Sunday, December 28, 2008

Canary in the Mine, Chirping

Few really bad ideas escape being floated in the New York Times:

In the case of the Treasury, the money comes from the same wellspring that has been financing American debt for decades: Investors in the United States and around the world — not least, the central banks of China, Japan and Saudi Arabia, which have parked national savings in the safety of American government bonds.

Americans have gotten accustomed to treating this well as bottomless, even as anxiety grows that it could one day run dry with potentially devastating consequences.

The value of outstanding American Treasury bills now reaches $10.6 trillion, a number sure to increase as dollars are spent building bridges, saving auto jobs and preventing the collapse of government-backed mortgage giants. Worry centers on the possibility that foreigners could come to doubt the American wherewithal to pay back such an extraordinary sum, prompting them to stop — or at least slow — their deposits of savings into the United States.

That could send the dollar plummeting, making imported goods more expensive for American consumers and businesses. It would force the Treasury to pay higher returns to find takers for its debt, increasing interest rates for home- and auto-buyers, for businesses and credit-card holders.

...But most economists cast such thinking as recklessly extreme, akin to putting an obese person on a painful diet in the name of long-term health just as they are fighting off a potentially lethal infection. In the dominant view, now is no time for austerity — not with paychecks disappearing from the economy and gyrating markets wiping out retirement savings. Not with the financial system in virtual lockdown, and much of the world in a similar state of retrenchment, shrinking demand for American goods and services.

Since the Great Depression, the conventional prescription for such times is to have the government step in and create demand by cycling its dollars through the economy, generating jobs and business opportunities. That such dollars must be borrowed is hardly ideal, adding to the long-term strains on the nation. But the immediate risks of not spending them could be grave.

“This is a dangerous situation,” says Mr. Baily, essentially arguing that the drunk must be kept in Scotch a while longer, lest he burn down the neighborhood in the midst of a crisis. “The risks of things actually getting worse and us going into a really severe recession are high. We need to get more money out there now.”

Had the government worried more about limiting spending than about the potential collapse of the mortgage giants, Fannie Mae and Freddie Mac, it might have triggered precisely the dark scenario that consumes those who worry most about growing American debt, argues Brad Setser, an economist at the Council on Foreign Relations.

The most frequently voiced worry about the bailouts is that the Fed, by sending so much money sloshing through the system, risks generating a bad case of rising prices later on. That puts the onus on the Fed to reverse course and crimp economic activity by lifting interest rates and selling assets back to banks once growth resumes.

...But that, as most economists see it, is a worry for another day.

This is wrong. I suppose its the price we pay for 1/3 of the US population being born since 1980. Most Americans, economists included, don't remember the bad old days of the 1970s.

The cutoff for the failure of the US bond market is NOT global disbelief in our power to pay back the bond. We're constitutionally required to do so, and so default is more than just a ministerial decision in this country.

The US bond market will fail when dollar inflation and dollar depreciation is so much higher than our interest rate, that, even after we've paid ten or thirty years of interest in full and on time, the Japanese or European investor comes close to losing money or breaking even, or, appears likely to do so. When we take valuable Euro or Yen and turn them into soft American dollars at a rate much lower than Bonn or London offers, then we're screwed.

And that's right where we're headed, even if we insist it's a problem for another day.

The experts have insisted for over ten years that interest rates need to be below 5% for sustained economic growth. That's nowhere near high enough to whip inflation. When inflation comes, and we waste a decade to fight it, then we're going to have very low growth and intense deficits.

Better a sharp recession now and for a year. We took that medicine in 1982 and our economy was better for it.

The other side of the coin is that it is NOT 11:55 on the Doomsday Clock, a nuclear war among the G8 seems remote, and nobody needs to keep America on all cylinders for their own survival.

I'm told I'm naive to think we can operate without our top tier of commercial lenders, that the private sector can't possibly do enough. It seems more naive to me to imagine that the rest of the planet will bury their wealth here, for our benefit, as we squander it faster than we can borrow.

Friday, December 26, 2008

Merry Christmas!

Blogger wouldn't let me on to post yesterday...

Went to 10:30 am Mass and it was in Korean. A very interesting service and a reminder that we're really a global church, which was comforting.

Koreans hold the collection basket up front and the congregation walks up with their envelopes...a good fundraising technique.

Friday, December 12, 2008

Better Instincts?

"I think the party has to take a hard look at itself," Powell said in the interview, which was taped Wednesday. "There is nothing wrong with being conservative. There is nothing wrong with having socially conservative views — I don't object to that. But if the party wants to have a future in this country, it has to face some realities. In another 20 years, the majority in this country will be the minority."

Powell, who crossed party lines and endorsed President-elect Barack Obama just weeks before the election, said the GOP must see what is in the "hearts and minds" of African-American, Hispanic and Asian voters "and not just try to influence them by… the principles and dogma."

"I think the party has to stop shouting at the world and at the country,"Powell said. "I think that the party has to take a hard look at itself, and I've talked to a number of leaders in recent weeks and they understand that." Powell, who says he still considers himself a Republican, said his party should also stop listening to conservative radio talk show host Rush Limbaugh.

"Can we continue to listen to Rush Limbaugh?" Powell asked. "Is this really the kind of party that we want to be when these kinds of spokespersons seem to appeal to our lesser instincts rather than our better instincts?"

Since when is voting our race, appealing to a better instinct?

We can't approach ethnic minorities as Americans, taxpayers, employers, workers, parents? They've got something in their hearts and minds beyond that? Something that blocks any appeal to reason and non-racial politics?


I wonder if Colin Powell has ever lived in California. That's what not having a white majority looks like, and its why a liberal state enacted a ban on affirmative action based on race--you have nonwhites suing the state because other nonwhites get a "disproportionate" share of the pie.

It doesn't work. That's why we endorse and maintain the "principles and dogma" that oppose such stuff--the alternative doesn't work. You can't call yourself pragmatic if you're going to fail.

And I'd have a better opinion of Powell and most other moderates if they stopped arguing that conservatives, uh, "seem" to appeal to bigotry and racism and such, and started dealing with what we actually say. But then, they'd have to listen.

Tuesday, December 02, 2008

God Bless Jim DeMint

[Hat tip:]

“The Capitol Visitor Center is designed to tell the history and purpose of our nation's Capitol, but it fails to appropriately honor our religious heritage that has been critical to America’s success. While the Architect of the Capitol has pledged to include some references to faith, more needs to be done. You cannot accurately tell the history of America or its Capitol by ignoring the religious heritage of our Founders and the generations since who relied on their faith for strength and guidance. The millions of visitors that will visit the CVC each year should get a true portrayal of the motivations and inspirations of those who have served in Congress since its establishment.

“The current CVC displays are left-leaning and in some cases distort our true history. Exhibits portray the federal government as the fulfillment of human ambition and the answer to all of society’s problems. This is a clear departure from acknowledging that Americans’ rights ‘are endowed by their Creator’ and stem from ‘a firm reliance on the protection of Divine Providence.’ Instead, the CVC’s most prominent display proclaims faith not in God, but in government. Visitors will enter reading a large engraving that states, ‘We have built no temple but the Capitol. We consult no common oracle but the Constitution.’ This is an intentional misrepresentation of our nation’s real history, and an offensive refusal to honor America's God-given blessings. As George Washington stated clearly in his first inaugural address:

‘…[I]t would be peculiarly improper to omit in this first official Act, my fervent supplications to that Almighty Being who rules over the Universe, who presides in the Councils of Nations, and whose providential aids can supply every human defect, that his benediction may consecrate to the liberties and happiness of the People of the United States, a Government instituted by themselves for these essential purposes: and may enable every instrument employed in its administration to execute with success, the functions allotted to his charge.’

“The fundamental principles of the freedom we enjoy in this country stem from our Founding Fathers’ beliefs in a higher power, beliefs put forth in the Declaration of Independence and manifest throughout our Constitution,” said Senator DeMint. “If we cease to acknowledge this fact, we may cease to enjoy some of the freedoms we take for granted. We must not censor historical references to God for the sake of political correctness. And we must truthfully represent the limited form of government the Constitution lays out so that our ‘government of the people, by the people, and for the people, shall not perish from the earth.’ So help us God.”

This is now considered 'fringe ideology' to too many wielding political, social and economic power in this country.