Economics 101

by JASmius



If you render a commodity all but free, you will stimulate demand for it through the roof:

Central banks around the world are pushing down interest rates — to negative territory in some European countries — and that's hurting many investors, says Laurence Fink, CEO of BlackRock.

"Global interest rates are creating huge pain," he tells CNBC.

"This is something that's misunderstood and not talked about enough. Everyone appreciates how low rates accelerate the equity markets, but it's certainly creating quite a bit of havoc with a lot of our clients."

The Fed has kept its federal funds rate target at a record low of zero to 0.25% since December 2008. And almost six years into the economic [depression], the ten-year Treasury yield stands at a paltry 1.92%.

"I don't believe central banks appreciate what low interest rates do to the long-term interests of insurance companies, pension funds, retirement plans," Fink explains.

And what is the ramification of zero and negative rates for investors?

"If you think rates are going to stay that low longer, you're going to see more and more people moving into equities, into more alternatives.

If you make debt dirt-cheap, people and companies and governments will plunge headlong and ever deeper into it.  If you enable equity investors to play entirely with "house money," they will not only "let'r ride" but pour in as much of other people's money as they can get their hands on.  And if you render saving and frugality a pointless and futile and even foolish endeavor, fewer and fewer people will save for a rainy, or any other kind of day:

Here's yet another sign of the woeful financial predicament confronting many Americans.

A total of 47% of us had a zero or negative savings rate as of 2013, according to a report from Deutsche Bank Chief International Economist Torsten Slok obtained by the Daily Beast.

The good news: that's down from a peak of 48% in 2010. The bad news: that's not much of a rebound. "This is depressing news," notes Daily Beast guest writer Michael Maiello.

After citing this stark and alarming fact, a ready-made formula for even more and deeper grinding American poverty, Mr. Maiello stubbornly sticks to the leftwingnut fiction that "thrift is not the answer," and that his calamity is the result of "structural inequities in the economy".

But the fact muleheadedly remains that if you discourage savings and encourage American households to live garishly beyond their means, as the Obama Fed has done for six and a half years, you'll get a populace that is, at best, "living paycheck to paycheck" - i.e. drowning more slowly - and at worst, dead broke, financially ruined, and swelling the ranks of indentured Democrat voters.

The method, of course, to O's madness.

I might add that if you've bucked the trend and actually been personally fiscally responsible (cheap, in other words), as I've always been (my German heritage makes it functionally congenital), and suffer a serious economic reversal, like a job loss (as I did), you can survive for literally years while working and struggling against the Obama depressionary tide.  Or, in other words, an "officially" horribly bad example.

Speaking of spiking joblessness....:

Don't believe the hype on increasing the minimum wage, Brian Brenberg, professor of business and economics at King’s College, and Vincent Vernuccio, director of labor policy at the Mackinac Center of Public Policy, told Newsmax TV.

The issue is receiving a lot of attention these days, as many states and cities have moved to lift their minimum as high as $15 an hour, and a nationwide protest was held Wednesday over the issue.

But raising the minimum wage is "a very, very risky move," Brenberg told Newsmax TV's MidPoint. "Most of the data that we have on minimum wage increases, suggest that when you increase the minimum wage you reduce employment."

As for the $15 level, "there's no reason to believe it's going to do anything but amplify the negative effects we already see with the smaller increase," Brenberg said. "So asking for $15 minimum wage is really just asking for higher unemployment."

The biggest pusher of ludicrous, destructive minimum wage hikes?  Big Labor, not for economic reasons, but ideological ones.  Because the economics of the minimum wage are intractable: If you make entry level labor more expensive, you'll get less of it, meaning fewer jobs and higher youth (and minority) unemployment.  That's not "greed" on the part of retail (especially small) businesses; that's simply cash flow, without which small businesses (retailers typically operate on a very small profit margin) cannot stay in business.

It all gets back to that famous acronym, TANSTAAFL.  Ultimately, nothing is free; everything has to be paid for by somebody.  And the more you can reduce the propensity of, shall we say, compulsory third-party payment, the healthier, more sensible, more rational, more virtuous, and more prosperous civil society is going to be.

It would also be more Republican, which is why that will never be tolerated or permitted.  Reality can't be allowed to trump compulsory delusional fantasy, after all.