Free Markets, Free People

Dale Franks

Dale Franks’ QandO posts

Observations: The QandO Podcast for 07 Nov 10

In this podcast, Bruce and Dale discuss Tuesday’s midterm elections, and Friday’s unemployment report.

The direct link to the podcast can be found here.

Observations

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 2009, they can be accessed through the RSS Archive Feed.

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Quantitative Easing II: Making No One Happy

The reactions to the Federal Reserve’s announcement that they would embark on a new, $600 billion round of quantitative easing is raising reactions from all around the world.

China:

Unbridled printing of dollars is the biggest risk to the global economy, an adviser to the Chinese central bank said in comments published on Thursday, a day after the Federal Reserve unveiled a new round of monetary easing.

Germany:

German Economy Minister Rainer Bruederle said on Thursday he was concerned at U.S. efforts to stimulate growth by injecting liquidity into its struggling economy.

“I view that not without concern,” Bruederle said, adding that a variety of measures were needed to solve the problem and it was not enough to pump in liquidity alone…

Bruederle also said there was some truth to the criticism that the United States was influencing the dollar’s exchange rate with monetary policy and voiced concern about increased protectionism in different forms around the world.

Brazil:

Brazilian officials from the president down have slammed the Federal Reserve’s decision to depress US interest rates by buying billions of dollars of government bonds, warning that it could lead to retaliatory measures.

“It’s no use throwing dollars out of a helicopter,” Guido Mantega, the finance minister, said on Thursday. “The only result is to devalue the dollar to achieve greater competitiveness on international markets.”

Brazil, especially, seems to be treating this as a currency devaluation war, and, according to the Financial Times, really doesn’t like that.

But the worries go far beyond trade and protectionism issues brought about by fears of devaluation.  It’s the domestic inflationary effects which have many–including me–worried:

Federal Reserve policies have put the US dollar the risk of crashing, which will hammer consumers through higher prices, strategist Axel Merk told CNBC…

“So we will have a cost-push inflation. We’re going to get inflation but not where Bernanke wants to have it. We’re not going to get wages to go up. We’ll get the price at the gas pump to go up instead.”

We’re right on a path towards high inflation and slow economic growth, otherwise known as “stagflation”.  Except that there’s a lot more monetary expansion this time than we experienced in the 1970s.  Maybe we’ll have to coin a new term, like “hyperstagflation”.

Oh, and in case you were wondering, it begins like this.

“So we will have a cost-push inflation. We’re going to get inflation but not where Bernanke wants to have it. We’re not going to get wages to go up. We’ll get the price at the gas pump to go up instead.”

Looking into the October unemployment numbers

This is one of those cases where the headline numbers and claims of new jobs are so totally out of step with reality, that it’s hard to believe how badly the banner numbers reverse the actual employment situation.  In fact, I’d argue that this month highlights perfectly why the Bureau of Labor Statistics needs to thoroughly revise the way the Employment Situation is reported.

To understand why, let’s look at the “A” Tables of the Employment Situation report. Take a careful look at the “Employed” line in the table.  Last month, there were (in thousands) 139,391 persons employed.  This month, there were (in thousands) 139,061 employed. So, non-farm payrolls may have increased by 151,000 jobs, but there are 330,000 fewer employed Americans than there were last month.

The total civilian, non-institutional adult population, in thousands, was 238,530 this month.  With the historical long-term trend rate of labor force participation of 66.2%, that means the actual size of the labor force should be 157,907.  With only 139,061 persons actually employed, the real unemployment rate is actually 13.6%, up from 13.2% last month, and from 12.8% in May.

The current labor force participation rate of 64.5 is the lowest since November of 1984.

Essentially, the employment situation worsened last month, rather than getting better. The only reason it looks better is because so many people are just dropping out of the labor force. When they do so, they magically disappear from the official banner statistics.

What is actually happening is that job growth is not keeping up with population growth, so every month, real employment is declining. It’s nice to see that employers have added 151,000 payroll jobs, but that simply isn’t a rate that keeps pace with job force growth. To give you an idea of how this is working, since Oct 09, the civilian non-institutional adult population has increased by 1,980 thousand people, while at the same time, the number of employed has risen by 819 thousand.  That means that there is a deficit of 1,161 thousand jobs that has built up over the last year.

The banner statistics of payroll jobs and unemployment rate are increasingly out of step with the true employment situation.

“But, I’m not bitter…”

Would you like to get a crystal clear insight into the “progressive” mindset.  An informative look into the hard Left’s reaction to this week’s election.  Well, go no further than this diary by Tim Wise at Daily Kos. Mr. Wise is not only miffed at the election, he’s already laying out a picture of the future in which the tables are turned.

You really should read the whole thing. I’d be interested in your responses.

What made me laugh out loud was wondering who Mr. Wise is planning to tax to pay for his socialist utopia, after all the rich white people are dead.

Quantitative Easing, Round II, Approved

The Federal Reserve announced today that it would embark on a second round of “quantitative easing”, to the tune of $600 billion. This will join the previous round of $1.3 trillion over the last 18 months. For those of you who don’t know, Quantitative Easing is a monetary policy transaction, whereby the Federal Reserve buys securities from banks–usually US Treasury Notes and Bonds–with cash.   This infuses fresh cash into the monetary system. After this second round of Quantitative Easing, the Fed will have injected $1.9 TRILLION in cash into the monetary system.

Now, sadly, the Fed did not, and does not, just have $1.9 trillion in cash lying around in big vaults to take Scrooge McDuck money swims in when the mood takes them. But that’s not particularly a problem, since the Federal Reserve simply prints up the required amount of cash (or creates it electronically for funds transfers). In any event, the Fed buys the securities with money that is newly made for that purpose.

With that in mind, my advice to you is to collect all of the printed currency you can.  You will then need to package it in extremely tightly-wrapped bundles.  Yes, it is a bit troublesome to do, but you’ll find that it burns much longer and hotter that way, which works far better for either cooking or heating purposes.

Election Reflections

I have a few random thoughts about the midterm election results.

You never run the table.  You always lose a race or two where you th ought you were strong. But what was odd about last night is how the Republican wave simply crashed against the Pacific time  zone. After turning over the Senate seats in Pennsylvania, and especially in the blue states of Wisconsin and Michigan, it’s hard to believe that the Democrats kept Colorado, Washington, and Nevada intact.  There was every indication that two of those states were going to go Republican.  That they didn’t is just puzzling.

There hasn’t been a mid-term House turnover this sweeping since 1938, when a Republican tide essentially ended the New Deal. The 65-seat gain for Republicans means that the Democrats lost more house seats than the Republicans did in 2006 and 2008 combined.

CNN is projecting the final Republican House seat tally will be 243.  I predicted 247 (+/-3).  So, I missed it by one seat.  This means that, of the 43 toss-up seats, more than half broke for the Democrats.  This is the reverse of historical trend, which is that about 55% of toss-up seats break for the majority party. Again, you never run the table.

The less-reported results from last night is that Republicans really swept up at the state level. As Erick Erickson wraps it up:

There will be 18 states subject to reapportionment. The Republicans will control a majority of those — at least ten and maybe a dozen or more. More significantly, a minimum of seventeen state legislative houses have flipped to the Republican Party.

The North Carolina Legislature is Republican for the first time since 1870. Yes, that is Eighteen Seventy.

The Alabama Legislature is Republican for the first time since 1876.

For those saying this is nothing because it is the South, consider these:

The entire Wisconsin and New Hampshire legislatures have flipped to the GOP by wide margins.

The State Houses in Indiana, Pennsylvania, Michigan, Ohio, Iowa, Montana, and Colorado flipped to the GOP.

The Maine and Minnesota Senates flipped to the GOP.

The Texas and Tennessee Houses went from virtually tied to massive Republican gains. The gains in Texas were so big that the Republicans no longer need the Democrats to get state constitutional amendments out of the state legislature.

These gains go all the way down to the municipal level across the nation. That did not happen even in 1994.

That really is a massive change at the state level, and even traditionally blue states were swept up in it.  Since the next legislative session in many of these states will address reapportionment, that has further implications for the next election cycle, when House seats get shuffled.

Lots of new Republican governors in what have been blue states means that the 2012 Republican nominee now has access to pre-existing ground organizations in those states, which did not exist for the last three presidential election cycles.  That means that the nominee will have to spend less in those states to create a ground game from scratch.  That’s not necessarily an election-winning advantage, but it’s and advantage that hasn’t existed in those states for quite a while.

Democrats, including the president, are just impervious to any suggestion that their policies contributed to these losses.  They are saying is was all about jobs and the economy, as if their policies had nothing to do with either.  It’s really a willful blindness.

The California electorate is just…wacky. Take a look at the proposition results. They voted to refuse an $18 vehicle registration surcharge. They refused to allow the state to take local transportation and other funds, and voted to require a 2/3 majority for “fee” increases by reclassifying them–properly–as taxes.  They then elected to allow the legislature to pass a budget by simple majority vote, which will, in many cases, effectively invalidate the other propositions through the budget process.  Republican senators and assemblymen now have essentially no reason to attend the legislative sessions in Sacramento.

Jerry Brown will now teach another generation of Californians what the term “Governor Moonbeam” means. In his victory speech, he sounded quite mad. Now that he has a majority budget vote in the legislature, I have no confidence that the result will be anything other than a financial meltdown in California. The Democrats in California are addicted to spending–mainly in the form of generous benefits to teachers, firefighters, cops, and other government workers.  with a $19 billion deficit, such spending can only be financed by either massive borrowing or massive taxation.  Neither choice can possibly end in a positive economic outcome for the state.  It will, however, teach the country an instructive lesson about what happens when you turn the government over to aging hippies.

California has greatly increased the chance that it will require a massive rescue from the Federal government, at the very same time that the general electorate has chosen a Congress that will be much less likely to approve such a rescue.  So, aging hippies will now be taught an instructive lesson about the nature of reality versus ideology.

Final Election Predictions

Tomorrow’s the big day. So, I thought I’d join Bruce in tossing out my final pre-election prognostications (with error bars).

House: Republicans 247, Democrats 188 (+/-3)

Senate: Democrats 50, Republicans 50 (+/-1)

The Senate is the real imponderable here. With Patty Murray leading by only 0.3% in a watershed year, I’m going to go ahead and tentatively call this one for Dino Rossi. But this one could go either way, so worst case for the Senate, I think, is a 51/50 Democrat chamber. I also think it might be days before we know that final Senate number, too.

Observations: The Qando Podcast for 31 Oct 10

In this podcast, Bruce, Michael, and Dale discuss Tuesday’s midterm elections.

The direct link to the podcast can be found here.

Observations

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 2009, they can be accessed through the RSS Archive Feed.

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Following the House of Bourbon

I really do try not to be pessimistic about the future, but this is the kind of thing that keeps me up at night:

[W]ithout serious course correction, America is doomed. It starts with the money. For dominant powers, it always does – from the Roman Empire to the British Empire. “Declinism” is in the air these days, but for us full-time apocalyptics we’re already well past that stage. In the space of one generation, a nation of savers became the world’s largest debtors, and a nation of makers and doers became a cheap service economy. Everything that can be outsourced has been – manufacturing to by no means friendly nations overseas; and much of what’s left in agriculture and construction to the armies of the “undocumented”. At the lower end, Americans are educated at a higher cost per capita than any nation except Luxembourg in order to do minimal-skill checkout-line jobs about to be rendered obsolete by technology. At the upper end, America’s elite goes to school till early middle age in order to be credentialed for pseudo-employment as $350 grand-a-year diversity consultants (Michelle Obama) or in one of the many other phony-baloney makework schemes deriving from government micro-regulation of virtually every aspect of endeavor.

So we’re not facing “decline”. We’re already in it. What comes next is the “fall” – sudden, devastating, off the cliff. That’s why this election is consequential – because the Obama-Pelosi-Reid spending spree made what was vague and distant explicit and immediate. A lot of the debate about America’s date with destiny has an airy-fairy beyond-the-blue-horizon mid-century quality, all to do with long-term trends and other remote indicators. In reality, we’ll be lucky to make it through the short-term in sufficient shape to get finished off by the long-term. According to CBO projections, by 2055 interest payments on the debt will exceed federal revenues. But I don’t think we’ll need to worry about a “Government of the United States” at that stage. By 1788, Louis XVI’s government in France was spending a mere 60 per cent of revenues on debt service, and we all know how that worked out for the House of Bourbon the following year.

Oh, but wait, it gets worse, because we’re not just talking about the effect on the US. Our current path affects the whole world.

In 2009, the US spent about $665 billion on its military, the Chinese about $99 billion. If Beijing continues to buy American debt at the rate it has in recent times, then within a few years US interest payments on that debt will be covering the entire cost of the Chinese military. This summer, the Pentagon issued an alarming report to Congress on Beijing’s massive military build-up, including new missiles, upgraded bombers, and an aircraft-carrier R&D program intended to challenge US dominance in the Pacific. What the report didn’t mention is who’s paying for it.

Answer: Mr and Mrs America.

By 2015, the People’s Liberation Army, which is the largest employer on the planet, bigger even than the US Department of Community-Organizer Grant Applications, will be entirely funded by US taxpayers. When the Commies take Taiwan, suburban families in Connecticut and small businesses in Idaho will have paid for it.

When these kinds of crises hit, they often happen suddenly, without warning, often as the result of an event that is minor, in and of itself, but becomes the straw that breaks the camel’s back. When Gavrilo Princip popped a couple of slugs into Franz Ferdinand and his wife, Sophie, it seemed trivial. It was the kind of story that appeared on Page C-4 of Le Monde or the Times of London, and yet, weeks later, sparked a war that literally unmoored Western Civilization from everything that had gone before.

Let’s also be clear that this won’t be a European experience. The post-war European decline , if not painless, was at least very powerfully cushioned by the financial and political support of the United States. We won’t have that cushion.

In a two-party system, you have to work with what’s available. In America, one party is openly committed to driving the nation off the cliff, and the other party is full of guys content to go along for the ride as long as we shift down to third gear. That’s no longer enough of a choice.

Hard choices–very hard choices–are at hand. We will make those choices willingly, and try to maintain some control over our destiny, or reality will simply make those choices for us.