Thursday, January 31, 2008

How This Series of Rate Cuts Compares to the Past

Fed Chairman Ben Bernanke, who celebrates his second anniversary in the job tomorrow, now faces a delicate challenge. If his policy is successful, the economy will escape recession, few additional rate cuts will be needed and, paradoxically, his actions to date may end up looking excessive.

"If we end up worrying about inflation later this year that could well be the good outcome for the Fed because odds are it will mean that the economy has stabilized," said Peter Fisher, a former Fed official who is now co-head of fixed income for money manager BlackRock Inc. "It may end up looking like the pre-emptive easing was unnecessary...but that's the point of taking out insurance against the downside."

If so, that would require the Fed to quickly reverse some of its rate cuts. "They acted aggressively on the way down; that suggests they'll act as aggressively on the way up," said Vincent Reinhart, a former top Fed staffer now at the American Enterprise Institute, a Washington think tank.
Inflation is likely to the greater threat in 2008-2009. It is time to acknowledge this.

Wednesday, January 30, 2008

GDP Growth 4th Quarter 2007

great chart from the Big Picture


Fourth-quarter growth in gross domestic product was lower than expected, rising only 0.6%, compared to forecasts of 1.2% growth and way below the 4.9% growth in the third quarter...

The core personal consumption expenditure (PCE) deflator, an admittedly wonky sounding piece of econojargon that is actually a very important indicator of inflation, rose 2.7% on an annualized basis. That's up from 2% in the third quarter and was higher than the 2.5% that economists were expecting...

But the threat of stagflation, a period of both economic sluggishness and rising price pressures, has to weigh on the Fed when it puts together its carefully constructed statement.

The central bank needs to continue to talk tough on inflation and may need to signal to the market that after today's expected half-point cut - which would leave the federal funds rate at a pretty accommodating 3 percent - that it's time to hold steady for awhile.

As bad as the subprime mortgage mess has been, letting prices for many consumer goods run out of control by further weakening the dollar with aggressive rate cuts could have an even more damaging effect on the economy.

read the CNN story

A return to the late 1970s?

Recommend Reading: Walter Williams

Stimulus Package Nonsense
by Walter Williams

Baltimore's political satirist, the late H.L. Mencken, explained this strategy, saying, "The whole aim of practical politics is to keep the populace alarmed, and hence clamorous to be led to safety, by menacing it with an endless series of hobgoblins, all of them imaginary."

The imaginary hobgoblin this time is the threat of an oncoming recession, even though it is by no means clear that the U.S. economy is in a recession. To head off a recession, politicians, including President Bush, are calling for a stimulus package...

There are three ways government can get the money for a stimulus package. It can tax, borrow or inflate the currency by printing money. If government taxes to hand out money, one person is stimulated at the expense of another who pays the tax, who is unstimulated and has less money to spend. If government borrows the money, it's the same story. This time the unstimulated person is the lender who has less money to spend. If government prints money, creditors, and then everyone else, are unstimulated...

The call for stimulus packages represents the triumph of political arrogance over common sense.

read the entire essay

More common sense and insight from Walter Williams

No Recession Yet

The gross domestic product, the broadest measure of the nation's economic activity, grew at an annual rate of 0.6%, adjusted for inflation, in the fourth quarter, according to the Commerce Department, down from 4.9% in the final reading of growth in the third quarter....

Investors are betting that the Fed announces at least another quarter percentage point cut, or 25 basis points, when it announces its decision at 2:15 p.m. ET, with those buying fed funds futures on the Chicago Board of Trade were pricing in a 70% chance of a half-point, or 50 basis point cut, ahead of the GDP report.

But while the weakness in the report suggested that the Fed might move aggressively to cut rates, the inflation readings in the report could be a concern for the central bank. The so-called price deflator, which measures prices overall, rose at a 2.6% annual rate, up from only a 1% rise in the third quarter but in line with forecasts.

read the CNN story

4th quarter growth numbers are still positive. This means there was no recession in 2007.
The economy is not strong, but it is growing. The Fed is likely to cut rates by another 50 basis points or 0.50% today.

Tuesday, January 29, 2008

Durable Goods Orders

Another great chart from Carpe Diem

Durable goods, which are a leading economic indicator, don't indicate a recession.

Saturday, January 26, 2008

Cartoon: Make Mine Freedom (1948)

Economic Stimulus Analysis

The Foolishness of Economic 'Stimulus'
Donald Boudreaux

To no one's surprise, politicians are rushing in with various plans for helping the economy. Most of these plans involve "stimulus." The calls are loud to put more money into the hands of ordinary Americans in hopes that they will spend – not save – it, thereby boosting the overall economy.

Such stimulus, however, is futile. Government cannot create genuine spending power; the most it can do is to transfer it from Smith to Jones. If the Treasury sends a stimulus check to Jones, the money comes from taxes, from borrowing, or is newly created.

If it comes from taxes, the value of Jones's stimulus check is offset by the greater taxes paid by Smith, who will then have fewer dollars to spend or invest. If Uncle Sam borrows to pay for the stimulus checks, this borrowing takes money out of the private sector. Any dollars borrowed – whether from foreigners or fellow Americans – for purposes of stimulus would have been spent or invested in other ways were they not loaned to the government.

The only other means of paying for such stimulus is for the Federal Reserve to create new money. Unfortunately, this option leads inevitably to inflation.

All Americans wind up with more dollars in their wallets but also paying higher prices in the stores. Prosperity is not created by raining down upon the populace more monochrome pictures of dead statesmen.

read the entire essay

Economic logic v. political pandering. Guess which one the public will embrace.

Cartoon: Economic Stimulus Package

Cartoon: Foreign Competition

Friday, January 25, 2008

Students: Questions, Comments, and Suggestions

Remember, I am out Monday and Friday next week.

Parents: Questions, Comments, and Suggestions

Another week down...

Recommended Reading: An Unstimulating Idea

An Unstimulating Idea
Sheldon Richman

If we needed further demonstration of the folly that is the American political-economic system, there it is. The leaders of the interventionist state and the candidates who aspire to command it will continue to produce this inanity until people see it for the balderdash it is and resoundingly reject it.

The problem is that most people don't see it for what it is. When told economic activity is slowing down, they demand that their "leaders" and candidates assure them there is a Plan to keep them safe. The politicians are more than happy to oblige. Details don't matter much. As long as the president and the presidential aspirants adopt a somber yet hopeful and determined tone, pepper their speeches with big-sounding numbers and reassuring words, and promise to hand out money, most voters will be satisfied. They won't think about what's being said long enough to realize that none of it makes sense. They just want someone to make them feel safe, and there will be no shortage of such someones...

We are in our present position because government has burdened us with taxes, spending, debt, regulations, subsidies, guarantees (to lenders, for example), trade restrictions, fiat money, and other impositions. Between the endless domestic schemes and war, we are being crushed by the weight of the state. We don't need a stimulus. We need freedom.

read the entire essay

Cartoon: Ben Bernanke and the Economy

Thursday, January 24, 2008

Fiscal Stimulus Package

Sources on Capitol Hill and at the Treasury Department said the plan would send checks of $600 to individuals and $1,200 to couples who paid income tax and who filed jointly.

People who did not pay federal income taxes but who had earned income of more than $3,000 would get checks of $300 per individual or $600 per couple.

A Democratic aide and Republican aide said there will be an additional amount per child, which could be in the neighborhood of $300.

Those who earn up to $75,000 individually or up to $150,000 as a couple will be eligible for the payments, said Republican and Democratic sources familiar with the tentative deal.

read the CNN story

Perpetual Digital Revolution

Bill Gates Essay

People often ask me if we're nearing the end of the digital revolution -- if technology progress is at a point of diminishing returns and the personal computer has reached the apex of its development.

I believe the opposite is true. In many ways, the incredible advances of the past few decades have really just laid the foundation for much more profound change. In the years to come, hardware will continue to improve, often in dramatic and surprising ways. Software will continue to advance as we develop new approaches to take advantage of multicore processors, expanded data storage and more pervasive broadband access. Together, hardware and software will be the catalyst for advances during the next 10 years that will far exceed the changes of the last 30 years.

Soon computing and software will be available everywhere -- throughout the office and the home; in your car; and in stores, restaurants and public spaces. We'll access computing capabilities on a wide range of devices, often taking advantage of nearby displays and projection surfaces. Meanwhile, the proliferation of massive data centers and the increasing ubiquity of broadband networks will create a fabric of information and computing capabilities that extends seamlessly across our lives at work and at home, from any location.

read the entire essay

Wednesday, January 23, 2008

Toyota Catches General Motors

After more than seven decades as the world's biggest automaker, General Motors Corp. now has to share the title with Toyota Motor Corp., at least until the Japanese giant offers further clarity on its 2007 sales totals.

GM said Wednesday that worldwide sales rose 3% to 9,369,524 million cars and trucks in 2007 -- the second-best global sales total in company history.

Toyota earlier this month posted sales of 9.37 million, but hasn't given a final number down to the last vehicle sold. It may never release that figure.

"[Toyota's] consistent practice in years past has been to report out to two decimal places only," company spokesman Mike Michels said. "It is unlikely that this will change. It would seem that the so-called sales race is a tie."

read the full story

It was a good run for GM.

Fiscal Policy Lag

The history of anti-recession efforts is that they are almost always initiated too late to do any good. This chart, based on recession timelines from the National Bureau of Economic Research, shows the enactment of stimulus plans is a fairly accurate indicator that we have hit the bottom of the business cycle, meaning the economy will improve even if the government does nothing. — Bruce Bartlett, author of “Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy.”

from the New York Times

Minimum Wage Earners: 1.2% of Workers

Great chart from Carpe Diem

Interest Rates

great chart from the WSJ

Tuesday, January 22, 2008

Cartoon: Housing Crisis

What is Next for the Fed?

The Fed will hold a two-day meeting that wraps up on Jan. 30. And according to futures listed on the Chicago Board of Trade, investors are pricing in a 100 percent chance of at least a quarter-point cut, to 3.25 percent, and a 66 percent likelihood of a half-point cut, to 3 percent.

"There is a legitimate chance of another cut next week. The Fed wants to stay in front of things and at this stage, they'd rather err on the side of having rates be too easy than too restrictive," said Jack Ablin, chief investment officer with Harris Private Bank....

"There are already rumors that the Fed may cut more next week but at this point, I would think that they are going to stand pat," said Oscar Gonzalez, economist with John Hancock Financial Services in Boston....

Ed Yardeni, president of Yardeni Research, an independent market research firm, agreed. He sees more rate cuts ahead...but not next week.

"The Fed probably won't do anything next week. They are going to take a break now and see how things unfold," he said.

Norris said that a federal funds rate of 3 percent would be low enough to stimulate growth again without risking too much in the way of inflation. But he is concerned the Fed may cut rates too much.

Some economists have argued that the Fed lowered rates too aggressively during the 2001 recession - the federal funds rate eventually bottomed out at 1 percent - and that those historically low rates helped encourage the type of reckless subprime lending that is the root of the current economic crisis.

read the story

Opinions are varied on if and how much of a rate cut. The inflation threat seems to be understated. At this point, I don't think the Fed knows. What and see how the Dow Jones responds tomorrow and the remainder of the week. If it is below 12,000 a 0.50% is likely. Over 13,000 before the next Fed meeting could signal no increase.

Decemeber 2007 Deficit

from the Skeptical Optimist

Recession in 2008?

Dow Jones Circuit Breakers

from the Big Picture

This might comes in handle in the next few weeks.

Fed Slashes Rates to 3.5%

The Federal Reserve slashed two key interest rates by three-quarters of a percentage point Tuesday following an unscheduled meeting, citing continued concerns about a weakening economy and turmoil in the financial markets.

The Fed lowered its federal funds rate, which impacts how much consumers pay on credit card debt, home equity lines of credit and auto loans, from 4.25 percent to 3.5 percent. The Fed also lowered its discount rate, which is what it costs banks to borrow directly from the central bank, by three-quarters of a point, to 4 percent.

This was the biggest rate cut by the Fed since October 1984...
Still, others think the Fed needs to proceed cautiously, especially since it's fair to argue that aggressive rate cuts during 2001 may be the reason why banks are in the subprime mortgage mess they are in now.

To that end, William Poole, president of the Federal Reserve Bank of St. Louis, voted against a rate cut. According to the Fed's statement, Poole did "not believe that current conditions justified policy action before the regularly scheduled meeting next week."

Monday, January 21, 2008

Government Regulation: CAFE Standards

New fuel efficiency requirements imposed by Congress will add, on average, $6,000 to the price of GM vehicles sold in the United States, the automaker's vice chairman and product chief said on Tuesday.

Congress passed a new energy law in December 2007 that requires automakers to increase fuel economy across the industry to 35 miles per gallon by 2020 -- up 40 percent from current levels...

"We probably have to take a lot of weight out of the vehicles. We will have to use some premium materials like more aluminum, more magnesium," Lutz said. "Which gets you the weight savings but drives the cost up."
read the article

Another nail in the coffin of Detroit.

Recession: Will the "Solutions" Hurt the Economy? Part II

Meltzer, who is finishing the second volume of his history of the Federal Reserve, warns that Bernanke is risking a disastrous replay of the 1970s, when high oil prices fueled double-digit inflation. Every time the Fed started to tighten and unemployment jumped...

They lowered rates to boost job growth, and inflation inevitably revived, causing a vicious price spiral. The Fed let the disease rage for so long that it took draconian action by chairman Paul Volcker in the early 1980s to finally defeat inflation. The price was a deep recession, with unemployment hitting 11% in 1982. "The mentality is the same as in the 1970s," says Meltzer. "'As soon as we get rid of the risk of recession, we'll do something about inflation.' But that comes too late."...

while the economy is sending mixed messages about growth, the signs of increasing inflation are flashing bright red. For 2007 the consumer price index rose 4.1%, the biggest annual increase in 17 years. Gold, historically a reliable harbinger of inflation, set an all-time high of more than $900 an ounce. The dollar is languishing at a record low against the euro and a weighted basket of international currencies....

So what is the right course
for the Fed? Bernanke should hold the Fed funds rate exactly where it is now, at 4.25%. Standing pat might well push the economy into a recession. But the Fed's newfound vigilance on inflation would boost the dollar, effectively lowering the prices of oil and other imports. America would suffer a short downturn and restore price stability, paving the way to a strong recovery in 2010 or 2011. Sadly, the Fed has already chosen sides. It's likely to lower rates every time growth slows or joblessness rises. As a result, it will never tame inflation until it becomes a clawing, bellowing threat. Then we'll have to suffer a real recession, the kind we suffered in the aftermath of a time we should study and shouldn't forget - the 1970s.

read the full article

Inflation is a far greater threat than a relatively mild recession, yet nobody at the Fed seems to be talking about it. "Helicopter" Ben will continue to inflate, before realizing that inflation is the true threat to our current economy.

Recession: Will the "Solutions" Hurt the Economy?

In reality only one player has the power to do anything swift and decisive: the Federal Reserve. And its chairman, Ben Bernanke, has already made his intentions abundantly clear. Unfortunately, the cure he's prescribing may be worse than the disease...

It's clear that the economy is losing steam. The plummeting value of America's houses is chilling consumer spending, layoffs are mounting, and banks and other creditors burned by the subprime crisis are far more reluctant to lend to everyone from small-business owners to private equity firms. But GDP increased by 4.9% in the third quarter, and economists estimate that GDP was still growing in the fourth quarter. Exports are strong, thanks to the weak dollar...

So while a recession is a real possibility, it's not inevitable - even the Fed is not forecasting one this year. And if we do get one, it may be brief and shallow, like the one we had in 2001 - with economic growth falling by perhaps half a percentage point for a couple of quarters, and unemployment rising from its current 5% to 5.5% or 6%.

By cutting rates early and often, Bernanke is acting as though a recession - even a mild one - would be a calamity that must be avoided at all costs...

But Bernanke is setting the stage for an even bigger recession down the road. Just as the ultra-low rates of the early 2000s created many of the problems we're experiencing today, pumping money into the system would probably stoke inflation, forcing the Fed to hike rates sharply in the near future. "It's better to take a small recession and kill inflation immediately instead of facing high inflation and a really big recession later," says Carnegie Mellon economist Allan Meltzer.

read the entire article

Anna Schwartz is right. Ben and the boys at the Fed are not up to the challenge.

Sunday, January 20, 2008

Tax Rebates: Little Impact on the Economy

The underlying theory for the rebate idea traces back to the British economist John Maynard Keynes. He believed that spending was the driving force in the economy. It didn't matter whether the spending was done by businesses on capital equipment, by governments on public works, or by consumers -- spending is spending in the Keynesian model, and all of it is stimulative...

In 2001 -- despite the thoroughness and general acceptance of these studies -- Congress and the White House once again chose a one-shot tax rebate to deal with an economic slowdown in 2001.

To his credit, Treasury Secretary Paul O'Neill cautioned against the rebate. "I was here when we tried that in 1975, and it just didn't work," he said. "If we want to change consumption patterns, we need to make permanent changes in peoples' tax burdens."

In short, there is virtually no empirical evidence that tax rebates are an effective response to economic slowdowns. The increased personal saving doesn't help the economy because the federal budget deficit, which can be thought of as negative saving, offsets all of it in the aggregate. The main benefit of a tax rebate would seem to be political -- giving politicians a way of appearing to be doing something about the nation's economic problems that is superficially plausible.

A new rebate probably won't do much harm. But anyone who thinks it will prevent a recession -- if one is actually in the pipeline, which is not at all certain -- is dreaming... It should be called "feel good economics" because its only real effect is to make politicians feel good about themselves and buy re-election with the public purse.

from Bruce Bartlett "Feel Good Economics"

I am shocked that politicians would attempt to buy votes.

Mild Recessions

great chart from Carpe Diem

This recession, if it happens will likely be very mild.

How Different Investments Did Last Week

Budget Surpluses and Deficits

great chart from Mike Fladlien

Thursday, January 17, 2008

Analysis: Stimulus Packages

A less measured way to put this would be, why Keynesianism was wrong in 1936, 1956, 1976, and will be wrong in the year 2056. In other words, Keynesianism is just wrong analytically and practically as argued by both Hayek (analytically) and Friedman (practically). But it does have a powerful lure politically that has persisted despite its intellectual defeat by first Hayek, then Friedman, and finally by Lucas.

Peter Boettke

Recommended Reading: Russell Roberts on Economic Stimulus

Love that word—stimulus. It sounds so scientific...

Sounds like the perfect prescription for an ailing economy.

But if politicians know how to stimulate the economy, why wait for a recession? If you can make the economy grow, why wait for bad times?...

Maybe we don't know how to make a $14 trillion economy move very quickly. And if we did, it would take a lot more than an injection of even 125 billion dollars...

The standard stimulus package doesn't change incentives. It's a check from the government. The hope is that the receiver will spend it. But when you just send out checks from the government, whoever gets stimulated is likely to be offset by someone who gets unstimulated.

The money has to come from somewhere....

I'm not saying that economy policy is irrelevant. Economic policy matters because it affects the long-run growth of the economy. I'm all for policies that make us more productive or innovative by changing incentives. But those policies take time. There's little any economic doctor can do to move our $14 trillion organism of an economy in the next few months.
read the entire article

Central planning does not work

Bernanke: Juice the Economy "Quickly"

Federal Reserve Chairman Ben Bernanke told Congress Thursday that legislators should enact a fiscal stimulus package in order to help beleaguered consumers as recession fears grow...
"To be useful, a fiscal stimulus package should be implemented quickly and structured so that its effects on aggregate spending are felt as much as possible within the next twelve months or so," Bernanke said...

Bernanke said that current losses from the subprime mortgage mess were probably about $100 billion but cautioned that this figure could wind up being higher.

Former Treasury Secretary Larry Summers told lawmakers on Tuesday that Congress should consider a stimulus package of up to $150 billion. He proposed an immediate injection of $50 billion to $75 billion through a combination of tax cuts and increased spending on unemployment benefits and other programs. He also advocated that another $50 billion to $75 billion be set aside in case economic conditions weaken further.

read the CNN story

It appears Bernanke panicked Wall Street.

Bad Day on Wall Street: Dow Down 306 Points

Stocks tumbled Thursday, extending the 2008 selloff on recession worries following comments from Federal Reserve Chairman Ben Bernanke, a big quarterly loss by Merrill Lynch and weak readings on the housing and manufacturing sectors. Bernanke told Congress that the economic outlook has worsened and that lawmakers should enact a fiscal stimulus plan soon....

Bernanke, testifying before the House Budget Committee Thursday, said that the government should act quickly to put together a fiscal stimulus plan to help consumers amid rising recession fears.

He said any plan needs to be put into effect in the next 12 months to be helpful and should be temporary, to avoid the risk of juicing the economy too much beyond the short term and not cause a big jump in the budget deficit.

read the CNN story

The Fed and the Stock Market

read the story

Saudis Support Free Markets?

Saudi Arabia will raise oil production only when the market justifies it, the kingdom's oil minister said today, in response to President Bush's request that OPEC nations increase output to reduce world oil prices.

"Our interest is to keep oil supplies matching demand with minimum volatility in the oil market," Oil Minister Ali Naimi told reporters. "We will raise production when the market justifies it. This is our policy."...

"When consumers have less purchasing power, it could cause the economy to slow down," Bush said. "I hope OPEC nations put more supply on the market," he added. "It would be helpful."

Naimi said the U.S. economy is significant to the oil market and demand and no one wants to see a recession in the United States.

"I'm sure no one will look with pleasure on a recession in the U.S. On the contrary, all our effort is to maintain prosperity and growth in all countries particularly the number one consuming nation in the world," he said. "The concern for the U.S. economy is valid, but what affects the U.S. economy is more than the supply of oil."

Markets work, centralling doesn't.

Wednesday, January 16, 2008

Anna Schwartz Calls Out Greenspan and Bernanke

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.

"They need to speak frankly to the market and acknowledge how bad the problems are, and acknowledge their own failures in letting this happen. This is what is needed to restore confidence," she told The Sunday Telegraph. "There never would have been a sub-prime mortgage crisis if the Fed had been alert. This is something Alan Greenspan must answer for," she says...

Her fame comes from a joint opus with Nobel laureate Milton Friedman: A Monetary History of the United States. It revolutionised thinking on the causes of the Great Depression when published in 1965. The book blamed the Fed for causing the slump...

"It had an enormous impact in revitalising free-market conservatism, and it broke the Keynesian stranglehold over policy," he says. Keynes himself was a formidable monetarist. He became a "Keynesian" big spender only once all else seemed to fail...

According to Schwartz the original sin of the Bernanke-Greenspan Fed was to hold rates at 1 per cent from 2003 to June 2004, long after the dotcom bubble was over. "It is clear that monetary policy was too accommodative. Rates of 1 per cent were bound to encourage all kinds of risky behaviour," says Schwartz.

read the entire article

About time.

Tuesday, January 15, 2008

2008 Economic Freedom

Yet the evidence is piling up that neither government nor multilateral spending on education and infrastructure are key to development. To move out of poverty, countries instead need fast growth; and to get that they need to unleash the animal spirits of entrepreneurs...

The Index also reports that the freest 20% of the world's economies have twice the per capita income of those in the second quintile and five times that of the least-free 20%. In other words, freedom and prosperity are highly correlated.

The 2008 Index finds that while global economic liberty did not expand this year, it also did not contract. The average freedom score for the 157 countries ranked is nearly the same as last year, which was the second highest since the Index's inception. This is somewhat of an achievement considering the rising protectionist and anti-immigration sentiment in the U.S., the uncertainty created by spiking global energy prices, Al Gore's highly effective fear mongering about global warming, and the continuing threat of the Islamic jihad.

Today's entrepreneurs, across the globe, have similar aspirations and abilities. If only the politicians would let them be free.
read the WSJ article

It is disturbing that only 5 countries are "economically free."

Greenspan Predict Recession

The U.S. is probably in or about to enter a recession, former Federal Reserve Chairman Alan Greenspan said.

The odds are "not overwhelming but they are marginally in that direction" of recession, Mr. Greenspan said in an interview with The Wall Street Journal.

"The symptoms are clearly there. Recessions don't happen smoothly. They are usually signaled by a discontinuity in the market place, and the data of recent weeks could very well be characterized in that manner," he said.

Specifically, he cited a drop in the Institute for Supply Management's purchasing managers index to 47.7 in December after several months just above 50, the dividing line between expanding and contracting manufacturing activity. While "by no means conclusive, ... [that] is the type of thing, if we were going into recession, we'd observe."...

Mr. Greenspan first publicly raised the possibility of recession in February of last year, and put the odds at about 33%. He said in mid-December the odds had risen to about 50%.

Yesterday, he said the odds were still close to 50% but "more likely higher than lower."

from the WSJ

Monday, January 14, 2008

New Paper: Designing Institutions to Deal with Terrorism in the United States

Designing Institutions to Deal with Terrorism in the United States
Martin S. Feldstein
President and Chief Executive Officer
National Bureau of Economic Research


The explosion in the 21st century of terrorist activities by Islamic radicals in the United States, Europe and Asia requires reforming the institutions for domestic counterterrorism (CT) and new international relations among individual national CT organizations. This paper discusses the institutional reforms for CT in the United States, focusing particularly on the changes in the FBI. These changes are compared with the way that the British CT activities of the MI5 and MI6 have evolved in response to terrorism in Britain. The paper also discusses the reasons why there is strong cooperation among the CT activities of all the major governments and with the United States in particular, even when those governments do not agree about military cooperation or about the use of economic sanctions.

Click here.

Central Planners Meet

House Speaker Nancy Pelosi and Fed chief Ben Bernanke met Monday to discuss how Congress might act to stimulate the slowing economy.

Pelosi, D-Calif., is taking the lead as Democrats controlling Congress have reached out to the White House to work toward an economic stimulus measure that could get enacted relatively quickly.

Pelosi said it was her "hope that we can find a bipartisan initiative - recognizing the independence of the Fed - and with some coordination so that we can have a fiscal stimulus ... helping families and helping states feeling pressure."

Bernanke, chairman of the Federal Reserve Board, did not comment after the meeting and has been circumspect in his public statements about whether fiscal stimulus such as tax rebates or additional government spending is needed. He signaled last week that the Fed will continue easing interest rates in an effort to keep the economy from plunging into a recession.

read the CNN story

Stopping the printing presses would help with inflation rate that is going to be making headline before the year's end.

Moodys: Recession Not Likely

Despite the subprime mortgage crisis and the rising risk of a recession, a recession isn't likely under current conditions, credit ratings agency Moody's said in a report Friday.

The diversity of the U.S. economy and the global role of the dollar continue to support U.S. government bond and foreign currency ratings, according to the rating agency's annual U.S. credit analysis.

The dollar is expected to contribute positively to economic growth in 2008 as its declining value increases the value of U.S. assets abroad. But in 2007, due to a temporary slowing of the economy in the first quarter and an expected slowdown in the fourth, annual GDP growth is now estimated at 2 percent, down from 3.3 percent in 2006, Moody's reported.

read the CNN story

Despite the talk of recession that you here virtually everyone. It might not happen this year.

Supper: In About 3 Years

That is going to make a beautiful steak.

Saturday, January 12, 2008

How Different Investments Did Last Week

Government Controls Your Thermostat?

Next year in California, state regulators are likely to have the emergency power to control individual thermostats, sending temperatures up or down through a radio-controlled device that will be required in new or substantially modified houses and buildings to manage electricity shortages.

The proposed rules are contained in a document circulated by the California Energy Commission, which for more than three decades has set state energy efficiency standards for home appliances, like water heaters, air conditioners and refrigerators. The changes would allow utilities to adjust customers’ preset temperatures when the price of electricity is soaring. Customers could override the utilities’ suggested temperatures. But in emergencies, the utilities could override customers’ wishes.

Final approval is expected next month.

from the New York Times

After public protests, Chandler said, the commission decided to remove the mandatory provision from the proposal for the "Title 24" energy efficiency standards. Staff will make the recommendation at the energy commission's Jan. 30 meeting, and the new proposal would be taken up at a later meeting.

"The consumer or customer can overrride the emergency control," with the change, Chandler said. The system would notify customers of an emergency. If the customer did nothing, utilities could reset the thermostat to a higher temperature, but no higher than 88 degrees.

If customers don't want to give control of the thermostat to the utility, they can override the control, Chandler said.

read the story

Insanity. Big Brother. This will be reality some day. Here is an idea. Generate more electricity. Increase plant capacity and build more power plants. Choose markets over coercion.

Friday, January 11, 2008

Cartoon: We Just Lost Our Monopoly

Parents: Questions, Comments, and Suggestions

So far so good.

Students: Questions, Comments, and Suggestions

One week down.

3rd and 6th

We have a short way to go and a long way to get there.


Just the opposite

Cartoon: It is a Tough Choice

Gold Hits $900 for the First Time

Gold futures rose above $900 an ounce for the first time Friday, as high oil prices, a weak dollar and fears of a U.S. recession led uneasy investors to keep buying the precious metal.

An ounce of gold for February delivery on the New York Mercantile Exchange jumped $6.50 to $900.1 in morning trading, an all-time high and a psychologically important milestone. Gold later slipped to $898.70 an ounce but remained in record territory.

read the story

Post World War II Recessions

On Thursday, Federal Reserve Chairman Ben Bernanke pledged that the central bank is ready to slash interest rates again to prevent housing and credit problems from plunging the country into a recession. The Fed has cut its key lending rate three times since September, for a total reduction of 1 percentage point...

It's typical that unemployment and job losses continue to climb even after the recession formally comes to an end, as businesses respond to the downturn by cutting future spending plans.

In the most recent recession, the eight-month period in 2001, the unemployment rate was under 5 percent for the first six months of the economic slump...

But the year and a half that followed the recession seemed just as bad or worse to many Americans, as unemployment rose to 7.8 percent by mid-1992. That allowed Bill Clinton to defeat a sitting president, George H.W. Bush, as his campaign leadership kept reminding themselves "It's the economy, stupid."

read the CNN story

Good chart. Horrible article. The author lacks understanding of what a recession is. A recession is a 2-consecutive quarter decline in GDP growth. The US economy is far from being a solid healthy economy, but that does not mean it is in a recession. Unemployment is 5%, which is still consider full employment. Yes, the employment rate did increase 0.3%, but it could be an outlier in the long run picture. It is too early to tell. The economiy created a net gain of over 1 million jobs last year. Interest rates are near historically low levels.

There is the slump in the housing market, the sub-prime "crisis", falling dollar, and other things to be concerned about, but people should not be panicking.

The Federal Reserve and Credit Expansion

With the Federal Reserve likely to cut interest rates at their 1/30/08 meeting, it is time to remember some advice from Ludwig von Mises.

“If it were really possible to substitute credit expansion (cheap money) for the accumulation of capital goods by saving, there would not be any poverty in the world.”

Ludwig von Mises, Planning For Freedom

Thursday, January 10, 2008

Cartoon: Classic Dilbert

Click the cartoon or the blank bar below for a larger image.

Interest Rates Cut on the Way

Federal Reserve Chairman Ben Bernanke said in a speech Thursday that the central bank is prepared to continue lowering interest rates in order to help keep the economy on track.

He also reiterated that the Fed does not believe the economy will slip into a recession this year.

"We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks," Bernanke said...

Wall Street interpreted Bernanke's comments to mean that there is now an increased likelihood the Fed will lower its key federal funds rate by a half percentage point, to 3.75 percent, at the conclusion of its two-day meeting on Jan. 30."

A half-point cut is certainly on the table and it's about time. The Fed has a lot of work to do," said James Glassman, senior economist with JPMorgan Chase.

To that end, investors are pricing in a 92 percent chance that the Fed will lower rates by a half-point on Jan. 30, according to federal funds futures listed on the Chicago Board of Trade.

read the CNN story

Wednesday, January 9, 2008

Recession in 2008?

Recession May Already be Here

The question for many economists is not if
the U.S. economy will fall into a recession. It's whether it already has....

"Friday's employment report strongly suggests that an official recession
has arrived," wrote David Rosenberg, North American economist for Merrill, in a
note this week entitled "Recession a reality."...

The traditional sign
of a recession is two or more quarters when economic activity declines rather
than grows. That hasn't happened - the final reading of growth in the third
quarter came in at a healthy 4.9 percent....

Goldman's senior U.S.
economist Jan Hatzius is one of those saying a 2008 recession is likely, with
roughly a two-in-three chance. Hatzius is worried about the three-month average
for unemployment, which has jumped more than one-third of a percentage point
from its low....

Other economists point out it's almost irrelevant as to whether the economy
fell into a recession in December, or does so a few months from now.

Bernard Baumohl, executive director of the Economic Outlook Group, said that
even if the economy avoids a recession, it will do so with very slow growth in
2008. He said it's almost immaterial from that perspective if there is a
recession or not.

read the CNN story

Very pessimistic. While the economy has major problems a recession can be avoided this year. Also, could this be media bias? When economy is "bad" the incumbent party tends to lose.

Tuesday, January 8, 2008

HD-DVD v. Blu-ray: Is the Battle Over?


Maybe it is...

Gold Hits a Record High

The price of gold has been hovering at near-record levels, finally surpassing the record $875 per ounce mark, first set in 1980, during Tuesday trading. An ounce of gold for February delivery climbed as high as $879.40 an ounce on the New York Mercantile Exchange.

Monday, January 7, 2008

1 Million Net Jobs Created in 2007

great charts from the Skeptical Optimist

Not the nightmare the media is portraying.

Fair Tax?

The sales tax idea isn't Huckabee's invention. It was developed by a group called Americans for Fair Taxation, and it has already been written into a bill sponsored by Georgia congressman John Linder.

Conservative talk radio host Neal Boortz has helped turn it into a grassroots cause, and his FairTax Book, which he co-wrote with Linder, briefly held the No. 1 spot on the New York Times non-fiction best seller list.

read the CNN story

This is an idea we will be hearing more about as the campaign continues. I am for the elimination of the IRS and replacing it with....NOTHING. Cut my taxes!!!!!

Saturday, January 5, 2008

Cartoon: Oil Prices

64 Interview Questions

How to answer questions like:

  • What are your greatest strengths?
  • Why should I hire you?
plus 62 others

read the list

Advice from Bill Gates

In almost every job now, people use software and work with information to enable their organisation to operate more effectively...

A solid working knowledge of productivity software and other IT tools has become a basic foundation for success in virtually any career.

Beyond that, however, I don't think you can overemphasise the importance of having a good background in maths and science...

Communication skills and the ability to work well with different types of people are very important too...

I also place a high value on having a passion for ongoing learning. When I was pretty young, I picked up the habit of reading lots of books.

It's great to read widely about a broad range of subjects. Of course today, it's far easier to go online and find information about any topic that interests you.

Having that kind of curiosity about the world helps anyone succeed, no matter what kind of work they decide to pursue.

read the article

Richard Arens


The 1st person to buy oil at $100 a barrel. He lost about $600 on the transaction.

The trader has been named by US and British media as Richard Arens who runs a one man oil brokerage, ABS.

"The magic figure was hit apparently on the back of a single trade, rumoured to be a local intent on fame," Sucden analysts wrote in a commentary Thursday on the record breaking deal.

Arens offered 100,000 dollars on the New York market on Wednesday for 1,000 barrels of oil, producing the much talked of 100 dollars per barrel which sparked anguish across the financial markets.

He later sold on the contract for slightly below 100 dollars, taking a 600 dollar loss.

read the story

How Different Investments Did Last Week