Free Markets, Free People
This week, Bruce Michael, and Dale record the most pessimistic podcast ever.
The direct link to the podcast can be found here.
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Today’s economic statistical releases, or rather release, since there’s only one, the Index of leading indicators. Which actually looks pretty good this month, up 0.9%. There’s only one negative element for the month: vendor deliveries are showing slightly fewer delays, which pretty minor. The report indicates that the risk of a downturn or recession is receding. That’s good news.
Or, would be, if Italy, Spain, Ireland, and Portugal weren’t ready to go belly up in default, destroy the Euro, trash global banking, and plunge the world into a Second Great Depression.
But, you take the good with the bad, right?
Tunisia, cited by the “Arab Spring” crowd as the democratic and secular example to which all Arab countries should aspire has suddenly begun showing distinct Islamic tendencies:
Secular Tunisians are expressing concerns after a leader of the country’s Islamist Al-Nahda movement said Tunisia’s emerging government marks "the Sixth Righteous Caliphate."
The fifth caliphate, an Islamic imperial governing system, was abolished by Turkish secular Kemal Ataturk in 1924. In a speech posted on YouTube Sunday, Hamadi Jbeli also pledged that "we shall set forth with God’s help to conquer Jerusalem, if Allah wills… From here is conquest with the help of Allah Almighty."
Somehow this tendency to go in the Islamist religious direction has been discounted by those in the West who were sure that countries with no democratic traditions and intuitions and cultural and religious biases against both would suddenly flower into model representative democracies.
Those who had serious doubts for the reasons stated were dismissed as cynical and not able to understand the new world as it was forming, apparently driven by Twitter. Pointing out that the most ruthless best organized usually prevail in any sort of revolution and that those traits were enjoyed mostly by Islamists was waved away as overly pessimistic and indicative of a fundamental misunderstanding of the power of the technologically driven secular youth movements taking the lead in each of these countries.
And one by one those movement have foundered and Islamists, in one guise or another, have emerged to take control. Tunisia, though, where it all began, was held out as the one example of where the wished for model was working.
Yeah, not so much. 6th Caliphate? Conquer Jerusalem? Sounds like secular democracy to me, how about you?
Jbeli’s party, Al-Nahda, won 98 of 217 parliamentary seats in Tunisia’s first election. And naturally, he was hailed by the usual suspects as being a “moderate”:
The group’s electoral success won international praise as a "moderate" movement promoting a democratic form of political Islam. Headlines in mainstream media outlets like the New York Times, Los Angeles Times, and CNN called Al-Nahda moderate.
Read that quote again. Is that what is considered moderate in the Arab world? In any world?
Tunisians certainly don’t:
Leading secularist party Ettakatol suspended its participation in committees to form a governing coalition. "We do not accept this statement," said Khemais Ksila, an executive committee member of Ettakatol. "We thought we were going to build a second republic with our partner, not a sixth caliphate." Issam Chelbi of the secular PDP party called the speech "very dangerous."
"This is what we feared," Chelbi said.
Tunisian women’s groups also have been skeptical of Al-Nahda’s moderation, saying there has been an increase in verbal and physical abuse since President Zine Abidine Ben Ali resigned in the wake of a popular uprising.
This is like an Arab “Ground Hog Day” – the same story repeated in country after country where “Arab Spring” has occurred.
The party leader and ideologue is a piece of work too:
The Arab Spring "will achieve positive results on the path to the Palestinian cause and threaten the extinction of Israel," Party leader and ideologue Rashid Ghannouchi said in a May interview with the Al Arab Qatari website. "The liberation of Palestine from Israeli occupation represents the biggest challenge facing the Umma [Muslim nation] and the Umma cannot have existence in light of the Israeli occupation."
Further, in the same interview, Ghannouchi said: "I give you the good news that the Arab region will get rid of the bacillus [bacteria] of Israel. Sheikh Ahmed Yassin, the leader of Hamas, said that Israel will disappear by the year 2027. I say that this date may be too far away, and Israel may disappear before this."
Ghannouchi has also given his support to specific types of terror carried out by Hamas, including rocket attacks against Israeli civilians and "martyrdom operations."
In June 2001, Ghannouchi appeared in an al-Jazeerah panel discussion in which heblessed the mothers of Palestinian suicide bombers:
"I would like to send my blessings to the mothers of those youth, those men who succeeded in creating a new balance of power…I bless the mothers who planted in the blessed land of Palestine the amazing seeds of these youths, who taught the international system and the Israel (sic) arrogance, supported by the US, an important lesson. The Palestinian woman, mother of the Shahids (martyrs), is a martyr herself, and she has created a new model of woman."
Ghannouchi has even gone beyond rhetoric, calling for Muslims to fund and provide logistical support for Hamas. He signed the controversial "Istanbul Declaration," issued by Muslim clerics in support of Hamas after Israel’s January 2009 war in Gaza. The declaration stated that there was an "obligation of the Islamic nation to open the crossings – all crossings – in and out of Palestine permanently" to provide supplies and weapons to Hamas to "perform the jihad in the way of Allah Almighty."
This is Tunisia’s elected majority party. This is the party which will form the government and name the Prime Minister. This is the party which has the following stated goals:
Ghannouchi’s statements are consistent with Al-Nahda’s platform, which declares that the party "struggles to achieve the following goals … To struggle for the liberation of Palestine and consider it as a central mission and a duty required by the need to challenge the Zionist colonial attack. The platform also refers to Israel as an "alien entity planted in the heart of the homeland, which constitutes an obstacle to unity and reflects the image of the conflict between our civilization and its enemies."
In September, the organization stated that it "supports the struggle of peoples seeking liberation and justice and encourages world peace and aims to promote cooperation and collaboration and unity especially among Arab and Islamic countries and considers the Palestinian struggle for liberation to be a central cause and stands against normalization."
Peace? Democracy? Tunisia first? Secularism?
Is this the moderate, secular “Arab Spring” that the supporters imagined?
And there is more. Shikha Dalmia details it at Reason:
The Treasury Department yesterday revised its loss estimate for the Government Motors bailout from $14.33 billion to $23.6 billion, thanks to the company’s sinking stock price. GM’s Sept. 30 closing price, on which the new estimate is based, was $20.18, about $13 less than its December IPO price and $35 less than what is needed for taxpayers to break even.
The $23.6 billion represents a 25 percent loss on the feds $60 billion direct “investment” in GM. But that’s not all that taxpayers are on the hook for. As I explained previously, Uncle Sam’s special GM bankruptcy package allowed the company to write off $45 billion in previous losses going forward. This could work out to as much as $15 billion in tax savings that GM wouldn’t have had had it gone through a normal bankruptcy. Why? Because after bankruptcy, the tax liabilities of companies increase since they have no more losses to write off.
This means that the total hit to taxpayers, who still own about a quarter of the company, could add up to $38.6 billion. That’s even more that the $34 billion on the outside I had predicted in May.
You’ll remember we were vociferously against the bailout, saying the company should proceed through normal bankruptcy despite the absurd nonsense being spread about the effect of bankruptcy on jobs and the like. Had that been done, a much more stable and lean GM would have emerged. And taxpayers, meaning government, wouldn’t still own 25% of the company – in fact the government wouldn’t own any of it. Nor would unions.
The effect of government intrusion has been to worsen the company’s outlook. Again Dalmia explains the reason that the political priorities of the Obama administration will lead the company into even more troubled financial waters:
Although GM will never, ever make taxpayers whole, taxpayer losses could be mitigated if GM’s stock price rises before the Treasury sells its remaining equity, something it was supposed to do by year-end but has postponed under the circumstances. But right now at least the prospects of a serious upward move in GM’s stock don’t look too good for reasons at least partly beyond GM’s control.
GM actually has been doing quite well in North America and China with profit margins of 10 percent, among the best in the industry. How long that will last is an open question. That’s because GM’s new competitors are not Toyota and Honda that share its cost structure but Hyndai and Kia that have a far leaner one. These companies concentrate on the small car market and don’t offer a full product line so GM and Ford’s most profitable vehicles—those evil, gas-guzzling, greenhouse-gas emitting SUV’s and pickup trucks—are somewhat insulated from the downward price pressure. But the greens and Obama administration want GM to reorient its product mix away from big cars and toward money-losing hybrids and electrics, something that could well put GM back in a hole.
But that’s part of the administration’s long-term strategy for ruining GM. The company’s big weak spot right now is Europe for two reasons: One, thanks to political pressure and labor resistance, it hasn’t been able to address its bloated cost structure there. Two, Europe’s economy is imploding, weakening car sales.
That’s right, government is steering the company in which it owns 25% of the stock, to orient in a direction that is bad business, but as far as the administration is concerned, good politics.
There’s a reason central planning always fails. It’s because it ignores market demand. Central planning’s core belief is it can anticipate accurately the public’s demand and produce products it will buy. See the Chevy Volt. Then see the Chevy Tahoe.
As Dalmia points out, the market for small cars is very competitive. But the sector that GM has an advantage in is politically unpopular with the party the administration represents (note again the party ideology running the agenda and not what is good for the company or the country). So the government attempts to focus the company in a direction away from its most profitable business and toward the politically acceptable but unprofitable small car sector.
Another in a long line of lessons on how central planning always fails. This particular example also points out that when ideology is left to dictate the direction of a business instead of the market the likelihood of failure goes up exponentially.
And when the strategy fails it will not be a “market failure”. It will again be government doing its usual lousy job of picking winners and losers. We, of course, end up being the ultimate losers when it makes its picks.
Today’s economic statistical releases:
Initial jobless claims continue to improve slowly, dropping 2,000 this week to 388,000.
Housing starts stayed fairly steady, though off a bit at a 628,000 annual rate. Housing starts, however, jumped to 653,000, a positive sign for future construction.
The Bloomberg Consumer Comfort Index for the week improved to -50 from the last week’s -51.6.
The Philadelphia Fed Survey shows growth slowed in the Atlantic region, falling from 8.7 to 3.6.
E-Commerce sales rose 1.9%, following the 2nd quarter’s increase of 2.6%.
Lawrence Korb, who obviously sees defense as the budget cutting device that can save other spending programs, opens his POLITICO piece with this:
Defense is not now — nor was it ever intended to be — a jobs program.
So when an Aerospace Industries Association study — supported, unfortunately, by Defense Secretary Leon Panetta and House Armed Services Committee Chairman Buck McKeon (R-Calif.) — attempts to warn Congress and the American people that cutting projected defense spending by as much as $1 trillion over the next decade, which might happen if sequestration takes effect, could cost 1 million jobs, the appropriate response is that this is irrelevant.
Actually it’s not irrelevant in the least. Not when you have an administration trying to spend more money on “infrastructure jobs” and touting jobs it has “saved or created”. Not when you have a president who is claiming the national priority is jobs, jobs, jobs.
It isn’t irrelevant at all.
I agree with his essential point and made it myself yesterday. Defense isn’t a “jobs program”. And no one is arguing it is. That doesn’t make the impact of cuts to this particular sector less “relevant”. Again, a million jobs in the middle of a deep recession means more trouble not less. So Korb’s cavalier dismissal of that impact as irrelevant is, well, irrelevant. It’s a false premise.
This isn’t about the jobs, necessarily (although they are important), it is about the future of our national security. As the Air Force generals I quoted yesterday emphasized the decisions made today will have a profound effect in 20 to 30 years. If we cut major defense programs now, we suffer their consequences then. Sure, we’ll see a million jobs go down the drain now. But the short sightedness of huge cuts now really doesn’t have anything to do with jobs. It has to do with a badly degraded national defense in the future.
Korb attempts to use this false premise to sell a trillion dollars in cuts to defense programs and then promises vapor jobs in return:
That $1 trillion can be used to lower our federal debt, which Adm. Michael Mullen, the former chairman of the Joint Chiefs of Staff, called the greatest threat to our national security.
Or it could be used to create at least 2 million new jobs — to replace the 600,000 that could be lost.
Note that Korb claims, with no basis for his claim (after supposedly taking apart the argument that a million jobs will be lost with sequestration cuts) and then blithely hand waves “at least” 2 million new jobs into existence by doing what?
Spending that trillion dollars. That’s worked so well for us in the past 3 years hasn’t it?
And his desire to “create at least 2 million new jobs” to replace those lost tells you what?
That those lost if the cuts to defense are made aren’t irrelevant at all – are they Mr. Korb?
Apparently the public has seen and read enough about Occupy Wall Street to make up its mind that it isn’t something it supports.
According to a Public Policy Polling survey, support for OWS has dropped rapidly as more and more reports detail theft, violence, rape, and all sorts of other anti-social behavior (such as defecating in the street) among its participants.
Only 33% now say that they are supportive of its goals, compared to 45% who say they oppose them. That represents an 11 point shift in the wrong direction for the movement’s support compared to a month ago when 35% of voters said they supported it and 36% were opposed. Most notably independents have gone from supporting Occupy Wall Street’s goals 39/34, to opposing them 34/42.
Note again the all important demographic (independents) in which the big switch has occurred. Democrats who’ve hitched their wagon to OWS should begin deserting it like rats deserting a sinking ship when they see these results.
As for the claim that OWS is more popular than the Tea Party? Yeah, not so much:
Tea Party 43%, Occupy Wall Street 37%. Last month, Occupy Wall Street had a narrow advantage of 40%-37%.
Again the movement with independents is notable- from preferring Occupy Wall Street 43-34, to siding with the Tea Party 44-40.
That said, the issue OWS supposedly represents is still alive and well even if it is a misinformed position:
I don’t think the bad poll numbers for Occupy Wall Street reflect Americans being unconcerned with wealth inequality. Polling we did in some key swing states earlier this year found overwhelming support for raising taxes on people who make over $150,000 a year. In late September we found that 73% of voters supported the ‘Buffett rule’ with only 16% opposed. And in October we found that Senators resistant to raising taxes on those who make more than a million dollars a year could pay a price at the polls. I don’t think any of that has changed- what the downturn in Occupy Wall Street’s image suggests is that voters are seeing the movement as more about the ‘Occupy’ than the ‘Wall Street.’ The controversy over the protests is starting to drown out the actual message.
This is most likely true since most people don’t understand that the economics of earnings isn’t a zero sum game. On the one hand the left has done a good job of selling the idea that income inequality is important and can be solved through higher taxes on the so-called or relatively “rich”.
Of course that’s nonsense. That said, OWS is now more of a detriment than a asset to that cause if this poll is to be believed. And that means the usual thing for politicians with their fingers firmly in the political wind – those who have embraced the OWS protestors will be trying to find a way to desert and then denounce the rabble.
OWS will linger – today they’re going to try to rally in NYC on Wall Street – but I’d argue we’ve seen the movement’s high tide. I will now recede into a mere annoying shadow of itself as support is withdrawn by political figures and organizations. And, of course, you can count on participants getting even more desperate to rally support and I think we all know what that means. More excess, more stupidity, less support.
I say good riddance.
While the administration regularly takes Wall Street to task for what it calls excessive bonuses, especially to companies bailed out by taxpayer money, it has been relatively silent about the bonuses approved by its own Federal Housing Finance Agency for two quasi-government companies at the center of the housing market meltdown:
The Federal Housing Finance Agency, the government regulator for Fannie and Freddie, approved $12.79 million in bonus pay after 10 executives from the two government-sponsored corporations last year met modest performance targets tied to modifying mortgages in jeopardy of foreclosure.
Remember AIG and the huge uproar over the bonuses they were contractually bound to pay soon after the bailout? Well these bonuses weren’t wrapped up in any contractual binding. These have been approved since that time. And to top it off, on average, they’re larger bonuses than AIG paid.
You’d think the FHFA would have a clue, wouldn’t you? You’d think they’d understand the “optics” of this sort of a payout of taxpayer money, not to mention that the government is supposedly trying to cut spending.
But obviously they don’t understand that.
Thankfully the Congress has thus far reacted to the situation in a swift and positive manner (for once):
The House Financial Services Committee, responding to lawmaker anger over compensation at Fannie Mae and Freddie Mac, approved a measure that would suspend the compensation packages for executive officers at the companies. The bill also would require employees of the two firms to be moved onto a pay scale that lines up with federal financial regulators including the Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency.
“Awarding lavish pay packages to the heads of these companies that have accepted $170 billion in taxpayer cash can’t be defended,” Representative Spencer Bachus of Alabama, the panel’s chairman and sponsor of the bill, said today.
We will see if they carry it on through and actually get something passed, but even Barney Frank, who initially opposed the bill is now supporting it. And when Freddie and Fannie have lost Barney, they’re in trouble:
Representative Barney Frank, the top Democrat on the Republican-controlled panel who initially opposed the measure, voted for the bill because of what he described as “insensitivity” by the companies in continuing to award bonuses.
“I had hoped that they would use restraint on their own because I think it’s better that we not intervene,” Frank, of Massachusetts, said today. “But they did not.”
Again, the “insensitivity” wasn’t something the companies did, although they likely requested the bonuses. It was the FHFA, a governmental agency, which approved the bonuses. It is business as usual among the bureaucrats who are obviously “insensitive” to the situation and continue to lavish taxpayers money where ever they decide it is deserved. If you want a clue as to why the federal government’s spending remains out of control, this is a good example.
Bureaucracies are forever it seems and they become the unaccountable drivers of government action. It is there which, if any meaningful reform is ever to be undertaken with shrinking the size and cost of government is to be done, where reformers must start.
Today’s economic statistical releases:
Like the PPI yesterday, the CPI softened last month, down -0.1%, and up 3.6% year over year. The core rate rose 0.1% last month and 2.1% last year.
The Mortgage Banker’s Association reports that mortgage application dropped sharply in the latest week, down -12.2%.
Industrial production was up sharply, rising 0.7% last month, while capacity utilization rate rose to 77.8% in the nation’s factories.
The Housing Market Index rose to 20, the 3rd consecutive 3-point jump, and the highest reading in 18 months.