Archive for January, 2006

Greenspan’s Legacy – Apres moi, Le Meltdown (January 30, 2006)

Posted in Bernanke, Economics, Federal Reserve, Greenspan, Housing on January 30, 2006 by

In March, 2000, the economy began the well-publicized high tech slide.  Manufacturing and services continued to flee the country.  Technology was a transitional industry, but the best minds were disproportionately and increasingly foreign; too many of the goods and services could be and are being manufactured and provided overseas.  As one bubble burst, however, another one was being blown.  Only one remaining domestic industry existed that could also be subsidized effectively – the real estate industrial complex.  The Fed provided the steroids.  Interest rates (the Federal Funds Rate) were precipitously reduced which significantly undermined the retirement income for those retirees (born before 1935) who relied on interest income to support them during their golden years; sacrifices have to be made.

American land, American land owners, American (and Canadian) timber, American (and Hispanic) labor, American builders, American real estate agents, American appraisers, American surveyors, American bankers, and American candle stick makers all profited handsomely.  The land perforce cannot be moved offshore, the houses cannot be built overseas economically, and most of the players, with a few exceptions, cannot be outsourced.  Between 2001 and 2005, the construction trades and the financial and real estate service sectors provided seventy percent of the economic growth in America.  Yet the largest share of the real money to construct the house of cards was foreign-born.  Americans don’t own their homes today; foreigners own their homes and rent them to Americans.  The Fed should have issued stronger warnings and recommended Congressional action to supervise the spew of credit; in the face of inevitable inaction, the Fed should have corked the champagne in the summer of 2003 by bumping up the interest rates.  [See the April 25, 2005 e-ssay entitled “Our Friend the Fed.”]  As the market peaked in the summer of 2005, however, increasingly marginal economic candidates were seduced by intoxicating no-money-down/interest only/adjustable rate mortgages to enter a hyper-inflated market.  The homes were ATM’s which provided the consumer spending that drove the economy for four profligate years.  [See the February 7, 2005 e-ssay entitled “The Microeconomics of Suburban Subsistence.”]  The “wealth effect” engendered by the growing equity in homes encouraged more spending on credit.  The homes are now occupied by “renters” who are consuming a growing percentage of their income just to service the interest payments.  The savings rate predictably went down in 2005 for the first time since 1933. Something is in the cards; the house of cards will collapse by Christmas.  It could not go on forever; as many have observed, what cannot go on forever will not go on forever.  The last viable domestic industry has now run its course with devastating consequences.  And now the country is left with vast numbers of McMansions that will soon cost too much to heat.

Ben Bernanke may be Bush’s most promising appointment.  However, he will inherit a mess beyond repair or management.  There is no industry in America left to subsidize.  With consumers and the country up to their tonsils in debt, consumer spending is and will be inadequate to drive the economy.  Foreigners will quietly reduce their purchases of t-bills and demand more return for their remaining investment in dollars.  The growing demand for oil is occurring at a time when the supply may be interrupted by some unstable or unfriendly regimes.  Rising oil prices will drive up the producer and the consumer price indexes.  Not raising interest rates will allow inflation to soar.  Raising interest rates to check inflation will stall the collapsing economy.  The Fed is likely to raise interest rates to 5.0 percent to check inflation even though the economy is entering a period of “stagflation.”

Amtrak – The (Rail) Road to National Security (January 23, 2006)

Posted in Politics, Transportation on January 23, 2006 by

The right assails Amtrak because it is uneconomical; the left criticizes Amtrak because it is inefficient.  When one airplane is grounded by a shoulder-mounted SAM (surface to air missile), all the commercial and general aviation airports in the country will be closed.  Transportation by air will be prohibited; the aviation network is inextricably intertwined.  By then, with gasoline priced at, say, $10.00 a gallon, transportation by automobile will be prohibitively expensive.  Someone will observe that if we still had Amtrak, we would have a relatively safe and comparatively economical and efficient way to transport people and goods.  Any threat to one line could be quarantined while most of the remaining tracks are operated albeit with some delay and inconvenience.  The railroad system is extricably intertwined.  Worth considering.

King (January 16, 2006)

Posted in Law, Race, Society on January 16, 2006 by

King offered the non-violent vision at a time when frustration was fomenting violence.  Others fomenting violence made the non-violent course of action more appealing.  The non-violent avenue is more likely to overcome in a society that tolerates free speech and protects due process.  The success of King was as much a product of his determined and incremental challenge to American apartheid as it was of the resilience of American society to respond to his challenge to injustice.

Gun Control, NRA Style (January 9, 2006)

Posted in Civil Rights/Civil Liberties, Guns, Law, Politics, USA PATRIOT Act on January 9, 2006 by

Some agency could easily download the membership list of the NRA, legally or illegally, although there seems to be no difference today.  The technology exists; the USA PATRIOT Act provides a pretext if one is needed.  Then the agency could break into the homes of all NRA members and confiscate their weapons.  There may not be a Fourth Amendment limitation because the Fourth Amendment may soon be deleted from the Constitution.  Probable cause has been shown because the members of the NRA probably caused themselves to own guns.  And probable cause may not even be required in the near future.  The agency may be prying many cold, dead fingers off many guns.  “I really wasn’t using my civil liberties anyway.”

The Year Past (January 2, 2006)

Posted in Economics, Philosophy, Politics on January 2, 2006 by

One of last year’s predictions was flat wrong – the Euro went sideways, not up, relative to the dollar.  That means that Europe went sideways, not up.  That is not good.  Untethering the Yuan, albeit slightly, in July was critical; the Yuan must be free to go up or down or sideways.  The dollar must remain free to go down to balance the trade deficit.  The National Debt broke 8 Trillion and continues to skyrocket.  The Crusade in Iraq is a continuing failure.  We as a planet celebrated the second anniversary of Bush’s declaration of World War III on March 19.  The battlefield is now the entire planet; there is no plan and no end in sight.  The Downing Street Memo released in The Sunday Times on May 1 confirmed that the entire Crusade was premised on a lie; May 1 is “Law Day” which is a day to reflect on our heritage of liberty, justice and equality under the law and the rule of law in a democracy; the Sunday Times article was overlooked or disregarded by almost every American commentator.  The cesspool of corruption fomented by the Republicans now has some citizens scratching their heads and wondering whether we should return to a two party political system; it has served as a check and provided balance even though it is not written into the Constitution.  The conquest of the Supreme Court began as promised.  Activist conservative Supreme Court justices will reward the president who appointed them with a blank check to establish a Supreme Emperor.  When called upon, the Supremes will reciprocate again and appoint a Republican president.  Smiles mask lies.  A federal government designed not to respond to major disasters such as the Hurricanes this summer will not be able to respond to major disasters.  The response to Katrina and kin was intentional not unwitting.  A federal judge in Pennsylvania appointed by Bush of all people provided a flicker of hope when he observed that intelligent design has no place in the classroom.  Harold Pinter discussed the lack of truth in politics in his Nobel acceptance speech.  Those who were confident that Bubble Boy was monitoring their conversations remain convinced that he is monitoring them.  What else is he doing to us?  There is a new Pope.  And Terry Schiavo, RIP.