Friday, September 22, 2006

Is the Fed Redundant?

The marketplace seems to have predicted the FOMC's decision correctly. After all, they are privy to the same data and know the individual players' tendencies, i.e. that there is only one member (Lacker) who would vote for an increase.

Just a thought: Is the FOMC really helpful, or is it just a piece of roughage in an otherwise smoothly automated process? Oil in the gears, or just a bug in the ointment?

wrench-works
[Thanks to polarweasel.org for the image.]

Does the FOMC really have a positive effect on the quantity of money available? Or do they bring to the table a degree of uncertainty that keeps everyone guessing and the high rollers rolling? Do they help the economy to stabilize, or do they cause bubbles and pops, floods and draughts? Could the money market do just as well without them? Or would everything break down?

I think the jury is still out on that one; but the question does come to mind.

Sunday, September 17, 2006

Central Banks Selling Gold

This is not to claim that this fact explains gold's recent price dips, but the Reuters article is worth a read anyway.

1999gold3coinset
[Thanks to 24carat.co.uk for the photo.]

The price is dipping because:

1. Tensions between Israel and Hezbollah have calmed;

2. Tensions with Iran are coasting and we're getting numb to the bickering;

3. Oil companies have found huge new sources of petroleum within US borders, lowering oil prices and anxiety. This is not directly related to gold; but when oil prices rise, CPI figures rise, and the gold price rises as people believe gold is a hedge against inflation. If price inflation looks like it will remain contained or go down, short- to medium-term investors relax and go back to business as usual, which is what they've been doing recently. (Long-termers like myself stay with gold until the Fed stops playing around with our money supply, but that's a different subject. See my earlier posts here and here.)

4. Gold's present role as unofficial back-room currency standard makes for increased speculative movement, and speculation is hard to analyze, especially when some of those involved are central banks.

This central bank selling may be having some impact because they've stepped up the pace in the last few weeks given the coming annual deadline. However, they might not sell all they are allowed to, because gold is becoming more "valuable." (Actually it isn't; it's the various currencies that are losing their value. See other earlier posts on economic theory if you're curious. They're easy to read; start with the first and read forward.)

I'm going to hang in there on gold's side for the moment, because the fundamentals are still with us. The dollar has got to give, unless the Fed raises rates, which I don't think they will do for fear of causing a real estate bust; plus there are all those greenbacks in the coffers of the Asians, Saudis, and who knows whom else. At some point, they will get tired of absorbing our debt at their own expense.

That's my two cents worth, anyway.

Gentle Tug of War

At this weekend's G7 meeting in Singapore, China and Japan are politely telling the rest of the world where to get off, when it comes to currency exchange rates, trade imbalances, and internal monetary policy.

Tug of war
[Thanks to golden-rescue.org for the photo.]

Zhou Ziaochuan, China's head of the central bank, resists US pressure to allow their currency to float, and says:

"We will keep the renminbi's exchange rate relatively stable at a rational and balanced level." Translation: Maybe we will allow it to float, but when we wish, and at the rate we wish. No one dictates to the Chinese.

On the other hand, they must perceive three looming dangers: (1) the danger of holding US instruments based on a dollar that is not fixed to any standard and the exchange value of which is determined by supply and demand; (2) the danger of hoarding a portion of the world's supply of dollars, throwing off the balance between supply and demand, artificially maintaining a higher dollar price, and helping to foster the huge US trade imbalance; and (3) the danger of ignoring the rattling of trade tariff swords in Congress.

See the full Reuters article here. It says, "The United States, with a record trade deficit, is particularly anxious to see a stronger yuan." I would remark that this depends on who you mean by "the United States." (See my earlier post.) US manufacturing would love it; but US importers like Wal-Mart would hate it. Congressmen attached to manufacturing lobbyists would love it, but the Fed is probably on the fence: Their mind says China should de-peg. Their gut may be saying, "De-peg, yes, you should from a theoretical point of view; but be careful not to do it too fast. We don't want a dollar crash on our hands."

Also this: "The [Chinese] central bank has raised lending rates twice since April and also increased banks' reserve requirements twice to brake the economy, which grew 11.3 percent in the year to June, the fastest pace in a decade." I suppose that's one way of absorbing all of those US dollars in their coffers; sure, just stick 'em in the bank vaults.

Then, on the Japanese front, you have the Bank of Japan Governor Toshihiko stating:

"The IMF board should discuss this issue from the viewpoint of securing a consistency between exchange rate policies and other domestic economic policies, and not in the narrow context of attributing the global imbalance to a specific country's or region's exchange rate policies." Translation: Stop ganging up on a few countries before (a) you get your own respective houses in order; and (2) we all agree on a global monetary policy.

That article is here.

I say good luck on those last two. Central bank economists are already operating on thin theoretical ice inside their own country, never mind agreeing with their international colleagues; and the IMF as global economic policy police? I don't think so.

Thursday, September 14, 2006

Yahoo's Left Hand or Its Right Hand?

Yahoo Finance seems to be the classic case of the left hand not knowing what the right hand is doing. This morning, here are two headlines from this same service on the state of the economy, both taking their figures from the same source:

left-right
[Thanks to Bradley Arthur and scsv.nevada.edu/~susanb/jblog for the image.]

Headline No. 1:
"Retail sales, import prices stronger"
"[R]etail sales rose 0.2 percent, as lower gasoline prices helped spur spending in other areas like automobiles and school-related purchases." [Reuters]

Headline No. 2:
"Retail sales slow, jobless claims drop"
"Retail sales in August posted the weakest showing in two months as worried consumers curbed their spending habits." [AP]

Go figure. I guess it's so that commentators on both sides can find what they're looking for at Yahoo Finance. On the other hand, if you want the unadulterated data, go to the source (the Commerce Department.)

Wednesday, September 13, 2006

Foreclosure Figures Up Again

An article at cnnmoney.com gives some disquieting figures for foreclosures around the country.

foreclosure
[Thanks to signcreations.com for the image.]

August figures are 115,292, the second highest after February's 117,151. Florida, California, Nevada and the Midwest are the hardest hit.

Statistically, the public must keep in mind that foreclosure numbers are still very low historically speaking. See my previous post for a more precise historical perspective.

But this definitely deserves watching very closely. (On the other hand, this could be good news for the public auction sign people under the old silver-lining principle.)

Tuesday, September 12, 2006

China's Pegging: Be Careful What You Wish For

Certain countries peg their currency to the dollar, most notably in Asia and in the Middle East. The measure has short-term advantages for the peggor and/or the peggee. Some peggors peg to avoid reevaluation upward of their currency, as this allows them to sell their exports at an artificially maintained low dollar price, guaranteeing export sales growth for the near future. In this instance, the peggee is also a short-term winner, getting to continue buying those products at that low price, for the near future.

Nursery-Furniture-Wooden-Star-Wall-Peg
[Thanks to toybugs.com for the photo.]

The problem is twofold. First, the dollars accumulate in the pegging nation's coffers, because to sell them back to the exchange marketplace would lower the dollar's exchange rate and put pressure on the peg. So pegging central banks either use them to buy American goods or American assets, like treasury bonds, stocks, securities or real estate, and they just store some of them in their reserve accounts to use as backing for their own monetary unit, just as banks used to do with gold in the good old days.

This is all fine and good for a while, and some peggors see this as a golden opportunity. But there is a limit to how many dollars they can dispose of and store in this way. At some point, something's gotta give, because they're gonna have either internal inflation themselves, or if they limit money creation, they'll end up with a huge foreign exchange account full of dollars and American assets whose exchange price may not always be the same if things were to reverse all of a sudden, as has happened with past peg scenarios.

But there is another ramification of not selling the dollars in the exchange market and thereby not allowing the dollar to find its natural level. When the dollar sinks relative to its trading partners, American exports become less expensive, i.e. more competitive on the international marketplace. However, if the peggors prevent it from sinking or slow the sinking down, American manufacturing prices remain relatively high on the international market. This hurts American manufacturers and their employees, and puts pressure on salaries in general. The CPI remains low and the Fed loosens money, making more dollars for the Chinese to store (and devaluing the real value of the dollar in the process, albeit imperceptibly at first.) It also makes America's trade imbalance grow, which it has recently done to a record $68 billion in July.

The Chinese and a few others have been pegging their monetary unit to the dollar for some time now. In July of 2005, someone managed to persuade China to begin letting it slide, and they have allowed the yuan to rise a total of about 4% since then. It still has a long way to go to represent reality, so Congress is getting impatient.

As described in this article at Breitbart:

"The administration is pushing China to move more quickly to allow its currency to rise in value against the dollar as a way to narrow the yawning trade gap by making American exports cheaper in China and Chinese goods more expensive for U.S. consumers. Congressional critics of China's trade policies have warned that if China does not act, they plan to push for a Senate vote before the end of this month on legislation that would impose 27.5 percent penalty tariffs on all Chinese imports. That would drive up the price American consumers would have to pay for Chinese clothes, toys and consumer electronic products, but supporters of the legislation contend a strong U.S. response is needed to force China to stop manipulating its currency to gain unfair trade advantages."

But either way, we have a problem. If Congress puts the tariff in place, American CPI would shoot upward, with the increase in prices of imports from China. But if China were to let its yuan go and reevalue upwards, American CPI would also shoot upward with the increase in prices of imports from China.

Can't win for losin'. And Goodness knows what the Fed would do then. They'd be forced to tighten, but at the wrong time from a business cycle point of view. And yet something's gotta give here. And it will give, either through the door or through the window, as they say in France.

Monday, September 11, 2006

The Fed: Perfecting the Art of Confusion

Below are paraphrases of speeches by two members of the Federal Reserve, both of whom will be voting in the FOMC in the next few months. (See Yahoo/Reuters article.)

confusion
[Thanks to barraclou.com for the photo.]

First, Cathy Minehan of the Boston Fed.

Inflation up: "[T]he risks of both slower growth and higher inflation had increased in recent months."

Inflation down: "[S]he predicted softer growth would eventually bring down core inflation to more acceptable levels, saying that part of the recent spike in prices had been due to the passing on of energy price spikes."

And now Willliam Poole of the St. Louis Fed.

Inflation up: "Poole said inflation was running above the range he would prefer to see, and said that if it did not ease over the next 18 months that he would rather 'act earlier rather than later.' "

GDP soft: "this was 'not to say we couldn't have a weak quarter or two.' "

"The two officials' comments were sufficiently noncommittal with regards to the outlook for monetary policy that investors largely shrugged their shoulders."

Sunday, September 10, 2006

Core Inflation as a Tool

This Fed tactic of looking at core inflation instead of the CPI is ridiculous. (Actually, using stats to control monetary policy in the first place is ridiculous if you ask me. But I digress.)

apple_core
[Thanks to dancordell.co.uk for the photo.]

Core inflation eliminates food and gas, but it doesn't eliminate electronics and other goods and services that have bottomed out pricewise due to technological advances. Nor does it eliminate lower prices due to massive importing of cheap goods from third-world countries. Food and gas "distort" the figures higher, they say, but electronics and a cheap yuan don't "distort" the CPI lower. Hmm. I haven't done the math, but I bet you'd get closer to the CPI 4.5% inflation rate if you took both extremes out.

My Unscientific Theory on Why the Recent Rise in Income Is Only the Bubble Trying to Work Its Way Through the System

Here's a great chart showing a nice gain in compensation per hour, year-over-year percent change. Second quarter 2006 comes in at a nice 7.7%, which is good news for all those people who were complaining that their real incomes were not progressing. (Real increase is about 3.2% annually. That's not bad, much better than recent years.)


Click on graph for larger image.
[Thanks to Prudent Bear for the graph.]

And I do think this is good news, because according to My Own Conjectured Theory Of Monetary Credit Fiddling (MOCTOMCF), wages are the next to last indicator to rise in an over-expanding monetary climate, and it's about time the marshmallow fluff got down to the little guy. After all, he's been spending a lot more for houses and experiencing CPI increases over the years; why shouldn't he get the corresponding wage lift? He's been the low man on the totem pole for too long, paying more, earning less, while the upper guys get all the profit -- as is usual with inflationary waves.

And this time the expansion could have bypassed him altogether, as the global credit maelstrom raged through booming sectors around the world: Mortgages in China, mergers in Europe, currency manipulation in developing economies, leveraged derivative speculation worldwide, etc., blowing right over his head. That would have been a pity, because it is he who is the real engine of our economy, i.e. the working man and woman.

The last indicator to rise, according to MOCTOMCF, is general prices, or CPI -- although it's already at a pretty fat 4.5% (compound annual 3-months rate ending July 2006.) For reasons having to do with "[t]he vast ('elastic') supply of contemporary output (including imports, digital media, technology, telecommunications services, medical, education, financial services and 'services' generally) [that] works to restrain rapid general price index gains" (as Doug Noland at Prudent Bear notes), the CPI seems to have risen relatively quietly. And anyway the Fed is not looking at CPI but at core inflation, which came in at 3.2% recently. (See my upcoming post for a comment about that.)

According to MOCTOMCF, this second stage of credit inflation started in the 1990s. Up until then, when in around 1980 the Fed realized the 20th century inflation game was catching up with them, they began reigning in credit, and things began to slow back to normal -- or almost. But it was too painful. In the early 1990s, just as the floodwaters had begun to dissipate in earnest, the Fed got impatient and started to pump credit back into the system, probably most significantly around 1993-4 and thereafter in spurts. Credit dollars blew into the tech stock market first; then when the bubble burst (as all bubbles do eventually), and instead of the Fed trying to sweep up the mess and starting over, they began re-inflating credit in early 2001. They were worried about not being liked, I guess. Or maybe a bite of the hair off the dog that bit you. Who knows.

So this time, the newly created credit flowed into the real estate market, the stock market having proven itself to be skittish. Home prices skyrocketed. In 2004, the Fed decided to slow things down again. But this time, the waters are not responding. Their contracting action was "measured" (how many times did we hear that word over the last four years?) So instead of turning off the faucet, credit was allowed to continue to bubble into the banking system even as the Fed was signaling a slow-down. But they weren't eliminating or reversing credit; they were just slowing down the bubbling -- which might explain the plethora of corporate profits and cash floating around, by the way, because corporations were just heeding the Fed's warnings about credit contraction and not investing in expansion, but the contractions just weren't materializing as fast as expected. Right now, they're in holding mode, waiting to see what the Fed will do next.

At this point, the Fed is thinking that credit must have stabilized; but the real estate and other credit markets (leveraged financial stuff, M&A, etc.) are still chugging defiantly uphill, like a huge 100-car freight train with the brakes on but the motor still running. By this time, inertia has taken over, and it would take a sudden jump in brake pressure (upping the Fed rate a few more times, for example) to have any real downward effect.

If the Fed stays where they are, the fluff will spread around the whole economy and things will get back to a statis of sorts; but of course they'll feel obliged to DO SOMETHING. Question is, what'll it be? The best thing would be for them to curl up and go to sleep like the Sleeping Beauty who never wakes up; but I'm afraid that's just not their style.

Doug Noland's 9/8/06 analysis is great, as usual. He notes the following data, relevant to MOCTOMCF:

"Year-to-date, Bank Credit has expanded $546 billion, or 10.8% annualized."

"Commercial & Industrial (C&I) Loans have expanded at a 16.5% rate y-t-d and 14.7% over the past year."

"Money Fund Assets have increased $168 billion y-t-d, or 11.8% annualized, with a one-year gain of $265 billion (13.5%)."

"Total Commercial Paper jumped $16 billion last week to a record $1.860 Trillion. Total CP is up $219 billion y-t-d, or 19.3% annualized, while having expanded $272 billion over the past 52 weeks (17.1%)."

“ 'Multinational companies will invest $1.2 trillion worldwide this year, the London-based Times said, citing a report by the Economist Intelligence Unit. The investment would be a 22 percent increase from last year…' " (from Bloomberg 9/6/06, Bill Murray)

He also offers this analysis:

"Continued robust mortgage borrowings and huge ongoing corporate and government debt growth combine for Record Total System Credit growth, this despite the significant decline in home sales transactions. The unrelenting massive Credit expansion – pursuant to several years of an intensifying Inflationary Bias permeating the wages and Incomes arena - readily explains today’s heightened Income Inflation. Record Total Credit Growth, then, continues to buttress home prices, in the process bolstering the Aged Credit Bubble and its brethren, the stock market Bubble."

Yup. All of this corroborates my MOCTOMCF. Now if only it were scientific. Rats.

Because I suppose there is a slight chance that this whole bubble-like expansion is nothing but productivity gain, as the Fed would have us believe. But somehow, I doubt it. And history is on my side.

Saturday, September 09, 2006

France's Pro-America Candidate for 2007

Nicolas Sarkozy, France's former Finance Minister and now Minister of the Interior, will be a strong candidate for France's President if he wins his UMP Party's primary against acting Prime Minister De Villepin. He has given an interview to the French newspaper Le Monde that I think deserves full translation here. (The original article is here.)

sarkozy

LeMonde: How do you respond to your adversary's criticisms that make you into a pro-American candidate?

Sarkozy: If, after twenty-five years of political life, the only serious reproach one could make against me is being too close to a country with which we have never been in war, to a country with which we have fought in the past to eradicate Nazism, with which we fight today to vanquish terrorism, I think I'm capable of assuming it. Here you have a country that has experienced full employment for going on fifteen years now, a country where economic growth each year is superior to ours by a point to a point and a half, a country where democracy manages to fuse power rotation with political stability; and, finally, a country that is an example to the world regarding integration: half of the [American] Nobel prizewinners are of foreign origin.

I am not a blind fan of the US; but any impartial observer must consider that this is not am embarrassing record, and that we have no reason to be angry at the American people.

LeM: Must a candidate be anti-American to win over the French voter?

S: That is a preconceived notion propagated by a small French elite who are disconnected from reality. I am not as persuaded as you seem to be that the French detest America. The French, and especially the young, like American movies, music, the American way of life. They are full of admiration for it. TF1 [a French TV channel] just replaced the traditional Sunday night movie by an American series. And then you try to explain to me that being a friend to America is a problem in France? Now that I've said that, I will probably incur the bitterness of those who believe Russian or Chinese society is more amenable.

LeM: You can't deny that Irak has profoundly affected the French-American discourse.

S: The crisis of 2003 was, in my opinion, the most important that France has seen with the US since 1966 and the departure of the Americans from their French military bases at the request of General DeGaulle. The crisis caused by the war in Irak was serious, because it was emotional. The Americans felt they were abandoned by a nation with which they had felt close historical ties and shared values.

LeM: Exactly, should they have provoked this crisis?

S: I will not judge their methodology. But I will say that on principle I approve Jacques Chirac's warning to the international community and to the Americans concerning the risks if a war in Irak. Today, we see one of the consequences: liberated from its historical rival, Iran is now developing into a regional power that I couldn't exactly call reassuring!

LeM: When one is an ally, should one veto an American decision?

S: The threat of veto was useless, first because there would never have been a majority on the Security Council in favor of war, and secondly because it led to a feeling of humiliation in the US. Be that as it may, it is not because we are fundamentally friends that we have promised to agree with everything. Ally does not mean conjoined. This is precisely the reason for our misunderstanding. In the end, we have very similar ambitions. Both France and America have placed the universality of their values at the heart of international strategy, both considering that these values are so fundamentally just or so fundamentally reasonable that the world should be irrigated with them. I realize that the Americans' tendency to proselytize can be aggravating; but we are too when we trumpet "le triomphe de la raison."

LeM: How to weigh on America? Through dialogue or through confrontation?

S: I would rather plead for complete autonomy and verbal freedom. France should be the vassal of no one; however, the more we manifest fundamental disagreement, the more we should be careful of the form the manifestation takes. I believe democracies should be allied. What happened on September 11, 2001 in New York could have happened in Paris.

LeM: Has that crisis had an influence, for example with security?

S: During the worst moments of the crisis, our respective information agencies collaborated in an exemplary fashion. This was therefore proof that we were on top of things. But this crisis was so blown up in the media that it left deep scars, of that I'm well aware. It's all the more deplorable since France is the second largest investor in the US, with 150 billion dollars (120 [b]illion euros), there are 3,000 French companies present on US soil, that employ directly or indirectly some 600,000 American workers, and each day 1 billion dollars are exchanged between France and the US.

LeM: Is the Europe that you defend enfeoffed to the US?

S: No way! How can you ask me such a thing? Who wanted to see Turkey in the EU? President Bush. And you ask me if I am aligned with the Americans! It is you who is aligned with the Americans, you Le Monde, when you treat me as a populist because I was against the entry of Turkey into the Union. There you have a major point where I am in the exact opposite position to American strategy -- because I am attached to the political Europe. Does that mean I should refuse to visit the US, just because George Bush confuses NATO with Europe? A country does not boil down to the personality of this or that of its leaders, and it is not abnormal for a person with a political mission to want to know, understand and dialog with our natural allies.

LeM: Are you inspired by the American presidency?

S: America is a functioning democracy. Term limits give it a certain fluidity, once again, as well as a way of rotating the political class that we should integrate into French politics. The American Congress, to which the president must answer every year, has a veritable power of control and inquiry. There are only fifteen cabinet members [the equivalent of the French ministers, of which there are something like twenty-five] for a country with 300 million inhabitants, and the ministries don't change titles at each change of political party.

LeM: What would you like to import from America to France?

S: I like the energy and the fluidity of America. The sentiment that everything is possible. This impression -- perhaps artificial -- that great stories are possible, that you can start at the bottom of the ladder and climb very high, or perhaps the opposite. The Enron affair is fascinating and it has a moral. The US not only cultivates successes like Bill Gates, it also punishes mistakes.

LeM: And what don't you like?

S: The [government-imposed] minimum standard of living doesn't permit millions of people to live decently. [Translator's note: Oh-oh, here we start to part company; but that's normal; he's French -- Robespierre and all.] I dislike this harshness. Nor do I identify with their systematization of their roots. Communities tend to assemble on the basis of a flag, a hymn and images, but not of a Republic. Americans possess all the symbols of a nation, but do they still have the same convictions? Finally, I dislike their lack of interest in world affairs, next to which each French person could pass for a foreign affairs specialist. [On that, he's 100% right.]

Friday, September 08, 2006

Whatever Happened to Price Fixing?

Fixxon

Here's a nice article on gas price fixing. It explains that you must be consistent, i.e. if they're gouging us to raise the prices, they must be gouging us again to make them go down, which doesn't make sense, does it? In other words, pricing is rarely gouging. At least not in today's world, and not even with big bad oil companies.

Yes, Incentives Matter -- When They're Strong Enough

Warning: My picture today may be offensive to more sensitive stomachs. Here it is:

Doggie Bag

That object is doggie poop in a little Glad Bag. It's something I find all over my neighborhood when I go out walking, and I don't just see this once a year; it's more like once a week.

This is how a few dog owners think they're thwarting Municipal Code Section 53.49, which states:

"It shall be unlawful for the owner or person having custody of any dog to fail to immediately remove and dispose of in a sanitary manner, by replacing in a closed or sealed container and depositing in a trash receptacle [emphasis added], any feces deposited by such dog upon public or private property [etc., otherwise he or she will be committing] an infraction, punishable by a fine of $20.00."

They probably think they're obeying the law, but I suspect they've never read the actual wording.

Economics tells us that incentives (and disincentives, like fines) matter, and our streets are probably cleaner as a result of this law. But incentives will always be subject to the variances of human nature. A very few people disregard all laws. A larger but still small subsection simply disregard a particular law. Still others have a deformed, rationalizing guilty conscience that forces them to this kind of twisted compromise. They don't want people to step in it, so they'll go to the trouble of bagging it; however, rather than carry the nasty little offering around with them until they pass a trash can, they'd rather risk the twenty bucks.

And at 6:00 a.m., the risk drops to about zero.

Thursday, September 07, 2006

What Foot Are You Dancing On, Arnold?

Schwarzenegger has done it again: Completely confused us about his platform. Even France is perking up its ears. (See an article in the French blog lesechos.fr.)

The Global Warming Solutions Act has been passed, and Arnold is taking the credit just before elections. Don't get me wrong: I like clean air as much as the next fellow. But I'd rather let private companies do the investing, not California taxpayers, who will be footing part of this bill if the legislators and special interest groups have their way and a tax is passed on gasoline.

But state involvement in a particular industry has its silver lining for those who know where to look.

Silver Lining
[Thanks to my.fit.edu/~dabrown/pictures for the image.]

Companies like Draper Fisher Jurvetson, and Kleiner Perkins Caufield & Byers, are cashing in. In Draper's case, they are the recipients of funds from a settlement in the bankruptcy case of Pacific Gas and Electric. They will meet the funds with their own venture capital, and they've set out to push Green in California.

On the other side, you have objectors. According to a Reuters article at Yahoo Finance, other manufacturers are hesitant. Jack Stewart, president of the California Manufacturers & Technology Association, is paraphrased:

"In essence, Stewart said, manufacturers who are considering expanding in or moving to California will put their moves on hold for five years, because the final specifics of the regulations are not expected until 2011."

Thomas Duesterberg, president and CEO of the Manufacturers Alliance/MAPI, says:

" 'In a globally competitive environment, manufacturers won't be able to sit around and work on marginal costs,' Duesterberg said. 'They are going to have to think seriously about whether or not to stay in California.' "

I guess Arnold's platform is: "I wanna get elected. The rest can wait." Meantime, the jackals dispute the spoils or hunk away mad.

Incompetents of the World: Unite

Unemployment is at 4.7%, but that doesn't stop even college educated people from whining. Now, not only do they want to whine, they want to "participate collectively in the political process to advance economic policies that protect their interests."

whining
[Thanks to langstroth.net for the photo.]

Yes, Public Choice again raises its ugly head, as people scramble to grab a piece of what they see as their rightful share of government protection -- big government protection, that is. Reminds me of France.

Barbara Ehrenreich, author of "Bait and Switch," and "Nickel and Dimed," is griping again, and encouraging anxious college-educated white collar workers to join her in a new inter-professional labor union she has dubbed the United Professionals. Read the whole prnewswire article on the subject.

The anxiety centers on "outsourcing, downsizing and their increasingly futile pursuit of the American Dream." The goal is to pressure government to force employers to offer employer based health coverage, an employer provided retirement plan, and guaranteed wage increases.

Here is the article's way of expressing UP's byline:

"UP is a nonprofit, nonpartisan membership organization for white collar workers, regardless of profession or employment status. We reach out to all unemployed, underemployed and anxiously employed workers. Our mission is to protect and preserve the American middle class, now under attack from so many directions, from downsizing and outsourcing to the steady erosion of health and pension benefits. We believe that education, skills and experience should be rewarded with appropriate jobs, livable incomes, benefits and social supports."

The funny thing is, I'm not altogether in disagreement about there being something vaguely disquieting about knowing that "real wage growth for college educated workers is stagnant -- 1.3% from 2000 to 2005 (compared to 11% for the previous five years)". It's true, this is embarrassing when you see the profits corporations are making these days. My difference concerns their analysis of the causes (in fact, I don't see any effort at analysis on their part yet, just whining), and their proposal for a solution (political action organizing, special interest group lobbying, and socialist, union-style blackmail.)

Somehow, I don't think either (1) bigger government, or (2) whining, is going to cut it. And, let's be frank here. What employer in their right mind is going to hire a member of a Whiners' Union?

Monday, September 04, 2006

Another Fed Cartoon

I love to poke fun at the Fed. They have recently published their in-house defense against accusations that they are the cause of the recent housing boom. (See another post of mine for more details.)


Click on the image for a larger version.

Okay Republicans, Put Your Vote Where Your Mouth Is

The minimum wage is back again, and the Republicans -- long-time opponents, in theory, of any restriction on wages -- must now show their constituents that they are men and women of principle and not just vote-seekers -- or must they?

They have a legitimate problem. If they vote against the minimum wage increase, they rationalize, they will lose a perhaps critical number of independents and unfaithful Democrats in November. On the other hand, they reason, any Republicans upset at a pro-minimum-wage vote will have no place to go because there is no other viable candidate to run to on the other side.

Are they reasoning correctly? Only their decision and the vote will tell us for sure, and even then it will be difficult to judge which were the exact factors determining the outcome.

Oh how I would hate to be a politician, having to weigh one's conscience against the polls on a daily basis. Well, as some fictitious French thief once said, "I've got a dirty job, it's true; but I have an excuse: I do it dirtily." ("Je fais un sale métier, c’est vrai ; mais j’ai une excuse : je le fais salement." from "Le Voleur" written by Georges Darien.)

Le Voleur
[thanks to cinesnap.com for the image.]

For the Wall Street Journal's analysis of the problem, read this article.

Saturday, September 02, 2006

Real Estate Bubbles Not the Fed's Fault (Says the Fed)

How's that for conflict of interest? In an article published at the Chicago Fed's latest Economic Perspectives page, the Fed denies all responsibility in the creation of our real estate quandary. They buttress their defense by a barrage of econometrics that will make your head spin.

Henry VIII
The New Fed Chairman? [Thanks to wga.hu for the image.]

Personally, I think their argument makes about as much sense as Henry VIII's declaring his marriages annulled (with the help of a few bishops on the dole.) I admit that the Fed hasn't chopped any heads -- so far -- but I fear for the life of Fisher and Quayyum, authors of the article, if the truth about the Fed's monetary excesses ever gets out.

Friday, September 01, 2006

A Picture is Worth A Thousand Words - Or Is It?

This graph of Selected Component Shares of National Income, showing corporate profits compared to compensation, speaks very loudly; only I'm not sure what it's saying, other than that corporations are increasing profits at a fast clip. (Source)


[Click on image for larger version. Thanks to St. Louis Fed.]

How can corporations show so much profit and not have the increase show up in a correspondingly robust GDP increase? I wish the science of economics could interpret these figures with some accuracy; but unfortunately, we're not there yet.