Archive for the ‘Economics’ Category
By Alan Caruba
In 1939, ten years after the crash on Wall Street, the Secretary of the Treasury, Henry Morgenthau, Jr., told the House Ways and Means Committee:
“We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong…somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises…I say after eight years of this administration we have just as much unemployment as when we started…And an enormous debt to boot!”
Does history repeat itself? Yes, it does. And there is every appearance that the White House and the Congress intends to repeat many of the errors of the last Depression that came to be known as Franklin Delano Roosevelt’s New Deal.
With exquisite timing, after ten years of research, professor of history, Burton Folsom, Jr. has published “New Deal or Raw Deal? How FDR’s Economic Legacy has Damaged America” ($27.00, Threshold Editions).
To get an idea of just how bad the U.S. economy was during the 1930’s, Folsom notes that, even though the U.S. had budget surpluses in 1930 and 1931, government spending “ballooned and far outstripped revenue from taxes.” It was the Wall Street Crash of 1929 that precipitated the Depression, but it was FDR’s
Initially voted into office in 1933, from 1937 to 1939 “the value of all stocks dropped almost in half…Car sales plummeted one-third in those same years, and were lower in 1939 than in any of the last seven years of the 1920s. Business failures jumped 50 percent from 1937 to 1939; patent applications for inventions were lower in 1939 than for any years of the 1920s. Real estate foreclosures, which did decrease steadily in the 1930s, were still higher in 1939 than in any years during the next two decades.”
FDR was an enormously popular President in his day. His photo could be found everywhere in people’s homes and apartment, in barbershops, in businesses, and just about anywhere people gathered, but he not only did not solve the nation’s economic problems, he made them worse with the help of a Congress. By 1936 Congress was totally dominated by the Democrat Party in ways that exceeded any previous party for 150 years.
By Thomas E. Brewton
The OECD Secretary-general seems not to understand the first and foremost responsibility of banks.
The Wall Street Journal carries the following brief interview note:
Angel Gurria, secretary-general of the Organisation for Economic Co-operation and Development, says the economic crisis will hit bottom in the last quarter of 2009, with a meager recovery starting in early 2010.
“2009 will be a very bumpy and bad year,” Mr. Gurria said. “2010 will be weak, but positive and in the black.”
Asked what sectors of the economy will drive the recovery, Mr. Gurria said: “Frankly the guys in the banks have to start doing their jobs again and start lending.”
A major contributor to the collapse of the financial community is the widely held attitude expressed by the Secretary-general that a bank's job is to lend money. Arguably, it was precisely the urge to lend at the highest possible rates of return that led banks and other financial institutions to acquire too many high risk assets.
Secretary-general Gurria is not alone in demanding that banks lend money now and in ways that government directs, regardless of risk. Influential members of Congress, including Congressman Charles Rangel and Senator Charles Schumer, have said the same things in recent weeks. In earlier years, Congressman Rangel was an instigator of the Community Reinvestment Act requiring banks to make a certain percentage of their loans to uncreditworthy borrowers in high-risk neighborhoods. Those borrowers figure prominently among loan defaults now plaguing the banks.
Perhaps it's unfair to attribute that frame of mind to liberal-progressivism, but it most assuredly is not a conservative attitude. Conservatism, in its Burkean, best sense, means respect for history and for tradition, without which society and enterprise easily become disoriented and distressed.
By Thomas E. Brewton
A brief historical overview of changing banking practices abetted by the Fed's inflationary expansion of the currency.
The main effect of the Fed's current moves is to bail out the financial institutions. That's what opponents of creating the Fed feared in 1913.
The Fed's acting as lender of last resort to tide banks over periodic panics was, in 1913, vastly different from today. Banks then were more prudent, confining their lending to short-term self-liquidating advances, usually with maturities no longer than 90 days. Moreover, borrowers were expected to clean up their credit lines, that is, to pay loan balances down to zero at least once a year to demonstrate the strength of their balance sheets.
In the late teens and early 1920s, the only collateral eligible for rediscount at the Fed was bankers acceptances (export-import financing with maturities again of maximum 6 months) and commercial notes representing domestic shipments of goods to creditworthy companies. Not even Treasury Bills were eligible for rediscount in the Fed's early days. The effect was to confine commercial banks to financing agriculture and commerce. This tended to limit bank credit expansion to the underlying real growth of business.
Today, as the newspapers tell us in profusion, lenders are heavily involved in originating obligations with maturities up to 25 years.
When inflation began to take off around 1969, banks began to talk about "liability management." Old line relationship bankers had been schooled to know each corporate client intimately and to stick with that client through the ups and downs of the economy. After 1969 the game shifted to finding new sources of bank funds to carry new types of lending. Banks became something analogous to traffic directors for funds coursing around the world via 24/7 satellite networks.
Two major developments triggered this transition.
By Thomas E. Brewton
As prolongation of the 1930s Depression and stagflation in the 1970s demonstrated, Senator Obama’s announced policies are a prescription for economic disaster.
Keynesian economic doctrine, not under that name, but in substance, is back in the news in a truly menacing way. Senator Obama proposes to repeat the policies of Franklin Roosevelt’s New Deal that turned an ordinary two-year recession into an eight-year disaster, with unemployment rates continuously in the high teens.
The key elements of Senator Obama’s proposed economic policies, as in the New Deal and the stagflation of the 1970s, are much higher taxes, along with a pervasive increase of business regulations and price controls in healthcare and energy (which sharply depress business activity and employment rates), full-frontal embrace of labor unions (which will push up wages and benefits to levels deterring profitable expansion of industrial production), and massive new government deficit spending (which will accelerate the already dangerously high rate of inflation and devaluation of the dollar). Carried out as he proposes, Senator Obama’s polices will lead us again into the swamp of stagflation.
The basic thrust of Keynesianism is the belief that control of the economy must be collectivized at the Federal level, because private business is incapable of providing full employment, and because the proper goal of economic policy must be thwarting greedy businessmen to attain so-called social justice: equal distribution of income and wealth, without regard to merit, capability, or hard work.
Not surprisingly the New York Times editorial board and the Times’s propagandist Paul Krugman are prominent Keynesian enthusiasts.
By Thomas E. Brewton
Why does much of New Orleans still look as if the 2005 devastation of Hurricane Katrina had occurred just a few weeks ago?
Huge areas of New Orleans still are wastelands. New Orleans's liberal-progressive-socialist Senator Mary Landrieu has grabbed far more than her share of Congressional pork. Hundreds of millions of Federal dollars spent for rehabilitation have produced far too little beneficial result. People were without electric power for months; the police department contained more thieves than honest law enforcers; drug-dealing and prostitution remain major enterprises; and the city still retains its crown as the nation's murder capital.
One of the city's few "legitimate" businesses is casino gambling.
City and state administrations have yet to coordinate rebuilding plans, as politicians fight over who gets what share of the spoils.
The best that the city's Mayor Nagin can do is to demand that the Democratic-socialist Party presidential candidates pledge to send even more pork to New Orleans.
What accounts for this dismal record?
The answer is simple. New Orleans abandoned God and personal moral responsibility, turning instead to worshipping the atheistic, secular political state. That secular god has failed miserably, notoriously so in the aftermath of Katrina.
By Thomas E. Brewton
Today's clamor for more regulation of financial institutions to prevent another subprime mortgage meltdown is an exercise in self- deception.
Congress, led by Representative Barney Frank, is planning to overhaul regulation of the financial community, and Treasury Secretary Paulson has already proposed a broad program for that purpose.
No doubt, much of what is proposed is needed. But it should be obvious from repeated experience over the decades that regulations alone will not prevent periodic economic booms and busts.
Only by dealing with the root cause will we moderate economic cycles. And that root cause is the ineluctable human tendency to over-expand bank credit when the money supply is artificially enlarged.
Today's proposed subprime mortgage regulations may prevent tomorrow's repetition of that phenomenon, but they will have no restraining impact upon whatever the next speculative bubble may be. Sarbanes- Oxley regulation was instituted after the dot.com bubble-burst and the corporate collapse of Enron, but it had no restraining effect upon the speculative housing bubble, of which subprime lending is merely a symptom, not a cause. Before that, we had the speculative explosion of commercial real estate over-building that ended with the collapse of the savings and loan institutions in the 1980s.
Beginning with our nation's first financial panic in 1819, similar boom-and-bust patterns appear every five to ten years, except in extraordinary circumstances such as wartime.
In one respect, Karl Marx's economic analysis was on the mark.
From 1789 to 1815 Congressmen received $6.00 daily, but only on the days they showed up. From 1815 to 1855 Congressmen received a modest salary, compared to the massive salaries of the Congressmen today. In 1855 their salaries increased to $3,000 annually. Then in 1865 they gave themselves a 66% increase to $5,000 annually. 6 years later they boosted their salaries another 50% to $7,500 per year. The American People became so outraged by the greed that congressmen were showing, that congress was forced to take a 33% paycut, which lasted 34 years until 1907, at which time they gave themselves another 50% increase back to $7,500 annually. They took two other paycuts, both of which were during the Great Depression, for a total of 15%. These are the only 3 times in American History that any Congressmen have ever taken salary cuts.
In 1935, Congress voted themselves a 19% increase, then they didn't receive another pay raise until 12 years later, when they gave themselves a 25% increase in 1947. In 1955 Congress gave themselves a whopping 80% increase. In the years 1987, and 1991 Congress received 2 raises per year. 3% + 20% in 1987, and 4% and 25% in 1991. Within the last 10 years Congress has raised their salaries 8 times for a total of 26%. While the lowest paid American Workers have only received 1 raise within the last 10 years.
In the last 25 years Congress has seen 18 salary increases totaling 277%. While the lowest paid American Workers have only seen 5 wage increases in 25 years totaling a mere 166%. In the last 25 years the cost of living has increased 251%. The Minimum Wage has not been increased since 1997. While Congressmen's pay has increased 8 out of the last 10 years. To see what Minimum Wage would be, if Congress had given American Workers the same amount of increases they took, click here.
The High Cost of Climate Lies
By Alan Caruba
An energy-rationing bill has been introduced to address “global warming.” The “Climate Security Act” would impose caps on how much carbon dioxide (CO2) emissions can be allowed and would institute an elaborate program to “trade” allowances among the industries and business affected.
Americans better hope that some members of Congress will ask if there truly is a threat of global warming and why a similar program in Europe has proven to be a resounding failure.
If you really wanted to undermine the nation’s economy, you could not devise a better way. It is the Kyoto Climate Change Protocol on steroids.
Little noted during all the headlines concerning Al Gore’s Nobel Peace Prize was the fact that it was shared with the United Nations Intergovernmental Panel on Climate Change. Among skeptical scientists I know, the emails were flying. Several had served as part of the vast array of scientists whose opinions on the various IPCC draft reports were requested and then ignored.
A lot of these expert reviewers are among the 2,000 scientists that the IPCC and Al Gore are always citing as being part of the “consensus” on global warming. The problem for both is that many really, really, really disagree that any planet-threatening global warming is occurring.
One of them is Dr. Vincent Gray, a New Zealand-based climate scientist who has been a part of the reviewing process since the IPCC came into being. He is one of those scientists who will not and cannot be shut up despite the din of the IPCC propaganda.
Briefly, Dr. Gray has a Ph.D. in Physical Chemistry from Cambridge University, England, and his long career has included stints in France, Canada, China, and New Zealand. He has published more than a hundred scientific papers on energy and materials, plus a dozen in climate science.
By Alan Caruba
Having written about the energy industry and issues now for a long time, I hope I can be forgiven for being enraged by the comments by Sen. Charles Schumer (D-NY) in response to President Bush’s press conference Tuesday morning. There is simply no way to describe them other than false.
The Democrat Party has long made “Big Oil” their favorite punching bag, confident that the public has no idea what influences the price and supply of oil. Saying anything favorable to Big Oil is immediately deemed evidence that one is in their pay and whatever facts are offered are therefore invalid.
There are, however, some simple truths about Big Oil that cannot and should not be ignored. To do so leaves everyone at the mercy of energy policies that have created the situation in which the United States finds itself today.
Fact #1. The combined ownership of oil reserves by the independent, investor-owned oil companies such as ExxonMobil, Conoco-Phillips, BP, Chevron and others is barely 4% of the total known oil reserves in the world. By itself, ExxonMobil’s share is 1.08%.
Fact #2. Oil is a global commodity sold on mercantile exchanges for whatever price it can command. Speculation in oil prices is the primary reason they have been driven to utterly insane costs per barrel. It has nothing to do with actual supply and demand.
Fact #3. No nation on Earth is or can be “energy independent.” The geopolitics of oil is complex, but as nations such as China and India have seen their economies grow, their need for oil grows with it and thus they compete with long established industrialized nations for existing oil supplies. This competition has an impact on prices.
Fact #4. The OPEC nations, those in the Middle East and including Venezuela, control 77% of the world’s known oil reserves. Like Russia and Mexico, where the oil industry is controlled by the state, it is generally poorly managed. Several Big Oil companies that were induced to undertake exploration and development in Russia and Venezuela actually had their assets nationalized or stolen at prices well below their investment and value.
Fact #5. Energy is the master resource. All nations with any hope of growing their economies require it, mostly in the form of electricity, but also for oil’s role in transportation. The failure to have a national long-range energy policy that is based in reality can severely impact energy prices.
By Alan Caruba
When the government of the Soviet Union collapsed in 1991, the fall was attributed to all kinds of reasons. There was the failed invasion of Afghanistan, the symbolic fall of the Berlin Wall in 1989, and, after some desperate efforts by Mikhail Gorbechev, Communism as a guiding principle and economic system simply imploded. That’s the thumbnail version that passes for history, but Michael J. Economides and Donna Marie D’Aleo have another answer and it’s one you may not want to hear.
“In the second half of the 1980s the Soviet leadership came face to face with the problems that arose as a result of the dramatic drop in oil prices, and the necessity of increasing the volume of capital investments in western Siberia’s oil industry. They failed to provide adequate solutions to these problems. The consequences were a rapid decrease in oil production, a collapse of the consumer market, a growing deficit of the most basic consumer goods, and the bankruptcy of the Soviet Union.”
“From Soviet to Putin and Back: The Dominance of Energy in Today’s Russia” by the two authors cited above is not likely to leap on the bestseller lists, but for anyone who takes a serious interest in America’s future and in current world affairs, it is the book to read, not only for its excellent history of the rise and fall of the Soviet Union, and what replaced it, but for its unique insights regarding the role of energy.
Economides is Editor-in-Chief of Energy Tribune, a magazine for those who understand that (1) energy is the master resource, (2) is the primary force behind the rise of human civilization, and (3) is the grand determinant in geopolitical affairs. From our earliest times when muscle power was the only source to the modern era, energy in its many forms has ruled the affairs of man.