Chingo De Dinero

What came first, the chicken or the egg?  The difference between Keynes and Say is about what same, what drive the economy supply or demand.  If you do not know these two guys, I recommend looking them up real quick, it will shed some light on what the government is trying to do now.

For the last few decades the Keynes argument has been followed, increase money supplier, increase demand, speed up the economy.  Or do the opposite to slow down the economy.  This is what the government does when it lowers or raises the interest rates (a certain interest rate).  It is also the goal of the increase in infustructure speeding which is being talked about now.  In the past this has worked pretty well to control changes in the business cycle.  Hopefully since it is clear that this is what the government will use now, lets hope it works in the future too.

The other way of thinking is from Say, which thinks that supply is the more important factor.  When the economy slows down, it is not due to a lack of demand, but a shift in what is supplied.  In other words, the wrong items are being supplied, and a shift is taking place to stop producing the current items, and produce the other items.  If this is true, we are pretty much at full employeement at all times, only have structural unemployement which involves moving to different jobs, with different skill sets.  It this correct, could be, there are lots of places hiring for the people with the right skills, even as unemployement grows.  You will end up getting in the descussion what is full-employement.  We all know it should not be 0%, there will always be some unemployeement, but I think it is agreed that it is not 10%.  Also, I would say the number is moving, at some times, the shift in production is low, at others, it is high, I think between 3 and 8 is a reasonable range.  If this is true, the government is doing the wrong thing, instead of working to increase demand in certain areas, let production shift naturally, and move towards equalibrium.  Shift production artificially will only result in additional production of goods where they market does not think they should be produced, which is really the will of the people in a free market.  This will result in a decrease in long-term prosperity, with prosperity being people having the maximum amount of utility.

Not to get to deep, it is important to know these two ways of thinking to better understand what the government is trying to do currently.  We many never know for sure if demand drives supply or if supply drives demand, but it is something good to think about so we can try to limit our impact on long-term productivity as much as possible.  By the way, I would also speculate that sometimes demand drives, and other times supply drives…it is a social science.

If you want to make a lot of money in the short term, bet against the Argentinian Peso.

Here is why….

• The country is pretty much socialistic in spite of the mass privatization wave recently.

• One of the main drivers of government revenue, tax on agriculture is going to get hurt very badly with the reduction in grain prices.

• The last default is hanging over their heads, so getting financing for the government is pretty much impossible.

• The government has been spending some of its accumulated reserves defending the currency so far.

All these added up show signs that something will have to happen over the medium term.  In the short, you can see the action to try to take over pension funds as a sign the government is getting desperate for funds.  If this does not work, when revenue from agriculture taxes do not come in, the government will have no choice but to default.  I hate this happens, but if you spend more than you make, eventually you will have to face up to the consequences.

The wildcard for me right now is Venezuela…they are closely aligned, but my guess is will falling oil prices, Venezuela has its own problems, and will have to let its friend fight for itself.

Also, will the IMF step in.  Many South American countries are not the happiest with the IMF, Argentina in particular after the privatization wave, but if they do not come in to help, I have no idea what will happen.

There has already been depreciation in the currency vs the dollar, although not as bad a Brazil, which leads me to think without government support, it would be much worse.  Once the government is not able to support the currency, get ready for a quick and far fall!!!

If you have looked at the currency markets lately, it looks like the Dollar and Yen are really kicking butt.  In all honesty, the actions the US Government are taking to help the economy is nothing more than printing money, and putting it in business’s pockets.  That being said, why is the dollar not getting slammed.  I guess it all comes down to relativity.  Although the US is in the dumps, Europe is worse off.  You do not know how happy I am to see this after the last few years of an appreciating Euro.

All that being said, who is doing even better is the Yen.  For years, the government has been keeping it artificially low, which reduces consumption and helps increase production (imports cost more exports are cheaper).  It is almost as if the company has been saving in some roundabout way.  If the government lets the Yen keep appreciating, it will be interesting to see how strong it gets.  Once that happens, there could be some major purchases coming for foreign companies.

Additionally, I keep wondering where China is in all of this.  The Yuan has been pretty steady for a while, after appreciating after the government let it float (somewhat float).  We hear so much about the dollar reserves and the government messing around in the markets…I wonder if they truely let it float, what it would do.  My guess is appreciate like crazy.  Even if they don’t let it appreciate vs the dollar, we are bound to see it stay the same.

All this being said, if you can figure out how to play it you could make a lot of money.  For me, I am looking for cash heavy businesses, trading at low valuations, which will not be majorly impacts if the world economy gets hurt.  This may seem like difficult criteria, but from what I see Chinese online gaming stocks fit this.

Maybe they won’t save the world, but they could sure help the economy.  First, let me start with what they are, HSA are a tax free savings account which can be used to pay for medical related cost.  High Deductible Health Plans are just like regular insurance, except much cheaper and with a higher deductible.  Using the two together, you can control the cost of insurance without sacrificing care.

Let me explain in a little more detail…the idea of health insurance is to protect you from the high cost of low occurrence activities, sure as a coma, or life threatening disease.  But, because typical insurance has low deductibles, many people use it to pay for normal doctor visits, or prescription drugs that they do not necessarily need (fun debate to have with people who use them).  It also removes the cost of not taking care of ones self, which commonly leads to diabetes, which is extremely expensive.  Before I get too far off subject, all of these little cost, and lack of effort of people to stay in shape has lead to more use of the medical system, which has increased cost.  Because people are pooled together, they do not pay cost directly, so there is little individual incentive to take corrective action.

To fix this, the government has allowed for Health Savings accounts.  If a person wants to take responsibility for their health, is willing to pay for the low cost doctor visits or prescription drugs, and wants coverage for the high cost low occurrence accidents this is perfect.  How it works is you and your employer pay your respective portions for health insurance…but unlike typical insurance, not all of it goes to premiums.  Because of the High Deductible insurance, premiums are less (this is because it does not pay for many of the low dollar items which make up a large portion of typical insurance claims).  The savings from the low premiums is then deposited into a Health Savings Account, which can be used to pay for the low dollar items.  Any dollars left over roll from year to year, and can be used for anything although a penalty is levied if not used for health cost.

This situation produces a very favorable outcome, people take responsibility for their health, use less of the low cost items which add up to be a majority of health cost, and are insured for any high cost health issue.  Wow, people will be healthier and the cost will go down.  It is amazing what happens when people are given responsibility for their actions.

We are what we are, humans act how they act, right or wrong, there is no reason to be idealistic and think people will change.  We are selfish and do what is best for us.