Record Corporate Profits and Inflation

Record corporate profits are caused partly by a depreciating dollar

Media pundits like to point out that in spite of record corporate profits, many of these corporations are hoarding on to their cash rather than making capital investments or raising the wages of their workers. This leads to their argument that the federal government, whether it be through regulatory or monetary means, must intervene in the market in order to incentivize spending and investing. Of course,  stagnant wages raise the ire of the working class, thus enabling politicians who play the role of Santa Claus via social programs to retain and consolidate their power. The most common retort to the reasoning behind the cash hoarding in spite of record profits is that these corporations also have record debt on their books. While this is true, many people are ignoring the fact that most of these record profits are not adjusted for inflation.

Let’s look at this situation in more detail. A good portion of corporate profits are derived from foreign jurisdictions. These foreign corporate profit numbers are therefore converted into US dollars based on the exchange rate of a certain point in time. But keep in mind though, if the US dollar is depreciating against a certain currency, such as the Australian Dollar (AUD), then the profits reported in US dollars will increase due to the currency devaluation. To illustrate this point, let’s say the ACME Corporation records significant profits from Country A. In Year 1, ACME’s profits in Country A was 10 million A dollars. Let’s assume that during Year 1, 2 USD = 1 A Dollar. So in year 1, ACME’s corporate profits from Country A is equal to 20 million US dollars based on the exchange rate. In year 2, ACME once again records 10 million A dollars in Country A. However, the exchange rate is now 5 USD = 1 A Dollar. In year 2, ACME’s corporate profits from Country A is equal to 50 million US dollars based on the exchange rate. US media pundits see this and scream at the camera about record corporate profits even though ACME’s profits, when adjusted for inflation, stayed the same. Moral of the story: take what media pundits say with a grain of salt.

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The Understating of Inflation

In the video embedded above, Peter Schiff discusses the issue of the federal government understating the effects of inflation. Here are some of the highlights from the video:

- From 2002 to 2012, the CPI increased by 27.5%. During the same time period, Peter Schiff’s basket of 20 popular goods rose in price by 44.3%.

- From 1999 to 2012, the CPI indicated that newspaper and magazine prices rose by 37.1%. During the same period, the average price of the 10 most popular newspaper and and magazine publications rose by 131.5%.

- From 2008 to 2012, the CPI indicated that health insurance costs rose by 4.3%. During the same period, a Kaiser survey of employer sponsored health insurance indicated that costs rose by 24.2%.

- Mitigating factors such as the fact that America’s trading partners are willing to accumulate dollar reserves and invest them in US treasurers.

I would like to expand a bit on the fourth point mentioned above. Currently, the US dollar acts as the global reserve currency. In other words, all other countries hold US dollars as reserves, thus creating automatic demand for the US dollar. Without this demand, hyperinflation would have happened eons ago and the collapse of the dollar would be part of of history textbooks. But how did the US dollar become the global reserve currency in the first place?

In 1971, President Richard Nixon went off the gold standard. Basically, the US dollar was now backed by absolutely nothing and was/is essentially worthless. As a response to this development, the US decided in implement the Petrodollar system with the help of the OPEC nations. In 1973, Saudi Arabia became the first nation to agree to the Petrodollar system. The Petrodollar system, in essence, requires that all oil be sold exclusively in US dollars. Saudi Arabia and the other OPEC nations, in return, would receive weapons and military protection from the American military. Due to this agreement, any country who wishes to purchase oil will have to keep a reserve of US dollars for future purchases of oil, thus catapulting the US dollar towards its current global reserve currency status. The artificial demand created by the Petrodollar agreement is propping up what should be a worthless currency. Another caveat in the Petrodollar agreement is that the OPEC nations agreed to invest their excess profits into US Treasuries. This process is known as the Petrodollar recycling. The reinvestment of excess oil profits into US Treasuries allows the US government to further pursue their inflationary habits. In recent years, countries such as Iraq, Iran, Libya, and North Korea have all expressed interest in exiting the Petrodollar system in favor of purchasing/selling oil using other currencies and commodities. Judging by the US government’s rhetoric on these nations, it is quite clear that any move against the Petrodollar agreement will be met with strong push back from good ol’ Uncle Sam.

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The DEA Officer and the Bull

Bull vs. DEA Officer

A friend recently reminded me of this classic but funny joke:

A DEA officer stopped at a ranch in Texas, and talked with an old rancher. He told the rancher, “I need to inspect your ranch for illegally grown drugs.” The rancher said, “Okay, but don’t go in that field over there…..”, as he pointed out the location.

The DEA officer verbally exploded saying, ” Mister, I have the authority of the Federal Government with me !” Reaching into his rear pants pocket, he removed his badge and proudly displayed it to the rancher. “See this badge?! This badge means I am allowed to go wherever I wish…. On any land !! No questions asked or answers given!! Have I made myself clear……do you understand ?!!” The rancher nodded politely, apologized, and went about his chores.

A short time later, the old rancher heard loud screams, looked up, and saw the DEA officer running for his life, being chased by the rancher’s big Santa Gertrudis bull…… With every step the bull was gaining ground on the officer, and it seemed likely that he’d sure enough get gored before he reached safety. The officer was clearly terrified. The rancher threw down his tools, ran to the fence and yelled at the top of his lungs…..

“Your badge, show him your BADGE……..!!”

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Surprise Surprise! ObamaCare is Causing Some Unintended Consequences

Rising healthcare costs due to ObamaCare?

The main purpose of the Affordable Care Act, commonly dubbed ObamaCare, is to curb the increase in the cost of healthcare in order to make them more affordable. However, many healthcare providers have already increased premiums or are proposing new increases in spite of ObamaCare’s stated purpose. If that was not enough, the terms of ObamaCare has already negatively affected employers and their employees. Businesses have been slashing hours and reducing hiring/cutting jobs in order to avoid the costly regulatory burdens place on them due to ObamaCare. The provisions of ObamaCare mandates that employers offer medical insurance if they employ 50 or more employees.  It’s no secret why there is a disproportionate amount of businesses that employ 49 employees or less. Also, employees who work over 30 hours must also be provided with insurance. Government decrees such as ObamaCare are often sold as being necessary to protect the average Joe and Jane. Thus far, ObamaCare has done just the opposite.

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10 New Year’s Resolutions the US Government Ought to Make, But Won’t

Will the government heed these 10 New Year’s resolutions?

1.) Require all members of the Judicial, Legislative, and Executive branches of government to read Economics in One Lesson by Henry Hazlitt.

2.) Require all members of the Judicial, Legislative, and Executive branches of government to read The Road to Serfdom by FA Hayek.

3.) Require all members of the Judicial, Legislative, and Executive branches of government to actually read the US Constitution.

4.) Have President Obama, Mitt Romney, John Boehner, and Harry Reid hold a press conference admitting that the two party system is a sham and that outside of specific pet projects, there are no significant differences between the Republican and Democratic parties.

5.) Dismantle federal agencies such as the Department of Education, Department of Energy, Housing Urban Development, etc…. These agencies are incapable of accomplishing their stated goals while eating up trillions of dollars of taxpayer money through inflation, debt, and direct taxation. Continuing to fund these agencies is the equivalent of shoveling crap into a pile and expecting that pile of crap to turn into gold. I’ve got news for you, that pile of crap won’t turn into gold. In fact, it will just turn into an even bigger pile of crap. The system is broken. Get rid of these agencies.

6.) Take out the NDAA provision that allows the government to detain American citizens indefinitely without trial. The Feinstein-Lee Amendment was left out of the 2013 NDAA.

7.) Withdraw all troops from the Middle East. Withdraw all troops and close down all US military bases in foreign countries.

8.) End the War on Drugs and legalize marijuana and other so-called “illegal” drugs.

9.) Promote competition by getting rid of excessive/unconstitutional regulations and taxation on both businesses and consumers.

10.) End the Fed.

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New Hampshire State Rep. Cynthia Chase Opposes a Free Society.

New Hampshire State Representative Cynthia Chase believes that the principles of liberty, sound money, and free markets are a threat to her state and society as a whole. Her rather unflattering viewpoints on libertarian principles stems from the growing movement known as the Free State Project. Here is her opinion on the Free State Project and freedom as a whole:

“In the opinion of this Democrat, Free Staters are the single biggest threat the state is facing today. There is, legally, nothing we can do to prevent them from moving here to take over the state, which is their openly stated goal. In this country you can move anywhere you choose and they have that same right. What we can do is to make the environment here so unwelcoming that some will choose not to come, and some may actually leave. One way is to pass measures that will restrict the “freedoms” that they think they will find here. Another is to shine the bright light of publicity on who they are and why they are coming.”

The bold portion of the quote is quite alarming, albeit not surprising. The desire of politicians to strip away our remaining freedoms and civil liberties becomes more apparent everyday. Tom Woods discusses this issue in a little more detail in the video embedded below.

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Will Taxing the Rich Fix Our Economic Woes?

Kyle Bass explains why the ever so popular cry to “soak the rich” won’t work.

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Sandyhook Elementary and Gun Control

Newtown, CT

In the wake of the tragic shootings at Sandyhook Elementary in Newtown, Connecticut, many people are calling for the enactment of more stringent gun control. It is easy to react emotionally to such tragic events by demanding the government to step in and enact policies such as gun control. However, we must realize that gun control is not the answer.

Having stringent gun control only serves to monopolize the possession of weaponry to murderers and government agencies. Psychopathic murderers will always find a way to arm themselves, with or without gun laws. Having an armed psychopath with a crowd of unarmed citizens due to gun control is not a good formula for the “safety”that gun control advocates preach about. Keep in mind, Mexico has very stringent gun control laws. Yet, who has all the guns there? The drug cartels run rampant with their advanced weaponry while innocent citizens suffer. Many people are not aware that we already have stringent gun control here in the states. The fact that we are not allowed to carry concealed weapons without jumping through hoops is the result of gun control laws. As in the Aurora shootings, if the victims and innocent bystanders were allowed to carry concealed weaponry, they would have at least had a fighting chance. In fact, some would argue that most shootings would be eliminated altogether. Many potential killers would be dissuaded from carrying out their criminal acts if people were allowed to carry guns. The ever so slight minority that is still psychotic enough to carry out these violent crimes would more likely be taken out by an armed citizen than by the police. It would take authorities around 6 minutes to respond to the attack while it would take armed citizens mere seconds to respond.

Having more stringent gun control would also serve as just another funding mechanism for criminal organizations. Just like illegal drugs, prostitution, and alcohol during the Prohibition era, “illegal” guns would just serve to fund the activities of mobs, cartels, and street gangs. Illegal gun trafficking may become just as big if not bigger than drug trafficking.  Will our society really become safer if we make our gun control laws even more stringent? Enabling criminal organizations to have another source of funding does not exactly represent a “safe” society. This would just be another example of the unintended consequences of the “good intentions” of bureaucrats.

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Kayaking and Virtues of Limited Government

Kayaking and Limited Government?

A while back I went with a group of friends down to Long Beach, CA for a kayaking event. Once our group was all gathered up, we made our way to the kayaking booth to rent our boats. Before taking our information, the vendor asked if all of us knew how to swim. One of the girls in our group responded “nope, not that well.” Unfortunately, that response opened a can of worms. The vendor informed us that the city of Long Beach and its lifeguards does not allow individuals who are not proficient swimmers to kayak in the water. Those of you who have kayaked before know that this should not be a problem since everyone is given a life jacket. Despite some prodding and pleading, the vendor would not budge (can’t blame him since his hands were tied by the city). Thus, we decided to drive a few miles down into Seal Beach, CA and test our luck there. Thankfully, Seal Beach did not have such an ordinance and we were able to commence with our kayaking plans.

Now, what does this have to do with limited government? Even though being unable to kayak is just a minor inconvenience in the grand scheme of things, this demonstrates the virtues of having government scaled down to the local/municipal level. Imagine if there was a federal agency called the Department of Kayaking (DOK). The DOK, true to its arbitrary style, decides to ban non-swimmers from kayaking. In this case, my friends and I would not have been able to commence with our plans for the day. If we decided to drive down to the next municipality, we would still be denied because of the DOK’s wide reach. But since there is no DOK and the rules for kayaking are set by each individual municipality, we were able to travel to another nearby jurisdiction that better met our needs. If we had this set up for other aspects of life, such as education, things would be much more efficient and problems would actually be solved rather than perpetuated via government monopoly of goods and services.

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Using a Pencil to Illustrate the Power of the Free Market

In this classic clip, Milton Friedman explains the power of the free market using a pencil.

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