Wha' Happened?

Okay, so China's stock market, being the first to wake up in the morning, started off a flame of panic across the world that ended in the West. Two things are weird about this one: (1) The cause -- or rather the match strike -- of this surprise is not readily evident, and (2) gold didn't react by moving in the opposite direction.

I guess people are so scared they think they'd better have cash for a few "seconds" until they figure out what to do next.

All of us gold bugs have been warning the world of the imbalances we perceive in the world markets but none of us can say how and when they will all unravel. Is this the beginning of the denouement? And why China?

What I see so far is this:


[Thanks to fiscalstudy.com for this photo of an ironically relaxed Doomsday Greenspan.]

Greenspan was giving a speech in Hong Kong. When Greenspan speaks, the East listens. Greenspan predicted an American recession by the end of the year.

No matter that his predictions have usually been wrong in the past; as usual, panics don't listen to statistics. And anyway, the underlying causes of the imbalances are what we goldies have been howling about for months and years now. (Start with my March 2005 archives and read forward.)

To run that by you again, there are two fundamental principles at work here:

1. The lack of an international hard monetary yardstick such as the gold standard; combined with
2. Human nature.

The two are a highly flammable mixture, even if they can waft together for years without a hitch as long as they don't come into contact with a match.

Out of this lethal combination come:

1. Inflating of and speculation in currencies that float (and those that don't, i.e. those that are pegged and/or otherwise manipulated);
2. Protectionism through currency manipulation;
3. Use of the money supply to ease market tensions (the Federal Reserve and other central banks do this all the time -- big mistake);
4. Lack of the discipline and will power to return strength to the monetary system once they have used it for No. 3 (the Fed governors are only human after all and hate to be the bearers of bad news);
5. Naivete of the voting public as to what is going on, which allows the power players to gamble all day long at our (the public's) expense.

Who is it that said: "The only thing we learn from history is that we don't learn from history." How many times do economies (and governments) have to tank for lack of monetary discipline?

Here is Bill Cara's article over at Seeking Alpha along these lines. I agree with him that:

"[T]he Gnomes are bulldogs, and they have put their terriers into the U.S. Fed and Treasury. I believe there will be one final attempt to print the way out of a market crash. Ergo; I see one final push in precious metal prices. But the end of the long-term global stock cycle is near. It has been driven by a credit balloon that cannot be pumped higher. The peak of the cycle would have occurred in May 2006 except for the programs of the U.S. Administration (including the Fed) to ramp up the money printing. [Katy's Caveat: I would have added the other central bankers who are playing the same game, i.e. Japan, China, et al. The Fed is not alone in this.] The sad thing is that at the end of the day, when inflated stock prices blow up, those holding debt will still be holding the same level of debt. The banks will be demanding payment. That's what bankers do -- real bankers, not trader-bankers."

Inflation Off the CPI Radar

Balance. Ah, money supply balance. We've been looking for a quick fix for this ever since we drifted away from the gold standard.

Today, it's all "managed" by our central bankers, who take a few measurements and "presto!" -- that's how much money we need in circulation. Let me take you on a little Fed trip.

Imagine this mathematical formula:

p + i = P

where:

p = the cumulative prices of a specific set of things measured by the Consumer Price Index (CPI) at the beginning of a time period

P = the cumulative prices of those same things measured at the end of the time period

i = the difference between the two


For the lay people, let's play with this:

i = P - p

Divide the whole thing by p and you get the CPI "rate" or r:

i/p = P/p - p/p
i/p = P/p - 1 = r

Example: If an item is priced at $2.25 on 1/1/06 and the same item is priced at $2.36 on 1/1/07, we have:

p = $2.25
P = $2.36
i = $0.11

.11/2.25 = 2.36/2.25 - 1 = .049

Therefore r = .049, or 4.9%

This is a simplified version of how the Federal Reserve calculates the "rate of inflation."

This calculation is an essential part of the process the Federal Reserve uses to determine monetary policy, which in turn is essential to the health of the American -- to wit the global -- economy. To make a long story short, the Federal Reserve determines how much money supply is circulating in our economy by juggling with various means of credit production that I have described in previous posts. (Start with the March 2005 archives for a better understanding of money creation and history.)

Our US Federal Reserve has made a critical assumption in using the CPI as an important element to determine monetary policy. They have assumed that, by selecting a representative sample of items that consumers purchase, they can watch the prices of these items increase or decrease and draw conclusions therefrom concerning the appropriateness of the quantity of money in circulation.

I take issue with this assumption in its present format. Here is why.

The calculations above are great on paper; but they work only as concerns prices p and P for some specific items, i.e. those products the Fed has put into their CPI basket. What about products x, y and z? Is the money supply irrelevant to the p and P prices of x, y and z? Conversely, are the changing prices of x, y and z irrelevant to the money supply?

Remember that in its CPI calculations, the Fed has taken P and p for only those items that are included in the government's list of things to be measured, which list is supposed to represent a basket of consumables that everyone uses. But what if important quantities of consumer dollars are increasingly spent on purchasing things OTHER than those that have customarily been in our government's basket? What if the prices of those things are increasing much faster than the CPI? What does that say about our money supply?

Here's another situation where we get into trouble with our CPI: What if consumers begin to buy products produced outside the country at prices that are temporarily cheaper than they would be at home? This is obviously a good thing for consumers; but what happens then to the CPI, upon which the Fed relies to determine monetary policy? What if the government's basket contains these exceptionally and temporarily cheaper items? (Because it does.)

You will ask, what examples are there of products x, y and z? There are many. For example, x could be stocks of Microsoft Corporation. These are not in the CPI basket. They could be office space. This is not in the basket. Z could be T-shirts from China. And q could be leveraged credit derivatives. And I could go on.

But, you say, I've seen somewhere that the Fed's basket now includes the increased prices of homes, which means that the Fed is taking certain recently ballooning asset prices into account. But I ask you what about the record Dow Jones average? On the othe side of the coin, what about the low prices for Wal-Mart and Target Chinese-made clothing? And what about the trillions and trillions of dollars worth of credit derivatives and yen "carry-trade" speculation now taking place in financial spheres? Are these not consumables? Are these not bought with our money supply? Are these items somehow exempt from Federal Reserve observation? And if so, why?

How do we determine how much of the money supply is being sucked into those? How do we determine if the money supply is adequate -- not too much, not too little -- if we have no way of measuring all prices for all things?

In other words, what happens to the CPI when the prices of certain things expand outside the Fed's radar?

The answers to my questions are unknown, and even the Federal Reserve board of governors would admit this, as strange as that may seem. But then, you ask, why do they persist? Well, I don't know; and I'm not sure that they do either. And thus, in my view, this is where the dung begins to hit the fan.

This is the essence of what I see as the world's biggest economic problem today. A few key central bankers of the world (the US, Japan, China and probably a few others) are ignoring the importance of the price fluctuations of items outside of their basket of goods. These three central banking institutions are the most important money managers in the world, and they are collectively allowing excess credit to circulate around the globe in a manner that is unprecedented, invisible and monstrous.

At some point, this stork will come to roost and lay an egg of inestimable size.

Finally Heads Are Falling

Bobby Mehta's head is maybe only one of the first to go. He is responsible for the heavy subprime portfolio at Household International, now owned by HSBC Holdings, one of the biggest banks of the world.


[Thanks to livefromtheguillotine.typepad.com for the image.]

Bloomberg's Jon Menon and Ben Livesey tell us about this shake-up.

According to the article, another company, New Century, "expects a fourth-quarter loss in part because of new-loan defaults." Their stock declined 58% from a year ago. Other similar companies have also felt the squeeze and have lost stock value.

I like the fact that the authors threw in this little line in the middle of nowhere:

"The U.S. Federal Reserve raised its benchmark rate to 5.25 percent last year from 1 percent in 2004."

They are right. This is a crucial piece of this whole housing bubble puzzle, and not for the reason you would think. You're probably thinking that, without that rise in interest rates, borrowers would not be in such a fix today. But the truth of the matter is that, without the Fed's past extremely loose monetary policy, those borrowers would never have been able to borrow in the first place, in my opinion.

I will even go so far as to say that the Fed didn't have to lower interest rates at all in 2001, that all that was really needed was reassurance, i.e. jawboning. The country might have tuckered under for a few months, but we would have come back out. There is too much momentum in this country to let ourselves be cowed by an event like 9/11. The US economy is a freight train with no brakes.

Just look at New York real estate. It began its upward climb immediately without too much long-term incentive offering from sellers and landlords.

That Fed dip down to 1 percent -- plus the Japanese and Chinese manipulations along the same lines -- these are the actions at the origin of all our problems.

What would have avoided this whole thing? A gold standard, or something like it.

I guess it's time to pull out the old mantra:

You can take the gold out of the standard, but you can't take the standard out of gold.

(For more reading on the subject of the gold standard, see my previous posts, especially this one.)

Today's Cartoon

I felt like doing some lazy "artwork" today, after reading about Hugo Chavez's solution for Venezuela's bolivar currency inflation. Like many other governments before him, rather than attacking the underlying problem (his own government's excess production of credit and money), he has decided to do some "cosmetic surgery." (Click on the image for a larger version.)

[Sorry, the original artist apparently resents my tweaking of his painting. I'm taking this off as a sign of my respect of his indirectly expressed wishes. Apologies to him. I thought he would have enjoyed the publicity. Live and learn.]

Don't You Just Love the "Don't Worry, Be Happy" Real Estate Headlines?

All is hunky-dory and prices are stabilizing, if you read the Mortgage Bankers Association's latest weekly survey.


[Thanks to zbrzeznys.com for the picture.]

But what they're not telling you is this:

There are 24 mortgage providers that are rumored to be in trouble, according to implode.com, and they are relisted in an article at seekingalpha.com entitled "Latest Count of Major US Mortgage Lenders That Have Croaked Since about Dec 2006" as follows, with their commentary in brackets:

"1) Wells Fargo
2) HSBC Household Finance [rumored to be up for sale]
3) New Century [restating '06 earnings downwards; major shareholder lawsuits]
4) Countrywide [reportedly in talks with Bank of America (may not be credible)]
5)Fremont
6) Option One [H&R Block; up for sale]
7) Ameriquest [owned by ACC; shut most offices, settled with 30 states over predatory lending]
8) WMC [subsidiary of GE Money]
9) Washington Mutual [closed 80 branches in late 2006]
10) CitiFinancial
11) First Franklin [acquired by Merrill Lynch from National City for $1.3bln]
12) GMAC [Major layoffs in ResCap]
13) Accredited Home
14) BNC [Lehman bros. subsidiary]
15) ChaseHome Finance
16) Novastar
17) OwnIt, 2006-12-07 [partially-owned by Merrill and BofA]
18) Aegis [recently closed two subprime operations centers]
19) MLN, 2006-12-29 [reportedly bought out by Lehman]
20) EMC
21) ResMAE,2007-02-13 [in bankruptcy; being funded by Credit Suisse]
22) FirstNLC 22) Decision One [owned by HSBC; rumored to be up for sale]
23) Encore [being acquired by Bear-Stearns]
24) Fieldstone [closing 7 of 16 ops centers, debt renegotiated through 2007-01-31]"

Do you see your lender among them?

And what I see is also this:

Those people who have enough money to play around in hedge funds and in the stock market and elsewhere, or who have pensions that are being managed by persons who have control over trillions of our money, may not be terribly affected by the news that thousands of households are now in bankruptcy or foreclosure.

But I, ever the "bleeding heart libertarian" as Tim Worstall calls us, think it is a crime.

This is not entirely the fault of that poor fool who will be parted from his money no matter what we do. This is the fault of those who have furnished the means for this liquidity bubble, and of those who abuse the credit leveraging systems now in place. Together, they have created the wherewithal for the mortgage industry to give these poor fools the credit that got them so far up Foreclosure Creek.

These poor victims should never have been offered a mortgage. And I'm not blaming the mortgage industry entirely, because the mortgage industry is a group of enterprises that do what comes naturally, i.e. they lend money. And the money is just sitting there waiting to be lent. These companies go about their business of making a profit, as indeed they should; so if the money is there, there is no reason they should not take advantage of it to make even more profit. And there is so much money available, that they let their guard down along with their pants and their lending parameters. (One caveat: I'm not including in this excused group those companies who have not obeyed the rules regarding reserves, like New Century and perhaps others.)

How can the plight of thousands of wage earners who got sucked into this housing maelstrom go unnoticed? How can we stand by and watch the smarty-pants of this world deprive the little guy of his very livelihood, because of artificially lowered credit criteria and unsafe loans? It's a crime, and someone must take the blame.

The last of the superfluous bucks stops at the door of the Federal Reserve, and at that of other global central bankers like those of Japan and China, who can't leave their money supply alone but rather insist on experimenting with interest rates and other credit-creating instruments in a futile effort to save us from THEMselves [sic.] I mean by this that they got their (our) economies into these tight spots in the first place, and now they want to get us out by making things worse. (For a more detailed discussion of how they do this, see my earlier posts here and here and here.)

Another buck or two stop at the portals of our legislative branches, at the feet of the spendthrift government officials who are so eager to buy votes that they can't even balance our budget, preferring to spend us into debt. We've been lucky enough as a nation to have a reprieve for as long as it lasts -- we're still the least bad investment choice, for the moment -- but at some point we'll have to pay the piper or go out as the latest, largest, and most powerful nation in history to have followed all the others down into ignominy.

(As you can see, my feathers are a bit ruffled today.)

How to Win Friends and Influence People: Create a New Tax

The US is not the only country beginning to conjure up new ways to tax people.

One of France's potential next presidents, Segolene Royal, is scurrying around looking for good ideas to sell herself, so she went to her former leftist rival, Dominique Strauss-Kahn. He lost the primary -- couldn't beat 'em, so he joined 'em -- and he has now become her campaign adviser.


[Thanks to galliawatch.blogspot.com for the photo.]

What's the precise idea? I read it at the galliawatch blog, who quotes le conservateur.

Well, Mr. SK must have heard about how the US taxes its citizens around the world even though they don't reside or work in the country, and he's decided this is just the thing to please his socialist electorate.

He's thinking about all those rich French who have left for Switzerland and elsewhere to avoid paying France's heavy taxes (see previous post); but obviously the idea will backfire. It will penalize all those middle-income French living abroad in England and the US and elsewhere, and cause the lot of them to regret their nationality. As Le Conservateur puts it:

"This proposal by Mr. Strauss-Kahn is preposterous. It is obviously counter-productive, because some Frenchmen who have settled abroad and founded a family there, would be tempted to simply renounce French citizenship."

This announcement by Royal has raised the ire of a huge number of people in France. An article about it in the French newspaper "Liberation" got over 650 comments from readers, a record according to a blogger named Polydamus, whose own reaction to Mr. SK's proposal is, "Prends mon passeport dans ta gueule!" (Something as vigorous as "Take my passport and shove it!")

One of the Liberation commentators says this:

"I propose (ironically) to tax: the dead, the extra-terrestrials, men and women who have slept with a French person, people who speak French, foreigners who make contributions to foundations for the preservation of French historical monuments (Versailles for example), all those who have a wish to be taxed by France..."

I cannot believe the stupidity of certain politicians and political philosophers who seem to believe that taxation is the solution, when in fact it is the problem. Their platform seems to be, "When you see a bad idea, imitate it."

HSBC Feeling the Pinch

HSBC is the third largest bank in the world, and they've miscalculated the effect of rising interest rates on their sub-par loan customers. According to this article at Marketwatch, they have had to revise their bad-debt charges upward by 20% from earlier provisions, thereby sending "a chill through the financial world."


[Thanks to dms-lawyer.com for the image.]

Come down off your cloud, people. I cannot understand how the financial world has not seen this coming.

How can huge companies like HSBC not see that this global liquidity must squeeze out of existence either through speculative blowing-off-of-steam at the top of the kettle, or through leaks in the bottom with either foreclosures on simple and mostly honest people who have been hoodwinked into selling themselves into mortgage slavery, or with a reduction in the dollar's purchasing power, otherwise known as a devaluation of our currency, which steals our wages right out of our pockets before we've even had a chance to cash the check?

Good grief.

Global Warming Hysterics: Read This

[Thanks to w-fenec.org for the image.]

Just a quick link to someone's piece.

The someone in question is climatologist Dr. Tim Ball, a Ph.D. from the University of London, and a climatology professor at the University of Winnipeg.

Please, read with an open mind and heart.

The Best Argumentation About Income Equality I've Seen Yet

Alan Reynolds of Cato has pretty much blown the leftists' argument about income inequality out of the water with his book, "Income and Wealth," and his Cato piece. He decomposes their statistical base and proves pretty much without a doubt that the income inequality "proof" just doesn't exist.


[Thanks to usgtf.com for the image.]

But I like the approach of Tim Worstall much better.

This Englishman writes for Tech Central Station and maintains a blog with a style that is very much after my own heart, i.e. he injects everything with a potent mix of common sense and a sense of humor. The cocktail is devastating and insightful.

His latest article at TCS on the subject of income inequality parallels my sentiments exactly. Unlike Alan Reynolds, whom I respect and admire also for his diligent research and pointed wit, Tim does not try to puff up the free market case by proving that there is no income inequality. Tim knows, as we all know, that statistics are a dish that can be eaten hot or cold.

Everyone dislikes the idea of his own relative purchasing power diminishing; but let's just go along with the hypothesis, i.e. that there is increasing income disparity in the US. From the point of view of a scientific economist (as contrasted to someone like Paul Krugman, who seems to have lost his white coat somewhere along the way), an equitable study of market phenomena requires an objective mind. After all, economists are not in the business of making value judgments about economic phenomena; they're just supposed to study the mechanics of them. (See my earlier post on this subject.) They merely describe market relationships and leave the politicking to the politicians.

So Tim takes the position that there may indeed be some income equality happening in the advanced economies, and that it is pointless to flood the airwaves and printed pages with numbers in an effort to prove or disprove it. He explains that there already exists a model in economics -- in fact one that exists since 1941 -- that predicted such inequities of income, and it is called the Stolper-Samuelson Theorem.

This model says, as Tim puts it, "[Globalization] will lower wages in the US and raise corporate profits (more precisely, returns to capital)." This does describe exactly what we lay people think we are observing in the US today.

But, you say, this just proves that globalization is a bad thing. Well, not exactly. There is another side to the Stolper-Samuelson Theorem, pointed out by Paul Ormerod and Xavier Sala i Martin, and cited by Tim in this way:

"Globalization is raising the incomes of the workers in the poor countries (over and above what is happening as the countries develop) because of the trade off inherent in the model."

This again is also what seems to be happening today. Poorer countries are seeing their people's standard of living rising.

Perhaps the theorem is true, and the cost of this rise is the relative (and Tim emphasizes "relative") increase in the growing disparity between the wages of the rich and those on the bottom rungs of the wealthier nations.

The word "relative" is crucial here. Tim steps out of his scientific skin for a moment and permits himself to express his own human value judgment. I can't say it better than he does:

"Those poor who are getting richer in other countries are not moving from one level of luxury to a slightly higher one. They are moving from destitution, from not knowing where the next meal is coming from, to something close to a middle class income. They are doing this in their hundreds of millions, across the globe, and that has to be a good thing."

At the same time, those in the US who are feeling a slight pinch in their purchasing power are having to forego a second house, a third car, and the latest flat screen. They've already got the two cars, the cell phones, three TVs, a very comfortable living space, and a job, for the most part (at least 95.5% of the work force), and I'm talking about those people described as poor in the US statistics, i.e. under the poverty level. Anyone above that limit probably has the flat screen already, and they're probably only complaining because they can't meet the payments on the vacation condo since the adjustable rate mortgage went up. Maybe they've had to change their vacation plans and make a reservation in a three-star hotel in Hawaii instead of the five-star they would have preferred.

There is only one thing that Tim doesn't mention, and I will bring it up because I am not a scientist and I can say whatever my unscientific little heart desires on this blog. I think there is another factor contributing to this income disparity, and it is the ballooning of global liquidity that we also think we perceive today ("we" being some economists, other bloggers, and myself.) See my article at Prudent Bear, republished here, for a detailed discussion of my vision of this phenomenon. (The article is entitled "If these are bubbles, where is all that hot-air money coming from?" Go to the December archives.)

In short, I believe we are experiencing inflation of the US dollar and of other currencies like the yen that are invested in US dollar instruments, and that this excess credit has risen to the top without passing through the middle and lower classes and without showing up in the CPI.

So as of today, thanks to Tim, I believe there are two factors at work here, first the Stolper-Samuelson Theorem with the Ormerod and Sala i Martin aftereffect, and second, "inflationary" (although not perceived as such) and therefore excessive global liquidity.

France Having an Invisible Cost-Of-Living Crisis?

I have now seen four sources of information that worry me about the French economy, or at least their standard of living and/or their inflation statistics, in spite of all of the positive news one reads about Europe, its real estate market, and the Euro.

According to a report from the Fondation Abbe Pierre, France has approximately 8.5 million people who are experiencing difficult housing circumstances. That's 13.5 percent, out of 63 million. (Source.)


[Thanks to us.news2.yimg.com for the photo of the well-known homeless advocate and priest, Abbe Pierre, who died recently at over 90 years old.]

They differentiate between the 3.2 million who are poorly housed (homeless, occupants of haphazard and temporary shelters, or living in government- and private-charity-funded "social insertion centers"), and the 5.2 million who are living with others in crowded apartments or who are in the middle of eviction proceedings for unpaid rent.

For comparison, taking only the 3.2 literal homeless which is 5 percent of the French population, the US has between 2.3 million and 3.5 million homeless people (Source) "experiencing homelessness," or between 0.76 percent and 1.16 percent -- assuming we have the same basis for comparison, which we may not, of course.

(By the way, don't you just love that politically correct, positively turned phrase "social insertion centers"? Sounds much more optimistic than our more frank but depressing "homeless shelters." I can't help but wonder if the end result isn't about the same no matter how much positive spin you put on the name.)

Another source of disquieting information was a French documentary series I saw last week, about how the French purchasing power has decreased drastically over the last several years. In this TV news report, I saw how French university students and ordinary families are having to tighten their budget belt just in order to survive. For students who have to find both lodging and food with only a few hundred euros a month (remember, most of the tuition is government-provided), they are now forced to (or are choosing to, which I wouldn't have done unless I were forced to) line up in charity food lines to help themselves make it through.

As for families, between the take-home pay and government subsidies, they cannot afford to cover even the relatively small expenses of their university-age children. I don't know the true statistics, and pictures always say more than words and data; but still, I found that the documentary raises some valid issues, especially in light of the following:

A third source of my worry comes from actually having visited France over the years and knowing several French families quite intimately. Life is not easy. There is a general feeling of growing frustration at what seems to everyone I've met to be an obvious and unfair inflation of prices, without the corresponding increase in salary. Can all those people be wrong?

The French INSEE (Institut National de la Statistique et des Etudes Economiques) publishes the official inflation and other figures, and according to these, inflation is tame. However, both the Socialist and the Capitalist political parties, which are vying for the public's vote in this year's elections in April, are claiming that these figures are misleading; and they are doing so because the public perceives this to be true.

The fourth source of my unease is the INSEE figures on consumer confidence. You will note from the following chart that the INSEE's positive statements about French consumer sentiment are belied by the figures. (Click on the chart for a larger version.)


[Thanks to the INSEE for this chart.]

The INSEE says:

"In January 2007, the household opinion indicator, corrected for seasonal variations, is righting itself. The net opinion of households concerning buying opportunity has rebounded in January. [sic] ... Households are more optimistic on the perspectives of the evolution [of their standard of living.]"

When you look at the actual chart, you see that French consumer sentiment has moved from -27 to -24. Now that's progress, wouldn't you agree? In fact, if you'd like a laugh or two, look at the chart carefully. The figures range from 28 to -63, and the great majority of the figures are negative.

(Source: Institut National de la Statistique et des Etudes Economiques. Note that the figures are calculated by taking the net difference between the percentage of positive responses to a number of questions, and the negative responses. The five major indicator categories are: (1) Personal financial situation - Past evolution; (2) Personal financial situation - Perspectives for evolution; (3) Buying opportunity; (4) French standard of living - Past evolution; and (5) French standard of living - Perspectives for evolution.)

Too Fat to Hide

Pork-barrel piggies are going to be going through what may seem like a difficult few months in our Legislation. The politicians have finally heard the public hew and cry, thanks to a few hard liners like Tom Coburn (R-OK) and organizations like the Club for Growth and Citizens Against Government Waste [CAGW].


[Thanks to besser-englisch-lernen.de for the image.]

I try to be non-partisan, but it is clear from the statistics that the Republican Party in general, and Senators John Kyl (R-AZ) and Tom Coburn (R-OK) and House Reps Rob Portman (R-OH) and Edward Royce (R-CA) in particular, are Winners and Runners-Up on the pork issue. (See the CAGW's Senate Scorecard and their House Scorecard.)

But don't begin to cheer just yet. Realists over at Cato like Stephen Slivinski tell us how this is really just a smoke screen on the part of the majority of our legislators. In his recent paper called "A Reality Check on Earmark Reform," we learn that:

"In a mostly party-line 280-152 vote last Friday, the House passed rules changes requiring that both the spending projects and their sponsors be disclosed on the internet at least 48 hours before they are considered on the floor. Congressmen will also be required to justify the public need for the expenditures, and certify that they won't benefit financially from them."

The article points out that anyone normally constituted would think that congressmen would be embarrassed to link their name to a pork barrel project. The reality, unfortunately, is the opposite. He says, "just as intellectual property protection for inventions presumably creates an incentive to innovate, earmark transparency might also lead to a rise in the number and cost of earmarks."

He goes on to say that even if it does scare some of the projects out of existence in the budget, they will just reappear in other handouts under a different name. Congress being the creative group that it is, they always manage to get what they want. It's the nature of the beast.

Here are some fun figures for you from CAGW's "The 2006 Pig Book Summary." We learn that "Congress porked out at record dollar levels with $29 billion in pork for 2006, or 6.2 percent more than last year’s total of $27.3 billion. In fact, the total cost of pork has increased by 29 percent since fiscal 2003. Total pork identified by CAGW since 1991 adds up to $241 billion."

Balloon-prickers may remark that out of our 2006 GDP of $13-1/4 trillion (source), that makes only 2 percent; but if you ask me, that's $241 billion too much. This amount could wipe out the federal budget deficit altogether, if you believe the figures recently published by the administration of a 2006 deficit of $248 billion. It could reduce our government debt (not the same as the deficit) by 3 percent (see the US National Debt Clock.)

Our balloon-prickers will respond that this is not true, that in reality it could only erase about 7 percent of the TRUE deficit, which includes the Social Security and Medicare debt that will explode over the next few years. To that, I retort that every little bit counts, never mind that pork elimination would tell our legislators that we're sick of all the corruption. Even if it won't do us any good, we're better off having expressed ourselves. (For two articles on the difference between these two versions of the federal budget deficit, read USA Today - What's the Real Federal Deficit? (re 2005) and World Net Daily - True Deficit $3.5 Trillion (re 2006).)

Hillary: A Free-Market Nightmare

If you really want to scare your pants off, watch this.


[Thanks to conservativedialysis.com for the image. (Byline: "Removing liberal waste from the American bloodstream.")]

Hillary is at her very best, cashing in on our envy, covetousness, and naivete. She wants to take those bastards' record oil profits and create a fund for alternative energy research, in the name of "Energy Independence."

In other words, she wants to become an energy dictator. She wants the Big Brother Government to punish those greedy oil boys and force us all to start burning something other than petroleum products.

What about freeing up our US oil companies to take some "independent" oil out of our own 50 states? I don't think most people realize that today the oil companies can make the Alaskan wilderness into an even better elk heaven than it is now if they put their mind to it; and by golly you can be sure they will, what with the marketing opportunities that will spring out of such an initiative.

And there is already a market for "independently produced" oil. All you have to do is untie the hands of those who know how to dig that black gold up out of the ground right here in our own back yard -- at least until they (who already have the wherewithal unless the government takes it away), can discover the economic and proper way to utilize other energy sources like hydrogen, radioactive material, clean coal or carbohydrate-filled vegetables like corn and sugar.

The problem is that you can't force a string to stand upright unless you give it a backbone. You can't create a viable alternative fuel unless the public prefers to consume the stuff -- or unless you force them to consume the stuff by either taxing oil products to death or subsidizing alternative fuels, as is happening already.

And forcing people to consume an inferior product is counterproductive. Can you imagine a world where the US renounces all use of petroleum and its derivatives? Do you know the number of things that are made from that black goo? See here to get a partial list.

And what do you suppose a world would be like where the US no longer has any of those things and where China, the Arab nations and the Middle East, India, Europe, Russia, Japan, i.e. the rest of the world still did? Come on, you don't really believe China would think twice about taking advantage of the consequent lower prices that would prevail for such a cheap source of energy as our unconsumed "Middle-East-dependent" petroleum, and about making deals with terrorist and/or totalitarian states, do you?

Just something to think about.

What Global Warming?

I don't know about you, but when I look at the graph below, I don't see a heck of a lot of global warming going on, for two reasons:

(Click on the graph for a larger version.)


[Thanks to junkscience.com for the image.]

This graph only starts at 1850, and if I remember correctly, the earth has been around a little longer. Who's going to say that the earth wasn't a lot hotter before 1850? Most agree that we've had three periods of very low temperatures, the low spots of which were in 1650, 1770, and 1850. That period was called the Little Ice Age.

Secondly, we've only begun to measure these temperatures and CO2 levels. Who's going to guarantee me that our measurements are correct?

Keep this in mind as you hear all the chatter coming out of the IPCC (Intergovernmental Panel on Climate Change.) To see why this economics blog talks about global warming, see this post.