Back in June, 2010 Barack Obama and Angela Merkel had a disagreement. President Obama told Merkel that that the only way to prosperity was for governments to spend their way out of economic recession. A NY Times article, headlined “Obama Asks G-20 States to Maintain Stimulus” said the President wrote to Europeans warning them against cutting their stimulus programs.
“We must be flexible in adjusting the pace of consolidation and learn from the consequential mistakes of the past when stimulus was too quickly withdrawn and resulted in renewed economic hardships and recession,” Mr. Obama wrote.
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But Angela Merkel disagreed. And Channel News Asia described the Barack vs Angela argument.
Europe and the United States were on a collision course on Friday over how best to sustain the fragile global economic recovery, as G8 leaders launched talks in Canada.
Germany’s Chancellor Angela Merkel showed her hand early, insisting members must move quickly to slash soaring public deficits and restore financial stability to their battered economies. …
“It is time to reduce the deficits. Europe has experienced what it means to have too big deficits … We need growth that doesn’t rely on debt but is based on real grounds,” Merkel told journalists at the venue.
Today, with the BBC reporting the fastest German growth in 20 years and the US economy in the doldrums there’s some evidence to suggest that the German economic Merkel may have a point. The European economic performance figures of the last few months are suggestive. In the winner column are the ants. In the loser column are the grasshoppers. The BBC writes: “Such quarter-on-quarter growth has never been recorded before in reunified Germany,” the national statistics office of Germany said. Cameron was doing well too. “The UK has also reported higher-than-expected growth of 1.1% for the period.” On the other hand Greece saw its economy shrink by 1.5%, nearly 2/3th the German pace, but in the negative direction. Maybe those riots in the streets demanding an end to the crisis don’t have any practical effect.
In the US, however, second quarter growth was 0.6%, down from 0.9% between January and March, raising questions about the strength of the recovery in the world’s biggest economy.
Something about Germany has stimulated its economy indirectly. Perhaps by increasing confidence that their country was headed in the right direction, Germany persuaded its consumers to open their wallets. Ben Shore, the BBC’s European business reporter said:
Not since the Berlin Wall divided the country has Germany seen growth of 2.2% in a single three-month period. …
But the most surprising element of the numbers is an apparent contribution from the German consumer. They have traditionally been very cautious in their spending habits, but appear in 2010 to have finally opened their wallets with gusto.
But the Second Stimulus crowd is unlikely to give up. “Nobel Prize-winning economist Joseph E Stiglitz said last week the US economy faces an ‘anaemic recovery’ and will need another round of stimulus measures. ” One criticism that is sure to be heard is that Merkel’s success cannot have been due to austerity measures which have yet to take effect. Moreover, the Merkel austerity program is a combination of tax increases and spending cuts, something that may not be popular in the US. And the proponents of the stimulus have not yet given up proclaiming they’ve saved the world. Harry Reid, describing the $26 billion dollar stimulus package aimed at propping up Medicaid and education said “we saved people’s jobs”, according to The Daily Caller. The Daily Caller suggests that they were mostly union jobs.
This newest stimulus, like most of the other legislation hurriedly pushed through by the Obama administration, in actuality does little more than protect the revenue stream that flows back to the union coffers. That money will then be used to support Democrat party candidates in Senate and House races come November. Nancy Pelosi has been openly vocal of late about the good union members do by lobbying, “volunteering” their time, and generally supporting efforts at keeping the Democrat party strong.
So when Senate Leader Reid says jobs have been saved, he’s not lying. He’s just talking about the potential job retention on The Hill rather than the jobs saved in the classroom.
Maybe that judgment is a little harsh, but interestingly enough the first sector to criticize Merkel when she unveiled her austerity package were the German trade unions. Tne New York Times reported their reaction to the Merkel plan. “It was immediately criticized by the opposition and trade unions, which pledged that they would unite to fight cutbacks they claimed would undermine the country’s generous social welfare system.” Still, the debate between those who would fix the economy by getting the government off the people’s backs and those who think a larger government can help carry the load — while perched atop the public — has now heard the bell marking the end of the first round. Score: Merkel ahead on points. No political KO.
Below: the macroeconomic argument in 3 minutes and twenty seconds. Hat tip: Panday
embedded by Embedded VideoYouTube Direkt
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Back in the 90′s, after imposing what was then the largest peacetime tax increase in history, Bill Clinton went to Japan and told them that their problem was that their taxes were too high. They needed to cut taxes to stimulate their economy.
Clinton will not go down in history as our most honest and plain-spoken President, but it appears that he had a far more firm grip on reality than Obama. Clinton may have done touch and goes on the Runway of Reality but once in a while he parked the airplane, went into the terminal, and had a Dr. Pepper and Moon Pie while the airplane was being refueled.
Obama is still doing full power go-arounds, trying to get the final approach established properly and keep his traffic pattern nice and square. He hasn’t hit the runway once, and is not paying attention to the gas gauge.
Biden and the other guys in the tower are getting worried, are having an argument about calling the fire trucks, and a few are quietly checking on the availability of AA artillery.
They say that any landing you can walk away from…..
Today, with the BBC reporting the fastest German growth in 20 years and the US economy in the doldrums there’s some evidence to suggest that the German economic Merkel may have a point.
Oh, I suppose probably, but I don’t believe you can take the evidence at face value. The US has tremendous structural problems that Germany also has, but perhaps not quite as badly. And the US still has an immense problem with financial structure, real estate values and central bank machinations, that seem to be mostly absent in Germany.
Add to that the political disaster of the Obamanation, and I’m afraid you’ve completely obscured the facts of the matter of whether deficit spending is a blessing or a curse.
The empirical evidence for the superiority of the deficit reduction path is not strictly speaking, there. But from a political point of view the German economic performance will strengthen Merkel’s credibility just as the bad US economy will tend to undermine the President’s.
When the President was first elected, economic wisdom was irrationally attributed to him simply because he was popular. Success breeds credibility and that’s why movie stars sell soap. Now Merkel will be selling soap.
If Keynesianism is at least partly founded on the necessity of conning people into being confident (“we have nothing to fear but fear itself”) and hence spending, then to some degree austerity can act in the same way. A nation which believes that a stimulus is the wrong way to go will in part hang on to its money out of worry. A Germany that believes Merkel is right will spend.
But beyond the realm of voodoo the analytical arguments still dominate. One could take the simple minded view that all investments, both public and private should be assessed according to their net present value. The NPV of a public stimulus by spending on unions should be compared directly to the NPV of reducing regulation, say, and getting more powerplants on line. But the system is so complex, or has been made so, that you can only get approximate answers for these questions. So in the end nobody knows the closed form answer and they wind up using what empirical evidence is available to bolster their intuitions.
In the Barack vs Angela debate the judgment will still rely mostly on intuition, but it will not be wholly witout a factual basis. There is information in the German economic results. What exactly that information consists of, and how far it can be used … well we’ll find out when other data points come online.
Here’s a salient thought from Rick Santelli. The Democrats should consider this instead of talking about more taxes all the time.
http://www.youtube.com/watch?v=K_7PwbxcDbs
The Pelosi Economy is headed straight for hyperinflation.
http://www.minneapolisfed.org/research/WP/WP158.pdf
Sargent’s paper, above, details the entire cycle to be expected when a fiat power attempts to square the circle with the printing press.
The Resident already has us spending twice taxes collected. Those were exactly the conditions that set the nightmare loose.
As I have repeatedly posted, everyone of the post WWI hyperinflations was initiated in the foreign exchange markets: the outside world would no longer accept currency exports. This price signal rapidly reached the domestic economies. The move from stability to rocket moves only took months.
The hyperinflations all stopped on a dime once the prior policies were junked entirely. Sargent’s examples show that all the fiat powers were forced to cut government payrolls DRASTICALLY, and go to solid finance. The printing press was stopped, taxes and budget cuts saved the day. Poof, the problem went away.
Because of their limited ability to increase taxes the bulk of the deficit gap was had by cutting government employees loose. Particularly those in railroads and banking.
For modern America the over employers are Medicine, Post Office, EPA, AmTrack, and government womanpower up and down the ranks, everywhere plus more.
Lest we forget: Hitler’s first move to topple the government was also in 1923!
Go back to the time (not so long ago) before the bubble burst and the US economy imploded. The US then was running a huge balance of trade deficit; Germany was running a big balance of trade surplus, primarily in manufactured goods.
Can’t explain that difference away through the cost of labor. Germany has a high wage economy; arguably, the total costs of employment in Germany exceed those in the US. So what was the difference?
Perhaps the difference was in the intrusiveness and idiocy and sheer unsupportable overhead of the regulatory/legal environment the Annointed have created in the US over the last several decades.
We see it today in the foolishness of Obama’s subsidized “green” jobs, mostly created overseas in Chinese, European, Brazilian, and Korean factories. The strawberry on top? The fact that US taxpayers are paying for the manufacture of batteries for the Chevy Volt in Korea. Now that’s helping Detroit!
Perhaps the difference between Merkel’s rebounding economy and Obama’s cratering mess does not lie in their fiscal regimes but in their regulatory policies.
It’s not necessary to believe in Hitler-type conspiracies to imagine that excessive debt can lead to a political crisis. Greece is an example where an immovable public sector force meets the immovable object of debt. So they riot, but who cares? Greece is a small, relatively insignificant country whose political elite can be told what to do by the bigger countries in the EU. In the end a Greek tragedy can be ignored. The US on the other hand is the most important country in the world and nobody has the actual hard power to tell it what to do. So an American tragedy cannot be ignored.
One way or the other it has to be resolved by an internal political process. The full resolution will probably take years and probably only under the goad of still more crisis. Countries like Greece can get away with not fixing their problems. Whether the same can be said of the USA is questionable.
Economists Surprised That People Read the Paper
Vodkapundit points out the obvious:
==========
[edited] Stimulus spending can’t work:
1. Extra spending means more taxes, so the whole thing is a wash. It is a big, fat lie that Government spending has a “multiplier” effect different from consumer or business spending.
2. Extra spending means more debt, driving up interest rates and choking growth.
3. Extra spending means printing money. Resulting inflation makes any growth an illusion.
==========
And Shannon Love:
==========
[edited] Leftist economists don’t understand that people read the paper.
- – The problem with their stimulus theory starts with their assumption that everyone will behave just as they would have without a stimulus, up to the point that the stimulus spending reaches a critical mass.
- – However, people read the newspaper, see the tsunami of taxes, regulation, and inflation coming their way, and they alter their behavior immediately.
==========
1. RWE
You certainly have a way with analogies.
It’s a shame that as nice as she is Merkel is dead wrong on this issue. I know she is because “the one” says so. No further discussion needed. Some year, two centuries or so from now, historians will wake up to the fact that “Bo” was always right. Indeed, he will one day be found to be this era’s staunchest fiscal conservative. /sarc off/
[Man that hurts, laughing so much, gotta watch it].
One can almost hear the ROTC studen shouting “All is well. All IS WELL!!!!” Me, I’m sitting this one out. I’ll spend what I need to, invest conservatively, and keep as many options open as possible.
#6 Kinuachdrach
We see it today in the foolishness of Obama’s subsidized “green” jobs
Don’t you love it that the Ground Zero mosque is being hyped as “the country’s first certified ‘green mosque,’ named Park51 to connect faith and the environment. . . .
The mosque (which is more accurately a community center with a prayer space) is located on Park Place in Downtown Manhattan, but the new name also reflects a desire to emphasize the intricate (though widely unknown) connections between Islamic teachings and environmentalism. For example, Islam calls upon people to be ‘stewards of the Earth’ and to treat all things in nature as sacred. The new name, Park51, invokes images of trees, creeks, and children playing. Parks are for the public. Parks are fun. Parks are green. And parks are not controversial.”
http://www.thedailybeast.com/blogs-and-stories/2010-08-12/exclusive-ground-zero-mosque-goes-green/
Meanwhile, Obama has come out openly in favor of the Ground Zero mosque: “But let me be clear: as a citizen, and as President, I believe that Muslims have the same right to practice their religion as anyone else in this country. That includes the right to build a place of worship and a community center on private property in lower Manhattan, in accordance with local laws and ordinances. This is America, and our commitment to religious freedom must be unshakable. The principle that people of all faiths are welcome in this country, and will not be treated differently by their government, is essential to who we are. The writ of our Founders must endure.”
Jennifer Rubin’s comment: “Obama has shown his true sentiments now, after weeks of concealing them, on an issue of deep significance not only to the families and loved ones of 3,000 slaughtered Americans but also to the vast majority of his fellow citizens. He has once again revealed himself to be divorced from the values and concerns of his countrymen. He is entirely – and to many Americans, horridly — a creature of the left, with little ability to make moral distinctions. His sympathies for the Muslim World take precedence over those, such as they are, for his fellow citizens. This is nothing short of an abomination.”
http://www.commentarymagazine.com/blogs/index.php/rubin/340536
6. Kinuachdrach
Perhaps the difference was in the intrusiveness and idiocy and sheer unsupportable overhead of the regulatory/legal environment the Annointed have created in the US over the last several decades.
……..
I have no facts to back up my assertion but I would say with some conviction that the general impression of most rubber neckers is that the EU/Germany has more regulations than the USA.
So to make a counter rubber necker argument — it would be helpful to have some supporting facts.
I’m sorry, did you say Area 51?
The Knox News says they’ve doubled down. “A Dangerous Gamble”.
Is this trip to the Casino necessary? Where’s the fire? What’s the rush? A gamble by definition is a wager on the odds. Well what are the odds? Does anyone know? My guess is that nobody knows. The government has a fiduciary duty to the the taxpayers. You can’t just take the principal’s money to the Three Card Monte. The odds the taxpayer will come out ahead in this gamble are exactly what?
10. 49erDweet
Of course, Bo is a dog. Dogs are always right. As are cats. In my experience, they both tend to be right more often than humans.
Well, come January the Democrats will stop spending on the Bush Tax cuts. They will not even have to vote on it because the tax breaks will expire. As our taxes shoot up you may think it a huge increase but Democrats will say they have cut spending on tax cuts for the wealthy. Of course taxes will go up on the working poor, too, but the Democrats will blame that on the Republicans, who would not support Democrat changes to the tax laws.
17. hdgreene
Recently Obama said that he will start to get serious about deficits and will challenge Republicans to do the same. You know what that means: He will propose massive tax increases, and if Republicans balk at that, he will blame them for any deficits going forward.
“The odds the taxpayer will come out ahead in this gamble are exactly what?”
Zero, but that isn’t important. What is important is that so long as you are playing with the principal’s money, you can’t lose any of yours.
OPM (Other Peoples Money) is what makes Wall Street a con game. Or a ‘sucker’s bet’ to stay with the gambler scheme.
You got to know when to hold ‘em,
know when to fold ‘em.
Know when to walk away,
know when to run.
Never count your voters
a month before election.
There’ll be time for counting
when the voting is done.
Boys and girls, it’s time to lace up them track shoes, race down to the corner store and BUY MORE AMMO.
“Well, come January the Democrats will stop spending on the Bush Tax cuts. They will not even have to vote on it because the tax breaks will expire.”
By March the new Congress will have restored the tax cuts. The Obomination will not veto the bill because if he does, Congress will force him to produce a valid Birth Certificate. If he could do that, he already would have. So the New Congress will not have any trouble bringing him to heel.
Lame Duck doesn’t even begin to cover it. Dead Duck isn’t strong enough. Dead, cooked, glazed and stuffed might be more accurate. The only real question is do we go with the plum sauce or apricot?
But from a political point of view the German economic performance will strengthen Merkel’s credibility just as the bad US economy will tend to undermine the President’s.
Works for me.
Post hoc propter hoc and I don’t care.
For those interested: Greece’s National Railways are insanely overmanned. Check it out.
In the US it is Medicine that is insanely overwomanned.
Like a WWII Daddy Warbucks, Medicine bills Government on a COST PLUS basis.
The rules are very much more convoluted than WWII; but the dynamic is the same.
Labor wastage is a boon to subsidized Medicine.
The Pelosi Health Expenditures Exponentiation Bill will take us to warp speed on the laborometer.
OF COURSE she expects the Fedsury to cover the over-draft.
San Fran Nan may come from an anti-birth community ( shades of Frank ) but in NO WAY does it mean that bo-tox isn’t a Speaker’s right. ( rite? )
If you have a hankerin’ for duck flesh, it’s good to consider alternatives to lead shot.
Does anyone know the lethal range of Rock Salt from a scatter gun?
Maybe add a little sage and parsley in the charge…
>;-D
Obama’s wagons in a circle
Thanks to a feisty Mrs. Merkel
She who says the debt’s too high
The poor want bread, we give them pie
Obama says the public knows
That only as the spending grows
Will countries avoid nineteen thirty
He knows because a little birdy
Told him that increasing debt
Is chancy, but the way to bet
But Angela just sits and smirks
She knows what’s right and knows what works
15. wretchard
The Knox News says they’ve doubled down. “A Dangerous Gamble”.
Keeping interest rates at record lows is a “dangerous gamble” that could hurt the economy later on by unleashing inflation or new speculative bubbles, a Federal Reserve official said Friday.
…………
imho the problem with this is that right now home foreclosures are on the rise. Deflation is currently the worry.
And the fed has a trillion or two in fannie and freddie mortgages on their balance sheets. Any time it looks like the economy is kicking into gear and inflation is kicking higher the federal reserve can unload their real estate and depress real estate market prices. That’s in addition to draining liquidity and raising interest rates.
That’s an awful lot of tools that the fed has at their disposal currently to fight inflation.
So I’m not buying the inflation argument very much at all.
(Link to an article in the Washington Examiner, 13 August 2010.)
Ya Gotta Love Obozo’s comedy writers!
Obama closes curtain on transparency
By: Timothy P. Carney
Examiner Columnist
August 12, 2010
“President Obama has abolished the position in his White House dedicated to transparency and shunted those duties into the portfolio of a partisan ex-lobbyist who is openly antagonistic to the notion of disclosure by government and politicians.
Obama transferred “ethics czar” Norm Eisen to the Czech Republic to serve as U.S. ambassador. Some of Eisen’s duties will be handed to Domestic Policy Council member Steven Croley, but most of them, it appears, will shift over to the already-full docket of White House Counsel Bob Bauer.
Bauer is renowned as a “lawyer’s lawyer” and a legal expert. His resume, however, reads more “partisan advocate” than “good-government crusader.” Bauer came to the White House from the law firm Perkins Coie, where he represented John Kerry in 2004 and Obama during his campaign.
Bauer has served as the top lawyer for the Democratic National Committee, which is the most prolific fundraising entity in the country.”
Read more at the Washington Examiner: http://www.washingtonexaminer.com/opinion/columns/Obama-closes-curtain-on-transparency-468557-100595914.html#ixzz0wY5Twd8Y
2% is not some kind of superman #. I doubt it covers population growth. The US needs 200,000 new jobs a month just to cover entering (Young) job seekers. How’s that hope & change working out 4 U? “Summer of Recovery” ? LOL
I have looked and looked for the utube clip of Obama in June in Canada at that conference with Merkel saying that next year he is going to cutting government the federal deficit. With a republican congress bent on cutting spending and bush tax cuts expiring raising federal revenue — its reasonable to assume that obama will succeed. Of course the new taxes could hit some kind sour spot in a down trending economy and lower the revenue base as much as the higher taxes raise taxes–mooting the revenue angle. But that didn’t seem to happen in Germany. Even without higher taxes the pubbies are going to come in and cut spending. There will be a night of the long knives.
What I find interesting is that the dems just voted on 25 billion to pay to teachers. They got the money by taking away from food stamp allocations. What was their reasoning? After all both food stamp recipients and teachers form part of the democratic base.
Hmm
Food stamp recipients don’t vote. Especially not in off year elections. But teachers do. The dems were shoring up their base for the fall elections.
NZ Herald
G20: Obama – spend; others – tax
1:00 PM Monday Jun 28, 2010
TORONTO – World leaders, shaken by the European debt crisis but wary of ending stimulus programs, have pledged to slash government deficits in the most industrialised nations in half by 2013, with flexibility to meet the goal.
The United States ran a record deficit of $1.42 trillion last year, or 10 per cent of its gross domestic product. Private economists expect the deficit will decline only slightly to $1.3 trillion this year, which would amount to 9 per cent of GDP.
Obama’s budget plan from February would cut the deficit in half by 2012, as a percentage of GDP. The US stands a generally good chance of meeting the targets, assuming a strengthening economy between now and then.
Charles @ 25: So I’m not buying the inflation argument very much at all.
Neither do Geithner or Bernanke.
Me, … I think Hoenig is right about low rates being destructive, but not directly because it causes inflation. It causes misallocation of funds. The banks suck up free Fed money and make 4% buying Treasury bonds, banks have no motivation to take on risk and lend. It’s a pure rip-off. It’s a disincentive to save, but not a reason to spend, it’s simply a motivation to sit on your cash or move it out of the country. It’s like standing on the brakes in your car, and wondering why you aren’t getting anywhere. It’s like holding your breath until your parents give you a pony.
I can’t get over the findings of Harvard’s Cohen, Coval and Malloy in their recent paper. I’d link it, but whenever I do my post dies in moderation. This paper took a novel approach that tracked the impact on communities that had local politicians assume the mantle of House and Senate committee chairs. Whenever this happens, the federal spending spigot is opened in the politician’s home turf, without fail. Equally, without fail, this turns out to be an economic disaster. Essentially, the worst thing that could happen to your home town is if your Congressman became Speaker of the House. Counter-intuitively, They’ll destroy your local economy unawares with shining gifts. They term the phenomenon “federal shock”, and the byproduct is uncanny. You want to guarantee that district’s jobs get outsourced? Easy. Send it piles of money.
The federal government has been involved in this type of thing in every way imaginable. I saw today the report where luxury Manhattan condos with pet spas, concierges, and all the hoity-toity extras cannot be sold anymore without guaranteed FHA backing. Why there aren’t riots in the street, deservedly, over this fact alone is something I’ll try to answer later.
Efforts have been made to point out that half of state budgets are dependent on federal subsidies. That figure is a little high. But only a little. Extrapolate the negative impact of federal spending on a Congressional district and apply it to a state, and maybe you begin to see the dimensions of the problem.
I saw a breakdown of stimulus spending in one congressional district in Ohio that landed no less than $2 billion. That one district landed half of what’s given to the Commonwealth of Virginia for her Medicare bill. Ought to be going great guns, no? Everybody should be a millionaire there just on a per captia basis. But, no, that Ohio district is in desperate times.
Federal spending insinuates itself into every level of our economy. Seduced by the raw power of a cannon blast of money, locals roll over. We’re far gone. Let me tell you about a road construction project in Northern Virginia, which hopes to update 50 miles of road. That’s not a purely governmental task anymore. We’ve got a public-private relationship going on now. A private company will “operate” the roads which will now have “SmartLanes” — i.e., variable tolls based on traffic. The whole thing relies upon $900 million kicked in by the feds, and $400 million kicked in by “private” finance, and several hundred million more kicked in by state and local authorities.
The whole road project is challenged by a suit brought on by Arlington County, VA. Arlington is a hotbed of liberalism, and also no part of the road construction comes close to touching Arlington County. It’s all far south. Arlington’s also been paid off. They get $200 million out of the air, for roads being built in other jurisdictions. That’s not enough. They’ve filed a two pronged suit against the Commonwealth of Virginia, on prong being the usual environmental attack. That’s a deadly attack. You can easily find a judge who will insist for one more study, and push the project back for years. Took us 25 years to expand the Woodrow Wilson bridge on Washington, DC’s I95, one that screwed up the Northeast Corridor for decades. The other prong of Arlington’s attack is civil rights, however. Yes, roads now are matters of civil rights. The proposed road would favor Caucasians it’s argued.
Been to Arlington lately? Full of pasty-white liberals who earn way too much money. Go on to Zillow and price a home there. Then price a home in Woodbridge, VA, an area serviced by the proposed road expansion. And, Woodbridge also has a lot more “browns”.
There was a patch of road on the highway that got improved lately and it did touch Arlington. That project wound up costing $3 billion. It covered 14 miles of road. That’s right, $3 billion for fourteen miles of road. It is a design disaster, too, without question.
Bottom line: getting the feds involved in our economy, even an aspect of it such as roads for which they should be counted on, is an epic fail. They only serve to inflate costs beyond comprehension, to invite years of delay, and to bog everything down in stupid race or class politics.
They are poison. We see it up close every day in northern Virginia and southern Maryland. We’ve lost our states to this insanity. Don’t follow suit. Fight them. Beware of Feds bearing gifts. Slam the door on them. The old adage about the guy who is from the government and there to help you is true. Do not believe him.
30. Josh
Charles @ 25: So I’m not buying the inflation argument very much at all.
Neither do Geithner or Bernanke.
Me, … I think Hoenig is right about low rates being destructive, but not directly because it causes inflation. It causes misallocation of funds. The banks suck up free Fed money and make 4% buying Treasury bonds, banks have no motivation to take on risk and lend.
…………
You have just described a scenario that’s deflationary not inflationary.
There are two drivers currently to the slow down. The first is the much publicized 1.8 trillion in cash that US corporations are hoarding–and not spending– because of uncertainty caused by the federal government monkeying around in every sector of the economy. The money that corporations are not spending is very high powered money. Its the stuff that drives economies forward. There is a second driver to the economy. That’s bank lending. The banks are not lending. But not because they are risk averse–though they are– now that the economic environment is uncertain. The reason they are not lending is because banks loan to capital ratios got all out of wack in the build up to the collapse of 2008. Instead of traditional ratio of 12 to 1 the banks lending rations were 30-40 to 1. Its taking more than a year or two for banks to restore their capital base.
Federal spending is the lowest powered spending there is. That money is fast disappearing.
So to return the economy to a growth path and restore federal coffers everything has to be done to restore business confidence. That includes ending US dependence on foreign oil.
STOP talking about foreign oil…
It’s NON-Hemispheric oil that’s the trouble.
Canada, Mexico — no problem.
Even Venezuela — ultra heavy crude only workable in a handful of Texas refineries…
NOT a problem.
—–
Realistically, America has to recognize that Asia needs the OPEC in a dependent way.
Starting with they need USN permission to ship.
We’ve been in a deflationary environment for two years. The real estate collapse erased trillions of dollars of holdings, and that collapse triggered a financial panic which erased trillions more. The Federal Reserve engineered a scheme whereby they attempted to step in and backstop both real estate prices and bank losses. The pumped trillions into this effort. TARP bought up toxic assets, Freddie and Fanny got full-faith-and-credit, billions were spend propping up counter-party arrangements such as with AIG.
This was all done with an eye to stop the evaporation of asset value. To keep the financial system afloat. Everything that has happened since 2008 has been an attempt to fight one thing: deflation, the lowering of asset valuations. Hell, banks to this day are not foreclosing on a huge pile of properties because to do so would force them to book unacceptable losses. So they drive their heads into the sand.
It’s not working. This fight, since 2008, has always been one against deflation. Pay no attention to the offical “inflation rate”. It’s meaningless in the face of the massive haircut Americans are looking at since the real estate bubble popped. Reverberations from that event continue to shape the American economy. The Fed is spending like mad to control it.
That’s bad medicine. We should have taken the licks two years ago. Instead we’ve let the Fed, having found itself in a hole, keep digging. America, you are ill-served. It’s past time to bury the Fed and to bury Wall Street.
Shucks, 16. rickl, you figured it out.
33. blert
STOP talking about foreign oil…
It’s NON-Hemispheric oil that’s the trouble.
Canada, Mexico — no problem.
…………
The most incredibly stimulative thing the US could do to the world economy would be to end US dependence on foreign oil. There are just so many outstanding things that would happen — they’re just hard to enumerate.
1.)US oil independence would harden the US dollar and raise the value of the the Xtrillion dollars held in foreign banks.
2.)Withdrawal of 12 million barrels@day demand from the world oil markets would collapse the cost of oil from $70@ barrel to $20@ barrel. This amounts to a world wide tax cut of immense proportions. Not to mention it shifts capital flows to countries most in dept like the US and Europe and Japan. But also China and India.
3.)But since oil price is directly related to worker productivity and worker productivity is directly related to worker’s wealth –this means that the wealth of nations rises significantly. Low oil prices would only last a couple years because oil demand is extremely elastic. If you lower the cost of oil the demand will rise as world GNP rises.
3.)Oil independence will mean that the US government tax dollars rise significantly. I have seen graphs which show that the US federal government deficits went south in a big way during the 70′s at the same time that the US became a net importer of oil. For all Ronald Reagan
s tax cuts were given credit to the economic boom of the 80′s another big driver was the Saudi’s ramping up production of oil to collapse oil prices so as to kill the nacent alternative fuels industry in the US of the late 70′s and early 80s. Dirt cheap oil is pure oxygen to an economy. The saudis raised production to lower the price. We could achieve the same result by dampening demand.
The US has basically been unraveling since the 1970′s because of dependence on foreign oil. It can be argued that this process has enriched the rest of the world. However, no more good can come to the rest of the world by this unraveling oil dependence. A restored energy independence for the USA will start a raveling process that will be hugely beneficial to the US first and the rest of the world as well.
Canada and Mexico will be just fine thank you very much.
Canada and Mexico will be just fine thank you very much.
……….
Well, actually the Mexicans are going to run out of oil in a couple years so its all the same to them. The Canadians can ship their oil to China or India. No problem.
hmmm, the appearent good german results, followed the euro crisis, currency that was attacked by the markets, and in the meanwhile serving the german banks, which were the first to bet on the greek debt, while fulfilling their account, the interest was that the euro rating would lower vis-à-vis dollar’s, thus boosting german machinary and expensive cars industry exportations, also enterprises that were configurated and well prepeared for the international trades.
But:
“Part of the reason for this is the fiscal crisis that plagued the peripheral countries, notably Greece and Spain, during the quarter. Indirectly, the ensuing depreciation of the euro linked to the crisis also helped make Germany’s large manufacturing sector competitive internationally – a key factor behind its rapid growth.
http://www.ft.com/cms/s/0/59a8cc0e-a709-11df-90e5-00144feabdc0.html
If the euro were ever to break up, this competitiveness gain for Germany would be instantly reversed. Furthermore, freed from the influence of the weakest economies in Europe, it is very likely that a newly constituted Deutschemark would rise like a rocket against the dollar and yen, hurting German exporters further. Funnily enough, the more the Germans gain from the present predicament of the euro, the less the German electorate seems to like it.
http://blogs.ft.com/gavyndavies/2010/08/13/germany-continues-to-gain-from-the-predicament-of-the-euro/
hmmm why this apparent success doesn’t benefit to Merkel, who probabably will be outed in the next elections ?
morale de l’histoire: le malheur des humbles fait le bonheur des… (?)”
Merkel isn’t harvesting the “german good results”, she is at her lowest poll, die Linke and the left are going to push her out when next elections will occur.
Unions are going on stike on September, cuz the biggest part of the german labor force paid the high price of the exportations policy: their wages decreased by 10%, while supporting enterprises taxes, miserable wages, part time jobs subsidied by the state. Dont think that this “complying class” will bear the never ending cuts of their gains any longer, the average german doesn’t care if his country gets the 2nd exportation rank after China, which isn’t a social model as far as human and workers rights, he might want to benefit of the good bargains too, and to renew with the socialist agenda.
Merkel’s cuts are driving the rest of the EU into recession, cuz when one spared, the other must spend so that the engine works, if the other eu countries are squeezd to default, at the end the german booom effect will only be a break in the global crisis
the funny thing is that the “average journalists” are showing Germany as THE model to imitate, though professional economists analyses depict its perverse effects
Merkel’s CDU has terrible approval ratings right now that I attribute to 4 factors: 1) Local CDU politicians have made some blunders that make the whole party seem incompetent 2) The Bavarian CSU sister party is headed by a jerk populist do-gooder who pulls the rug out from under Merkel whenever he can. 3)Her FDP coalition partner is headed by a lightweight who insisted on being foreign minister rather than sticking with an economic post where he might have helped formulate and popularize reforms. 4) Merkel is not seen as a strong leader. The Germans would like to see someone put a boot on the neck of big business (except the one they work for), maintain or expand entitlements, and speak much more loudly. Merkel works behind the scenes to move things without risking demonstration-provoking opposition. She is quietly rolling back alternative energy subsidies and trying to contain health care and unemployment costs. It’s a bit like her resistance to Obamanomics: not loud and confrontational.
I disagree with some of Merkel’s policies, but I give her lots of credit for not falling under the spell of Obama. It was she that resisted his campaign speech at the Brandenburg Gate, resulting in its move to the Victory Column. She maintains her skepticism toward Russia while not being afraid to deal with Russians if it serves Germany’s interest.
“It’s not necessary to believe in Hitler-type conspiracies to imagine that excessive debt can lead to a political crisis. Greece is an example where an immovable public sector force meets the immovable object of debt. So they riot, but who cares? Greece is a small, relatively insignificant country whose political elite can be told what to do by the bigger countries in the EU”
if Greece is such a tiny problem: 2 points of EU GDP, then Germany shouldn’t had objectionned to support Greece bailing out bazooka, (which was actually a bailing out of the banks that hold the biggest part of the eurozone countries debt loans), it represented fast nothing for Germany results. BUT EUROzone isn’t a federation, just a foggy alliance, where countries don’t feel solidary with the others (article that Germany imposed into the Maestricht treaty), while America is a true federation, where if a state is defaulting, a automatical bailing out will be done by the federal power, that none hardly would notice, while in EU, this was a never ending discussion, and obstrusive veto by the german elite, who was playing the selfish role for Germany benefits only, then one had to made the race and put germany on the accompliced fact, it’s what did Sarkozy with the support of the other EU countries, at the ire of the german elite ! France was accused to play leadership for her own sake, when she was actually rescuing the big EU (and german) banks, uh somebody must have told that to Merkel though, suddenly after she lost the may elections she was supporting the EURO bailing out (hmmm analyses say that none has interest that the euro collapses, and in the first place Germany)
so sticking Hitler name with Germany’s behaviour is excessive, but still one can put Bismarck or Kaiser Wilhelm’s names without being erroned, besides, this was former Germany Chancelor: Helmuth Schmidt’s constatation too
The first step to understanding Obama’s economic policy is to stop watching the brightly dressed juggler on center stage and wander into the wings where the real performance is taking place.
This brief look behind the curtain of the GM/Chrysler bailout says everything we need to know about the cosmic scale fraud going on in Washington.
Obama and the Democrats are openly and unabashedly plundering the U.S. Treasury, to the brink of collapse or beyond if necessary, to buy themselves political hegemony. Follow the money. There is no other reasonable explanation.
“assuming a strengthening economy between now and then.”
Sorry Charlie, Star Kist only takes fine Tuna. The economy is going to tank between now and the Election. That is 81 days, just in case you weren’t counting with the rest of us.
This summer will be know in history as the ‘Summer of Fear’. America sees the train a coming, we are just tied to the tracks and can do nothing but watch.
So what do your assumptions look like when ALL the economic indicators (reality) are factored in? Any ropes and trees in there?
Have you bought any ammo today?
Cowboy @ 34: that’s not the first time I’ve caught you making too much sense. Not a pretty picture but reality can be like that. Thanks for telling it the way that it (increasingly) seems to be.
Charles @ 36: “The most incredibly stimulative thing the US could do to the world economy would be to end US dependence on foreign oil.”
That would be very generous of the people of the United States, to stimulate the (rest of the) world economy like that. If the US stopped buying oil internationally, it would indeed stimulate the economy of oil import hogs Europe and Japan, as the price of oil fell.
Paying the price would be the Russians, Arabs, South Americans — who would suffer horribly as the price of the oil they export fell.
Of course, the biggest price would be paid by the ordinary people of the US. Without plentiful cheap transportation energy, the US economy would revert to pre-Civil War status — infant mortality, women dying in childbirth, children working in coal mines, schools shut when young people are needed to harvest the crops by hand.
So the net effect of the US stopping buying oil internationally would be “EU Uber Alles”. We don’t need that. Historically, that has led to events like Crusades and World Wars.
Not that I disagree with the idea of generating more power & fuel in the US. The only way to do that economically would be with nuclear fission and “mining” transportation fuels from coal & oil shale. The technology exists. The problem is self-defeating excessive regulation in the US — the elephant that is trampling through Obama’s America.
Charles…
To get to the economic fantasy world of America magically waking up with no oil imports something colossal has to happen — yet occur without meaningful economic inputs.
A tremendous amount of Chinese and Japanese energy demand is redirected American consumer demand: we import the energy as goods.
——
Deflation in real estate and most other items is EXACTL Y what preceded the Weimar hyperinflation. STOP looking backwards. Otherwise you’ll be sculling right over the falls.
——
Hyperinflation is NEVER determined by the domestic economy. It is NOT inflation. It is the rejection of ones fiat money by the rest of the world. As we’ve seen, world financial opinion is subject to change — and at a very fast clip.
——
We have rampant inflation in the things we consume. If there is any item that really takes of first in hyperinflation it’s food imports, energy imports. THAT’S why all of the Weimar stories revolve around astounding swaps of currency for BREAD. Germany was importing food, and no food was ramping higher than wheat flour.
Why? On balance, the price setter was America, and she was on the gold standard. So, wheat was priced in gold. Fiat for flour then became the perfect benchmark for the destruction of the currency.
——
The real estate bubble was engineered entirely by the government. Let no man be confused about that.
One sub-element that is never brought up by our J-School masters is the subject of counterfeit-credit in a credit-money based system of accounts. While an entire chain of credit-passers was required to sign off on each issue all that matters is that the counterfeited credit traded at no discount in the marketplace.
The other thing is counterfeiting credit has the exact same impact as counterfeiting currency — even more so when it trades and trades and trades at par.
Now to work down the bezzele the Fedsury is counterfeiting Federal Reserve Notes. The mechanism is to clear all Treasury auctions with book entries at the Fed. These entries come straight out of thin air — which makes them even lower cost than actually tumbling notes in a dryer with poker chips.
This is how the Resident and Pelosi have ramped up spending to double tax receipts. That’s a critical threshold for the currency market. It triggers fiat revulsion.
The Weimar Germans were able to run the game for about three years before the jig was up. I can’t see modern markets being that slow on the uptake, 24 hour news cycle and all.
——-
The question implicit for many is: can the powers that be finesse this? History says the never do.
Theory says they never can. It’s the CROWDED MARKET problem. On any given day only a trivial fraction of the assets affected get traded. (Forget the market-makers — they follow trends almost exclusively.) Hence should, for any reason, the herd switch opinions, there is a stampede at the door.
You’ll see the same crowd pinch during fire disasters.
In financial markets such action is always described as a Black Tuesday, Black Friday, etc.
Soros famously hammered the Bank of England. That assault had the same ‘everyone in the market must short the Pound’ crush. Soros picked up $1,000,000,000 in ONE day for that little pop. Considering the profit, and the size of the move – how much did Soros have to put on the line?
—–
Obviously, at some point Soros will be back for the biggest short of his lifetime.
And that’s why the Resident is ordinance, not a player.
It seems to me that the European socialist model has an advantage over the American “Progressive” (aka “Socialism for Dummies”) mindset. At least the Europeans realize that in order to redistribute the goodies somebody has to produce some goodies. The productive sectors are treated much like a farmer treats his chickens.
On the other hand the American Progressives seem to treat the productive sector as an enemy, vermin that should be dispatched as sadistically as possible. It isn’t enough that they plan to eat the chicken they also find it necessary to torture and starve it before the slaughter. And, when it has little meat on it and it tastes bad they blame it on the chicken.
45. blert
Charles…
To get to the economic fantasy world of America magically waking up with no oil imports something colossal has to happen — yet occur without meaningful economic inputs.
,….
It doesn’t sound like you’ve been listening.
Its a natural gas play. And the thing is going to happen.
Even the big overseas players like the Russians understand. That was why Medvenev’s vision for a Russian Silicon valley got currency–after years of being snubbed by his boss. After the recent massive US natural gas finds and the budding finds elsewhere using the new technology– Putin realized he couldn’t continue to keep Russia a one trick pony.
The change is already pretty well mapped out in the Picken’s plan. Elements of the Pickens plan were in the recent stupid cap in trade bill before congress that got shot down. But the Picken’s plan is coming back in another bill that does stuff like extend the tax credits that ethanol enjoys–to algae oil and sewage oil.
If it doesn’t pass this fall, it will early next year. Because this is the sort of thing the pubbies can get behind.
Its simple. You just convert all of the short haul trucks and buses to natural gas–of which the US supply has increased to 100 years in the last 36 months. Much of the infrastructure for doing so is already in place…but whatever the costs–they are worth it.
That knocks out 40% of the demand for oil in the USA.
I understand the Indians did this a couple decades ago. Its a neat trick. And it does the job.
Like the Brits the Germans had plenty of of coal to run their economy in the 19th century. But when the world switched to oil early in the 20th century with the car revolution–the Germans like the Brits in the 1920′s–were stranded. They had to import their oil.
Brazil was wrecked in the 70′s by oil price fluxuations and the chicanery of McNamera’s recycled petro dollars.
They learned.
Now the Brazilians are energy independent. They are considered to have a great economy now and their currency is considered to be a hard currency.
Charles @ 32: You have just described a scenario that’s deflationary not inflationary.
OK, so Hoenig should warn about that – the FEDS ARE CAUSING DEFLATION.
Charles @ 36: The most incredibly stimulative thing the US could do to the world economy would be to end US dependence on foreign oil.
Agreed. With blert, too, that money spent on Mexican or Canadian oil is less damaging, since those economies are nearly integrated with our own, but even so we should not just transfer the purchases from elsewhere to there – we get most of our oil there already. Those should be reduced sharply as well.
(for that matter, we can still buy some foreign oil without being dependent on it, we don’t have to be 100% off it, but we do have to be *capable* of being 100% off it to force the issue)
Charles @ 36: The US has basically been unraveling since the 1970’s because of dependence on foreign oil.
That’s just part of it, the structural problems that have seen us ship jobs overseas is even worse and began ten, fifteen years earlier. In part because of energy costs, it’s true, but we didn’t ship steel manufacturing to Japan in the 1970s because they had lower energy costs.
Powerline has two outstanding posts about Obambus and the ground zero mosque:
Barack Obama, defender of the faith
An Awful President, A Worse Theologian
48. Josh
Yeah its a matter of net gas/oil imports. Alaska was originally planning to build a huge natural gas pipeline down through canada to Juncture with the US natural gas infrastructure in the upper midwest. But when news came 18 months ago of the massive natural gas finds in the lower 48–the alaskans — read sarah palin — changed the route to go to the coast of alaska so the natural gas could be shipped overseas.
That natural gas export would serve to ballast/balance any local deliveries from Mexico or Canada. But again, I think the bottom line is the US has now the where with all to become a net exporter of energy. And The US I think, will make this happen.
If you can’t afford the downside, don’t take the bet.
There was a short while where those playing in the market considered the Fed as the house, ie. don’t bet against the house. Not anymore. If you look at the actions of the Fed over the last two years, you could describe it as a kill the bear strategy. Very risky if you lose.
Derek
wretchard:
In the previous thread, you wrote the following:
Temporizer .. conciliator … the word Kuttner should be looking for is loser. Nobody likes a loser. The nasties on the Left and extremists in the Arab world can never in any case feel something as uplifting as gratitude. There is no market for gratitude in a dog-eat-dog world. About all a certain type know how to do is kick people people who display weakness in the face.
Your comment has many corollaries.
You seem to be suggesting that Barack Obama’s apology tour leaves the United States materially more vulnerable to attack.
Another corollary is that by calling Americans “a nation of cowards”, Eric Holder has done the same. Calling a nation “cowardly” becomes an open invitation to bullies to abuse that nation – such language is not only “fighting words” but dangerous.
Likewise, the decline of anti-Semitism after World War II can be seen to be a result of the existence of Brandeis University. Ivy League schools stopped their anti-Jewish quotas only after it became clear that their discrimination would only result in Brandeis gaining an illustrious reputation at the expense of their own prestige.
Barack Obama’s relationship to America appears to be analogous to a husband who publicly refers to his wife as ugly or a son who refers to his mother as ugly. It leads to contempt toward him and danger for his female relatives.
Germans are averse to inflation and I don’t blame them for that. I do blame those Germans who passionately endorsed Barack Obama back in 2008. It would be rather ironic for such Germans to discover that the winning margin for Barack Obama consisted of Americans who voted for him in order to please German public opinion, only to also discover that Barack Obama’s agenda conflicts with German interests.
OK, Lucianne has offered her comment on the ground zero mosque now, her front-page comments are ephemeral, but right now says:
Hussein’s in Deep Hummus Now: After weeks of saying,
“talk to the hand” Obama endorses Murder Mosque built on
the powdered bones of Ground Zero victims.
“Does anyone know the lethal range of Rock Salt from a scatter gun?”
Less then a meter(3.1 feet), I think. The wad is more dangerous. On the other hand I know from personal experience that it hurts like hell out to about 50 feet. I took some in the arm and back. It didn’t break the skin, but it hurt. I was ‘finding’ kite string. A local farmer was using it to get his plants to grow in rows. We used it to fly kites. It was better for kite fighting then the string they sold at the store where we bought our kites.
Rock salt disintegrates as it leaves the barrel. Try some. It comes out as a fine powder and some small chunks. Those small chunks break up when they hit something. Rock salt isn’t very hard. Here is a URL to an experiment with rock salt.
http://www.theboxotruth.com/docs/bot33_3.htm
12. PA Cat:
Meanwhile, Obama has come out openly in favor of the Ground Zero mosque
I’m actually delighted that Obama came out in favor of the mosque. Tickled pink, even.
My motivation is perverse: The more pronouncements and opinions of these kinds he makes, the less likely it is that he’ll be President after January, 2013. But, having said that, it would help a whole lot if 1) Republicans grew a pair and pressed home all these accumulating grievances against Obama to the voters, and if 2) American voters stopped having the attention span of a fruit fly.
Alexis #52,
I doubt that the average German will ever find out about their effect on the election of Obama. They suffer from the same MSM problems Americans do.
Charles @ 47: “Its a natural gas play. And the thing is going to happen.”
Charles, I have a lot of sympathy with the direction you want to head. But you are making the same mistake as the global warming alarmists — overstate things, and you lose all credibility.
Natural Gas Vehicles have been around since the dawn of the motor vehicle. They have been extensively used in places like Italy, the Former Soviet Union, New Zealand. They are actually cheaper to run than gasoline vehicles — and yet as soon as people in those places could afford it, they replaced those NGVs with more expensive gasoline or diesel vehicles.
If you are going to argue for NGVs, you need to start with the facts. They have considerable disadvantages versus liquid fuels — reduced vehicle space (because of the large tank), short range between fill-ups, long time to refuel, the uncomfortable need to handle very high pressure hoses at the filling station. All of those are technical problems which can be resolved, but the fact is that NGVs are not yet ready for prime time.
OK – let’s play the game. Suppose NGVs were ready, we have to replace about 300 Million vehicles in the US. (Conversions to NGVs are unsatisfactory for a number of reasons — compression ratios, lack of integrated tanks, etc; there are also current massive regulatory barriers). That’s about 20 years production of vehicles. There is no overnight cure for US oil imports there. And the change-over has to be economically self-supporting, since even Obama does not have the money to subsidize every vehicle in the US.
The US could certainly get a tremendous economic boost from productive investments in rebuilding the nation’s vehicle fleet — and the essential parallel rebuilding/expansion of much of the natural gas distribution network. But only if the equipment and vehicles are manufactured in the US. If Obama and the environmental extremists refuse to allow the mines, steel mills, factories to be built, then it will just be more of the current ‘trade deficit + US unemployment’ until foreigners refuse to accept any more dollars. That is not a fantasy scenario — look at where Obama’s “Green Jobs” wind turbines and solar panels are coming from today.
Bottom line — the obstacle to getting off imported oil is not technical, it is political. Get the regulatory environment right, and the US economy could grow like never before. Correcting the political/regulatory environment — that’s the road to success.
“Does anyone know the lethal range of Rock Salt from a scatter gun?”
+1 on Skip’s 3 feet. Load it with cut cardboard washers instead of a plastic shot cup, that will reduce the chance of the wad causing damage even further. Be very mindful you keep them dry though… don’t want the water to make a solid slug out of them, though I expect it would fragment pretty quick.
Go for the legs or hindquarters on 2 or 4 legged pests, don’t set yourself up for legal attack by blinding some idiot or their “loving, gentle” pit bull.
Charles @ 50: “Alaska was originally planning to build a huge natural gas pipeline down through canada to Juncture with the US natural gas infrastructure in the upper midwest. But when news came 18 months ago of the massive natural gas finds in the lower 48–the alaskans — read sarah palin — changed the route to go to the coast of alaska so the natural gas could be shipped overseas.”
Charles, you must be reading the New York Times! That is like pulling a single page out of “War & Peace” and thinking you have read the novel.
Since Prudhoe Bay was discovered way back in the 1960s, massive efforts have gone into commercializing the very large discovered gas volume — so far unsuccessful. All sorts of things have been studied in very expensive detail — pipelines through Canada to the US, by multiple roots; pipelines to tidewater in south Alaska + LNG to Japan; conversion to methanol; conversion to electric power; even wild and crazy ideas like shipment in submarines & airships. All of them wildly uneconomic.
Before NASA’s moon landings, there was a credible theory that the moon might be covered in diamonds — a result of heating/compression in the asteroid impacts that created the craters. Which raised the question — What would be the value of diamonds on the Moon? It turns out the answer is — About the same as the value of gas in Alaska.
The reporting you have been getting is obviously wrong. The current big issue in international gas is the excess of Liquified Natural Gas production capacity in the world. Iran is cancelling plants; Qatar is going slow. Why would Alaska want to get into the glutted global LNG business?
Inflation or Deflation?
I vote for inflation, more specifically stagflation.
Yes, Virginia, you can have a weak economy AND inflation. In fact, the weak economy will discourage the Fed from taking the steps necessary to prevent/control inflation.
My guess is that inflation is already here in the price of certain commodities, most noticeably gold. I’m betting that it will eventually show up in the CPI.
In every way the Resident is totally opposed to real energy.
It’s sunbeams or nothing for him.
That’s why any hope of rational national policy is dead as long as the Golf Warrior is teed up.
—–
Let’s start with the punishment of Gulf Coast drilling crews and their dependents. They are of absolutely no concern to the Resident.
To the extent funds are spent it is on women and ACORN and the SEIU. Per Reich, mister, no counter-cyclical spending for Whitey.
This makes the Resident the anti-FDR. You know — the president who kicked every Mexican out of the country he could — who gave preference to white segregated union workforces — and who shamelessly ramped up defense spending even before Pearl Harbor. ( Our battle line was laid down entirely before Pearl. After it, no more battleships were built — just completed. The Montana Class would have been spectacular. After Pearl CVs completely displaced BBs – so much for the battle line.)
—–
Does anyone here abouts hear tell of any comparison of vacation daze between, the Resident, Bush, Reagan, and FDR? An inquiring mind wants to know.
jimbo…
Sorry to disappoint: the government has been gaming the CPI for years, especially after the Clinton ‘corrections & adjustments.’
Check out
http://www.shadowstats.com
Who are you going to believe? Your own grocery bill or some political cabal under constant executive pressure to provide suitable outcomes?
BTW, the CPI is a complete dud for real estate / rental expenses.
They’ve got so many product substitution games going on: the CPI is corrupted.
blert
allow me to re-phrase: I’m betting that inflation will eventually show up in the JPI (“jimbo’s price index”) – whatever the CPI may say, jimbo’s cost of living (in dollars) is going to increase
blert, according to the account published in the Chicago Times, Obama has taken 65 vacation days so far. Dubya had 120 at a similar point, and Reagan had 77. Clinton was coming in at 26, I think. However, in the cases of Dubya and of Reagan, they’re counting weekends back home on the ranch as vacation time. Both these presidents considered them to be “working” vacations. Who could forget the photos of Dubya at the ranch “looking into Putin’s soul” while Trent Lott stood there looking ridiculous in that ten gallon hat. And who could forget when Saudi Arabia’s crown prince came to Waco with one whole Boeing full of hot blondes coming in harem with him. Also, who could forget Cindy Sheehan and her posse camped out to hector and harrass Dubya?
So the public perception is very different. When you look for Dubya and Reagan on vacation you find them on their ranches chopping wood, hauling hay, mending fences. The Obamas meanwhile fly their dog to Martha’s Vineyard in a separate jet, and head for the kobi beef and organic arugula at all the in-places. Shopping days in Paris, relaxing on Spain’s Sun Coast, and such conspicuous consumption are a different animal, and far more costly, than heading back home to work on the home place for the weekend.
jimbo, yes there’s a very real danger of inflation ramping up. They call Bernake “Helicopter Ben” because of his tendency to virtually fly up and throw money out of a helicopter. The past policy of quantitative easing poses a huge inflationary risk, and the announcement this week that the Fed will be buying more government debt is an extension of it.
Works like this: the Fed buys government debt with the wave of a pen. It creates money out of the air for this purpose, and deposits it at the Treasury in return for the T-Bills, bonds, or whatever debt product they’re “buying”. Then, by magic, this debt the Fed holds becomes counted as “excess reserves”, i.e., as assets. Let’s say they bought $10 billion of govt debt, and it goes on their books as $10 billion in excess reserves. This becomes available to lend to commercial banks at a special low discount. Let’s say Morgan Stanley borrows all of it. The rules of fractional reserve banking kick in and say that, for convenience here, the Fed has to hold 10% of loans in reserve. How much of that $10 billion then can the Fed loan? If you say $9 billion, you’re not thinking like a central banker. If what you have is $10 billion, and you have to hold 10% in reserve, why then you can loan Morgan Stanley $90 billion. Morgan Stanley takes the loan at a special low interest rate, like 0.25% right now, then can use it to buy treasury bills paying 3.25%. You thought interest rates couldn’t go below zero? Think again. They just did. Morgan Stanley just got paid handsomely to borrow, backed with the full faith and credit of the American taxpayer.
And somehow Congress has wound up with $100 billion to spend on its friends ($10 billion from the Fed, $90 billion from Morgan), and nobody’s the wiser. This is of course a theoretical scenario. In real life it’s actually worse, because this money pings around from bank to bank a few times magically growing by the magic of fractional reserve banking. Some calculate that every dollar of govt debt the Fed buys winds up getting counted 20 or so times over, and my example only counts them 10 times over.
All of this magic money winds up in the same economy where your own hard earned dollar resides, creating competition for it. Ergo, it’s guaranteed inflation. That’s why the longest extended inflationary period in US history has been from 1913 until now. With the Federal Reserve, inflation is a part of life as certain as death and taxes. It is an inflation factory, a producer of it that guarantees it.
Fed member Hoening’s point this week was that Fed is playing a very dangerous game right now. It’s trying to inflate right now, and Helicopter Ben at the controls is convinced he can engineer a “soft landing”. He’s got the tools to manage the monetary system just right, to slay the deflationary beast and come out with a manageable level of inflation. Do you believe that? Do you believe in the Wizard of Oz?
@ cowboy (31) who said “I can’t get over the findings of Harvard’s Cohen, Coval and Malloy in their recent paper.”
This is the paper: Do Powerful Politicians Cause Corporate Downsizing? This link should work
http://bit.ly/aSMWrm
Hard times comin’, and no mistake.
The weather service can tell you several days in advance that a meander in the jet stream will allow a mass of hot moisture-laden air from the Gulf to run smack into a frigid mass of arctic air sweeping down the plains from Saskatchewan, Manitoba, and Ontario. We may not be able to sort out whether a new Ice Age or Melting Polar Icecaps gonna happen a century hence, but we DO know what happens in Tornado Alley with those conditions.
So There’s no point arguing about where the tornadoes are going to hit, you have to be prepared with a storm cellar BEFORE the 10-minute warning siren sounds.
The thing about “energy independence” is that the eco-fanatics in this country have been helped by the politicians to stifle, foul, and frustrate all new oil exploration, drilling, and refining. We have within our territories (not necessarily within our contiguous borders) sufficient reserves of every sort of fossil fuel needed to be independent of the jihadists.
But because of the hobbles placed on all the projects, the US does not even have sufficient oil refining capacity to meet domestic vehicular gasoline demand. We have to import gasoline that’s been refined outside the USA.
Check the records – no new refinery has been built in the US since the late 1970′s.
That’s THREE DECADES, folks.
Sure, existing facilities have been modernized or expanded, but they are all basically 50 years old now, and this has not been enough by a long road. It will probably take a full decade to drill, build pipelines, and refineries that would allow us to say “so long” to the people holding us hostage in the ME.
More to the point, it would leave a lot of wrecked political careers, with a lot of foreign governments and rich guys pissed off at losing their investments in buying US legislators and regulators. On the other hand, it will provide a lot of worthy employment for American citizens and companies.
It will be a fight and a dirty one. There are always pathologic self-serving traitors looking for a way to screw their neighbors for a profit. As many walled citadels have been lost from traitors within, as those won by forthright assault.
if we would drill for oil we have and build 50 to 100 nuclear power plants we could wean ourselves off foreign oil. Doing so would boost the global economy sans south america and the middle east. Natural gas has a role to play … but that role is mostly to make Pickens rich.
44. Kinuachdrach
Paying the price would be the Russians, Arabs, South Americans
……….
If you’re going to presume to speak for the interests of the russians you’re going to have to learn a bit about supply and demand or in the very least figure out what the russian bosses are up to.
consider: say the US switches over 40% of oil demand to natural gas.
I’ve told you what happens to the price of oil.
Now can you figure out what happens to the price of natural gas or LNG?
What happens to the value of the natural gas that runs through the pipeline that russia is currently building under the north sea to germany.
As for lower oil prices putting the hurt on arab oil economies…uh ummm…in these part this is considered to be a good thing. And putting the hurt on Chavez…couldn’t happen to a nicer guy.
Charles @ 68: “say the US switches over 40% of oil demand to natural gas. … Now can you figure out what happens to the price of natural gas or LNG?”
Charles, as I mentioned, I have a lot of sympathy for the direction you want to go. But you are a being a very poor spokesman for that direction.
If the US suddenly (which is impossible) switched 40% of oil use to natural gas, that would push up demand for natural gas in the US by about 50%. Price of natural gas in the US would go up dramatically. Just how much is hard to say, since it depends on politics. Note that New York State is taking regulatory action to stall the hydraulic fracturing necessary to release all that shale gas. If the usual suspects prevent the supply of gas from increasing, then the price increase in the US from your overnight change could be economically devastating.
Meanwhile in Europe, the Russians are indeed intent on grasping EU energy supplies even more firmly, including building new pipelines direct to Germany. What would be the impact of the US action on Russian gas prices? The answer is obvious — Almost none!
Oil is an easily-transported internationally-traded commodity. Prices tend to equalize around the globe very rapidly. Gas, on the other hand, is relatively much more expensive to transport. The market for gas has always been fragmented — Supply-limited markets, and market-limited supplies, in the words of one study. Gas prices in the US and the EU have been markedly different for years.
In your scenario, the Russian gas could not be transported to the US, and so there would be no knock-on impact of increased US gas demand on EU gas prices.
Don’t misunderstand me, Charles. I am strongly supportive of the US becoming more energy independent — and more independent on the supply of automobiles, airplanes, steel, and consumer goods too. But all of those things have costs as well as benefits, and correcting the mess the US is in will take decades. You are hurting your own cause by pretending that natural gas is a fast, easy, painless solution.
“Mister Charlie”
Words by Robert Hunter; music by Ron McKernan
Copyright Ice Nine Publishing; used by permission
I take a little powder
I take a little salt
I put it in my shotgun
and I go walking out
Chuba-chuba
Wooley-booley
Looking high
Looking low
Gonna scare you up and shoot you
Cause Mr. Charlie told me so
I won’t take you life
Won’t even take a limb
Just unload my shotgun
and take a little skin
Chuba-chuba
Wooley-booley
Looking high
Looking low
Gonna scare you up and shoot you
Cause Mr. Charlie told me so
Well you take a silver dollar
Take a silver dime
Mix em both together
in some alligator wine
I can hear the drums
Voo-doo all night long
Mr. Charlie tellin me
I can’t do nothin wrong
Chuba-chuba
Wooley-booley
Looking high
Looking low
Gonna scare you up and shoot you
Cause Mr. Charlie told me so
Now Mr. Charlie told me
Thought you’d like to know
Give you a little warning
before I let you go
Chuba-chuba
Wooley-booley
Lookin high
Lookin low
Gonna scare you up and shoot you
Cause Mr. Charlie told me so
last news from the european front:
German miracle, or mirage ?
“There is a saying about the Germans that they are either himmelhochjauchzend or zu Tode betrübt – either totally euphoric or depressed. Right now, the Germans are euphoric – at least about their economy. German business confidence indices are approaching their all-time peaks reached in 1990 and 2007.
This has nothing to do with productivity enhancing reforms – or some underlying structural features of the German economy. The main reason is the country’s success in depressing its real exchange rate.
Germany is now reaping the dual benefits of the depreciation of the real exchange rate inside the eurozone, and the nominal depreciation of the euro from the $1.40 plus level to the $1.20 plus level.
Can this be sustained? Probably not. If the current developments persist, German companies are bound to hit capacity limits shortly, which will in turn put some pressure on the labour market. I have heard estimates according to which we may not be all that far away from that situation. I would thus expect the Germans on the ECB’s governing council to press for a monetary exit relatively soon. They need higher interest rates to prevent German wages from rising. If they succeed, Germany’s imbalanced growth strategy might continue for a little while, but this would clear come at the expense of any adjustment within the eurozone. It really is a zero-sum game.”
bizarre this German is worried !
http://www.eurointelligence.com/index.php?id=581&tx_ttnewstt_news=2868&tx_ttnewsbackPid=901&cHash=cf7d01a6f8
and Merkel isn’t in control, but trying to preserve what it can be in her party
http://www.wsws.org/articles/2010/aug2010/germ-a04.shtml
69. Kinuachdrach
Meanwhile in Europe, the Russians are indeed intent on grasping EU energy supplies even more firmly, including building new pipelines direct to Germany. What would be the impact of the US action on Russian gas prices? The answer is obvious — Almost none!
………….
This is just lazy KGB talk. Here, take a look at the natural gas situation in europe and consider what the effect of immense new US natural gas reserves coming online will have on that market and what the withdrawal of those reserves will mean because of strong US demand. (This represents about 45 seconds of research.)
The Marcellus shale gas is only one of about 6 major and 12 medium sized natural gas fields discovered recently in the USA.
It took
The calculations that I’ve seen over at the Oil Drum do not impress me. I’ve seen so many ‘Club of Rome’ style discourses, I’m turned off.
We all remember the Club of Rome: the tome of limits and doom. We KNEW even in the mid-seventies that the world would run out of copper by 1994, 1997 at the latest. It was also obvious that petroleum would be so scarce that well before 2000 there would be a global crisis over it, and most likely a global war — to boot!
These days those youngsters have moved on to AGW and now Climate Change. It’s the only hammer they’ve got, and they need to pound out an income.
——-
WRT your cited link: He writes of fractured-gas techniques being a ‘game changer’ but in no way allows such flow into his projections. The fact that Poland, Germany, Italy and others are trying to replicate the American experience in their shales does not merit his notice.
I figure that fracturing technology is, in fact, entirely derivative of silicon tech. It is the conversion of the drill tip towards a robotic terminus-probe coupled to deep strata mapping that sustains its profitability. The pay zones are so wavy and modest that it is necessary for the drill head to go with the trend.
I think we’re all aware of Spindletop: the original ‘gusher.’ (Which used to be a dairyman’s term of teat.) What most normal people don’t know is that prior drilling efforts at that site were complete busts. You see, the stink of oil was so strong and the ground so swollen that it seemed obvious to every man who walked it that the question was how — not if — to get at the oil.
Spindletop it the surface is a flat sand dune! All first attempts used the Drake style ground-pounding hammerhead. The device was perfectly replicated for the movie audience in “There Will Be Blood” which was a highly praised piece of Hollywood revisionism gone over the top.
Such was the method that all that sand was and could be pounded uselessly for ever. Even today, when we want to describe futility in action we say: go pound sand.
Success happened because for the first time ever, a Wooden Sleeve was thrust down the bore.( Metallic oil pipe was not to be had, wood was traditional going back to Drake and on to Cleveland.)
Now that the sand was effectively held back progress was rapid. IIRC the sand zone only ran down five to six hundred feet. Upon reaching the cap rock, the casing was blocked from further advance.
Further pounding of this firm zone proceeded until, IIRC, 1,300 feet. Before they hit the pay layer it ruptured like an ultra-pimple. That last hammer blow had cracked the lid.
Immediately after that, the trapped gas pushed what remaining stones were in the way — and the entire drill apparatus — vertically out of the bore.
A gusher was born. But more than that, over night EVERY other driller jumped on the casing bandwagon and never looked back. The casing gambit sped up every other drill rig in the world. They all suffered from a variation of the backfill blues.
For Standard Oil this was the beginning of the end of its cartel. She owned none of the property. As portrayed in the movie( ob. cit.) the ocean was too close for John D. to use his monopsony power to stop transport. He also did not have the Texas legislature in his pocket. Overnight the Texas Oil Company became a giant. (TEXACO)
Exponential production gains were set loose to such a point that over drilling actually became a problem. But that was years into the future.
The above history shows that when a new breakthrough erupts, a real game changer, you can take base-line projections and throw them in the dumpster.
——–
The fracturing process is in its infancy. Expect exponential improvements for at least the next two improvement cycles.
On that basis, I rather expect that the Bakken Trend will astound us all in thirty years. Though it’s an oil play, it is linked to the same fracturing technique in a thin pay zone.
———
What’s really going to surprise the planet is how Iraq displaces KSA as the big oil giant. KSA today is rather like America in the mid-sixties. I’d be very surprised if she’s more than a decade away from peak production. The reason is politics. From the King’s point of view over production is ruinous. The cash is already piling up and getting it invested to good risk-adjusted returns is becoming very problematic. Hence, the best policy is perceived to be leave the asset in the ground and sell it as needed to sustain the Kingdom. If the benchmark price starts to head to the moon it’s all to the good.
By comparison, Iraq has every reason to ramp up production and the opportunities to do so. It will soon be obvious that she, and Kuwait, should run a pipeline along the floor of the Gulf out to a LOOP type terminal off Oman. Unless this is done, ship crowding will cap exports to Asia. A truly deep water terminal would also be of great advantage to the other OPEC powers and they may just jump on board. The new normal ship will be ULCC. During the return trip such beasts might well bring freshy water for desalination plants, improving the economics of those facilities.
I threw the last bit in ’cause I know you follow the wet industry.
Cheers
Charles, Charles, Charles!
Until someone builds massive gas liquefaction export terminals in the US, immense new US gas reserves will have only minor impacts on the European gas situation — indirectly, through reducing the global market for LNG.
Those US gas liquefaction plants would have to be on prime waterfront property, and are marginally less-acceptable to environmental extremists than nuclear power plants. Good luck with getting them built this century.
But you know all of this. Let’s focus on reality.