Saturday, January 31, 2009
Friday, January 30, 2009
The Department of Labor reported January 16 that the CPI for all urban consumers (seasonally adjusted) decreased by 0.7 percent for December and was a mere 0.1 percent higher than a year earlier. Prices have not declined significantly, and the trend certainly has not been deflationary.
Since the time of Adam Smith, economists generally have defined inflation or deflation as a rise or fall in the money supply (broadly defined)...
The threat facing the economy as a whole in 2009 will be the consequences from this vast inflationary increase in the monetary aggregates.
The "stimulus" package being weaved together by Obama and the Congress will be a giant, costly -- and in reality wasteful and counter-productive -- exercise in the absurd idea that government can manage the economy and produce the Keynesian "miracle" of turning "Stones into Bread" (as Ludwig von Mises called it many years ago).
Gross domestic product, the broadest measure of the nation's economic activity, fell at an annual rate of 3.8% in the fourth quarter, adjusted for inflation.
That's the largest drop in GDP since the first quarter of 1982, when the economy suffered a 6.4% decline.
Still, the decline was less than the 5.5% drop forecast by economists surveyed by Briefing.com. The fourth quarter plunge followed a more modest decline of 0.5% in the third quarter.
But Exxon's quarterly profit fell over 33%, as crude prices dropped precipitously in the last quarter as recession spread through the globe.
Exxon (XOM, Fortune 500), the world's largest publicly traded oil company, made $7.82 billion in the fourth quarter on revenue of $84.7 billion. On a per share basis, the company made $1.55, beating analysts' estimates of $1.45 a share...
Oil prices, the driving force behind oil company profits, swung widely in 2008. Crude hit a record $147.27 in July, as surging global demand and wide investor interest pushed up commodity prices across the board.
read the CNN story
Thursday, January 29, 2009
Yes, we need to get "inflation back into the system", but lets do it in a way that will cause another giant asset bubble to form without causing inflation to "runaway".
That really worked out well last time.
Get ready for all kinds of crazy-talk this spring - heaven help us if the annual change in the CPI dips below minus one percent, or minus two percent...
Yes, people saving money is a bad thing - they must be compelled to "shift out of cash". We need another bubble to rescue us from the fallout of the last two.
from The Mess That Greenspan Made
My thoughts: After the media whips up the deflation panic, we can expect 15% inflation by 2011.
Even without doing the math, you probably get that the government's financial-rescue effort is failing.
But do the math, and you can begin to understand how really botched this bailout has been. Since October, the government has deposited $165 billion into the accounts of the nation's eight largest banks. Yet those same financial firms are now worth $418 billion less than they were four months ago, and the Congressional Budget Office estimates that the government's preferred shares are worth at least $20 billion less. In Wall Street terms, that's throwing good money after bad. All told, the government's annualized rate of return on its investment in the nation's largest banks is -1,096%.
read the article
My thoughts: Remember when you were told that the TARP was an investment that could make money for taxpayers? Congress actually had a straight face when they said it.
The U.S. Census Bureau reported that new home sales fell to an annual, seasonally adjusted rate of 331,000 in December. That's down 14.7% from a revised 388,000 annual rate in November.
The House bill is one of the largest single stimulus packages in history, almost equal to the entire cost of annual federal spending under Congress's discretion. A parallel Senate measure, which is expected to come to a vote next week, is now valued at nearly $900 billion.
Wednesday, January 28, 2009
PRESIDENT-ELECT BARACK OBAMA, JANUARY 9 , 2009
With all due respect Mr.President,that is not true.
Notwithstanding reports that all economists are now Keynesians and that we all support a big increase in the burden of government, we the undersigned do not believe that more government spending is a way to improve economic performance. More government spending by Hoover and Roosevelt did not pull the United States economy out of the Great Depression in the 1930s. More government spending did not solve Japan’s “lost decade” in the 1990s. As such, it is a triumph of hope over experience to believe that more government spending will help the U.S. today. To improve the economy, policymakers should focus on reforms that remove impediments to work, saving, investment and production. Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth.
see the ad
My thoughts: Let's politicize an economic crisis with pork. Change you can believe in."Never let a serious crisis go to waste. What I mean by that is it's an opportunity to do things you couldn't do before."
White House Chief of Staff Rahm EmanuelThe 647-page, $825 billion House legislation is being sold as an economic "stimulus"...
The larger fiscal issue here is whether this spending bonanza will become part of the annual "budget baseline" that Congress uses as the new floor when calculating how much to increase spending the following year, and into the future. Democrats insist that it will not. But it's hard -- no, impossible -- to believe that Congress will cut spending next year on any of these programs from their new, higher levels. The likelihood is that this allegedly emergency spending will become a permanent addition to federal outlays -- increasing pressure for tax increases in the bargain. Any Blue Dog Democrat who votes for this ought to turn in his "deficit hawk" credentials.
This is supposed to be a new era of bipartisanship, but this bill was written based on the wish list of every living -- or dead -- Democratic interest group.
read the WSJ article
Total: $356.0 billion
My thoughts: Congresss screams we must do something now. Yet, the majority of the spending occurs after the recession in projected to be over.
Public opinion is behind tax cuts. In a recent poll, 58% of Americans said they would oppose a new fiscal stimulus program if it did not include tax cuts. While it is natural that Americans should want tax cuts, we should be careful about the methods we choose to achieve that goal...
Perhaps the most disturbing part of this discussion is the failure of so many people to recognize the illusory nature of the Obama tax cuts, which would reduce the immediate tax burden for some Americans by increasing the federal deficit. A switch from tax-financed spending to deficit-financed spending does little to change the existing division of resources between the private and public sector.
Obama's tax cut does not shift resources into the private sector, as a true tax cut would. What Obama is proposing is deferred taxation. He wants to spend now and tax later. The Obama deficits will increase the interest payments by the federal government, draw money in capital markets away from private investment, and ultimately result in higher future tax rates...
Overall, the Obama plan to borrow now and tax later does not stimulate the economy; it just keeps a large part of the economy in the public sector. There is no real tax cut in his proposal. In real economic terms, the alleged tax cuts in Obama's plan keep tax rates the same.
The real cost here stems from government waste...
Government waste is a drain on future economic growth. Lower economic growth is a hidden tax that we all pay. That is, it is a tax that is completely unseen by people who accept the rhetoric of economically illiterate politicians like Barack Obama. Unfortunately, many Americans are ready to be fooled by Obama's mythical tax cuts and fiscal stimulus. While Obama promised change, he is changing nothing with his tax policy.
read the entire essay
My thoughts: Smoke and mirrors. Cut tax rates. Or better yet eliminate the income tax and cut spending to match.
Tuesday, January 27, 2009
The cost of the bank bailout is likely to be much higher than $700 billion.
While the Obama administration hasn't asked Congress for more money yet, some experts warn that government spending on support for struggling financial services companies will ultimately reach into the trillions of dollars...
"The amount of working capital you'd expect the government to take into this would be around $3 trillion to $4 trillion," said Simon Johnson, a senior fellow at the Peterson Institute for International Economics and author of its Baseline Scenario
financial crisis blog.
read the CNN story
My thoughts: Wow. Do you think the pols lied to the taxpayers?
Monday, January 26, 2009
Sunday, January 25, 2009
Saturday, January 24, 2009
Friday, January 23, 2009
Even if government spending in theory could “stimulate the economy” in a genuine, sustainable way, it would not follow that politicians and bureaucrats would know how to spend the money intelligently. The pressures to do something now and the perverse incentives facing those in charge of the money guarantee there would be more doggle than boon...
The government isn’t starved for tax money. It’s just lousy at spending it intelligently. “Spending is up 50 percent over the last 10 years, after adjusting for inflation. As a share of the economy, it will be higher this year than in any year since 1981,” Leonhardt writes...
Government will be government. As Russell Roberts says, expecting a stimulus bill not to have pork is like expecting a ham sandwich not to have pork...
Government borrowing and inflation is exactly what we don’t need. No politician, however charismatic, is capable of creating wealth by creating money.
Is there a role for the politicians? By all means. They must radically reduce the burden of government at all levels and in all ways. This includes spending, taxing, borrowing, regulating, subsidizing, and inflating.. An economy cannot serve consumers if politicians, pretending to know what they are doing, insist on interfering.
read the entire essay
My thoughts: Richman shows once again why he is of the best economic commentators today. Central planning does not work.
Thursday, January 22, 2009
The Dow Jones Industrial Average fell 14 percent between Barack Obama’s election and Inauguration Day, the biggest decline ever. The second-biggest drop gave way to a 75 percent rally in 1933.
read the story
Wednesday, January 21, 2009
Whenever the government failure becomes prominent, the government blames the private economy for having failed. It always blames someone else, never its own policies. It blames industry. It blames businessmen. It blames greed. It blames speculation. It blames the consumer. It blames foreigners. It blames Nature. It never blames itself...
Obama and his economists are facing a worse situation than existed three months ago. The government actions up to now have made matters worse. The Obama $825 billion spending program will not turn the economy around. It is a Christmas tree going to various interest groups: $142 billion to state education, $111 billion to health care, $102 billion to relief, $90 billion to infrastructure, and $58 billion to energy subsidies. A lot of this is pyramid-building or pyramid-maintenance. $275 billion is payroll tax cuts is also slated. What should be done is to cut government spending by a trillion dollars and simultaneously lower tax rates on capital. Ending the estate tax, cutting marginal rates, and cutting tax rates on dividends and capital gains will all stimulate smaller businesses to form and add employment. They are a major source of new employment in the economy. Ending subsidies to various industries, cutting tariffs, and ending various quotas will also benefit the economy. These should all be done while at the same time cutting the budget...
Obama is an economic illiterate. He would maintain high capital gains taxes even if by reducing them, they would bring more revenue to the government. It doesn’t get much more irrational than maintaining a tax at a high level out of a concern for fairness when the overall pie will go up by reducing that tax. Obama and his team will be back asking Congress for another trillion quite soon and probably another trillion after that. They will not know what to do when more big banks fail and when many regional banks start to fail. I predict that they will do as was done with the S & Ls in the 1980s. There will be a policy of "forbearance" when regulatory guidelines are violated. They will not want to have to appropriate money for the FDIC. If they form a Resolution Trust kind of entity to receive and sell off bad bank loans, this again subverts the bankruptcy option. It socks the taxpayers with the losses...
The overall result of continuing along the lines laid down by Bush and the prior Congress will likely be stagnation of the American economy and a longer-lasting depression of business activity and economic growth. It could last 4–7 years or longer. The attempts to revive the economy will produce inflation during the depression.
read the entire essay
Tuesday, January 20, 2009
The Dow Jones industrial average (INDU) lost 4%, closing at the lowest point since Nov. 21. The Standard & Poor's 500 (SPX) index lost 5.3% and the Nasdaq composite (COMP) lost 5.8%.
Although Obama is a positive for the markets, his inauguration does not change the underlying issues, said Phil Orlando, chief equity market strategist at Federated Investors.
read the CNN story
Can an interest rate of zero be too high? Unfortunately, yes. A new analysis by Goldman Sachs (GS) concludes that the Federal Reserve's cut in the federal funds rate to a record low of zero to 0.25% on Dec. 16 isn't going to be nearly enough to get the economy going again. The report says the Fed would need to reduce the federal funds rate to negative 6% by the end of 2010 to supply the needed amount of monetary stimulus.
The problem: It's literally impossible to cut interest rates below zero. As a result, "we are entering a world with interest rates that are far too high for the economy's good," Goldman Chief U.S. Economist Jan Hatzius wrote in a Jan. 16 research note...
The solution is obvious: The Fed needs to deliberately raise the rate of inflation—maybe not all the way to 6%, but significantly above zero.
read the entire article
My thoughts: Idiocy!!!! Inflation is a problem, not a solution!!!!
Monday, January 19, 2009
Members of the Senate Finance Committee met Tuesday with treasury secretary nominee Tim Geithner over concerns involving his personal taxes and the immigration status of a former housekeeper, transition officials said.
Later, the housekeeper, who is married to a U.S. citizen, was granted a green card, transition officials said.
The second concern involves Geithner's taxes while he worked for the International Monetary Fund (IMF). According to a statement released by the committee, Geithner failed to pay self-employment taxes while the IMF paid him from 2001 to 2004.
"We're going to have a tough year, 2009," Obama told CNN in an interview Friday.
"I don't think that any economist disputes that we're in the worst economic crisis since the Great Depression. The good news is that we're getting a consensus around what needs to be done. We've got to have a bold, aggressive reinvestment in a recovery package. It's working its way through Congress. That's going to help create three to four million new jobs," he said.
My thoughts: Comparisons to the Great Depression at this point are ridiculous.
See the Minneapolis Fed for more charts showing real comparisons to previous recession.
Sunday, January 18, 2009
Saturday, January 17, 2009
Economists polled by Reuters had expected a 1% decline in December after a revised 1.3% drop in November, initially reported as a 0.6% dip.
For the fourth quarter as a whole, total industrial production fell at an 11.5% annual rate.
Compared with December 2007, industrial production was down 7.8%, the biggest drop since September 1975.
Friday, January 16, 2009
Is there any interest in having an EconLog Book Club on Murray Rothbard's For a New Liberty? I've got a lot of history with this book, which is now available online. I read it about ten times between the years of 1989 and 1994, and it had a tremendous influence on my thinking. But I haven't read it for fifteen years. Now I'm curious to revisit it and see how well it holds up.
Even if you find the anarcho-capitalist substance of the book noxious, it's hard not to admire the style. For a New Liberty is ridiculously well-written, so whatever you conclude, you'll enjoy the book club experience.
Who's in?P.S. Glad to see there's so much interest. I suggest we start discussing Chapter 1, "The Libertarian Heritage: The American Revolution and Classical Liberalism" on January 20.
For the uninitiated, the moral of the story is simply this: Politicians invariably respond to crises -- that in most cases they themselves created -- by spawning new government programs, laws and regulations. These, in turn, generate more havoc and poverty, which inspires the politicians to create more programs . . . and the downward spiral repeats itself until the productive sectors of the economy collapse under the collective weight of taxes and other burdens imposed in the name of fairness, equality and do-goodism.
read the WSJ essay
This is a Dante-like vision of hell. It’s a mountain of festering refuse, a half-hour hike across, emitting clouds of smoke from subterranean fires.
The miasma of toxic stink leaves you gasping, breezes batter you with filth, and even the rats look forlorn. Then the smoke parts and you come across a child ambling barefoot, searching for old plastic cups that recyclers will buy for five cents a pound. Many families actually live in shacks on this smoking garbage...
Talk to these families in the dump, and a job in a sweatshop is a cherished dream, an escalator out of poverty, the kind of gauzy if probably unrealistic ambition that parents everywhere often have for their children.
“I’d love to get a job in a factory,” said Pim Srey Rath, a 19-year-old woman scavenging for plastic. “At least that work is in the shade. Here is where it’s hot.”
Another woman, Vath Sam Oeun, hopes her 10-year-old boy, scavenging beside her, grows up to get a factory job, partly because she has seen other children run over by garbage trucks. Her boy has never been to a doctor or a dentist, and last bathed when he was 2, so a sweatshop job by comparison would be far more pleasant and less dangerous.
read the New York Times article
Details of the agreement were released early Friday. In exchange for the extra capital, Bank of America agreed to cut its dividend to a penny, comply with executive compensation limitations and begin a mortgage loan modification program. The U.S. will receive warrants, fees and an 8% dividend on preferred stock.
"These times continue to be increasingly difficult on all of us," said Bank of America Chief Executive Kenneth Lewis Friday in announcing a fourth-quarter loss of $1.79 billion.
Counting $25 billion in rescue funds already received, Bank of America's $45 billion in federal aid matches the amount given to New York rival Citigroup Inc.
Thursday, January 15, 2009
Wednesday, January 14, 2009
1. Centralization. The view that all of the economic activity within U.S. borders, that is, the abstraction that many of us call the economy, is actually a real and single entity; that this whole can be and should be subject to the planning and control of centralized national officials.
2. Collectivization. The view that the life of each person is largely determined by the collective of other persons (and by collective forces beyond his control that induce insecurities); and that the powers of the collective others should be controlled by nationally elected officials so as to enhance the life, progress, happiness, and welfare of each person; that the same officials should create arrangements to reduce the various insecurities of life.
3. Market failure. The view that people in markets, left to themselves, are incapable of sustaining their own investment and employment; leading to the view that government officials need to be the watchdogs, regulators, and controllers over people making exchanges in markets.
4. Insufficiency of social institutions. The view that persons cannot count on other persons, families, churches, clubs, insurers, companies, associations etc. to meet their own needs; leading to the view that national officials acting with the powers of government are essential for meeting people’s needs.
5. Symbiosis of big institutions and big government. The view that government controls the economy by supporting and controlling big business, big labor, big agriculture, big media, big defense companies, big banks, and so on; the view that individuals, small business, independent proprietors, and small institutions of all kinds, are minor.
6. The President as personification of Democracy. The view that national institutions speak for all the people (as opposed to federalism); the view that presidential leadership supercedes national-state government relations; the view of Democracy as a collective government personified by the President, as opposed to democracy viewed as self-government.
7. Inflation is good for the economy. The view that persons should not control what money is, but that government officials should; the view that a growing economy requires depreciation of the currency and that a declining level of prices of goods and services is to be avoided.
8. Rejection of limited government. The view that the powers of the national government are virtually unlimited, or limited only by expediency; that the national government controls the persons and wealth of all of its citizens.
America will not experience a revival or redirection toward liberty and free markets until Americans reject – fully, firmly, and consciously – the premises of the New Deal, for it was the New Deal that codified and institutionalized the American rejection of liberty and its exchange for collectivism and fascism.
read the article
Tuesday, January 13, 2009
By comparison, the budget deficit for all of fiscal year 2008 was $455 billion. In fiscal 2007, it was $161 billion.
The deficit has ballooned in the first quarter of the fiscal year as the Treasury, Federal Reserve and FDIC began spending record amounts of the $7.2 trillion committed so far to bailouts, financial stabilization efforts and capital investments. The numerous emergency actions began as a result of the credit crisis that started in mid-September.
A decline in tax receipts, stemming from the 1.5 million jobs lost in the first three months of the fiscal year, also contributed to the soaring deficit.
read the CNN story
Monday, January 12, 2009
Nearly 2.6 million jobs were lost last year, with the majority of them coming in the final four months of the year. And some economists are forecasting as much as a 5% to 9% drop in economic activity during the fourth quarter, which could be the biggest drop in 50 years.
But some economists are starting to believe that there could be a much stronger and quicker recovery than is now widely expected.
read the CNN story
Sunday, January 11, 2009
- Henry Morgenthau (FDR's Treasury Secretary)
My thoughts: Economic ignorance allows us to fall easy prey to political charlatans and demagogues. Walter Williams
Saturday, January 10, 2009
We are not going to be able to spend ourselves into prosperity.
Socialism doesn’t work. Central government planning doesn’t work.
You can’t turn these market related functions over to government planning.
Our economy is going to be weakened dramatically as we move more and more away from free markets and capitalism towards socialism, toward centrally planned economy.
If the government tries to interfere some more, they going to re-create the Great Depression only this time it is going to a inflationary depression this time; it is going to be a lot worse.
For the year 2008, net job losses were 2.6 million, the largest total since 1945, however, this is likely to be revised much higher later in the year when benchmark revisions are performed.
read the WSJ article
Friday, January 9, 2009
Thursday, January 8, 2009
"They don't understand that what is happening right now is the consequence of the phony economy that they thought was so great."
My comments: Schiff is among the best commentators around.
Wednesday, January 7, 2009
Another major American industry is asking for assistance as the global financial crisis continues: Hustler publisher Larry Flynt and Girls Gone Wild CEO Joe Francis said Wednesday they will request that Congress allocate $5 billion for a bailout of the adult entertainment industry.
“The take here is that everyone and their mother want to be bailed out from the banks to the big three,” said Owen Moogan, spokesman for Larry Flynt. “The porn industry has been hurt by the downturn like everyone else and they are going to ask for the $5 billion. Is it the most serious thing in the world? Is it going to make the lives of Americans better if it happens? It is not for them to determine.”
The eye-popping estimates reflect plummeting tax revenues because of the recession and about $400 billion spent to bail out the financial industry and take over Fannie Mae and Freddie Mac. Last year's deficit was $455 billion.
The CBO estimate released Wednesday also sees the economy shrinking by 2.2 percent this year and recovering only slightly to grow by 1.5 percent in 2010. It foresees the unemployment rate eclipsing 9 percent early next year unless the Obama administration steps in.
"The recession — which began about a year ago — will last well into 2009," the CBO report says. The agency said that "ongoing turmoil in the housing and financial markets has taken a major toll on the federal budget."
A new Congressional Budget Office forecast due out Wednesday is expected to put the fiscal 2009 deficit at about $1 trillion, more than double the $438 billion in red ink CBO foresaw in September.
Sen. Judd Gregg of New Hampshire, the ranking Republican on the Senate Budget Committee, said that would put this year's deficit at 7% of the gross domestic product, a level not seen since World War II...
The goal of the stimulus package, which will include tax breaks for businesses and individuals and is estimated to cost $775 billion, is to generate jobs and spending to jump-start the country's ailing economy. But concerns are growing over the potential, long-term cost of some of the policy changes being considered. Republicans and even some Democrats said some of the items show too little concern for the long-term impact on the national deficit...
"Potentially we've got trillion-dollar deficits for years to come, even with the economic recovery that we are working on at this point," Mr. Obama said. "We're going to have to stop talking about budget reform. We're going to have to totally embrace it. It's an absolute necessity."
|The Best||The Worst|
|1. Mathematician||200. Lumberjack|
|2. Actuary||199. Dairy Farmer|
|3. Statistician||198. Taxi Driver|
|4. Biologist||197. Seaman|
|5. Software Engineer||196. EMT|
|6. Computer Systems Analyst||195. Garbage Collector|
|7. Historian||194. Welder|
|8. Sociologist||193. Roustabout|
|9. Industrial Designer||192. Ironworker|
|10. Accountant||191. Construction Worker|
|11. Economist||190. Mail Carrier|
read the WSJ article
and for the full list here
Tuesday, January 6, 2009
According to the minutes from that meeting, the central bank is now predicting that gross domestic product, the broadest measure of economic activity will fall in 2009.
"I think that the Fed is really very scared right now -- like everybody else -- and they want to pull out all the stops," said David Wyss, chief economist for Standard & Poor's.
The Fed indicated that most members at its meeting expected a slow recovery to begin in the second half of the year, but that unemployment would still rise "significantly" into 2010.
Obama said Tuesday the deficit appears on track to hit $1 trillion soon. Speaking to reporters after meeting with top economic aides, Obama said: "Potentially we've got trillion-dollar deficits for years to come, even with the economic recovery that we are working on."My thoughts: When will the national debt double? triple?
He wants Congress to approve a stimulus plan of about $775 billion.
The federal deficit was about $455 billion when the last fiscal year ended on Sept. 30, 2008.
"One would be very hard-pressed to find a serious professional historian who believes that the New Deal prolonged the Depression."
Newsweek's Daniel Gross