Monday, July 31, 2006

Then and Now... The Same Again

I was enjoying Robert Reich's blog, which had been recommended by my oldest son, and then I read his ramblings for yesterday and got the feeling that he had just slipped into a distorted dimension of some sort. He is obviously upset with the situation in the Middle East, but somehow perceives it to be a recent issue... all George Bush's fault.

I left a comment that basically said this is the second (or third or fourth) chapter of the book of Jimmy Carter. Not a lot different which is pretty spooky. Rapid escalation of oil prices, Iranian actions to foment trouble in the Middle East, and Israel calling the bluff and bluster of the radical Muslims.

But somehow it is all the fault of the U.S. and Israel and the radical Muslims are just poor people getting unjustly trampled on.


Sunday, July 30, 2006

Global Warming and the Dust Bowl

There is a hot spell coming this way to Michigan! Global warming.

Well... maybe... maybe not. The projected high temperature here for this spell is 98 degrees. That's a mere 14 degrees cooler than the hot spell of the mid-1930s. In fact, a look at "record" temperatures for many states shows the mid-1930s to be considerably more uncomfortable than we are experiencing now. Maybe that's the reason there was a "dust bowl".

Oh, I know the argument... it's the average temperature, not the extremes. And it's the average for the whole world not just local temperatures.

Just one thought here... maybe record keeping wasn't all that great... or accurate... a century ago. So we need to look at the results of the weather. Gee, that's not fair... the weather's too cyclical.

Saturday, July 29, 2006

The "R" Word

Housing Slows, Taking Big Toll on the Economy

The NY Times headline today is what I have been saying for months... not that it took a genius to know this was going to happen.

“Housing is going from being far and away the most important contributor to growth to being a measurable drag, and it’s happening gracefully so far,” said Mark Zandi, chief economist of Moody’s, a research company. “But there’s now a growing and measurable risk that things don’t go according to plan.”

The biggest risk, economists say, is that the optimism that fed the real-estate boom will reverse dramatically. The number of homes for sale has surged in recent months, particularly in once-hot markets, like the Northeast, Florida, California and parts of the Southwest. As builders delay land acquisition and construction it could reduce employment and spending in the coming months.

For much of the last five years, housing — along with health care — was also one of the only reliable generators of jobs. From the start of 2001, when the Fed began cutting its benchmark rate to steady a faltering economy, until early last year, the housing sector added 1.1 million jobs.

The rest of economy lost 1.2 million jobs over the same period, according to an analysis by Moody’s

Well, let's see. The Federal Reserve didn't seem to think this was a problem. Most economists didn't seem to think this was a problem. Well, maybe it did take a genius. Okay, just kidding.

Here's what is not being said: the existing home market is far worse than the new home market. People who have lost some of those 1.2 million jobs can't sell their homes and can't pay for them. Watch for an avalance of repossessions and then see what happens to the housing market.

Once again - Ben Bernanke, you have screwed the pooch!

Thursday, July 27, 2006

Current Account Deficit

Today at Cafe Hayek, Professor Don Boudreaux started an interesting discussion on the benefits of having a current account deficit.

His argument for wanting such a deficit revolve around the concept that the U.S. is providing a "wealth-storage" facility for foreigners. That means that U.S. consumers get cheap products and the U.S. government gets plenty of buyers for it's IOUs and the economy gets some boost foreign investment in businesses.

It does make sense as an argument and, perhaps, it works well that way. A constant net inflow of cash should keep the economy humming along. Yet it make many people uneasy about the reliance on the Chinese who have a $160 billion current account surplus with the U.S. Yes that is only 1% or so of the total U.S. economy, but a lot of key business depends on the Chinese now. And there are many who don't have a warm and gooey feeling when it comes to the Chinese having our long-term best interests in mind.

I guess the long-term impact won't really be known for awhile. Let's hope it doesn't turn out to be the way some people think:

US current account deficit 'unsustainable' – NY Fed chief
By Christopher Swann in Washington
Published: January 23 2006 19:29 | Last updated: January 23 2006 19:29

Timothy Geithner, president of the New York Federal Reserve, on Monday dismissed the view that the US current account deficit was sustainable, suggesting the risk of a sudden fall in the dollar would grow the longer the trade gap widened.

Friday, July 21, 2006

Parable of the Bad Neighbor

There once was a large family that had a few "bad apples" as large families are often wont to do.

This family lived in a poor part of town, but the people were generally pretty good to each other. But this family had some relatives that would drop in unexpectedly and stay for a long time. These relatives were a pretty rough bunch who had too much time on their hands. They took particular delight in tormenting the next door neighbors who were a minority in their town. They yelled threats to the neighbors and vandalized their property. Sometimes they would beat up on the neighbor's kids.

The neighbors called the police many times, but the nasty relatives were not dissuaded from their rotten ways. The neighbors were forced to depend on themselves for protection and to react to what the nasty relatives did in the best way they could.

One day, the nasty relatives made a particularly nasty attack on the neighbors' kids, so the neighbors promptly retaliated against the nasty relatives. Whereupon, the nasty relatives and their host family promptly called the police and newspapers to vilify the neighbors. There was a public outcry against the neighbors for not being more tolerant of the family and the nasty relatives. The neighbors were portrayed as bullies and worse. Even some of the neighbors' friends asked why they couldn't just be good neighbors. These friends said the neighbors should sit down and talk nicely with the nasty relatives. After all, no matter what happens, you should always be a good neighbor.

So the neighbors sat down and talked with the nasty relatives. They even offered some gifts as tokens of their sincerity. The nasty relatives took the gifts and said that they could all live in peace from now on.

That night, the nasty relatives burned down the neighbors' garage.

Moral of the story: oh, go ahead and fill in the blank yourself.

Monday, July 17, 2006

Ethanol or Diesel?

In the Detroit Free Press:

Clean diesel fuel

The government wants to mandate 35 m.p.g. by 2017; automobile manufacturers want to ramp up E85 fuel availability. Presently, average fuel economy is anticipated at 27.5 mpg.

Today's automobiles run on gasoline or 10% ethanol/90% gasoline. Since ethanol contains only 75% of the energy of gasoline, moving to a greater reliance on ethanol would eliminate all of the technology gains required to get a fleet average of 35 m.p.g. True, ethanol would reduce U.S. demand for petroleum, but so would diesel-electric hybrids such as the Ford concept, the Reflex, which would get an estimated 65 m.p.g.

The technology for better mileage exists. European diesel-based powertrains that use clean fuels could be used in the United States, but oil companies in the United States have chosen to take their profits and run rather than produce the fuels that would allow use of these technologies.

Friday, July 14, 2006

Hate Crime?

Sometimes you have to wonder if human nature is to be cooperative and kind or selfish and cruel.

My sister-in-law has a grandson that lives in a "socially integrated" neighborhood... okay, people with different ethnic and racial backgrounds. It happens to be near a "not so socially integrated" neighborhood with "economically and ethically challenged" people.

The other night, some of the "not so socially integrated" were busily breaking a few "social rules of conduct" when they were chased off by the "social rules of conduct enforcers" and hid in the "socially integrated" neighborhood. Unfortunately, they happened to hide near my sister-in-law's grandson's home. He was returning late with his girl friend who was driving. She dropped him off and drove to a turn about at the end of the street. By the time she returned to his home going in the opposite direction, she saw he was being beaten by 4 to 6 of the "not so socially integrated" people. She acted quickly to call 911 and the operator directed her call to police who were just a couple of blocks away looking for this particular "band of brothers." Then they began to approach her car so she sounded the horn and brought out some neighbors who chased off the attackers.

The beaten young man was taken to the hospital where, fortunately, he was determined to have a lot of painful bruises and a bad concussion, but nothing more serious. If the young woman had not needed to turn around her car and return, the young man could have been killed without anyone knowing.

So the question still remains: is it human nature to be cooperative and kind or selfish and cruel? Don't be too fast here. Remember, the young woman was in danger herself and she stayed to be sure that the young man received help. And the neighbor primarily responsible for chasing off the "not so socially integrated" attackers happened to be of the same racial background as the attackers.

Was this a hate crime as the government likes to define it? The "not so socially integrated" attackers were a different racial group than the young man who was attacked. Had the racial backgrounds been reversed, there would be no question in the minds of government prosecutors.

So what does this tell us? 1) the idea of a "hate crime" above and beyond an assault is probably stupid because an attack on another person is always hateful at its core and 2) because such a definition is not consistently applied, it is stupid... oh, I said that.

But oddly, the results of this incident were most revealing about human nature. The young man's grandmother and great-grandmother both had similar reactions to the attack: extreme anger... despite their personal and deep Christian faith. Would it be enough anger to retaliate? Probably not. But it is enough anger not to forget or forgive.

So what does this tell us? Simply this: we can put all of the labels we want on people and actions and beliefs, but when it something affects us very personally, we will forget those "higher" attitudes and react with our deepest feelings. We are human, after all.

In the middle east, the Israelis and Palestinians continue to fight.

Goosing the Golden Egg?

Some random thoughts about the state of the nation and the actions of the government:

  1. The government seems intent on being Big Brother in all things, but ends up being Big Bumbler instead... witness FEMA, et all.
  2. The economy is heading toward a hard recession whether the data shows it now or not... and the Federal Reserve is the trigger mechanism.
  3. Oil prices are annoying, but the market will adjust... just like it did centuries ago when tulip bulbs reached astronomical prices... if the government will just step out of the way and let market forces work on the supply side, too.
  4. Free markets seem to be supported by the government for corporations, but not individuals (tip of the hat to Dick Pasky)... can outsource work, but can't buy prescriptions from Canada, respectively.
Could it be that our government is simply interferring too much with the economy and that might be the reason that boulders appear in the road? Nah. Our government knows what we want and need and how to best provide it for us... doesn't it?

"When we consider that this government is charged with the external and mutual relations only of these States; that the States themselves have principal care of our persons, our property and our reputation, constituting the great field of human concerns, we may well doubt whether our organization is not too complicated, too expensive; whether offices and officers have not been multiplied unnecessarily and sometimes injuriously to the service they were meant to promote." --Thomas Jefferson: 1st Annual Message, 1801. ME 3:331

Sunday, July 09, 2006

The Best of Times

Despite the negative posts about the state of the State of Michigan, we had a wonderful week with family and friends celebrating birthdays, anniversaries and the wedding of my second son to a very pretty young woman.

Great weather contributed to the fun and great food to the enjoyment.

Yes, this past week was the best of times.

Friday, July 07, 2006

Government - Trust Us

I continue to be amazed the those free-market economists fail to even mention how government interference with free markets really screws things up.

Investors were looking for a tame number to ease inflation fears, but what they got may have been too low.

Employers added a smaller-than-expected 121,000 new workers to their payrolls last month, the Labor Department said.

Economists surveyed by had expected 160,000 jobs to have been created in June, up from 75,000 in May.

Investors hoped for a tame jobs report that might help persuade the Federal Reserve to pause its interest rate hiking campaign, as the Fed has said any future increases will depend on the most recent data.

Concern that the Fed will raise rates too high, cutting off cheap capital and crippling economic growth, has weighed on markets for months.

But Friday's number may have been a tad too low, raising questions of economic growth all on its own.

Light, sweet crude oil rose 43 cents to $75.57 a barrel in electronic trade, after hitting a fresh record high of $75.78, and Brent futures gained 62 cents at $74.70.

The government that raises interest rates to "protect" us from inflation is the same government that adds injury to injury by taxing gasoline which is priced so high that the economy is faltering... and by the way the same government that cripples oil exploration and new refinery development... which by the way adds to the price of gasoline... which by the way accelerates inflation... which by the way costs us jobs. OOOOOOOOHHH! I love it when a plan comes together (from the "A-Team").

You should trust your economic future to government bureaucrats. After all, look how well they did in New Orleans.

Tuesday, July 04, 2006

Happy Interdependence Day

To Whitney and Kevin who were married yesterday... Love, Happiness and Success!

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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)