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Tuesday, January 02, 2007

Bad Idea of the New Year

SEARCH BLOG: ECONOMY and ENVIRONMENT

From the Economist's View:

Almost everyone except the likes of ExxonMobil, US Vice President Dick Cheney, and their paid servants and deluded acolytes understands that when humans burn hydrocarbons, carbon dioxide goes into the atmosphere, where it acts like a giant blanket, absorbing infrared radiation coming up from below and warming the earth.

Likewise, almost everyone understands that while global warming might be a much smaller or larger problem than existing models suggest, this uncertainty is no excuse for inaction. ...

Finally, almost everyone agrees that governments, non-profit institutions and energy companies should be spending far more to develop technologies that generate non-carbon-emitting power, that remove it from the atmosphere to forests or oceans, and that cool the earth by reflecting more of the sunlight that lands on it.

Clearly, the world's rich countries should carry the burden of dealing with climate change. After all, they could take an easy, emissions-intensive path to industrialisation and wealth. Today, China, India and other developing countries cannot, and it would be unfair to penalise them for that. ...

Economists like to think of things in terms of prices. And when economists see behaviour that has destructive side effects, we like to tax it. Taxation makes individuals feel in their wallets the destruction they are causing. ...

But it has to be the right tax. An SUV going 10 miles in the city and burning a gallon of gasoline pumps about three kilograms of carbon into the atmosphere. Should the extra global warming tax be US$0.05 a gallon, US$0.50 a gallon, or US$1.50 a gallon? ...[T]he size of the tax hinges on a question of moral philosophy: How much do we believe we owe our distant descendants?
Wow. There are so many faulty assumptions, it should be apparent to almost everyone that this idea is unworkable. But just in case you don't see the problems, here is the short answer:
  • Almost everyone excludes a very significant portion of the scientific community that does not accept the notion of an anthropogenic climate change model
  • Almost everyone excludes a large portion of the economic community that believes taxation is not needed to cure a questionable problem.
  • Almost everyone excludes a large portion of the world that believes China and India don't require a free ride regarding any global actions that might be enacted.
  • Economists are generally not in the value judgment business regarding perceived destructive behavior and will often find that the law of unintended consequences rules over well-intentioned legislation and taxation (is outsourcing destructive behavior... ask those who lose their jobs?) Is hamstringing our economy going to solve a perceived global problem or only create a U.S. economic problem?
I suggest you check out the link in yesterday's post if you haven't done so already. That's the long answer.

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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

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)