4/4/2013 Portland, Oregon – Pop in your mints…
We were fortunate, or not, depending upon one’s view of mainstream economics, to attend the annual Economic Breakfast put on by US Bank. The annual address is attended by roughly 1,000 and has been given for as long as we can remember by one John Mitchell.
Mr. Mitchell is the retired head economist for US Bank, and today pledged to give the address next year should he be “alive and taking nourishment.” For his sake, we pray that he will be. His talks are heavy on data, observations, and are concluded with a poem, yes, a poem which sums up his talk. Between Mitchell’s wit and the English breakfast, it is time well spent.
Mitchell was interesting as always. He interjected speculations that the health care reform, which is set to turn the health care industry on its head, and take a few others with it, will have some “unintended consequences.”
First, he speculated that there may be an emergence of 49 person firms to duck the 50 employee threshold at which a slew of obligations are heaped on the employers. He also speculated that health insurance rates for the young would skyrocket, as rates for the aged in the population are legally bound to be no more than three times the younger persons’ premiums. Finally, he speculated that in response to the premium jumps experienced by the young and healthy, they would increasingly forgo paying health insurance and pay the famous $95 fine, which has been vehemently haggled in court, and then pick up insurance should they become ill, which of course will be their right under the health care reform.
The point that people will get creative is well taken.
He also made a couple of interesting points about the current recovery. Both related to government spending. First, he observed that this is the first recovery that has not seen an increase in government employment. Second, he presented a graph which mapped the trajectory of Federal spending from 2014 through 2023. It revealed how both interest payments and mandatory spending would begin to crowd out the part that everyone bickers about, discretionary spending.
Federal discretionary spending is where much of direct government employment flows from. Mitchell also observed that the spending sequester that was phased in on March 1 was simply a warm up, implying that the Federal government was entering a period of permanent sequestration.
In other words, the Federal government’s days of stimulating the economy in any meaningful way are done, unless a wide scale armed conflict give cause to throw fiscal caution to the wind, an outcome we expect but pray does not occur.
Near the conclusion of his remarks, Mitchell provided an appropriate anecdote for the fiscal situation in the United States via two metaphors. The first is the meteor, which he presented this way: Imagine that tomorrow we receive news that a meteor will strike the earth causing catastrophic damage in exactly 15 years. Further imagine that there is a chance to avert the disaster if all of the resources in the country were to be organized focused on the sole task of building a shield that could withstand the blast. The only catch is that work must start immediately to be completed by the time the meteor arrives.
Would Congress be able to act fast enough? Such is the Fiscal state of the US Government. The entitlement and interest burdens must be dealt with, but the government must start immediately.
We wouldn’t hold our breath.
In Mitchell’s second metaphor, he sums up the government’s current response by reminding us that there is “no fiscal tooth fairy.”
Here at The Mint, we see two outcomes, both equally disturbing. First, the Federal Reserve has been left to print the US out of the fiscal bind that it is in. Even if inflation rears its ugly head, don’t expect the Fed to be on top of it. Plan accordingly and muster real world goods while there is time to do so.
Second, there will be more talk of American’s contributing their “fair share” to the nation’s finances. The fair share, is the kind and gentle collectivist way for saying “we have run out of money so we are taking yours by force of law.”
The situation in Cyprus has shown that the governments will choose what the “fair share” at their pleasure, and the rush into Bitcoins has shown that people will increasingly shift their material wealth so that tit will not be on the radar when the government moves to collect its “fair share.”
{Editor’s Note: Beyond Bitcoins, it appears that the fleecing of depositors in Cyprus has given rise to another stream of revenue that banks can offer their customers: Private deposit insurance. Who says the government cannot stimulate the economy?}
There are numerous problems with the concept of the “fair share,” but at its base, when a government, or any entity reverts to this type of rhetoric, it seats itself as judge, jury, and jailer when it comes to everyone’s finances. However, the brutal irony is that the very fact that it must ask and determine what is everyone’s “fair share” should be means that it has fundamentally failed in its stated mission.
To serve its population.
We leave you to ponder this and Mr. Mitchell’s illuminating speech with a word of warning. Anyone claims that they can accurately determine what exactly everyone’s “fair share” should be must be summarily dismissed. For we can assure you of this:
That person is wrong, and likely a sociopath.
Stay tuned and Trust Jesus.
Stay Fresh!
Email: davidminteconomics@gmail.com
Key Indicators for April 4, 2013
Copper Price per Lb: $3.38
Oil Price per Barrel: $93.42
Corn Price per Bushel: $6.30
10 Yr US Treasury Bond: 1.76%
Mt Gox Bitcoin price in US: $132.00
FED Target Rate: 0.14% ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce: $1,553 THE GOLD RUSH IS STILL ON!
MINT Perceived Target Rate*: 0.25%
Unemployment Rate: 7.7%
Inflation Rate (CPI): 0.7%
Dow Jones Industrial Average: 14,606
M1 Monetary Base: $2,534,800,000,000 LOTS OF DOUGH ON THE STREET!
M2 Monetary Base: $10,501,300,000,000