Dale Franks’ QandO posts
There is an implicit, if unspoken consensus among many—if not most—in the economic community of the west that the worst portion of our current economic difficulty is behind us. That the economy, weak and shaky as it may be, has avoided the danger of complete collapse. The opinion holds that we can look forward resignedly, if not confidently, to a period, however long, of subpar economic growth, but growth nonetheless.
I fear that confidence is misplaced. The fiscal and monetary policy mix we seem determined to pursue, is not only unwise, but presents grave economic risks that should not be overlooked. I am not the only one to feel this way. On Monday, Professor Kevin Dowd gave the address shown below at the Adam Smith Institute, the UK’s leading Libertarian think tank. It’s entitled The Decapitalization of the West, and it’s primary theme, as a survey of the economies of the West, and their policy results, can best be encapsulated with the lyrics of a Noel Coward song: " There are bad times just around the corner, There are dark clouds hurtling through the sky".
It takes an hour of your time to watch this. You owe yourself that hour, if for no other reason than to learn how you might prepare for the economic troubles for which 2009 was just a prelude.
"Keynesianism has been tested to destruction," and we’re about to pay the price for that testing.
Today’s statistical releases:
Producer prices were restrained last month, with the overall PPI remaining unchanged, and the core rate rising only 0.1%.
Retail sales were weaker than expected, with the month-over-month sales rate increase in August unchanged from July. Less autos, the change was only a 0.1% increase.
Business inventories rose only 0.4% in July against a 0.7% rise for business sales.
MBA Purchase Applications for the September 9 week rose by 6.3%, the first overall increase in several weeks.
As it happens, there are no statistical releases for today, so we get a slight breather. But we are awaiting some important releases over the course of the week, with the most important of them hitting Wednesday and Thursday. The highlights of the coming week are as follows:
- Tomorrow’s Import/Export prices is of moderate importance, as is the afternoon’s release of the Treasury budget
- Wednesday brings us the PPI and Retail Sales
- Thursday is the big day of the week, with the release of the CPI, Philly Fed, Industrial Production, and Jobless Claims.
- Consumer sentiment closes the week out on Friday.
Obviously, the inflation numbers for producers and consumers are the key data for this week. The consensus estimate for the PPI is for a –0.1% drop in prices, and a 0.2% price increase at the consumer level.
In this podcast, Bruce Michael, and Dale discuss discuss the president’s proposed jobs bill, Gunwalker, and Solyndra.
The direct link to the podcast can be found here.
As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2010, they can be accessed through the RSS Archive Feed.
You may have heard that, at about 15:38 Pacific time yesterday, an APS worker outside of Yuma, AZ, accidentally tripped a fault that shut off power to parts of Arizona, California, and Baja California in Mexico. So, one guy, apparently, can shut down power to 3 states in 2 countries. That really fills me with confidence about the robustness of the electrical grid.
Anyway, I was one of the 6 million people who lost power during this horrific crisis. In an instant, we were thrown into the stone age by the loss of modern technology, living in a world lit only by fire. I kept a diary of this frightening experience. Below are my diary notes, written contemporaneously during the collapse. I append it here so that historians can know how it really was.
1538: Crap! I just lost all electrical power at my house! So much for liveblogging tonight. My netbook and 4G modem work though.
1550: Can’t get to the SDG&E web site, or through on the phone. Odd.
1605: Liveblogging president’s jobs speech. Streaming video from White House via 4G modem on my netbook with its tiny screen. Inconvenient. Like being a settler in a covered wagon. Will the power ever come back?
1724: I’m learning how people lived in Oldy Days without electricity. This sucks. Why do these things always happen to me?
1745: Power outages throughout San Diego County, reports of outages in Mexico, AZ, NM. Millions without power. Trolleys dead. Massive traffic.
1840: Went out on my motorcycle for a pack of smokes. Stores closed, smokes hard to acquire. Had to go to 2 stores to find them. Civilization is breaking down. Loading my rifles now.
1930: Darkness is falling. Dinner time approaching. Must resist cannibalistic urges.
2018: So, ONE GUY can cut off power to three states in two countries? One guy? Seriously?
2100: SDG&E says, "If you have a personal family emergency plan, activate it now." My personal family emergency plan is to kill my neighbors for their food. Too soon? Or do they already suspect my plans?
2140: No power for 6 hours. Veneer of civilization crumbling away. Typing on a netbook via 4G in candlelight like some sort of animal.
2230: 7 hours without power. My white wines are perilously close to room temperature. We’re just living like wild beasts now.
2316: Must go to bed and try to sleep now. All windows are open to try to cool the house. Temperature must be approaching 80°. May start sweating at any minute. Physical torture affecting my thought processes.
2330: With the candles out, it’s pitch black. Strange noises outside the windows. What was once civilization may now be infested by wolves and mountain lions. Or possums.
2340: Must try to sleep. Thank God for the protection offered by my four large dogs. If I am alive in the morning, it is thanks to them.
0230: Am awoken by lights, television. Air conditioning back on, so I have to get up and close all the windows. That sucks, ’cause I have to be up at 0700. Will this horror never end!?
0231: Oh, wait…
Some may try to trivialize this blackout in the future. But now you know how it really was.
The gift that keeps on giving: The White House’s chart of unemployment predictions in the Stimulus/no Stimulus world. Superimposed is the graph of actual unemployment, but now, with wall street economists predictions for the near-term future.
I think a big speech will help, though. ‘Cause that’s what we’ve been missing. Speeches.
The analysis of that speech is pretty straightforward and simple. We’ve spent $800 billion for TARP, $1.4 trillion in the stimulus package, and $2 trillion in quantitative easing from the Fed. Now, if we spend another $430 billion on the American Jobs Act, that’ll be the fix we’ve been looking for, and everything will be peachy.
The president’s child-like faith in the power of government is touching. And frightening.
Today’s economic statistics releases:
Exports increased and imports decreased, resulting in a smaller than expected trade deficit of $44.8 billion. The trade gap in all three components—petroleum, non-petroleum, and services—declined.
Initial Jobless claims continue held steady in the last week, up 2,000 to 414,000. The four-week moving average rose 3,750 to 414,750 which is nearly 9,000 higher than last month.
U.S. consumer confidence last week fell to -49.3, the second-lowest reading this year.
UPDATE: Speaking of joblessness and jobs, as we await the president’s big jobs speech tonight, Darryl Issa’s House Oversight Committee reports on the depth of the employment problem. It doesn’t look good. The key takeaways:
Two and a half years after its implementation, at a cost of $825 billion, the economy has lost 2.3 million jobs
In the months following the stimulus, unemployment rose well above the ceiling of 8 percent promised by President Obama and Administration officials to over 10.1 percent
Less than 55 percent of Americans have full time jobs—the lowest percentage in modern times. Some 25 million people are unemployed or unable to find full time jobs
A study by Ohio State University in May found that instead of creating jobs, the stimulus "destroyed/forestalled one million private sector jobs" but did create 450,000 jobs in the government sector
8.1 million workers are employed part time because they are unable to find full-time jobs or their hours have been cut
An additional 1.1 million discouraged workers have stopped looking for jobs because they do not believe there were any available—taken together, true unemployment tops 16 percent
So, when you hear the president talk about jobs "saved or created" by the stimulus tonight, remember that the true phrase should be "destroyed or forestalled". Because the president seems to be wanting a Stimulus II, to add to the awesome economic power of Stimulus I. And TARP. And Quantitative Easing I. And Quantitative Easing II.
It’s not a big day for economic releases today, so we get a bit of a breather from major releases.
The Mortgage Bankers Association reports that their composite index fell once again, as mortgage applications dropped –4.9%, despite low interest rate. Purchase applications actually increased by 0.2%, but re-fi apps fell –6.3%.
In retail sales for the week, ICSC-Goldman reports same-store sales fell steeply by 0.7% last week to pull down the year-on-year rate to 2.7%. Conversely, Redbook reports same-store year-on-year rose sharply by 0.9% last week, for a 4.9% rate.
UPDATE: The afternoon release of the Fed’s "Beige Book", prepared for the September 20-21 FOMC meeting, shows that the economy continues to expand at a "modest pace." Some Districts noted mixed or weakening activity, however the Fed believes that a double-dip recession is not in the offing. Overall, the report indicates that a sluggish recovery continues.