Wednesday, April 27, 2005

Environmental Extremism - Energy Policy

It was interesting to hear the President of the United States agree with the energy strategy I detailed back in December.

Of course, I don't agree with everything he said. Some items such as growing corn to create ethanol to replace oil doesn't make much sense since it takes more energy resources to grow the corn than corn provides. But most of it was pretty good.

The cornerstone of the strategy must be expansion of nuclear power. That scares a lot of Americans. But the dangers of nuclear power are a carryover from old-style Soviet reactors... that were never in America. Three Mile Island is the only reacter in the U.S. that created a danger and that type of reactor is not what the President is talking about.

Go back and read some of my posts about energy including November 7. The president is right, too.

Friday, April 22, 2005

Faith, Belief, Truth: A new Pope

Everyone else has written about the new Pope, so I'll join in the fray.

Some general observations:

  • He is old; his reign will likely be short
  • He is German; he may live to be 100
  • He is said to be conservative; he likes his faith to be faithful to its beliefs and truths
  • He is seen as set in his ways; he likes the test of time instead of the opinions of the moment
  • He is resolute in his public stances; he has some nasty nicknames
  • He is new to the Office; give him a chance
Sometimes assuming a position of leadership changes people for the better or worse. Sometimes they don't change and people are disappointed. Sometimes they change and people are disappointed. You can please some of the people some of the time.

The popes of the 20th and early 21st centuries are significantly different from the popes of the 14th century. Why 14th century? That's about 700 years ago. Coincidentally, that's how much younger Islam is than Christianity. The popes back then were political beings as much as leaders of the Church. A lot of nasty stuff went on in the name of Christianity.

Today, the Church is fairly benign, unlike its Islamic counterpart. But, hey, a lot can change in 700 years. So, as we move toward the 28th century, we can expect a similar discussion among Muslims. Of course, they don't have a real counterpart to the Pope. But they kind of have "leaders" who interpret the Qur'an. Will it be the duty of Muslims to colonize distance planets and establish Islam among the "natives?" Or will the arguments center around whether genetically modified, irradiated, and molecularly-transformed pork is acceptable to eat?

Faith, belief, truth... heady stuff.

Thursday, April 21, 2005

Traffic lights get an F in efficiency

This headline appeared in the online version of USA Today in Yahoo.

The nation's traffic lights are woefully inefficient and outdated, forcing frustrated commuters to sit in congestion, waste gasoline and pollute the air, a traffic engineering group said Wednesday.

Two-thirds of 378 traffic agencies in 49 states don't actively monitor traffic lights, or they simply respond to problems as they occur, the Washington-based Institute of Transportation Engineers reported.
Below is a copy of a letter I sent to Michigan officials.

September 9, 2003

Governor Jennifer M. Granholm
P.O. Box 30013
Lansing, Michigan 48909

Sen. Gilda Z. Jacobs
Post Office Box 30036
Lansing, MI 48909-7536

The Road Commission for Oakland County
31001 Lahser Road
Beverly Hills, MI 48025

Wayne County Department of Public Services
Administration Division
415 Clifford St., 8th Floor
Detroit, MI 48226

Subject: Traffic Management

As an owner of two homes in Oakland County and a frequent traveler in Wayne County, it is apparent that there is an inconsistent effort to manage traffic flow on major surface roads. This has a significant economic impact within Southeast Michigan in time lost and fuel wasted.

As an example, Newburgh Road in Livonia between Five Mile Road and Eight Mile Road is posted at 40 mph. The signal progression is precisely the opposite of the posted speed so that traffic is halted at every light in that stretch. Other examples of signal progression that is idiosyncratic are M24 (Lapeer Road between Silver Bell Road and the Palace (sometimes, but not always, the world’s shortest green light southbound at Brown Road), and Telegraph Road between Maple Road and Long Lake Road.

There are many other high traffic locations that I could cite, but the point should be clear: lack of signal progression is wasteful and too frequent. Given the amount of taxes dedicated to roads, a simple improvement that would immediately benefit all would be attention to signal progression. It is not rocket science or even difficult mathematics. With computer control over signals, it should be nothing more than simple diligence. This is an opportunity to make a noticeable improvement in traffic at very little cost. And this improvement is totally independent of road construction costs.

By the way, the first time I brought this subject up was in the 1980s… and I haven’t seen a lot of improvement since.


Bruce Hall

To be fair, some improvements have been made, but overall, very little progress is evident. Let's presume that poorly timed lights and resulting congestion increase fuel consumption by 25%. At $2.25 per gallon, that means that you are spending about 50 cents or so of each gallon on the failure of traffic engineers, who are paid with your taxes, to do their jobs properly.

Wednesday, April 20, 2005

Excessive Spending - Surprised by inflation?

Reuters reports this morning:

RPT-US consumer prices up more than expected in March
Wed Apr 20, 2005 08:42 AM ET
WASHINGTON, April 20 (Reuters) - Another surge in energy prices helped push U.S. underlying inflation up at the sharpest rate in 2-1/2 years during March, the Labor Department said on Wednesday in a report likely to reignite concerns that inflation is on the rise.
Reuters also reported:
Treasury debt prices dived on Wednesday after a surprisingly (emphasis mine) large rise in core U.S. inflation suddenly revived fears the Federal Reserve might have to be more aggressive in raising interest rates.
My question is: why would anyone be surprised that prices have gone up? Let's review the basics again.
  • Import excessively versus export - value of dollar falls relative to other currencies
  • Dollar value falls - inflation happens
Now some will argue that oil prices have risen independently of the 30% or so devaluation of the dollar in the last two years. Uh-uh. A big "duh" to those people. If we didn't have the "outsourced", hugely excessive, trade imbalance, we could then reasonably expect to be surprised by oil prices going up as dramatically and renewed inflation pressures. But because demand for oil has been high worldwide, oil prices reflect both the demand pressures and the weakness of the dollar.

Still think they are unrelated? Remember those cheap airfares to Europe? They are a fond memory... and that's all. And as soon as China floats its currency, the real impact of the dollar devaluation will hit home.

It's payback time. The economy is sluggish, manufacturing is dormant, cities are struggling... and inflation is getting higher. I suspect the next 5-10 years will be a pretty tough adjustment for many.

Monday, April 18, 2005

Time runs out on Detroit mayor

It's not that none of us didn't know this:

Time: Mayor is among 3 worst
(From The Detroit News) Time magazine named Detroit Mayor Kwame Kilpatrick one of the nation's three worst big-city mayors in this week's issue, adding to the problems facing him in this mayoral election year.
The 5 Best Big-City Mayors

Chicago: Richard Daley
Atlanta: Shirley Franklin
Balitmore: Martin O'Malley
Denver: John Hickenlooper
New York: Michael Bloomberg

Thursday, April 14, 2005

Excessive Spending - Devaluation Equals Inflation

It doesn't matter that there is a trade imbalance... except...

Bank of Canada says further US$ fall needed
Just think it through:
  • Tangible goods in; dollars out
  • Too many dollars out; not enough U.S. goods or assets wanted
  • Value of dollar falls globally
  • Cost of global goods go up (e.g., oil)
  • Cost passed on to U.S. consumers (inflation)
  • Federal reserve raises interests rates to "combat" inflation
  • Economy falls
It just doesn't matter... right... except it's all related:
Downside risks to world economy have increased-Rato

Wednesday, April 13, 2005

DeNial is a river in DeTroit

Both the Detroit Free Press and The Detroit News had extensive coverage of Mayor Kwame Kilpatrick's proposed budget cuts. As the Free Press article stated:

The mayor said 754 city employees will lose their jobs, remaining city workers will be asked to take a 10-percent pay cut, and voters will be asked to approve a 2-percent tax on fast food.

And, for the first time in more than 20 years, firefighters will be cut. Kilpatrick said he will lay off 61, as well as trim 38 paramedics and dismiss the current police academy class.

The mayor's austerity plan is the latest blow to a city that already has endured closures and layoffs in the public and parochial school systems, church closings, the seemingly nonstop erosion of its tax base from fleeing businesses and residents and bad publicity from local and national media.

But Kilpatrick said the plan -- which faces stiff opposition from unions and, possibly, the City Council, which must approve it -- is the only hope to eliminate a projected $300-million deficit. He has proposed a $1.4-billion budget for the 2005-06 fiscal year, which begins July 1.

Not mentioned is that one of those jobs being cut will cover the cost of the Mayor's leasing of a big, bad Navigator SUV for his use (or a girlfriend perhaps?) that is being paid by the city.

Okay, he is finally trying to face reality (sort of), but it appears that a lot of the "movers and shakers" in DeTroit are also in DeNial.

For more on this: click here.

Tuesday, April 12, 2005

Excessive Spending - It doesn't matter

Repeat after me, "It doesn't matter."

No matter how big the trade (current account) deficit, it is good for our economy. Just ask the Cato Institute. Just ask conservative economists.
WRAPUP 1-U.S. trade gap widens to record $61 billion
Tue Apr 12, 2005 09:18 AM ET

"We are sucking in more products faster than we can sell abroad. It will reduce GDP growth a bit, but not a lot," said David Berson, chief economist at Fannie Mae.
So, just pay no attention to those numbers....
Stocks lose ground on trade data
Hey, I said pay no attention to those numbers!

Monday, April 11, 2005

Spring Fever

Michigan has its good points. Spring is one of them. I think it's because winter is so long that spring sort of plops right on top of you. Cold, cold, cold, cold, cold, warm....

The snow disappears and one week later it is sunny and 65. That's cool for Florida, but very pleasant for the thick-blooded northerners. Suddenly the air is filled with the sound of 2-cycle engines. Mold covered vegetation is spewed skyward in fine, invisible mists. Nasal passages swell, but not with pride. Eyes water over, but not with emotion. Spring has arrived... and so have the house-bound inhabitants. The furnace barely runs now; neither does the air-conditioner. The furnace, electronic air filter is useless. But utility bills plummet just in time to pay the taxes that are due.

Michigan does have its good points. Ah, springtime!

Saturday, April 09, 2005

Excessive Spending - Who do you believe?

Cato Institute - 1998

What matters to a nation's economic health is not the difference between exports and imports but the degree to which its citizens are free to trade and invest across international borders. When citizens are allowed to buy and sell goods, services, and investment assets freely in the international marketplace, a nation's productive resources will tend to flow to the best and highest use, raising the nation's overall standard of living.
U.S. Embassy Japan - 2005
A new study has found that the United States' growing trade deficit with China has had an increasingly negative impact on the U.S. economy, causing job losses that reach into the most technologically advanced industries in the manufacturing sector and affect every state, according to a January 11 press release by the U.S.-China Economic and Security Review Commission (USCC).οΎ‚
Dr. Don Boudreaux; George Mason University - 2005
The real problem is neither the nationality of America's creditors nor the size of the current-account deficit. It’s government irresponsibility -- irresponsibility that results in excessive government spending and sub-optimal means of financing this spending.
Alan Greenspan; Chairman, Federal Reserve - 2004
So far, foreigners are willing to lend the United States money to finance the current account imbalances, Greenspan pointed out. The worry, however, is that at some point foreigners might suddenly lose interest in holding dollar-denominated investments. That could cause foreigners to unload investments in U.S. stocks and bonds, sending their prices plunging and interest rates soaring.

The sliding value of the U.S. dollar has made some private economists more concerned about this potential risk.

"It seems persuasive that, given the size of the U.S. current account deficit, a diminished appetite for adding to dollar balances must occur at some point," Greenspan said. "But when, through what channels and from what level of the dollar? Regrettably, no answer to those questions is convincing," he said.
Dan Griswold; Cato Institue 2005

Indeed, in seven of the eight years in which the U.S. current account deficit "improved," the U.S. unemployment rate went up. And in 13 of the 16 years in which the current account deficit "worsened," the unemployment rate went down.

The year 2004 appears to fit the pattern comfortably. Through the first three quarters of the year — January through September 2004 — the U.S. current account deficit averaged 5.5% of GDP, a 0.6 percentage point increase compared to 2003.

That would place 2004 somewhere between a moderate and rapid growth of the current account deficit. Befitting the pattern, economic performance in 2004 was also moderate to robust.

Scott Brown, PhD; Raymond James Chief Economist

The Current Account Deficit

Capital inflows are the mirror image of the current account deficit, which is mostly the trade deficit in goods and services. The current account deficit approached 6% of GDP at the end of 2004. While this gap is large, it’s not particularly bad by itself. However, cumulative deficits have led to a sharp rise in the country’s external debt – now more than 25% of GDP. Servicing this debt will exert a larger drag on the U.S. economy as interest rates rise. In an effort to keep their currencies from appreciating, Asian central banks have purchased considerable amounts of dollar assets in the last couple of years. However, the pace has been unsustainable. A reduction in the pace of capital inflows would, all else equal, weaken the dollar and lead to higher long-term interest rates in the United States.

So, who do you believe?

Friday, April 08, 2005

Excessive Litigation - Jail 'em and sue 'em

Sometimes there need to be lawsuits.

The Detroit Free Press reports:

Amanda White, 25, one of 22 plaintiffs in the emerging class action lawsuit, ended up in the jail on Sept. 1, 2000, after her ex-boyfriend beat her up. She had a cracked rib and nine or 10 staples in the back of her head. After fleeing her boyfriend's house, White went to a hospital and then to jail for drunken driving.

In the jail intake area, White, her ribs hurting, said she asked, over and over, to use the rest room. She was told to wait. Finally, a female and two male officers handcuffed her, took her to the segregation area, and dragged her into the cell. Shoving her to the floor, one officer grabbed her hair and pressed his knee to the back of her head, dislodging one of the staples in her scalp.

The officers took off her clothes, including the rib brace she received at Covenant Hospital. White said she spent the next 6 hours, or more, in the segregation cell, naked, curled up and crying. The concrete felt like ice against her skin. Every 45 minutes or so, a correctional officer, usually a man, would look in but say nothing while she pleaded for her clothes. Finally, after a shift change, she got her clothes; she never did get the rib brace back.

There were two other instances described.

This requires more than a lawsuit. The officers who participated were guilty of criminal assault and should be prosecuted for it. They not only assaulted this woman, but completely violated their duty to protect a citizen from such behavior. They violated the public trust.

Jail 'em and sue 'em. It's too bad punishment can't be in kind.

Wednesday, April 06, 2005

Excessive Spending - Ignoring it doesn't make it go away

I've continued to disagree with Don Boudreaux of Cafe Hayek about the trade deficit (current account deficit).

Here is another voice:

PARIS, April 6 (Reuters) - Accumulation of dollar reserves by some Asian countries could spark a systemic foreign exchange crisis, the chief economist of the World Bank said in an interview to be published on Thursday.

Francois Bourguignon told the Les Echos newspaper it was too early to talk of a speculative bubble but that the United States had to cut its deficits to head off a crisis. The paper released the text of the interview ahead of publication.

"For the moment I would not speak of a speculative bubble but of the danger of a systemic crisis linked to the accumulation of foreign exchange reserves," Bourguignon told the paper.

"Some countries, particularly Asian ones, have no interest in the parities of major currencies being modified. As a result, they are financing the enormous American current account deficit.

"Today, the danger is that some dealers are starting to think they must change the rules of the game, play dollar depreciation and move towards the yen and the euro. That would confront us with a real systemic risk."

Cutting the U.S. deficit was key, Bourguignon said. The World Bank foresaw an orderly adjustment with the United States announcing a progressive reduction in its budget deficit accompanied by interest rate rises.

"Too drastic a programme would plunge the United States into recession," he said.

Recent pronouncements by Alan Greenspan, chairman of the U.S. Federal Reserve, suggested things were changing, he said, but "we are at the mercy of the nervousness of market dealers.

"Today, no catastrophe is anticipated in the coming six to nine months. So I am not yet totally pessimistic," Bourguignon added.

Dr. Boudreaux holds the position that it is spending by the government (government deficit), not the trade imbalance, that is the only real worry. I agree that huge deficits need to be addressed and the only real way is cutting government spending. However, that does not address the issue of the huge current account deficit which is a result of the U.S. importing tangible goods in exchange for dollars that have less and less credibility throughout the world.

Here it is in a nutshell:
Our government is in debt to its scalp (we are the government) and we have less and less in the way of tangible goods that the rest of the world wants. Where is our part of the value equation?

Monday, April 04, 2005

Excessive Spending

There are some economists who continue to argue that it is not the trade deficit (current account) that is the problem; it is the government spending that is the problem.

Let's take a look at the idea that it is the government's fault:

  • U.S. imports more than it exports so there is a large net outflow of U.S. dollars
  • Dollars held by foreigners are used as local currency or invested in the U.S. in some form
  • Dollars not used as local currency or invested in the U.S. private sector are invested in government notes to cover excessive government spending
  • This allows the government to go further into debt... and since we are all the government, we go further into debt
  • U.S. currency declines relative to foreign currency making imports more expensive and fixing the trade imbalance... and fueling inflation??? which the government tries to fix by increasing interest rates which slows the economy which leads to business slow down and increased unemployment which is ... wait that's a recession.
Now, what happens if the government doesn't spend too much and doesn't need money from foreigners who hold U.S. dollars:
  • U.S. businesses are caught in a bind that they are losing sales in the private sector to imported goods while government purchases of their products and services decrease because the government only takes in what it spends
  • U.S. government revenues fall as businesses and those employed by those businesses pay less taxes; businesses earn less and more people are laid off
  • The U.S. dollar gradually strengthens against foreign currency as total U.S. purchases of imported goods decrease thereby making domestic products more expensive relative to imports
  • U.S. businesses continue to decline or increase use of foreign-made components in their products leading to fewer Americans being employed... wait that's a recession!
Well, maybe it doesn't work that way. Perhaps sound fiscal management by the government leads to massive investment in the U.S. private sector by foreign holders of U.S. dollars. Perhaps the economy becomes robust as China, Japan and India gradually buy up the U.S. private sector keeping Americans employed by those foreign companies... wait, is that desirable... and do they actually have anything to do... and will they be paid a living wage for doing it?

I guess I will continue to hold the position that a huge, negative current account is a bad thing for the U.S. ... one way or another. Either the government becomes an even bigger debtor to foreign interests or the private sector becomes controlled by foreign interests ... whose interests may not necessarily be those of the American populous.

Perhaps a more balanced current account through management of imports might be desirable. We don't have to have import fees, but perhaps a retail surcharge on imported products might help blunt Americans appetite for all things imported... you can bring it in without hassle... you can wholesale it without hassle... but if your customers want to buy it, they have to help offset the economic problems caused by the massive trade imbalance those products bring... and concomitantly reduce the need for government borrowing.

Or... the government can repeal minimum wage, health and safety requirements, social security and associated programs and let wages and benefits fall to be competitive with the poorest workers of the world so that we can become the new China.


Friday, April 01, 2005

Excessive Litigation - Irony

On November 30, I wrote about how universities were refusing military recruiters access to students in the name of protecting "free speech"... certainly ironic.

Currently, the music industry... with Sony as one of the recording giants... is suing the makers of file-sharing software because that technology can be used to make illegal copies of copyright protected songs.

Tech firms such as Intel, their trade associations and groups of computer scientists, venture capitalists and intellectual-property experts have weighed in on the side of Grokster and StreamCast, saying suits against file-sharing software distributors would discourage inventors.

They warned the court against altering guidelines it set in a narrowly decided 1984 case about liability developers have for potential misuse of their products. In that case, the court found that Sony, maker of the Betamax VCR, was not liable if people used its product to violate copyrights if the product was also ``capable of substantial non-infringing uses.'' Those rules have become known as ``the Magna Carta of the technology age'' because they laid the legal groundwork for the technology boom that began in the 1990s. Grokster and StreamCast have based their defense on that ruling.

Sony benefitted from the 1984 rule immensely; Sony now argues the ruling is unfair.


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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


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)