Dale Franks’ QandO posts
The following US economic statistics were announced today:
Initial jobless claims rose 15,000 in the latest week to 382,000. The 4-week moving average rose to 375,000. But, continuing claims are down 49,000 to 3.282 million. Much of this week’s rise is blamed on Tropical Storm Isaac, which led to increased claims.
The producer price index rose a sizable 1.7% in August—mainly on sharp increases in food and energy prices—after a 0.3% rise in July. Ex-food and energy prices, the core PPI rose 0.2%.
The Bloomberg Consumer Comfort Index rose sharply on improved personal finances, up 4.3 points to -42.2. Despite the sharp improvement, the CCI is still at a deeply depressed level, of course.
The following US economic statistics were announced today:
The MBA reports a big 11.1% surge in mortgage applications for last week, with purchases up 8.0% and re-fis up 12.0%.
Export prices rose 0.9% in August, while import prices rose by 0.7%. On a year-over-year basis, export prices fell -0.9%, while import prices fell -2.2%.
Wholesale inventories continue to rise relative to sales, up 0.7% in July, while the stock to sales ratio rose to 1.21, the third straight increase and the highest of the recovery.
Yesterday, I kind of became a drag about the tough spot our financial system is in, and how close it is to collapse. We could fix it, of course…but we probably wont.
The thing is, I’m increasingly getting the feeling that it’s not just our economy that’s teetering, it’s our very civilization. I’m reminded of this by today’s events in Egypt, where an Islamist mob stormed the US Embassy in Cairo, tore down the American flag, and raised an al-Qaida-associated flag, while yelling, "We are all Osama." Apparently, there’s a film of sort—that I’ve never heard of—being produced by some Coptic Christians here in the US that’s insufficiently servile in its treatment of Mohammed. The Egyptian Islamists who attacked the embassy today were upset about it.
The response of the the US Embassy in Cairo was to go on Twitter to assure everyone that they condemned those who "abuse the universal human right of free speech", presumably a reference to the filmmakers—if they actually exist outside the fevered minds of the Islamists who apparently have a better inside scoop on the American film industry than I do. Thus began as embarrassing a failure of public diplomacy as I’ve every seen in my lifetime. (Some background here and here.)
The response of the US Embassy to this assault was to condemn the "abuse" of free speech. Just think about that for a minute.
Civilization is a lot like the skin of an apple. It can be brilliantly colored, flawlessly smooth, and brightly polished. But it’s very, very thin. It’s fragile. So, it has to be protected.
Barbarism, on the other hand hand, is tough. It doesn’t have to be nurtured. It is, in fact, the natural state of man. It grows spontaneously, and so, like weeds in a beautiful lawn, it must be ruthlessly stamped out. And the only thing that’s ever been effective in stamping it out is a robust and vigilant civilization; one that is not afraid to do the dirty work of crushing the barbarians mercilessly.
When the British Empire decided to end the African slave trade, they did not bring the issue up at a transnational diplomatic council, and request a commission of enquiry and hope that a Security Council resolution would support them—and not run into a Russian or Chinese veto. No, they simply sent the Royal navy to patrol the coast of West Africa, boarded and searched slave vessels, and hung their crews. I’m also reminded of General Sir Charles Napier in India, who, when told by the Indians that the custom of suttee, where the surviving wife was burned with her dead husband, had to be honored replied,
Be it so. This burning of widows is your custom; prepare the funeral pile. But my nation has also a custom. When men burn women alive we hang them, and confiscate all their property. My carpenters shall therefore erect gibbets on which to hang all concerned when the widow is consumed. Let us all act according to national customs.
When it comes to barbarians, we’re not big on gibbets these days. No, our Embassy condemns an exercise of freedom that upsets the poor dears.
Since the 1960s, we in the West have more or less had a hands-off attitude towards the world’s barbarians. Huge swathes of Africa have descended into nightmare lands of atrocity at the hands of child soldiers. The entire Middle East has devolved from colonialism, to secular socialist and military dictatorship, and now into 12th-century Islamism.
A full 1/3 of the world have become modern day Goths. And not the good kind, with extravagant vampire makeup, listening to sad Cure songs on their iPods, but the bad kind with the light of fanaticism in their eyes, and knives always keen for a beheading of their enemies.
We think it’s because we haven’t tried hard enough to understand their unique cultural point of view. And woe to any president who tries to do otherwise, because he’s in for a constant parade of criticism and demonstrations against "blood for oil" or some other nonsense.
And, of course, even then, such a president feels obligated to follow the "you broke it, you bought it rule" and embark on a decade-long project to rebuild the enemy’s country and create a stable, functioning democracy in Kaplokistan.
Because a simple punitive expedition would just be…wrong.
Our civilization, by which I mean modern, technological civilization, is more fragile than we can even understand. Our entire way of life is predicated on the constant, uninterrupted flow of electricity, and the sophisticated electronic devices that store our records, run our stoplights, enable us to communicate, and even fix our cars.
There is an entire substrate of technology beneath the surface of what we see, but it is no less important for being almost completely hidden. But think about just two things: You bring up Amazon in your web browser right now, find an item you like, buy it with a simple button click, and a nice man will deliver to your door tomorrow. You can go to a supermarket in January and buy fresh strawberries from Chile.
Imagine the technological complexity that has to exist for either of those two things to happen. We are truly living in a Golden Age.
And yet, we are, at all times, less than 20 years from its complete collapse. Why?
Because each generation of children is a vertical invasion of barbarians. They will only know about our civilization, how to run it, and how to defend it, if we invest 12 or 16 years in training them to do so. Indoctrinating them in the benefits of civilization.
And have no doubt that it is a necessary indoctrination, because for young men especially, it will always be more fun to run around in the hills with rifles and shoot people you don’t like than it will to get up every morning at 6am, and fight traffic to get get to a relatively boring job that you really don’t want to do.
But, in my lifetime, we’ve done a progressively worse job at conducting that indoctrination.
From the beginning of public education until sometime in the late 1970s, the mission of the public schools was to raise children who were properly educated and civilized, especially children whose culture at home was sub-standard. Somehow, in the last 40 years, that has completely reversed itself. Now the education establishment says that a poor culture at home makes the schools powerless to teach. So, increasingly, they don’t.
Schools used to have as one of their primary missions the assimilation and Americanization of immigrant children. Now, of course, no culture is superior to any other, and as far as assimilation goes…well, it’s just easier to teach the immigrant kids in, say, Spanish, rather than force them into English immersion. And why should we teach the culture bequeathed to us from a bunch of dead slave-owners anyway? They were just hypocrites whose high-sounding phrases about freedom and equality just glossed over a squalid reality of racism and sexism.
So, about half of high school graduates now can’t even read at an adult level. Fully a quarter are functionally illiterate.
But, somehow, 20 years from now, when they’re running things, they’ll still be able to get a new thumb drive to your door within 24 hours after you click "Buy Now With 1-Click" button on Amazon.
Right. Good luck with that.
We seem to have forgotten that, just because we’re the richest country on earth, that is not an ordained end. It won’t remain so unless we continue to do the things that made us such a wealthy civilization in the first place. There’s no magical goose that lays golden eggs. It’s the result of hard work, saving, investment, innovation, and a culture that celebrates individual liberty and rewards individual success.
But we’re turning—if we haven’t already—into a culture that thinks wealth is the by-product of some sort of chance or luck, and that the reward of success should be to share it with everyone else. Nearly half of the country hears about those who "profited unfairly in the 80s" as Bill Clinton once put it, and thinks, "they need to share the wealth." A significant number of people in this country today hear "You didn’t build that", and thinks, "Yes. That’s right. You owe society for giving you the means to be successful."
We’ve lost the meaning of what free markets mean. We’ve replaced it by a cronyism so deep that, no matter if the Republicans or Democrats win the presidency, there’ll be representatives of Goldman-Sachs running the Treasury Department. We’ve imposed so many layers of regulation that small business is constantly squeezed, while large corporations can cover the costs. We’re creating a corporatist, cronyist economic system that’s increasingly impoverishing the middle class bit by bit.
As a libertarian, I distrust all groupings of power, whether the group is the government, or large corporations, yet I’ve watched as both Democratic and Republican administrations have made both government and corporations—and unions—more powerful, and individuals less so. And, as far as I can tell, half the population is perfectly happy with that—as long as their party is in charge of the cronyism, of course.
In 1972, the mildly Leftist George McGovern was beaten like an egg-sucking dog by Dick Nixon, but today, the much more leftist Barack Obama may actually be re-elected. Which, I suppose, would really worry me about the future, if it wasn’t for the fact that we’re due for the Mayan Apocalypse on December 21st, anyway.
So, I guess it doesn’t matter.
If you were a betting man, what odds would you give for the future of a civilization that won’t kill the barbarians in the hinterlands, or civilize the barbarians they breed internally? What odds would you give for a civilization that doesn’t even seem to know—or want to know—that it’s teetering on the abyss of an existential crisis?
Tom Kratman, in his book H-Hour: Countdown, wrote, “’Should’ and ‘ought’ are mere meaningless fantasies. ‘Is’ and ‘real’ and ‘works’ are what matter." Sadly, we’ve increasingly become a society of "should" and "ought". A robust civilization would call that "decadence".
The barbarians call it "an opportunity".
Decadent civilizations don’t collapse overnight, usually. It took more than a century for Rome to fall. But it was an increasingly hard century, and when Rome fell, after the Vandals danced through the streets of the sacked city, it was followed by hundreds of years of barbarism. Much of the technical and engineering knowledge that Rome brought to the world disappeared, and had to be relearned over a millennium.
But Rome didn’t face the utter collapse of their monetary and financial system overnight. I fear that the fall of our civilization could be much faster, and, therefore, much more traumatic. Happily, I don’t expect the following centuries of barbarism to be more brutal than that which followed the fall of Rome.
But, of course, that’s only because it really couldn’t be.
The following US economic statistics were announced today (or in the case of Consumer Credit, late yesterday):
Total US credit outstanding fell $3.3 billion in July. Revolving credit fell $4.8 billion, the second drop in a row.
The U.S. international trade gap in July grew slightly, as the trade deficit increased to $42 billion from $41.9 billion in June. Exports declined -1.0%, following a 1.2% rise in June. Imports shrank -0.8% after a -1.5% decrease in June.
The NFIB Small Business Optimism Index rose 1.7 points in August to 92.9 in improved sales expectations and in employment plans.
In retail sales, Redbook reported a 2.7% year-on-year sales increase, the best since early June. ICSC-Goldman Store Sales is also showing strength, as sales rose 1.0% for the week, and 3.4% year-over-year.
Monty Pelerin, writing in The American Thinker, is thinking about the unthinkable. What would happen if the US held a bond auction..and no one bought any bonds? Even worse, what would happen if we were to default on the $16 trillion in bonds already outstanding?
What occasions this thinking is something he read in Bob Woodward’s new book on the Obama administration, a portion of which is excerpted in the Washington Post. This excerpt discusses last year’s debt ceiling crisis. In it Treasury Secretary Timothy Geithner tries to explain how bad it would be if credit markets stopped buying Treasuries.
But, here’s the thing:
Credit markets have (or nearly have) stopped US government debt financing. That’s why we have the Federal Reserve, the counterfeiter of last resort. If government can raise the debt limit, then it would be legal for the Treasury to issue new debt. The Treasury’s sibling, the Fed, would buy it by printing new money. That would allow the government to pay its bills for a while longer…
No one will buy US Treasuries other than the Federal Reserve. Raising the debt limit only puts the government more hopelessly in debt, ensuring that Treasuries will be even more difficult to sell. Without intending it, Geithner admits that Bernanke will be printing money until the electricity is shut off or until hyperinflation shuts everything economic down. In either case, we reach his "indelible, incurable" situation which will "last for generations."
Take a look at the monetary base of the United States, which I would describe simply as all the money of all types floating around in the economy. You know why that number has jumped massively since 2009? Because the Fed has been the major buyer of US treasuries, and it buys them by simply printing new money.
Now, the US Dollar is the world’s reserve currency. What that means is that it is expected to be strong, stable, and plentiful enough—though not too plentiful—to be used as the primary backup currency for the entire world’s global trade.
But, since 2009, we have essentially financed our massive debt, which is now at 104% of GDP by having the Fed print the money to buy the Treasury’s bonds. The chart you see here is the result of two separate rounds of Quantitative Easing of that sort, and the Fed is now considering QEIII.
Now, Greece, the sick man of Europe’s financial system, has a debt to GDP ratio of 128%. At the current rate of spending, we could reach that within a decade. But we won’t, of course, because at some point between 104% and 128% of GDP, we will have so much debt that the US will be the world’s financial sick man. At some point credit markets will simply not bid on US Treasuries, because the specter of inflation or default will loom so large that only the Fed would be stupid enough to show up at a bond auction.
When that happens, current foreign holder of US treasuries will face intense pressure to divest themselves of them. Prices will collapse, and interest rates will skyrocket. If the Fed steps in to buy those treasuries to support the price—which they almost certainly will, because politicians will demand it—we will then be clearly seen as fully monetizing the debt.
At that point, foreign holders of US dollars will demand that some other currency or asset be used as a reserve, at which point foreign holders of dollars will scramble to repatriate those dollars as quickly as they can.
The dollar will then become worthless in foreign trade, and we will face massive hyperinflation in the US.
On our current spending path, with our current level of debt, this is inevitable, and we have no idea when it will happen. We are literally a single bond auction away from a complete and utter collapse of the US financial and monetary system. We just don’t know when, exactly, that bond auction will be. It might be this week. It might be five years from now.
But, I repeat, at this point, barring a massive change to our fiscal and monetary policy, it is inevitable. There is no way credit markets will continue to buy US Bonds as our debt to GDP ratio climbs towards that of Greece. When that happens, we will either monetize that debt or default on it. Either way, the result will be years, if not decades, of American poverty.
And once that process starts, there will be no way to stop it. We can’t come back a week later and say, "hey, we fixed it!" Once it starts…we’re done.
After WWII, the US debt to GDP ratio was 124%. At the end of WWII, we slashed government spending by 50%, and eliminated the most onerous and confiscatory wartime taxes, and, though marginal rates were still high, offered a myriad of exemptions that essentially ensured that no one paid the marginal rates. We also scrapped the entire wartime system of industrial production regulation and eliminated rationing. And, of course, we had the only fully industrialized economy left in the world, as everyone else’s had been bombed, if not back into the Stone Age, at least into the Age of Reason, and we became the world’s chief industrial power, exporter, and global business leader.
To do something similar today, we’d have to completely eliminate the entirety of the Federal government, with the exception of the Departments of State, Defense, Justice, Interior, and Treasury, and cut Social Security, Medicaid and Medicare spending by at least 50%.
That’s not going to happen. I believe the current Republican plan to attack the debt and balance the budget won’t even eliminate the budget deficit until sometime around 2040.
Ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha!b That’s rich. Like we have 30 years available to fix this. It is to laugh.
Update: And, this morning, right on time, I see that House Speaker John Boehner says he’s "not confident" that Congress and the administration can reach a debt deal. In which case, Moody’s has already warned that they will downgrade the US credit rating by another step. Meanwhile, the rumor is that the Fed is now preparing for another $840 billion in quantitative easing.
That bond auction just keeps getting closer.
In the comments of yesterday’s photoblogging thread, Looker asked why, when he takes photos of plain old stuff, it looks like plain old stuff. My answer is that he’s probably looking at the actual photograph he took, not the photo it could be.
For instance this is a crappy photograph:
This is better:
Unlike the photo on top which is a an uncorrected RAW export of the full original image to JPG format, the photo on the bottom crops out all the extraneous stuff possible, uses the rule of thirds to put the barred window on the bottom right, steps the exposure down about half a stop, warms the color temperature about 500°, and alters the color balance.
If I really wanted to spend the extra time to make it dramatic—and, now that I’ve done it, I wish I would have—I could’ve done this:
This, by the way, is why you shoot in RAW format. You can fiddle with stuff as much as you want, and fiddling around in RAW is non-destructive. You can always recover the image as it was when it came out of the camera, no matter what you do to it. The only drawback is that the RAW image is about 6 times larger than a JPG, which, at 12.1 megapixel, translates to about 20MB per image.
So, I carry 4 32GB SD cards, and shoot as much as I want. Disk space is cheap.
Here are some more examples of dishonesty, when compared to the photos in the previous post. Here are the originals of two more images from the previous photoblogging post:
This week, Bruce, Michael, and Dale talk about the Democratic Convention and the economy.
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.
Chris and I went downtown to take some pictures. This time, instead of lugging around an SLR, I took my new Panasonic Lumix FZ200. It’s a 12.1 megapixel bridge camera, with a 28mm-600mm superzoom lens. I wanted to see how it would do as a walking-around camera. I think the answer is, "very well."
The Star Of India, docked in downtown San Diego.
Downtown mall corridor
San Diego County Jail
A little bird
This odd building looks like an optical illusion
Chairs in a residential courtyard
A homeless man’s dog, downtown San Diego
LED marquee at the Balboa Theater
Trains at Union Station
Architectural detail of Union Station
Architectural detail of a restored Victorian-era building
The Gaslamp District
Lobby, Sempra Energy building
Mosaic Wall, Horton Plaza
Park and skyline
Each window of this building has a screen that can be lowered to cover the glass
Architectural detail, Sempra Energy building
Restored Victorian-era building in the Gaslamp District
The Moon and Venus
And finally, to show you how powerful the zoom and video capabilities of this little camera are, I give you The Dog Walker.
The only economic release today is the monthly Employment Situation. In August, 96,000 net new jobs were created, with the unemployment rate falling to 8.1%. Analysts had predicted a steady 8.3% unemployment rate with 125,000 new jobs created. Instead, job creation remains anemic, though the exit of 368,000 workers from the labor force lowered the unemployment rate, which makes the lower unemployment rate bad news. The labor force participation rate declined -0.2% to 63.5%, while the employment-population rate fell -0.1% to 58.3%, near the low since the recession, and, before that, 1983. 119,000 fewer workers identified themselves as employed last month, with the total falling to 142,101,000.
Average weekly hours were unchanged at 33.7. Average hourly earnings declined by one penny to $19.75.
If the labor force participation rate were at the historical average of 66.2%, the real rate of unemployment would be 11.37%, up from 11.16% last month and 11.04% in June.
There’s just nothing positive in this report.
The following US economic statistics were announced today:
Initial jobless claims fell sharply last week, down 12,000 to 365,000. The 4-week average rose to 371,250, however. Continuing claims fell 6000to 3.322 million.
ADP private payroll employment rose well above expectations to 201,000 in August, following a revised 173,000 total for July. This bodes well for tomorrow’s Employment Situation report.
The composite index from the ISM non-manufacturing survey for August rose 1.1 points to 53.7.
The Bloomberg Consumer Comfort Index fell rose slightly to -46.5.
The Challenger Job-Cut Report shows a total of 32,239 layoffs for August, the second lowest of the recovery.