And apparently force you into those electric cars the government is dumping all that money into.
According to API president Jack Gerard, in a letter he sent to members of Congress, the plan included in Waxman-Markey is pretty darn clear:
The legislation will drive up individual and commercial consumer’s fuel prices because it inequitably distributes free emissions “allowances” to various sectors. Electricity suppliers are responsible for about 40% of the emissions covered by the bill and receive approximately 44% of the allowances – specifically to protect power consumers from price increases. However the bill holds refiners responsible for their own emissions plus the emissions from the use of petroleum products. In total refiners are responsible for 44% of all covered emissions, yet the legislation grants them only 2% of the free allowances.
Upon reading that I assume anyone with the IQ of warm toast can see where that is headed. It is a targeted tax on oil and gas which will be passed on to the consumer in just about every conceivable way possible. Both at the pump and in the cost increases rolled into products we buy due to increased transportation costs, etc.
Electricity, however, whose coal plants are supposedly one of the primary producers of CO2 and very much responsible for the emissions problems we supposedly have get a pass. Does that even begin to hint that this legislation isn’t just about controlling CO2 emissions?
In fact, it shouts it out fairly clearly doesn’t it. Keep the proles happy by ensuring their power to the house is subsidized and stick it to them at the pump where government (who now has a stake in the game) wants consumers buying “green” cars. Don’t you just love it when a plan begins to come together?
Moving on, Gerard’s letter lays out some sobering numbers:
This places a disproportionate burden on all consumers of gasoline, diesel fuel, heating oil, jet fuel, propane and other petroleum products. An analysis of the Congressional Budget Office Report indicates that it could add as much as 77 cents to a gallon of gasoline over the next decade. And, according to the Heritage Foundation this legislation could cause gas prices to jump 74% by 2035. That means, at today’s prices, gasoline would be well over $4 a gallon.
Of course by 2035 we’ll all be riding around in vehicles powered by uincorn methane. And everyone knows that unicorn methane is nontoxic, environmentally friendly, smells good and is eco friendly.
That said, there is the cap and trade plan as it pertains to one vital segment of our economy in all its simple glory. It will force you to pay outrageous prices to use petroleum products in order to move you to the desired, but not yet available, means of conveyance. In the meantime, and until it is available, you’ll just have to suffer with the cost increases. Also remember that government estimates of cost are notoriously conservative and the real cost of such legislation is likely to be much higher than anticipated.
And don’t laugh too hard when they try to sell that to you by saying they’re attempting to save the planet. They’re exempting coal fired power plants for heaven sake. Trust me, this isn’t about emissions. If it were, they wouldn’t treat natural gas the way they do in the legislation as the letter points out.
After all, they’re the government and they’re there to help.
So far my favorite (yes I’m being sarcastic here) government program to date has been the “clunkers for dollars” scam. We’re suffering from overspending and over-extended credit and the government puts together a program in which it tries to entice people with old, but probably paid off cars to go into debt for a new one by giving them $4,500 dollars of your money to buy a more fuel efficient model.
But I have to say, this one is also a great (sarcasm again) program as well:
It can be difficult to keep straight all the billions going to auto companies. But today the Department of Energy is reportedly set to announce that it will begin doling out sums from a $25 billion loan program for the development of fuel-efficient cars. The money comes from a bill passed last September and signed by President Bush and is totally separate from the TARP.
Among the first recipients are Ford, Nissan and Tesla, the small electric car company. The amounts will be announced today, but Ford has requested $5 billion. Nissan is getting the money to build a battery-electric car in its Tennessee plant.
A few points – one, does anyone hear the public clamoring for electric cars out there? They may be, but I’ve sure missed it. Why in the world is my money going to these companies to build something I’m not asking for and really don’t want – especially given the stage the technology is in right now. Yup, its government picking winners and losers again and we know how that seems to always turn out.
Two – although I’m completely against this, it is obvious it is going to happen, so I have to ask, why are we subsidizing a foreign auto maker with my money?
Three – and I know this is a completely silly question, but would some Constitutional scholar out there point me to the part of said document that makes this all kosher?
After a lot of partisan “happy talk” about how the Obama administration is handling the economic crisis here, Paul Krugman goes on record saying the world is doomed to suffer Japan’s lost economic decade on a global scale.
The thing about Japan, as with all of these cases, is how much people claim to know what happened, without having any evidence. What we do know is that recessions normally end everywhere because the monetary authority cuts interest rates a lot, and that gets things moving. And what we know in Japan was that eventually they cut their interest rates to zero and that wasn’t enough. And, so far, although we made the cuts faster than they did and cut them all the way to zero, it isn’t enough. We’ve hit that lower bound the same as they did. Now, everything after that is more or less speculation.
For example, were the problems with the Japanese banks the core problem? There are some stories about credit rationing, but they are not overwhelming. Certainly, when we look at the Japanese recovery, there was not a great surge of business investment. There was primarily a surge of exports. But was fixing the banks central to export growth?
In their case, the problems had a lot to do with demography. That made them a natural capital exporter, from older savers, and also made it harder for them to have enough demand. They also had one hell of a bubble in the 1980s and the wreckage left behind by that bubble – in their case a highly leveraged corporate sector – was and is a drag on the economy.
The size of the shock to our systems is going to be much bigger than what happened to Japan in the 1990s. They never had a freefall in their economy – a period when GDP declined by 3%, 4%. It is by no means clear that the underlying differences in the structure of the situation are significant. What we do know is that the zero bound is real. We know that there are situations in which ordinary monetary policy loses all traction. And we know that we’re in one now.
Shorter Krugman, “we’re in new territory in terms of the size of the problem, but it is all eerily similar to what happened to Japan”. Unfortunately our reaction has been eerily similar to what Japan did as well.
Krugman’s bottom line:
WH: So, one way to think about it is that self-reinforcing financial crises rooted in overstretched, overborrowed companies and governments in less developed countries – like those in Argentina and Indonesia, which were amazingly destructive in the 1990s and 2000s, but localised – are now playing out in the developed world?
PK: There are really two stories. One is the Japan-type story where you run out of room to cut interest rates. And the other is the Indonesia- and Argentina-type story where everything falls apart because of balance-sheet problems.
WH: So in a nutshell your story is …
PK: The “Nipponisation” of the world economy with a bunch of “Argentinafications” playing a role in the acute crisis. But even after those are over, we have the Nipponisation of the world economy. And that’s really something.
And of course, implicit in the “Nipponisation” of the world economy is the “Nipponisation” of the US economy – something we’ve been talking about for some time. Now, add “cap and trade” and “health care reform” into the mix.
What will we be wishing we were suffering when that all kicks in, should it pass? Nipponisation, of course. As bad as lost decade or two might be, it would be heaven compared to the economic carnage those big tax and spend programs will inflict on a very weak economy here in the US. And that, of course, will ensure the “Nipponisation” of the world economy.
Republicans and some allies are criticizing President Obama’s proposal for “pay as you go” rules that only cover new and expanded entitlement spending. They rightly point out that legislators can get around these new rules with budgetary tricks like relabeling spending so that “PAYGO” rules don’t apply.
But some on the Right have also warned that paygo will just lead Democrats to pass higher taxes. I’m not convinced that that’s a bad thing.
Don’t get me wrong: I don’t like taxes. But deficit spending is taxation — deferred taxation, with interest. If the government is going to spend a bunch of our wealth on things other than emergencies, enlightened fiscal conservatives should want the American people to see the price tag, the sooner the better.
Otherwise we’re going to continue this business of borrowing from our children to pay for our reckless spending today – that’s what a lot of those tea partiers were protesting against, wasn’t it?
So fiscal conservatives should propose even more comprehensive and stringent paygo legislation than the Democrats have. Force the Democrats to put it all on the table – lock in tax hikes or spending cuts, now.
We’re going to have to do pay the piper at some point, so how does it help to wait until a real fiscal emergency is upon us?
The longer we wait to pay for it through direct taxation, the more time we give the spenders to come up with clever ways to conceal the cost – whether through inflation, or carefully targeted taxes designed to create as little political backlash as possible. Paygo creates forced errors.
If the Democrats decide to cover the gap with tax increases, that’s an issue for 2010 and beyond. Every new big spending plan, like the Obama health care plan, comes with a surefire tax increase in the near future. And as Californians recently showed the country, even Lefty voters don’t like the prospect of actually paying for all those neat programs for which they voted.
Sure, it’s self-serving for Republicans who engaged in no small amount of deficit spending themselves to suddenly find religion on the need for a balanced budget.
But there are good reasons to suspect that this level of deficit spending (and the necessary money-printing that has followed) is going to hit us in all kinds of unpleasant ways. If we don’t commit now to eventually paying off these debts, the problems will get even worse.
So let’s do something about it – or turn the heat up on the Democrats until they do something about it. Let’s give them all the paygo and fiscal discipline they can handle, and then some.
Is definitely worth a thousand words.
Or a chart.
Arthur Laffer is not amused:
Here we stand more than a year into a grave economic crisis with a projected budget deficit of 13% of GDP. That’s more than twice the size of the next largest deficit since World War II. And this projected deficit is the culmination of a year when the federal government, at taxpayers’ expense, acquired enormous stakes in the banking, auto, mortgage, health-care and insurance industries.
With the crisis, the ill-conceived government reactions, and the ensuing economic downturn, the unfunded liabilities of federal programs — such as Social Security, civil-service and military pensions, the Pension Benefit Guarantee Corporation, Medicare and Medicaid — are over the $100 trillion mark. With U.S. GDP and federal tax receipts at about $14 trillion and $2.4 trillion respectively, such a debt all but guarantees higher interest rates, massive tax increases, and partial default on government promises.
But as bad as the fiscal picture is, panic-driven monetary policies portend to have even more dire consequences. We can expect rapidly rising prices and much, much higher interest rates over the next four or five years, and a concomitant deleterious impact on output and employment not unlike the late 1970s.
And what have those “panic-driven monetary policies” brought us? Well, first the picture:
The chart is certainly no laffer.
Remember, we’re being told by “experts” (*cough* Krugman *cough*) that we’ll be able to handle this with no problem, really, if we just manage it properly. A tweak here, a tweak there and bingo – no inflation.
Hmmm … let’s get a little context here, shall we?
The percentage increase in the monetary base is the largest increase in the past 50 years by a factor of 10 (see chart nearby). It is so far outside the realm of our prior experiential base that historical comparisons are rendered difficult if not meaningless. The currency-in-circulation component of the monetary base — which prior to the expansion had comprised 95% of the monetary base — has risen by a little less than 10%, while bank reserves have increased almost 20-fold. Now the currency-in-circulation component of the monetary base is a smidgen less than 50% of the monetary base.
So that means that what? Well Laffer goes into a good explanation of bank reserves and how they function, etc. etc. – bottom line, banks are going to be loaning a bunch of money, thereby injecting liquidity into the marketplace.
With the present size of the monetary base, and …
With an increased trust in the overall banking system, the panic demand for money has begun to and should continue to recede. The dramatic drop in output and employment in the U.S. economy will also reduce the demand for money. Reduced demand for money combined with rapid growth in money is a surefire recipe for inflation and higher interest rates. The higher interest rates themselves will also further reduce the demand for money, thereby exacerbating inflationary pressures. It’s a catch-22.
And what does that mean could happen? Well again, we’re in uncharted territory, but the last time we had anything even similar, eh, not so good:
It’s difficult to estimate the magnitude of the inflationary and interest-rate consequences of the Fed’s actions because, frankly, we haven’t ever seen anything like this in the U.S. To date what’s happened is potentially far more inflationary than were the monetary policies of the 1970s, when the prime interest rate peaked at 21.5% and inflation peaked in the low double digits. Gold prices went from $35 per ounce to $850 per ounce, and the dollar collapsed on the foreign exchanges. It wasn’t a pretty picture.
Yeah. I remember it well. And here we are again – on steriods. So now what?
Per Laffer, the Fed must contract the money supply back to where it was plus a little increase for economic expansion. And if it can’t do that, it should increase the reserve requirement on banks to soak up the excess.
But Laffer doubts that can or will be done:
Alas, I doubt very much that the Fed will do what is necessary to guard against future inflation and higher interest rates. If the Fed were to reduce the monetary base by $1 trillion, it would need to sell a net $1 trillion in bonds. This would put the Fed in direct competition with Treasury’s planned issuance of about $2 trillion worth of bonds over the coming 12 months. Failed auctions would become the norm and bond prices would tumble, reflecting a massive oversupply of government bonds.
In addition, a rapid contraction of the monetary base as I propose would cause a contraction in bank lending, or at best limited expansion. This is exactly what happened in 2000 and 2001 when the Fed contracted the monetary base the last time. The economy quickly dipped into recession. While the short-term pain of a deepened recession is quite sharp, the long-term consequences of double-digit inflation are devastating. For Fed Chairman Ben Bernanke it’s a Hobson’s choice. For me the issue is how to protect assets for my grandchildren.
Yes friends – we’re in the best of hands. I’m just wondering how the present administration is going to attempt the blame shifting when the inevitable happens.
The government seems to be working on a cunning plan to bring GM back to profitability.
This ought to do it.
With auto sales in the doldrums, the House was considering a plan Tuesday to provide vouchers of up to $4,500 for consumers who turn in their gas-guzzling cars and trucks for more fuel-efficient vehicles.
The House proposal, set for a floor vote Tuesday, was aimed at stimulating car sales during a bleak period for the auto industry and increasing the nation’s fleet of cars that get more miles to the gallon…
Separately, House and Senate appropriators were discussing providing $1 billion to a supplemental war funding bill for the “cash for clunkers” program, which aims to generate about 1 million new auto sales. Since the yearlong vehicle program is expected to cost $4 billion, lawmakers would attempt to find the additional money later this year.
Under the House bill, car owners could get a voucher worth $3,500 if they traded in a vehicle getting 18 miles per gallon or less for one getting at least 22 miles per gallon. The value of the voucher would grow to $4,500 if the mileage of the new car is 10 mpg higher than the old vehicle. The miles per gallon figures are listed on the window sticker.
So, now we’ve got a car company, and next we’ll be buying cars for our neighbors.
This is just funny. And fickle. But apparently watching what has gone on in the last few months, if you believe Rasmussen, has caused the GOP to suddenly again be the most trusted of the 2 parties when it comes to economics:
Voters now trust Republicans more than Democrats on six out of 10 key issues, including the top issue of the economy.
The latest Rasmussen Reports national telephone survey finds that 45% now trust the GOP more to handle economic issues, while 39% trust Democrats more.
This is the first time in over two years of polling that the GOP has held the advantage on this issue.
Of course we’ll see how much weight this carries in 2010. However I’d be in that 6% not documented who don’t trust either of them.
One of the things we talked about on the podcast this week is how, in the broadest sense, socialism is a growing phenomenon in our country. As I mentioned, while government may not actually own the means of production, if its regulations are such that they dictate how a company must operate, then government exercises de facto ownership.
What is happening in the financial sector right now serves as a perfect example.
The Obama administration plans to require banks and corporations that have received two rounds of federal bailouts to submit any major executive pay changes for approval by a new federal official who will monitor pay, according to two government officials.
Others, which are being described as broad principles, would set standards that the government would like the entire financial industry to observe as they compensate their highest-paid executives, though it is not clear how regulators will enforce them.
So regulators will have the final say on compensation. That, of course, is an ownership function. The de facto owner then is who?
In a sign of how eager corporations are to escape government diktats on pay, nine of the nation’s biggest banks are likely to repay bailout money as quickly as by the end of this month. The administration is expected to grant its approval this week.
Goldman Sachs, JPMorgan Chase and a handful of others have worked to rid themselves of their ties to government in order to shed restrictions on pay that they say put them at a competitive disadvantage.
But under the administration’s new plans, even companies that repay the taxpayer money will not escape some form of oversight on their compensation structure.
The set of broad pay principles being drafted by the Treasury Department would authorize regulators to tell a bank to alter its compensation arrangements if they are found to encourage too much risk-taking. It is not clear how the government will define too much risk.
Part two – no matter whether you pay the money back in full with whatever interest is owed, the government retains the right to dictate your compensation structure based in some arbitrary metric of “too much risk”, to be determined only by them.
They will apply to a broad swath of financial companies, even the United States operations of foreign banks, as well as private companies like hedge funds and private equity firms.
“This is the government trying to tell the TARP banks not to worry, because everyone else’s compensation will be monitored too,” said Gustavo Dolfino, president of the WhiteRock Group, a financial recruiter, of the industrywide principles. “We’re in a world of TARP and non-TARP.”
Clear enough? For those that like to quibble about the meaning of socialism and parse words, I’m eager to hear your spin on this. But, in light of the plan above you’d better be damned good at deploying the rhetorical smoke and mirrors if you plan to call this anything but a manifestation of the “s” word.
Another indicator that those in charge haven’t a clue about what they’re doing and anything they say or claim should be taken with a large grain of salt.
So let’s see, given the “logic” which has driven the “solution” thus far, what this calls for is more stimulus money, right?
Some indicators are looking better, but others, not as good:
While the U.S. economy is showing signs of stabilizing from a recession that started in December 2007, it’s “way too early” to say the contraction is over, said the head of the group that officially makes the call.
Gross domestic product estimated on a monthly basis “had a trough earlier this year, but it is way too early to say that it is a true trough rather than a pause in a longer decline,” said Robert Hall, who heads the National Bureau of Economic Research’s Business Cycle Dating Committee.
So while you continue to hear the happy talk about economic recovery, the experts aren’t yet ready to say whether we’ve bottomed out or are just taking a breather in the midst of a longer decline.