OUR LIQUIDITY TRAP

"A liquidity trap is a situation described in Keynesian economics in which injections of cash into the private banking system by a central bank fail to lower interest rates and hence to stimulate economic growth. A liquidity trap is caused when people hoard cash because they expect an adverse event such as deflation, insufficient aggregate demand, or war. Signature characteristics of a liquidity trap are short-term interest rates that are near zero and fluctuations in the monetary base that fail to translate into fluctuations in general price levels. http://en.wikipedia.org/wiki/Liquidity_trap

How did we get here? Excessive leveraging by the commercial and private sectors. Because of large Federal budget deficits, I had expected runaway inflation since 2001. Even now with Federal deficits shockingly high, I have read that the total debt (government plus companies plus private) in the country is decreasing because of rapid company and private debt deleveraging. I didn't recognize this and didn't understand why runaway inflation was not coming. Eventually I came to recognize that Federal deficits will have little effect on inflation because we are in a liquidity trap. In fact most of the developed world seems to be in a liquidity trap. Before that I invested in bonds and CDs nervously expecting their value to be consumed by inflation. I had avoided commercial bonds and preferred stocks my whole investing career of more than 50 years because of inflation fears. Once I became convinced that Federal pumping of money into the economy would have little effect, my fears were overcome and I entered all three investments with some gusto. At first I bought commercial bonds and preferred stocks timidly in the last decade, but as time went on I have become more bold. So far, so good. In fact our preferred stocks are often all above par,and some have gotten so far above par that I have sold a few for capital gains. (For preferred stock investing see: http://stopcontinentaldrift.blogspot.com/2011/11/preferred-stock-investing.html)

A problem with liquidity traps is that no one seems to know how to get out of them. Of course, I believe that at some time, some year, we will get out of it and have real, maybe even runaway, inflation, but I have no idea when that will be. I certainly don't have the feeling that we are close to it. In fact, the more austere we become in trying to lower our rapidly growing national debt, the more the liquidity trap probably will be prolonged. There are some encouraging signs, however, that our economy is slowly recovering, but I think that serious and runaway inflation is still some years off. When the company and private deleveraging is complete, then the situation may reverse?

IS NEWT GINGRICH THE ST. PAUL OF THE REPUBLICAN PARTY?

We may recall that St. Paul started out as a persecutor of the Jews, but in traveling across the desert, he had what was probably a sun stroke and also had an epiphany. After an extended period of recovery during which he could not speak, he became "no sinner like a converted sinner" and with fervor, laid the foundation for Christianity. A number of his letters eventually became part of what is now the Bible. He was very convincing and converted even jailers and kings. St. Paul is the great redemption story with his earlier transgressions against the Jews being forgiven, though he remained unforgiven by some in his day who even threatened his life.

Newt Gringrich is running for president even though he is carrying a heavy load. He had to resign his speakership of the House and pay back a lot of money. There are his well known serial monogamy marriages with the "open marriage" claim. He claims to be a Reagan Republican though when Reagan was president he was quite critical of him.* In politics, Gingrich has flip flopped on many issues, probably as much as Romney.** Gingrich admits that he isn't proud of some things he did earlier in life, but he has reformed and, in South Carolina at least, the religious right and no doubt others forgave him, giving him a big victory. His bellicose response in a debate concerning open marriage was lapped up by the audience and is given much credit for his win. It remains to be seen just how much carryover this victory will have, but it looks like Gingrich is a great redemption story in the Republican Party.

* http://www.mittromney.com/news/press/2012/01/former-reagan-offical-elliot-abrams-gingrich-was-“dead-wrong”-criticisms-reagan

** http://nymag.com/daily/intel/2011/11/newt-gingrich-flip-flops.html

WHAT'S IN IT FOR ME?

The broadcast media seem to have only heard the part of Obama's State Of The Union speech dealing with fairness on taxes. Briefly they said he missed an important thing of "What's In It For Me?" for the average voter. While tax fairness for both individuals and business was an important part; however, he did deal with the question "What's in it for me?" He spent a good deal of the speech talking about in sourcing of jobs and challenging business to find ways of finding more ways to increase jobs in the U.S. He also commented on his pledge to double exports in five years and said it was ahead of schedule. All this dealt with jobs, seemingly missed by the news media. Was it missed by the workers also?

It has always seemed unfair to me that unearned income (e.g. capital gains, dividends, carried interest, etc.) gets tax breaks, and the burden of taxes comes on earned income. I've always felt it should be the other way around. But he who has the gold rules, as they say on a twist of the Golden Rule, so the wealthy have skewed the the tax code in their favor and I'm sure most wealthy feel they deserve it.

U.S.: A CENTER RIGHT NATION?

One frequently hears the comment that the U.S. is a center right nation. Is it true? Consider the following, Obama won with 53% of the vote in 2008. But when Democrats win, 53% is just about as large as the wins get with a few exceptions (Lyndon Johnson did get 61.1% of the popular vote in 1964 and Franklin Roosevelt won 60.8% of the vote in 1936).*

There are no wins since Roosevelt like the Republicans had against George McGovern in 1972 where he won only Massachusetts and the District of Columbia, even though he was a war hero in WW-II and opposed the Vietnam War. Nixon won with 60.7% of the popular vote and 93.3% of the electoral vote, even though he resigned the presidency before his term ended. Ronald Reagan won 58.8% of the popular vote against Walter Mondale, also a veteran, and 525 of the electoral vote for 95.2% of the electoral vote. Mondale only won Minnesota and the District of Columbia. The Electoral college often magnifies a president's win.

These Republican landslides since Roosevelt suggest that America indeed is at least a center right country. Still as I written before, in the end liberalism wins in this country (http://stopcontinentaldrift.blogspot.com/2009/12/in-end-liberalism-wins.html).

* http://en.wikipedia.org/wiki/List_of_landslide_victories

ITEMS WITH THE MOST HITS & MY FAVORITES

Reunite Gondwanland was started in November of 2009 and grew to 114 items by the end of 2011. It is a eclectic blog with sections on Biography, Commentary (General, Economics and Investing), Fiction, Health Care, Oil and Gas, Politics, Photography, and Poetry (General and Space Poems). A table of contents can be found at: http://stopcontinentaldrift.blogspot.com/2011/07/reunite-gondwanaland-2009-june-2011.html. Though this Table has a June date it is kept up to date. As of the end of 2011 there was a total of 5,965 hits.

The items with the most hits are: You Are So Lucky (Biographical) with 222 hits [http://stopcontinentaldrift.blogspot.com/2009/11/you-are-so-lucky.html] and Muammar Qadaffi And Me (Biographical) with 212 hits [http://stopcontinentaldrift.blogspot.com/2010/12/muammar-qaddafi-and-me-biographical.html]. There are six others with 100 to 199 hits , none of which are biographical. The former was no doubt popular because of the Great Japanese Earthquake of 2011 and deals with my first three days in Japan in 1965. The latter was popular because of the overthrow of the Libyan dictator Qadaffi.

Each piece I have written is like a child and I love them all, but it is common that some children are loved more than others. My personal favorites are Effectiveness Of Taxes [http://stopcontinentaldrift.blogspot.com/2010/05/effectiveness-of-taxes.html] with less than 100 hits and Basics of Bureaucracy [http://stopcontinentaldrift.blogspot.com/2011/07/basics-of-bureaucracy.html] with 114 hits. In the former, I point out why decreasing taxes on individuals is an inefficient way to stimulate the economy. I liked this so much that I refer to it in three other pieces. Alas the reading public did not agree as to its great value. In the latter that was written many years ago, I give some real rules of dealing with bureaucrats in a humorous fashion.

Let me give two Honorable Mentions. I wouldn't say this is a favorite of mine, but it can be important to some, i.e. Preferred Stock Investing with 131 hits [http://stopcontinentaldrift.blogspot.com/2011/11/preferred-stock-investing.html]. I have invested for about 60 years, but never got involved in preferred stocks until the last decade. I would also like to mention one poem Upon the Second Anniversary Of Apollo 11, the first landing on the Moon [http://stopcontinentaldrift.blogspot.com/2010/01/upon-second-anniversary-of-apollo-11.html]. Normally a couplet or more just pops into my mind and I construct a poem around it. The second anniversary of Apollo Eleven, however, was little noticed which I thought was terrible so this was the first time I sat down to compose a poem from scratch.