Tuesday, May 10, 2005

More Mixer

I feel like the little red hen. Busy in the kitchen and I pop all the loaves of bread into my oven and then get an email telling me I left some out of the oven!

This blog is just starting off and it seems every day we spend significant time toying with the code and other invisible things and my son trying to teach mom HTML tricks and then everything goes wrong and I have to drive 30 miles to fetch him and get him to FIX THAT NOW!

Whew.

But I promise, the Guest Blog will continue! Thanks for the patience!

Mixer's Political analysis, responding to this question:

“Not to mention that the idea of the "great divide" between red and blue states is a fallacy. There was a separation of 3 million votes between winner and loser... the narrowest margin in any modern election. There are far better maps out there, that show gradations of color. Shockingly, most of the country is purple! I think the entire op-ed is a straw man just waiting to be blown down.”


I'd throw another red-blue distinction out there - one that the author doesn't touch on:

Red/blue might as well be uneducated/educated, pays least of the taxes/pays most of the taxes or contributes least to the GDP/contributes most to the GDP.

...but social conservatives tend to avoid such comparisons.

There was a laughable article written by someone after the election that proposed that the US "kick out" all of the blue states. Aside from the above bullets, the author failed to mention that 8 of the 13 original colonies fell under the "blue state" umbrella - so, it makes more sense for the "US" to "kick out" all of the "red states."

For reference, see:

Morganquitno.com

Janegalt.net
(click on the "handy table" link to see a state-by-state breakdown)
and humaneventsonline

I, for one, am getting really tired of the "Free Lunch"/"Bread and Circuses" attitude of the Right. It's no secret that I've been very concerned with our financial status of late. But, every party comes with a bill to pay eventually; I'll bet anyone here a bottle wine that the catalyst economic event that will end US supremacy is the implementation of privatized social security (as the Administration is proposing it.)

Taking a conservative estimate of the amount Bush wishes to borrow to implement privatization, he needs about $1.5 trillion (the ranges being quoted go up to $5 trillion.) Since this appears to be one of the main priorities for the Administration this year, there is a good chance that it'll be submitted in the next session. [A side note - you'll probably see the National Sales Tax as a rider to this bill, being lauded as a precursor to the replacement of the Income Tax.] If it's submitted, and enough press is generated, it'll probably pass this session to be implemented next year, or retroactive for this year.

Our government tends to spend the money first, then look for a means to pay the bill later. $1.5 trillion comes out to roughly $500 million per day in additional foreign investment we'll need to cover the tab. The world already invests $2.5 billion per day to cover our deficits and debt, which, by the way, is roughly 85% of the world's savings. The world is already pretty skittish about the US, with many of our creditors (including China) telling us to start showing some spending restraint and fiscal responsibility or the party is over. I doubt they will look kindly on us asking them to not only plop the rest of their savings into us, but also put themselves into debt to allow us to continue our standard of living. It's a good bet that us assuming the world will do it will be enough to cause the bond markets to retreat - and we can't afford to even have a small retreat, since we're "living" on those "credit cards." Once that happens, it's all downhill from there - and fast, too.

This is why I'm upset at the "Free Lunch" attitude of the Right; the Republicans have been in charge for a while now, and have managed to spend more (and grow the government larger) than any Democrat had ever dreamed: 34% in 4 years (during Clinton, it was 8%.) It doesn't matter if it was necessary that it happened, because rather than offsetting the increase with restraint someplace else, they decided to just borrow more. The Democrats may be the party of "Tax and Spend," but the Republicans are the party of "Borrow and Spend" - which is much, much worse.

I was reading an article from an analyst who was trying to imagine how the party would end, and I think he did a pretty good job of it. He referenced the turning of the earth and the domino effect of asset transfers:

Baltimore Chronicle

That's probably how it'll happen.. first Asia, then the ME, then Europe and we wake up in the morning to the world having decided we're no longer in charge. Consider what we did to Britain in 1956, if you don't think it's possible.

"If anyone is at fault then why is nobody dumping on Clinton for year after year cutting the defense budget? It should at least kept up with inflation."

Because Clinton kept his deployment level in line with the cuts - nobody was wanting in the military, pay was stable, folks had the equipment they needed, etc. Granted, he did that by working with the rest of the world to share the burden of policing. Bush over-deploys while cutting salaries, benefits and equipment - and give the big “Screw You” to the rest of the world. Yep, those Republicans sure do "take care" of the military - "take care" of it right into the ground. One of my co-workers was an inactive reservist who was activated, was sent to Iraq for a year and just recently came back for some training before going back for *another year.* He was telling me that equipment situation is so bad that soldiers are purchasing equipment - with their own money - on the black market because they can't get what they need.

"But your right about Bush's friends spending so much on his celebratory party. We all know Kerry's friends would not want to celebrate if Kerry had won. They would rather sit at home and read a book or watch TV."

I doubt Kerry would have had the taxpayers foot the bill for the rest, too. Why do you Republicans keep putting your hand in my pocket?

"Look at what Clinton put our military through in Somalia. Sending them there without armor in order to save a few bucks on the deployment and so their bodies end up getting drug through the streets by lightly armed mobs that would never have even fired a shot had American Armor been present."

Why do you folks always bring up Somalia? Yes, a mistake was made. You conveniently forget that:

a) Pres. George Bush actually did the deployment (called "Operation Restore Hope" in Dec 1992,)

and

b) that the Rangers who didn't have armor support were scheduled to be extricated a month later, which is why it was denied.

The mistake that was made was the Pentagon ordering those troops in for that rescue mission knowing full well they didn't have the support they needed; the October Raid was a mistake and shouldn't have happened. The big difference here is that the support that was denied to the troops in Somalia was heavy armor, but the support we're talking about in Iraq is both heavy armor and *body armor* - kevlar vests and such. Sending troops into combat without the basic necessities to begin with.. well, that's a mistake too, but you Republicans think it's okay this time, because it's not a Democrat that's doing it.

"The reason the military is viable at all these days is because of the dedication of the individuals that are serving combined with the high tech weaponry developed as a result of the much maligned military spending during the Reagan-Bush era..."


I'll agree with the first part of your statement - unless you've been in, you have no idea of the dedication these folks have. Most understand full well that they are meat shields protecting the rest of us from harm.

I have issues with Reagan - another fiscal liberal and social conservative - and I could argue that the money spent back then has not benefited us as much as you'd like to imagine (20 year old technology developed for a different kind of war than we're fighting these days,) but the point is that we're not supplying our troops with what they need now (and haven't for nearly two years,) and I don't care if your a Republican, Democrat, Libertarian or Green - it's a disgrace, and we should all be sending that message to the White House. But, it seems that Republicans don't mind this time, since Clinton isn't involved.

"Maybe the best way to judge the affect of the different presidents on the military is to allow the vote of the military to speak for itself. I can't say which way they went but I would guess that Kerry's "I voted for funding the War in Iraq right before I voted against it" (or whatever he said) convinced those fighting for us to vote for Bush so that they didn't get hung out to dry so some politician could make a point with their lives...."


As someone who's served, I can tell you that Joe Grunt cares little about politics; Joe Grunt wants more pay and better living conditions, and rightly so. There is a myth out there, re-enforced by the career military, that the Republicans pay better and treat the military better then the Democrats. Anyone willing to do the research can discover that isn't true, but most don't. However, I have not spoken to one active duty service member that likes Bush; almost all voted for him, but because they were afraid that Kerry would pull out, which would make their sacrifice, the death and the personal loss senseless. Now that he's back in office, they are pinning their hopes on Congress to do something, and really hoping the Pentagon will pull its head out of their asses and start running Iraq like they are interested in finishing the campaign. As a side note, a couple of the folks would also like to meet Don Rumsfeld in a dark alley one night and show him exactly how they feel about the way he's running this show.

"Make some point with their lives?" That's the third time I've heard that this week - must be the new buzz-phrase from Rush (I caught him once whining about Carter and the Egypt Grain Embargo as if a 30-year old event was the cause of all the listeners woes. How can you people take him so seriously, if he has to mine the past to get some Democrat-bashing material today?) From the beginning, I've disliked Bush's handling of Iraq on many levels (the primary point is that we're the US and we don't start wars - we end them,) but I've always seen this fiasco as him "making a point with their lives." I've seen Rumsfeld denying supplies as him trying to "save face" because he didn't plan ahead and it's costing us a lot more than we had been told. I see Colin stepping down because he tried to do the right thing, but was overruled by these 4F'ers who have an "agenda" and he's no longer willing to tarnish his honor by being associated with it. But, hey, for the Republicans, it's all about their boy winning; calling them on their mistakes is just "hating America."

General Economic Welfare

Observation:

Pimco.com

This is one of those dry economics white papers that everyone hates reading. In general, it's a discussion of how the US cannot sustain it's current position in the world and offers suggestions on how to ease the transition. While I disagree with some of the author's positions (he hammers the Fed too much and he seems to think that we're rulers of the world and subject to the worlds' whim at the same time,) he's validated many of the points I've been talking about these last few months, including some of his projections and recommendations he has for government intervention. I'll post his suggestions here, for folks who don't care to read the whole thing:

-----

VII. Summary of Policy Recommendations

There is a need to immediately implement a number of important structural measures affecting the global participants. Included in this Category I list of critical adjustments to increase savings, reduce debt and improve current account deficit are:

1. Cut by 15% across the board all U.S. social spending programs.
2. Increase U.S. tax rates.
3. Increase incentives to save in U.S. - consumption taxes.
4. Devise capital controls such that capital cannot be exported out of the U.S.
5. Debt renegotiation/forgiveness by countries with cumulative high trade surplus with the U.S.
6. Change the Federal Reserve Bank objective function to include a constraint on the size of the trade deficit.
7. Prohibit sale of highly sensitive technology and defense to any and all foreign countries.
8. Revalue Chinese currency to U.S. dollar by 40 percent.
9. Targeted protective tariffs if needed.
10. Renegotiate WTO.
11. Prohibit the Fed from purchasing bonds from foreign holders of U.S. debt.


All of the above measures are of great and equal importance and need to be implemented as a package. Piecemeal implementation violates the requirement that all participants must contribute to the readjustment of the global economy.

Category I initiatives need to be followed by a second set of policy measures that we will call Category II. These initiatives are crucial to the long run political-economic stability of the U.S. economy.

1. Increase U.S. defense spending.
2. Develop incentive-based programs for youth, education and health. Take funds from programs for elderly.
3. Reduce minimum wage in U.S. by 50%.
4. Repeal regressive Prop 13 in California.
5. Tax prosperous countries that have benefited from prior IMF bailout recipient
6. Proceeds disbursed to IMF "equity" holders.
7. Tax holders of Iraqi debt for invasion "appreciation" and ultimate "occupation" appreciation value.
8. U.S. Treasury needs to extend average maturity of the debt issued.


Finally, a few additional measures are necessary to help safeguard U.S. national interests. These measures include:

1. Conflict of interest disclosure by any person providing policy advice.
2. Prohibit consulting contracts for any public official leaving office for two-year period.


Pretty radical recommendations, huh?

Now, I doubt that there is a single person reading this that will agree with every bullet he recommends. Hell, even *I* don't agree with everything he says (minimum wage reduction and increased defense spending are two notable ones) even though I think he's got the general idea right (especially slashing social programs, raising taxes and devising capital export controls.) Can you imagine the current Administration taking these steps? Can you imagine the country allowing it to happen?

“What was that one? – ‘Develop incentive-based programs for youth, education and health. Take funds from programs for elderly’"


Say what? Over my dead and rotting body! Fu*k 'em in the a*s for that one!!”

See, I don't disagree with that one. If you look at the last 50 years (especially the last 35,) you'll see that it's been going downhill steadily - financially speaking. There were big spikes during Clinton (for current account deficit,) Reagan (for budget deficit and wealth exportation) and Bush Jr. (for all the above.) Our political system allows for the election of representatives to serve at our behest in the government. In essence, we elected the people who destroyed our financial situation. Sometimes, we re-elected them. Well, I shouldn't say "we" - mostly it was those folks who are currently being catered to by the government.. the elderly. They either created the mess we're in or allowed it to happen, and I don't see a problem with them helping to try and fix it.

Now, before I get labeled as some sort of geriatrophobe (is that a word?), I'd like to say that I do believe that one of duties of society is to care for the old and infirm. However, I also think that people ought to be responsible for their actions; this happened under their stewardship, they should contribute to it's repair. I feel the same way about some of the folks with strong Republican leanings; you elect someone like Bush, then don't start crying (or try and blame the Democrats when the Republicans are doing the damage) when things start going to hell. Actually take some responsibility for once. Concessions could be given for his first term - we didn't know. But this time around, we knew better. That's why I said what I said way back in November; if the American people want to run this country into the ground, then so be it - but I'm not letting them take me with it.

You may not like what I've said here, but listen to what I'm saying. I firmly believe that our children and grandchildren are going to HATE us in the next 20-30 years; either hate us for making it happen, or hate us for letting it happen.

"As a basis for future discussions, how long do you think the lag is between some fiscal action being taken and it's affect on the economy occurring? For instance, how long did it take the cuts in the Fed rate that occurred at the start of Bush's first term to have a noticeable affect on the overall economy?"


That's a tough one. There are a lot of variables that come into play when you are talking about macroeconomic changes; that old adage about a "butterfly flapping its wings raises the price of rice in China" applies. The best economists out there just try and track the chain as far as they can and hope that they are right. But, I'll give you my general feeling towards fiscal actions and the effect on our economy.

Action comes in the form of "short term" and "long term" - bearing in mind that neither “short” nor "long" is exactly predictable. Most "short term" actions (i.e. - Fed rate adjustments, tax cuts, trade adjustments, etc,) tend to take as little as 3-4 months, up to about a year for the effect to be noticed. Much beyond a year and you can assume the action had no effect. Case in point - the anticipated effect of the tax cuts of 2001 never realized and we can assume they won't be; however, they may very well have, in conjunction with plummeting interest rates and an unanticipated willingness of the consumer base to spend till their eyes bled, helped stave off a worse recession than what we had. The problem with short term action is that it usually has unintended long-term consequences - that's one of the reasons Alan has been watching the global market *very* carefully these last couple of years; he's afraid that the tax cuts, soft dollar and low rates will further decrease the foreign investment, which would start the dominoes falling. As it stands now, we're suffering from our short-term cures with the decrease; while no longer in recession, the US certainly hasn't recovered from the recession.

"Long term" actions (i.e. - Fed rate adjustments, policy change that effect trade, permanent tax cuts; yes, they are practically the same,) generally take a little as a year on up before any effect is noticed. The big problem with long-term actions lies in the fact that as time goes on, it becomes difficult to see if economic changes one way or the other are truly being effected by that action. It's usually much easier to see what short-term effect they have; a good example is the tax cuts again - while it certainly did something to the economy in 2001, whether or not it will help in the future is uncertain. Some say that we can't afford permanent tax cuts until the savings rate increases and we pay down our debt; others say that permanent tax cuts *are* the solution to the savings rate problem and debt reduction. As a side note - I agree with the former; until the US gets it's fiscal act together, about the worst thing we can do is decrease our revenue. The second worst thing we can do is keep spending like we have, regardless of tax cuts.

The situation also comes into play; there are some "long term" actions that have an immediate impact on the economy - bond rates are a good example; bonds are long-term investments that encourage foreign capital that can have an immediate impact to the economy. If we need foreign investment, then it's used as a short-term tool for internal stability; if we don't, then it becomes a long-term tool for global stability and growth. And, sometimes the impact isn't seen at all, because the action taken is meant to stave off something - if nothing happens, it's sometimes hard to see what caused the "not happened." Currency value is a good example here; if the US decided to buy back a lot of the dollars floating around out there at the same time the EU suffered a recession and we developed a new technology the world needed - and the dollar stopped dropping in value - it'd be hard to say exactly what impact the buyback alone had. It could be that butterfly flapping its wings, after all.

So, I guess that my answer would be it depends. With your example, the markets reacted immediately to the first cut announcement - so it was instant. But, over the next few weeks, nothing. The next few cuts were met with indifference; the investment flow went into bonds versus stocks. Roughly 6 months after the first rate decrease, we see some small trends moving back into stocks. Mortgage rates fell (while there is no direct connection with the Fed rate, they do tend to follow each other with about a 2-month lag,) which boosted the housing market in 2002. Then we started talking about invading Iraq, and the Middle East pulled it's money out of the US - which caused the crash in 2002 and overrode any further rate cut benefit. From that point on, it's hard to say what effect it's had since rate cuts had become "normal" and somewhat predictable and the ME hasn't put any of its money back into the US. Layers upon layers, cause and effect.

I'll wrap up with an analogy I came up with talking to a rabid Republican co-worker who was spouting the party lines of "deficits don't matter" and "we're too strong to fail:"

The deficits are like an engine revving. When you're driving along and you have all your gears available, everything runs the way it should to get you where you're going and you have enough spare power to pass that slow bastard up ahead (surplus wealth.) However, if you lose a gear or two (deficits) your ability to get power is limited - sometimes you can do it by red-lining your engine at a lower gear, but you can't sustain it. It makes matters worse when you put cheap gas in the tank (have a heavy credit/debt commitment.) But, you have to get where you are going, so you keep red-lining the engine. There are only three outcomes to this:

1) the engine overheats and you start damaging parts of it, but you get where you're going - this time (we continue at pace, but continue to bleed our wealth dry while weakening our overall world position.)

2) you slow down and get there late (we lose our position of power and standard of living, but keep our fundamentals in place.)

or

3) the engine burns out and you stop (economic collapse and another Great Depression.)

Any way you look at it, deficits matter, and nobody is too strong to fail.

--------------

- Rod/Mixer
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