John Crudele alerts us to a GIGO (garbage-in-garbage-out) statistic the Labor Department uses and has used for a long time that provides erroneous data. Bad as it is in normal times, it is even worse in bad economic times:
In 11 of the 12 months, the government adds massive numbers of jobs — sometimes more than 100,000 — that it thinks, but can’t prove, exist.
This is because the Labor Department uses something called the birth/death model, which assumes that no matter how bad the economy is, there are itty-bitty, newly-formed companies — which can’t be reached by government surveyors — that are creating jobs.
So it pumps up its statistics with unconfirmed jobs created which hides the real extent of the jobs lost. And, of course, as Crudele points out, the stats are iffy in a good economy, but reliance on them in this sort of an economy is simply a travesty.
Even the Labor Department has now admitted that:
Right after Friday’s report came out, Bloomberg News called Chris Manning, the national benchmark branch chief at the Labor Department’s Bureau of Labor Statistics, and asked about the 34,000 probably non-existent jobs.
“In this period of steep job losses, the birth/death model didn’t work as well as it usually does,” Manning told Bloomberg. “To the extent that there was an overstatement in the birth/death model, that is likely to still be there.” No freakin’ kidding! This year alone, this model has added over 700,000 jobs that don’t exist to the government’s count.
The Labor Department is not only still using this model, but it nearly doubled the number of phantom jobs for this September compared with the same month last year.
So if you’re wondering how distinguished economists can get things so wrong, this provides a peek. After all, these are the statistics they’re stuck using. Phantom job creation stats based on an absurd assumption that says something’s happening that can’t be confirmed and, by the way, it continues to happen at the same rate even in the worst of financial times. Does that conform with your experience in the real world?
Mine either. Keep that all in mind when you hear the “experts” tell you that according to the latest unemployment stats, it just isn’t as bad as you might think.
[HT: Mark W.]
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While Pres. Obama and Congress go merrily about their way cramming some sort of government funded and controlled health care down the throats of an American public who doesn’t want it, the IMF is sending drastic warnings to Britain about its system:
Gordon Brown was warned last night to raise the retirement age above 65 and introduce NHS charges to tackle the soaring state deficit.
In a devastating intervention, the International Monetary Fund called for radical changes to the pension system and spending cuts that go far beyond the plans outlined by the Prime Minister this week.
The global watchdog said root and branch changes to public sector spending would be necessary to ‘help keep a lid on the debt’ and restore financial stability.
The IMF’s broadside is highly unusual ahead of an election and reflects grave concern at the debt mountain built up by the Brown government.
Oliver Blanchard, the IMF’s top economist, told a press conference at a joint annual meeting with the World Bank that the next British government will ‘have to take measures that improve the medium-term debt outlook’.
He added: ‘That means reforms of the retirement system, that means reform of the healthcare system.’
Mr Blanchard said reform was vital, adding that it would be ‘a joke’ if the Government settled instead for new fiscal rules that might be torn up at times of crisis.
The IMF estimated that by next year Britain’s debt will represent 81.7 per cent of output.
Even with planned cuts and tax increases, it predicted a figure of 98.3 per cent by 2014.
Supporters of ObamaCare will try to differentiate the crumbling NHS system, and the IMF’s prescription for it, by pointing out that the bills proposed here would require premium payments for health insurance. But that ignores the (highly front-loaded) $900 Billion price tag vaunted by the president himself which, when added to the costs of the already bankrupt Medicare and Medicaid programs, will balloon far beyond anything being promised. Combined with the also bankrupt Social Security system that is about to see a lot more beneficiaries come of age, the “Stimulus”, bailout funds, and whatever other pet projects the government finds to waste our tax dollars on, it’s difficult to see how we can avoid a similar diagnosis to that of the UK.
That is if we’re committed to using science as the basis for our determination of whether or not the House or Senate versions of cap-and-trade are needed. And, as we’ve been pointing out for the last couple of weeks, the science of AGW is shaky at best and continuing to come apart at the seams.
But that hasn’t stopped ye olde sausage factory in the Senate from grinding out another version of CO2 emissions control. The Boxer-Kerry (BK) cap-and-trade bill has emerged with even more stringent caps on CO2 than the Waxman-Markey (WM) bill. BK calls for a 20% overall reduction of 2005 levels by 2020 (17% in WM) and 83% by 2050.
You can get an idea of how BK plans on administering the carbon offset market here. But, like WM, it targets those industries which fuel and power the nation (although unlike WM, it does give a nod to nuclear power and “clean” coal). However there is evidence that the administration is trying to hide the real impact of such legislation from the American people:
Meanwhile, the Competitive Enterprise Institute (CEI) today accused the Treasury Department of continuing to hide information on the cost of climate legislation. In a news release, CEI said it had notified the Treasury Department of its intent to sue over the administration’s “inadequate disclosure of documents” recently requested under the Freedom of Information Act.
Documents released by the Treasury Department two weeks ago show the administration believed climate legislation could cost as much as $300 billion per year, which was much higher than the government’s public estimates, and could result in companies moving overseas. Studies have shown that the Waxman-Markey bill could eliminate 2 million American jobs a year.
2 million jobs a year? See the post below. Add the cost of 300 billion a year and then try to imagine a manufacturer that is a heavy user of energy trying to justify staying here instead of going somewhere else where not only energy, but labor, are cheaper than here.
Thus far BK has about 45 Senators who’ve signed on. Kerry is giddy (this would most likely be his first substantial accomplishment during his Senatorial tenure and naturally it would do more harm than good) saying he thinks the bill has a good shot of passing. But a senior Republican says he knows of no Republicans who would support the bill as written.
Senator Lamar Alexander seems to represent the prevailing thinking of the Senate’s Republicans:
“The Kerry-Boxer bill has fancy, complicated words that add up to high energy costs that will drive U.S. jobs overseas looking for cheap energy,” said Lamar Alexander of Tennessee.
But John Kerry see’s it differently:
Kerry said the event was the “beginning of one of the most important battles we will ever face as legislators and citizens.”
For once, Kerry is right about something, but not for the reason he believes. It is the beginning of one of the most important battle we well ever face and the importance lies in the fact that if passed, this legislation will kill jobs, push companies out of the US and drive our economy off the cliff. That makes it very important in my book. And with Copenhagen’s climate talks coming up in December, Democrats are going to try to push this turkey through so President Obama doesn’t show up empty handed.
The short term goal should be to ensure he does show up empty handed and the long term goal should be to defeat this outright. It’s based on shaky science, it is an economy killer and it will cost us far more than it will ever accomplish in terms of the environment. A much more sensible course would be a comprehensive energy policy which begins to use nuclear power and natural gas as the basis of a transition to clean energy with viable renewable brought on line as they become available while continuing to use and exploit the resources we have available.
Instead we’re being threatened with legislation that’s real purpose is to create a multi-billion dollar revenue stream out of thin air which will cost us jobs, income and our standard of living.
UPDATE: Speaking of Copenhagen and the desire to show up at the climate conference with something positive, it appears that the Obama administration has decided it will act unilaterally instead of wait on Congress.
Unwilling to wait for Congress to act, the Obama administration announced on Wednesday that it was moving forward on new rules to regulate greenhouse gas emissions from hundreds of power plants and large industrial facilities.
But he has authorized the Environmental Protection Agency to begin moving toward regulation, which could goad lawmakers into reaching an agreement. It could also provide evidence of the United States’ seriousness as negotiators prepare for United Nations talks in Copenhagen in December intended to produce an international agreement to combat global warming.
“We are not going to continue with business as usual,” Lisa P. Jackson, the E.P.A. administrator, said Wednesday in a conference call with reporters. “We have the tools and the technology to move forward today, and we are using them.”
The proposed rules, which could take effect as early as 2011, would place the greatest burden on 400 power plants, new ones and those undergoing substantial renovation, by requiring them to prove that they have applied the best available technology to reduce emissions or face penalties.
Phaaa, Congress … who need’s them?
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While unemployment continue to climb at numbers higher than experts expected, and signaling the so-called “stimulus” isn’t working despite claims to the contrary, it seems the only program the president can come up with to boost employment is shilling for the Chicago Olympics.
Meanwhile here in the real world:
U.S. employers cut a deeper-than-expected 263,000 jobs in September, lifting the unemployment rate to 9.8 percent, according to a government report on Friday that fueled fears the weak labor market could undermine economic recovery.
Ya think? And, of course, as Dale has pointed out, if we calculated unemployment as we did in the past, the true number would be somewhere in the 16-17% area. Even the one area that was showing growth – government employment – is shedding jobs. 53,000 in this last reporting period.
This has even Paul Krugman upset:
[T]he administration’s own economic projection — a projection that takes into account the extra jobs the administration says its policies will create — is that the unemployment rate, which was below 5 percent just two years ago, will average 9.8 percent in 2010, 8.6 percent in 2011, and 7.7 percent in 2012.
This should not be considered an acceptable outlook. For one thing, it implies an enormous amount of suffering over the next few years. Moreover, unemployment that remains that high, that long, will cast long shadows over America’s future.
Krugman’s solution is as predictable as Iran stalling the P5+1 until it has a nuclear weapon – more spending. Specifically a 2nd stimulus. But weren’t we all assured that the first stimulus would stem the tide of unemployment and keep it under 8%? So Krugman’s plan has us repeat what hasn’t worked to this point. No talk of cutting corporate income taxes to spur hiring, in fact no talk of any other method which might actually spur the market instead of providing temporary spending for temporary jobs.
Or, more succinctly, they haven’t a clue and while Rome burns, Nero is in Copenhagen fiddling away.
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I just watched a video in which House Republican Whip Eric Cantor appeared with one of his Democratic colleagues from Virginia to discuss healthcare. You can watch it here if you like.
Though I can tell you right now that there’s not much point to it. It consists virtually 100% of empty, meaningless politician-speak from both congressmen. Despite some decent attempts on the part of the interviewer to get them to answer some tough questions, they both just dodged them and mumbled platitudes about “educating voters” and “the status quo is unsustainable”.
Educating voters isn’t going to do a damn thing. Voters are sick to death of Washington telling them what to do. Democrats in Congress (and many Republicans) insist that there be a mandate to buy health insurance, and I think they have vastly underestimated the pushback they are getting right now and how much worse it would be if they actually passed it. Any bill with a ghost of chance of passing also has new taxes and new spending, and voters are (1) not fooled by any shell games claiming otherwise, and (2) profoundly sick of both taxes and spending.
Saying “the status quo is unsustainable” is pointless because it says absolutely nothing about whether any of the current proposals would make the system any more sustainable. Given the $47 trillion Medicare and Social Security already has in liabilities, creating another entitlement to increase that amount looks like the silliest possible response.
I expected such empty blathering from the Democrat. Any Democratic member of Congress is caught right now between a hard-left leadership who want government control over when people go to the bathroom and the Blue Dogs who know they’ll be looking for another job if any healthcare bill with a lot of government interference is passed. Not to mention a president who can’t seem to make up his mind on what he’s willing to settle for on healthcare, and whose only strategy is to flap his gums.
But have the Republicans learned nothing from 2006-2009? Has the Tea Party movement made no impact on them? Do they not sense the rising anti-government attitude in voters? Are they so incredibly clueless that they can’t learn the lesson from Reagan’s landslide and the 1994 takeover of Congress?
Look, you idiots: You can win big when you strongly advocate smaller government principles. When you don’t, at best you tread water, and at worst you get your butts kicked.
Watching Cantor pour out the same old politician’s blather was painful. Based on that one video, I never expect to support this guy for anything. And he’s part of the GOP leadership, supposedly the best they’ve got. Well, if he’s one of the best, they’re still as lost as they were in 2006.
I see many signs that 2010 could be a landmark year. Two months ago, I summarized Obama’s failings to that point, and since then he’s racked up scandals with his czars, seen his buddies at ACORN exposed as the criminals many of us thought they were, and had his make-nice efforts toward Iran shown to be naive and pointless.
But absent any Republican leadership on a real change in direction, none of that will make a big difference. Oh, I think the Democrats will lose a fair number of seats in the House in any case, because of depressed turnout among Democrats in marginal districts. The Republicans may well pick up three or four Senate seats too. But without a clear message concerning their desire to trim the size, cost, and intrusiveness of government, they will gain no loyalty or long-term support from those people who have finally reached their agony threshold on big government.
They’ll just drift for two years, using the same strategy that got the Democrats in the White House, which is to hope voters are so sick of the other side they will vote for a change, any change. And, of course, even if that works, they won’t do anything about reducing the size and scope of government, hoping the whole debt mess doesn’t finally reach critical mass on their watch.
With a clear message, I believe the GOP could do a rerun of 1994. But I don’t know a single person among them capable of carrying the banner for that message. It sure as heck is *not* Eric Cantor.
It is a dream all central planners have – the ability to change the laws of economics to the extent that the planner can decide on what a “fair price” might be and market dynamics will adjust themselves to the price and all will be unicorns and rainbows.
Of course we know from our experience with that application in various areas that the market doesn’t adjust to price and it is never unicorns and rainbows when price controls are applied. In fact price controls consistently spawn pretty predictable market reactions and, depending on how vast the price controls are, have the ability to bring down whole economies, or at least put them into a shambles. The latest price control paradise is Zimbabwe where a wheelbarrow full of Zimbabwean currency may be enough to buy an egg in the morning but not in the afternoon.
I bring this up because there’s a growing call for lawmakers to consider price controls for health care insurance, as demonstrated yesterday in the LA Times.
In the drive to bring health coverage to almost every American, lawmakers have largely rejected restrictions on how much insurers can charge, sparking fears that consumers will continue to face the skyrocketing premium increases of recent years.
The legislators’ reluctance to control premium costs comes despite the fact that they intend to require virtually all Americans to get health insurance, an unprecedented mandate — long sought by insurance companies — that would mark the first time the federal government has compelled consumers to buy a single industry’s product, effectively creating a captive market.
Nancy Pelosi has articulated the price control “dream” for health insurance – “a cap on what you pay and no limit on what you get back” if I recall correctly. Of course what she doesn’t say is not even Medicare does that and it has about 43 trillion in unfunded liabilities at this point. But understand that at the bottom of Pelosi’s statement is the reality of imposing price controls – you can’t have a “cap” on what you pay without them.
Thomas Sowell touches on the real intent that sort of Pelosi-talk:
Liberals especially tend to think up all sorts of good things we want — a “living wage,” “affordable housing,” “universal health care,” and an ever-expanding wish-list of things that everyone should receive as “rights” — with little or no awareness of the economic repercussions of turning that wish list into laws.
He then provides a little primer about price control:
Prices are perhaps the most misunderstood thing in economics. Whenever prices are “too high” — whether these are prices of medicines or of gasoline or all sorts of other things — many people think the answer is for the government to force those prices down.
Prices are not just arbitrary numbers plucked out of the air or numbers dependent on whether sellers are “greedy” or not. In the competition of the marketplace, prices are signals that convey underlying realities about relative scarcities and relative costs of production.
Those underlying realities are not changed in the slightest by price controls. You might as well try to deal with someone’s fever by putting the thermometer in cold water to lower the reading.
What most who believe they can thwart the laws of economics and use price controls never seem to understand is that economic law requires the price mechanism in order to properly allocate goods. Without it, some other mechanism must take its place. Those are usually found in forms of evasion. One evasion is deterioration of quality. The old saw “you get what you pay for” is never more true than under price controls. The time allocated to a doctor visit might get shorter and shorter in order for the doctor to see enough patients to meet his and his practice’s financial needs. That could also mean he can’t afford the newest equipment or diagnostic tools. Consider what price controls would mean to a pharmaceutical company and its incentive to create new and better drugs. Or a medical implements company, etc.
Another evasion may be alternate markets – you pay a physician a yearly fee and don’t use the price controlled system in place – that has already begun in anticipation of this. Doctor’s networks are springing up all over the country. Of course with a mandatory insurance requirement, you’d still have to pay into the price controlled system. But that sort of evasion takes doctors out of the price controlled market and creates another shortage with which that market has to contend.
And, of course, there’s queuing. If the price imposed is low, the tendency for those paying is to use it more frequently. There’s no penalty for doing so. That leads to a shortage (in the case of medicine, doctors still only have 24 hours in a day and can still see only a finite number of patients during that time) of available appointments and thus it extends the time before you can see a physician.
Some would call these “unintended consequences” of price controls. But they’re certainly not unknown consequences. They’re consequences on display all over the world in systems which do, in fact, impose such price controls.
Costs don’t go away because you refuse to pay them, any more than gravity goes away if you refuse to acknowledge it. You usually pay more in different ways, through taxes as well as prices, and by deterioration in quality when political processes replace economic process.
But the lure of the free lunch goes on.
With the same disastrous results it has always had. Yet our would-be central planners seem obvious to the fact. That’s one reason government debt is at the horrendous level it is today and headed for even higher levels.
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Of course, they can’t fix it except by drastically cutting spending or drastically raising taxes, or both – so this is not something that will be “fixed”. They run the program completely, determine the benefits and the rates they’ll pay and they blame private insurance for the growing cost problems in health care? Yeah, let’s give them the rest since they’ve done so well with this portion of it.
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Even the youngest student of science knows the foundation of scientific inquiry rests in the scientific method. It is by scrupulously following that method that the data and science behind it can be verified. In short:
Scientific method refers to a body of techniques for investigating phenomena, acquiring new knowledge, or correcting and integrating previous knowledge. To be termed scientific, a method of inquiry must be based on gathering observable, empirical and measurable evidence subject to specific principles of reasoning. A scientific method consists of the collection of data through observation and experimentation, and the formulation and testing of hypotheses.
It also requires that the data collected be made available to peers so the theories in question can be tested for their validity.
Among other facets shared by the various fields of inquiry is the conviction that the process be objective to reduce biased interpretations of the results. Another basic expectation is to document, archive and share all data and methodology so they are available for careful scrutiny by other scientists, thereby allowing other researchers the opportunity to verify results by attempting to reproduce them. This practice, called full disclosure, also allows statistical measures of the reliability of these data to be established.
The bold is my emphasis because I want to highlight a remarkable article at NRO by Patrick J. Michaels entitled “The Dog Ate Global Warming”. Obviously a little twist on “the dog ate my homework”, Michaels says that the “data needed to verify the gloom-and-doom warming forecasts have disappeared.”
Or, said another way, the findings are now unfalsifiable because those who did the original research say they no longer have the original data.
First some background about what’s being discussed:
In the early 1980s, with funding from the U.S. Department of Energy, scientists at the United Kingdom’s University of East Anglia established the Climate Research Unit (CRU) to produce the world’s first comprehensive history of surface temperature. It’s known in the trade as the “Jones and Wigley” record for its authors, Phil Jones and Tom Wigley, and it served as the primary reference standard for the U.N. Intergovernmental Panel on Climate Change (IPCC) until 2007. It was this record that prompted the IPCC to claim a “discernible human influence on global climate.”
Putting together such a record isn’t at all easy. Weather stations weren’t really designed to monitor global climate. Long-standing ones were usually established at points of commerce, which tend to grow into cities that induce spurious warming trends in their records. Trees grow up around thermometers and lower the afternoon temperature. Further, as documented by the University of Colorado’s Roger Pielke Sr., many of the stations themselves are placed in locations, such as in parking lots or near heat vents, where artificially high temperatures are bound to be recorded.
So the weather data that go into the historical climate records that are required to verify models of global warming aren’t the original records at all. Jones and Wigley, however, weren’t specific about what was done to which station in order to produce their record, which, according to the IPCC, showed a warming of 0.6° +/– 0.2°C in the 20th century.
So we’re talking about the findings which were used to make the IPCC’s dire warnings in its report. They are the basis for the entire global warming movement’s desire to do what is necessary globally to lower the amount of CO2 emissions.
But, others scientists ask, given their doubts about the accuracy of the data, should it be? Scientists interested in peer reviewing the theory, as the scientific method demands, found it impossible to do so. And therein lies the story:
Now begins the fun. Warwick Hughes, an Australian scientist, wondered where that “+/–” came from, so he politely wrote Phil Jones in early 2005, asking for the original data. Jones’s response to a fellow scientist attempting to replicate his work was, “We have 25 years or so invested in the work. Why should I make the data available to you, when your aim is to try and find something wrong with it?”
Reread that statement, for it is breathtaking in its anti-scientific thrust. In fact, the entire purpose of replication is to “try and find something wrong.” The ultimate objective of science is to do things so well that, indeed, nothing is wrong.
Michaels is stunned by he reaction. Anyone who reads that response should be stunned by it. As Michaels says, it is “breathtaking in its anti-scientific thrust”. Not unscientific. Anti-scientific. Jones is refusing a peer the data used to reach his conclusions in direct contravention of the scientific method. When you see a refusal like that, especially phrased the way it was phrased, all sorts of alarm bells should go off in the head of anyone who claims to be a scientist. And, of course, they have.
Over the years, requests have been made for the data and almost uniformly turned down for various reasons. Finally a request for the data made by Roger Pielke Jr., a professor of environmental studies at the University of Colorado solicited this response from Jones:
Since the 1980s, we have merged the data we have received into existing series or begun new ones, so it is impossible to say if all stations within a particular country or if all of an individual record should be freely available. Data storage availability in the 1980s meant that we were not able to keep the multiple sources for some sites, only the station series after adjustment for homogeneity issues. We, therefore, do not hold the original raw data but only the value-added (i.e., quality controlled and homogenized) data.
Michaels calls BS on this one:
The statement about “data storage” is balderdash. They got the records from somewhere. The files went onto a computer. All of the original data could easily fit on the 9-inch tape drives common in the mid-1980s. I had all of the world’s surface barometric pressure data on one such tape in 1979.
Anyone familiar with data storage throughout the short history of the computer age knows this is nonsense. Transfer of data from various systems to newer systems has been accomplished without real difficulty all thorough its development. What Jones is trying very hard to do is one of two things a) hide data that he’s pretty sure won’t support his conclusion or b) admitting to a damningly unscientific procedure which should, without his ability to produce and share the original data, call into serious question any findings he’s presented.
Why is this important – because based on this finding, the world is moving toward economy crippling treaties and legislation, like the pending cap-and-trade bill here in the US, based on totally unverified “science”. As Michaels says this story isn’t just “an academic spat” – it questions the very foundation of the premise which these economic crippling moves are based in.
Scientific consensus? Not even proven science, for heave sake – yet we’re moving on it like it was. Dangerous, foolish and costly. This is what rushing into things without making all of the inquiries necessary (and taking the time to do them) usually ends up with bad legislation.
And cap-and-trade promises to be no exception to that rule.
UPDATE: The Thinker provides a reminder of what I expect to see concerning Michael’s charges from the “Chicken Little” crowd:
As I described in my my model of belief, a faith-based belief is a belief in something for which there is no good evidence either for or against (e.g., the existence of God), whereas a delusional belief is a belief that is maintained in spite of evidence to the contrary (e.g., the efficacy of astrology). It is usually a delusional belief that requires an “appeal to other ways of knowing,” since a faith-based belief (strictly as I’ve defined it) can’t be challenged on scientific grounds.
The “appeal to other ways of knowing” is one of the strategies that a delusional person will use to cope with the cognitive dissonance that occurs when their beliefs bump up against reality. When questioned on this “other way of knowing” the person will then be forced to resort to other coping strategies (i.e., fallacies and biases).
Just a little helpful guide for those trying to evaluate the comments of those trying to defend the indefensible. Always handy to know if you’re dealing with someone grounded in a faith-based belief or a delusional belief, wouldn’t you say? If you’d like a local example of delusional belief, I’d steer you to the comment thread on Honduras where it is available in full flower.
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Today was one of those days when a couple of trends came together that should be making us think seiously about changing our current fiscal and monetary policies.
The first thing I was was this debt chart from John B Taylor that shows how our current policy will effect the national debt.
This what you call your unsustainable debt path.
Then, there was this:
Since the crisis began, the Fed has pumped more than $800 billon into the banking system, kept the federal funds rate near zero and purchased so many Treasurys and mortgage-backed debt that the amount of assets on its balance sheets has now swollen to $2.14 trillion.
“If you think the Federal Reserve had it tough devising a strategy to rescue the U.S. economy from of the worst recession in 70 years, just wait,” wrote Bernard Baumohl, chief global economist, at the Economic Outlook Group. “We think it is going to be hellishly more complicated this time to come up with a plan that encourages growth and keeps inflation expectations well anchored.”
All of which leads directly to this:
Chinese central bank governor Zhou Xiaochuan, who supervises more than two trillion dollars worth of dollar reserves, the world’s largest, raised the stakes by calling for a new reserve currency in place of the dollar.
He wanted the new reserve unit to be based on the SDR, a “special drawing right” created by the International Monetary Fund, drawing immediate support from Russia, Brazil and several other nations.
“These countries realize that they would suffer losses if inflation eroded the value of the dollar securities they own,” said Richard Cooper, a professor of international economics at Harvard University.
Here’s the problem. Because we are on an unsustainable debt path, we will eventually accrue more debt than we can possibly repay. There are many people who think that–since our debt, coupled with Social Security and Medicare obligations currently outstanding, are greater than the entire capital stock of the United States–we’re there already. We ill be unable to pay the debt, so our choices are to repudiate it outright, or to destroy the value of the currency and inflate it away, both of which amount to essentially the same thing. In doing so, the government will destroy the life savings of everyone in the country, save those that are in hard assets
The Chinese, whatever else they may be, are not stupid. they know this, and they want a new worldwide reserve currency now, before everyone realizes that the dollar is in very serious danger of becoming worthless. They don’t want to be stuck holding dollars when that happens–although their holdings in bonds will probably have to be written off.
I’ve written previously that China moved their gold reserves into the BoC a few months ago. Some international trade deals are already being denominated in gold, tool. It looks very much like the dollar’s days as the world reserve currency are numbered. In fact, the dollar’s days may very well be numbered.
And we’ve let it happen. Over the past 80 years, we’ve sat by and watched as the Fed–whose primary mission was supposed to be the stability fo the currency–has presided over a tenfold reduction in the dollar’s value. For the last 30 years, we’ve watched as the debt has mushroomed–yes, even during Bill Clinton’s presidency–and we’ve refused to either cut spending or to raise taxes to a level commensurate with our increased spending. In short, we’ve looted the system, and the looting is nearly complete now.
And now, with all the trumpetings of a coming economic recovery, the Fed has to try and figure out how to re-call the more than doubling of the monetary base we’ve engaged in in the past year without completely crashing the economy. Failure to do so, of course, means serious inflation–which will further degrade the value of the dollar.
The “too big to fail” intervention in the financial realm may have put us in an even worse position:
Joseph Stiglitz, the Nobel Prize- winning economist, said the U.S. has failed to fix the underlying problems of its banking system after the credit crunch and the collapse of Lehman Brothers Holdings Inc.
“In the U.S. and many other countries, the too-big-to-fail banks have become even bigger,” Stiglitz said in an interview today in Paris. “The problems are worse than they were in 2007 before the crisis.”
A comforting thought.
Stiglitz said the U.S. government is wary of challenging the financial industry because it is politically difficult, and that he hopes the Group of 20 leaders will cajole the U.S. into tougher action.
“We aren’t doing anything significant so far, and the banks are pushing back,” he said. “The leaders of the G-20 will make some small steps forward, given the power of the banks” and “any step forward is a move in the right direction.”
Key phrase – “politically difficult”. I.e. it may cost the Democrats and Obama some political capital. Wouldn’t want them to have to make difficult political decisions, would we – so the hope is they can “outsource” it. Make the decision out to be one that a group of leaders came up with and thus a broad consensus that gives the administration some political cover.
“It’s an outrage,” especially “in the U.S. where we poured so much money into the banks,” Stiglitz said. “The administration seems very reluctant to do what is necessary. Yes they’ll do something, the question is: Will they do as much as required?”
That depends on what that political cost is calculated to be.
“We’re going into an extended period of weak economy, of economic malaise,” Stiglitz said. The U.S. will “grow but not enough to offset the increase in the population,” he said, adding that “if workers do not have income, it’s very hard to see how the U.S. will generate the demand that the world economy needs.”
The Federal Reserve faces a “quandary” in ending its monetary stimulus programs because doing so may drive up the cost of borrowing for the U.S. government, he said.
“The question then is who is going to finance the U.S. government,” Stiglitz said.
Indeed – and here we are set to spend even more money on a pet domestic issue.
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