Archive for the ‘economic’ Category

Threat of inflation sky high

March 22, 2009

The Fed’s announcement last week to flood the financial markets with $1.2 trillion in new money stunned many. True, governments often print money as a cheap way to buy off their debt. Governments also find that instead of paying off their debt they can simply reduce the value of the currency so much that earlier debts are not worth anything. But the shear size of the current change to the world’s preeminent currency is unprecedented.

Washington Times
Editorial

More money means that each dollar falls in value and can purchase less than it did previously. Think of it this way: If the number of apples suddenly doubled tomorrow, what would happen to the price of each apple? It would fall. Same with dollars, whether American or Zimbabwean, where the current inflation rate is 230 million percent annually.

The size of this $1.2 trillion increase is breathtaking, and the U.S. monetary base has already more than doubled so far, from $800 billion to $1.7 trillion. One normally needs a microscope to see past yearly changes in the money base, and the current change already jumps off of any chart – look at the one on the right from the St. Louis Federal Reserve Bank showing the blastoff. As the chart illustrates, even before the last infusion of money, we have already seen a huge increase in the money supply (M1) this year.

Devaluating our currency and our debt is a dangerous game. It may cure short-term ills but, in the long run, countries won’t want to hold U.S. government bonds or other investments if they think they risk losing a lot of money this way.

With the Fed’s announcement, the value of the dollar has started dropping precipitously. On March 12 it took $1.27 to buy a Euro. By last Thursday it took about $1.37. It is surprising that the size of the drop hasn’t been even larger.

The Fed seems to think that it is battling what might be a massive deflation and wants to protect against the unemployment that might result from sticky wages and prices. But instead of deflation, these huge increases in the money worry us that the opposite, a hyper-inflation, will be more likely the case and there will be real costs. And while this huge increase in money will undoubtedly be the one thing that the federal government has done that will lower unemployment, it is just the wrong way to lower it.

As Milton Friedman was well known for pointing out, inflation will cause some workers to think some jobs are offering higher real wages than they actually are. The problem is that once these workers realize their mistake – that the slightly higher wages they accepted were eaten up by inflation and did not represent a real increase – they will leave the jobs they took hastily to look for positions offering a real increase, ones they should have pursued all along. It is a solution, but a false one.

There are other bad consequences from this huge increase in the money supply. Interest rates will go up, simply because lenders will have to be compensated for the fact that any money that they get back a year from now will be worth less because of inflation. With the rates up, investments will fall.

However, the interest rate will actually go up by more than the inflation rate because our tax rules don’t adjust taxes on interest rates for inflation. If inflation goes from zero to 10 percent, the interest rate doesn’t simply go from, say, 5 percent to 15 percent – it has to go up by more than that to keep the after-tax return to investors the same. In fact, if someone is paying a 50 percent tax rate, increasing inflation from 0 to 10 percent would require increasing the interest rate to 25 percent to keep even!

This huge increase in the money supply may provide a short gain, but the long term costs are going to be huge. The notion that the Federal Reserve is capable of smoothing out the impact that such a change has on inflation is hubris at its worse. The Fed has a difficult enough job controlling inflation under the best of circumstances, and the Fed has never had to be asked to control this type of increase in the monetary base before.

Economic Abyss could deepen again

March 12, 2009

A deepening pessimism is taking root in the American economy as joblessness rises inexorably toward 9 percent, businesses are failing, U.S. exports have tanked and Wall Street is in a depression.

Obama: Playing not to lose

Billionaire investor Warren Buffet declares the economy has “fallen off a cliff,” and sees recovery further off than ever. Economists talk gloomily of a long recession followed by years of anemic growth as the once-mighty global economy shrinks for the first time since World War II.

Donald Lambro
The Washington Times

The administration’s plans to bail out failing banks, buy worthless toxic assets and “jump start” a listless economy now seem tame in the face of a dawning realization that the fierce financial infection is far more systemic than they had first imagined.

Global economic analysts here now talk of bank failures in the trillions of dollars, dwarfing the rapidly depleting $350 billion in TARP rescue funds that the Treasury has at its disposal. The Federal Deposit Insurance Corp. is raising its premiums on the nation’s banks to replenish its shrinking fund at a time when many banks are too weak to pony up more money.

President Obama‘s honeymoon, if he ever really had one, is being cut short by new criticism from Wall Street, Republicans and Democrats in Congress and, increasingly, the business community.

Read the rest:
http://www.washingtontimes.com/ne
ws/2009/mar/12/abyss-could-deepen-again/

Related:
Obama Wasting America’s Strategic World Power; China Surges Despite Economy

Obama’s three-pronged economic strategy: delay, delay and delay

China Buying Oil, Uranium, Gold, Other Products At Bargain Prices

Pelosi’s Stimulus II? Lawmakers Propose No Cost, High Employment Energy Package

China Buying Oil, Uranium, Gold, Other Products At Bargain Prices

Russia, “Desperate For Cash,” Sells Oil to China In “Very Bad Deal”
.
Even Democrats Showing Signs Of Economic Despair, Worry at White House Inertia

Pelosi: Congress Needs to ‘Keep the Door Open’ to Second Stimulus Package

No Leadership: It’ll Take More Than Money to Fix This Crisis

March 11, 2009

Browsing through the Style section of yesterday’s Post, I happened upon an article about new Washington “power couples” that made reference to one Jeremy Bernard, a Los Angeles fundraiser for President Obama who recently landed the plum job as White House liaison to the National Endowment for the Humanities.

By Steven Pearlstein
The Washington Post

White House liaison to the National Endowment for the Humanities?

Let’s get this straight: We’re up to our necks in the worst global economic crisis since the 1930s, the government is putting trillions of dollars of borrowed money on the line to rescue the financial system and stimulate the economy, tens of trillions of dollars in paper wealth has vaporized, millions of Americans are losing their homes and their jobs, nearly all the top jobs at the Treasury Department are vacant, yet somehow the White House has found the time and the money to hire a liaison to the National Endowment for the Humanities!
It’s a small point, I realize, and I mean no disrespect either to Mr. Bernard or the humanities. But it highlights what seems to be a glaring problem: There is still way too much business as usual going on in Washington, on Wall Street and in the media.

Not so on Main Street. All indications are that in response to the crisis, consumers have embraced a new frugality, paring debt and cutting consumption they know had become excessive. Businesses are moving to cut back on dividends and stock buybacks they can no longer afford, trim frills and reduce prices and capacity to post-bubble realities.

Contrast that with the approach to the crisis taken by members of Congress, who as far as I can tell, have changed nothing about how they go about their duties. Same leisurely three-day work week. Same bloated budgets for staff and security. Same unwieldy committees holding the same meaningless hearings. Same partisan posturing and gamesmanship. Same willingness to put narrow special or parochial interests over the national interest.

Can you imagine a better way to undercut public support for fiscal stimulus and deficit spending than to report out an omnibus spending bill with nearly 9,000 earmarks totaling $8 billion? But, of course, that is just what the Democratic Congress has done. Americans don’t need to be lectured by the House speaker and the Senate majority leader on the spending prerogatives of Congress. What they need are leaders who can demonstrate, in ways symbolic as well as substantive, that they know the difference between spending that is crucial to the country in times of crisis and spending that is not.

Read the rest:
http://www.washingtonpost.com/wp-dyn/
content/article/2009/03/10/AR200903
1003625.html?hpid=topnews

We are told the president signed the omnibus spending bill with nearly 9,000 earmarks totaling $8 billion — in secret….

White House Budget Chief Says President Obama Will Ignore Earmarks for At Least a Year

Related:
The president may not have what it takes

All The President’s Men: Where’s The Congressional Oversight?

Economic Situation Demads Nation, Politics With War Mindset

 Obama Doesn’t Understand What Many Americans Are Thinking

China Provoked Obama; Now Works To Smooth Situation: Why?

Losing Terror War? Al Qaeda, Afghanistan, Iran

Obama Policy On Gitmo, Taliban, Afghanistan, Intel: As Stupid as It Gets

Buffett: Obama not at war; has toxic message machine on economy

Pelosi: Congress Needs to ‘Keep the Door Open’ to Second Stimulus Package

March 10, 2009

Nancy Pelosi’s imperious use of government aircraft calls into question her judgment, no?  Well, that and a lot more….

President Pelosi?

http://michellemalkin.com/20
09/03/10/air-pelosi/

Speaker Nancy Pelosi, D-Calif. is kissed on the cheek by one ...

Pelosi Made Repeated Requests for Military Aircraft, Documents Show
http://www.foxnews.com/politics/200
9/03/10/study-pelosi-repeated-reques
ts-military-aircraft/100days/

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Fox News

House Speaker Nancy Pelosi said Tuesday that Congress needs to “keep the door open” to a second stimulus package — raising the question of how much the government could eventually spend on top of the $787 billion already allocated to rescue the country from dire economic straits.

“The word of the day is confidence. Confidence in our markets, confidence in lending, confidence in our financial institutions,” Pelosi said before suggesting the need for a second rescue package during a press conference Tuesday following a meeting with top economists.

Mark Zandi, chief economist and founder of Moody’s Economy, took a more definitive stance than Pelosi, telling reporters a second stimulus bill is necessary.

“We are going to need more taxpayer money … I think another stimulus package is a reasonable assumption because of the way things are going,” Zandi said.

The Obama administration has not ruled out a second stimulus package — should the current bill prove insufficient — but it has not indicated a second bill is currently in the making either.

White House Press Secretary Robert Gibbs told reporters on Feb. 17 that Obama “is going to do what’s necessary to grow this economy.” While “there are no particular plans at this point for a second stimulus package,” he added, “I wouldn’t foreclose it.”

But Allen Sinai, the chief global economist at Decision Economics Inc. who was also present at Tuesday’s meeting, disagreed over the need for a second rescue bill, telling reporters that more patience is necessary.

“Nobody should expect miracles … quick results,” Sinai said. “Patience doesn’t always look good … you have to wait.”

—From Fox News

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Related:
Obama Doesn’t Understand What Many Americans Are Thinking

NYT Interviews Obama; No Economic Recovery This Year
.
NYT: After March 6 Economic News, “2009 is Probably a Lost Cause”

Related:
Obama: Crisis is time of ‘great opportunity’

 President Pelosi?

 Obama, Socialism, Fear, Lack of Confidence: Tanking Stocks, Skyrocketing Debt, Recovery Doomed This Year
.
Can Democracy Fail With Obama’s Socialist Help?

53% Say It’s Likely the U.S. Will Enter a Depression

March 10, 2009

Most Americans (53%) now think the United States is at least somewhat likely to enter a 1930’s-like depression within the next few years.

The latest Rasmussen Reports national telephone survey found that 39% think this outcome is unlikely.

Nineteen percent (19%) say a Depression is Very Likely while 7% say it is not at all likely.

The latest results are more pessimistic than those found in early January, when 44% said a 1930’s-like depression was likely in the next few years, and 46% disagreed.

In March 2008, only 38% of adults said the country is likely to slip into a depression, while most (55%) disagreed.

The most recent survey also found that half of all adults (49%) say today’s children will not be better off than their parents. Only 26% hold the more optimistic view, while another 25% are not sure. Those results have changed little from January, when only 27% said children will be better off and 47% disagreed. Twenty-six percent (26%) were undecided at that time.

From Rasmussen:
http://www.rasmussenreports.com/public_content/b
usiness/general_business/53_say_it_s_likely_the_
u_s_will_enter_a_depression_similar_to_1930_s

Era of Obama, American Weakness Emboldens Russia, China, Iran, North Korea, Terrorists

March 9, 2009

Like it or not, the era of President Barack Obama and American weakness, real or perceived, has already emboldened many nations with long-term anti-American strategic goals: namely, Russia, China, Iran and North Korea.

Many in the world have already concluded that Brack Obama is soft, for his overtures so far toward the Taliban, Russia, Iran and others.

Related:
Various Views On Obama Foreign Policy: “Just Like Bush” Or Radical Change?

President Obama’s move to close the terrorist prison at Guantánamo Bay, Cuba (Gitmo) was cause for applause in human rights circles and also with terrorists.

On Afghanistan, Peter Begen of the New America Foundation said “It is a longstanding cliché that there is no military solution in Afghanistan, only a political one.”  On President Obama’s idea to hold talks with the Taliban he said, “Doing deals with the Taliban today could further destabilize Afghanistan. ”

And economically, there is no dobt that the U.S. is weakened.

Just today, North Korea threatened war with the United States — a war that would certainly involve Japan and South Korea.  North Korea could not be making such threats and could not even think about testing a long range strategic missile just now unless China consented to this brazen move or at least looked the other way.  China supplies North Korea with almost all of its food, oil, luxury goods and currency.  Without China, North Korea would be impotent and meaningless.

Yet China is acceding to North Korea’s bluster and browbeating of the United States just as China itself is harassing a U.S. Naval vessel in international waters — a violation of international law.

This US Navy file photo shows the military Sealift Command ocean ... 
This US Navy file photo shows the military Sealift Command ocean surveillance ship USNS Impeccable (T-AGOS-23). Five Chinese vessels maneuvered dangerously close to a US Navy ship in the South China Sea on Sunday, March 8, 2009, approaching within 25 feet of the unarmed surveillance ship, the Pentagon said.(AFP/NVNS)

China doesn’t care much for international law and international waters: just ask Japan and Vietnam.  Both those nations have long struggles with China encroaching upon the coasts of Japan and Vietnam as the Chinese super power searches for more oil beneath the sea floor.

China has become the most voracious user of oil and other mineral resources on the planet as it strives to keep its factories busy producing goods for sale overseas.  China is in Afghanistan, protected from the Taliban by U.S. troops, while Chinese companies exploit Afghan copper.  And China just signed a $50 billion (U.S. dollars, cast) agreement to get oil from Russia for ten years.

Last year China was no help when the U.S. wanted access to Myanmar to deliver humanitarian relief supplies to those stricken by the cyclone.  After the crisis passed, China signed a big oil deal with Myanmar.

China wants the U.S. out of its sphere of influence from North Asia to Somalia, and is planning an ocean-going navy to eventualy make that goal a military reality.

China recently opened the largest sea port in the world, in Gwadar, Pakistan — directly astride the sea lanes used to bring out out of the Persian Gulf to Japan, the U.S. and others.

Meanwhile, the U.S. continues to go into debt — to China.

China allows North Korea to antagonize the United States because that is in China’s long term strategic interest — and a weakening U.S. plays into China’s strategy perfectly.

Russia also wants the U.S. out of its area of influencce.  Russia recently paid off Kyrgyzstan, which was helping the American effort in Afghanistan with an air base. Just after Russia gave  Kyrgyzstan its big aid deal, that nation announced the closure of the Manas air base supporting the U.S.

File:ManasAirbase KC135.jpg
A KC-135 Stratotanker sits on the flightline at Manas Air Base, Kyrgyzstan, Thursday, Feb. 23, 2006. Ground crews will have to de-ice the tanker before it can take off on a refueling mission. (U.S. Air Force photo/Staff Sgt. Paul Clifford)

Generous Russian loans to Kyrgyzstan totaling US$2 billion and a non-repayable US$150 million grant, were announced the day before Kyrgyzstan said Manas would be closed and the U.S. Air Force evicted.

The Shanghai Cooperation Organisation had been insisting on the closure of Manas to the U.S. Air Force since 2005.

What the heck is the Shanghai Cooperation Organisation?

The Shanghai Cooperation Organisation (SCO) is an intergovernmental mutual-security organisation which was founded in 2001 by the leaders of China , Kazakhstan, Kyrgyzstan, Russia, Tajikistan, and Uzbekistan.

But the key players of the SCO are Russia and China who don’t want the U.S. or anyone else in the West anywhere near that region of the world, rich in oil and other minerals, that includes Kazakhstan, Kyrgyzstan, Russia, Tajikistan, and Uzbekistan.

China and Russia conducted their largest joint military exercise ever last year.

And finally Iran wants the U.S. out of the Persian Gulf, away from Arab oil, and at arms length from Isreal.

Joshua Gross wrote for the Christian Sciences Monitor today,  “Iran recently launched its first satellite into orbit in what The New York Times called, ‘a shot across the bow of American diplomacy,’ and US President Barack Obama passed along a secret letter to Russian President Dmitry Medvedev in an attempt to enlist the Russians in an international effort to contain Iran’s nuclear program.”

The global economic crisis, which has eliminated something like $50 trillion in world wealth, has hit the United States and NATO very hard, which fuels the beliefe that Mr. Obama and the U.S. are weaker than ever just now.

That’s why Iran and North Korea are talking missiles and nukes, China has chosen just now to harass a U.S. ship, and Russia is gloating like a cat bird that Obama is already pleading for help with Iran from Putin and Medvedev….

John E. Carey
Wakefield Chapel, Virginia
March 9, 2009

Iranian clerics watch the launch of a Shahab-3 ballistic missile ... 
Iranian clerics watch the launch of a Shahab-3 ballistic missile outside Qom in 2006. A top Iranian military commander said that the country has missiles that can reach the nuclear sites of its arch-foe Israel.(AFP/File/null)

Related:
Stimulus: China Will Fund U.S. Debt But “We Hate You Guys”

Russia, “Desperate For Cash,” Sells Oil to China In “Very Bad Deal”

India, China jostle for influence in Indian Ocean

 China Extends Navy’s Anti-Piracy Mission Near Somalia

 China Says Its Navy Expansion “No threat to others”

 Pentagon: Chinese Ships Harassed Unarmed U.S. Navy Craft in International Waters

 North Korea Warns: Shoot Down Our Satellite Will “Prompt Counterstrikes by the Most Powerful Military Means”

Obama’s First Major Foreign Crisis Brewing?

China’s thirst for copper could hold key to Afghanistan’s future

Obama says US is losing war in Afghanistan and hints at Taleban talks

Despite Global Economy Downturn, China Still Lending

Russia Sees Obama, U.S., Others As “Weak,” “Naive”

http://michellemalkin.com/2009/03/09/analys
ts-to-obama-there-are-no-taliban-moderates-yo
u-nitwit/

What’s China’s Long Term Global Strategy?

http://jonathanturley.org/2009/03/09/ira
nian-justice-eight-women-face-stoning-dea
ths-for-adultery/

http://spectator.org/archives/2009/03
/09/slickness-with-a-straight-face

CNN on Peter Bergen and Afghanistan:
http://edition.cnn.com/2009/PO
LITICS/03/09/bergen.taliban/index.html

Joshua Gross on Iran:
http://news.yahoo.com/s/csm/20
090309/cm_csm/ygross

World Bank: Global Trade Drops Most in 80 Years; What’s it Mean For Obama?

March 9, 2009

In a paper prepared for this month’s meeting of the G20 in London, the World Bank says global trade is on track to this year record its largest decline in 80 years.

The bank also says that suffering in places like the U.S. and Europe may be significant but the global economy’s impact in poorer countries is much more dramitic.

“Debt issuance by high-income countries is set to increase dramatically, crowding out many developing-country borrowers, both private and public,” it says.

World Bank president Robert Zoellick warned that preventing an economic catastrophe in developing countries was important for global efforts to overcome the crisis.

“We need investments in safety nets, infrastructure, and small and medium size companies to create jobs and to avoid social and political unrest.”

What’s this mean for President Obama: should he help “bailout” poor countries, as the New York Times proposes?  Or should he get money flowing again so Americans can buy goodies at WalMart from China, boosting world trade?  Either way, the solutions take a lot of debt, much borrowed from China, with may cut into his health care plans and ideas about the environment, global warming, energy, education and other projects….

Related:
 NYT Urges Obama To “Bail Out” Third World Too

 Despite Global Economy Downturn, China Still Lending

 World Bank Says Global Economy Will Shrink in ’09

 Obama has little reason to fall in with the G20

World Bank Says Global Economy Will Shrink in ’09

March 8, 2009

The economic crisis that started with junk mortgages in the United States is causing havoc for poorer countries around the world, not only stifling their growth but choking off their access to credit as well, the World Bank said on Sunday.

By Edmund Andrews
The New York times

In a bleaker assessment than those of most private forecasters, the World Bank also predicted that the global economy would shrink in 2009 for the first time since World War II. The bank did not provide a specific estimate, but bank officials said its economists would be publishing one in the next several weeks.

Until now, even extremely pessimistic forecasters have predicted that the global economy would eke out a tiny expansion but had warned that even a growth rate of 5 percent in China would be a disastrous slowdown, given the enormous pressure there to create jobs for its rural population.

The World Bank also warned that global trade would shrink for the first time since 1982, and that the decline would be the biggest since the 1930s.

The report, released on Sunday, was prepared for a meeting next week of finance ministers from the 20 industrialized and large developing countries. It warned that the financial disruptions are all but certain to overwhelm the ability of institutions like itself and the International Monetary Fund to provide a buffer.

The bank, which provides low-cost lending for economic development projects in poorer countries, pleaded for wealthy governments to create a “vulnerability fund” and set aside a fraction of what they spend on stimulating their own economies for assisting other countries.

“This global crisis needs a global solution and preventing an economic catastrophe in developing countries is important for global efforts to overcome this crisis,” said Robert B. Zoellick, the World Bank’s president. “We need investments in safety nets, infrastructure, and small and medium size companies to create jobs and to avoid social and political unrest.”

The bank said that developing countries, many of which had been growing rapidly in recent years, are being devastated by plunging exports, falling commodity prices, declining foreign investment and vanishing credit.

Read the rest:
http://www.nytimes.com/2009/03/
09/business/09bank.html?_r=1&hp

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Vietnam beomes more poor:
http://ph.news.yahoo.com/afp/20090308/tbs-
finance-economy-vietnam-poverty-a179076.html

Related:
Stimulus Too Late, Wasteful, Reckless; Toxic Assets and Banks Still Unaddressed

NYT Interviews Obama; No Economic Recovery This Year

 NYT: After March 6 Economic News, “2009 is Probably a Lost Cause”

Obama’s Honeymoon In Hell

March 8, 2009

On the most important issue of the day, the NEWSWEEK Poll shows that close to two thirds (65 percent) of the public say they are very or somewhat confident that Obama will be successful in turning the economy around. That’s down just a little from the 71 percent who felt that way before he took office. Still, overall perceptions of the economy remain solidly negative, with 84 percent saying the national economy is in poor shape and just 3 percent viewing things positively.

From Newsweek

Read the rest:
http://www.newsweek.com/id/188002

Related:
Stimulus Too Late, Wasteful, Reckless; Toxic Assets and Banks Still Unaddressed

Recession on track to be longest in postwar period

Obama’s Next Challenge: Iran, Israel, Russia? It’s Here Now