Quote of the Day
How far you go in life depends on you being tender with the young, compassionate with the aged, sympathetic with the striving and tolerant of the weak and the strong. Because someday in life you will have been all of these.
George Washington Carver
GOP: Time to Take a Stand For a Strong Dollar
If anyone doubts where I stand on the question of the dollar, they haven't been paying attention. I have repeatedly praised Milton Friedman and the Chicago School of Economics. Just take a look at how many times in my humor segment I've made mocking (not endearing) reference to Fed Reserve chief "Helicopter Ben" Bernanke. In this blog, I have been sharply critical of both Greenspan and Bernanke for keeping interest rates artificially low for too long, in my judgment a major factor in various asset bubbles (including the Nasdaq and real estate meltdowns). I have supported Congressman Ron Paul's efforts to audit the Fed, and I have expressed skepticism that the same Fed, which had the hubris to believe it could fine-tune a soft landing with interest rate hikes (clearly underestimating the vulnerability of the financial sector to interest-sensitive gimmick housing loans backed by inadequate collateral), suddenly got things right during the economic tsunami. The very idea that the financial markets aren't robust enough without the active intervention of the government seems to be more of an indictment of the unintended consequences of dysfunctional government policy.
The Keynesian economics of the Obama Administration resists any real cuts because it is worried if you take away the $3.5T punchbowl, the federal government's share of the $14.5T or so economy, the private economy would surely be unable to cope. [Squandering tomorrow's seed corn hardly increases the wealth of a nation.] I will simply point out that the activist Obama Administration has obfuscated the market with uncertainty across the board, e.g., adding to employee costs with benefit mandates or enacting 2000-page "reform" bills that overwhelm all but the biggest companies' attempts to navigate already unsustainably complex tax and regulatory schemes. Within the context of the Fed, we anxiously wait to see just what will happen when presumably the Fed Reserve stops attempting to manipulate longer-term Treasury interest rates through mass purchases, i.e., quantitative easing, presumably by early summer: without training wheels, will the Treasury market be able to sell Obama spendthrift federal debt, without growth-crippling interest rate hikes to attract investors? (I strongly suspect if and when interest rates rise, "Helicopter Ben" will be circling overhead, waiting to dump fiat currency as fast as the Treasury can print money...: once an activist, always an activist.)
How healthy is the economy? Watch Obama try to hype employment numbers out of context; let us recall just to sustain new workers (e.g., high school or college graduates), we need to add over 100,000 jobs a month. That means after nearly 2.5 years of the Obama presidency, we've got to generate nearly 3 million jobs just to break even--never mind the fact we had lost 7 million jobs since the beginning of the recession in December 2007 (when, let us remember, the Congress was controlled by Democrats, and Bush had the same Fed Reserve chief Obama renominated to a second term). The Democrats can try everything they can to pin post-tsunami job losses on Bush, but if you put lipstick on a pig, it's still a pig. I know that post-tsunami job cuts were not being made on policies of the outgoing administration. (This is clearly reflected in the fact that job cuts in February and March of 2009 were similar to those made in January.) But if the partisans want to try to argue that the first 3 weeks of the job losses in January 2009 should show up on Bush's side of the ledger, fine--let the delusional partisans have their say.
But here's a troubling statistic covered by the Wall Street Journal:
Friday’s revisions to U.S. gross domestic product contained news on fourth-quarter profits. Top-line, or pretax, operating profits economywide hit a record high at the end of 2010. All of the gain was in the financial sector. The finance sector reported [its only quarterly loss in] the fourth quarter of 2008. While profits haven’t returned to their high levels of 2006, the gain in finance profits last quarter more than offset a drop in profits posted by nonfinancial domestic industries. The financial industry now accounts for about 30% of all operating profits. That’s an amazing share given that the sector accounts for less than 10% of the value added in the economy.
What kinds of profits? I'm not suggesting this is representative, but newsletter editor Porter Stansberry provides the example of Annaly Capital Management. In essence, you can think of an arbitrage business model that recently borrowed at 1.8% interest (an artifact of Fed easy money), bought government-guaranteed mortgage securities yielding roughly double the cost, and pockets the difference. In a recent quarter, it earned $400M, with just over 100 employees. (Of course, anyone buying into this arrangement is taking on the risk of the sustainability of this differential.)
Remember how Obama was talking about trying to get along with the rest of the world? No more nation-building interventions and the like? Tell me, how effective was Obama at spreading his print-the-money, deficit-spend your way to prosperity message? Obama supporter, Keynesian Nobel Prize-winning Paul Krugman, must think that the world has gone mad: the Communist Chinese are raising interest rates, the British Prime Minister is slashing spending, the flat-tax-rate Russians are accusing us on monetizing the debt; and the BRIC nations are agitating for a shift away from the dollar as an international standard. Let me quote a fellow inflation hawk, Dallas Fed chief Richard Fisher (a former Democratic candidate for office) whom is essentially arguing the Fed is pushing on a string:
It concerns me that liquidity is omnipresent on bank and corporate balance sheets, and yet it is not being used to hire American workers...I also worry about the risk of our being perceived as using quantitative easing and buying copious amounts of financial assets above and beyond the ordinary bounds of the Federal Reserve’s System Open Market Account as “the new normal” for implementing monetary policy...We are already seeing the beginnings of speculative activity in stocks, bonds, buyouts and commodity markets...Liquidity and abundant money are not the binding constraints on the economic activity we wish to see. The binding constraints are uncertainty about income and future aggregate demand, the disincentives fiscal and regulatory policy impose on ridding decisionmakers of that uncertainty, and the reluctance [of job creators]. The remedy for what ails the economy is, in my view, in the hands of the fiscal and regulatory authorities, not the Fed... I could envision [continued QE]would lead to a declining dollar, encourage further speculation, provoke commodity hoarding, accelerate the transfer of wealth from the deliberate saver and the unfortunate, and possibly place at risk the stature and independence of the Fed...The Federal Reserve will buy $110 billion a month in Treasuries, an amount that, annualized, represents the projected deficit of the federal government for next year. For the next eight months, the nation’s central bank will be monetizing the federal debt.
As I write, the price of an ounce of gold is $1486/ounce. For many investors, commodity money (e.g., gold) is a measuring stick of fiat (printed) currency. In 1971, President Nixon suspended conversion of dollars to gold ($35troy ounce) in order to control for any run on the US gold supply. The government CPI statistic is used as a measure of purchasing power via the cost of a standard bundle of goods or services. DollarDaze (below) provides relevant charts from January 1971 to December 2008 (i.e., the end of the Bush Presidency). The CPI went from 40 to 210, just over 5 times, while gold went from $38 to $822, roughly 22 times; the net cumulative increase in purchasing power is just over 300%. In contract, the supply of greenbacks went up nearly 17 times, losing just over 81% in purchasing power. (The authors speculate on reasons the measurement discrepancies in a five-fold drop.)
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Courtesy of DollarDaze.org |
A recent Forbes column openly questions why sound money has not become a more pronounced issue among probable GOP Presidential contenders; libertarian Congressman Ron Paul (R-TX) has supported reinstatement of a gold standard for decades, which he believes would make the Fed obsolete. Sarah Palin has also criticized the quantitative easing policy.
The argument, as my sources indicate, is that the Fed believes that the recent spikes in energy prices and food prices are more the result of intrinsic supply/demand issues and an anomalous climate-based poor farming cycle.
My personal take: keeping interest rates artificially low does little more than to lower the entry barrier to more risky ventures and projects. I do not believe that the US is the exception to what the rest of the global economy is experiencing and responding to in terms of inflationary pressures. To a certain extent, these inflationary costs have been absorbed by businesses unable to pass them along given a very competitive market in the face of lackluster consumer demand--but there are already signs of increased cost pass-throughs; paradoxically, businesses are motivated to increase productivity to protect their margins and/or to seek consolidation, including economies of scale (with the inevitable layoffs, which the administration really doesn't want to see). But more to the point, the disproportionate profitability in financial services, in my view, smacks of de facto crony capitalism. Not only must quantitative easing cease and desist, but the Fed Reserve must become a bully pulpit in calling for federal fiscal responsibility and refusing to bankroll the bankrupt business growth-killing policies and spending of a materially incompetent Obama Administration. The successful GOP candidate must champion strong free trade and a sound dollar and embrace globally competitive tax and regulatory policies.
New York's Finest?
No doubt Mayor Bloomberg must be so proud... A bicyclist is ticketed by police for riding on the sidewalk (after all, there were so many people walking on the sidewalk he was causing a safety issue), a passing pedestrian makes a joke, the police take exception, and the pedestrian finds himself surrounded by the police for the crime of practicing the art of comedy without a license. (Look at all those police cars arriving on the scene in Gotham City out to capture the Joker!) So the next time a New Yorker gets mugged or burglarized, he knows where to find NYPD--tailing those nefarious cast members of SNL...
Fukushima Nuclear Incident Update
You know things are stabilizing for the better when three of the blogs I regularly check for my daily summary for Fukushima Daiichi (IAEA, NEI, and Hiroshima Syndrome) did not issue updates over the weekend.
Atomic Power Review notes:
- Reactors 5 and 6: We noted in a prior update with planned reactors 7 and 8 canceled and all but certain reactors 1 through 4 at the end of their lifetimes as a result of serious damage to the infrastructure, the days of the remaining 2 reactors, successfully in cold shutdown for several days now, were likely numbered. The latest TEPCO plans call for the unloading of the reactor cores. There was no discussion of what happens to the reactors after unloading of the fuel, but it's unlikely they intend to operate the units, at least in the near future.
- TEPCO Press Conference: Another acknowledgment of the intent to devise and implement external cooling systems to the first 3 reactors; a permanent water treatment facility will be built on site; repairs to largely damaged reactor 4 buildings (top floor includes the spent fuel pool, still being manually cooled); there will be new containment buildings constructed to help seal/contain the reactors; the primary containment vessels will be filled with water (to provide additional heat transfer); reactor pressurized vessels will be filled well over core assemblies; repairs will be made to suspected reactor 2 suppression pool damage.
- More on the TEPCO Plans: There will be 2 stages of new construction structure, the first oriented more towards filtering radioactive emissions, the second more of a heavy-duty cement structure. There was some explicit recognition that the damage caused by salt in seawater injections may require workarounds
Political Humor
"Obama is set to appear on one of Oprah’s last shows. He’s hoping it’s the one where she gives away $14 trillion." - Conan O'Brien
[Obama must be hoping that Oprah will give everyone in her audience a Chevy Volt; it just might double monthly sales! After the Democrats "invested" $5B in promoting electric cars, Government Motors sold 281 (out of over 142,000 vehicles sold) in February. You're doing a heck of a job, Obama!]
"Critics say it’s illegal for Donald Trump to run for president while hosting a TV show. It’s also illegal to run for president if your hair wasn’t born in this country." - Conan O'Brien
[Well, that could explain why that episode of Celebrity Apprentice hasn't aired. You know the one--Meat Loaf and John Rich headline competing fundraising concerts while teammates gather signatures on petitions and sell campaign buttons... Trump is able to produce a Certificate of Authenticity from the local Hair Club for Men and counter-challenged Obama to prove he hasn't been using the Just for Men formula sold in Kenya.]
Musical Interlude: My Favorite Groups
ABBA, "Eagle"
