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Tuesday, December 15, 2009

"Lending Stimulates the Economy" Fnord

This story contains an important evil fnord.

President Barack Obama implored top bankers Monday to help keep the fragile recovery from faltering by boosting lending to small businesses and getting behind an overhaul of financial regulation. "We rise and fall together," Obama declared.
Trillions of dollars were spent in Federal bailout money. There was TARP bailout money explicitly allocated by the Federal government. There was secret bailout money provided by the Federal Reserve. The Fed Funds Rate is currently 0%-0.25% while true inflation is 20%-30% or more, which is a further subsidy for the banksters. Negative real interest rates are a continual subsidy for the banksters, even if no bailout money is explicitly allocated.

A year ago, oil prices were really cheap while interest rates were really low. Some hedge funds borrowed money, bought oil, paid to store it, waited for inflation, and then sold. This was very profitable. They made a huge profit, without doing any real work.

When real interest rates are negative, this is a very lucrative profit equation:
  1. Borrow money cheaply and buy tangible assets.
  2. Wait for inflation.
  3. Sell and profit!
It's better than being an underpants gnome!

These profits aren't free. They're paid by the rest of society as inflation.

There's a lot of hype about "Banks are repaying TARP money. Hooray! They aren't scum!" The problem is that these profits are fueled by a Fed Funds Rate of 0%-0.25%. A more accurate statement is "Banks received cleverly hidden State bailout money and used that to repay direct explicit bailout money!"

State parasites "stimulated the economy" by giving trillions of dollars to politically connected insiders. They could have given $10k directly to each American, and that would have had the same net stimulative effect. This was never seriously discussed as a possibility. There were token stimulus payments of a couple hundred dollars, but this was negligible compared to what the banksters stole.

The point of the monetary system is debt enslavement of every American. Even if you personally have no debt, your savings are stolen by inflation. If you have no savings, then you're stuck during the next recession/depression. If you have as much debt as you can, then you'll be bankrupted during the next recession/depression. Even if you have no debt, large corporations have lots of debt, and most people work for large corporations directly or indirectly.

Negative real interest rates concentrate economic power in the hands of people who print and spend new money. The banksters can borrow at 0%-0.25%. They use this money to speculate on the stock market, buy other tangible assets, or lend at higher rates.

A corporate CEO can borrow at 6% or more. A pro-State troll says "The CEO is creditworthy but a small business owner is not." The reality is that the CEO was appointed via a corrupt nepotism capitalism process. Most CEOs don't have skills that would be useful in a true free market. They merely excel at exploiting a corrupt system and navigating through a parasite-dominated State bureaucracy.

A CEO borrows at 6% while true inflation is 20%-30% or more. That means that the CEO can normally profit and repay the loan, even if he invests the money unwisely. For example, an investment that yields 15% is profitable enough to repay the loan, yet returns less than true inflation. This leads to misallocation of capital and asset bubbles.

A small business owner must pay higher interest rates or can't borrow at all. A pro-State troll says "The small business owner is uncreditworthy." The reality is that the State has a monopoly for financing businesses. The small business owner can't borrow money from friends and relatives, because he has to pay an extortionate rate or the lender gets ripped off by inflation. If the small business owner sells equity, then either the minority equity owner risks getting cheated, or the owner becomes an employee in his own business.

The pro-State troll statement "The small business owner is uncreditworthy!" really means "The small business owner can't profitably lobby the State for favors like the CEO of a large corporation!"

The State monetary monopoly gives political insiders access to capital, while denying individuals access to capital. "It's the free market!" is an evil fnord, because there is no free market monetary system. A central bank credit monopoly is the opposite of a free market. You can't say "The free market has favored the CEO over the small business owner." The correct answer is "State violence favors the CEO over the small business owner."

This is an important evil fnord. "The banksters are doing the work of God, 'stimulating' the economy." The reality is that they are parasites, lining their pockets at the expense of everyone else. The banksters create the illusion that they are heroic leaders and brilliant businessmen.


Anonymous said...

FSK, you should think, before saying foolish things. You said: "The pro-State troll statement [is] "The small business owner is uncreditworthy!""

I said that. You are thus calling me "a pro-state troll".

You also said: "A pro-State trolls says "That's because FSK is uncreditworthy!", but it's more than that."

Thus, you acknowledge that you are less creditworthy, and yet you propose that because there are other distortions to the free market, that if not for those distortions, the free market would disregard FSK being less creditworthy?

If some truth is "more than that"[more than stated], then to state something partially correct is already a pro-state trolling? Do you define a troll as anyone you are talking too?

You are creating a fnord here, FSK, by wanting to have it all beautifully connected. But, it is not so. It is all ugly thrown around instead. You are bending the reality around the pillars of your desired explanation to build the bridge that you have conceived of long before you found the truth.

Do you know what a pro-state troll is? A troll, on web-boards is a saboteur, having no other purpose than to disrupt the discussion. A pro-state troll is a troll that is working to disrupt the discussion if it threatens the state.

It is foolish of you. But, should I say that you're a pro-state troll? No, it is clear that your intentions are not to further the tyranny. I am not going to get down on your level, and call you a troll.

If you had given a thought to your argument that a small business and a large business would be equally creditworthy (all other things being equal) in a free market, then you would have notice that there are only two things we want to know before we lend.

First, is how likely will be the return OF our money. Second, is what will be the return ON it. The former can be mitigated by later and vice-versa.

Any amount of money, say a million dollars, is more easily returnable by a large business than by a small one. Two reasons: this amount represents lesser part of a business yearly sales for a larger business, and that a larger business is less likely to stop statistically. Because of this, anyone would feel safer lending to a larger business (again, assuming both are doing proportionally well), and the same loan to a smaller entity would have to be mitigated by higher return rates. This is still true if FSK want to borrow 1 mln and a large business 1 bln, because the large business makes more than a thousand times of what FSK makes.

This is how things would be in a completely free market. But, don't let me stop you from running ahead in your blind desire to declare that in a free market, there would be no difference, at the very least. There, the large business would still make more than 1000 times of FSK, without any subsidies, just of efficiency and size, before it would become too big to support itself.

It is this foolishness that makes me think from time to time that I am wasting my time here. It is very likely, judging by what I read, that you're going to repeat the mistake of so many idiots that we see littering the historical landscape. That you are going to pose your initial feelings and desires above the truth that you are destined to find, then defend the foolish statements you have maid before, then look for ideas that could support your "principles", rather than to look to develop "principles" that would support the truths you have found, to finally end up in a company of other fools such as Che, or others like him.

Finally, a one bit of good that I noticed. Even though you could have throw away any comment you don't like, you're not yet so self-indulged to do that. You seem to be posting everything no matter how critical of you that is. Because of this, I think it is not too late for you to heed my words.

FSK said...

I don't see how an Anonymous commenter can get offended when I criticize them.

I've heard those pro-State troll points from many places, and not just Anonymous specifically.

I have no idea if Anonymous comments are all published by the same person, or each one is different.

My policy is to publish all comments except for obvious spam. The volume of spam has increased. I'm also starting to block comments that say nothing, because some Blogger IDs are spam-related.

It is possible to be pro-State trolling even if you are not consciously aware of it. A pro-State troll is someone who supports the State. It can be on purpose as a deliberately planted spy. It can be someone who is just plain stupid. I judge the content and not the motives.

You have not succeeded in convincing me my analysis is wrong. Your pro-State trolling is evidence that this is an important subject. I noticed that "number of negative nonsense comments" is directly proportional to the importance of the subject.

Anonymous said...

Anonymous or not, what is the difference? I did not ask to be judged on my personality or on my prior success. I purposefully remain anonymous, so that I am judged on my every word. I brought up specific instances when you used your "trolling" excuse to cover your ignorance. You said you judge on context. You forget that you judging ability is far from perfect. Your judgment says I am a P-S-T. You couldn't be more wrong in this particular case.

So, I have not convinced you. You define trolling as anything you want. You keep referring to me as "your trolling" again. Yes, I have noticed that. You have succeeded in showing me that you do whatever the hell you want. Obviously, this is your right.

And my right is not to deal with someone so obviously unjust and juvenile. I will not litter your blog anymore, with my trolling.

You're a jerk.

I define jerk as anyone who says I am trolling when I am not. Like it? Makes for a constructive discussion, doesn't it?

Keep doing what you doing, and other people who are more serious than a jerk, will not post here.

My humble guess is you will achieve nothing, unless you wash this off your face and start respecting at least those that you are "trying to build an agorist" society with. When you finished with your life, check if I happened to be correct.

Have a nice life, jerk.

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