Go to Original
By Michael Abramowitz
New Orleans - With the North American Free Trade Agreement taking a pounding on the campaign trail, President Bush met here Monday with the leaders of Mexico and Canada to defend the pact and to seek new ways to cooperate on border, economic and regulatory issues.
After meeting with Bush, Mexican President Felipe Calderón touched on the recent criticism of NAFTA from both Sens. Hillary Rodham Clinton (D-N.Y.) and Barack Obama (D-Ill.), who have promised to revisit the treaty if elected president.
Without mentioning the candidates by name, Calderón said, "I do not believe that people are realizing how many benefits NAFTA has brought both to the United States and to Mexico." He said the agreement has meant more jobs and economic growth and is "decreasing the flow of immigration."
White House aides have also defended the trade pact in recent days. "We want to find ways to, frankly, convince the American people ... that this is an arrangement that's worked for us, and it's also worked for our neighbors," Dan Fisk, the top White House staffer on Latin America, said before the summit. "There's nothing broken. Why fix a success?"
The two-day meeting here is the fourth in what has become an annual summit among the leaders of the three nations. Bush met separately with Canadian Prime Minister Stephen Harper, and the three heads of state were planning to dine together Monday evening.
Relations between the United States and its two neighbors have been good in recent years, with both Calderón and Harper sharing Bush's devotion to free trade and, in Canada's case, the commitment to the war in Afghanistan. But the Mexican side has been disappointed that Bush has not liberalized the U.S. immigration system, a big priority for Calderón and his predecessor, Vicente Fox.
After their meeting Monday, Bush called for U.S. congressional approval of a $550 million package to help Mexico fight drug traffickers who have threatened to destabilize the country in recent years. A House Democratic aide said the package is likely to pass this year, possibly as part of the funding bill for the war in Iraq.
By far the most sensitive topic in the trilateral relationship is trade, which amounts daily to a three-way exchange of about $2.5 billion in goods and services, Fisk said.
Both Democratic candidates have said they would try to amend NAFTA to better protect the environment and labor rights. Obama has said he was against the 1994 agreement from the start; Clinton says that she, too, was a critic, though she says she muted that criticism because she was part of the administration of her husband, who pushed the agreement through Congress.
Thomas J. Donahue, president of the U.S. Chamber of Commerce, who is attending the meeting, said he believes that the candidates have softened their rhetoric because they are fishing for votes in Pennsylvania, which he said is a big exporter of goods to Mexico and Canada. In the end, he said, "I don't think we are going to screw up the NAFTA deal."
Tuesday, April 22, 2008
Clueless in America
Go to Original
By Bob Herbert
We don’t hear a great deal about education in the presidential campaign. It’s much too serious a topic to compete with such fun stuff as Hillary tossing back a shot of whiskey, or Barack rolling a gutter ball.
The nation’s future may depend on how well we educate the current and future generations, but (like the renovation of the nation’s infrastructure, or a serious search for better sources of energy) that can wait. At the moment, no one seems to have the will to engage any of the most serious challenges facing the U.S.
An American kid drops out of high school every 26 seconds. That’s more than a million every year, a sign of big trouble for these largely clueless youngsters in an era in which a college education is crucial to maintaining a middle-class quality of life — and for the country as a whole in a world that is becoming more hotly competitive every day.
Ignorance in the United States is not just bliss, it’s widespread. A recent survey of teenagers by the education advocacy group Common Core found that a quarter could not identify Adolf Hitler, a third did not know that the Bill of Rights guaranteed freedom of speech and religion, and fewer than half knew that the Civil War took place between 1850 and 1900.
“We have one of the highest dropout rates in the industrialized world,” said Allan Golston, the president of U.S. programs for the Bill and Melinda Gates Foundation. In a discussion over lunch recently he described the situation as “actually pretty scary, alarming.”
Roughly a third of all American high school students drop out. Another third graduate but are not prepared for the next stage of life — either productive work or some form of post-secondary education.
When two-thirds of all teenagers old enough to graduate from high school are incapable of mastering college-level work, the nation is doing something awfully wrong.
Mr. Golston noted that the performance of American students, when compared with their peers in other countries, tends to grow increasingly dismal as they move through the higher grades:
“In math and science, for example, our fourth graders are among the top students globally. By roughly eighth grade, they’re in the middle of the pack. And by the 12th grade, U.S. students are scoring generally near the bottom of all industrialized countries.”
Many students get a first-rate education in the public schools, but they represent too small a fraction of the whole.
Bill Gates, the founder of Microsoft, offered a brutal critique of the nation’s high schools a few years ago, describing them as “obsolete” and saying, “When I compare our high schools with what I see when I’m traveling abroad, I am terrified for our work force of tomorrow.”
Said Mr. Gates: “By obsolete, I don’t just mean that they are broken, flawed or underfunded, though a case could be made for every one of those points. By obsolete, I mean our high schools — even when they’re working as designed — cannot teach all our students what they need to know today.”
The Educational Testing Service, in a report titled “America’s Perfect Storm,” cited three powerful forces that are affecting the quality of life for millions of Americans and already shaping the nation’s future. They are:
• The wide disparity in the literacy and math skills of both the school-age and adult populations. These skills, which play such a tremendous role in the lives of individuals and families, vary widely across racial, ethnic and socioeconomic groups.
• The “seismic changes” in the U.S. economy that have resulted from globalization, technological advances, shifts in the relationship of labor and capital, and other developments.
• Sweeping demographic changes. By 2030, the U.S. population is expected to reach 360 million. That population will be older and substantially more diverse, with immigration having a big impact on both the population as a whole and the work force.
These and so many other issues of crucial national importance require an educated populace if they are to be dealt with effectively. At the moment we are not even coming close to equipping the population with the intellectual tools that are needed.
While we’re effectively standing in place, other nations are catching up and passing us when it comes to educational achievement. You have to be pretty dopey not to see the implications of that.
But, then, some of us are pretty dopey. In the Common Core survey, nearly 20 percent of respondents did not know who the U.S. fought in World War II. Eleven percent thought that Dwight Eisenhower was the president forced from office by the Watergate scandal. Another 11 percent thought it was Harry Truman.
We’ve got work to do.
By Bob Herbert
We don’t hear a great deal about education in the presidential campaign. It’s much too serious a topic to compete with such fun stuff as Hillary tossing back a shot of whiskey, or Barack rolling a gutter ball.
The nation’s future may depend on how well we educate the current and future generations, but (like the renovation of the nation’s infrastructure, or a serious search for better sources of energy) that can wait. At the moment, no one seems to have the will to engage any of the most serious challenges facing the U.S.
An American kid drops out of high school every 26 seconds. That’s more than a million every year, a sign of big trouble for these largely clueless youngsters in an era in which a college education is crucial to maintaining a middle-class quality of life — and for the country as a whole in a world that is becoming more hotly competitive every day.
Ignorance in the United States is not just bliss, it’s widespread. A recent survey of teenagers by the education advocacy group Common Core found that a quarter could not identify Adolf Hitler, a third did not know that the Bill of Rights guaranteed freedom of speech and religion, and fewer than half knew that the Civil War took place between 1850 and 1900.
“We have one of the highest dropout rates in the industrialized world,” said Allan Golston, the president of U.S. programs for the Bill and Melinda Gates Foundation. In a discussion over lunch recently he described the situation as “actually pretty scary, alarming.”
Roughly a third of all American high school students drop out. Another third graduate but are not prepared for the next stage of life — either productive work or some form of post-secondary education.
When two-thirds of all teenagers old enough to graduate from high school are incapable of mastering college-level work, the nation is doing something awfully wrong.
Mr. Golston noted that the performance of American students, when compared with their peers in other countries, tends to grow increasingly dismal as they move through the higher grades:
“In math and science, for example, our fourth graders are among the top students globally. By roughly eighth grade, they’re in the middle of the pack. And by the 12th grade, U.S. students are scoring generally near the bottom of all industrialized countries.”
Many students get a first-rate education in the public schools, but they represent too small a fraction of the whole.
Bill Gates, the founder of Microsoft, offered a brutal critique of the nation’s high schools a few years ago, describing them as “obsolete” and saying, “When I compare our high schools with what I see when I’m traveling abroad, I am terrified for our work force of tomorrow.”
Said Mr. Gates: “By obsolete, I don’t just mean that they are broken, flawed or underfunded, though a case could be made for every one of those points. By obsolete, I mean our high schools — even when they’re working as designed — cannot teach all our students what they need to know today.”
The Educational Testing Service, in a report titled “America’s Perfect Storm,” cited three powerful forces that are affecting the quality of life for millions of Americans and already shaping the nation’s future. They are:
• The wide disparity in the literacy and math skills of both the school-age and adult populations. These skills, which play such a tremendous role in the lives of individuals and families, vary widely across racial, ethnic and socioeconomic groups.
• The “seismic changes” in the U.S. economy that have resulted from globalization, technological advances, shifts in the relationship of labor and capital, and other developments.
• Sweeping demographic changes. By 2030, the U.S. population is expected to reach 360 million. That population will be older and substantially more diverse, with immigration having a big impact on both the population as a whole and the work force.
These and so many other issues of crucial national importance require an educated populace if they are to be dealt with effectively. At the moment we are not even coming close to equipping the population with the intellectual tools that are needed.
While we’re effectively standing in place, other nations are catching up and passing us when it comes to educational achievement. You have to be pretty dopey not to see the implications of that.
But, then, some of us are pretty dopey. In the Common Core survey, nearly 20 percent of respondents did not know who the U.S. fought in World War II. Eleven percent thought that Dwight Eisenhower was the president forced from office by the Watergate scandal. Another 11 percent thought it was Harry Truman.
We’ve got work to do.
Out of the Way, Peasants
Go to Original
By Steven Greenhut
Readers have been shocked to learn that California has about 1 million citizens who are literally above the law. Members of this group, as a Register front-page article April 6 detailed, can drive their cars as fast as they choose. They can drink a six-pack of beer at a bar and then get behind the wheel and weave their way home. They can zoom in and out of traffic, run traffic lights, roll through stop signs and ignore school crossing zones. They can ride on toll roads for free, park in illegal spots and drive on High Occupancy Vehicle lanes even if they have no passengers in the car with them. Chances are they will never have to pay a fine or get a traffic citation.
They are a special class of people, basically exempt from the laws the rest of us must follow. This isn't a small number, either. Drivers of one of every 22 California cars and light trucks on the road have this special immunity, which should cause our government leaders and law enforcement authorities – always eager to protect us from any perceived problem – to demand a fix to this real public safety threat. Think about what this means: a million drivers who can endanger our lives with near impunity. I can hear it now: "There ought to be a law!"
But instead of pushing for a fix, most legislators are trying to expand the program so that even more people can have the special "we're above the law" license plates. What gives? The answer is sickeningly obvious. The Special People are those who work for law enforcement or other government agencies or are their family members.
Now you get it. Government officials are zealous about dealing with problems caused by average citizens, but they are far less interested in dealing with the excesses of fellow members of the privileged, government elite. There are rules for "us" and rules for "them" – us being the subjects and them being the rulers. Feel free to pound the table in anger now!
How did we get to this sorry place?
In 1978, the state started a program to protect the confidentiality of peace officers so members of the public couldn't find their addresses on Department of Motor Vehicle databases. Over the years, the program has been expanded from one set of government workers to another. It now applies to corrections employees, social workers, nonsworn personnel who work in juvenile halls, parole officers, parking enforcement employees and on and on. Even county supervisors, city attorneys and city council members can be exempt from the state's traffic laws.
Even after the Register article exposed this outrageous situation, an Assembly committee voted to expand this special privilege to firefighters, animal control officers and veterinarians. Assemblyman Mike Duvall, R-Yorba Linda, explained his vote to the Register in this way: "I don't want to say no to the firefighters and veterinarians that are doing these things that need to be protected." That attitude explains why our society is moving in this direction. No one – not even a self-proclaimed believer in limited government – will stand up to groups of workers who have become as demanding, self-righteous and arrogant as those found in the French bureaucracy.
Americans used to be better schooled in the views of our nation's founders, who believed that government should be strictly limited and highly accountable. The Constitution, after all, is designed to protect the People from their rulers. These days, and especially after 9/11, Americans have become compliant and dangerously obedient to the authorities. Hence, they keep getting rolled. You know something's amiss when museum security guards, court workers, DMV employees and retired parking officers are part of the special-license caste.
The special-plate program works this way: The addresses are kept secret, so toll-road operators and parking enforcement cannot easily track down violators. The Transportation Corridor Agencies, which runs the toll roads, does not legally have access to the confidential addresses. The Orange County Transportation Authority has to go through additional hoops to get the addresses and admittedly doesn't pursue toll violations too zealously.
In one instance reported by the Register, one couple had racked up almost $35,000 in penalties from OCTA for driving on toll roads without paying. Regarding moving violations, when police see these special plates they either don't pull the drivers over or they don't ticket them if they do. The cops call this "professional courtesy." Officers know that those with the special plates are "their own," and officers are quite open about refusing to ticket other members of the Brotherhood. They scratch each other's back. "It's a courtesy, law enforcement to law enforcement," Sgt. Tom Lee of the San Francisco Police Department, told the Register. "We let it go."
Well, such "courtesies" are functions of police states, not free societies. In a free society, the government serves the people. No one is supposed to be above the law, not even animal control officers and their spouses. Assemblyman Todd Spitzer, R-Orange, calls the situation immoral, unfair and unethical. He has proposed legislation that would limit the practice. Spitzer deserves kudos for this effort, but I wouldn't expect the legislation to go far given the deference afforded public-sector union members and law enforcement in the state Capitol.
The whole thing is a scam. This confidentiality of plates is defended on grounds of safety – even though there's no example of anyone's safety having been jeopardized and even though so many of the workers who receive the protections are not in even remotely dangerous professions. Plus, the original rationale for the protection has evaporated. As the Register noted, "updated laws have made all DMV information confidential to the public."
Pound that table again!
Wouldn't it be nice if the government, for once, put the public's safety above the concerns of its own workers and its own bureaucratic prerogatives? These days, the focus always seems to be on the safety of the government workers (FYI, no government job is in the top 10 list of most-dangerous occupations), even though the government's entire raison d'être (hey, French is appropriate, given the subject matter) is to protect us. Public-choice theory is correct – government workers function mainly to promote their own self-interest, and not to promote what some naïvely believe to be the public good.
Sadly, as the government expands, America is becoming a society where the public "servants" are now the masters. Government workers earn higher salaries than their cohorts in the private sector and far higher benefits – with a massive public unfunded liability (debt) as a result. The taxpayer eventually will be forced to clean up the fiscal mess. These same government employees have special protections from accountability. There's the Peace Officers' Bill of Rights, civil service protections and government unions, the last of which instill fear and trepidation into the hearts of politicians.
And now we learn that members of this coddled and powerful group (and their family members) don't even need to follow the basic traffic laws that apply to the rest of us. If you're not angry, then you must be a member of the special caste.
By Steven Greenhut
Readers have been shocked to learn that California has about 1 million citizens who are literally above the law. Members of this group, as a Register front-page article April 6 detailed, can drive their cars as fast as they choose. They can drink a six-pack of beer at a bar and then get behind the wheel and weave their way home. They can zoom in and out of traffic, run traffic lights, roll through stop signs and ignore school crossing zones. They can ride on toll roads for free, park in illegal spots and drive on High Occupancy Vehicle lanes even if they have no passengers in the car with them. Chances are they will never have to pay a fine or get a traffic citation.
They are a special class of people, basically exempt from the laws the rest of us must follow. This isn't a small number, either. Drivers of one of every 22 California cars and light trucks on the road have this special immunity, which should cause our government leaders and law enforcement authorities – always eager to protect us from any perceived problem – to demand a fix to this real public safety threat. Think about what this means: a million drivers who can endanger our lives with near impunity. I can hear it now: "There ought to be a law!"
But instead of pushing for a fix, most legislators are trying to expand the program so that even more people can have the special "we're above the law" license plates. What gives? The answer is sickeningly obvious. The Special People are those who work for law enforcement or other government agencies or are their family members.
Now you get it. Government officials are zealous about dealing with problems caused by average citizens, but they are far less interested in dealing with the excesses of fellow members of the privileged, government elite. There are rules for "us" and rules for "them" – us being the subjects and them being the rulers. Feel free to pound the table in anger now!
How did we get to this sorry place?
In 1978, the state started a program to protect the confidentiality of peace officers so members of the public couldn't find their addresses on Department of Motor Vehicle databases. Over the years, the program has been expanded from one set of government workers to another. It now applies to corrections employees, social workers, nonsworn personnel who work in juvenile halls, parole officers, parking enforcement employees and on and on. Even county supervisors, city attorneys and city council members can be exempt from the state's traffic laws.
Even after the Register article exposed this outrageous situation, an Assembly committee voted to expand this special privilege to firefighters, animal control officers and veterinarians. Assemblyman Mike Duvall, R-Yorba Linda, explained his vote to the Register in this way: "I don't want to say no to the firefighters and veterinarians that are doing these things that need to be protected." That attitude explains why our society is moving in this direction. No one – not even a self-proclaimed believer in limited government – will stand up to groups of workers who have become as demanding, self-righteous and arrogant as those found in the French bureaucracy.
Americans used to be better schooled in the views of our nation's founders, who believed that government should be strictly limited and highly accountable. The Constitution, after all, is designed to protect the People from their rulers. These days, and especially after 9/11, Americans have become compliant and dangerously obedient to the authorities. Hence, they keep getting rolled. You know something's amiss when museum security guards, court workers, DMV employees and retired parking officers are part of the special-license caste.
The special-plate program works this way: The addresses are kept secret, so toll-road operators and parking enforcement cannot easily track down violators. The Transportation Corridor Agencies, which runs the toll roads, does not legally have access to the confidential addresses. The Orange County Transportation Authority has to go through additional hoops to get the addresses and admittedly doesn't pursue toll violations too zealously.
In one instance reported by the Register, one couple had racked up almost $35,000 in penalties from OCTA for driving on toll roads without paying. Regarding moving violations, when police see these special plates they either don't pull the drivers over or they don't ticket them if they do. The cops call this "professional courtesy." Officers know that those with the special plates are "their own," and officers are quite open about refusing to ticket other members of the Brotherhood. They scratch each other's back. "It's a courtesy, law enforcement to law enforcement," Sgt. Tom Lee of the San Francisco Police Department, told the Register. "We let it go."
Well, such "courtesies" are functions of police states, not free societies. In a free society, the government serves the people. No one is supposed to be above the law, not even animal control officers and their spouses. Assemblyman Todd Spitzer, R-Orange, calls the situation immoral, unfair and unethical. He has proposed legislation that would limit the practice. Spitzer deserves kudos for this effort, but I wouldn't expect the legislation to go far given the deference afforded public-sector union members and law enforcement in the state Capitol.
The whole thing is a scam. This confidentiality of plates is defended on grounds of safety – even though there's no example of anyone's safety having been jeopardized and even though so many of the workers who receive the protections are not in even remotely dangerous professions. Plus, the original rationale for the protection has evaporated. As the Register noted, "updated laws have made all DMV information confidential to the public."
Pound that table again!
Wouldn't it be nice if the government, for once, put the public's safety above the concerns of its own workers and its own bureaucratic prerogatives? These days, the focus always seems to be on the safety of the government workers (FYI, no government job is in the top 10 list of most-dangerous occupations), even though the government's entire raison d'être (hey, French is appropriate, given the subject matter) is to protect us. Public-choice theory is correct – government workers function mainly to promote their own self-interest, and not to promote what some naïvely believe to be the public good.
Sadly, as the government expands, America is becoming a society where the public "servants" are now the masters. Government workers earn higher salaries than their cohorts in the private sector and far higher benefits – with a massive public unfunded liability (debt) as a result. The taxpayer eventually will be forced to clean up the fiscal mess. These same government employees have special protections from accountability. There's the Peace Officers' Bill of Rights, civil service protections and government unions, the last of which instill fear and trepidation into the hearts of politicians.
And now we learn that members of this coddled and powerful group (and their family members) don't even need to follow the basic traffic laws that apply to the rest of us. If you're not angry, then you must be a member of the special caste.
The Double Trouble of Taxation
Go to Original
By Ron Paul
Taxes were on the forefront of many Americans’ minds this week as they scrambled to meet the April 15th deadline to file their returns. Tax policy in this country hurts taxpayers twice – once when they pay taxes, and then when the government spends the money. Americans are sick and tired of the financial burden and the endless forms to fill out. To add insult to injury, after collecting this money the government does some very detrimental things to the economy.
The burden of complying with the income tax is tremendous. Since its inception in 1913, the tax code has gone from 400 pages to over 67,000. The Tax Foundation estimates that around $265 billion dollars and 6 billion hours are spent just on compliance. That expense amounts to about 22 cents of every dollar the IRS collects. Imagine the boon to the economy if we spent that time and money expanding our businesses and creating jobs!
Aside from the direct loss of money and productivity, the funds from the income tax enable the government to do some very destructive things, such as vastly over-regulating economic activity, making it difficult to earn money in the first place. The federal government funds over 50 agencies, departments and commissions that formulate rules and regulations. These bureaucracies operate with little to no oversight from the people or Congress and generate around 4,000 new rules every year and operate at a cost of about 40 billion dollars. There are some 75,000 pages of regulations in the Federal Register that Americans are expected to know and abide by. Complying with these governmental regulations costs American businesses more than one trillion dollars per year, according to a study by Mark Crain for the Small Business Administration. This complicated system drives production to other countries and shrinks our job market here at home.
Big government is destructive when it takes your money and when it spends it. There is no economic benefit to supporting a government sector as massive as ours. In fact, this country thrived for well over 100 years without an income tax. Today, if you took away the income tax, the government would still have revenue from other sources equal to total government spending in 1990, when government was still too big. $1.2 trillion should be more than enough to fund a government operating within its constitutional confines, and that is exactly what we need to get back to.
I have introduced legislation many times to abolish the IRS and the income tax. It is fundamentally un-American to require taxpayers to testify against themselves and be considered guilty until proven innocent. Abolishing the IRS altogether would trigger an avalanche of real growth in the economy.
With these financial hard times only just beginning, this would be the most efficient and logical way to get our economy growing again, and Americans would need not dread the 15th of April every year.
By Ron Paul
Taxes were on the forefront of many Americans’ minds this week as they scrambled to meet the April 15th deadline to file their returns. Tax policy in this country hurts taxpayers twice – once when they pay taxes, and then when the government spends the money. Americans are sick and tired of the financial burden and the endless forms to fill out. To add insult to injury, after collecting this money the government does some very detrimental things to the economy.
The burden of complying with the income tax is tremendous. Since its inception in 1913, the tax code has gone from 400 pages to over 67,000. The Tax Foundation estimates that around $265 billion dollars and 6 billion hours are spent just on compliance. That expense amounts to about 22 cents of every dollar the IRS collects. Imagine the boon to the economy if we spent that time and money expanding our businesses and creating jobs!
Aside from the direct loss of money and productivity, the funds from the income tax enable the government to do some very destructive things, such as vastly over-regulating economic activity, making it difficult to earn money in the first place. The federal government funds over 50 agencies, departments and commissions that formulate rules and regulations. These bureaucracies operate with little to no oversight from the people or Congress and generate around 4,000 new rules every year and operate at a cost of about 40 billion dollars. There are some 75,000 pages of regulations in the Federal Register that Americans are expected to know and abide by. Complying with these governmental regulations costs American businesses more than one trillion dollars per year, according to a study by Mark Crain for the Small Business Administration. This complicated system drives production to other countries and shrinks our job market here at home.
Big government is destructive when it takes your money and when it spends it. There is no economic benefit to supporting a government sector as massive as ours. In fact, this country thrived for well over 100 years without an income tax. Today, if you took away the income tax, the government would still have revenue from other sources equal to total government spending in 1990, when government was still too big. $1.2 trillion should be more than enough to fund a government operating within its constitutional confines, and that is exactly what we need to get back to.
I have introduced legislation many times to abolish the IRS and the income tax. It is fundamentally un-American to require taxpayers to testify against themselves and be considered guilty until proven innocent. Abolishing the IRS altogether would trigger an avalanche of real growth in the economy.
With these financial hard times only just beginning, this would be the most efficient and logical way to get our economy growing again, and Americans would need not dread the 15th of April every year.
Message To Fed Chief Bernanke:"Enough With The Cuts, Already"
Go to Original
By Mike Whitney
Stop Last week's stock market blowout added more than 4 percent to the Dow Jones Industrials, but it had no affect on Libor rates. Libor rose steadily from Tuesday through Friday signaling more troubles in the banking system. Libor, which means London Interbank-Offered Rate, is the rate that banks charge each other for loans. It has a dramatic effect on nearly area of investment. When the rate soars, as it did last week, it means that the banks are either too weak financially to lend to each other or too worried about the ability of the other bank to repay them. Either way, it puts a crimp in lending. Banks serve as the transmission point for credit to the broader economy via business and consumer loans. When they're bogged down by their own bad investments or when risks increase; rates go up and the whole process slows to a crawl. When banks are unable to extend credit freely, business activity decreases and GDP shrinks.
The sudden surge in stocks is not a sign that things are back to normal; far from it. If anything, things are worse than ever. Credit remains unusually tight despite Bernanke's cuts to the Fed Funds rate or the creation of various “auction facilities” that remove mortgage-backed securities (MBS) from banks balance sheets. Businesses and consumers are still having a hard time getting funding, which means that the velocity of money in the financial system is decelerating rapidly increasing the likelihood of a system-wide freeze-up. Libor is just the flashing red light.
A rise in Libor adds billions in additional interest payments for homeowners, businesses and other borrowers. According to the Wall Street Journal:
“Libor is one of the world's most important financial indicators. It serves as a benchmark for $900 billion in subprime mortgage loans that adjust -- typically every six months -- according to its movements. Companies globally have nearly $9 trillion in debt with interest payments pegged to Libor, according to data provider Dealogic.”
Commercial real estate deals are mostly pegged to Libor as are adjustable rate mortgages (ARMs). In fact, most of the mortgages that were written up during the boom-years were tied to Libor. That's why Peter Fitzgerald, chief financial officer at Radco Cos., said, "If Libor were at 4% instead of under 3%, there would be a disaster that would take years to unwind.” (WSJ)
Rising Libor puts the Fed and the Bank of England in a tough spot. They're trying to keep rates artificially low so the banks can increase their lending and recoup their losses, but the market is not cooperating. The market is driving Libor upward, which means the Fed is losing control. The real cost of money is going up.
The Bank of England was forced to intervene on Monday. Mervyn King, the UK's central bank governor, launched a “Special Liquidity Scheme” to “improve the liquidity of the banking system and raise confidence in financial markets while ensuring that the risk of losses on the loans they have made remains with the banks.” The plan will provide $100 billion for "illiquid assets of sufficiently high quality” (Mortgage-backed securities) to “unfreeze” bank lending. The plan is similar to the Fed's auction facilities which have provided over $200 billion in exchange for dodgy MBS, collateralized debt obligations (CDOs) and commercial paper (ABCP) According to Bloomberg:
“The Central Banks move allows financial institutions to add government bonds to their inventory of liquid assets and make it easier for them to raise cash and lend, especially to consumers seeking home loans. In return the government will hold the riskier mortgage-backed securities.” The BOE said the swaps would be for a period of one year and could be renewed for up to three years, although the banks would be on the hook for losses on their loans. Its a sweet deal for the investment banks and a total loser for the British taxpayer who could get stuck with hundreds of billions of worthless MBS.
The $100 billion liquidity-injection is the biggest bailout in the BOE's history, and it was granted without public input or Parliamentary authorization, just like the Bear Sterns transaction. The bankers call the shots while the public picks up the tab. The BOE's action puts to rest the idea that “the worst is behind us”. It isn't; in fact, recent estimates suggest that the losses to the banking system could exceed $1 trillion. There's still a lot of carnage ahead.
The $100 billion will help to stabilize the money markets and put the banks on sounder footing, but it does nothing to help the housing market. The British real estate market is on life support because most of the mortgage financing was coming from investors who bought MBS. Mortgage securities are currently down 92 percent from the same period last year, which leaves potential buyers without a funding source. The BOE is considering creating a British-style Fannie Mae to kick-start the flagging housing industry by providing government-backed loans. The private sector will not be a big player in the housing market for the foreseeable future.
The same is true in the US. If the Fed can't bring Libor down with interest rate cuts, then it will have to develop a back-up plan. The next step would be “quantitative easing”; a monetary policy that was implemented by the Bank of Japan in 2001 “to revive that country's economy that was stagnant for a decade. Quantitative easing entails flooding the banking system with excess reserves, resulting in pushing the benchmark overnight bank lending to zero.” (Reuters) There are indications that Bernanke is preparing for this radical option already, but there's little chance that it will succeed. Whether the banks are able to lend or not is irrelevant. Public attitudes towards indebtedness have changed dramatically in the past few months. Overextended consumers are looking for ways to pay off their debts and live within their means. This will make it more difficult for Bernanke to reflate the equity bubble through credit expansion. When people are frightened or pessimistic about the future, they naturally curtail their spending. A recent poll conducted by the Washington Post/ABC illustrates how the publics attitude towards the economy has darkened in a matter of months. According to the survey:
“Nine out of ten Americans now give the economy a negative rating, with a majority saying it is in 'poor' shape, the most to say so in more than 15 years. And the sense that things are bad has spread swiftly. The percentage who hold a negative view of the economy is up 33 points over the last year, and the percentage who rate the economy 'poor' has increased 13 points in the last two months. That is the quickest 60-day decline since the Post and ABC started asking the question in 1985” (Washington Post)
The average American is showing a better grasp of the deteriorating economic conditions than the stock market. Housing sales continue to tumble, manufacturing is off, unemployment is steadily increasing, retail sales are flat, and inflation is soaring. Consumers are feeling the pinch of rising food and energy costs, loss of home equity and a general downturn in the credit markets. Money is tight and jobs are scarce.
ARE YOU BETTER OFF THAN YOU WERE 8 YEARS AGO?
When George W. Bush took office in 2000, oil was $28 per barrel, the euro was $.87 on the dollar, gold was $274 per ounce, and the national debt was $5.9 trillion. Today, oil is a record $114 per barrel, the euro is nudging $1.60 on the dollar, gold is $945 per ounce, and the National Debt is $9 trillion. The country is presently engaged in a $2 trillion war in Iraq with no end in sight. The federal government has expanded over 30% under Bush. Wages for working people have stagnated, unemployment has risen, 47 million Americans are without health care, and the economy is slipping into recession. By every objective standard, the country is worse off today than when Bush first took office.
The Federal Reserve has played a major role in America's economic decline. Greenspan's “weak dollar” policy pushed trillions of dollars of credit into the hands of people who had no realistic prospect of paying it back. Now the banks are buried beneath a mountain of bad investments and foreclosures are at record highs. (In California 65,000 homes are now in some stage of foreclosure while the total number of homes sold in February—new and used---was a mere 20,513) Michael S. Rozeff explains the current downturn in his article “The Subprime Crisis and Government Failure”:
“How are we to explain and understand the details of the subprime crisis? Is it a sudden outcropping of market madness? Is this an instance of a free market gone haywire? Is it a case of mass lender stupidity? Is it a case of greed and corruption? Is it a case of inefficient regulation by the states?
The subprime crisis is none of these. Its origin lies in a housing price bubble brought about by excessive central bank money creation and the subsequent puncturing of this bubble...
Fiat money inflations often bring on real estate booms followed by busts. These inflations are the common element in real estate cycles that span many countries and many centuries, and they put the lie to the hypothesis that bad lending practices are the culprit. Fraudulent money creation is the culprit, not faulty evaluation of the credit risks of borrowers.” (Michael S. Rozeff , “The Subprime Crisis and Government Failure”, lewrockwell.com)
The knock-on effects of the housing bust are just now rippling through the broader economy. Consumer spending is sluggish, growth is weak, and the stock market is more volatile than anytime since the 1930s. The Fed has usurped congressional powers to deal with insolvency problems at the banks. Public money is now being provided for the purchase of dubious assets held by unregulated investment banks owned by private speculators. The Fed is simply making up the rules as it goes along. Bernanke's actions have not yet been challenged by any congressman or senator.
The Fed's monetary policies have triggered a run-up in commodities prices which is driving up the cost of everything from corn to copper. Food riots have broken out in capitals around the world and leaders are worried about growing political instability. The media is blaming drought, high energy prices, and biofuels for the sudden rise in prices, but these are only secondary factors. Currency devaluation has played a bigger role than shortages or blight. The world is awash in dollars which are steadily losing value. Pension funds and foreign central banks are diverting dollars into commodities rather than keeping them in corporate bonds or the sagging stock market. Here's an excerpt from the Wall Street Journal that sums it up:
“Inflation is rising throughout the world due to dollar weakness, and the prices of such commodities as oil and corn have soared. ..As former Fed Chairman Paul Volcker noted last week, we are already in a “dollar crisis”. Even the IMF---typically the temple of devaluationists—is alarmed by the dollar's fall. Dollar weakness has already contributed to soaring commodity prices that have walloped US consumers just when their spending is most needed to offset the housing slump. ...The commodity boom is result in large part of the Fed's weak dollar policy, and it may have tipped the US into recession that could have been avoided.” (Wall Street Journal)
Economics editor for the UK Telegraph, Ambrose Evans-Pritchard, draws the same conclusion in his recent article, "Oil, Surges as Investors hunt for Anti-dollar":
“Société Générale said the near $30 spike in prices since early February is largely due to money pouring into commodity index funds, now worth some $200bn. Crude has taken on a "safe-haven" role for investors fleeing the dollar, or those betting that central banks will let rip with excess liquidity.
"This is now entirely investor driven," said Dr Frederic Lasserre, Société Générale's head of commodities research. He added that most of the money is coming from pension funds, insurers and other long-term investors. They view the US recession as a mere hiccup in a powerful upward cycle, convinced that Chinese and Mid-East demand will hold up long enough for America to recover. "They are all convinced by the fundamental tightness of the market," he said.” (UK Telegraph)
Commodities prices are now being driven by an ever-weakening dollar. As Pritchard notes, oil futures have become a sort of “anti-dollar”; a more reliable store of value than the anemic greenback.
The Fed's loose money policies have put the dollar at risk of losing its role as the world's reserve currency. If the dollar falls from its perch, the empire will soon follow. The macroeconomic impact of Greenspan's low interest rates will be seismic. Foreign banks and investors currently hold $6 trillion in dollar-based assets and currency. When the dollar falls; speculation will increase and prices will rise. Currently, the US is exporting its inflation and fueling political unrest in the process. If Bernanke continues to slash interest rates, the problems will only get worse. The Fed could raise rates by 50 basis points tomorrow and the commodities bubble would explode overnight, but that doesn't look likely.
The idea that soaring commodity prices are the result of speculation is controversial. (I could be wrong!) Economist Paul Krugman does not think that “low interest rates and irrational exuberance” are responsible for the high prices. Rather, he thinks they are the result of “rapidly growing demand and constrained supply”. This is certainly possible. Perhaps, there is no bubble at all.
Currency Intervention to Save the Dollar
The G-7 finance ministers met in Washington last week and announced their “resolve” to minimize the volatility in the currency markets. Many people took this to mean that foreign central banks would take a more active role in shoring up the dollar. So far, there's been no indication of support. The dollar has stayed within the $1.58-1.59 per euro range for more than a week. Help could be on the way but, then, maybe not. The only one who can really save the dollar now, is Bernanke. All he needs to do is indicate that the rate cuts are over and the bleeding will stop. But that might be too much to hope for. Bernanke has already cut the Fed Funds rate from 5.25 percent to 2.25 percent since September. (way below the 4.1 percent rate of inflation) Its clear that he sees a deflationary tidal wave about to hit sometime in the next few quarters. Why else would he slash rates so aggressively while stretching the Fed's mandate (“make sure the markets function properly”) to the limit?
Last week, former Fed chairman Paul Volcker took the unusual step of publicly chastising Bernanke in a speech he gave to the Economic Club of New York. Volcker's comments indicate the level of frustration with the Fed's dollar-savaging rate cuts which have caused problems around the world. Volcker said “The recession is not the Fed's problem. It's the government's. The Fed's job is to defend the currency and fight inflation—exactly the opposite of what this Fed is doing.” The former Fed chief thinks Bernanke should raise rates now, because if he doesn't, he'll have to raise them even more later, “with even more awful consequences.”
Martin Feldstein, chairman of the Council of Economic Advisers under Ronald Reagan, joined Volcker in blasting the Fed and calling for an end to the rate cuts. In a Wall Street Journal editorial on April 15 Feldstein said:
“It's time for the Federal Reserve to stop reducing the federal funds rate, because the likely benefit is small compared to the potential damage....Lower interest rates could raise the already high prices of energy and food, which are already triggering riots in developing countries. In order to offset the inflationary impact of higher imported commodity prices, central banks in those countries may raise interest rates. Such contractionary policies would reduce real incomes and exacerbate political instability....lowering interest rates stimulates economic activity to a point at which labor and product markets cause wages and prices to rise. That is unlikely to happen in the U.S. in the coming year. The general weakness of the economy will keep most wages and prices from rising more rapidly.....But high unemployment and low capacity utilization would not prevent lower interest rates from driving up commodity prices.
Lower interest rates induce investors to add commodities to their portfolios. When rates are low, portfolio investors will bid up the prices of oil and other commodities to levels at which the expected future returns are in line with the lower rates.”
Feldstein is right. Additional cuts will probably have negligible effect on housing and consumer spending, but they could be a death-blow to the dollar. It's not worth it. Lower rates will be devastating for people living in poorer countries. In the US, middle class families spend only 15 percent of net earnings on food. In poorer countries people spend upwards of 75 percent of their income just trying to feed themselves. That's why riots are breaking out everywhere; the Fed's monetary policy is a catalyst for political instability.
Besides, lower interest rates don't necessarily increase demand or make credit more easily available. The only way to spark demand is to make sure that wages keep pace with production so that workers can buy the things they produce. That's the only way to create a prosperous economy, too; build a strong and well-educated work-force.
“Economic recovery will require resolving the difficult problems of the credit markets, dealing with the millions of homeowners who may now be tempted to default on mortgages that exceed the value of their homes, and reducing the risk that the ongoing decline in house prices will push millions of additional homeowners into a vulnerable, negative equity condition,” says Feldstein. “A lower fed funds rate will not solve any of those problems.”
Right again. The problems we face can't be resolved with rate cuts and auction facilities. They require new thinking, fiscal solutions and public engagement. There's no quick fix and no perfect solution; not everyone will get a fair deal. But its pointless to wreck the currency when nothing is gained by it.
By Mike Whitney
Stop Last week's stock market blowout added more than 4 percent to the Dow Jones Industrials, but it had no affect on Libor rates. Libor rose steadily from Tuesday through Friday signaling more troubles in the banking system. Libor, which means London Interbank-Offered Rate, is the rate that banks charge each other for loans. It has a dramatic effect on nearly area of investment. When the rate soars, as it did last week, it means that the banks are either too weak financially to lend to each other or too worried about the ability of the other bank to repay them. Either way, it puts a crimp in lending. Banks serve as the transmission point for credit to the broader economy via business and consumer loans. When they're bogged down by their own bad investments or when risks increase; rates go up and the whole process slows to a crawl. When banks are unable to extend credit freely, business activity decreases and GDP shrinks.
The sudden surge in stocks is not a sign that things are back to normal; far from it. If anything, things are worse than ever. Credit remains unusually tight despite Bernanke's cuts to the Fed Funds rate or the creation of various “auction facilities” that remove mortgage-backed securities (MBS) from banks balance sheets. Businesses and consumers are still having a hard time getting funding, which means that the velocity of money in the financial system is decelerating rapidly increasing the likelihood of a system-wide freeze-up. Libor is just the flashing red light.
A rise in Libor adds billions in additional interest payments for homeowners, businesses and other borrowers. According to the Wall Street Journal:
“Libor is one of the world's most important financial indicators. It serves as a benchmark for $900 billion in subprime mortgage loans that adjust -- typically every six months -- according to its movements. Companies globally have nearly $9 trillion in debt with interest payments pegged to Libor, according to data provider Dealogic.”
Commercial real estate deals are mostly pegged to Libor as are adjustable rate mortgages (ARMs). In fact, most of the mortgages that were written up during the boom-years were tied to Libor. That's why Peter Fitzgerald, chief financial officer at Radco Cos., said, "If Libor were at 4% instead of under 3%, there would be a disaster that would take years to unwind.” (WSJ)
Rising Libor puts the Fed and the Bank of England in a tough spot. They're trying to keep rates artificially low so the banks can increase their lending and recoup their losses, but the market is not cooperating. The market is driving Libor upward, which means the Fed is losing control. The real cost of money is going up.
The Bank of England was forced to intervene on Monday. Mervyn King, the UK's central bank governor, launched a “Special Liquidity Scheme” to “improve the liquidity of the banking system and raise confidence in financial markets while ensuring that the risk of losses on the loans they have made remains with the banks.” The plan will provide $100 billion for "illiquid assets of sufficiently high quality” (Mortgage-backed securities) to “unfreeze” bank lending. The plan is similar to the Fed's auction facilities which have provided over $200 billion in exchange for dodgy MBS, collateralized debt obligations (CDOs) and commercial paper (ABCP) According to Bloomberg:
“The Central Banks move allows financial institutions to add government bonds to their inventory of liquid assets and make it easier for them to raise cash and lend, especially to consumers seeking home loans. In return the government will hold the riskier mortgage-backed securities.” The BOE said the swaps would be for a period of one year and could be renewed for up to three years, although the banks would be on the hook for losses on their loans. Its a sweet deal for the investment banks and a total loser for the British taxpayer who could get stuck with hundreds of billions of worthless MBS.
The $100 billion liquidity-injection is the biggest bailout in the BOE's history, and it was granted without public input or Parliamentary authorization, just like the Bear Sterns transaction. The bankers call the shots while the public picks up the tab. The BOE's action puts to rest the idea that “the worst is behind us”. It isn't; in fact, recent estimates suggest that the losses to the banking system could exceed $1 trillion. There's still a lot of carnage ahead.
The $100 billion will help to stabilize the money markets and put the banks on sounder footing, but it does nothing to help the housing market. The British real estate market is on life support because most of the mortgage financing was coming from investors who bought MBS. Mortgage securities are currently down 92 percent from the same period last year, which leaves potential buyers without a funding source. The BOE is considering creating a British-style Fannie Mae to kick-start the flagging housing industry by providing government-backed loans. The private sector will not be a big player in the housing market for the foreseeable future.
The same is true in the US. If the Fed can't bring Libor down with interest rate cuts, then it will have to develop a back-up plan. The next step would be “quantitative easing”; a monetary policy that was implemented by the Bank of Japan in 2001 “to revive that country's economy that was stagnant for a decade. Quantitative easing entails flooding the banking system with excess reserves, resulting in pushing the benchmark overnight bank lending to zero.” (Reuters) There are indications that Bernanke is preparing for this radical option already, but there's little chance that it will succeed. Whether the banks are able to lend or not is irrelevant. Public attitudes towards indebtedness have changed dramatically in the past few months. Overextended consumers are looking for ways to pay off their debts and live within their means. This will make it more difficult for Bernanke to reflate the equity bubble through credit expansion. When people are frightened or pessimistic about the future, they naturally curtail their spending. A recent poll conducted by the Washington Post/ABC illustrates how the publics attitude towards the economy has darkened in a matter of months. According to the survey:
“Nine out of ten Americans now give the economy a negative rating, with a majority saying it is in 'poor' shape, the most to say so in more than 15 years. And the sense that things are bad has spread swiftly. The percentage who hold a negative view of the economy is up 33 points over the last year, and the percentage who rate the economy 'poor' has increased 13 points in the last two months. That is the quickest 60-day decline since the Post and ABC started asking the question in 1985” (Washington Post)
The average American is showing a better grasp of the deteriorating economic conditions than the stock market. Housing sales continue to tumble, manufacturing is off, unemployment is steadily increasing, retail sales are flat, and inflation is soaring. Consumers are feeling the pinch of rising food and energy costs, loss of home equity and a general downturn in the credit markets. Money is tight and jobs are scarce.
ARE YOU BETTER OFF THAN YOU WERE 8 YEARS AGO?
When George W. Bush took office in 2000, oil was $28 per barrel, the euro was $.87 on the dollar, gold was $274 per ounce, and the national debt was $5.9 trillion. Today, oil is a record $114 per barrel, the euro is nudging $1.60 on the dollar, gold is $945 per ounce, and the National Debt is $9 trillion. The country is presently engaged in a $2 trillion war in Iraq with no end in sight. The federal government has expanded over 30% under Bush. Wages for working people have stagnated, unemployment has risen, 47 million Americans are without health care, and the economy is slipping into recession. By every objective standard, the country is worse off today than when Bush first took office.
The Federal Reserve has played a major role in America's economic decline. Greenspan's “weak dollar” policy pushed trillions of dollars of credit into the hands of people who had no realistic prospect of paying it back. Now the banks are buried beneath a mountain of bad investments and foreclosures are at record highs. (In California 65,000 homes are now in some stage of foreclosure while the total number of homes sold in February—new and used---was a mere 20,513) Michael S. Rozeff explains the current downturn in his article “The Subprime Crisis and Government Failure”:
“How are we to explain and understand the details of the subprime crisis? Is it a sudden outcropping of market madness? Is this an instance of a free market gone haywire? Is it a case of mass lender stupidity? Is it a case of greed and corruption? Is it a case of inefficient regulation by the states?
The subprime crisis is none of these. Its origin lies in a housing price bubble brought about by excessive central bank money creation and the subsequent puncturing of this bubble...
Fiat money inflations often bring on real estate booms followed by busts. These inflations are the common element in real estate cycles that span many countries and many centuries, and they put the lie to the hypothesis that bad lending practices are the culprit. Fraudulent money creation is the culprit, not faulty evaluation of the credit risks of borrowers.” (Michael S. Rozeff , “The Subprime Crisis and Government Failure”, lewrockwell.com)
The knock-on effects of the housing bust are just now rippling through the broader economy. Consumer spending is sluggish, growth is weak, and the stock market is more volatile than anytime since the 1930s. The Fed has usurped congressional powers to deal with insolvency problems at the banks. Public money is now being provided for the purchase of dubious assets held by unregulated investment banks owned by private speculators. The Fed is simply making up the rules as it goes along. Bernanke's actions have not yet been challenged by any congressman or senator.
The Fed's monetary policies have triggered a run-up in commodities prices which is driving up the cost of everything from corn to copper. Food riots have broken out in capitals around the world and leaders are worried about growing political instability. The media is blaming drought, high energy prices, and biofuels for the sudden rise in prices, but these are only secondary factors. Currency devaluation has played a bigger role than shortages or blight. The world is awash in dollars which are steadily losing value. Pension funds and foreign central banks are diverting dollars into commodities rather than keeping them in corporate bonds or the sagging stock market. Here's an excerpt from the Wall Street Journal that sums it up:
“Inflation is rising throughout the world due to dollar weakness, and the prices of such commodities as oil and corn have soared. ..As former Fed Chairman Paul Volcker noted last week, we are already in a “dollar crisis”. Even the IMF---typically the temple of devaluationists—is alarmed by the dollar's fall. Dollar weakness has already contributed to soaring commodity prices that have walloped US consumers just when their spending is most needed to offset the housing slump. ...The commodity boom is result in large part of the Fed's weak dollar policy, and it may have tipped the US into recession that could have been avoided.” (Wall Street Journal)
Economics editor for the UK Telegraph, Ambrose Evans-Pritchard, draws the same conclusion in his recent article, "Oil, Surges as Investors hunt for Anti-dollar":
“Société Générale said the near $30 spike in prices since early February is largely due to money pouring into commodity index funds, now worth some $200bn. Crude has taken on a "safe-haven" role for investors fleeing the dollar, or those betting that central banks will let rip with excess liquidity.
"This is now entirely investor driven," said Dr Frederic Lasserre, Société Générale's head of commodities research. He added that most of the money is coming from pension funds, insurers and other long-term investors. They view the US recession as a mere hiccup in a powerful upward cycle, convinced that Chinese and Mid-East demand will hold up long enough for America to recover. "They are all convinced by the fundamental tightness of the market," he said.” (UK Telegraph)
Commodities prices are now being driven by an ever-weakening dollar. As Pritchard notes, oil futures have become a sort of “anti-dollar”; a more reliable store of value than the anemic greenback.
The Fed's loose money policies have put the dollar at risk of losing its role as the world's reserve currency. If the dollar falls from its perch, the empire will soon follow. The macroeconomic impact of Greenspan's low interest rates will be seismic. Foreign banks and investors currently hold $6 trillion in dollar-based assets and currency. When the dollar falls; speculation will increase and prices will rise. Currently, the US is exporting its inflation and fueling political unrest in the process. If Bernanke continues to slash interest rates, the problems will only get worse. The Fed could raise rates by 50 basis points tomorrow and the commodities bubble would explode overnight, but that doesn't look likely.
The idea that soaring commodity prices are the result of speculation is controversial. (I could be wrong!) Economist Paul Krugman does not think that “low interest rates and irrational exuberance” are responsible for the high prices. Rather, he thinks they are the result of “rapidly growing demand and constrained supply”. This is certainly possible. Perhaps, there is no bubble at all.
Currency Intervention to Save the Dollar
The G-7 finance ministers met in Washington last week and announced their “resolve” to minimize the volatility in the currency markets. Many people took this to mean that foreign central banks would take a more active role in shoring up the dollar. So far, there's been no indication of support. The dollar has stayed within the $1.58-1.59 per euro range for more than a week. Help could be on the way but, then, maybe not. The only one who can really save the dollar now, is Bernanke. All he needs to do is indicate that the rate cuts are over and the bleeding will stop. But that might be too much to hope for. Bernanke has already cut the Fed Funds rate from 5.25 percent to 2.25 percent since September. (way below the 4.1 percent rate of inflation) Its clear that he sees a deflationary tidal wave about to hit sometime in the next few quarters. Why else would he slash rates so aggressively while stretching the Fed's mandate (“make sure the markets function properly”) to the limit?
Last week, former Fed chairman Paul Volcker took the unusual step of publicly chastising Bernanke in a speech he gave to the Economic Club of New York. Volcker's comments indicate the level of frustration with the Fed's dollar-savaging rate cuts which have caused problems around the world. Volcker said “The recession is not the Fed's problem. It's the government's. The Fed's job is to defend the currency and fight inflation—exactly the opposite of what this Fed is doing.” The former Fed chief thinks Bernanke should raise rates now, because if he doesn't, he'll have to raise them even more later, “with even more awful consequences.”
Martin Feldstein, chairman of the Council of Economic Advisers under Ronald Reagan, joined Volcker in blasting the Fed and calling for an end to the rate cuts. In a Wall Street Journal editorial on April 15 Feldstein said:
“It's time for the Federal Reserve to stop reducing the federal funds rate, because the likely benefit is small compared to the potential damage....Lower interest rates could raise the already high prices of energy and food, which are already triggering riots in developing countries. In order to offset the inflationary impact of higher imported commodity prices, central banks in those countries may raise interest rates. Such contractionary policies would reduce real incomes and exacerbate political instability....lowering interest rates stimulates economic activity to a point at which labor and product markets cause wages and prices to rise. That is unlikely to happen in the U.S. in the coming year. The general weakness of the economy will keep most wages and prices from rising more rapidly.....But high unemployment and low capacity utilization would not prevent lower interest rates from driving up commodity prices.
Lower interest rates induce investors to add commodities to their portfolios. When rates are low, portfolio investors will bid up the prices of oil and other commodities to levels at which the expected future returns are in line with the lower rates.”
Feldstein is right. Additional cuts will probably have negligible effect on housing and consumer spending, but they could be a death-blow to the dollar. It's not worth it. Lower rates will be devastating for people living in poorer countries. In the US, middle class families spend only 15 percent of net earnings on food. In poorer countries people spend upwards of 75 percent of their income just trying to feed themselves. That's why riots are breaking out everywhere; the Fed's monetary policy is a catalyst for political instability.
Besides, lower interest rates don't necessarily increase demand or make credit more easily available. The only way to spark demand is to make sure that wages keep pace with production so that workers can buy the things they produce. That's the only way to create a prosperous economy, too; build a strong and well-educated work-force.
“Economic recovery will require resolving the difficult problems of the credit markets, dealing with the millions of homeowners who may now be tempted to default on mortgages that exceed the value of their homes, and reducing the risk that the ongoing decline in house prices will push millions of additional homeowners into a vulnerable, negative equity condition,” says Feldstein. “A lower fed funds rate will not solve any of those problems.”
Right again. The problems we face can't be resolved with rate cuts and auction facilities. They require new thinking, fiscal solutions and public engagement. There's no quick fix and no perfect solution; not everyone will get a fair deal. But its pointless to wreck the currency when nothing is gained by it.
Monday, April 21, 2008
Oil Running Out as Prime Energy Source: World Poll
Go to Original
By Deborah Zabarenko
Washington - Most people believe oil is running out and governments need to find another fuel, but Americans are alone in thinking their leaders are out of touch with reality on this issue, an international poll said on Sunday.
On average, 70 percent of respondents in 15 countries and the Palestinian territories said they thought oil supplies had peaked. Only 22 percent of the nearly 15,000 respondents in nations ranging from China to Mexico believed enough new oil would be found to keep it a primary fuel source.
"What's most striking is there's such a widespread consensus around the world that oil is running out and governments need to make a real effort to find new sources of energy," said Steven Kull, director of WorldPublicOpinion.org, a global research organization that conducted the poll.
Concerns over climate change, which is spurred by emissions from fossil fuels including oil, also were a factor among respondents, Kull said.
The current tightening of the oil market is not temporary but will continue and the price of oil will rise substantially, most respondents said.
"They think it's just going to keep going higher and a fundamental adaptation is necessary," Kull said in a telephone interview.
In the United States, the world's biggest oil consumer and among the biggest emitters of climate-warming pollution from fossil fuel use, 76 percent of respondents said oil is running out, but most believed the U.S. government mistakenly assumes there would be enough to keep oil a main source of fuel.
US Government "Not Facing Reality"
"Americans perceive that the government is not facing reality," Kull said.
The United States is alone among major industrialized nations in rejecting the Kyoto Protocol, which aims to limit greenhouse gas emissions that exacerbate global warming.
Last week, President George W. Bush said U.S. greenhouse emissions, especially carbon dioxide spewed by the burning of fossil fuels like oil, would stop growing by 2025 but gave no details on how this would come about.
The announcement drew sharp criticism from environmental groups. Others pointed out this means emissions will continue to grow for the next 17 years.
Only in Nigeria did a majority - 53 percent - believe enough new oil would be found to keep it a primary energy source, a reflection of its status as a major oil exporter and member of OPEC.
The poll was conducted in China, India, the United States, Indonesia, Nigeria, Russia, Mexico, Britain, France, Iran, Azerbaijan, Ukraine, Egypt, Turkey, South Korea and the Palestinian territories.
The margin of error varied from country to country, ranging from plus or minus 3 percentage points to plus or minus 4.5 percentage points, Kull said.
WorldPublicOpinion.org involves research centers around the world, and the locations of these centers determined which countries were included in the poll. Kull noted that the poll included countries that make up 58 percent of the global population.
The project is managed by the Program on International Policy Attitudes at the University of Maryland.
By Deborah Zabarenko
Washington - Most people believe oil is running out and governments need to find another fuel, but Americans are alone in thinking their leaders are out of touch with reality on this issue, an international poll said on Sunday.
On average, 70 percent of respondents in 15 countries and the Palestinian territories said they thought oil supplies had peaked. Only 22 percent of the nearly 15,000 respondents in nations ranging from China to Mexico believed enough new oil would be found to keep it a primary fuel source.
"What's most striking is there's such a widespread consensus around the world that oil is running out and governments need to make a real effort to find new sources of energy," said Steven Kull, director of WorldPublicOpinion.org, a global research organization that conducted the poll.
Concerns over climate change, which is spurred by emissions from fossil fuels including oil, also were a factor among respondents, Kull said.
The current tightening of the oil market is not temporary but will continue and the price of oil will rise substantially, most respondents said.
"They think it's just going to keep going higher and a fundamental adaptation is necessary," Kull said in a telephone interview.
In the United States, the world's biggest oil consumer and among the biggest emitters of climate-warming pollution from fossil fuel use, 76 percent of respondents said oil is running out, but most believed the U.S. government mistakenly assumes there would be enough to keep oil a main source of fuel.
US Government "Not Facing Reality"
"Americans perceive that the government is not facing reality," Kull said.
The United States is alone among major industrialized nations in rejecting the Kyoto Protocol, which aims to limit greenhouse gas emissions that exacerbate global warming.
Last week, President George W. Bush said U.S. greenhouse emissions, especially carbon dioxide spewed by the burning of fossil fuels like oil, would stop growing by 2025 but gave no details on how this would come about.
The announcement drew sharp criticism from environmental groups. Others pointed out this means emissions will continue to grow for the next 17 years.
Only in Nigeria did a majority - 53 percent - believe enough new oil would be found to keep it a primary energy source, a reflection of its status as a major oil exporter and member of OPEC.
The poll was conducted in China, India, the United States, Indonesia, Nigeria, Russia, Mexico, Britain, France, Iran, Azerbaijan, Ukraine, Egypt, Turkey, South Korea and the Palestinian territories.
The margin of error varied from country to country, ranging from plus or minus 3 percentage points to plus or minus 4.5 percentage points, Kull said.
WorldPublicOpinion.org involves research centers around the world, and the locations of these centers determined which countries were included in the poll. Kull noted that the poll included countries that make up 58 percent of the global population.
The project is managed by the Program on International Policy Attitudes at the University of Maryland.
Fertilizer Price Hikes Are Pinching Farmers
Go to Original
By Jacob Adelman
Higher produce costs likely for consumers.
Los Angeles - Link Leaven's fertilizer bill has been growing faster than the lemons and avocados on his Ventura County farm.
Every week or so, when he orders another truckload of the nutrients, he's been getting hit with a price hike of up to 20 percent.
"It's like there's no end in sight. It's very scary," said Leaven, who pays $600 for a ton of some fertilizer mixes that he paid half as much for just six months ago.
Farmers across the country are seeing similar price increases caused by several factors, including the booming demand for fertilizer to produce animal feed for rapidly developing nations like India and China, where people are adopting diets richer in meat.
In the United States, high gasoline prices are prompting growers to plant fertilizer-dependent corn for the manufacture of ethanol fuel. High energy prices also have affected the availability of natural gas, which can be sold more profitably as fuel than as a key ingredient in the production of nitrogen-based fertilizers.
California Growers Hit
Midwestern growers of commodities such as corn and grain have been able to absorb the cost hikes as their crops fetched higher prices. But growers in California, the nation's leading agriculture state, have yet to see retail prices increase for the fruits and vegetables that dominate their farms.
In fact, farmers saw the average price of broccoli fall to about 23 cents a pound in February, down from 26 cents a year earlier, according to the U.S. Department of Agriculture. Lettuce prices also dropped about 3 cents to 13 cents a pound during the same period.
Along with soaring labor, water and fuel costs, increasing fertilizer costs have been draining farmers' savings and will probably lead to higher prices for fruits and vegetables to go with separate increases in meat, poultry and dairy products.
Jim Prevor, editor of Produce Business magazine, said some produce prices are already beginning to creep up due to fertilizer and other costs, but major increases won't be seen until farmers curtail crops that become too expensive to grow.
"Eventually it's going to have to change," Jack Vessey, a lettuce and spinach grower in San Diego County, said of prices.
Vessey said he's currently pushing for a price bump from distributors that buy from his farm.
In the Central Valley, almond, tomato and lettuce grower Mark Borba said the twofold price increase for some nutrients could lead him to cut production.
"At some point, when any manufacturing business finds their raw material costs exceeding the price of what they've produced, they will stop," he said.
U.S. farmers paid about $322 a ton for fertilizer in April 2007, the most recent figures available, up from $291 a ton a year earlier, according to the USDA.
The agency won't release its next set of annual figures until later this month, but its monthly fertilizer pricing index points to even more drastic increases.
Joe Burdullis, co-owner of Oxnard-based fertilizer supplier AG RX, said he's been receiving a constant stream of price-hike notices in recent months from dozens of manufacturers.
"We'll get four or five different price increases in any one day," said Burdullis, who has been supplying growers in Ventura and Santa Barbara counties for about 50 years. "I've never seen anything like this."
Not Enough Capacity
Fertilizer producers have been operating their factories at full bore to meet the growing demand, but there's not enough manufacturing capacity to bring down prices, said Charles Nekvasil, a spokesman for Deerfield, Ill.-based fertilizer producer CF Industries.
"It's supply and demand, and there hasn't been a lot of supply coming on the market," he said. "It's almost a bidding war."
Fertilizer prices also are being nudged higher by the heightened security costs paid by manufacturers to produce and ship ammonium nitrite, a fertilizer ingredient that can be used to make explosives, said Harry Vroomen, chief economist for the Washington, D.C.-based Fertilizer Institute.
California growers are feeling the pain and said it's only a matter of time until shoppers do, too.
"Budgets have to increase in order to keep doing what we're doing, and the hope is that on the retail end we can get it back," said Andy Hooper, who manages a farm that grows strawberries, celery and bell peppers in Ventura County. "The bottom line is the consumer's going to be paying more."
By Jacob Adelman
Higher produce costs likely for consumers.
Los Angeles - Link Leaven's fertilizer bill has been growing faster than the lemons and avocados on his Ventura County farm.
Every week or so, when he orders another truckload of the nutrients, he's been getting hit with a price hike of up to 20 percent.
"It's like there's no end in sight. It's very scary," said Leaven, who pays $600 for a ton of some fertilizer mixes that he paid half as much for just six months ago.
Farmers across the country are seeing similar price increases caused by several factors, including the booming demand for fertilizer to produce animal feed for rapidly developing nations like India and China, where people are adopting diets richer in meat.
In the United States, high gasoline prices are prompting growers to plant fertilizer-dependent corn for the manufacture of ethanol fuel. High energy prices also have affected the availability of natural gas, which can be sold more profitably as fuel than as a key ingredient in the production of nitrogen-based fertilizers.
California Growers Hit
Midwestern growers of commodities such as corn and grain have been able to absorb the cost hikes as their crops fetched higher prices. But growers in California, the nation's leading agriculture state, have yet to see retail prices increase for the fruits and vegetables that dominate their farms.
In fact, farmers saw the average price of broccoli fall to about 23 cents a pound in February, down from 26 cents a year earlier, according to the U.S. Department of Agriculture. Lettuce prices also dropped about 3 cents to 13 cents a pound during the same period.
Along with soaring labor, water and fuel costs, increasing fertilizer costs have been draining farmers' savings and will probably lead to higher prices for fruits and vegetables to go with separate increases in meat, poultry and dairy products.
Jim Prevor, editor of Produce Business magazine, said some produce prices are already beginning to creep up due to fertilizer and other costs, but major increases won't be seen until farmers curtail crops that become too expensive to grow.
"Eventually it's going to have to change," Jack Vessey, a lettuce and spinach grower in San Diego County, said of prices.
Vessey said he's currently pushing for a price bump from distributors that buy from his farm.
In the Central Valley, almond, tomato and lettuce grower Mark Borba said the twofold price increase for some nutrients could lead him to cut production.
"At some point, when any manufacturing business finds their raw material costs exceeding the price of what they've produced, they will stop," he said.
U.S. farmers paid about $322 a ton for fertilizer in April 2007, the most recent figures available, up from $291 a ton a year earlier, according to the USDA.
The agency won't release its next set of annual figures until later this month, but its monthly fertilizer pricing index points to even more drastic increases.
Joe Burdullis, co-owner of Oxnard-based fertilizer supplier AG RX, said he's been receiving a constant stream of price-hike notices in recent months from dozens of manufacturers.
"We'll get four or five different price increases in any one day," said Burdullis, who has been supplying growers in Ventura and Santa Barbara counties for about 50 years. "I've never seen anything like this."
Not Enough Capacity
Fertilizer producers have been operating their factories at full bore to meet the growing demand, but there's not enough manufacturing capacity to bring down prices, said Charles Nekvasil, a spokesman for Deerfield, Ill.-based fertilizer producer CF Industries.
"It's supply and demand, and there hasn't been a lot of supply coming on the market," he said. "It's almost a bidding war."
Fertilizer prices also are being nudged higher by the heightened security costs paid by manufacturers to produce and ship ammonium nitrite, a fertilizer ingredient that can be used to make explosives, said Harry Vroomen, chief economist for the Washington, D.C.-based Fertilizer Institute.
California growers are feeling the pain and said it's only a matter of time until shoppers do, too.
"Budgets have to increase in order to keep doing what we're doing, and the hope is that on the retail end we can get it back," said Andy Hooper, who manages a farm that grows strawberries, celery and bell peppers in Ventura County. "The bottom line is the consumer's going to be paying more."
President Is Rebuffed on Program for Children
Go to Original
By Robert Pear
Washington - The Bush administration violated federal law last year when it restricted states' ability to provide health insurance to children of middle-income families, and its new policy is therefore unenforceable, lawyers from the Government Accountability Office said Friday.
The ruling strengthens the hand of at least 22 states, including New York and New Jersey, that already provide such coverage or want to do so. And it significantly reduces the chance that the new policy can be put into effect before President Bush leaves office in nine months.
At issue is the future of the State Children's Health Insurance Program, financed jointly by the federal government and the states. Congress last year twice passed bills to expand the popular program, and Mr. Bush vetoed both.
State officials of both parties say the policy, set forth in a letter to state health officials on Aug. 17, has stymied their efforts to cover more children at a time when the number of uninsured is rising and more families are experiencing economic hardship.
In a formal legal opinion Friday, the accountability office said the new policy "amounts to a marked departure" from a longstanding, settled interpretation of federal law. It is therefore a rule and, under a 1996 law, must be submitted to Congress for review before it can take effect, the opinion said.
But Jeff Nelligan, a spokesman for the federal Centers for Medicare and Medicaid Services, said, "G.A.O.'s opinion does not change our conclusion that the Aug. 17 letter is still in effect."
The letter told states what steps they needed to take to be sure the children's health program would not displace or "crowd out" private coverage under group health plans. The White House cited the policy as a justification for rejecting a proposal by New York State to cover 70,000 additional youngsters.
What happens next is not clear. New York, New Jersey and several other states have filed lawsuits challenging the Bush administration policy. In addition, Congress may consider legislation to suspend the directive.
Deborah S. Bachrach, a deputy commissioner in the New York State Health Department, said, "The opinion from the Government Accountability Office vindicates our position that the federal government did not have authority to issue the Aug. 17 directive."
The 1996 law, the Congressional Review Act, was enacted to keep Congress informed about the rule-making activities of federal agencies. If Congress objects to a new rule, it can pass "a joint resolution of disapproval," which the president can sign or veto.
Under the Aug. 17 directive, states cannot expand the Children's Health Insurance Program to cover youngsters with family incomes over 250 percent of the federal poverty level ($53,000 for a family of four) unless they can prove that they already cover 95 percent of eligible children below twice the poverty level ($42,400).
Moreover, in such states, children who lose or drop private coverage must be uninsured for 12 months before they can enroll in the Children's Health Insurance Program, and co-payments in the public program must be similar to those in private plans.
The legal opinion was requested by Senators John D. Rockefeller IV, Democrat of West Virginia, and Olympia J. Snowe, Republican of Maine. In view of it, they urged the administration to rescind the Aug. 17 directive.
The administration told states they must comply with the directive by August of this year or else they face "corrective action." Compliance could mean cutting back programs.
The Justice Department contends that the letter is "merely a general statement of policy with nonbinding effect," But Gary L. Kepplinger, general counsel of the accountability office, said administration officials had treated it as "a binding rule."
By Robert Pear
Washington - The Bush administration violated federal law last year when it restricted states' ability to provide health insurance to children of middle-income families, and its new policy is therefore unenforceable, lawyers from the Government Accountability Office said Friday.
The ruling strengthens the hand of at least 22 states, including New York and New Jersey, that already provide such coverage or want to do so. And it significantly reduces the chance that the new policy can be put into effect before President Bush leaves office in nine months.
At issue is the future of the State Children's Health Insurance Program, financed jointly by the federal government and the states. Congress last year twice passed bills to expand the popular program, and Mr. Bush vetoed both.
State officials of both parties say the policy, set forth in a letter to state health officials on Aug. 17, has stymied their efforts to cover more children at a time when the number of uninsured is rising and more families are experiencing economic hardship.
In a formal legal opinion Friday, the accountability office said the new policy "amounts to a marked departure" from a longstanding, settled interpretation of federal law. It is therefore a rule and, under a 1996 law, must be submitted to Congress for review before it can take effect, the opinion said.
But Jeff Nelligan, a spokesman for the federal Centers for Medicare and Medicaid Services, said, "G.A.O.'s opinion does not change our conclusion that the Aug. 17 letter is still in effect."
The letter told states what steps they needed to take to be sure the children's health program would not displace or "crowd out" private coverage under group health plans. The White House cited the policy as a justification for rejecting a proposal by New York State to cover 70,000 additional youngsters.
What happens next is not clear. New York, New Jersey and several other states have filed lawsuits challenging the Bush administration policy. In addition, Congress may consider legislation to suspend the directive.
Deborah S. Bachrach, a deputy commissioner in the New York State Health Department, said, "The opinion from the Government Accountability Office vindicates our position that the federal government did not have authority to issue the Aug. 17 directive."
The 1996 law, the Congressional Review Act, was enacted to keep Congress informed about the rule-making activities of federal agencies. If Congress objects to a new rule, it can pass "a joint resolution of disapproval," which the president can sign or veto.
Under the Aug. 17 directive, states cannot expand the Children's Health Insurance Program to cover youngsters with family incomes over 250 percent of the federal poverty level ($53,000 for a family of four) unless they can prove that they already cover 95 percent of eligible children below twice the poverty level ($42,400).
Moreover, in such states, children who lose or drop private coverage must be uninsured for 12 months before they can enroll in the Children's Health Insurance Program, and co-payments in the public program must be similar to those in private plans.
The legal opinion was requested by Senators John D. Rockefeller IV, Democrat of West Virginia, and Olympia J. Snowe, Republican of Maine. In view of it, they urged the administration to rescind the Aug. 17 directive.
The administration told states they must comply with the directive by August of this year or else they face "corrective action." Compliance could mean cutting back programs.
The Justice Department contends that the letter is "merely a general statement of policy with nonbinding effect," But Gary L. Kepplinger, general counsel of the accountability office, said administration officials had treated it as "a binding rule."
In Sadr City's new wall, shadows of Gaza, Vietnam
Aijaz Ahmad: Wall meant to partition Sadr City's residents is population control ahead of elections
Mugabe lashes out at "puppets" of Britain
Adam Habib: Zimbabwe's president manipulating anti-colonial sentiment to stay in power
Inside USA - Rise of hate
We travel to Arkansas and Alabama to look at the rise of race hate groups in America.
Inside Story - Big oil gets bigger
Oil prices exceeding $117 a barrel, we ask how far it is likely to continue soaring.
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