Justplainbill's Weblog

September 11, 2012

Basic Economics Follow-up

Filed under: Political Commentary — justplainbill @ 5:19 pm

Wealth Follow-up

I had thought that this was obvious from the discussion on price and value, but an email query has disabused me of that.

Here’s why Quantitative Easing (QE), is destructive to ALL working class people.

The working class consists of those earning too much money ($€£¥$ CURRENCY $€£¥$) to be eligible for government assistance, and, too little to live off of either/or, or both of, capital gains, the proceeds of the sale of market securities, and distributed income, interest from bonds, dividends from stocks, payments from annuities, &c. Although The Federal Government has declared as officially poor a family of four earning ~$29,000.00, Missouri, as a random example, provides state funds for various subsistence programs if, as a family of four, your adjusted gross income (AGI – that is, after all deductions, allowances, and exceptions, the amount that you report on your 1040EZ as your income, and just to drive the point home, this is NOT your gross income!) is less than (<) $60,000.00. This means that if your AGI is $50,000,000,000.00, and you are living on your wages, maybe because you have not yet accumulated enough assets to live off of their proceeds, you are still a working class family!

The Political Class has determined that a family of four, or any sub-set thereof (meaning the “single mom” with child(ren), the “disabled +/or his care-taker”, the “elderly”, or those otherwise determined by the Political Aristocracy to, for any reason that the Aristocracy chooses, not be working – just consider the negative effect that extending “unemployment compensation” to 99 weeks had, especially now that it’s ending!) should have an AGI of $60,000.00, and if not, the working class should pay the difference through forced taxation.

Further, that that $60,000.00 fluctuate by an irrational COLA, a COLA, which the working class AGI does NOT have, with few exceptions.

Now, there are three references that you should review to get a more substantive understanding of what’s going on:

1. The Albany Plan Re-Visited, http://www.bn.com/ebooks, has several essays including two that are relevant. The first deals with government structure, and the second with how government taxes and spends;
2. The first section of the earlier post on education and entrepreneurship, because it touches on two relevant points, one dealing with economic growth, and the other with specific facets of business, more specifically organizational structure over time in job creation; &,
3. The original Wealth posting.

Here’s what happens with QE’s:

in order to maintain value, commodities owners always increase the price of their commodity when currency is de-valued. Two quick examples are OPEC and Market Exchange Indices.

As currency is de-valued, the price of commodity rises, but the value stays the same unless there is a technological change that alters the actual value of the commodity. The value of oil will go down if various technologies are developed that reduce its commercial uses, I use petroleum because there’s an earlier post on Energy which you should read as it contains most of petroleum’s commercial uses in it. Its value will go up, if technologies are developed that either enhance its use or create new uses for it, e.g. a petro-derivative that cures all cancers. (Although Keynesian Economists will argue that the quantity of the commodity is relevant to price/value, in fact, quantity effects innovation, not value. As the commercial uses of a commodity change, its value changes, however, if cost goes up, remember that cost is NOT price, an innovator will find a replacement for it!)

The value of a stock (let’s skip other market assets, without the proper background, the rules regarding mineral rights development limited partnership trusts, and other marketable financial instruments, are irrelevant), is based on the assets owned by the company AND its productivity, which is usually quick-referenced by its price to earnings ratio (P/E Ratio), which market chartists (those who analyze market values vs. market prices based upon price & volatility fluctuations,) assume includes management competence and other very important factors, but which in fact doesn’t. There is always the assumption that the currency used to state the p/e is both stable and relevant (for relevance, think back to when tobacco leaf was currency in the Colonies). When a QE is applied, there has been zero change in the assets and productivity of the company, just an increase in the paper currency suppy, which is a de-valuing or de-basing of the currency, thus the price goes up; thus, The Dow Jones Industrial Average, the NYSE Indices, The NASDAQ Index, and all of the SPDR Indices, keep going up, yet the economy keeps going down!

The poor have a cost of living adjustment built in to their assistance programs by law. The rich, since they own the assets and commodities, have a price-of-value built in by the market. The working class not only have neither of these, but they are forced to pay for both the rich and the poor because the earnings of working class people, as evidenced by purchasing power, or value of their labor, drops because, as is obvious to all of us, our earnings, which are usually expressed as wages, NOT compensation, do NOT go up, yet our costs do, and our taxes do!

So, when there is a QE, or a de-basing of the currency, the working class loses because the value of its labor as expressed by its AGI, i.e. its earnings, wages, or compensation, is reduced, yet we are required ab absolutum (sorry, I can think of no English word or phrase which carries the same emotional oppression of spirit and economic tyranny) to incease our productivity, yet we, the producers of it, receive nothing in return for this increase in WEALTH!!!


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