the people. The large scale implementation of the welfare state has driven our planet into a global currency war like in the 1930s.

If the welfare state operated so efficiently it would not need a constant supply of printed money to pretend the economy is working. Every government that has gone down the welfare state “capitalism” path, is now monetizing their debt. Japan has a debt to GDP that dwarfs Greece’s, but that debt is held by the Japanese people, and so doesn’t threaten the wealth of the banking elite, but don’t worry, the Japanese people will not be bailed out like the banks. When Japan went into the “lost decade” it went full Keynesian. The government spent huge gobs of money to stimulate the economy. Instead of growing their GDP however they grew their debt. The utter failure of the Japanese to stimulate their economy through Keynesian policies fell on deaf ears. The global elite will not give up on their favorite means to prop up the welfare state.

Europe is now going QE and the European central bank is printing money and buying European government debt. Germany and Denmark have instituted NEGATIVE interest rates! Think about that for just a second… If you have forgone immediate gratification, and saved money instead, you have to pay the bank to hold that money! Talk about a negative incentive to save! Not one of the major economies in Europe has it’s debt to GDP ratio below the European Union’s debt threshold, England, Germany, France, Italy, Spain and Greece are well above the agreed upon debt limit. All because their economies are based on the welfare state.

Switzerland has also announced it is instituting a negative interest rate. When the Swiss National Bank unpegged from the Euro, it sent shock waves running through the international banking system, as well as the investment community. A few very large businesses went belly up, (but most have been quietly bailed out since then), the new class elite cannot be punished for their own failures, it is the job of you and I to bail them out. Now that the Swiss Franc has appreciated in value so much it is damaging Swiss exports… the Swiss are instituting a negative interest rate of 1%! Meanwhile, every nation’s central bank is repatriating their gold from the US and buying more. (Except for Ukraine who needs the capital to fight their war with Russia).

Russia is a net buyer of gold and Kazakhstan has made it illegal to export gold. China is buying gold at breakneck speed, judging by the volumes moving through the Shanghai gold exchange, (the Chinese government doesn’t divulge it’s gold purchases). No one, it seems, is willing to trust their gold holdings to the US Federal Reserve. Why? Probably because the US Federal reserve has printed so much money, to lower the value of the dollar so the welfare state can be shored up, they have endangered the US dollar’s reserve currency status. The US government has spent so much on stimulating our economy under Obama, the US debt to GDP ratio is now 104% and getting worse by the minute! Moreover, much of what is called GDP is actually government spending, which is not real GDP, but detracts from GDP! Lowering real GDP and raising the true debt ratio as much as 20%!

In 1900 the GDP per person of Argentina was the same as the US. Argentina went full welfare state while the US kept the market system for most of the 20th century. The result? Argentina has gone through multiple episodes of bankruptcy, hyperinflation and has hollowed out it’s middle class, while the US has built the highest standard of living in the history of Mankind. Every instance of hyperinflation has been the result of needless wars and welfare state policies. Now the US is following the path Argentina cut.

Why have governments done all this taxing, printing, borrowing and spending? To prop up the welfare state. Welfare state capitalism is nothing more than socialism with a capitalism tag line. It is redistribution, from those who would use that money to produce jobs, goods and investment, to keep a large segment of the population from working, thus lowering potential GDP. Jealousy is the theme of the redistributionist. Take from the rich to give to the poor. But that is not what they are doing, and they know it. The uber rich don’t pay, it is those who are trying to get rich who pay, own a hedge fund and your taxes are minimal, own a deli and you pay through the nose. The result is to place a glass ceiling over the heads of the people and a floor under the feet of the uber rich.

The scheme is not sustainable, so to give it the appearance of sustainability, the elite have to stimulate the economy to make up for the malinvestment, lack of investment, pernicious incentives and friction to economic growth, all of which the welfare state creates. Deflation, the normal paradigm in a market economy, cannot be tolerated because then all that borrowing would collapse the system. So the elite have to gin up inflation by devaluing the currency, and in doing so, they steal money from savers, cut the wages of workers and lower the economic outcomes of everyone, well, everyone but the uber rich and political elite. Quantitative Easing, Keynesian stimulus, negative interest rates for savers, bailouts for the too big to fail institutions and constant government stimulus are needed, to stave off the eventual collapse. Meanwhile, the new class elite forward the propaganda it is capitalism that is failing, instead of their own policies. Because they know the bubble will eventually burst, and when it does, they want us sheeple to be mad at a paper dog, instead of the real culprits, so they can institute their end game… world socialist government. The elite believe it will be a Brave New World, but it will actually be 1984 George Orwell, either way it is coming, and the welfare state is the means.


John Pepin

Confusion About the Market System…

Monday, January 26th, 2015

Dear Friends,

It seems to me, very few people the world over actually understand what the market system really is, most have fallen into the trap set for them by new class Marxists, that the market is evil and government is good. As long as the new class elite can maintain the fiction they spew we are on a path to predestined serfdom. The global elite quake at the thought that the hoi polloi discovering the ruse. If enough of us did understand what real capitalism is, we wouldn’t stand for their bigger government solutions that never work, but only make the problems worse. That is why we are constantly bombarded by spurious arguments like, the gap between the rich and poor, the market needs regulation, capitalism only benefits the rich, the wealthy got that way by stealing, etc… always made by the uber rich to blind us to the truth that we haven’t lived under a market system anywhere on the planet for generations. Ignorance may be bliss, but it is the best way to keep us in a state where our slavery is all but guaranteed.

What the world struggles under today is called “welfare state capitalism.” It is to the market system as bone cancer is to astrology. Welfare state capitalism is a system where the government redistributes the profits of free market interactions, from those who worked and took risks for them, to those who didn’t. In doing so, the government gains terrific power to destroy businesses that are not politically favored, enrich those who are, hold people in generational poverty, wipe out class mobility, destroy the family unit and create a permanent upper class… all in the name of fairness.

In a real market system, people get rich by taking risks, providing service and value to their customers. Under a welfare state however people get rich by having political favor. When those with political favor fail, they are bailed out by the government, (you and I), but in a market system, failure is paid for by he or she who fails. Moreover, failure in a market system leads to new ideas and greater efficiency, while in the welfare state, failure leads to more of the same, since there are no consequences to the elite, only the people. That is why too big to fail banks were bailed out with enough money to pay off three quarters of all the home mortgages in the US, and QE3 was sufficient to create eighty five thousand millionaires a month! Meanwhile, you and I were stuck with falling house values, wages and financial repression. All because of the bubble created by government policies. Not a real market by any measure!

In a functional market system deflation is the norm. That is one of the ways you can be certain that we have not lived under a market system for generations. The cost of those things we need and desire gets cheaper and cheaper. This is because the market system drives down the cost of everything by increasing productivity. That increase in productivity also has the effect of raising real wages. A carpenter with a nail gun and precut studs can frame a wall in seconds, where a carpenter, even a much better trained one, using a hand saw, hammer, nails and rough cuts, takes an hour. That increase in productivity lowers the cost of the final product even as it raises the wage of the carpenter. Raising his or her standard of living and making the work easier and less taxing on the body.

In welfare state capitalism however deflation cannot be allowed. Government runs a perpetual deficit to maintain the illusion of a functional market and prosperity through bubbles, and so, if the elite were to allow the market to do it’s normal operation and deflate the cost of everything, that huge debt would quickly become unserviceable. Inflation is needed to evaporate the debt through currency devaluation. Without inflation lowering your wages and driving up the cost of everything, the government would collapse, as many have in the past, and the elite would be out of their cushy high paying jobs. A disaster that the elite cannot allow to happen. So they inflate bubbles, watch them pop, destroying the meager wealth hard working people have saved up by the sweat of their brow… and the government inflates the next bubble, to maintain the illusion of economic growth.

Welfare state capitalism is a system where the elite decide who gets rich and who doesn’t. It undermines the market’s innate class mobility. The old saw, “shirts sleeves to shirtsleeves in three generations,” is rendered inert by the state’s interference, allowing the half witted grandchildren of the elite to remain wealthy, despite themselves. This is done by the state requiring everyone to get permission from the state for every economic activity. Those who are the children and grandchildren of the elite not only get permission, but the largess to engage in market activities, (as in Solyndra), while the children of the plebeians have to fight, pay bribes and struggle to get even the smallest of permissions. Crony capitalism is created this way.

Harry Truman said, “Anyone who gets rich in politics is a God damned crook!” Since the all powerful welfare state decides who will get what, the benefits will naturally flow to politicians, their cronies and family. Others who would compete are frozen out. Ways to measure this… are the number of small businesses in an economy, how many are started in a year and the rate of expansion of small businesses to medium and large. Moreover, people will spend absurd amounts of money to gain political office… so they are the ones to decide who gets what, insuring their business isn’t destroyed, and giving them the power to destroy their competitors. In a country where welfare state capitalism is at it’s apex, small businesses cannot compete with large ones because of political favor, and therefore, there will be few small businesses, and most of them will be engaging in illegal activities, ie, doing business without the proper licenses, paying employees under the table, selling non pasteurized milk, exceeding the weight limit of a road, idling a truck so a worker can get out of the cold, hauling without the proper permits, cutting hair without a license, etc…

The new class elite have to keep us in the dark about the market system. To that end we are inculcated in a doctrine that has no basis in reality… that crony capitalism is the market system, that we need the elite to regulate the economy to protect us from it, we are taught to hate those trying to get rich by providing value to us, and love those who get rich by political action. Our children are programmed in school to have a visceral reaction to the term “capitalism,” as a bad thing, and socialism is lionized as the solution to all the world’s problems. The bloody history of socialism is glossed over with absurdities like, “Marxism has never really been tried.” If most of us understood the fiction we have been inculcated with, is just that, fiction, we would demand real capitalism, and that cannot be allowed. The elite have too much at stake… their power, wealth and prestige.


John Pepin

QE Insanity

Thursday, January 8th, 2015

Dear Friends,

It seems to me, if as Einstein said, “Insanity is doing the same thing over and over again and expecting different results…” then our Central Bankers are the most insane people ever born. The pseudo science of economics will not be dissuaded by mere real world observed results, that contradict their theory, no, that would be like… giving up! You have to admire their willingness to sacrifice the standard of living of the whole world to prove a point. The United States Federal Reserve has printed trillions of dollars and used them to monetize the debt. The Bank of Japan is doing the same thing with the Yen, as now Draghi is claiming he will do as well to the Euro. Despite the trillions printed and given to government and the big banks, which in a normal economic cycle would result in runaway inflation, there is no inflation as measured by the eggheads at the Fed, ECB, or the seat of Abenomics. Their failures lead to our losses, in our wages, pensions, savings, house values, and yes, our basic standard of living.

Keynesianism is a philosophy in the arena of the Wealth of Nations. John Maynard Keynes was a British economist, who posited that since an economy is driven by the demand for it’s supply, in an economic downturn, which by his thinking was a period of time where supply outstripped demand, then government spending could gin up demand and swing an economy back into growth. Basic and simple to understand, it also had another thing going for it… it empowered government officials to tax and spend more, “for the good of the economy.” What Keynes and later demand side economists fail to understand is… not all demand is created equal. Consumer demand is always the most productive and government demand is actually often destructive of economic growth.

Japan is the poster child for Keynesianism’s failure. When Japan first went into their decades long recession the government was flush with excess reserves. The government of Japan spent huge sums in typical Keynesian fashion to stimulate the economy. It failed. They raised taxes and spent more, the economy floundered, a new party was elected into office on the promise they would spend more. They regulated and spent more, and the economy went downhill even faster. Abe was elected to print more and spend more, he raised taxes, printed more and is monetizing Japan’s huge debt… to no avail.

The southern states of Europe have had a healthy government sponsored safety net for decades. As a result, today the governments of south Europe spend huge amounts of money, keeping able bodied young people out of the workforce. The drag on the economies of those countries is like pulling a three bottom plow through a swamp. No amount of government spending would be enough, to satisfy the demand for free money from government, but the politicians have promised what they have promised. The elite could never lessen their grip on the economy through regulations and taxes, buttressed with graft and bribes. If they had the ability to print their money into hyperinflation they would do it in a nanosecond.

The US Federal Reserve has gone through six incarnations of money printing, TARP, TWIST, QE1, QE2, QE3, Monetary easing, and now ZIRP. Trillions have been printed and handed to the too big to fail banks (TBTF), and government. With all the propaganda that the US government has reigned in spending, the numbers the unbiased media use are compared to the days of trillion dollar stimulus short term measures, not long term averaged spending to GDP. Today the US government spends as much of GDP as anytime in history, 36% of GDP is government spending! That means 64% of the economy is pulling the plow while 36% ride it and claim they are helping. Yet even with all that Keynesian “stimulus” the economic outcome for Americans is getting worse by the day.

The past is littered with regimes that tried to print and spend their way out of a recession, they have all failed, spectacularly. The ones traditionally cited are Wiemar Germany and Argentina, but there are many other examples of hyperinflation triggered by monetizing the debt. Hungary was the worst ever in 1946, but Zimbabwe in 2008, and Yugoslavia in 1994, were crushing… the examples go on and on. Printing money to stimulate the economy has failed every time it has ever been tried. It empowers the political elite to take more and spend more however, and with that incentive at play, it will be given many more chances in the future as well, just in case it might work sometime.

The egghead economists answer to their failure of money printing… to raise wages, lower real unemployment and underemployment, the lack of small businesses, rising food inflation even as imported goods get cheaper, stagnated housing market, and the multi trillion dollar bond bubble the Fed’s policies have created… is to do more of the same. We are told we must let them print more and blow up more economic bubbles else we would be in for it. They have become like a typical mad scientist. Despite all the monsters they have created in the past, and the destruction those monsters wrought, there is only one way, their way, the consequences be damned because someday it will work… it just has to!


John Pepin

Post Constitutional America

Wednesday, October 22nd, 2014

Dear Friends,

It seems to me, the United States has entered a post Constitutional era, similar to when Rome passed from a republic to a tyranny, America has thrown off her founding principles and replaced them with the authoritarian credo of a despot. All nations founded in liberty eventually follow this path. In all cases the path to authoritarianism is led by the elite, political, cultural and social. Sadly in every case the entering of an authoritarian era always leads the known world into a dark age. The distance in time between abandoning of the societal myth and the complete fall, depends on how tenacious the people are in holding onto their societal myth, divided by how corrupt the ruling class has become. The economic might of the nation is another factor crucial to the length of time a republic has, after it ceases to be a republic in fact, but in name only. In the case of Rome, the people held tightly to their societal myth, while in the US, the people have all but cast aside our societal myth. Given that fact, the time between entering our post constitutional era and the total collapse of our republic is probably very short indeed. When the US republic falls the world will be plunged into a dark age with horrors visited on mankind which could have never even been imagined before.

America is not any different than any of the republics that have come before. I like to use the example of Rome, because it was founded in liberty and collapsed in tyranny, making it a perfect example for the American experiment. The founding fathers looked to Rome for inspiration even considering using the consular system. That system was rejected in favor of the newer system of Constitutionalism. That Rome was a precursor and template for the American experiment is shown in our edifices that follow the Greek and Roman patterns. In fact even the very idea of a nation founded in liberty has it’s roots in the Greco-Roman tradition.

When Rome followed the republican path she saw an uninterrupted string of successes. No city state or empire could defeat her in war. The Roman economy was second to none and the people had a freedom of thought and action never before seen in humanity. Sparta was unbeatable when it followed the laws of Lycurgus. Once the Spartans tossed out Lycurgus’ laws they quickly collapsed and were subjugated by the Macedonians. Athens followed the laws of Draco then Solon. Once Pericles began using the ostracism as a political tool the fall of Athens to Sparta was at hand.

Athens, perhaps the most renowned democracy, gave rise to some of the most influential thinkers in human history culminating in Aristotle, who wrote Nicomachean Ethics. In which he enumerated the right forms of government and the wrong forms. His right forms were, monarchy, aristocracy and polity, and explained the wrong forms are perversions of the right forms, tyranny a perversion of monarchy, oligarchy a perversion of aristocracy and democracy the perversion of polity. He went on to argue a republic, or blending of the right forms, was the best possible form. That history was well known to the founding fathers of the American republic.

In all cases the elite led the people to ruin. My favorite story from the Spring and Summer Annuls, is the story of the Duke of Lu, who asked Confucius how he could get the people to be less greedy, not engage in adultery, and stop shirking their duty. Confucius answered by saying the Duke could stop doing these things himself and lead by example. Confucius and his disciples had to flee Lu state shortly after. The point of the story is that corruption flows from the top down, never from the bottom up. The people, busy with their own lives, have very little time to oversee the rulers and typically have no power over them anyway. So without consequences for villainy the rulers become ever more corrupt. The people see their leaders corruption and follow. Eventually, the society becomes a house of cards, so rotted it collapses at the first gust of wind.

Constitutionalism is supposed to strictly limit the ability of any government to become tyrannical. The concept was that a constitution is to be a contract between the governors and the governed, in which the people would give up some of their sovereignty to the government, for purposes of protecting the people’s property, lives and liberty. That concept has been evolved by the new class elite to mean something very different. Today constitutions are living breathing documents who’s meaning changes with the wants and avarice of the ruling elite. The words change meanings, the intent is ignored and the most absurd things are inferred into it. The US Constitution has become merely a pretty cloak to cover the emperor’s tyranny. Today the Constitution means whatever the elite claim it does.

The meaning of the US Constitution has been so bastardized it bears no resemblance to the original document at all. This started under Teddy Roosevelt, was accelerated by Woodrow Wilson, was cast in stone by Franklin Roosevelt and our Constitution has become utterly irrelevant under Barack Obama. Obama creates legislation by fiat, the legislative branch has become nothing more than a chatterbox that has given away all it’s real power to the bureaucracy, while the Judicial branch has overseen the transition to our post Constitutional era with delight. The amendments have been so perverted they mean nothing. Freedom of religion has given way to the state religion of atheism, the freedom to keep and bear arms has been so infringed the people have been effectively disarmed, the police have become militarized to the point of becoming a modern praetorian guard, the Tenth amendment is superfluous, since virtually all power has been elevated to the Federal government, the list goes on and on.

Yes the United States has abandoned our Constitution and most of the people could care less. The few who stand for our founding principles are attacked as extremists while those who openly avow to overthrow our system are mainstream. Our economy has been hollowed out so badly it takes over two hundred billion dollars printed a month, to keep our economic balloon inflated, our government has us in a perpetual state of war, our standard of living is diminishing at an ever faster rate, the President now has arbitrary rule, our universities have become mere indoctrination centers for Marxists and our entertainment elite parade a plethora of absurdities in front of us to keep us distracted. Elitist theory is adamant about one thing, great civilizations are never overthrown from without, they are always hollowed out by corruption from within… and once the fall comes, it is because the civilization is ripe for it.


John Pepin

Creative Destruction, Say’s Law and the Pseudo Science of Economics

Monday, October 20th, 2014

Dear Friends,

It seems to me, supply really does drive demand in the creative phase of the creative destruction cycle, and arguments to the contrary are most often based on observation bias. The theory that supply drives demand is Say’s law, but I am changing it a bit. Keynesian economic theory is that demand drives supply which is the opposite of Say’s law. These two theories have been at odds since John Maynard Keynes developed his theory. Keynes theory falls short of the mark, as does Say’s law, but if we combine Schumpeter’s theory with that of Say, the amalgam provides us with a better snapshot of the workings of a healthy economy. This is because an economy is a complex system, and complex systems are by their nature messy, making it impossible to quantify and measure the inputs to any real degree of reliability, therefore economics are a pseudo science or in other words, an art. This is important because our lives are better when we live in an expanding economy with a rising standard of living.

Economics is not a real science in the strictest of terms. The theories cannot be independently verified because the fundamentals cannot be effectively measured. Moreover economics, like any of the humanist “sciences,” are subject to the personal bigotries of the “scientist.” These pseudo sciences have built in traps for those who would promote their theories over those of another. One of those traps is observation bias. In the hard sciences like physics the parameters can be set, measured and quantified. The bias of the observer is irrelevant, a stone dropped accelerates at nine point eight meters per second squared, no matter who is observing it, but since humanistic sciences, economics and climate “science” are not hard sciences based on directly observable phenomenon, but are instead complex systems that have far too many inputs and interactions, so observing and measuring any number of inputs and interactions, many of which are not directly observable at all let alone measurable, gives very little insight into the emergent phenomenon that is different in kind than the sum of the inputs… a key distinction of a complex system.

Since economics is the science/art of a complex system, theories cannot be measured by looking at any of the inputs, but instead must be measured from the emergent phenomenon that rises from the complex system itself. In other words, we cannot reason from the bottom up, like the hard sciences, we have to reason from the top down, and even then, we find observation bias creeping in. In the aggregate demand aggregate supply model, the assumption is that if there is no demand for products and services, any supply is over supply, and therefore demand drives supply. In Say’s law, that supply drives demand, the foundation is that if there is a supply of something there will be demand, even if the demand is at a price point that is lower than the manufacturing cost. In Schumpeter’s theory of creative destruction, the theory rests on the concept that new ideas draw in the means of production until the idea is fully implemented, then the outmoded ideas are destroyed.

All those theories start at some sub function of the complex system, demand, supply, new ideas, etc… then reason from the sub function or input, to the emergent phenomenon. As I have explained this is not an efficient way to reason about complex systems. If we instead look at the desired results, the emergent phenomenon we seek in an economic system, IE. a “healthy economy,” and then reason down, we are more likely to find workable theories that are less subject to observation bias… as long as the term “Healthy economy” is agreed to at the outset. Let’s set the parameters for a “healthy economy,” to be full employment, an expanding economy and a rising standard of living. Notice I didn’t make one of the parameters no recessions. This is because recession’s are clearly a facet of a healthy economy as we have described. We can deduce this by the fact that all complex systems grow in fits and starts, animals and plants grow rapidly, slow, then grow rapidly again, until they have reached maturity. Weather patterns change constantly from rain to clear and back to rain, all complex systems wax and wane and therefore reasoning from the top down, we can reasonably conclude recession is a function of a healthy economy, just as sleep is a function of a healthy body.

The emergent phenomenon of a healthy economy, requires a high utilization of workers, increasing demand for products and services, innovations that improve the standard of living and rising wages relative to the cost of living. From this we can see that driving demand by whatever means has no effect on innovation, it has no direct correlation to wages and only a tangential correlation to demand for labor. Creative destruction correlates well with innovation and tangentially with demand for labor but falls short of the mark when it comes to wages and demand. Say’s law that supply drives demand also falls short. If we combine them however we can get closer to describing conditions required for the emergent phenomenon we are calling a healthy economy.

Justus Moser lamented the fact that the market system invents new products then creates a demand for them. Before there were home computers there was no demand for them, in fact many of the economic brianiacs of the day argued there would never be a need for a home computer, because who needs all that number crunching power? Once the PC came out however, many new uses, from word processing and spreadsheets to computer games followed, giving the home computer uses that exceeded anyone’s initial concept of what a home computer would do. These innovations drove demand for the products they created and for their ancillary products as well. The same holds true for new innovations that have not even been thought of yet.

Aggregate supply aggregate demand, being easy to quantify is therefore scientific appearing, it is an oversimplification however that leads to many negative policies that hinder an economy from being healthy. Moreover it is especially subject to observation bias. This model is easy to understand. The most pernicious effect of this theory is that it’s inherent observation bias gives rise to bad policies. Policies that encourage politicians to deficit spend and redistribute other people’s money. It argues all demand is equal. If that was so then full aggregate demand of anything would give rise to a healthy economy. This is reasoning from the bottom up however. For example, if the only demand in an economy was for cocaine and all the productive resources was put to that end, would that lead to a healthy economy? Of course not, a truly sick economy would arise from such demand, even though aggregate demand exceeds aggregate supply, proving the weakness of the aggregate demand aggregate supply model.

If however, we combine Say’s law with Schumpeter’s creative destruction, reasoning from the top down, we find we have a better description of what is needed to have a healthy economy, ergo… sufficient demand for supply, innovation that betters people’s lives, increasing demand for labor and a rise in real wages driven by the demand for more complex labor. Put simply the theory simply works. Reasoning further down, we can observe the conditions that give rise to creation and the supply produced driving demand. The lower we descend however the more observation bias is likely to come into play. Creation requires as a prerequisite, ease of starting a business, else there can be no creation. This presupposes access to the capital necessary to start a business along with the tax and regulatory environment conducive of it. If these conditions are not met, lacking the supply that creation provides, demand falls short, and an economy fails to meet our definition of healthy. That is why I say, creative destruction must be wedded with Say’s law, to better explain the factors that give rise to the emergent phenomenon of a healthy or sick economy, which then points us to policy directives that will result in a healthy economy.


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


Deflation and Deficit Spending

Monday, May 26th, 2014


Dear Friends,


It seems to me, the real reason economists, politicians and Central Bank Presidents are so terrified about deflation, has nothing to do with any pernicious incentives deflation would introduce into the economy, but actually because it would hamper the ability of governments the world over, to deficit spend. Deficit spending has become so entrenched in our political systems that most people don’t give it a thought, and when they do, they grumble but consider it a necessary evil. The ability to deficit spend gives politicians extraordinary power, over the economy, our lives and political evolution. The political elite exploit their ability to spend huge sums of money, to reward their political cronies aka crony capitalism, they “stimulate” the economy with deficit spending and they get and hold office, by promising this or that constituency a hand out if they get elected. All of which are pernicious and destructive of our economies, our Rights and our personal standard of living.


John Maynard Keynes aggregate supply aggregate demand model of economics gives politicians an imperative to deficit spend. In the aggregate demand aggregate supply model, if aggregate demand exceeds aggregate supply the economy grows, but if aggregate demand falls below aggregate supply then the economy shrinks, resulting in recession. Keynes made no distinction between consumer demand, business demand or government demand. In fact, he is famously known for saying, if the government buried money in the bottom of a mine, and let firms use the market system to get it out, that would stimulate the economy. This shows he made no distinction between productive uses of money, and schemes that use money to draw people into non productive actions, actions they otherwise wouldn’t engage in.


One of the fundamental reasons the aggregate supply aggregate demand model is deficient, is that it doesn’t make distinctions between productive spending, where productivity is increased by upgrading plant and equipment or where someone’s needs or wants are being met, and schemes where money is wasted to draw in other money, which is then also wasted, to increase aggregate demand. When government spends money to stimulate the economy, it takes money that otherwise would be used for productive purposes, and wastes it.


The more money that is wasted the lower real economic output will be. Every government today counts government spending as a part of Gross Domestic Product. Therefore, as they deficit spend to draw in other money to gin up the economy, using aggregate demand aggregate supply, the money that is wasted feeds a system where government must have more deficit spending, to offset the loss of market efficiency that is the inevitable result of government “stimulus.” In other words, government spending is increased, to increase GDP, where the market has been so damaged by deficit spending and stimulus, it cannot increase GDP itself. Where government doesn’t deficit spend sufficiently to raise GDP, outside of actual economic growth, economists call it fiscal headwinds.


Crony capitalism around the world is fueled by deficit spending. The political elite use it to reward their half witted brother in laws and political backers. In many countries it is impossible to get a permit to do business unless you have political backing. No one can get licensed in those countries to compete with the political hacks. If the power to deficit spend were limited, that would also limit the ability of the politically favored, to reward their backers and half wit relations, for their own illegitimate purposes.


The first goal of any political party is to get and hold power. Deficit spending allows the faction in power at any time to hold that power. Further, it allows that faction that is willing to damage the interests of society as a whole, by deficit spending, to get that power they so covet. This is a pernicious incentive for political factions each trying to out promise the other. The party offering the most rewards to the people will be the one to get and hold office. This has the tendency to ratchet up deficit spending to ever higher extremes while lowering outcomes. Simply because, that party which has the least scruples to protect the public purse is rewarded, while the party that practices the most fiduciary responsibility, is punished.


All of these things rely on deficit spending and deficit spending needs inflation. Inflation is a hidden tax on the accounts of savers. As a government’s deficit gets ever larger, if the value of the money that the deficit is counted in gets smaller, that deficit also shrinks. If however, the value of the money a deficit is counted in goes up, savers and consumers are rewarded, but government deficits become more problematical. Therefore, governments, central banks and their dependent economists cannot allow any deflation. Deflation would explode the huge deficits governments have built up over the years… to reward their cronies, buy power and “stimulate” the economy. Deflation would show in stark contrast the fiction that deficit spending can go on indefinitely and the system of political favor would come crashing down. Make no mistake, they couldn’t care less about the good to society, in fact the ability to deficit spend rewards those who care the least for the public good, so next time you see a central banker weep at the possibility of deflation remember, those are crocodile tears.





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