This morning I received a request to sign an “Economists’ Statement in Support of John McCain’s Economic Plan.” The statement laid out his plans to prevent taxes from rising, to reduce some taxes, such as the corporate income tax, to support free trade agreements, and to restrain the growth of domestic government spending. Notice something missing? I did.
Here’s the answer I sent to the co-chair, economist James Carter:
There’s nothing in there I disagree with. [I later found a few things but I agreed with the vast majority.] The problem is that it leaves out a huge part of his economic policy that will make it virtually impossible to achieve what’s in the statement. That huge part is his policy on war–with Iraq and maybe with Iran. War is very expensive and is part of an economic policy. So by signing the statement, I would be helping Senator McCain maintain the fiction that there’s no connection between war and economic policy. I’m unwilling to do that.
You are absolutely right. And I enjoyed your interview on Brinker’s Money Talk program the other weekend.
For those who have convinced themselves that borrowing and inflating are not forms of taxation, I suspect that they’re about to get an education the hard way.
Absolutely right! War is the health of the state.
They think they are gonna take over the world and change the rules & rulers…..and they wanna use YOUR credit card….Operation, Thank You Sir!! Good L(f)uck!!
…Some learned Economist or Money Man out there please enlighten us with a hard fact/number as to how much The US Treasury presently owes the PRC on the sale of Long Term Bonds thus far, this for its 5 year Occupation of Iraq??
Not sure. The PRC currently holds over a trillion in USD reserves. I imagine their bond holdings are considerably higher than this.
Truth to tell, McCain probably thinks he left nothing out of his economic proposals, and sees no contradictions. Politicians think war and destruction are healthy for the economy, so what’s the problem?
The vast damage done in my state during the floods of ‘97 led our economic director to exclaim that rebuilding would be a boost to our economy. On what common ground can you debate someone who believes white is black, up is down, and good is bad?
David,
I too received the same request and answered in the same way. Perhaps there should be a statement by “conservative” economists against McCain because of the economic implications of his position on the war.
I think that would be a great idea. I think many in the mainstream would agree with it, they just never have thought about it…
What do you expect from a professional bureau-crat? He has never held a significant job in the private sector and has always worked for the government. His understanding of economics is socialistic where the money to pay for things literally falls from trees.
What a disaster he would be as president.
Wars, Genocides and Terror are American way of life, that is what keeps America going.
There is a well established historical record of your way of life, why does it come as a surprise?
David Walker, now a former government employee, would not agree either:
http://www.ft.com/cms/s/0/80fa0a2c-49ef-11dc-9ffe-0000779fd2ac.html
The Big Guy says we will need more cash by June for Iraq. Also, there is the stimulus that needs to be paid for. I wonder if the Chinese are still good for another touch? A strong business-friendly plan from McCain should convince the World that America has got a handle on things. This country is like some wino trying to brush the vomit off his shirt long enough to look presentable enough cadge a few bucks off some stranger. But at the Demo mini-debate from Philadelphia last night, not a word on these trifling matters. Most importantly they worked Obama over to get him to agree that a nuclear attack by Iran upon Israel would be considered as an attack “upon America”. (Strangely, the far more likely prospect of a sneak attack by Israel upon Iran wasn’t even considered). Always need to get our priorities right.
well versed and learned scholar the Little General from Corsica..er…Little Admiral from Arizona has plans…big plans….to remould the world closer to the hearts desire….
that quote is from the entryway above the Fabian Society in London….socialism gradually installed…..
the original logo of the Socialist Fabian Society was a turtle….slow but steady..in 48 at the behest of its founder George Bernard Shaw it was changed to a Wolf in Sheeps Clothing…
The Wolf here in America is Government child McCain and his endemic Statism and militarism.
His ignorance of simple economics is commensurate to his warmongering and belligerence. The good thing that will arise out of all of this charade er election(McCain defeat or victory) will be the Gotterdammerung of the Republican Party….with the freedom movement fragments coalescing to regain the controls of the fight FOR freedom….
if there will be freedom left..
I have to tell everyone who hates war the we’re losing the PR battle.
I’m watching The View, again my sole guilty pleasure, and even the so-called *liberals* on the panel, Joy and Whoopie, are convinced that Iran is the big bad wolf and is about to attack us using their big bad non-existent nuclear weapons and non-existent delivery systems.
The Israel Lobby’s hasbara (propaganda) is reaching Middle-America’s soccer/security moms via the “progressives” on The View, the nitwits on “Live w/ Regis & Kelly” “Larry King” and other talkfotainment shows, etc., and ad nauseam, and we will attack Iran as a result of these no-nothing celebrities adding their nonsensical comments to the hard-core Faux/MSNBC/CNN News neo-cons propagandists.
Iran hasn’t launched an attack on another country since the mid-1700s.
But again, the anti-war movement is losing because of the ignorance and sheer stupidity of the American public, and progressives, and their adherents, like Joy and Whoopie, are very much also to blame.
Sorry, I meant “know-nothing” which is probably one of many errors I made in the last post;-)
Check out Cliff Schecter’s book “The Real McCain”
The War in Iraq very directly triggered the collapse of sub-prime mortgages through higher oil prices.
Oil was $29 per barrel in 2002 and it is now reaching prices well over $100.
The fact that most economists were not talking about this is a sign of their disconnection from hard facts on the ground.
The real estate collapse was easily predictable, month by month for almost three years, dating back to Spring 2005.
That is not a defense of subprime lending by the way. It might have collapsed in the long run anyway, but oil prices translated into fuel, fertilizer, insecticide, higher commuting and transportation expenses, eventually higher food prices and so forth were too much for the marginal groups to which subprime mortgages were given out like candy.
Bundling made the next step in the real estate collapse inevitable, and at that point major enterprises that had little or no subprime also began to fail.
Banking is now a disaster area, and there is no prospect of recovery over the short term.
The collapse of the dollar is part of the vicious circle, and also connected to oil prices.
American economists had been going on the presupposition that the dollar would remain the World Reserve currency as long as no other currency could dominate.
The flaw in their reasoning was that all that was needed, in fact, was a persuasive alternative, not necessarily a complete substitute.
The Euro provided that alternative.
There is now an inverse relation between the price of oil and the value of the dollar.
In fact, in Euros the real price of oil has not risen that much. What has happened is that, in effect, the price of oil is presently the virtual determiner of the value of the dollar, and this is quite separate from the issue of American debt and inflation, balance of payment deficits, and so forth, which are also, as above, a catastrophe in the making.
Bernanke at one point seemed to say his first lowering of interest rates was to help real estate recover. If he was serious, he is even more an incompetent than Greenspan. Lowering interest rates accelerates the collapse of the dollar in terms of the price of oil.
How about “making American exports” cheaper and more desirable?
What American exports? Weapons?
Last time I looked sixty-six percent of the American economy hinges on domestic spending, which is credit-fueled.
Agricultural exports then? To some extent, but that is still a vicious circle, for American agriculture hinges on oil in the form of insecticide, fertilizer, and fuel. So as the dollar falls, making agricultural exports cheaper, the cost of production with high oil prices, rises, decreasing profits.
This is all just scratching the surfacing economically and financially.
In fact, credit was masking a recession, which is also about three years old.
The economic disaster that Bush and Cheney have produced through the war in Iraq is almost mind-boggling in its proportions, and is still just beginning to unfold.
A American attack on Iran is economic suicide.
A joke going around for some time is that Israel is now demanding all American financial aid to be paid in Euros.
corr: “scratching the surface”. Pardon this and any other typos still missed.
An implicit assumption in David Ricardo is that lower than subsistence wages are not possible for any length of time. In fact, with credit in the real estate markets handed out the way it was, many Americans, if they seriously into to repay their present debt, will not only have worked for less than subsistence for the past four or five years, but will be doing so, in the form of mortgages, for the next twenty years as well.
Some of the financial reports and advice that Bankers are silly enough to pay for are actually hilarious if read closely.
One long and detailed analysis that I read last year, for example, argued that the solution to the collapse of real estate and mortgages was “moral”, that is, in effect (they did not phrase it this way naturally) for “spendthrift” Americans to save more in order to have larger down payments on mortgages at higher interest rates for real estate that was declining or staying at the same level.
corr: “seriously intend to repay”.
Display of unaccountability defines status as a member of the elite.
In order to be unaccountable one must err or transgress.
For unaccountability to be displayed error or transgression must be displayed.
Genuine incompetence is the most reliable path to error and transgression and their display.
Ergo: Given competition and over time the elite will approach and display complete incompetence in all its acts and their immunities.
Mortgage insurer MGIC risks tripping its loan covenant
[Financial Week Cole March 10, 2008] With the u.s. housing market still going south, mortgage insurers continue to suffer. One of the biggest, MGIC Investment, is now on the verge of tripping a major covenant.
Private mortgage insurers protect lenders from defaults on mortgages made to home buyers whose down payments are less than 20% of the purchase price. Defaults on privately insured mortgages rose 31% in January from the year-earlier level, according to the Mortgage Insurance Companies of America.
The rising default rate and the resulting increase in claims from lenders mean pressure is mounting on the $226 billion industry. Another major mortgage insurer, PMI Group, delayed filing its 10-K and reported a fourth-quarter loss of $236 million. A third, the Radian Group, posted a $618 million loss for the same quarter.
For its part, MGIC posted a fourth-quarter loss of $1.47 billion in February, although it still has enough cash for day-to-day business….
At the end of 2007, the company held about $290 million in cash and cash equivalents. Its annual liquidity needs are relatively modest and include interest payments of about $27.4 million, payments on its credit revolver of about $10 million and a stock dividend of about $8.2 million.
In the near term, however, the company could violate at least one of its credit facility’s covenants.
“The potential for a liquidity crunch is created by the covenants under MGIC’s revolving credit facility,” Rob Haines, an analyst with CreditSights, said in a report last week.
MGIC recently drew down its whole $300 million facility to repay about $177 million in commercial paper and achieve greater financial flexibility. That has brought it closer to tripping a covenant in its bank line that requires MGIC to have at least $2.25 billion in shareholder equity. At the end of 2007, its shareholder equity had fallen to $2.59 billion from $4.3 billion a year earlier.
“Given current market conditions, we believe that MGIC is at significant risk of tripping its minimal shareholders’ equity test,” Mr. Haines wrote.
MGIC doesn’t expect to violate the covenant in 2008, although it listed it as a risk factor in a regulatory filing in February: “While our current forecast of our 2008 net loss would not reduce our shareholders’ equity below $2.25 billion, there can be no assurance that our actual results will not be materially worse than our forecast.”
Executives weren’t available for comment. But when analysts expressed concern about the covenant during MGIC’s quarterly conference call, chief executive Curt Culver said he wasn’t worried. “It’s not a significant issue for us.”
Mike Lauer, executive vice president and CFO of MGIC, echoed Mr. Culver, adding that lenders would be open to renegotiating the terms of the credit facility. “If it was a matter of us renegotiating that, it wouldn’t be a major issue,” he said.
But MGIC’s prospects may be more challenging than its executives suggest. A recent research report from Moody’s warned that in the current climate, banks may be less forgiving about covenant violations. “In the past,” it noted, “banks would generally be expected to waive or amend covenants for a slight fee.”
In its February regulatory filing, MGIC acknowledged the potential for a worst-case scenario: If it failed to meet the shareholders’ equity requirement and could not reach an agreement with its banks, the banks could declare the entire $300 million of outstanding debt due and payable. And if the bank debt were called, holders of 25% or more of its $500 million of unsecured bonds could demand to be paid early.
“In the event the amounts owing under our revolving credit facility or any series of our outstanding senior notes are accelerated,” MGIC said, “we may not have sufficient funds to repay any such amounts.”
McCain’s proposal on US-guaranteed students loans? Another joke, by a group of economists not aware of the disaster already there, and who cannot even figure out how student loans, a fraud to begin with, impact the starter housing market.
Here too Kucinich is way ahead of the curve, as he is with his Health Care plan, which not only short-circuits private insurers, but, based on risk pool, will be low cost or free, and may well have a surplus.
Those of you who still have knee-jerk reflexes about Fascists Left and Right are invited to shoot yourself in the foot shouting “Progressive” and “Socialist”.
Students suffocate under tens of thousands in loans
Block, USA TODAY
Tom Dillon, 19, a pre-pharmacy major at the University of Connecticut, is carrying $52,000 in student loans. And he’s just getting started. When he gets his pharmacy doctorate in four years, he expects his debt to exceed $150,000. Dillon’s been drawn to pharmacy since age 5, when he found out he had epilepsy.
“The first person who helped me was my pharmacist,” he says. Dillon, who no longer has epilepsy, would like to go into pharmaceutical research. But he knows he’d earn more money as a pharmacist for one of the big drugstore chains.
“When I get out, I’m going to have that $150,000 weighing over me,” he says. “What I decide is going to be dependent on that debt.”
And the cost of that debt is about to rise. On July 1, the rate on new federally guaranteed student loans will hit a fixed 6.8%, the highest rate since 2001. It comes as the average graduate owes $19,000. Many undergrads, though, have debt exceeding $40,000.
Those higher payments carry huge implications for this generation of college graduates. The weight of debt is forcing many to put off saving for retirement, getting married, buying homes and putting aside money for their own children’s educations….
Average college debt
For undergraduate bachelor of arts degree recipients, by type of college for the 2003-04 academic year:
Private, for profit $24,200
Private, nonprofit $16,000
Public $10,600
Heavy student debts may also keep young adults from starting businesses, says Diana Cantor, director of the Virginia College Savings Plan. Some graduates will refuse to risk what little money they have on entrepreneurial ventures. And securing loans will now be harder. “It’s a real crisis,” Cantor says. “You’re strapped before you get started.”
The average debt for a college graduate has soared 50% in the past decade, after inflation, according to the Project on Student Debt, a non-profit advocacy group. Just as record-low mortgage rates have eased the impact of soaring home prices, low student-loan rates have let borrowers cut their payments, softening the impact of rising debt.
“Low interest rates have served as a sort of amnesty for graduates with debt,” says Robert Shireman, founder of the Project on Student Debt. “We haven’t seen what the real impact is of much higher levels of borrowing.”
Now, with interest rates rising, that amnesty is about to end. The 6.8% fixed rate for Stafford loans, the most popular student loan, will replace a variable rate that used to be adjusted every July 1, based on Treasury bills. Under the old system, borrowers could consolidate their loans when rates were low. And they could lock in that low rate for the life of their loans.
Today,students who don’t want to borrow at higher rates have few other options. Twenty-five years ago, students who wanted to avoid debt could use money from part-time and summer jobs to help pay for college. But since then, college tuition has risen at twice the rate of consumer prices. Tuition has soared much faster than pay has for the kinds of low-wage jobs that students tend to hold.
In 1981, a student could work full time all summer at minimum wage and earn about two-thirds of annual college costs, according to an analysis by Heather Boushey, economist for the Center for Economic and Policy Research. Today, a student earning minimum wage would have to work full time for a year to afford one year of education at a four-year public university — and that assumes she saves every penny, Boushey concluded.
Parents, meantime, face competing demands for their money. They’re trying to save for retirement just as their kids are starting college. Financial planners have long urged people not to delay retirement saving to pay for college. The idea was that students could borrow for college but that parents can’t borrow for retirement.
That was an easier argument to make when debt loads — and tuition — were lower, says Amy Noel, a financial planner in Boulder, Colo. She still believes parents shouldn’t sacrifice retirement security for their children’s education. But she lays out options for her clients….if interest rates drop, borrowers with loans issued after July 1 won’t be able to benefit. Graduates will still be able to extend payment periods by consolidating their loans. But that won’t provide any interest-rate relief. That’s because the loan rates will be fixed….
[excerpt]
[Telegraph April 19,2008]….Hot money funds are also playing a role, trading oil as a sort of “anti-dollar”. Crude is moving in reverse lockstep with the greenback, pushing ever higher (with double or triple leverage) as the dollar reaches fresh lows against the euro. Surging oil prices are in turn stoking inflation, causing investors to bet yet more on oil futures as an inflation hedge. “This has entered a vicious spiral,” Dr Lasserre said.
Analysts say it is no coincidence that oil punched higher on the same day that the euro reached a record of $1.5979, up 28pc in two years. BNP Paribas says central banks should intervene to stabilise the dollar. Every major country now has an interest in slowing the commodity frenzy.
Surge in investor appetite for commodity futures
The G7 group of major powers took a step in that direction over the weekend, warning that sharp currency moves had become a threat to financial stability. The markets have dismissed this as empty bluster, prompting a warning from French finance minister Christine Lagarde that speculators may have “misunderstood” what had been agreed.
It is a contentious point whether investors have now caused the price of crude to become unhinged from economic reality. Commodity prices have jumped 47pc since the credit crunch began in August last year, despite three downgrades in global growth forecasts by the IMF. Oil and metals normally fall hard as growth slows.
The crucial difference this time is that the US, Britain, Germany, Japan and other rich OECD countries are no longer the driving force in the oil market. The US added just 7pc of total demand growth from 2004 to 2007, compared to 34pc for China, 25pc for the Mid-East and 17pc for emerging Asia. The newcomers are oil guzzlers, with a high crude use per unit of GDP created.
Commodities love sub-prime
Most are still booming. China grew at a blistering 10.6pc in the first quarter, slightly down from 11.9pc last year. The country has been raising its oil use by 500,000 bpd a year. Crude imports jumped 25pc in March, topping 4m bpd for the first time.
“The OECD doesn’t matter much any more,” said Mr Skrebowski. “We have an Atlantic-centred view, and we are having trouble getting our heads around the idea that the world has changed.”
Of course, China’s growth may prove more fragile than it looks. Inflation has reached the danger zone of 8.3pc. The central bank tightened credit again yesterday. The Shanghai bourse has lost almost half its value since peaking last autumn. Nariman Behravesh, chief economist at Global Insight, warns that China faces post-Olympics “crunch” as the colossal bad debts of the state banking system exact their toll.
Whatever happens, oil cannot easily fall below $70. That is the break-even cost for biofuels, the new oil substitute. Short of a global depression it is hard to imagine what could depress oil prices for long as the rising nations of Asia embrace the affluent society….”
[telegraph.com.uk]
It a veritable gold mine of comedy:
Statement from the OECD Committee Chair Thomas Wieser, Director General at the Austrian Ministry of Finance):
The subprime mortgage crisis has now triggered wider repercussions in financial markets and institutions, and continues to challenge the efforts of policymakers to devise successful measures in response. Central banks have taken various steps to calm the markets, but concerns remain and the situation is not fully resolved. The likelihood of an adverse impact on the broader economy has obviously increased for the U.S. and it is far from clear that other economies will long remain immune.
The meeting of the OECD Committee on Financial Markets on 14-15 April endorsed the recent Financial Stability Forum and G7 recommendations to address the crisis. But the OECD is also addressing issues related to the basic framework for financial sector regulation. This includes development of a more modern and dynamic approach to financial regulation. The OECD believes that fundamental reform of the financial system and its regulation has to be a key focus of the policy debate going forward. As stated by Adrian Blundell-Wignall, deputy director at the Directorate for Financial and Entreprise Affairs, “It will no longer be possible to assert the view that we have the best of all possible financial systems”.”
I call John McCain - George W. McCain…for that is what he truly represents to America if he becomes President of the U.S.
As for free trade - I am all for it, as long as there is NO government intervention…hint the meaning of the word “FREE” - all “Free Trade” Agreements, including NAFTA, CAFTA, etc…have a very high government intervention…and I ask you - how has the current free trade agreements help us?
The only candidate that I see that is worth having in the White House is Ron Paul:
http://www.ronpaul2008.com/
Ah, once again–the king who will end all kingship.
As a program, and despite his kindergarten economics, some of what Paul has to say might have been effective, if implemented, in, say, 1898.
This medium of exchange should satisfy certain properties: it should be durable, that is to say, it does not wear out easily; it should be portable, that is, easily carried; it should be divisible into units usable for every-day transactions; it should be recognizable and uniform, so that one unit of money has the same properties as every other unit; it should be scarce, in the economic sense, so that the extant supply does not satisfy the wants of everyone demanding it; it should be stable, so that the value of its purchasing power does not fluctuate wildly; and it should be reproducible, so that enough units of money can be created to satisfy the needs of exchange.
Ron Paul
Come again? As an economic thinker, he makes a good gynecologist.
Remember now, something that is “scarce” but also “stable” and “enough”?
Wow–that really does remind one of John Locke’s attempted definition of “substance”, doesn’t it?
At one time, there was a war that did help us with the economy…WWII - reason, we as a nation were manufacturing goods like cars, radios, clothing, etc. Then long came other countries like Japan, China, Mexico, … then the so called Free Trade came along, and gee, here we are NOW!!!
TEHRAN, Iran ZP April 19, 2008- Iran’s hard-line president declared that crude oil prices, now above $115 a barrel, are too low, state media reported Saturday.
President Mahmoud Ahmadinejad told an oil and gas exhibition in Tehran on Friday that he thought the commodity still had to “discover its real value,” according to the Web site of Iran’s state-run television.
Oil prices have hit all-time highs above $115 a barrel in recent weeks, amid reports that oil and gasoline reserves in the United States were lower than expected and as the dollar sinks to record lows.
“The oil price of $115 a barrel in today’s global markets is a deceiving figure. Oil is a strategic commodity that needs to discover its real value,” the Web site quoted Ahmadinejad as saying….”
Guess they study economics and finance in Iran.
That Chavez fella, too–real head on his shoulders. Did yall know Venezuela is subsidizing oil sales to the US at below market prices?
Smart fella.
“The oil price of $115 a barrel in today’s global markets is a deceiving figure. Oil is a strategic commodity that needs to discover its real value,” the Web site quoted Ahmadinejad as saying
Translating from a language like Farsi to English is always a challenge.
For example, one wonders if what he really said was, say:
“The oil price of USD $115 a barrel in today’s global markets is a deceiving figure. Oil is a strategic commodity that needs to discover the real value of the USD,” the Web site quoted Ahmadinejad as saying
Not to worry, between American economists, financiers, bankers and politicians, and what Israel has to offer in the way of great financial whizzes and foreign policy advisers, why worry about some tinhorn elected Adolf Hitler from Iran?
What does he know about the price of rice in China?
April 18, 2008 USD 1= MXN 10.484.
WASHINGTON: Bloomberg April 8, 2008: The International Monetary Fund said Tuesday that financial losses stemming from the U.S. mortgage crisis might approach $1 trillion, citing a “collective failure” to predict the breadth of the crisis.
Falling U.S. house prices and rising delinquencies may lead to $565 billion in mortgage-market losses, the IMF said in its annual Global Financial Stability report, released in Washington. Total losses, including the securities tied to commercial real estate and loans to consumers and companies, may reach $945 billion, the fund said.
The forecast signals the worst of the credit crunch may be yet to come, because banks and securities firms so far have posted $232 billion in asset writedowns and credit losses. Policy makers, concerned that lenders’ deteriorating balance sheets will hobble economic growth, are pushing companies to raise capital.
“The current turmoil is more than simply a liquidity event, reflecting deep-seated balance-sheet fragilities and weak capital bases, which means its effects are likely to be broader, deeper and more protracted,” the report said. The fund warned of the risk of “a serious funding and confidence crisis that threatens to continue for a significant period.”
[excerpt]
My, aren’t we conservative when it comes to estimating the losses due to our incompetence?
Only a trillion? Bargain basement estimate.
Paul Craig Roberts, The Fading American Economy:
[http://www.vdare.com/roberts/080408_economy.htm]
This a brief but masterful presentation, with references, of some other economic realities.
Government employs 22,387,000 Americans, 8,744,000 more than manufacturing. Even the category leisure and hospitality employs 13,682,000 Americans, slightly more than manufacturing. There are as many waitresses and bartenders as production workers.
Wholesale and retail trade employ 21,467,000 Americans. Professional and business services employ 18,036,000 Americans of which 8,368,000 are in administrative and waste services. Education and health services employ 18,699,000 Americans.
Financial activities employ 8,228,000 Americans. The information sector employs 3,010,000. Transportation and warehousing employ 4,532,000. Construction employs 7,338,000, and natural resources, mining and logging employ 751,000. Other services such as repair, laundry, and membership associations employ 5,516,000 Americans.
This is the portrait of the US economy according to the Bureau of Labor Statistics. It is an economy in which government is the largest employer. Manufacturing employment comprises just under 10% of total employment and about 12% of private sector employment. Everything else is services, and not particularly high level services.
Is this a portrait of a super economy?
[Paul Craig Roberts ref. above]
To help answer the question, consider that US imports in 2007 were 17% of US GDP, according to the National Income and Product Account tables provided by the Bureau of Economic Affairs. In contrast, the BEA industry tables show that in 2006 (2007 data not yet available) US manufacturing comprised only 11.7% of US GDP.
If US imports actually exceed total US manufacturing output by 5% of GDP, it does not seem possible that the US can close its massive trade deficit. Even if every item manufactured in the US was exported, the US would still have a large trade deficit…
If the US cannot close its trade deficit, it is unlikely that the US dollar can remain the world reserve currency. If the dollar were to lose the reserve currency role, the US government would not be able to finance its annual red ink budget by borrowing from foreigners, as the US saving rate is about zero, and the US would not be able to pay its import bill in its own currency. The rest of the world continues to hold depreciating US currency, because the dollar is the world reserve currency. The dollar is certainly not a good investment having declined dramatically against other traded currencies.
[Paul Craig Roberts ref. above]
Actually, it’s worse than that–because of skyrocketing oil prices, as I argue above, USD is no longer the World Reserve Currency, but, with the Euro, one of the alternatives. That is also an element in a vicious circle, but largely an independent factor added on to the trade deficit.
The US unemployment rate is creeping up, and according to John Williams, the official unemployment rate greatly understates the real rate of unemployment. Williams has followed the changes that government has made to the official indices over the years in order to spin a more politically palatable picture. Williams uses the original methodology prior to the decades of spin. The original way of measuring unemployment indicates the current rate of unemployment in the US to be 13%, much higher than the 5.1% official number.
[Paul Craig Roberts ref. above]
AP April 22, 2008: Oil prices rose Tuesday to a all-time highs above $118 a barrel on concerns over supplies from some key producers.
Light, sweet crude for May delivery rose as high as $118.05 a barrel in electronic trading on the New York Mercantile Exchange, eclipsing Monday’s all-time high of $117.83.
By midday in Europe, the contract had risen to $117.77, up 29 cents on Monday’s close of $117.48 a barrel. The May contract expires at the end of trading Tuesday….
Chavez Warns Price Of Oil Could Double If US Invades Iran
DN Headlines: November 20, 2007: Venezuelan President Hugo Chavez traveled to Iran on Monday for the fourth time in two years. Chavez warned that the price of a barrel of oil could double and top $200 if the U.S. invades Iran. He said the U.S. dollar is in free-fall.
Hugo Chavez: “Soon we will not talk about dollars because the dollar is falling in value and the empire of the dollar is crashing. Naturally, by the crash of the dollar, America’s empire will crash.”
Hugo Chavez also suggested OPEC should begin trading oil in a basket of currencies excluding the dollar.
[http://www.democracynow.org/2007/11/20/headlines]
The Oil Market Is Running Scared
[Business Week April 22, 2002] The shock hit on Apr. 8, when Iraq, the world’s No. 4 oil exporter, announced it was stopping shipments for 30 days in support of beleaguered Palestinians. Crude oil rose 4%, to $27 a barrel, on the New York Mercantile Exchange. Oil gave back the gain the next day, when Saudi Oil Minister Ali Naimi reaffirmed in a press report that Saudi Arabia was “committed to guarantee stability in the international oil market”–code for pumping more oil to make up for politically motivated cuts.
Still, the Iraqi cutoff brought a painful reminder of earlier stoppages. The 1973 embargo by Arab exporters, including Saudi Arabia, caused oil prices to quadruple, leading to years of stagflation in the West and Japan. In 1979 and 1980, supply disruptions following Iran’s Islamic revolution led to another traumatic price spike. This year, oil prices rose from $18 a barrel in January to $24 in mid-March, mainly on expectations of higher demand from the economic rebound. Now, the Mideast turmoil has pushed them even higher….
Come again? $18 per barrel?
You fellas beginning to get a grip of the fundamentals or am I just wasting the keyboard equivalent of my breath?
AP April 22, 2008: Light, sweet crude for May delivery rose as high as $119.90 barrel, then slipped back to settle at $119.37, up $1.89. But it appeared inevitable crude would pass $120.
The Dow fell 104.79, or 0.82 percent, to 12,720.23.
Connecticut News April 23, 2008: Stung by the slowing economy, the state’s projected budget surplus for the current fiscal year has shrunk to $15.7 million — a tissue-thin amount in a state budget of more than $18 billion.
The sharp drop in expected revenue is expected to play a key role in negotiations over the proposed state budget during the next two weeks as Gov. M. Jodi Rell and legislators seek to fund a wide variety of services — ranging from nursing homes and homeless shelters to prisons and public schools.
Nursing homes and nonprofit organizations already are complaining that an expected 1 percent cost-of-living increase is too low, and the lower surplus projections will probably make budget decisions more difficult, lawmakers said.
The latest numbers touched off a clash between Democrats and Republicans over the projected revenue drop, which is the result of lower-than-expected tax collections and a one-year postponement of Medicaid reimbursement payments. The state expects to receive the $82.5 million in reimbursements from the federal government next year….
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The best way for the U.S. to ensure its oil supplies would be to protect the dollar’s role as world reserve currency. Moreover, $3-5 trillion would have purchased a tremendous amount of oil. Prior to the U.S. invasions, the U.S. oil import bill was running less than $100 billion per year. Even in 2006 total U.S. imports from OPEC countries was $145 billion, and the U.S. trade deficit with OPEC totaled $106 billion. Three trillion dollars could have paid for U.S. oil imports for 30 years; $5 trillion could pay the U.S. oil bill for a half century had the Bush regime preserved a sound dollar….
Paul Craig Roberts
I am saddened that it is politically inconvenient to acknowledge what everyone knows: the Iraq war is largely about oil
Alan Greenspan
Oh, THAT Alan Greenspan on “political inconvenience” and “what EVERYONE knows”, hehe.
WASHINGTON (AP April 24) — Sales of new homes plunged in March to the lowest level in 16 1/2 years as housing slumped further at the start of the spring sales season.
The median price of a new home in March, compared with a year ago, fell by the largest amount in nearly four decades.
The Commerce Department reported Thursday that sales of new homes dropped by 8.5 percent last month to a seasonally adjusted annual rate of 526,000 units, the slowest sales pace since October 1991.
The median price of a home sold in March dropped by 13.3 percent compared with March 2007, the biggest year-over-year price decline since a 14.6 percent plunge in July 1970.
The dismal news on new home sales followed earlier reports showing sales of existing homes fell by 2 percent in March. Housing, which boomed for five years, has been in a prolonged slump for the past two years with sales and home prices falling at especially sharp rates in formerly boom areas of the country.
For March, sales were down in all regions of the country, dropping the most in the Northeast, a decline of 19.4 percent. Sales fell by 12.9 percent in the West, 12.5 percent in the Midwest and 4.6 percent in the South.
In other economic news, orders to factories for big-ticket manufactured goods fell for a third straight month in March, the longest string of declines since the 2001 recession, while applications for unemployment benefits fell by 33,000 to 342,000.
The Commerce Department said demand for durable goods dropped by 0.3 percent last month, a worse-than-expected performance that underscored the problems manufacturers are facing from a severe economic slowdown. The last time orders fell for three consecutive months was from February to April of 2001, when the country was sliding into the last recession.
The weakness in manufacturing orders was led by a 4.6 percent drop in orders for autos, a sector hard hit by soaring gasoline prices, and the weakening economy, which have cut sharply into car sales. Orders in the category that includes home appliances fell by 6.6 percent. This industry has been hurt by the two-year slump in home sales.
President Bush said Tuesday that the economy was not in a recession but a period of slower growth. However, economists who believe the country has fallen into a recession pointed to the string of declines in manufacturing orders to support their view.
“The broad swath of data in the March (orders) report is indicative of a mixed set of conditions in a factory sector that is, overall, in a mild recession,” said Cliff Waldman, economist for the Manufacturers Alliance/MAPI….
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Indeed, indeed–a veritable motherlode of comedy….
Senate votes to ban insurers from discriminating based on DNA</B.
WASHINGTON [AP April 24, 2008]- The Senate has passed legislation that prohibits health insurance companies and employers from discriminating against people based on the results of genetic testing.
The 95-0 vote sends the bill back to the House for a final vote early next week. President Bush supports the legislation.
DNA testing can show some people to be at greater risk of cancer or other serious illnesses. The bill bars health insurance companies from using such information to set premiums or determine eligibility. Employers couldn’t use that information for hiring and firing decisions.
The economic significance of this item (not what the Senate did, but what they are doing) may be lost on the Paulists.
It is not lost on Kucinich, I strongly suspect.
<i.[AP Arpil 25,2008] “The money is going to help Americans offset the high prices we’re seeing at the gas pump, the grocery store, and also give our economy a boost to help us pull out of this economic slowdown,” Bush said.
Bush’s emphasis on fuel and food prices differed from other comments he’s made since signing the economic stimulus legislation, intended to aid the economy by boosting overall consumer spending — which accounts for roughly two-thirds of the nation’s economic activity.
Bush has suggested the rebates could trigger a spending spree. “When the money reaches the American people, we expect they will use it to boost consumer spending,” he said last month.
By saying expressly that people could use these one-time checks to pay for such necessities as food and gas, Bush underscored the deepening challenges facing the economy.
Democrats were quick to pick up on the change of focus.
“It’s galling to think that taxpayers’ stimulus checks will be lining the pockets of OPEC. The sad truth is that the average American family will spend almost their entire stimulus check on higher gas prices this year,” said Sen. Charles Schumer, D-N.Y., chairman of the Joint Economic Committee of Congress.
OPEC is the Organization of Petroleum Exporting Countries.
Incidentally notice the ventriloquist and his dummy. Bush says he is giving you money back, and Schumer says that it is not Israel and the Iraq War that is the problem, but OPEC, hehe.
Brett Arends WSJ:
Load Up the Pantry
April 21, 2008 6:47 p.m.
I don’t want to alarm anybody, but maybe it’s time for Americans to start stockpiling food.
No, this is not a drill.
You’ve seen the TV footage of food riots in parts of the developing world. Yes, they’re a long way away from the U.S. But most foodstuffs operate in a global market. When the cost of wheat soars in Asia, it will do the same here.
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Reality: Food prices are already rising here much faster than the returns you are likely to get from keeping your money in a bank or money-market fund. And there are very good reasons to believe prices on the shelves are about to start rising a lot faster.
“Load up the pantry,” says Manu Daftary, one of Wall Street’s top investors and the manager of the Quaker Strategic Growth mutual fund. “I think prices are going higher. People are too complacent. They think it isn’t going to happen here. But I don’t know how the food companies can absorb higher costs.” (Full disclosure: I am an investor in Quaker Strategic)
Stocking up on food may not replace your long-term investments, but it may make a sensible home for some of your shorter-term cash. Do the math. If you keep your standby cash in a money-market fund you’ll be lucky to get a 2.5% interest rate. Even the best one-year certificate of deposit you can find is only going to pay you about 4.1%, according to Bankrate.com. And those yields are before tax.
Meanwhile the most recent government data shows. food inflation for the average American household is now running at 4.5% a year.
And some prices are rising even more quickly. The latest data show cereal prices rising by more than 8% a year. Both flour and rice are up more than 13%. Milk, cheese, bananas and even peanut butter: They’re all up by more than 10%. Eggs have rocketed up 30% in a year. Ground beef prices are up 4.8% and chicken by 5.4%.
Stock up on food? On verra. Neckties might be a better investment. They may be in short supply soon….
Gasoline at $10 per gallon?
http://www2.nysun.com/article/75363
Calling Mr. Paul, calling Mr. Paul:
Dear Eugene,
Last Friday, we sent out an alert asking our members to contact House Judiciary Committee Chairman John Conyers. Our goal was to have him issue subpoenas to former Attorney General John Ashcroft and former Justice Department official John Yoo, requiring them to testify about the sanctioning of torture in the Bush administration’s Justice Department. In response, more than 6,000 of our members sent emails to Chairman Conyers.
Yesterday, the Associated Press reported that Chairman Conyers was, in fact, threatening to issue subpoenas to Ashcroft and Yoo! Here is how the article started:
WASHINGTON (AP) - The chairman of the House Judiciary Committee on Monday threatened to serve subpoenas on former Attorney General John Ashcroft and two others associated with the Bush administration’s interrogation policies if they don’t agree to testify.
If the three - including John C. Yoo, the former assistant deputy attorney general, and David Addington, Vice President Dick Cheney’s chief of staff - do not reply by Friday, “I will have no choice but to consider the use of compulsory process,” Rep. John Conyers, D-Mich., wrote in letters to them.
That’s Washington-speak for issuing congressional subpoenas.
We are thrilled that Chairman Conyers is moving in the right direction, but the fight is certainly not over yet. Taking on the White House is never easy and he needs all the encouragement he can get.
If you have not sent an email to Chairman Conyers yet, please click on the following link to get started:
http://salsa.democracyinaction.org/o/2165/t/1027/campaign.jsp?campaign_KEY=24355
Thank you so much for joining us in this effort.
Steve
Steve Fox
Campaign Director
American Freedom Campaign Action Fund
[The Times April 29, 2008]Tariq Aziz, once the international face of Saddam Hussein’s regime, is due to appear in a Baghdad court today, accused of playing a part in the execution of a group of businessmen more than 15 years ago.
Mr Aziz, the former Deputy Prime Minister and Foreign Minister, and seven others are accused of killing 42 dealers in 1992 after blaming them for raising food prices when Iraq was suffering under UN sanctions….”
Hmmm. Suppose there is any possibility of him being released, given US citizenship, and elected to Congress?
Aziz is a “Christian”, merely by the way.
Mr. Paul? Mr. Paul?
War is a waiste of people’s time and a lot of money…there’s NO point in fighting!!