Friday, November 09, 2007

What Happened To Market Economy?


A market economy (also called a free market economy or a free enterprise economy) is an economic system in which the production and distribution of goods and services take place through the mechanism of free markets guided by a free price system. In a market economy, businesses and consumers decide of their own volition what they will purchase and produce. Technically this means that the producer gets to decide what to produce, how much to produce, what to charge customers for those goods, what to pay employees, etc., and not the government. These decisions in a free-market economy are influenced by the pressures of competition, supply, and demand. This is often contrasted with a planned economy, in which a central government decides what will be produced and in what quantities.
In a recent email exchange, this appeared:
Oil ShockWave Underscores Dangers of U.S. Oil Dependence

Doug Mills/The New York Times

Last Thursday, Securing America's Future Energy (SAFE) conducted Oil ShockWave, a multimedia 'war game' designed to explore how the U.S. cabinet might react to a major interruption of the world's oil supply.

In the simulation, unrest in Azerbaijan and Nigeria and souring relations with Iran combined to eliminate approximately 1% of world oil production, causing prices to top $160 per barrel. Designed by finance, energy, and national security experts, the scenario illuminated the fragility of the global oil market. With spare supply capacity almost non-existent and global demand continuing to surge, relatively small disturbances can inflict tremendous damage upon oil consumers.

This critical finding comes as Congress is debating whether to enact legislation that meaningfully reduces U.S. oil dependence.

The consequences of the oil-market disruptions in the simulation included gas prices in excess of $5.00 per gallon, two quarters of negative economic growth, double-digit inflation, and dramatically slower job growth. As the participants grappled with the crises, these economic outcomes severely constrained U.S. foreign policy options.
Another part of the email linked to a page which linked to this bit of brilliance:
"The Commission proposes that the nation
devote the resources generated by the sale of
greenhouse gas emissions permits to enhance the
development and deployment of improved energy
technologies. The approximately $36 billion that
Commission analysis indicates will be generated over ten
years by the proposed greenhouse gas tradeable-permits
program — most of which will come from auctioning a
small portion of the overall permit pool — will offset the
specific additional public investments summarized below."

My reaction and email response was:
I was immediately distressed that the red herring of global warming (now referred to as climate change) was so prominently featured. But this is a political document, so I'll attribute the wasted ink to that.

I concur that coal is the most maligned and ignored resource in the energy equation for the future and have posted many times on the subject.

Nuclear power is a must, but because France generates 80% of their electricity from nuclear power, we must abstain. Besides all of France is a nuclear waste dead zone, just as Greenpeace or Envirofart or whatever would like us to believe will happen here.

Expanding our natural gas supply is not only important, but doable. See my post : link

Renewable energy means different things to different regions. I like to think of hydroelectric power as indefinitely renewable and another target of envirofarts. Waste wood is being used in very clean burning wood furnaces wherever trees are abundant and lumber processing is common. Wind power is great off Cape Cod, but the Kennedys have blocked that.

But this makes me want to puke:

"The Commission proposes that the nation
devote the resources generated by the sale of
greenhouse gas emissions permits...."


Think of all the past and famous scams and that tops all of them.

I'm sorry, but we have manipulators in government and business who are lining up to create one crisis after another by restricting resource development on one hand and taxing the hell out of those resources on the other. Whatever happened to the good old marketplace of supply and demand? Hillary, bless her heart, wants to save us all by mandating we ride pedal-powered cars. Let the marketplace dictate what's going to work and what's going to be purchased. Oh, I'm sorry, I reverted back to capitalism and free market philosophy again. Why the hell does Hillary think that people are switching from trucks and heavy SUVs to smaller cars and lighter weight crossovers and hybrids? Because she is mandating it?

It's the government and envirofarts that have prevented us from developing our resources [not enough oil?... read this] and that has manufactured an "energy crisis." Now they want to solve the "crisis" by penalizing everyone. Karl would be very happy. The ironic thing is that big business is lining up their bandwagons to get on the envirogravytrain. BP is developing alternative energy sources. Ethanol's 30% less energy per gallon will improve fleet mpg to 40 by 2020... and make a mess out of the food market.

How is all of this shit making things better? Oh, and then the UN's Stern wants the U.S. and Europe to pay China and India's carbon fees. [HT: Benny Peiser] I'm going nuclear!
Market economy? No, Command economy!

P.S. I got this response to my tirade:

Is there a real crude oil crisis? Probably so, based solely on increasing global demand at some point. I've give them that much. As for the rest, well...they'll have to prove it first. That hasn't happened. Not once. Throw in global politics and conflicts, and the facts get lost in the shuffle.

The biggest problem may be the continuing decline in the U.S. Dollar. Once crude oil hits $120-150bbl, we should see a quick runup in interest rates as global investors dump their U.S. federal securities and wait for higher interest bearing payouts. At that point, we should begin to feel the first wave of hyperinflation in the USA. I have no doubt now that crude will cruise up to $120bbl no later than Spring 2008...maybe Summer 2008. If the Dollar pricing continues on above that level, we're probably in big trouble. My thoughts, anyway.

There is no question that the bulk of the crude oil problem is hype and young broker investors pushing up the price per barrel. Supply isn't an immediate problem. Yet, I find it interesting that non-OPEC production appears to have declined. Where did it go? Were the yields that small?

... "bulk of the crude oil problem" ??? Good pun!


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CO2 Cap and Trade

There is always an easy solution to every human problem—neat, plausible, and wrong.
Henry Louis Mencken (1880–1956)
“The Divine Afflatus,” A Mencken Chrestomathy, chapter 25, p. 443 (1949)
... and one could add "not all human problems really are."
It was beautiful and simple, as truly great swindles are.
- O. Henry
... The Government is on course for an embarrassing showdown with the European Union, business groups and environmental charities after refusing to guarantee that billions of pounds of revenue it stands to earn from carbon-permit trading will be spent on combating climate change.
The Independent (UK)

Tracking Interest Rates

Tracking Interest Rates


SEARCH BLOG: FEDERAL RESERVE for full versions... or use the Blog Archive pulldown menu.

February 3, 2006
Go back to 1999-2000 and see what the Fed did. They are following the same pattern for 2005-06. If it ain't broke, the Fed will fix it... and good!
August 29, 2006 The Federal Reserve always acts on old information... and is the only cause of U.S. recessions.
December 5, 2006 Last spring I wrote about what I saw to be a sharp downturn in the economy in the "rustbelt" states, particularly Michigan.
March 28, 2007
The Federal Reserve sees no need to cut interest rates in the light of adverse recent economic data, Ben Bernanke said on Wednesday.
The Fed chairman said ”to date, the incoming data have supported the view that the current stance of policy is likely to foster sustainable economic growth and a gradual ebbing in core inflation”.

July 21, 2007 My guess is that if there is an interest rate change, a cut is more likely than an increase. The key variables to be watching at this point are real estate prices and the inventory of unsold homes.
August 11, 2007 I suspect that within 6 months the Federal Reserve will be forced to lower interest rates before housing becomes a black hole.
September 11, 2007 It only means that the overall process has flaws guaranteeing it will be slow in responding to changes in the economy... and tend to over-react as a result.
September 18, 2007 I think a 4% rate is really what is needed to turn the economy back on the right course. The rate may not get there, but more cuts will be needed with employment rates down and foreclosure rates up.
October 25, 2007 How long will it be before I will be able to write: "The Federal Reserve lowered its lending rate to 4% in response to the collapse of the U.S. housing market and massive numbers of foreclosures that threaten the banking and mortgage sectors."
"Should the elevated turbulence persist, it would increase the possibility of further tightening in financial conditions for households and businesses," he said.

"Uncertainties about the economic outlook are unusually high right now," he said. "These uncertainties require flexible and pragmatic policymaking -- nimble is the adjective I used a few weeks ago."

December 11, 2007 Somehow the Fed misses the obvious.
[Image from:]
December 13, 2007 [from The Christian Science Monitor]
"The odds of a recession are now above 50 percent," says Mark Zandi, chief economist at Moody's "We are right on the edge of a recession in part because of the Fed's reluctance to reduce interest rates more aggressively." [see my comments of September 11]
January 7, 2008 The real problem now is that consumers can't rescue the economy and manufacturing, which is already weakening, will continue to weaken. We've gutted the forces that could avoid a downturn. The question is not whether there will be a recession, but can it be dampened sufficiently so that it is very short.
January 11, 2008 This is death by a thousand cuts.
January 13, 2008 [N.Y. Times]
“The question is not whether we will have a recession, but how deep and prolonged it will be,” said David Rosenberg, the chief North American economist at Merrill Lynch. “Even if the Fed’s moves are going to work, it will not show up until the later part of 2008 or 2009.
January 17, 2008 A few days ago, Anna Schwartz, nonagenarian economist, implicated the Federal Reserve as the cause of the present lending crisis [from the Telegraph - UK]:
The high priestess of US monetarism - a revered figure at the Fed - says the central bank is itself the chief cause of the credit bubble, and now seems stunned as the consequences of its own actions engulf the financial system. "The new group at the Fed is not equal to the problem that faces it," she says, daring to utter a thought that fellow critics mostly utter sotto voce.
January 22, 2008 The cut has become infected and a limb is in danger. Ben Bernanke is panicking and the Fed has its emergency triage team cutting rates... this time by 3/4%. ...

What should the Federal Reserve do now? Step back... and don't be so anxious to raise rates at the first sign of economic improvement.
Individuals and businesses need stability in their financial cost structures so that they can plan effectively and keep their ships afloat. Wildly fluctuating rates... regardless of what the absolute levels are... create problems. Either too much spending or too much fear. It's just not that difficult to comprehend. Why has it been so difficult for the Fed?

About Me

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Michigan, United States
Air Force (SAC) captain 1968-72. Retired after 35 years of business and logistical planning, including running a small business. Two sons with advanced degrees; one with a business and pre-law degree. Beautiful wife who has put up with me for 4 decades. Education: B.A. (Sociology major; minors in philosopy, English literature, and German) M.S. Operations Management (like a mixture of an MBA with logistical planning)