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Economics Made Easy

New boss same as the old boss

So Kelowna has selected a new city council and we can look forward to “change”. It amazes me how politicians cling to the word change when they are conducting election campaigns. Politics is as distant from the word “change” as the Mafia is from the word “peace”. So one of the first official acts of our new, shiny, going to bring about change, power to the people city council is……wait for it…..A Tax Increase!! Oh what a shocker. I never saw that one coming. Of course we have to finance the building of a $48 million new police station. Why not? The rest of the western world is militarizing their police force, why not Kelowna? Of course this is being forced upon us by the federal government who know that Canadians are soon going to rebel against the direction this county is taking as well as a global financial meltdown. We’ve got to keep those citizens in line.

The entire percentage based taxation system determined by the value of the property is corrupt to begin with. If property values increase, it does not mean that garbage collection costs increase. This is a pure windfall for the government. Only a government could come up with this scam. This puts Bernie Madoff to shame. Let’s not forget the fact that property values have doubled and in some cases tripled in the past 15 years in Kelowna. As a result, tax revenues have double and tripled. So what happened to all of this additional money stolen from the property owners? To add salt to the wound, property taxes have also increased every one of those past 15 years. What the hell is going on here? I’m looking at my property assessment notice and it shows that the value of my property has increased by 14% over the past year. So without a tax hike I will be paying more taxes already. So I’m being double taxed as city council has approved a 3.41% additional tax increase. Thanks a million new city council. You guys are a great improvement from the last mob of tax grabbers.



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America has fallen

It is quite surprising that main stream media has paid little attention to this fact, but as of December 4th of 2014 the US economy is no longer the largest economy in the world. The title of “World’s Leading Economic Powerhouse” now belongs to China. Not since the presidency of Ulysses S. Grant (1869-1877) over 140 years ago has any other country in the world wore this championship belt. The US now runs second with a GDP of $17.4 trillion to that of China with a GDP of $17.6 trillion. GDP is essentially an economic measure of total production of a country. This changing of the economic guard is even more astounding when you consider that back in the year 2000, the US had a GDP of nearly three times that of China. In a mere 14 years this lead has been completely erased.

With all news of late you must do some critical thinking and research of your own. One major contributing factor to the Chinese economy is the present building of a massive amount of government funded infrastructure. The communist Chinese government is building entire cities in the middle of nowhere. You really need to check this out on YouTube. There are empty cities all over China that have been built within the last few years. These cities that are built to accommodate roughly one million people per city essentially sit empty today. At present, China is building on average 10 of these new cities every year. They are modern ghost towns. It’s really quite eerie. Regardless, this construction is included in China’s economic activity.

Now China is not the only country that massages its GDP numbers, the US is also guilty of doing this. The difference is in the US the government has simply been manufacturing debt. Both are equally as dangerous and misleading, but at least China will have some tangible assets as a result of its spending.

Not to worry though, the US is still the champion when it comes to overall debt. Just a few weeks ago, the US pushed its debt ceiling through the $18 trillion mark, allowing the US to maintain its heavyweight title of the largest debtor nation in the history of the world. China, with almost five times the population of the US, has a national debt of a mere $5 trillion.

Make no mistake; we are living in a period of change. Change is consistent throughout human history. At one point in history it was the Roman Empire that ruled, that changed hands to the British, who then handed the title over to the US. It is now the US’ turn to pass the baton. On a personal note, I have a great deal of trepidation with the fact that a communist government with a deplorable history of human rights is taking control of the helm. That being said, except for the communist label, the same could be said for the previous empires.

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Long live gold

There is a little known landmark decision coming up in Switzerland on November 30th of this year which could affect the currency market around the globe. It could actually turn the financial world on its head. The people of Switzerland (notice I said people, not government or central bank, but “people”) will vote (notice I said “vote” not told or forced, but “vote”) whether to back their currency by 20% with gold. This will be the biggest event in sound money history since Nixon took the world off of the gold standard in 1971 to finance the Vietnam War. I think it’s important to note here that in the so called “Land of the Free” only one person made this decision to come off of a gold standard for the entire country and world. While in Switzerland, the people will make the decision about the future of their currency. America, you should be taking notes on how democracy works.

Switzerland may be a small nation, but it is a nation proud of its independence and its history of standing up to tyranny. Switzerland has garnered the reputation of being a “tax haven”. But realistically a tax haven is simply a term for a country that allows people to keep more of their own money than the US or EU does, and doesn’t attempt to plunder either its citizens or its foreign account-holders. If a 'Yes' vote is achieved on Sunday then the Swiss franc will be the only currency on the face of the planet that has any value whatsoever. At the end of the day all other currencies on the globe, including the Canadian dollar, are simply a lie and have absolutely no intrinsic value at all. Actually, let me correct myself. The true value of all other currencies is simply the BTU (British Thermal Units) of heat that can be derived from burning the paper. If a 'Yes' vote is successful this will be a return to sound money and will limit the amount of currency that the government can just print out of thin air. This gives power back to the people and places handcuffs on government spending and will halt the destruction of the purchasing power of the Swiss franc.

Now many times over the past few years there has been opportunity for the right thing to be done and yet the wrong thing happens. Canada had a choice as to whether or not to bomb Iraq. The wrong choice was made and we have gone and invaded that country. The US Federal Reserve had a choice to deal with the global debt situation and stop printing money out of thin air. They made the wrong choice and kept printing money. US Congress had a choice to stop raising the debt ceiling in the US. The wrong choice was made and the debt ceiling was shattered. As much as I hope that the Swiss people choose to reinstate gold as backing for its currency, I think somehow the powers that be will manipulate the vote or demonize gold and scare the people out of doing the right thing. That being said, at least this issue is on the table, the right thing is being offered as an option, and it shows that people are waking up to the criminality of central bank currency manipulation and destruction. The winds of change are a blown’.



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Got currency broker?

This week I want to talk about the incredible volatility that we have seen in the currency market over the past few months. The reason that we are seeing such drastic moves in the currency market is because we are presently in the midst of a global currency war. I have written about this in a past article on a more macro-economic scale. http://www.castanet.net/news/Economics-Made-Easy/76521/Currency-wars Today, I want to look at the impact of currency volatility on a more micro-economic scale.

Firstly, what is a currency war? Currency Wars inevitably take place in an environment of insufficient global growth. This is exactly the situation that the global economy is in today. Simply defined; a Currency War is the effort of one country to improve its economy by devaluing its currency in an effort to increase exports. Essentially, governments increase the supply of their domestic currency on the international currency market which puts downward pressure on the currency and makes domestic exports more attractive to international buyers. As I’ve stated before, this is a moronic process conducted by governments that fail to see the big picture. Increased exports result in increased GDP which allows governments to stand up and say, “Hey, look at our GDP increase. We are a good government, we are growing the economy.” However, decreased value of the currency is highly inflationary and devastating to the citizens of that country.

The graph represents the price to purchase US dollars with Canadian dollars over the past three months. We have seen a six cent depreciation in the Canadian dollar versus the US in that period. For those unfamiliar with the currency market this is not only extreme, but it is becoming the norm. So who cares about six cents? Well let’s quantify this with respect to a Canadian importer and exporter. Let’s say a Canadian manufacturer bought $1 million worth of US export in August of this year at 1.0800. His Canadian total would be $1,080,000. If that same importer bought that same product just three months later in November of this year at an exchange rate of 1.1400 the Canadian total would be $1,140,000. That is a $60,000 increase in three months for exactly the same product. Suddenly six cents becomes significant. The same would be true for Canadian exporters receiving US dollars. The only difference is that they would incur a $60,000 gain. Thus this volatility can be both extremely dangerous and profitable at the same time: it just depends which side of the fence you are on.

Currency professionals have tools at their disposal to both protect from this volatility as well as take advantage of it. This ain’t your father’s currency market. Unlike any other time in history it is essential for companies and individuals doing business outside of Canada to be working with a currency pro. And where would one find a currency pro in Kelowna? Nudge, nudge, hint, hint - just take a look at the right side of this column for contact information. Keep your stick on the ice and your head up. As an importer or exporter if you are not paying extreme attention to the currency market, you may find yourself leaving the game in a stretcher.



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