More Fun At The Fed (December 11, 2007)

Posted in Economics, Federal Reserve, Inflation on December 11, 2007 by e-commentary.org

On September 18, the Fed reduced the FFR (Federal Funds Rate) by .5 percent; on October 31, the Fed reduced the FFR by .25 percent.  The pundits claim that the Fed will reduce the FFR by another .25 or .50 percent tomorrow.

Reducing the FFR results in the injection of even more paper money into the economy.  There are already too many dollars chasing too few goods and services even if those dollars are being hoarded by some skeptical lenders at this time.  The additional money is not going to spur the production of additional goods and services; the production of goods in China and the provision of services by India are responsive to other factors.  The additional money in circulation will only drive up the cost of the available goods and services which means we suffer. . . inflation.  “Price stability” (holding down inflation) was one of Ben Bernanke’s primary concerns in his previous academic writings.  He also studied the relationship between a lack of liquidity and the Great Depression and is aware of the precarious national predicament.

The Economy is threatened.  The decline in the dollar (in relation to the Canadian “Looney” and the Euro and beaver pelts) is having and will have deleterious impacts even though some American exporters benefit.  The gradual transition from the Petrodollar to the PetroEuro is more than symbolic.  The United States government is paying less interest for Treasury bills and bonds, but that may soon spawn less interest among potential investors in the bills and bonds.  Then the United States will need to pay more interest to attract interest.  The low interest rates also discourage what little savings there is in the United States today.  Reducing the FFR is appearing to be a bailout for Wall Street at the expense of other individuals and policy concerns and objectives.

Bumper sticker of the week:

Stagflation Again?

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The Life of Today’s CHO (December 3, 2007)

Posted in Chief Household Officer, Society on December 3, 2007 by e-commentary.org

The life of a CHO, the Chief Household Officer.  There Are CEOs (Chief Executive Officers) and CFOs (Chief Financial Officers) and COOs (Chief Operating Officers) and their ilk.  A CHO was called Mr. Mom in the distant past.  With more Ms. CEOs, there are more Mr. CHOs.  Kinder, Kuchen, Kirche (Children, Kitchen, Church) were the domains and province of women.  Now she brings home the bacon and he cooks it, or not if they have reservations about pork or meat; turkey bacon or tofu bacon works.  He shows and tells Francis Bacon to the kinder.  She brings home the bread and he converts it into PBJs (peanut butter and jelly), the official sandwich of the Republic.  The moment of great anxiety arrives when one of the youngsters, dressed in his (or her) Sunday-go-to-church clothes, falls on the kitchen floor, scrapes a knee, and calls out for . . . . . . . . dad.  The great obstacle to the new chief, of course, is the inherent nature of the male of the species.  As we all know, adult males are frightened, insecure, desperate little boys in bigger bodies.  Some point to the emerging research correlating the Y chromosome with stupidity and other callow behavior.  However, some males have the rare Y cum serifs chromosome.  Today’s CHO is able to rise above his gender.

Bumper sticker of the week:

What until your mother gets home

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Women in China (November 26, 2007)

Posted in China, Society on November 26, 2007 by e-commentary.org

To control its population explosion, China imposed a limit of one child per family.    Many families opted to have a son rather than a daughter.  Some estimate that there are four women for every five men in China today and similar disparities in India, Vietnam and Nepal.  The typical ratio in other countries of 105 males to 100 females has been distorted.  In a few reported cases in America, by contrast, the acquisition of more kids, boys or girls, as durable goods provides another symbol/symptom of status.  [See the e-ssay dated Aug. 6 entitled “Kids As Consumer Durables”].

What seemed rational for some individual parents was not rational or desirable for society.  The government promoted what Nature provides in abundance—a scarcity of resources.  There are more males who are and will be unable to marry in these countries that value the family and family values.  There are many very real negative consequences including possible violence against women and social and economic tensions.  However, women are more marketable which could have unexpected consequences.  Although in a minority, women may have leverage.  Women may be able to compel the boys to clean up their acts.  The environmental pollution in China is now estimated to cover an area the size of … well … China.  Women may even compel the country to clean up its act.

Bumper sticker of the week:

A Century of Women on Top

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Imposing The Draft . . . At State (November 19, 2007)

Posted in Draft, Foreign Policy on November 19, 2007 by e-commentary.org

Imposing the Front Door Draft will ignite the State U’s (Universities) from inaction into action.  Imposing the Draft at the State Department is igniting a backlash.  During the prior Iraq-like misadventure (Vietnam), a posting to Ho Chi Minh City (then Saigon) was a plum assignment for a young and ambitious FSO (Foreign Service Officer) (e.g. A. Lake or R. Holbrooke).  Now, the State Department may need to conscript FSOs to outfit the Baghdad Alamo Embassy.  Those who are in a position to know what is happening know what is happening.

Bumper sticker of the week:

Hell, no, we won’t go

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Vet’s Day; Slavery And Due Process (November 12, 2007)

Posted in Civil Rights/Civil Liberties, Due Process, Law, Military, Philosophy, Society on November 12, 2007 by e-commentary.org

Men naturally seek to enslave other men.  Men do not naturally seek to provide other men with “due process.”  Due process requires 1) notice of a proceeding impacting a person’s life, liberty or property, and 2) an opportunity to be heard in good faith by a neutral decision maker applying known and settled rules.  “Due process” also suggests the “rule or law” or even “fundamental fairness.”  However, it is easier for a hippopotamus to ride a unicycle than it is for a man to give another man something as unnatural as the process he is due.

Governments are instituted among men (and women), among other reasons, to disincline them from doing what is natural (enslave others) and to incline them to do what is unnatural (respect due process).  The growing pains of the Republic were painful; the Founders did more to promote slavery than to enshrine due process.  Yet they made a path-breaking start in the promising direction. Democracy is not easy.  Democracy emerges slowly.  The country grew.

Protecting against our worst impulses and advancing our noble ones requires a sword and a plow share.  These efforts are undertaken under different names, banners and gonfalons.  One of them reads “Duty, Honor and Country” and another “Semper Fi,” among others.  Many Americans have died protecting what many do not understand and too many take for granted.

Bumper stickers of the week:

All gave some, some gave all

Not to promote war, but to preserve peace

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The Times They Are A-Changed (November 5, 2007)

Posted in Society on November 5, 2007 by e-commentary.org

“I don’t want to be Bob Dylan,” the line by the Counting Crows does not go.  Robert Zimmerman d/b/a Bob Dylan is now hawking Cadillacs.  Not just any Cadillac, but the Escalade that gets something like two gallons per mile.  There is a time and a place for a large vehicle, yet they are primarily used today as domestic tanks patrolling the ‘burbs.  If Bob were hawking a “new and improved” red (not pink) 1959 Caddy convertible with airbags and 45 highway/40 city, let it be.  A little voice inside my head said don’t look back, you can never look back.

Bumper stickers of the week (on a Cadillac):

Deadhead

He not busy being born is busy dying.

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Bush Acknowledges World War III (October 29, 2007)

Posted in Bush, Iran, Iraq on October 29, 2007 by e-commentary.org

Bush and Dr. Strangehate are intent on expanding World War III into Iran.  Bush has exhausted the Army and the Marines and will now launch the Navy and the Air Force into the fray.  He may simply hire more mercenaries such as Blackwater, the Hessians who helped undermine Hussein, the Kelly Girls of the killing profession.  Greed in the Green Zone expands.

With a little (a lot of) creative diplomacy, the Iranian people could be converted to allies or at least not adversaries.  When the Iranian people are allied with the West, their leaders will follow.  Bush intends to unite the Iranian people.  In opposition to the United States.  Russia senses an opportunity to pursue its own Operation Iraqi Liberation (OIL) or Operation Iran Liberation (OIL).  Bush will encourage the courtship of our enemies.

Organized resistance in America will not develop until Bush calls up the Cub Scouts or reinstitutes the Front Door Draft.  When the children of the Ruling Class must obtain draft deferral consultants in addition to college admission consultants, some influential Americans may quit following their stocks and take stock of America’s situation in the world today.  Bush + Cheney + Giuliani Draft Dodging Consultants, LLC; “When you have other priorities”; Since 2009.

Bumper sticker of the week:

Be nice to America or Bush will invade and bring democracy to your country.

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Greed on Steroids (October 22, 2007)

Posted in Bankruptcy, Economics, Society on October 22, 2007 by e-commentary.org

One score years ago, Greed was just good.  Now Greed is God.  God is Greed.  Those who embrace one seem to embrace the other.  Greed is now on steroids.

In theory, Chapter 11 of the Bankruptcy Code addressing business reorganization exists because of an assumption that a “going concern” business is synergistic and provides positive public externalities such as steady jobs, established customer networks, etc.  In other words, the business provides some value beyond the price of the individual assets.  Liquidating the business rather than rehabilitating it, the argument goes, expunges the possible public benefits.  In practice, however, Chapter 11 often is like a second marriage, the triumph of hope over experience.

Today, the hedge fund managers and private equity boys pursue an opposite tack.  They take a going concern, sell the assets and vaporize the “going concern” value.  They finance the disintegration with OPM (Other People’s Money) and pay reduced taxes for their assault on the public weal.  Instead of an “invisible hand” promoting the common weal, we are allowing others to cut off our hands.

America now rewards the destruction rather than the creation of wealth.  Once upon a time, risk was the handmaiden of reward.  Envy–the desire for something that someone else has–can be a positive incentive particularly if the owner of the coveted item seeks something owned by someone else.  Markets develop.  In a properly functioning capitalist system, an individual presses his nose against a showroom window and then goes out and puts the same nose to the grindstone to acquire the wherewithal to acquire the good.  However, those accumulating money today are not taking any personal risk or making a sacrifice, although their actions risk the stability of a precarious Economy.

In a short time, the hedge fund managers and private equity boys also have managed a non-hostile takeover of both the Democratic and Republican Parties with little resistance.  They own C. Schumer and H. Reid and H. Clinton.  No one is protecting the public.  The SEC (Securities and Exchange Commission) is now a wholly-owned subsidiary of the NYSE (New York Stock Exchange).

Bumper sticker of the week:

Feed The Homeless To The Hungry

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The Legacy Of “Easy Al” And Easy Money (October 15, 2007)

Posted in Economics, Federal Reserve, Gold Standard, Greenspan, Housing on October 15, 2007 by e-commentary.org

John and Johanna, Juan and Juanita, Ivan and Ivana, their story is archetypical in architecture today.  They should have purchased a 1400 square foot starter apartment, but they were induced and seduced into purchasing a 2200 square foot single family two-story home.  They could not afford much more than the down payment.  They could not afford the subsequent 359 monthly payments.  They are being evicted.  They will have to live somewhere, someone observes.  They need to find a 1400 square foot apartment, but there are few available and many other evictees and evacuees competing for them.  And what about the 2200 square foot abode?  It sits empty.  (See the e-ssay dated April 24, 2006).

“Easy Al” Greenspan never met a problem he would not fix with a fix of easy money.  The Fed is charged with addressing monetary policy not fiscal policy.  He set fiscal policy without even acknowledging the need for safeguards against the irrationality his monetary policy unleashed.  Be suspicious of someone who falls under the spell of one and only one cult commentator; someone should distill the thoughts of 371 (give or take) thinkers in developing a worldview.  The Gold Standard crowd almost appears reasonable.  At least a gold standard sets a standard for the money supply.  Sound monetary policy requires a “goods and services” standard/benchmark.  The amount of paper injected into the economy should be measured against the goods and services.  Instead, more money than necessary was hurled at problems thereby begetting more problems.

Bumper sticker of the week:

“A cynic is a man who knows the price of everything and the value of nothing.”  Oscar Wilde

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Housing Again (October 8, 2007)

Posted in Economics, Housing on October 8, 2007 by e-commentary.org

A house is a bundle of 1) sticks, 2) dirt, and 3) money/interest obligation.  The Truth In Lending Act requires the lender to provide basic information about the terms of a loan.  A $100,000 house subject to a 30 year mortgage at 10 percent requires the borrower to pay a total of over $316,000 during the life of the loan.  Thus, more than 2/3rds of the money ($216,000) pays for the money; less than 1/3rd ($100,000) pays for the sticks and the dirt.

When interest rate drops to 5 percent, the borrower pays a total of over $192,000 during the life of the 30 year loan.  Thus, less than 1/2 of the money ($92,000) pays for the money; more than 1/2 ($100,000) pays for the sticks and the dirt.

Reducing the interest rate reduces the total purchase price of the sticks, dirt and money/interest obligation needed to acquire the house.  When Greenspan reduced the Federal Funds Rates in 2001 and mortgage interest rates dropped, the price of the money/interest obligation dropped correspondingly.  Those who had the sticks and the dirt at the time were in the money.  Others were able to acquire a house (sticks, dirt, and money/interest obligation), for at least a few years.  Those who obtained a house in the early days of the run-up with a fixed rate mortgage of 5 to 6 percent have a “bird’s nest on the ground” if they keep a cool head.

The interest rate in a typical adjustable rate mortgage (ARM) adjusts upward in the next months and years even if other interest rates do not rise.  When the interest rate rises to 15 percent, the borrower pays a total of over $455,198 during the life of the 30 year loan.  Thus, almost 4/5ths of the money ($355,198) pays for the money; little more than 1/5th ($100,000) pays for the sticks and the dirt.

Many of the ARMs are more difficult to refinance because they include “pre-payment penalties” if the notes are paid early.  A borrower could pay off all but the last month’s obligation and then pay off the last month according to the terms of the note.  Some judges might allow it; some would not.  The pre-payment penalty provisions should be stricken because they are 1) against public policy, 2) unconscionable, 3) fraudulently obtained, 4) buried in adhesion contracts, and/or 5) _________.  There will still be an economic impact because so many investors were fooled and/or fooled themselves into believing that they would receive the substantial returns from the ARMs and other bogus instruments.

The “wealth effect” now has been supplanted by the “poverty effect.”  The “multiplier effect” is being supplanted by the “divider effect.”  And there is not a whole lot that the Fed can do to improve our lot.

However, Al Greenspan recently announced unambiguously that the credit crunch is behind us.  In the near future, no one will even remember this latest pronouncement and hold him to it.

Bumper sticker of the week:

“Time is money, money is time, that is all ye know on earth, and all ye need to know.”    John Maynard Keats

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