Last week I reminded you of my prediction this recession was starting last December, largely because the consumer, who was 71% of our gross domestic product, was tapped out. His credit card limit was maxxed, and his home equity line of credit was maxxed. I am still pulling for Ben Bernanke, but I have given up on Hank Paulson. He sold Congress a $700 billion bailout fund to buy troubled mortgage assets, and used half the money to bailout Wall Street and the banks, recently saying he was through—leave it to Obama. None of the money has gone to buying mortgages. And FDIC Chairwoman Sheila Bair has been begging for authority to do so. Meanwhile, it is rumored that Obama’s pick for Treasury, Timothy Geithner, wants to get rid of her, because she is not a “team player.”
In addition, Christopher Cox at the SEC has not restored the naked short selling rule or the “uptick” rule to Wall St.; and there is no more discussion of all the reasons why banks and investment houses should not be one and the same. I guess there is no need now, because all the former investment houses are now banks, or bank holding companies. This could not have happened except as a result of Congress under Clinton repealing the Glass-Steagall Act, which had been around since the depression. The investment houses, combined with Greenspan’s low 1% interest rate for 18 months following nine-eleven, were the origin of this whole debacle. Now, the investment houses are becoming our banks, and they want all our demand deposits, on which they usually don’t pay interest.
We raised the US debt limit from $10 trillion to $11.3 trillion to accommodate the bailout. But, since then, the government has loaned, invested or committed to over $7 trillion more, bringing the total to another $8 trillion just this year. That amount equals over half of our annual domestic production. If all that is expended, the total debt is going to be four times what it was just in 2000. According to The Bullion Buzz, a combination of spending on the New Deal, the Marshall Plan, Korea, Viet Nam, Iraq, NASA, the race to the moon, the S& L bailout, and even throwing in the Louisiana Purchase don’t total half of $8 trillion. Remember, a trillion is a million times a million. And the Detroit three auto manufacturers are still begging. As my old granddaddy used to say, “You can’t drink yourself sober, and you can’t spend yourself rich.”
Yet, surprisingly, our dollar has had a recent rally against all other currencies. Why? Because all the rest of the world were growing economies based on sales to the US for practically everything we need. Now, their economies are tanking because our purchases are way down, and they don’t have enough internal demand for their production. Thus, their currencies are experiencing depreciation. You might say they are at least temporarily in worse shape than we are. Still, Japan and China are lending us the money to stay in business. When they have to use their money to bolster their own internal economy, their purchases of our debt are going to suffer. When that finally happens, our dollar value will suffer, and gold and silver will rise in value. Inflation will be rampant.
According to the US Government General Accounting Office (the Comptroller) the TARP plan administrators have failed to figure out how to make sure financial firms receiving billions of dollars of Federal funds are complying with limits on executive compensation and dividend payments. Does that surprise you? Incidentally, did I ever mention that Section 202 of the bailout bill, as passed, raises the “biodiesel” tax credit from fifty cents to $1 per gallon and amends it to “liquid fuel”? This is the income tax credit given producers for mixing bio and petroleum fuels, which they are then free to sell abroad to other countries. The same credit which raised the price of corn sky high. What has that got to do with troubled mortgages? It just represents the enormous pork packed into this bill.
President Obama was elected by promising to bring us change. Let’s hope it is change for the better. So far it looks like more of the same Washington merry-go-round.
Wednesday, December 17, 2008
I TOLD YOU SO
This is a reprint of an article written last December, though it was not published until January 8. Today’s news reports that the National Bureau of Economic Research stated today that the economy reached a peak in December 2007, and has been declining since.
Now I am predicting the next six months will make the last three months look like good times, in spite of last week’s bear market rally. From last December---
It’s time to build up your cash. As I predicted earlier, foreign nationals are buying us out, lock stock and barrel. Because of the sub-prime mortgage debacle, Morgan-Stanley has sold a $5 billion stake to Chinese interests. Merrill Lynch, likewise, sold $6.2 billion equity to Singapore interests. Recently Citigroup sold a $7.5 billion interest to Middle Eastern country Abu Dhabi. These interests are selling us more in petroleum or consumer goods than we can export to them, and using the surplus of our own money to purchase our country.
We were the world’s leading producer country from the time of the Second World War to the middle 1960’s. Since then, we have become the world’s leading consumer, and it is the consumer spender who has kept our economy afloat, making up a staggering 71% of our gross domestic product. Too much of this spending has been done through plastic credit cards. For many years, the increase in home values enabled consumers to pay off staggering credit card balances through increasing their home equity debt. Now, because of the sub-prime mortgage crisis, decreasing home values largely block this method of rescue. As a result, credit card accounts which are 30 days behind has jumped 26% to $17.3 billion. Those 90 days behind have jumped 50% over one year ago. Actual defaults have risen 18% to almost $961 million, according to the SEC.
The Conference Board publishes the Consumer Confidence Index, and Leading Economic Indicators, in an effort to predict the future economy. Usually, 3 consecutive months in the negative indicates a coming recession. October and November were both negative. When the 6 months cumulative total goes below a -1%, this also indicates recession. The 6 months cumulative total for November was -1.2%. Unless Santa Claus spends himself crazy for December, the future looks grim.
Does any of this interest you, or are you more concerned about who wins “Dancing with the Stars, or who is victorious in the Super Bowl? Our forefathers established and left us the greatest country in world history. Most of us have children or grandchildren who must look to us for their legacy. Are we going to fail them? When in 2000, the US voted 46% of the eligible population, we ranked about 139th out of 171 countries. Australia voted closer to 95%.
If you don’t vote, you have no right to complain. But worse than that, you will have no place to look for economic rescue. We must return this country to its founding principles. Next year is a presidential election year. Casting an ignorant vote is as bad as not voting. You have plenty of time to do an in depth study of all the eligible candidates. I urge you to get busy.
Now I am predicting the next six months will make the last three months look like good times, in spite of last week’s bear market rally. From last December---
It’s time to build up your cash. As I predicted earlier, foreign nationals are buying us out, lock stock and barrel. Because of the sub-prime mortgage debacle, Morgan-Stanley has sold a $5 billion stake to Chinese interests. Merrill Lynch, likewise, sold $6.2 billion equity to Singapore interests. Recently Citigroup sold a $7.5 billion interest to Middle Eastern country Abu Dhabi. These interests are selling us more in petroleum or consumer goods than we can export to them, and using the surplus of our own money to purchase our country.
We were the world’s leading producer country from the time of the Second World War to the middle 1960’s. Since then, we have become the world’s leading consumer, and it is the consumer spender who has kept our economy afloat, making up a staggering 71% of our gross domestic product. Too much of this spending has been done through plastic credit cards. For many years, the increase in home values enabled consumers to pay off staggering credit card balances through increasing their home equity debt. Now, because of the sub-prime mortgage crisis, decreasing home values largely block this method of rescue. As a result, credit card accounts which are 30 days behind has jumped 26% to $17.3 billion. Those 90 days behind have jumped 50% over one year ago. Actual defaults have risen 18% to almost $961 million, according to the SEC.
The Conference Board publishes the Consumer Confidence Index, and Leading Economic Indicators, in an effort to predict the future economy. Usually, 3 consecutive months in the negative indicates a coming recession. October and November were both negative. When the 6 months cumulative total goes below a -1%, this also indicates recession. The 6 months cumulative total for November was -1.2%. Unless Santa Claus spends himself crazy for December, the future looks grim.
Does any of this interest you, or are you more concerned about who wins “Dancing with the Stars, or who is victorious in the Super Bowl? Our forefathers established and left us the greatest country in world history. Most of us have children or grandchildren who must look to us for their legacy. Are we going to fail them? When in 2000, the US voted 46% of the eligible population, we ranked about 139th out of 171 countries. Australia voted closer to 95%.
If you don’t vote, you have no right to complain. But worse than that, you will have no place to look for economic rescue. We must return this country to its founding principles. Next year is a presidential election year. Casting an ignorant vote is as bad as not voting. You have plenty of time to do an in depth study of all the eligible candidates. I urge you to get busy.
Sunday, September 21, 2008
WHEN WILL WE EVER LEARN?
“Good judgment is the result of experience, which is the result of bad judgment.”- Anon. “Those who cannot remember the past are condemned to repeat it.”-George Santayana. Nearly 80 years ago, our country entered a great depression which only World War II effectively ended; not his honor, FDR, with his alphabet social programs. In the roaring 20’s, one could buy stock on margin, by putting up only 5% of the purchase price and borrowing the difference. With stocks rising nearly that much per month, one seemed a fool not to participate. Then on October 29, 1929, Black Tuesday, it all fell apart; the result of “irrational exuberance.”
One of the lessons of that era was that banks, who are heavily regulated and who are supposed to keep our hard earned deposits safe, should be forever separated from investment houses, which are very loosely regulated and finance the stock market. The Glass-Steagall Act of 1933 established the FDIC to insure our bank deposits, and erected a brick wall between commercial banking and investment banking. There was a three week Senate filibuster before the Act finally passed, and I suspect the bank lobbyists were heavily involved in trying to stop it. Through the decades, there was growing support (from the financial industry) to repeal Glass-Steagall, and they gradually garnered help from within both political parties.
As an aside, remember the early 1980’s, and the Savings and Loan Industry. They had since the 30’s been heavily regulated, yet had been able to borrow short term, and still provide long term mortgages for homeowners. But, because of inflation, they faced borrowing short term at rates approaching 18%, while stuck with 30 year loans on the books at 6%. In a government effort to help, they were deregulated and allowed to make all kinds of commercial real estate development loans. You recall the oxymoron, “I’m from the government, and I’m here to help you.” As a result, over 1,000 Savings and Loans failed. They were absorbed by the government funded Resolution Trust Corporation, a total cost to taxpayers of over $1 trillion, including interest on bonds issued to fund the project.
Now, we return to investment banking. In December 1986, over Chairman Paul Volker’s objections, the Fed allowed Bankers Trust Co. to engage in commercial paper (unsecured credit) transactions, but only up to 5% of their revenue. The wall begins to crumble, through a supposed loophole in Section 20 of Glass-Steagall.. In March 1987, the Fed allowed Chase Manhattan Bank to engage in commercial paper, also. In August 1987, Ronald Reagan appointed Alan Greenspan, a former J. P. Morgan director, to head the Federal Reserve. In 1989, the Fed expanded the bank loophole to dealing in debt and equity securities, as well as municipal securities. Later that year, they expanded the limit to 10% of revenue. In 1990, Fed head Greenspan allowed former boss, J. P. Morgan Co., to actually underwrite securities. In 1995, Robert Rubin, formerly a Goldman-Sachs executive, who was President Clinton’s Treasury Secretary, signaled in testimony before Congress that the administration was ready to end Glass-Steagall.
In 1998, financier Sandy Weill of Travelers Insurance, convinced President Clinton, Fed head Allan Greenspan, and Treasury Secretary Robert Rubin; all to sign off on merging Travelers Insurance, Solomon-Smith Barney Investments, and Citibank into one entity in clear violation of the Glass-Steagall Act. “Unless Congress repealed Glass-Steagall,” the Fed declared, “the new entity, Citigroup, would have two years to divest itself of the insurance business.” One year later, on November 4, 1999, Clinton signed the repeal of Glass-Steagall. Citigroup spent around $100 million in lobbying efforts that year to bring it about. Shortly thereafter, Secretary Rubin, formerly of Goldman-Sachs; resigned to take a top job at the new Citigroup. According to the Center for Public Integrity, the pharmaceutical and health industry all together, has only spent $100 million per year for lobbying during the past seven years.
Then after September 11, 2001, Fed head Allan Greenspan kept the Fed funds rate at 1% interest for an abnormally long 18 months before beginning to raise it. This was the beginning of the current debacle. 1% was good for you and me who needed to borrow money, but the money men were crying, “You are killing us. Figure a way to get me 8-11% on my money and I will buy all you can produce.” The ever obliging mortgage brokers, backed by the investment banks, figured a way. Sub-prime mortgages, which would be collateralized into securities, sliced and diced and sold in pieces to banks and unwary investors.
By early in this century, one seemed a fool not to buy a house. After all, you did not have to qualify properly, and the price was going to continue to rise, right? More “irrational exuberance.”
In January of this year, there were 5 large independent investment banking houses, all of whom had invested in toxic sub-prime mortgage backed securities. Like the S & L’s of yore, they were borrowing short and lending long. Since then, Bear Stearns was picked up by J. P. Morgan Chase Bank, with $30 billion backing by the Federal Reserve. Lehman Brothers has just filed for the largest bankruptcy in US history. I am sure we heard from Japanese investors, who lost over $300 million, themselves. Merrill Lynch just sold out to Bank of America. Goldman-Sachs and Morgan-Stanley just reported quarterly earnings better than estimated, but their stock still fell 22% and 37%, respectively, before last Friday.
The sub prime problem was exacerbated because all the derivatives, such as credit default swaps, which the brokerage houses created and “swapped” with each other, and with insurance companies such as Ambac, MBIA, and even the giant AIG insurance, went bad. A “credit swap” is actually an insurance policy against mortgage backed securities defaulting because the underlying mortgages are defaulting into foreclosure. The last estimate of the total of the global swaps market in 2007 was some $42 trillion. That’s about 3 times the size of the entire US economy. Single line insurers like Ambac and MBIA formerly specialized in insuring the pay-out of municipal bonds, which very rarely fail, since municipalities can always raise taxes to pay debt. They started selling insurance on mortgage backed securities, charging low premiums because they expected the same kind of loss experience. All these mortgages will probably not fail, but because they were bundled and sold in pieces, their true value is indeterminable. When you can’t accurately price your assets, you have a major problem. This is why Paulson came up Friday with “the ultimate solution.”
One year ago, the Fed had assets of $800 billion in Treasury securities. Since then, they pledged $200 billion to the Term Securities Lending Facility, a project to provide the brokerage houses with liquidity, loans previously only made available to banks. They have rescued Fannie Mae and Freddie Mac with $100 billion each, and agreed further to buy at least $5 billion of their government backed securities. They provided $30 billion to backstop the sale of Bear-Stearns. They passed on Lehman Brothers and let it bankrupt. The result was so catastrophic, they decided to rescue insurance giant AIG, to the tune of $85 billion, in return for 79% equity in the company. Including this week’s currency swap with other central banks amounting to another $180 billion, money meant to infuse liquidity into the world economy, their balance sheet of assets is probably down to about $200 billion.
Friday, Treasury Secretary Henry Paulson, former Goldman-Sachs executive, announced further plans to save the economy. The government will now insure Money Market Funds, which pay higher interest because they are invested in commercial paper, and are also beginning to freeze up. Immediately, Fannie Mae and Freddie Mac will buy more mortgage backed securities, because the Treasury is going to buy more than $5 billion from them. Then the SEC is going to increase securities regulation, as they should have done years ago, before the debacle was allowed to begin.
Further, if Congress passes a new law Treasury is requesting, which I am sure they will; taxpayers will be funding another equivalent of the Resolution Trust Corporation to buy all those stinking mortgage backed securities, which are unpriceable. Hopefully, they will pay less than face value, because they expect to hold them to maturity, usually an average of only seven years.
Sure, they can always issue more money simply by loaning it to the government, but every time they do, the dollars in your pocket fall in value. New Fed head Ben Bernanke and Treasury Secretary Paulson are doing a good job of holding it together, but at what future cost? Unfortunately, no one in Washington agrees with me. Texas ex-Senator, Phil Gramm is co-chair for John McCain. Gramm co-wrote the bill abolishing Glass-Steagall in 1999. When asked if he would restore Glass-Steagall, candidate Barack Obama replied: “Well, no. The argument is not to go back to the regulatory framework of the 1930’s because, as I said, the financial markets have changed substantially.” Three of his top contributors just happen to be: Goldman-Sachs, J. P. Morgan, and Citigroup.
Who is getting rewarded by the bailout? The mortgage brokers got their money up front. The securities people who packaged the mortgages into securities got their money up front. The securities people who are still holding some of the paper, and the banks and investors who bought them, are getting bailed out.
The candidates will not tell you anything which they do not believe will buy your vote. FDR perfected this election method over 70 years ago. Since I am not running for President, I can suggest what really needs to be done by the next President. You won’t like hearing it, but I am saying it anyway.
First, the ceiling on Social Security tax at $102,000 must be removed. Second, the cost of the Medicare drug insurance program must be curtailed, and the tax probably needs to be raised. The Medicare fund is in worse shape than Social Security. Third, the 15% capital gains tax rate given to the managers of hedge funds who have added to this credit freeze problem must be increased. Hedge funds are largely unregulated investment pools of wealthy sophisticated people who must invest hundreds of thousands to even participate. These managers, without a requirement to invest their own capital, have been driving down the stock of financial institutions so they, themselves, can profit even more. These managers are given capital gains rates on ordinary income (even thought it is usually in the millions of dollars per year.) Why should they pay the 15% tax rate of the average garbage collector on millions of income, when the average middle income American pays 28 to 35%?
In terms of the stock market, I have got several more suggestions. There must be more transparency.
There must be more regulation. The use of options to either buy or sell certain stocks in the future at a set price must be severely restricted. The uptick rule, which the SEC removed July 6, 2007, must be restored. It stated that if you were going to sell a stock short (guaranteeing to deliver it at a given price at a future date,) you had to sell it for at least slightly more than the last recorded sale, not less. Further naked short selling must be absolutely forbidden and tightly regulated. (The rule was if you did sell a stock short for delivery in the future, you had to either already own the stock, or borrow it at interest.) With a wink of the SEC eye, sellers have been allowed to sell the future delivery of a stock at a set price, without knowing where it would come from or what it would cost. When they could not deliver, it was simply considered a “failure to deliver.” Meanwhile, a given company’s stock had been driven downward for no good reason.
I have been a voting Republican since 1956, and I am sick of the Republican Party thinking the answer to every Presidential election is just to preach cutting taxes. They are now no more concerned with cutting spending than the average Democrat. My national Republican Party has been taken over by Neo-conservatives. They are not really conservatives. They are not adverse to burgeoning Federal debt. They don’t want us to be an empire, they just want us to control every other nation. They want a larger military-industrial complex, and they are not reluctant to use it. After all, they are not usually 18 to 25 years old. They consider themselves “nation builders,” and they expect their new nations to toe their line. If you don’t know them, you need to do some investigating. Consider me a paleo-conservative. But don’t get the idea I have given up. I am just going to have to hold my nose when I vote. At the rate things are going, my vote is not going to count, anyway
Our government now belongs to the moneyed interests of this country. Until we rise up in righteous anger and demand accountability, we are due for more of the same. When is the last time YOU wrote your Congressmen and Senators and informed them you are aware of their chicanery and that you are “mad as hell and you are not going to take it anymore?” Remember, we are the boss, they are the employees! If we don’t exercise our management functions, we should not expect promising results.
One of the lessons of that era was that banks, who are heavily regulated and who are supposed to keep our hard earned deposits safe, should be forever separated from investment houses, which are very loosely regulated and finance the stock market. The Glass-Steagall Act of 1933 established the FDIC to insure our bank deposits, and erected a brick wall between commercial banking and investment banking. There was a three week Senate filibuster before the Act finally passed, and I suspect the bank lobbyists were heavily involved in trying to stop it. Through the decades, there was growing support (from the financial industry) to repeal Glass-Steagall, and they gradually garnered help from within both political parties.
As an aside, remember the early 1980’s, and the Savings and Loan Industry. They had since the 30’s been heavily regulated, yet had been able to borrow short term, and still provide long term mortgages for homeowners. But, because of inflation, they faced borrowing short term at rates approaching 18%, while stuck with 30 year loans on the books at 6%. In a government effort to help, they were deregulated and allowed to make all kinds of commercial real estate development loans. You recall the oxymoron, “I’m from the government, and I’m here to help you.” As a result, over 1,000 Savings and Loans failed. They were absorbed by the government funded Resolution Trust Corporation, a total cost to taxpayers of over $1 trillion, including interest on bonds issued to fund the project.
Now, we return to investment banking. In December 1986, over Chairman Paul Volker’s objections, the Fed allowed Bankers Trust Co. to engage in commercial paper (unsecured credit) transactions, but only up to 5% of their revenue. The wall begins to crumble, through a supposed loophole in Section 20 of Glass-Steagall.. In March 1987, the Fed allowed Chase Manhattan Bank to engage in commercial paper, also. In August 1987, Ronald Reagan appointed Alan Greenspan, a former J. P. Morgan director, to head the Federal Reserve. In 1989, the Fed expanded the bank loophole to dealing in debt and equity securities, as well as municipal securities. Later that year, they expanded the limit to 10% of revenue. In 1990, Fed head Greenspan allowed former boss, J. P. Morgan Co., to actually underwrite securities. In 1995, Robert Rubin, formerly a Goldman-Sachs executive, who was President Clinton’s Treasury Secretary, signaled in testimony before Congress that the administration was ready to end Glass-Steagall.
In 1998, financier Sandy Weill of Travelers Insurance, convinced President Clinton, Fed head Allan Greenspan, and Treasury Secretary Robert Rubin; all to sign off on merging Travelers Insurance, Solomon-Smith Barney Investments, and Citibank into one entity in clear violation of the Glass-Steagall Act. “Unless Congress repealed Glass-Steagall,” the Fed declared, “the new entity, Citigroup, would have two years to divest itself of the insurance business.” One year later, on November 4, 1999, Clinton signed the repeal of Glass-Steagall. Citigroup spent around $100 million in lobbying efforts that year to bring it about. Shortly thereafter, Secretary Rubin, formerly of Goldman-Sachs; resigned to take a top job at the new Citigroup. According to the Center for Public Integrity, the pharmaceutical and health industry all together, has only spent $100 million per year for lobbying during the past seven years.
Then after September 11, 2001, Fed head Allan Greenspan kept the Fed funds rate at 1% interest for an abnormally long 18 months before beginning to raise it. This was the beginning of the current debacle. 1% was good for you and me who needed to borrow money, but the money men were crying, “You are killing us. Figure a way to get me 8-11% on my money and I will buy all you can produce.” The ever obliging mortgage brokers, backed by the investment banks, figured a way. Sub-prime mortgages, which would be collateralized into securities, sliced and diced and sold in pieces to banks and unwary investors.
By early in this century, one seemed a fool not to buy a house. After all, you did not have to qualify properly, and the price was going to continue to rise, right? More “irrational exuberance.”
In January of this year, there were 5 large independent investment banking houses, all of whom had invested in toxic sub-prime mortgage backed securities. Like the S & L’s of yore, they were borrowing short and lending long. Since then, Bear Stearns was picked up by J. P. Morgan Chase Bank, with $30 billion backing by the Federal Reserve. Lehman Brothers has just filed for the largest bankruptcy in US history. I am sure we heard from Japanese investors, who lost over $300 million, themselves. Merrill Lynch just sold out to Bank of America. Goldman-Sachs and Morgan-Stanley just reported quarterly earnings better than estimated, but their stock still fell 22% and 37%, respectively, before last Friday.
The sub prime problem was exacerbated because all the derivatives, such as credit default swaps, which the brokerage houses created and “swapped” with each other, and with insurance companies such as Ambac, MBIA, and even the giant AIG insurance, went bad. A “credit swap” is actually an insurance policy against mortgage backed securities defaulting because the underlying mortgages are defaulting into foreclosure. The last estimate of the total of the global swaps market in 2007 was some $42 trillion. That’s about 3 times the size of the entire US economy. Single line insurers like Ambac and MBIA formerly specialized in insuring the pay-out of municipal bonds, which very rarely fail, since municipalities can always raise taxes to pay debt. They started selling insurance on mortgage backed securities, charging low premiums because they expected the same kind of loss experience. All these mortgages will probably not fail, but because they were bundled and sold in pieces, their true value is indeterminable. When you can’t accurately price your assets, you have a major problem. This is why Paulson came up Friday with “the ultimate solution.”
One year ago, the Fed had assets of $800 billion in Treasury securities. Since then, they pledged $200 billion to the Term Securities Lending Facility, a project to provide the brokerage houses with liquidity, loans previously only made available to banks. They have rescued Fannie Mae and Freddie Mac with $100 billion each, and agreed further to buy at least $5 billion of their government backed securities. They provided $30 billion to backstop the sale of Bear-Stearns. They passed on Lehman Brothers and let it bankrupt. The result was so catastrophic, they decided to rescue insurance giant AIG, to the tune of $85 billion, in return for 79% equity in the company. Including this week’s currency swap with other central banks amounting to another $180 billion, money meant to infuse liquidity into the world economy, their balance sheet of assets is probably down to about $200 billion.
Friday, Treasury Secretary Henry Paulson, former Goldman-Sachs executive, announced further plans to save the economy. The government will now insure Money Market Funds, which pay higher interest because they are invested in commercial paper, and are also beginning to freeze up. Immediately, Fannie Mae and Freddie Mac will buy more mortgage backed securities, because the Treasury is going to buy more than $5 billion from them. Then the SEC is going to increase securities regulation, as they should have done years ago, before the debacle was allowed to begin.
Further, if Congress passes a new law Treasury is requesting, which I am sure they will; taxpayers will be funding another equivalent of the Resolution Trust Corporation to buy all those stinking mortgage backed securities, which are unpriceable. Hopefully, they will pay less than face value, because they expect to hold them to maturity, usually an average of only seven years.
Sure, they can always issue more money simply by loaning it to the government, but every time they do, the dollars in your pocket fall in value. New Fed head Ben Bernanke and Treasury Secretary Paulson are doing a good job of holding it together, but at what future cost? Unfortunately, no one in Washington agrees with me. Texas ex-Senator, Phil Gramm is co-chair for John McCain. Gramm co-wrote the bill abolishing Glass-Steagall in 1999. When asked if he would restore Glass-Steagall, candidate Barack Obama replied: “Well, no. The argument is not to go back to the regulatory framework of the 1930’s because, as I said, the financial markets have changed substantially.” Three of his top contributors just happen to be: Goldman-Sachs, J. P. Morgan, and Citigroup.
Who is getting rewarded by the bailout? The mortgage brokers got their money up front. The securities people who packaged the mortgages into securities got their money up front. The securities people who are still holding some of the paper, and the banks and investors who bought them, are getting bailed out.
The candidates will not tell you anything which they do not believe will buy your vote. FDR perfected this election method over 70 years ago. Since I am not running for President, I can suggest what really needs to be done by the next President. You won’t like hearing it, but I am saying it anyway.
First, the ceiling on Social Security tax at $102,000 must be removed. Second, the cost of the Medicare drug insurance program must be curtailed, and the tax probably needs to be raised. The Medicare fund is in worse shape than Social Security. Third, the 15% capital gains tax rate given to the managers of hedge funds who have added to this credit freeze problem must be increased. Hedge funds are largely unregulated investment pools of wealthy sophisticated people who must invest hundreds of thousands to even participate. These managers, without a requirement to invest their own capital, have been driving down the stock of financial institutions so they, themselves, can profit even more. These managers are given capital gains rates on ordinary income (even thought it is usually in the millions of dollars per year.) Why should they pay the 15% tax rate of the average garbage collector on millions of income, when the average middle income American pays 28 to 35%?
In terms of the stock market, I have got several more suggestions. There must be more transparency.
There must be more regulation. The use of options to either buy or sell certain stocks in the future at a set price must be severely restricted. The uptick rule, which the SEC removed July 6, 2007, must be restored. It stated that if you were going to sell a stock short (guaranteeing to deliver it at a given price at a future date,) you had to sell it for at least slightly more than the last recorded sale, not less. Further naked short selling must be absolutely forbidden and tightly regulated. (The rule was if you did sell a stock short for delivery in the future, you had to either already own the stock, or borrow it at interest.) With a wink of the SEC eye, sellers have been allowed to sell the future delivery of a stock at a set price, without knowing where it would come from or what it would cost. When they could not deliver, it was simply considered a “failure to deliver.” Meanwhile, a given company’s stock had been driven downward for no good reason.
I have been a voting Republican since 1956, and I am sick of the Republican Party thinking the answer to every Presidential election is just to preach cutting taxes. They are now no more concerned with cutting spending than the average Democrat. My national Republican Party has been taken over by Neo-conservatives. They are not really conservatives. They are not adverse to burgeoning Federal debt. They don’t want us to be an empire, they just want us to control every other nation. They want a larger military-industrial complex, and they are not reluctant to use it. After all, they are not usually 18 to 25 years old. They consider themselves “nation builders,” and they expect their new nations to toe their line. If you don’t know them, you need to do some investigating. Consider me a paleo-conservative. But don’t get the idea I have given up. I am just going to have to hold my nose when I vote. At the rate things are going, my vote is not going to count, anyway
Our government now belongs to the moneyed interests of this country. Until we rise up in righteous anger and demand accountability, we are due for more of the same. When is the last time YOU wrote your Congressmen and Senators and informed them you are aware of their chicanery and that you are “mad as hell and you are not going to take it anymore?” Remember, we are the boss, they are the employees! If we don’t exercise our management functions, we should not expect promising results.
Thursday, June 19, 2008
BIO-DIESEL
Think About It
You have probably seen our good buddy Willie Nelson advertising his Texas bio-diesel on television. It is a blend of petroleum based diesel with plant based bio-fuel. But, as Commentator Paul Harvey says: Do you want the “rest of the story”? To me, not surprisingly, it demonstrates the fallacies of believing that worldwide free trade is a win-win for everyone.
The European Union in 2004 was complaining to the World Trade Organization that the US was subsidizing our manufacturers to allow them to compete unfavorably with European manufacturers on our exports to Europe. The WTO agreed and allowed the European Union to impose a 5% import tax on all our exports to them, and increase it 1% per month until we were in compliance. Senators Charles Grassley, (R-IA) and Max Baucus (D-MT) passed the “Jumpstart our Business Strength” (JOBS) Act which repealed the tax subsidy regime and replaced it with a bill that met WTO demands.
Here is a quote from Grassley at the time of passage. “This bill is a good solution. It’s not only the first step toward ending the Euro tax on America’s exports, but it also gives a real shot in the arm to US factories and farmers, at home and abroad. This bill was years in the making. Today’s vote was overdue, but couldn’t have been more welcome. Every day of delay means more sanctions freezing US businesses out of the European markets, and more jobs in danger. I hope the House will soon follow suit with similar legislation. We need to give permanent relief to the nation’s job creators and lift the sanctions burden from our exports.”
Hidden within the Jobs Act, Grassley inserted a “Blender’s Credit” to encourage the production of bio-fuel, which would benefit his corn-farming folks back home. At that time, I suppose, no one suspected what we were going to do to the price of cornbread, grits and cereal. The Act awards a US income tax credit of $1 per gallon on any finished bio-diesel mixture produced, but it does not have to be domestically produced. And here is the kicker. The definition is a mixture containing at least 0.1 per cent (by volume) of petroleum diesel fuel. For example, a mixture of 999 gallons of bio-fuel and 1 gallon of diesel is a bio-diesel mixture.
According to the Christian Science Monitor, a shipload of 9,000,000 gallons of Malaysian bio-fuel, typically made from their palm oil, pulls into a dock in Houston, where a shot of 9,000 gallons of petroleum diesel is blended in. The US importer now qualifies for a US tax credit of $9,000,000. He is also free to export his 9,000,000 gallons for sale to Europe, where European consumer tax credits allow him to sell above US prices. We are now supplying 20% of their bio-diesel. But, here come the Europeans again, complaining to the WTO once more about US unfair trade practices. So, you and I are helping petroleum producers with subsidies on both sides of the pond, while we have to import 80% of our fuel. Is this a great country, or what?
Fortunately, the splash-and-dash scheme has not caught on fully. Estimates are that it cost us a total of only $30 million in 2006. Then the first 4 months of 2007 saw shipments of 60 million gallons, or $60 million. According to the Wall Street Journal of April 1, 2008, it now may be costing as much as $300 million annually. You know what they say: “A million dollars here, a million dollars there, after awhile, it adds up.” But, thank goodness, our ever alert Congress has it on its radar screen. According to an anonymous member of the House Ways and Means Committee, “It’s one of the issues that’s driving closer scrutiny.
You have probably seen our good buddy Willie Nelson advertising his Texas bio-diesel on television. It is a blend of petroleum based diesel with plant based bio-fuel. But, as Commentator Paul Harvey says: Do you want the “rest of the story”? To me, not surprisingly, it demonstrates the fallacies of believing that worldwide free trade is a win-win for everyone.
The European Union in 2004 was complaining to the World Trade Organization that the US was subsidizing our manufacturers to allow them to compete unfavorably with European manufacturers on our exports to Europe. The WTO agreed and allowed the European Union to impose a 5% import tax on all our exports to them, and increase it 1% per month until we were in compliance. Senators Charles Grassley, (R-IA) and Max Baucus (D-MT) passed the “Jumpstart our Business Strength” (JOBS) Act which repealed the tax subsidy regime and replaced it with a bill that met WTO demands.
Here is a quote from Grassley at the time of passage. “This bill is a good solution. It’s not only the first step toward ending the Euro tax on America’s exports, but it also gives a real shot in the arm to US factories and farmers, at home and abroad. This bill was years in the making. Today’s vote was overdue, but couldn’t have been more welcome. Every day of delay means more sanctions freezing US businesses out of the European markets, and more jobs in danger. I hope the House will soon follow suit with similar legislation. We need to give permanent relief to the nation’s job creators and lift the sanctions burden from our exports.”
Hidden within the Jobs Act, Grassley inserted a “Blender’s Credit” to encourage the production of bio-fuel, which would benefit his corn-farming folks back home. At that time, I suppose, no one suspected what we were going to do to the price of cornbread, grits and cereal. The Act awards a US income tax credit of $1 per gallon on any finished bio-diesel mixture produced, but it does not have to be domestically produced. And here is the kicker. The definition is a mixture containing at least 0.1 per cent (by volume) of petroleum diesel fuel. For example, a mixture of 999 gallons of bio-fuel and 1 gallon of diesel is a bio-diesel mixture.
According to the Christian Science Monitor, a shipload of 9,000,000 gallons of Malaysian bio-fuel, typically made from their palm oil, pulls into a dock in Houston, where a shot of 9,000 gallons of petroleum diesel is blended in. The US importer now qualifies for a US tax credit of $9,000,000. He is also free to export his 9,000,000 gallons for sale to Europe, where European consumer tax credits allow him to sell above US prices. We are now supplying 20% of their bio-diesel. But, here come the Europeans again, complaining to the WTO once more about US unfair trade practices. So, you and I are helping petroleum producers with subsidies on both sides of the pond, while we have to import 80% of our fuel. Is this a great country, or what?
Fortunately, the splash-and-dash scheme has not caught on fully. Estimates are that it cost us a total of only $30 million in 2006. Then the first 4 months of 2007 saw shipments of 60 million gallons, or $60 million. According to the Wall Street Journal of April 1, 2008, it now may be costing as much as $300 million annually. You know what they say: “A million dollars here, a million dollars there, after awhile, it adds up.” But, thank goodness, our ever alert Congress has it on its radar screen. According to an anonymous member of the House Ways and Means Committee, “It’s one of the issues that’s driving closer scrutiny.
ETHANOL
Think About It
God help us when our Federal government tries to do the same. I wrote recently about Senator Charles Grassley (R-IA) and his Blender’s Tax Credit, hidden in the JOBS ACT to help out the corn growers in his state, and the disastrous side effects. In 2005-6, corn was averaging $2 per bushel. Now, the future’s market for corn is over $7 per bushel. Yet in 2006, the US produced only 10 billion bushels of corn, while last year it was over 13 billion bushels. But because of competition with ethanol production, the National Pork Producers Council reports that the cost to feed a pig to slaughter was $65 least year, compared to $35 the year before. We can look for a price increase of about 7.5% more on milk, pork, beef and chicken because of corn ethanol. As early as 2006, Bush was considering removing ethanol subsidies, but Congress kills the action every year.
In 2007, the US, world’s largest ethanol producer, produced 6.5 trillion gallons of ethanol from corn. The second largest producer by far was Brazil, with 5 trillion gallons made from sugar cane. Third place EU produced only 600 million gallons. Brazil produces much more than they can consume. Yet, we imported only about 189 million gallons from Brazil. They would like to ship us more, but can’t. Why? Because we charge them a 2.5% import tariff, and a secondary duty of 54 cents per gallon; supposedly to offset the blender’s credit given to the US petroleum producers who mix ethanol and petroleum. We don’t charge these tariffs to Israel, or our NAFTA buddies, or the Caribbean islands, because they can’t send us even 100 million gallons. But the US corn growers have a substantial ally in keeping tariffs against Brazil. The US sugar industry, who frowns at the precedent of doing anything to help foreign sugar producers, supports these tariffs.
The cheapest price for E85, which is 85% bio-fuel and 15% petroleum, is about $3.13 per gallon now in Georgia, nearly 25% cheaper than pure gasoline. However, you need a flex-fuel car to burn it. Tried to buy any E85 lately? With a population nearing 9 million, until recently, there were 5 stations in Georgia. I understand Protec Fuel is now opening 12 stations in metro Atlanta. In 2007, corn-growing Iowa, with a population of under 3 million, had 88 stations open. Surprise, surprise!
While ethanol is easier to produce from starch, such as in corn, it can also be produced from cellulose. While we think of cellulose as wood fiber, it is the main component of all plant cell walls, and is the most common organic compound on earth. Ethanol could be produced from corn stalks, rice straw, wood chips, even kudzu. The US Energy Department states that it takes only 0.1 btu’s of fossil energy to produce 1 btu of energy from cellulose for the pump, while it takes 0.74 btu’s to produce 1 btu from corn. The corn is almost not worth the effort. According to the Energy Department, with only modest changes in land use, we could grow 1.3 billion tons of replaceable cellulosic biomass by 2030; enough to replace 30% of our gasoline consumption.
Are the corn growers taking us to the cleaners, or what? The Iogen Corporation of Canada is already producing 1 million gallons of cellulosic ethanol annually from a plant started in 2004. And they have just received a license from Perdue Research Foundation to use genetically enhanced yeast that increases the yield by 40%. Iogen considered a second generation plant in Idaho, but backed away because of lack of support from our Energy Department. I wonder what part Grassley may have played. Whatever happened to US leadership?
While miles per gallon go down slightly with E85, power seems to be greater, because octane is higher. If there are two things Georgia can grow, it’s pine trees and kudzu. Johnny and Saxby, are you listening?
God help us when our Federal government tries to do the same. I wrote recently about Senator Charles Grassley (R-IA) and his Blender’s Tax Credit, hidden in the JOBS ACT to help out the corn growers in his state, and the disastrous side effects. In 2005-6, corn was averaging $2 per bushel. Now, the future’s market for corn is over $7 per bushel. Yet in 2006, the US produced only 10 billion bushels of corn, while last year it was over 13 billion bushels. But because of competition with ethanol production, the National Pork Producers Council reports that the cost to feed a pig to slaughter was $65 least year, compared to $35 the year before. We can look for a price increase of about 7.5% more on milk, pork, beef and chicken because of corn ethanol. As early as 2006, Bush was considering removing ethanol subsidies, but Congress kills the action every year.
In 2007, the US, world’s largest ethanol producer, produced 6.5 trillion gallons of ethanol from corn. The second largest producer by far was Brazil, with 5 trillion gallons made from sugar cane. Third place EU produced only 600 million gallons. Brazil produces much more than they can consume. Yet, we imported only about 189 million gallons from Brazil. They would like to ship us more, but can’t. Why? Because we charge them a 2.5% import tariff, and a secondary duty of 54 cents per gallon; supposedly to offset the blender’s credit given to the US petroleum producers who mix ethanol and petroleum. We don’t charge these tariffs to Israel, or our NAFTA buddies, or the Caribbean islands, because they can’t send us even 100 million gallons. But the US corn growers have a substantial ally in keeping tariffs against Brazil. The US sugar industry, who frowns at the precedent of doing anything to help foreign sugar producers, supports these tariffs.
The cheapest price for E85, which is 85% bio-fuel and 15% petroleum, is about $3.13 per gallon now in Georgia, nearly 25% cheaper than pure gasoline. However, you need a flex-fuel car to burn it. Tried to buy any E85 lately? With a population nearing 9 million, until recently, there were 5 stations in Georgia. I understand Protec Fuel is now opening 12 stations in metro Atlanta. In 2007, corn-growing Iowa, with a population of under 3 million, had 88 stations open. Surprise, surprise!
While ethanol is easier to produce from starch, such as in corn, it can also be produced from cellulose. While we think of cellulose as wood fiber, it is the main component of all plant cell walls, and is the most common organic compound on earth. Ethanol could be produced from corn stalks, rice straw, wood chips, even kudzu. The US Energy Department states that it takes only 0.1 btu’s of fossil energy to produce 1 btu of energy from cellulose for the pump, while it takes 0.74 btu’s to produce 1 btu from corn. The corn is almost not worth the effort. According to the Energy Department, with only modest changes in land use, we could grow 1.3 billion tons of replaceable cellulosic biomass by 2030; enough to replace 30% of our gasoline consumption.
Are the corn growers taking us to the cleaners, or what? The Iogen Corporation of Canada is already producing 1 million gallons of cellulosic ethanol annually from a plant started in 2004. And they have just received a license from Perdue Research Foundation to use genetically enhanced yeast that increases the yield by 40%. Iogen considered a second generation plant in Idaho, but backed away because of lack of support from our Energy Department. I wonder what part Grassley may have played. Whatever happened to US leadership?
While miles per gallon go down slightly with E85, power seems to be greater, because octane is higher. If there are two things Georgia can grow, it’s pine trees and kudzu. Johnny and Saxby, are you listening?
OIL DEPLETION
THINK ABOUT IT
If you read the Atlanta Journal, you may have seen recent full page ads paid for by the oil industry, dissecting the internal costs of a gallon of gas; which is now around $4.00 retail. According to the oil industry, they point out that around 73% of the cost of a gallon is for crude oil, the price of which is set by OPEC. This much of the story is true. What remains unsaid is how much of that crude is produced by our domestic oil companies for their own use, in their own production. According to money.cnn.com, our biggest company Exxon, produced around 44% of the oil they sold, and smaller Chevron, produced 48% of the oil they sold. While it is true that it may cost $5-7 per barrel to pump crude, and the government is looking for taxes; that still leaves a big piece for profit…Exxon made over $40 billion last year.
Geologist M. K. Hubbert had predicted US “peak oil” by 1970 over 50 years ago. What he said was that the crude supply was not everlasting and would run out. Truth is, he was right. Our highest internal production was about 1971, just before the last energy crisis. We have been decreasing since, and actually produced less oil domestically in 2006, than we did in 1950. But again, what is unsaid is how little our producers may be trying to increase production, while gaining favorable tax treatment because of it.
As early as 1913, they had convinced the government that oil would probably run out, and that they deserved an oil depletion allowance deduction on taxes amounting to 5% of sales. By 1926, this was increased to 27.5% of production. In 1976, Jimmy Carter managed to restrict this to only independent companies which don’t import or refine oil. But to make up for this, the larger companies were then given an intangible drilling cost deduction, 100% the first year, and tangible drilling cost deduction, split over 7 years.
Listen to a conversation from ExxonMobil’s recent presentation to financial analysts in New York last March. Halfway through the presentation, they flashed a chart showing production flat through 2012. According to Business Week, the first question was, “Why are you not showing any growth in production?” The answer of Chairman Rex Tillerson:
“We don’t start with a volume target and then work backwards,” he said. Instead, his team examines the available investment opportunities, figures out what prices they’ll likely get for that output down the road and places its bets accordingly. “It really goes back to what is an acceptable investment return for us.” Tillerson said. In other words, producing more barrels just to help consumers is not part of the company’s calculations. Apparently that acceptable return is 32% on capital, because that is what they reported last year.
I never thought I would agree with Hillary Clinton on anything, but if our oil companies are not enjoying “windfall profits”, they cannot be enjoyed. It’s time for them to pay the piper. Yes, I know that as individual investors, you and I probably own some oil stocks, but that is beside the point.
Lastly, we should let our political leaders in both parties know we are disgusted with their inattention to this crisis which was predicted 50 years ago by a respected geologist.Had we been working on solving the crisis with determination, it would have been solved years ago, but it seems it takes financial Armageddon to get Washington’s attention.
If you read the Atlanta Journal, you may have seen recent full page ads paid for by the oil industry, dissecting the internal costs of a gallon of gas; which is now around $4.00 retail. According to the oil industry, they point out that around 73% of the cost of a gallon is for crude oil, the price of which is set by OPEC. This much of the story is true. What remains unsaid is how much of that crude is produced by our domestic oil companies for their own use, in their own production. According to money.cnn.com, our biggest company Exxon, produced around 44% of the oil they sold, and smaller Chevron, produced 48% of the oil they sold. While it is true that it may cost $5-7 per barrel to pump crude, and the government is looking for taxes; that still leaves a big piece for profit…Exxon made over $40 billion last year.
Geologist M. K. Hubbert had predicted US “peak oil” by 1970 over 50 years ago. What he said was that the crude supply was not everlasting and would run out. Truth is, he was right. Our highest internal production was about 1971, just before the last energy crisis. We have been decreasing since, and actually produced less oil domestically in 2006, than we did in 1950. But again, what is unsaid is how little our producers may be trying to increase production, while gaining favorable tax treatment because of it.
As early as 1913, they had convinced the government that oil would probably run out, and that they deserved an oil depletion allowance deduction on taxes amounting to 5% of sales. By 1926, this was increased to 27.5% of production. In 1976, Jimmy Carter managed to restrict this to only independent companies which don’t import or refine oil. But to make up for this, the larger companies were then given an intangible drilling cost deduction, 100% the first year, and tangible drilling cost deduction, split over 7 years.
Listen to a conversation from ExxonMobil’s recent presentation to financial analysts in New York last March. Halfway through the presentation, they flashed a chart showing production flat through 2012. According to Business Week, the first question was, “Why are you not showing any growth in production?” The answer of Chairman Rex Tillerson:
“We don’t start with a volume target and then work backwards,” he said. Instead, his team examines the available investment opportunities, figures out what prices they’ll likely get for that output down the road and places its bets accordingly. “It really goes back to what is an acceptable investment return for us.” Tillerson said. In other words, producing more barrels just to help consumers is not part of the company’s calculations. Apparently that acceptable return is 32% on capital, because that is what they reported last year.
I never thought I would agree with Hillary Clinton on anything, but if our oil companies are not enjoying “windfall profits”, they cannot be enjoyed. It’s time for them to pay the piper. Yes, I know that as individual investors, you and I probably own some oil stocks, but that is beside the point.
Lastly, we should let our political leaders in both parties know we are disgusted with their inattention to this crisis which was predicted 50 years ago by a respected geologist.Had we been working on solving the crisis with determination, it would have been solved years ago, but it seems it takes financial Armageddon to get Washington’s attention.
OIL RESERVES
Think About It
Aggravated that the price of gasoline is running around $3.50 per gallon and an average fill-up is above $50? The threat of a global recession brought crude oil down from $100, to about $90 a barrel for a while, but the dollar’s collapse has pushed it back to $117. However, we need to realize the problem is much greater than just price gouging by producers. The United States needs to invest more money in becoming energy independent, and less on trying to establish democracies around the world.
In the 70’s, when our Alaska slope oil was discovered, we had 39 billion barrels of US oil reserve un-pumped, but by 2006, we were down to 21 billion barrels of reserve. In 1970, we produced an annual total of 3.5 billion barrels; while in 2006, we produced a total of only 1.8 billion barrels; so in 36 years, our internal production went down by 50%. At the same time our consumption went up to 7.3 billion barrels annually. The net difference, 5.5 billion barrels annually, was imported. We seemed to have a policy of wanting to sit on our oil, as long as we could buy worldwide. Apparently someone had conjectured that the world barrel price would never surpass the $30-$50 range. It costs us something like $10 a barrel to pump oil out of the ground. According to the US Department of Energy, our 2007 oil consumption was predicted to be 20.9 million barrels per day, while production would fall to 5.1 million barrels per day. That means our consumption is now 4 times our production, and yet we still have only about 12 years of known domestic reserve production left under our soil. What then? While protecting the environment, which we can do, it is extremely essential we start to drill in the Arctic National Wildlife Refuge, and in all known US coastal resources.
But even that is not enough to achieve long time independence. Fortunately, the US has the largest known concentration of oil shale in the world, 2.5 trillion potential barrels, enough to meet our current internal demands for 110 years. Unfortunately, oil from shale currently must be produced by methods other than drilling and pumping, and is much more expensive. There is current research being done on using carbon dioxide, of which we produce too much, as a catalyst to release the oil more efficiently. Also being studied is a method of freezing a donut ring in the earth, within which steam is pumped under high pressure, helping release the oil with less danger to the environment. It is called In-situ conversion process, or ICP. If we direct the time, money and talent to this project that we invested in a moon landing, instead of a new moon landing, we could probably succeed within 10 years, as we did before.
Our good neighbor, Canada, which is actually our major single source of petroleum imports, (6.5 billion barrels annually) has one of the largest world deposits of oil sand (tarry sand), 265 billion barrels. Canada, our ally, and Venezuela, our antagonist, each control about 1/3 of the world supply of oil sands. Oil sand is much less expensive to convert that oil shale. To put it into perspective, Canada now ranks 3rd in worldwide oil production, and has 174 billion barrels of recoverable oil in oil sands, while Saudi Arabia has only 260 billion barrels of traditional crude oil reserve.
What is Congress’ solution? In December, they passed legislation mandating that auto manufacturers increase their Corporate Average Fuel Economy (CAFÉ) standards to 35 mpg by 2020. This means that the average mileage of all the cars they offer must be 35 mpg. Don’t you wish you could solve all your own problems by ordering some one else to engineer a quick fix? It is high time that we citizens educate ourselves to our nation’s problems and demand that our Congress address them with a righteous determination to solve them proficiently.
Aggravated that the price of gasoline is running around $3.50 per gallon and an average fill-up is above $50? The threat of a global recession brought crude oil down from $100, to about $90 a barrel for a while, but the dollar’s collapse has pushed it back to $117. However, we need to realize the problem is much greater than just price gouging by producers. The United States needs to invest more money in becoming energy independent, and less on trying to establish democracies around the world.
In the 70’s, when our Alaska slope oil was discovered, we had 39 billion barrels of US oil reserve un-pumped, but by 2006, we were down to 21 billion barrels of reserve. In 1970, we produced an annual total of 3.5 billion barrels; while in 2006, we produced a total of only 1.8 billion barrels; so in 36 years, our internal production went down by 50%. At the same time our consumption went up to 7.3 billion barrels annually. The net difference, 5.5 billion barrels annually, was imported. We seemed to have a policy of wanting to sit on our oil, as long as we could buy worldwide. Apparently someone had conjectured that the world barrel price would never surpass the $30-$50 range. It costs us something like $10 a barrel to pump oil out of the ground. According to the US Department of Energy, our 2007 oil consumption was predicted to be 20.9 million barrels per day, while production would fall to 5.1 million barrels per day. That means our consumption is now 4 times our production, and yet we still have only about 12 years of known domestic reserve production left under our soil. What then? While protecting the environment, which we can do, it is extremely essential we start to drill in the Arctic National Wildlife Refuge, and in all known US coastal resources.
But even that is not enough to achieve long time independence. Fortunately, the US has the largest known concentration of oil shale in the world, 2.5 trillion potential barrels, enough to meet our current internal demands for 110 years. Unfortunately, oil from shale currently must be produced by methods other than drilling and pumping, and is much more expensive. There is current research being done on using carbon dioxide, of which we produce too much, as a catalyst to release the oil more efficiently. Also being studied is a method of freezing a donut ring in the earth, within which steam is pumped under high pressure, helping release the oil with less danger to the environment. It is called In-situ conversion process, or ICP. If we direct the time, money and talent to this project that we invested in a moon landing, instead of a new moon landing, we could probably succeed within 10 years, as we did before.
Our good neighbor, Canada, which is actually our major single source of petroleum imports, (6.5 billion barrels annually) has one of the largest world deposits of oil sand (tarry sand), 265 billion barrels. Canada, our ally, and Venezuela, our antagonist, each control about 1/3 of the world supply of oil sands. Oil sand is much less expensive to convert that oil shale. To put it into perspective, Canada now ranks 3rd in worldwide oil production, and has 174 billion barrels of recoverable oil in oil sands, while Saudi Arabia has only 260 billion barrels of traditional crude oil reserve.
What is Congress’ solution? In December, they passed legislation mandating that auto manufacturers increase their Corporate Average Fuel Economy (CAFÉ) standards to 35 mpg by 2020. This means that the average mileage of all the cars they offer must be 35 mpg. Don’t you wish you could solve all your own problems by ordering some one else to engineer a quick fix? It is high time that we citizens educate ourselves to our nation’s problems and demand that our Congress address them with a righteous determination to solve them proficiently.
Tuesday, March 11, 2008
BANKING'S ORIGINS
Think About It
“Give me control of a nation’s money and I care not who makes the laws,” a quote attributed to Meyer Amschel Rothschild, founder of the European banking dynasty. To see how banking developed, we need to go back beyond the birth of Jesus Christ. As civilization developed, feudal lords, or seigniors, were the first to assert power over others who became their serfs. At that time, all commodity production was generally kept within the seigniorial domains. About 586 bc, Nebuchadnezzar of Babylon conquered Judah, and as a result the Jewish inhabitants were dispersed throughout the world. This became known as the diaspora, and 11 of the 12 tribes of Israel were said to have lost their identity as they assimilated.
By the time of Christ, import of Oriental goods: spices, silk, etc., was making its way into the Middle East, and eventually Western Europe. By the middle ages, the Orient was interested in acquiring English woolen, Venetian salt, copper from Belgium, etc. The original initiative in this trade belonged to the Jews of the diaspora, who became major traders. But as local economies gradually developed, so did the growth of local artisans, the first middle class. This economic development eventually destroyed the commercial function of the Jews, as the artisans began to do their own trading. By the time of the Crusades, the will of the Christians to carve their own road to the Orient, led to persecution of both Jews and Muslims. As the artisans developed guilds to foster their crafts, they excluded Jews from membership. Old Testament law prohibits a Jew from lending to another Jew with interest, but it does not prohibit lending to a gentile with interest. Thus many of the Jews, excluded from trading and artisanship, became lenders of money. They loaned to Lords for luxuries and war; they loaned to artisans and peasants to pay their taxes and rents. The rates were extremely high.
In 1743, Amschel Moses Bauer, father of the author quoted above, was a goldsmith in Frankfurt, Germany. By now the Jews had developed their own guilds for their artisans. His sign was a Roman eagle on a red shield. The German word for red shield is “Rothschild”, and he eventually changed his surname. Goldsmiths kept other peoples gold in more secure surroundings. They issued the owners gold receipts which became useful as a substitute for gold, and people soon accepted them as currency. Then, the goldsmiths realized they could rather safely “lend” gold receipts at interest for more gold than they had on hand, and fractional reserve banking was begun.
Meyer Rothschild was an even greater financial intellect than his father, and he in turn had 5 sons, who he instructed in the secret techniques of money creation and manipulation. His son, Amschel II, was to stay in Frankfurt; but he sent the other 4 to the financial capitals in Vienna, London, Naples and Paris. They learned they could be successful by lending to both sides carrying on a common war, and they learned that prior knowledge of breaking world conditions could help make a fortune. Thus, they developed an intelligence network long before our CIA.
In 1815, Napoleon wanted to control Europe. Only British commander Wellington stood in his way, at Waterloo, in Belgium. Meyer’s son, Nathan, ran the London banking operations. He had loaned enormous amounts to Britain, backed by their bonds. If Napoleon won, they were worthless. But his spy rushed to him with the knowledge that Wellington would win. When the exchange opened, Nathan nodded to his trader to sell English bonds. “He knows,” other traders began to shout, “Wellington has lost.” Shortly a half million in bonds was dumped onto the market, with prices falling down to 5% of worth. Suddenly, Rothschild began to buy bonds, and before his colleagues realized their duping, Rothschild had increased his wealth 20 fold, buying English bonds back at 5 cents on the dollar.
“Give me control of a nation’s money and I care not who makes the laws,” a quote attributed to Meyer Amschel Rothschild, founder of the European banking dynasty. To see how banking developed, we need to go back beyond the birth of Jesus Christ. As civilization developed, feudal lords, or seigniors, were the first to assert power over others who became their serfs. At that time, all commodity production was generally kept within the seigniorial domains. About 586 bc, Nebuchadnezzar of Babylon conquered Judah, and as a result the Jewish inhabitants were dispersed throughout the world. This became known as the diaspora, and 11 of the 12 tribes of Israel were said to have lost their identity as they assimilated.
By the time of Christ, import of Oriental goods: spices, silk, etc., was making its way into the Middle East, and eventually Western Europe. By the middle ages, the Orient was interested in acquiring English woolen, Venetian salt, copper from Belgium, etc. The original initiative in this trade belonged to the Jews of the diaspora, who became major traders. But as local economies gradually developed, so did the growth of local artisans, the first middle class. This economic development eventually destroyed the commercial function of the Jews, as the artisans began to do their own trading. By the time of the Crusades, the will of the Christians to carve their own road to the Orient, led to persecution of both Jews and Muslims. As the artisans developed guilds to foster their crafts, they excluded Jews from membership. Old Testament law prohibits a Jew from lending to another Jew with interest, but it does not prohibit lending to a gentile with interest. Thus many of the Jews, excluded from trading and artisanship, became lenders of money. They loaned to Lords for luxuries and war; they loaned to artisans and peasants to pay their taxes and rents. The rates were extremely high.
In 1743, Amschel Moses Bauer, father of the author quoted above, was a goldsmith in Frankfurt, Germany. By now the Jews had developed their own guilds for their artisans. His sign was a Roman eagle on a red shield. The German word for red shield is “Rothschild”, and he eventually changed his surname. Goldsmiths kept other peoples gold in more secure surroundings. They issued the owners gold receipts which became useful as a substitute for gold, and people soon accepted them as currency. Then, the goldsmiths realized they could rather safely “lend” gold receipts at interest for more gold than they had on hand, and fractional reserve banking was begun.
Meyer Rothschild was an even greater financial intellect than his father, and he in turn had 5 sons, who he instructed in the secret techniques of money creation and manipulation. His son, Amschel II, was to stay in Frankfurt; but he sent the other 4 to the financial capitals in Vienna, London, Naples and Paris. They learned they could be successful by lending to both sides carrying on a common war, and they learned that prior knowledge of breaking world conditions could help make a fortune. Thus, they developed an intelligence network long before our CIA.
In 1815, Napoleon wanted to control Europe. Only British commander Wellington stood in his way, at Waterloo, in Belgium. Meyer’s son, Nathan, ran the London banking operations. He had loaned enormous amounts to Britain, backed by their bonds. If Napoleon won, they were worthless. But his spy rushed to him with the knowledge that Wellington would win. When the exchange opened, Nathan nodded to his trader to sell English bonds. “He knows,” other traders began to shout, “Wellington has lost.” Shortly a half million in bonds was dumped onto the market, with prices falling down to 5% of worth. Suddenly, Rothschild began to buy bonds, and before his colleagues realized their duping, Rothschild had increased his wealth 20 fold, buying English bonds back at 5 cents on the dollar.
NAFTA SUPERHIGHWAY
Think about It
The Council on Foreign Relations describes itself as a non-partisan and independent membership organization promoting understanding of foreign policy and America’s role in the world. I describe it as an elitist, invitation only organization dedicated to bringing about a one world economy, to the detriment of the sovereignty of the United States. It was founded in 1921 by Col. Thomas House, alter ego to Woodrow Wilson in his White House, and protégé of the Rockefeller financiers. While most of our recent Presidents have been members, I find it interesting that all its actual meeting records are sealed from public view for 25 years after inception.
In 2006, Dr. Robert Pastor, Vice-chair of CFR’s Independent Task Force on the Future of North America (ITF)), appeared before the US Senate Committee on Foreign Relations (no connection to CFR) to call for nominally erasing all US Borders and a merger of the US, Canada and Mexico in a North American Union running from Prudhoe Bay, Alaska to Guatemala. “Instead of stopping North Americans on the borders,” he said, “we ought to provide them with a secure, biometric Border Pass that would ease transit across our border like an E-Z pass permits our cars to speed through tolls.” Such a move is underway in what some people say is a NAFTA superhighway, which would run from the Mexican port city of Lazaro Cardenas, through Kansas City, onward through Duluth, Minnesota to Canada. Other people would tell you such an idea does not exist.
What does surely exist is a quasi-government organization called “Security and Prosperity Partnership of North America (SPP) launched in Waco, TX in 2005 by George W. Bush, Vicente Fox of Mexico, and Paul Martin of Canada. Because it is quasi-government, it is somewhat opaque and does not require the sanction of our Congress. Speaking in 2002, Fox said, “Our long range objective is to establish with the United States…an ensemble of connections and institutions similar to those created by the European Union, with the goal of attending to future themes as important as…the freedom of movement of capital, goods, services and persons. The new framework we wish to construct is inspired in the example of the European Union.”
What also surely exist are plans for the Trans-Texas Corridor (TTC). Governor Rick Perry of Texas has signed a $1.3 billion contract with Cintra, SA, a foreign company listed on the Madrid Stock exchange, which already operates US toll roads known as the Chicago Skyway and the Indiana Toll Road. TTC will be operated by Cintra, SA as a toll road, in partnership with Zachry Construction Co. of San Antonio. Is this the first leg of the NAFTA superhighway?
What also surely exists is Kansas City SmartPort, Inc., an investor based organization supported by the public and private sector to create the key hub on the NAFTA superhighway. Their brochure states, “For those who live in Kansas City, the idea of receiving containers nonstop from the Far East by way of Mexico may sound unlikely, but later this month that seemingly far-fetched notion will become a reality.” In 2005, Kansas City signed a cooperative pact with representatives from the Mexican State of Michoacan and its port city of Lazaro Cardenas; to increase cargo volume between the two cities. According to author Jerome Corsi, container ships from China would unload at Lazaro Cardenas, and Mexican drivers would speed their cargo on the Fox-Bush autobahn directly to the first customs inspection terminal at Kansas City; without US customs or US workers being theretofore involved. The freight would then fan out across the US and Canada.
According to economist and researcher Miguel Pickard, the aforementioned Dr. Pastor of the ITF has since met 3 times in Toronto, New York and Monterrey, with foreign representatives. The 3 called for a unified North American Border Action Plan (i.e. open borders). The 3 then signed close to 300 regulations, which are intended as a substitute for any treaty, which the US Senate would need to approve.
Do you really care? .
The Council on Foreign Relations describes itself as a non-partisan and independent membership organization promoting understanding of foreign policy and America’s role in the world. I describe it as an elitist, invitation only organization dedicated to bringing about a one world economy, to the detriment of the sovereignty of the United States. It was founded in 1921 by Col. Thomas House, alter ego to Woodrow Wilson in his White House, and protégé of the Rockefeller financiers. While most of our recent Presidents have been members, I find it interesting that all its actual meeting records are sealed from public view for 25 years after inception.
In 2006, Dr. Robert Pastor, Vice-chair of CFR’s Independent Task Force on the Future of North America (ITF)), appeared before the US Senate Committee on Foreign Relations (no connection to CFR) to call for nominally erasing all US Borders and a merger of the US, Canada and Mexico in a North American Union running from Prudhoe Bay, Alaska to Guatemala. “Instead of stopping North Americans on the borders,” he said, “we ought to provide them with a secure, biometric Border Pass that would ease transit across our border like an E-Z pass permits our cars to speed through tolls.” Such a move is underway in what some people say is a NAFTA superhighway, which would run from the Mexican port city of Lazaro Cardenas, through Kansas City, onward through Duluth, Minnesota to Canada. Other people would tell you such an idea does not exist.
What does surely exist is a quasi-government organization called “Security and Prosperity Partnership of North America (SPP) launched in Waco, TX in 2005 by George W. Bush, Vicente Fox of Mexico, and Paul Martin of Canada. Because it is quasi-government, it is somewhat opaque and does not require the sanction of our Congress. Speaking in 2002, Fox said, “Our long range objective is to establish with the United States…an ensemble of connections and institutions similar to those created by the European Union, with the goal of attending to future themes as important as…the freedom of movement of capital, goods, services and persons. The new framework we wish to construct is inspired in the example of the European Union.”
What also surely exist are plans for the Trans-Texas Corridor (TTC). Governor Rick Perry of Texas has signed a $1.3 billion contract with Cintra, SA, a foreign company listed on the Madrid Stock exchange, which already operates US toll roads known as the Chicago Skyway and the Indiana Toll Road. TTC will be operated by Cintra, SA as a toll road, in partnership with Zachry Construction Co. of San Antonio. Is this the first leg of the NAFTA superhighway?
What also surely exists is Kansas City SmartPort, Inc., an investor based organization supported by the public and private sector to create the key hub on the NAFTA superhighway. Their brochure states, “For those who live in Kansas City, the idea of receiving containers nonstop from the Far East by way of Mexico may sound unlikely, but later this month that seemingly far-fetched notion will become a reality.” In 2005, Kansas City signed a cooperative pact with representatives from the Mexican State of Michoacan and its port city of Lazaro Cardenas; to increase cargo volume between the two cities. According to author Jerome Corsi, container ships from China would unload at Lazaro Cardenas, and Mexican drivers would speed their cargo on the Fox-Bush autobahn directly to the first customs inspection terminal at Kansas City; without US customs or US workers being theretofore involved. The freight would then fan out across the US and Canada.
According to economist and researcher Miguel Pickard, the aforementioned Dr. Pastor of the ITF has since met 3 times in Toronto, New York and Monterrey, with foreign representatives. The 3 called for a unified North American Border Action Plan (i.e. open borders). The 3 then signed close to 300 regulations, which are intended as a substitute for any treaty, which the US Senate would need to approve.
Do you really care? .
Friday, February 15, 2008
SOVEREIGN WEALTH FUNDS
Think About It
Let’s talk about CFIUS (pronounced sifius). No it is not a sexually transmitted disease. It is a committee that is supposed to protect your national interests---The Committee on Foreign Investment in the United States. Chaired by the Secretary of the Treasury, it includes members from Defense, State, Commerce and Homeland Security. Started by President Ford, its objective is to approve or disapprove the acquisition of US companies by foreigners. Companies proposing to be acquired by foreigners are supposed to voluntarily notify CFIUS, but CFIUS has the power to review any of which they become aware. The problem is, they have not seen many foreign acquisitions which they did not like.
Remember 2006, when Dubai Ports World proposed to buy P & O, a British company which was the 4th largest in the world, and operated at least 6 United States Ports? This transaction had already been vetted and approved by CFIUS when it became public knowledge. There was such a national uproar that our ever alert Congressmen and women decided to jump into action. On February 22, President Bush threatened to veto any action by Congress to block the deal. Up until then, he had not used his veto even once. On February 23, DP World volunteered to postpone its takeover while President Bush tried to convince lawmakers the deal involved no risk. On March 9, DP World said it would transfer its operations to a “US owned entity” after Congress told Bush the deal was dead on Capitol Hill. On March 16, the House added provisions to an appropriations bill to stop the sale. The Senate cut the provisions, and the bill was finally approved by both houses without any prohibitions. On July 18, 2006, Congressman John Murtha (D-PA) pointed out that our free trade agreement with the nation of Oman would allow Dubai to set up an Oman subsidiary and sue for compensation under free trade if such an Oman/Dubai deal was blocked. No one contradicted him. On December 11, Dubai finally reported they were selling the US port operations to American International Group’s asset management division. Hopefully it happened. You can’t prove it by me.
I point all this out to bring up a discussion of Sovereign Wealth Funds. These are cash asset funds actually owned by the governments of foreign countries, not by foreign private investors. As long as we have had US Hedge Funds, their assets amount to only $1.7 trillion. But these sovereign government directed funds have already grown to $2.8 trillion. Our own Morgan-Stanley brokerage firm predicts such funds will reach $12 trillion by the year 2015; almost the size of our total economy. In size of assets, the first 6 are the United Arab Emirates, Singapore, Norway, Kuwait, Russia and China. And you wonder where all our US dollars are going? Since May, 2007, over $20 billion of our trade deficit came back through foreigners to rescue our biggest Wall Street brokers, by buying equity ownership.
There are free-traders on both sides of the aisle in our Congress who don’t care what smell money has, as long as its color is green. I repeat my charge---we are being sold out, lock, stock and barrel, and they are using our own money to buy us. Because we are no longer a producer, and because our insatiable energy demand exceeds our domestic supply, we are their willing victims. This all started about 30 years ago, when Japan, flush with cash, began to buy up some of our prized real estate. Now, foreigners are not just buying real estate, they are buying our domestic corporations. Some day, we are going to wake up and realize that we are the vassals of foreigners.
Senator Evan Bayh (D-IN) rightly warns that when Sovereign funds approach the size of the entire American economy in a few years, the lack of regulation is a huge risk this country cannot continue to run. Sovereign nations have interests other than maximizing profits, and we must promulgate rules to protect our own self-interests.
Let’s talk about CFIUS (pronounced sifius). No it is not a sexually transmitted disease. It is a committee that is supposed to protect your national interests---The Committee on Foreign Investment in the United States. Chaired by the Secretary of the Treasury, it includes members from Defense, State, Commerce and Homeland Security. Started by President Ford, its objective is to approve or disapprove the acquisition of US companies by foreigners. Companies proposing to be acquired by foreigners are supposed to voluntarily notify CFIUS, but CFIUS has the power to review any of which they become aware. The problem is, they have not seen many foreign acquisitions which they did not like.
Remember 2006, when Dubai Ports World proposed to buy P & O, a British company which was the 4th largest in the world, and operated at least 6 United States Ports? This transaction had already been vetted and approved by CFIUS when it became public knowledge. There was such a national uproar that our ever alert Congressmen and women decided to jump into action. On February 22, President Bush threatened to veto any action by Congress to block the deal. Up until then, he had not used his veto even once. On February 23, DP World volunteered to postpone its takeover while President Bush tried to convince lawmakers the deal involved no risk. On March 9, DP World said it would transfer its operations to a “US owned entity” after Congress told Bush the deal was dead on Capitol Hill. On March 16, the House added provisions to an appropriations bill to stop the sale. The Senate cut the provisions, and the bill was finally approved by both houses without any prohibitions. On July 18, 2006, Congressman John Murtha (D-PA) pointed out that our free trade agreement with the nation of Oman would allow Dubai to set up an Oman subsidiary and sue for compensation under free trade if such an Oman/Dubai deal was blocked. No one contradicted him. On December 11, Dubai finally reported they were selling the US port operations to American International Group’s asset management division. Hopefully it happened. You can’t prove it by me.
I point all this out to bring up a discussion of Sovereign Wealth Funds. These are cash asset funds actually owned by the governments of foreign countries, not by foreign private investors. As long as we have had US Hedge Funds, their assets amount to only $1.7 trillion. But these sovereign government directed funds have already grown to $2.8 trillion. Our own Morgan-Stanley brokerage firm predicts such funds will reach $12 trillion by the year 2015; almost the size of our total economy. In size of assets, the first 6 are the United Arab Emirates, Singapore, Norway, Kuwait, Russia and China. And you wonder where all our US dollars are going? Since May, 2007, over $20 billion of our trade deficit came back through foreigners to rescue our biggest Wall Street brokers, by buying equity ownership.
There are free-traders on both sides of the aisle in our Congress who don’t care what smell money has, as long as its color is green. I repeat my charge---we are being sold out, lock, stock and barrel, and they are using our own money to buy us. Because we are no longer a producer, and because our insatiable energy demand exceeds our domestic supply, we are their willing victims. This all started about 30 years ago, when Japan, flush with cash, began to buy up some of our prized real estate. Now, foreigners are not just buying real estate, they are buying our domestic corporations. Some day, we are going to wake up and realize that we are the vassals of foreigners.
Senator Evan Bayh (D-IN) rightly warns that when Sovereign funds approach the size of the entire American economy in a few years, the lack of regulation is a huge risk this country cannot continue to run. Sovereign nations have interests other than maximizing profits, and we must promulgate rules to protect our own self-interests.
Thursday, February 14, 2008
ECONOMICS
Think About It
To paraphrase Charles Dickens: “It is the best of times, it is the worst of times.” Last year, our stock market reached an all time high, while our dollar has reached a new low against the Euro, which now costs $1.46 American. Our bull market, which is down 8% year to date, is effectively supported by foreigners, who are buying us out, lock, stock and barrel. According to the U S Treasury, net overall capital inflows into the United States are rising over $100 Billion per month, with corporate bond and equity purchases driving foreign investments to a record high. Meanwhile our Federal debt is growing nearly $1.5 billion per day. In July, the Treasury Secretary asked Congress to raise the debt limit to $ 9.82 trillion, as I had predicted months ago. This is the fifth raise of the Bush administration. The result is that we have now become dependent on foreigners to buy our corporate stock and underwrite our debt.
Using 1985 as a base, outside world holding of U. S. financial assets has increased from $1 Trillion to $13 Trillion today. Worldwide, the dollar is considered extremely cheap, thanks to the Federal Reserve, which has seriously inflated the currency. As noted before, the Fed has even quit publishing M3, which is the most accurate measure of inflation. (You can keep up with an estimated M3 by going to www.shadowstats.com.) The downside of this is that the real value of our wealth in dollars has fallen dramatically. Yet, we are in a tenuous position. If we move to strengthen the dollar, it will likely scare away some of this foreign inflow of capital.
Now, the BLS January 2008 unemployment report shows the U S economy is slowing. Payroll employment has lost 17,000 jobs over the past month. Unemployment stands at 4.9%. And remember, it is consumer spending which now accounts for nearly 70% of our total output of goods and services; while only 60 years ago, we were the leading producer for the world. But consumer debt is reaching an all time high. Consumers have been using borrowed home equity, and are nearly spent out. Now home values have been falling for the past 3 months, and the sub-prime mortgage debacle is still growing.
The Clinton administration changed the criteria for calculating inflation, and the Bush administration heartily endorsed it and followed suit. While government figures show inflation at some 2%, it is under the old formula more like 6%. Why? With a low inflation rate reflected in the CPI, our U S government saves billions of dollars on interest and Social Security payments. Meanwhile, we, as citizens, are left to deal with the real inflation.
At the same time, foreign central banks, corporations and individuals are diversifying their cash reserves out of the dollar and into the Euro. This adds to the dollar’s decline. Now certain oil producers are demanding payment in Euros. We are no longer universally recognized as the world’s reserve currency, a position we had held since World War II. This drains our diplomatic, economic and financial power.
Things can’t be fixed overnight. It will take real fiscal prudence and a lot of belt tightening on the part of everyone, first and foremost our government. There will be a Presidential election next year, with the largest number of potential candidates in recent history. Don’t fall for the man or woman who promises you more out of your government. It is an outright lie which they cannot deliver, and will cost you directly in your pocketbook. Look, instead to the man or woman who acknowledges the government is not our daddy, and is not totally responsible for our upkeep and wellbeing. We of all people deserve to be the most hated if we leave this burden upon our children and grandchildren, who for the most part look up to and respect us. We must develop and demonstrate the courage of our founding fathers.
To paraphrase Charles Dickens: “It is the best of times, it is the worst of times.” Last year, our stock market reached an all time high, while our dollar has reached a new low against the Euro, which now costs $1.46 American. Our bull market, which is down 8% year to date, is effectively supported by foreigners, who are buying us out, lock, stock and barrel. According to the U S Treasury, net overall capital inflows into the United States are rising over $100 Billion per month, with corporate bond and equity purchases driving foreign investments to a record high. Meanwhile our Federal debt is growing nearly $1.5 billion per day. In July, the Treasury Secretary asked Congress to raise the debt limit to $ 9.82 trillion, as I had predicted months ago. This is the fifth raise of the Bush administration. The result is that we have now become dependent on foreigners to buy our corporate stock and underwrite our debt.
Using 1985 as a base, outside world holding of U. S. financial assets has increased from $1 Trillion to $13 Trillion today. Worldwide, the dollar is considered extremely cheap, thanks to the Federal Reserve, which has seriously inflated the currency. As noted before, the Fed has even quit publishing M3, which is the most accurate measure of inflation. (You can keep up with an estimated M3 by going to www.shadowstats.com.) The downside of this is that the real value of our wealth in dollars has fallen dramatically. Yet, we are in a tenuous position. If we move to strengthen the dollar, it will likely scare away some of this foreign inflow of capital.
Now, the BLS January 2008 unemployment report shows the U S economy is slowing. Payroll employment has lost 17,000 jobs over the past month. Unemployment stands at 4.9%. And remember, it is consumer spending which now accounts for nearly 70% of our total output of goods and services; while only 60 years ago, we were the leading producer for the world. But consumer debt is reaching an all time high. Consumers have been using borrowed home equity, and are nearly spent out. Now home values have been falling for the past 3 months, and the sub-prime mortgage debacle is still growing.
The Clinton administration changed the criteria for calculating inflation, and the Bush administration heartily endorsed it and followed suit. While government figures show inflation at some 2%, it is under the old formula more like 6%. Why? With a low inflation rate reflected in the CPI, our U S government saves billions of dollars on interest and Social Security payments. Meanwhile, we, as citizens, are left to deal with the real inflation.
At the same time, foreign central banks, corporations and individuals are diversifying their cash reserves out of the dollar and into the Euro. This adds to the dollar’s decline. Now certain oil producers are demanding payment in Euros. We are no longer universally recognized as the world’s reserve currency, a position we had held since World War II. This drains our diplomatic, economic and financial power.
Things can’t be fixed overnight. It will take real fiscal prudence and a lot of belt tightening on the part of everyone, first and foremost our government. There will be a Presidential election next year, with the largest number of potential candidates in recent history. Don’t fall for the man or woman who promises you more out of your government. It is an outright lie which they cannot deliver, and will cost you directly in your pocketbook. Look, instead to the man or woman who acknowledges the government is not our daddy, and is not totally responsible for our upkeep and wellbeing. We of all people deserve to be the most hated if we leave this burden upon our children and grandchildren, who for the most part look up to and respect us. We must develop and demonstrate the courage of our founding fathers.
Wednesday, February 6, 2008
SUPER TUESDAY-SUPER DELEGATES
Think About It
Super Tuesday is over, who do you think is the happiest camper in America?
Bill Clinton. The man who became our President with only 43% of the popular vote, (remember Ross Perot and his groupies?) is edging ever closer to becoming the “first man” at the Clinton White House No. 2. Why? Two words: Super-delegates! Go back to 1968. The Democrat Party saw itself fall apart in disgrace in Chicago on public television. In the early 1970’s, the party’s rules were changed to allow more activists, women and minorities into the process. The Problem: How do we keep the loyalty of all these special interest groups (women, Latinos, gays, African-Americans, tree-huggers) without actually giving them control of the party? The answer: Super-delegates, 842 of them, 40% of the number needed to secure a nomination. Who are they? Democrat former Presidents, Vice-Presidents, Governors, DNC members, among some others. Let the various special interests have their say with their buzz-words: “Hope, change, united, health care.” But when it’s all over, the power to broker a back room deal is in the hand of 842 un-pledged delegates who are free to vote as they please. And who better to broker a back room deal than the Clintons?
And who is the second happiest camper in America? Irving Kristol, self-confessed “Godfather” of the neo-conservative camp within the Republican Party, and best friend of the military-industrial complex, which Dwight Eisenhower warned us about 48 years ago. The Republican Party has no such Super-delegates. The neo-con’s problem? How do we keep the conservative base loyal to a moderate (?) Republican like John “We may be in Iraq for 100 years” or “Don’t tell me about border security, I know more than anybody in this room” McCain. He barely won his own state, Arizona, in the primary. The answer is simple. Split the conservative vote. Bring in someone---Governor Huckabee---to siphon off the right wing evangelicals: “That man is a Mormon”; who want a theocracy (just somewhat short of the one in Iran.) Author’s disclaimer: I consider myself an evangelical Christian, and I do believe Huckabee is a good man who truly wants to be President. But I am also a pragmatic politico. Where else can the conservative go in November? He/she is neither going across to vote for another Clinton, nor for the most liberal member of the US Senate. So the neo-cons are betting on their best chance to preserve the status-quo with John McCain, and potential running mate Huckabee. The problem is that McCain’s strong states in the primary are those he will lose to a Democrat in November. Regardless, the average American is so disgusted with the Bush administration, any Republican will fight an uphill battle.
I am reminded of the sputtering start of the Reagan revolution. Many of us who believed in his principles gathered around him in 1976, even though he was trying to take the nomination from a decent (but moderate) sitting Republican president (although he had not been elected so.) The incumbency won Ford the nomination, but inflation and a smiling peanut broker cost him the election. Four years later, a charismatic Reagan re-appeared to win the election and change world history in a way that happens but once in a lifetime. I formerly had a partner who used to say:"The wheel keeps turning." I refer to his quote to support my thesis: If not for Watergate, there would have been no Jimmy Carter, but if not for Jimmy Carter, there would have been no Ronald Reagan. Things seem to work out in the end for those who have faith. Mitt is young, he can wait.
Super Tuesday is over, who do you think is the happiest camper in America?
Bill Clinton. The man who became our President with only 43% of the popular vote, (remember Ross Perot and his groupies?) is edging ever closer to becoming the “first man” at the Clinton White House No. 2. Why? Two words: Super-delegates! Go back to 1968. The Democrat Party saw itself fall apart in disgrace in Chicago on public television. In the early 1970’s, the party’s rules were changed to allow more activists, women and minorities into the process. The Problem: How do we keep the loyalty of all these special interest groups (women, Latinos, gays, African-Americans, tree-huggers) without actually giving them control of the party? The answer: Super-delegates, 842 of them, 40% of the number needed to secure a nomination. Who are they? Democrat former Presidents, Vice-Presidents, Governors, DNC members, among some others. Let the various special interests have their say with their buzz-words: “Hope, change, united, health care.” But when it’s all over, the power to broker a back room deal is in the hand of 842 un-pledged delegates who are free to vote as they please. And who better to broker a back room deal than the Clintons?
And who is the second happiest camper in America? Irving Kristol, self-confessed “Godfather” of the neo-conservative camp within the Republican Party, and best friend of the military-industrial complex, which Dwight Eisenhower warned us about 48 years ago. The Republican Party has no such Super-delegates. The neo-con’s problem? How do we keep the conservative base loyal to a moderate (?) Republican like John “We may be in Iraq for 100 years” or “Don’t tell me about border security, I know more than anybody in this room” McCain. He barely won his own state, Arizona, in the primary. The answer is simple. Split the conservative vote. Bring in someone---Governor Huckabee---to siphon off the right wing evangelicals: “That man is a Mormon”; who want a theocracy (just somewhat short of the one in Iran.) Author’s disclaimer: I consider myself an evangelical Christian, and I do believe Huckabee is a good man who truly wants to be President. But I am also a pragmatic politico. Where else can the conservative go in November? He/she is neither going across to vote for another Clinton, nor for the most liberal member of the US Senate. So the neo-cons are betting on their best chance to preserve the status-quo with John McCain, and potential running mate Huckabee. The problem is that McCain’s strong states in the primary are those he will lose to a Democrat in November. Regardless, the average American is so disgusted with the Bush administration, any Republican will fight an uphill battle.
I am reminded of the sputtering start of the Reagan revolution. Many of us who believed in his principles gathered around him in 1976, even though he was trying to take the nomination from a decent (but moderate) sitting Republican president (although he had not been elected so.) The incumbency won Ford the nomination, but inflation and a smiling peanut broker cost him the election. Four years later, a charismatic Reagan re-appeared to win the election and change world history in a way that happens but once in a lifetime. I formerly had a partner who used to say:"The wheel keeps turning." I refer to his quote to support my thesis: If not for Watergate, there would have been no Jimmy Carter, but if not for Jimmy Carter, there would have been no Ronald Reagan. Things seem to work out in the end for those who have faith. Mitt is young, he can wait.
Tuesday, February 5, 2008
RECESSION
Think About It
It’s time to build up your cash. As I predicted earlier, foreign nationals are buying us out, lock stock and barrel. Because of the sub-prime mortgage debacle, Morgan-Stanley has sold a $5 billion stake to Chinese interests. Merrill Lynch, likewise, sold $6.2 billion equity to Singapore interests. Recently Citigroup sold a $7.5 billion interest to Middle Eastern country Abu Dhabi. These interests are selling us more in petroleum or consumer goods than we can export to them, and using the surplus of our own money to purchase our country.
We were the world’s leading producer country from the time of the Second World War to the middle 1960’s. Since then, we have become the world’s leading consumer, and it is the consumer spender who has kept our economy afloat, making up a staggering 71% of our gross domestic product. Too much of this spending has been done through plastic credit cards. For many years, the increase in home values enabled consumers to pay off staggering credit card balances through increasing their home equity debt. Now, because of the sub-prime mortgage crisis, decreasing home values largely block this method of rescue. As a result, credit card accounts which are 30 days behind has jumped 26% to $17.3 billion. Those 90 days behind have jumped 50% over one year ago. Actual defaults have risen 18% to almost $961 million, according to the SEC.
The Conference Board publishes the Consumer Confidence Index, and Leading Economic Indicators, in an effort to predict the future economy. Usually, 3 consecutive months in the negative indicates a coming recession. October and November were both negative. When the 6 months cumulative total goes below a -1%, this also indicates recession. The 6 months cumulative total for November was -1.2%. Unless Santa Claus spends himself crazy for December, the future looks grim.
Does any of this interest you, or are you more concerned about who wins “Dancing with the Stars, or who is victorious in the Super Bowl? Our forefathers established and left us the greatest country in world history. Most of us have children or grandchildren who must look to us for their legacy. Are we going to fail them? When in 2000, the US voted 46% of the eligible population, we ranked about 139th out of 171 countries. Australia voted closer to 95%.
If you don’t vote, you have no right to complain. But worse than that, you will have no place to look for economic rescue. We must return this country to its founding principles. Next year is a presidential election year. Casting an ignorant vote is as bad as not voting. You have plenty of time to do an in depth study of all the eligible candidates. I urge you to get busy.
It’s time to build up your cash. As I predicted earlier, foreign nationals are buying us out, lock stock and barrel. Because of the sub-prime mortgage debacle, Morgan-Stanley has sold a $5 billion stake to Chinese interests. Merrill Lynch, likewise, sold $6.2 billion equity to Singapore interests. Recently Citigroup sold a $7.5 billion interest to Middle Eastern country Abu Dhabi. These interests are selling us more in petroleum or consumer goods than we can export to them, and using the surplus of our own money to purchase our country.
We were the world’s leading producer country from the time of the Second World War to the middle 1960’s. Since then, we have become the world’s leading consumer, and it is the consumer spender who has kept our economy afloat, making up a staggering 71% of our gross domestic product. Too much of this spending has been done through plastic credit cards. For many years, the increase in home values enabled consumers to pay off staggering credit card balances through increasing their home equity debt. Now, because of the sub-prime mortgage crisis, decreasing home values largely block this method of rescue. As a result, credit card accounts which are 30 days behind has jumped 26% to $17.3 billion. Those 90 days behind have jumped 50% over one year ago. Actual defaults have risen 18% to almost $961 million, according to the SEC.
The Conference Board publishes the Consumer Confidence Index, and Leading Economic Indicators, in an effort to predict the future economy. Usually, 3 consecutive months in the negative indicates a coming recession. October and November were both negative. When the 6 months cumulative total goes below a -1%, this also indicates recession. The 6 months cumulative total for November was -1.2%. Unless Santa Claus spends himself crazy for December, the future looks grim.
Does any of this interest you, or are you more concerned about who wins “Dancing with the Stars, or who is victorious in the Super Bowl? Our forefathers established and left us the greatest country in world history. Most of us have children or grandchildren who must look to us for their legacy. Are we going to fail them? When in 2000, the US voted 46% of the eligible population, we ranked about 139th out of 171 countries. Australia voted closer to 95%.
If you don’t vote, you have no right to complain. But worse than that, you will have no place to look for economic rescue. We must return this country to its founding principles. Next year is a presidential election year. Casting an ignorant vote is as bad as not voting. You have plenty of time to do an in depth study of all the eligible candidates. I urge you to get busy.
OIL RESERVES
Think About It
Aggravated that the price of gasoline is running a below peak price of $2.82 per gallon but still an average fill-up is about $50? The threat of a global recession has brought crude oil down from $100, to about $90 a barrel, temporarily. But we need to realize the problem is much more than price gouging. The United States needs to invest more money in becoming energy independent, and less on trying to establish democracies around the world.
In the 70’s, when our Alaska slope oil was discovered, we had 39 billion barrels of US oil reserve un-pumped, and in 2006, we were down to 21 billion barrels of reserve. In 1970, we produced a total of 3.5 billion barrels; while in 2006, we produced a total of only 1.8 billion barrels. In 30 years, our internal production was down by 50%. At the same time our consumption was up to 7.3 billion barrels annually. The net difference, 5.5 billion barrels, was imported. We seemed to have a policy of trying to sit on our oil, as long as we could buy worldwide. Apparently someone had conjectured that the barrel price would never surpass the $30-$50 range. It costs us something like $10 a barrel to pump oil out of the ground. According to the US Department of Energy, our 2007 oil consumption was predicted to be 20.9 million barrels per day, while production would fall to 5.1 million barrels per day. That means consumption is now 4 times production, and yet we have only about 12 years of domestic crude production left. What then? While protecting the environment, which we can do, it is extremely essential we start to drill in the Alaska Wildlife Refuge, and in all known coastal resources.
But even that is not enough to achieve long time independence. Fortunately, the US has the largest known concentration of oil shale in the world, 2,500 billion potential barrels, enough to meet our current demands internally for 110 years. Unfortunately, oil from shale currently must be produced by mining, not drilling, and is much more expensive. There is current research being done on using carbon dioxide, of which we produce too much, as a catalyst to release the oil more efficiently. Also being studied is a method of freezing a donut ring in the earth, within which steam is pumped under high pressure, helping release the oil with less danger to the environment. It is called In-situ Conversion process, or ICP. If we direct the time, money and talent to this project that we invested in a moon landing, instead of a new moon landing, we could probably succeed within 10 years, as we did before.
Our good neighbor, Canada, which is actually our major single source of petroleum imports, (8.5 million barrels annually) has one of the largest world deposits of oil sand (tarry sand), 265 billion barrels. Canada, our ally, and Venezuela, our antagonist, each control about 1/3 of the world supply of oil sands. Oil sand is much less expensive to convert than oil shale. To put it into perspective, Canada now ranks 3rd in worldwide oil production, and has 174 billion barrels of recoverable oil in oil sands, while Saudi Arabia has only 260 billion barrels of traditional oil reserve.
What is Congress’ solution? In December, they passed legislation mandating that auto manufacturers increase their Corporate Average Fuel Economy (CAFÉ) standards to 35 mpg by 2020. This means that the average mileage of all the cars they offer must be 35 mpg. Don’t you wish you could solve all your own problems by ordering some one else to engineer a quick fix? It is high time that we citizens educate ourselves to our nation’s problems and demand that our Congress address them with a righteous determination to solve them proficiently.
Aggravated that the price of gasoline is running a below peak price of $2.82 per gallon but still an average fill-up is about $50? The threat of a global recession has brought crude oil down from $100, to about $90 a barrel, temporarily. But we need to realize the problem is much more than price gouging. The United States needs to invest more money in becoming energy independent, and less on trying to establish democracies around the world.
In the 70’s, when our Alaska slope oil was discovered, we had 39 billion barrels of US oil reserve un-pumped, and in 2006, we were down to 21 billion barrels of reserve. In 1970, we produced a total of 3.5 billion barrels; while in 2006, we produced a total of only 1.8 billion barrels. In 30 years, our internal production was down by 50%. At the same time our consumption was up to 7.3 billion barrels annually. The net difference, 5.5 billion barrels, was imported. We seemed to have a policy of trying to sit on our oil, as long as we could buy worldwide. Apparently someone had conjectured that the barrel price would never surpass the $30-$50 range. It costs us something like $10 a barrel to pump oil out of the ground. According to the US Department of Energy, our 2007 oil consumption was predicted to be 20.9 million barrels per day, while production would fall to 5.1 million barrels per day. That means consumption is now 4 times production, and yet we have only about 12 years of domestic crude production left. What then? While protecting the environment, which we can do, it is extremely essential we start to drill in the Alaska Wildlife Refuge, and in all known coastal resources.
But even that is not enough to achieve long time independence. Fortunately, the US has the largest known concentration of oil shale in the world, 2,500 billion potential barrels, enough to meet our current demands internally for 110 years. Unfortunately, oil from shale currently must be produced by mining, not drilling, and is much more expensive. There is current research being done on using carbon dioxide, of which we produce too much, as a catalyst to release the oil more efficiently. Also being studied is a method of freezing a donut ring in the earth, within which steam is pumped under high pressure, helping release the oil with less danger to the environment. It is called In-situ Conversion process, or ICP. If we direct the time, money and talent to this project that we invested in a moon landing, instead of a new moon landing, we could probably succeed within 10 years, as we did before.
Our good neighbor, Canada, which is actually our major single source of petroleum imports, (8.5 million barrels annually) has one of the largest world deposits of oil sand (tarry sand), 265 billion barrels. Canada, our ally, and Venezuela, our antagonist, each control about 1/3 of the world supply of oil sands. Oil sand is much less expensive to convert than oil shale. To put it into perspective, Canada now ranks 3rd in worldwide oil production, and has 174 billion barrels of recoverable oil in oil sands, while Saudi Arabia has only 260 billion barrels of traditional oil reserve.
What is Congress’ solution? In December, they passed legislation mandating that auto manufacturers increase their Corporate Average Fuel Economy (CAFÉ) standards to 35 mpg by 2020. This means that the average mileage of all the cars they offer must be 35 mpg. Don’t you wish you could solve all your own problems by ordering some one else to engineer a quick fix? It is high time that we citizens educate ourselves to our nation’s problems and demand that our Congress address them with a righteous determination to solve them proficiently.
Tuesday, January 29, 2008
BAILOUT
Think About It
Alan Greenspan is going around the nation to promote his new book and to preach to the people that this current recession is not his fault, hoping all the blame will fall on his successor, Bernard Bernanke. I respectfully beg to differ. We have said in this column recently that this entire financial collapse started when Greenspan’s Fed kept interest rates at an unrealistic 1% for over a year during 2003-2004. The boom created by such quixotic actions always leads to an economic downfall within 5-7 years. Today, “We are it.” If you believe at all in the sanctity of the Federal Reserve, Bernard Bernanke is doing “a hell of a job” (excuse me, Pastor Jim) with his tools. He is attempting to get money flowing again in a market which has frozen because of the sub-prime mortgage debacle, and is emasculating the price of houses. As I have said before, however, I do not believe in the sanctity of the Federal Reserve, a pseudo-government consortium of private banks, which has absolute control of the US dollar, now worth 51 cents to the British and 68 cents to Europe.
If you remember the S & L bailout of 1989, Bush #1 pushed through the Resolution Trust Corporation to buy about 1,000 failed Savings and Loan Associations, and sell the their assets at a loss. RTC was funded by selling $157 billion of floating interest 30 year government bonds, which will eventually cost us between $500 billion and $1 trillion with interest. You will recall my saying if you owe $1,000 and can’t pay, you are in trouble. But, you see if you owe $157 billion and can’t pay, you have friends.
Now, back to the sub-prime debacle. We have talked about how these unrealistic mortgages were pooled, then sliced and diced and sold to investors. In order to sell the most odious of these packages, they relied on loss-insurance, or “credit-default swaps.” For a premium, an entity promises to buy defaults from you when they go bad. This industry guaranteed about $2.4 Trillion of bonds. The problem now is that the loss insurers are about to go broke, because of the massive amount of losses approaching. Two of the largest insurers, MBIA and Ambac, are likely to be bailed out by you and me. The reasoning: you and I cannot afford to let them fail! Pardon me? My dollar is worth 51 cents to the British now, and will probably be worth maybe 45 cents after the bailout, where is my profit? The Federal Reserve can print as much money as they like with no backing but their word, and every time they print more, the value of the dollars I hold goes down. My old granddaddy, who hoisted a few toddies before he quit, said: “You cannot drink yourself sober, and you can’t spend yourself rich.” Well said, granddad!
It appears the big mortgage bankers of New York, who originated, sold, and then also got caught holding a bagful of these collateralized debt obligations, may continue without a bailout. Why? Because No 1, they have sold big pieces of their ownership to foreign entities to raise more capital; and No 2, if we bail out MBIA, Ambac and others, their bad loans may eventually be bought at par (with our money, of course).
This is your money, Madison. This is your money, America. How much longer are you going to let your Federal government steal it from you? I repeat: We are the bosses, they are the employees. Our government, in the name of free trade and prosperity, has fostered turning us from a producer nation to a consumer nation, from a creditor nation to a debtor nation, from THE major world power, to a world (?) power. We have extended their employment contracts. We have stood and watched. We should be ashamed.
Alan Greenspan is going around the nation to promote his new book and to preach to the people that this current recession is not his fault, hoping all the blame will fall on his successor, Bernard Bernanke. I respectfully beg to differ. We have said in this column recently that this entire financial collapse started when Greenspan’s Fed kept interest rates at an unrealistic 1% for over a year during 2003-2004. The boom created by such quixotic actions always leads to an economic downfall within 5-7 years. Today, “We are it.” If you believe at all in the sanctity of the Federal Reserve, Bernard Bernanke is doing “a hell of a job” (excuse me, Pastor Jim) with his tools. He is attempting to get money flowing again in a market which has frozen because of the sub-prime mortgage debacle, and is emasculating the price of houses. As I have said before, however, I do not believe in the sanctity of the Federal Reserve, a pseudo-government consortium of private banks, which has absolute control of the US dollar, now worth 51 cents to the British and 68 cents to Europe.
If you remember the S & L bailout of 1989, Bush #1 pushed through the Resolution Trust Corporation to buy about 1,000 failed Savings and Loan Associations, and sell the their assets at a loss. RTC was funded by selling $157 billion of floating interest 30 year government bonds, which will eventually cost us between $500 billion and $1 trillion with interest. You will recall my saying if you owe $1,000 and can’t pay, you are in trouble. But, you see if you owe $157 billion and can’t pay, you have friends.
Now, back to the sub-prime debacle. We have talked about how these unrealistic mortgages were pooled, then sliced and diced and sold to investors. In order to sell the most odious of these packages, they relied on loss-insurance, or “credit-default swaps.” For a premium, an entity promises to buy defaults from you when they go bad. This industry guaranteed about $2.4 Trillion of bonds. The problem now is that the loss insurers are about to go broke, because of the massive amount of losses approaching. Two of the largest insurers, MBIA and Ambac, are likely to be bailed out by you and me. The reasoning: you and I cannot afford to let them fail! Pardon me? My dollar is worth 51 cents to the British now, and will probably be worth maybe 45 cents after the bailout, where is my profit? The Federal Reserve can print as much money as they like with no backing but their word, and every time they print more, the value of the dollars I hold goes down. My old granddaddy, who hoisted a few toddies before he quit, said: “You cannot drink yourself sober, and you can’t spend yourself rich.” Well said, granddad!
It appears the big mortgage bankers of New York, who originated, sold, and then also got caught holding a bagful of these collateralized debt obligations, may continue without a bailout. Why? Because No 1, they have sold big pieces of their ownership to foreign entities to raise more capital; and No 2, if we bail out MBIA, Ambac and others, their bad loans may eventually be bought at par (with our money, of course).
This is your money, Madison. This is your money, America. How much longer are you going to let your Federal government steal it from you? I repeat: We are the bosses, they are the employees. Our government, in the name of free trade and prosperity, has fostered turning us from a producer nation to a consumer nation, from a creditor nation to a debtor nation, from THE major world power, to a world (?) power. We have extended their employment contracts. We have stood and watched. We should be ashamed.
Saturday, January 19, 2008
SUB-PRIME DEBACLE
Think About It
Confused about all the fuss over the “sub-prime mortgage slime” and its ramifications? Give me 10 minutes and we will try to make sense of it and see how and why it turned the financial world upside down.
The Federal Reserve, which is really a pseudo-government organization owned by its member banks, controls the interest rates in this country. After the tech stock crash of 2000, and the event of 9/11/2001, they kept the Fed Funds rate as low as 1% for an extended period of time during 2003 and 2004. This was good for all of us who needed to borrow money for sensible purposes. But the people who had big money to lend were going crazy at such low returns. They said to the money brokers of New York, “We don’t care how you do it, just find us a way to make 8-11% on our money, and we will buy it all.” The money brokers, ever anxious to oblige (and make a fee) came up with the answer.
They invented SIV/s (structured investment vehicles) to buy CDO/s (collateralized debt obligations), and CMO/s (collateralized mortgage obligations) and they put together a lot of good and potentially bad mortgages into packages, and sold tranches (slices) to eager, money-hungry investors. You could pick the amount of risk and return you wanted, but it all appeared to be rated AAA. Some SIV/s even borrowed money short term, with asset backed commercial paper (ABCP), to buy long- term 30 year CDO/s. It’s like borrowing on your credit card to purchase someone’s home mortgage.
When word got out as to how bad some of these high interest mortgages were, the ABCP market completely dried up. Without the ability to refinance their short term debts, the SIV/s would have to sell their long term CDO/s, but there was no market and no one could even determine their value. To the rescue comes the Fed. Being the lender of last resort (they print money at will), they offered to lend to banks at their discount window, and even said they would take this bad paper as collateral for a short time, but longer than usually allowed.
Next, the Treasury Secretary encouraged the three largest banks to form an MLEC, (Master Liquidity Enhancement Conduit---or a huge pool of money) to buy securities from those SIV/s who could not sell to anyone else, and did not even know what they were worth. This keeps the SIV problems totally separate from the bankers, who were their creators.
Thus proves the old saw—if you borrow $1,000 and can’t pay, you are in trouble. But if you borrow $100 million and can’t pay, someone is going to help you out. We can’t afford to upset the money world. Someone should have learned a lesson from 1964, and LBJ. He told the Federal Housing Administration, until then one of the government’s only success stories, to quit lending based on credit worthiness, and to make their decisions based on what seemed to be “reasonable risks”. Within a few years, those borrowers who should not have been given loans defaulted, the lenders repossessed; and FHA, who had insured the loans, ended up with the houses; losing thousands of dollars on each one, when they resold them. Who lost? We did, because we are the government. Now, housing prices are going to be depressed for probably several years, and we lose again. Any time a boom is created by unreasonably low interest rates, a bust will follow in about 5-7 years. The Fed seems to enjoy ignoring history.
Confused about all the fuss over the “sub-prime mortgage slime” and its ramifications? Give me 10 minutes and we will try to make sense of it and see how and why it turned the financial world upside down.
The Federal Reserve, which is really a pseudo-government organization owned by its member banks, controls the interest rates in this country. After the tech stock crash of 2000, and the event of 9/11/2001, they kept the Fed Funds rate as low as 1% for an extended period of time during 2003 and 2004. This was good for all of us who needed to borrow money for sensible purposes. But the people who had big money to lend were going crazy at such low returns. They said to the money brokers of New York, “We don’t care how you do it, just find us a way to make 8-11% on our money, and we will buy it all.” The money brokers, ever anxious to oblige (and make a fee) came up with the answer.
They invented SIV/s (structured investment vehicles) to buy CDO/s (collateralized debt obligations), and CMO/s (collateralized mortgage obligations) and they put together a lot of good and potentially bad mortgages into packages, and sold tranches (slices) to eager, money-hungry investors. You could pick the amount of risk and return you wanted, but it all appeared to be rated AAA. Some SIV/s even borrowed money short term, with asset backed commercial paper (ABCP), to buy long- term 30 year CDO/s. It’s like borrowing on your credit card to purchase someone’s home mortgage.
When word got out as to how bad some of these high interest mortgages were, the ABCP market completely dried up. Without the ability to refinance their short term debts, the SIV/s would have to sell their long term CDO/s, but there was no market and no one could even determine their value. To the rescue comes the Fed. Being the lender of last resort (they print money at will), they offered to lend to banks at their discount window, and even said they would take this bad paper as collateral for a short time, but longer than usually allowed.
Next, the Treasury Secretary encouraged the three largest banks to form an MLEC, (Master Liquidity Enhancement Conduit---or a huge pool of money) to buy securities from those SIV/s who could not sell to anyone else, and did not even know what they were worth. This keeps the SIV problems totally separate from the bankers, who were their creators.
Thus proves the old saw—if you borrow $1,000 and can’t pay, you are in trouble. But if you borrow $100 million and can’t pay, someone is going to help you out. We can’t afford to upset the money world. Someone should have learned a lesson from 1964, and LBJ. He told the Federal Housing Administration, until then one of the government’s only success stories, to quit lending based on credit worthiness, and to make their decisions based on what seemed to be “reasonable risks”. Within a few years, those borrowers who should not have been given loans defaulted, the lenders repossessed; and FHA, who had insured the loans, ended up with the houses; losing thousands of dollars on each one, when they resold them. Who lost? We did, because we are the government. Now, housing prices are going to be depressed for probably several years, and we lose again. Any time a boom is created by unreasonably low interest rates, a bust will follow in about 5-7 years. The Fed seems to enjoy ignoring history.
Tuesday, January 1, 2008
WHO ARE NEO-CONSERVATIVES?
Think About It
True conservatives, arise and be wary. The neo-conservatives (neocons) are not really your friends and your brothers. Yet they are effectively taking control of the National Republican Party; which was revived in the 1960’s, when Barry Goldwater first cracked the wall the Democratic Party had built around the “solid south”.
The neocon’s “self confessed” godfather is Irving Kristol, father of William Kristol, Fox TV contributor and Editor of “The Weekly Standard”. Their origin was in the 1970’s among elite liberal intellectuals who grew disillusioned with the Democratic Party’s growing desire to focus the Federal government on social policies, and reluctance to spend adequately for defense. They decided to infiltrate the GOP.
According to Kristol senior, “their historical task and political purpose is to convert the Republican Party, and American conservatism in general, against their respective wills, into a new kind of conservative politics suitable to governing a modern democracy.” Their heroes include TR, FDR, and Ronald Reagan (the last, without adequate justification, in my opinion). They ignore Hoover, Eisenhower and Goldwater. They assert that the large majority of the present Party knows nothing, and could not care less, about neo-conservatism. Unfortunately, they are probably exactly right.
They agree to cutting tax rates in order to spur economic growth, but their attitude toward burgeoning Federal debt is far less risk adverse than most conservatives. They aver that budgetary deficits are the cost (temporary, they hope) of pursuing economic growth. They feel no alarm at government growth in the past century, seeing it as inevitable. They feel that most people prefer strong central government to weak central government. They espouse sympathy toward restricting social evils, in an attempt to hold the “religious right” in their camp.
But they are most easily defined by their foreign policy. They do not want one world government, but they want the U. S. to be an empire which dominates and controls the world. While calling themselves Patriots, they think it provincial to believe that our national interests begin and end at our borders. We are, rather, to enforce our ideological interests around the world. Unlike most conservatives, they have no reservation against military intervention and nation building. They see our military might as the result of the “bad luck” we had in having to fight wars in Korea, Viet Nam, the Gulf, Kosovo and Afghanistan. “The result,” they believe, “is that our military spending expanded more or less in line with our economic growth.” They believe that if you have such power, you have the responsibility to use it. Either you find opportunities to use it, or the world will discover them for you. They fear no danger in creating enemies around the world in the name of democracy and capitalism. This, in my opinion, is a misguided philosophy.
I have come to believe that you cannot “bestow” democracy upon any nation. Those who are not willing to pledge their own lives, fortunes and sacred honor to achieve such independence, can not hold it if given to them. Iraq, I offer, as my proof.
We should heed the admonition of “Ike” in his farewell address 40 years ago: “In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military industrial complex. The potential for the disastrous rise of misplaced power exists and will persist. We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.” Well said, Ike
True conservatives, arise and be wary. The neo-conservatives (neocons) are not really your friends and your brothers. Yet they are effectively taking control of the National Republican Party; which was revived in the 1960’s, when Barry Goldwater first cracked the wall the Democratic Party had built around the “solid south”.
The neocon’s “self confessed” godfather is Irving Kristol, father of William Kristol, Fox TV contributor and Editor of “The Weekly Standard”. Their origin was in the 1970’s among elite liberal intellectuals who grew disillusioned with the Democratic Party’s growing desire to focus the Federal government on social policies, and reluctance to spend adequately for defense. They decided to infiltrate the GOP.
According to Kristol senior, “their historical task and political purpose is to convert the Republican Party, and American conservatism in general, against their respective wills, into a new kind of conservative politics suitable to governing a modern democracy.” Their heroes include TR, FDR, and Ronald Reagan (the last, without adequate justification, in my opinion). They ignore Hoover, Eisenhower and Goldwater. They assert that the large majority of the present Party knows nothing, and could not care less, about neo-conservatism. Unfortunately, they are probably exactly right.
They agree to cutting tax rates in order to spur economic growth, but their attitude toward burgeoning Federal debt is far less risk adverse than most conservatives. They aver that budgetary deficits are the cost (temporary, they hope) of pursuing economic growth. They feel no alarm at government growth in the past century, seeing it as inevitable. They feel that most people prefer strong central government to weak central government. They espouse sympathy toward restricting social evils, in an attempt to hold the “religious right” in their camp.
But they are most easily defined by their foreign policy. They do not want one world government, but they want the U. S. to be an empire which dominates and controls the world. While calling themselves Patriots, they think it provincial to believe that our national interests begin and end at our borders. We are, rather, to enforce our ideological interests around the world. Unlike most conservatives, they have no reservation against military intervention and nation building. They see our military might as the result of the “bad luck” we had in having to fight wars in Korea, Viet Nam, the Gulf, Kosovo and Afghanistan. “The result,” they believe, “is that our military spending expanded more or less in line with our economic growth.” They believe that if you have such power, you have the responsibility to use it. Either you find opportunities to use it, or the world will discover them for you. They fear no danger in creating enemies around the world in the name of democracy and capitalism. This, in my opinion, is a misguided philosophy.
I have come to believe that you cannot “bestow” democracy upon any nation. Those who are not willing to pledge their own lives, fortunes and sacred honor to achieve such independence, can not hold it if given to them. Iraq, I offer, as my proof.
We should heed the admonition of “Ike” in his farewell address 40 years ago: “In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military industrial complex. The potential for the disastrous rise of misplaced power exists and will persist. We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.” Well said, Ike
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