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Sunday, May 04, 2008

Congress: We'll Save You - Chapter 2

SEARCH BLOG: POLITICS and AUTOMOBILES

I received this email the other day:

Friends,

Yesterday I unveiled new legislation that will help us grow the new Michigan economy.

I've called it the "New BIG THREE Act" because it's all about new jobs, new investments and new alternative fuels. It's about our hometown Michigan industry, Michigan jobs and Michigan's economic future.

My plan comes in direct response to the federal governments new corporate average fuel economy (CAFE) rules, which are an $85 billion unfunded mandate on the auto industry - and just the auto industry.

My bill will help match new federal government actions with the federal government's CAFE demands.

Our auto industry has been struggling and is working on successfully completing their turn-around plans. What they need, and what our economy needs, is a productive plan from Washington, not just an expensive mandate.

By investing in alternative fuel technology, we will not only create high-paying jobs, but also help families deal with rising gas prices. Like you, I can't believe the price we're paying at the pump. Having more fuel-efficient cars available will be one great way to help ease that pain. It will also help make us safer, by reducing our dependence on Middle East oil.

I've included some of the media coverage of my bill below. I'll hope you'll take a look at it.

You can read the bill online here, and you can learn more about my legislation to grow the new Michigan economy here.

I'm going to keep fighting everyday for new Michigan jobs and a stronger Michigan economy for our families.

Sincerely,

Congressman Joe Knollenberg

Joe Knollenberg talks to WJR's Paul W. Smith about new legislation designed to help the auto industry. Listen here.

The Oakland Press: Knollenberg unveils 'Big' plan

Detroit Free Press: Knollenberg aims to help automakers and economy

The Associated Press: U.S. Rep. Joe Knollenberg proposes auto industry fuel economy plan

WWJ News Radio 950: Congressman: Help For Automakers

Detroit News: Knollenberg proposes $1.2 Billion aid for Big 3
I sent this to Rep. Knollenberg:
Dear Representative Knollenberg:

Your efforts to assist the automobile industry are commendable; however, the federal government tends to create both obstacles and market dislocations whenever it attempts to force the markets in specific directions.

I agree that whenever the federal government mandates technological changes, it should either fund the efforts required to meet the mandates or its should provide an implementable solution. In the case of mileage mandates, the government's plan is: 1) we are here; 2) a miracle happens; 3) the mandates are met.

But well beyond the technical issues are the marketplace issues. For example, if the only feasible solutions for achieving 2015 mandates for CAFE are small hybrid cars or small diesel-powered cars, the government is, in effect, directing automobile manufacturers to provide a more costly, less beneficial product to its customers... and take the blame for the reduction of choices. If, for example, the automobile companies do plan for higher volumes of hybrid cars or diesel-powered cars, will the government guarantee that the supply of nickel and lanthanum needed to make the nickel-metal hydride batteries will be sufficient to cover a volume increase of 5-10 times current volumes? Will the government guarantee that a sufficient supply of clean, low-sulfur diesel fuel will be available at a price competitive with gasoline so that European diesels can be used ... presuming the government allows their use?

That's the trouble with government mandates. All of the risk is borne by the manufacturers and none by the government.

It is well and good to say the government should be responsible, but history shows that government simply sets the rules and lets everyone else deal with the consequences. You may recall those early 1980 cars that kept stalling because the government mandated the use of engine control modules before they were adequately tested and a quality supply was available. What happens when the government realizes that significant increases in nickel mining will pose environmental hazards and tells automobile companies to use lithium-ion batteries that have a propensity to explode?

The government should get out of the mandate business! Has anyone in the government actually followed how the marketplace is reacting to higher-priced fuel? Has anyone in the government actually figured out that denying oil and natural gas drilling permits requires the U.S. to import increasing amounts of those commodities resulting in a greater trade deficit and a weakened strategic position? Has anyone in the government studied the concept of a free market?

Thank you for your efforts to help the automobile industry. The greatest help would be to have the government go on extended vacation.

Sincerely,
Bruce Hall
I didn't point out the obvious: if the mileage mandates are going to cost $85 billion and the aid proposed by Rep. Knollenberg amounts to $4.7 billion [research and tax credits], that leaves about $80 billion to be funded by... the customers who buy vehicles... you, brothers and sisters!

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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

FEDERAL RESERVE & HOUSING

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."
November 28, 2007 FED VICE CHAIRMAN DONALD KOHN
"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."
http://www.reuters.com/

December 11, 2007 Somehow the Fed misses the obvious.
fed_rate_moves_425_small.gif
[Image from: CNNMoney.com]
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 Economy.com. "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)