A Measure of the Government Wealth-Taking

In May 2008, M2, a measure of the money supply, stood at $7,733.5 billion.  In April 2010 it was up to $8,595.5 billion.  The government had added $862 billion to the M2 money supply.  This is an 11.15% increase in about 2 years.  One consequence of this is that everything you own, when given a dollar value, was devalued by 11.15%.  This does not mean that the dollar value as given dropped, but it does mean that other things being equal, your assets lost 11.15% of their value.  Measuring their value in terms of other currencies than the dollar may not indicate this, since most other currencies have also been similarly inflated during this time.  But, when measured against a holdable and valuable commodity such as gold, platinum, and silver, it is only reasonable that this would mean that your asset lost value in terms of those valuable commodities.

The stock market in this period fell from 1409.34 on 1 May 2008 to 1186.69 on 30 April 2010.  This was a drop of 15.80%.  Of course other things are not equal, so a drop of 11.15% was exceeded.  Among other unequal factors, the U.S. GDP fell by 2.33% from 2008 to 2009, so that might simply be added to the 11.15% drop to create a drop of 13.48%.  Of course, if productivity is increasing fast enough, an increase in M2 may not result in a drop of stock prices, but during the recession with more money chasing few goods, it is not surprising that our stock market investments have lost value.  For the many Baby Boomers approaching normal retirement ages, this has been a disaster.  We can largely thank the federal government for this and attribute it to its influence on Fanny Mae, Freddy Mac, AIG, the Federal Reserve, and its many efforts to push financial institutions to provide sub-prime mortgages to people who could not afford them.

A Measure of Government Robbery

I recently received a copy of the Merrill Lynch Advisor with a chart in it comparing the value of $10,000 invested in early January 1997 in each of 30-year Treasury bonds, the S&P 500 stocks, the MSCI World Index of stocks, and the MSCI Emerging Market Index of stocks. The 30-year Treasury bonds were worth $26,488 on 7 October 2008. But, the S&P 500 stocks were only worth $13,449; the MSCI World Index stocks were only worth $12,673; and the MSCI Emerging Market Index stocks were only worth $13,837. This data is actually from Bloomberg Financial Markets.

Until late 2001, the S&P Index stocks were worth more than the Treasury bonds. Since that time, the Treasury bonds have been a better investment, though the S&P almost caught up again with them in 2007. Since then, the value of stocks has taken a horrible hit thanks to erratic and irrational government policies on many fronts and the promises of a president-elect and a Democrat Congress with an enlarged majority.

The fact that Treasury bonds have proven so much better than stocks is an indicator of how much wealth the Federal government has transferred from the private sector to government and of how shaky government policy has made investments in the private sector. The private sector requires an environment in which the law is rather rational and known and its enforcement is reasonable. When whole industries are threatened by a president-elect with bankruptcy, many industries are begging Washington for handouts while others are to be sucked dry with tax increases, some unknown fraction of the richer population is to be saddled with backbreaking taxes, and humans are held hostage to all other animals and to cockeyed theories that the burning of fossil fuels will overheat the planet, only the Master of the Universe appears a safe investment. That, of course, is our tyrannical federal government.

So, my freedom-loving friends, you are challenged by this dilemna: If you ever want to retire, you must buy Treasury bonds, but to do so is to feed the brutal, bloodthirsty beast. I will just have to work until I drop.

Lambro: Recession fixation

Donald Lambro commented today in the Washington Times that Americans are deeply pessimistic about the future of the American economy, owing in large part to the Democrats media campaign that the economy is in recession. Let us look at the facts.

• GDP grew 0.9% in the first quarter of 2008. This is weak, but it is not recession.
• The unemployment rate is low and near 5%. People who want to work and who have some marginal skills are working.
• New home sales rose 3.3% in April. As earlier noted in this blog, home sales are really only in trouble in a few areas of the country, generally those where unrealistic increases in housing valuations occurred earlier.
• With the exclusion of transportation orders, factory orders increased 2.5%, the largest such increase in 9 months.
• We remain the world's largest economy, producing $14 trillion of goods and services each year.
• Exports grew 3% in the first quarter and we are selling $1.4 trillion of goods and services abroad.

This appears to be a relatively mild slowdown and we appear to be starting to come out of it. Noting that the stock market is forward-looking, I recently rearranged my retirement portfolio to weigh stocks more heavily in order to take advantage of the coming increase in growth rates in the economy. The American economy is very robustly minimizing the effects of the loss of housing values in some areas of the country, the problems with some types of credit, and the very high cost of oil. The only really worrisome future event is an economy-killing combination of Democrat tax increases and legislation to squash our use of energy in business favored by both Obama and McCain. Short of these disasters, I think the economy will soon be doing much better.