Free Markets, Free People

Uncategorized


Observations: The QandO Podcast for 13 Oct 11

In this podcast, Bruce Michael, and Dale discuss Obama’s “Americans are lazy” comment, the failing EU. and the presidential race.

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 2010, they can be accessed through the RSS Archive Feed.


Herman Cain’s “bimbo eruption”

I think we can officially call it that, although I’m not necessarily calling the women involved bimbos.  It’s a term, a phrase used to describe these sorts of situations that politicians seem to find/get themselves in.  Thus the scare quotes.  Perhaps it’s unfair to the women.  Maybe Cain’s the bimbo.

Anyway, the point of talking about it at all is to point out how poorly the Cain campaign has handled this.  No one is talking about Herman Cain’s politics or ideas.  Everyone is continuing to talk about this situation.  And to make it worse, you have his campaign manager on national TV least night accusing one of the women of having a son who works for POLITICO – the media organization which broke the story on Cain.

Mark Block, on Sean Hannity’s Fox News show:

Her son works at POLITICO," Block said of Karen Kraushaar, whose name POLITICO printed earlier today after other media outlets made her identity public.

"I’ve been hearing that all day – you’ve confirmed that now?" Hannity asked.

"We’ve confirmed that he does indeed work at POLITICO and that’s his mother, yes," said Block.

Uh, no.  They confirmed nothing.   While Josh Kraushaar did work for POLITICO a while back (he left in 2010 for the National Journal) and happens to have the same last name as one of the Cain accusers, he’s not related at all.

This has been confirmed by none other than Josh Kraushaar.  My guess is that’s something Mark Block might have wanted to ask Kraushaar who had been on Twitter tweeting his disbelief at the accusation.  But then you have to have been monitoring the social media to have picked that up (or even ask the man yourself).

This is beginning to smell of amateur hour.  You have a campaign who had 10 days notice this was coming and did nothing to get in front of it, choosing instead to ignore it.   The problem, as you might have noticed, didn’t go away.  In fact it got worse.  3 more women have come forward to say they too were sexually harassed by Cain.

These are the sorts of situations where everyone comes out looking worse in my opinion.  Cain is being killed in the media (partly I think because when he finally did choose to respond, his response was to lash out at the media) and of course the campaign and its supporters are trying to do everything they can to discredit the women who’ve come forward.

Nasty stuff.  Toxic stuff.  Stuff that can kill a campaign.

I’ve heard people say “well it didn’t kill politicians like Bill Clinton”.  True.  I wish I had a dollar for every time I heard, “well that has nothing to do with his ability to govern”.

However, I think Cain’s problems and sinking poll numbers (and campaign) have more to do with is base than anything.  When Bill Clinton was having these sorts of problems, his base simply didn’t regard them as serious enough to write him off.  I assume you can ascribe any numbers of reasons for that – not wanting to give up the presidency, not feeling (as often stated) that personal behavior effected his governing, or just feeling it wasn’t as important an issue as the opposition wanted to make it.

Regardless it is about the standards of conduct that are important to the base.  On the left, the crowd that talks about women’s rights are pretty flexible about that when it is their ox being gored.   But they have no problem denouncing someone on the right if political advantageous.  And that’s because on the right there is a higher standard applied.  That standard has gotten many a righty politician in trouble when things like this came out.   I’ve noticed Newt Gingrich talking about how he’s creeping up in the polls.  Newt just hasn’t plateaued yet.  He will – soon.  He’s going nowhere because he has similar baggage.

Get used to it Republicans.  Your candidate, barring the entrance of a dark horse who can and would capture the right’s vote, is Mitt Romney.  Perry, by his performances in the debates, has all but eliminated himself.  Cain was a contender, but this mess and how it is being handled is just killing him.  Gingrich is in fantasy land.

The only one left standing, when all the political smoke clears, is going to be Mr. Flexible – Mitt Romney.

Makes you fell all warm and fuzzy doesn’t it?

Meanwhile, I’ll continue to monitor the train wreck Herman Cain finds himself in and, if appropriate, have more to say.  But it seems like the Cain campaign is trying its best, at the moment, to develop this into a worst case scenario.  And so far they’re doing a bang up job.

~McQ

Twitter: @McQandO


China ignores sanctions to trade with Iran

For years I’ve heard people say that China isn’t an expansionist military threat on the par of, say, the old Soviet Union.  And for the most part, I believe that.  I do believe they’re a regional expansionist military threat and I also believe they’re building their military with unprecedented spending to fulfill that role.  That’s fairly obvious in their dealings with other Asian countries within the China sea area.

But are they an international threat to peace?

In some ways, absolutely.  For instance, their relationship with Iran threatens to make the unstable Middle East even more unstable.  And they’re blatantly disregarding UN sanction and breaking promises to the US about weaponry they are exporting:

China is continuing to provide advanced missiles and other conventional arms to Iran and may be doing so in violation of U.N. sanctions against the Tehran regime, according to a draft report by the congressional U.S.-China Commission.

“China continues to provide Iran with what could be considered advanced conventional weapons,” the report of the U.S.-China Economic and Security Review Commission says.

According to the report, which will be made public Nov. 16, China sold $312 million worth of arms to Iran, second only to Russia, after Congress passed the Iran Freedom Support Act in 2006 that allows the U.S. government to sanction foreign companies that provide advanced arms to Iran.

So, essentially China is calling the US bluff and ignoring the UN.  And it is actively trading with a self- declared enemy of the US (and a country which has killed Americans in both Iraq and Afghanistan). 

Speaking of the US, China has even gone further:

Most of the weapons transfers involved sales of Chinese anti-ship cruise missiles, including C-802 missiles that China promised the United States in 1997 would not be exported to Iran.

China also built an entire missile plant in Iran last year to produce the Nasr-1 anti-ship cruise missile.

While the article goes on to say that technically the sale isn’t a violation of the Iran, North Korea and Syria Nonproliferation Act of 2006 because the payload and range are below the specified minimums, what it doesn’t say is the value of the advanced technology such a sale brings a country like Iran.  Obviously what they learn from the C-802 will be incorporated in their own types of missiles.

The report in which these findings were contained makes a valid conclusion based on them:

The report concludes: “Despite Beijing’s stated claim to be acting as a responsible major power, China continues to place its national interests ahead of regional stability by providing economic and diplomatic support to countries that undermine international security.”

Of course China waves it all away.  I mean, what are we going to do about it?

Chinese Embassy spokesman Wang Baodong denied China violated U.N. sanctions.

“When it comes to the issue of nonproliferation, China has been strictly adhering to the relevant U.N. resolutions and faithfully carries out its international obligations while strictly implementing its relevant domestic policies and regulations in the field.”

He said the commission “should cast off its Cold War mentality, respect the facts and stop making unwarranted allegations against China.”

Of course what sales like the ones China has been making to Iran do indeed undermine international security, or, at least Middle East regional security.  Iran now brags about missiles it has that can hit its avowed enemy, Israel, and most of the world believes they’re pursuing nuclear weapons.  These sorts of sales only aggravate that situation.

Israel has to take them seriously and has:

Israel’s test launch of a ballistic missile at Palmachim Air Force Base on Wednesday, in an apparent show of military strength, has ensured the threat of Iran’s nuclear capabilities remains firmly on the public agenda.

International sources quoted in the Israeli media said the test appeared to have been conducted with a ”surface-to-surface” missile known as the Jericho 3, which has a range of between 3000 and 7000 kilometres and is capable of carrying a nuclear warhead.

Of course Israel has never publically admitted it has nuclear weapons (but most believe they do) and until this launch never publicly admitted it had a missile with this range.  It was indeed a show of force to make it clear to the Iranians that they had best mind their p’s and q’s.  But it certainly indicates in increase in tensions and a decrease in stability in a region already dangerously unstable.

So we have China ignoring or circumventing international sanctions to trade critical weaponry with a rogue nation with military and regional aspirations and essentially telling the rest of the world to bug off.

The question is “why?”

Is it because it perceives weakness in the US?   Europe?  The UN?   All three?  China has weathered the recession in relatively good shape.  It’s economy is still doing well.  It has been the recipient of a wealth transfer through trade that has enabled it to spend much more freely on its military and it seems to be recognizing a growing vacuum in the world power balance as the US is perceived to be withdrawing some from its position of dominance.

Is China just interested in a regional role, or does Iran signal that China hopes to expand into much more of an international power player?  China watchers who’ve been claiming that it is only regional power which interests the country may have to recalibrate their thinking.   It seems, at least to me, that China sees a much broader role for itself (and its self-interest) in the world and may be beginning to make moves internationally to fulfill that role. 

Of course time will tell, but Iran (and some of its activities in Africa and the China sea)  seems to be a good indicator of a larger desired international role for China  than that which was previously assumed for the country.

~McQ

Twitter: @McQandO


Anyone–who is the number 3 oil producer in the world?

This may surprise you, but it is the US.  In fact, it probably does surprise you,  given all the whining about our dependence on foreign oil.  You’d think that we were a poor nation when it comes to petroleum resources and the amount we import.

Quite the contrary.  And you’d think that it would be in the best interests of the US to exploit its resources to a) give us a larger percentage of secure oil and b) employ oodles and bunches of Americans in an industry that has some pretty good and high paying jobs.

You’d think.

First the news:

The study released Thursday by the National Petroleum Council, a collection of industry, academic, government and other officials convened by the secretary of energy, touted how advanced technology has unlocked vast formations of natural gas previously deemed uneconomic to tap.

But the report also said the same drilling and production techniques that opened up shale gas – combined with success in the deep-water Gulf of Mexico, the Canadian oil sands and even surges in conventional oil onshore – are improving the nation’s potential to be more self-reliant for oil, according to the report.

"Contrary to conventional wisdom the North American oil resource base also could provide substantial supply for decades ahead," the report said.

FYI, this isn’t just some industry group turning out reports that favor drilling. 

The National Petroleum Council, a collection of industry, academic, government and other officials, convenes several times a year to gather information, give advice and issue reports on topics for the secretary of energy. The most recent report was a 2007 study on global energy supply and demand.

In 2009 Energy Secretary Steven Chu asked the group to look at U.S. natural gas and oil resources based on four concepts: economic prosperity, environmental sustainability, energy security and prudent development.

Optimistically, the Council believes that the US and Canada combined could produce 22.5 million barrels a day when the new resources are added in.  Secure oil.

And, if we’d just get to work and try to tap these assets, Goldman Sachs believes we’ll surpass Russia and Saudi Arabia as the largest oil producer in the world by 2017:

And earlier this month, Goldman Sachs said in a note to investors it expects the U.S. – now the No. 3 oil producer behind Saudi Arabia and Russia – to take the top spot by 2017.

This, given the current economic (and political) conditions, should be a no-brainer, shouldn’t it?

Well shouldn’t it?

~McQ

Twitter: @McQandO


Economic Statistics for 13 Sep 11

Today’s little economic snapshots:

A sharp drop in oil prices reduced import prices by –0.4%. Export prices, conversely, rose by 0.5%. On a year-over-year basis, import prices have risen by 13%, while export prices have gone up by 9.6%.

For the sixth straight month, business confidence has fallen as the NFIB Small Business Optimism Index fell 1.8 points in August to 88.1.

The Ceridian-UCLA Pulse of Commerce Index fell 1.4% in August, with the index reading at 94.62, as nationwide trucking activity dropped slightly.

In weekly retail sales, ICSC-Goldman Store Sales rose 1.3% on a post-Hurricane Irene burst of sales last week, with year-over-year sales up 3.3%. Redbook, meanwhile, reports year-over year sales were up 4.5%.

~
Dale Franks
Google+ Profile
Twitter Feed


Gloomy Goldman-Sachs

James Pethokoukis writes, "Goldman Sachs drops this H-bomb on the Obama campaign:

We have lowered our forecast for US real GDP growth further and now expect real GDP to grow just 2%-2½% through the end of 2012.  Our forecast for annual average GDP growth has fallen to 1.7% in 2011 (from 1.8%) and to 2.1% in 2012 (from 3.0%).  Since this pace is slightly below the US economy’s potential, we now expect the unemployment rate to be at 9¼% by the end of 2012, slightly above the current level.

Even our new forecast is subject to meaningful downside risk.

So, we got that goin’ for us.

~
Dale Franks
Google+ Profile
Twitter Feed


Testing new ways to post

Yes, that’s what’s up … I’m looking at ways to further expand my ability to blog from various platforms and apps.

So far, so good with this one.

~McQ

Twitter: @McQandO

- Posted using BlogPress from my iPad


Observations: The QandO Podcast for 24 Jul 11

In this podcast, Bruce, Michael, and Dale discuss the fight over the debt limit again.

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 2009 to 2010, they can be accessed through the RSS Archive Feed.


How screwed are we?

I have to admit, I sometimes get tired of being the voice of doom. Sadly, our political class–Republicans and Democrats alike–seems determined to follow the worst policy options available. So, doom slouches closer. The proximate doom they’re fiddling with this time is the approaching debt limit. Now, I yield to no man in my hatred for ever-increasing government spending, but this debt-limit battle is pointless.  We will increase the debt limit. We have no choice.

Here’s the current situation:

OMB estimates federal revenues for 2011 will hit $2.17 trillion. Granny, our servicemen, and other such untouchables — by which I take him to mean Social Security, Medicare, national defense, and debt-service payments — will add up to $2.21 trillion, meaning that even if we cut the rest of the federal budget to $0.00 — no Medicaid, no food stamps, no Air Force One — revenues still would not cover these untouchables, according to OMB estimates…

Our deficit is about 40 percent of spending this year; continued recovery, if the estimates hold, will do some of the work for the 2013 regime, but even under current forecasts that are arguably too rosy, we’ll still be running a 26 percent deficit in 2013.

Even if we eliminate every penny of spending this year except for Social Security, Medicare, and Defense, we still can’t cover this year’s spending.  And next year’s spending projects an economic recovery will save us, and reduce the deficit to 26% of spending. Absent such a recovery, next year we’ll be back to another 40% deficit.

And the politicians of both parties are nowhere near to making the appropriate cuts in the budget in years farther out than that.  The biggest deficit reduction package currently on the table is for $4 trillion over the next 10 years. Which sounds impressive, until you remember that the actual projected budget deficit over the next 10 years is $13 trillion. So, we’re still $9 trillion short of closing the budget deficit for the next 10 years.

But, wait! It gets better!  This $13 trillion figure assumes that interest rates will remain stable where the currently are. If interest rates for treasuries go up by 1%, that wil add 1.3 trillion to the deficit over the same period.  As the moment, the Office of Management and the Budget (OMB) projections are for a stable average interest rate of 2.5%. Of course, the current 20-year average is closer to 5.5%, so a return even to normal interest rates will add up to $3.9 trillion to the deficit.

But the magic doesn’t stop yet! OMB forecasts growth rates of between 4%-4.5% from 2014 to 2014. The average trend rate of growth is between 2.5%-3% however. So, if we don’t get the strong growth the OMB is predicting over the next three years, and the following years, we’ll need to add another $3 trillion or so to the deficit over the next decade.  And, frankly, if you believe Goldman Sachs today, a return to trend rates of growth seems..unlikely, as they’ve lowered 2Q GDP growth to 1.5% from 2.5% and 3Q to 2.5% from 3.25%.  They also forecast unemployment at end of 2012 to be 8.75%.

So, the best case scenario is that we’ll add $9 trillion to the deficit over the next decade. A return to historical growth and interest rates–even if we assume the $4 trillion of budget cuts will actually happen–means a 10-year deficit of $16 trillion. Essentially, we will more than double the National Debt, pushing the debt to GDP ratio to about 160% by 2021.

And that’s the good news.

The bad news is that, in the current debate over the debt ceiling, everyone involved seems determined to play chicken with a default–even if only a selective default–of US treasury obligations.

Tim Pawlenty even suggested that a technical default might be exactly what Washington needs to send a wake-up call to the politicians about how serious the situation is. Others, like Michelle Bachmann, and a not inconsequential number of Tea Party caucus members are steadfastly against raising the debt ceiling for any reason at all.

This is insanity.

Any sort of default, even a selective default that would suspend interest payments only to securities held by the government, while paying all private bondholders in full, will have completely unpredictable results. The least predictable result, however, would be business as usual. A technical default–i.e., delaying interest payments for a few days–or selective default, or any other kind of default is…well…a default. It is a failure to make interest payments.

The most obvious possible result of any sort of default will be to eliminate the US Treasury’s AAA rating, and push interest rates up sharply. If we’re lucky, we’d be talking about a yield of 9%-10%…and an additional $5 trillion added to the deficit (running total in 2021: $21 trillion added to the national debt).

And, again, that’s a best case scenario. Because it assumes that everyone will be willing to hold their T-Notes through all of this.  If any major overseas institution or government–say, China–decides to unload their holdings, it could be the start of a flight from treasuries that will destroy the US Dollar in the FOREX, vastly increase the price of imported goods, like, say, oil, and spark uncontrollable hyperinflation in the US. The life savings of every person and institution would be wiped out.

Naturally, yields on interest-bearing instruments would then pull back on the stick and climb for the skies. Not that it’d matter much at that point, since the currency would merely be ornately engraved pieces of durable paper.  Suitable for burning in the Franklin Stoves with which we will be heating our homes, in the absence of oil.

Flirting with default is extraordinarily reckless. I don’t even have the words to begin to describe how badly any sort of default might go.

The thing is, we don’t know–we can’t know–what the results of a technical or selective default might be.  It might be the judgement of worldwide investors that there are no better alternatives to US-denominated securities, so they’ll just have to ride out a technical default, and accept their interest payments coming a few days late. It might be their judgement that unloading their US-denominated securities and losing a little money is better than the risk of losing everything through a currency collapse. It might be a lot of things, and we have no way of knowing which of those things might come to pass.

As Tim Pawlenty says, a default might be a wake up call.  From an exploding phone filled with napalm and plutonium.

Whatever political points might be at stake, is it worth this level of risk?

The safe path here is a simple $500 billion debt limit increase. That’ll give us 6 months to figure things out, and try to discover some way to get our fiscal picture under control, and avoid a default. Government spending is out of control, but a default is really not the best way to impose fiscal discipline.

~

Dale Franks
Twitter: @DaleFranks